-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N2ccd4O7FaMbjo55+u2IQvG787ZEgB5XbpkuUno/9+5KGPIaTspUtJo5kmPrAZZf mBgvnacdCi8BRP0DH9rQZQ== 0001130319-01-500125.txt : 20010713 0001130319-01-500125.hdr.sgml : 20010713 ACCESSION NUMBER: 0001130319-01-500125 CONFORMED SUBMISSION TYPE: F-4 PUBLIC DOCUMENT COUNT: 18 FILED AS OF DATE: 20010711 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TEEKAY SHIPPING CORP CENTRAL INDEX KEY: 0000911971 STANDARD INDUSTRIAL CLASSIFICATION: DEEP SEA FOREIGN TRANSPORTATION OF FREIGHT [4412] IRS NUMBER: 000000000 STATE OF INCORPORATION: C5 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: F-4 SEC ACT: SEC FILE NUMBER: 333-64928 FILM NUMBER: 1679093 BUSINESS ADDRESS: STREET 1: TK HOUSE, BAYSIDE EXECUTIVE PARK STREET 2: WEST BAY ST & BLAKE RD, PO BOX AP-59213 CITY: NASSAU BAHAMAS STATE: C5 ZIP: 00000 BUSINESS PHONE: 8093228020 MAIL ADDRESS: STREET 1: TK HOUSE, BAYSIDE EXECUTIVE PARK STREET 2: WEST BAY ST & BLAKE RD, PO BOX AP-59213 CITY: NASSAU BAHAMAS STATE: C5 ZIP: 00000 FORMER COMPANY: FORMER CONFORMED NAME: VIKING STAR SHIPPING INC DATE OF NAME CHANGE: 19930914 F-4 1 o05789f-4.txt FORM F-4 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 11, 2001. REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------------------ FORM F-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------------------ TEEKAY SHIPPING CORPORATION (Exact name of registrant as specified in its charter) REPUBLIC OF THE 4412 NOT APPLICABLE MARSHALL ISLANDS (Primary Standard Industrial (I.R.S. Employer Identification (State or other jurisdiction Classification Code Number) Number) of incorporation or organization)
TK HOUSE, BAYSIDE EXECUTIVE PARK, WEST BAY STREET AND BLAKE ROAD P.O. BOX AP-59213, NASSAU, COMMONWEALTH OF THE BAHAMAS (242) 502-8820 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------------------------ LAWCO OF OREGON, INC. 1211 SW FIFTH AVENUE, SUITE 1500 PORTLAND, OR 97204 ATTN: KAREN M. DODGE (503) 727-2000 (Name, address, including zip code, and telephone number, including area code, of agent for service) ------------------------------------ COPIES TO: ROY W. TUCKER PERKINS COIE LLP 1211 S.W. FIFTH AVENUE, SUITE 1500 PORTLAND, OR 97204 (503) 727-2000 ------------------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement becomes effective. If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] ------------------------------------ CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION OF SECURITIES TO BE REGISTERED REGISTERED SECURITY PRICE(1) FEE - --------------------------------------------------------------------------------------------------------------------- 8.875% Notes Due 2011.............. $250,000,000 100% $250,000,000 $62,500 - --------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------
(1) Estimated pursuant to Rule 457(f) solely for the purpose of calculating the registration fee. ------------------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED JULY 11, 2001 PRELIMINARY PROSPECTUS $250,000,000 LOGO TEEKAY SHIPPING CORPORATION OFFER TO EXCHANGE ALL OUTSTANDING 8.875% SENIOR NOTES DUE 2011 FOR 8.875% SENIOR NOTES DUE 2011, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 THE EXCHANGE OFFER - We will exchange all outstanding notes that are validly tendered and not validly withdrawn for an equal principal amount of exchange notes that are freely tradable. - You may withdraw tenders of outstanding notes at any time prior to the expiration of the exchange offer. - The exchange offer expires at 5:00 p.m., New York City time, on , 2001, unless extended. We do not currently intend to extend the expiration date. - The exchange of outstanding notes for exchange notes in the exchange offer will not be a taxable event for U.S. federal income tax purposes. - We will not receive any proceeds from the exchange offer. THE EXCHANGE NOTES - The exchange notes are being offered in order to satisfy certain of our obligations under the exchange and registration rights agreement entered into in connection with the private placement of the outstanding notes. - The terms of the exchange notes to be issued in the exchange offer are substantially identical to the outstanding notes, except that the exchange notes are registered under the Securities Act of 1933 and will be freely tradable. RESALES OF EXCHANGE NOTES - The exchange notes may be sold in the over-the-counter market, in negotiated transactions or through a combination of such methods. We expect to list the exchange notes on the New York Stock Exchange. ------------------------ If you are a broker-dealer and you receive exchange notes for you own account, you must acknowledge that you will deliver a prospectus in connection with any resale of such exchange notes. By making such acknowledgement, you will not be deemed to admit that you are an "underwriter" under the Securities Act of 1933. Broker-dealers may use this prospectus in connection with any resale of exchange notes received in exchange for outstanding notes where such outstanding notes were acquired by the broker-dealer as a result of market-making activities or trading activities. We will make this prospectus available to any broker-dealer for use in any such resale for a period of up to 180 days after the date of this prospectus. A broker-dealer may not participate in the exchange offer with respect to outstanding notes acquired other than as a result of market-making activities or trading activities. If you are an affiliate of Teekay Shipping Corporation or are engaged in, or intend to engage in, or have an agreement or understanding to participate in, a distribution of the exchange notes, you must comply with the registration requirements of the Securities Act of 1933 in connection with any resale transaction. ------------------------ YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 12 OF THIS PROSPECTUS BEFORE PARTICIPATING IN THE EXCHANGE OFFER. ------------------------ Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. 3 WHERE YOU CAN FIND MORE INFORMATION We file annual and special reports and other information with the Securities and Exchange Commission. You can read and copy any materials we file with the SEC at its Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the SEC's regional offices located at Seven World Trade Center, New York, New York 10048, and at 500 West Madison Street, Chicago, Illinois 60661. You can obtain information about the operation of the SEC's Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a Web site that contains information we file electronically with the SEC, which you can access over the internet at http://www.sec.gov. In addition, you can obtain information about us at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. We have agreed that, if we are not subject to the informational requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934 at any time while the notes constitute "restricted securities" within the meaning of the Securities Act of 1933, we will furnish to holders and beneficial owners of the notes and to prospective purchasers designated by such holders the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act to permit compliance with Rule 144A in connection with resales of the notes. We have we filed with the SEC a registration statement on Form F-4 under the Securities Act of 1933. This prospectus, which forms a part of the registration statement, does not contain all of the information in the registration statement. We have omitted parts of the registration statement, as permitted by the rules and regulations of the SEC. You may inspect and copy the registration statement, including exhibits, at the SEC's public reference facilities or its Web site. Our statements in this prospectus about the contents of any contract or other document are not necessarily complete. You should refer to the copy of each contract or other document we have filed as an exhibit to the registration statement for complete information. The SEC allows us to "incorporate by reference" into this prospectus the information that we file with the SEC. This means that we can disclose important information to you by referring you to those documents. The information we incorporate by reference is considered a part of this prospectus, and later information that we file with the SEC may automatically update and supersede this information. We incorporate by reference the documents listed below: - our Annual Report on Form 20-F for the year ended December 31, 2000, filed on April 2, 2001; - our reports on Form 6-K filed on April 16 and May 9 and May 24, 2001, respectively; and - all other documents filed by Teekay pursuant to Section 13(a), 13(c), or 15(d) of the Securities Exchange Act of 1934, after the date of this prospectus and prior to the termination of the exchange offer. You may request a copy of our filings at no cost, by writing or telephoning us at the following address: Teekay Shipping Corporation 505 Burrard Street, Suite 1400 Vancouver, B.C. CANADA V7X 1M5 Attention: Investor Relations Telephone: (604) 844-6654 You should rely only on the information incorporated by reference or provided in this prospectus. We have not authorized anyone else to provide you with different information. You should not assume that the information in this prospectus is accurate after the date on the front of the document. Information contained on our Web site will not be deemed to be a part of this prospectus. The indenture pursuant to which the notes offered by this prospectus will be issued contains a covenant that requires us to provide to each holder of record of the notes, upon request, and to the trustee under the indenture, annual reports containing audited financial statements and a related report expressed by independent chartered accountants, and quarterly reports for the first three quarters of each fiscal year containing unaudited financial information. i 4 SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding, among other items: - our future earnings and other operating results; - tanker supply and demand; - our market share in the Indo-Pacific Basin and Atlantic region Aframax tanker markets and in the world shuttle tanker market; - expectations as to funding our future capital requirements; - future capital expenditures; - our growth strategy and measures to implement our growth strategy; - our potential ability to effectively integrate the operations of Ugland Nordic Shipping ASA with our own and to successfully enter the shuttle tanker market; - competition; - prospects and trends of the tanker industry, including TCE rates; and - other discussions of future plans and strategies, anticipated developments and other matters that involve predictions of future events. Other statements contained in this prospectus are forward-looking statements and are not based on historical fact, such as statements containing the words "believes," "may," "will," "estimates," "continue," "anticipates," "intends," "expects" and words of similar import. These forward-looking statements are subject to risks, uncertainties and assumptions, including those discussed in "Risk Factors," "Management's Discussion and Analysis of Results of Operations and Financial Condition," "Business" and elsewhere in this prospectus and in reports we file with the SEC. The risks, uncertainties and assumptions involve known and unknown risks and are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those projected in forward-looking statements. Although we believe that our estimates are reasonable, you should not unduly rely on these estimates, which are based on our current expectations. Factors that could cause actual results to differ materially include: - the cyclical nature of the tanker industry and its dependence on oil markets; - the supply of tankers available to meet the demand for transportation of petroleum products; - our inability to successfully integrate the operations of Ugland Nordic Shipping ASA with our own; - our dependence on spot oil voyages; - environmental and other regulation; - our potential inability to achieve and manage growth; and - the other factors described in "Risk Factors." We undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for us to predict all of these factors. Further, we cannot assess the impact of each such factor on our business or the extent to which any factor, or combination of factors, may cause actual results to be materially different from those contained in any forward-looking statement. Neither we, nor any initial purchaser of the ii 5 outstanding notes, make any representation, warranty or assurance as to the completeness or accuracy of these projections, and neither express an opinion or any other form of assurance regarding them. SERVICE OF PROCESS AND ENFORCEMENT OF LIABILITIES We and most of our subsidiaries are incorporated in the Republic of the Marshall Islands, and other of our subsidiaries are incorporated in Bermuda, the Bahamas, Canada, Japan, Singapore, Australia, United Kingdom, Norway, India, the Philippines, Liberia and the United States. Most of our directors and executive officers and those of our subsidiaries are residents of countries other than the United States. Substantially all of our and our subsidiaries' assets and a substantial portion of the assets of the directors and officers are located outside the United States. As a result, it may be difficult or impossible for United States investors to effect service of process within the United States upon us, our subsidiaries or the directors and officers or to realize against them judgments obtained in United States courts. In addition, you should not assume that courts in countries in which we or our subsidiaries are incorporated or where our or the assets of our subsidiaries are located (a) would enforce judgments of U.S. courts obtained in actions against us or our subsidiaries based upon civil liabilities provisions of applicable U.S. federal and state securities laws or (b) would enforce, in original actions, liabilities against us or our subsidiaries based upon these laws. Certain shipping industry terms used in this prospectus are defined in Exhibit A to this prospectus, "Definitions of Shipping Terms." Unless otherwise specifically noted or the context otherwise requires, the term "tankers" refers to tankers, shuttle tankers and oil/bulk/ore carriers. Except as otherwise indicated herein, when we describe our fleet, tankers or vessels, we include newbuildings, time-chartered-in vessels and tankers that we have an interest in through joint ventures. Our description also includes one Aframax tanker and two other tankers, each owned through a joint venture in which we hold a 50% interest, that we have contracted to sell between July and August of 2001. Unless our description specifically notes that it is at March 31, 2001 or before, we also include four tankers purchased by our UNS subsidiary in April 2001 and one newbuilding delivered in May 2001. Unless otherwise specifically noted or the context otherwise requires, when we describe our Aframax fleet we refer to all of our Aframax-size tankers, including two Aframax-size oil/bulk/ore carriers trading exclusively as crude oil carriers, but exclude our other oil/bulk/ore carriers. Industry data in this prospectus relating to Aframax tankers or vessels includes all Aframax-size tankers, including Aframax-size oil/bulk/ore carriers. See "Business -- Our Fleet." All dollar references in this prospectus are to U.S. Dollars, unless otherwise specifically indicated. Certain statistical and graphical information contained in this prospectus is derived from data published by the International Energy Agency, Clarkson Research Studies Inc. and other sources available prior to the date of this prospectus. While we have no reason to believe that such information is inaccurate in any material respect, we cannot warrant its accuracy. In addition, you are advised that some information in such databases is based on estimates or subjective judgments. The Teekay logo and the name Teekay Shipping Corporation are among our trademarks. All other trademarks and trade names referred to in this prospectus are the property of their respective owners. iii 6 PROSPECTUS SUMMARY The following summary supplements, and should be read in conjunction with, the more detailed information contained elsewhere in this prospectus. You should read carefully the entire document to understand our business, the nature of the notes and the tax and other considerations that are important to your decision to invest in the notes. You should pay special attention to the "Risk Factors" section. THE COMPANY OVERVIEW Teekay is a leading provider of international crude oil and petroleum product transportation services through the world's largest fleet of medium-size oil tankers. Our modern fleet of 95 tankers (including three newbuildings, seven vessels time-chartered-in and six vessels owned by joint ventures) provides transportation services to major oil companies, major oil traders and government agencies worldwide. We believe our Aframax fleet is approximately three times larger than that of our nearest direct Aframax competitor. Through our recent acquisition of Ugland Nordic Shipping ASA ("UNS"), we are also the largest owner of shuttle tankers, which engage in the transportation of oil from offshore production platforms to onshore storage and refinery facilities. COMPETITIVE STRENGTHS We pursue an intensively customer- and operations-focused business strategy designed to achieve superior operating results. We base our business strategy on the following five key competitive strengths: - MARKET CONCENTRATION. In each market that we address within the shipping industry, we seek to achieve significant scale and scope. This market concentration has enabled us to provide comprehensive coverage of charterers' requirements while also providing a base for efficient operation and a high degree of capacity utilization. We estimate that our market share is approximately 25% in the Indo-Pacific Basin Aframax market and approximately 10% in the Atlantic region Aframax market, based on tankers trading in those regions that are 20 years old or younger. Through our recent acquisition of UNS' shuttle tanker operations, we estimate that our market share is approximately 25% in the world shuttle tanker market. Our significant presence in these markets strategically positions us to deliver superior service to the oil industry on a global basis. - OPERATIONAL CONTROL AND EXPERIENCED MANAGEMENT. Teekay services substantially all of its operational and management needs in-house. We have experienced management in all functions critical to our operations, which provides us with a focused marketing effort, tight quality and cost controls and effective safety monitoring. - MODERN, HIGH-QUALITY TONNAGE. Our modern, high-quality tanker fleet operates with higher fuel efficiency and lower maintenance and operating costs compared to the world tanker fleet. We now control a fleet of 84 tankers (excluding three newbuildings and eight oil/bulk/ore carriers) with an average age of approximately 9 years. The average age for the world tanker fleet is approximately 13 years. In an environment of increasingly stringent operating and safety standards, we believe that the age profile and quality of our fleet result in a high level of demand for our tankers by charterers. - LARGE FLEET OF UNIFORM, MEDIUM-SIZE VESSELS. Our large fleet of medium-size tankers, many of which are substantially identical vessels, allows us to substitute vessels to meet customer demands. This increases our scheduling flexibility and allows us to enhance the capacity utilization of our fleet. We believe that the scale of our operations and the resulting 1 7 purchasing power, combined with the uniformity of our medium-size vessels, results in lower operating expenses than those experienced by smaller operators. - STRONG NETWORK OF CUSTOMER RELATIONSHIPS. We pursue an intensively customer-oriented focus that, when combined with other competitive strengths, has enabled us to establish a strong network of customer relationships and a reputation for transportation excellence among quality-sensitive customers such as Exxon Mobil, BP, Chevron and Shell. BUSINESS STRATEGY Our business strategy is to leverage our existing competitive strengths to continue to expand our business and increase shareholder value. - MAINTAIN AND EXPAND AFRAMAX FRANCHISE. The expansion and upgrading of our Aframax fleet will continue to be a key component of our strategy. As the world's largest Aframax tanker operator, we believe we will be able to provide the most comprehensive service to our customers and generate superior operating results. For example, our size and scope of services has enabled us to enter into contracts of affreightment to provide large oil-company customers with ongoing services that will grant us preferential rights on certain routes. We expect that this will result in significant fleet utilization benefits and high market share on strategically important routes. - LEVERAGE THE FRANCHISE TO PROVIDE VALUE-ADDED SERVICES. Our full-service marine operations capabilities, reputation for safety and quality and strong customer orientation provide us with the opportunity to expand our business by providing additional value-added and innovative services to new and existing customers. Such services include providing customers with floating storage and off-take vessels, outsourcing arrangements where we service a customer's complete oil transportation requirements and, with our recent acquisition of UNS, providing shuttle tanker services for customers engaged in offshore oil production. By providing our customers with these value-added services, we believe that we will strengthen our franchise and further improve our financial performance. - SELECTIVELY EXPAND INTO RELATED MARKETS AND SERVICES. We intend to continue to identify expansion opportunities in new tanker market sectors, geographic areas and services to which our competitive strengths are well suited and that will enhance shareholder value. We may pursue such opportunities through internal growth, joint ventures or business acquisitions, such as our recent acquisition of UNS, through which we expanded into the shuttle tanker market. ACQUISITION OF UGLAND NORDIC SHIPPING ASA We recently purchased Ugland Nordic Shipping ASA, the world's largest shuttle tanker owner. UNS' modern fleet of 18 vessels engages in the transportation of oil from offshore production platforms to onshore storage and refinery facilities. The UNS fleet has an average age of 8.5 years (excluding three newbuildings) and operates primarily in the North Sea under long-term fixed-rate contracts. The total purchase price for the outstanding shares of UNS was approximately $223.3 million (including estimated transaction expenses of $7.0 million). The operating results of UNS have been reflected in our financial statements commencing March 6, 2001, the effective date that we acquired a majority interest in UNS. UNS' large scale and high quality shuttle tanker operations provided us with a strategic opportunity to enter this attractive market as a market leader. The acquisition also allows us to expand the portfolio of value-added services we offer to our customers. We believe that as offshore oil fields become more important to the global oil supply, the need for shuttle tanker services will increase. By combining our global franchise and UNS' expertise in the shuttle tanker market, we believe that the shuttle tanker business represents an area of significant growth for Teekay. The acquisition of UNS will also provide added stability to our cash flow throughout the business cycle, due to the long-term fixed-price nature of shuttle tanker contracts. 2 8 SUMMARY OF THE EXCHANGE OFFER On June 22, 2001, we completed a private offering of our 8.875% Senior Notes due 2011. We received proceeds of approximately $244.5 million from the sale of the outstanding notes. In connection with the offering of outstanding notes, we entered into an exchange and registration rights agreement with the initial purchasers of the outstanding notes in which we agreed to deliver this prospectus and to use our best efforts to complete the exchange offer for the outstanding notes by February 17, 2002. In the exchange offer, you are entitled to exchange your outstanding notes for exchange notes, with substantially identical terms, that are registered under the Securities Act of 1933. You should read the discussion under the heading "The Exchange Offer" beginning on page 67 and "Description of the Notes" beginning on page 77 for further information about the exchange notes. After the exchange offer is completed, you will no longer be entitled to any exchange or, with limited exceptions, registration rights for your outstanding notes. The Exchange Offer............ We are offering to exchange up to $250 million principal amount of the exchange notes for up to $250 million principal amount of the outstanding notes. Outstanding notes may only be exchanged in $1,000 increments. The terms of the exchange notes are identical in all material respects to those of the outstanding notes except the exchange notes will not be subject to transfer restrictions and holders of exchange notes, with limited exceptions, will have no registration rights. Also, the exchange notes will not contain provisions for an increase in their stated interest rate related to any registration or exchange delay. Outstanding notes that are not tendered for exchange will continue to be subject to transfer restrictions and, with limited exceptions, will not have registration rights. Therefore, the market for secondary resales of outstanding notes that are not tendered for exchange is likely to be minimal. We will issue registered exchange notes on or promptly after the expiration of the exchange offer. Expiration Date............... The exchange offer will expire at 5:00 p.m. New York City time, on , 2001, unless we decide to extend the expiration date. Please read "The Exchange Offer -- Extensions, Delay in Acceptance, Termination or Amendment" beginning on page 68 for more information about an extension of the expiration date. Withdrawal of Tenders......... You may withdraw your tender of outstanding notes at any time prior to the expiration date. We will return to you, without charge, promptly after the expiration or termination of the exchange offer any outstanding notes that you tendered but that were not accepted for exchange. Conditions to the Exchange Offer......................... We will not be required to accept outstanding notes for exchange: - if the exchange offer would be unlawful or would violate any interpretation of the staff of the SEC, or - if any legal action has been instituted or threatened that would impair our ability to proceed with the exchange offer. 3 9 The exchange offer is not conditioned upon any minimum aggregate principal amount of outstanding notes being tendered. Please read "The Exchange Offer -- Conditions to the Exchange Offer" on page 69 for more information about the conditions to the exchange offer. Procedures for Tendering Outstanding Notes........... If your outstanding notes are held through The Depositary Trust Company, or "DTC," and you wish to participate in the exchange offer, you may do so through DTC's automated tender offer program. If you tender under this program, you will agree to be bound by the letter of transmittal that we are providing with this prospectus as though you had signed the letter of transmittal. By signing or agreeing to be bound by the letter of transmittal, you will represent to us that, among other things: - any exchange notes that you receive will be acquired in the ordinary course of your business, - you have no arrangement or understanding with any person to participate in the distribution of the outstanding notes or the exchange notes, - you are not our "affiliate," as defined in Rule 405 of the Securities Act of 1933, or, if you are our affiliate, you will comply with any applicable registration and prospectus delivery requirements of the Securities Act, - if you are not a broker-dealer, you are not engaged in and do not intend to engage in the distribution of the exchange notes, and - if you are a broker-dealer that will receive exchange notes for your own account in exchange for outstanding notes that you acquired as a result of market-making activities or other trading activities, you will deliver a prospectus in connection with any resale of such exchange notes. Special Procedures for Beneficial Owners............. If you own a beneficial interest in outstanding notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender the outstanding notes in the exchange offer, please contact the registered holder as soon as possible and instruct the registered holder to tender on your behalf and to comply with our instructions described in this prospectus. Guaranteed Delivery Procedures.................... You must tender your outstanding notes according to the guaranteed delivery procedures described in "The Exchange Offer -- Guaranteed Delivery Procedures" beginning on page 73 if any of the following apply: - you wish to tender your outstanding notes but they are not immediately available, 4 10 - you cannot deliver your outstanding notes, the letter of transmittal or any other required documents to the exchange agent prior to the expiration date, or - you cannot comply with the applicable procedures under DTC's automated tender offer program prior to the expiration date. Resales....................... Except as indicated herein, we believe that the exchange notes may be offered for resale, resold and otherwise transferred without compliance with the registration and prospectus delivery provisions of the Securities Act of 1933, provided that: - you are acquiring the exchange notes in the ordinary course of your business; - you are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate, in the distribution of the exchange notes; and - you are not an affiliate of Teekay. Our belief is based on existing interpretations of the Securities Act by the SEC staff set forth in several no-action letters to third parties. We do not intend to seek our own no-action letter, and there is no assurance that the SEC staff would make a similar determination with respect to the exchange notes. If this interpretation in inapplicable, and you transfer any exchange note without delivering a prospectus meeting the requirements of the Securities Act or without an exemption from such requirements, you may incur liability under the Securities Act. We do not assume or indemnify holders of notes against such liability. Each broker-dealer that is issued exchange notes for its own account in exchange for outstanding notes that were acquired by such broker-dealer as a result of market-making or other trading activities must acknowledge that it will deliver a prospectus meeting the requirements of the Securities Act in connection with any resale of the exchange notes. A broker-dealer may use this prospectus for an offer to resell, resale or other transfer of the exchange notes. Please read "Plan of Distribution" on page 101. U.S. Federal Income Tax Considerations.............. The exchange of outstanding notes for exchange notes will not be a taxable exchange for United States federal income tax purposes. You will not recognize any taxable gain or loss or any interest income as a result of such exchange. Please read "Tax Considerations -- United States Federal Income Tax Consequences" beginning on page 97. Use of Proceeds............... We will not receive any proceeds from the issuance of the exchange notes pursuant to the exchange offer. We will pay all our expenses incident to the exchange offer. 5 11 Registration Rights........... If we fail to complete the exchange offer as required by the exchange and registration rights agreement, we may be obligated to pay additional interest to holders of outstanding notes. Please read "Registration Rights" beginning on page 94 for more information regarding your rights as a holder of outstanding notes. THE EXCHANGE AGENT We have appointed United States Trust Company of New York as exchange agent for the exchange offer. Please direct questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for the notice of guaranteed delivery to the exchange agent. If you are not tendering under DTC's automated tender offer program, you should send the letter of transmittal and any other required documents to the exchange agent as follows: ------------------------------------ BY HAND DELIVERY TO 4:30 P.M. United States Trust Company of New York 30 Broad Street, B-Level New York, NY 10004-2304 BY OVERNIGHT COURIER AND BY HAND DELIVERY AFTER 4:30 P.M. ON EXPIRATION DATE United States Trust Company of New York 30 Broad Street, 14th Floor New York, NY 10004-2304 BY REGISTERED OR CERTIFIED MAIL United States Trust Company of New York P.O. Box 84 Bowling Green Station New York, NY 10274-0084 BY FACSIMILE TRANSMISSION (ELIGIBLE INSTITUTIONS ONLY): United States Trust Company of New York 30 Broad Street, B-Level New York, NY 10004-2304 FAX: (646) 458-8111 CONFIRM BY TELEPHONE: (800) 548-6565 6 12 THE EXCHANGE NOTES The summary below describes the principal terms of the notes. Certain of the terms and conditions described below are subject to important limitations and exceptions. The "Description of the Notes" section of this prospectus contains a more detailed description of the terms and conditions of the notes. Issuer........................ Teekay Shipping Corporation Notes Offered................. $250 million principal amount of 8.875% senior notes due July 15, 2011. Maturity...................... July 15, 2011. Interest Payment Dates........ January 15 and July 15 of each year, commencing January 15, 2002. Ranking....................... The notes will rank equally in right of payment with all of our existing and future senior unsecured debt and senior to our existing and future subordinated debt. The notes will effectively rank behind all of our existing and future secured debt, to the extent of the value of the assets securing such debt. We are a holding company and the notes will not be guaranteed by any of our subsidiaries. The notes will effectively rank behind all existing and future debt and other liabilities of our subsidiaries. As of June 30, 2001 and giving effect to the proposed application of the net proceeds of the offering of the outstanding notes to prepay certain of our outstanding secured debt, we would have had approximately $1,053 million of debt on a consolidated basis, of which $803 million was secured debt that represented the obligations of, or was guaranteed by, certain of our subsidiaries. In addition, as of June 30, 2001, our subsidiaries had guaranteed $115 million of debt of joint ventures. Additional Amounts............ All payments with respect to the notes will be made without withholding or deduction for taxes imposed by the Republic of the Marshall Islands or any jurisdiction from or through which payment on the notes is made unless required by law or the interpretation or administration thereof, in which case, subject to certain exceptions, we will pay such additional amounts as may be necessary so that the net amount received by the holders after such withholding or deduction will not be less than the amount that would have been received in the absence of such withholding or deduction. See "Description of the Notes -- Additional Amounts." Optional Redemption........... We may redeem all or a portion of the notes at any time before their maturity date at a redemption price equal to the greater of (a) 100% of the principal amount of the notes to be redeemed and (b) the sum of the present value of the remaining scheduled payments of principal and interest discounted to the redemption date at the treasury yield plus 50 basis points. See "Description of the Notes -- Optional Redemption." 7 13 Tax Redemption................ If we become obligated to pay additional amounts under the notes as a result of changes affecting certain withholding taxes, we may redeem all, but not less than all, of the notes at 100% of their principal amount plus accrued interest to the date of redemption. See "Description of the Notes -- Redemption for Changes in Withholding Taxes." Change of Control Offer....... Upon a Change of Control Triggering Event, which requires both a Change of Control and a Rating Decline (all as defined herein), we will be obligated to make an offer to purchase all outstanding notes at a redemption price of 101% of the principal amount thereof plus accrued and unpaid interest to the date of purchase. See "Description of the Notes -- Repurchase of Notes Upon a Change of Control Triggering Event." Certain Indenture Provisions.................... The indenture governing the notes will contain covenants limiting our ability to: - create liens; and - merge, consolidate or sell substantially all of our assets. These covenants are subject to a number of important limitations and exceptions which are described under the heading "Description of the Notes." Registration Rights........... If we fail to complete the exchange offer as required by the exchange and registration rights agreement, we may be obligated to pay additional interest to holders of old notes. Please read "Registration Rights" beginning on page 94 for more information regarding your rights as a holder of outstanding notes. Use of Proceeds............... We will not receive any proceeds from the issuance of the exchange notes pursuant to the exchange offer. We will pay all our expenses incident to the exchange offer. See "Use of Proceeds." Absence of Public Market for the Notes..................... The exchange notes will be new securities for which there is no market. Although we intend to cause the exchange notes to be authorized for listing on the New York Stock Exchange, there can be no assurance that an active trading market for the notes will develop, or, if it develops, will continue to exist. Although the initial purchasers of the outstanding notes have informed us that they currently intend to make a market in the exchange notes, they are not obligated to do so, and any such market making may be discontinued at any time without notice. Accordingly, there can be no assurance as to the development or liquidity of any market for the exchange notes. RISK FACTORS You should carefully consider all of the information in this prospectus. In particular, you should read the specific risk factors under "Risk Factors" for a discussion of certain risks involved with an investment in the notes. 8 14 SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA We derived the following summary consolidated financial and other data from more detailed information and financial statements appearing elsewhere in this prospectus. You should read the following information in conjunction with "Selected Consolidated Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements, unaudited pro forma consolidated condensed financial statements and the related notes which are included elsewhere in this prospectus. We changed our fiscal year end from March 31 to December 31, commencing December 31, 1999, in order to facilitate comparison of our operating results to those of other companies in the transportation industry.
FISCAL YEARS ENDED THREE MONTHS ENDED MARCH 31, ------------------------ --------------------------------------- PRO FORMA PRO FORMA DEC. 31, DEC. 31, 2001(1) 2001 2000 2000(1) 2000 --------- ---- ---- --------- -------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (IN THOUSANDS, EXCEPT RATIOS AND PER DAY DATA) INCOME STATEMENT DATA: Voyage revenues..................... $ 325,074 $ 307,886 $ 182,262 $ 962,307 $ 893,226 Voyage expenses..................... 63,658 62,730 62,195 248,957 248,957 Net voyage revenues................. 261,416 245,156 120,067 713,350 644,269 Income from vessel operations....... 161,263 155,735 37,768 346,986 327,675 Interest expense.................... (21,343) (14,786) (19,989) (106,500) (74,540) Interest income..................... 3,000 2,803 3,253 15,090 13,021 Other income (loss)................. 2,177 936 (1,092) 9,978 3,864 Net income (loss)................... 145,097 144,688 19,940 265,554 270,020 BALANCE SHEET DATA (AT END OF PERIOD): Cash and marketable securities...... $ 268,655 $ 348,054 $ 253,749 -- $ 223,123 Total assets........................ 2,470,621 2,518,332 1,988,367 -- 1,974,099 Total debt.......................... 1,108,694 1,108,694 1,074,561 -- 797,484 Total stockholders' equity.......... 1,234,780 1,234,780 844,727 -- 1,098,512 OTHER FINANCIAL DATA: EBITDA(2)........................... $ 203,000 $ 188,978 $ 66,862 $ 504,127 $ 451,066 EBITDA to interest expense(2)(3).... 9.4x 13.0x 3.4x 4.8x 6.1x Total debt to LTM EBITDA(2)(4)...... 1.8x 1.9x 6.8x -- 1.8x Total debt to total capitalization(5).................. 46.9% 46.0% 55.9% -- 42.1% Net debt to total capitalization(6).................. 40.1% 36.9% 49.2% -- 34.2% Ratio of earnings to fixed charges(7)......................... 7.6x 10.8x 2.0x 3.5x 4.6x Cash earnings(8).................... $ 181,276 $ 174,832 $ 45,165 $ 389,626 $ 372,168 Capital expenditures: Vessel purchases, gross(9)......... 13,102 1,394 550 143,601 43,512 Drydocking......................... 2,240 2,240 2,500 16,467 11,941 TOTAL FLEET DATA(10): Average number of ships............. 79 73 73 80 72 Average age of our fleet (in years at end of period).................. 9.2 9.2 8.4 9.2 9.0 Operating cash flow per ship per day(11)............................ $ 27,535 $ 28,300 $ 9,851 $ 16,183 $ 16,687 SPOT AFRAMAX FLEET DATA(12): Average number of ships............. 58 58 61 59 59 Average age of our fleet (in years at end of period).................. 8.7 8.7 7.6 8.3 8.3 TCE per ship per day(13)............ $ 43,720 $ 43,720 $ 19,016 $ 27,138 $ 27,138 Vessel operating expenses per ship per day(14)........................ 5,307 5,307 5,217 4,980 4,980 Operating cash flow per ship per day(11)........................ 32,351 32,351 10,441 18,145 18,145 FISCAL YEARS ENDED ---------------------------------------------------- DEC. 31, MAR. 31, MAR. 31, MAR. 31, 1999 1999 1998 1997 -------- -------- -------- -------- (NINE MONTHS) (IN THOUSANDS, EXCEPT RATIOS AND PER DAY DATA) INCOME STATEMENT DATA: Voyage revenues..................... $ 377,882 $ 411,922 $ 406,036 $ 382,249 Voyage expenses..................... 129,532 93,511 100,776 102,037 Net voyage revenues................. 248,350 318,411 305,260 280,212 Income from vessel operations....... 23,572 85,634 107,640 94,258 Interest expense.................... (44,996) (44,797) (56,269) (60,810) Interest income..................... 5,842 6,369 7,897 6,358 Other income (loss)................. (4,013) 5,506 11,236 2,824 Net income (loss)................... (19,595) 45,406 70,504 42,630 BALANCE SHEET DATA (AT END OF PERIOD): Cash and marketable securities...... $ 226,381 $ 132,256 $ 115,254 $ 117,523 Total assets........................ 1,982,684 1,452,220 1,460,183 1,372,838 Total debt.......................... 1,085,167 641,719 725,369 699,726 Total stockholders' equity.......... 832,067 777,390 689,455 629,815 OTHER FINANCIAL DATA: EBITDA(2)........................... $ 95,875 $ 186,069 $ 209,582 $ 191,632 EBITDA to interest expense(2)(3).... 2.1x 4.0x 3.8x 3.2x Total debt to LTM EBITDA(2)(4)...... 8.3x 3.5x 3.5x 3.7x Total debt to total capitalization(5).................. 56.6% 45.2% 51.3% 52.6% Net debt to total capitalization(6).................. 50.7% 39.6% 46.9% 48.0% Ratio of earnings to fixed charges(7)......................... 0.6x 2.1x 2.3x 1.7x Cash earnings(8).................... $ 43,343 $ 146,489 $ 165,575 $ 133,554 Capital expenditures: Vessel purchases, gross(9)......... 23,313 85,445 197,199 65,104 Drydocking......................... 6,598 11,749 18,376 16,559 TOTAL FLEET DATA(10): Average number of ships............. 65 47 43 41 Average age of our fleet (in years at end of period).................. 8.4 8.7 7.8 8.2 Operating cash flow per ship per day(11)............................ $ 5,177 $ 11,171 $ 12,682 $ 11,819 SPOT AFRAMAX FLEET DATA(12): Average number of ships............. 55 43 42 41 Average age of our fleet (in years at end of period).................. 7.4 8.0 7.6 7.9 TCE per ship per day(13)............ $ 13,462 $ 19,576 $ 21,373 $ 20,356 Vessel operating expenses per ship per day(14)........................ 5,621 4,969 4,554 4,922 Operating cash flow per ship per day(11)........................ 4,731 10,903 12,664 11,819
(Footnotes on following page) 9 15 (1) Represents actual amounts as adjusted to give effect to the acquisition of 100% of UNS, as if it had occurred on January 1, 2000. See unaudited pro forma consolidated condensed financial statements included elsewhere in this prospectus. The primary adjustments were (a) an increase in depreciation and amortization expense relating to the amortization of goodwill arising upon the acquisition of UNS, (b) an increase in interest expense as if we had borrowed funds under our revolving credit facilities to finance the acquisition, and (c) an increase in other income to reverse the expense related to the minority interest portion of UNS' results for the period March 6, 2001 to March 31, 2001. (2) EBITDA represents net income (loss) before extraordinary items, interest expense, income tax expense, depreciation and amortization expense, minority interest, and gains or losses arising from prepayment of debt, foreign exchange translation and disposal of assets. EBITDA is included because such data is used by certain investors to measure a company's financial performance. EBITDA is not required by accounting principles generally accepted in the United States and should not be considered as an alternative to net income or any other indicator of our performance required by accounting principles generally accepted in the United States. (3) For purposes of computing EBITDA to interest expense, interest expense includes capitalized interest but excludes amortization of loan costs. (4) Total debt to LTM EBITDA represents total debt as of the end of the period compared to EBITDA for the 12-month period then ended. (5) Total capitalization represents total debt, minority interest and total stockholders' equity. (6) Net debt represents total debt less cash, cash equivalents and marketable securities. Total capitalization represents net debt, minority interest and total stockholders' equity. (7) For purposes of computing the ratio of earnings to fixed charges, earnings consist of net income (loss) before extraordinary items, income taxes, minority interest expense, equity income, interest expense, amortization of deferred financing costs and amortization of capitalized interest. Fixed charges consist of interest expense, capitalized interest and amortization of deferred financing costs. (8) Cash earnings represents net income (loss) before extraordinary items, foreign exchange gains (losses), and depreciation and amortization expense. Cash earnings is included because it is used by certain investors to measure a company's financial performance as compared to other companies in the shipping industry. Cash earnings is not required by accounting principles generally accepted in the United States and should not be considered as an alternative to net income or any other indicator of our performance required by accounting principles generally accepted in the United States. (9) Excludes vessels purchased in connection with our corporate acquisitions of Bona Shipholding Ltd. in 1999 and UNS in 2001. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (10) Excludes vessels of our joint ventures, newbuildings and one Aframax tanker that has been subject to a bareboat charter. (11) Operating cash flow represents income from vessel operations plus depreciation and amortization expense (other than drydock amortization expense). Ship days are calculated on the basis of a 365-day fiscal year multiplied by the average number of vessels in our fleet for the respective year (excluding vessels of our joint ventures). Operating cash flow is not required by accounting principles generally accepted in the United States and should not be considered as an alternative to net income or any other indicator of our performance required by accounting principles generally accepted in the United States. (12) Includes our core Aframax fleet that operates primarily in the spot charter market and excludes vessels that operate primarily under long-term fixed-rate contracts, including our ten Aframax-size shuttle tankers and our Aframax-size Australian-crewed vessels. TCE and vessel operating expense data is separately presented only for this portion of our fleet because the remainder of 10 16 our fleet generally has varying revenue and expense characteristics that make period-to-period comparisons not meaningful. Also excludes one Aframax tanker that has been subject to a bareboat charter and Aframax tankers of our joint ventures. (13) TCE is a measure of the revenue performance of a vessel, which, on a per voyage basis, is generally determined by Clarkson Research Studies Inc. ("Clarkson") and other industry data sources by subtracting voyage expenses (except commissions) which are incurred in transporting cargo from gross revenue per voyage and dividing the remaining revenue by the total number of days required for the round-trip voyage. For purposes of calculating our average TCE for the year, TCE has been calculated consistent with Clarkson's method, by deducting total voyage expenses (except commissions) from total voyage revenues and dividing the remaining sum by our total voyage days in the year. Voyage expenses comprise all expenses relating to particular voyages, including bunker fuel expenses, port fees, canal tolls, and brokerage commissions. See "Exhibit A -- Definitions of Shipping Terms." (14) Vessel operating expenses comprise all expenses relating to the operation of vessels (other than voyage expenses), including crewing, repairs and maintenance, insurance, stores and lubes, and communications expenses. Ship days are calculated on the basis of a 365-day year multiplied by the average number of owned vessels in our fleet for the respective year. Vessel operating expenses exclude vessels time-chartered-in. 11 17 RISK FACTORS Before investing in our notes, you should consider carefully the following factors, as well as the information contained in the rest of this prospectus. THERE MAY BE ADVERSE CONSEQUENCES TO YOU IF YOU DO NOT EXCHANGE YOUR OUTSTANDING NOTES If you do not exchange your outstanding notes for exchange notes in the exchange offer, then you will continue to be subject to the transfer restrictions on the outstanding notes described in the offering circular distributed in connection with the private placement of the outstanding notes. In general, the outstanding notes may not be offered or sold unless they are registered or exempt from registration under the Securities Act of 1933 and applicable state securities laws. Except as required by the exchange and registration rights agreement that we entered into with the initial purchasers of the outstanding notes, we do not intend to register resales of the outstanding notes under the Securities Act. See "The Exchange Offer -- Consequences of Failure to Exchange." You should refer to "The Exchange Offer" for information about how to tender your outstanding notes. The tender of outstanding notes pursuant to the exchange offer will reduce the outstanding principal amount of the outstanding notes, which may have an adverse effect upon, and increase the volatility of, the market price of the outstanding notes due to a reduction in liquidity. RISKS RELATING TO OUR DEBT OUR SUBSTANTIAL DEBT COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE NOTES OFFERED BY THIS PROSPECTUS We have substantial debt and debt service requirements. At June 30, 2001 and giving effect to the proposed application of the net proceeds of the offering of the outstanding notes to prepay certain of our outstanding secured debt, our consolidated debt would have been approximately $1,053 million, and we would have been able to borrow an additional $352 million under our credit facilities. The amount of our debt could have important consequences to you. For example, it could: - make it more difficult for us to satisfy our obligations under the exchange notes; - increase our vulnerability to general adverse economic and industry conditions; - limit our ability to fund future capital expenditures, working capital and other general corporate requirements; - require us to dedicate a substantial portion of our cash flow from operations to make interest and principal payments on our debt; - limit our flexibility in planning for, or reacting to, changes in our business and the shipping industry; - place us at a competitive disadvantage compared to competitors that have less debt; and - limit our ability to borrow additional funds, even when necessary to maintain adequate liquidity. TO SERVICE OUR DEBT, WE WILL REQUIRE A SIGNIFICANT AMOUNT OF CASH, WHICH MAY NOT BE AVAILABLE TO US Our ability to repay our debt, including the notes offered by this prospectus, will depend largely upon our future operating performance and a number of other factors, many of which are beyond our control. In addition, we will rely on dividends and other intercompany cash flows from our subsidiaries to repay our obligations. Financing arrangements between some of our subsidiaries and their respective lenders contain restrictions on dividends by and distribution from such subsidiaries to us. 12 18 If we are unable to generate sufficient cash flow to meet our debt service requirements, we may have to renegotiate the terms of our debt. We cannot assure you that we would be able to renegotiate successfully those terms or refinance our debt when required. If we were unable to refinance our debt or obtain new financing under these circumstances, we would have to consider other options, such as: - sales of certain assets to meet our debt service obligations; - sales of equity; and - negotiations with our lenders to restructure applicable debt. Our credit agreements and the indenture governing the notes offered by this prospectus may restrict our ability to do some of these things. OUR SUBSIDIARIES CONDUCT ALL OF OUR OPERATIONS AND OWN ALL OF OUR OPERATING ASSETS, AND THE NOTES OFFERED BY THIS PROSPECTUS WILL BE STRUCTURALLY SUBORDINATED TO THE LIABILITIES OF OUR SUBSIDIARIES We are a holding company and our subsidiaries conduct all of our operations and own all of our operating assets. Our only material asset is our ownership of the capital stock of our subsidiaries. As a result, our ability to make required payments on the notes offered by this prospectus depends on the operations of our subsidiaries and our subsidiaries' ability to distribute funds to us. To the extent our subsidiaries are unable to distribute, or are restricted from distributing, funds to us, we may be unable to fulfill our obligations under the notes. Our subsidiaries will have no obligation to pay amounts due on the notes offered by this prospectus, and none of our subsidiaries will guarantee the notes. The rights of holders of the notes offered by this prospectus will be structurally subordinated to the rights of our subsidiaries' lenders. A default by a subsidiary under its debt obligations would result in a block on distributions from the affected subsidiary to us. The exchange notes will be effectively junior to all liabilities of our subsidiaries. In the event of a bankruptcy, liquidation or reorganization of any of our subsidiaries, creditors of our subsidiaries will generally be entitled to payment of their claims from the assets of those subsidiaries before any assets are made available for distribution to us. Giving effect to the proposed application of the net proceeds of the offering of the outstanding notes to prepay certain secured debt and assuming we had completed the exchange offer, on June 30, 2001, the exchange notes offered by this prospectus would have been effectively junior to an aggregate of approximately $803 million of debt owed or guaranteed by certain of our subsidiaries and an additional $115 million of debt of our joint ventures guaranteed by subsidiaries. THE EXCHANGE NOTES WILL BE UNSECURED AND WILL BE EFFECTIVELY SUBORDINATED TO OUR SECURED DEBT AND SECURED DEBT OF OUR SUBSIDIARIES The notes offered by this prospectus are unsecured and therefore will be effectively subordinated to any secured debt we, or our subsidiaries, currently maintain or may incur to the extent of the value of the assets securing the debt. Each of our subsidiary's debt is currently secured by the tanker or tankers owned by that subsidiary. In the event of a bankruptcy or similar proceeding involving us or a subsidiary, the assets that serve as collateral will be available to satisfy the obligations under any secured debt before any payments are made on the notes. Giving effect to the proposed application of net proceeds of the offering of the outstanding notes to prepay certain of our secured debt and assuming we had completed the exchange offer, on June 30, 2001, the exchange notes would have been effectively junior to an aggregate of approximately $803 million in outstanding secured debt. 13 19 FAILURE TO COMPLY WITH COVENANTS COULD LEAD TO ACCELERATION OF DEBT Our existing financing agreements and those of our subsidiaries impose operating and financial restrictions that restrict our actions. These restrictions limit or prohibit our ability to, among other things: - incur additional debt; - create liens; - sell capital stock of subsidiaries or other assets; - make certain investments; - engage in mergers and acquisitions; - make certain capital expenditures; or - pay dividends. Failure to comply with any of the covenants in our existing or future financing agreements could result in a default under those agreements or under other agreements containing cross-default provisions. A default would permit lenders to accelerate the maturity of the debt under these agreements and to foreclose upon any collateral securing that debt. Under these circumstances, we might not have sufficient funds or other resources to satisfy all of our obligations, including our obligations under the notes offered by this prospectus. In addition, the secured nature of a portion of our other debt, together with the limitations imposed by financing agreements on our ability to incur additional debt and to take other actions, might significantly impair our ability to obtain other financing. Some of our existing financing agreements also impose restrictions on changes of control of us or our ship-owning subsidiaries, including requirements for prior consent and that we make an offer to redeem certain debt. See "Description of Certain Debt." DECLINING MARKET VALUES OF OUR VESSELS COULD ADVERSELY AFFECT OUR LIQUIDITY AND RESULT IN BREACHES OF OUR FINANCING AGREEMENTS Market values of tankers fluctuate depending upon general economic and market conditions affecting the tanker industry and competition from other shipping companies, other types and sizes of vessels, and other modes of transportation. In addition, as vessels become older, they generally decline significantly in value. Declining vessel values of our tankers could adversely affect our liquidity by limiting our ability to raise cash by refinancing vessels. Declining vessel values could also result in a breach of loan covenants and events of default under relevant financing agreements that require us to maintain certain loan-to-value ratios. If we are unable to pledge additional collateral in the event of a decline in vessel values, the lenders could accelerate our debt and foreclose on our vessels pledged as collateral for the loans. WE MAY BE UNABLE TO RAISE THE FUNDS NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE INDENTURE GOVERNING THE NOTES The terms of the notes will require us to make an offer to repurchase the notes upon the occurrence of a change of control triggering event at a purchase price equal to 101% of the principal amount of the notes, plus accrued interest to the date of the purchase. In the event of a change of control triggering event, the total debt represented by the notes could become due and payable. We may not have sufficient funds available at the time of any change of control to repurchase the notes. See "Description of the Notes -- Repurchase of Notes Upon a Change of Control Triggering Event." 14 20 RISKS RELATING TO OUR BUSINESS THE CYCLICAL NATURE OF THE TANKER INDUSTRY CAUSES VOLATILITY IN OUR PROFITABILITY Historically, the tanker industry has been cyclical, experiencing volatility in profitability due to changes in the supply of, and demand for, tanker capacity. Increases in tanker capacity supply or decreases in tanker capacity demand could harm our business, financial condition and results of operations. The supply of tanker capacity is a function of the number of new vessels built, older vessels scrapped, converted and lost and the number of vessels that are out of service. The demand for tanker capacity is influenced by, among other factors: - global and regional economic conditions; - increases and decreases in industrial production and demand for crude oil and petroleum products; - the distance crude oil and petroleum products need to be transported by sea; and - developments in international trade and changes in seaborne and other transportation patterns. Because many of the factors influencing the supply of and demand for tanker capacity are unpredictable, the nature, timing and degree of changes in tanker industry conditions are also unpredictable. See "Business -- The International Tanker Market -- Industry Fundamentals." WE DEPEND UPON OIL MARKETS, CHANGES IN WHICH COULD RESULT IN DECREASED DEMAND FOR OUR VESSELS AND SERVICES Demand for our vessels and services in transporting crude oil and petroleum products depends upon world and regional oil markets. Any decrease in shipments of crude oil in those markets could harm our business, financial condition and results of operations. Historically, those markets have been volatile as a result of the many conditions and events that affect the price, production and transport of oil, as well as competition from alternative energy sources. OUR DEPENDENCE ON SPOT VOYAGES MAY RESULT IN SIGNIFICANT FLUCTUATIONS IN THE UTILIZATION OF OUR VESSELS AND IN OUR PROFITABILITY In fiscal 2000, we derived approximately 82% of our net voyage revenues (75% after giving effect to our acquisition of UNS as if it had occurred on January 1, 2000) from spot voyages or time charters and contracts of affreightment priced on a spot market basis. Because we depend on the spot charter market, declining charter rates in a given period generally will result in corresponding declines in our operating results for that period. The spot charter market is highly competitive and spot charter rates are subject to significant fluctuations based on tanker and oil supply and demand. Charter rates have varied dramatically in the last few years. Future spot charters may not be available at rates that will be sufficient to enable our vessels to be operated profitably or provide sufficient cash flow to service the notes and pay our other debt obligations. REDUCTION IN OIL PRODUCED FROM OFFSHORE OIL FIELDS COULD HARM OUR SHUTTLE TANKER BUSINESS Demand for our shuttle tankers in transporting crude oil and petroleum products depends upon the amount of oil produced from offshore oil fields, especially in the North Sea, where our shuttle tankers primarily operate. As oil prices increase, the prospect of offshore oil exploration and development of offshore oil fields, which cost more to build than land oil fields, becomes more attractive to oil companies. However, if oil prices were to decline, it would become less attractive for oil companies to explore for oil offshore and develop offshore oil fields. If the amount of oil produced from offshore oil fields declines, especially in the North Sea, our shuttle tanker business could be harmed. 15 21 OUR INABILITY TO RENEW OR REPLACE LONG-TERM CHARTER CONTRACTS COULD HARM OUR BUSINESS Twenty-five of our tankers, including 16 of our 18 shuttle tankers, currently are subject to long-term charter contracts. Twelve of these contracts terminate by their terms between April 2002 and September 2003. The 13 remaining contracts terminate by their terms between 2004 and 2013. Our inability to renew or replace these contracts on favorable terms, if at all, or the early termination of a significant number of these contracts, could harm our business, financial condition and results of operations. THE INTENSE COMPETITION IN OUR MARKETS MAY LEAD TO REDUCED PROFITABILITY Our vessels operate in highly competitive markets. Competition arises primarily from other Aframax and shuttle tanker owners, including major oil companies as well as independent companies. We also compete with owners of other size tankers. Our market share is insufficient to enforce any degree of pricing discipline in the markets in which we operate and our competitive position may erode in the future. Any new markets that we enter could include participants that have greater financial strength and capital resources than us and we may not be successful in entering into new markets, including the shuttle tankers market through our acquisition of UNS. THE TANKER INDUSTRY IS SUBJECT TO SUBSTANTIAL ENVIRONMENTAL AND OTHER REGULATIONS, WHICH MAY SIGNIFICANTLY INCREASE OUR EXPENSES Our operations are affected by extensive and changing environmental protection laws and other regulations. We have incurred, and expect to continue to incur, substantial expenses in complying with these laws and regulations, including expenses for ship modifications and changes in operating procedures. Additional laws and regulations may be adopted that could limit our ability to do business or further increase the cost of our doing business. This could harm our business, financial condition and results of operations. See "Business -- Regulation." The United States Oil Pollution Act of 1990 ("OPA 90") in particular has increased our expenses. The OPA 90 provides for the phase-in of the exclusive use of double-hull tankers at United States ports, as well as potentially unlimited liability for owners, operators and demise or bareboat charterers for oil pollution in U.S. waters. To comply with the OPA 90, tanker owners generally incur additional costs in meeting additional maintenance and inspection requirements, in developing contingency arrangements for potential spills and in obtaining required insurance coverage. The OPA 90 contains financial responsibility requirements for vessels operating in U.S. waters and requires owners and operators of vessels to establish and maintain with the United States Coast Guard evidence of insurance or of qualification as a self-insurer or other evidence of financial responsibility sufficient to meet their potential liabilities under the OPA 90. Following the example of the OPA 90, the International Maritime Organization, the United Nations' agency for maritime safety, adopted regulations for tanker design and inspection that are designed to reduce oil pollution in international waters and that will be phased in on a schedule depending upon vessel age. In addition, certain U.S. states, the European Community and certain countries are considering stricter technical and operational requirements for tankers and legislation that will affect the liability of tanker owners and operators for oil pollution. Our shuttle tankers primarily operate in the North Sea. In addition to the regulations imposed by the International Maritime Organization, the countries having jurisdiction over areas of the North Sea impose regulatory requirements in connection with operations in those areas. These regulatory requirements, together with additional requirements imposed by the operators in the North Sea oil fields, require us to make further expenditures for sophisticated equipment, reporting and redundancy systems on our shuttle tankers and for the training of seagoing staff. Additional regulations and requirements may be adopted or imposed that could limit our ability to do business or further increase the cost of doing business in the North Sea. 16 22 OUR INSURANCE MAY NOT BE SUFFICIENT TO COVER THE LOSSES THAT MAY OCCUR TO OUR PROPERTY OR AS A RESULT OF OUR OPERATIONS The operation of oil tankers carries the risk of environmental damage from an oil spill as well as the risk of catastrophic marine disasters and property losses inherent to any ocean-going vessel. We carry protection and indemnity coverage to protect against most of the accident-related risks involved in the conduct of our business and maintain environmental damage and pollution coverage. Except with respect to our shuttle tankers, we do not carry insurance covering the loss of revenue resulting from vessel off-hire time. All risks may not be adequately insured against, and any particular claim may not be paid. In addition, we may not be able to procure adequate coverage at commercially reasonable rates in the future. Any uninsured loss could harm our business, financial condition and results of operations. More stringent environmental regulations at times in the past have resulted in increased costs for, and in the future may result in the lack of availability of, insurance against the risks of environmental damage or pollution. We currently maintain $1 billion in coverage for liability for pollution, spillage or leakage of oil for each of our vessels. A catastrophic spill could exceed the coverage available, which could harm our business, financial condition and results of operations. BECAUSE OUR FUTURE GROWTH DEPENDS IN LARGE PART ON FACTORS BEYOND OUR CONTROL, WE MAY NOT BE SUCCESSFUL IN IMPLEMENTING OUR GROWTH STRATEGY A principal component of our strategy is to continue to grow by expanding our business both in the geographic areas and markets where we have historically focused as well as into new geographic areas, market segments and services. We may not be successful in expanding our operations and any expansion may not be profitable. Our future growth will depend upon a number of factors, both within and outside of our control. These include: - our identification of new markets; - our acceptance by new customers; - our identification and entering into of suitable joint venture opportunities; - our identification and acquisition on favorable terms of suitable acquisition candidates; - our successful integration of any acquired businesses, including UNS, with our existing operations; - our ability to hire and train qualified personnel; and - our ability to obtain required financing. We have grown primarily by means of internal growth and have limited experience with completing acquisitions and integrating acquired businesses. The failure to effectively identify, purchase, develop and integrate any acquired businesses could harm our business, financial condition and results of operations. In addition, the results we have achieved to date may not be indicative of our ability to penetrate new markets, including the shuttle tanker market, many of which may have different competitive conditions and characteristics than our traditional markets. WE MAY NOT BE ABLE TO SUCCESSFULLY INTEGRATE UGLAND NORDIC SHIPPING INTO OUR OPERATIONS We may not be successful in integrating into our operations our recent acquisition of UNS. The UNS acquisition involves risks commonly encountered in acquisitions of companies, including: - potential disruption of our ongoing business; - diversion of the time and resources of our management; and - potential loss of key employees of the acquired company. 17 23 In addition, IUM Shipmanagement AS, a company in which UNS holds a one-third interest ("IUM"), manages the technical operation, such as crewing and maintenance, of most of the UNS fleet. While we believe that IUM has successfully managed the UNS fleet in the past and we currently continue to utilize the services of IUM, we have a limited operating history with IUM and we do not have direct control over the IUM personnel. Our failure to effectively integrate UNS, or any other acquired businesses, could harm our business, financial condition and results of operations. THE STRAIN THAT OUR GROWTH PLACES UPON OUR SYSTEMS AND MANAGEMENT RESOURCES MAY ADVERSELY AFFECT OUR BUSINESS To the extent our operations continue to expand, we will continue to experience growth in the number of our employees, the scope of our operating and financial systems and the geographic area of our operations. Recent growth has increased, and future growth will continue to increase, our operating complexity and the level of responsibility of existing and new management personnel. We cannot assure you that we will be able to attract and retain qualified management and employees, especially qualified officers and other seagoing personnel, of which there is a limited supply, that our current operating and financial systems and controls will be adequate as we grow, or that any steps taken to attract and retain management and employees and to improve such systems and controls will be sufficient. WE MAY NOT BE ABLE TO SUCCESSFULLY OPERATE IN THE SHUTTLE TANKER MARKET We have historically operated in the Aframax spot and time-charter crude and petroleum transportation markets in the Indo-Pacific Basin and the Atlantic region. UNS operates primarily in the shuttle tanker market in the North Sea. While we do not believe operating in the North Sea shuttle tanker market is substantially different from operating in the Indo-Pacific Basin and Atlantic region Aframax markets, we may not be successful in our expansion into a market where we have little or no direct prior experience. OUR OPERATING RESULTS ARE SUBJECT TO SEASONAL FLUCTUATIONS Our tankers operate in markets that have historically exhibited seasonal variations in demand and, therefore, in charter rates. This seasonality may result in quarter-to-quarter volatility in our results of operations. Tanker markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling. The oil price volatility resulting from these factors has historically led to increased oil trading activities in the winter months. As a result, our revenues have historically been weaker during our fiscal quarters ended June 30 and September 30, and, conversely, revenues have been stronger in our fiscal quarters ended March 31 and December 31. WE EXPEND SUBSTANTIAL SUMS DURING CONSTRUCTION OF NEWBUILDINGS WITHOUT EARNING REVENUE AND WITHOUT ASSURANCE THAT THEY WILL BE COMPLETED We are typically required to expend substantial sums as progress payments during the construction of a newbuilding, but we do not derive any revenue from the vessel until after its delivery. If the shipyard were unable to complete the contract or if we were unable to obtain financing required to complete payments on any of our newbuilding orders, we could effectively forfeit all or a portion of the progress payments previously made. Our UNS subsidiary currently has three newbuildings on order, with deliveries scheduled for December 2002, March 2003 and September 2003. We may in the future order additional newbuildings. 18 24 THE LOSS OF ANY KEY CUSTOMER COULD RESULT IN A SIGNIFICANT LOSS OF REVENUE IN A GIVEN PERIOD We have derived, and believe that we will continue to derive, a significant portion of our voyage revenues from a limited number of customers. Two customers, both international oil companies, individually accounted for approximately $118 million, or 13%, and approximately $110 million, or 12%, of our consolidated voyage revenues during fiscal 2000. Giving pro forma effect to our acquisition of UNS as if it had occurred on January 1, 2000, such percentages would have been 12% and 11%, respectively. A single customer, an international oil company, accounted for $48 million, or approximately 13%, of our consolidated voyage revenues for the nine months ended December 31, 1999. During the year ended March 31, 1999, three customers, all international oil companies, individually accounted for $51 million, $51 million and $43 million, or 12%, 12% and 10%, respectively, of our consolidated voyage revenues. No other customer accounted for more than 10% of our consolidated voyage revenues in any of the fiscal periods presented above. The loss of any significant customer, or a substantial decline in the amount of services requested by a significant customer, could harm our business, financial condition and results of operations. EXPOSURE TO CURRENCY EXCHANGE RATE AND INTEREST RATE FLUCTUATIONS COULD RESULT IN FLUCTUATIONS IN OUR NET INCOME While virtually all of our revenues are earned in U.S. Dollars, a portion of our operating costs is incurred in currencies other than U.S. Dollars. This partial mismatch in operating revenues and expenses could lead to fluctuations in net income due to changes in the value of the U.S. Dollar relative to other currencies, in particular the Japanese Yen, the Singapore Dollar, the Canadian Dollar, the Norwegian Kroner, the British Pound and the Australian Dollar. At March 31, 2001, after giving effect to the issuance of the outstanding notes and the proposed application of the net proceeds therefrom to prepay certain of our outstanding secured debt, approximately $700 million, or 63%, of our debt would have borne interest at floating interest rates. Increases in interest rates would increase interest payments on this debt, and could materially adversely affect our business, financial condition and results of operations. In order to partially mitigate our interest rate exposure, we have entered into six interest rate swaps, totaling $145 million in notional principal amount with maturities between December 2001 and May 2004. The average interest rate of the swaps is 6.46%. As of March 31, 2001, the fair value of these interest rate swaps was negative $3.4 million. See "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Market Rate Risks." OUR SUBSTANTIAL OPERATIONS OUTSIDE THE UNITED STATES EXPOSE US TO POLITICAL, GOVERNMENTAL AND ECONOMIC INSTABILITY, WHICH COULD ADVERSELY AFFECT OUR OPERATIONS Because our operations are primarily conducted outside of the United States, they may be affected by changing economic, political and governmental conditions in the countries where we are engaged in business or where our vessels are registered. Any disruption caused by these factors could materially adversely affect our business, financial condition and results of operations. During fiscal 2000, we derived approximately 59% of our total revenues from our operations in the Indo-Pacific Basin (55% after giving effect to our acquisition of UNS as if it had occurred on January 1, 2000). Past political conflicts in this region, particularly in the Arabian Gulf, have included attacks on tankers, mining of waterways and other efforts to disrupt shipping in the area. Vessels trading in this region have also been subject to, in limited instances, acts of terrorism and piracy. Future hostilities or other political instability in this region or other regions where we operate could affect our trade patterns and materially adversely affect our business, financial condition and results of operations. 19 25 WE MAY NOT BE EXEMPT FROM U.S. TAXATION FOR OUR UNITED STATES SOURCE INCOME, WHICH WOULD REDUCE OUR NET INCOME AND CASH FLOW BY THE AMOUNT OF THE APPLICABLE TAX If not exempt from tax under Section 883 of the United States Internal Revenue Code, the shipping income derived from United States sources attributable to our transportation of cargoes to or from the United States will be subject to U.S. federal income tax. If we are subject to such tax, our net income and cash flow would be reduced by the amount of such tax. Although we currently believe we are exempt from taxation under Section 883, proposed regulations, if they become final as proposed, may not permit us to continue to claim the Section 883 exemption. See "Business -- Taxation of Teekay -- United States Taxation." In fiscal 2000, approximately 42% of voyage revenues was derived from U.S. sources attributable to the transportation of cargoes to or from the United States. The average U.S. federal income tax on such U.S. source income, in the absence of exemption under Section 883, would have been 2% thereof, or approximately $7.5 million. Giving effect to our acquisition of UNS as if it had occurred on January 1, 2000, approximately 40% of our pro forma voyage revenues for fiscal 2000 would have been derived from such U.S. sources. In the absence of an exemption under Section 883, the U.S. federal income tax on such pro forma U.S. source income would have been approximately $7.7 million. AN ACTIVE PUBLIC MARKET MAY NOT DEVELOP FOR YOUR NOTES, WHICH MAY HINDER YOUR ABILITY TO LIQUIDATE YOUR INVESTMENT There is no established trading market for the exchange notes. Although we intend to apply for listing the exchange notes on the New York Stock Exchange, a liquid market for the exchange notes may not develop. Although the initial purchasers of the outstanding notes have informed us that they intend to make a market in the exchange notes after the exchange offer, they may stop making a market at any time. Accordingly, we cannot assure you that a market for the exchange notes will develop. Furthermore, if a market were to develop, the market price for the notes may be adversely affected by changes in our financial performance, changes in the overall market for similar securities and the performance or prospects for companies in our industry. The outstanding notes have not been registered under the Securities Act of 1933 or any state securities laws and may not be offered or sold except pursuant to an exemption from the registration requirements of the Securities Act and applicable state securities laws, or pursuant to an effective registration statement. The liquidity of, and trading market for, the exchange notes may also be adversely effected by general declines in the market for similar securities or by changes in our financial performance. Such a market decline may adversely affect such liquidity and trading markets independent of our financial performance and resources. 20 26 USE OF PROCEEDS We issued $250 million principal amount of the outstanding notes on June 22, 2001 to the initial purchasers of those notes. We are making the exchange offer to satisfy our obligations under the outstanding notes, the indenture and the exchange and registration rights agreement. We will not receive any cash proceeds from the exchange offer. In consideration of issuing the exchange notes in the exchange offer, we will receive an equal principal amount of outstanding notes. Any outstanding notes that are properly tendered in the exchange offer will be accepted, canceled and retired and cannot be reissued. Our net proceeds from the offering of the outstanding notes were approximately $244.5 million, after deducting the discount payable to the initial purchasers of the outstanding notes and offering expenses. We have used a portion these net proceeds, and intend to use the balance of these net proceeds, to prepay certain of our secured debt. The secured debt that we have prepaid, and that we intend to prepay, bears interest at rates ranging from 4.9875% to 8.32% and has maturity dates ranging from October 2003 to December 2008. See "Management's Discussion and Analysis of Results of Operations and Financial Condition -- Liquidity and Capital Resources" and "Description of Certain Debt." Included in this prepaid debt is a portion of our outstanding 8.32% First Preferred Ship Mortgage Notes. 21 27 CAPITALIZATION The following table sets forth our consolidated capitalization at March 31, 2001, to reflect: (1) our actual capitalization; and (2) our pro forma capitalization to give effect to (a) the acquisition of the remaining 36% interest of UNS for $79.4 million in cash, which was completed as of June 1, 2001, (b) the offering of the outstanding and notes and proposed application of the net proceeds therefrom, and (c) the exchange offer. You should read the following table in conjunction with our historical and pro forma consolidated financial statements and the related notes included elsewhere in this prospectus. See "Use of Proceeds," "Management's Discussion and Analysis of Results of Operations and Financial Condition," "Business -- Acquisition of Ugland Nordic Shipping ASA" and "Description of Certain Debt."
MARCH 31, 2001 --------------------------- ACTUAL PRO FORMA(1) ----------- ------------ (UNAUDITED) (UNAUDITED) (DOLLARS IN THOUSANDS) Cash and marketable securities.............................. $ 348,054 $ 268,655 ========== ========== Current obligations(2): Current portion of long-term debt......................... $ 123,058 $ 91,455 ---------- ---------- Total current obligations.............................. 123,058 91,455 ---------- ---------- Long-term debt(2): Long-term debt............................................ 985,636 772,739 Outstanding notes......................................... -- 250,000 ---------- ---------- Total long-term debt................................... 985,636 1,022,739 ---------- ---------- Minority interest........................................... 66,968 19,257 ---------- ---------- Stockholders' equity: Capital stock............................................. 458,605 458,605 Retained earnings......................................... 777,618 777,618 Accumulated other comprehensive loss...................... (1,443) (1,443) ---------- ---------- Total stockholders' equity............................. 1,234,780 1,234,780 ---------- ---------- Total capitalization................................... $2,410,442 $2,368,231 ========== ==========
- --------------- (1) Excludes approximately $95 million of long-term debt incurred by UNS in April 2001 for its acquisition of four shuttle tankers from Awilco ASA. (2) For information concerning our borrowing arrangements, see "Description of Certain Debt" and Note 6 to our consolidated financial statements included elsewhere in this prospectus. 22 28 SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA The following tables present selected financial and other data for us as at and for the three-month periods ended March 31, 2001 and 2000 and the fiscal year ended December 31, 2000, the nine-month period ended December 31, 1999 and the three fiscal years ended March 31, 1999. We derived the selected financial data set forth below with respect to our statements of income for the fiscal year ended December 31, 2000, the nine-month period ended December 31, 1999 and the fiscal year ended March 31, 1999 and our balance sheets as at December 31, 2000 and 1999, from our consolidated financial statements that are included elsewhere in this prospectus and have been audited by Ernst & Young, independent chartered accountants. We derived the income statement data for each of the two fiscal years ended March 31, 1998 and 1997 and the balance sheet data as at March 31, 1999, 1998 and 1997, from consolidated financial statements audited by Ernst & Young which are not included in this prospectus. We derived the selected financial and other data set forth below with respect to our statements of income for each of the three-month periods ended March 31, 2001 and 2000 and our balance sheet as at March 31, 2001 from our unaudited consolidated financial statements included elsewhere in this prospectus. We derived the balance sheet data as at March 31, 2000 from our unaudited consolidated financial statements not included in this prospectus. In management's opinion, these unaudited consolidated financial statements reflect all adjustments necessary (consisting only of normal recurring adjustments) for a fair presentation of such financial data. Our results for the three-month period ended March 31, 2001 are not necessarily indicative of the eventual results for the year. We have provided pro forma information for us as at and for the three-month period ended March 31, 2001 and for the fiscal year ended December 31, 2000 to show the effect of the acquisition of 100% of UNS as if it had occurred on January 1, 2000. We derived the selected pro forma data set forth below from our pro forma consolidated condensed financial statements that are included elsewhere in this prospectus. The pro forma financial information is based upon available information and assumptions we believe are reasonable. The pro forma financial information is provided for informational purposes only and is not indicative of our operating results or financial position had the acquisition of UNS occurred at January 1, 2000, nor is it necessarily indicative of future combined operating results or financial position. You should read the data below in conjunction with the consolidated financial statements, unaudited pro forma consolidated condensed financial statements and related notes, the financial information and "Management's Discussion and Analysis of Results of Operations and Financial Condition" included elsewhere in this prospectus. We changed our fiscal year end from March 31 to December 31, commencing December 31, 1999, in order to facilitate comparison of our operating results to those of other companies in the transportation industry. 23 29
THREE MONTHS ENDED MARCH 31, FISCAL YEARS ENDED --------------------------------------- ---------------------------------------- PRO FORMA PRO FORMA DEC. 31, DEC. 31, DEC. 31, 2001(1) 2001 2000 2000(1) 2000 1999 --------- ---- ---- --------- -------- -------- (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (NINE MONTHS) (IN THOUSANDS, EXCEPT RATIOS AND PER DAY DATA) INCOME STATEMENT DATA: Voyage revenues....................... $ 325,074 $ 307,886 $ 182,262 $ 962,307 $ 893,226 $ 377,882 Voyage expenses....................... 63,658 62,730 62,195 248,957 248,957 129,532 ---------- ---------- ---------- --------- ---------- ---------- Net voyage revenues................... 261,416 245,156 120,067 713,350 644,269 248,350 ---------- ---------- ---------- --------- ---------- ---------- Operating expenses: Vessel operating expenses(2)......... 38,250 33,879 34,769 146,075 125,415 98,780 Time charter hire expense............ 17,183 17,183 12,966 53,547 53,547 30,681 Depreciation and amortization expense............................ 32,675 27,521 25,042 123,297 100,153 68,299 General and administrative expense... 12,045 10,838 9,522 43,445 37,479 27,018 ---------- ---------- ---------- --------- ---------- ---------- Total operating expenses.............. 100,153 89,421 82,299 366,364 316,594 224,778 ---------- ---------- ---------- --------- ---------- ---------- Income from vessel operations......... 161,263 155,735 37,768 346,986 327,675 23,572 Interest expense...................... (21,343) (14,786) (19,989) (106,500) (74,540) (44,996) Interest income....................... 3,000 2,803 3,253 15,090 13,021 5,842 Other income (loss)................... 2,177 936 (1,092) 9,978 3,864 (4,013) ---------- ---------- ---------- --------- ---------- ---------- Net income (loss) before extraordinary loss................................. 145,097 144,688 19,940 265,554 270,020 (19,595) Extraordinary loss on bond Redemption........................... -- -- -- -- -- -- ---------- ---------- ---------- --------- ---------- ---------- Net income (loss)..................... $ 145,097 $ 144,688 $ 19,940 $ 265,554 $ 270,020 $ (19,595) ========== ========== ========== ========= ========== ========== BALANCE SHEET DATA (AT END OF PERIOD): Cash and marketable securities........ $ 268,655 $ 348,054 $ 253,749 -- $ 223,123 $ 226,381 Total assets.......................... 2,470,621 2,518,332 1,988,367 -- 1,974,099 1,982,684 Total debt............................ 1,108,694 1,108,694 1,074,561 -- 797,484 1,085,167 Total stockholders' equity............ 1,234,780 1,234,780 844,727 -- 1,098,512 832,067 OTHER FINANCIAL DATA: EBITDA(3)............................. $ 203,000 $ 188,978 $ 66,862 $ 504,127 $ 451,066 $ 95,875 EBITDA to interest expense(3)(4)...... 9.4x 13.0x 3.4x 4.8x 6.1x 2.1x Total debt to LTM EBITDA(3)(5)........ 1.8x 1.9x 6.8x -- 1.8x 8.3x Total debt to total Capitalization(6).................... 46.9% 46.0% 55.9% -- 42.1% 56.6% Net debt to total capitalization(7)... 40.1% 36.9% 49.2% -- 34.2% 50.7% Ratio of earnings to fixed charges(8)........................... 7.6x 10.8x 2.0x 3.5x 4.6x 0.6x Cash earnings(9)...................... $ 181,276 $ 174,832 $ 45,165 $ 389,626 $ 372,168 $ 43,343 Capital expenditures: Vessel purchases, gross(10).......... 13,102 1,394 550 143,601 43,512 23,313 Drydocking........................... 2,240 2,240 2,500 16,467 11,941 6,598 TOTAL FLEET DATA(11): Average number of ships............... 79 73 73 80 72 65 Average age of our fleet (in years at end of period)....................... 9.2 9.2 8.4 9.2 9.0 8.4 Operating cash flow per ship per day(12).......................... $ 27,535 $ 28,300 $ 9,851 $ 16,183 $ 16,687 $ 5,177 SPOT AFRAMAX FLEET DATA(13): Average number of ships............... 58 58 61 59 59 55 Average age of our fleet (in years at end of period)....................... 8.7 8.7 7.6 8.3 8.3 7.4 TCE per ship per day(14).............. $ 43,720 $ 43,720 $ 19,016 $ 27,138 $ 27,138 $ 13,462 Vessel operating expenses per ship per day(2)........................... 5,307 5,307 5,217 4,980 4,980 5,621 Operating cash flow per ship per day(12).......................... 32,351 32,351 10,441 18,145 18,145 4,731 FISCAL YEARS ENDED ------------------------------------ MAR. 31, MAR. 31, MAR. 31, 1999 1998 1997 -------- -------- -------- (IN THOUSANDS, EXCEPT RATIOS AND PER DAY DATA) INCOME STATEMENT DATA: Voyage revenues....................... $ 411,922 $ 406,036 $ 382,249 Voyage expenses....................... 93,511 100,776 102,037 ---------- ---------- ---------- Net voyage revenues................... 318,411 305,260 280,212 ---------- ---------- ---------- Operating expenses: Vessel operating expenses(2)......... 84,397 70,510 72,586 Time charter hire expense............ 29,666 10,627 3,461 Depreciation and amortization expense............................ 93,712 94,941 90,698 General and administrative expense... 25,002 21,542 19,209 ---------- ---------- ---------- Total operating expenses.............. 232,777 197,620 185,954 ---------- ---------- ---------- Income from vessel operations......... 85,634 107,640 94,258 Interest expense...................... (44,797) (56,269) (60,810) Interest income....................... 6,369 7,897 6,358 Other income (loss)................... 5,506 11,236 2,824 ---------- ---------- ---------- Net income (loss) before extraordinary loss................................. 52,712 70,504 42,630 Extraordinary loss on bond Redemption........................... (7,306) -- -- ---------- ---------- ---------- Net income (loss)..................... $ 45,406 $ 70,504 $ 42,630 ========== ========== ========== BALANCE SHEET DATA (AT END OF PERIOD): Cash and marketable securities........ $ 132,256 $ 115,254 $ 117,523 Total assets.......................... 1,452,220 1,460,183 1,372,838 Total debt............................ 641,719 725,369 699,726 Total stockholders' equity............ 777,390 689,455 629,815 OTHER FINANCIAL DATA: EBITDA(3)............................. $ 186,069 $ 209,582 $ 191,632 EBITDA to interest expense(3)(4)...... 4.0x 3.8x 3.2x Total debt to LTM EBITDA(3)(5)........ 3.5x 3.5x 3.7x Total debt to total Capitalization(6).................... 45.2% 51.3% 52.6% Net debt to total capitalization(7)... 39.6% 46.9% 48.0% Ratio of earnings to fixed charges(8)........................... 2.1x 2.3x 1.7x Cash earnings(9)...................... $ 146,489 $ 165,575 $ 133,554 Capital expenditures: Vessel purchases, gross(10).......... 85,445 197,199 65,104 Drydocking........................... 11,749 18,376 16,559 TOTAL FLEET DATA(11): Average number of ships............... 47 43 41 Average age of our fleet (in years at end of period)....................... 8.7 7.8 8.2 Operating cash flow per ship per day(12).......................... $ 11,171 $ 12,682 $ 11,819 SPOT AFRAMAX FLEET DATA(13): Average number of ships............... 43 42 41 Average age of our fleet (in years at end of period)....................... 8.0 7.6 7.9 TCE per ship per day(14).............. $ 19,576 $ 21,373 $ 20,356 Vessel operating expenses per ship per day(2)........................... 4,969 4,554 4,922 Operating cash flow per ship per day(12).......................... 10,903 12,664 11,819
(Footnotes on following page) 24 30 (1) Represents actual amounts as adjusted to give effect to the acquisition of 100% of UNS, as if it had occurred on January 1, 2000. See unaudited pro forma consolidated condensed financial statements included elsewhere in this prospectus. The primary adjustments were (a) an increase in depreciation and amortization expense relating to the amortization of goodwill arising upon the acquisition of UNS, (b) an increase in interest expense as if we had borrowed funds under our revolving credit facilities to finance the acquisition, and (c) an increase in other income to reverse the expense related to the minority interest portion of UNS' results for the period March 6, 2001 to March 31, 2001. (2) Vessel operating expenses comprise all expenses relating to the operation of vessels (other than voyage expenses), including crewing, repairs and maintenance, insurance, stores and lubes, and communications expenses. Voyage expenses also comprise all expenses relating to particular voyages, including bunker fuel expenses, port fees, canal tolls, and brokerage commissions. Ship days are calculated on the basis of a 365-day year multiplied by the average number of owned vessels in our fleet for the respective year. Vessel operating expenses exclude vessels time- chartered-in. (3) EBITDA represents net income (loss) before extraordinary items, interest expense, income tax expense, depreciation and amortization expense, minority interest, and gains or losses arising from prepayment of debt, foreign exchange translation and disposal of assets. EBITDA is included because such data is used by certain investors to measure a company's financial performance. EBITDA is not required by accounting principles generally accepted in the United States and should not be considered as an alternative to net income or any other indicator of our performance required by accounting principles generally accepted in the United States. (4) For purposes of computing EBITDA to interest expense, interest expense includes capitalized interest but excludes amortization of loan costs. (5) Total debt to LTM EBITDA represents total debt as of the end of the period compared to EBITDA for the 12-month period then ended. (6) Total capitalization represents total debt, minority interest and total stockholders' equity. (7) Net debt represents total debt less cash, cash equivalents and marketable securities. Total capitalization represents net debt, minority interest and total stockholders' equity. (8) For purposes of computing the ratio of earnings to fixed charges, earnings consist of net income (loss) before extraordinary items, income taxes, minority interest expense, equity income, interest expense, amortization of deferred financing costs and amortization of capitalized interest. Fixed charges consist of interest expense, capitalized interest and amortization of deferred financing costs. (9) Cash earnings represents net income (loss) before extraordinary items, foreign exchange gains (losses), and depreciation and amortization expense. Cash earnings is included because it is used by certain investors to measure a company's financial performance as compared to other companies in the shipping industry. Cash earnings is not required by accounting principles generally accepted in the United States and should not be considered as an alternative to net income or any other indicator of our performance required by accounting principles generally accepted in the United States. (10) Excludes vessels purchased in connection with our corporate acquisitions of Bona Shipbuilding Ltd. in 1999 and UNS in 2001. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." (11) Excludes vessels of our joint ventures, newbuildings and one Aframax tanker that has been subject to a bareboat charter. 25 31 (12) Operating cash flow represents income from vessel operations plus depreciation and amortization expense (other than drydock amortization expense). Ship days are calculated on the basis of a 365-day fiscal year multiplied by the average number of vessels in our fleet for the respective year (excluding vessels of our joint ventures). Operating cash flow is not required by accounting principles generally accepted in the United States and should not be considered as an alternative to net income or any other indicator of our performance required by accounting principles generally accepted in the United States. (13) Includes our core Aframax fleet that operates primarily in the spot charter market and excludes vessels that operate primarily under long-term fixed-rate contracts, including our ten Aframax-size shuttle tankers and our Aframax-size Australian-crewed vessels. TCE and vessel operating expense data is separately presented only for this portion of our fleet because the remainder of our fleet generally has varying revenues and expense characteristics that make period-to-period comparisons not meaningful. Also excludes one Aframax tanker that has been subject to a bareboat charter and Aframax tankers of our joint ventures. (14) TCE is a measure of the revenue performance of a vessel, which, on a per voyage basis, is generally determined by Clarkson Research Studies Inc. ("Clarkson") and other industry data sources by subtracting voyage expenses (except commissions) which are incurred in transporting cargo from gross revenue per voyage and dividing the remaining revenue by the total number of days required for the round-trip voyage. For purposes of calculating our average TCE for the year, TCE has been calculated consistent with Clarkson's method, by deducting total voyage expenses (except commissions) from total voyage revenues and dividing the remaining sum by our total voyage days in the year. See "Exhibit A -- Definitions of Shipping Terms." 26 32 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS You should read the following discussion together with the financial statements, including the related notes, and the other financial information appearing elsewhere in this prospectus, as well as the risks described in the "Risk Factors" section. We changed our fiscal year end from March 31 to December 31, commencing December 31, 1999, in order to facilitate comparison of our operating results to those of other companies in the transportation industry. OVERVIEW Teekay is a leading provider of international crude oil and petroleum product transportation services through the world's largest fleet of medium-size oil tankers. Our modern fleet of 95 tankers (including three newbuildings, seven vessels time-chartered-in and six vessels owned by joint ventures) provides transportation services to major oil companies, major oil traders and government agencies worldwide. We believe our Aframax fleet is approximately three times larger than that of our nearest direct Aframax competitor. Through our recent acquisition of Ugland Nordic Shipping ASA, we are also the largest owner of shuttle tankers, which engage in the transportation of oil from offshore production platforms to onshore storage and refinery facilities. We estimate that our market share is approximately 25% in the Indo-Pacific Basin Aframax market and approximately 10% in the Atlantic region Aframax market, based on tankers trading in those regions that are 20 years old or younger, and we estimate that our market share is approximately 25% of the world shuttle tanker market. During fiscal 2000, approximately 82% of our net voyage revenues were derived from spot voyages or time charters and contracts of affreightment priced on a spot market basis. Time charters refer to vessels chartered to customers for a fixed period and contracts of affreightment refer to contracts where we carry an agreed quantity of cargo for a customer over a specified trade route within a specified period of time. During fiscal 2000, approximately 68% of our net voyage revenues were generated from spot voyages and approximately 14% of our net voyage revenues were generated from spot market-based time charters and contracts of affreightment. The remaining 18% of our net voyage revenues during fiscal 2000 were derived from fixed-rate time-charters and contracts of affreightment. Our dependence on the spot market contributes to the volatility of our revenues, cash flow from operations, and net income. Historically, the tanker industry has been cyclical, experiencing volatility in profitability and asset values resulting from changes in the supply of, and demand for, vessel capacity. In addition, tanker markets have historically exhibited seasonal variations in charter rates. Tanker markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere and unpredictable weather patterns that tend to disrupt vessel scheduling. ACQUISITION OF UGLAND NORDIC SHIPPING ASA As of March 31, 2001, we had purchased approximately a 64% interest in UNS (9% of which we had purchased in 2000), the world's largest shuttle tanker owner, for $143.9 million. As of April 26, 2001, we acquired an additional 34% interest for $75.2 million, giving us a total interest in UNS of 98%. As of June 1, 2001, we had purchased the remaining 2% of UNS. The total purchase price for the outstanding shares of UNS was approximately $223.3 million (including estimated transaction expenses of $7.0 million). UNS controls a modern fleet of 18 vessels that engage in the transportation of oil from offshore production platforms to onshore storage and refinery facilities. The UNS fleet has an average age of 8.5 years (excluding three newbuildings), and operates primarily in the North Sea under long-term fixed- rate contracts. In addition, as of June 1, 2001, UNS owned approximately 14.4% of the publicly traded 27 33 company Nordic American Tankers Shipping Ltd., the owner of three Suezmax tankers on a long-term contract to BP. For the year ended December 31, 2000, UNS earned net voyage revenues of approximately $69.1 million, resulting in income from vessel operations of approximately $23.8 million and net income of approximately $15.4 million. These amounts reflect the conversion from accounting principles generally accepted in Norway to accounting principles generally accepted in the United States. The acquisition of UNS has been accounted for using the purchase method of accounting, based upon preliminary estimates of fair value. The operating results of UNS have been reflected in our financial statements on a 100% basis commencing March 6, 2001, the effective date that we acquired a majority interest in UNS. Minority interest expense, which is included as part of other income (loss), has been recorded to reflect the minority shareholders' share of UNS' net income for the period from March 6, 2001 to March 31, 2001. Since UNS derives a majority of its revenues from long-term fixed-rate contracts, the percentage of our fleet that will be dependent on the spot tanker market is expected to decline. Giving effect to the acquisition of UNS as if it had occurred on January 1, 2000, our pro forma net voyage revenues from fixed-rate time-charters and contracts of affreightment during the fiscal year ended December 31, 2000 and the three months ended March 31, 2001 would have been 25% and 18%, respectively, compared to 18% and 12% when excluding UNS. ACQUISITION OF BONA SHIPHOLDING LTD. In June 1999, we acquired Bona Shipholding Ltd. ("Bona"), then a leading operator of medium-size tankers, for aggregate consideration (including transaction expenses) of approximately $450 million, consisting of approximately $40 million in cash, $294 million of assumed debt (net of cash acquired), and the balance in shares of our common stock. Through its fleet of primarily Aframax tankers and oil/bulk/ore carriers ("O/B/Os"), Bona engaged in the transportation of oil, oil products, and dry bulk commodities, primarily in the Atlantic region. The acquisition of Bona was accounted for using the purchase method of accounting and did not result in the recording of any goodwill. We capitalized acquisition expenses by adding them to the capitalized value of acquired vessels whose values were written down and amortized the expenses over the remaining life of the vessels. Under the purchase method of accounting, Bona's operating results are reflected in our financial statements commencing after June 11, 1999, the effective date of the acquisition. Prior to the Bona acquisition, we depreciated our vessels for accounting purposes over an economic life of 20 years down to estimated residual values. Bona depreciated its vessels over an economic life of 25 years down to estimated scrap values, which method is used by the majority of companies in the shipping industry. Effective April 1, 1999, we changed, on a prospective basis, our useful life estimate to 25 years. All O/B/Os owned by Bona are operated through an O/B/O pool managed by a subsidiary of Bona. Net voyage revenues from the O/B/O pool are currently included on a 100% basis in Teekay's consolidated financial statements, with the minority participants' share of the O/B/O pool's net voyage revenues reflected as a time charter hire expense. RECENT TANKER MARKET TRENDS In 1999, oil production cutbacks by OPEC producers resulted in a significant drawdown of world oil inventory levels, lowering tanker demand and TCE rates, and increasing scrapping. As a result, our Aframax fleet earned an average of $14,203 in TCE during calendar 1999. In 2000, tanker demand and TCE rates improved significantly as increased oil demand and replenishment of low inventory levels supported production increases throughout the year. OPEC responded to this escalating oil demand with four production increases during 2000: 1.7 mbpd (million 28 34 barrels per day) in March, 0.7 mbpd in June, 0.8 mbpd in September and 0.5 mbpd in November. Overall, OPEC increased production by 3.7 mbpd during 2000. Global oil production increased from an average 74.1 mbpd in 1999 to 76.7 mbpd in 2000. Oil production in the fourth quarter of 2000 peaked at 78.2 mbpd. The tanker market in 2000 was driven not only by transitory cyclical events but also by positive structural developments in the tanker industry. A number of high profile oil spills involving old tankers increased charterers' preference for modern high-quality tankers and, consequently, the freight differential customers were willing to pay to charter these ships. As a result of those factors, our Aframax fleet earned an average of $27,138 in TCE in 2000, or a 91% increase over the prior year. OPEC has decreased scheduled production by 1.5 mbpd in February 2001 and 1.0 mbpd in April 2001 due to seasonally weaker demand in the spring quarter. However, industry sources anticipate that OPEC will raise production later this year to meet winter demand. The International Energy Agency estimates that global oil demand will increase by 1.2% in 2001, compared with 0.9% in 2000. Much of the incremental production required to meet this increase in oil demand is expected to come from the Middle East, which would particularly increase tanker demand by requiring long-haul tanker transportation to markets. Newbuilding deliveries into the world fleet in 2001 are expected to be 16.9 mdwt (million deadweight tons), well below the 21.2 mdwt delivered in 2000. As of May 31, 2001, 7.7 mdwt of newbuildings had been delivered in 2001. With the newbuilding orderbook full for 2001 and 2002, the typical lead time for delivery of a new vessel is now into late-2003. Both of these elements should continue to constrain tanker supply. In April 2001, the International Maritime Organization (IMO) -- the United Nation's specialized agency responsible for improving maritime safety and preventing pollution from ships -- adopted legislation accelerating the phase-out of single-hull tankers. Under prior IMO regulations, single-hull tankers would be phased out of the world tanker fleet at age 30. The new regulations accelerate the phase-out from 30 years in 2003 to 26 years in 2007 for single-hull tankers, which would affect approximately 30% of the current world tanker fleet by the end of 2007. See "Business -- Regulation." Together, we believe the factors discussed above create a positive outlook for the TCE rate environment for the near term. RESULTS OF OPERATIONS Historically, our business has been dominated by the spot charter market, including time charters priced on a spot market basis. In the spot market, bulk shipping industry freight rates are commonly measured at the net voyage revenue level in terms of TCE, or "time charter equivalent" rates, defined as (1)(a) voyage revenues less (b) voyage expenses (excluding commissions), (2) divided by voyage ship-days for the round-trip voyage. Voyage revenues and voyage expenses are a function of the type of charter, either spot charter or time charter, and port, canal and fuel costs depending on the trade route upon which a vessel is sailing, in addition to being a function of the level of shipping freight rates. For this reason, shipowners operating in the spot market base economic decisions regarding the deployment of their vessels upon anticipated TCE rates, and industry analysts typically measure bulk shipping freight rates in terms of TCE rates. Accordingly, the discussion of revenue below focuses on net voyage revenue and TCE rates. TCE rates are dependent on oil production levels, oil consumption growth, the number of vessels scrapped, the number of newbuildings delivered and charterers' preference for modern tankers. As a result of our dependence on the tanker spot market, any fluctuations in Aframax TCE rates will impact our revenues and earnings. 29 35 QUARTER ENDED MARCH 31, 2001 VERSUS QUARTER ENDED MARCH 31, 2000 Our average Aframax TCE rates increased significantly in the first quarter of 2001, compared to the first quarter of 2000, due to increased demand for modern tankers, arising from increased oil production and discrimination against older tankers by charterers. The OPEC decrease in oil production in February 2001 in anticipation of the seasonal reduction in crude oil demand, which typically occurs during the second quarter, caused Aframax TCE rates to decline at the end of the quarter from the high levels experienced during the most recent winter. Our average fleet size was 1.8% lower in the quarter ended March 31, 2001, compared to the same quarter in 2000, due to the sale of two older tankers in March 2000, partially offset by the acquisition of UNS in March 2001. NET VOYAGE REVENUE. Net voyage revenues increased 104.2% to $245.2 million in the quarter ended March 31, 2001, compared to a $120.1 million for the same quarter last year. This is primarily the result of a 112.2% increase in our average TCE rate to $39,754 in the quarter ended March 31, 2001, from $18,734 in the same quarter last year. VESSEL OPERATING EXPENSE. Vessel operating expenses, which include crewing, repairs and maintenance, insurance, stores and lubes, and communication expenses, decreased 2.6% to $33.9 million in the quarter ended March 31, 2001, from $34.8 million in the same quarter last year, mainly as a result of the reduction in our average fleet size. TIME-CHARTER HIRE EXPENSE. Time-charter hire expense increased to $17.2 million in the quarter ended March 31, 2001, from $13.0 million in the same quarter last year, primarily due to an increase in the average TCE rates earned in the O/B/O pool, which we manage. The minority participants' share of the O/B/O pool's net voyage revenues, which is reflected as a time-charter hire expense, was $9.4 million for the quarter ended March 31, 2001, compared to $5.5 million for the quarter ended March 31, 2000. The average number of vessels time-chartered-in by us was five, excluding the O/B/Os, in the quarter ended March 31, 2001, unchanged from the same quarter last year. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased 9.9% to $27.5 million in the quarter ended March 31, 2001, from $25.0 million in the same quarter last year, mainly due to the acquisition of UNS and an increase in drydock amortization expense. Depreciation and amortization expense included amortization of drydocking costs of $3.0 million in the quarter ended March 31, 2001, compared to $2.2 million in the same quarter last year. GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses increased 13.8% to $10.8 million in the quarter ended March 31, 2001, from $9.5 million in the same quarter last year, primarily as a result of the payment of senior management bonuses in the quarter ended March 31, 2001 and the acquisition of UNS during the quarter. INTEREST EXPENSE. Interest expense decreased 26.0% to $14.8 million in the quarter ended March 31, 2001, from $20.0 million in the same quarter last year, reflecting lower interest rates and a lower average debt balance due to principal prepayments. INTEREST INCOME. Interest income decreased 13.8% to $2.8 million in the quarter ended March 31, 2001, as compared to $3.3 million in the same quarter last year, mainly as a result of lower interest rates. OTHER INCOME/LOSS. Other income of $0.9 million in the quarter ended March 31, 2001 was comprised of a gain on the disposition of marketable securities and equity income from joint ventures, partially offset by minority interest, foreign exchange loss and income taxes. Other loss of $1.1 million in the quarter ended March 31, 2000, primarily reflected the loss on the disposition of vessels and equipment. 30 36 NET INCOME. As a result of the foregoing factors, our net income was $144.7 million in the quarter ended March 31, 2001, compared to net income of $19.9 million in the quarter ended March 31, 2000, due mainly to the improvement in Aframax TCE rates. YEAR ENDED DECEMBER 31, 2000 VERSUS NINE MONTHS ENDED DECEMBER 31, 1999 As a result of our change in fiscal year end from March 31 to December 31, commencing December 31, 1999, the fiscal 2000 results are for the twelve month period ended December 31, 2000, while the comparative fiscal period's results are for the nine month period ended December 31, 1999. Where indicated in the following discussions, percentage change figures reflect the annualized results for the nine month period ended December 31, 1999. We annualized the results by multiplying our results for the nine month period by 4/3. The annualized results for the nine month period ended December 31, 1999 are not necessarily indicative of those for a full 12-month period. The results for the nine month period ended December 31, 1999 include the results of Bona commencing on its acquisition in June 1999. On an annualized basis, our average fleet size increased 9.0% in the year ended December 31, 2000 compared to the nine month period ended December 31, 1999. Average Aframax TCE rates increased significantly in 2000 compared to the nine month period ended December 31, 1999, due to increased demand for modern tankers that arose from increased oil production and discrimination against older tankers by charterers. NET VOYAGE REVENUE. Net voyage revenues were $644.3 million in the year ended December 31, 2000, as compared to $248.4 million in the nine month period ended December 31, 1999, representing a 94.6% increase on an annualized basis from the nine month period ended December 31, 1999. This is mainly the result of a 81.2% increase in the average TCE rate earned by our fleet, to $25,661 for the year ended December 31, 2000, from $14,165 for the nine month period ended December 31, 1999. As of December 31, 1999, we changed the process of estimating net voyage revenues from a load port-to-load port basis to a discharge port-to-discharge port basis, which is consistent with most other shipping companies. This change in voyage estimate resulted in a one-time increase in net voyage revenues of $5.7 million for the nine month period ended December 31, 1999. VESSEL OPERATING EXPENSE. Vessel operating expenses increased to $125.4 million in the year ended December 31, 2000 from $98.8 million in the nine month period ended December 31, 1999, representing a 4.8% decrease on an annualized basis. This decrease was mainly the result of lower per-day operating expenses arising from the application of our lower cost structure to the Bona fleet. This decrease was partially offset by the increase in our average fleet size. TIME-CHARTER HIRE EXPENSE. Time-charter hire expense was $53.5 million in the year ended December 31, 2000, up from $30.7 million in the nine month period ended December 31, 1999, representing a 30.7% increase on an annualized basis. This increase is primarily due to an increase in the minority participants' share of the O/B/O pool's net voyage revenues, which was $26.3 million for the year ended December 31, 2000, compared to $10.5 million in the nine month period ended December 31, 1999. This was caused by an improvement in the average TCE rate earned in the O/B/O pool and the inclusion of Bona's operating results, which includes the O/B/O vessels, for only part of the previous fiscal period from June 11, 1999. The average number of vessels that we time-chartered-in, excluding the O/B/Os, was five in the year ended December 31, 2000, compared to four in the nine month period ended December 31, 1999. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense increased to $100.2 million in the year ended December 31, 2000, from $68.3 million in the nine month period ended December 31, 1999, representing a 10.0% increase on an annualized basis. This increase primarily reflects the increase in our average fleet size arising from the acquisition of Bona. Depreciation and amortization expense included amortization of drydocking costs of $9.2 million in the year ended December 31, 2000, compared to $6.3 million in the nine month period ended December 31, 1999. 31 37 GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses were $37.5 million in the year ended December 31, 2000, as compared to $27.0 million in the nine month period ended December 31, 1999, representing a 4.0% increase on an annualized basis. This increase is primarily a result of the acquisition of Bona, partially offset by overhead cost savings related to the acquisition. INTEREST EXPENSE. Interest expense increased to $74.5 million in the year ended December 31, 2000 from $45.0 million in the nine month period ended December 31, 1999, representing a 24.2% increase on an annualized basis. This increase reflects an increase in interest rates and the additional debt assumed as part of the Bona acquisition. INTEREST INCOME. Interest income increased to $13.0 million in the year ended December 31, 2000 from $5.8 million in the nine month period ended December 31, 1999. On an annualized basis, interest income increased by 67.2% as a result of increased interest rates and higher cash and marketable securities balances. OTHER INCOME. Other income of $3.9 million in the year ended December 31, 2000 consisted primarily of equity income from a 50%-owned joint venture, partially offset by future income taxes related to our Australian ship-owning subsidiaries, and losses on the sale of two vessels. Other loss of $4.0 million in the nine month period ended December 31, 1999 consisted primarily of future income taxes related to our Australian ship-owning subsidiaries and one-time employee and severance-related costs, partially offset by equity income from the 50%-owned joint venture. NET INCOME. As a result of the foregoing factors, net income was $270.0 million in the year ended December 31, 2000, compared to a net loss of $19.6 million in the nine month period ended December 31, 1999. The results for the year ended December 31, 2000 include losses on the disposition of assets of $1.0 million. There were no extraordinary items and no asset dispositions in the nine month period ended December 31, 1999. NINE MONTHS ENDED DECEMBER 31, 1999 VERSUS YEAR ENDED MARCH 31, 1999 As a result of our change in fiscal year end from March 31 to December 31, the results for the nine month period ended December 31, 1999, are compared to the results for the twelve month period ended March 31, 1999. Where indicated in the following discussions, percentage change figures reflect the annualized results for the nine month period ended December 31, 1999. We annualized the results by multiplying our results for the nine month period by 4/3. The annualized results for the nine month period ended December 31, 1999 are not necessarily indicative of those for a full 12-month period. The results for the nine month period ended December 31, 1999 include the results of Bona commencing June 11, 1999. On an annualized basis, our average fleet size increased 39.5% in the nine month period ended December 31, 1999, compared to the year ended March 31, 1999. NET VOYAGE REVENUE. Net voyage revenues were $248.4 million in the nine month period ended December 31, 1999, as compared to $318.4 million in the year ended March 31, 1999, representing a 4.0% increase on an annualized basis from the year ended March 31, 1999. This is mainly the result of an increase in fleet size, partially offset by a 29.8% decrease in our average TCE rate, to $14,165 for the nine month period ended December 31, 1999, from $20,185 for the year ended March 31, 1999. Aframax TCE rates declined during the second half of 1998 and 1999 due to a reduction in tanker demand, oil production cutbacks and a large number of newbuilding deliveries. As of December 31, 1999, we changed the process of estimating net voyage revenues from a load port-to-load port basis to a discharge port-to-discharge port basis, which is consistent with most other shipping companies. This change in voyage estimate resulted in a one-time increase in net voyage revenues of $5.7 million for the nine month period ended December 31, 1999. VESSEL OPERATING EXPENSE. Vessel operating expenses increased to $98.8 million in the nine month period ended December 31, 1999 from $84.4 million in the year ended March 31, 1999, representing a 56.1% increase on an annualized basis. This increase was mainly the result of the addition of the Bona vessels, which had higher operating expenses than the remainder of our fleet. 32 38 TIME-CHARTER HIRE EXPENSE. Time-charter hire expense was $30.7 million in the nine month period ended December 31, 1999, up from $29.7 million in the year ended March 31, 1999, primarily due to the Bona acquisition. The minority pool participants' net voyage revenues in the O/B/O pool managed by a Bona subsidiary is reflected as time charter hire expense. The average number of Aframax vessels that we time-chartered-in was four in the nine month period ended December 31, 1999, the same as in the year ended March 31, 1999. DEPRECIATION AND AMORTIZATION. Depreciation and amortization expense decreased to $68.3 million in the nine month period ended December 31, 1999, from $93.7 million in the year ended March 31, 1999, representing a 2.8% decrease on an annualized basis. This reflects the change in estimated useful life of the vessels from 20 to 25 years, partially offset by the increase in fleet size arising from the acquisition of Bona. Depreciation and amortization expense included amortization of drydocking costs of $6.3 million and $8.6 million in the nine month period ended December 31, 1999 and in the year ended March 31, 1999, respectively. Had we retained our previous depreciation policy and applied this policy to the Bona fleet, depreciation expense would have been $22.5 million higher in the nine month period ended December 31, 1999. GENERAL AND ADMINISTRATIVE EXPENSE. General and administrative expenses were $27.0 million in the nine month period ended December 31, 1999, as compared to $25.0 million in the year ended March 31, 1999, representing a 44.1% increase on an annualized basis primarily as a result of the acquisition of Bona. INTEREST EXPENSE. Interest expense increased to $45.0 million in the nine month period ended December 31, 1999 from $44.8 million in the year ended March 31, 1999, representing a 33.9% increase on an annualized basis. This increase reflects the $386.0 million in additional debt assumed as part of the Bona acquisition and an increase in interest rates. INTEREST INCOME. Interest income decreased to $5.8 million in the nine month period ended December 31, 1999 from $6.4 million in the year ended March 31, 1999. On an annualized basis, interest income increased by 20.8% as a result of increased interest rates and higher cash and marketable securities balances. OTHER LOSS. Other loss of $4.0 million in the nine month period ended December 31, 1999 consisted primarily of future income taxes related to our Australian ship-owning subsidiaries and one-time employee and severance-related costs, partially offset by equity income from the 50%-owned joint venture. Other income of $5.5 million in the year ended March 31, 1999 consisted primarily of gains on the sale of vessels. NET INCOME/LOSS. As a result of the foregoing factors, net loss was $19.6 million in the nine month period ended December 31, 1999, compared to a net income of $45.4 million in the year ended March 31, 1999. The results for the year ended March 31, 1999 included an extraordinary loss of $7.3 million on the redemption of our 9 5/8% First Preferred Ship Mortgage Notes, and gains on asset sales of $7.1 million. There were no extraordinary items and no asset sales in the nine month period ended December 31, 1999. 33 39 The following table illustrates the relationship between fleet size (measured in ship-days), TCE performance, and operating results per calendar ship-day.
THREE MONTHS NINE MONTHS ENDED MARCH 31, YEAR ENDED ENDED YEAR ENDED ------------------ DECEMBER 31, DECEMBER 31, MARCH 31, 2001 2000 2000 1999 1999 -------- ------- ------------ ------------ ---------- SPOT AFRAMAX FLEET(1)(2): Average number of ships........ 58 61 59 55 43 Total calendar ship-days....... 5,251 5,531 21,621 15,173 15,612 Revenue generating ship-days (A).......................... 4,923 5,253 20,513 14,301 14,647 Net voyage revenue before commissions (B) (000s)....... $215,234 $99,891 $556,672 $192,522 $286,735 -------- ------- -------- -------- -------- TCE (B/A)...................... $ 43,720 $19,016 $ 27,138 $ 13,462 $ 19,576 -------- ------- -------- -------- -------- Operating results per calendar ship-day: Net voyage revenue............. $ 39,848 $17,516 $ 24,997 $ 12,310 $ 17,950 Vessel operating expense....... 5,307 1,217 4,980 5,621 4,969 General and administrative expense...................... 1,648 1,438 1,441 1,510 1,465 Drydocking expense............. 542 420 431 448 613 -------- ------- -------- -------- -------- Operating cash flow per calendar ship-day............ $ 32,351 $10,441 $ 18,145 $ 4,731 $ 10,903 ======== ======= ======== ======== ======== TOTAL FLEET(2): Operating cash flow per calendar ship-day............ $ 28,300 $ 9,851 $ 16,687 $ 5,177 $ 11,171 ======== ======= ======== ======== ========
- --------------- (1) Excludes Aframax-size shuttle tankers and Australian-crewed vessels. (2) Excludes vessels of our joint ventures, newbuildings and one Aframax tanker that has been subject to a bareboat charter. LIQUIDITY AND CAPITAL RESOURCES Our liquidity requirements relate to servicing our debt, funding capital expenditures and working capital and maintaining cash reserves against fluctuations in operating cash flow. Net cash flow generated by operations is our main source of liquidity. Additional sources of liquidity include proceeds from asset sales and refinancings. We operate in a capital-intensive industry requiring extensive investment in revenue-producing assets. Funds invested are raised mainly from borrowings and our internally generated liquidity. We are required to expend substantial sums in connection with the construction of newbuildings, with 10% to 20% of the purchase price typically paid upon order of the vessel and the remainder paid as progress payments prior to or on delivery one to three years later. The purchase price of second-hand vessels is typically paid in two installments, with 10% paid upon signing of the acquisition agreement and the remainder paid upon delivery of the vessel. As at March 31, 2001, our total liquidity, including cash, short-term marketable securities and undrawn long-term lines of credit, was $435.2 million, up from $339.4 million as at December 31, 2000, mainly as a result of the cash flow from operating activities earned during the quarter ended March 31, 2001, partially offset by the $97.1 million in cash used to purchase the UNS shares (net of $26.6 million in cash assumed from UNS). Net cash flow from operating activities increased to $164.5 million in the quarter ended March 31, 2001, from $40.2 million in the same quarter last year, mainly reflecting the increase in TCE rates. Net 34 40 cash flow from operating activities was $333.3 million in the year ended December 31, 2000, compared to $51.5 million in the nine month period ended December 31, 1999, and $137.7 million in the year ended March 31, 1999. Scheduled debt repayments were $5.8 million during the quarter ended March 31, 2001, compared to $0.6 million during the same quarter last year. Debt prepayments during the quarter ended March 31, 2001 totaled $92.1 million, which were used to reduce our two long-term revolving credit facilities (the "Revolvers"). Debt prepayments during the quarter ended March 31, 2000 totaled $10.0 million. Scheduled debt repayments were $63.8 million during the year ended December 31, 2000, compared to $32.3 million during the nine month period ended December 31, 1999, and $50.6 million in the year ended March 31, 1999. Our debt prepayments during the year ended December 31, 2000 totaled $429.9 million, of which $35.7 million represented the repurchase of some of our 8.32% First Preferred Ship Mortgage Notes and the balance of $394.2 million was used to reduce the Revolvers. Debt prepayments during the nine-month period ended December 31, 1999 was $10.0 million. As at March 31, 2001, our total debt was $1,108.7 million, compared to $797.5 million as at December 31, 2000, primarily due to debt existing at UNS at the time of our acquisition of UNS. Our total debt as at December 31, 1999 was $1,085.2 million. Our Revolvers provided for borrowings of up to $555.8 million as at March 31, 2001, of which $424.8 was drawn at that date. The amount available under the Revolvers reduces semi-annually with final balloon reductions in 2006 and 2008. The 8.32% Notes are due February 1, 2008 and are subject to a sinking fund, which will retire $45.0 million principal amount of the 8.32% Notes on each February 1, commencing 2004. Our outstanding term loans reduce in quarterly or semi-annual payments with varying maturities through 2009. As of March 31, 2001, our term loans outstanding totaled $494.6 million. The aggregate annual long-term debt principal repayments required to be made subsequent to March 31, 2001 were $122.4 million in 2001, $90.7 million in 2002, $158.4 million in 2003, $146.1 million in 2004, $146.0 million in 2005 and $445.1 million thereafter to 2009. Giving effect to the proposed application of the net proceeds of the offering of the outstanding notes to prepay certain outstanding debt would result in the following aggregate annual long-term debt principal repayments: $81.3 million in 2001, $60.0 million in 2002, $85.8 million in 2003, $111.8 million in 2004, $136.7 million in 2005 and $638.6 million thereafter to 2011. See "Use of Proceeds." Among other matters, our long-term debt agreements generally provide for such items as maintenance of certain vessel market value to loan ratios and minimum consolidated financial covenants, prepayment privileges (in some cases with penalties), and restrictions against the incurrence of new investments by the individual subsidiaries without prior lender consent. The amount of restricted payments that we can make, including dividends and purchases of our own capital stock, was limited as of March 31, 2001, to $380.4 million. Certain of the loan agreements require a minimum level of free cash be maintained. As at March 31, 2001, this amount was $26.0 million. Funding and treasury activities are conducted within corporate policies to minimize borrowing costs and maximize investment returns while maintaining the safety of the funds and appropriate liquidity for our purposes. Cash and cash equivalents are held primarily in U.S. dollars with some balances held in Japanese Yen, Singapore Dollars, Canadian Dollars, Australian Dollars, British Pounds and Norwegian Kroner. We use foreign currency contracts to manage risks associated with holding these currencies. We manage the impact of interest rate changes on earnings and cash flows through our interest rate structure. For the Revolvers, the interest rate structure is based on LIBOR plus a margin depending on our financial leverage. Interest payments on our term loans are based on LIBOR plus a margin. We use interest rate swaps to manage our interest rate risk. 35 41 Dividends declared during the quarter ended March 31, 2001 were $8.4 million, or 21.5 cents per share. Dividends declared during the year ended December 31, 2000 were $33.0 million, or 86 cents per share. During the quarter ended March 31, 2001, we incurred capital expenditures for vessels and equipment of $1.4 million. Cash expenditures for drydocking were $2.2 million in the quarter ended March 31, 2001 compared to $2.5 million over the same period last year. During the year ended December 31, 2000, we incurred capital expenditures for vessels and equipment of $43.5 million, consisting mainly of the purchase of a modern second-hand Aframax tanker and the conversion of an Aframax tanker to a floating storage and off-take vessel. Cash expenditures for drydocking were $11.9 million in the year ended December 31, 2000 compared to $6.6 million in the nine month period ended December 31, 1999 and $11.7 million in the year ended March 31, 1999. At March 31, 2001, UNS was committed to the construction of three newbuilding shuttle tankers, having an aggregate cost of approximately $160.8 million. A joint venture company, 50% owned by UNS, was committed to the construction of one additional newbuilding shuttle tanker, having an aggregate cost of approximately $63.4 million. The joint venture newbuilding was delivered in May 2001 and the remaining three newbuilding vessels are scheduled for delivery in 2002 and 2003. As of March 31, 2001, payments had been made towards these commitments of approximately $60.8 million (including $18.9 million for the joint venture) and long-term financing arrangements exist for approximately $122.3 million (including $44.5 million for the joint venture) of the unpaid cost of these vessels. We intend to finance the remaining unpaid amount of approximately $41.1 million, which includes our portion of the amounts owned by the 50%-owned joint venture, through either additional debt borrowings or surplus cash balances or a combination thereof. As of March 31, 2001, the remaining payments required to be made under these newbuilding contracts were: $67.0 million in 2001, $43.3 million in 2002 and $53.1 million in 2003. Of the $67.0 million due in 2001, $44.5 million was paid in May 2001 by our joint venture company for the final payment on the recently delivered newbuilding. We have guaranteed our share of the outstanding mortgage debt in three joint venture companies that are 50% owned by us. As of March 31, 2001, we guaranteed $92.8 million of such debt, or our 50% portion of the $185.6 million total debt of the joint venture companies. In April 2001, UNS purchased four shuttle tankers for $95.0 million. The purchase was financed with long term debt borrowings. Also in April 2001, a joint venture in which we own a 50% interest entered into an agreement to sell its three vessels, with deliveries scheduled between July and August 2001. As part of our growth strategy, we will continue to consider strategic opportunities, including the acquisition of additional vessels and expansion into new markets. We may choose to pursue such opportunities through internal growth, joint ventures, or business acquisitions. We intend to finance any future acquisitions through various sources of capital, including internally generated cash flow, existing credit lines, additional debt borrowings, and the issuance of additional shares of capital stock. MARKET RATE RISKS We are exposed to market risk from foreign currency and changes in interest rate fluctuations. We use forward currency contracts and interest rate swaps to manage these risks, but do not use financial instruments for trading or speculative purposes. FOREIGN EXCHANGE RATE RISK The international tanker industry's functional currency is the U.S. dollar. Virtually all of our revenues and most of our operating costs are in U.S. dollars. We incur certain operating expenses, drydocking, and overhead costs in foreign currencies, the most significant of which are Japanese Yen, Singapore Dollars, Canadian Dollars, Australian Dollars, British Pounds and Norwegian Kroner. During the three 36 42 months ended March 31, 2001, approximately 28% of vessel and voyage costs, overhead and drydock expenditures were denominated in these currencies. However, we have the ability to shift the purchase of goods and services from one country to another and, thus, from one currency to another, on relatively short notice. We enter into forward contracts as a hedge against changes in certain foreign exchange rates. As at March 31, 2001, we had $57.1 million in foreign exchange forward contracts that mature as follows: $28.3 million in 2001, $27.0 million in 2002, and $1.8 million in 2003. To the extent the hedge is effective, changes in the fair value of the forward contracts are either offset against the fair value of assets or liabilities through income, or recognized in other comprehensive income until the hedged item is recognized in income. The ineffective portion of a forward contract's change in fair value will be immediately recognized in income. INTEREST RATE RISK We invest our cash and marketable securities in financial instruments with maturities of less than six months within the parameters of our investment policy and guidelines. We use interest rate swaps to manage the impact of interest rate changes on earnings and cash flows. Changes in the fair value of the interest rate swaps are either offset against the fair value of assets or liabilities through income, or recognized in other comprehensive income until the hedged item is recognized in income. The ineffective portion of an interest rate swap's change in fair value will be immediately recognized in income. Premiums and receipts, if any, are recognized as adjustments to interest expense over the lives of the individual contracts. As at March 31, 2001, we were committed to a series of interest rate swap agreements whereby $145.0 million of floating rate debt was swapped with fixed rate obligations having a weighted average remaining term of 1.3 years, expiring between December 2001 and May 2004. These arrangements effectively change our interest rate exposure on $145.0 million of debt from a floating LIBOR rate to an average fixed rate of 6.46%. The following table sets forth the magnitude of these interest rate swap agreements and foreign exchange forward contracts:
CARRYING AMOUNT CONTRACT ------------------------ AMOUNT ASSET LIABILITY FAIR VALUE ---------- ---------- ---------- ----------- (IN THOUSANDS OF DOLLARS) MARCH 31, 2001: Foreign Exchange Forward Contracts....................... $ 57,148 -- $ 1,070 $ (1,070) Interest Rate Swap Agreements...... $ 145,000 -- $ 3,444 $ (3,444) Debt............................... $1,108,694 -- $1,108,694 $(1,114,372) DECEMBER 31, 2000: Foreign Exchange Forward Contracts....................... $ 62,125 -- -- $ 2,252 Interest Rate Swap Agreements...... $ 100,000 -- -- $ (1,297) Debt............................... $ 797,484 -- $ 797,484 $ (789,913) DECEMBER 31, 1999: Foreign Exchange Forward Contracts....................... $ 4,448 -- -- $ (20) Interest Rate Swap Agreements...... $ 200,000 -- -- $ 4,488 Debt............................... $1,085,167 -- $1,085,167 $(1,060,417)
INFLATION Although inflation has had a moderate impact on operating, drydocking and corporate overhead expenses, management does not consider inflation to be a significant risk to direct costs in the current and foreseeable economic environment. However, in the event that inflation becomes a significant factor in the world economy, inflationary pressures could result in increased operating and financing costs. 37 43 BUSINESS Teekay is a leading provider of international crude oil and petroleum product transportation services through the world's largest fleet of medium-size oil tankers. Our modern fleet of 95 tankers (including three newbuildings, seven vessels time-chartered-in and six vessels owned by joint ventures) provides transportation services to major oil companies, major oil traders and government agencies worldwide. We believe our Aframax fleet is approximately three times larger than that of our nearest direct Aframax competitor. Through our recent acquisition of Ugland Nordic Shipping ASA, we are also the largest owner of shuttle tankers, which engage in the transportation of oil from offshore production platforms to onshore storage and refinery facilities. We estimate that our market share is approximately 25% in the Indo-Pacific Basin Aframax market and approximately 10% in the Atlantic region Aframax market, based on tankers trading in those regions that are 20 years old or younger, and we estimate that our market share is approximately 25% of the world shuttle tanker market. We were founded in 1973 and are incorporated under the laws of the Republic of the Marshall Islands. We maintain our principal executive headquarters at TK House, Bayside Executive Park, West Bay Street & Blake Road, P.O. Box AP-59213, Nassau, Commonwealth of the Bahamas. Our telephone number at this address is (242) 502-8820. Our principal operating office is located at Suite 1400, One Bentall Centre, 505 Burrard Street, Vancouver, British Columbia, Canada, V7X 1M5. Our telephone number at that address is (604) 683-3529. ACQUISITION OF UGLAND NORDIC SHIPPING ASA We recently purchased UNS, the world's largest shuttle tanker owner. UNS' modern fleet of 18 vessels has an average age of 8.5 years (excluding three newbuildings) and operates primarily in the North Sea under long-term fixed-rate contracts. The total purchase price for the outstanding shares of UNS was approximately $223.3 million (including estimated transaction expenses of $7.0 million). The operating results of UNS have been reflected in our financial statements commencing March 6, 2001, the effective date that we acquired a majority interest in UNS. UNS's large scale and high quality shuttle tanker operations provide us with a strategic opportunity to enter this attractive market as a market leader. The acquisition also allows us to expand the portfolio of value-added services we offer to our customers. We believe that as offshore oil fields become more important to the global oil supply, the need for shuttle tanker services will increase. By combining our global franchise and UNS' expertise in the shuttle tanker market, we believe that the shuttle tanker business represents an area of significant growth for Teekay. The acquisition of UNS will also provide added stability to our cash flow throughout the business cycle, due to the long-term fixed-price nature of shuttle tanker contracts. THE INTERNATIONAL TANKER MARKET OVERVIEW International seaborne crude oil and other petroleum products transportation services are provided by two main types of operators: captive fleets of major oil companies (both private and state-owned) and independent ship owner fleets. Both types of operators transport oil under short-term contracts (including single-voyage "spot charters") and long-term time charters with oil companies, oil traders, large oil consumers, petroleum product producers and government agencies. The five largest oil companies own, or control through long-term time charters, approximately 10% of the current world tanker fleet. The oil companies' fleets transport their own oil, as well as oil for third-party charterers in direct competition with independent owners and operators. We believe that the seaborne oil transportation business is fragmented. According to industry data, as of March 31, 2001 the top 10 participants controlled approximately 27% of the world tanker fleet, in each case as measured by deadweight tonnage. At that date, the three largest owners by tonnage were Fredriksen Group, Mitsui O.S.K. Line, and Teekay, which controlled 5.3%, 3.6% and 3.1%, respectively, of the world tanker fleet. 38 44 A significant and ongoing shift toward quality in vessels and tanker operations has been taking place in the tanker industry over the past several years as charterers and regulators increasingly focus on safety and protection of the environment. The oil transportation industry has historically been subject to regulation by national authorities and through international conventions. Since 1990, there has been an increasing emphasis on environmental protection through legislation and regulations such as The United States Oil Pollution Act of 1990, International Maritime Organization regulations, international conventions and protocols and Classification Society procedures, all demanding higher-quality tanker construction, maintenance, repair, management and operations. Incidents such as the December 1999 sinking of the 24-year-old oil tanker Erika, which polluted more than 250 miles of the French coastline with heavy oil, have contributed to this focus on quality and further spurred regulatory action. As a result, oil companies acting as charterers, terminal operators, shippers and receivers are becoming increasingly selective in their acceptance of tankers, inspecting and vetting both vessels and companies on a periodic basis, and often exclude tankers on the basis of age alone. In calendar 2000, our vessels (excluding those acquired in our acquisition of UNS) were inspected over 350 times by oil companies and port states. We believe that the increasingly stringent regulatory environment and emphasis on quality relating to environmental protection will accelerate the obsolescence of older, poor-quality tankers and provide a competitive advantage and higher operating cash flow to modern tankers with high quality management. See "-- Our Fleet" "-- Crewing and Staff" and "-- Regulation." Pricing of oil transportation services occurs in the highly competitive and efficient global tanker charter market. While some business is conducted directly between ship owners and charterers, one or two brokers act as intermediaries in most transactions. Tanker chartering is executed around the clock in several shipping centers, including London, New York, Tokyo, Singapore and Oslo. Business is transacted regionally according to the location of the charterer or ship owner, rather than the location of the cargo's origin or destination. Time charters, as well as vessel sale and purchase transactions, are negotiated through brokers in the same centers in a similar pattern. In order to benefit from economies of scale, tanker charterers typically charter the largest possible vessel to transport oil or other petroleum products, consistent with port and canal dimensional restrictions and optimal cargo lot sizes. The oil tanker fleet is generally divided into the six major types of vessels, based on vessel carrying capacity, set forth below:
APPROXIMATE SIZE RANGE VESSEL TYPE (DEADWEIGHT TONNAGE) - ----------- ---------------------- Ultra Large Crude Carriers............................ 320,000 or more Very Large Crude Carriers............................. 200,000 to 320,000 Suezmax............................................... 120,000 to 200,000 Aframax............................................... 80,000 to 120,000 Panamax............................................... 60,000 to 80,000 Small Tankers......................................... Less than 60,000
Ultra and Very Large Crude Carriers typically transport crude oil in long-haul trades, such as from the Arabian Gulf to Rotterdam via the Cape of Good Hope. Because of the size of Ultra and Very Large Crude Carriers and their predominance in the long-haul trades, more than 42% of the world's seaborne oil transportation is conducted by these vessels. While the Ultra and Very Large Crude Carrier markets differ in several respects from smaller size tanker markets, Ultra and Very Large Crude Carriers have a significant influence on the tanker charter market in general. Suezmax-size tankers also engage in long-haul crude oil trades as well as in medium-haul crude oil trades, such as from West Africa to the U.S. East Coast. Aframax-size vessels generally engage in both medium- and short-haul trades of less than 1,500 miles and carry crude oil or petroleum products. Panamax-size and smaller tankers primarily transport petroleum products in short- to medium-haul trades. In addition to the six types of tankers listed above, oil/bulk/ore carriers and shuttle tankers are typically considered part of the world tanker fleet in industry statistics. As of May 31, 2001, oil/bulk/ore 39 45 carriers represented approximately 4.6% of the world tanker fleet based on total cargo capacity. Oil/bulk/ore carriers are of various sizes and are capable of carrying oil or dry bulk cargoes. According to industry data, at May 31, 2001, the world fleet of Aframax tankers consisted of 571 vessels, comprising 54.9 million deadweight tons and constituting approximately 17.6% of the vessels in the world tanker fleet. By virtue of their size, Aframax vessels are large enough to benefit from economies of scale yet have access to a wide range of size-restricted ports, and are particularly well-suited for trading in regional markets, including the Mediterranean, the Atlantic and the Indo-Pacific Basin. We estimate that we have approximately a 25% share of the Indo-Pacific Basin Aframax market and approximately a 10% share of the Atlantic region Aframax market, based on tankers trading in those regions that are 20 years old or younger. Each of these areas contains a large number of loading and discharging points capable of receiving Aframax size vessels. Aframax tankers in the Indo-Pacific Basin transport crude oil from three primary production locations -- the Arabian Gulf, Australia and Southeast Asia to refineries and storage points located short to long distances away. They also transport petroleum products in medium- and long-haul trades and engage in some inter-regional trades. Aframax tankers in the Atlantic region transport crude oil between the Caribbean and the U.S. Gulf of Mexico; between the U.K. and continental Europe; from North Africa to Europe; and across the Atlantic. SHUTTLE TANKER MARKET The shuttle tanker market has become an integral part of the offshore oil production business. Shuttle tankers are designed to transport oil from offshore production platforms, particularly floating production platforms, to onshore storage and refinery facilities. These vessels present an attractive alternative to sub-sea pipelines for oilfields that have shorter life spans or lower production volumes or that are positioned in deep water, conditions that generally make pipelines impractical. Shuttle tankers offer shorter establishment times, lower initial capital costs and lower maintenance costs than pipelines. The largest current market for shuttle tankers is the North Sea, which contains most of the world's offshore oil production platforms. The North Sea presents a demanding operating environment that requires technically sophisticated shuttle tankers. Although large offshore production platforms in the North Sea are likely to decline in the future as large fields are depleted, industry sources anticipate that North Sea offshore production in small fields and deep waters will drive continued demand for shuttle tankers in the region. In 1997, there were approximately 40 shuttle tankers transporting 35% of all North Sea oil production; in 2000, there were approximately 50 shuttle tankers transporting an estimated 55% of all North Sea oil production. We estimate that we have approximately a 25% share of the world shuttle tanker market. In addition to the North Sea, the main geographical locations we believe are best suited for shuttle tanker use include West Africa, Brazil, Canada, and the U.S. Gulf of Mexico. All of those locations include some or all of the following conditions that are conducive to the use of shuttle tankers: harsh environmental conditions due to weather, deep water, swell and currents, or little or no pipeline infrastructure. Barriers to entry into the shuttle tanker market include economies of scale, operational know-how, and capital. The majority of the 61 vessels in the world shuttle tanker fleet operate under long-term, fixed-rate contracts or contracts of affreightment. 40 46 INDUSTRY FUNDAMENTALS Tanker charter rates are strongly influenced by the demand for, and supply of, tanker capacity because of the highly competitive nature of the tanker charter market. Small changes in tanker utilization have historically led to relatively large changes in tanker charter rates. TANKER DEMAND. Tanker demand is expressed in "ton-miles" and is measured as the product of (a) the amount of oil transported in tankers, multiplied by (b) the distance over which this oil is transported. Tonnage of oil shipped is primarily a function of global oil consumption, which is driven by economic activity as well as the long-term impact of oil prices on the location and related volume of oil production. Tonnage of oil shipped is also influenced by transportation alternatives such as pipelines. The distance over which oil is transported is the more variable element of the ton-mile demand equation. It is determined by seaborne trading and distribution patterns, which are principally influenced by the locations of production and the optimal economic distribution of the production to destinations for refining and consumption. Seaborne trading patterns are also periodically influenced by geo-political events that divert tankers from normal trading patterns, as well as by inter-regional oil trading activity created by oil supply and demand imbalances. The overall increase in world oil demand in recent years has positively affected the development of the tanker market. World oil consumption increased at a compounded annual growth rate of 1.6% from 1995 through 2000 according to the International Energy Agency. Most of this incremental oil demand has been met by production from the Arabian Gulf. Oil from Arabian Gulf OPEC, which represented approximately 28% of the world oil supply in 2000, grew at a compounded annual growth rate of 2.7% from 1995 through 2000 and at a rate of 5.5% between 1999 and 2000. Incremental oil supply from the Arabian Gulf results in a more significant increase in demand for tanker services than incremental supply from other locations such as the North Sea and the Caribbean because of the greater distance from the Arabian Gulf to discharge points and the associated longer average length of voyage for oil tankers. For example, the average tanker tonnage required to ship the incremental supply of one million barrels per day from the Arabian Gulf to the United States is approximately 13 million deadweight tons, as compared to an average of approximately 5 million deadweight tons of tanker tonnage required to ship the incremental supply of one million barrels per day from the North Sea to the United States. For 2001, the International Energy Agency forecasts oil consumption growth at a rate of 1.2%, compared to 0.9% in 2000. Much of the spare capacity for oil supply is located in the Arabian Gulf region, which should have a positive effect on tanker demand. TANKER SUPPLY. The supply of tankers is a function of scrapping, new vessel deliveries and conversion and loss of tonnage. At any point in time, the level of scrapping activity is a function primarily of scrapping prices in relation to current and prospective charter market conditions and operating, repair and survey costs. Industry regulations also affect scrapping levels. For example, International Maritime Organization (IMO) regulations adopted in April 2001 change the phase-out age of single-hull vessels from 30 years in 2003 to 26 years in 2007. Aging vessels typically require substantial repairs and maintenance to conform to industry standards, including repairs made in connection with special surveys, which involve periodic thorough inspections. Insurance companies and customers rely to some degree on the survey and classification regime to provide reasonable assurance of a vessel's seaworthiness and vessels must be certified as "in-class" in order to continue to trade. Because the costs of maintaining a vessel in-class rise substantially as the age of the vessel increases, vessel owners often conclude that it is more economical to scrap a vessel that has exhausted its anticipated useful life than to upgrade it to maintain it in-class. In addition, the economics of operating older vessels are adversely affected by customer demand for the safety and reliability associated with more modern vessels, coupled with the higher rates and operating cost efficiencies available to newer vessels. According to industry data, scrapping of Aframax tankers occurred at an average of approximately 15 vessels per year for the period 1995 to 2000. As a result of the decline in Aframax TCE rates in 41 47 1999, scrapping increased dramatically, with 32 Aframax vessels being scrapped in 1999. As Aframax TCE rates increased in 2000, scrapping decreased, with a majority of the 17 scrappings in 2000 occurring during the first six months of that year. As of May 31, 2001, five Aframax tankers had been scrapped in 2001. The recent IMO regulations requiring the accelerated phase-out of single-hull tankers should result in the scrapping of approximately 28% of the world's existing Aframax fleet by the end of 2007. See "-- Regulation." The level of newbuilding orders is a function primarily of newbuilding prices in relation to current and prospective charter market conditions. Typically, delivery of a vessel occurs within 18 to 36 months after ordering. The correlation between the Aframax newbuilding orderbook and deliveries, and additional supply of tonnage competing in the world Aframax tanker market, is not precise since some of the newbuild vessels are expected to be employed in the offshore oil production industry or as coated product tankers that do not compete directly for crude oil shipping business. Newbuilding deliveries of Aframax tankers occurred at an annual average rate of 28 vessels for the period 1995 through 2000, with deliveries peaking in 1999 at 52 vessels. There have been no oil/bulk/ore carriers ordered since 1997, with the last vessel being delivered in 1999. There were 22 Aframax tankers delivered in 2000. At May 31, 2001, six Aframax tankers had been delivered during 2001, with an additional seven scheduled for delivery during the remainder of the year. The Aframax newbuilding orderbook at May 31, 2001 (including the remainder of 2001) contained orders for 101 vessels, equivalent to 19% of the existing fleet. COMPETITIVE STRENGTHS We pursue an intensively customer- and operations-focused business strategy designed to achieve superior operating results. We base our business strategy on the following five key competitive strengths: - MARKET CONCENTRATION. In each market that we address within the shipping industry, we seek to achieve significant scale and scope. This market concentration has enabled us to provide comprehensive coverage of charterers' requirements while also providing a base for efficient operation and a high degree of capacity utilization. We estimate that our market share is approximately 25% in the Indo-Pacific Basin Aframax market and approximately 10% in the Atlantic region Aframax market, based on tankers trading in those regions that are 20 years old or younger. Through our recent acquisition of UNS' shuttle tanker operations, we estimate that our market share is approximately 25% in the world shuttle tanker market. Our significant presence in these markets strategically positions us to deliver superior service to the oil industry on a global basis. - OPERATIONAL CONTROL AND EXPERIENCED MANAGEMENT. Teekay services substantially all of its operational and management needs in-house. We have experienced management in all functions critical to our operations, which provides us with a focused marketing effort, tight quality and cost controls and effective safety monitoring. - MODERN, HIGH-QUALITY TONNAGE. Our modern, high-quality tanker fleet operates with higher fuel efficiency and lower maintenance and operating costs compared to the world tanker fleet. We now control a fleet of 84 tankers (excluding three newbuildings and eight oil/bulk/ore carriers) with an average age of approximately 9 years. The average age for the world tanker fleet is approximately 13 years. In an environment of increasingly stringent operating and safety standards, we believe that the age profile and quality of our fleet result in a high level of demand for our tankers by charterers. - LARGE FLEET OF UNIFORM, MEDIUM-SIZE VESSELS. Our large fleet of medium-size tankers, many of which are substantially identical vessels, allows us to substitute vessels to meet customer demands. This increases our scheduling flexibility and allows us to enhance the capacity utilization of our fleet. We believe that the scale of our operations and the resulting 42 48 purchasing power, combined with the uniformity of our medium-size vessels, results in lower operating expenses than those experienced by smaller operators. - STRONG NETWORK OF CUSTOMER RELATIONSHIPS. We pursue an intensively customer-oriented focus that, when combined with other competitive strengths, has enabled us to establish a strong network of customer relationships and a reputation for transportation excellence among quality-sensitive customers such as Exxon Mobil, BP, Chevron and Shell. BUSINESS STRATEGY Our business strategy is to leverage our existing competitive strengths to continue to expand our business and increase shareholder value. - MAINTAIN AND EXPAND AFRAMAX FRANCHISE. The expansion and upgrading of our Aframax fleet will continue to be a key component of our strategy. As the world's largest Aframax tanker operator, we believe we will be able to provide the most comprehensive service to our customers and generate superior operating results. For example, our size and scope of services has enabled us to enter into contracts of affreightment to provide large oil-company customers with ongoing services that will grant us preferential rights on certain routes. We expect that this will result in significant fleet utilization benefits and high market share on strategically important routes. - LEVERAGE THE FRANCHISE TO PROVIDE VALUE-ADDED SERVICES. Our full-service marine operations capabilities, reputation for safety and quality and strong customer orientation provide us with the opportunity to expand our business by providing additional value-added and innovative services to new and existing customers. Such services include providing customers with floating storage and off-take vessels, outsourcing arrangements where we service a customer's complete oil transportation requirements and, with our recent acquisition of UNS, providing shuttle tanker services for customers engaged in offshore oil production. By providing our customers with these value-added services, we believe that we will strengthen our franchise and further improve our financial performance. - SELECTIVELY EXPAND INTO RELATED MARKETS AND SERVICES. We intend to continue to identify expansion opportunities in new tanker market sectors, geographic areas and services to which our competitive strengths are well suited and that will enhance shareholder value. We may pursue such opportunities through internal growth, joint ventures or business acquisitions, such as our recent acquisition of UNS, through which we expanded into the shuttle tanker market. OUR FLEET We have the world's largest fleet of medium-size oil tankers. As of June 30, 2001, our fleet consisted of 95 vessels: 64 Aframax oil tankers, including seven vessels time-chartered-in, two Aframax-size oil/bulk/ore carriers trading exclusively as crude oil carriers, two Aframax tankers converted to floating storage and off-take vessels ("FSOs") and, through a joint venture, a 50% interest in one additional Aframax tanker; 18 shuttle tankers (including three newbuildings and one vessel converted to an FSO); eight oil/bulk/ore carriers that are operated through an O/B/O pool managed by a subsidiary of Bona; two smaller oil tankers; one Very Large Crude Carrier; and, through a joint venture, a 50% interest in two Suezmax tankers. Our vessels are of Australian, Bahamian, Cayman Islands, Liberian, Marshall Islands, Norwegian, Norwegian International Ship ("NIS") and Panamanian registry. Our fleet has a total cargo capacity of approximately 9.6 million deadweight tons. Our Aframax tankers represent approximately 12.5% of the total tonnage of the world Aframax fleet, and our shuttle tankers represent approximately 25% of the total tonnage of the world shuttle tanker fleet. 43 49 The following list provides additional information with respect to our vessels as at June 30, 2001.
PERCENT SERIES/YARD HULL TYPE OWNERSHIP DWT YEAR BUILT FLAG ------------- ------------- --------- --------- ---------- ---------------- AFRAMAX TANKERS (64) Hamane Spirit......... Onomichi Double Hull 100% 105,300 1997 Bahamian Poul Spirit........... Onomichi Double Hull 100% 105,300 1995 Bahamian Torben Spirit......... Onomichi Double Hull 100% 98,600 1994 Bahamian Leyte Spirit.......... Onomichi Double Hull 100% 98,600 1992 Bahamian Luzon Spirit.......... Onomichi Double Hull 100% 98,600 1992 Bahamian Mayon Spirit.......... Onomichi Double Hull 100% 98,600 1992 Bahamian Samar Spirit.......... Onomichi Double Hull 100% 98,600 1992 Bahamian Palmstar Lotus........ Onomichi Single Hull 100% 100,200 1991 Bahamian Palmstar Thistle...... Onomichi Single Hull 100% 100,200 1991 Bahamian Teekay Spirit......... Onomichi Single Hull 100% 100,200 1991 Bahamian Onozo Spirit.......... Onomichi Single Hull 100% 100,200 1990 Bahamian Palmstar Cherry....... Onomichi Single Hull 100% 100,200 1990 Bahamian Palmstar Poppy........ Onomichi Single Hull 100% 100,200 1990 Bahamian Palmstar Rose......... Onomichi Single Hull 100% 100,200 1990 Bahamian Palmstar Orchid....... Onomichi Single Hull 100% 100,200 1989 Bahamian Falster Spirit........ Hyundai Double Hull 100% 95,400 1995 Bahamian Gotland Spirit........ Hyundai Double Hull 100% 95,400 1995 Bahamian Sotra Spirit.......... Hyundai Double Hull 100% 95,400 1995 Bahamian Victoria Spirit(1).... Hyundai Double Hull 100% 103,200 1993 Bahamian Vancouver Spirit(1)... Hyundai Double Hull 100% 103,200 1992 Bahamian Shilla Spirit......... Hyundai Single Hull 100% 106,700 1990 Bahamian Ulsan Spirit.......... Hyundai Single Hull 100% 106,700 1990 Bahamian Dampier Spirit(2)..... Hyundai Single Hull 100% 106,700 1988 Bahamian Karratha Spirit(2).... Hyundai Single Hull 100% 106,700 1988 Bahamian Namsan Spirit......... Hyundai Single Hull 100% 106,700 1988 Bahamian Pacific Spirit........ Hyundai Single Hull 100% 106,700 1988 Bahamian Mersey Spirit......... Hyundai Double Sides 100% 94,700 1986 Bahamian Clyde Spirit.......... Hyundai Double Sides 100% 94,700 1985 Bahamian Opal Queen(3)......... Imabari Double Hull 0% 107,000 2001 Bahamian Bahamas Spirit........ Imabari Double Hull 100% 107,000 1998 Bahamian Nassau Spirit......... Imabari Double Hull 100% 107,000 1998 Bahamian Seaservice(3)......... Imabari Double Hull 0% 107,000 1998 Liberian Senang Spirit......... Imabari Double Hull 100% 95,700 1994 Bahamian Sebarok Spirit........ Imabari Double Hull 100% 95,700 1993 Bahamian Seraya Spirit......... Imabari Double Sides 100% 97,300 1992 Bahamian Seafalcon(3).......... Imabari Double Sides 0% 97,300 1990 Marshall Islands Alliance Spirit....... Imabari Double Sides 100% 97,300 1989 Bahamian Sentosa Spirit........ Imabari Double Sides 100% 97,300 1989 Bahamian Seletar Spirit........ Imabari Double Sides 100% 97,300 1988 Bahamian Semakau Spirit........ Imabari Double Sides 100% 97,300 1988 Bahamian Singapore Spirit...... Imabari Double Sides 100% 97,300 1987 Bahamian Sudong Spirit......... Imabari Double Sides 100% 97,300 1987 Bahamian Aegean Pride(3)....... Samsung Double Hull 0% 105,300 1999 Liberian Kanata Spirit......... Samsung Double Hull 100% 113,000 1999 Bahamian Kareela Spirit........ Samsung Double Hull 100% 113,000 1999 Bahamian Kiowa Spirit.......... Samsung Double Hull 100% 113,000 1999 Bahamian Koa Spirit............ Samsung Double Hull 100% 113,000 1999 Bahamian
44 50
PERCENT SERIES/YARD HULL TYPE OWNERSHIP DWT YEAR BUILT FLAG ------------- ------------- --------- --------- ---------- ---------------- Kyeema Spirit......... Samsung Double Hull 100% 113,000 1999 Bahamian Silver Paradise(3).... Samsung Double Hull 0% 105,200 1998 Panamanian Kyushu Spirit......... Mitsubishi Double Sides 100% 95,600 1991 Bahamian Sabine Spirit......... Mitsubishi Double Sides 100% 84,800 1989 Bahamian Koyagi Spirit......... Mitsubishi Single Hull 100% 96,000 1989 Bahamian Columbia Spirit....... Mitsubishi Double Sides 100% 84,800 1988 Bahamian Hudson Spirit......... Mitsubishi Double Sides 100% 84,800 1988 Bahamian Seabridge(3).......... Namura Double Hull 0% 105,200 1996 Liberian Torres Spirit......... Namura Single Hull 100% 96,000 1990 Bahamian Seamaster(3).......... Namura Single Hull 0% 101,000 1990 Liberian Shetland Spirit....... Mitsui Double Hull 100% 106,200 1994 Bahamian Orkney Spirit......... Mitsui Double Hull 100% 106,200 1993 Bahamian Shannon Spirit........ Gdynia Single Hull 100% 99,300 1987 Bahamian Clare Spirit.......... Gdynia Single Hull 100% 95,200 1986 Bahamian Bornes................ Solisnor Double Sides 50% 88,900 1990 Liberian Magellan Spirit....... Hitachi Double Sides 100% 95,000 1985 Bahamian Cook Spirit........... Hashima Double Sides 100% 91,500 1987 Bahamian SUBTOTAL AFRAMAX TANKERS.............................. 6,431,200 SHUTTLE TANKERS(15) Stena Natalita........ Tsuneishi Double Hull 50% 110,000 2001 Cayman Islands Stena Sirita.......... Tsuneishi Double Hull 50% 127,500 1999 Norwegian Stena Alexita......... Tsuneishi Double Hull 50% 127,500 1998 Norwegian Nordic Savonita....... Tsuneishi Double Hull 100% 108,200 1992 NIS Nordic Torinita....... Tsuneishi Double Hull 100% 108,700 1992 Cayman Islands Stena Akarita......... Tsuneishi Double Hull 65.5% 107,200 1991 Liberian Petrotroll............ Tsuneishi Double Sides 100% 67,400 1981 NIS Nordic Laurita........ Tsuneishi Single Hull 50.5% 68,100 1981 NIS Nordic Marita......... Samsung Double Hull 100% 105,000 1999 Cayman Islands Nordic Yukon.......... Dalian Double Hull 100% 98,000 1992 NIS Petrotrym............. Dalian Double Hull 100% 80,700 1987 NIS Nordic Svenita........ Imabari Double Hull 100% 106,500 1997 Liberian Nordic Sarita......... Daewoo Double Hull 100% 124,500 1986 Norwegian Petroskald............ Uddevalla Double Bottom 100% 40,000 1982 Liberian Nordic Apollo(2)...... Avondale Double Hull 89% 129,000 1992 Liberian SUBTOTAL SHUTTLE TANKERS.............................. 1,508,300 OIL/BULK/ORE CARRIERS(8) Teekay Forum.......... Hyundai Double Bottom 100% 78,500 1983 Bahamian Teekay Fulmar......... Hyundai Double Bottom 100% 78,500 1983 Bahamian Teekay Fountain....... Hyundai Double Bottom 100% 78,500 1982 NIS Teekay Fortuna........ Hyundai Double Bottom 67% 78,500 1982 NIS Teekay Foam........... Hyundai Double Bottom 100% 78,500 1981 Bahamian Teekay Freighter...... Bremer Vulcan Double Bottom 52% 75,400 1982 NIS Teekay Fair........... Bremer Vulcan Double Hull 100% 75,500 1981 NIS Teekay Favour......... Howaldtswerke Double Bottom 100% 82,500 1981 Bahamian SUBTOTAL OIL/BULK/ORE CARRIERS........................ 625,900 OTHER TANKERS(5) Musashi Spirit........ Sasebo Single Hull 100% 280,700 1993 Bahamian Inago................. Solisnor Double Sides 50% 159,800 1993 Liberian
45 51
PERCENT SERIES/YARD HULL TYPE OWNERSHIP DWT YEAR BUILT FLAG ------------- ------------- --------- --------- ---------- ---------------- Erati................. Solisnor Double Sides 50% 159,700 1992 Liberian Palmerston............ Halla Double Bottom 100% 36,700 1990 Australian Barrington............ Samsung Double Hull 100% 33,300 1989 Australian SUBTOTAL OTHER TANKERS................................ 670,200 SUBTOTAL DWT -- VESSELS DELIVERED..................... 9,235,600 NEW BUILDINGS(3) Shuttle Tanker (Hull 1376)............... Samsung Double Hull 100% 92,000 2002 N/A Shuttle Tanker (Hull 1377)............... Samsung Double Hull 100% 92,000 2003 N/A Shuttle Tanker (Hull 1408)............... Samsung Double Hull 100% 147,500 2003 N/A SUBTOTAL NEWBUILDINGS................................. 331,500 TOTAL DWT -- ALL TANKERS.............................. 9,567,100
- --------------- (1) Oil/bulk/ore carrier trading exclusively as a crude oil tanker. (2) Floating storage and off-take vessel. (3) Time chartered-in vessel. See "Description of Certain Debt" for information regarding major encumbrances against some of our vessels. Many of the Aframax tankers in our fleet have been designed and constructed as substantially identical sister ships. These vessels can, in many situations, be interchanged, providing scheduling flexibility and greater capacity utilization. In addition, spare parts and technical knowledge can be applied to all the vessels in the particular series, which generates operating efficiencies. As part of our ongoing fleet modernization program, we sold a total of 8 of our older tankers during the five fiscal periods ended December 31, 2000, and added a total of 56 tankers (excluding time-chartered-in vessels) during the same period, including vessels acquired through our purchases of Bona Shipholding Ltd. in June 1999 and UNS in March 2001. By virtue of their size, Aframax vessels are large enough to benefit from economies of scale yet have access to a wide range of size-restricted ports, and are particularly well-suited for trading in regional markets, including the Mediterranean, the Atlantic and the Indo-Pacific Basin. Our Aframax tanker fleet of 64 vessels (excluding Aframax-size shuttle tankers) is one of the most modern fleets in the world, having an average age of approximately 9 years, compared to an average age for the world Aframax tanker fleet of approximately 12 years. In an environment of increasingly stringent operating and safety standards, we believe that the age profile and quality of our fleet create a high level of demand for our tankers by charterers. Oil/bulk/ore carriers are designed to take advantage of natural trading patterns for certain types of cargo in order to maximize the utilization and revenue generating capacity of the vessel. They are capable of transporting either liquid or dry bulk cargoes and are equipped with extensive cleaning systems to facilitate a rapid changeover from wet to dry cargoes and vice versa. The main commodities carried by our oil/bulk/ore carriers are condensate from Algeria to Europe and the United States, and gasoline from the United Kingdom to the United States. When trading to the United States, these vessels have normally returned with coal to Europe. A majority of oil/bulk/ore carriers transport oil and, as of May 31, 2001, these vessels represented approximately 4.6% of the world tanker fleet based on total cargo capacity. The two Aframax-size oil/bulk/ore carriers included in our fleet have been used exclusively to transport crude oil and petroleum products and our other eight oil/bulk/ore carriers have been used in combination trades. 46 52 SHUTTLE TANKERS Through our acquisition of UNS in the spring of 2001, we acquired 18 shuttle tankers (including one floating storage and off-take vessel and four newbuildings, one of which was delivered in May 2001). The UNS acquisition represents our entry into the shuttle tanker market as a market leader. Shuttle tankers are designed to transport oil from offshore production platforms to onshore storage and refinery facilities. These tankers generally range in size from 80,000 to 150,000 dwt and are equipped with sophisticated equipment to handle harsh weather and rolling seas while off-loading oil from offshore production platforms. All but three of our shuttle tankers feature dynamic positioning systems, which enable the tankers to automatically maintain a constant position in spite of harsh conditions through the use of global positioning satellite technology and propellers and thrusters built into the vessels. The average age of the world shuttle tanker fleet is 10 years, compared to 8.5 years (excluding the newbuildings) for our shuttle tanker fleet. In contrast to the largely spot price nature of the Aframax market, all but two of our shuttle tankers currently operate under long-term fixed-rate contracts. The fixed-rate contracts of our shuttle tankers have an average remaining term of 4.5 years, excluding optional renewals at the charterers' election. Our three shuttle tanker newbuildings are already subject to contracts, with expiration dates between 2009 and 2013. CLASSIFICATION AND INSPECTION All of our vessels have been certified as being "in-class" by their respective classification societies: Nippon Kaiji Kyokai, Det Norske Veritas or American Bureau of Shipping. Every commercial vessel's hull and machinery is "classed" by a classification society authorized by its country of registry. The classification society certifies that the vessel has been built and maintained in accordance with the rules of that classification society and complies with applicable rules and regulations of the country of registry of the vessel and the international conventions of which that country is a member. Each vessel is inspected by a surveyor of the classification society every year ("Annual Survey"), every two to three years ("Intermediate Survey") and every four to five years ("Special Survey"). Vessels also may be required, as part of the Intermediate Survey process, to be drydocked every 24 to 30 months for inspection of the underwater parts of the vessel and for necessary repair related to such inspection. Many of our vessels have qualified with their respective classification societies for drydocking every five years in connection with the Special Survey and are no longer subject to the Intermediate Survey drydocking process. To so qualify, we were required to enhance the resiliency of the underwater coatings of each qualifying vessel as well as to install apparatus on each vessel to accommodate thorough underwater inspection by divers. In addition to the classification inspections, many of our customers, including the major oil companies, regularly inspect our vessels as a precondition to chartering voyages on the vessels. We believe that our well-maintained, high quality tonnage should provide us with a competitive advantage in the current environment of increasing regulation and customer emphasis on quality of service. Our employees perform much of the necessary routine maintenance and regularly inspect all of our vessels, both at sea and while the vessels are in port. We inspect our vessels two to four times per year using predetermined and rigorous criteria. Each vessel is examined and specific notations are made, and recommendations are given for improvements to the overall condition of the vessel and in its maintenance, safety, and crew welfare. We have obtained through Det Norske Veritas (DNV), the Norwegian classification society, approval of our safety management system as in compliance with International Safety Management (ISM) Code. In November 2000, we obtained certification of our Document of Compliance through November 2004. As part of our ISM Code compliance, all our vessels' safety management certificates are being maintained through ongoing internal audits performed by us and intermediate audits performed by DNV. DNV has also certified the UNS shuttle tankers as ISM Code compliant. 47 53 OPERATIONS AND SHIP MANAGEMENT We have experienced management in all functions critical to our operations. This affords a focused marketing effort and enhanced capacity utilization supported by a safe, efficient and cost-effective operation. The critical ship management functions of vessel maintenance, crewing, purchasing, shipyard supervision, insurance and financial management services are carried out "in-house" in our various offices around the world. Since 1995, IUM Shipmanagement AS ("IUM"), a company in which UNS owns a one-third interest, has provided UNS ship management services, including crewing and maintenance. IUM is under contract to provide these services to UNS until December 31, 2003. IUM does not manage any shuttle tankers other than our vessels. In addition to our day-to-day focus on cost control, we established in 1999 with two other shipping companies a joint venture purchasing company, MARCAS, which leverages the purchasing power of the combined fleets, mainly in the commodity areas such as lube oils, paint and other chemicals. We have a worldwide chartering staff located in Vancouver, Tokyo, London, Singapore, Houston, and Oslo. Each office serves our clients headquartered in that office's region. Fleet operations, vessel positions and charter market rates are monitored around the clock. We believe that monitoring this information is critical to making informed bids on competitive brokered business. During fiscal 2000, we derived approximately 82% of our consolidated net voyage revenues from spot voyages or time charters and contracts of affreightment priced on a spot market basis. After giving effect to our acquisition of UNS as if it had occurred on January 1, 2000, we would have derived approximately 75% of our pro forma consolidated net voyage revenues from those sources. CREWING AND STAFF We employ approximately 2,700 seagoing staff worldwide and 315 shore-based personnel in offices located around the world. IUM provides approximately 440 additional seagoing staff for our shuttle tanker fleet. We regard attracting and retaining motivated seagoing personnel as a top priority. Through our global manning organization comprising of offices in Glasgow, Latvia, Manila, Mumbai, Oslo, and Sydney, we offer seafarers highly competitive employment packages and comprehensive benefits. We also provide excellent opportunities for personal and career development, which relates to our philosophy of promoting internally. We have entered into a Collective Bargaining Agreement with the Philippine Seafarers' Union, an affiliate of the International Transport Workers' Federation (ITF), and a Special Agreement with ITF London, which covers substantially all of our junior officers and seamen. We are also a party to Enterprise Bargaining Agreements with three Australian maritime unions, covering officers and seamen employed through our Australian operations. Our commitment to training is seen as fundamental to the development of the highest caliber of seafarers for our marine operations. Our cadet training approach is designed to balance academic learning with hands-on training at sea. We have relationships with training institutions in Canada, Croatia, India, Latvia, Norway, Philippines, Turkey, and the United Kingdom. After receiving formal instruction at one of these institutions, the cadet's training continues on board a Teekay vessel. We also have a career development plan which was devised to ensure a continuous flow of qualified officers who are trained on our vessels and familiarized with our operational standards, systems and policies. We believe that high quality manning and training policies will play an increasingly important role in distinguishing larger independent tanker companies that have in-house (or affiliate) capabilities, from smaller companies that must rely on outside ship managers and crewing agents. 48 54 CUSTOMERS Our customers include major oil companies, major oil traders, large oil consumers and petroleum product producers, government agencies and various other entities dependent upon the tanker transportation trade. Two customers, both international oil companies, individually accounted for $118 million, or 13%, and $110 million, or 12%, of our consolidated voyage revenues during fiscal 2000. Giving pro forma effect to our acquisition of UNS as if it had occurred January 1, 2000, such percentages would have been 12% and 11%, respectively. During the nine months ended December 31, 1999, a single customer, also an international oil company, accounted for $48 million, or 13%, of our consolidated voyage revenues. During the year ended March 31, 1999, three customers, all international oil companies, individually accounted for $51 million, $51 million and $43 million, or 12%, 12% and 10%, respectively, of our consolidated voyage revenues. No other customer accounted for more than 10% of our consolidated voyage revenues in those periods. The loss of any significant customer or a substantial decline in the amount of services requested by a significant customer could have a material adverse effect on our business, financial condition and results of operations. COMPETITION We compete primarily in the Aframax and shuttle tanker markets. In the Aframax market, international seaborne oil and other petroleum products transportation services are provided by two main types of operators: captive fleets of major oil companies (both private and state-owned) and independent ship owner fleets. Many major oil companies and other oil trading companies, the primary charterers of the vessels owned or controlled by us, also operate their own vessels and transport their own oil as well as oil for third party charterers in direct competition with independent owners and operators. Competition in the Aframax spot charter market for charters is intense and is based upon price, location, the size, age, condition and acceptability of the vessel, and the reputation of the vessel's manager. We compete principally with other Aframax owners in the spot charter market through the global tanker charter market. This market is comprised of tanker broker companies that represent both charterers and ship owners in chartering transactions. Within this market, some transactions, referred to as "market cargoes," are offered by charterers through two or more brokers simultaneously and shown to the widest possible range of owners. Other transactions, referred to as "private cargoes," are given by the charterer to only one broker and shown selectively to a limited number of owners whose tankers are most likely to be acceptable to the charterer and are in position to undertake the voyage. We believe the other large operators of modern Aframax tonnage in the spot charter market are as listed in the table below, which excludes newbuildings:
APPROXIMATE NUMBER OF AFRAMAX COMPANY VESSELS OWNED OR CONTROLLED - ------- ----------------------------- American Eagle Tankers Ltd. (partially owned by the Singapore government)..................... 24 General Maritime Ship Holdings Ltd. (excluding 10 additional vessels subject to purchase agreements)................................... 14 Tanker Pacific Management (Singapore) Pte. Ltd. ......................................... 13 Overseas Shipholding Group, Inc................. 12
Competition in the Aframax market is also affected by the availability of other size vessels that compete in our markets. Suezmax-size vessels and Panamax-size vessels can compete for many of the same charters for which we compete. Because of their large size, Ultra Large Crude Carriers and Very Large Crude Carriers rarely compete directly with Aframax tankers for specific charters. However, because Ultra and Very Large Crude Carriers comprise a substantial portion of the total capacity of the 49 55 market, movements by such vessels into Suezmax trades and of Suezmax vessels into Aframax trades would heighten the already intense competition. We believe we have significant competitive advantages in the Aframax tanker market as a result of the age, quality, type and dimensions of our vessels and our market share in the Indo-Pacific Basin and Atlantic region. Some of our competitors, however, may have greater financial strength and capital resources than we do. There currently are 61 vessels in the world shuttle tanker fleet, the majority of which operate in the North Sea. Shuttle tankers typically operate under long-term fixed-rate contracts for a specific offshore oil field or contracts of affreightment for various fields. Competition for charters is based primarily upon price, availability, the size, technical sophistication, age and condition of the vessel, and the reputation of the vessel's manager. Technical sophistication of the vessel is especially important in harsh operating environments such as the North Sea. Although the size of the world shuttle tanker fleet has been relatively unchanged in recent years, conventional tankers could be converted to less sophisticated shuttle tankers by adding specialized equipment to meet the requirements of the oil companies. Shuttle tanker demand is also affected by the possible substitution of sub-sea pipelines that transfer oil from offshore production platforms. We currently own 15 shuttle tankers, excluding three newbuildings. Other shuttle tanker owners in the North Sea include Navion ASA, Knudsen O.A.S. Shipping AS, and JJ Ugland Group, which own approximately nine, nine and six shuttle tankers, respectively. The remaining owners in the North Sea each own three or fewer vessels. We believe we have significant competitive advantages in the shuttle tanker market as a result of the age and quality of our vessels, and our market share in the North Sea. RISK OF LOSS AND INSURANCE The operation of any ocean-going vessel carries an inherent risk of catastrophic marine disasters and property losses caused by adverse weather conditions, mechanical failures, human error, war, terrorism, piracy and other circumstances or events. In addition, the transportation of crude oil is subject to the risk of crude oil spills and business interruptions due to political circumstances in foreign countries, hostilities, labor strikes and boycotts. The occurrence of any of these events may result in loss of revenues or increased costs. We carry protection and indemnity coverage to protect against most of the accident-related risks involved in the conduct of our business, and we also maintain environmental damage and pollution coverage. Except with respect to our shuttle tanker fleet, we do not carry insurance covering the loss of revenue resulting from vessel off-hire time. We believe that our current coverage is adequate to protect against most of the accident-related risks involved in the conduct of our business and that we maintain appropriate levels of environmental damage and pollution coverage. Protection and indemnity insurance also indemnifies us against certain liabilities incurred while operating vessels. Currently, the available amount of coverage for pollution is $1 billion per vessel per incident. However, we cannot assure that all covered risks are adequately insured against, that any particular claim will be paid or that we will be able to procure adequate insurance coverage at commercially reasonable rates in the future. More stringent environmental regulations at times in the past have resulted in increased costs for, and may result in the lack of availability of, insurance against the risks of environmental damage or pollution. LEGAL PROCEEDINGS From time to time we have been, and expect to continue to be, subject to legal proceedings and claims in the ordinary course of our business, principally personal injury and property casualty claims. These claims, even if lacking merit, could result in the expenditure of significant financial and 50 56 managerial resources. We are not aware of any legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on us. REGULATION Our business and the operation of our vessels are materially affected by government regulation in the form of international conventions, national, state and local laws and regulations in force in the jurisdictions in which the vessels operate, as well as in the country or countries of their registration. Because such conventions, laws and regulations are often revised, we cannot predict the ultimate cost of complying with such conventions, laws and regulations or the impact they may have on the resale price or useful life of our vessels. Additional conventions, laws and regulations may be adopted which could limit our ability to do business or increase the cost of our doing business and which may have a material adverse effect on our operations. We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our operations. Subject to the discussion below and to the fact that the kinds of permits, licenses and certificates required for the operations of our vessels will depend upon a number of factors, we believe that we have been and will be able to obtain all permits, licenses and certificates material to the conduct of our operations. We believe that the heightened environmental and quality concerns of insurance underwriters, regulators and charterers will impose greater inspection and safety requirements on all vessels in the tanker market and will accelerate the scrapping of older vessels throughout the industry. ENVIRONMENTAL REGULATION -- INTERNATIONAL MARITIME ORGANIZATION. On March 6, 1992, the International Maritime Organization adopted regulations that set forth new and upgraded requirements for pollution prevention for tankers. These regulations, which went into effect on July 6, 1995 in many jurisdictions in which our tanker fleet operates, provide that: - tankers between 25 and 30 years old must be of double-hull construction or of a mid-deck design with double side construction, unless they have wing tanks or double-bottom spaces, not used for the carriage of oil, which cover at least 30% of the length of the cargo tank section of the hull, or are capable of hydrostatically balanced loading which ensures at least the same level of protection against oil spills in the event of collision or stranding; - tankers 30 years old or older must be of double-hull construction or mid-deck design with double-side construction; and - all tankers will be subject to enhanced inspections. Also, under International Maritime Organization regulations, a tanker must be of double-hull construction or a mid-deck design with double side construction or be of another approved design ensuring the same level of protection against oil pollution in the event that such tanker (a) is the subject of a contract for a major conversion or original construction on or after July 6, 1993, (b) commences a major conversion or has its keel laid on or after January 6, 1994, or (c) completes a major conversion or is a newbuilding delivered on or after July 6, 1996. On April 27, 2001, the International Maritime Organization revised its regulations relating to prevention of pollution from tankers. These regulations, which are scheduled to take effect on September 1, 2002, generally provide that single-hull tankers must be phased out between 2003 and 2015. These regulations identify three categories of single-hull tankers, which include double-bottom and double-side tankers: - "Category 1 oil tanker" means any oil tanker of 20,000 dwt and above carrying crude oil, fuel oil, heavy diesel oil or lubricating oil as cargo, and of 30,000 dwt and above carrying other oils, which does not have segregated ballast tanks; 51 57 - "Category 2 oil tanker" means any oil tanker of 20,000 dwt and above carrying crude oil, fuel oil, heavy diesel oil or lubricating oil as cargo, and of 30,000 dwt and above carrying other oils, which has segregated ballast tanks; and - "Category 3 oil tanker" means an oil tanker of 5,000 dwt and above but less than the tonnage specified for Category 1 and 2 oil tankers. All of the single-hull tankers we operate are Category 2 oil tankers. As illustrated in the following table, the new regulations provide for the phase-out on a rolling basis of Category 1 single-hull oil tankers by 2007 and of Category 2 oil tankers by 2015. PHASE-OUT DATES FOR SINGLE-HULL TANKERS - ------------------------------------------------------------------------------------------------------- CATEGORY OF OIL TANKER YEAR TO BE REMOVED FROM SERVICE - ------------------------------------------------------------------------------------------------------- Category 1............................ 2003 for ships delivered in 1973 or earlier 2004 for ships delivered in 1974 and 1975 2005* for ships delivered in 1976 and 1977 2006* for ships delivered in 1978, 1979 and 1980 2007* for ships delivered in 1981 or later - ------------------------------------------------------------------------------------------------------- Category 2............................ 2003 for ships delivered in 1973 or earlier 2004 for ships delivered in 1974 and 1975 2005 for ships delivered in 1976 and 1977 2006 for ships delivered in 1978 and 1979 2007 for ships delivered in 1980 and 1981 2008 for ships delivered in 1982 2009 for ships delivered in 1983 2010* for ships delivered in 1984 2011* for ships delivered in 1985 2012* for ships delivered in 1986 2013* for ships delivered in 1987 2014* for ships delivered in 1988 2015* for ships delivered in 1989 or later - -------------------------------------------------------------------------------------------------------
- --------------- * Subject to compliance with Condition Assessment Scheme Survey. However, under certain conditions, Category 1 and Category 2 oil tankers may continue in operation beyond the date set forth in the table above. Category 2 oil tankers fitted with double bottoms or double sides may continue in service until 25 years after their delivery date. Category 1 oil tankers over 25 years old must have double bottoms or operate with hydrostatically balanced loading. However, a port state may declare that it does not accept entry of such vessels after their phase-out date. The European Union, Cyprus and Malta have already declared that they will not permit the entry of such vessels. Vessels must pass a Condition Assessment Scheme survey after 2005 for Category 1 oil tankers, and after 2010 for Category 2 oil tankers. The Conditional Assessment Scheme Survey includes surveys of the hull structure, including cargo tanks, pump rooms, cofferdams, pipe tunnels, void spaces within the cargo area and all ballast tanks. Under the current International Maritime Organization regulations, our vessels will be able to operate for substantially all of their respective economic lives before being required to have double-hulls. Although 13 of our vessels are over 15 years old (including the eight oil/bulk/ore carriers we acquired in the Bona acquisition), IMO regulations do not require any of our vessels to be phased-out until 2007. However, compliance with the regulations regarding inspections of all vessels may adversely affect our 52 58 operations. We cannot at the present time evaluate the likelihood or magnitude of any such adverse effect on our operations due to uncertainty of interpretation of the International Maritime Organization regulations. The operation of our vessels is also affected by the requirements set forth in the International Maritime Organization's International Management Code for the Safe Operation of Ships and Pollution Prevention (the "ISM Code"). The ISM Code requires shipowners and bareboat charterers to develop and maintain an extensive "Safety Management System" that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. The failure of a shipowner or bareboat charterer to comply with the ISM Code may subject that party to increased liability, may decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports. Currently, each of our applicable vessels is ISM code-certified. However, we cannot assure that such certification will be maintained indefinitely. ENVIRONMENTAL REGULATIONS -- THE UNITED STATES OIL POLLUTION ACT OF 1990 ("OPA 90"). OPA 90 established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA 90 affects all owners and operators whose vessels trade to the United States or its territories or possessions or whose vessels operate in U.S. waters, which include the U.S. territorial sea and its two hundred nautical mile exclusive economic zone. Under OPA 90, vessel owners, operators and bareboat (or "demise") charterers are "responsible parties" and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels. These other damages are defined broadly to include: - natural resources damages and the costs of assessment thereof; - real and personal property damages; - net loss of taxes, royalties, rents, fees and other lost revenues; - lost profits or impairment of earning capacity due to property or natural resources damage; - net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards; and - loss of subsistence use of natural resources. OPA 90 limits the liability of responsible parties to the greater of $1,200 per gross ton or $10 million per tanker that is over 3,000 gross tons (subject to possible adjustment for inflation). These limits of liability would not apply if the incident was proximately caused by violation of applicable United States federal safety, construction or operating regulations or by the responsible party's gross negligence or willful misconduct, or if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with the oil removal activities. We currently plan to continue to maintain for each of our vessels pollution liability coverage in the amount of $1 billion per incident through protection and indemnity clubs. A catastrophic spill could exceed the coverage available, which could materially adversely affect our business, financial condition and result of operations. Under OPA 90, with limited exceptions, all newly built or converted tankers operating in United States waters must be built with double-hulls, and existing vessels that do not comply with the double-hull requirement must be phased out over a 20-year period (1995-2015) based on size, age and hull construction. Vessels with double-sides and double-bottoms are granted an additional five years of service life before being phased out. Of our vessels, 13 are over 15 years old (including the eight oil/bulk/ore carriers we acquired in the Bona acquisition). Twelve of those vessels have double-sides or double-bottoms, the oldest of which would not be phased out until 2009. Our oldest single-hull tanker is part of our shuttle tanker fleet and does not trade in the United States. Notwithstanding the phase out 53 59 period, OPA 90 currently permits existing single-hull tankers to operate until the year 2015 if their operations within United States waters are limited to discharging at the Louisiana Off-shore Oil Platform, or off-loading by means of lightering activities within authorized lightering zones more than 60 miles offshore. OPA 90 requires owners and operators of vessels to establish and maintain with the United States Coast Guard evidence of financial responsibility sufficient to meet their potential liabilities under OPA 90. In December 1994, the U.S. Coast Guard implemented regulations requiring evidence of financial responsibility in the amount of $1,500 per gross ton for tankers, coupling the OPA limitation on liability of $1,200 per gross ton with the Comprehensive Environmental Response, Compensation, and Liability Act liability limit of $300 per gross ton. Under the regulations, evidence of financial responsibility may be demonstrated by insurance, surety bond, self-insurance or guaranty. Under OPA 90, an owner or operator of a fleet of tankers is required only to demonstrate evidence of financial responsibility in an amount sufficient to cover the tanker in the fleet having the greatest maximum limited liability under OPA 90. The U.S. Coast Guard's regulations concerning certificates of financial responsibility provide, in accordance with OPA 90, that claimants may bring suit directly against an insurer or guarantor that furnishes certificates of financial responsibility; and, in the event that such insurer or guarantor is sued directly, it is prohibited from asserting any contractual defense that it may have had against the responsible party and is limited to asserting those defenses available to the responsible party and the defense that the incident was caused by the willful misconduct of the responsible party. Certain organizations that had typically provided certificates of financial responsibility under pre-OPA 90 laws, including the major protection and indemnity organizations, declined to furnish evidence of insurance for vessel owners and operators if they are subject to direct actions or required to waive insurance policy defenses. The U.S. Coast Guard's financial responsibility regulations may also be satisfied by evidence of surety bond, guaranty or by self-insurance. Under the self-insurance provisions, the ship owner or operator must have a net worth and working capital, measured in assets located in the United States against liabilities located anywhere in the world, that exceeds the applicable amount of financial responsibility. We have complied with the U.S. Coast Guard regulations by providing a financial guaranty from a related company evidencing sufficient self-insurance for all our vessels trading into the United States. If other vessels in our fleet trade to the United States in the future, we expect to provide guaranties through self-insurance, or to obtain such guaranties from third party insurers. OPA 90 specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and some states in the United States have enacted legislation providing for unlimited liability for oil spills. In some cases, states that have enacted such legislation have not yet issued implementing regulations defining tanker owners' responsibilities under these laws. We intend to comply with all applicable state regulations in the ports where our vessels call. Owners or operators of tankers operating in United States waters are required to file vessel response plans with the U.S. Coast Guard, and their tankers are required to operate in compliance with their Coast Guard approved plans. The response plans must, among other things: - address a "worst case" scenario and identify and ensure, through contract or other approved means, the availability of necessary private response resources to respond to a "worst case discharge;" - describe crew training and drills; and - identify a qualified individual with full authority to implement removal actions. We have filed vessel response plans with the U.S. Coast Guard for the tankers we own and have received approval of such plans for all vessels in our fleet that operate in United States waters. 54 60 ENVIRONMENTAL REGULATION -- OTHER ENVIRONMENTAL INITIATIVES. The European Union is considering legislation that will affect the operation of tankers and the liability of owners for oil pollution. It is impossible to predict what legislation, if any, may be promulgated by the European Union or any other country or authority. Although the United States is not a party, many countries have ratified and follow the liability scheme adopted by the International Maritime Organization and set out in the International Convention on Civil Liability for Oil Pollution Damage, 1969, as amended (the "CLC"), and the Convention for the Establishment of an International Fund for Oil Pollution of 1971, as amended. Under these conventions, a vessel's registered owner is strictly liable for pollution damage caused on the territorial waters of a contracting state by discharge of persistent oil, subject to certain complete defenses. Approximately one-quarter of the countries that have ratified the CLC have increased the liability limits through a 1992 Protocol to the CLC. The liability limits in the countries that have ratified this Protocol are currently approximately $3.8 million plus approximately $528 per gross registered ton above 5,000 gross tons with an approximate maximum of approximately $75 million, with the exact amount tied to a unit of account which varies according to a basket of currencies. The right to limited liability is forfeited under the CLC where the spill is caused by the owner's actual fault or privity and, under the 1992 Protocol, where the spill is caused by the owner's intentional or reckless conduct. Vessels trading to contracting states must provide evidence of insurance covering the limited liability of the owner. In jurisdictions where the CLC has not been adopted, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or in a manner similar to the CLC. In addition, the International Maritime Organization, various countries and states, such as Australia, the United States and the State of California, and various regulators, such as port authorities, the U.S. Coast Guard and the U.S. Environmental Protection Agency, have either adopted legislation or regulations, or are separately considering the adoption of legislation or regulations, aimed at regulating the discharge of ballast water as a potential pollutant. TAXATION OF TEEKAY The following discussion is a summary of the principal United States, Bahamian, Bermudan, Marshall Islands and Norwegian tax laws applicable to us. The following discussion of tax matters, as well as the conclusions regarding certain issues of tax law that are reflected in such discussion, are based on current law and upon the advice received by us from our counsel. This advice is based, in part, on representations made by our officers, some of which relate to anticipated future factual matters and circumstances. No assurance can be given that changes in or interpretation of existing laws will not occur or will not be retroactive or that anticipated future factual matters and circumstances will in fact occur. Our views and those of our counsel have no binding effect or official status of any kind, and no assurance can be given that the conclusions discussed below would be sustained if challenged by taxing authorities. UNITED STATES TAXATION The following discussion is based on the advice of Seward & Kissel, LLP, special United States tax counsel to us. The following discussion is based upon the provisions of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed U.S. Treasury Department regulations, administrative rulings and court decisions, all as of the date of this prospectus. Teekay has made, or will shortly make, a special U.S. tax election, the effect of which is to disregard our vessel owning or operating subsidiaries as separate taxable entities from Teekay. Therefore, for purposes of the ensuing U.S. tax discussion, Teekay and not our subsidiaries will be treated as the owner or operator of our vessels. We anticipate that Teekay will derive substantially all of its gross income from the use and operation of vessels in international commerce and that this income will principally consist of freights from the transportation of cargoes, hire or lease from time or voyage charters and the performance of services 55 61 directly related thereto ("Shipping Income"). Unless exempt from U.S. taxation under Section 883 of the Code, Teekay will be subject to U.S. federal income taxation, in the manner discussed below, to the extent such Shipping Income is considered derived from sources within the United States. Shipping Income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States will be considered to be 50% derived from sources within the United States. Shipping Income attributable to transportation that both begins and ends in the United States will be considered to be 100% derived from sources within the United States. All Shipping Income attributable to transportation exclusively between non-U.S. ports will be considered to be 100% derived from sources outside the United States. Shipping Income derived from sources outside the United States will not be subject to U.S. federal income tax. Based upon Teekay's anticipated shipping operations, Teekay's vessels will operate in various parts of the world, including to or from U.S. ports. In the calendar year 2000, approximately 42% of its Shipping Income was attributable to the transportation of cargoes either to or from a U.S. port. Accordingly, only 21% of Teekay's Shipping Income would have been treated as derived from U.S. sources for such period. Giving effect to our acquisition of UNS as if it had occurred on January 1, 2000, approximately 40% of Teekay's pro forma Shipping Income for the fiscal year ended December 31, 2000 would have been attributable to transportation of cargoes either to or from a U.S. port. THE INTERNAL REVENUE CODE SECTION 883 EXEMPTION Teekay will qualify for the exemption from U.S. federal income taxation under Section 883 of the Code if, in relevant part: - Teekay is organized in a foreign country that grants an equivalent exemption from tax to corporations organized in the United States ("the country of organization requirement"); and - more than 50% of the value of Teekay's shares is treated as owned, directly or indirectly, by individuals who are "residents" of such country or of another foreign country that grants an equivalent exemption to corporations organized in the United States (the "ownership requirement"). Since the U.S. Treasury Department has recognized Teekay's country of incorporation, the Marshall Islands, as a foreign country that grants an equivalent exemption to U.S. corporations, Teekay satisfies the country of organization requirement. There is an exemption from the ownership requirement provided by Section 883 if Teekay can satisfy a special publicly traded stock rule. Teekay will qualify for the exemption if its common stock is considered to be "primarily and regularly traded on an established securities market" in the United States (the "publicly traded test"). We have taken the position that, under the current tax regime, we qualify under the Section 883 exemption. However, proposed regulations interpreting Section 883 were promulgated by the U.S. Treasury Department on February 8, 2000. The proposed regulations will apply to taxable years ending 30 days or more after the date the proposed regulations are published as final regulations in the Federal Register. At this time, it is unclear when the proposed regulations will be finalized and whether they will be finalized in their present form. The proposed regulations provide, in pertinent part, that stock of a foreign corporation will be considered to be "primarily traded" on an established securities market if the number of shares that are traded during any taxable year on that market exceeds the number of shares traded during that year on any other established securities market. At present, the sole class of Teekay's stock that is issued and outstanding is its common stock and its common stock is listed on the New York Stock Exchange, which is an established securities market in the United States. Since Teekay's common stock is not listed or 56 62 quoted on any other securities market, its common stock must be considered to be "primarily" traded on such market. The proposed regulations further provide that stock will be considered to be "regularly traded" on a market if: - stock representing 80% or more of the issuer's outstanding shares, by voting power and value, is listed on such market (the "80% test"); - stock is traded on such market, other than in de minimis quantities, on at least 60 days during the taxable year (the "trading frequency threshold"); and - the aggregate number of shares of stock traded is at least 10% of the average number of shares outstanding during such year (the "trading volume threshold"). Under the proposed regulations, the trading frequency threshold and the trading volume threshold will be deemed satisfied if, as is the case here, stock is traded on an established securities market in the United States and the stock is regularly quoted by brokers and dealers making a market in the stock (the "U.S. securities market exception"). Teekay's common stock should satisfy the "regularly traded" requirement of the proposed regulations since the 80% test is satisfied by virtue of 100% of its common stock being listed on the New York Stock Exchange and the trading frequency threshold and trading volume threshold tests will be deemed satisfied as a result of the applicability of the U.S. securities market exception. Notwithstanding the foregoing, the proposed regulations provide, in pertinent part, that stock will not be considered to be regularly traded on an established securities market for any taxable year in which 50% or more of the outstanding shares of such stock are owned, within the meaning of the regulations, on any day during such taxable year by persons who each own 5% or more of the value of the outstanding shares of such stock (the "5% override rule"). Based on its existing shareholdings, Teekay may be subject to this 5% override rule and hence, under the proposed regulations, may not qualify for exemption from the ownership requirement pursuant to the publicly traded test. Without such exemption, Teekay's ability to satisfy the ownership requirement may prove to be problematic. In response to an invitation for public comment on the proposed regulations from the U.S. Treasury Department, we submitted written comments requesting certain modifications be made to the 5% override rule which, if accepted and reflected in the final regulations, would render Teekay not subject to the 5% override rule based on its existing shareholdings. However, no assurance can be given that our proposed modifications will ultimately be accepted and reflected in the final regulations or that, even if the modifications are accepted, future changes or shifts in the ownership of our shares will not preclude us from obtaining the benefits of Section 883. Until final regulations are promulgated and come into force, however, we intend to take the position on our U.S. tax return filings that Teekay satisfies the publicly traded test and qualifies for exemption under Section 883. To the extent Teekay is unable to qualify for exemption from tax under Section 883, its U.S. source Shipping Income will become subject to the 4% gross basis tax regime or, alternatively, to the net basis and branch tax regime described below. TAXATION IN ABSENCE OF INTERNAL REVENUE CODE SECTION 883 EXEMPTION 4% GROSS BASIS TAX REGIME. To the extent the benefits of Section 883 are unavailable, Teekay's U.S. source Shipping Income that is not considered to be "effectively connected" with the conduct of a U.S. trade or business, as discussed below, would be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions. As discussed above, we expect that substantially less than half of Teekay's Shipping Income will be considered U.S. source Shipping 57 63 Income. Accordingly, we believe that the maximum effective rate of U.S. federal income tax on Teekay's gross Shipping Income would not exceed 2%. Based on its U.S. source Shipping Income for the calendar year 2000, Teekay would be subject to U.S. federal income tax of approximately $7.5 million under Section 887 in the absence of an exemption under Section 883. NET BASIS AND BRANCH PROFITS TAX REGIME. To the extent the benefits of the Section 883 exemption are unavailable and Teekay's U.S. source Shipping Income is considered to be "effectively connected" with the conduct of a U.S. trade or business, as described below, any such "effectively connected" U.S. source Shipping Income, net of applicable deductions, would be subject to the U.S. federal corporate income tax currently imposed at rates of up to 35%. In addition, Teekay may be subject to the 30% "branch profits" taxes on earnings effectively connected with the conduct of such trade or business, as determined after allowance for certain adjustments, and on certain interest paid or deemed paid attributable to the conduct of its U.S. trade or business. Teekay's U.S. source Shipping Income would be considered "effectively connected" with the conduct of a U.S. trade or business only if: - Teekay has, or is considered to have, a fixed place of business in the United States involved in the earning of Shipping Income; and - substantially all of Teekay's U.S. source Shipping Income is attributable to regularly scheduled transportation, such as the operation of a vessel that follows a published schedule with repeated sailings at regular intervals between the same points for voyages that begin or end in the United States. We do not intend to have, or permit circumstances that would result in having any Teekay vessel operating to the United States on a regularly scheduled basis. Based on the foregoing and on the expected mode of Teekay's shipping operations and other activities as described in this prospectus, we believe that none of Teekay's U.S. source Shipping Income will be "effectively connected" with the conduct of a U.S. trade or business. GAIN ON SALE OF VESSELS. To the extent any Teekay vessel makes more than an occasional voyage to U.S. ports, Teekay may be considered to be engaged in the conduct of a U.S. trade or business. As a result, except to the extent such gain falls within the scope of the Section 883 exemption as income that is incidental to Teekay's Shipping Income, any U.S. source gain on the sale of a vessel may be partly or wholly subject to U.S. federal income tax as "effectively connected" income (determined under rules different from those discussed above) under the net basis and branch tax regime described above. BAHAMIAN TAXATION Based on the advice of Graham, Thompson & Co., our Bahamian counsel, we and our subsidiaries will not be subject to taxation under the laws of the Bahamas, and distributions by our subsidiaries to us also will not be subject to any Bahamian tax. BERMUDAN TAXATION Based on the advice of Appleby Spurling & Kempe, our Bermudan counsel, we and our subsidiaries will not be subject to taxation under the laws of Bermuda, and distributions by our subsidiaries to us also will not be subject to any Bermudan tax. MARSHALL ISLANDS TAXATION Based on the advice of Watson, Farley & Williams, our Republic of Marshall Islands counsel, because we and our subsidiaries do not, and we do not expect that we and our subsidiaries will, conduct business or operations in the Republic of the Marshall Islands, we and our subsidiaries will not 58 64 be subject to taxation under the laws of the Republic of the Marshall Islands, and distributions by our subsidiaries to us will not be subject to Marshall Islands tax. NORWEGIAN TAXATION The following discussion is based on the advice of Bugge, Arentz-Hansen & Rasmussen, our Norwegian counsel, and the tax laws of Norway and regulations, rulings and judicial decisions thereunder, all as in effect as of the date of this prospectus and subject to possible change on a retroactive basis. The following discussion is for general information purposes only and does not purport to be a comprehensive description of all of the Norwegian income tax considerations applicable to UNS. In December 1996, Norway introduced a new regime for the taxation of the shipping industry. If a company meets certain requirements, it may choose to be taxed according to this regime, which results in deferral of taxation for income related to shipping activities until the accumulated untaxed profits are distributed to shareholders outside the regime or upon the company's exit from the regime. A company that is subject to the regime will, however, be liable to pay without the benefit of deferral a 28% tax on investment income and a relatively insignificant tonnage tax based on the registered tonnage of its fleet. The rates for tonnage tax are set annually by the Norwegian parliament. To qualify for the shipping taxation regime, the shipping activities of UNS have been separated from other activities, such as management functions, although, prior to Teekay's purchase of UNS, the companies engaged in shipping activities and those providing management functions have been owned by the same ultimate parent. While UNS as the parent company does not qualify under the shipping tax regime, Ugland Nordic Investment AS, a wholly owned subsidiary of UNS owns the assets and companies engaged in shipping activities (the "Qualifying Company"). These companies engaged in shipping activities constitute "shipping companies" under the tax regime. Under the regime, the shipping companies may not have employees; consequently, all service and management functions must be obtained from a related or unrelated entity that is separate from the shipping companies. Intra-group services are required to be priced in accordance with market terms and UNS is subject to a 28% non-deferred tax with respect to the net income of any management services it provides. If the Qualifying Company were to cease to qualify for the shipping company tax regime, it would be taxed on its accumulated untaxed profits and gains, taking into account both value appreciations during the period it was under the regime and any untaxed equity that may have been in the Qualifying Company upon entry into the regime. The Qualifying Company would cease to qualify under the regime if it sold all of its vessels and ownership interests in other shipowning companies qualifying under the tax regime and the proceeds from such sale were not reinvested in a shipowning company qualifying under the tax regime or a replacement vessel, or an agreement to build a replacement vessel were not entered into within a year from the sale. Furthermore, under certain conditions, the Qualifying Company would also cease to qualify under the regime if one of the shipowning companies in which the Qualifying Company holds an ownership interest sold all of its vessels and the proceeds from such sale were not reinvested in a replacement vessel or an agreement to build a replacement vessel were not entered into within a year of the sale. To the extent untaxed profits are distributed from the Qualifying Company to shareholders outside the regime, which would include dividends or other distributions paid by the Qualifying Company to UNS, the Qualifying Company will be taxed at a rate of 28% of the distributed amount as grossed-up for such taxes. Further, dividends paid from UNS to a non-Norwegian shareholder will be subject to a Norwegian withholding tax of 25%, unless a lower tax has been agreed upon in an applicable tax treaty. We record deferred taxes under the Norwegian shipping tax regime on our consolidated financial statements in accordance with accounting principles generally accepted in the United States. See Note 6 to our March 31, 2001 unaudited consolidated financial statements included elsewhere in this prospectus. 59 65 MANAGEMENT Our directors, executive officers and senior management personnel are listed below:
NAME AGE POSITION - ---- --- -------- C. Sean Day.......................... 52 Director and Chairman of the Board Bjorn Moller......................... 43 Director, President and Chief Executive Officer Axel Karlshoej....................... 61 Director and Chairman Emeritus Bruce C. Bell........................ 54 Director and Corporate Secretary Dr. Ian D. Blackburne................ 55 Director Morris L. Feder...................... 84 Director Thomas Kuo-Yuen Hsu.................. 54 Director Leif O. Hoegh........................ 37 Director Eileen A. Mercier.................... 54 Director Peter S. Antturi..................... 42 VP, Treasurer and Chief Financial Officer David Glendinning.................... 47 SVP, Customer Service & Marine Project Development Mads T. Meldgaard.................... 36 VP, Chartering Graham Westgarth..................... 47 SVP, Marine Operations
Certain biographical information about each of these individuals is set forth below: C. SEAN DAY has been a director since September 1998, and has served as our Chairman of the Board since September 1999. He has also been Chairman of the Board of Seagin International LLC since April 1999 and was President and Chief Executive Officer of Navios Corporation, a large bulk shipping company, from 1989 to 1999. Prior to this, Mr. Day held a number of senior management positions in the shipping and financing industry. He is currently serving as a Director of Genesee & Wyoming, Inc., Kirby Corporation, and Sparkling Springs Water Group. Mr. Day is also engaged as a consultant to the trust that constitutes the largest shareholder of Teekay. See "-- Certain Transactions with Related Parties." BJORN MOLLER has served as one of our directors and as our President and Chief Executive Officer since April 1998. Mr. Moller has over 20 years experience in the shipping industry and has served in senior management positions with us for more than 12 years. He has headed our overall operations since January 1997, following his promotion to the position of Chief Operating Officer. Prior to this, Mr. Moller headed our global chartering operations and business development activities. AXEL KARLSHOEJ is President of Nordic Industries, a California general construction firm with which he has served for the past 26 years. He is the older brother of the late J. Torben Karlshoej, our founder. He has served as a director since 1989 and Chairman of the Board from June 1994 to September 1999, and Chairman Emeritus since stepping down as Chairman. BRUCE C. BELL has served as one of our directors and as our Corporate Secretary since May 2000. He is the Managing Director of Oceanic Bank and Trust Limited, a private Bahamian bank, a position he has held since March 1994. Prior to joining Oceanic Bank and Trust Limited, Mr. Bell was engaged in the private practice of law in Canada, specializing in corporate/commercial, banking and international business transactions. DR. IAN D. BLACKBURNE has served as one of our directors since September 2000. Dr. Blackburne has over 25 years experience in petroleum refining and marketing, and in March 2000 he retired as Managing Director and CEO of Caltex Australia Limited, a large petroleum refining and marketing conglomerate based in Australia. He is currently serving as a Director of CSR Limited, Suncorp-Metway Ltd., and of Airservices Australia. In February 2001, Dr. Blackburne was appointed as Director and Chairman of Australian Plantation Timber Limited, positions he resigned on June 30, 2001. 60 66 MORRIS L. FEDER has served as one of our directors since June 1993. He is President of Worldwide Cargo Inc., a New York-based chartering firm. Mr. Feder has been employed in the shipping industry for more than 49 years, 43 of which were spent with Maritime Overseas Corporation, where he retired as Executive Vice President and Director in December 1991. He has also served as Senior Vice President and Director of Overseas Shipholding Group Inc. and was a member of the Finance and Development Committee of its Board of Directors. Mr. Feder is a member of the American Bureau of Shipping, the Connecticut Maritime Association and the Association of Shipbrokers and Agents USA Inc., as well as a Director of American Marine Advisors, Inc. THOMAS KUO-YUEN HSU has served as one of our directors since June 1993. He has served 27 years with, and is presently Executive Director of, Expedo & Company (London) Ltd., which is part of the Expedo Group of Companies that manages a fleet of eight vessels, ranging in size from 20,000 dwt to 280,000 dwt. He has been a Committee Director of the Britannia Steam Ship Insurance Association Limited since 1988. LEIF O. HOEGH was appointed as a director in June 1999, concurrently with our acquisition of Bona Shipholding Ltd. He served as a director of Bona from November 1993 to June 1999 and as its Chairman from June 1998 to June 1999. Mr. Hoegh is Managing Director of Leif Hoegh (U.K.) Limited and Vice-Chairman of Leif Hoegh and Co. ASA. He also serves as a Director of Dannebrog Rederi AS and as the Chairman of Hoegh Capital Partners, Inc. EILEEN A. MERCIER has served as one of our directors since December 2000. Ms. Mercier has over 30 years of experience in a wide variety of financial and strategic planning positions, including Senior Vice President and Chief Financial Officer for Abitibi-Price Inc. from 1990 to 1995. Since then she has been President of Finvoy Management Inc., a management consulting firm specializing in financial strategy, mergers and acquisitions, restructuring and corporate governance issues. She also currently serves as a director of CGI Group Inc., Quebecor World Inc., Reko International Group Inc., and Winpak Ltd. PETER S. ANTTURI joined us in September 1991 as Manager, Accounting and was promoted to the position of Controller in March 1992, and to his current position of Vice President, Treasurer and Chief Financial Officer in October 1997. Prior to joining us, Mr. Antturi held various accounting and finance roles in the shipping industry since 1985. CAPTAIN DAVID GLENDINNING joined the Chartering Department of our London office in January 1987. Since then, he has worked in a number of senior positions within the organization, including Vice President, Commercial Operations, and Vice President, Marine and Commercial Operations. Since February 1999 he has served as Senior Vice President, Customer Service and Marine Project Development. Captain Glendinning has 18 years' sea service on oil tankers of various types and sizes and is a Master Mariner with British Class 1 Foreign Going Certificate of Competency. MADS T. MELDGAARD joined our Chartering Department in January 1986 and served in our European and Singapore offices until December 1991, when he was appointed Chartering Manager in the Vancouver office. In January 1994, he was promoted to the position of General Manager, Chartering, and then to Managing Director (Singapore) in September 1995. In July 1998, Mr. Meldgaard became Vice President, Chartering, based in Vancouver. CAPTAIN GRAHAM WESTGARTH joined us in February 1999 as Vice President, Marine Operations and was promoted to the position of Senior Vice President, Marine Operations in December 1999. Captain Westgarth has 28 years of shipping industry experience. Eighteen of those years were spent at sea, including five years in a command position. He joined us from Maersk Company (U.K.), where he joined as Master in 1987 before being promoted to General Manager in 1994. COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT The aggregate compensation paid to our five executive officers listed above (the "Executive Officers") was $2,324,667 for the year ended December 31, 2000, a portion of which was attributable to 61 67 payments made pursuant to bonus plans, which consider both Teekay's and individual performance for a given period. For the year ended December 31, 2000, we also contributed an aggregate of $209,198 to provide pension and similar benefits for the Executive Officers. During the year ended December 31, 2000, we granted an aggregate of 119,500 options, with an exercise price of $23.563 per share, to the Executive Officers under our 1995 Stock Option Plan. The options expire March 6, 2010, ten years after the date of the grant. During the year ended December 31, 2000, our eight non-employee directors received, in the aggregate, approximately $120,000 for their services as directors plus reimbursement of their out-of-pocket expenses. During that same period, we granted an aggregate of 70,000 options, with an exercise price of $23.563 per share, to the non-employee directors under our 1995 Stock Option Plan. The options expire March 6, 2010, ten years after the date of the grant. There are no employment agreements between us and any of our officers. OPTIONS TO PURCHASE SECURITIES Our 1995 Stock Option Plan (the "Plan") entitles certain of our eligible officers, employees (including senior sea staff) and directors to receive options to acquire our common stock. As of June 30, 2001, a total of 4,007,219 shares of common stock were reserved for issuance under the Plan. As of such date, options to purchase a total of 2,769,635 shares of common stock were outstanding, with options to purchase a total of 1,101,904 shares then exercisable and with the directors and the Executive Officers holding options to purchase a total of 946,350 shares, of which 446,250 were exercisable. The outstanding options under the Plan are exercisable at prices ranging from $16.875 to $41.19 per share, with a weighted average exercise price of $27.86 per share, and expire between July 19, 2005 and March 15, 2011, ten years after the date of each grant. BOARD PRACTICES Our board of directors consists of nine members. The board of directors is divided into three classes, with members of each class elected to hold office for a term of three years in accordance with the classification indicated below or until his or her successor is elected and qualified. Directors Thomas Kuo-Yuen Hsu, Axel Karlshoej, and Bjorn Moller have terms expiring in 2002. Directors Bruce C. Bell, C. Sean Day, and Dr. Ian D. Blackburne have terms expiring in 2003. Directors Morris L. Feder, Leif O. Hoegh, and Eileen A. Mercier have terms expiring in 2004. The board of directors has standing Audit, Executive, Governance and Resource Committees, but no standing nominating committee. The Audit Committee oversees actions taken by our independent auditors. The Audit Committee consists of non-employee directors Eileen A. Mercier, Morris L. Feder, and Leif O. Hoegh. The Executive Committee is responsible for items which have been broadly approved by the board, and which are beyond the approval levels of our Chairman and CEO. The Executive Committee consists of our CEO and director, Bjorn Moller, together with non-employee directors C. Sean Day, Morris L. Feder, and Axel Karlshoej. The Governance Committee is responsible for making recommendations to the board on corporate governance issues. The Governance Committee consists of non-employee directors Bruce C. Bell, C. Sean Day, and Eileen A. Mercier, together with our CEO and director, Bjorn Moller. The Resource Committee reviews the compensation of our executive officers and makes recommendations to the board of directors regarding compensation. The Resource Committee consists of non-employee directors Axel Karlshoej, Thomas Kuo-Yuen Hsu, and Dr. Ian D. Blackburne. 62 68 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding beneficial ownership of our common stock as of June 30, 2001 by each owner of 5% or more of our common stock and by all of our directors and officers listed above as a group:
COMMON STOCK(1) ------------------------ IDENTITY OF PERSON OR GROUP NUMBER PERCENTAGE - --------------------------- ---------- ---------- Cirrus Trust and JTK Trust(2)............................... 16,315,690 40.7% Neuberger Berman LLC(3)..................................... 4,269,745 10.7% All officers and directors as a group (13 persons)(4)....... 472,900 1.2%
- --------------- (1) Beneficial ownership is determined in accordance with the rules of the SEC. For purposes of this table, a person is deemed to be the beneficial owner of securities that (a) can be acquired by such person within 60 days upon the exercise of options or warrants and (b) are held by such person's spouse or other immediate family member sharing such person's household. Each beneficial owner's percentage ownership is determined by assuming that options held by such person or listed group of persons (but not those held by any other listed person or group of persons), that are exercisable within 60 days after June 30, 2001, have been exercised. (2) Cirrus Trust and JTK Trust own, indirectly through wholly-owned subsidiaries, 13,427,397 shares (or 33.5%) of common stock and 2,888,293 shares (or 7.2%) of common stock, respectively. These trusts are under common supervision of Axel Karlshoej and Thomas Hsu, both of whom are on our board of directors, Shigeru Matsui, President of Matsui & Company, a Tokyo-based ship brokerage firm, and Arthur F. Coady, Chairman of Oceanic Bank and Trust, an affiliate of the trusts. C. Sean Day, our Chairman of the Board, is also the Chairman of the Board of each wholly-owned subsidiary of Cirrus Trust and JTK Trust that directly owns these shares of common stock. (3) Neuberger Berman, LLC ("Neuberger") is a registered investment advisor. In its capacity as investment advisor, Neuberger may have discretionary authority to dispose of or to vote shares that are under its management. As a result, Neuberger may be deemed to have beneficial ownership of such shares. Neuberger does not, however, have any economic interest in the shares. The clients are the actual owners of the shares and have the sole right to receive and the power to direct the receipt of dividends from or proceeds from the sale of such shares. Neuberger Berman Inc. is the parent holding company and owns 100% of Neuberger Berman, LLC and Neuberger Berman Management, Inc. As of June 30, 2001, of the shares set forth above, Neuberger had shared dispositive power with respect to 4,269,745 shares, sole voting power with respect to 3,023,020 shares and shared voting power on 1,700 shares. With regard to the shared voting power, Neuberger Berman Management, Inc. and Neuberger Berman Funds are deemed to be beneficial owners for purpose of Rule 13(d) since they have shared power to make decisions whether to retain or dispose of the securities. Neuberger is the sub-advisor to the above referenced funds. It should be further noted that the above mentioned shares are also included with the shared power to dispose calculation. (4) Includes 446,250 shares of common stock subject to stock options exercisable within 60 days after June 30, 2001. Excludes (a) 500,100 shares of common stock subject to stock options first exercisable more than 60 days after June 30, 2001, (b) as of June 30th, 2001 approximately 773,000 shares of common stock held by Leif Hoegh & Co. ASA, an entity controlled by Leif O. Hoegh, one of our directors and (c) shares owned indirectly by Cirrus Trust and JTK Trust, which, as described in note 2 above, are under the common supervision of, among others, Axel Karlshoej and Thomas Kuo-Yuen Hsu, two of our directors. 63 69 CERTAIN TRANSACTIONS WITH RELATED PARTIES As of June 30, 2001, Cirrus Trust and JTK Trust owned, indirectly through wholly-owned subsidiaries, an aggregate of 40.7% of our outstanding common stock. The activities of Cirrus Trust and JTK Trust are under common supervision of Axel Karlshoej and Thomas Hsu, both of whom are on our board of directors, Shigeru Matsui, President of Matsui & Company, a Tokyo-based ship brokerage firm, and Arthur F. Coady, Chairman of Oceanic Bank and Trust, an affiliate of the trusts. Bruce C. Bell, a Teekay director and our Corporate Secretary, is the Managing Director of Oceanic Bank and Trust. The beneficiaries of the trusts include charitable institutions and affiliated trusts. C. Sean Day, our Chairman of the Board, is also the Chairman of the Board of each wholly-owned subsidiary of Cirrus Trust and JTK Trust that directly owns shares of our common stock. Mr. Day is also a consultant to the trusts. We have agreed to reimburse the trusts for consulting fees paid to Mr. Day. We paid $200,000 and $67,000 to the trusts as reimbursement for Mr. Day's consulting services rendered during 2000 and 1999, respectively. We did not make any payments to the trusts as reimbursements for Mr. Day's consulting services in 1998. 64 70 DESCRIPTION OF CERTAIN DEBT The following is a summary of our primary debt. This summary is qualified in its entirety by reference to the full text of the documents that govern the transactions so summarized. As at June 30, 2001, our subsidiaries had obligations for outstanding debt for borrowed money under existing credit agreements in the aggregate principal amount of approximately $1,178 million, of which we have guaranteed $842 million, excluding $115 million of joint venture debt guaranteed by certain of our subsidiaries. The following chart indicates, on a consolidated basis after giving effect to the offering of the outstanding notes and the proposed application of the net proceeds therefrom to prepay certain of our existing debt, the aggregate principal amount of debt that would be due and payable in our upcoming fiscal years.
FISCAL YEAR AMOUNT - ----------- ------ 2001 (July 1 to Dec. 31, $ 45 million 2001)...................... 2002......................... $ 73 million 2003......................... $ 85 million 2004......................... $ 79 million 2005......................... $ 126 million
FISCAL YEAR AMOUNT - ----------- ------ 2006......................... $ 144 million 2007......................... $ 111 million 2008......................... $ 101 million 2009......................... $ 36 million 2010......................... $ 0 million 2011......................... $ 250 million
In January 1996, we issued $225 million of our 8.32% First Preferred Ship Mortgage Notes in a public offering registered under the Securities Act of 1933. These notes currently are collateralized by first preferred mortgages granted on seven of our Aframax tankers, together with other related collateral, and are guaranteed by our subsidiaries that own the mortgaged vessels. Upon these notes achieving investment grade status and subject to other conditions, the guarantees of the notes will terminate, all of the collateral securing our obligations and the guarantors under the related indenture and security documents will be released and specified covenants under the indenture will no longer be applicable to us. These notes are subject to a sinking fund, which will retire $45 million principal amount of these notes on each February 1, commencing February 1, 2004. These notes are listed for trading on the New York Stock Exchange. In January 1998, we negotiated a reducing revolving credit facility with nine commercial banks which, as of June 30, 2001, provided for borrowings of up to $140 million in order to refinance certain debt and to provide working capital. This facility is secured by first priority mortgages granted on eight of our Aframax tankers, together with other related collateral, and a guarantee from us for all amounts outstanding under the facility. Interest payments are based on LIBOR plus a specified margin that is dependent on our capital structure as calculated on a quarterly basis. At June 30, 2001, the margin was +0.50%. The amount available under the facility reduces by $10 million semi-annually with a final balloon reduction in January 2006. Bona has a revolving credit facility with 15 commercial banks which, as of June 30, 2001, provided for borrowings of up to $397 million. This facility is secured by first priority mortgages granted on 25 Bona and Teekay vessels. In connection with the Bona acquisition, Teekay agreed to guarantee all of Bona's obligations under this facility. The facility is subject to certain financial covenants, including maintenance of (1) a specified minimum level of free cash, (2) a specified ratio of liabilities to market value of assets and (3) a specified ratio of current assets to current liabilities. As of June 30, 2001, Bona was in compliance with all such covenants. Interest payments are based on LIBOR plus a specified margin that depends on Bona's capital structure as calculated on a quarterly basis. At June 30, 2001, the margin was +0.725%. The amount available under the facility reduces by $19 million semi-annually with a final balloon reduction in December 2008. At June 30, 2001, UNS had a number of single-ship mortgage and other working capital and line of credit loans totaling $336 million. Teekay does not guarantee any of the obligations under these 65 71 facilities. In April 2001, UNS completed a new $141 million credit facility to finance the $95 million purchase price of four shuttle tankers from Awilco ASA. The remainder of the proceeds were to refinance three existing credit facilities. UNS term loans are collateralized by first priority mortgages granted on the 15 vessels to which the loans relate (including three newbuildings), together with certain other related collateral, and guarantees from UNS. UNS credit facilities are subject to certain financial covenants which include (1) a specified minimum level of free cash, (2) minimum equity (based on book value), (3) minimum working capital, (4) minimum value adjusted equity or total value adjusted assets, (5) minimum committed capital and (6) minimum earnings to interest ratio. As of June 30, 2001, UNS was in compliance with all such covenants. The indenture relating to our 8.32% First Preferred Ship Mortgage Notes due 2008 and certain of the credit agreements governing our (and our subsidiaries') credit facilities provide that our ability to pay dividends is subject to limitations based upon our cumulative net income plus certain additional amounts, including the proceeds received by us from any issuance of our capital stock. In addition, credit agreements to which some of our subsidiaries are parties, and guarantees executed by us in connection with them, contain various covenants which restrict our operations and those of our subsidiaries. These credit agreements and guarantees contain covenants that require those subsidiaries or us, as the case may be, to conduct their or our operations, including, for those subsidiaries, the operations of their respective vessels, in accordance with certain standards set forth in the credit agreements or guarantees. Certain credit agreements related to our secured debt contain "hull covenants" that require the applicable subsidiaries to deliver additional collateral to the lenders under the applicable credit agreement, or prepay a certain amount of the debt, in the event that the value of the subject vessels falls below a fixed percentage of the amount of the debt then outstanding under the credit agreement. The percentage at which the combined value of the subject vessels must remain is 125% of the outstanding debt under the revolving credit agreement, with the percentage increasing to 130% over the term of the facility. We believe that as of June 30, 2001 we were in compliance with all of the covenants in effect at that time. 66 72 THE EXCHANGE OFFER PURPOSE OF THE EXCHANGE OFFER In connection with the sale of the outstanding notes, we entered into an exchange and registration rights agreement with the initial purchasers of the outstanding notes. In that agreement, we agreed to use our best efforts to file and have declared effective within 180 days of the sale of the outstanding notes this registration statement relating to an offer to exchange the exchange notes for the outstanding notes. We also agreed to use our best efforts to complete the exchange offer for the outstanding notes within 60 days after the effective date of this registration statement. We are offering the exchange notes under this prospectus in the exchange offer for the outstanding notes to satisfy our obligations under the exchange and registration rights agreement. We refer to our offer to exchange the exchange notes for the outstanding notes as the "exchange offer." RESALE OF EXCHANGE NOTES Based on interpretations of the SEC staff in no-action letters issued to third parties, we believe that each exchange note issued in the exchange offer may be offered for resale, resold and otherwise transferred by you without compliance with the registration and prospectus delivery provisions of the Securities Act of 1933 if, among other things: - you are acquiring the exchange notes in the ordinary course of your business; - you are not participating, do not intend to participate, and have no arrangement or understanding with any person to participate, in the distribution of the exchange notes; and - you are not an affiliate of Teekay. If you tender your outstanding notes in the exchange offer with the intention of participating in any manner in a distribution of the exchange notes or you are an affiliate of Teekay, you: - cannot rely on such interpretations by the SEC staff, and - must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary resale transaction of the exchange notes and such secondary resale transaction must be covered by an effective registration statement under the Securities Act of 1933 containing the selling security holder's information required by Item 507 or Item 508, as applicable, of Regulation S-K under the Securities Act. This prospectus may be used for an offer to resell, resale or otherwise transfer exchange notes only as specifically described in this prospectus. Only those broker-dealers that acquired outstanding notes as a result of market-making activities or other trading activities may participate in the exchange offer. Each broker-dealer that receives exchange notes for its own account in exchange for outstanding notes, where that broker-dealer acquired such outstanding notes as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. Please read "Plan of Distribution" for more details regarding the transfer of exchange notes. TERMS OF THE EXCHANGE OFFER Upon the terms and subject to the conditions described in this prospectus and in the letter of transmittal, we will accept for exchange any outstanding notes properly tendered and not withdrawn prior to the expiration date of the exchange offer. We will issue $1,000 principal amount of exchange notes in exchange for each $1,000 principal amount of outstanding notes surrendered under the exchange offer. Outstanding notes may be tendered only in integral multiples of $1,000. The exchange offer is not conditioned upon any minimum aggregate principal amount of outstanding notes being tendered for exchange. 67 73 As of the date of this prospectus, $250 million principal amount of outstanding notes is outstanding. This prospectus and the letter of transmittal are being sent to all registered holders of outstanding notes. There will be no fixed record date for determining registered holders of outstanding notes entitled to participate in the exchange offer. We intend to conduct the exchange offer in accordance with the provisions of the exchange and registration rights agreement, the applicable requirements of the Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules and regulations of the SEC. Outstanding notes that are not tendered for exchange in the exchange offer: - will remain outstanding, - will continue to accrue interest, and - will be entitled to the rights and benefits that holders have under the indenture relating to the outstanding notes and, under limited circumstances, the exchange and registration rights agreement. We will be deemed to have accepted for exchange properly tendered outstanding notes when we have given oral or written notice of the acceptance to the exchange agent and complied with the applicable provisions of the exchange and registration rights agreement. The exchange agent will act as agent for the tendering holders for the purposes of receiving the exchange notes from us. If you tender outstanding notes in the exchange offer, you will not be required to pay brokerage commissions or fees or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of outstanding notes. We will pay all charges and expenses, other than certain applicable taxes described below, in connection with the exchange offer. It is important that you read "-- Fees and Expenses" for more details about fees and expenses incurred in the exchange offer. We will return any outstanding notes that we do not accept for exchange for any reason without expense to the tendering holder as promptly as practicable after the expiration or termination of the exchange offer. EXPIRATION DATE The exchange offer will expire at 5:00 p.m., New York City time, on 2001, unless in our sole discretion we extend it. EXTENSIONS, DELAY IN ACCEPTANCE, TERMINATION OR AMENDMENT We expressly reserve the right, at any time or at various times, to extend the period of time during which the exchange offer is open. We may delay acceptance for exchange of any outstanding notes by giving oral or written notice of the extension to their holders. During any such extensions, all outstanding notes you have previously tendered will remain subject to the exchange offer for that series, and we may accept them for exchange. To extend the exchange offer, we will notify the exchange agent orally or in writing of any extension. We also will make a public announcement of the extension no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date. If any of the conditions described below under "-- Conditions to the Exchange Offer" have not been satisfied with respect to the exchange offer, we reserve the right, in our sole discretion: - to delay accepting for exchange any outstanding notes, - to extend the exchange offer, or - to terminate the exchange offer. 68 74 We will give oral or written notice of such delay, extension or termination to the exchange agent. Subject to the terms of the exchange and registration rights agreement, we also reserve the right to amend the terms of the exchange offer in any manner. Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice thereof to the registered holders of outstanding notes. If we amend the exchange offer in a manner that we determine to constitute a material change, we will promptly disclose that amendment by means of a prospectus supplement. We will distribute the supplement to the registered holders of the outstanding notes. Depending upon the significance of the amendment and the manner of disclosure to the registered holders, we will extend the exchange offer if the exchange offer would otherwise expire during such period. Without limiting the manner in which we may choose to make public announcements of any delay in acceptance, extension, termination or amendment of the exchange offer, we have no obligation to publish, advertise or otherwise communicate any such public announcement, other than by making a timely release to an appropriate news agency. CONDITIONS TO THE EXCHANGE OFFER Despite any other term of the exchange offer, we will not be required to accept for exchange, or exchange any exchange notes for any outstanding notes, and we may terminate the exchange offer as provided in this prospectus before accepting any outstanding notes for exchange, if in our reasonable judgment: - the exchange offer, or the making of any exchange by a holder of outstanding notes, would violate applicable law or any applicable interpretation of the staff of the SEC, or - any action or proceeding has been instituted or threatened in any court or by or before any governmental agency with respect to the exchange offer that, in our judgment, would reasonably be expected to impair our ability to proceed with the exchange offer. In addition, we will not be obligated to accept for exchange the outstanding notes of any holder that has not made to us: - the representations described under "-- Your Representations to Us." - such other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to make available to us an appropriate form for registering the exchange notes under the Securities Act of 1933. We expressly reserve the right to amend or terminate the exchange offer, and to reject for exchange any outstanding notes not previously accepted for exchange in the exchange offer, upon the occurrence of any of the conditions to the exchange offer specified above. We will give oral or written notice of any extension, amendment, nonacceptance or termination to the holders of the outstanding notes as promptly as practicable. These conditions are for our sole benefit, and we may assert them or waive them in whole or in part at any time or at various times in our sole discretion. Our failure at any time to exercise any of these rights will not mean that we have waived our rights. Each right will be deemed an ongoing right that we may assert at any time or at various times. In addition, we will not accept for exchange any outstanding notes tendered, and will not issue exchange notes in exchange for any such outstanding notes, if at such time any stop order has been threatened or is in effect with respect to the registration statement of which this prospectus constitutes a part or the qualification of the indenture relating to the notes under the Trust Indenture Act of 1939. 69 75 EXCHANGE AGENT We have appointed the United States Trust Company of New York as exchange agent for the exchange offer. Please direct questions and requests for assistance, requests for additional copies of this prospectus or of the letter of transmittal and requests for the notice of guaranteed delivery to the exchange agent. If you are not tendering under DTC's automated tender offer program, you should send the letter of transmittal and any other required documents to the exchange agent as follows: ------------------------------------ BY HAND DELIVERY TO 4:30 P.M. United States Trust Company of New York 30 Broad Street, B-Level New York, NY 10004-2304 BY OVERNIGHT COURIER AND BY HAND DELIVERY AFTER 4:30 P.M. ON EXPIRATION DATE United States Trust Company of New York 30 Broad Street, 14th Floor New York, NY 10004-2304 BY REGISTERED OR CERTIFIED MAIL United States Trust Company of New York P.O. Box 84 Bowling Green Station New York, NY 10274-0084 BY FACSIMILE TRANSMISSION (ELIGIBLE INSTITUTIONS ONLY): United States Trust Company of New York 30 Broad Street, B-Level New York, NY 10004-2304 FAX: (646) 458-8111 CONFIRM BY TELEPHONE: (800) 548-6565 PROCEDURES FOR TENDERING Only a holder of outstanding notes may tender such outstanding notes in the exchange offer. To tender in the exchange offer, a holder must either (1) comply with the procedures for physical tender, described below, or (2) comply with the automated tender offer program procedures of The Depository Trust Company, or "DTC," described below. The tender by a holder that is not withdrawn prior to the expiration date and our acceptance of that tender will constitute an agreement between the holder and us in accordance with the terms and subject to the conditions described in this prospectus and in the letter of transmittal. THE METHOD OF DELIVERY OF OUTSTANDING NOTES, THE LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT YOUR ELECTION AND RISK. RATHER THAN MAIL THESE ITEMS, WE RECOMMEND THAT YOU USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, YOU SHOULD ALLOW SUFFICIENT TIME TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. YOU SHOULD NOT SEND THE LETTER OF TRANSMITTAL OR OUTSTANDING NOTES TO US. YOU MAY REQUEST YOUR BROKER, DEALER, COMMERCIAL BANK, TRUST COMPANY OR OTHER NOMINEE TO EFFECT THE ABOVE TRANSACTIONS FOR YOU. 70 76 HOW TO TENDER IF YOU ARE A BENEFICIAL OWNER If you beneficially own outstanding notes that are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and you wish to tender those notes, you should contact the registered holder as soon as possible and instruct the registered holder to tender on your behalf. If you are a beneficial owner and wish to tender on your own behalf, you must, prior to completing and executing the letter of transmittal and delivering your outstanding notes, either: - make appropriate arrangements to register ownership of the outstanding notes in your name, or - obtain a properly completed bond power from the registered holder of your outstanding notes. The transfer of registered ownership may take considerable time and may not be completed prior to the expiration date. PROCEDURES FOR PHYSICAL TENDER To complete a physical tender, a holder must: - complete, sign and date the letter of transmittal or a facsimile of the letter of transmittal, - have the signature on the letter of transmittal guaranteed if the letter of transmittal so requires, - mail or deliver or facsimile the letter of transmittal to the exchange agent prior to the expiration date, and - deliver the outstanding notes to the exchange agent prior to the expiration date or comply with the guaranteed delivery procedures described below. To be tendered effectively, the exchange agent must receive any physical delivery of the letter of transmittal and other required documents at its address provided above under "-- Exchange Agent" prior to the expiration date. SIGNATURES AND SIGNATURE GUARANTEES You must have signatures on a letter of transmittal or a notice of withdrawal described below under "-- Withdrawal of Tenders" guaranteed by an eligible institution unless the outstanding notes are tendered: - by a registered holder who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the letter of transmittal, or - for the account of an eligible institution. An eligible institution is a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States, or an eligible guarantor institution within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, that is a member of one of the recognized signature guarantee programs identified in the letter of transmittal. WHEN ENDORSEMENTS OR BOND POWERS ARE NEEDED If a person other than the registered holder of any outstanding notes signs the letter of transmittal, the outstanding notes must be endorsed or accompanied by a properly completed bond power. The registered holder must sign the bond power as the registered holder's name appears on the outstanding notes. An eligible institution must guarantee that signature. If the letter of transmittal or any outstanding notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, or officers of corporations or others acting in a fiduciary or representative capacity, those persons should so indicate when signing. Unless we waive 71 77 this requirement, they also must submit evidence satisfactory to us of their authority to deliver the letter of transmittal. TENDERING THROUGH DTC'S AUTOMATED TENDER OFFER PROGRAM The exchange agent and DTC have confirmed that any financial institution that is a participant in DTC's system may use DTC's automated tender offer program to tender. Accordingly, participants in the program may, instead of physically completing and signing the letter of transmittal and delivering it to the exchange agent, transmit their acceptance of the exchange offer electronically. They may do so by causing DTC to transfer the outstanding notes to the exchange agent in accordance with its procedures for transfer. DTC will then send an agent's message to the exchange agent. An agent's message is a message transmitted by DTC to and received by the exchange agent and forming part of the book-entry confirmation, stating that: - DTC has received an express acknowledgment from a participant in DTC's automated tender offer program that is tendering outstanding notes that are the subject of such book-entry confirmation, - the participant has received and agrees to be bound by the terms of the letter of transmittal or, in the case of an agent's message relating to guaranteed delivery, the participant has received and agrees to be bound by the applicable notice of guaranteed delivery, and - we may enforce the agreement against such participant. To complete a tender through DTC's automated tender offer program, the exchange agent must receive, prior to the expiration date, a timely confirmation of book-entry transfer of such outstanding notes into the exchange agent's account at DTC according to the procedure for book-entry transfer described below or a properly transmitted agent's message. DETERMINATIONS UNDER THE EXCHANGE OFFER We will determine in our sole discretion all questions as to the validity, form, eligibility, time of receipt, acceptance of tendered outstanding notes and withdrawal of tendered outstanding notes. Our determination will be final and binding. We reserve the absolute right to reject any outstanding notes not properly tendered or any outstanding notes our acceptance of which, in the opinion of our counsel, might be unlawful. We also reserve the right to waive any defects, irregularities or conditions of the exchange offer as to particular outstanding notes. Our interpretation of the terms and conditions of the exchange offer, including the instructions in the letter of transmittal, will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of outstanding notes must be cured within such time as we determine. Neither we, the exchange agent nor any other person will be under any duty to give notification of defects or irregularities with respect to tenders of outstanding notes, nor will we or those persons incur any liability for failure to give such notification. Tenders of outstanding notes will not be deemed made until such defects or irregularities have been cured or waived. Any outstanding notes received by the exchange agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned to the tendering holder, unless otherwise provided in the letter of transmittal, as soon as practicable following the expiration date. WHEN WE WILL ISSUE EXCHANGE NOTES In all cases, we will issue exchange notes for outstanding notes that we have accepted for exchange in the exchange offer only after the exchange agent timely receives: - outstanding notes or a timely book-entry confirmation of transfer of such outstanding notes into the exchange agent's account at DTC, and 72 78 - a properly completed and duly executed letter of transmittal and all other required documents or a properly transmitted agent's message. RETURN OF OUTSTANDING NOTES NOT ACCEPTED OR EXCHANGED If we do not accept any tendered outstanding notes for exchange for any reason described in the terms and conditions of the exchange offer or if outstanding notes are submitted for a greater principal amount than the holder desires to exchange, we will return the unaccepted or nonexchanged outstanding notes without expense to their tendering holder. In the case of outstanding notes tendered by book-entry transfer into the exchange agent's account at DTC according to the procedures described below, such nonexchanged outstanding notes will be credited to an account maintained with DTC. These actions will occur as promptly as practicable after the expiration or termination of the exchange offer. YOUR REPRESENTATIONS TO US By signing or agreeing to be bound by the letter of transmittal, you will represent to us that, among other things: - any exchange notes you receive will be acquired in the ordinary course of your business, - you have no arrangement or understanding with any person to participate in the distribution of the outstanding notes or the exchange notes within the meaning of the Securities Act of 1933, - you are not our affiliate, as defined in Rule 405 under the Securities Act, or, if you are our affiliate, you will comply with the applicable registration and prospectus delivery requirements of the Securities Act, - if you are not a broker-dealer, you are not engaged in and do not intend to engage in the distribution of the exchange notes, and - if you are a broker-dealer that will receive exchange notes for your own account in exchange for outstanding notes that you acquired as a result of market-making activities or other trading activities, you will deliver a prospectus in connection with any resale of such exchange notes. BOOK-ENTRY TRANSFER The exchange agent will make a request to establish an account with respect to the outstanding notes at DTC for purposes of the exchange offer promptly after the date of this prospectus. Any financial institution participating in DTC's system may make book-entry delivery of outstanding notes by causing DTC to transfer such outstanding notes into the exchange agent's account at DTC in accordance with DTC's procedures for transfer. If you are unable to deliver confirmation of the book-entry tender of your outstanding notes into the exchange agent's account at DTC or all other documents required by the letter of transmittal to the exchange agent on or prior to the expiration date, you must tender your outstanding notes according to the guaranteed delivery procedures described below. GUARANTEED DELIVERY PROCEDURES If you wish to tender your outstanding notes but they are not immediately available or if you cannot deliver your outstanding notes, the letter of transmittal or any other required documents to the exchange agent or comply with the applicable procedures under DTC's automated tender offer program prior to the expiration date, you may tender if: - the tender is made through a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States, or an eligible guarantor institution, 73 79 - prior to the expiration date, the exchange agent receives from such member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., commercial bank or trust company having an office or correspondent in the United States, or eligible guarantor institution either a properly completed and duly executed notice of guaranteed delivery by facsimile transmission, mail or hand delivery or a properly transmitted agent's message and notice of guaranteed delivery: - stating your name and address, the registered number(s) of your outstanding notes and the principal amount of outstanding notes tendered, - stating that the tender is being made thereby, - guaranteeing that, within three New York Stock Exchange trading days after the expiration date, the letter of transmittal or facsimile thereof or agent's message in lieu thereof, together with the outstanding notes or a book-entry confirmation, and any other documents required by the letter of transmittal will be deposited by the eligible guarantor institution with the exchange agent, and - the exchange agent receives such properly completed and executed letter of transmittal or facsimile or agent's message, as well as all tendered outstanding notes in proper form for transfer or a book-entry confirmation, and all other documents required by the letter of transmittal, within three New York Stock Exchange trading days after the expiration date. Upon request to the exchange agent, the exchange agent will send a notice of guaranteed delivery to you if you wish to tender your outstanding notes according to the guaranteed delivery procedures described above. WITHDRAWAL OF TENDERS Except as otherwise provided in this prospectus, you may withdraw your tender at any time prior to 5:00 p.m., New York City time, on the expiration date. For a withdrawal to be effective: - the exchange agent must receive a written notice of withdrawal at one of the addresses listed above under "-- Exchange Agent," or - the withdrawing holder must comply with the appropriate procedures of DTC's automated tender offer program. Any notice of withdrawal must: - specify the name of the person who tendered the outstanding notes to be withdrawn, - identify the outstanding notes to be withdrawn, including the registration number numbers and the principal amount of such outstanding notes, - be signed by the person who tendered the outstanding notes in the same manner as the original signature on the letter of transmittal used to deposit those outstanding notes or be accompanied by documents of transfer sufficient to permit the trustee to register the transfer in the name of the person withdrawing the tender, and - specify the name in which such outstanding notes are to be registered, if different from that of the person who tendered the outstanding notes. If outstanding notes have been tendered under the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn outstanding notes and otherwise comply with the procedures of DTC. 74 80 We will determine all questions as to the validity, form, eligibility and time of receipt of notice of withdrawal, and our determination shall be final and binding on all parties. We will deem any outstanding notes so withdrawn not to have been validly tendered for exchange for purposes of the exchange offer. Any outstanding notes that have been tendered for exchange but that are not exchanged for any reason will be returned to their holder without cost to the holder or, in the case of outstanding notes tendered by book-entry transfer into the exchange agent's account at DTC according to the procedures described above, such outstanding notes will be credited to an account maintained with DTC for the outstanding notes. This return or crediting will take place as soon as practicable after withdrawal, rejection of tender or termination of the exchange offer. You may retender properly withdrawn outstanding notes by following one of the procedures described under "-- Procedures for Tendering" above at any time on or prior to 5:00 p.m., New York City time, on the expiration date. FEES AND EXPENSES We will bear the expenses of soliciting tenders. The principal solicitation is being made by mail; however, we may make additional solicitation by facsimile, email, telephone or in person by our officers and regular employees and those of our affiliates. We have not retained any dealer-manager in connection with the exchange offer and will not make any payments to broker-dealers or others soliciting acceptances of the exchange offer. We will, however, pay the exchange agent reasonable and customary fees for its services and reimburse it for its related reasonable out-of-pocket expenses. We may also pay brokerage houses and other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding copies of this prospectus, letters of transmittal and related documents to the beneficial owners of the outstanding notes and in handling or forwarding tenders for exchange. We will pay the cash expenses to be incurred in connection with the exchange offer. These expenses include: - SEC registration fees for the exchange notes, - fees and expenses of the exchange agent and trustee, - accounting and legal fees, - printing costs, and - related fees and expenses. TRANSFER TAXES If you tender your outstanding notes for exchange, you will not be required to pay any transfer taxes. We will pay all transfer taxes, if any, applicable to the exchange of outstanding notes in the exchange offer. The tendering holder will, however, be required to pay any transfer taxes, whether imposed on the registered holder or any other person, if: - certificates representing exchange notes or outstanding notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the name of, any person other than the registered holder of outstanding notes tendered, - tendered outstanding notes are registered in the name of any person other than the person signing the letter of transmittal, or - a transfer tax is imposed for any reason other than the exchange of exchange notes for outstanding notes in the exchange offer. If satisfactory evidence of payment of any transfer taxes payable by a tendering holder is not submitted with the letter of transmittal, the amount of such transfer taxes will be billed directly to that 75 81 tendering holder. The exchange agent will retain possession of exchange notes with a face amount equal to the amount of the transfer taxes due until it receives payment of the taxes. CONSEQUENCES OF FAILURE TO EXCHANGE If you do not exchange your outstanding notes for exchange notes in the exchange offer, you will remain subject to the existing restrictions on transfer of the outstanding notes. In general, you may not offer or sell the outstanding notes unless either they are registered under the Securities Act of 1933 or the offer or sale is exempt from or not subject to registration under the Securities Act and applicable state securities laws. Except as required by the exchange and registration rights agreement, we do not intend to register resales of the outstanding notes under the Securities Act. The tender of outstanding notes in the exchange offer will reduce the outstanding principal amount of the outstanding notes. Due to the corresponding reduction in liquidity, this may have an adverse effect upon, and increase the volatility of, the market price of any outstanding notes that you continue to hold. ACCOUNTING TREATMENT We will amortize our expenses of the exchange offer over the term of the exchange notes under accounting principles generally accepted in the United States. OTHER Participation in the exchange offer is voluntary, and you should carefully consider whether to accept. You are urged to consult your financial and tax advisors in making your decision on what action, if any, to take. In the future, we may seek to acquire untendered outstanding notes in open market or privately negotiated transactions, through subsequent exchange offers or otherwise. We have no present plan to acquire any outstanding notes that are not tendered in the exchange offer or to file a registration statement to permit resales of any untendered outstanding notes, except as required by the exchange and registration rights agreement. 76 82 DESCRIPTION OF THE NOTES In this section, "Teekay" or the "Company" means Teekay Shipping Corporation and not any of its subsidiaries. The exchange notes will be issued, and the outstanding notes were issued, by Teekay pursuant to an indenture between Teekay and U.S. Trust Company of Texas, N.A., as trustee. You may obtain a copy of the indenture from Teekay upon request. The indenture has been filed as an exhibit to the registration statement of which this prospectus is a part. The indenture is subject to and governed by the U.S. Trust Indenture Act of 1939. The statements under this section of this prospectus are summaries of the material terms and provisions of the indenture and the notes. They do not purport to be complete and are qualified in their entirety by reference to all the provisions in the indenture. Therefore, we urge you to read the indenture because it, and not this description, defines your rights as holders of the notes. Definitions relating to certain capitalized terms are set forth under "-- Certain Definitions" and throughout this description. Capitalized terms that are used but not otherwise defined in this description have the meanings ascribed to them in the indenture. The outstanding notes and the exchange notes will constitute a single series of debt securities under the indenture. If the exchange offer is consummated, any holders of outstanding notes who do not exchange their outstanding notes for exchange notes will vote together with holders of the exchange notes for all relevant purposes under the indenture. Accordingly, in determining whether the required holders have given any notice, consent or waiver or taken any other action permitted under the indenture, any outstanding notes that remain outstanding after the exchange offer will be aggregated with the exchange notes, and the holders of the outstanding notes and the exchange notes will vote together as a single series. All references in this prospectus to specified percentages in aggregate principal amount of the outstanding notes means, at any time after the exchange offer is consummated, the percentages in aggregate principal amount of the outstanding notes and exchange notes collectively then outstanding. GENERAL The notes: - are general unsecured obligations of Teekay, - rank equally and ratably in right of payment with all existing and future unsecured senior debt of Teekay, - are senior in right of payment to all existing and future subordinated debt of Teekay, - are effectively subordinated to all of Teekay's secured debt to the extent of the collateral securing such debt, and - are effectively subordinated to all existing and future debt and other liabilities and commitments of Teekay's subsidiaries because Teekay is a holding company and the notes will not be guaranteed by any of its subsidiaries. The indenture does not put any limitation on Teekay and its subsidiaries to incur debt. At June 30, 2001, and giving effect to the proposed application of the net proceeds of the issuance of the outstanding notes, the consolidated debt of Teekay and its subsidiaries would have been approximately $1,053 million, of which $803 million would have been secured debt that represented the obligations of, or was guaranteed by, certain of Teekay's subsidiaries. In addition, the outstanding notes are and the exchange notes will be effectively junior to approximately $115 million of debt of joint ventures that are 50% owned by certain of Teekay's subsidiaries, which is guaranteed by such subsidiaries. 77 83 PRINCIPAL, MATURITY AND INTEREST In the exchange offer, Teekay will issue up to $250 million aggregate principal amount of exchange notes. The indenture provides for the issuance of additional notes having identical terms and conditions to the notes. The notes and any additional notes subsequently issued under the indenture would be treated as a single class for all purposes under the indenture, including, without limitation, waivers, amendments, redemptions and offers to purchase. Teekay will issue exchange notes in denominations of $1,000 and integral multiples of $1,000. The exchange notes will mature on July 15, 2011. Interest on the notes will accrue at the rate of 8.875% per annum and will be payable semi-annually in arrears on January 15 and July 15, commencing on January 15, 2002. Teekay will make each interest payment to the holders of record on the immediately preceding January 1 and July 1. Interest on the notes will accrue from June 22, 2002 or, if interest has already been paid, from the date it was most recently paid. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months. OPTIONAL REDEMPTION At Teekay's option, Teekay may redeem the notes in whole or in part at any time before their maturity date at a redemption price equal to the greater of (i) 100% of the principal amount of the notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the notes to be redeemed (excluding the portion of any such interest accrued to the redemption date) discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Yield (as defined below), plus 50 basis points, plus, in each case, accrued and unpaid interest to the redemption date. For this purpose, the following terms have the following meanings: "Treasury Yield" means, with respect to any redemption date, the rate per year equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a maturity comparable to the remaining term of the notes that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of the notes. "Comparable Treasury Price" means, with respect to any redemption date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third business day preceding such redemption date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 Quotations for U.S. Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such business day, (A) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest such Reference Treasury Dealer Quotations for such redemption date, or (B) if the trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such Reference Treasury Dealer Quotations. "Independent Investment Banker" means Goldman, Sachs & Co. or its successor or, if such firm is unwilling or unable to select the Comparable Treasury Issue, one of the remaining Reference Treasury Dealers appointed by Teekay. "Reference Treasury Dealer" means (i) each of Goldman, Sachs & Co. and any other primary U.S. Government securities dealer in New York City (a "Primary Treasury Dealer") designated by, and not affiliated with, Goldman, Sachs & Co., provided however, that if Goldman, Sachs & Co. or any of its 78 84 designees shall cease to be a Primary Treasury Dealer, Teekay will appoint another Primary Treasury Dealer as a substitute for such entity and (ii) any other Primary Treasury Dealer selected by Teekay. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any redemption date, the average, as determined by the trustee of the bid and asked prices for the Comparable Treasury Issue (expressed, in each case, as a percentage of its principal amount) quoted in writing to the trustee by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third business day preceding such redemption date. At least 30 days but not more than 60 days before the relevant redemption date, Teekay will send notice of redemption to each holder of notes to be redeemed. If less than all of the notes are to be redeemed, the trustee will select, by such method as it will deem fair and appropriate, the notes to be redeemed in whole or in part. Unless Teekay defaults in payment of the redemption price, no interest will accrue on the notes called for redemption for the period from and after the redemption date. REDEMPTION FOR CHANGES IN WITHHOLDING TAXES The notes will be subject to redemption in whole, but not in part, at the option of Teekay, at any time at 100% of the principal amount thereof, together with accrued and unpaid interest thereon to the Redemption Date, and any other amounts owed to the holders of the notes under the terms of the indenture or the notes, if (i) Teekay becomes obligated to pay, on the next date on which any amount would be payable with respect to the notes, any Additional Amounts as a result of any generally applicable change in the laws or regulations of a Taxing Jurisdiction which becomes effective after the date of issuance of any of the outstanding notes and (ii) Teekay cannot avoid its obligations to pay such Additional Amounts by taking reasonable measures available to Teekay. However, any such notice of redemption must be given within 60 calendar days of the earliest date on which Teekay would be obligated to pay such Additional Amounts if a payment in respect of the notes were then due. Prior to the giving of any notice of redemption described in this paragraph, Teekay will deliver to the trustee an officer's certificate stating that Teekay is entitled to redeem the notes in accordance with the terms in the indenture and stating the facts relating to such redemption. See "-- Additional Amounts." MANDATORY REDEMPTION Except as set forth below under "Covenants -- Repurchase of Notes upon a Change of Control Triggering Event" Teekay is not required to make sinking fund payments or mandatory redemption payments prior to maturity with respect to the notes. COVENANTS REPURCHASE OF NOTES UPON A CHANGE OF CONTROL TRIGGERING EVENT The indenture provides that upon the occurrence of a Change of Control Triggering Event, each holder of notes will have the right to require Teekay to repurchase such holder's notes, in whole or in part, in integral multiples of $1,000, at a purchase price in cash equal to 101% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of purchase, in accordance with the procedures set forth in the indenture. A "Change of Control" also constitutes an event of default under several of Teekay's other debt agreements. There can be no assurance that Teekay will have sufficient funds to pay the purchase price referred to above at the time of the Change of Control Triggering Event. The existence of a holder's right to require Teekay to repurchase notes upon the occurrence of a Change of Control Triggering Event may deter a third party from acquiring Teekay in a transaction which would constitute a Change of Control. 79 85 CONSOLIDATION, MERGER AND SALE OF ASSETS Teekay may not, in a single transaction or a series of related transactions: (1) consolidate with or merge with or into any other person or permit any other person to consolidate with or merge with or into Teekay, or (2) directly or indirectly, transfer, sell, lease or otherwise dispose of all or substantially all of its assets, unless, in the case of clauses (1) or (2) of this covenant: (A) in a transaction in which Teekay does not survive or in which Teekay sells, leases or otherwise disposes of all or substantially all of its assets, the successor entity to Teekay is organized under (i) the laws of the United States or any State thereof or the District of Columbia, (ii) the laws of the Republic of Liberia, (iii) the laws of the Commonwealth of the Bahamas, (iv) the laws of the Republic of the Marshall Islands or (v) the laws of any other country recognized by the United States of America and which, in the case of any of events under subclause (i), (ii), (iii), (iv) or (v) of this subclause A, shall expressly assume, by a supplemental indenture executed and delivered to the trustee in form satisfactory to the trustee, all of Teekay's obligations under the indenture; (B) immediately before and after giving effect to such transaction, no Default or Event of Default shall have occurred and be continuing; and (C) certain other conditions are met. LIMITATION ON LIENS Teekay may not create, incur, assume or suffer to exist any Lien on or with respect to any property or assets now owned or hereafter acquired to secure any present or future Relevant Debt of Teekay without making effective provision for securing the notes: (1) in the event such debt is pari passu with the notes, equally and ratably with such debt as to such property or assets for so long as such debt will be so secured, or (2) in the event such debt is subordinate in right of payment to the notes, prior to such debt as to such property or assets for so long as such debt will be so secured. The term "Relevant Debt" shall be defined in the indenture as meaning any debt for borrowed money in the form of bonds, notes, debentures or other debt securities issued by way of public offering or private placement, including any guarantee or indemnity given in respect of debt of any third party for money borrowed in the form of bonds, notes, debentures or other debt securities issued by way of a public offering or private placement, but, for greater clarity, shall not include loans (or collateral debt securities relating to such loans) made by banks or other financial institutions, customers or strategic partners. PAYMENTS FOR CONSENT Teekay may not, and may not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any holder of notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of the indenture or the notes unless such consideration is offered to be paid or is paid to all holders of the notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. PROVISION OF FINANCIAL INFORMATION So long as any notes are outstanding, whether or not Teekay is subject to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 or any successor provision thereto, Teekay shall file with the Securities and Exchange Commission ("SEC") within the filing time periods specified by the SEC (the 80 86 "Required Filing Date") copies of the annual reports, quarterly reports and other documents which Teekay would have been required to file pursuant to Section 13(a) or 15(d) of the Exchange Act or any successor provision thereto. In addition, Teekay will: (1) within 15 days of each Required Filing Date (A) transmit by mail to all holders, as their names and addresses appear in the security register of Teekay without cost to such holders, and (B) file with the trustee, copies of the annual reports, quarterly reports and other documents which Teekay files with the SEC pursuant to Section 13(a) or 15(d) or any successor provision thereto or would have been required to file with the SEC pursuant to such Section 13(a) or 15(d) or any successor provisions thereto; and (2) if filing such documents with the SEC is not permitted under the Exchange Act, promptly upon written request, Teekay will supply copies of such documents to any prospective holder. ADDITIONAL AMOUNTS All payments made by Teekay under or with respect to the notes will be made free and clear of and without withholding or deduction for or an account of any present or future tax, duty, levy, impost, assessment or other governmental charge (hereinafter "Taxes") imposed or levied by or on behalf of any Taxing Jurisdiction, unless Teekay is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. If Teekay is so required to withhold or deduct any amount of interest for or on account of Taxes from any payment made under or with respect to the notes, Teekay will pay such additional amounts of interest ("Additional Amounts") as may be necessary so that the net amount received by each holder (including Additional Amounts) after such withholding or deduction will not be less than the amount the holder would have received if such Taxes had not been withheld or deducted; provided that Teekay will not pay Additional Amounts in connection with any Taxes that are imposed due to any of the following ("Excluded Additional Amounts"): (1) the holder or beneficial owner has some connection with the Taxing Jurisdiction other than merely holding the notes or receiving principal or interest payments on the notes (such as citizenship, nationality, residence, domicile, or existence of a business, a permanent establishment, a dependent agent, a place of business or a place of management present or deemed present within the taxing jurisdiction); (2) any tax imposed on, or measured by net income; (3) the holder or beneficial owner fails to comply with any certification, identification or other reporting requirements concerning its nationality, residence, identity or connection with the Taxing Jurisdiction, if (A) such compliance is required by applicable law, regulation, administrative practice or treaty as a precondition to exemption from all or a part of the tax duty assessment or other governmental charge, (B) the holder or beneficial owner is able to comply with such requirements without undue hardship and (C) at least 30 calendar days prior to the first payment date with respect to which such requirements under the applicable law, regulation, administrative practice or treaty shall apply, Teekay has notified such holder that such holder will be required to comply with such requirements; (4) the holder fails to present (where presentation is required) its note within 30 calendar days after Teekay has made available to the holder a payment of principal or interest, provided that Teekay will pay Additional Amounts which a holder would have been entitled to had the note owned by such holder been present on any day (including the last day) within such 30-day period; (5) any estate, inheritance, gift, value added, use or sales taxes or any similar taxes, assessments or other governmental charges; (6) where any Additional Amounts are imposed on a payment on the notes to an individual and are required to be made pursuant to any European Union Directive on the taxation of savings 81 87 implementing the conclusions of the Economic and Financial Council of Ministers of the member states of the European Union (ECOFIN) Council meeting of November 26-27, 2000 or any law implementing or complying with, or introduced in order to conform to, such Directive; or (7) where the holder or beneficial owner could avoid any Additional Amounts by requesting that a payment on the notes be made by, or presenting the relevant notes for payment to, another paying agent located in a Member State of the European Union. Teekay will also (1) make such withholding or deduction and (2) remit the full amount deducted or withheld to the relevant authority in accordance with applicable law. Teekay will furnish to the holders of the notes, within 30 days after the date the payment of any Taxes is due pursuant to applicable law, certified copies of tax receipts evidencing such payment by Teekay. Teekay will indemnify and hold harmless each holder for the amount (other than Excluded Additional Amounts) of (1) any Taxes not withheld or deducted by Teekay and levied or imposed by a Taxing Jurisdiction and paid by such holder as a result of payments made under or with respect to the notes, (2) any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, and (3) any Taxes imposed by a Taxing Jurisdiction with respect to any reimbursement under clause (1) or (2) of this paragraph. At least 30 days prior to each date on which any payment under or with respect to the notes is due and payable, if Teekay is aware that it will be obligated to pay Additional Amounts with respect to such payment, Teekay will deliver to the trustee an officers' certificate stating the fact that such Additional Amounts will be payable, the amounts so payable and such other information necessary to enable the trustee to pay such Additional Amounts to holders on the payment date. Whenever in the indenture there is mentioned, in any context, the payment of principal (and premium, if any), interest or any other amount payable under or with respect to any note, such mention (except where expressly mentioned) shall be deemed to include mention of the payment of Additional Amounts provided for in this section to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof. Teekay will pay any stamp, administrative, court, documentary, excise or property taxes arising in a Taxing Jurisdiction in connection with the Additional Amounts and will indemnify the holders of the notes for any such taxes paid by the holders of the notes. EVENTS OF DEFAULT The following events are defined as "Events of Default" in the indenture: (1) Teekay defaults in the payment of principal of (or premium, if any, on) any notes when the same becomes due and payable at maturity, upon acceleration, redemption or otherwise; (2) Teekay defaults in the payment of interest on any notes when the same become due and payable, and such default continues for a period of 30 days; (3) Teekay defaults in the payment of principal and interest on notes required to be purchased upon the occurrence of a Change of Control Triggering Event when due and payable; (4) Teekay defaults in the performance of or breaches any other covenant or agreement of Teekay in the indenture or under the notes and such default or breach continues for a period of 30 consecutive days after the date on which written notice of such default or breach requiring Teekay to remedy the same, shall have been given to Teekay by the trustee, or to Teekay and the trustee by the holders of at least 25% in aggregate principal amount of the notes; (5) there occurs with respect to any issue or issues of Debt of Teekay or any of its Subsidiaries having an outstanding aggregate principal amount of $10 million or more individually or $20 million or more in the aggregate for all such issues of all such Persons, whether such 82 88 Debt now exists or shall hereafter be created, an event of default that has caused the holder thereof to declare such Debt to be due and payable prior to its Stated Maturity and such Debt has not been discharged in full or such acceleration has not been rescinded or annulled (by cure, waiver or otherwise) within 30 days of such acceleration; provided, however, that any secured Debt in excess of the limits set forth above shall be deemed to have been declared due and payable if the lender in respect thereof takes any action to enforce a security interest against, or an assignment of, or to collect on, seize, dispose of or apply any assets of Teekay or its Subsidiaries (including lock-box and other similar arrangements) securing such Debt, or to set off against any bank account of Teekay or its Subsidiaries in excess of $10 million; (6) any final judgment or order (not covered by insurance) for the payment of money in excess of $10 million individually or $20 million in the aggregate for all such final judgments or orders against all such Persons (treating any deductibles, self-insurance or retention as not so covered) shall be rendered against Teekay or any Subsidiary and shall not be paid or discharged, and there shall be any period of 60 consecutive days following entry of the final judgment or order in excess of $10 million individually or that causes the aggregate amount for all such final judgments or orders outstanding and not paid or discharged against all such Persons to exceed $20 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; (7) Teekay or any Subsidiary shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against Teekay or any Subsidiary seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 60 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or Teekay or any Subsidiary shall take any corporate action to authorize any of the actions set forth above in this subsection (7); or (8) Teekay and/or one or more Subsidiaries fails to make (A) at the final (but not any interim) fixed maturity of any issue of Debt a principal payment of $10 million or more or (B) at the final (but not any interim) fixed maturity of more than one issue of such Debt principal payments aggregating $20 million or more and, in the case of clause (A), such defaulted payment shall not have been made, waived or extended within 30 days of the payment default and, in the case of clause (B), all such defaulted payments shall not have been made, waived or extended within 30 days of the payment default that causes the amount described in clause (B) to exceed $20 million. If an Event of Default (other than an Event of Default specified in clause (7) above) occurs and is continuing under the indenture, the trustee or the holders of at least 25% in aggregate principal amount of the notes then outstanding, by written notice to Teekay (and to the trustee if such notice is given by the holders (the "Acceleration Notice")), may, and the trustee at the request of the holders shall, declare the entire unpaid principal of, premium, if any, and accrued interest on the notes to be immediately due and payable. Upon a declaration of acceleration, such principal of, premium, if any, and accrued interest shall be immediately due and payable. In the event of a declaration of acceleration because an Event of Default set forth in clause (4) or (8) above has occurred and is continuing, such declaration of acceleration shall be automatically rescinded and annulled if the event triggering such Event of Default pursuant to clause (4) or (8) shall be remedied or cured by Teekay and/or the relevant Subsidiaries or 83 89 waived by the holders of the relevant Debt within 60 days after the declaration of acceleration with respect thereto. If an Event of Default specified in clause (7) above occurs, all unpaid principal of, premium, if any, and accrued interest on the notes then outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the trustee or any holder. The holders of at least a majority in principal amount of the outstanding notes by written notice to Teekay and to the trustee, may waive all past defaults and rescind and annul a declaration of acceleration and its consequences if: (1) Teekay has paid or deposited with the trustee a sum sufficient to pay (A) all sums paid or advanced by the trustee under the indenture and the reasonable compensation, expenses, disbursements and advances of the trustee, its agents and counsel, (B) all overdue interest on all notes, (C) the principal of and premium, if any, on, any notes that have become due otherwise than by such declaration or occurrence of acceleration and interest thereon at the rate prescribed therefor by such notes, and (D) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate prescribed therefor by such notes, (2) all existing Events of Default, other than the non-payment of the principal of the notes that have become due solely by such declaration of acceleration, have been cured or waived, and (3) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. For information as to the waiver of defaults, see "-- Modification and Waiver." The holders of at least a majority in aggregate principal amount of the outstanding notes may direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred on the trustee. However, the trustee may refuse to follow any direction that conflicts with law or the indenture or that may expose the trustee to personal liability. A holder may not pursue any remedy with respect to the indenture or the notes unless: (1) the holder gives to the trustee written notice of a continuing Event of Default; (2) the holders of at least 25% in aggregate principal amount of outstanding notes make a written request to the trustee to pursue the remedy; (3) such holder or holders offer to the trustee indemnity reasonably satisfactory to the trustee against any costs, liabilities or expenses to be incurred in compliance with such request; (4) the trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (5) during such 60-day period, the holders of a majority in aggregate principal amount of the outstanding notes do not give the trustee a direction that is inconsistent with the request. However, such limitations do not apply to the right of any holder of a note to receive payment of the principal of, premium, if any, or interest on, such note or to bring suit for the enforcement of any such payment on or after the due dates expressed in the notes, which right shall not be impaired or affected without the consent of the holder. The indenture requires certain officers of Teekay to certify, on or before a date not more than 120 days after the end of each fiscal year, that a review has been conducted of the activities of Teekay and its Subsidiaries and Teekay's and its Subsidiaries' performance under the indenture and that Teekay has fulfilled all obligations thereunder, or, if there has been a default in the fulfillment of any such obligation, specifying each such default and the nature and status thereof. Teekay is also obligated to notify the trustee of any default or defaults in the performance of any covenants or agreements under the indenture. 84 90 DEFEASANCE DEFEASANCE AND DISCHARGE The indenture provides that Teekay will be deemed to have paid and will be discharged from any and all obligations in respect of the notes and the provisions of the indenture will no longer be in effect with respect to the notes (except for, among other matters, certain obligations to register the transfer or exchange of the notes, to replace stolen, lost or mutilated notes, to maintain paying agencies and to hold monies for payment in trust), on the 123rd day after the date referred to below if, among other things: (1) Teekay has deposited with the trustee, in trust, money and/or U.S. Government Securities that, through the payment of interest and principal in respect thereof in accordance with their terms, will provide money in an amount sufficient to pay the principal of, premium, if any, and accrued interest on the notes on the Stated Maturity of such payments in accordance with the terms of the indentures and the notes, (2) Teekay has delivered to the trustee (A) either (i) an Opinion of Counsel to the effect that holders will not recognize income, gain or loss for federal income tax purposes as a result of Teekay's exercise of its option under this "Defeasance" provision and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, which Opinion of Counsel must be based upon (and accompanied by copy of) a ruling of the Internal Revenue Service to the same effect or based upon a change in applicable federal income tax law after the date of the indenture or (ii) a ruling directed to the trustee received from the Internal Revenue Service to the same effect as the aforementioned Opinion of Counsel and (B) an Opinion of Counsel to the effect that the creation of the defeasance trust does not violate the Investment Company Act of 1940 and, after the passage of 123 days following the deposit, the trust fund will not be subject to the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law, (3) immediately after giving effect to such deposit on a pro forma basis, no Event of Default, or event that after the giving of notice or lapse of time or both would become an Event of Default, shall have occurred and be continuing on the date of such deposit or during the period ending on the 123rd day after the date of such deposit, and such deposit shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which Teekay is a party or by which Teekay is bound and (4) if at such time the notes are listed on a national securities exchange, Teekay has delivered to the trustee an Opinion of Counsel to the effect that the notes will not be delisted as a result of such deposit, defeasance and discharge. DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT The indenture provides that certain provisions of the indenture will no longer be in effect upon, among other things, the deposit with the trustee, in trust, of money and/or U.S. Government Obligations that through the payment of interest and principal in respect thereof in accordance with their terms will provide money in an amount sufficient to pay the principal of, premium, if any, and accrued interest on the notes on the Stated Maturity of such payments in accordance with the terms of the indenture and the notes, the satisfaction of the provisions described in clauses (2)(B), (3) and (4) of the preceding paragraph and the delivery by Teekay to the trustee of an Opinion of Counsel to the effect that, among other things, the holders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance of certain covenants and Events of Default and will be subject to federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred. 85 91 DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT In the event Teekay exercises its option to omit compliance with certain covenants and provisions of the indenture with respect to the notes as described in the immediately preceding paragraph and the notes are declared due and payable because of the occurrence of an Event of Default that remains applicable, the amount of money and/or U.S. Government Obligations on deposit with the trustee will be sufficient to pay amounts due on the notes at the time of their Stated Maturity but may not be sufficient to pay amounts due on the notes at the time of the acceleration resulting from such Event of Default. However, Teekay will remain liable for such payments. MODIFICATION AND WAIVER Modifications and amendments of the indenture may be made by Teekay and the trustee with the consent of the holders of not less than a majority in aggregate principal amount of the outstanding notes; provided, however, that no such modification or amendment may, without the consent of each holder affected thereby: (1) change the Stated Maturity of the principal of, or any installment of interest on, any note, (2) reduce the principal amount of, or premium, if any, or interest on, any note, (3) change the place or currency of payment of principal of, or premium, if any, or interest on, any note, (4) impair the right to institute suit for the enforcement of any payment on or with respect to any note, (5) reduce the percentage of aggregate principal amount of outstanding notes the consent of whose holders is necessary to modify or amend the indenture, (6) modify any provisions of the indenture relating to the modification and amendment of the indenture, except as otherwise specified in the indenture, or (7) reduce the percentage of aggregate principal amount of outstanding notes, the consent of whose holders is necessary for waiver of compliance with certain provisions of such indenture or for waiver of certain defaults. NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS OR EMPLOYEES The indenture provides that no recourse for the payment of the principal of, premium, if any, or interest on, any of the notes, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of Teekay in the indenture, or in any of the notes, or because of the creation of any Debt represented thereby, shall be had against any incorporator, shareholder, officer, director, employee, Affiliate or controlling person of Teekay or of any successor person thereof. Each holder, by accepting such notes, waives and releases all such liability. THE TRUSTEE The trustee under the indenture is the registrar and paying agent with regard to the notes. The indenture provides that, except during the continuance of an Event of Default, the trustee will perform only such duties as are specifically set forth in the indenture. During the existence of an Event of Default, the trustee will exercise such rights and powers vested in it under the indenture and use the same degree of care and skill in its exercise as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. 86 92 GOVERNING LAW The indenture is governed by the laws of the State of New York. CONSENT TO JURISDICTION AND SERVICE Teekay has irrevocably appointed Watson, Farley & Williams, New York, New York, as its respective agent for service of process in any suit, action or proceeding with respect to the indenture or the notes brought in any federal or state court located in New York City and have submitted to such jurisdiction. CERTAIN DEFINITIONS Set forth below is a summary of certain of the defined terms used in the covenants and other provisions of the indenture. Reference is made to the indenture for the full definition of all terms as well as any other capitalized term used herein for which no definition is provided. "Affiliate" of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For purposes of this definition, "control," as used with respect to any person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a person shall be deemed to be control. For purposes of this definition, the terms "controlling," "controlled by" and "under common control with" shall have correlative meanings. "Capital Stock" is defined to mean, with respect to any person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such person's capital stock or ownership interests, whether outstanding prior to or issued after the date of the indenture, including, without limitation, all common stock and preferred stock. "Capitalized Lease" is defined to mean, as applied to any person, any lease of any property (whether real, personal or mixed) of which the discounted present value of the rental obligations of such person, as lessee, in conformity with GAAP, is required to be capitalized on the balance sheet of such person; and "Capitalized Lease Obligation" is defined to mean the rental obligations, as aforesaid, under such lease. "Change of Control" is defined to mean such time as: (1) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934), other than any Permitted Holder, becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act and including by reason of any change in the ultimate "beneficial ownership" of the Capital Stock of Teekay) of more than 50% of the total voting power of the Voting Stock of Teekay (calculated on a fully diluted basis); or (2) individuals who at the beginning of any period of two consecutive calendar years constituted the board of directors of Teekay (together with any new directors whose election by such board of directors or whose nomination for election was approved by a vote of at least two- thirds of the members of such board of directors then still in office who either were members of such board of directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute at least 50% of the members of such board of directors then in office. "Change of Control Triggering Event" is defined to mean the occurrence of a Change of Control and a Rating Decline. 87 93 "Currency Agreement" is defined to mean any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect Teekay or any of its Subsidiaries against fluctuations in currency values to or under which Teekay or any of its Subsidiaries is a party or a beneficiary on the date of this indenture or becomes a party or a beneficiary thereafter. "Debt" is defined to mean, with respect to any person at any date of determination (without duplication): (1) all debt of such person for borrowed money, (2) all obligations of such person evidenced by bonds, debentures, notes or other similar instruments, (3) all obligations of such person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (4) all obligations of such person to pay the deferred purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery thereto or the completion of such services, except trade payables, (5) all obligations of such person as lessee under Capitalized Leases, (6) all Debt of persons other than such person secured by a Lien on any asset of such person, whether or not such Debt is assumed by such person; provided that the amount of such Debt shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Debt, (7) all Debt of persons other than such person guaranteed by such person to the extent such Debt is guaranteed by such person, and (8) to the extent not otherwise included in this definition, obligations under Currency Agreements and Interest Rate Agreements. The amount of Debt of any person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided that the amount outstanding at any time of any Debt issued with original issue discount is the face amount of such Debt less the remaining unamortized portion of the original issue discount of such Debt at such time as determined in conformity with GAAP; and provided further that Debt shall not include any liability for federal, state, local, foreign or other taxes. "Default" is defined to mean any event that is, or after notice or passage of time or both would be, an Event of Default. "Event of Default" has the meaning set forth under "-- Events of Default." "GAAP" is defined to mean generally accepted accounting principles in the United States of America as in effect as of the date of the indenture, including, without limitation, those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in the indenture shall be computed in conformity with GAAP, except that calculations made for purposes of determining compliance with the terms of the covenants and with other provisions of the indenture shall be made without giving effect to: (1) except as otherwise provided, the amortization of any amounts required or permitted by Accounting Principles Board Opinion Nos. 16 and 17; and 88 94 (2) any non-recurring charges associated with the adoption, after the date of the indenture, of Financial Accounting Standard Nos. 106 and 109. "Governing Board Members" means the individuals serving as members of the protectorate or governing boards of (x) the Trusts or their respective trustees or (y) if the individuals serving as members of the protectorate or governing boards of the Trusts or their respective trustees immediately prior to any restructuring or dissolution of the Trusts or any transfer of Capital Stock of Teekay held directly or indirectly thereby represent at least a majority of the members of the protectorate or governing board of the trust (or trustee thereof) or other entity replacing the Trusts as a direct or indirect owner of all, or substantially all, of the Capital Stock of Teekay held directly or indirectly by the Trusts immediately prior to such restructuring, dissolution or transfer, such replacement trust (or its trustee) or entity, together with any new members whose election or appointment was approved by at least two-thirds of the members of such boards or board. "Gradation" is defined to mean a gradation within a Rating Category or a change to another Rating Category, which shall include: (1) "+" and "-" in the case of S&P's current Rating Categories (e.g., a decline from BB+ to BB would constitute a decrease of one gradation), (2) 1 and 2 in the case of Moody's current Rating Categories (e.g., a decline from B1 to B2 would constitute a decrease of one gradation), or (3) the equivalent in respect of successor Rating Categories of S&P or Moody's or Rating Categories used by Rating Agencies other than S&P and Moody's. "Interest Rate Agreement" means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement designed to protect Teekay or any of its Subsidiaries against fluctuations in interest rates to or under which Teekay or any of its Subsidiaries is a party or a beneficiary on the date hereof or becomes a party or a beneficiary hereafter. "Investment Grade" is defined to mean: (1) BBB- or above in the case of S&P (or its equivalent under any successor Rating Categories of S&P); (2) Baa3 or above, in the case of Moody's (or its equivalent under any successor Rating Categories of Moody's); and (3) the equivalent in respect of the Rating Categories of any Rating Agencies substituted for S&P or Moody's. "Lien" is defined to mean any mortgage, lien, pledge, security interest, encumbrance or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof, any sale with recourse against the seller or any Affiliate of the seller, or any agreement to give any security interest). "Moody's" is defined to mean Moody's Investors Service, Inc. and its successors. "Permitted Holder" is defined to mean the Trusts, a majority of the Governing Board Members (each in his or her capacity as a Governing Board Member), or any holding company, more than 50% of the total voting power of the Voting Stock of which is, at the time of any transfer of Capital Stock of Teekay by the Trusts or any such other holding company, "beneficially owned" by the Trusts or a majority of the Governing Board Members (each in his or her capacity as a Governing Board Member). "Rating Agencies" is defined to mean: (1) S&P and Moody's; or 89 95 (2) if S&P or Moody's or both of them are not making ratings of the notes publicly available, a nationally recognized U.S. rating agency or agencies, as the case may be, selected by Teekay, which will be substituted for S&P or Moody's or both, as the case may be. "Rating Category" is defined to mean: (1) with respect to S&P, any of the following categories (any of which may include a "+" or "- "): AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor categories); (2) with respect to Moody's, any of the following categories: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories); and (3) the equivalent of any such categories of S&P or Moody's used by another Rating Agency, if applicable. "Rating Decline" is defined to mean that at any time within 90 days (which period shall be extended so long as the rating of the notes is under publicly announced consideration for possible downgrade by any Rating Agency) after the date of public notice of a Change of Control, or of the intention of Teekay or of any person to effect a Change of Control, the rating of the notes is decreased by both Rating Agencies by one or more Gradations and the rating by such Rating Agencies on the notes following such downgrade is below Investment Grade. "Redemption Date", when used with respect to any note to be redeemed, is defined to mean the date fixed for such redemption by or pursuant to the indenture. "S&P" is defined to mean Standard & Poor's Ratings Group, a division of McGraw Hill Inc., a New York Corporation and its successors. "Stated Maturity" is defined to mean (1) with respect to any debt security, the date specified in such debt security as the fixed date on which the final installment of principal of such debt security is due and payable and (2) with respect to any scheduled installment of principal or interest on any debt security, the date specified in such debt security as the fixed date on which such installment is due and payable. "Subsidiary" is defined to mean, with respect to Teekay, any business entity of which more than 50% of the outstanding Voting Stock is owned directly or indirectly by Teekay and one or more other Subsidiaries of Teekay. "Taxing Jurisdiction" is defined to mean the Republic of the Marshall Islands or any jurisdiction from or through which payment on the notes is made, or any political subdivision thereof, or any authority or agency therein or thereof having power to tax. "Trusts" is defined to mean, collectively, the Cirrus Trust, a trust organized under the laws of the Turks and Caicos Islands, and the JTK Trust, a trust organized under the laws of the Bahamas, which as of June 30, 2001 owned (indirectly through wholly owned subsidiaries) approximately 33.5% and 7.2% of the outstanding Common Stock of Teekay, respectively. "U.S. Government Securities" is defined to mean securities that are direct obligations of the United States of America, direct obligations of the Federal Home Loan Mortgage Corporation, direct obligations of the Federal National Mortgage Association, securities which the timely payment of whose principal and interest is unconditionally guaranteed by the full faith and credit of the United States of America, trust receipts or other evidence of indebtedness of a direct claim upon the instrument described above and money market mutual funds that invest solely in such securities. "Voting Stock" of any person as of any date means the Capital Stock of such person that is at the time entitled to vote in the election of the board of directors or similar governing body of such person. 90 96 FORM DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER We will issue the exchange notes by one or more notes in registered, global form (collectively, the "Restricted Global Notes"). The Restricted Global Notes will be deposited on issuance with the trustee as custodian for DTC, in New York, New York, and registered in the name of DTC or its nominee, in each case for credit to an account of a direct or indirect participant in DTC as described below. The Global Notes will be deposited on behalf of the acquirers of the exchange notes for credit to the respective accounts of the acquirers or to such other accounts as they may direct at DTC. Except as set forth below, the Global Notes may be transferred, in whole and not in part, only to another nominee of DTC or to a successor of DTC or its nominee. Beneficial interests in the Global Notes may not be exchanged for notes in certificated form except in the limited circumstances described below. See "-- Exchange of Book-Entry Notes for Certificated Notes." DEPOSITARY PROCEDURES DTC has advised us that DTC is a limited-purpose trust company created to hold securities for its participating organizations (collectively, the "Participants") and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Access to DTC's system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodian relationship with a Participant, either directly or indirectly (collectively, the "Indirect Participants"). Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interest and any transfer of ownership interest of each actual purchaser of each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants. DTC has also advised us that, pursuant to procedures established by it, ownership of interests in the Global Notes will be shown on, and the transfer of ownership thereof will be effected only through, records maintained by DTC (with respect to the Participants) or records maintained by the Participants and the Indirect Participants (with respect to other owners of beneficial interests in the Global Notes). Except as described below, owners of interests in the Global Notes will not have notes registered in their names, will not receive physical delivery of notes in certificated form and will not be considered the registered owners or holders thereof under the indenture for any purpose. Payments in respect of the Global Notes registered in the name of DTC or its nominee will be payable to DTC in its capacity as the registered holder under the indenture. Under the terms of the indenture, the trustee will treat the persons in whose names the notes, including the Global Notes, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, neither the trustee nor any agent thereof has or will have any responsibility or liability for: (1) any aspect of DTC's records or any Participant's or Indirect Participant's records relating to or payments made on account of beneficial ownership interests in the Global Notes, or (2) maintaining, supervising or reviewing any of DTC's records or any Participant's or Indirect Participant's records relating to the beneficial ownership interests in the Global Notes, or (3) any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants. DTC has advised us that its current practice, upon receipt of any payment in respect of securities such as the notes, is to credit the accounts of the relevant Participants with the payment on the payment date, in amounts proportionate to their respective holdings in principal amount of beneficial interests in the relevant security as shown on the records of DTC. Payments by the Participants and the Indirect Participants to the beneficial owners of the notes will be governed by standing instructions and 91 97 customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the trustee or us. Neither we nor the trustee will be liable for any delay by DTC or any of its Participants identifying the beneficial owners of the notes, and we and the trustee may conclusively rely on, and will be protected in relying on, instructions from DTC or its nominee for all purposes. Except for trades involving only Euroclear and Clearstream participants, interests in the Global Notes will trade in DTC's Same-Day Funds Settlement System and secondary market trading activity in such interests will therefore settle in immediately available funds, subject in all cases to the rules and procedures of DTC and its Participants. Transfers between participants in Euroclear and Clearstream will be effected in the ordinary way in accordance with their respective rules and operating procedures. Subject to compliance with the transfer restrictions applicable to the notes described in this section of this prospectus, cross-market transfers between the Participants in DTC, on the one hand, and Euroclear or Clearstream participants, on the other hand, will be effected through DTC in accordance with DTC's rules on behalf of Euroclear or Clearstream, as the case may be, by its respective depositary; however, such cross-market transactions will require delivery of instructions to Euroclear or Clearstream, as the case may be, by the counter party in such system in accordance with the rules and procedures and within the established deadlines (Brussels time) of such system. Euroclear or Clearstream, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositary or take action to effect final settlement on its behalf by delivering or receiving interests in the relevant Global Notes in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear participants and Clearstream participants may deliver instructions directly to the depositaries for Euroclear or Clearstream. Because of the time zone differences, the securities account of a Euroclear or Clearstream participant purchasing an interest in a Global Note from a Participant in DTC will be credited, and any such crediting will be reported to the relevant Euroclear or Clearstream participant, during the securities settlement processing day (which must be a business day for Euroclear and Clearstream) immediately following the settlement date of DTC. Cash received in Euroclear or Clearstream as a result of sales of an interest in a Global Note by or through a Euroclear or Clearstream participant to a Participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Clearstream cash account only as of the business day for Euroclear or Clearstream following DTC's settlement date. DTC has advised us that it will take any action permitted to be taken by a holder of notes only at the direction of one or more Participants to whose account with DTC interests in the Global Notes are credited and only in respect to such portion of the principal amount of the notes as to which such Participant or Participants has or have given such direction. However, if there is an Event of Default under the indenture, DTC reserves the right to exchange the Global Notes for legended notes in certificated form and to distribute such notes to its Participants. The information in this section of this prospectus concerning DTC, Euroclear and Clearstream and their book-entry systems has been obtained from sources that Teekay believes to be reliable, but Teekay takes no responsibility for the accuracy thereof. Although DTC, Euroclear and Clearstream have agreed to the foregoing procedures to facilitate transfers of interest in the Global Notes among participants in DTC, Euroclear and Clearstream, they are under no obligation to perform or to continue to perform such procedures, and such procedures may be discontinued at any time. Neither we nor the trustee will have any responsibility for the performance by DTC, Euroclear or Clearstream or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations. 92 98 EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES A beneficial interest in a Global Note may not be exchanged for a security in certificated form unless (1) DTC: (A) notifies Teekay that it is unwilling or unable to continue as depositary for such Global Notes, or (B) has ceased to be a clearing agency registered under the Securities Exchange Act of 1934, and in either case Teekay thereupon fails to appoint a successor depositary, (2) Teekay, at its option, notifies the trustee in writing that it elects to cause the issuance of the notes in certificated form, or (3) there shall have occurred and be continuing an Event of Default with respect to the notes. In all cases, certificated notes delivered in exchange for any Global Note or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures). Any such exchange will be effected through the DWAC System and an appropriate adjustment will be made in the records of the applicable security registrar to reflect a decrease in the principal amount of the relevant Global Note. REGISTRATION RIGHTS We entered into an exchange and registration rights agreement with the initial purchasers of the outstanding notes pursuant to which we agreed, for the benefit of the holders of the outstanding notes, at our cost: (1) to use our best efforts to file with the SEC within 60 days following the date of issuance of the outstanding notes a registration statement on the appropriate form relating to a registered exchange offer for the outstanding notes under the Securities Act of 1933. (2) to use our best efforts to cause the exchange offer registration statement to be declared effective under the Securities Act within 180 days following the issuance of the outstanding notes; and (3) to use our best efforts to consummate the exchange offer within 60 days after the exchange offer registration statement has been declared effective. Upon the exchange offer registration statement being declared effective, we will offer the exchange notes in exchange for the surrender of the outstanding notes. We will keep the exchange offer open for not less than 30 calendar days (or longer if required by applicable law) after the date notice of the exchange offer is mailed to the holders of the outstanding notes. For each outstanding note surrendered to us pursuant to the exchange offer, the holder of such outstanding note will receive an exchange note having a principal amount equal to that of the surrendered note. The exchange notes will have terms identical in all material aspects to the outstanding notes (except that the exchange notes will not contain terms with respect to transfer restrictions). Under existing interpretations of the staff of the SEC contained in several no-action letters to third parties, the exchange notes would in general be freely tradable after the exchange offer without further registration under the Securities Act of 1933. However, any purchaser of notes who is our affiliate (as such term is defined in the indenture -- See "Description of the Notes -- Certain Definitions") or who intends to participate in the exchange offer for the purpose of distributing the exchange notes: (1) will not be able to rely on the interpretation of the staff of the SEC; 93 99 (2) will not be able to tender its notes in the exchange offer; and (3) must comply with the registration and prospectus delivery requirements of the Securities Act in connection with any sale or transfer of the notes unless such sale or transfer is made pursuant to an exemption from such requirements. Each holder of the outstanding notes (other than certain specified holders) who wishes to exchange outstanding notes for exchange notes in the exchange offer will be required to represent that: (1) any exchange notes that it will receive will be acquired in the ordinary course of your business, (2) it has no arrangement or understanding with any person to participate in the distribution of the outstanding notes or the exchange notes, (3) it is not our "affiliate," as defined in Rule 405 of the Securities Act of 1933, or, if it is our affiliate, it will comply with any applicable registration and prospectus delivery requirements of the Securities Act, (4) if it is a broker-dealer, it is not engaged in and does not intend to engage in the distribution of the exchange notes, and (5) if it is a broker-dealer (a "Participating Broker-Dealer") that will receive exchange notes for its own account in exchange for outstanding notes that it acquired as a result of market-making activities or other trading activities, it will deliver a prospectus meeting the requirements of the Securities Act of 1933 in connection with any resale of such exchange notes. The SEC has taken the position that Participating Broker-Dealers may fulfill their prospectus delivery requirements with respect to the exchange notes (other than a resale of an unsold allotment from the original sale of the outstanding notes) with the prospectus contained in the exchange offer registration statement. Under the exchange and registration rights agreement, we are required to allow Participating Broker-Dealers and other persons, if any, subject to similar prospectus delivery requirements to use the prospectus contained in the exchange offer registration statement in connection with the resale of such exchange notes. In the event that any changes in law or the applicable interpretations of the staff of the SEC do not permit us to effect the exchange offer, or if for any reason the exchange offer is not consummated within 240 days following the date of issuance of the outstanding notes, or the exchange offer is not available to any holder of the outstanding notes, we will, at our cost: - as promptly as practicable, but no later than 30 days after the time such obligation arises, file a shelf registration statement covering resales of the outstanding notes; - use our best efforts to cause the shelf registration statement to be declared effective under the Securities Act of 1933 within 120 days after such shelf registration statement is filed; and - use our best efforts to keep effective the shelf registration statement until two years after its effective date or such shorter period that will terminate when all outstanding notes covered by the shelf registration statement have been sold pursuant to the shelf registration statement. We will, in the event of the filing of a shelf registration statement, provide to each holder of the outstanding notes copies of the prospectus which is a part of the shelf registration statement, notify each such holder when the shelf registration statement for the outstanding notes has become effective and take certain other actions as are required to generally permit unrestricted resales of the outstanding notes. A holder of notes that sells such notes pursuant to the shelf registration statement generally will be required to be named as a selling securityholder in the related prospectus and to deliver a prospectus to purchasers, will be subject to certain of the civil liability provisions under the Securities Act of 1933 in connection with such sales and will be bound by the provisions of the exchange and registration rights agreement which are applicable to such holder (including certain 94 100 indemnification obligations). In addition, each holder of the outstanding notes will be required to deliver information to be used in connection with the shelf registration statement and to provide comments on the shelf registration statement within the time periods set forth in the exchange and registration rights agreement in order to have its notes included in the shelf registration statement and to benefit from the provisions regarding liquidated damages set forth in the following paragraph. In the event that: (1) the exchange offer registration statement is not filed with the SEC on or prior to the 60th day following the date of issuance of the outstanding notes or the shelf registration statement is not filed with the SEC on or prior to the 30th day following the date an obligation to file arises; (2) such exchange offer registration statement or shelf registration statement is not declared effective on or prior to the 180th day following the date of issuance of the outstanding notes or the 120th day after such shelf registration statement is filed, respectively; (3) the exchange offer is not completed within 60 days after the initial effective date of the exchange registration statement; or (4) the exchange offer registration statement or shelf registration statement is declared effective but thereafter ceases to be effective or usable (each such event referred to in clauses (1) through (4) above, a "Registration Default"), then special interest, in addition to the interest set forth on the cover hereof, shall accrue at a per annum rate of 0.5% for the first 90-day period immediately following the occurrence of the first Registration Default, and the per annum interest rate will increase by an additional 0.5% for each subsequent 90-day period during which the Registration Default remains uncured, up to a maximum additional interest rate of 1.5% per annum in excess of the interest rate on the cover of this prospectus. Upon the cure of the Registration Default, the special interest shall no longer accrue and the notes will bear interest at the original rate, provided, however, that if, after any such cure, a different Registration Default occurs, then special interest shall again accrue in accordance with the foregoing provisions. The summary herein of certain provisions of the exchange and registration rights agreement does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the exchange and registration rights agreement, a copy of which is available upon request to Teekay. The exchange and registration rights agreement has been filed as an exhibit to the registration statement of which this prospectus is a part. 95 101 TAX CONSIDERATIONS UNITED STATES FEDERAL INCOME TAX CONSEQUENCES GENERAL The following summary describes the material United States federal income tax consequences relevant to the purchase, ownership, and disposition of the exchange notes. Except where indicated, this summary deals only with notes held as capital assets by purchasers of outstanding notes in the original offering of the outstanding notes who receive exchange notes pursuant to the exchange offer and does not purport to be a complete analysis of all the potential tax considerations that may be relevant to such holders. The discussion does not include special rules that might apply to certain holders such as dealers in securities or currencies, financial institutions, investors in pass-through entities, tax-exempt organizations or pension plans, life insurance companies, persons holding notes as a part of a hedging or conversion transaction or a straddle or United States holders whose "functional currency" is not the U.S. dollar. In addition, the following discussion, as well as the conclusions regarding certain issues of United States federal income tax law that are reflected in that discussion, are based upon the provisions of the United States Internal Revenue Code of 1986, as amended (the "Code"), and related regulations, rulings and judicial decisions existing as of the date of this prospectus, and upon the advice received by us from special U.S. tax counsel. Changes in existing laws or regulations or their interpretation may occur, which could be retroactive. Applicable authorities may be repealed, revoked or modified so as to result in United States federal income tax consequences different from those discussed below. Our and our special U.S. tax counsel's views have no binding effect or official status of any kind, and no assurance can be given that the conclusions discussed below would be sustained by a court if challenged by the Internal Revenue Service. THE DISCUSSION BELOW IS A SUMMARY FOR GENERAL INFORMATION ONLY AND DOES NOT ADDRESS ALL POTENTIAL TAX CONSIDERATIONS THAT DEPEND UPON CIRCUMSTANCES SPECIFIC TO EACH INVESTOR. PERSONS CONSIDERING THE PURCHASE, OWNERSHIP OR DISPOSITION OF NOTES SHOULD SATISFY THEMSELVES AS TO THE OVERALL TAX CONSEQUENCES OF THEIR OWNERSHIP OF THE NOTES, INCLUDING STATE, LOCAL AND NON-UNITED STATES TAX CONSEQUENCES THEREOF (WHICH ARE NOT REVIEWED IN THIS DISCUSSION) AND CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES. As used in this section of the prospectus, a "United States holder" of a note means a holder that is an individual citizen or resident of the United States, a corporation, partnership or other entity created or organized in or under the laws of the United States or any political subdivision, an estate the income of which is subject to United States federal income taxation regardless of its source, or a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust, or a trust that was in existence on August 20, 1996, was treated as a United States person on August 19, 1996 and elected to be treated as a United States person at all times thereafter. A "Non-United States holder" of a note is a holder that is not a United States holder. THE EXCHANGE OFFER The exchange of an outstanding note for an exchange note in the exchange offer will not constitute a significant modification of the outstanding note for United States federal income tax purposes. Therefore, the exchange note received will be treated as a continuation of the outstanding note in your hands. As a result, there will be no United States federal income tax consequences to you upon the exchange of an outstanding note for an exchange note in the exchange offer and you will have the same adjusted tax basis and holding period in the exchange note as you had in the outstanding note immediately before the exchange. 96 102 UNITED STATES HOLDER PAYMENTS OF INTEREST We expect that the interest (including Additional Amounts, if any) on the notes will be "qualified stated interest." Qualified stated interest is generally defined as stated interest that is unconditionally payable in cash or other property (other than debt instruments of the issuer) or that will be constructively received, at least annually or at a single fixed rate. We expect that the notes will not be issued with "original issue discount" within the meaning of Section 1273 of the Code and the Treasury Department Regulations issued under that section and other related sections of the Code relating to original issue discount. Thus, any payment of interest on a note will generally be taxable to a United States holder as ordinary income at the time it is paid or accrued in accordance with the United States holder's regular method of accounting for tax purposes. Thus, to the extent that amounts are withheld and Additional Amounts are paid on the notes, a United States holder will be required to report income in an amount greater than cash received on the payments. Interest income from the notes will constitute foreign source income for United States federal income tax purposes and, with certain exemptions, will be treated separately, together with other items of "passive income" or, in the case of certain holders, "financial services income" for purposes of computing the foreign tax credit allowable under the Code. A United States holder may be eligible, subject to a number of limitations, for a foreign tax credit or deduction against such United States holder's United States federal income tax liability for taxes withheld on the notes. SALE, EXCHANGE AND RETIREMENT OF NOTES A United States holder's tax basis in a note generally will be the United States holder's cost for the note. Upon the sale, exchange or retirement of a note, a United States holder will recognize gain or loss equal to the difference between the amount realized upon the sale, exchange or retirement (less any accrued interest, which will be taxable as such) and the adjusted tax basis of the note. In general, such gain or loss will be capital gain or loss and will be long-term capital gain or loss if at the time of sale, exchange or retirement the note has been held for more than one year. Under current law, net capital gains of individuals are, under certain circumstances, taxed at lower rates than items of ordinary income. The deductibility of capital losses is subject to significant limitations. Capital gain or loss realized by a United States holder generally will be treated as United States source income for United States foreign tax credit limitation purposes. The exchange of the notes for registered notes pursuant to the exchange offer will not constitute a material modification of the terms of the notes and therefore will not constitute a taxable event for United States federal income tax purposes. In that event, the exchange would have no United States federal income tax consequences to a United States holder, so that the United States holder's holding period and adjusted tax basis for a note would not be affected and the United States holder would continue to take into account income in respect of a note in the same manner as before the exchange. BACKUP WITHHOLDING AND INFORMATION REPORTING In general, information reporting will apply to certain payments of principal and interest on the notes and to the proceeds from the sale of a note paid to United States holders other than certain exempt recipients. Additionally, a 31% backup withholding tax will apply to such payments if the United States holder fails to provide a correct taxpayer identification number or certification of exempt status or fails to report in full dividend and interest income or otherwise fails to comply with applicable requirements of the backup withholding rules. If the 31% backup withholding tax applies to a United States holder, the United States holder may use the amounts withheld as a refund or credit against the United States holder's United States federal income tax liability as long as the United States holder provides certain information to the Internal Revenue Service. 97 103 NON-UNITED STATES HOLDER PAYMENTS OF INTEREST Payments of principal and interest on the notes will not be subject to United States federal income tax, including United States withholding tax, if paid to a non-United States holder, unless, in the case of interest, the non-United States holder is: (1) a corporation that is an insurance company carrying on a United States trade or business to which the interest is attributable within the meaning of the Code; or (2) an individual or corporation with an office or other fixed place of business in the United States to which the interest is attributable, the interest either is derived in the active conduct of a banking, financing or similar business within the United States or is received by a corporation, the principal business of which is trading in stock or securities for its own account, and certain other conditions exist. SALE, EXCHANGE AND RETIREMENT OF NOTES Gain, realized on the sale, retirement or other disposition of notes by a non-United States holder, generally will not be subject to United States federal income tax, including withholding tax, unless the gain is effectively connected with the conduct by such holder of a trade or business within the United States; or in the case of an individual, the non-United States holder has been present in the United States for 183 days or more during the taxable year of the sale or retirement and certain other conditions are satisfied. BACKUP WITHHOLDING AND INFORMATION REPORTING Information reporting and backup withholding generally will not apply to payments of principal and interest on the notes made by a United States paying agent to a non-United States holder of a note, provided that: (1) the beneficial owner of such note certifies, under penalties of perjury, that it is not a United States holder and provides its name and address; or (2) a securities clearing organization, bank or other financial institution that holds customers' securities in the ordinary course of its trade or business and holds the notes certifies, under penalties of perjury, that such statement has been received from the beneficial owner of such note by it or by a financial institution between it and the beneficial owner and furnishes such paying agent with a copy thereof. Additionally, such paying agent must not have actual knowledge that such beneficial owner is a United States person. Proceeds received from the sale of a note by a non-United States holder to or through the United States office of a broker generally are subject to information reporting and backup withholding unless the holder or beneficial owner certifies as to its non-United States status or otherwise establishes an exemption from information reporting and backup withholding. Generally, the certification requirements will be satisfied if an individual or corporation provides the Withholding Agent, as defined below, with a properly completed Internal Revenue Service Form W-8BEN, or appropriate successor form. A "Withholding Agent" is the last United States payor (or a non-United States payor who is a qualified intermediary, United States branch of a foreign person, or withholding foreign partnership) in the chain of payment prior to payment to a non-United States person (which is itself not a Withholding Agent). If backup withholding tax applies to a non-United States holder, the holder may use the amounts withheld as a refund or credit against the holder's United States federal income tax liability as long as the non-United States holder provides certain information to the Internal Revenue Service. PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF ANY INVESTMENT IN THE NOTES, INCLUDING THE APPLICATION OF UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES TAX LAWS. 98 104 MARSHALL ISLANDS TAXATION Based on the advice of Watson, Farley & Williams, Republic of Marshall Islands counsel to us, since we are not now carrying on, and in the future do not expect to carry on, any operations within the Republic of the Marshall Islands, and assuming that the holders of the notes are neither residents or citizens of the Republic of the Marshall Islands, under current Marshall Islands law no taxes or withholding will be imposed by the Republic of the Marshall Islands on payments to be made in respect of the notes. BAHAMIAN TAXATION Based on the advice of Graham, Thompson & Co., Bahamian counsel to us, under current Bahamian law no taxes or withholding will be imposed by the Bahamas on payments to be made in respect of the notes. TRANSFER TAXES Holders who tender their outstanding notes for exchange generally will not be obligated to pay any transfer tax in connection with the exchange. However, holders who instruct us to register exchange notes in the name of a person other than the registered holders of the outstanding notes not properly tendered, withdrawn or not accepted in the exchange offer be returned to a person other than the registered tendering holder, will be responsible for the payment of any applicable transfer tax. 99 105 PLAN OF DISTRIBUTION Each broker-dealer that receives exchange notes for its own account pursuant to the exchange offer must acknowledge that it will deliver a prospectus in connection with any resale of such exchange notes. This prospectus, as it may be amended or supplemented, may be used by a broker-dealer in connection with resales of exchange notes received in exchange for outstanding notes only where such outstanding notes were acquired as a result of market-making activities or other trading activities. We have agreed to make this prospectus, as amended or supplemented, available to any broker-dealer for use in connection with any such resale for a period of 180 days from the date on which the exchange offer is consummated, or such shorter period as will terminate when all outstanding notes acquired by broker-dealers for their own accounts as a result of market-making activities or other trading activities have been exchanged for exchange notes and such exchange notes have been resold by such broker-dealers. We will not receive any proceeds from any sale of exchange notes by broker-dealers. Exchange notes received by broker-dealers for their own account pursuant to the exchange offer may be sold from time to time in one or more transactions in the over-the-counter market, in negotiated transactions, through the writing of options on the exchange notes or a combination of such methods of resale, at market prices prevailing at the time of resale, at prices related to such prevailing market prices or negotiated prices. Any such resale may be made directly to purchasers or to or through brokers or dealers who may receive compensation in the form of commissions or concessions from any such broker-dealer or the purchasers of any exchange notes. Any broker-dealer that resells exchange notes that were received by it for its own account pursuant to the exchange offer and any broker or dealer that participates in a distribution of such exchange notes may be deemed to be an "underwriter" within the meaning of the Securities Act of 1933 and any profit on any such resale of exchange notes and any commissions or concessions received by any such persons may be deemed to be underwriting compensation under the Securities Act. The letter of transmittal states that by acknowledging that it will deliver any by delivering a prospectus, a broker-dealer will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act of 1933. We have agreed to pay all our expenses incident to the exchange offer, including reasonable fees of not more than one counsel retained by the holders of outstanding notes in connection with the filing of a shelf registration statement, if required, but excluding commissions or concessions of any brokers or dealers and the fees of any other advisors or experts retained by the holders of outstanding notes, except as expressly set forth in the exchange and registration rights agreement, and will indemnify the holders of outstanding notes (including any broker-dealers) against certain liabilities, including liabilities under the Securities Act of 1933. 100 106 LEGAL MATTERS The validity of the exchange notes offered by this prospectus and certain legal matters will be passed upon for us by Perkins Coie LLP, Portland Oregon, as to United States law, and certain other legal matters will be passed upon for us by Watson, Farley & Williams, New York, New York, as to Marshall Islands law, by Seward & Kissel, LLP, New York, New York, as to U.S. tax law, by Graham, Thompson & Co., Nassau, the Bahamas, as to Bahamian law, by Appleby Spurling & Kempe, Hamilton, Bermuda, as to Bermuda law, and by Bugge, Arentz-Hansen & Rasmussen, Oslo, Norway, as to Norwegian law. EXPERTS The consolidated financial statements and schedule of Teekay and its subsidiaries as at December 31, 2000 and 1999, and for the fiscal year ended December 31, 2000, the nine months ended December 31, 1999 and the year ended March 31, 1999, included in this prospectus and audited by Ernst & Young, independent chartered accountants, have been included in reliance upon the report given upon their authority as experts in accounting and auditing. The consolidated financial statements of UNS and its subsidiaries as at December 31, 2000 and 1999, and for the fiscal years ended December 31, 2000 and 1999, included in this prospectus and audited by Deloitte & Touche, independent public accountants, have been included in reliance upon the report given upon their authority as experts in accounting and auditing. 101 107 INDEX TO FINANCIAL STATEMENTS
PAGE ---- TEEKAY SHIPPING CORPORATION UNAUDITED HISTORICAL INTERIM CONSOLIDATED FINANCIAL STATEMENTS: Independent Accountant's Review Report on Interim Financial Statements................................................ F-2 Unaudited Consolidated Statements of Income for the three months ended March 31, 2001 and 2000...................... F-3 Unaudited Consolidated Balance Sheet as at March 31, 2001... F-4 Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2001 and 2000................ F-5 Unaudited Consolidated Statement of Changes in Stockholders' Equity for the three months ended March 31, 2001.......... F-6 Notes to the Interim Consolidated Financial Statements...... F-7 Schedule A to the Interim Consolidated Financial Statements................................................ F-13 TEEKAY SHIPPING CORPORATION AUDITED HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS: Auditor's Report............................................ F-19 Consolidated Statements of Income for the year ended December 31, 2000, the nine months ended December 31, 1999 and the year ended March 31, 1999......................... F-20 Consolidated Balance Sheets as at December 31, 2000 and 1999...................................................... F-21 Consolidated Statements of Cash Flows for the year ended December 31, 2000, the nine months ended December 31, 1999 and the year ended March 31, 1999......................... F-22 Consolidated Statements of Changes in Stockholders' Equity for the year ended December 31, 2000, the nine months ended December 31, 1999 and the year ended March 31, 1999...................................................... F-23 Notes to the Consolidated Financial Statements.............. F-24 Schedule A to the Consolidated Financial Statements......... F-35 UGLAND NORDIC SHIPPING ASA UNAUDITED HISTORICAL INTERIM CONSOLIDATED FINANCIAL STATEMENTS: Unaudited Consolidated Statements of Income for the three months ended March 31, 2001 and 2000 and Unaudited Consolidated Balance Sheet as at March 31, 2001........... F-43 UGLAND NORDIC SHIPPING ASA AUDITED HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS: Auditor's Reports........................................... F-44 Consolidated Statements of Income for the years ended December 31, 2000 and 1999................................ F-46 Consolidated Balance Sheets as at December 31, 2000 and 1999...................................................... F-47 Consolidated Statements of Cash Flows for the years ended December 31, 2000 and 1999................................ F-49 Notes to the Consolidated Financial Statements.............. F-50 TEEKAY SHIPPING CORPORATION UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS: Unaudited Pro Forma Consolidated Condensed Balance Sheet as at March 31, 2001......................................... F-63 Unaudited Pro Forma Consolidated Condensed Statement of Income for the three months ended March 31, 2001.......... F-64 Unaudited Pro Forma Consolidated Condensed Statement of Income for the year ended December 31, 2000............... F-65 Notes to Unaudited Pro Forma Consolidated Condensed Financial Statements...................................... F-66
F-1 108 INDEPENDENT ACCOUNTANT'S REVIEW REPORT ON INTERIM FINANCIAL STATEMENTS To the Board of Directors of TEEKAY SHIPPING CORPORATION We have reviewed the accompanying consolidated balance sheet of TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES as of March 31, 2001, and the related consolidated statements of income and cash flows for the three-month periods ended March 31, 2001 and 2000, and the consolidated statement of changes in stockholders' equity for the three-month period ended March 31, 2001. Our review also included Schedule A. These financial statements and schedule are the responsibility of the Company's management. We were furnished with the report of other accountants on their review of the interim information of Ugland Nordic Shipping ASA, whose total assets as of March 31, 2001 and whose revenues for the period from acquisition constituted 18 percent and 2 percent, respectively, of the consolidated totals. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews and the report of other accountants, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements and schedule referred to above for them to be in conformity with accounting principles generally accepted in the United States. We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of Teekay Shipping Corporation and subsidiaries as of December 31, 2000, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the year then ended, not presented herein, and in our report dated February 16, 2001 (except for note 13 which is as of March 6, 2001), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet and related schedule as of December 31, 2000, if fairly stated, in all material respects, in relation to the consolidated balance sheet and schedule from which they have been derived. Nassau, Bahamas, /s/ ERNST & YOUNG April 26, 2001 Chartered Accountants F-2 109 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED MARCH 31, ------------------ 2001 2000 ------- ------- $ $ (UNAUDITED) NET VOYAGE REVENUES Voyage revenues............................................. 307,886 182,262 Voyage expenses............................................. 62,730 62,195 ------- ------- Net voyage revenues......................................... 245,156 120,067 ------- ------- OPERATING EXPENSES Vessel operating expenses................................... 33,879 34,769 Time-charter hire expense................................... 17,183 12,966 Depreciation and amortization............................... 27,521 25,042 General and administrative.................................. 10,838 9,522 ------- ------- 89,421 82,299 ------- ------- INCOME FROM VESSEL OPERATIONS............................... 155,735 37,768 ------- ------- OTHER ITEMS Interest expense............................................ (14,786) (19,989) Interest income............................................. 2,803 3,253 Other income (loss) (note 10)............................... 936 (1,092) ------- ------- (11,047) (17,828) ------- ------- NET INCOME.................................................. 144,688 19,940 ======= ======= EARNINGS PER COMMON SHARE (note 8) Basic..................................................... 3.69 0.52 Diluted................................................... 3.59 0.52
The accompanying notes are an integral part of the consolidated financial statements. F-3 110 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF U.S. DOLLARS)
AS AT AS AT MARCH 31, 2001 DECEMBER 31, 2000 -------------- ----------------- $ $ (UNAUDITED) ASSETS CURRENT Cash and cash equivalents.................................. 296,940 181,300 Marketable securities (note 3)............................. 7,270 8,081 Accounts receivable........................................ 76,180 80,158 Prepaid expenses and other assets.......................... 27,188 25,956 --------- --------- TOTAL CURRENT ASSETS....................................... 407,578 295,495 --------- --------- Marketable securities (note 3)............................. 43,844 33,742 VESSELS AND EQUIPMENT At cost, less accumulated depreciation of $708,568 (December 31, 2000 -- $680,756) (note 7)................. 1,901,357 1,607,716 Advances on newbuilding contracts (notes 7 and 9).......... 42,851 -- --------- --------- TOTAL VESSELS AND EQUIPMENT................................ 1,944,208 1,607,716 --------- --------- Investment in joint ventures............................... 46,402 20,474 Other assets............................................... 17,482 16,672 Goodwill (note 4).......................................... 58,818 -- --------- --------- 2,518,332 1,974,099 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT Accounts payable........................................... 20,924 22,084 Accrued liabilities........................................ 48,408 44,081 Current portion of long-term debt (note 7)................. 123,058 72,170 --------- --------- TOTAL CURRENT LIABILITIES.................................. 192,390 138,335 --------- --------- Long-term debt (note 7).................................... 985,636 725,314 Other long-term liabilities (note 6)....................... 38,558 7,368 --------- --------- TOTAL LIABILITIES.......................................... 1,216,584 871,017 --------- --------- MINORITY INTEREST.......................................... 66,968 4,570 STOCKHOLDERS' EQUITY Capital stock (note 8)..................................... 458,605 452,808 Retained earnings.......................................... 777,618 641,149 Accumulated other comprehensive income (loss).............. (1,443) 4,555 --------- --------- TOTAL STOCKHOLDERS' EQUITY................................. 1,234,780 1,098,512 --------- --------- 2,518,332 1,974,099 ========= =========
Commitments and contingencies (note 9) The accompanying notes are an integral part of the consolidated financial statements. F-4 111 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF U.S. DOLLARS)
THREE MONTHS ENDED MARCH 31, ------------------ 2001 2000 ------- ------- $ $ (UNAUDITED) Cash and cash equivalents provided by (used for) OPERATING ACTIVITIES Net income.................................................. 144,688 19,940 Non-cash items: Depreciation and amortization............................. 27,521 25,042 Loss on disposition of vessels and equipment.............. -- 1,009 Gain on disposition of available-for-sale securities...... (2,707) -- Equity income (net of dividends received: March 31, 2001 -- $2,500; March 31, 2000 -- $500)..................... (293) (319) Future income taxes....................................... 671 500 Other -- net.............................................. 3,022 (592) Change in non-cash working capital items related to operating activities...................................... (8,390) (5,355) ------- ------- NET CASH FLOW FROM OPERATING ACTIVITIES..................... 164,512 40,225 ------- ------- FINANCING ACTIVITIES Proceeds from long-term debt................................ 143,500 -- Scheduled repayments of long-term debt...................... (5,790) (606) Prepayments of long-term debt............................... (92,118) (10,000) Proceeds from issuance of Common Stock...................... 5,788 898 Cash dividends paid......................................... (8,408) (8,178) ------- ------- NET CASH FLOW FROM FINANCING ACTIVITIES..................... 42,972 (17,886) ------- ------- INVESTING ACTIVITIES Expenditures for vessels and equipment...................... (1,394) (550) Expenditures for drydocking................................. (2,240) (2,500) Proceeds from disposition of assets......................... -- 9,705 Expenditure for purchase of Ugland Nordic Shipping ASA (net of cash acquired of $26,605).............................. (97,144) -- Acquisition costs related to purchase of Bona Shipholding Ltd....................................................... (20) (1,716) Proceeds from disposition of available-for-sale securities................................................ 8,954 -- Purchases of available-for-sale securities.................. -- (8,911) ------- ------- NET CASH FLOW FROM INVESTING ACTIVITIES..................... (91,844) (3,972) ------- ------- INCREASE IN CASH AND CASH EQUIVALENTS....................... 115,640 18,367 Cash and cash equivalents, beginning of the period.......... 181,300 220,327 ------- ------- CASH AND CASH EQUIVALENTS, END OF THE PERIOD................ 296,940 238,694 ======= =======
The accompanying notes are an integral part of the consolidated financial statements. F-5 112 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS OF U.S. DOLLARS)
ACCUMULATED OTHER THOUSANDS OF COMPREHENSIVE TOTAL COMMON COMMON RETAINED INCOME COMPREHENSIVE STOCKHOLDERS' SHARES STOCK EARNINGS (LOSS) INCOME EQUITY ------------ ------- -------- ------------- ------------- ------------- # $ $ $ $ $ BALANCE AS AT DECEMBER 31, 2000....................... 39,145 452,808 641,149 4,555 1,098,512 ------ ------- ------- ------ --------- Net income................... 144,688 144,688 144,688 Other comprehensive income: Unrealized loss on available-for-sale securities (note 3)...... (1,503) (1,503) (1,503) Reclassification adjustment for gain on available-for-sale securities included in net income (note 3)...... (4,946) (4,946) (4,946) Cumulative effect of accounting change (note 11)...................... 4,155 4,155 4,155 Unrealized loss on derivative instruments (note 11)................ (3,314) (3,314) (3,314) Reclassification adjustment for gain on derivative instruments (note 11).... (390) (390) (390) ------- Comprehensive income......... 138,690 ------- Adjustment for equity income on step acquisition (note 2)......................... 198 198 Dividends declared........... (8,417) (8,417) Reinvested dividends......... 1 9 9 Exercise of stock options.... 256 5,788 5,788 ------ ------- ------- ------ --------- BALANCE AS AT MARCH 31, 2001 (UNAUDITED)................ 39,402 458,605 777,618 (1,443) 1,234,780 ====== ======= ======= ====== =========
The accompanying notes are an integral part of the consolidated financial statements. F-6 113 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA) (INFORMATION AS AT MARCH 31, 2001 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2000 IS UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited interim consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States and the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures required by generally accepted accounting principles for complete annual financial statements have been omitted and, therefore, it is suggested that these interim financial statements be read in conjunction with the Company's audited financial statements for the year ended December 31, 2000. In the opinion of management, these statements reflect all adjustments (consisting only of normal recurring accruals), necessary to present fairly, in all material respects, the Company's consolidated financial position, results of operations, cash flows, and changes in stockholders' equity for the interim periods presented. The results of operations for the three-month period ended March 31, 2001 are not necessarily indicative of those for a full fiscal year. 2. ACQUISITION OF UGLAND NORDIC SHIPPING ASA As of March 31, 2001, the Company had purchased approximately a 64% interest in Ugland Nordic Shipping ASA ("UNS") (nine percent of which was purchased in fiscal 2000), for $143.9 million cash, including estimated transaction expenses of $7.0 million, or at an average price of Norwegian Kroner 134 per share. UNS controls a modern fleet of 18 shuttle tankers (including four newbuildings and four vessels purchased on April 2, 2001) that engage in the transportation of oil from offshore production platforms to refineries. The acquisition of UNS has been accounted for using the purchase method of accounting, based upon preliminary estimates of fair value. UNS' operating results are reflected in these financial statements commencing March 6, 2001, the date the Company acquired control. Equity income related to the Company's nine percent interest in UNS up to December 31, 2000 has been credited as an adjustment to retained earnings. The Company's interest in UNS for the period from January 1, 2001 to March 5, 2001 has been included in equity income for the corresponding period. In April 2001, the Company purchased an additional 34% interest in UNS (see Note 12). The following table shows comparative summarized consolidated pro forma financial information for the three-month periods ended March 31, 2001 and 2000 and gives effect to the acquisition of 100% of the outstanding shares in UNS as if it had taken place January 1, 2000:
PRO FORMA THREE MONTHS ENDED MARCH 31, ------------------ 2001 2000 ------- ------- $ $ Net voyage revenues......................................... 261,416 135,012 Net income.................................................. 145,097 15,421 Net income per common share basic..................................................... 3.70 0.41 diluted................................................... 3.60 0.40
F-7 114 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA) (INFORMATION AS AT MARCH 31, 2001 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2000 IS UNAUDITED) 3. MARKETABLE SECURITIES The Company's investments in marketable securities are classified as available-for-sale securities and are carried at fair value. Net unrealized gains or losses on available-for-sale securities, if material, are reported as a separate component of stockholders' equity. 4. GOODWILL Goodwill acquired as a result of the acquisition of UNS (see Note 2) is amortized over 20 years using the straight-line method. Management periodically reviews goodwill for permanent diminution in value. As at March 31, 2001, goodwill is net of accumulated amortization of $0.2 million. 5. CASH FLOWS Cash interest paid during the three-month periods ended March 31, 2001 and 2000 totalled approximately $18.0 million and $14.9 million, respectively. 6. INCOME TAXES The legal jurisdictions of the countries in which Teekay and the majority of its subsidiaries are incorporated do not impose income taxes upon shipping-related activities. The Company's Australian ship-owning subsidiaries and Norwegian subsidiary UNS are subject to income taxes (see Note 10). Included in other long-term liabilities are deferred income taxes of $34.0 million at March 31, 2001 and $4.2 million at December 31, 2000. The Company accounts for such taxes using the liability method pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". 7. LONG-TERM DEBT
MARCH 31, DECEMBER 31, 2001 2000 --------- ------------ $ $ Revolving Credit Facilities................................. 424,843 415,800 First Preferred Ship Mortgage Notes (8.32%) due through 2008...................................................... 189,274 189,274 Term Loans due through 2009................................. 494,577 192,410 --------- ------- 1,108,694 797,484 Less current portion........................................ 123,058 72,170 --------- ------- 985,636 725,314 ========= =======
The Company has two long-term Revolving Credit Facilities (the "Revolvers") available which, as at March 31, 2001, provided for borrowings of up to $555.8 million. Interest payments are based on LIBOR (March 31, 2001: 4.88%; December 31, 2000: 6.40%) plus a margin depending on the financial leverage of the Company; at March 31, 2001 the margins ranged between 0.50% and 0.85% (December 31, 2000: 0.50% and 0.85%). The amount available under the Revolvers reduces semi-annually with final balloon reductions in 2006 and 2008. The Revolvers are collateralized by first priority mortgages granted on 33 of the Company's vessels, together with certain other related collateral, and a guarantee from Teekay for all amounts outstanding under the Revolvers. The 8.32% First Preferred Ship Mortgage Notes due February 1, 2008 (the "8.32% Notes") are collateralized by first preferred mortgages on seven of the Company's Aframax tankers, together with F-8 115 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA) (INFORMATION AS AT MARCH 31, 2001 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2000 IS UNAUDITED) certain other related collateral, and are guaranteed by seven subsidiaries of the Company that own the mortgaged vessels (the "8.32% Notes Guarantor Subsidiaries") to a maximum of 95% of the fair value of their net assets. As at March 31, 2001, the fair value of these net assets approximated $233.9 million. The 8.32% Notes are also subject to a sinking fund, which will retire $45.0 million principal amount of the 8.32% Notes on each February 1, commencing 2004. Condensed financial information regarding the Company, the 8.32% Notes Guarantor Subsidiaries, and non-guarantor subsidiaries of the Company is set out in Schedule A of these consolidated financial statements. The Company has several term loans outstanding, which, as at March 31, 2001, totalled $494.6 million. Interest payments are based on LIBOR plus a margin. As at March 31, 2001, the margins ranged between 0.50% and 1.50%. The term loans reduce in quarterly or semi-annual payments with varying maturities through 2009. All term loans of the Company are collateralized by first preferred mortgages on the vessels to which the loans relate, together with certain other collateral, and guarantees from Teekay. Term loans of UNS are not guaranteed by Teekay. 8. CAPITAL STOCK The authorized capital stock of the Company at March 31, 2001 is 25,000,000 shares of Preferred Stock, with a par value of $1 per share, and 725,000,000 shares of Common Stock with a par value of $0.001 per share. As at March 31, 2001, the Company had 39,401,597 shares of Common Stock and no shares of Preferred Stock issued and outstanding. As at March 31, 2001, the Company had reserved 4,655,497 shares of Common Stock for issuance upon exercise of options granted pursuant to the Company's 1995 Stock Option Plan. As at March 31, 2001, options to purchase a total of 3,401,720 shares of the Company's Common Stock were outstanding, of which 1,196,227 options were then exercisable at prices ranging from $16.875 to $33.50 per share and a weighted average exercise price of $23.74 per share. The remaining outstanding options have exercise prices ranging from $16.875 to $41.19 per share and a weighted average exercise price of $26.67 per share. All outstanding options expire between July 19, 2005 and March 15, 2011, ten years after the date of each respective grant. The Company's basic earnings per share is based upon the following weighted average number of common shares outstanding: 39,229,776 shares for the three-month period ended March 31, 2001; and 38,069,614 shares for the three-month period ended March 31, 2000. Diluted earnings per share is based upon the following weighted average number of common shares outstanding adjusted for the effect of dilution: 40,339,978 shares for the three-month period ended March 31, 2001; and 38,255,512 shares for the three-month period ended March 31, 2000. 9. COMMITMENTS AND CONTINGENCIES As at March 31, 2001, UNS was committed to the construction of three newbuilding shuttle tankers, having an aggregate cost of $160.8 million. A joint venture company, 50%-owned by UNS, was committed to the construction of one additional newbuilding shuttle tanker, having a cost of approximately $63.4 million. The newbuilding vessels are scheduled for delivery between May 2001 and September 2003. As of March 31, 2001, there have been payments made towards these commitments of $60.8 million (including $18.9 million made by the 50%-owned joint venture) and long-term financing arrangements exist for $122.3 million (including $44.5 million for the 50%-owned joint venture) of the F-9 116 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA) (INFORMATION AS AT MARCH 31, 2001 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2000 IS UNAUDITED) unpaid cost of these vessels. It is the Company's intention to finance the remaining unpaid amount of $41.1 million through either additional debt borrowings or surplus cash balances, or a combination thereof. The remaining payments required to be made under these newbuilding contracts are as follows: $67.0 million in 2001, $43.3 million in 2002 and $53.1 million in 2003. Of the $67.0 million due in 2001, $44.5 million will be paid by the 50%-owned joint venture. The Company has guaranteed its share of the outstanding mortgage debt in the joint venture companies Soponata-Teekay Limited, P/R Stena Ugland Shuttletankers I DA, and P/R Stena Ugland Shuttletankers II DA, which are 50%-owned by the Company. As of March 31, 2001, the Company has guaranteed $92.8 million of such debt, or 50% of the total $185.6 million in outstanding mortgage debt of the joint venture companies. These joint venture companies together own five vessels (one Aframax, two Suezmax, and two shuttle tankers). The Company has guaranteed its share of committed, uncalled capital in certain limited partnerships, which own two of the Company's oil/bulk/ore carriers. As at March 31, 2001, the Company has guaranteed $1.7 million of such capital. 10. OTHER INCOME (LOSS)
THREE MONTHS ENDED MARCH 31, --------------------- 2001 2000 ------ ------ $ $ Loss on disposition of vessels and equipment................ -- (1,009) Gain on disposition of available-for-sale securities........ 2,707 -- Equity income from joint ventures........................... 2,793 819 Future income taxes......................................... (671) (500) Miscellaneous............................................... (3,893) (402) ------ ------ 936 (1,092) ====== ======
11. DERIVATIVES INSTRUMENTS AND HEDGING ACTIVITIES In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133 ("SFAS 133"), "Accounting for Derivative Instruments and Hedging Activities", which establishes new standards for recording derivatives in interim and annual financial statements. This statement requires the recording of all derivative instruments as assets or liabilities, measured at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending upon the nature of the hedge, changes in the fair value of the derivatives are either offset against the fair value of assets, liabilities or firm commitments through income, or recognized in other comprehensive income until the hedged item is recognized into income. The ineffective portion of a derivative's change in fair value will be immediately recognized into income. SFAS 133, as amended by Statements of Financial Accounting Standards No. 137 and No. 138, is effective for fiscal years beginning after June 15, 2000. The Company adopted SFAS 133 on January 1, 2001. The Company recognized the fair value of its derivatives as assets of $2.2 million and liabilities of $1.3 million on its consolidated balance sheet as of January 1, 2001. These amounts were recorded as a cumulative effect of an accounting change as an adjustment to stockholders' equity through other comprehensive income. There was no impact on net F-10 117 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA) (INFORMATION AS AT MARCH 31, 2001 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2000 IS UNAUDITED) income. In addition, a deferred gain of $3.2 million on unwound interest rate swap agreements presented as other long-term liabilities at December 31, 2000, was reclassified to accumulated other comprehensive income and will be recognized into earnings over the hedged term of the debt. The Company only used derivatives for hedging purposes. The following summarizes the Company's risk strategies with respect to market risk from foreign currency fluctuations and changes in interest rates and the effect of these strategies on the Company's financial statements. The Company has a foreign currency cash flow hedging program to protect against the increase in cost of certain forecasted foreign currency cash flows resulting from voyage, vessel operating, drydocking and general and administrative expenditures that have been forecasted to occur over the next three years. The Company hedges portions of its forecasted expenditures denominated in foreign currencies with forward contracts. As at March 31, 2001, the Company was committed to foreign exchange contracts for the forward purchase of approximately Japanese Yen 100.0 million, Singapore Dollars 11.6 million, Norwegian Kroner 137.7 million, Canadian Dollars 46.2 million and Euros 5.4 million for U.S. Dollars, at an average rate of Japanese Yen 119.5 per U.S. Dollar, Singapore Dollar 1.72 per U.S. Dollar, Norwegian Kroner 9.44 per U.S. Dollar, Canadian Dollar 1.54 per U.S. Dollar and Euros 1.09 per U.S. Dollar, respectively. As at March 31, 2001, the Company was committed to a series of interest rate swap agreements whereby $145.0 million of the Company's floating rate debt was swapped with fixed rate obligations having a weighted average remaining term of 1.3 years, expiring between December 2001 and May 2004. These agreements effectively change the Company's interest rate exposure on $145.0 million of debt from a floating LIBOR rate to an average fixed rate of 6.46%. The Company is exposed to credit loss in the event of non-performance by the counter parties to the interest rate swap agreements; however, the Company does not anticipate non-performance by any of the counter parties. During the three-month period ended March 31, 2001, the Company recognized a net loss of $0.5 million relating to the ineffective portion of its foreign currency forward contracts and $0.1 million relating to the ineffective portion of its interest rate swap agreements. The ineffective portion of the foreign currency forward contracts and interest rate swap agreements are presented as other income (loss) and interest expense, respectively. As at March 31, 2001, the Company estimates, based on current foreign exchange and interest rates, that it will reclassify $0.1 million of net loss on derivative instruments from accumulated other comprehensive income to earnings during the next twelve months due to actual voyage, vessel operating, drydocking and general and administrative expenditures and the payment of interest expense associated with the floating-rate debt. 12. SUBSEQUENT EVENTS On April 2, 2001, the Company, through its subsidiary UNS, purchased four shuttle tankers for $95.0 million. The purchase was financed with long-term debt borrowings bearing interest at LIBOR plus 1.25% due April 2006. On April 25, 2001, a joint venture in which the Company owns a 50% interest, entered into an agreement to sell its three vessels. The vessels are scheduled for delivery between July 15, 2001 and August 30, 2001. F-11 118 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE DATA) (INFORMATION AS AT MARCH 31, 2001 AND FOR THE THREE-MONTH PERIODS ENDED MARCH 31, 2001 AND 2000 IS UNAUDITED) On April 26, 2001, the Company purchased an additional 34% interest in UNS for $75.2 million cash, or at a price of Norwegian Kroner 140 per share, to bring the Company's total ownership in UNS to approximately 98%. The Company intends to commence a compulsory acquisition of the remaining shares held by minority shareholders, with a view to applying for a delisting of the UNS shares from the Oslo Stock Exchange soon thereafter. F-12 119 SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS (IN THOUSANDS OF U.S. DOLLARS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2001 ----------------------------------------------------------------------------- 8.32% NOTES TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES -------------- ------------ ------------- ------------ -------------- $ $ $ $ $ Net voyage revenues................... -- 8,781 276,534 (40,159) 245,156 Operating expenses.................... 2,793 8,740 118,047 (40,159) 89,421 ------- ------- ------- -------- ------- (Loss) income from vessel operations........................ (2,793) 41 158,487 0 155,735 Net interest expense.................. (2,746) -- (9,237) -- (11,983) Equity in net income of subsidiaries........................ 147,858 -- -- (147,858) -- Other income.......................... 2,369 -- (1,433) -- 936 ------- ------- ------- -------- ------- NET INCOME............................ 144,688 41 147,817 (147,858) 144,688 Retained earnings (deficit), beginning of the period....................... 641,149 (18,969) 671,069 (652,100) 641,149 Adjustment for equity income on step acquisition......................... 198 -- -- -- 198 Dividends declared.................... (8,417) -- -- -- (8,417) ------- ------- ------- -------- ------- RETAINED EARNINGS (DEFICIT), END OF THE PERIOD.......................... 777,618 (18,928) 818,886 (799,958) 777,618 ======= ======= ======= ======== =======
THREE MONTHS ENDED MARCH 31, 2000 ----------------------------------------------------------------------------- 8.32% NOTES TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES -------------- ------------ ------------- ------------ -------------- $ $ $ $ $ Net voyage revenues................... -- 9,257 147,888 (37,078) 120,067 Operating expenses.................... 142 7,952 104,722 (30,517) 82,299 ------- ------- ------- -------- ------- (Loss) income from vessel operations........................ (142) 1,305 43,166 (6,561) 37,768 Net interest (expense) income......... (4,761) 46 (12,021) -- (16,736) Equity in net income of subsidiaries........................ 24,843 -- -- (24,843) -- Other loss............................ -- -- (1,092) -- (1,092) ------- ------- ------- -------- ------- NET INCOME............................ 19,940 1,351 30,053 (31,404) 19,940 Retained earnings (deficit), beginning of the period....................... 404,130 (28,950) 369,370 (340,420) 404,130 Dividends declared.................... (8,184) -- -- -- (8,184) ------- ------- ------- -------- ------- RETAINED EARNINGS (DEFICIT), END OF THE PERIOD.......................... 415,886 (27,599) 399,423 (371,824) 415,886 ======= ======= ======= ======== =======
- --------------- (See Note 7) F-13 120 SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (IN THOUSANDS OF U.S. DOLLARS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2001 ----------------------------------------------------------------------------- 8.32% NOTES TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES -------------- ------------ ------------- ------------ -------------- $ $ $ $ $ Net income............................ 144,688 41 147,817 (147,858) 144,688 Other comprehensive income Unrealized loss on available-for-sale securities..... -- -- (1,503) -- (1,503) Reclassification adjustment for gain on available-for-sale securities included in net income............ -- -- (4,946) -- (4,946) Cumulative effect of accounting change............................ -- -- 4,155 -- 4,155 Unrealized loss on derivative instruments....................... -- -- (3,314) -- (3,314) Reclassification adjustment for gain on derivative instruments......... -- -- (390) -- (390) ------- ----- ------- -------- ------- COMPREHENSIVE INCOME.................. 144,688 41 141,819 (147,858) 138,690 ======= ===== ======= ======== =======
THREE MONTHS ENDED MARCH 31, 2000 ----------------------------------------------------------------------------- 8.32% NOTES TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES -------------- ------------ ------------- ------------ -------------- $ $ $ $ $ Net income............................ 19,940 1,351 30,053 (31,404) 19,940 Other comprehensive income............ -- -- -- -- -- ------- ----- ------- -------- ------- COMPREHENSIVE INCOME.................. 19,940 1,351 30,053 (31,404) 19,940 ======= ===== ======= ======== =======
- --------------- (See Note 7) F-14 121 SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONDENSED BALANCE SHEETS (IN THOUSANDS OF U.S. DOLLARS) (UNAUDITED)
AS AT MARCH 31, 2001 ----------------------------------------------------------------------------- 8.32% NOTES TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES -------------- ------------ ------------- ------------ -------------- $ $ $ $ $ ASSETS Cash and cash equivalents............. 188 -- 296,752 -- 296,940 Other current assets.................. 1,146 736 204,756 (96,000) 110,638 --------- ------- --------- ---------- --------- Total current assets................ 1,334 736 501,508 (96,000) 407,578 Vessels and equipment (net)........... -- 276,076 1,668,132 -- 1,944,208 Advances due from subsidiaries........ 77,002 -- -- (77,002) -- Other assets (principally marketable securities and investments in subsidiaries)....................... 1,352,411 10 61,326 (1,352,421) 61,326 Investment in joint venture........... -- -- 46,402 -- 46,402 Goodwill.............................. -- -- 58,818 -- 58,818 --------- ------- --------- ---------- --------- 1,430,747 276,822 2,336,186 (1,525,423) 2,518,332 ========= ======= ========= ========== ========= LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities................... 5,250 1,506 281,634 (96,000) 192,390 Long-term debt........................ 189,274 -- 834,920 -- 1,024,194 Due to (from) affiliates.............. -- (75,086) 192,512 (117,427) -- --------- ------- --------- ---------- --------- Total liabilities................... 194,524 (73,580) 1,309,066 (213,427) 1,216,584 --------- ------- --------- ---------- --------- Minority Interest..................... -- -- 66,968 -- 66,968 Stockholders' Equity Capital stock......................... 458,605 23 5,943 (5,966) 458,605 Contributed capital................... -- 369,307 136,766 (506,073) -- Retained earnings (deficit)........... 777,618 (18,928) 818,886 (799,957) 777,618 Accumulated other comprehensive loss.. -- -- (1,443) -- (1,443) --------- ------- --------- ---------- --------- Total stockholders' equity.......... 1,236,223 350,402 960,152 (1,311,996) 1,234,780 --------- ------- --------- ---------- --------- 1,430,747 276,822 2,336,186 (1,525,423) 2,518,332 ========= ======= ========= ========== =========
- --------------- (See Note 7) F-15 122 SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONDENSED BALANCE SHEETS (IN THOUSANDS OF U.S. DOLLARS) (UNAUDITED)
AS AT DECEMBER 31, 2000 ----------------------------------------------------------------------------- 8.32% NOTES TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES -------------- ------------ ------------- ------------ -------------- $ $ $ $ $ ASSETS Cash and cash equivalents............. 294 -- 181,006 -- 181,300 Other current assets.................. 45 725 209,425 (96,000) 114,195 --------- ------- --------- ---------- --------- Total current assets................ 339 725 390,431 (96,000) 295,495 Vessels and equipment (net)........... -- 281,377 1,326,339 -- 1,607,716 Advances due from subsidiaries........ 58,068 -- -- (58,068) -- Other assets (principally marketable securities and investments in subsidiaries)....................... 1,229,756 -- 50,414 (1,229,756) 50,414 Investment in joint venture........... -- -- 20,474 -- 20,474 --------- ------- --------- ---------- --------- 1,288,163 282,102 1,787,658 (1,383,824) 1,974,099 ========= ======= ========= ========== ========= LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities................... 4,932 1,371 228,032 (96,000) 138,335 Long-term debt........................ 189,274 -- 543,408 -- 732,682 Due to (from) affiliates.............. -- (69,630) 193,315 (123,685) -- --------- ------- --------- ---------- --------- Total liabilities................... 194,206 (68,259) 964,755 (219,685) 871,017 --------- ------- --------- ---------- --------- Minority Interest..................... -- -- 4,570 -- 4,570 Stockholders' Equity Capital stock......................... 452,808 23 5,943 (5,966) 452,808 Contributed capital................... -- 369,307 136,766 (506,073) -- Retained earnings (deficit)........... 641,149 (18,969) 671,069 (652,100) 641,149 Accumulated other comprehensive income.............................. -- -- 4,555 -- 4,555 --------- ------- --------- ---------- --------- Total stockholders' equity.......... 1,093,957 350,361 818,333 (1,164,139) 1,098,512 --------- ------- --------- ---------- --------- 1,288,163 282,102 1,787,658 (1,383,824) 1,974,099 ========= ======= ========= ========== =========
- --------------- (See Note 7) F-16 123 SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF U.S. DOLLARS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2001 ----------------------------------------------------------------------------- 8.32% NOTES TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES -------------- ------------ ------------- ------------ -------------- $ $ $ $ $ Cash and cash equivalents provided by (used for).......................... ------- ------ ------- -------- ------- OPERATING ACTIVITIES Net cash flow from operating activities........................ 21,250 6,139 137,123 -- 164,512 ------- ------ ------- -------- ------- FINANCING ACTIVITIES Proceeds from long-term debt.......... -- -- 143,500 -- 143,500 Scheduled repayments of long-term debt................................ -- -- (5,790) -- (5,790) Prepayments of long-term debt......... -- -- (92,118) -- (92,118) Other................................. (21,555) (6,016) 24,951 -- (2,620) ------- ------ ------- -------- ------- Net cash flow from financing activities........................ (21,555) (6,016) 70,543 -- 42,972 ------- ------ ------- -------- ------- INVESTING ACTIVITIES Expenditures for vessels and equipment........................... -- (114) (3,520) -- (3,634) Expenditure for the purchase of Ugland Nordic Shipping ASA................. 199 -- (97,343) -- (97,144) Other................................. -- (9) 8,943 -- 8,934 ------- ------ ------- -------- ------- Net cash flow from investing activities........................ 199 (123) (91,920) -- (91,844) ------- ------ ------- -------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................... (106) -- 115,746 -- 115,640 Cash and cash equivalents, beginning of the period....................... 294 -- 181,006 -- 181,300 ------- ------ ------- -------- ------- CASH AND CASH EQUIVALENTS, END OF THE PERIOD.............................. 188 -- 296,752 -- 296,940 ======= ====== ======= ======== =======
- --------------- (See Note 7) F-17 124 SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF U.S. DOLLARS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, 2000 ----------------------------------------------------------------------------- 8.32% NOTES TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES -------------- ------------ ------------- ------------ -------------- $ $ $ $ $ Cash and cash equivalents provided by (used for).......................... ------- ------ ------- -------- ------- OPERATING ACTIVITIES Net cash flow from operating activities........................ (9,679) 5,101 44,803 -- 40,225 ------- ------ ------- -------- ------- FINANCING ACTIVITIES Scheduled repayments of long-term debt................................ -- -- (606) -- (606) Prepayments of long-term debt......... -- -- (10,000) -- (10,000) Other................................. 9,626 2 (16,908) -- (7,280) ------- ------ ------- -------- ------- Net cash flow from financing activities........................ 9,626 2 (27,514) -- (17,886) ------- ------ ------- -------- ------- INVESTING ACTIVITIES Expenditures for vessels and equipment........................... -- (113) (2,937) -- (3,050) Proceeds from disposition of assets... -- -- 9,705 -- 9,705 Acquisition costs related to purchase of Bona Shipholding Ltd............. -- -- (1,716) -- (1,716) Other................................. -- -- (8,911) -- (8,911) ------- ------ ------- -------- ------- Net cash flow from investing activities........................ -- (113) (3,859) -- (3,972) ------- ------ ------- -------- ------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................... (53) 4,990 13,430 -- 18,367 Cash and cash equivalents, beginning of the period....................... 210 39,652 180,465 -- 220,327 ------- ------ ------- -------- ------- CASH AND CASH EQUIVALENTS, END OF THE PERIOD.............................. 157 44,642 193,895 -- 238,694 ======= ====== ======= ======== =======
- --------------- (See Note 7) F-18 125 AUDITOR'S REPORT To the Board of Directors of TEEKAY SHIPPING CORPORATION We have audited the accompanying consolidated balance sheets of TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES as of December 31, 2000 and 1999, and the related consolidated statements of income, changes in stockholders' equity and cash flows for the year ended December 31, 2000, the nine month period ended December 31, 1999 and the year ended March 31, 1999. Our audits also included Schedule A. These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Teekay Shipping Corporation and subsidiaries as at December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for the year ended December 31, 2000, the nine month period ended December 31, 1999 and the year ended March 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material aspects the information set forth therein. Nassau, Bahamas, /s/ ERNST & YOUNG February 16, 2001 Chartered Accountants (except for note 13 which is as of March 6, 2001) F-19 126 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (IN THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED NINE MONTHS ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31, 2000 1999 1999 ------------ ----------------- ---------- $ $ $ NET VOYAGE REVENUES Voyage revenues................................ 893,226 377,882 411,922 Voyage expenses................................ 248,957 129,532 93,511 ------- ------- ------- Net voyage revenues............................ 644,269 248,350 318,411 ------- ------- ------- OPERATING EXPENSES Vessel operating expenses...................... 125,415 98,780 84,397 Time charter hire expense...................... 53,547 30,681 29,666 Depreciation and amortization.................. 100,153 68,299 93,712 General and administrative..................... 37,479 27,018 25,002 ------- ------- ------- 316,594 224,778 232,777 ------- ------- ------- INCOME FROM VESSEL OPERATIONS.................. 327,675 23,572 85,634 ------- ------- ------- OTHER ITEMS Interest expense............................... (74,540) (44,996) (44,797) Interest income................................ 13,021 5,842 6,369 Other income (loss) (note 11).................. 3,864 (4,013) 5,506 ------- ------- ------- (57,655) (43,167) (32,922) ------- ------- ------- Net income (loss) before extraordinary loss.... 270,020 (19,595) 52,712 Extraordinary loss on bond redemption (note 6)........................................... -- -- (7,306) ------- ------- ------- NET INCOME (LOSS).............................. 270,020 (19,595) 45,406 ======= ======= ======= BASIC EARNINGS PER COMMON SHARE (note 9) - - Net income (loss) before extraordinary loss......................................... 7.02 (0.54) 1.70 - - Net income (loss)............................ 7.02 (0.54) 1.46 DILUTED EARNINGS PER COMMON SHARE (note 9) - - Net income (loss) before extraordinary loss......................................... 6.86 (0.54) 1.70 - - Net income (loss)............................ 6.86 (0.54) 1.46
The accompanying notes are an integral part of the consolidated financial statements. F-20 127 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS OF U.S. DOLLARS)
AS AT AS AT DECEMBER 31, 2000 DECEMBER 31, 1999 ----------------- ----------------- $ $ ASSETS CURRENT Cash and cash equivalents............................... 181,300 220,327 Marketable securities (note 4).......................... 8,081 -- Accounts receivable..................................... 80,158 30,753 Prepaid expenses and other assets....................... 25,956 29,579 --------- --------- TOTAL CURRENT ASSETS.................................... 295,495 280,659 --------- --------- Marketable securities (note 4).......................... 33,742 6,054 VESSELS AND EQUIPMENT (notes 1 and 6) At cost, less accumulated depreciation of $680,756 (December 31, 1999 -- $624,727)....................... 1,607,716 1,663,517 Investment in joint venture............................. 20,474 19,402 Other assets............................................ 16,672 13,052 --------- --------- 1,974,099 1,982,684 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT Accounts payable........................................ 22,084 20,431 Accrued liabilities (note 5)............................ 44,081 39,515 Current portion of long-term debt (note 6).............. 72,170 66,557 --------- --------- TOTAL CURRENT LIABILITIES............................... 138,335 126,503 --------- --------- Long-term debt (note 6)................................. 725,314 1,018,610 Other long-term liabilities............................. 7,368 3,400 --------- --------- TOTAL LIABILITIES....................................... 871,017 1,148,513 --------- --------- MINORITY INTEREST....................................... 4,570 2,104 STOCKHOLDERS' EQUITY Capital stock (note 9).................................. 452,808 427,937 Retained earnings....................................... 641,149 404,130 Accumulated other comprehensive income.................. 4,555 -- --------- --------- TOTAL STOCKHOLDERS' EQUITY.............................. 1,098,512 832,067 --------- --------- 1,974,099 1,982,684 ========= =========
Commitments and contingencies (notes 7 and 10) The accompanying notes are an integral part of the consolidated financial statements. F-21 128 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF U.S. DOLLARS)
YEAR ENDED NINE MONTHS ENDED YEAR ENDED DECEMBER 31, 2000 DECEMBER 31, 1999 MARCH 31, 1999 ----------------- ----------------- -------------- $ $ $ Cash and cash equivalents provided by (used for) OPERATING ACTIVITIES Net income (loss)....................... 270,020 (19,595) 45,406 Non-cash items: Depreciation and amortization........... 100,153 68,299 93,712 Loss (gain) on disposition of assets.... 1,004 -- (7,117) Loss on bond redemption................. -- -- 7,306 Equity income (net of dividends received: December 31, 2000 -- $8,474; December 31, 1999 -- $Nil)............ (1,072) (721) -- Future income taxes..................... 999 1,500 1,900 Other -- net............................ (1,173) 1,134 1,218 Change in non-cash working capital items related to operating activities (note 12)................................... (36,676) 896 (4,717) -------- ------- -------- NET CASH FLOW FROM OPERATING ACTIVITIES............................ 333,255 51,513 137,708 -------- ------- -------- FINANCING ACTIVITIES Proceeds from long-term debt............ 206,000 100,000 230,000 Scheduled repayments of long-term debt.................................. (63,757) (32,252) (50,577) Prepayments of long-term debt........... (429,926) (10,000) (268,034) Net proceeds from issuance of Common Stock................................. 24,843 -- 68,751 Cash dividends paid..................... (32,973) (23,150) (26,222) Other................................... 2,970 -- (690) -------- ------- -------- NET CASH FLOW FROM FINANCING ACTIVITIES............................ (292,843) 34,598 (46,772) -------- ------- -------- INVESTING ACTIVITIES Expenditures for vessels and equipment............................. (43,512) (23,313) (85,445) Expenditures for drydocking............. (11,941) (6,598) (11,749) Proceeds from disposition of assets..... 9,713 -- 23,435 Net cash acquired through purchase of Bona Shipholding Ltd. (note 3)........ -- 51,774 -- Acquisition costs related to purchase of Bona Shipholding Ltd. (note 3)........ (2,685) (13,806) -- Proceeds on sale of available-for-sale securities............................ -- 13,724 13,305 Purchases of available-for-sale securities............................ (31,014) (6,000) -- -------- ------- -------- NET CASH FLOW FROM INVESTING ACTIVITIES............................ (79,439) 15,781 (60,454) -------- ------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........................... (39,027) 101,892 30,482 Cash and cash equivalents, beginning of the period............................ 220,327 118,435 87,953 -------- ------- -------- CASH AND CASH EQUIVALENTS, END OF THE PERIOD................................ 181,300 220,327 118,435 ======== ======= ========
The accompanying notes are an integral part of the consolidated financial statements. F-22 129 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS OF U.S. DOLLARS)
ACCUMULATED THOUSANDS OF OTHER COMPREHENSIVE TOTAL COMMON COMMON RETAINED COMPREHENSIVE INCOME STOCKHOLDERS' SHARES STOCK EARNINGS INCOME (LOSS) EQUITY ------------ ------- -------- ------------- ------------- ------------- # $ $ $ $ $ BALANCE AS AT MARCH 31, 1998........... 28,833 261,353 428,102 -- 689,455 ------ ------- ------- ----- --------- Net income............................. 45,406 45,406 45,406 Other comprehensive income............. -- ------- Comprehensive income................... 45,406 ------- Dividends declared..................... (26,611) (26,611) June 15, 1998 share offering (2,800,000 shares at $24.7275 per share of common stock net of share issue costs) (note 9)...................... 2,800 68,700 68,700 Reinvested dividends................... 13 389 389 Exercise of stock options.............. 2 51 51 ------ ------- ------- ----- --------- BALANCE AS AT MARCH 31, 1999........... 31,648 330,493 446,897 -- 777,390 ------ ------- ------- ----- --------- Net income (loss)...................... (19,595) (19,595) (19,595) Other comprehensive income............. -- ------- Comprehensive income (loss)............ (19,595) ------- Dividends declared..................... (23,172) (23,172) June 11, 1999 common stock issued on acquisition of Bona Shipholding Ltd. (note 3)............................. 6,415 97,422 97,422 Reinvested dividends................... 1 22 22 ------ ------- ------- ----- --------- BALANCE AS AT DECEMBER 31, 1999........ 38,064 427,937 404,130 -- 832,067 ------ ------- ------- ----- --------- Net income............................. 270,020 270,020 270,020 Other comprehensive income: Unrealized gain on available-for-sale securities (note 4) 4,555 4,555 4,555 ------- Comprehensive income................... 274,575 ------- Dividends declared..................... (33,001) (33,001) Reinvested dividends................... 1 28 28 Exercise of stock options.............. 1,080 24,843 24,843 ------ ------- ------- ----- --------- BALANCE AS AT DECEMBER 31, 2000........ 39,145 452,808 641,149 4,555 1,098,512 ====== ======= ======= ===== =========
The accompanying notes are an integral part of the consolidated financial statements. F-23 130 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR PER SHARE DATA) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. They include the accounts of Teekay Shipping Corporation ("Teekay"), which is incorporated under the laws of the Republic of the Marshall Islands, and its wholly owned or controlled subsidiaries (the "Company"). Significant intercompany items and transactions have been eliminated upon consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Certain of the comparative figures have been reclassified to conform with the presentation adopted in the current period. REPORTING CURRENCY The consolidated financial statements are stated in U.S. dollars because the Company operates in international shipping markets which utilize the U.S. dollar as the functional currency. CHANGE IN FISCAL YEAR END The Company changed its fiscal year end from March 31 to December 31, effective December 31, 1999. The following is a summary of selected financial information for the comparative twelve month periods ended December 31, 2000, 1999 and 1998.
TWELVE MONTHS TWELVE MONTHS TWELVE MONTHS ENDED ENDED ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 2000 1999 1998 ------------- ------------- ------------- (UNAUDITED) (UNAUDITED) (UNAUDITED) $ $ $ RESULTS OF OPERATIONS Net voyage revenues............................ 644,269 318,348 327,016 Income from vessel operations.................. 327,675 34,189 103,660 Net income (loss) before extraordinary loss.... 270,020 (17,723) 66,451 Net income (loss).............................. 270,020 (17,723) 59,145 Net income (loss) before extraordinary loss per common share -- basic..................................... 7.02 (0.50) 2.19 -- diluted................................... 6.86 (0.50) 2.19 Net income (loss) per common share -- basic..................................... 7.02 (0.50) 1.95 -- diluted................................... 6.86 (0.50) 1.95 CASH FLOWS Net cash flow from operating activities........ 333,255 71,633 151,779 Net cash flow from financing activities........ (292,843) 76,948 (74,407) Net cash flow from investing activities........ (79,439) 5,613 (127,372)
F-24 131 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR PER SHARE DATA) OPERATING REVENUES AND EXPENSES Voyage revenues and expenses are recognized on the percentage of completion method of accounting. Effective December 31, 1999 the Company refined its estimation process from a load-to-load basis to a discharge-to-discharge basis under the percentage of completion method to more precisely reflect net voyage revenues. This refinement in accounting estimate resulted in a one-time increase in net voyage revenues of $5.7 million, or 16 cents per share, for the nine month period ended December 31, 1999. Estimated losses on voyages are provided for in full at the time such losses become evident. The consolidated balance sheets reflect the deferred portion of revenues and expenses applicable to subsequent periods. Voyage expenses comprise all expenses relating to particular voyages, including bunker fuel expenses, port fees, canal tolls, and brokerage commissions. Vessel operating expenses comprise all expenses relating to the operation of vessels, including crewing, repairs and maintenance, insurance, stores, lubes, communications, and miscellaneous expenses. MARKETABLE SECURITIES The Company's investments in marketable securities are classified as available-for-sale securities and are carried at fair value. Net unrealized gains or losses on available-for-sale securities, if material, are reported as a component of other comprehensive income. VESSELS AND EQUIPMENT All pre-delivery costs incurred during the construction of newbuildings, including interest costs and supervision and technical costs, are capitalized. The acquisition cost and all costs incurred to restore used vessel purchases to the standard required to properly service the Company's customers are capitalized. Depreciation is calculated on a straight-line basis over a vessel's useful life from the date a vessel is initially placed in service. Effective April 1, 1999, the Company revised the estimated useful life of its vessels from 20 years to 25 years, consistent with most other public tanker companies. This change in accounting estimate resulted in a reduction of depreciation expense of $22.5 million, or 62 cents per share, for the nine month period ended December 31, 1999. Interest costs capitalized to vessels and equipment for the year ended December 31, 2000, the nine month period ended December 31, 1999 and the year ended March 31, 1999 aggregated $Nil, $1,710,000, and $3,018,000, respectively. Expenditures incurred during drydocking are capitalized and amortized on a straight-line basis over the period until the next anticipated drydocking. When significant drydocking expenditures recur prior to the expiry of this period, the remaining balance of the original drydocking is expensed in the month of the subsequent drydocking. Drydocking expenses amortized for the year ended December 31, 2000, the nine month period ended December 31, 1999 and the year ended March 31, 1999 aggregated $9,208,000, $6,275,000, and $8,583,000, respectively. INVESTMENT IN JOINT VENTURE The Company has a 50% participating interest in the joint venture (Soponata-Teekay Limited) which owns two Suezmax vessels and one Aframax vessel. The joint venture is accounted for using the F-25 132 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR PER SHARE DATA) equity method whereby the investment is carried at the Company's original cost plus its proportionate share of undistributed earnings. INVESTMENT IN THE PANAMAX O/B/O POOL All oil/bulk/ore carriers ("O/B/O") owned by the Company are operated through a Panamax O/B/O Pool. The participants in the Pool are the companies contributing vessel capacity to the Pool. The voyage revenues and expenses of these vessels have been included on a 100% basis in the consolidated financial statements. The minority pool participants' share of the result has been deducted as time charter hire expense. LOAN COSTS Loan costs, including fees, commissions and legal expenses, which are presented as other assets are capitalized and amortized on a straight line basis over the term of the relevant loan. Amortization of loan costs is included in interest expense. INTEREST RATE SWAP AGREEMENTS The differential to be paid or received, pursuant to interest rate swap agreements, is accrued as interest rates change and is recognized as an adjustment to interest expense. Premiums and receipts, if any, are recognized as adjustments to interest expense over the lives of the individual contracts. FORWARD CONTRACTS The Company enters into forward contracts as a hedge against changes in certain foreign exchange rates. Market value gains and losses are deferred and recognized during the period in which the hedged transaction is recorded in the accounts. CASH AND CASH EQUIVALENTS The Company classifies all highly liquid investments with a maturity date of three months or less when purchased as cash and cash equivalents. Cash interest paid during the year ended December 31, 2000, the nine month period ended December 31, 1999 and the year ended March 31, 1999 totaled $77,073,000, $63,086,000, and $48,527,000, respectively. INCOME TAXES The legal jurisdictions of the countries in which Teekay and the majority of its subsidiaries are incorporated do not impose income taxes upon shipping-related activities. The Company's Australian ship-owning subsidiaries are subject to income taxes (see Note 11). The Company accounts for such taxes using the liability method pursuant to Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". ACCOUNTING FOR STOCK-BASED COMPENSATION Under Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation", disclosures of stock-based compensation arrangements with employees are required and companies are encouraged (but not required) to record compensation costs associated with employee stock option awards, based on estimated fair values at the grant dates. The F-26 133 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR PER SHARE DATA) Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in APB Opinion No. 25 ("APB 25") "Accounting for Stock Issued to Employees" and has disclosed the required pro forma effect on net income and earning per share as if the fair value method of accounting as prescribed in SFAS 123 had been applied (see Note 9). COMPREHENSIVE INCOME The Company follows Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income", which establishes standards for reporting and displaying comprehensive income and its components in the consolidated financial statements. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", which establishes new standards for recording derivatives in interim and annual financial statements. This statement requires recording all derivative instruments as assets or liabilities, measured at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending upon the nature of the hedge, changes in the fair value of the derivatives are either offset against the fair value of assets, liabilities or firm commitments through income, or recognized in other comprehensive income until the hedged item is recognized in income. The ineffective portion of a derivative's change in fair value will be immediately recognized in income. Statement No. 133, as amended by FASB Statements No. 137 and No. 138, is effective for fiscal years beginning after June 15, 2000. Based upon the Company's derivative position at December 31, 2000, the Company estimates that upon adoption of Statement No. 133 it will recognize the fair value of all derivatives as assets of $2,252,000 and liabilities of $1,297,000 on its consolidated balance sheet. These amounts will be recorded as an adjustment to stockholders' equity through other comprehensive income. There will be no impact on net income. In addition, a deferred gain of $3,200,000 on the unwound interest rate swap agreements presented as other long-term liabilities at December 31, 2000, will be reclassified to accumulated other comprehensive income and will be recognized into earnings over the hedged term of the debt. 2. BUSINESS OPERATIONS The Company is engaged in the ocean transportation of petroleum cargoes worldwide through the ownership and operation of a fleet of tankers. All of the Company's revenues are earned in international markets. Two customers, both international oil companies, individually accounted for 13% ($118,306,000) and 12% ($110,241,000) of the company's consolidated voyage revenues during the year ended December 31, 2000. During the nine months ended December 31, 1999, a single customer, also an international oil company, accounted for 13% ($48,140,000) of the Company's consolidated voyage revenues. During the year ended March 31, 1999, three customers, all international oil companies, individually accounted for 12% ($51,411,000), 12% ($50,727,000) and 10% ($42,797,000), respectively, of the Company's consolidated voyage revenues. No other customer accounted for more than 10% of the Company's consolidated voyage revenues during the fiscal periods presented herein. F-27 134 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR PER SHARE DATA) 3. ACQUISITION OF BONA SHIPHOLDING LTD. On June 11, 1999, Teekay purchased Bona Shipholding Ltd. ("Bona") for aggregate consideration (including estimated transaction expenses of $19.0 million) of $450.3 million, consisting of $39.9 million in cash, $294.0 million of assumed debt (net of cash acquired of $91.7 million) and the balance of $97.4 million in shares of Teekay's Common Stock. Bona's operating results are reflected in these financial statements commencing the effective date of the acquisition. The following table shows comparative summarized condensed pro forma financial information for the nine month period ended December 31, 1999, and for the year ended March 31, 1999 and gives effect to the acquisition as if it had taken place April 1, 1998:
PRO FORMA --------------------------- NINE MONTHS ENDED YEAR ENDED DECEMBER 31, MARCH 31, 1999 1999 ------------ ----------- (UNAUDITED) (UNAUDITED) $ $ Net voyage revenues......................................... 272,469 463,696 Income from vessel operations............................... 26,127 132,122 Net income (loss) before extraordinary loss................. (22,482) 86,505 Net income (loss)........................................... (22,482) 79,199 Net income (loss) before extraordinary loss per common share -- basic and diluted...................................... (0.59) 2.31 Net income (loss) per common share -- basic and diluted...................................... (0.59) 2.11
4. INVESTMENTS IN MARKETABLE SECURITIES
APPROXIMATE GROSS GROSS MARKET AND UNREALIZED UNREALIZED CARRYING COST GAINS LOSSES VALUES ------ ---------- ---------- ----------- $ $ $ $ DECEMBER 31, 2000 Available-for-sale equity securities............. 17,032 4,577 -- 21,609 Available-for-sale debt securities............... 20,236 8 (30) 20,214 ------ ----- --- ------ 37,268 4,585 (30) 41,823 ====== ===== === ====== DECEMBER 31, 1999 Available-for-sale debt securities............... 6,051 6 (3) 6,054 ====== ===== === ======
F-28 135 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR PER SHARE DATA) The cost and approximate market value of available-for-sale debt securities by contractual maturity, as at December 31, 2000 and December 31, 1999, are shown as follows:
APPROXIMATE MARKET AND CARRYING COST VALUES ------ ----------- $ $ DECEMBER 31, 2000 Less than one year.......................................... 8,081 8,081 Due after one year through five years....................... 12,155 12,133 ------ ------ 20,236 20,214 ====== ====== DECEMBER 31, 1999 Less than one year.......................................... -- -- Due after one year through five years....................... 6,051 6,054 ------ ------ 6,051 6,054 ====== ======
5. ACCRUED LIABILITIES
DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ $ $ Voyage and vessel........................................... 26,461 12,469 Interest.................................................... 9,444 12,619 Payroll and benefits........................................ 8,176 14,427 ------ ------ 44,081 39,515 ====== ======
6. LONG-TERM DEBT
DECEMBER 31, DECEMBER 31, 2000 1999 ------------ ------------ $ $ Revolving Credit Facilities................................. 415,800 634,000 First Preferred Ship Mortgage Notes (8.32%) U.S. dollar debt due through 2008......................... 189,274 225,000 Term Loans U.S. dollar debt due through 2009................ 192,410 226,167 ------- --------- 797,484 1,085,167 Less current portion........................................ 72,170 66,557 ------- --------- 725,314 1,018,610 ======= =========
The Company has two long-term Revolving Credit Facilities (the "Revolvers") available, which, as at December 31, 2000, provided for borrowings of up to $565.8 million. Interest payments are based on LIBOR (December 31, 2000: 6.4%; December 31, 1999: 6.0%) plus a margin depending on the financial leverage of the Company; at December 31, 2000, the margins ranged between 0.50% and 0.85% (December 31, 1999: between 0.60% and 0.90%). The amount available under the Revolvers reduces semi-annually with final balloon reductions in 2006 and 2008. The Revolvers are collateralized F-29 136 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR PER SHARE DATA) by first priority mortgages granted on thirty-four of the Company's vessels, together with certain other related collateral, and a guarantee from the Company for all amounts outstanding under the Revolvers. The 8.32% First Preferred Ship Mortgage Notes due February 1, 2008 (the "8.32% Notes") are collateralized by first preferred mortgages on seven of the Company's Aframax tankers, together with certain other related collateral, and are guaranteed by seven subsidiaries of Teekay that own the mortgaged vessels (the "8.32% Notes Guarantor Subsidiaries") to a maximum of 95% of the fair value of their net assets. As at December 31, 2000, the fair value of these net assets approximated $231.5 million. The 8.32% Notes are also subject to a sinking fund, which will retire $45.0 million principal amount of the 8.32% Notes on each February 1, commencing 2004. During June 2000, the Company repurchased a principal amount of $35.7 million of the 8.32% Notes outstanding. Upon the 8.32% Notes achieving Investment Grade Status (as defined in the Indenture) and subject to certain other conditions, the guarantees of the 8.32% Notes Guarantor Subsidiaries will terminate, all of the collateral securing the obligations of the Company and the 8.32% Notes Guarantor Subsidiaries under the Indenture and the Security Documents (as defined in the Indenture) will be released (whereupon the Notes will become general unsecured obligations of the Company) and certain covenants under the Indenture will no longer be applicable to the Company. Condensed financial information regarding the Company, the 8.32% Notes Guarantor Subsidiaries, and non-guarantor subsidiaries of the Company is set out in Schedule A of these consolidated financial statements. In August 1998, the Company redeemed the remaining $98.7 million of the 9 5/8% First Preferred Ship Mortgage Notes (the "9 5/8% Notes") which resulted in an extraordinary loss of $7.3 million, or 24 cents per share, for the year ended March 31, 1999. The Company has several term loans outstanding, which, as at December 31, 2000, totalled $192.4 million. Interest payments are based on LIBOR plus a margin. At December 31, 2000, the margins ranged between 0.55% and 1.25%. The term loans reduce in quarterly or semi-annual payments with varying maturities through 2009. All term loans of the Company are collateralized by first preferred mortgages on the vessels to which the loans relate, together with certain other collateral, and guarantees from Teekay. As at December 31, 2000, the Company was committed to a series of interest rate swap agreements whereby $100.0 million of the Company's floating rate debt was swapped with fixed rate obligations having an average remaining term of 1.5 years, expiring between December 2001 and December 2002. These arrangements effectively change the Company's interest rate exposure on $100.0 million of debt from a floating LIBOR rate to an average fixed rate of 6.71%. The Company is exposed to credit loss in the event of non-performance by the counter parties to the interest rate swap agreements; however, the Company does not anticipate non-performance by any of the counter parties. Among other matters, the long-term debt agreements generally provide for such items as maintenance of certain vessel market value to loan ratios and minimum consolidated financial covenants, prepayment privileges (in some cases with penalties), and restrictions against the incurrence of additional debt and new investments by the individual subsidiaries without prior lender consent. The amount of Restricted Payments, as defined, that the Company can make, including dividends and purchases of its own capital stock, is limited as of December 31, 2000, to $316.6 million. Certain of the loan agreements require a minimum level of free cash be maintained. As at December 31, 2000, this amount was $26.0 million. F-30 137 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR PER SHARE DATA) The aggregate annual long-term debt principal repayments required to be made for the five fiscal years subsequent to December 31, 2000 are $72,170,000 (2001), $70,017,000 (2002), $112,131,000 (2003), $94,052,000 (2004), and $109,025,000 (2005). 7. LEASES CHARTERS-OUT Time charters to third parties of the Company's vessels are accounted for as operating leases. The minimum future revenues to be received on time charters currently in place are $82,791,000 (2001), $71,993,000 (2002), $53,199,000 (2003), $42,634,000 (2004), $39,035,000 (2005), and $93,028,000 thereafter. The minimum future revenues should not be construed to reflect total charter hire revenues for any of the years. CHARTERS-IN Minimum commitments under vessel operating leases are $32,576,000 (2001), $15,632,000 (2002), $11,755,000 (2003), $6,771,000 (2004) and $1,665,000 (2005). 8. FAIR VALUE OF FINANCIAL INSTRUMENTS Carrying amounts of all financial instruments approximate fair market value except for the following: LONG-TERM DEBT -- The fair values of the Company's fixed rate long-term debt are based on either quoted market prices or estimated using discounted cash flow analyses, based on rates currently available for debt with similar terms and remaining maturities. INTEREST RATE SWAP AGREEMENTS AND FOREIGN EXCHANGE CONTRACTS -- The fair value of interest rate swaps and foreign exchange contracts, used for hedging purposes, is the estimated amount that the Company would receive or pay to terminate the agreements at the reporting date, taking into account current interest rates, the current credit worthiness of the swap counter parties and foreign exchange rates. The estimated fair value of the Company's financial instruments is as follows:
DECEMBER 31, 2000 DECEMBER 31, 1999 ------------------ --------------------- CARRYING FAIR CARRYING FAIR AMOUNT VALUE AMOUNT VALUE -------- ------- --------- --------- $ $ $ $ Cash, cash equivalents and marketable securities.................................... 223,123 223,123 226,381 226,381 Long-term debt.................................. 797,484 789,913 1,085,167 1,060,417 Interest rate swap agreements (note 6).......... -- (1,297) -- 4,488 Foreign currency contracts (note 10)............ -- 2,252 -- (20)
The Company transacts interest rate swap and foreign currency contracts with investment grade rated financial institutions and requires no collateral from these institutions. F-31 138 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR PER SHARE DATA) 9. CAPITAL STOCK The authorized capital stock of the Company at December 31, 2000 is 25,000,000 shares of Preferred Stock with a par value of $1 per share and 725,000,000 shares of Common Stock with a par value of $0.001 per share. At December 31, 2000 the Company had 39,145,219 shares of Common Stock and no shares of Preferred Stock issued and outstanding. The Company's shareholders approved amendments to the Company's 1995 Stock Option Plan (the "Plan") to increase the number of shares of Common Stock reserved and available for future grants of options under the Plan by an additional 1,800,000 shares in September 1998, and 2,350,000 shares in March 2000. As of December 31, 2000, the Company had reserved 4,911,622 shares of Common Stock for issuance upon exercise of options granted pursuant to the Plan. During the year ended December 31, 2000, the nine month period ended December 31, 1999 and the year ended March 31, 1999, the Company granted options under the Plan to acquire up to 889,500, 1,463,500, and 573,000 shares of Common Stock (the "Grants"), respectively, to certain eligible officers, employees (including senior sea staff), and directors of the Company. The options have a 10-year term and had initially vested equally over four years from the date of grant. Effective September 8, 2000, the Company amended the Plan which reduced the vesting period for all subsequent stock option grants from four years to three years. In addition, the Company also accelerated the vesting period for the existing grants by one year. The impact of the accelerated vesting for the existing grants on compensation expense was not material for the year ended December 31, 2000. A summary of the Company's stock option activity, and related information for the year ended December 31, 2000, the nine month period ended December 31, 1999 and the year ended March 31, 1999 is as follows:
DECEMBER 31, 2000 DECEMBER 31, 1999 MARCH 31, 1999 -------------------- -------------------- -------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE OPTIONS EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE (000'S) PRICE (000'S) PRICE (000'S) PRICE ------- --------- ------- --------- ------- --------- # $ # $ # $ Outstanding-beginning of period................. 3,099 22.14 1,729 26.46 1,161 26.66 Granted......................................... 889 23.56 1,464 17.11 573 26.05 Exercised....................................... (1,080) 23.00 -- -- (2) 21.50 Forfeited....................................... (48) 22.77 (94) 21.12 (3) 30.44 ------ ----- ----- Outstanding-end of period....................... 2,860 22.25 3,099 22.14 1,729 26.46 ====== ===== ===== Exercisable at end of period.................... 1,453 23.54 1,019 25.35 731 24.08 ====== ===== ===== Weighted-average fair value of options granted during the period (per option)................ 6.62 3.88 5.93
Exercise prices for the options outstanding as of December 31, 2000 ranged from $16.88 to $33.50. These options have a weighted-average remaining contractual life of 7.83 years. As the exercise price of the Company's employee stock options equals the market price of underlying stock on the date of grant, no compensation expense is recognized under APB 25. F-32 139 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR PER SHARE DATA) Had the Company recognized compensation costs for the Grants consistent with the methods recommended by SFAS 123 (see Note 1 -- Accounting for Stock-Based Compensation), the Company's net income and earnings per share for the year ended December 31, 2000, the nine month period ended December 31, 1999 and the year ended March 31, 1999 would have been stated at the pro forma amounts as follows:
NINE MONTHS YEAR ENDED ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31, 2000 1999 1999 ------------ ------------ ---------- $ $ $ NET INCOME (LOSS): As reported......................................... 270,020 (19,595) 45,406 Pro forma........................................... 264,449 (21,828) 43,715 BASIC EARNINGS (LOSS) PER COMMON SHARE: As reported......................................... 7.02 (0.54) 1.46 Pro forma........................................... 6.87 (0.60) 1.41 DILUTED EARNINGS (LOSS) PER COMMON SHARE: As reported......................................... 6.86 (0.54) 1.46 Pro forma........................................... 6.72 (0.60) 1.41
Basic earnings per share is based upon the following weighted average number of common shares outstanding: 38,468,158 shares for the year ended December 31, 2000; 36,384,191 shares for the nine month period ended December 31, 1999; and 31,063,357 shares for the year ended March 31, 1999. Diluted earnings per share, which gives effect to the aforementioned stock options, is based upon the following weighted average number of common shares outstanding: 39,368,253 shares for the year ended December 31, 2000; 36,405,089 shares for the nine month period ended December 31, 1999; and 31,063,357 shares for the year ended March 31, 1999. The fair values of the Grants were estimated on the dates of grant using the Black-Scholes option-pricing model with the following assumptions: risk-free average interest rates of 6.6% for the year ended December 31, 2000; 5.8% for the nine month period ended December 31, 1999; and 5.4% for the year ended March 31, 1999, respectively; dividend yield of 3.0%; expected volatility of 30% for the year ended December 31, 2000 and 25% for the nine months ended December 31, 1999 and the year ended March 31, 1999; and expected lives of 5 years. 10. COMMITMENTS AND CONTINGENCIES The Company has guaranteed 50% of the outstanding mortgage debt in the joint venture company, Soponata-Teekay Limited, totalling $26.2 million as at December 31, 2000. The Company has guaranteed its share of committed, uncalled capital in certain limited partnerships totalling $1.8 million as at December 31, 2000. As at December 31, 2000, the Company was committed to foreign exchange contracts with maturities ranging from one month to three years for the forward purchase of approximately Japanese Yen 62.0 million, Singapore Dollars 13.9 million, Norwegian Kroner 132.0 million, Euros 5.9 million and Canadian Dollars 52.8 million for U.S. Dollars, at an average rate of Japanese Yen 111.72 per U.S. Dollar, Singapore Dollar 1.72 per U.S. dollar, Norwegian Kroner 9.54 per U.S. Dollar, Euros 1.09 per U.S. Dollar and Canadian Dollars 1.54 per U.S. dollar, respectively, for the purpose of hedging accounts payable, accrued liabilities and certain general and administrative and operating expenses. F-33 140 TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS, OTHER THAN SHARE OR PER SHARE DATA) 11. OTHER INCOME (LOSS)
NINE MONTHS YEAR ENDED ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31, 2000 1999 1999 ------------ ------------ ---------- $ $ $ Gain (loss) on disposition of assets................ (1,004) -- 7,117 Equity income from joint venture.................... 9,546 721 -- Future income taxes................................. (999) (1,500) (1,900) Miscellaneous....................................... (3,679) (3,234) 289 ------ ------ ------ 3,864 (4,013) 5,506 ====== ====== ======
12. CHANGE IN NON-CASH WORKING CAPITAL ITEMS RELATED TO OPERATING ACTIVITIES
NINE MONTHS YEAR ENDED ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, MARCH 31, 2000 1999 1999 ------------ ------------ ---------- $ $ $ Accounts receivable................................. (49,405) (5,462) 1,332 Prepaid expenses and other assets................... 3,443 307 (2,409) Accounts payable.................................... 2,613 (6,571) (4,238) Accrued liabilities................................. 6,673 12,622 598 ------- ------ ------ (36,676) 896 (4,717) ======= ====== ======
13. SUBSEQUENT EVENT As of March 6, 2001, the Company had purchased a 56% interest in Ugland Nordic Shipping ASA ("UNS"), (9% of which was purchased in 2000), for approximately $117 million cash, or an average price of approximately NOK 134 per share. UNS controls a modern fleet of eighteen shuttle tankers (including four newbuildings) that engage in the transportation of oil from offshore production platforms to refineries. Shares of UNS are listed on the Oslo Stock Exchange. The Company will promptly launch a mandatory bid for the remaining shares in UNS at NOK 140 per share (for a total cost of approximately $100 million) as required by Norwegian law. The acquisition of UNS will be accounted for using the purchase method of accounting as required by accounting principles generally accepted in the United States. F-34 141 SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS (IN THOUSANDS OF U.S. DOLLARS)
YEAR ENDED DECEMBER 31, 2000 ----------------------------------------------------------------------------- 8.32% NOTES TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES -------------- ------------ ------------- ------------ -------------- $ $ $ $ $ Net voyage revenues................... -- 35,137 776,291 (167,159) 644,269 Operating expenses.................... 420 25,202 433,578 (142,606) 316,594 ------- ------- ------- -------- ------- (Loss) income from vessel operations........................ (420) 9,935 342,713 (24,553) 327,675 Net interest (expense) income......... (17,373) 46 (44,192) -- (61,519) Equity in net income of subsidiaries........................ 287,127 -- -- (287,127) -- Other income.......................... 686 -- 3,178 -- 3,864 ------- ------- ------- -------- ------- NET INCOME............................ 270,020 9,981 301,699 (311,680) 270,020 Retained earnings (deficit), beginning of the year......................... 404,130 (28,950) 369,370 (340,420) 404,130 Dividends declared.................... (33,001) -- -- -- (33,001) ------- ------- ------- -------- ------- RETAINED EARNINGS (DEFICIT), END OF THE YEAR............................ 641,149 (18,969) 671,069 (652,100) 641,149 ======= ======= ======= ======== =======
NINE MONTHS ENDED DECEMBER 31, 1999 ----------------------------------------------------------------------------- 8.32% NOTES TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES -------------- ------------ ------------- ------------ -------------- $ $ $ $ $ Net voyage revenues................... -- 28,589 349,222 (129,461) 248,350 Operating expenses.................... 493 24,056 310,304 (110,075) 224,778 ------- ------- ------- -------- ------- (Loss) income from vessel operations........................ (493) 4,533 38,918 (19,386) 23,572 Net interest (expense) income......... (14,420) 87 (24,821) -- (39,154) Equity in net (loss) income of subsidiaries........................ (4,682) -- -- 4,682 -- Other (loss) income................... -- -- (4,013) -- (4,013) ------- ------- ------- -------- ------- NET (LOSS) INCOME..................... (19,595) 4,620 10,084 (14,704) (19,595) Retained earnings (deficit), beginning of the period....................... 446,897 (33,570) 359,286 (325,716) 446,897 Dividends declared.................... (23,172) -- -- -- (23,172) ------- ------- ------- -------- ------- RETAINED EARNINGS (DEFICIT), END OF THE PERIOD.......................... 404,130 (28,950) 369,370 (340,420) 404,130 ======= ======= ======= ======== =======
- --------------- (See Note 6) F-35 142 SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS (IN THOUSANDS OF U.S. DOLLARS)
YEAR ENDED MARCH 31, 1999 ----------------------------------------------------------------------------- 8.32% NOTES TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES -------------- ------------ ------------- ------------ -------------- $ $ $ $ $ Net voyage revenues................... -- 37,820 461,394 (180,803) 318,411 Operating expenses.................... 356 37,214 376,010 (180,803) 232,777 ------- ------- ------- -------- ------- (Loss) income from vessel operations........................ (356) 606 85,384 -- 85,634 Net interest (expense) income......... (22,857) 148 (15,719) -- (38,428) Equity in net income of subsidiaries........................ 75,698 -- -- (75,698) -- Other income.......................... 227 -- 30,710 (25,431) 5,506 ------- ------- ------- -------- ------- Net income before extraordinary loss................................ 52,712 754 100,375 (101,129) 52,712 Extraordinary loss on bond redemption.......................... (7,306) -- -- -- (7,306) ------- ------- ------- -------- ------- NET INCOME............................ 45,406 754 100,375 (101,129) 45,406 Retained earnings (deficit), beginning of the year......................... 428,102 (34,324) 258,911 (224,587) 428,102 Dividends declared.................... (26,611) -- -- -- (26,611) ------- ------- ------- -------- ------- RETAINED EARNINGS (DEFICIT), END OF THE YEAR............................ 446,897 (33,570) 359,286 (325,716) 446,897 ======= ======= ======= ======== =======
- --------------- (See Note 6) F-36 143 SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (IN THOUSANDS OF U.S. DOLLARS)
YEAR ENDED DECEMBER 31, 2000 ----------------------------------------------------------------------------- 8.32% NOTES TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES -------------- ------------ ------------- ------------ -------------- $ $ $ $ $ Net income............................ 270,020 9,981 301,699 (311,680) 270,020 Other comprehensive income Unrealized gain on available-for-sale securities..... -- -- 4,555 -- 4,555 ------- ----- ------- -------- ------- COMPREHENSIVE INCOME.................. 270,020 9,981 306,254 (311,680) 274,575 ======= ===== ======= ======== =======
NINE MONTHS ENDED DECEMBER 31, 1999 ----------------------------------------------------------------------------- 8.32% NOTES TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES -------------- ------------ ------------- ------------ -------------- $ $ $ $ $ Net (loss) income..................... (19,595) 4,620 10,084 (14,704) (19,595) Other comprehensive income............ -- -- -- -- -- ------- ----- ------- -------- ------- COMPREHENSIVE (LOSS) INCOME........... (19,595) 4,620 10,084 (14,704) (19,595) ======= ===== ======= ======== =======
YEAR ENDED MARCH 31, 1999 ----------------------------------------------------------------------------- 8.32% NOTES TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES -------------- ------------ ------------- ------------ -------------- $ $ $ $ $ Net income............................ 45,406 754 100,375 (101,129) 45,406 Other comprehensive income............ -- -- -- -- -- ------- ----- ------- -------- ------- COMPREHENSIVE INCOME.................. 45,406 754 100,375 (101,129) 45,406 ======= ===== ======= ======== =======
- --------------- (See Note 6) F-37 144 SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONDENSED BALANCE SHEETS (IN THOUSANDS OF U.S. DOLLARS)
AS AT DECEMBER 31, 2000 ----------------------------------------------------------------------------- 8.32% NOTES TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES -------------- ------------ ------------- ------------ -------------- $ $ $ $ $ ASSETS Cash and cash equivalents............. 294 -- 181,006 -- 181,300 Other current assets.................. 45 725 209,425 (96,000) 114,195 --------- ------- --------- ---------- --------- Total current assets................ 339 725 390,431 (96,000) 295,495 Vessels and equipment (net)........... -- 281,377 1,326,339 -- 1,607,716 Advances due from subsidiaries........ 58,068 -- -- (58,068) -- Other assets (principally marketable securities and investments in subsidiaries)....................... 1,229,756 -- 50,414 (1,229,756) 50,414 Investment in joint venture........... -- -- 20,474 -- 20,474 --------- ------- --------- ---------- --------- 1,288,163 282,102 1,787,658 (1,383,824) 1,974,099 ========= ======= ========= ========== ========= LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities................... 4,932 1,371 228,032 (96,000) 138,335 Long-term debt........................ 189,274 -- 543,408 -- 732,682 Due to (from) affiliates.............. -- (69,630) 193,315 (123,685) -- --------- ------- --------- ---------- --------- Total liabilities................... 194,206 (68,259) 964,755 (219,685) 871,017 --------- ------- --------- ---------- --------- Minority Interest..................... -- -- 4,570 -- 4,570 Stockholders' Equity Capital stock......................... 452,808 23 5,943 (5,966) 452,808 Contributed capital................... -- 369,307 136,766 (506,073) -- Retained earnings (deficit)........... 641,149 (18,969) 671,069 (652,100) 641,149 Accumulated other comprehensive income.............................. -- -- 4,555 -- 4,555 --------- ------- --------- ---------- --------- Total stockholders' equity.......... 1,093,957 350,361 818,333 (1,164,139) 1,098,512 --------- ------- --------- ---------- --------- 1,288,163 282,102 1,787,658 (1,383,824) 1,974,099 ========= ======= ========= ========== =========
- --------------- (See Note 6) F-38 145 SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONDENSED BALANCE SHEETS (IN THOUSANDS OF U.S. DOLLARS)
AS AT DECEMBER 31, 1999 ----------------------------------------------------------------------------- 8.32% NOTES TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES -------------- ------------ ------------- ------------ -------------- $ $ $ $ $ ASSETS Cash and cash equivalents............. 210 39,652 180,465 -- 220,327 Other current assets.................. 42 582 162,084 (102,376) 60,332 --------- ------- --------- ---------- --------- Total current assets................ 252 40,234 342,549 (102,376) 280,659 Vessels and equipment (net)........... -- 294,800 1,368,717 -- 1,663,517 Advances due from subsidiaries........ 121,415 -- -- (121,415) -- Other assets (principally marketable securities and investments in subsidiaries)....................... 943,389 -- 19,111 (943,394) 19,106 Investment in joint venture........... -- -- 19,402 -- 19,402 --------- ------- --------- ---------- --------- 1,065,056 335,034 1,749,779 (1,167,185) 1,982,684 ========= ======= ========= ========== ========= LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities................... 7,989 991 227,331 (109,808) 126,503 Long-term debt........................ 225,000 -- 797,010 -- 1,022,010 Due to (from) affiliates.............. -- (6,337) 211,255 (204,918) -- --------- ------- --------- ---------- --------- Total liabilities................... 232,989 (5,346) 1,235,596 (314,726) 1,148,513 --------- ------- --------- ---------- --------- Minority Interest..................... -- -- 2,104 -- 2,104 Stockholders' Equity Capital stock......................... 427,937 23 5,943 (5,966) 427,937 Contributed capital................... -- 369,307 136,766 (506,073) -- Retained earnings (deficit)........... 404,130 (28,950) 369,370 (340,420) 404,130 Accumulated other comprehensive income.............................. -- -- -- -- -- --------- ------- --------- ---------- --------- Total stockholders' equity.......... 832,067 340,380 512,079 (852,459) 832,067 --------- ------- --------- ---------- --------- 1,065,056 335,034 1,749,779 (1,167,185) 1,982,684 ========= ======= ========= ========== =========
- --------------- (See Note 6) F-39 146 SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF U.S. DOLLARS)
YEAR ENDED DECEMBER 31, 2000 ----------------------------------------------------------------------------- 8.32% NOTES TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES -------------- ------------ ------------- ------------ -------------- $ $ $ $ $ Cash and cash equivalents provided by (used for).......................... -------- ------- -------- ------- -------- OPERATING ACTIVITIES Net cash flow from operating activities........................ (19,407) 25,048 327,614 333,255 -------- ------- -------- ------- -------- FINANCING ACTIVITIES Proceeds from long-term debt.......... -- -- 206,000 206,000 Repayments of long-term debt.......... -- -- (63,757) (63,757) Prepayments of long-term debt......... (35,726) -- (394,200) (429,926) Other................................. 55,217 (63,293) 2,916 (5,160) -------- ------- -------- ------- -------- Net cash flow from financing activities........................ 19,491 (63,293) (249,041) (292,843) -------- ------- -------- ------- -------- INVESTING ACTIVITIES Expenditures for vessels and equipment........................... -- (1,407) (54,046) (55,453) Proceeds from disposition of assets... -- -- 9,713 9,713 Acquisition costs related to purchase of Bona Shipholding Ltd............. -- -- (2,685) (2,685) Other................................. -- -- (31,014) (31,014) -------- ------- -------- ------- -------- Net cash flow from investing activities........................ -- (1,407) (78,032) (79,439) -------- ------- -------- ------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................... 84 (39,652) 541 (39,027) Cash and cash equivalents, beginning of the year......................... 210 39,652 180,465 220,327 -------- ------- -------- ------- -------- CASH AND CASH EQUIVALENTS, END OF THE YEAR................................ 294 -- 181,006 181,300 ======== ======= ======== ======= ========
- --------------- (See Note 6) F-40 147 SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF U.S. DOLLARS)
NINE MONTHS ENDED DECEMBER 31, 1999 ----------------------------------------------------------------------------- 8.32% NOTES TEEKAY TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP. SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES -------------- ------------ ------------- ------------ -------------- $ $ $ $ $ Cash and cash equivalents provided by (used for).......................... -------- ------- -------- ------- -------- OPERATING ACTIVITIES Net cash flow from operating activities........................ (9,844) 16,674 44,683 51,513 -------- ------- -------- ------- -------- FINANCING ACTIVITIES Proceeds from long-term debt.......... -- -- 100,000 100,000 Prepayments of long-term debt......... -- -- (10,000) (10,000) Repayments of long-term debt.......... -- -- (32,252) (32,252) Other................................. 49,933 (10,327) (62,756) (23,150) -------- ------- -------- ------- -------- Net cash flow from financing activities........................ 49,933 (10,327) (5,008) 34,598 -------- ------- -------- ------- -------- INVESTING ACTIVITIES Expenditures for vessels and equipment........................... -- (8) (29,903) (29,911) Net cash flow from purchase of Bona Shipholding Ltd. (net of cash acquired of $91,658)... (39,884) -- -- (39,884) Other................................. -- -- 85,576 85,576 -------- ------- -------- ------- -------- Net cash flow from investing activities........................ (39,884) (8) 55,673 15,781 -------- ------- -------- ------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................... 205 6,339 95,348 101,892 Cash and cash equivalents, beginning of the period....................... 5 33,313 85,117 118,435 -------- ------- -------- ------- -------- CASH AND CASH EQUIVALENTS, END OF THE PERIOD.............................. 210 39,652 180,465 220,327 ======== ======= ======== ======= ========
- --------------- (See Note 6) F-41 148 SCHEDULE A TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES CONDENSED STATEMENTS OF CASH FLOWS (IN THOUSANDS OF U.S. DOLLARS)
YEAR ENDED MARCH 31, 1999 ----------------------------------------------------------------------------- 8.32% TEEKAY NOTES TEEKAY SHIPPING GUARANTOR NON-GUARANTOR SHIPPING CORP. CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES -------------- ------------ ------------- ------------ -------------- $ $ $ $ $ Cash and cash equivalents provided by (used for).......................... -------- ------- -------- ------- -------- OPERATING ACTIVITIES Net cash flow from operating activities........................ (24,829) 21,261 141,276 137,708 -------- ------- -------- ------- -------- FINANCING ACTIVITIES Proceeds from long-term debt.......... -- -- 230,000 230,000 Prepayments of long-term debt......... (108,034) -- (160,000) (268,034) Repayments of long-term debt.......... (20,645) -- (29,932) (50,577) Net proceeds from issuance of Common Stock............................... 68,751 -- -- 68,751 Other................................. 84,740 3,252 (114,904) (26,912) -------- ------- -------- ------- -------- Net cash flow from financing activities........................ 24,812 3,252 (74,836) (46,772) -------- ------- -------- ------- -------- INVESTING ACTIVITIES Expenditures for vessels and equipment........................... -- (1,887) (95,307) (97,194) Other................................. -- -- 36,740 36,740 -------- ------- -------- ------- -------- Net cash flow from investing activities........................ -- (1,887) (58,567) (60,454) -------- ------- -------- ------- -------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......................... (17) 22,626 7,873 30,482 Cash and cash equivalents, beginning of the year......................... 22 10,687 77,244 87,953 -------- ------- -------- ------- -------- CASH AND CASH EQUIVALENTS, END OF THE YEAR................................ 5 33,313 85,117 118,435 ======== ======= ======== ======= ========
- --------------- (See Note 6) F-42 149 UGLAND NORDIC SHIPPING GROUP PROFIT AND LOSS ACCOUNT (ALL FIGURES ARE EXPRESSED IN NOK IN MILLIONS)
THREE MONTHS ENDED MARCH 31, --------------- 2001 2000 ----- ------ (UNAUDITED) Operating income............................................ 226.0 148.9 Operating expenses.......................................... (69.5) (47.4) Administrative expenses..................................... (7.3) (4.9) ----- ------ Result before depreciation.................................. 149.2 96.6 ----- ------ Docking expenses............................................ (7.1) (5.8) Ordinary depreciation....................................... (41.8) (33.3) ----- ------ OPERATING PROFIT............................................ 100.3 57.5 ----- ------ Interest income............................................. 2.7 1.4 Currency gain/(loss) realised............................... 9.8 6.7 Other financial income...................................... 40.8 6.0 Interest expenses........................................... (49.5) (41.0) Other financial expenses.................................... (11.8) (0.5) Net financial items......................................... (8.0) (27.4) ----- ------ Profit before unrealised currency items..................... 92.3 30.1 ----- ------ Unrealised currency items................................... (85.1) (123.1) ----- ------ RESULT BEFORE TAX AND MINORITY INTERESTS.................... 7.2 (93.0) ----- ------ Tax......................................................... 0.0 0.0 ----- ------ RESULT BEFORE MINORITY INTERESTS............................ 7.2 (93.0) ----- ------ Minority interests.......................................... (11.0) 5.6 ----- ------ RESULT...................................................... (3.8) (87.4) ===== ======
BALANCE SHEET (ALL FIGURES ARE EXPRESSED IN NOK IN MILLIONS)
AS AT AS AT MARCH 31, DECEMBER 31, 2001 2000 --------- ------------ (UNAUDITED) ASSETS Ships....................................................... 3,419.8 3,404.5 Other fixed assets.......................................... 212.8 207.7 Other current assets........................................ 85.1 12.7 Bank deposits............................................... 281.9 282.3 ------- ------- TOTAL ASSETS................................................ 3,999.6 3,907.2 ======= ======= EQUITY AND LIABILITIES Equity (incl. 14,169,772 shares @ NOK 5).................... 829.7 815.4 Minority interests.......................................... 64.3 53.4 Long-term Debt.............................................. 3,052.2 2,977.1 Current liabilities......................................... 53.4 61.3 ------- ------- TOTAL LIABILITIES AND EQUITY................................ 3,999.6 3,907.2 ======= =======
F-43 150 Deloitte & Touche Statsautoriserte revisorer Radhusgt, 1 N-3201 Tonsberg Tel: 33 00 39 00 Fax: 33 00 39 01 www.deloitte.no / ww.deloitte- legal.no (Deloitte & Touche LOGO) Translation from the original Norwegian version To the Annual Shareholders' Meeting of Ugland Nordic Shipping ASA AUDITOR'S REPORT FOR 2000 We have audited the annual financial statements of Ugland Nordic Shipping ASA as of 31 December 2000, showing a profit of NOK 28.373.000 for the parent company and a profit of NOK 41.320.000 for the group. We have also audited the information in the Board of Directors' report concerning the financial statements, the going concern assumption, and the proposal for the allocation of the profit. The financial statements comprise the balance sheet, the statements of income and cash flows, the accompanying notes and the group accounts. These financial statements are the responsibility of the Company's Board of Directors and Managing Director. Our responsibility is to express an opinion on these financial statements and on the other information according to the requirements of the Norwegian Act on Auditing and Auditors. We conducted our audit in accordance with the Norwegian Act on Auditing and Auditors and generally accepted auditing standards in Norway. Generally accepted auditing standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. To the extent required by law and generally accepted auditing standards, an audit also comprises a review of the management of the Company's financial affairs and its accounting and internal control systems. We believe that our audit provides a reasonable basis for our opinion. In our opinion, - the financial statements are prepared in accordance with the law and regulations and present the financial position of the Company and of the Group as of 31. December 2000, and the results of its operations and its cash flows for the year then ended, in accordance with generally accepted accounting principles in Norway. - the Company's management has fulfilled its duty to maintain the Company's accounting process in such a proper and well-arranged manner that the accounting process is in accordance with the law and generally accepted accounting practices. - the information in the Board of Directors' report concerning the financial statements, the going concern assumption, and the proposal for the allocation of the profit is consistent with the financial statements and complies with the law and regulations. Tonsberg, 28, March 2001 DELOITTE & TOUCHE Alf-Anton Eid (signed) State Authorised Public Accountant (Norway) (Deloitte & Touche LOGO) Bergen Floro Forde Haugesund Knarvik Kristiansand Levanger Lyngdal Oslo Skien Sogndal Stavanger Steinkjer Trondheim Tonsberg Orsta Medlemmer av Den Norske Revisorforening org.nr: 980 211 282
F-44 151 Deloitte & Touche Statsautoriserte revisorer Radhusgt, 1 N-3201 Tonsberg Tel: 33 00 39 00 Fax: 33 00 39 01 www.deloitte.no / ww.deloitte- legal.no (Deloitte & Touche LOGO) Translation from the original Norwegian version To the Annual Shareholders' Meeting of Ugland Nordic Shipping ASA AUDITOR'S REPORT FOR 1999 We have audited the annual financial statements of Ugland Nordic Shipping ASA as of 31 December 1999, showing a profit of NOK 32.297.000 for the parent company and a profit of NOK 1.468.000 for the group. We have also audited the information in the Board of Directors' report concerning the financial statements, the going concern assumption, and the proposal for the allocation of the profit. The financial statements comprise the balance sheet, the statements of income and cash flows, the accompanying notes and the group accounts. These financial statements are the responsibility of the Company's Board of Directors and Managing Director. Our responsibility is to express an opinion on these financial statements and on the other information according to the requirements of the Norwegian Act on Auditing and Auditors. We conducted our audit in accordance with the Norwegian Act on Auditing and Auditors and generally accepted auditing standards in Norway. Generally accepted auditing standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. To the extent required by law and generally accepted auditing standards, an audit also comprises a review of the management of the Company's financial affairs and its accounting and internal control systems. We believe that our audit provides a reasonable basis for our opinion. In our opinion, - the financial statements are prepared in accordance with the law and regulations and present the financial position of the Company and of the Group as of 31. December 1999, and the results of its operations and its cash flows for the year then ended, in accordance with generally accepted accounting principles in Norway. - the Company's management has fulfilled its duty to maintain the Company's accounting process in such a proper and well-arranged manner that the accounting process is in accordance with the law and generally accepted accounting practices. - the information in the Board of Directors' report concerning the financial statements, the going concern assumption, and the proposal for the allocation of the profit is consistent with the financial statements and complies with the law and regulations. Tonsberg, 7, April 2000 DELOITTE & TOUCHE Alf-Anton Eid (signed) State Authorised Public Accountant (Norway) (Deloitte & Touche LOGO) Bergen Floro Forde Haugesund Knarvik Kristiansand Levanger Lyngdal Oslo Skien Sogndal Stavanger Steinkjer Trondheim Tonsberg Orsta Medlemmer av Den Norske Revisorforening org.nr: 980 211 282
F-45 152 UGLAND NORDIC SHIPPING GROUP PROFIT & LOSS ACCOUNT (ALL FIGURES IN NOK '000)
UGLAND NORDIC UGLAND NORDIC SHIPPING ASA SHIPPING GROUP ----------------- ------------------- 1999 2000 NOTE 2000 1999 ------- ------- ----- -------- -------- 4,522 6,271 OPERATING INCOME............................................ 11/18 817,055 601,955 ------- ------- -------- -------- OPERATING COSTS/DEPRECIATION 0 0 Operating costs vessels..................................... (238,520) (201,554) 0 0 Docking costs............................................... 2 (24,439) (25,717) (11,933) (14,311) Payroll expense............................................. 3 (14,311) (11,933) (7,489) (10,545) Other administrative expense................................ 2/3 (12,252) (9,313) (554) (624) Ordinary depreciation....................................... 2 (134,714) (117,103) ------- ------- -------- -------- (19,976) (25,480) Sum operating costs......................................... (424,236) (365,620) ------- ------- -------- -------- (15,454) (19,209) OPERATING PROFIT............................................ 392,819 236,335 ------- ------- -------- -------- FINANCIAL INCOME/FINANCIAL COSTS 36,759 33,531 Interest income............................................. 7 21,537 16,262 (4,787) (6,624) Exchange gains/losses....................................... (34,113) 2,195 63,416 68,911 Other financial income 7 65,343 21,614 (30,324) (17,288) Interest expense............................................ 7/14 (193,733) (136,867) (307) (704) Other financial costs....................................... (1,475) (849) (10,055) (18,630) Unrealised currency loss.................................... (197,448) (120,722) ------- ------- -------- -------- 54,702 59,196 NET FINANCIAL COSTS......................................... (339,889) (218,367) ------- ------- -------- -------- 39,248 39,987 PROFIT (LOSS) BEFORE TAXES AND MINORITY INTEREST............ 52,930 17,968 ------- ------- -------- -------- (6,951) (11,614) Taxes....................................................... 16 (11,610) (16,500) ------- ------- -------- -------- 32,297 28,373 PROFIT (LOSS) FOR THE YEAR.................................. 41,320 1,468 ======= ======= ======== ======== 0 0 Minority interest........................................... (30,438) 368 ------- ------- -------- -------- 32,297 28,373 PROFIT (LOSS) FOR THE YEAR AFTER MINORITY INTEREST.......... 10,882 1,836 ======= ======= ======== ======== Result and diluted result per share......................... 10 0.89 0.17 (25,130) 2,242 Proposed dividend...........................................
F-46 153 UGLAND NORDIC SHIPPING GROUP BALANCE SHEET AS AT 31.12 ASSETS (ALL FIGURES IN NOK '000)
UGLAND NORDIC UGLAND NORDIC SHIPPING ASA SHIPPING GROUP ------------------- --------------------- 1999 2000 NOTE 2000 1999 ------- --------- ---- --------- --------- FIXED ASSETS INTANGIBLE FIXED ASSETS 22,001 12,623 Deferred tax assets......................................... 16 12,905 22,213 ------- --------- --------- --------- 22,001 12,623 TOTAL INTANGIBLE FIXED ASSETS............................... 12,905 22,213 ------- --------- --------- --------- TANGIBLE FIXED ASSETS 0 0 Vessels..................................................... 2/8/13 3,404,550 2,583,050 2,706 2,333 Fixtures and fittings, office machinery, etc................ 2 2,333 2,706 ------- --------- --------- --------- 2,706 2,333 TOTAL TANGIBLE FIXED ASSETS................................. 3,406,883 2,585,756 ------- --------- --------- --------- FINANCIAL FIXED ASSETS 259,822 380,561 Investment in subsidiaries.................................. 4 0 0 392,319 507,875 Loans to group companies.................................... 6 0 0 0 14,320 Investments in associates................................... 4 13,912 64,865 205,604 177,083 Investments in shares and parts of companies................ 5/13 177,305 205,741 299 1,194 Other receivables........................................... 1 194 299 ------- --------- --------- --------- 858,044 1,081,033 TOTAL FINANCIAL FIXED ASSETS................................ 192,411 270,905 ------- --------- --------- --------- 882,751 1,095,989 TOTAL FIXED ASSETS.......................................... 3,612,199 2,878,874 ------- --------- --------- --------- CURRENT ASSETS DEBTORS 8,232 52 Other debtors............................................... 11,162 17,049 ------- --------- --------- --------- 8,232 52 TOTAL DEBTORS............................................... 11,162 17,049 ------- --------- --------- --------- INVESTMENTS 2,424 1,542 Marketable securities....................................... 5 1,542 2,424 ------- --------- --------- --------- 2,424 1,542 TOTAL INVESTMENTS........................................... 1,542 2,424 ------- --------- --------- --------- 36,412 137,202 Bank deposits, cash in hand, etc............................ 13 282,288 176,374 ------- --------- --------- --------- 47,068 138,796 TOTAL CURRENT ASSETS........................................ 294,992 195,847 ------- --------- --------- --------- 929,819 1,234,785 TOTAL ASSETS................................................ 3,907,191 3,074,721 ======= ========= ========= =========
F-47 154 UGLAND NORDIC SHIPPING GROUP BALANCE SHEET AS AT 31.12 EQUITY AND LIABILITIES (ALL FIGURES IN NOK '000)
UGLAND NORDIC UGLAND NORDIC SHIPPING ASA SHIPPING GROUP ------------------- --------------------- 1999 2000 NOTE 2000 1999 ------- --------- ------- --------- --------- EQUITY PAID-IN CAPITAL 54,630 69,549 Share capital (13,909,772 shares @ NOK 5).................. 9/12/17 69,549 54,630 446,369 669,273 Share premium reserve...................................... 12 669,273 420,369 ------- --------- --------- --------- 500,999 738,822 TOTAL PAID-IN CAPITAL...................................... 738,822 474,999 ------- --------- --------- --------- RETAINED EARNINGS 136,475 162,605 Other equity............................................... 12 76,616 92,893 ------- --------- --------- --------- 136,475 162,605 TOTAL RETAINED EARNINGS.................................... 76,616 92,893 ------- --------- --------- --------- 637,474 901,427 TOTAL EQUITY BEFORE MINORITIES............................. 815,438 567,892 ------- --------- --------- --------- 0 0 Minority interest.......................................... 53,375 (1,719) ------- --------- --------- --------- 637,474 901,427 TOTAL EQUITY............................................... 868,813 566,173 ------- --------- --------- --------- LIABILITIES OTHER LONG-TERM LIABILITIES 195,858 250,188 Liabilities to financial institutions...................... 13/14 2,977,118 2,435,756 64,526 76,054 Loans to subsidiaries...................................... 6 0 0 ------- --------- --------- --------- 260,384 326,242 TOTAL OTHER LONG-TERM LIABILITIES.......................... 2,977,118 2,435,756 ------- --------- --------- --------- CURRENT LIABILITIES 3,747 3,033 Accounts payable........................................... 0 3,746 0 0 Taxes payable.............................................. 3,530 3,528 3,084 4,042 Public duties payable...................................... 4,041 3,084 25,130 0 Dividends.................................................. 0 25,130 0 41 Other short-term liabilities............................... 53,689 37,304 ------- --------- --------- --------- 31,961 7,116 TOTAL CURRENT LIABILITIES.................................. 61,260 72,792 ------- --------- --------- --------- 292,345 333,358 TOTAL LIABILITIES.......................................... 3,038,378 2,508,548 ------- --------- --------- --------- 929,819 1,234,785 TOTAL EQUITY AND LIABILITIES............................... 3,907,191 3,074,721 ======= ========= ========= =========
F-48 155 UGLAND NORDIC SHIPPING GROUP CASH FLOW ANALYSIS (ALL FIGURES IN NOK '000)
UGLAND NORDIC UGLAND NORDIC SHIPPING ASA SHIPPING GROUP ------------------ --------------------- 1999 2000 2000 1999 ------- -------- ---------- -------- CASH FLOW FROM OPERATING ACTIVITIES 39,248 39,987 Operating income before tax................................. 52,930 17,968 554 624 Ordinary depreciation....................................... 134,714 117,103 (25) 0 Profit from sale of non-current assets...................... (76,895) (29,714) 0 0 Result from associated companies............................ (222) (14,521) 9,340 8,465 Change in trade receivables/payables........................ 20,621 1,903 ------- -------- ---------- -------- 49,117 49,076 NET CASH PROVIDED BY OPERATING ACTIVITIES................... 131,148 92,739 ------- -------- ---------- -------- CASH FLOW FROM INVESTING ACTIVITIES 318 0 Proceeds from sale of fixed assets.......................... 154,100 234,578 (1,652) (1,146) Purchase of fixed assets.................................... (1,034,060) (698,545) 0 (14,320) Investment in related companies............................. 75,831 0 0 0 Payments from related companies............................. 0 1,417 (1,888) (120,739) Investments in subsidiaries................................. 0 0 (25,960) 29,403 Purchase of shares and parts in other companies............. 29,318 (25,892) ------- -------- ---------- -------- (29,182) (106,802) NET CASH PROVIDED BY INVESTING ACTIVITIES................... (774,811) (488,442) ------- -------- ---------- -------- CASH FLOW FROM FINANCING ACTIVITIES 0 70,913 Proceeds from long-term borrowings.......................... 842,971 569,483 (83,380) (16,583) Repayment of long-term borrowings........................... (301,609) (279,769) 81,888 (104,029) Payment on long-term account receivable (payable)........... 0 (35,523) 0 235,587 Proceeds from issue of shares............................... 235,587 0 (21,851) (27,372) Dividends paid.............................................. (27,372) (21,851) ------- -------- ---------- -------- (23,343) 158,516 NET CASH PROVIDED FROM FINANCING ACTIVITIES................. 749,577 232,340 ------- -------- ---------- -------- (3,408) 100,790 Net change in cash and cash equivalents..................... 105,914 (163,363) 15,552 36,412 Cash and cash equivalents at beginning of year.............. 176,374 339,737 ------- -------- ---------- -------- 12,144 137,202 CASH AND CASH EQUIVALENTS AT END OF YEAR.................... 282,288 176,374 ======= ======== ========== ========
F-49 156 NOTE 1: ACCOUNTING PRINCIPLES The annual accounts are showing the 2000 Profit and Loss Account and Balance Sheet of the holding company Ugland Nordic Shipping ASA and the Ugland Nordic Shipping Group. During 2000 merger have taken place within the Group. Profit and Loss Account and Balance Sheet for 1999 have been restated for comparative purposes. The financial statements are prepared in accordance with The Norwegian Accounting Act of 1998. The accounting principles are described below. All figures are stated in NOK 1,000. Exact figures or figures in a different currency are specially commented. CONSOLIDATION The consolidated accounts cover Ugland Nordic Shipping ASA and subsidiaries where Ugland Nordic Shipping ASA either directly or indirectly owns more than 50% of the shares. Identical accounting principles have been applied to all accounts within the Group. When consolidating the subsidiaries, the holding company's shares in subsidiaries have been replaced by these companies' assets and liabilities. All values in excess of the booked equity in subsidiaries have been allocated to those assets (vessels) to which the added value relates. The added value of the vessels is depreciated over the economical life of the vessel. All significant transactions and inter-company balances within the Group have been eliminated. Investments in companies where the group owns between 20% and 50% of the voting capital, or where it has a controlling influence (related companies), has been consolidated according to the equity method in the consolidated accounts. The result from these companies is treated as operating income in the consolidated Group accounts. Ownership in jointly controlled companies has been entered according to the gross method in the consolidated accounts. The gross method means that incomes, expenses, assets and liabilities are included in the accounts pro rata according to the percentage owned by the Group. The figures are specified per main section in the notes to the accounts. Figures for foreign subsidiaries have been converted at rates prevailing at the date of the Balance Sheet, average rates, however, have been utilized for the profit and loss account. MAIN RULE FOR VALUATION AND CLASSIFICATION OF ASSETS AND LIABILITIES Assets meant for permanent ownership or use in the business are classified as fixed assets. Other assets are classified as current assets. Accounts receivable, which fall due for payment within one year are classified as current assets. The classification of current and long-term liabilities is based on the corresponding criteria. Some items are valued by other principles. These are mentioned below. OWNED ITEMS THAT ARE DEPRECIATED Fixed assets with a limited lifespan are being depreciated on a linear basis. Newbuildings purchased after 1997 have an expected lifespan of 25 years. Vessels acquired earlier than this has an expected lifespan of 23 years. In both cases an expected residual value has been taken into account. Vessels are written down to their fair market value if the vessel's future discounted cash flow is lower than its book value, however, a write-down will be reversed if the basis for it is no longer present. DOCKING EXPENSES Costs related to dry-docking are capitalised as docking costs and depreciated on a linear basis up to the next expected dry-docking. For newbuildings, a part of the purchase price is redefined and capitalised as docking costs. If a vessel is sold, the capitalised docking expenses are booked as part of the gain or loss. F-50 157 REVENUE RECOGNITION Income and expenses related to the voyages are accrued on the basis of the number of days that the voyage lasted in the fiscal period. A voyage is defined as the period from the last discharge until discharge at the next port of call. FOREIGN CURRENCY Monetary items denominated in a foreign currency are translated to the exchange rate on the Balance Sheet day (USD 1 = NOK 8.85). Currency gains or losses are booked as a financial item in the Profit and Loss account. INTEREST SWAPS AND CURRENCY EXCHANGE FUTURES Effects on the result that are related to interest swaps are recorded over the period of the contract. Currency exchange futures are valued at the market value on the date of the Balance Sheet. CAPITALISED INTEREST EXPENSES Interests associated with newbuildings under construction are capitalised as a part of the cost price. SHARES IN SUBSIDIARIES, JOINTLY CONTROLLED ACTIVITIES AND ASSOCIATES Investments in subsidiaries, jointly controlled activities and associates are valued at cost. OTHER LONG-TERM INVESTMENTS IN SHARES Other long-term investments in shares and minor investments in general and limited partnerships, where the company does not hold substantial influence, are carried at cost. These investments will be written down if a permanent deterioration in the value should occur. Dividends received and other surplus distributions from these companies are entered as financial income. INVESTMENT IN SHARES Listed shares, which form part of a trading portfolio, are valued at market value on the Balance Sheet day. Other shares are valued at the lower of average cost and market price on the Balance Sheet day. BANK DEPOSITS, CASH IN HAND, ETC. Bank deposits, cash in hand, etc., includes cash, bank deposits and other monetary instruments with a maturity of less than three months at the date of purchase. DEBTORS Trade debtors and other debtors are carried at face value less provisions for expected loss. Provisions for bad debts are made after evaluation of the individual claim. PENSIONS The basis for recording pension liabilities is estimated salary level upon retirement and years of service. Deviations from estimates and effects of changes in assumptions are amortised over expected remaining years of service if exceeding 10% of the greater of pension liabilities and pension funds (corridor). Changes in the plan are distributed over the remaining years of service. The numbers include social security tax. F-51 158 NEWBUILDING CONTRACTS Payments made according to contract as well as interest and running expenses during the construction are capitalised. Costs, subtracted possible incomes, during the period where the vessel is positioned in order to commence a long-term contract are capitalised as a part of the cost price. TAXES Tax expenses are matched with operating income before tax. Tax associated with equity transactions, e.g. Group contribution, is posted directly to equity. Tax related to recognised share of net income from Norwegian subsidiaries or associated companies is not accounted for, due to the special Norwegian tax legislation for adjusting tax values (RISK). The tax expense comprises of taxes payable (tax on this year's direct taxable income) and change in net deferred tax. For the part of the Group's companies that have activities outside the Norwegian tax regime for shipping companies, deferred tax liabilities/assets are calculated as 28% of the temporary timing differences and tax losses carried forward. Temporary timing differences that reverse or may reverse during the same period are offset and reported net. Net deferred tax assets considered recoverable on the basis of future earnings are reported in the Balance Sheet as intangible fixed assets. The company's main activities are taxed within the special taxation scheme for shipowning companies, which means that profits are not taxed at the time earned. Taxation is based upon net financial income and dividends paid from untaxed equity. The taxation scheme is providing for a tax credit. The basis for this is that earnings should be used for reinvestment in shipping activities and that all dividend payments in the foreseeable future are to be paid from already taxed profits. If the company was to leave the taxation scheme the company would be taxed after an income valuation based on the actual value of the assets. If the market value of the assets is equal to the book value at that time, untaxed capital at the time of exit will be taxed. Values in excess of the book values will increase the taxable income. The present value of deferred tax relating to the temporary timing differences at companies covered by the special tax scheme for shipowning companies is considered immaterial as the company does not expect the taxable income that these differences represent to materialise within the foreseeable future. The assessment is based on the company's dividend policy, liquidity reserve and the distributable taxed equity in those parts of the Group not covered by the new tax scheme and the company's intention to continue its shipping activities. CASH FLOW The cash flow statement has been prepared using the indirect method. The cash and cash equivalent figures excludes shares and financial instruments with a maturity of more than three months from the date of acquisition. NOTE 2: FIXED ASSETS
VARIOUS UNS ASA OPERATING ASSETS - ------- ---------------- Acquisition cost as at 01.01.2000........................... 4,568 Additions................................................... 272 Disposals................................................... 0 --------- ACQUISITION COST AS AT 31.12.2000........................... 4,840 ========= Accumulated depreciation as at 31.12.2000................... 2,507 --------- BOOK VALUE AS AT 31.12.2000................................. 2,333 ========= Current year depreciation................................... 624 Useful life................................................. 3-5 years Depreciation schedule....................................... Linear
F-52 159 During 2000 the company has renovated leased offices for approximately NOK 1,000,000. The investment will be depreciated over the duration of the lease, which is 10 years and expires in 2010. The depreciation is presented under administration costs. The company has entered into agreements concerning the lease of offices and company cars totalling NOK 1,200,000 per year. The amortization cost of the leased assets is included in other administration expense in the Profit and Loss account.
VARIOUS CAPITALIZED OPERATING UNS GROUP SHIPS DOCKING ASSETS - --------- ----------- ----------- --------- Acquisition cost as at 01.01.2000..................... 2,738,787 33,441 4,568 Additions............................................. 1,017,618 39,616 272 Disposals............................................. (89,879) 0 0 ----------- --------- --------- ACQUISITION COST AS AT 31.12.2000..................... 3,666,526 73,057 4,840 =========== ========= ========= Activated borrowing costs for ships................... 41,223 Accumulated depreciation as at 31.12.2000............. 310,594 24,439 2,507 ----------- --------- --------- Depreciations, write downs and reversed write downs... 310,594 24,439 2,507 ----------- --------- --------- BOOK VALUE AS AT 31.12.2000........................... 3,355,932 48,618 2,333 =========== ========= ========= Current year depreciation............................. 134,090 24,439 624 Useful life........................................... 23-25 years 2.5 years 3-5 years Depreciation schedule................................. Linear Linear Linear
NOTE 3: SALARIES, NUMBER OF EMPLOYEES, BENEFITS, LOANS TO EMPLOYEES ETC.
UNS ASA UNS GROUP --------------- --------------- 1999 2000 PAYROLL COSTS 2000 1999 ------ ------ ------------- ------ ------ 8,857 9,431 Salaries.................................................... 9,431 8,857 1,863 3,083 Social security tax......................................... 3,083 1,863 515 580 Pension costs............................................... 580 515 698 1,217 Other benefits.............................................. 1,217 698 ------ ------ ------ ------ 11,933 14,311 Total....................................................... 14,311 11,933 ====== ====== ====== ====== 13 14 Average number of employees................................. 14 13
The company's employees and the Managing Director are all included in the pension plan. MANAGING DIRECTOR/BOARD OF DIRECTORS The Managing Director received a remuneration of NOK 3,121,009 for 2000, whereof NOK 1,508,400 was salary, NOK 1,436,800 was a bonus and the remaining was other taxable benefits. The Managing Director has an agreement to receive two years remuneration if he leaves the company. At 10 May 2000 the Board of Directors allotted 110,000 shares to the Managing Director and 150,000 shares to the management. The subscription price for these shares was NOK 70 per share. By the issuing of this report all shares have been released. Remuneration to the Board of Directors has been paid with NOK 105,000 to the Chairman, Andreas Ove Ugland, and NOK 85,000 to the other members of the Board. No loans or guarantees have been issued for the management. The management of the company has a bonus scheme related to the annual results of the company. This is calculated on an annual basis. F-53 160 THE AUDITOR Expensed auditor fees for 2000 amounts to NOK 248,000 and NOK 477,240 for consultancy services. For Group companies the auditor fees amounts to NOK 607,500 and NOK 663,825 for consultancy services. NOTE 4: SUBSIDIARIES, RELATED COMPANIES ETC.
VOTE-AND TIME OF OWNERSHIP COMPANIES PURCHASE OFFICES SHARE - --------- -------- ------- --------- SHARES AND PARTS IN SUBSIDIARIES Jahre Prince AS..................................... 1998 Sandefjord 100.00% Thorsfreddy AS...................................... 1998 Sandefjord 100.00% Ugland Nordic Investment AS......................... 1993 Sandefjord 100.00% Nordic Akarita AS................................... 1996 Sandefjord 100.00% Nordic Akarita Investment AS........................ 1993 Sandefjord 100.00% Nordic Apollo AS.................................... 1991 Sandefjord 100.00% Nordic Laurita AS................................... 1991 Sandefjord 100.00% Nordic Sarita Investment AS......................... 1997 Sandefjord 100.00% Nordic Akarita KS................................... 1996 Sandefjord 65.50% Nordic Laurita KS................................... 1991 Sandefjord 50.50% Nordic Apollo KS.................................... 1991 Sandefjord 89.00% Nordic Canadian Shipping Ltd........................ 1992 Canada 100.00% SHARES AND PARTS IN ASSOCIATED COMPANIES IUM Shipmanagement AS............................... 2000 Grimstad 33.33% SHARE OF JOINTLY CONTROLLED COMPANIES P/R Stena Ugland Shuttle Tankers I DA............... 1998 Sandefjord 50.00% P/R Stena Ugland Shuttle Tankers II DA.............. 1998 Sandefjord 50.00% P/R Stena Ugland Shuttle Tankers III DA............. 1998 Sandefjord 50.00% Ugland Stena Storage AS............................. 2000 Sandefjord 50.00% Stena Ugland Aframax Shuttle Ltd.................... 1997 Cayman Islands 50.00%
The ownership of Nordic American Tanker Shipping Ltd. (NAT) shares has not been included according to the equity method as UNS do not have the influence required in order to define NAT as a related company. ASSOCIATED COMPANIES THAT ARE PRESENTED BY THE GROSS METHOD The jointly controlled companies, Partrederiene (PR) Stena Ugland Shuttle Tankers I, II and III DA and Stena Ugland Aframax Shuttle Ltd. are included in the accounts according to the gross method. The Profit and Loss account and Balance Sheet items are incorporated line by line. The table below illustrates the main items, which have been included in the accounts. There is no added value at the time of acquisition. F-54 161
PR SUST PR SUST PR SUST I DA II DA III DA SUAS USS TOTAL ------- ------- ------- ------ ---- ------- Share of operating income........................ 67,601 62,541 0 626 0 130,768 Share of operating costs......................... (32,097) (32,641) 0 (241) (340) (65,319) Share of net financial items..................... (48,033) (49,289) 0 190 (11) (97,143) Share of taxes................................... 0 0 0 0 98 98 ------- ------- ------ ------ ---- ------- SHARE OF PROFIT/(LOSS) FOR THE YEAR.............. (12,529) (19,389) 0 575 (253) (31,596) ------- ------- ------ ------ ---- ------- Share of fixed assets............................ 296,351 300,247 85,211 1,201 98 683,108 Share of current assets.......................... 22,771 9,964 0 0 267 33,002 ------- ------- ------ ------ ---- ------- SHARE OF TOTAL ASSETS............................ 319,122 310,211 85,211 1,201 365 716,110 ------- ------- ------ ------ ---- ------- Share of other long-term debt.................... 296,557 297,806 0 0 0 594,363 Share of short-term debt......................... 300 1,813 3,428 0 368 5,909 ------- ------- ------ ------ ---- ------- SHARE OF TOTAL DEBT.............................. 296,857 299,619 3,428 0 368 600,272 ------- ------- ------ ------ ---- ------- Share capital.................................... 22,264 10,591 81,783 1,201 (3) 115,836 BALANCE AS AT 01.01.2000......................... 34,793 29,980 23,591 2,580 0 90,944 ------- ------- ------ ------ ---- ------- Additions/disposals.............................. 0 0 0 0 250 250 Share of profit.................................. (12,529) (19,389) 0 575 (253) (31,596) Translation differences.......................... 0 0 0 296 0 296 Paid-up/repaid share capital during the period... 0 0 58,192 (2,250) 0 55,942 ------- ------- ------ ------ ---- ------- BALANCE AS AT 31.12.2000......................... 22,264 10,591 81,783 1,201 (3) 115,836 ======= ======= ====== ====== ==== =======
ASSOCIATED COMPANIES THAT ARE PRESENTED BY THE EQUITY METHOD
IUM SHIPMANAGEMENT AS -------------- Additions during the period Original acquisition cost................................... 13,690 Book equity at the time of acquisitions..................... 13,851 Goodwill.................................................... 9,073 Balance as at 01.01.2000.................................... 0 ------ Additions/(disposals)....................................... 13,690 Share of profit/(loss) of the year.......................... 222 ------ BALANCE AS AT 31.12.2000.................................... 13,912 ======
NOTE 5: SHARES AND OWNERSHIP IN OTHER COMPANIES, ETC.
ACQUISITION BOOK MARKET OWNERSHIP COSTS VALUE VALUE --------- ----------- ------- ------- FIXED ASSETS Nordic American Tanker Shipping Ltd. -- Bermuda..................................... 18.80% 177,083 177,083 322,392 ------- ------- ------- TOTAL MARKETABLE FIXED ASSETS................. 177,083 177,083 322,392 ======= ======= ======= CURRENT ASSETS Shares........................................ 2,044 1,542 1,542 ------- ------- ------- TOTAL MARKETABLE CURRENT ASSETS............... 2,044 1,542 1,542 ======= ======= =======
F-55 162 NOTE 6: INTER-COMPANY BALANCES
ACCOUNTS ACCOUNTS RECEIVABLE PAYABLE ----------------- ---------------- 2000 1999 2000 1999 ------- ------- ------ ------- Subsidiaries................................................ 507,875 392,319 76,054 64,526 ------- ------- ------ ------- TOTAL....................................................... 507,875 392,319 76,054 64,526 ======= ======= ====== =======
NOTE 7: SPECIFICATION OF FINANCIAL ITEMS
INTEREST INTEREST INCOME EXPENSE --------------- --------------- 2000 1999 2000 1999 ------ ------ ------ ------ Subsidiaries................................................ 26,303 20,672 0 9,614 Others...................................................... 7,228 16,087 17,288 20,710 ------ ------ ------ ------ TOTAL....................................................... 33,531 36,759 17,288 30,324 ====== ====== ====== ======
OTHER FINANCIAL INCOME
UGLAND NORDIC UGLAND NORDIC SHIPPING ASA SHIPPING GROUP --------------- --------------- 1999 2000 2000 1999 ------ ------ ------ ------ 27,177 45,019 Dividend.................................................... 45,090 21,546 0 2,250 Income from jointly controlled activities................... 0 0 0 0 Income from associated companies............................ 222 0 36,171 1,160 Group contribution.......................................... 0 0 68 20,482 Gain on shares.............................................. 20,031 68 ------ ------ ------ ------ 63,416 68,911 TOTAL....................................................... 65,343 21,614 ====== ====== ====== ======
NOTE 8: NEWBUILDING CONTRACTS The jointly controlled company, P/R Stena Ugland Shuttle Tankers III DA, which is owned 50% by Ugland Nordic Investment AS, decided on June 11th, 1998 to purchase the newbuilding contract of Hull 1166 at Tsuneishi Shipbuilding Co., Japan. The ship is a DP2 shuttle tanker of 107,425 dwt, which will be delivered in May 2001. The contract amounts to USD 63,410,000 whereof USD 12,582,000 has been paid as at December 31st, 2000. The next installment in the amount of USD 6,291,000 is due in January 2001. Final installment is USD 44,537,000 and is due at the time of delivery. In July 2000 the company entered into an agreement with Golar-Nor Offshore AS on affreightment of two new DP2 shuttle tankers of 92,500 dwt. The contracts are on a bareboat basis and have a timespan of seven years. They will commence in the 4th quarter 2002 and the 1st quarter 2003, respectively. The contracts amount to USD 48,500,000 per vessel. In November 2000 the company entered into an agreement with Navion on affreightment of a shuttle tanker of 147,500 dwt during a time period of ten years. The agreement includes options to increase the timespan to a maximum of 25 years and amounts to USD 70,000,000. The charterer has call options during the contract time period. NOTE 9: AUTHORISATION TO ISSUE SHARES At the Ordinary General Meeting held on 10 May 2000, the Board was given unanimous authority to issue up to 2,000,000 new shares, each of NOK 5 value, at a subscription price to be set by the Board in each instance. The shares will be used in connection with the acquisition of shares, participation in companies including limited partnerships, ships and other assets. Mergers are also included in this authorisation framework. The authorisation comprises share issues against cash deposits. Existing F-56 163 shareholders' preferential participation in the capital increase is withdrawn. The authorisation was given until the next Ordinary General Meeting. At the time of issuing this report, a total of 1,985,000 shares are issued in accordance with the mentioned authority. At the Extraordinary General Meeting held on 28 September 1993, the Board authorised to issue 225,000 shares to a total nominal value of NOK 1,125,000 against cash payment of NOK 50 per share. In accordance with detailed conditions, the company's management is entitled to subscribe for these shares. The authorisation runs until 28 September 2001. At present, 110,000 of the options are remaining, of which Herbjrn Hansson is entitled to all, at a nominal value of NOK 81.75. The authorisation given at the Extraordinary General Meeting held on 28 September 1993 was at the Ordinary General Meeting replaced with a new authorisation. It authorises the Board to issue 110,000 shares to CEO Herbjrn Hansson and 150,000 shares to the company management at a price set by the Board. The authorisation is given until 10 May 2002 but the General Meeting agreed that the authorisation was to be valid until 28 September 2003. On 10 May 2000 the Board set the subscription price of the CEO's 110,000 shares and the management's 150,000 shares to NOK 70 per share. At the time of issuing this report, all the shares are issued in accordance with the authorisation. NOTE 10: EARNINGS PER SHARE Earnings per share is calculated by dividing net profit by the average number of outstanding shares.
1999 2000 ---------- ---------- Net profit after minority interests......................... 1,836,000 10,882,000 Average number of outstanding shares........................ 10,926,063 12,204,349 Net profit and diluted profit per share..................... 0.17 0.89
NOTE 11: MAJOR TRANSACTIONS
1999 2000 ------- ------ Gain on sale of Newbuilding Halla........................... 41,736 0 Gain on sale of M/T Jahre Prince............................ 0 76,895 Loss on sale of M/T Nordic Liberita......................... (12,022) 0 ------- ------ TOTAL....................................................... 29,714 76,895 ======= ======
NOTE 12: EQUITY UGLAND NORDIC SHIPPING ASA
SHARE SHARE OTHER EQUITY CAPITAL PREMIUM RESERVES ------- ------- ------------ Equity as at 31.12.1999.................................... 54,630 420,369 136,131 Equity issue............................................... 14,919 222,904 Merger..................................................... 26,000 344 Dividend................................................... (2,243) Net profit................................................. 28,373 ------ ------- ------- EQUITY AS AT 31.12.2000.................................... 69,549 669,273 162,605 ====== ======= =======
F-57 164 UGLAND NORDIC SHIPPING GROUP
SHARE SHARE OTHER EQUITY CAPITAL PREMIUM RESERVES -------- ------- ------------ Equity as at 31.12.1999.................................... 54,630 420,369 92,892 Equity issue............................................... 14,919 222,904 Merger..................................................... 26,000 (26,000) Dividend................................................... (2,243) Translation differences.................................... 1,085 Net profit................................................. 10,882 ------ ------- ------- EQUITY AS AT 31.12.2000.................................... 69,549 669,273 76,616 ====== ======= =======
NOTE 13: GUARANTEES AND PLEDGED ASSETS
UGLAND NORDIC UGLAND NORDIC SHIPPING ASA SHIPPING GROUP ----------------- --------------------- 1999 2000 2000 1999 ------- ------- --------- --------- Total debt secured by pledged assets, etc. 195,858 250,188 Debt to financial institutions.............................. 2,977,118 2,435,756 ------- ------- --------- --------- 195,858 250,188 TOTAL....................................................... 2,977,118 2,435,756 ======= ======= ========= ========= Book value of pledged assets: 0 0 Vessels..................................................... 3,404,550 2,583,050 5,765 21,331 Dividends................................................... 21,331 5,765 206,648 0 Shares in subsidiaries...................................... 0 0 205,604 177,083 Other shares................................................ 177,305 205,741 ------- ------- --------- --------- 418,017 198,414 TOTAL....................................................... 3,603,186 2,794,556 ------- ------- --------- --------- 35,000 48,232 Guarantees.................................................. 48,232 35,000 ======= ======= ========= =========
The total guarantees to lenders of subsidiaries, jointly owned companies, and associated companies amount to NOK 1,936,000,000. The total debt of the Group consists of a number of loans that are secured by pledged assets, assignments of earnings, bank accounts for freight revenues and assignment of assurance of the respective vessel. NOTE 14: LONG TERM DEBT
UGLAND NORDIC UGLAND NORDIC SHIPPING ASA SHIPPING GROUP INSTALLMENT PROFILE 2000 2000 - ------------------- ------------- -------------- 2001........................................................ 131,686 507,840 2002........................................................ 35,931 298,909 2003........................................................ 40,356 426,747 2004........................................................ 42,215 386,037 2005 and thereafter......................................... 0 1,357,585 ------- --------- TOTAL DEBT TO FINANCIAL INSTITUTIONS........................ 250,188 2,977,118 ======= =========
There have been no loans taken at a discount. The average interest rate in 2000 has been 7.12%. The loan agreements include a number of financial and non-financial covenants. Significant covenants are related to change in ownership structure, contract signings or change of existing contracts, minimum value adjusted equity and minimum liquidity. The company satisfies all covenants as at 31 December 2000. F-58 165 NOTE 15: RELATED PARTIES Andreas Ove Ugland, the Chairman of UNS, owns a controlling stake in Ugland International Holding, which is a company that owns 2/3 of the shares in IUM Shipmanagement AS. The costs associated with these services are based on competitive rates. UNS is utilising technical management resources from IUM for ten vessels and four newbuildings. Total management-fee paid to IUM for 2000 amounts to USD 1,621,000. As at 31 December 2000 IUM has accounts receivable against UNS Group of USD 581,000. Ulf G. Ryder, a Boardmember of UNS, is the President of Stena Bulk AB. The Stena Group owns 500,000 shares in UNS as well as having ownership in three of our vessels, Stena Alexita (50%), Stena Sirita (50%) and the newbuilding with delivery in 2001 (50%). Additionally, Stena owns 50% of Ugland Stena Storage AS and 50% of a company that is chartering in and timechartering out the Stena Akarita. NOTE 16: TAX EXPENSE
UGLAND NORDIC UGLAND NORDIC SHIPPING ASA SHIPPING GROUP --------------- ---------------- 1999 2000 THE TAX EXPENSE COMPRISES FROM 2000 1999 ------ ------ ------------------------------ ------- ------ 0 0 Tax payable................................................. 112 698 6,951 11,614 Change in deferred taxes.................................... 11,498 15,802 0 0 Effect of tax law changes................................... 0 0 ------ ------ ------- ------ 6,951 11,614 Tax expense -- ordinary result, Norway...................... 11,610 16,500 ====== ====== ======= ======
UGLAND NORDIC UGLAND NORDIC SHIPPING ASA SHIPPING GROUP --------------- ---------------- 1999 2000 RECONCILIATION OF NOMINAL TO ACTUAL TAX RATE 2000 1999 ------ ------ -------------------------------------------- ------- ------ 39,248 39,987 Ordinary result after taxes................................. 52,930 17,968 0 0 Extraordinary result before taxes........................... 0 0 ------ ------ ------- ------ 39,248.. 39,987 NET PROFIT BEFORE TAXES..................................... 52,930 17,968 ====== ====== ======= ====== 10,990 11,197 Expected income tax according to nominal tax rate (28%)..... 14,820 5,031 ------ ------ ------- ------ Tax effect from the following items 336... 269 Non-tax-deductible expenses................................. 667 356 (4,506) 0 Non-taxable revenue......................................... (161) (4,506) 0 0 Results from tax scheme for ship owning companies........... 15,941 19,247 (5) (5) Effect of dividend.......................................... 0 (5) 0..... 0 Change in deferred tax asset................................ (13,267) 271 136 153 Other items................................................. (6,390) (3,894) ------ ------ ------- ------ 6,951 11,614 Tax expense................................................. 11,610 16,500 ------ ------ ------- ------ 17.7% 29.0% Effective tax rate.......................................... 21.9% 91.8% ====== ====== ======= ======
F-59 166 UGLAND NORDIC SHIPPING ASA Specification of tax effect from temporary differences and tax losses carried forward
2000 1999 ------------------ ------------------ ASSETS LIABILITY ASSETS LIABILITY ------ --------- ------ --------- Operating assets........................................ 11 Intangible fixed assets................................. 2 Fixed financial assets.................................. 618 230 Receivables............................................. 84 Investments............................................. 44 2,699 Current liabilities..................................... 84 Profit & Loss Account................................... 7,579 9,468 Tax losses carry forward................................ 4,464 9,677 ------ -- ------ ------ TOTAL................................................... 12,707 84 22,085 84 ====== == ====== ====== Deferred tax assets/liabilities......................... 12,623 22,001 Off-balance sheet deferred tax asset ------ -- ------ ------ NET DEFERRED TAX ASSET/LIABILITY........................ 12,623 0 22,001 0 ====== == ====== ======
The deferred tax asset is based on future income. UGLAND NORDIC SHIPPING GROUP Specification of tax effect from temporary differences and tax losses carried forward
2000 1999 ------------------ ------------------ ASSETS LIABILITY ASSETS LIABILITY ------ --------- ------ --------- Operating assets........................................ 2 452 Intangible fixed assets................................. 618 Fixed financial assets.................................. 478 230 Receivables............................................. 83 Investments............................................. 37 2,215 Current liabilities..................................... 86 Profit & Loss Account................................... 2,316 9,086 Tax losses carry forward................................ 15,134 23,580 ------ ----- ------ -- TOTAL................................................... 15,791 2,880 35,563 83 ====== ===== ====== == Deferred tax asset...................................... 12,911 35,480 Off-balance sheet deferred tax asset.................... 6 13,267 ------ ----- ------ -- NET DEFERRED TAX ASSET.................................. 12,905 0 22,213 0 ====== ===== ====== ==
The Group has NOK 486,215 in untaxed equity covered by the special taxation scheme for shipowners. The deferred tax asset is based on future income. As at 31 December 2000 UNS and the UNS Group have tax losses to be carried forward amounting to NOK 15,942 and NOK 54,049, respectively. The tax losses to be carried forward expire in 2004. F-60 167 NOTE 17: SHARE CAPITAL AND SHAREHOLDERS As at 31 December 2000 the share capital of UNS consists of 13,909,772 A-class shares at a nominal value of NOK 5. Refer to page 32 for a list of shareholders as at 26 March 2001. All shares give equal voting rights. THE 20 LARGEST SHAREHOLDERS AS AT 31 DECEMBER 2000
NAME NO. OF SHARES % OF TOTAL - ---- ------------- ---------- 1 Andreas Ugland family................................... 2,667,753 19.18% 2 Knut Axel Ugland Holding................................ 1,377,809 9.91% 3 ABBC Asset Management................................... 1,242,867 8.94% 4 L. Gill-Johannessen AS.................................. 640,000 4.60% 5 Odin Norge.............................................. 596,300 4.29% 6 Orkla ASA............................................... 515,964 3.71% 7 Stena Bulk AB........................................... 500,000 3.59% 8 Folketrygdfondet........................................ 460,000 3.31% 9 Tine Pensjonskasse...................................... 434,950 3.13% 10 First Olsen Tankers..................................... 361,500 2.60% 11 Storebrand Livsforsikring............................... 308,300 2.22% 12 Aksjefondet Gambak...................................... 300,000 2.16% 13 Verdipapirfondet Skagen................................. 300,000 2.16% 14 DnB Markets............................................. 288,300 2.07% 15 Hartog & Co. AS......................................... 210,000 1.51% 16 Vital Forsikring ASA.................................... 200,700 1.44% 17 Ugland Capital Partners................................. 185,000 1.33% 18 K-Holding AS............................................ 166,000 1.19% 19 Euroclear Bank AS....................................... 150,900 1.08% 20 Gezina AS............................................... 145,200 1.04% Others................................................. 2,858,229 20.55% ---------- ------- TOTAL....................................................... 13,909,772 100.00% ========== =======
SHARES IN UNS AS OWNED/CONTROLLED BY THE COMPANY'S DIRECTORS AS AT 31 DECEMBER 2000
NO. OF SHARES ------------- Tharald Brvig............................................... 145,200 Herbjrn Hansson (CEO.)...................................... 90,000 Njal Hansson................................................ 128,000 Ulf G. Ryder................................................ 0 Christian Rytter jr......................................... 641,000 Andreas Ove Ugland (Chairman)............................... 185,000 Johan Benad Ugland.......................................... 2,667,753 --------- TOTAL....................................................... 3,856,953 =========
NOTE 18: AREA OF BUSINESS The UNS Group has only one area of business, which is oceangoing transportation. The company operating income is split between 86% sales in Norway and 14% in Finland. F-61 168 NOTE 19: FORWARD RATE AGREEMENTS The following forward rate agreements have been entered
AMOUNT INTEREST RATE START DATE DURATION - ------ ------------- ---------- -------- USD 10 m.................................................. 6.030% 19.12.97 4 years USD 15 m.................................................. 6.030% 12.05.98 4 years USD 10 m.................................................. 5.940% 19.05.98 3 years USD 10 m.................................................. 5.700% 17.03.99 3 years
In addition, USD 67,000,000 relating to debt on two vessels has been secured through regulations in the time charter rate as a result of interest changes. NOTE 20: CONDITIONAL OUTCOME There are no events with conditional outcome at the end of the financial year and no events have taken place subsequent to the balance sheet date that will affect the given financial statements. F-62 169 TEEKAY SHIPPING CORPORATION UNAUDITED PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET AS AT MARCH 31, 2001 (IN THOUSANDS OF U.S. DOLLARS)
PRO FORMA PRO FORMA TEEKAY(I) ADJUSTMENTS NOTES CONSOLIDATED(II) --------- ----------- ----- ----------------- ASSETS Current Cash and cash equivalents....................... 296,940 (79,399) (4) 217,541 Marketable securities........................... 7,270 -- 7,270 Accounts receivable............................. 76,180 -- 76,180 Prepaid expenses and other assets............... 27,188 -- 27,188 --------- ------- --------- Total current assets............................ 407,578 (79,399) 328,179 --------- ------- --------- Marketable securities........................... 43,844 -- 43,844 Vessels and equipment (including advances on new building contracts)........................... 1,944,208 -- 1,944,208 Investment in joint ventures.................... 46,402 -- 46,402 Other assets.................................... 17,482 -- 17,482 Goodwill........................................ 58,818 31,688 (4) 90,506 --------- ------- --------- 2,518,332 (47,711) 2,470,621 ========= ======= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current Accounts payable................................ 20,924 -- 20,924 Accrued liabilities............................. 48,408 -- 48,408 Current portion of long-term debt............... 123,058 -- 123,058 --------- ------- --------- Total current liabilities....................... 192,390 -- 192,390 --------- ------- --------- Long-term debt.................................. 985,636 -- 985,636 Other long-term liabilities..................... 38,558 -- 38,558 --------- ------- --------- Total liabilities............................... 1,216,584 -- 1,216,584 --------- ------- --------- Minority interest............................... 66,968 (47,711) (4) 19,257 Stockholders' equity............................ 458,605 -- 458,605 Capital stock................................... 777,618 -- 777,618 Accumulated other comprehensive loss............ (1,443) -- (1,443) --------- ------- --------- Total stockholders' equity...................... 1,234,780 -- 1,234,780 --------- ------- --------- 2,518,332 (47,711) 2,470,621 ========= ======= =========
- --------------- (i) Reflects the acquisition of a 64% interest in UNS on March 6, 2001. (ii) Pro Forma as though the remaining 36% interest in UNS was purchased on March 31, 2001. The accompanying notes are an integral part of the unaudited pro forma consolidated condensed financial statements F-63 170 TEEKAY SHIPPING CORPORATION UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2001 (IN THOUSANDS OF U.S. DOLLARS)
UNS (JANUARY 1 - PRO FORMA PRO FORMA TEEKAY(I) MARCH 5/01) ADJUSTMENTS NOTES CONSOLIDATED --------- ------------ ----------- ----- ------------ NET VOYAGE REVENUES Voyage revenues.......................... 307,886 17,188 325,074 Voyage expenses.......................... 62,730 928 63,658 ------- ------ ------ ------- Net voyage revenues...................... 245,156 16,260 261,416 ------- ------ ------ ------- OPERATING EXPENSES Vessel operating expenses................ 33,879 4,371 38,250 Time charter hire expense................ 17,183 -- 17,183 Depreciation and amortization............ 27,351 4,206 31,557 Goodwill amortization.................... 170 -- 948 (5a) 1,118 General and administrative............... 10,838 1,207 12,045 ------- ------ ------ ------- 89,421.. 9,784 948 100,153 ------- ------ ------ ------- Income from vessel operations............ 155,735 6,476 (948) 161,263 ------- ------ ------ ------- OTHER ITEMS Interest expense......................... (14,786) (3,717) (2,840) (5b) (21,343) Interest income.......................... 2,803 197 3,000 Equity income............................ 2,793 481 94 (5c) 3,368 Other income (loss)...................... (1,857) 455 211 (5d) (1,191) ------- ------ ------ ------- (11,047) (2,584) (2,535) (16,166) ------- ------ ------ ------- NET INCOME............................... 144,688 3,892 (3,483) 145,097 ======= ====== ====== ======= Proforma Basic Earnings per Common Share.................................. $ 3.70 Proforma Diluted Earnings per Common Share.................................. $ 3.60 Weighted average number of shares outstanding (thousands)................ 39,230
- --------------- (i) Includes results of UNS (64% interest) for the period March 6, 2001 to March 31, 2001. The accompanying notes are an integral part of the unaudited pro forma consolidated condensed financial statements F-64 171 TEEKAY SHIPPING CORPORATION UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2000 (IN THOUSANDS OF U.S. DOLLARS)
PRO FORMA PRO FORMA TEEKAY UNS ADJUSTMENTS NOTES CONSOLIDATED ------- ------- ----------- ----- ------------ NET VOYAGE REVENUES Voyage revenues......................... 893,226 69,081 962,307 Voyage expenses......................... 248,957 -- 248,957 ------- ------- ------- --------- Net voyage revenues..................... 644,269 69,081 713,350 ------- ------- ------- --------- OPERATING EXPENSES Vessel operating expenses............... 125,415 20,660 146,075 Time charter hire expense............... 53,547 -- 53,547 Depreciation and amortization........... 100,153 18,610 118,763 Goodwill amortization................... -- -- 4,534 (5a) 4,534 General and administrative.............. 37,479 5,966 43,445 ------- ------- ------- --------- 316,594 45,236 4,534 366,364 ------- ------- ------- --------- Income from vessel operations........... 327,675 23,845 (4,534) 346,986 ------- ------- ------- --------- OTHER ITEMS Interest expense........................ (74,540) (16,641) (15,319) (5b) (106,500) Interest income......................... 13,021 2,069 15,090 Equity income 9,546 2,240 11,786 Other income (loss)..................... (5,682) 3,874 (1,808) ------- ------- ------- --------- (57,055) (8,458) (15,319) (81,432) ------- ------- ------- --------- Net income.............................. 270,020 15,387 (19,853) 265,554 ======= ======= ======= ========= Pro forma Basic Earnings per Common Share................................. $ 6.90 Pro forma Diluted Earnings per Common Share.......................... $ 6.75 Weighted average number of shares outstanding (thousands)............... 38,468
The accompanying notes are an integral part of the unaudited pro forma consolidated condensed financial statements F-65 172 TEEKAY SHIPPING CORPORATION NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION The unaudited pro forma consolidated condensed financial statements (the "Financial Statements") give effect to the acquisition (the "Acquisition") of 100% of the issued and outstanding shares of Ugland Nordic Shipping ASA ("UNS") by Teekay Shipping Corporation ("Teekay"). The Financial Statements have been prepared by management in accordance with accounting principles generally accepted in the United States from the information derived from the audited historical financial statements of Teekay and UNS (adjusted as indicated in Note 3 below) for the year ended December 31, 2000 and the unaudited historical financial statements for the three months ended March 31, 2001. In the opinion of management, the Financial Statements include all adjustments necessary for fair presentation. As of March 31, 2001, Teekay had purchased approximately 64% of the issued and outstanding shares of UNS. Subsequent to March 31, 2001, Teekay acquired the remaining 36% of the issued and outstanding shares in UNS. Accordingly, the Financial Statements contained herein give effect to the acquisition of 100% of the issued and outstanding shares of UNS. The unaudited pro forma consolidated condensed statements of income for the three months ended March 31, 2001 and the year ended December 31, 2000 give effect to the Acquisition as though it had taken place on January 1, 2000. The unaudited pro forma consolidated condensed balance sheet as at March 31, 2001 is based on the unaudited consolidated balance sheets of Teekay and UNS as of that date and gives effect to the Acquisition as though the remaining 36% of the issued and outstanding shares in UNS were purchased on March 31, 2001. The Financial Statements are not necessarily indicative of what the results of operations and financial position would have been, nor do they purport to project Teekay's results of operations for any future periods. The Financial Statements also do not include any expected benefits or cost savings arising from the Acquisition. The Financial Statements should be read in conjunction with the consolidated financial statements of Teekay and UNS referred to above. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies followed in preparing the Financial Statements are those used by Teekay as set out in the consolidated financial statements contained in Teekay's Annual Report on Form 20-F as at and for the year ended December 31, 2000, and in Teekay's Quarterly Report on Form 6-K for the three months ended March 31, 2001. 3. ACCOUNTING TREATMENT FOR THE ACQUISITION The Acquisition has been accounted for using the purchase method of accounting. The results of operations of UNS are included from the assumed date of acquisition. UNS' accounting policies have been adjusted to be consistent with those of Teekay. F-66 173 TEEKAY SHIPPING CORPORATION NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) 4. PRO FORMA GENERAL ASSUMPTIONS AND PURCHASE PRICE ALLOCATION GENERAL ASSUMPTIONS Teekay purchased all of the issued and outstanding shares of Ugland Nordic Shipping ASA ("UNS Shares") at an average price per share of Norwegian Kroner 136 in cash or U.S. $15.26 per share. The Financial Statements reflect the following: - 100% of outstanding UNS Shares were exchanged for cash; - all common shareholders of UNS at March 31, 2001 have tendered their shares, representing 14,169,772 UNS Shares; - total purchase consideration (in millions of U.S. dollars): Cash paid -- prior to March 31, 2001................ $136.9 Cash paid -- subsequent to March 31, 2001........... 79.4 Estimated transaction and integration costs included in accounts payable and accrued liabilities........ 7.0 ------ $223.3 ======
PURCHASE PRICE ALLOCATION The excess of the purchase price over the fair market value of the net assets of UNS has been allocated to goodwill. The purchase price includes an accrual of $7.0 million for estimated transaction and integration costs. The following table describes the allocation of the purchase price as at March 31, 2001 (in millions of U.S. dollars):
64% 36% INTEREST INTEREST TOTAL -------- -------- ----- $ $ $ Net assets acquired......................................... 84.9 47.7 132.6 Goodwill.................................................... 59.0 31.7 90.7 ----- ---- ----- 143.9 79.4 223.3 ===== ==== =====
The pro forma consolidated condensed balance sheet incorporates the following adjustments: - the purchase price consideration and allocation adjustments as described above, including the following adjustment to minority interest (in millions of U.S. dollars): Net assets acquired......................................... $132.6 Ownership interest as of March 31, 2001..................... 64% Minority interest portion of net assets acquired............ $ 47.7 ======
F-67 174 TEEKAY SHIPPING CORPORATION NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED) 5. UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF INCOME The unaudited pro forma consolidated condensed statements of income incorporates the following adjustments: (a) Goodwill amortization related to the Acquisition of UNS is calculated on a straight-line basis over a 20 year period. As a result, goodwill amortization increased by $0.9 million for the three months ended March 31, 2001 and by $4.5 million for the year ended December 31, 2000. (b) Interest expense at 6.5% and 7.1% (the average historical cost of debt on outstanding debt for the three months ended March 31, 2001 and the year ended December 31, 2000, respectively) has been increased by $2.8 million for the three months ended March 31, 2001 and by $15.3 million for the year ended December 31, 2000 to reflect the additional interest expense that would have been incurred had the Acquisition occurred on January 1, 2000. (c) Teekay's equity income for the three months ended March 31, 2001 has been adjusted to reverse the equity loss earned from the 9% ownership in UNS for the period from January 1, 2001 to March 5, 2001 so that the results for the three months ended March 31, 2001 give effect to the Acquisition as if it had it taken place on January 1, 2000. (d) Teekay's other income (loss) for the three months ended March 31, 2001 has been adjusted to reverse the minority interest portion of UNS' results for the period from March 6, 2001 to March 31, 2001 so that the results for the three months ended March 31, 2001 give effect to the Acquisition as if it had it taken place on January 1, 2000. 6. UNAUDITED PRO FORMA CONSOLIDATED EARNINGS PER SHARE The unaudited pro forma consolidated earnings per share have been calculated based upon the weighted average number of Teekay Shares outstanding during the periods presented. F-68 175 EXHIBIT A DEFINITIONS OF SHIPPING TERMS The following is a set of definitions for shipping terms that are used throughout this prospectus: "AFRAMAX TANKER" An oil tanker of 80,000 to 120,000 dwt. Certain external statistical compilations define an "Aframax Tanker" slightly differently, some going as high as 125,000 dwt and others as low as 70,000 dwt. External data used in this prospectus has been adjusted so that the definition of "Aframax Tanker" is consistent throughout. "ANNUAL SURVEY" An annual inspection of a vessel by a classification society surveyor to ensure that the vessel meets the standards of that society. "BALLAST" A vessel is in ballast when it is steaming without cargo, and is instead loaded down with sea water for stability. Given that oil production is concentrated in certain parts of the world, a vessel will generally spend a significant amount of time "ballasting" as it returns from discharge port to load port. "BAREBOAT CHARTER" The leasing of an empty ship for a specified period of time for a specific fee. In this arrangement, the shipowner virtually relinquishes all rights and responsibilities in respect of the vessel and the charterer becomes the de facto ("disponent") owner for this period. The charterer is generally responsible for all operating expenses including crewing and insurance. "BUNKER" Fuel oil used to operate a vessel's engines and generators. "CHARTER" The hiring of a vessel for either (1) a specified period of time or (2) a specific voyage or set of voyages. "CHARTERER" The entity hiring the vessel from the shipowner. "CHARTER-PARTY" The contract between the owner and the charterer, stipulating in detail each party's responsibilities in the transaction. "CLASSIFICATION" In order for a vessel to obtain both insurance and employment with most oil majors, the vessel must belong to a classification society, an independent body run under the direction of various shipping professionals. In order to maintain classification, a vessel must meet the standards of that society and be inspected on a regular basis. "CRUDE CARRIER" A tanker vessel designed to carry crude oil or other dirty products. "DEMURRAGE" Compensation paid by the charterer to the ship owner when loading and discharging time exceed the stipulated time in the voyage charter-party. This rate of compensation is generally explicitly stated in the charter-party. "DOUBLE BOTTOM OR DOUBLE HULL" Hull construction technique by which a ship has an inner and outer bottom or hull separated by void space, usually several feet in width. "DWT" Deadweight ton. A unit of a vessel's capacity, for cargo, fuel oil, stores and crew, measured in metric tons of 1,000 kg. A vessel's dwt or total deadweight is the total weight the vessel can carry when loaded to a particular load line. "HEAVY PETROLEUM PRODUCTS" Certain products derived from crude oil that crude carriers are capable of carrying. "IDLE-TIME" or "WAITING DAYS" Period during which a vessel is able to be employed but is not earning revenue. "IMO" International Maritime Organization, a United Nations agency that issues international trade standards for shipping. A-1 176 "INTERMEDIATE SURVEY" The inspection of a vessel by a classification society surveyor which takes place approximately two and a half years before and after each Special Survey. This survey is more rigorous than the "Annual Survey" and is meant to ensure that the vessel meets the standards of the classification society. "LADEN" A vessel is laden when it is carrying cargo. "LAY-UP" Mooring a ship at a protected anchorage, shutting down substantially all of its operating systems and taking measures to protect against corrosion and other deterioration. Generally, a ship enters lay-up for a period when its owner does not consider it profitable to continue trading that vessel for that period. "LIGHT PETROLEUM PRODUCTS" Products of crude oil that have passed through an extensive refining process. It is generally not possible for crude carriers to carry these products. "M/T" Motor Tanker. A tanker propelled by diesel engines. "NEWBUILDING" A new vessel under construction. "OFF-HIRE" Period during which a vessel is temporarily incapable of trading due to drydocking, maintenance, repair or breakdown or other causes for which the owner is deemed to be responsible. "OIL/BULK/ORE CARRIER" or "O/B/O" An ocean-going vessel designed to carry either oil or dry bulk cargoes. "OPA 90" The United States Oil Pollution Act of 1990. "PANAMAX TANKER" A vessel of approximately 60,000 to 80,000 dwt, of maximum length and breadth and draught capable of passing through the Panama Canal. "PROTECTION AND INDEMNITY INSURANCE" Insurance obtained through a mutual association formed by ship owners to provide protection from liability to third parties to one member by contribution towards that loss by all members as well as the proceeds of reinsurance maintained by the mutual associations. "SCRAP" At the end of its life, a vessel is sold to a shipbreaker who strips the ship and sells the steel. When charter rates are low, the scrap value of the vessel may exceed the present trading value of that vessel, especially if the vessel must incur significant costs to pass special surveys. "SHUTTLE TANKER" A vessel generally of 80,000 to 150,000 dwt that contains sophisticated equipment designed to transport oil from offshore production platforms to onshore storage and refinery facilities in harsh environmental conditions. "SMALL TANKER" A tanker generally of less than 60,000 dwt. "SPECIAL SURVEY" The inspection of a vessel by a classification society surveyor which takes place every four to five years. A shipowner often must incur a great deal of repair expense in order to pass his fourth and fifth special survey and as a result may choose to simply scrap the vessel beforehand. "SPOT MARKET" The market for chartering a vessel for single voyages. "STORAGE" The use of a vessel for the storage rather than the transportation of cargo. When spot market rates are low, a vessel can earn comparable net cash flow from storage. "SUEZMAX TANKER" A vessel of approximately 120,000 to 200,000 dwt of maximum length and breadth and draft capable of passing through the Suez Canal. "TCE" or "TIME CHARTER EQUIVALENT" A measure of revenue performance based on a spot market rate, measured in $/ton, adjusted to equate to a time charter rate, measured in dollars per ship per day. TCE is calculated as gross revenue less the voyage specific expenses that the A-2 177 owner would not have incurred had the vessel been time-chartered, divided by the number of voyage days. Consistent with industry data, such as that produced by Clarkson, the TCE rates used in this prospectus do not account for brokerage commissions or off-hire and idle time. "TANKER" Ship designed for the carriage of liquid cargoes in bulk, her cargo space consisting of many tanks. Tankers carry a variety of products including crude oil, refined products, liquid chemicals, liquid gas and wine. Tankers load their cargo by gravity from the shore or by shore pumps and discharge using their own pumps. "TIME CHARTER" The hire of a ship for a specified period of time. The owner provides the ship with crew, stores and provisions, ready in all aspects to load cargo and proceed on a voyage as directed by the charterer. The charterer pays for bunkering and all voyage related expenses including canal tolls and port charges. "TON-MILES" A measure of tanker demand. Tons carried by a vessel multiplied by the distance traveled. "ULCC" Ultra Large Crude Carrier. An ocean-going tanker vessel of more than 320,000 dwt, designed to carry crude oil cargoes. "VLCC" Very Large Crude Carrier. An ocean-going tanker vessel of between 200,000 and 320,000 dwt, designed to carry crude oil cargoes. "VOYAGE CHARTER" Contract of carriage in which the charterer pays for the use of a ship's cargo capacity for one, or sometimes more than one, voyage between specified ports. Under this type of charter, the ship owner pays all the operating costs of the ship (including bunkers, canal and port charges, pilotage, towage and ship's agency) while payment for cargo handling charges are subject of agreement between the parties. Freight is generally paid per unit of cargo, such as a ton, based on an agreed quantity, or as a lump sum irrespective of the quantity loaded. A-3 178 - ------------------------------------------------------ - ------------------------------------------------------ NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST NOT RELY ON ANY UNAUTHORIZED INFORMATION OR REPRESENTATIONS. THIS PROSPECTUS IS AN OFFER ONLY TO SELL THE NOTES OFFERED HEREBY, BUT ONLY UNDER CIRCUMSTANCES AND IN JURISDICTIONS WHERE IT IS LAWFUL TO DO SO. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CURRENT ONLY AS OF ITS DATE. ------------------------ TABLE OF CONTENTS
PAGE ---- Where You Can Find More Information... i Special Note Regarding Forward-Looking Statements.......................... ii Service of Process and Enforcement of Liabilities......................... iii Prospectus Summary.................... 1 Risk Factors.......................... 12 Use of Proceeds....................... 21 Capitalization........................ 22 Selected Consolidated Financial and Other Data.......................... 23 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 27 Business.............................. 38 Management............................ 60 Principal Stockholders................ 63 Certain Transactions with Related Parties............................. 64 Description of Certain Debt........... 65 The Exchange Offer.................... 67 Description of the Notes.............. 77 Form Denomination, Book-Entry Procedures and Transfer............. 91 Registration Rights................... 93 Tax Considerations.................... 96 Plan of Distribution.................. 100 Legal Matters......................... 101 Experts............................... 101 Index to Financial Statements......... F-1 Definitions of Shipping Terms......... A-1
- ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ $250,000,000 ------------------------------ LOGO ------------------------------ TEEKAY SHIPPING CORPORATION OFFER TO EXCHANGE ALL 8.875% SENIOR NOTES DUE JULY 15, 2011 FOR 8.875% SENIOR NOTES DUE JULY 15, 2011, WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 --------------------------- PROSPECTUS --------------------------- , 2001 - ------------------------------------------------------ - ------------------------------------------------------ 179 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Teekay Shipping Corporation ("Teekay") is a Marshall Islands corporation. The Marshall Islands Business Corporation Act ("MIBCA") provides that a Marshall Islands corporation shall have the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of no contest, or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe his conduct was unlawful. A Marshall Islands corporation also has the power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he is or was a director or officer of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him or in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the court shall deem proper. To the extent that a director or officer of a Marshall Islands corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in the preceding paragraph, or in the defense of a claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid in advance of the final disposition of such action, suit or proceeding as authorized by the board of directors in the specific case upon receipt of an undertaking by or on behalf of the director or officer to repay such amount unless it shall ultimately be determined that he is entitled to be indemnified by the corporation as authorized in the MIBCA. In addition, a Marshall Islands corporation has the power to purchase and maintain insurance on behalf of any person who is or was a director or officer of the corporation or is or was serving at the request of the corporation as a director or officer against any liability asserted against him and incurred by him in such capacity whether or not the corporation would have the power to indemnify him against such liability under the provisions of the MIBCA. Section J of Teekay's Articles of Incorporation, as amended, provides that to the fullest extent permitted under the MIBCA, a director of Teekay shall not be liable to Teekay or its shareholders for monetary damages for breach of fiduciary duty as a director. Section 10.00 of Teekay's Bylaws provides II-1 180 that any person who is made party to a proceeding by virtue of being an officer or director of Teekay or, being or having been such a director or officer or an employee of Teekay, serving at the request of Teekay as a director, officer, employee or agent of another corporation or other enterprise, shall be indemnified and held harmless to the fullest extent permitted by the MIBCA against any and all expense, liability, loss (including attorneys' fees, judgments, fines or penalties and amounts paid in settlement) actually incurred or suffered by such person in connection with the proceeding. In addition, Teekay has entered into separate Indemnification Agreements with each of Teekay officers and directors listed in the Registration Statement which provide for indemnification of the director or officer against all expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative except to the extent that such person is otherwise indemnified, such action, suit or proceeding arose out of such person's intentional misconduct, knowing violation of law or out of a transaction in which such director or officer is finally judicially determined to have derived an improper personal benefit or if it shall be determined by a final judgment or other final adjudication that such indemnification was not lawful. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES The following exhibits are filed as part of this Registration Statement:
EXHIBIT NO: DESCRIPTION - ----------- ----------- 3.1 Amended and Restated Articles of Incorporation of Teekay Shipping Corporation.(1) 3.2 Articles of Amendment of Articles of Incorporation of Teekay Shipping Corporation.(1) 3.3 Amended and Restated Bylaws of Teekay Shipping Corporation.(1) 4.1 Registration Rights Agreement among Teekay Shipping Corporation, Tradewinds Trust Co. Ltd., as Trustee for the Cirrus Trust, and Worldwide Trust Services Ltd., as Trustee for the JTK Trust.(2) 4.2 Specimen of Teekay Shipping Corporation Common Stock Certificate.(2) 4.3 Indenture dated January 29, 1996 among Teekay Shipping Corporation, VSSI Oceans Inc., VSSI Atlantic Inc., VSSI Appian Inc., Senang Spirit Inc., Exuma Spirit Inc., Nassau Spirit Inc., Andros Spirit Inc. and United States Trust Company of New York, as Trustee.(3) 4.4 Specimen of Teekay Shipping Corporation's 8.32% First Preferred Ship Mortgage Notes Due 2008.(3) 4.5 Bahamian Statutory Ship Mortgage dated January 29, 1996 by Nassau Spirit Inc. to United States Trust Company of New York.(3)(4) 4.6 Deed of Covenants dated January 29, 1996 by Nassau Spirit Inc. to United States Trust Company of New York.(3)(4) 4.7 First Preferred Ship Mortgage dated January 29, 1996 by VSSI Oceans Inc. to United States Trust Company of New York, as Trustee.(5) 4.8 Assignment of Time Charter dated January 29, 1996 by Nassau Spirit Inc. to United States Trust Company of New York, as Trustee.(3)(4) 4.9 Assignment of Insurance dated January 29, 1996 by Nassau Spirit Inc. to United States Trust Company of New York, as Trustee.(3)(4) 4.10 Pledge Agreement and Irrevocable Proxy dated January 29, 1996 by Teekay Shipping Corporation in favor of United States Trust Company of New York, as Trustee.(3) 4.11 Guarantee dated January 29, 1996 by Nassau Spirit Inc. in favor of United States Trust Company of New York, as Trustee.(3)(4) 4.12 Assignment of Freights and Hires dated January 29, 1996 by Nassau Spirit Inc. to United States Trust Company of New York, as Trustee.(3)(4)
II-2 181
EXHIBIT NO: DESCRIPTION - ----------- ----------- 4.13 Cash Collateral Account Agreement dated January 29, 1996 between Nassau Spirit Inc. and United States Trust Company of New York, as Trustee.(3)(4) 4.14 Investment Account Agreement dated January 29, 1996 between Teekay Shipping Corporation and United States Trust Company of New York, as Trustee.(3) 4.15 Indenture dated June 22, 2001 among Teekay Shipping Corporation and U.S. Trust Company of Texas, N.A. 4.16 Exchange and Registration Rights Agreement dated June 22, 2001 among Teekay Shipping Corporation and Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc., Deutsche Banc Alex. Brown Inc., J.P. Morgan Securities Inc., Fleet Securities, Inc. and Scotia Capital (USA) Inc. 4.17 Specimen of Teekay Shipping Corporation's 8.875% Senior Notes due 2011. 5.1 Opinion of Perkins Coie LLP, special counsel to the registrant, as to the legality under U.S. law of the notes being offered by Teekay Shipping Corporation. 8.1 Opinion of Perkins Coie LLP, regarding certain U.S. tax matters (contained in opinion filed as Exhibit 5.1). 8.2 Opinion of Seward and Kissel, LLP, regarding certain U.S. tax matters. 8.3 Opinion of Watson, Farley & Williams LLP, regarding Marshall Islands tax matters. 8.4 Opinion of Graham, Thompson & Co., regarding Bahamian tax matters. 8.5 Opinion of Appleby Spurling & Kempe, regarding Bermuda tax matters. 8.6 Opinion of Bugge, Arentz-Hansen & Rasmussen, regarding Norwegian tax matters. 10.1 1995 Stock Option Plan.(2) 10.2 Amendment to 1995 Stock Option Plan.(6) 10.3 Amended 1995 Stock Option Plan.(7) 10.4 Form of Indemnification Agreement between Teekay Shipping Corporation and each of its officers and directors.(2) 10.5 Charter Party, as amended, dated September 21, 1989 between Palm Shipping Inc. and BP Shipping Limited.(8) 10.6 Time Charter, as amended, dated July 3, 1995 between VSSI Oceans Inc. and Palm Shipping Inc.(5) 10.7 Time Charter, as amended, dated January 4, 1994 between VSSI Atlantic Inc. and Palm Shipping Inc.(5) 10.8 Time Charter, as amended, dated February 1, 1992 between VSSI Appian Inc. and Palm Shipping Inc.(5) 10.9 Time Charter, as amended, dated December 1, 1993 between Senang Spirit Inc. and Palm Shipping Inc.(5) 10.10 Time Charter, as amended, dated August 1, 1992 between Exuma Spirit Inc. and Palm Shipping Inc.(5) 10.11 Time Charter, as amended, dated May 1, 1992 between Nassau Spirit Inc. and Palm Shipping Inc.(5) 10.12 Time Charter, as amended, dated November 1, 1992 between Andros Spirit Inc. and Palm Shipping Inc.(5) 10.13 Management Agreement, as amended, dated June 1, 1992 between Teekay Shipping Limited and Nassau Spirit Inc.(5)(4) 10.14 Agreement, dated October 3, 1996, for a U.S. $90,000,000 Term Loan Facility to be made available to certain subsidiaries of Teekay Shipping Corporation by Christiania Bank og Kreditkasse, acting through its New York Branch, The Bank of Nova Scotia, and Banque Indosuez.(9)
II-3 182
EXHIBIT NO: DESCRIPTION - ----------- ----------- 10.15 Agreement, dated October 18, 1996, for a U.S. $120,000,000 Term Loan Facility to be made available to certain subsidiaries of Teekay Shipping Corporation by Den Norske Bank ASA, Nederlandse Scheepshypothesbank N.V., The Bank of New York, and Midland Bank plc.(9) 10.16 Agreement, dated January 26, 1998, for a U.S. $200,000,000 Reducing Revolving Credit Facility to be made available to certain wholly-owned subsidiaries of Teekay Shipping Corporation by Den Norske Bank ASA, Christiania Bank og Kreditkasse ASA, New York Branch, and the Bank of Nova Scotia.(10) 10.17 Agreement, dated March 26, 1999, for the amalgamation of Northwest Maritime Inc., a 100% owned subsidiary of Teekay Shipping Corporation, and Bona Shipholding Ltd.(11) 10.18 Agreement, dated April 16, 1998, for a U.S. $30,000,000 Term Loan Facility to be made available to VSSI Australia Limited by Rabo Australia Limited.(1) 10.19 Agreement, dated December 18, 1997, for a U.S. $44,000,000 Term Loan Facility to be made available to Barrington (Australia) Pty Limited and Palmerston (Australia) Pty Limited by Rabo Australia Limited.(1) 10.20 Amended and Restated Reimbursement Agreement, dated April 16, 1998, Among Barrington (Australia) Pty Limited, Palmerston (Australia) Pty Limited, VSSI Australia Limited, VSSI Transport Inc. and Alliance Chartering Pty Limited and Nedship Bank (America) N.V., The Bank of New York and Landesbank Schleswig-Holstein.(1) 10.21 Amendment No. 1, dated May 1999, to Amended and Restated Reimbursement Agreement dated April 16, 1998 among Barrington (Australia) Pty Limited, Palmerston (Australia) Pty Limited, VSSI Australia Limited, VSSI Transport Inc. and Alliance Chartering Pty Limited and Nedship Bank (America) N.V., The Bank of New York and Landesbank Schleswig-Holstein.(1) 10.22 Amended and Restated Agreement, date June 11, 1999, for a $500,000,000 Revolving Loan between Bona Shipholding Ltd., Chase Manhattan plc, Citibank International plc and various other banks.(1) 10.23 Amendment and Restatement Agreement, dated June 11, 1999, relating to a U.S. $500,000,000 Revolving Loan Agreement between Bona Shipholding Ltd., Chase Manhattan plc, Citibank International plc and various other banks.(1) 10.24 Rights Agreement, dated as of September 8, 2000, between Teekay Shipping Corporation and The Bank of New York, as Rights Agent.(12) 10.25 Reimbursement Agreement, dated January 1, 2000, between Fleet Management Inc. and Teekay Shipping Corporation.(10) 10.26 Reimbursement Agreement, dated February 16, 2001, between Karratha Spirit Pty Ltd and Nedship Bank (America) N.V.(13) 10.27 Agreement, dated February 16, 2001, for a U.S. $34,000,000 Term Loan Facility to be made available to Karratha Spirit Pty Ltd by Rabo Australia Limited.(13) 10.28 Form of Exchange Agent Agreement between United States Trust Company of New York, as exchange agent, and Teekay Shipping Corporation.* 12.1 Statement regarding the computation of ratio of earnings to fixed charges for Teekay Shipping Corporation. 15.1 Letter from Ernst & Young, as independent chartered accountants, regarding unaudited interim financial information. 21.1 List of Significant Subsidiaries of Teekay Shipping Company. 23.1 Consent of Perkins Coie, LLP (contained in Exhibit 5.1). 23.2 Consent of Seward and Kissel, LLP (contained in Exhibit 8.2). 23.3 Consent of Watson, Farley & Williams LLP (contained in Exhibit 8.3).
II-4 183
EXHIBIT NO: DESCRIPTION - ----------- ----------- 23.4 Consent of Graham, Thompson & Co. (contained in Exhibit 8.4). 23.5 Consent of Appleby Spurling & Kempe (contained in Exhibit 8.5) 23.6 Consent of Bugge, Arentz-Hansen & Rasmussen (contained in Exhibit 8.6) 23.7 Consent of Ernst & Young LLP. 23.8 Consent of Deloitte & Touche LLP. 24.1 Power of Attorney (contained on signature pages). 25.1 Statement of Eligibility of U.S. Trust Company of Texas, N.A., as trustee. 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery.
- --------------- * To be filed as an amendment. (1) Previously filed as an exhibit to the Company's Annual Report on Form 20-F, filed with the SEC on March 30, 2000, and hereby incorporated by reference to such Annual Report. (2) Previously filed as an exhibit to the Company's Registration Statement on Form F-1 (Registration No. 33-7573-4), filed with the SEC on July 14, 1995, and hereby incorporated by reference to such Registration Statement. (3) Previously filed as an exhibit to the Company's Annual Report on Form 20-F, filed with the SEC on June 4, 1996, and hereby incorporated by reference to such Annual Report. (4) A schedule attached to this exhibit identifies all other documents not required to be filed as exhibits because such other documents are substantially identical to this exhibit. The schedule also sets forth material details by which the omitted documents differ from this exhibit. (5) Previously filed as an exhibit to the Company's Registration Statement on Form F-3 (Registration No. 33-65139), filed with the SEC on January 19, 1996, and hereby incorporated by reference to such Registration Statement. (6) Previously filed as an exhibit to the Company's Report on Form 6-K, filed with the SEC on May 2, 2000, and hereby incorporated by reference to such Report. (7) Previously filed as an exhibit to the Company's Annual Report on Form 20-F, filed with the SEC on April 2, 2001, and hereby incorporated by reference to such Annual Report. (8) Previously filed as an exhibit to the Company's Registration Statement on Form F-1 (Registration No. 33-68680), as declared effective by the SEC on November 29, 1993, and hereby incorporated by reference to such Registration Statement. (9) Previously filed as an exhibit to the Company's Annual Report on Form 20-F, filed with the SEC on June 11, 1997, and hereby incorporated by reference to such Annual Report. (10) Previously filed as an exhibit to the Company's Annual Report on Form 20-F, filed with the SEC on May 20, 1998, and hereby incorporated by reference to such Annual Report. (11) Previously filed as an exhibit to the Company's Annual Report on Form 20-F, filed with the SEC on June 11, 1999, and hereby incorporated by reference to such Annual Report. (12) Previously filed as an exhibit to the Company's Form 8-A, filed with the SEC on September 11, 2000, and hereby incorporated by reference to such filing. (13) Previously filed as an exhibit to the Company's Report on Form 6-K filed with the SEC on May 24, 2001, and hereby incorporated by reference to such report. II-5 184 ITEM 22. UNDERTAKINGS (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers for sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933 (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation form the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. Provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this section do not apply if the registration statement is on Form S-3, Form S-8 or Form F-3, and the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) If the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include any financial statement required by Item 8.A of Form 20-F at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, provided that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or sec.210.3-19 of this chapter if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of 1934), that is incorporated by reference in this registration statement shall be deemed to be a new II-6 185 registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. (d) The undersigned registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form F-4, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (e) The undersigned registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-7 186 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Vancouver, British Columbia, Canada, on the 10th day of July, 2001. TEEKAY SHIPPING CORPORATION /s/ BJORN MOLLER By: -------------------------------------- Bjorn Moller, President and Chief Executive Officer II-8 187 POWER OF ATTORNEY Each person whose individual signature appears below hereby authorizes and appoints Bjorn Moller and Peter Antturi, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file, any and all amendments to this Registration Statement, including any and all post-effective amendments, and any registration statement relating to the same offering as this Registration Statement that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes, may lawfully do or cause to be done by virtue thereof. Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities indicated below on the 10th day of July, 2001.
SIGNATURE TITLE --------- ----- /s/ BJORN MOLLER President, Chief Executive Officer and Director - --------------------------------------------- Bjorn Moller /s/ PETER ANTTURI Chief Financial Officer, Vice President, Treasurer - --------------------------------------------- and Principal Financial and Accounting Officer Peter Antturi /s/ C. SEAN DAY Director and Chairman of the Board - --------------------------------------------- C. Sean Day /s/ ALEX KARLSHOEJ Director and Authorized Representative in - --------------------------------------------- the United States Alex Karlshoej /s/ BRUCE C. BELL Director and Corporate Secretary - --------------------------------------------- Bruce C. Bell /s/ DR. IAN D. BLACKBURNE Director - --------------------------------------------- Dr. Ian D. Blackburne Director - --------------------------------------------- Morris L. Feder Director - --------------------------------------------- Thomas Kuo-Yuen Hsu /s/ LEIF O. HOEGH Director - --------------------------------------------- Leif O. Hoegh Director - --------------------------------------------- Eileen A. Mercier
II-9 188 EXHIBIT INDEX
EXHIBIT NO: DESCRIPTION - ----------- ----------- 3.1 Amended and Restated Articles of Incorporation of Teekay Shipping Corporation. (1) 3.2 Articles of Amendment of Articles of Incorporation of Teekay Shipping Corporation. (1) 3.3 Amended and Restated Bylaws of Teekay Shipping Corporation. (1) 4.1 Registration Rights Agreement among Teekay Shipping Corporation, Tradewinds Trust Co. Ltd., as Trustee for the Cirrus Trust, and Worldwide Trust Services Ltd., as Trustee for the JTK Trust. (2) 4.2 Specimen of Teekay Shipping Corporation Common Stock Certificate. (2) 4.3 Indenture dated January 29, 1996 among Teekay Shipping Corporation, VSSI Oceans Inc., VSSI Atlantic Inc., VSSI Appian Inc., Senang Spirit Inc., Exuma Spirit Inc., Nassau Spirit Inc., Andros Spirit Inc. and United States Trust Company of New York, as Trustee. (3) 4.4 Specimen of Teekay Shipping Corporation's 8.32% First Preferred Ship Mortgage Notes Due 2008. (3) 4.5 Bahamian Statutory Ship Mortgage dated January 29, 1996 by Nassau Spirit Inc. to United States Trust Company of New York. (3)(4) 4.6 Deed of Covenants dated January 29, 1996 by Nassau Spirit Inc. to United States Trust Company of New York. (3)(4) 4.7 First Preferred Ship Mortgage dated January 29, 1996 by VSSI Oceans Inc. to United States Trust Company of New York, as Trustee. (5) 4.8 Assignment of Time Charter dated January 29, 1996 by Nassau Spirit Inc. to United States Trust Company of New York, as Trustee. (3)(4) 4.9 Assignment of Insurance dated January 29, 1996 by Nassau Spirit Inc. to United States Trust Company of New York, as Trustee. (3)(4) 4.10 Pledge Agreement and Irrevocable Proxy dated January 29, 1996 by Teekay Shipping Corporation in favor of United States Trust Company of New York, as Trustee. (3) 4.11 Guarantee dated January 29, 1996 by Nassau Spirit Inc. in favor of United States Trust Company of New York, as Trustee. (3)(4) 4.12 Assignment of Freights and Hires dated January 29, 1996 by Nassau Spirit Inc. to United States Trust Company of New York, as Trustee. (3)(4) 4.13 Cash Collateral Account Agreement dated January 29, 1996 between Nassau Spirit Inc. and United States Trust Company of New York, as Trustee. (3)(4) 4.14 Investment Account Agreement dated January 29, 1996 between Teekay Shipping Corporation and United States Trust Company of New York, as Trustee. (3) 4.15 Indenture dated June 22, 2001 among Teekay Shipping Corporation and U.S. Trust Company of Texas, N.A. 4.16 Exchange and Registration Rights Agreement dated June 22, 2001 among Teekay Shipping Corporation and Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc., Deutsche Banc Alex. Brown Inc., J.P. Morgan Securities Inc., Fleet Securities, Inc. and Scotia Capital (USA) Inc. 4.17 Specimen of Teekay Shipping Corporation's 8.875% Senior Notes due 2011. 5.1 Opinion of Perkins Coie LLP, special counsel to the registrant, as to the legality under U.S. law of the notes being offered by Teekay Shipping Corporation. 8.1 Opinion of Perkins Coie LLP, regarding certain U.S. tax matters (contained in opinion filed as Exhibit 5.1).
189
EXHIBIT NO: DESCRIPTION - ----------- ----------- 8.2 Opinion of Seward and Kissel, LLP, regarding certain U.S. tax matters. 8.3 Opinion of Watson, Farley & Williams LLP, regarding Marshall Islands tax matters. 8.4 Opinion of Graham, Thompson & Co., regarding Bahamian tax matters. 8.5 Opinion of Appleby Spurling & Kempe, regarding Bermuda tax matters. 8.6 Opinion of Bugge, Arentz-Hansen & Rasmussen, regarding Norwegian tax matters. 10.1 1995 Stock Option Plan. (2) 10.2 Amendment to 1995 Stock Option Plan. (6) 10.3 Amended 1995 Stock Option Plan. (7) 10.4 Form of Indemnification Agreement between Teekay Shipping Corporation and each of its officers and directors. (2) 10.5 Charter Party, as amended, dated September 21, 1989 between Palm Shipping Inc. and BP Shipping Limited. (8) 10.6 Time Charter, as amended, dated July 3, 1995 between VSSI Oceans Inc. and Palm Shipping Inc. (5) 10.7 Time Charter, as amended, dated January 4, 1994 between VSSI Atlantic Inc. and Palm Shipping Inc. (5) 10.8 Time Charter, as amended, dated February 1, 1992 between VSSI Appian Inc. and Palm Shipping Inc. (5) 10.9 Time Charter, as amended, dated December 1, 1993 between Senang Spirit Inc. and Palm Shipping Inc. (5) 10.10 Time Charter, as amended, dated August 1, 1992 between Exuma Spirit Inc. and Palm Shipping Inc. (5) 10.11 Time Charter, as amended, dated May 1, 1992 between Nassau Spirit Inc. and Palm Shipping Inc. (5) 10.12 Time Charter, as amended, dated November 1, 1992 between Andros Spirit Inc. and Palm Shipping Inc. (5) 10.13 Management Agreement, as amended, dated June 1, 1992 between Teekay Shipping Limited and Nassau Spirit Inc. (5)(4) 10.14 Agreement, dated October 3, 1996, for a U.S. $90,000,000 Term Loan Facility to be made available to certain subsidiaries of Teekay Shipping Corporation by Christiania Bank og Kreditkasse, acting through its New York Branch, The Bank of Nova Scotia, and Banque Indosuez. (9) 10.15 Agreement, dated October 18, 1996, for a U.S. $120,000,000 Term Loan Facility to be made available to certain subsidiaries of Teekay Shipping Corporation by Den Norske Bank ASA, Nederlandse Scheepshypothesbank N.V., The Bank of New York, and Midland Bank plc. (9) 10.16 Agreement, dated January 26, 1998, for a U.S. $200,000,000 Reducing Revolving Credit Facility to be made available to certain wholly-owned subsidiaries of Teekay Shipping Corporation by Den Norske Bank ASA, Christiania Bank og Kreditkasse ASA, New York Branch, and the Bank of Nova Scotia. (10) 10.17 Agreement, dated March 26, 1999, for the amalgamation of Northwest Maritime Inc., a 100% owned subsidiary of Teekay Shipping Corporation, and Bona Shipholding Ltd. (11) 10.18 Agreement, dated April 16, 1998, for a U.S. $30,000,000 Term Loan Facility to be made available to VSSI Australia Limited by Rabo Australia Limited. (1)
190
10.19 Agreement, dated December 18, 1997, for a U.S. $44,000,000 Term Loan Facility to be made available to Barrington (Australia) Pty Limited and Palmerston (Australia) Pty Limited by Rabo Australia Limited. (1) 10.20 Amended and Restated Reimbursement Agreement, dated April 16, 1998, Among Barrington (Australia) Pty Limited, Palmerston (Australia) Pty Limited, VSSI Australia Limited, VSSI Transport Inc. and Alliance Chartering Pty Limited and Nedship Bank (America) N.V., The Bank of New York and Landesbank Schleswig-Holstein. (1) 10.21 Amendment No. 1, dated May 1999, to Amended and Restated Reimbursement Agreement dated April 16, 1998 among Barrington (Australia) Pty Limited, Palmerston (Australia) Pty Limited, VSSI Australia Limited, VSSI Transport Inc. and Alliance Chartering Pty Limited and Nedship Bank (America) N.V., The Bank of New York and Landesbank Schleswig-Holstein. (1) 10.22 Amended and Restated Agreement, date June 11, 1999, for a $500,000,000 Revolving Loan between Bona Shipholding Ltd., Chase Manhattan plc, Citibank International plc and various other banks. (1) 10.23 Amendment and Restatement Agreement, dated June 11, 1999, relating to a U.S. $500,000,000 Revolving Loan Agreement between Bona Shipholding Ltd., Chase Manhattan plc, Citibank International plc and various other banks. (1) 10.24 Rights Agreement, dated as of September 8, 2000, between Teekay Shipping Corporation and The Bank of New York, as Rights Agent. (12) 10.25 Reimbursement Agreement, dated January 1, 2000, between Fleet Management Inc. and Teekay Shipping Corporation. 10) 10.26 Reimbursement Agreement, dated February 16, 2001, between Karratha Spirit Pty Ltd and Nedship Bank (America) N.V. (13) 10.27 Agreement, dated February 16, 2001, for a U.S. $34,000,000 Term Loan Facility to be made available to Karratha Spirit Pty Ltd by Rabo Australia Limited. (13) 10.28 Form of Exchange Agent Agreement between United States Trust Company of New York, as exchange agent, and Teekay Shipping Corporation.* 12.1 Statement regarding the computation of ratio of earnings to fixed charges for Teekay Shipping Corporation. 15.1 Letter from Ernst & Young, as independent chartered accountants, regarding unaudited interim financial information. 21.1 List of Significant Subsidiaries of Teekay Shipping Company. 23.1 Consent of Perkins Coie, LLP (contained in Exhibit 5.1). 23.2 Consent of Seward and Kissel, LLP (contained in Exhibit 8.2). 23.3 Consent of Watson, Farley & Williams LLP (contained in Exhibit 8.3). 23.4 Consent of Graham, Thompson & Co. (contained in Exhibit 8.4). 23.5 Consent of Appleby Spurling & Kempe (contained in Exhibit 8.5) 23.6 Consent of Bugge, Arentz-Hansen & Rasmussen (contained in Exhibit 8.6) 23.7 Consent of Ernst & Young LLP. 23.8 Consent of Deloitte & Touche LLP. 24.1 Power of Attorney (contained on signature pages). 25.1 Statement of Eligibility of U.S. Trust Company of Texas, N.A., as trustee. 99.1 Form of Letter of Transmittal. 99.2 Form of Notice of Guaranteed Delivery.
- --------------- * To be filed as an amendment. 191 (1) Previously filed as an exhibit to the Company's Annual Report on Form 20-F, filed with the SEC on March 30, 2000, and hereby incorporated by reference to such Annual Report. (2) Previously filed as an exhibit to the Company's Registration Statement on Form F-1 (Registration No. 33-7573-4), filed with the SEC on July 14, 1995, and hereby incorporated by reference to such Registration Statement. (3) Previously filed as an exhibit to the Company's Annual Report on Form 20-F, filed with the SEC on June 4, 1996, and hereby incorporated by reference to such Annual Report. (4) A schedule attached to this exhibit identifies all other documents not required to be filed as exhibits because such other documents are substantially identical to this exhibit. The schedule also sets forth material details by which the omitted documents differ from this exhibit. (5) Previously filed as an exhibit to the Company's Registration Statement on Form F-3 (Registration No. 33-65139), filed with the SEC on January 19, 1996, and hereby incorporated by reference to such Registration Statement. (6) Previously filed as an exhibit to the Company's Report on Form 6-K, filed with the SEC on May 2, 2000, and hereby incorporated by reference to such Report. (7) Previously filed as an exhibit to the Company's Annual Report on Form 20-F, filed with the SEC on April 2, 2001, and hereby incorporated by reference to such Annual Report. (8) Previously filed as an exhibit to the Company's Registration Statement on Form F-1 (Registration No. 33-68680), as declared effective by the SEC on November 29, 1993, and hereby incorporated by reference to such Registration Statement. (9) Previously filed as an exhibit to the Company's Annual Report on Form 20-F, filed with the SEC on June 11, 1997, and hereby incorporated by reference to such Annual Report. (10) Previously filed as an exhibit to the Company's Annual Report on Form 20-F, filed with the SEC on May 20, 1998, and hereby incorporated by reference to such Annual Report. (11) Previously filed as an exhibit to the Company's Annual Report on Form 20-F, filed with the SEC on June 11, 1999, and hereby incorporated by reference to such Annual Report. (12) Previously filed as an exhibit to the Company's Form 8-A, filed with the SEC on September 11, 2000, and hereby incorporated by reference to such filing. (13) Previously filed as an exhibit to the Company's Report on Form 6-K filed with the SEC on May 24, 2001, and hereby incorporated by reference to such report. EX-4.15 2 o05789ex4-15.txt EXHIBIT 4.15 1 EXHIBIT 4.15 TEEKAY SHIPPING CORPORATION 8.875% SENIOR NOTES DUE JULY 15, 2011 EXCHANGE AND REGISTRATION RIGHTS AGREEMENT June 22, 2001 Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated Salomon Smith Barney Inc. Deutsche Banc Alex. Brown Inc. J.P. Morgan Securities Inc. Fleet Securities, Inc. Scotia Capital (USA) Inc. c/o Goldman, Sachs & Co. 85 Broad Street New York, New York 10004 Ladies and Gentlemen: Teekay Shipping Corporation, a Marshall Islands corporation (the "Company"), proposes to issue and sell to the Purchasers (as defined herein) upon the terms set forth in the Purchase Agreement (as defined herein) its 8.875% Senior Notes due July 15, 2011. As an inducement to the Purchasers to enter into the Purchase Agreement and in satisfaction of a condition to the obligations of the Purchasers thereunder, the Company agrees with the Purchasers for the benefit of holders (as defined herein) from time to time of the Registrable Securities (as defined herein) as follows: 1. Certain Definitions. For purposes of this Exchange and Registration Rights Agreement, the following terms shall have the following respective meanings: "Base Interest" shall mean the interest that would otherwise accrue on the Securities under the terms thereof and the Indenture, without giving effect to the provisions of this Agreement. The term "broker-dealer" shall mean any broker or dealer registered with the Commission under the Exchange Act. "Closing Date" shall mean the date on which the Securities are initially issued. "Commission" shall mean the United States Securities and Exchange Commission, or any other federal agency at the time administering the Exchange Act or the Securities Act, whichever is the relevant statute for the particular purpose. "Effective Time," in the case of (i) an Exchange Registration, shall mean the time and date as of which the Commission declares the Exchange Registration Statement effective or as of which the Exchange Registration Statement otherwise becomes effective and (ii) a 2 Shelf Registration, shall mean the time and date as of which the Commission declares the Shelf Registration Statement effective or as of which the Shelf Registration Statement otherwise becomes effective. "Electing Holder" shall mean any holder of Registrable Securities that has returned a completed and signed Notice and Questionnaire to the Company in accordance with Section 3(d)(ii) or 3(d)(iii) hereof. "Exchange Act" shall mean the Securities Exchange Act of 1934, or any successor thereto, as the same shall be amended from time to time. "Exchange Offer" shall have the meaning assigned thereto in Section 2(a) hereof. "Exchange Registration" shall have the meaning assigned thereto in Section 3(c) hereof. "Exchange Registration Statement" shall have the meaning assigned thereto in Section 2(a) hereof. "Exchange Securities" shall have the meaning assigned thereto in Section 2(a) hereof. The term "holder" shall mean each of the Purchasers and other persons who acquire Registrable Securities from time to time (including any successors or assigns), in each case for so long as such person owns any Registrable Securities. "Indenture" shall mean the Indenture, dated as of June 22, 2001, between the Company and U. S. Trust Company of Texas, N.A., as Trustee, as the same shall be amended from time to time. "Notice and Questionnaire" means a Notice of Registration Statement and Selling Securityholder Questionnaire substantially in the form of Exhibit A hereto and as may be supplemented in any manner advisable to meet the requirements of the Securities Act, including items 507 and 508 of Regulation S-K. The term "person" shall mean a corporation, association, partnership, organization, business, individual, government or political subdivision thereof or governmental agency. "Purchase Agreement" shall mean the Purchase Agreement, dated as of June 18, 2001, between the Purchasers and the Company relating to the Securities. "Purchasers" shall mean the Purchasers named in Schedule I to the Purchase Agreement. "Registrable Securities" shall mean the Securities; provided, however, that a Security shall cease to be a Registrable Security when (i) in the circumstances contemplated by Section 2(a) hereof, the Security has been exchanged for an Exchange Security in an Exchange Offer as contemplated in Section 2(a) hereof (provided that any Exchange Security that, pursuant to the last two sentences of Section 2(a), is included in a prospectus for use in connection with resales by broker-dealers shall be deemed to be a Registrable Security with 2 3 respect to Sections 5, 6 and 9 until resale, if any, of such Registrable Security has been effected within the 180-day period referred to in Section 2(a)); (ii) in the circumstances contemplated by Section 2(b) hereof, a Shelf Registration Statement registering such Security under the Securities Act has been declared or becomes effective and such Security has been sold or otherwise transferred by the holder thereof pursuant to and in a manner contemplated by such effective Shelf Registration Statement; (iii) such Security is sold pursuant to Rule 144 under circumstances in which any legend borne by such Security relating to restrictions on transferability thereof, under the Securities Act or otherwise, is removed by the Company or pursuant to the Indenture; (iv) such Security is eligible to be sold pursuant to paragraph (k) of Rule 144; or (v) such Security shall cease to be outstanding. "Registration Default" shall have the meaning assigned thereto in Section 2(c) hereof. "Registration Expenses" shall have the meaning assigned thereto in Section 4 hereof. "Resale Period" shall have the meaning assigned thereto in Section 2(a) hereof. "Restricted Holder" shall mean (i) a holder that is an affiliate of the Company within the meaning of Rule 405, (ii) a holder who acquires Exchange Securities outside the ordinary course of such holder's business, (iii) a holder who has arrangements or understandings with any person to participate in the Exchange Offer for the purpose of distributing Exchange Securities and (iv) a holder that is a broker-dealer, but only with respect to Exchange Securities received by such broker-dealer pursuant to an Exchange Offer in exchange for Registrable Securities acquired by the broker-dealer directly from the Company. "Rule 144," "Rule 405" and "Rule 415" shall mean, in each case, such rule promulgated under the Securities Act (or any successor provision), as the same shall be amended from time to time. "Securities" shall mean, collectively, the 8.875% Senior Notes due July 15, 2011 of the Company to be issued and sold to the Purchasers pursuant to the Purchase Agreement, and securities issued in exchange therefor or in lieu thereof pursuant to the Indenture. "Securities Act" shall mean the Securities Act of 1933, or any successor thereto, as the same shall be amended from time to time. "Shelf Registration" shall have the meaning assigned thereto in Section 2(b) hereof. "Shelf Registration Statement" shall have the meaning assigned thereto in Section 2(b) hereof. "Special Interest" shall have the meaning assigned thereto in Section 2(c) hereof. "Trust Indenture Act" shall mean the Trust Indenture Act of 1939, or any successor thereto, and the rules, regulations and forms promulgated thereunder, all as the same shall be amended from time to time. 3 4 Unless the context otherwise requires, any reference herein to a "Section" or "clause" refers to a Section or clause, as the case may be, of this Exchange and Registration Rights Agreement, and the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Exchange and Registration Rights Agreement as a whole and not to any particular Section or other subdivision. 2. Registration Under the Securities Act. (a) Except as set forth in Section 2(b) below, the Company agrees to file under the Securities Act, as soon as practicable, but no later than 60 days after the Closing Date, a registration statement relating to an offer to exchange (such registration statement, the "Exchange Registration Statement", and such offer, the "Exchange Offer") any and all of the Registrable Securities for a like aggregate principal amount of debt securities issued by the Company, which debt securities are substantially identical to the Securities (and are entitled to the benefits of a trust indenture which is substantially identical to the Indenture or is the Indenture and which has been qualified under the Trust Indenture Act), except that they have been registered pursuant to an effective registration statement under the Securities Act and do not contain provisions for the additional interest contemplated in Section 2(c) below (such new debt securities hereinafter called "Exchange Securities"). The Company agrees to use its best efforts to cause the Exchange Registration Statement to become effective under the Securities Act as soon as practicable, but no later than 180 days after the Closing Date. The Exchange Offer will be registered under the Securities Act on the appropriate form and will comply with all applicable tender offer rules and regulations under the Exchange Act. The Company further agrees to use its best efforts to commence and complete the Exchange Offer promptly, but no later than 60 days after such registration statement has become effective, hold the Exchange Offer open for at least 30 days and exchange Exchange Securities for all Registrable Securities that have been properly tendered and not withdrawn on or prior to the expiration of the Exchange Offer. The Exchange Offer will be deemed to have been "completed" only if the debt securities received by holders other than Restricted Holders in the Exchange Offer for Registrable Securities are, upon receipt, transferable by each such holder without restriction under the Securities Act and the Exchange Act and without material restrictions under the blue sky or securities laws of a substantial majority of the States of the United States of America. The Exchange Offer shall be deemed to have been completed upon the earlier to occur of (i) the Company having exchanged the Exchange Securities for all outstanding Registrable Securities pursuant to the Exchange Offer and (ii) the Company having exchanged, pursuant to the Exchange Offer, Exchange Securities for all Registrable Securities that have been properly tendered and not withdrawn before the expiration of the Exchange Offer, which shall be on a date that is at least 30 days following the commencement of the Exchange Offer. The Company agrees (x) to include in the Exchange Registration Statement a prospectus for use in any resales by any holder of Exchange Securities that is a broker-dealer and (y) to keep such Exchange Registration Statement effective for a period (the "Resale Period") beginning when Exchange Securities are first issued in the Exchange Offer and ending upon the earlier of the expiration of the 180th day after the Exchange Offer has been completed or such time as such broker-dealers no longer own any Registrable Securities. With respect to such Exchange Registration Statement, such holders shall have the benefit of the rights of indemnification and contribution set forth in Sections 6(a), (c), (d) and (e) hereof. 4 5 (b) If (i) on or prior to the time the Exchange Offer is completed, existing Commission interpretations are changed such that the debt securities received by holders other than Restricted Holders in the Exchange Offer for Registrable Securities are not or would not be, upon receipt, transferable by each such holder without restriction under the Securities Act, (ii) the Exchange Offer has not been completed within 240 days following the Closing Date, or (iii) the Exchange Offer is not available to any holder of the Securities, the Company shall, in lieu of (or, in the case of clause (iii), in addition to) conducting the Exchange Offer contemplated by Section 2(a), file under the Securities Act as soon as practicable, but no later than the later of 30 days after the time such obligation to file arises, a "shelf" registration statement providing for the registration of, and the sale on a continuous or delayed basis by the holders of, all of the Registrable Securities, pursuant to Rule 415 or any similar rule that may be adopted by the Commission (such filing, the "Shelf Registration" and such registration statement, the "Shelf Registration Statement"). The Company agrees to use its best efforts (x) to cause the Shelf Registration Statement to become or be declared effective no later than 120 days after such Shelf Registration Statement is filed and to keep such Shelf Registration Statement continuously effective for a period ending on the earlier of the second anniversary of the Effective Time or such time as there are no longer any Registrable Securities outstanding, provided, however, that no holder shall be entitled to be named as a selling securityholder in the Shelf Registration Statement or to use the prospectus forming a part thereof for resales of Registrable Securities unless such holder is an Electing Holder, and (y) after the Effective Time of the Shelf Registration Statement, reasonably promptly upon the request of any holder of Registrable Securities that is not then an Electing Holder, to take any action reasonably necessary to enable such holder to use the prospectus forming a part thereof for resales of Registrable Securities, including, without limitation, any action reasonably necessary to identify such holder as a selling securityholder in the Shelf Registration Statement, provided, however, that nothing in this Clause (y) shall relieve any such holder of the obligation to return a completed and signed Notice and Questionnaire to the Company in accordance with Section 3(d)(iii) hereof. The Company further agrees to supplement or make amendments to the Shelf Registration Statement, as and when required by the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement or by the Securities Act or rules and regulations thereunder for shelf registration, and the Company agrees to furnish to each Electing Holder copies of any such supplement or amendment prior to its being used or promptly following its filing with the Commission. (c) In the event that with respect to Registrable Securities (i) the Company has not filed the Exchange Registration Statement or Shelf Registration Statement on or before the date on which such registration statement is required to be filed pursuant to Section 2(a) or 2(b), respectively, or (ii) such Exchange Registration Statement or Shelf Registration Statement has not become effective or been declared effective by the Commission on or before the date on which such registration statement is required to become or be declared effective pursuant to Section 2(a) or 2(b), respectively, or (iii) the Exchange Offer has not been completed within 60 days after the initial effective date of the Exchange Registration Statement relating to the Exchange Offer (if the Exchange Offer is then required to be made), or (iv) any Exchange Registration Statement or Shelf Registration Statement required by Section 2(a) or 2(b) hereof is filed and declared effective but shall thereafter either be withdrawn by the Company or shall become subject to an effective stop order issued pursuant to Section 8(d) of the Securities Act suspending the effectiveness of such registration 5 6 statement (except as specifically permitted herein) without being succeeded immediately by an additional registration statement filed and declared effective (each such event referred to in clauses (i) through (iv), a "Registration Default" and each period during which a Registration Default has occurred and is continuing, a "Registration Default Period"), then, as liquidated damages for such Registration Default, subject to the provisions of Section 9(b), special interest ("Special Interest"), in addition to the Base Interest, shall accrue at a per annum rate of 0.5% for the first 90 days of the Registration Default Period and at a per annum rate of 1.0% for the second 90 days of the Registration Default Period and at a per annum rate of 1.5% thereafter for the remaining portion of the Registration Default Period. Upon the cure of the Registration Default, including as a result of Registrable Securities ceasing to be Registrable Securities, the Special Interest shall no longer accrue, provided, however, that if, after any such cure, a different Registration Default occurs, then the Special Interest shall again accrue in accordance with this Section 2(c). (d) The Company shall take all actions necessary or advisable to be taken by it to ensure that the transactions contemplated herein are effected as so contemplated. (e) Any reference herein to a registration statement as of any time shall be deemed to include any document incorporated, or deemed to be incorporated, therein by reference as of such time and any reference herein to any post-effective amendment to a registration statement as of any time shall be deemed to include any document incorporated, or deemed to be incorporated, therein by reference as of such time. 3. Registration Procedures. If the Company files a registration statement pursuant to Section 2(a) or Section 2(b), the following provisions shall apply: (a) At or before the Effective Time of the Exchange Offer or the Shelf Registration, as the case may be, the Company shall qualify the Indenture under the Trust Indenture Act. (b) In the event that such qualification would require the appointment of a new trustee under the Indenture, the Company shall appoint a new trustee thereunder pursuant to the applicable provisions of the Indenture. (c) In connection with the Company's obligations with respect to the registration of Exchange Securities as contemplated by Section 2(a) (the "Exchange Registration"), if applicable, the Company shall, as soon as practicable (or as otherwise specified): (i) prepare and file with the Commission, as soon as practicable but no later than 60 days after the Closing Date, an Exchange Registration Statement on any form which may be utilized by the Company and which shall permit the Exchange Offer and resales of Exchange Securities by broker-dealers during the Resale Period to be effected as contemplated by Section 2(a), and use its best efforts to cause such Exchange Registration Statement to become effective as soon as practicable thereafter, but no later than 180 days after the Closing Date; 6 7 (ii) as soon as practicable prepare and file with the Commission such amendments and supplements to such Exchange Registration Statement and the prospectus included therein as may be necessary to effect and maintain the effectiveness of such Exchange Registration Statement for the periods and purposes contemplated in Section 2(a) hereof and as may be required by the applicable rules and regulations of the Commission and the instructions applicable to the form of such Exchange Registration Statement, and promptly provide each broker-dealer holding Exchange Securities with such number of copies of the prospectus included therein (as then amended or supplemented), in conformity in all material respects with the requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder, as such broker-dealer reasonably may request prior to the expiration of the Resale Period, for use in connection with resales of Exchange Securities; (iii) promptly notify each broker-dealer that has requested or received copies of the prospectus included in such registration statement, and confirm such advice in writing, (A) when such Exchange Registration Statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such Exchange Registration Statement or any post-effective amendment, when the same has become effective, (B) of the receipt of any comments by the Commission and by the blue sky or securities commissioner or regulator of any state with respect thereto or any request by the Commission for amendments or supplements to such Exchange Registration Statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effectiveness of such Exchange Registration Statement or the initiation or threatening of any proceedings for that purpose, (D) if at any time the representations and warranties of the Company contemplated by Section 5 cease to be true and correct in all material respects, (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Exchange Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (F) at any time during the Resale Period when a prospectus is required to be delivered under the Securities Act, that such Exchange Registration Statement, prospectus, prospectus amendment or supplement or post-effective amendment does not conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder or contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (iv) in the event that the Company would be required, pursuant to Section 3(e)(iii)(F) above, to notify any broker-dealers holding Exchange Securities, promptly prepare and furnish to each such holder a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to purchasers of such Exchange Securities during the Resale Period, such prospectus shall conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder and shall not contain an untrue statement of a material fact or omit to state a material fact 7 8 required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (v) use its best efforts to obtain the withdrawal of any order suspending the effectiveness of such Exchange Registration Statement or any post-effective amendment thereto at the earliest practicable date; (vi) use its best efforts to (A) register or qualify the Exchange Securities under the securities laws or blue sky laws of such jurisdictions as are contemplated by Section 2(a) no later than the commencement of the Exchange Offer, (B) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers, sales and dealings therein in such jurisdictions until the expiration of the Resale Period and (C) take any and all other actions as may be reasonably necessary or advisable to enable each broker-dealer holding Exchange Securities to consummate the disposition thereof in such jurisdictions; provided, however, that the Company shall not be required for any such purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 3(c)(vi), (2) consent to general service of process in any such jurisdiction or (3) make any changes to its certificate of incorporation or by-laws or any agreement between it and its stockholders; (vii) use its best efforts to obtain the consent or approval of each governmental agency or authority, whether federal, state or local, which may be required to effect the Exchange Registration, the Exchange Offer and the offering and sale of Exchange Securities by broker-dealers during the Resale Period; (viii) provide a CUSIP number for all Exchange Securities, not later than the applicable Effective Time; (ix) comply with all applicable rules and regulations of the Commission, and make generally available to its securityholders as soon as practicable but no later than eighteen months after the effective date of such Exchange Registration Statement, an earning statement of the Company and its subsidiaries complying with Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder). (d) In connection with the Company's obligations with respect to the Shelf Registration, if applicable, the Company shall, as soon as practicable (or as otherwise specified): (i) prepare and file with the Commission, as soon as practicable but in any case within the time periods specified in Section 2(b), a Shelf Registration Statement on any form which may be utilized by the Company and which shall register all of the Registrable Securities for resale by the holders thereof in accordance with such method or methods of disposition as may be specified by such of the holders as, from time to time, may be Electing Holders and use its best efforts to cause such Shelf Registration Statement to become effective as soon as practicable but in any case within the time periods specified in Section 2(b); 8 9 (ii) not less than 30 calendar days prior to the Effective Time of the Shelf Registration Statement, mail the Notice and Questionnaire to the holders of Registrable Securities; no holder shall be entitled to be named as a selling securityholder in the Shelf Registration Statement as of the Effective Time, and no holder shall be entitled to use the prospectus forming a part thereof for resales of Registrable Securities at any time, unless such holder has returned a completed and signed Notice and Questionnaire to the Company by the deadline for response set forth therein; provided, however, holders of Registrable Securities shall have at least 28 calendar days from the date on which the Notice and Questionnaire is first mailed to such holders to return a completed and signed Notice and Questionnaire to the Company; (iii) after the Effective Time of the Shelf Registration Statement, upon the request of any holder of Registrable Securities that is not then an Electing Holder, promptly send a Notice and Questionnaire to such holder; provided that the Company shall not be required to take any action to name such holder as a selling securityholder in the Shelf Registration Statement or to enable such holder to use the prospectus forming a part thereof for resales of Registrable Securities until such holder has returned a completed and signed Notice and Questionnaire to the Company; (iv) as soon as practicable prepare and file with the Commission such amendments and supplements to such Shelf Registration Statement and the prospectus included therein as may be necessary to effect and maintain the effectiveness of such Shelf Registration Statement for the period specified in Section 2(b) hereof and as may be required by the applicable rules and regulations of the Commission and the instructions applicable to the form of such Shelf Registration Statement, and furnish to the Electing Holders copies of any such supplement or amendment simultaneously with or prior to its being used or filed with the Commission; (v) comply with the provisions of the Securities Act with respect to the disposition of all of the Registrable Securities covered by such Shelf Registration Statement in accordance with the intended methods of disposition by the Electing Holders provided for in such Shelf Registration Statement; (vi) provide (A) the Electing Holders, (B) the underwriters (which term, for purposes of this Exchange and Registration Rights Agreement, shall include a person deemed to be an underwriter within the meaning of Section 2(a)(11) of the Securities Act), if any, thereof, (C) any sales or placement agent therefor, (D) counsel for any such underwriter or agent and (E) not more than one counsel for all the Electing Holders the opportunity to review and comment on such Shelf Registration Statement, each prospectus included therein or filed with the Commission and each amendment or supplement thereto for a period of at least ten calendar days; (vii) for a reasonable period prior to the filing of such Shelf Registration Statement, and throughout the period specified in Section 2(b), make available at 9 10 reasonable times at the Company's principal place of business or such other reasonable place for inspection by the persons referred to in Section 3(d)(vi) who shall certify to the Company that they have a current intention to sell the Registrable Securities pursuant to the Shelf Registration such financial and other information and books and records of the Company, and cause the officers, employees, counsel and independent certified public accountants of the Company to respond to such inquiries, as shall be reasonably necessary, in the judgment of the respective counsel referred to in such Section, to conduct a reasonable investigation within the meaning of Section 11 of the Securities Act; provided, however, that each such party shall be required to maintain in confidence and not to disclose to any other person any information or records reasonably designated by the Company as being confidential, until such time as (A) such information becomes a matter of public record (whether by virtue of its inclusion in such registration statement or otherwise), or (B) such person shall be required so to disclose such information pursuant to a subpoena or order of any court or other governmental agency or body having jurisdiction over the matter (subject to the requirements of such order, and only after such person shall have given the Company prompt prior written notice of such requirement), or (C) such information is required to be set forth in such Shelf Registration Statement or the prospectus included therein or in an amendment to such Shelf Registration Statement or an amendment or supplement to such prospectus in order that such Shelf Registration Statement, prospectus, amendment or supplement, as the case may be, complies with applicable requirements of the federal securities laws and the rules and regulations of the Commission and does not contain an untrue statement of a material fact or omit to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (viii) promptly notify each of the Electing Holders, any sales or placement agent therefor and any underwriter thereof (which notification may be made through any managing underwriter that is a representative of such underwriter for such purpose) and confirm such advice in writing, (A) when such Shelf Registration Statement or the prospectus included therein or any prospectus amendment or supplement or post-effective amendment has been filed, and, with respect to such Shelf Registration Statement or any post-effective amendment, when the same has become effective, (B) of the receipt of any comments by the Commission and by the blue sky or securities commissioner or regulator of any state with respect thereto or any request by the Commission for amendments or supplements to such Shelf Registration Statement or prospectus or for additional information, (C) of the issuance by the Commission of any stop order suspending the effectiveness of such Shelf Registration Statement or the initiation or threatening of any proceedings for that purpose, (D) if at any time the representations and warranties of the Company contemplated by Section 3(d)(xvii) or Section 5 cease to be true and correct in all material respects, (E) of the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, or (F) if at any time when a prospectus is required to be delivered under the Securities Act, that such Shelf Registration Statement, prospectus, prospectus amendment or supplement or post-effective amendment does not conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission 10 11 thereunder or contains an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; (ix) use its best efforts to obtain the withdrawal of any order suspending the effectiveness of such registration statement or any post-effective amendment thereto at the earliest practicable date; (x) if requested by any managing underwriter or underwriters, any placement or sales agent or any Electing Holder, promptly incorporate in a prospectus supplement or post-effective amendment such information as is required by the applicable rules and regulations of the Commission and as such managing underwriter or underwriters, such agent or such Electing Holder specifies should be included therein relating to the terms of the sale of such Registrable Securities, including information with respect to the principal amount of Registrable Securities being sold by such Electing Holder or agent or to any underwriters, the name and description of such Electing Holder, agent or underwriter, the offering price of such Registrable Securities and any discount, commission or other compensation payable in respect thereof, the purchase price being paid therefor by such underwriters and with respect to any other terms of the offering of the Registrable Securities to be sold by such Electing Holder or agent or to such underwriters; and make all required filings of such prospectus supplement or post-effective amendment promptly after notification of the matters to be incorporated in such prospectus supplement or post-effective amendment; (xi) furnish to each Electing Holder, each placement or sales agent, if any, therefor, each underwriter, if any, thereof and the respective counsel referred to in Section 3(d)(vi) a conformed copy of such Shelf Registration Statement, each such amendment and supplement thereto (in each case including all exhibits thereto (in the case of an Electing Holder of Registrable Securities, upon request) and, to the extent requested, documents incorporated by reference therein) and such number of copies of such Shelf Registration Statement (excluding exhibits thereto and documents incorporated by reference therein unless specifically so requested by such Electing Holder, agent or underwriter, as the case may be) and of the prospectus included in such Shelf Registration Statement (including each preliminary prospectus and any summary prospectus), in conformity in all material respects with the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder, and such other documents, as such Electing Holder, agent, if any, and underwriter, if any, may reasonably request in order to facilitate the offering and disposition of the Registrable Securities owned by such Electing Holder, offered or sold by such agent or underwritten by such underwriter and to permit such Electing Holder, agent and underwriter to satisfy the prospectus delivery requirements of the Securities Act; and the Company hereby consents to the use of such prospectus (including such preliminary and summary prospectus) and any amendment or supplement thereto by each such Electing Holder and by any such agent and underwriter, in each case in the form most recently provided to such person by the Company, in connection with the offering and sale of 11 12 the Registrable Securities covered by the prospectus (including such preliminary and summary prospectus) or any supplement or amendment thereto; (xii) use best efforts to (A) register or qualify the Registrable Securities to be included in such Shelf Registration Statement under such securities laws or blue sky laws of such jurisdictions as any Electing Holder and each placement or sales agent, if any, therefor and underwriter, if any, thereof shall reasonably request, (B) keep such registrations or qualifications in effect and comply with such laws so as to permit the continuance of offers, sales and dealings therein in such jurisdictions during the period the Shelf Registration is required to remain effective under Section 2(b) above and for so long as may be necessary to enable any such Electing Holder, agent or underwriter to complete its distribution of Securities pursuant to such Shelf Registration Statement and (C) take any and all other actions as may be reasonably necessary or advisable to enable each such Electing Holder, agent, if any, and underwriter, if any, to consummate the disposition in such jurisdictions of such Registrable Securities; provided, however, that the Company shall not be required for any such purpose to (1) qualify as a foreign corporation in any jurisdiction wherein it would not otherwise be required to qualify but for the requirements of this Section 3(d)(xii), (2) consent to general service of process in any such jurisdiction or (3) make any changes to its certificate of incorporation or by-laws or any agreement between it and its stockholders; (xiii) use its best efforts to obtain the consent or approval of each governmental agency or authority, whether federal, state or local, which may be required to effect the Shelf Registration or the offering or sale in connection therewith or to enable the selling holder or holders to offer, or to consummate the disposition of, their Registrable Securities; (xiv) Unless any Registrable Securities shall be in book-entry only form, cooperate with the Electing Holders and the managing underwriters, if any, to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold, which certificates, if so required by any securities exchange upon which any Registrable Securities are listed, shall be penned, lithographed or engraved, or produced by any combination of such methods, on steel engraved borders, and which certificates shall not bear any restrictive legends; and, in the case of an underwritten offering, enable such Registrable Securities to be in such denominations and registered in such names as the managing underwriters may request at least two business days prior to any sale of the Registrable Securities; (xv) provide a CUSIP number for all Registrable Securities, not later than the applicable Effective Time; (xvi) enter into one or more underwriting agreements, engagement letters, agency agreements, "best efforts" underwriting agreements or similar agreements, as appropriate, including customary provisions relating to indemnification and contribution, and take such other actions in connection therewith as any Electing Holders aggregating at least 20% in aggregate principal amount of the Registrable 12 13 Securities at the time outstanding shall request in order to expedite or facilitate the disposition of such Registrable Securities; (xvii) whether or not an agreement of the type referred to in Section 3(d)(xvi) hereof is entered into and whether or not any portion of the offering contemplated by the Shelf Registration is an underwritten offering or is made through a placement or sales agent or any other entity, (A) make such representations and warranties to the Electing Holders and the placement or sales agent, if any, therefor and the underwriters, if any, thereof in form, substance and scope as are customarily made in connection with an offering of debt securities pursuant to any appropriate agreement or to a registration statement filed on the form applicable to the Shelf Registration; (B) obtain an opinion of counsel to the Company in customary form and covering such matters, of the type customarily covered by such an opinion, as the managing underwriters, if any, or as any Electing Holders of at least 20% in aggregate principal amount of the Registrable Securities at the time outstanding may reasonably request, addressed to such Electing Holder or Electing Holders and the placement or sales agent, if any, therefor and the underwriters, if any, thereof and dated the effective date of such Shelf Registration Statement (and if such Shelf Registration Statement contemplates an underwritten offering of a part or all of the Registrable Securities, dated the date of the closing under the underwriting agreement relating thereto) (it being agreed that the matters to be covered by such opinion shall include the due incorporation and good standing of the Company and its subsidiaries; the qualification of the Company and its subsidiaries to transact business as foreign corporations; the due authorization, execution and delivery of the relevant agreement of the type referred to in Section 3(d)(xvi) hereof; the due authorization, execution, authentication and issuance, and the validity and enforceability, of the Securities; the absence of material legal or governmental proceedings involving the Company; the absence of a breach by the Company or any of its subsidiaries of, or a default under, material agreements binding upon the Company or any subsidiary of the Company; the absence of governmental approvals required to be obtained in connection with the Shelf Registration, the offering and sale of the Registrable Securities, this Exchange and Registration Rights Agreement or any agreement of the type referred to in Section 3(d)(xvi) hereof, except such approvals as may be required under state securities or blue sky laws; the material compliance as to form of such Shelf Registration Statement and any documents incorporated by reference therein and of the Indenture with the requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder, respectively; and, as of the date of the opinion and of the Shelf Registration Statement or most recent post-effective amendment thereto, as the case may be, a statement as to the absence from such Shelf Registration Statement and the prospectus included therein, as then amended or supplemented, and from the documents incorporated by reference therein (in each case other than the financial statements and other financial information contained therein) of an untrue statement of a material fact or the omission to state therein a material fact necessary to make the statements therein not misleading (in the case of such documents, in the light of the circumstances existing at the time that such documents were filed with the Commission under the Exchange Act)); (C) obtain a "cold comfort" letter or letters from the independent certified public accountants of the Company addressed to the selling Electing Holders, the placement or sales agent, 13 14 if any, therefor or the underwriters, if any, thereof, dated (i) the effective date of such Shelf Registration Statement and (ii) the effective date of any prospectus supplement to the prospectus included in such Shelf Registration Statement or post-effective amendment to such Shelf Registration Statement which includes unaudited or audited financial statements as of a date or for a period subsequent to that of the latest such statements included in such prospectus (and, if such Shelf Registration Statement contemplates an underwritten offering pursuant to any prospectus supplement to the prospectus included in such Shelf Registration Statement or post-effective amendment to such Shelf Registration Statement which includes unaudited or audited financial statements as of a date or for a period subsequent to that of the latest such statements included in such prospectus, dated the date of the closing under the underwriting agreement relating thereto), such letter or letters to be in customary form and covering such matters of the type customarily covered by letters of such type; and (D) deliver such documents and certificates, including officers' certificates, as may be reasonably requested by any Electing Holders of at least 20% in aggregate principal amount of the Registrable Securities at the time outstanding or the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof to evidence the accuracy of the representations and warranties made pursuant to clause (A) above or those contained in Section 5(a) hereof and the compliance with or satisfaction of any agreements or conditions contained in the underwriting agreement or other agreement entered into by the Company and (E) undertake such obligations relating to expense reimbursement, indemnification and contribution as are provided in Section 6 hereof; (xviii) notify in writing each holder of Registrable Securities of any proposal by the Company to amend or waive any provision of this Exchange and Registration Rights Agreement pursuant to Section 9(h) hereof and of any amendment or waiver effected pursuant thereto, each of which notices shall contain the text of the amendment or waiver proposed or effected, as the case may be; (xix) in the event that any broker-dealer registered under the Exchange Act shall underwrite any Registrable Securities or participate as a member of an underwriting syndicate or selling group or "assist in the distribution" (within the meaning of the Conduct Rules (the "Conduct Rules) of the National Association of Securities Dealers, Inc. ("NASD") or any successor thereto, as amended from time to time) thereof, whether as a holder of such Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, assist such broker-dealer in complying with the requirements of such Conduct Rules, including by (A) if such Conduct Rules shall so require, engaging a "qualified independent underwriter" (as defined in such Conduct Rules) to participate in the preparation of the Shelf Registration Statement relating to such Registrable Securities, to exercise usual standards of due diligence in respect thereto and, if any portion of the offering contemplated by such Shelf Registration Statement is an underwritten offering or is made through a placement or sales agent, to recommend the yield of such Registrable Securities, (B) indemnifying any such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 6 hereof (or to such other customary extent as may be requested by such underwriter), and (C) providing such information to such broker-dealer as may be 14 15 required in order for such broker-dealer to comply with the requirements of the Conduct Rules; and (xx) comply with all applicable rules and regulations of the Commission, and make generally available to its securityholders as soon as practicable but in any event not later than eighteen months after the effective date of such Shelf Registration Statement, an earning statement of the Company and its subsidiaries complying with Section 11(a) of the Securities Act (including, at the option of the Company, Rule 158 thereunder). (e) In the event that the Company would be required, pursuant to Section 3(d)(viii)(F) above, to notify the Electing Holders, the placement or sales agent, if any, therefor and the managing underwriters, if any, thereof, the Company shall without delay prepare and furnish to each of the Electing Holders, to each placement or sales agent, if any, and to each such underwriter, if any, a reasonable number of copies of a prospectus supplemented or amended so that, as thereafter delivered to purchasers of Registrable Securities, such prospectus shall conform in all material respects to the applicable requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder and shall not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. Each Electing Holder agrees that upon receipt of any notice from the Company pursuant to Section 3(d)(viii)(F) hereof, such Electing Holder shall forthwith discontinue the disposition of Registrable Securities pursuant to the Shelf Registration Statement applicable to such Registrable Securities until such Electing Holder shall have received copies of such amended or supplemented prospectus, and if so directed by the Company, such Electing Holder shall deliver to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Electing Holder's possession of the prospectus covering such Registrable Securities at the time of receipt of such notice. (f) In the event of a Shelf Registration, in addition to the information required to be provided by each Electing Holder in its Notice and Questionnaire, the Company may require such Electing Holder to furnish to the Company such additional information regarding such Electing Holder and such Electing Holder's intended method of distribution of Registrable Securities as may be required in order to comply with the Securities Act. Each such Electing Holder agrees to notify the Company as promptly as practicable of any inaccuracy or change in information previously furnished by such Electing Holder to the Company or of the occurrence of any event in either case as a result of which any prospectus relating to such Shelf Registration contains or would contain an untrue statement of a material fact regarding such Electing Holder or such Electing Holder's intended method of disposition of such Registrable Securities or omits to state any material fact regarding such Electing Holder or such Electing Holder's intended method of disposition of such Registrable Securities required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing, and promptly to furnish to the Company any additional information required to correct and update any previously furnished information or required so that such prospectus shall not contain, with respect to such Electing Holder or the disposition of such Registrable Securities, an untrue statement of a material fact or omit to 15 16 state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing. (g) Until the expiration of two years after the Closing Date, the Company, its Subsidiaries and other "affiliates" (as defined in Rule 144 under the Securities Act) (i) will not acquire any Securities which constitute "restricted securities" under Rule 144 and (ii) will comply with Rule 144 if they reacquire any of the Securities which constitute "restricted securities" under Rule 144. 4. Registration Expenses. The Company agrees to bear and to pay or cause to be paid promptly all expenses incident to the Company's performance of or compliance with this Exchange and Registration Rights Agreement, including (a) all Commission and any NASD registration, filing and review fees and expenses including reasonable fees and disbursements of counsel for the placement or sales agent or underwriters in connection with such registration, filing and review, (b) all fees and expenses in connection with the qualification of the Securities for offering and sale under the State securities and blue sky laws referred to in Section 3(d)(xii) hereof and determination of their eligibility for investment under the laws of such jurisdictions as any managing underwriters or the Electing Holders may designate, including any reasonable fees and disbursements of counsel for the Electing Holders or underwriters in connection with such qualification and determination, (c) all expenses relating to the preparation, printing, production, distribution and reproduction of each registration statement required to be filed hereunder, each prospectus included therein or prepared for distribution pursuant hereto, each amendment or supplement to the foregoing, the expenses of preparing the Securities for delivery and the expenses of printing or producing any underwriting agreements, agreements among underwriters, selling agreements and blue sky or legal investment memoranda and all other documents in connection with the offering, sale or delivery of Securities to be disposed of (including certificates representing the Securities), (d) messenger, telephone and delivery expenses relating to the offering, sale or delivery of Securities and the preparation of documents referred in clause (c) above, (e) fees and expenses of the Trustee under the Indenture, any agent of the Trustee and any counsel for the Trustee and of any collateral agent or custodian, (f) internal expenses (including all salaries and expenses of the Company's officers and employees performing legal or accounting duties), (g) reasonable fees, disbursements and expenses of counsel and independent certified public accountants of the Company (including the expenses of any opinions or "cold comfort" letters required by or incident to such performance and compliance), (h) fees, disbursements and expenses of any "qualified independent underwriter" engaged pursuant to Section 3(d)(xix) hereof, (i) reasonable fees, disbursements and expenses of one counsel for the Electing Holders retained in connection with a Shelf Registration, as selected by the Electing Holders of at least a majority in aggregate principal amount of the Registrable Securities held by Electing Holders (which counsel shall be reasonably satisfactory to the Company), (j) any fees charged by securities rating services for rating the Securities, and (k) fees, expenses and disbursements of any other persons, including special experts, retained by the Company in connection with such registration (collectively, the "Registration Expenses"). To the extent that any Registration Expenses are incurred, assumed or paid by any holder of Registrable Securities or any placement or sales agent therefor or underwriter thereof, the Company shall reimburse such person for the full amount of the Registration Expenses so incurred, assumed or paid promptly after receipt of a request therefor. Notwithstanding the foregoing, the holders of the Registrable Securities being 16 17 registered shall pay all agency fees and commissions and underwriting discounts and commissions attributable to the sale of such Registrable Securities and the fees and disbursements of any counsel or other advisors or experts retained by such holders (severally or jointly), other than the counsel and experts specifically referred to above. 5. Representations and Warranties. The Company represents and warrants to, and agrees with, each Purchaser and each of the holders from time to time of Registrable Securities that: (a) Each registration statement covering Registrable Securities and each prospectus (including any preliminary or summary prospectus) contained therein or furnished pursuant to Section 3(d) or Section 3(c) hereof and any further amendments or supplements to any such registration statement or prospectus, when it becomes effective or is filed with the Commission, as the case may be, and, in the case of an underwritten offering of Registrable Securities, at the time of the closing under the underwriting agreement relating thereto, will conform in all material respects to the requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and at all times subsequent to the Effective Time when a prospectus would be required to be delivered under the Securities Act, other than from (i) such time as a notice has been given to holders of Registrable Securities pursuant to Section 3(d)(viii)(F) or Section 3(c)(iii)(F) hereof until (ii) such time as the Company furnishes an amended or supplemented prospectus pursuant to Section 3(e) or Section 3(c)(iv) hereof, each such registration statement, and each prospectus (including any summary prospectus) contained therein or furnished pursuant to Section 3(d) or Section 3(c) hereof, as then amended or supplemented, will conform in all material respects to the requirements of the Securities Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by a holder of Registrable Securities expressly for use therein. (b) Any documents incorporated by reference in any prospectus referred to in Section 5(a) hereof, when they become or became effective or are or were filed with the Commission, as the case may be, will conform or conformed in all material respects to the requirements of the Securities Act or the Exchange Act, as applicable, and none of such documents will contain or contained an untrue statement of a material fact or will omit or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by a holder of Registrable Securities expressly for use therein. (c) The compliance by the Company with all of the provisions of this Exchange and Registration Rights Agreement and the consummation of the transactions herein contemplated will not conflict with or result in a breach of any of the terms or provisions of, 17 18 or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any subsidiary of the Company is a party or by which the Company or any subsidiary of the Company is bound or to which any of the property or assets of the Company or any subsidiary of the Company is subject, nor will such action result in any violation of the provisions of the certificate of incorporation, as amended, or the by-laws of the Company or any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any subsidiary of the Company or any of their properties; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the consummation by the Company of the transactions contemplated by this Exchange and Registration Rights Agreement, except the registration under the Securities Act of the Securities, qualification of the Indenture under the Trust Indenture Act and such consents, approvals, authorizations, registrations or qualifications as may be required under State securities or blue sky laws in connection with the offering and distribution of the Securities. (d) This Exchange and Registration Rights Agreement has been duly authorized, executed and delivered by the Company. 6. Indemnification. (a) Indemnification by the Company. The Company will indemnify and hold harmless each of the holders of Registrable Securities included in an Exchange Registration Statement, each of the Electing Holders of Registrable Securities included in a Shelf Registration Statement and each person who participates as a placement or sales agent or as an underwriter in any offering or sale of such Registrable Securities against any losses, claims, damages or liabilities, joint or several, to which such holder, agent or underwriter may become subject under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Exchange Registration Statement or Shelf Registration Statement, as the case may be, under which such Registrable Securities were registered under the Securities Act, or any preliminary, final or summary prospectus contained therein or furnished by the Company to any such holder, Electing Holder, agent or underwriter, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse such holder, such Electing Holder, such agent and such underwriter for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that the Company shall not be liable to any such person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in such registration statement, or preliminary, final or summary prospectus, or amendment or supplement thereto, in reliance upon and in conformity with written information furnished to the Company by such person expressly for use therein. (b) Indemnification by the Holders and any Agents and Underwriters. The Company may require, as a condition to including any Registrable Securities in any registration 18 19 statement filed pursuant to Section 2(b) hereof and to entering into any underwriting agreement with respect thereto, that the Company shall have received an undertaking reasonably satisfactory to it from the Electing Holder of such Registrable Securities and from each underwriter named in any such underwriting agreement, severally and not jointly, to (i) indemnify and hold harmless the Company and all other holders of Registrable Securities, against any losses, claims, damages or liabilities to which the Company or such other holders of Registrable Securities may become subject, under the Securities Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in such registration statement, or any preliminary, final or summary prospectus contained therein or furnished by the Company to any such Electing Holder, agent or underwriter, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such Electing Holder, agent or underwriter expressly for use therein, and (ii) reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that no such Electing Holder shall be required to undertake liability to any person under this Section 6(b) for any amounts in excess of the dollar amount of the proceeds to be received by such Electing Holder from the sale of such Electing Holder's Registrable Securities pursuant to such registration. (c) Notices of Claims, Etc. Promptly after receipt by an indemnified party under subsection (a) or (b) above of written notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against an indemnifying party pursuant to the indemnification provisions of or contemplated by this Section 6, notify such indemnifying party in writing of the commencement of such action; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under the indemnification provisions of or contemplated by Section 6(a) or 6(b) hereof. In case any such action shall be brought against any indemnified party and it shall notify an indemnifying party of the commencement thereof, such indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel reasonably satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, such indemnifying party shall not be liable to such indemnified party for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a 19 20 statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) Contribution. If for any reason the indemnification provisions contemplated by Section 6(a) or Section 6(b) are unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein or if the indemnified party failed to give notice as required under subsection (c) of this Section, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the indemnifying party and the indemnified party in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault of such indemnifying party and indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such indemnifying party or by such indemnified party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contributions pursuant to this Section 6(d) were determined by pro rata allocation (even if the holders or any agents or underwriters or all of them were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 6(d). The amount paid or payable by an indemnified party as a result of the losses, claims, damages, or liabilities (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 6(d), no holder shall be required to contribute any amount in excess of the amount by which the dollar amount of the proceeds received by such holder from the sale of any Registrable Securities (after deducting any fees, discounts and commissions applicable thereto) exceeds the amount of any damages which such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission, and no underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Registrable Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The holders' and any underwriters' obligations in this Section 6(d) to contribute shall be several in proportion to the principal amount of Registrable Securities registered or underwritten, as the case may be, by them and not joint. (e) The obligations of the Company under this Section 6 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each officer, director and partner of each holder, agent and underwriter and each person, if any, who controls any holder, agent or underwriter within the meaning of the Securities Act; and the obligations of the holders and any agents or underwriters contemplated by this Section 6 shall be in addition to any liability which the respective 20 21 holder, agent or underwriter may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company (including any person who, with his consent, is named in any registration statement as about to become a director of the Company) and to each person, if any, who controls the Company within the meaning of the Securities Act. 7. Underwritten Offerings. (a) Selection of Underwriters. If any of the Registrable Securities covered by the Shelf Registration are to be sold pursuant to an underwritten offering, the managing underwriter or underwriters thereof shall be designated by Electing Holders holding at least a majority in aggregate principal amount of the Registrable Securities to be included in such offering, provided that such designated managing underwriter or underwriters is or are reasonably acceptable to the Company. (b) Participation by Holders. Each holder of Registrable Securities hereby agrees with each other such holder that no such holder may participate in any underwritten offering hereunder unless such holder (i) agrees to sell such holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 8. Rule 144. The Company covenants to the holders of Registrable Securities that, to the extent it shall be required to do so under the Exchange Act, the Company shall timely file the reports required to be filed by it under the Exchange Act or the Securities Act (including the reports under Section 13 and 15(d) of the Exchange Act referred to in subparagraph (c)(1) of Rule 144 adopted by the Commission under the Securities Act) and the rules and regulations adopted by the Commission thereunder, and shall take such further action as any holder of Registrable Securities may reasonably request, all to the extent required from time to time to enable such holder to sell Registrable Securities without registration under the Securities Act within the limitations of the exemption provided by Rule 144 under the Securities Act, as such Rule may be amended from time to time, or any similar or successor rule or regulation hereafter adopted by the Commission. Upon the request of any holder of Registrable Securities in connection with that holder's sale pursuant to Rule 144, the Company shall deliver to such holder a written statement as to whether it has complied with such requirements. 9. Miscellaneous. (a) No Inconsistent Agreements. The Company represents, warrants, covenants and agrees that it has not granted, and shall not grant, registration rights with respect to Registrable Securities or any other securities which would be inconsistent with the terms contained in this Exchange and Registration Rights Agreement. (b) Specific Performance. The parties hereto acknowledge that there would be no adequate remedy at law if the Company fails to perform any of its obligations hereunder and that the Purchasers and the holders from time to time of the Registrable Securities may be 21 22 irreparably harmed by any such failure, and accordingly agree that the Purchasers and such holders, in addition to any other remedy to which they may be entitled at law or in equity, shall be entitled to compel specific performance of the obligations of the Company under this Exchange and Registration Rights Agreement in accordance with the terms and conditions of this Exchange and Registration Rights Agreement, in any court of the United States or any State thereof having jurisdiction. (c) Notices. All notices, requests, claims, demands, waivers and other communications hereunder shall be in writing and shall be deemed to have been duly given when delivered by hand, if delivered personally or by courier, or three days after being deposited in the mail (registered or certified mail, postage prepaid, return receipt requested) as follows: If to the Company, to it at Suite 1400, One Bentall Centre, 505 Burrard Street, Vancouver, British Columbia, Canada V7X 1M5, and if to a holder, to the address of such holder set forth in the security register or other records of the Company, or to such other address as the Company or any such holder may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt. (d) Parties in Interest. All the terms and provisions of this Exchange and Registration Rights Agreement shall be binding upon, shall inure to the benefit of and shall be enforceable by the parties hereto and the holders from time to time of the Registrable Securities and the respective successors and assigns of the parties hereto and such holders. In the event that any transferee of any holder of Registrable Securities shall acquire Registrable Securities, in any manner, whether by gift, bequest, purchase, operation of law or otherwise, such transferee shall, without any further writing or action of any kind, be deemed a beneficiary hereof for all purposes and such Registrable Securities shall be held subject to all of the terms of this Exchange and Registration Rights Agreement, and by taking and holding such Registrable Securities such transferee shall be entitled to receive the benefits of, and be conclusively deemed to have agreed to be bound by all of the applicable terms and provisions of this Exchange and Registration Rights Agreement. If the Company shall so request, any such successor, assign or transferee shall agree in writing to acquire and hold the Registrable Securities subject to all of the applicable terms hereof. (e) Survival. The respective indemnities, agreements, representations, warranties and each other provision set forth in this Exchange and Registration Rights Agreement or made pursuant hereto shall remain in full force and effect regardless of any investigation (or statement as to the results thereof) made by or on behalf of any holder of Registrable Securities, any director, officer or partner of such holder, any agent or underwriter or any director, officer or partner thereof, or any controlling person of any of the foregoing, and shall survive delivery of and payment for the Registrable Securities pursuant to the Purchase Agreement and the transfer and registration of Registrable Securities by such holder and the consummation of an Exchange Offer. (f) GOVERNING LAW. THIS EXCHANGE AND REGISTRATION RIGHTS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. (g) Headings. The descriptive headings of the several Sections and paragraphs of this Exchange and Registration Rights Agreement are inserted for convenience only, do not 22 23 constitute a part of this Exchange and Registration Rights Agreement and shall not affect in any way the meaning or interpretation of this Exchange and Registration Rights Agreement. (h) Entire Agreement; Amendments. This Exchange and Registration Rights Agreement and the other writings referred to herein (including the Indenture and the form of Securities) or delivered pursuant hereto which form a part hereof contain the entire understanding of the parties with respect to its subject matter. This Exchange and Registration Rights Agreement supersedes all prior agreements and understandings between the parties with respect to its subject matter. This Exchange and Registration Rights Agreement may be amended and the observance of any term of this Exchange and Registration Rights Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only by a written instrument duly executed by the Company and the holders of at least a majority in aggregate principal amount of the Registrable Securities at the time outstanding. Each holder of any Registrable Securities at the time or thereafter outstanding shall be bound by any amendment or waiver effected pursuant to this Section 9(h), whether or not any notice, writing or marking indicating such amendment or waiver appears on such Registrable Securities or is delivered to such holder. (i) Inspection. For so long as this Exchange and Registration Rights Agreement shall be in effect, this Exchange and Registration Rights Agreement and a complete list of the names and addresses of all the holders of Registrable Securities shall be made available for inspection and copying on any business day by any holder of Registrable Securities for proper purposes only (which shall include any purpose related to the rights of the holders of Registrable Securities under the Securities, the Indenture and this Agreement) at the offices of the Company at the address thereof set forth in Section 9(c) above and at the office of the Trustee under the Indenture. (j) Counterparts. This agreement may be executed by the parties in counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument. 23 24 If the foregoing is in accordance with your understanding, please sign and return to us one for the Company and one for each of the Representatives, plus one for each counsel counterparts hereof, and upon the acceptance hereof by you, on behalf of each of the Purchasers, this letter and such acceptance hereof shall constitute a binding agreement between each of the Purchasers and the Company. It is understood that your acceptance of this letter on behalf of each of the Purchasers is pursuant to the authority set forth in a form of Agreement among Purchasers, the form of which shall be submitted to the Company for examination upon request, but without warranty on your part as to the authority of the signers thereof. Very truly yours, Teekay Shipping Corporation By: ------------------------------------- Name: Title: Accepted as of the date hereof: Goldman, Sachs & Co. Morgan Stanley & Co. Incorporated Salomon Smith Barney Inc. Deutsche Banc Alex. Brown Inc. J.P. Morgan Securities Inc. Fleet Securities, Inc. Scotia Capital (USA) Inc. By: --------------------------------- (Goldman, Sachs & Co.) On behalf of each of the Purchasers 24 25 EXHIBIT A TEEKAY SHIPPING CORPORATION INSTRUCTION TO DTC PARTICIPANTS (Date of Mailing) URGENT - IMMEDIATE ATTENTION REQUESTED DEADLINE FOR RESPONSE: [DATE] The Depository Trust Company ("DTC") has identified you as a DTC Participant through which beneficial interests in the Teekay Shipping Corporation (the "Company") 8.875% Senior Notes due July 15, 2011 (the "Securities") are held. The Company is in the process of registering the Securities under the Securities Act of 1933 for resale by the beneficial owners thereof. In order to have their Securities included in the registration statement, beneficial owners must complete and return the enclosed Notice of Registration Statement and Selling Securityholder Questionnaire. It is important that beneficial owners of the Securities receive a copy of the enclosed materials as soon as possible as their rights to have the Securities included in the registration statement depend upon their returning the Notice and Questionnaire by [Deadline For Response]. Please forward a copy of the enclosed documents to each beneficial owner that holds interests in the Securities through you. If you require more copies of the enclosed materials or have any questions pertaining to this matter, please contact Teekay Shipping Corporation, Suite 1400, One Bentall Centre, 505 Burrard Street, Vancouver, British Columbia, Canada V7X 1M5, telephone: (604) 683-3529. A-1 26 TEEKAY SHIPPING CORPORATION NOTICE OF REGISTRATION STATEMENT AND SELLING SECURITYHOLDER QUESTIONNAIRE (DATE) Reference is hereby made to the Exchange and Registration Rights Agreement (the "Exchange and Registration Rights Agreement") between Teekay Shipping Corporation (the "Company") and the Purchasers named therein. Pursuant to the Exchange and Registration Rights Agreement, the Company has filed with the United States Securities and Exchange Commission (the "Commission") a registration statement on Form F-4 (the "Shelf Registration Statement") for the registration and resale under Rule 415 of the Securities Act of 1933, as amended (the "Securities Act"), of the Company's 8.875% Senior Notes due July 15, 2011 (the "Securities"). A copy of the Exchange and Registration Rights Agreement is attached hereto. All capitalized terms not otherwise defined herein shall have the meanings ascribed thereto in the Exchange and Registration Rights Agreement. Each beneficial owner of Registrable Securities (as defined below) is entitled to have the Registrable Securities beneficially owned by it included in the Shelf Registration Statement. In order to have Registrable Securities included in the Shelf Registration Statement, this Notice of Registration Statement and Selling Securityholder Questionnaire ("Notice and Questionnaire") must be completed, executed and delivered to the Company's counsel at the address set forth herein for receipt ON OR BEFORE [Deadline for Response]. Beneficial owners of Registrable Securities who do not complete, execute and return this Notice and Questionnaire by such date (i) will not be named as selling securityholders in the Shelf Registration Statement and (ii) may not use the Prospectus forming a part thereof for resales of Registrable Securities. Certain legal consequences arise from being named as a selling securityholder in the Shelf Registration Statement and related Prospectus. Accordingly, holders and beneficial owners of Registrable Securities are advised to consult their own securities law counsel regarding the consequences of being named or not being named as a selling securityholder in the Shelf Registration Statement and related Prospectus. The term "Registrable Securities" is defined in the Exchange and Registration Rights Agreement. A-2 27 ELECTION The undersigned holder (the "Selling Securityholder") of Registrable Securities hereby elects to include in the Shelf Registration Statement the Registrable Securities beneficially owned by it and listed below in Item (3). The undersigned, by signing and returning this Notice and Questionnaire, agrees to be bound with respect to such Registrable Securities by the terms and conditions of this Notice and Questionnaire and the Exchange and Registration Rights Agreement, including, without limitation, Section 6 of the Exchange and Registration Rights Agreement, as if the undersigned Selling Securityholder were an original party thereto. Upon any sale of Registrable Securities pursuant to the Shelf Registration Statement, the Selling Securityholder will be required to deliver to the Company and Trustee the Notice of Transfer set forth in Appendix A to the Prospectus and as Exhibit B to the Exchange and Registration Rights Agreement. The Selling Securityholder hereby provides the following information to the Company and represents and warrants that such information is accurate and complete: A-3 28 QUESTIONNAIRE (1) (a) Full Legal Name of Selling Securityholder: ---------------------------------------------------------------------- (b) Full Legal Name of Registered Holder (if not the same as in (a) above) of Registrable Securities Listed in Item (3) below: ---------------------------------------------------------------------- (c) Full Legal Name of DTC Participant (if applicable and if not the same as (b) above) Through Which Registrable Securities Listed in Item (3) below are Held: ---------------------------------------------------------------------- (2) Address for Notices to Selling Securityholder: ------------------------------------------------ ------------------------------------------------ ------------------------------------------------ Telephone: ------------------------------------------------ Fax: ------------------------------------------------ Contact Person: ------------------------------------------------ (3) Beneficial Ownership of Securities: Except as set forth below in this Item (3), the undersigned does not beneficially own any Securities. (a) Principal amount of Registrable Securities beneficially owned: ---------------------------------------------------------------------- CUSIP No(s). of such Registrable Securities: -------------------------- (b) Principal amount of Securities other than Registrable Securities beneficially owned: ---------------------------------------------------------------------- CUSIP No(s). of such other Securities: -------------------------------- (c) Principal amount of Registrable Securities which the undersigned wishes to be included in the Shelf Registration Statement: ---------------------------------------------------------------------- CUSIP No(s). of such Registrable Securities to be included in the Shelf Registration Statement: ---------------------------------------- (4) Beneficial Ownership of Other Securities of the Company: Except as set forth below in this Item (4), the undersigned Selling Securityholder is not the beneficial or registered owner of any other securities of the Company, other than the Securities listed above in Item (3). State any exceptions here: A-4 29 (5) Relationships with the Company: Except as set forth below, neither the Selling Securityholder nor any of its affiliates, officers, directors or principal equity holders (5% or more) has held any position or office or has had any other material relationship with the Company (or its predecessors or affiliates) during the past three years. State any exceptions here: (6) Plan of Distribution: Except as set forth below, the undersigned Selling Securityholder intends to distribute the Registrable Securities listed above in Item (3) only as follows (if at all): Such Registrable Securities may be sold from time to time directly by the undersigned Selling Securityholder or, alternatively, through underwriters, broker-dealers or agents. Such Registrable Securities may be sold in one or more transactions at fixed prices, at prevailing market prices at the time of sale, at varying prices determined at the time of sale, or at negotiated prices. Such sales may be effected in transactions (which may involve crosses or block transactions) (i) on any national securities exchange or quotation service on which the Registered Securities may be listed or quoted at the time of sale, (ii) in the over-the-counter market, (iii) in transactions otherwise than on such exchanges or services or in the over-the-counter market, or (iv) through the writing of options. In connection with sales of the Registrable Securities or otherwise, the Selling Securityholder may enter into hedging transactions with broker-dealers, which may in turn engage in short sales of the Registrable Securities in the course of hedging the positions they assume. The Selling Securityholder may also sell Registrable Securities short and deliver Registrable Securities to close out such short positions, or loan or pledge Registrable Securities to broker-dealers that in turn may sell such securities. State any exceptions here: By signing below, the Selling Securityholder acknowledges that it understands its obligation to comply, and agrees that it will comply, with the provisions of the Exchange Act and the rules and regulations thereunder, particularly Regulation M. In the event that the Selling Securityholder transfers all or any portion of the Registrable Securities listed in Item (3) above after the date on which such information is provided to the Company, the Selling Securityholder agrees to notify the transferee(s) at the time of the transfer of its rights and obligations under this Notice and Questionnaire and the Exchange and Registration Rights Agreement. By signing below, the Selling Securityholder consents to the disclosure of the information contained herein in its answers to Items (1) through (6) above and the inclusion of such information in the Shelf Registration Statement and related Prospectus. The Selling A-5 30 Securityholder understands that such information will be relied upon by the Company in connection with the preparation of the Shelf Registration Statement and related Prospectus. In accordance with the Selling Securityholder's obligation under Section 3(d) of the Exchange and Registration Rights Agreement to provide such information as may be required by law for inclusion in the Shelf Registration Statement, the Selling Securityholder agrees to promptly notify the Company of any inaccuracies or changes in the information provided herein which may occur subsequent to the date hereof at any time while the Shelf Registration Statement remains in effect. All notices hereunder and pursuant to the Exchange and Registration Rights Agreement shall be made in writing, by hand-delivery, first-class mail, or air courier guaranteeing overnight delivery as follows: (i) To the Company: ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- (ii) With a copy to: ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- Once this Notice and Questionnaire is executed by the Selling Securityholder and received by the Company's counsel, the terms of this Notice and Questionnaire, and the representations and warranties contained herein, shall be binding on, shall inure to the benefit of and shall be enforceable by the respective successors, heirs, personal representatives, and assigns of the Company and the Selling Securityholder (with respect to the Registrable Securities beneficially owned by such Selling Securityholder and listed in Item (3) above. This Agreement shall be governed in all respects by the laws of the State of New York. A-6 31 IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused this Notice and Questionnaire to be executed and delivered either in person or by its duly authorized agent. Dated: ---------------------------- ---------------------------------------------------------------- Selling Securityholder (Print/type full legal name of beneficial owner of Registrable Securities) By: ------------------------------------------------------------ Name: Title: PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE FOR RECEIPT ON OR BEFORE [DEADLINE FOR RESPONSE] TO THE COMPANY'S COUNSEL AT: ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- A-7 32 EXHIBIT B NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT U.S. Trust Company of Texas, N.A. Teekay Shipping Corporation c/o U.S. Trust Company of Texas, N.A. 114 West 47th Street New York, New York 10036-1552 Attention: Trust Officer Re: Teekay Shipping Corporation (the "Company") 8.875% Senior Notes due July 15, 2011 Dear Sirs: Please be advised that _________________________ has transferred $____________________ aggregate principal amount of the above-referenced Notes pursuant to an effective Registration Statement on Form F-4 (File No. 333- ) filed by the Company. We hereby certify that the prospectus delivery requirements, if any, of the Securities Act of 1933, as amended, have been satisfied and that the above-named beneficial owner of the Notes is named as a "Selling Holder" in the Prospectus dated _________, 2001 or in supplements thereto, and that the aggregate principal amount of the Notes transferred are the Notes listed in such Prospectus opposite such owner's name. Dated: ____________ , 2001 Very truly yours, (Name) By: ------------------------------------- (Authorized Signature) B-1 EX-4.16 3 o05789ex4-16.txt EXHIBIT 4.16 1 EXHIBIT 4.16 TEEKAY SHIPPING CORPORATION, as Issuer TO U.S. TRUST COMPANY OF TEXAS, N.A., as Trustee INDENTURE Dated as of June 22, 2001 $250,000,000 8.875% Senior Notes Due July 15, 2011 2 TEEKAY SHIPPING CORPORATION Reconciliation and tie between Trust Indenture Act of 1939 and Indenture, dated as of June 22, 2001
Trust Indenture Indenture Act Section Section - --------------- --------- ss.310(a)(1) 6.09 (a)(2) 6.09 (a)(3) Not Applicable (a)(4) Not Applicable (b) 6.08, 6.10 ss.311(a) 6.13 (b) 6.13 ss.312(a) 7.01, 7.02 (b) 7.02 (c) 7.02 (b) 7.03 (c) 7.03 (d) 7.03 ss.314(a) 7.04 (a)(4) 10.11 (b) Not Applicable (c)(1) 1.02 (c)(2) 1.02 (c)(3) Not Applicable (d) Not Applicable (e) 10.11
i 3
Trust Indenture Indenture Act Section Section - --------------- --------- ss.315(a) 6.01 (b) 6.02 (c) 6.03 (d) 6.01 (d)(1) 6.01 (e) 5.14 ss.316(a) 1.01 (a)(l)(A) 5.02, 5.12 (a)(l)(B) 5.13 (a)(2) Not Applicable (b) 5.08 ss.317(a)(1) 5.03 (a)(2) 5.04 (b) 10.03 ss.318(a) 1.07
ii 4 TABLE OF CONTENTS
RECITALS OF THE COMPANY.................................................... 1 ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION....... 1 SECTION 1.01 Definitions......................................... 1 SECTION 1.02 Compliance Certificates and Opinions................ 14 SECTION 1.03 Form of Documents Delivered to Trustee.............. 15 SECTION 1.04 Acts of Holders; Record Date........................ 15 SECTION 1.05 Notices, Etc., to Trustee and Company............... 17 SECTION 1.06 Notice to Holders: Waiver........................... 17 SECTION 1.07 Conflict with Trust Indenture Act................... 18 SECTION 1.08 Effect of Headings and Table of Contents............ 18 SECTION 1.09 Successors and Assigns.............................. 18 SECTION 1.10 Separability Clause................................. 18 SECTION 1.11 Benefits of Indenture............................... 18 SECTION 1.12 Governing Law....................................... 18 SECTION 1.13 Legal Holidays...................................... 18 SECTION 1.14 Consent to Service; Jurisdiction.................... 19 SECTION 1.15 Conversion of Currency.............................. 19 ARTICLE II FORMS OF SECURITY............................................. 20 SECTION 2.01 Forms Generally..................................... 20 SECTION 2.02 Form of Face of Security............................ 21 SECTION 2.03 Form of Reverse of Security......................... 25 SECTION 2.04 Form of Trustee's Certificate of Authentication..... 28 ARTICLE III THE SECURITIES................................................ 29 SECTION 3.01 Title and Terms..................................... 29 SECTION 3.02 Denominations....................................... 30 SECTION 3.03 Execution, Authentication, Delivery and Dating...... 30 SECTION 3.04 Temporary Securities................................ 31 SECTION 3.05 Registration, Registration of Transfer and Exchange Generally; Restrictions on Transfer and Exchange; Securities Act Legends.................. 31 SECTION 3.06 Mutilated, Destroyed, Lost and Stolen Securities.... 36 SECTION 3.07 Payment of Interest; Interest Rights Preserved...... 37 SECTION 3.08 Persons Deemed Owners............................... 38 SECTION 3.09 Cancellation........................................ 38 SECTION 3.10 Computation of Interest............................. 38 SECTION 3.11 CUSIP Numbers....................................... 38
iii 5
ARTICLE IV SATISFACTION AND DISCHARGE.................................... 39 SECTION 4.01 Satisfaction and Discharge of Indenture............. 39 SECTION 4.02 Application of Trust Money.......................... 40 ARTICLE V REMEDIES...................................................... 40 SECTION 5.01 Events of Default................................... 40 SECTION 5.02 Acceleration of Maturity; Rescission and Annulment.. 42 SECTION 5.03 Collection of Indebtedness and Suits for Enforcement by Trustee............................ 42 SECTION 5.04 Trustee May File Proofs of Claim.................... 43 SECTION 5.05 Trustee May Enforce Claims Without Possession of Securities........................................ 43 SECTION 5.06 Application of Money Collected...................... 44 SECTION 5.07 Limitation on Suits................................. 44 SECTION 5.08 Unconditional Right of Holders to Receive Stated Amount at Maturity, Premium and Interest.......... 44 SECTION 5.09 Restoration of Rights and Remedies.................. 45 SECTION 5.10 Rights and Remedies Cumulative...................... 45 SECTION 5.11 Delay or Omission Not Waiver........................ 45 SECTION 5.12 Control by Holders.................................. 45 SECTION 5.13 Waiver of Past Defaults............................. 45 SECTION 5.14 Undertaking for Costs............................... 46 SECTION 5.15 Waiver of Stay or Extension Laws.................... 46 SECTION 5.16 No Personal Liability of Incorporators, Shareholders, Officers, Directors or Employees.... 46 ARTICLE VI THE TRUSTEE................................................... 46 SECTION 6.01 Certain Duties and Responsibilities................. 46 SECTION 6.02 Notice of Defaults.................................. 47 SECTION 6.03 Certain Rights of Trustee........................... 47 SECTION 6.04 Not Responsible for Recitals or Issuance of Securities........................................ 48 SECTION 6.05 May Hold Securities................................. 48 SECTION 6.06 Money Held in Trust................................. 48 SECTION 6.07 Compensation and Reimbursement...................... 48 SECTION 6.08 Disqualification: Conflicting Interests............. 49 SECTION 6.09 Corporate Trustee Required; Eligibility............. 49 SECTION 6.10 Resignation and Removal; Appointment of Successor... 49 SECTION 6.11 Acceptance of Appointment by Successor.............. 50 SECTION 6.12 Merger, Conversion, Consolidation or Succession to Business.......................................... 50 SECTION 6.13 Preferential Collection of Claims Against Company... 51 SECTION 6.14 Appointment of Authenticating Agent................. 51
iv 6
ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY............. 52 SECTION 7.01 Company to Furnish Trustee Names and Addresses of Holders........................................... 52 SECTION 7.02 Preservation of Information; Communications to Holders........................................... 52 SECTION 7.03 Reports by Trustee.................................. 53 SECTION 7.04 Reports by Company.................................. 53 ARTICLE VIII CONSOLIDATIONS, MERGERS AND CERTAIN SALES OF ASSETS........... 53 SECTION 8.01 The Company May Consolidate, Etc. Only on Certain Terms............................................. 53 SECTION 8.02 Successor Substituted............................... 54 ARTICLE IX SUPPLEMENTAL INDENTURES....................................... 54 SECTION 9.01 Supplemental Indentures Without Consent of Holders.. 54 SECTION 9.02 Supplemental Indentures with Consent of Holders..... 55 SECTION 9.03 Execution of Supplemental Indentures................ 56 SECTION 9.04 Effect of Supplemental Indentures................... 56 SECTION 9.05 Conformity with Trust Indenture Act................. 56 SECTION 9.06 Reference in Securities to Supplemental Indentures.. 56 ARTICLE X COVENANTS..................................................... 56 SECTION 10.01 Payment of Stated Amount at Maturity, Premium and Interest.......................................... 56 SECTION 10.02 Maintenance of Office or Agency..................... 56 SECTION 10.03 Money for Security Payments to be Held in Trust..... 57 SECTION 10.04 Corporate Existence................................. 58 SECTION 10.05 Maintenance of Properties........................... 58 SECTION 10.06 Payment of Taxes and Other Claims................... 58 SECTION 10.07 Maintenance of Insurance............................ 59 SECTION 10.08 Limitation on Liens................................. 59 SECTION 10.09 Change of Control Triggering Event.................. 59 SECTION 10.10 Provision of Financial Information.................. 60 SECTION 10.11 Statement By Officers as to Default; Compliance Certificates...................................... 60 SECTION 10.12 Waiver of Certain Covenants......................... 61 SECTION 10.13 Indemnification of Judgment Currency................ 61 SECTION 10.14 Payments for Consent................................ 61 SECTION 10.15 Additional Amounts.................................. 61 ARTICLE XI REDEMPTION OF SECURITIES...................................... 63 SECTION 11.01 Right of Redemption................................. 63 SECTION 11.02 Applicability of Article............................ 64 SECTION 11.03 Election to Redeem; Notice to Trustee............... 64 SECTION 11.04 Selection by Trustee of Securities to Be Redeemed... 64
v 7
SECTION 11.05 Notice of Redemption................................ 64 SECTION 11.06 Deposit of Redemption Price......................... 65 SECTION 11.07 Securities Payable on Redemption Date............... 65 SECTION 11.08 Securities Redeemed in Part......................... 65 ARTICLE XII DEFEASANCE AND COVENANT DEFEASANCE............................ 66 SECTION 12.01 Company's Option to Effect Defeasance or Covenant Defeasance........................................ 66 SECTION 12.02 Defeasance and Discharge............................ 66 SECTION 12.03 Covenant Defeasance................................. 66 SECTION 12.04 Conditions to Defeasance or Covenant Defeasance..... 67 SECTION 12.05 Deposited Money and United States Government Obligations to be Held in Trust: Other Miscellaneous Provisions.......................... 68 SECTION 12.06 Reinstatement....................................... 69 ANNEXES Annex A Form of Regulation S Certificate.............................. A-1 Annex B Form of Restricted Securities Certificate..................... B-1
vi 8 INDENTURE, dated as of June 22, 2001, between Teekay Shipping Corporation, a corporation duly incorporated and existing under the laws of the Republic of the Marshall Islands, as issuer (herein called the "Company"), having its principal operating office at 505 Burrard Street, Suite 1400, Vancouver, British Columbia, Canada, V7X IM5, and U.S. Trust Company of Texas, N.A., a national banking association duly organized and existing under the laws of the United States of America, as Trustee (herein called the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the creation of an issue of its 8.875% Senior Notes due July 15, 2011 of substantially the tenor and amount hereinafter set forth (the "Securities"), and to provide therefor the Company has duly authorized the execution and delivery of this Indenture. The Securities may consist of either or both Original Securities or Exchange Securities each as defined herein. The Original Securities and the Exchange Securities shall rank pari passu with one another and will vote as one series of Securities under this Indenture. All things necessary to make the Securities, when executed by the Company and authenticated and delivered hereunder and duly issued by the Company, the valid obligations of the Company, and to make this Indenture a valid agreement of the Company, in accordance with their and its terms, have been done. Upon the effectiveness of an effective registration statement under the Securities Act, this Indenture will be subject to, and shall be governed by, applicable provisions of the Trust Indenture Act. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities, as follows: ARTICLE I DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION SECTION 1.01 Definitions. (a) For all purposes of this Indenture, except as otherwise expressly provided or unless the context otherwise requires: (1) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States (whether or not such is indicated herein), and, except as otherwise herein expressly provided, the term "generally accepted accounting principles" with respect to any computation required or permitted hereunder shall mean such accounting principles 1 9 as are generally accepted in the United States as consistently applied by the Company at the date of such computation; (4) unless the context otherwise requires, any reference to an "Article" or a "Section", or to an "Annex" or a "Schedule", refers to an Article or Section of, or to an Annex or a Schedule attached to, this Indenture, as the case may be; (5) unless the context otherwise requires, any reference to a statute, rule or regulation refers to the same (including any successor statute, rule or regulation thereto) as it may be amended from time to time; and (6) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. (b) Certain terms, used principally in Article Six, are defined in that Article. Other terms are defined as follows: "Acquired Debt" means Debt of a Person existing at the time such Person became a Subsidiary and not Incurred in connection with, or in contemplation of, such Person becoming a Subsidiary. "Additional Amounts" has the meaning specified in Section 10.15. "Additional Interest" has the meaning specified in Section 2.02. "Additional Securities" means any additional Securities that may be issued under a supplemental indenture after the date that the Securities are first issued by the Company and authenticated by the Trustee under this Indenture, which shall rank pari passu with the Securities initially issued in all respects. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person shall be deemed to be control. For purposes of this definition, the terms "controlling", "controlled by" and "under common control with" have meanings correlative to the foregoing. "Agent Members" has the meaning specified in Section 3.05. "Applicable Procedures" has the meaning specified in Section 3.05. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 6.14 to act on behalf of the Trustee to authenticate Securities. "Board of Directors" means either the board of directors of the Company or any duly authorized committee of that board authorized to act for it in respect thereof. 2 10 "Board Resolution" means a copy of a resolution certified by the Corporate Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, and delivered to the Trustee. "Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which banking institutions in the City of New York, New York or such other city in which the Corporate Trust Office of the Trustee is located, are authorized or obligated by law or executive order to close. "Capitalized Lease" is defined to mean, as applied to any Person, any lease of any property (whether real, personal or mixed) of which the discounted present value of the rental obligations of such Person, as lessee, in conformity with GAAP, is required to be capitalized on the balance sheet of such Person; and "Capitalized Lease Obligation" is defined to mean the rental obligations, as aforesaid, under such lease. "Capital Stock" is defined to mean, with respect to any Person, any and all shares, interests, participations or other equivalents (however designated, whether voting or non-voting) of such Person's capital stock or ownership interests, whether outstanding prior to or issued after the date of this Indenture, including, without limitation, all Common Stock and Preferred Stock. "Change of Control" has the meaning specified in Section 10.09. "Change of Control Triggering Event" is defined to mean the occurrence of a Change of Control and a Rating Decline. "Clearstream" has the meaning specified in Section 2.01. "Closing Date" has the meaning specified in Section 2.02. "Commission" means the United States Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" of any Person means Capital Stock of such Person that does not rank prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person. "Company Request" or "Company Order" means a written request or order signed in the name of the Company (or its successor Person) by its Chief Executive Officer, its President or a Vice-President, and by its Chief Financial Officer, its Vice-President, Finance, its Treasurer, an Assistant Treasurer, its Controller, its Corporate Secretary or an Assistant Secretary, and delivered to the Trustee. "Comparable Treasury Issue" means the United States Treasury security selected by an Independent Investment Banker as having a Maturity comparable to the remaining term of the Securities that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable Maturity to the remaining term of the Securities. 3 11 "Comparable Treasury Price" means, with respect to any Redemption Date, (i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the third Business Day preceding such Redemption Date, as set forth in the daily statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "Composite 3:30 Quotations for United States Government Securities" or (ii) if such release (or any successor release) is not published or does not contain such prices on such Business Day, (A) the average of the Reference Treasury Dealer Quotations for such Redemption Date, after excluding the highest and lowest such Reference Treasury Dealer Quotations for such Redemption Date, or (B) if the Trustee obtains fewer than four such Reference Treasury Dealer Quotations, the average of all such Reference Treasury Dealer Quotations. "Corporate Trust Office" means the office of the Trustee or its affiliate at which at any particular time its corporate trust business may be administered and any additional office it may designate in writing to the Company. At the date of this Indenture, the Corporate Trust Office of the Trustee is located at 114 West 47th Street, New York, NY 10036, Attention: Corporate Trust Administration. "corporation" means a corporation, association, company, joint-stock company, limited liability company, partnership or business trust. "Currency Agreement" is defined to mean any foreign exchange contract, currency swap agreement or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in currency values to or under which the Company or any of its Subsidiaries is a party or a beneficiary on the date of this indenture or becomes a party or a beneficiary thereafter. "Debt" is defined to mean, with respect to any Person at any date of determination (without duplication): (1) all debt of such Person for borrowed money, (2) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (3) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (4) all obligations of such Person to pay the deferred purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery thereto or the completion of such services, except trade payables, (5) all obligations of such Person as lessee under Capitalized Leases, (6) all Debt of Persons other than such Person secured by a Lien on any asset of such person, whether or not such Debt is assumed by such Person; provided that the amount of such Debt shall be the lesser of (A) the fair market value of such asset at such date of determination and (B) the amount of such Debt, (7) all Debt of Persons other than such Person guaranteed by such Person to the extent such Debt is guaranteed by such Person, and 4 12 (8) to the extent not otherwise included in this definition, obligations under Currency Agreements and Interest Rate Agreements. The amount of Debt of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided that the amount outstanding at any time of any Debt issued with original issue discount is the face amount of such Debt less the remaining unamortized portion of the original issue discount of such Debt at such time as determined in conformity with GAAP; and provided further that Debt shall not include any liability for federal, state, local, foreign or other taxes. "Default" is defined to mean any event that is, or after the passage of time or both would be, an Event of Default. "Defaulted Interest" has the meaning specified in Section 3.07. "Euroclear" has the meaning specified in Section 2.01. "Event of Default" has the meaning specified in Section 5.01. "Exchange Act" refers to the Securities Exchange Act of 1934 as it may be amended and any successor act thereto. "Exchange and Registration Rights Agreement" has the meaning specified in Section 2.02. "Exchange Offer" has the meaning specified in Section 2.02. "Exchange Registration Statement" has the meaning specified in Section 2.02. "Exchange Securities" means the 8.875% Senior Notes due July 15, 2011 of the Company, issued pursuant to the Exchange Offer and their Successor Securities. "Expiration Date" has the meaning specified in Section 1.04. "generally accepted accounting principles" and "GAAP" are defined to mean generally accepted accounting principles in the United States as in effect as of the date of this Indenture, including, without limitation, those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as approved by a significant segment of the accounting profession. All ratios and computations based on GAAP contained in this Indenture shall be computed in conformity with GAAP, except that calculations made for purposes of determining compliance with the terms of the covenants and with other provisions of this Indenture shall be made without giving effect to: (1) except as otherwise provided, the amortization of any amounts required or permitted by Accounting Principles Board Opinion Nos. 16 and 17; and (2) any non-recurring charges associated with the adoption, after the date of the indenture, of Financial Accounting Standard Nos. 106 and 109. 5 13 "Global Security" means a Security that is registered in the Security Register in the name of the United States Depository or its nominee. "Governing Board Members" means the individuals serving as members of the protectorate or governing boards of (x) the Trusts or their respective trustees or (y) if the individuals serving as members of the protectorate or governing boards of the Trusts or their respective trustees immediately prior to any restructuring or dissolution of the Trusts or any transfer of Capital Stock of the Company held directly or indirectly thereby represent at least a majority of the members of the protectorate or governing board of the trust (or trustee thereof) or other entity replacing the Trusts as a direct or indirect owner of all, or substantially all, Capital Stock of the Company held directly or indirectly by the Trusts immediately prior to such restructuring, dissolution or transfer, such replacement trust (or its trustee) or entity, together with any new members whose election or appointment was approved by at least two-thirds of the members of such boards or board. "Gradation" is defined to mean a gradation within a Rating Category or a change to another Rating Category, which shall include: (1) "+" and "-" in the case of S&P's current Rating Categories (e.g., a decline from BB+ to BB would constitute a decrease of one gradation), (2) 1 and 2 in the case of Moody's current Rating Categories (e.g., a decline from B1 to B2 would constitute a decrease of one gradation), or (3) the equivalent in respect of successor Rating Categories of S&P or Moody's or Rating Categories used by Rating Agencies other than S&P and Moody's. "Holder" means a person in whose name a Security is registered in the Security Register. "Incur" means with respect to any Debt, to incur, create, issue, assume, guarantee or otherwise become liable for or with respect to, or become responsible for, the payment of, contingently or otherwise, such Debt, including an incurrence of Acquired Debt by reason of the acquisition of more than 50% of the Capital Stock of any Person; provided that neither the accrual of interest nor the accretion of original issue discount shall be considered an Incurrence of Debt. "Indenture" means this instrument as originally executed or as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof including, for all purposes of this instrument and any such supplemental indenture, the Annexes attached to this instrument. "Independent Investment Banker" means Goldman, Sachs & Co. or its successor or, if such firm is unwilling or unable to select the Comparable Treasury Issue, one of the remaining Reference Treasury Dealers appointed by the Company. "Interest Payment Date" has the meaning specified in Section 2.02. "Interest Rate Agreement" means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement designed to protect the Company or any of its Subsidiaries against fluctuations in interest rates to or under which the Company or any of its Subsidiaries is a party or a beneficiary on the date hereof or becomes a party or a beneficiary hereafter. 6 14 "Investment Grade" is defined to mean: (1) BBB- or above in the case of S&P (or its equivalent under any successor Rating Categories of S&P); (2) Baa3 or above, in the case of Moody's (or its equivalent under any successor Rating Categories of Moody's); and (3) the equivalent in respect of the Rating Categories of any Rating Agencies substituted for S&P or Moody's. "Lien" is defined to mean, any mortgage, lien, pledge, security interest, encumbrance or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof, any sale with recourse against the seller or any Affiliate of the seller, or any agreement to give any security interest). "Maturity", when used with respect to any Security, means the date on which the stated amount at Maturity of such Security becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption, exercise of the repurchase right or otherwise. "Moody's" is defined to mean Moody's Investors Service, Inc. and its successors. "Notice of Default" means a written notice of the kind specified in Section 5.01(a)(4). "Offer" has the meaning specified in the definition of Offer to Purchase. "Offer Expiration Date" has the meaning specified in the definition of Offer to Purchase. "Offer to Purchase" means a written offer (the "Offer") sent by the Company by first class mail, postage prepaid, to each Holder at his address appearing in the Security Register on the date of the Offer offering to purchase up to the principal amount of Securities specified in such Offer at the purchase price specified in such Offer (as determined pursuant to this Indenture). Unless otherwise required by applicable law, the Offer shall specify an expiration date (the "Offer Expiration Date") of the Offer to Purchase which shall be, subject to any contrary requirements of applicable law, not less than 30 days or more than 60 days after the date of such Offer and a settlement date (the "Purchase Date") for purchase of Securities within five Business Days after the Offer Expiration Date. The Company shall notify the Trustee at least 15 Business Days (or such shorter period as is acceptable to the Trustee) prior to the mailing of the Offer of the Company's obligation to make an Offer to Purchase, and the Offer shall be mailed by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. The Offer shall contain information concerning the business of the Company and its Subsidiaries which the Company in good faith believes will enable such Holders of the Securities to make an informed decision with respect to the Offer to Purchase (which at a minimum will include): (1) the most recent annual and quarterly financial statements and "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the documents required to be filed with the Trustee pursuant to this Indenture (which requirements may be satisfied by delivery of such documents together with the Offer), 7 15 (2) a description of material developments in the Company's business subsequent to the date of the latest of such financial statements referred to in clause (1) (including a description of the events requiring the Company to make the Offer to Purchase), (3) if applicable, appropriate pro forma financial information concerning the Offer to Purchase and the events requiring the Company to make the Offer to Purchase and (4) any other information required by applicable law to be included therein. The Offer shall contain all instructions and materials necessary to enable such Holders of the Securities to tender Securities pursuant to the Offer to Purchase. The Offer shall also state: (1) the section of this Indenture pursuant to which the Offer to Purchase is being made; (2) the Expiration Date and the Purchase Date; (3) the aggregate principal amount of the Outstanding Securities offered to be purchased by the Company pursuant to the Offer to Purchase (including, if less than 100%, the manner by which such has been determined pursuant to the Section hereof requiring the Offer to Purchase) (the "Purchase Amount"); (4) the purchase price to be paid by the Company for each U.S.$1,000 aggregate principal amount of Securities accepted for payment (as specified pursuant to this Indenture) (the "Purchase Price"); (5) that the Holder may tender all or any portion of the Securities registered in the name of such Holder and that any portion of a Security tendered must be tendered in an integral multiple of U.S.$1,000 principal amount; (6) the place or places where Securities are to be surrendered for tender pursuant to the Offer to Purchase; (7) that interest on any Security not tendered or tendered but not purchased by the Company pursuant to the Offer to Purchase will continue to accrue; (8) that on the Purchase Date, the Purchase Price will become due and payable upon each Security being accepted for payment pursuant to the Offer to Purchase and that interest thereon shall cease to accrue on and after the Purchase Date; (9) that each Holder of the Securities electing to tender a Security pursuant to the Offer to Purchase will be required to surrender such Security at the place or places specified in the Offer prior to the close of business on the Expiration Date (such Security being, if the Company or the Trustee so requires, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing); (10) that Holders of the Securities will be entitled to withdraw all or any portion of Securities tendered if the Company (or its Paying Agent) receives, not later than the close of business on the Expiration Date, a telegram, telex, facsimile transmission or letter setting forth the name of the 8 16 Holder, the principal amount of the Security the Holder tendered, the certificate number of the Security the Holder tendered and a statement that such Holder is withdrawing all or a portion of his tender; (11) that (a) if Securities in an aggregate principal amount less than or equal to the Purchase Amount are duly tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase all such Securities and (b) if Securities in an aggregate principal amount in excess of the Purchase Amount are tendered and not withdrawn pursuant to the Offer to Purchase, the Company shall purchase Securities having an aggregate principal amount equal to the Purchase Amount on a pro rata basis (with such adjustments as may be deemed appropriate so that only Securities in denominations of $1,000 or integral multiples thereof shall be purchased); and (12) that in the case of any Holder whose Security is purchased only in part, the Company shall execute, and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Security or Securities, of any authorized denomination as requested by such Holder, in an aggregate principal amount equal to and in exchange for the unpurchased portion of the Security so tendered. Any Offer to Purchase shall be governed by and effected in accordance with the Offer for such Offer to Purchase. "Officers' Certificate" means a certificate signed by the Chief Executive Officer, the President or a Vice President, and by the Chief Financial Officer, the Vice President, Finance, the Treasurer, an Assistant Treasurer, the Controller, the Corporate Secretary or an Assistant Secretary, of the Company, and delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Company, including an employee of the Company, and who shall be reasonably acceptable to the Trustee. "Original Securities" means the Securities sold by the Company to the Purchasers pursuant to the Purchase Agreement. "Outstanding" when used with respect to Securities, means, as of the date of determination, all Securities therefore authenticated and delivered under this Indenture, except: (1) Securities theretofore cancelled by the Trustee or delivered to the Trustee for cancellation; (2) Securities, or portions thereof, for whose payment or redemption money in the necessary amount has been theretofore deposited with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities; provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (3) Securities, except to the extent provided in Sections 12.02 and 12.03, with respect to which the Company has effected defeasance and/or covenant defeasance as provided in Article Twelve; and (4) Securities which have been paid pursuant to Section 3.06 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, other than any such Securities in respect of which there shall have been presented to the Trustee proof satisfactory to 9 17 it that such Securities are held by a bona fide purchaser in whose hands such Securities are valid obligations of the Company; provided, however, that in determining whether the Holders of the requisite principal amount of the Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder, Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver or other action, only Securities which the Trustee knows to be so owned by written notice delivered at its notice address specified in Section 1.05 hereof, shall be so disregarded. Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to such Securities and that the pledgee is not the Company or any other obligor upon the Securities or any Affiliate of the Company or of such other obligor. "pari passu", when used with respect to the ranking of any Debt of any Person in relation to other Debt of such Person, means that each such Debt (a) either (i) is not subordinated in right of payment to any other Debt of such Person or (ii) is subordinate in right of payment to the same Debt of such Person as is the other and is so subordinate to the same extent and (b) is not subordinate in right of payment to the other or to any Debt of such Person as to which the other is not so subordinate. "Paying Agent" means any Person authorized by the Company to pay the principal of (and premium, if any) or interest on any Securities on behalf of the Company, which initially shall be the Trustee. "Permitted Holder" is defined to mean the Trusts, a majority of the Governing Board Members (each in his or her capacity as a Governing Board Member), or any holding company, more than 50% of the total voting power of the Voting Stock of which is, at the time of any transfer of Capital Stock of the Company by the Trusts or any such other holding company, "beneficially owned" by the Trusts or a majority of the Governing Board Members (each in his or her capacity as a Governing Board Member). "Person" means any individual, corporation, partnership, joint venture, trust, unincorporated organization or government or any agency or political subdivision thereof. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same debt as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.06 in exchange for or in lieu of a mutilated, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Preferred Stock" of any Person means Capital Stock of such Person of any class or classes (however designated) that ranks prior, as to the payment of dividends or as to the distribution of assets upon any voluntary or involuntary liquidation, dissolution or winding up of such Person, to shares of Capital Stock of any other class of such Person. "Purchase Agreement" means the Purchase Agreement dated June 18, 2001 between the Company and the Purchasers. "Purchase Amount" has the meaning specified in the definition of Offer to Purchase. 10 18 "Purchase Date" has the meaning specified in the definition of Offer to Purchase. "Purchase Price" has the meaning specified in the definition of Offer to Purchase. "Purchasers" means Goldman, Sachs & Co., Morgan Stanley & Co Incorporated, Salomon Smith Barney Inc., Deutsche Banc Alex. Brown Inc., J.P. Morgan Securities Inc., Fleet Securities, Inc., and Scotia Capital (USA) Inc. "Rating Agencies" is defined to mean: (1) S&P and Moody's; or (2) if S&P or Moody's or both of them are not making ratings of the Securities publicly available, a nationally recognized United States rating agency or agencies, as the case may be, selected by the Company, which will be substituted for S&P or Moody's or both, as the case may be. "Rating Category" is defined to mean: (1) with respect to S&P, any of the following categories (any of which may include a "+" or "-"): AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor categories); (2) with respect to Moody's, any of the following categories: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories); and (3) the equivalent of any such categories of S&P or Moody's used by another Rating Agency, if applicable. "Rating Decline" is defined to mean that at any time within 90 days (which period shall be extended so long as the rating of the Securities is under publicly announced consideration for possible downgrade by any Rating Agency) after the date of public notice of a Change of Control, or of the intention of the Company or of any person to effect a Change of Control, the rating of the Securities is decreased by both Rating Agencies by one or more Gradations and the rating by such Rating Agencies on the Securities following such downgrade is below Investment Grade. "Redemption Date" when used with respect to any Security to be redeemed, in whole or in part, means the date fixed for such redemption by or pursuant to this Indenture. "Redemption Price" when used with respect to any Security to be redeemed, in whole or in part, means the price at which it is to be redeemed pursuant to this Indenture. "Reference Treasury Dealer" means (i) each of Goldman, Sachs & Co. and any other primary United States Government securities dealer in New York City (a "Primary Treasury Dealer") designated by, and not affiliated with, Goldman, Sachs & Co., provided however, that if Goldman, Sachs & Co. or any of its designees shall cease to be a Primary Treasury Dealer, the Company will appoint another Primary Treasury Dealer as a substitute for such entity and (ii) any other Primary Treasury Dealer selected by the Company. "Reference Treasury Dealer Quotations" means, with respect to each Reference Treasury Dealer and any Redemption Date, the average, as determined by the Trustee of the bid and asked prices for the Comparable Treasury Issue (expressed, in each case, as a percentage of its principal amount) 11 19 quoted in writing to the trustee by such Reference Treasury Dealer at 5:00 p.m., New York City time, on the third Business Day preceding such Redemption Date. "Registration Default" has the meaning specified in Section 2.02. "Regular Record Date" has the meaning specified in Section 2.02. "Regulation S" means Regulation S under the Securities Act. "Regulation S Certificate" means a certificate substantially in the form set forth in Annex A. "Regulation S Global Security" has the meaning specified in Section 2.01. "Regulation S Legend" means a legend substantially in the form of the legend required in the form of Security set forth in Section 2.02 to be placed upon a Regulation S Security. "Regulation S Securities" means all Securities required pursuant to Section 3.05(c) to bear a Regulation S Legend. Such term includes the Regulation S Global Security. "Relevant Debt" means any debt for borrowed money in the form of bonds, notes, debentures or other debt securities issued by way of public offering or private placement, including any guarantee or indemnity given in respect of debt of any third party for money borrowed in the form of bonds, notes, debentures or other debt securities issued by way of a public offering or private placement, but, for greater clarity, shall not include loans (or collateral debt securities relating to such loans) made by banks or other financial institutions, customers or strategic partners. "Restricted Global Security" has the meaning specified in Section 2.01. "Restricted Securities" means a restricted security within the meaning of Rule 144 and all Securities required pursuant to Section 3.05(c) to bear a Restricted Securities Legend. Such term includes the Restricted Global Security. "Restricted Securities Certificate" means a certificate substantially in the form set forth in Annex B. "Restricted Securities Legend" means a legend substantially in the form of the legend required in the form of Security set forth in Section 2.02 to be placed upon a Restricted Security. "Rule 144" means Rule 144 under the Securities Act. "Rule 144A" means Rule 144A under the Securities Act. "S&P" is defined to mean Standard & Poor's Ratings Group, a division of McGraw Hill Inc., a New York Corporation and its successors. "Securities Act" means the United States Securities Act of 1933, as amended, and (unless the context otherwise requires) includes the rules and regulations of the Commission promulgated thereunder. "Securities Act Legend" means a Restricted Securities Legend or a Regulation S Legend. 12 20 "Security" and "Securities" have the meaning set forth in the first recital of this Indenture and more particularly means any Securities authenticated and delivered under this Indenture. For all purposes of this Indenture, the term "Securities" shall include any Additional Securities that may be issued under a supplemental indenture and, for purposes of this Indenture, both the Securities and the Additional Securities shall vote together as one series of Securities under this Indenture. "Security Register" and "Security Registrar" have the respective meanings specified in Section 3.05. "Shelf Registration Statement" has the meaning specified in Section 2.02. "Special Record Date" for the payment of any Defaulted Interest means a date fixed by the Trustee pursuant to Section 3.07. "Stated Maturity" is defined to mean (1) with respect to any debt security, the date specified in such debt security as the fixed date on which the final installment of principal of such debt security is due and payable and (2) with respect to any scheduled installment of principal or interest on any debt security, the date specified in such debt security as the fixed date on which such installment is due and payable. "Subsidiary" is defined to mean, with respect to the Company, any business entity of which more than 50% of the outstanding Voting Stock is owned directly or indirectly by the Company and one or more other Subsidiaries of the Company. "Successor Company" has the meaning specified in Section 8.02. "Successor Security" of any particular Security means every Security issued after, and evidencing all or a portion of the same debt as that evidenced by, such particular Security; and for the purposes of this definition, any Security authenticated and delivered under Section 3.06 in exchange for or in lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to evidence the same debt as the mutilated, destroyed, lost or stolen Security. "Taxing Jurisdiction" is defined to mean the Republic of the Marshall Islands or any jurisdiction from or through which payment on the Securities is made, or any political subdivision thereof, or any authority or agency therein or thereof having power to tax. "Treasury Yield" means, with respect to any Redemption Date, the rate per year equal to the semi-annual equivalent yield to Maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such Redemption Date. "Trustee" means the Person named as the "Trustee" in the first paragraph of this Indenture until a successor Trustee shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean such successor Trustee. "Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1933. "Trusts" is defined to mean, collectively, the Cirrus Trust, a trust organized under the laws of the Turks and Caicos Islands, and the JTK Trust, a trust organized under the laws of the Bahamas, which as of May 25, 2001 owned approximately 36.1% and 7.2% of the outstanding Common Stock of the Company, respectively. 13 21 "United States" means the United States of America (including the States thereof and the District of Columbia), its territories, its possessions and other areas subject to its jurisdiction. "United States Depositary" means The Depository Trust Company until a successor United States Depositary shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "United States Depositary" shall mean each successor United States Depositary. "U.S. Dollars" and "$" means such coin or currency of the United States which is legal tender for payment of public and private debts. "United States Government Obligations" has the meaning specified in Section 12.04. "United States Government Securities" is defined to mean securities that are direct obligations of the United States, direct obligations of the Federal Home Loan Mortgage Corporation, direct obligations of the Federal National Mortgage Association, securities which the timely payment of whose principal and interest is unconditionally guaranteed by the full faith and credit of the United States, trust receipts or other evidence of indebtedness of a direct claim upon the instrument described above and money market mutual funds that invest solely in such securities. "Vice President", when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "vice president". "Voting Stock" of any Person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the board of directors or similar governing body of such Person. SECTION 1.02 Compliance Certificates and Opinions. (a) Upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee such certificates and opinions as may be required under the Trust Indenture Act. Each such certificate or opinion shall be given in the form of an Officers' Certificate, if to be given by an officer of the Company, or an Opinion of Counsel, if to be given by counsel, and shall comply with the requirements of the Trust Indenture Act and any other requirement set forth in this Indenture. (b) Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than pursuant to Section 10.11(a)) shall include (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with (which, in the case of an Opinion of Counsel, may be limited to reliance on an Officers' Certificate as to matters of fact); and 14 22 (4) a statement as to whether, in the opinion of each such individual, such condition or covenant has been complied with (provided that, with respect to matters of fact in Opinions of Counsel, counsel may rely on Officers Certificates or certificates of public officials. SECTION 1.03 Form of Documents Delivered to Trustee. (a) In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. (b) Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon a certificate or opinion of, or representations by, counsel, unless such officer knows, that the certificate or opinion or representations with respect to the matters upon which such certificate or opinion is based are erroneous. Any such certificate or Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company, unless such counsel knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. (c) Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, they may, but need not, be consolidated and form one instrument. SECTION 1.04 Acts of Holders; Record Date. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments and the Holders bound thereby. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Section 6.01) conclusive in favor of the Trustee and the Company, if made in the manner provided in this Section. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which the Trustee deems sufficient. 15 23 (c) The ownership of Securities (including the stated amount at Maturity and serial numbers of Securities held by any Person, and the date of holding the same) shall be proved by the Security Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Company in reliance thereon, whether or not notation of such action is made upon such Security. (e) The Company may set any day as a record date for the purpose of determining the Holders of Outstanding Securities entitled to give, make or take any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Indenture to be given, made or taken by Holders of Securities, provided that the Company may not set a record date for, and the provisions of this paragraph shall not apply with respect to, the giving or making of any notice, declaration, request or direction referred to in the next paragraph. If not set by the Company prior to the first solicitation of a Holder made by any Person in respect of any such matter referred to in the foregoing sentence, the record date for any such matter shall be the 30th day (or, if later, the date of the most recent list of Holders required to be provided pursuant to Section 7.01) prior to such first solicitation. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities on such record date, and no other Holders, shall be entitled to take the relevant action, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite stated amount at Maturity of Outstanding Securities on such record date. Nothing in this paragraph shall be construed to prevent the Company from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite stated amount at Maturity of Outstanding Securities on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Company, at its own expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Trustee in writing and to each Holder of Securities in the manner set forth in Section 1.06. (f) The Trustee may set any day as a record date for the purpose of determining the Holders of Outstanding Securities entitled to join in the giving or making of (1) any Notice of Default, (2) any declaration of acceleration referred to in Section 5.02, (3) any request to institute proceedings referred to in Section 5.07(b) or (4) any direction referred to in Section 5.12. If any record date is set pursuant to this paragraph, the Holders of Outstanding Securities on such record date, and no other Holders, shall be entitled to join in such notice, declaration, request or direction, whether or not such Holders remain Holders after such record date; provided that no such action shall be effective hereunder unless taken on or prior to the applicable Expiration Date by Holders of the requisite stated amount at Maturity of Outstanding Securities on such record date. Nothing in this paragraph shall be construed to prevent the Trustee from setting a new record date for any action for which a record date has previously been set pursuant to this paragraph (whereupon the record date previously set shall automatically and with no action by any Person be cancelled and of no effect), and nothing in this paragraph shall be construed to render ineffective any action taken by Holders of the requisite stated amount at Maturity of Outstanding Securities on the date such action is taken. Promptly after any record date is set pursuant to this paragraph, the Trustee, at the Company's expense, shall cause notice of such record date, the proposed action by Holders and the applicable Expiration Date to be given to the Company in writing and to each Holder of Securities in the manner set forth in Section 1.06. 16 24 (g) With respect to any record date set pursuant to this Section, the party hereto which sets such record date may designate any day as the "Expiration Date" and from time to time may change the Expiration Date to any earlier or later day; provided that no such change shall be effective unless notice of the proposed new Expiration Date is given to the other party hereto in writing, and to each Holder of Securities in the manner set forth in Section 1.06, on or prior to the existing Expiration Date. If an Expiration Date is not designated with respect to any record date set pursuant to this Section, the party hereto which set such record date shall be deemed to have initially designated the 180th day after such record date as the Expiration Date with respect thereto, subject to its right to change the Expiration Date as provided in this paragraph. Notwithstanding the foregoing, no Expiration Date shall be later than the 180th day after the applicable record date. (h) Without limiting the foregoing, a Holder entitled hereunder to take any action hereunder with regard to any particular Security may do so with regard to all or any part of the stated amount at Maturity of such Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such principal amount. SECTION 1.05 Notices, Etc., to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (a) the Trustee by any Holder or by the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office in the City of New York, Attention: Trust Administration in each case. (b) the Company by the Trustee or by any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company addressed to it at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company. SECTION 1.06 Notice to Holders: Waiver. (a) Where this Indenture provides for notice to Holders of any event, such notice shall be sufficiently given (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to each Holder affected by such event, at his address as it appears in the Security Register, not later than the latest date (if any), and not earlier than the earliest date (if any), prescribed for the giving of such notice. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. (b) In case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. 17 25 SECTION 1.07 Conflict with Trust Indenture Act. Until such time as this Indenture shall be qualified under the Trust Indenture Act, this Indenture, the Company and the Trustee shall be deemed for all purposes hereof to be subject to and governed by the Trust Indenture Act to the same extent as would be the case if this Indenture were so qualified on the date hereof. If any provision hereof limits, qualifies or conflicts with a provision of the Trust Indenture Act that is required under such Act to be a part of and govern this Indenture, the latter provision shall control. If any provision of this Indenture modifies or excludes any provision of the Trust Indenture Act that may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. SECTION 1.08 Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 1.09 Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. SECTION 1.10 Separability Clause. In case any provision in this Indenture or in the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 1.11 Benefits of Indenture. Nothing in this Indenture or in the Securities, express or implied, shall give to any Person, other than the parties hereto, any Paying Agent, any Securities Registrar and their successors hereunder and the Holders of Securities, any benefit or any legal or equitable right, remedy or claim under this Indenture. SECTION 1.12 Governing Law. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SECTION 1.13 Legal Holidays. In any case where any Interest Payment Date, Redemption Date, Purchase Date or Stated Maturity of any Security shall not be a Business Day, then (notwithstanding any other provision of this Indenture or of the Securities) payment of interest or stated amount at Maturity (and premium, if any) need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the Interest Payment Date, Redemption Date or Purchase Date, or at the Stated Maturity, provided that no interest shall accrue for the period from and after such Interest Payment Date, Redemption Date or Purchase Date or Stated Maturity, as the case may be. 18 26 SECTION 1.14 Consent to Service; Jurisdiction. (a) The Company and the Trustee agree that any legal suit, action or proceeding arising out of or relating to this Indenture, and the Company agrees that any legal suit, action or proceeding arising out of or relating to the Securities, may be instituted in any federal or state court in the Borough of Manhattan, the City of New York, waives any objection which it may now or hereafter have to the laying of the venue of any such legal suit, action or proceeding, waives any immunity from jurisdiction or to service of process in respect of any such suit, action or proceeding, and irrevocably submits to the exclusive jurisdiction of any such court in any such suit, action or proceeding. (b) The Company hereby designates and appoints Watson, Farley & Williams, New York, New York as its authorized agent upon which process may be served in any legal suit, action or proceeding arising out of or relating to this Indenture or the Securities which may be instituted in any federal or state court in the Borough of Manhattan, the City of New York, New York, and agrees that service of process upon such agent, and written notice of said service to the Company by the Person serving the same, shall be deemed in every respect effective service of process upon the Company in any such suit, action or proceeding and further designates its domicile, the domicile of New York, New York specified above and any domicile it may have in the future as its domicile to receive any notice hereunder (including service of process). Service of process, to be effective upon the Trustee, must be served at the Trustee's Corporate Trust Office in The City of New York. If for any reason Watson, Farley & Williams, New York, New York (or any successor agent for this purpose) shall cease to act as agent for service of process as provided above, the Company will promptly appoint a successor agent for this purpose reasonably acceptable to the Trustee. The Company agrees to take any and all actions as may be necessary to maintain such designation and appointment of such agent in full force and effect. SECTION 1.15 Conversion of Currency. The Company covenants and agrees that the following provisions shall apply to conversion of currency in the case of the Securities and this Indenture in the event the Company is in default under the terms of this Indenture: (a) If for the purpose of obtaining judgment in, or enforcing the judgment of, any court in any country, it becomes necessary to convert into a currency (the "judgment currency") an amount due in U.S. Dollars, then the conversion shall be made at the rate of exchange prevailing on the Business Day before the day on which the judgment is given or the order of enforcement is made, as the case may be (unless a court shall otherwise determine). (b) If there is a change in the rate of exchange prevailing between the Business Day before the day on which the judgment is given or an order of enforcement is made, as the case may be (or such other date as a court shall determine), and the date of receipt of the amount due, the Company will pay such additional amount (or, as the case may be, be refunded such lesser amount), if any, as may be necessary so that the amount paid in the judgment currency when converted at the rate of exchange prevailing on the date of receipt will produce the amount in U.S. Dollars originally due. (c) In the event of the winding-up of the Company at any time while any amount or damages owing under the Securities of this Indenture, or any judgment or order rendered in respect thereof, shall remain outstanding, the Company shall indemnify and hold the Holders and the Trustees harmless against any deficiency arising or resulting from any variation in rates of exchange between (1) the date as of which the equivalent of the amount in U.S. Dollars due or contingently due under the Securities and this Indenture (other than under this Subsection (c)) is calculated for the purposes of such 19 27 winding-up and (2) the final date for the filing of proofs of claim in such winding-up. For the purpose of this Subsection (c), the final date for the filing of proofs of claim in the winding-up of the Company shall be the date fixed by the liquidator or otherwise in accordance with the relevant provisions of applicable law as being the latest practicable date as at which liabilities of the Company may be ascertained for such winding-up prior to payment by the liquidator or otherwise in respect thereto. (d) The obligations contained in Subsections (b) and (c) of this Section 1.15 shall constitute separate and independent obligations of the Company from its other obligations under the Securities and this Indenture, shall give rise to separate and independent causes of action against the Company, shall apply irrespective of any waiver or extension granted by any Holders or the Trustees or any of them from time to time and shall continue in full force and effect notwithstanding any judgment or order or the filing of any proof of claim in the winding-up of the Company for a liquidated sum in respect of amounts due hereunder (other than under subsection (c) above) or under any such judgment or order. Any such deficiency as aforesaid shall be deemed to constitute a loss suffered by the Holders or the Trustee, as the case may be, and no proof or evidence of any actual loss shall be required by the Company or the liquidator or otherwise or any of them which shall be liable for such deficiency. In the case of Subsection (c) above, the amount of such deficiency shall not be deemed to be reduced by any variation in rates of exchange occurring between the said final date and the date of any liquidating distribution. (e) The term "rate(s) of exchange" shall mean the rate of exchange quoted by The Bank of New York as its central foreign exchange desk in its head office in New York, New York at 12:00 noon (New York City time) for the purchases of U.S. Dollars with the judgment currency other than U.S. Dollars referred to in subsections (a) and (c) above and includes any premiums and costs of exchange payable. (f) The Trustee shall have no duty or liability with respect to monitoring or enforcing this Section 1.15 and shall have no liability to the Holders due to fluctuations in currency rates. ARTICLE II FORMS OF SECURITY SECTION 2.01 Forms Generally. (a) The Securities and the Trustee's certificates of authentication shall be in substantially the forms set forth in this Article, with such appropriate insertions, omissions, substitutions and other variations as are required or permitted by this Indenture, and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may be required to comply with the rules of any securities exchange or as may, consistently herewith, be determined by the officers executing such Securities, as evidenced by their execution of the Securities. (b) The definitive Securities shall be printed, lithographed or engraved or produced by any combination of these methods on steel engraved borders or may be produced in any other manner, provided that such manner is permitted by the rules of any securities exchange on which the Securities may be listed, all as determined by the officers executing such Securities, as evidenced by their execution of such Securities. (c) In certain cases described elsewhere herein, the legends set forth in the first, second and third paragraphs of Section 2.02 may be omitted from Securities issued hereunder. 20 28 (d) Original Securities offered and sold in their original distribution in reliance on Rule 144A shall be issued in the form of one or more Global Securities in definitive, fully registered form without interest coupons, substantially in the form of Security set forth in Sections 2.02 and 2.03, with such applicable legends as are provided for in Section 2.02, except as otherwise permitted herein, and shall be registered in the name of the United States Depositary or its nominee and deposited with the Trustee, at its Corporate Trust Office, as custodian for the United States Depositary, or such other office of the Trustee or its affiliate at which its corporate trust operations as custodian for the United States Depositary are conducted, duly executed by the Company and authenticated by the Trustee as hereinafter provided, for credit by the United States Depositary to the respective accounts of beneficial owners of the Securities represented thereby (or such other accounts as they may direct). Such Global Securities, together with their Successor Securities which are Global Securities other than the Regulation S Global Security (as defined herein), are collectively herein called the "Restricted Global Security." The aggregate stated amount at Maturity of the Restricted Global Security may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the United States Depositary, in connection with a corresponding decrease or increase in the aggregate stated amount at Maturity of the Regulation S Global Security, as hereinafter provided. (e) Original Securities offered and sold in reliance on Regulation S shall be issued in the form of one or more Global Securities (collectively, the "Regulation S Global Security") in definitive, fully registered form without interest coupons, substantially in the form of Security set forth in Sections 2.02 and 2.03, with such applicable legends as are provided for in Section 2.02, except as otherwise permitted herein. Such Global Securities shall be registered in the name of the United States Depositary or its nominee and deposited with the Trustee, at its Corporate Trust Office, as custodian for the United States Depositary, or such other office of the Trustee or its affiliate at which its corporate trust operations as custodian for the United States Depositary are conducted, duly executed by the Company and authenticated by the Trustee as hereinafter provided, for credit to the respective accounts at the United States Depositary of the depositories for Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear Clearance System ("Euroclear"), or for Clearstream Banking, societe anonyme ("Clearstream"), in turn for credit to the respective accounts of beneficial owners of the Securities represented thereby (or such other accounts as they may direct) in accordance with the rules thereof. The aggregate stated amount at Maturity of the Regulation S Global Security may from time to time be increased or decreased by adjustments made on the records of the Trustee, as custodian for the United States Depositary, in connection with a corresponding decrease or increase in the aggregate stated amount at Maturity of the Restricted Global Security, as hereinafter provided. SECTION 2.02 Form of Face of Security. [INCLUDE IF SECURITY IS A RESTRICTED SECURITY OR A REGULATION S SECURITY - THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A)(1) TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION COMPLYING WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (3) TO AN INSTITUTIONAL ACCREDITED INVESTOR IN A TRANSACTION EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (4) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE) OR (5) PURSUANT TO AN 21 29 EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND (B) IN EACH CASE, IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES. THE HOLDER OF THIS SECURITY AGREES FOR THE BENEFIT OF THE COMPANY THAT THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER OF THIS SECURITY FROM IT OF THE RESALE RESTRICTIONS REFERRED TO ABOVE. THIS SECURITY WILL NOT BE ACCEPTED FOR REGISTRATION OF TRANSFER UNLESS THE REGISTRAR OR TRANSFER AGENT IS SATISFIED THAT THE RESTRICTIONS ON TRANSFER SET FORTH ABOVE HAVE BEEN COMPLIED WITH, ALL AS PROVIDED IN THE INDENTURE. ] [INCLUDE IF SECURITY IS A GLOBAL SECURITY - THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.] [INCLUDE IF SECURITY IS A GLOBAL SECURITY AND THE DEPOSITORY TRUST COMPANY IS THE UNITED STATES DEPOSITARY - UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, 55 WATER STREET, NEW YORK, NEW YORK 10004, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF CEDE & CO., AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL BECAUSE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] 22 30 TEEKAY SHIPPING CORPORATION 8.875% Senior Notes due July 15, 2011 CUSIP NO.____ ISIN NO. No. $ Teekay Shipping Corporation, a corporation duly incorporated and existing under the laws of the Republic of the Marshall Islands (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to __________, or registered assigns, the stated amount at maturity of __________ U.S. Dollars [IF THE SECURITY IS A GLOBAL SECURITY, THEN INSERT -, which stated amount at maturity may from time to time be increased or decreased to such other stated amounts at maturity, as may be set forth in the records of the Trustee hereinafter referred to in accordance with the Indenture,] on July 15, 2011, and to pay interest thereon at a rate of 8.875% per annum in cash semi-annually to the Holder of record at the close of business on January 1 and July 1, as the case may be, (the "Regular Record Date") immediately preceding the applicable Interest Payment Date, on January 15 and July 15 of each year (the "Interest Payment Dates"), commencing on January 15, 2002. This Security will bear interest on the overdue stated amount at maturity and premium, if any, and to the extent permitted by law, overdue interest at a rate of 8.875% plus 1% per annum; [IF THE SECURITY IS AN ORIGINAL SECURITY, THEN INSERT -- provided that if (i) the Company has not filed a registration statement (the "Exchange Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), registering a security substantially similar to this Security (except that such Security will not contain terms with respect to transfer restrictions or provision for the additional interest described below) pursuant to an exchange offer (the "Exchange Offer") within 60 days following the date of original issuance of this Security (the "Closing Date"), or, if applicable, a registration statement registering this Security for resale (a "Shelf Registration Statement") within 30 days following the Company's obligation to file as more particularly set forth in the exchange and registration rights agreement entered into as of June 22, 2001, by the Company and the initial purchasers of the Original Securities (the "Exchange and Registration Rights Agreement"), (ii) such Exchange Registration Statement, if applicable, has not become effective within 180 days following the Closing Date or the Shelf Registration Statement has not become effective within 120 days after being filed, or (iii) the Exchange Offer has not been completed within 60 days after the initial effective date of the Exchange Registration Statement or (iv) any Exchange Registration Statement or Shelf Registration Statement required by the Exchange and Registration Rights Agreement is filed and declared effective but shall thereafter cease to be effective or usable (except as specifically permitted therein) without being succeeded promptly by an additional registration statement filed and declared effective (any such event referred to in clauses (i) through (iv), a "Registration Default"), then, with respect to each Holder to which such Registration Default applies, the per annum interest rate borne by this Security shall increase (such increase referred to as "Additional Interest") by adding 0.5% for the first 90 day period from the occurrence of the Registration Default and by an additional 0.5% thereafter for each subsequent 90-day period (to a maximum additional interest rate of 1.5%) until such time as the Registration Default is no longer in effect with respect to such Holder, at which time such interest rate shall be reduced to 8.875% per annum. 23 31 The cash interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date next preceding such Interest Payment Date [IF THE SECURITY IS AN ORIGINAL SECURITY, THEN INSERT --; provided that any accrued and unpaid interest (including Additional Interest) on this Security upon the issuance of any Exchange Security in exchange for this Security shall cease to be payable to the Holder hereof and shall be payable on the next Interest Payment Date for such Exchange Security to the Holder thereof on the related Regular Record Date]. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice of which states the Special Record Date, the payment date (which shall be not less than five nor more than 10 days after the Special Record Date), and the amount to be paid, and such notice shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Interest on this Security shall be computed on the basis set forth in the Indenture. Payment of the stated amount at maturity of (and premium, if any) and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, the City of New York, in such coin or currency of the United States as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company, payment of interest on this Security may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. Dated: TEEKAY SHIPPING CORPORATION By: ------------------------------------ Title: 24 32 SECTION 2.03 Form of Reverse of Security. This Security is one of a duly authorized issue of Securities of the Company designated as its 8.875% Senior Notes due July 15, 2011 (herein called the "Securities"), issued and to be issued under an indenture dated as of June 22, 2001 (herein called the "Indenture"), between the Company and U.S. Trust Company of Texas, N.A., as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. As provided for in the Indenture, the Company may, subject to certain limitations, from time to time, without notice or other consent of the Holders, create and issue Additional Securities ranking pari passu with the Securities issued the date hereof so that such Additional Securities shall be consolidated and form a single series with the Securities initially issued by the Company and shall have the same terms as to status, redemption or otherwise as Securities originally issued. Any Additional Securities shall be issued with the benefit of any indenture supplemental to the Indenture. At the Company's option, the Company may redeem the Securities in whole or in part at any time at a redemption price equal to the greater of (i) 100% of the principal amount of the Securities to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the Securities to be redeemed (excluding the portion of any such interest accrued to the Redemption Date) discounted to the Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Yield, plus 50 basis points, plus, in each case, accrued and unpaid interest to the Redemption Date. The Securities shall be subject to redemption, at the option of the Company, as a whole but not in part, at any time upon not fewer than 30 nor more than 60 days' notice mailed to each Holder of Securities at the addresses appearing in the Security Register at a redemption price equal to 100% of the principal amount of the Securities plus accrued interest to but excluding the Redemption Date if the Company has become or would become obligated to pay on the next date on which any amount would be payable under or with respect to the Securities, any Additional Amounts as a result of any change or amendment to the laws (including any regulations promulgated thereunder) of any Taxing Jurisdiction, or any change in or amendment to any official position regarding the application or interpretation of such laws or regulations, which change or amendment is announced or becomes effective on or after June 22, 2001. If less than all of the Securities are to be redeemed at any time, the Trustee shall select the Securities to be redeemed by such method as the Trustee shall deem fair and appropriate in the aggregate principal amount specified by the Company. The Trustee may select for redemption Securities and portions of Securities in amounts of U.S.$1,000 or whole multiples of U.S.$1,000. The Securities do not have the benefit of any sinking fund obligations. In the event of redemption or purchase pursuant to an Offer to Purchase of this Security in part only, a new Security or Securities for the unredeemed or unpurchased portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. 25 33 If an Event of Default shall occur and be continuing, the stated amount at maturity of all the Securities may be declared due and payable in the manner and with the effect provided in the Indenture. The Indenture provides that, subject to certain conditions, if a Change of Control Triggering Event occurs, the Company shall be required to make an Offer to Purchase for all or a specified portion of the Securities. The Indenture contains provisions for defeasance at any time of (i) the entire indebtedness of this Security or (ii) certain restrictive covenants and Events of Default with respect to this Security, in each case upon compliance with certain conditions set forth therein. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding. The Indenture also contains provisions permitting the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. The Holder of this Security (and any Person that has a beneficial interest in this Security) is entitled to the benefits of the Exchange and Registration Rights Agreement. The Exchange and Registration Rights Agreement provides that the rate of interest borne by the Securities is subject to increase for specified periods if the Company does not comply with certain of its obligations thereunder. Such provisions of the Exchange and Registration Rights Agreement are hereby incorporated by reference and made a part hereof, and the Company shall promptly notify the Trustee of the occurrence of any Registration Default under the Exchange and Registration Rights Agreement. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the stated amount at maturity of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in the Borough of Manhattan, the City of New York, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate stated amount at maturity, will be issued to the designated transferee or transferees. The Securities are issuable only in registered form without coupons in stated amounts of $1,000 at maturity and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate stated amount at maturity of Securities of a different authorized denomination, as requested by the Holder surrendering the same. 26 34 No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. Interest on this Security shall be computed on the basis of a 360-day year of twelve 30-day months. All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. The Indenture and this Security shall be governed by and construed in accordance with the laws of the State of New York. 27 35 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased in its entirety by the Company pursuant to Section 10.09 of the Indenture, check the box: r If you want to elect to have only a part of this Security purchased by the Company pursuant to Section 10.09 of the Indenture, state the amount (which must be in multiples of $1,000): $ -------------- Dated: Your Signature: ------------------------------------- (Sign exactly as name appears on the other side of this Security) Signature Guarantee: ------------------------------------ (Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company) SECTION 2.04 Form of Trustee's Certificate of Authentication. This is one of the Securities referred to in the within-mentioned Indenture. U.S. TRUST COMPANY OF TEXAS, N.A., as Trustee By: ------------------------------------ Authorized Signatory 28 36 ARTICLE III THE SECURITIES SECTION 3.01 Title and Terms. (a) The aggregate stated amount at Maturity of Securities which may be authenticated and delivered under this Indenture is not limited. The Company may issue Exchange Securities from time to time pursuant to an Exchange Offer, in each case pursuant to a Board Resolution and subject to Section 3.03, in authorized denominations in exchange for a like stated amount at Maturity of Original Securities. Upon any such exchange such Original Securities shall be cancelled in accordance with Section 3.09 and shall no longer be deemed Outstanding for any purpose. (b) The Securities shall be known and designated as the "8.875% Senior Notes due July 15, 2011" of the Company. Their Stated Maturity shall be July 15, 2011 and they shall bear interest thereon at a rate of 8.875% per annum in cash semi-annually to the Holder of record at the close of business on the Regular Record Date immediately preceding the applicable Interest Payment Date, on the Interest Payment Date, commencing on January 15, 2002. This Security will bear interest on overdue stated amount at Maturity and premium, if any, and to the extent permitted by law, overdue interest at a rate of 8.875% plus 1% per annum. This Security will also bear additional interest in certain circumstances as provided in the Exchange and Registration Rights Agreement, which is hereby incorporated by reference herein. The Company shall promptly notify the Trustee of any Registration Default, as such term is defined in the Exchange and Registration Rights Agreement; (c) The stated amount at Maturity of (and premium, if any) and interest on the Securities shall be payable at the office or agency of the Company in the Borough of Manhattan, City of New York, New York maintained for such purpose or at any other office or agency maintained by the Company for such purpose; provided, however, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. (d) The Securities shall be subject to repurchase by the Company pursuant to an Offer to Purchase as provided in Section 10.09. (e) The Securities shall be redeemable as provided in Article XI. (f) The Securities shall be subject to defeasance at the option of the Company as provided in Article XII. (g) Unless the context otherwise requires, the Original Securities and the Exchange Securities shall constitute one series for all purposes under this Indenture, including with respect to any amendment, waiver, acceleration or other Act of Holders, redemption or Offer to Purchase. (h) Additional Securities ranking pari passu with the Securities issued the date hereof may be created and issued from time to time by the Company without notice to or consent of the Holders and shall be consolidated with and form a single series with the Securities initially issued and shall have the same terms as to status, redemption or otherwise as the Securities originally issued. Any Additional Securities shall be issued with the benefit of an indenture supplemental to this Indenture. 29 37 SECTION 3.02 Denominations. The Securities shall be issuable only in registered form without coupons and only in stated amounts of $1,000 at Maturity and any integral multiple thereof. SECTION 3.03 Execution, Authentication, Delivery and Dating. (a) The Securities shall be executed on behalf of the Company by its Chief Executive Officer, its President, its Chief Financial Officer or Corporate Secretary. The signature of any of these officers on the Securities may be manual or facsimile. (b) Securities bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities or did not hold such offices at the date of such Securities. (c) At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Original Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Original Securities; and the Trustee in accordance with such Company Order shall authenticate and deliver such Original Securities as in this Indenture provided and not otherwise. (d) At any time and from time to time after the execution and delivery of this Indenture and after the effectiveness of a registration statement under the Securities Act with respect thereto, the Company may deliver Exchange Securities executed by the Company to the Trustee for authentication, together with a Company Order for the authentication and delivery of such Exchange Securities and like stated amount at Maturity of Original Securities, and the Trustee in accordance with the Company Order shall authenticate and deliver such Securities. Each such Company Order shall state, among other things, that all conditions hereunder precedent to the authentication and delivery of such Exchange Securities have been complied with and shall be accompanied by an Opinion of Counsel stating in substance that such Exchange Securities have been duly executed and, when such Securities have been duly authenticated and delivered by the Trustee, will be duly issued and delivered and will constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, subject to any applicable bankruptcy, insolvency (including, without limitation, all laws relating to fraudulent transfers), reorganization, moratorium or similar laws affecting creditors' rights generally and subject to the effect of general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing (regardless of whether enforcement is considered in a proceeding in equity or at law). (e) Each Security shall be dated the date of its authentication. (f) No Security shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose unless there appears on such Security a certificate of authentication substantially in the form provided for herein executed by the Trustee by manual signature, and such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. (g) In case the Company, pursuant to Article Eight, shall be consolidated or merged with or into any other Person or shall convey, transfer, lease or otherwise dispose of substantially all of its properties and assets to any Person, and the successor Person resulting from such consolidation, or 30 38 surviving such merger, or into which the Company shall have been merged, or the successor Person which shall have received a conveyance, transfer, lease or other disposition as aforesaid, shall have executed an indenture supplemental hereto with the Trustee pursuant to Article Eight, any of the Securities authenticated or delivered prior to such consolidation, merger, conveyance, transfer, lease or other disposition may, from time to time, at the request of the successor Person, be exchanged for other Securities executed in the name of the successor Person with such changes in phraseology and form as may be appropriate, but otherwise in substance of like tenor as the Securities surrendered for such exchange and of like principal amount; and the Trustee upon Company Order of the successor Person, shall authenticate and deliver replacement Securities as specified in such request for the purpose of such exchange. If replacement Securities shall at any time be authenticated and delivered in any new name of a successor Person pursuant to this Section in exchange or substitution for or upon registration of transfer of any Securities, such successor Person, at the option of any Holder but without expense to such Holder, shall provide for the exchange of all Securities at the time outstanding held by such Holder for Securities authenticated and delivered in such new name. SECTION 3.04 Temporary Securities. (a) Pending the preparation of definitive Securities, the Company may execute, and upon Company Order the Trustee shall authenticate and deliver, temporary Securities which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such Securities may determine, as evidenced by their execution of such Securities. (b) If temporary Securities are issued, the Company will cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities, the temporary Securities shall be exchangeable for definitive Securities upon surrender of the temporary Securities at any office or agency of the Company designated pursuant to Section 10.02, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Securities the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations. Until so exchanged the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities. SECTION 3.05 Registration, Registration of Transfer and Exchange Generally; Restrictions on Transfer and Exchange; Securities Act Legends. (a) Registration, Registration of Transfer and Exchange Generally. (1) The Company shall cause to be kept at the Corporate Trust Office of the Trustee a register (the register maintained in such office and in any other office or agency designated pursuant to Section 10.02 being herein sometimes collectively referred to as the "Security Register") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of Securities and of transfers and exchanges of Securities. The Trustee is hereby appointed "Security Registrar" for the purpose of registering Securities and transfers and exchanges of Securities as herein provided. Such Security Register shall distinguish between Original Securities and Exchange Securities. (2) Upon surrender for registration of transfer of any Security at an office or agency of the Company designated pursuant to Section 10.02 for such purpose, the 31 39 Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Securities of any authorized denominations and of a like aggregate stated amount at Maturity bearing such restrictive legends as may be required by this Indenture. (3) At the option of the Holder, and subject to the other provisions of this Section 3.05, Securities may be exchanged for other Securities of any authorized denominations and of a like aggregate stated amount at Maturity, upon surrender of the Securities to be exchanged at such office or agency. Whenever any Securities are so surrendered for exchange, and subject to the other provisions of this Section 3.05, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. (4) All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and (except for the differences between Original Securities and Exchange Securities provided for in this Indenture) entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration of transfer or exchange. (5) Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Security Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed, by the Holder thereof or his attorney duly authorized in writing. (6) No service charge shall be made for any registration of transfer or exchange of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.04, 9.06 or 11.08 or in accordance with any Offer to Purchase pursuant to Section 10.09 not involving any transfer. (7) The Company shall not be required (i) to issue, register the transfer of or exchange any Security during a period beginning at the opening of business 15 days before the day of the mailing of a notice of redemption of Securities selected for redemption under Section 11.04 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Security so selected for redemption in whole or in part, except the unredeemed portion of any Security being redeemed in part. (b) Certain Transfers and Exchanges. (1) Notwithstanding any other provisions of this Indenture or the Securities, transfers and exchanges of Securities and beneficial interests in a Global Security of the kinds specified in this Subsection 3.05(b) shall be made only in accordance with this Subsection 3.05(b). Transfers and exchanges subject to this Subsection 3.05(b) shall also be subject to the other provisions of this Indenture that are not inconsistent with this Subsection 3.05(b). 32 40 (2) Unless and until (A) an Original Security is sold under an effective Registration Statement, or (B) an Original Security is exchanged for an Exchange Security in connection with an effective registration statement, pursuant to the Exchange and Registration Rights Agreement, the following provisions shall apply: (i) Restricted Global Security to Regulation S Global Security. If the holder of a beneficial interest in the Restricted Global Security wishes at any time to transfer such interest to a Person who is required or permitted to take delivery thereof in the form of a beneficial interest in the Regulation S Global Security, such transfer may be effected, subject to the rules and procedures of the United States Depositary, Euroclear and Clearstream, in each case to the extent applicable (the "Applicable Procedures"), only in accordance with the provisions of this Clause. Upon receipt by the Trustee, as Security Registrar, of (A) written instructions given in accordance with the Applicable Procedures from any member of, or direct participants in, the United States Depositary ("Agent Members") directing the Trustee to credit or cause to be credited to a specified Agent Member's account a beneficial interest in the Regulation S Global Security in a principal amount equal to that of the beneficial interest in the Restricted Global Security to be so transferred, (B) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Agent Member (and the Euroclear or Clearstream account, as the case may be) to be credited with, and the account of the Agent Member to be debited for, such beneficial interest and (C) a Regulation S Certificate, substantially in the form of Annex A hereto given by the holder of such beneficial interest, the principal amount of the Restricted Global Security shall be reduced, and the principal amount of the Regulation S Global Security shall be increased, by the principal amount of the beneficial interest in the Restricted Global Security to be so transferred, in each case by means of an appropriate adjustment on the records of the Trustee, as Security Registrar, and the Trustee, as Security Registrar, shall instruct the United States Depositary or its authorized representative to make a corresponding adjustment to its records and to credit or cause to be credited to the account of the Person specified in such instructions (which shall be the Agent Member for Euroclear or Clearstream or both, as the case may be) a beneficial interest in the Regulation S Global Security having a principal amount equal to the amount so transferred. (ii) Regulation S Global Security to Restricted Global Security. If the holder of a beneficial interest in the Regulation S Global Security wishes at any time to transfer such interest to a Person who is required or permitted to take delivery thereof in the form of a beneficial interest in the Restricted Global Security, such transfer may be effected, subject to the Applicable Procedures, only in accordance with this Clause. Upon receipt by the Trustee, as Security Registrar, of (A) written instructions given in accordance with the Applicable Procedures from an Agent Member directing the Trustee to credit or cause to be credited to a specified Agent Member's account a beneficial interest in the Restricted Global Security in a principal amount equal to that of the beneficial interest in the Regulation S Global Security to be so transferred, (B) a written order given in accordance with the Applicable Procedures containing information regarding the account of the Agent Member to be credited with, and the account of the Agent Member (and, if applicable, the Euroclear or Clearstream account, 33 41 as the case may be) to be debited for, such beneficial interest and (C) a Restricted Securities Certificate, substantially in the form of Annex B hereto given by the holder of such beneficial interest, the principal amount of the Regulation S Global Security shall be reduced, and the principal amount of the Restricted Global Security shall be increased, by the principal amount of the beneficial interest in the Regulation S Global Security to be so transferred, in each case by means of an appropriate adjustment on the records of the Trustee, as Security Registrar, and the Trustee, as Security Registrar, shall instruct the United States Depositary or its authorized representative to make a corresponding adjustment to its records and to credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Restricted Global Security having a principal amount equal to the amount so transferred. (iii) Non-Global Security for Non-Global Security. A Security that bears a Securities Act Legend that it is not a Global Security may be transferred, in whole or in part, to a Person who takes delivery in the form of another Security that is not a Global Security as provided in Section 3.05(a), provided that, if the Security to be transferred in whole or in part is a Restricted Security, or is a Regulation S Security, then the Trustee shall have received (A) a Restricted Securities Certificate substantially in the form attached hereto as Annex B and duly executed by the transferor holder or his attorney duly authorized in writing, in which case the transferee Holder shall take delivery in the form of a Restricted Security, or (B) a Regulation S Certificate, substantially in the form attached hereto as Annex A and duly executed by the transferee holder of his attorney duly authorized in writing, in which case the transferee holder shall take delivery in the form of a Regulation S Security (subject in each case to Section 3.05(c)). (iv) Interests in Regulation S Global Security to be Held Through Euroclear or Clearstream. Interests in the Regulation S Global Security may be held only through Agent Members acting for and on behalf of Euroclear and Clearstream, provided that this clause (iv) shall not prohibit any transfer in accordance with Subsection 3.05(b)(2)(ii) hereof. (c) Securities Act Legends. Restricted Securities and their Successor Securities shall bear a Restricted Securities Legend and Regulation S Securities and their Successor Securities shall bear a Regulation S Legend, subject to the following: (1) subject to the following clauses of this Section 3.05(c), a Security or any portion thereof which is exchanged, upon transfer or otherwise, for a Global Security or any portion thereof shall bear the Securities Act Legend borne by such Global Security while represented thereby; (2) subject to the following clauses of this Section 3.05(c), a new Security which is not a Global Security and is issued in exchange for another Security (including a Global Security) or any portion thereof, upon transfer or otherwise, shall bear the Securities Act legend borne by such other Security, provided that, if such new Security is required pursuant to Section 3.05(b)(2)(iii) to be issued in the form of a Restricted Security, it shall bear a Restricted Securities Legend and, if such new Security is so 34 42 required to be issued in the form of a Regulation S Security, it shall bear a Regulation S Legend; (3) Securities that are sold or otherwise disposed of pursuant to an effective registration statement under the Securities Act (including any shelf registration contemplated by the Exchange and Registration Rights Agreement) shall not bear a Securities Act Legend; (4) notwithstanding the foregoing provisions of this Section 3.05(c), a Successor Security of a Security that does not bear a particular form of Securities Act Legend shall not bear such form of legend unless the Company has reasonable cause to believe that such Successor Security is a "restricted security" within the meaning of Rule 144, in which case the Trustee, at the direction of the Company, shall authenticate and deliver a new Security bearing a Restricted Securities Legend in exchange for such Successor Security as provided in this Article Three; (5) the Securities may not be reoffered, resold, pledged or otherwise transferred except (A)(i) to a person reasonably believed by the seller to be a qualified institutional buyer in a transaction meeting the requirements of Rule 144A, (ii) in an offshore transaction complying with Rule 903 or Rule 904 of Regulation S, (iii) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available), (iv) to an institutional accredited investor in a transaction exempt from the registration requirements of the Securities Act or (v) pursuant to an effective registration statement under the Securities Act, and (B) in each case, in accordance with applicable securities laws of the United States. The Trustee shall have no duty or liability with respect to any Holder's or beneficial owner's compliance with Rule 144A or Regulation S, as applicable; and (6) Exchange Securities and their respective Successor Securities shall not bear a Securities Act Legend. (d) The provisions of clauses (1), (2), (3), (4) and (5) of this Subsection (d) shall apply only to Global Securities: (1) Each Global Security authenticated under this Indenture shall be registered in the name of the United States Depositary or a nominee thereof and delivered to the United States Depositary or a nominee thereof or custodian therefor, and each such Global Security shall constitute a single Security for all purposes of this Indenture. (2) Notwithstanding any other provision in this Indenture or the Securities, no Global Security may be exchanged in whole or in part for Securities registered, and no transfer of a Global Security in whole or in part may be registered, in the name of any Person other than the United States Depositary or a nominee thereof unless (A) the United States Depositary (i) has notified the Company that it is unwilling or unable to continue as United States Depositary for such Global Security or (ii) has ceased to be a clearing agency registered under the Exchange Act, and in either case the Company thereupon fails to appoint a successor depositary within 120 days of such notice, (B) the Company, at its option, executes and delivers to the Trustee a Company Order that such Global Security shall be exchanged in whole for Securities that are not Global Securities, 35 43 or (C) there shall have occurred and be continuing an Event of Default with respect to such Global Security. (3) Securities issued in exchange for a Global Security or any portion thereof pursuant to clause (2) of this Subsection (d) shall be issued in definitive, fully registered form, without interest coupons, shall have an aggregate principal amount equal to that of such Global Security or portion thereof to be so exchanged, shall be registered in such names and be in such authorized denominations as the United States Depositary shall designate and shall bear any legends required hereunder. Any Global Security to be exchanged in whole shall be surrendered by the United States Depositary to the Trustee, as Security Registrar. With regard to any Global Security to be exchanged in part, either such Global Security shall be so surrendered for exchange or, if the Trustee is acting as custodian for the United States Depositary or its nominee with respect to such Global Security, the principal amount thereof shall be reduced, by an amount equal to the portion thereof to be so exchanged, by means of an appropriate adjustment made on the records of the Trustee and the United States Depositary. Upon any such surrender or adjustment, the Trustee shall authenticate and deliver the Security issuable on such exchange to or upon the order of the United States Depositary or an authorized representative thereof. (4) In the event of the occurrence of any of the events specified in clause (2) of this Subsection (d), the Company will promptly make available to the Trustee a reasonable supply of certificated Securities in definitive, fully registered form, without interest coupons. (5) Neither any Agent Members nor any other Persons on whose behalf Agent Members may act (including Euroclear and Clearstream and account holders and participants therein) shall have any rights under this Indenture with respect to any Global Security, or under any Global Security, and the United States Depositary or such nominee, as the case may be, may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner and Holder of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the United States Depositary or such nominee, as the case may be, or impair, as between the United States Depositary, its Agent Members and any other person on whose behalf an Agent Member may act, the operation of customary practices of such Persons governing the exercise of the rights of a Holder of any Security. SECTION 3.06 Mutilated, Destroyed, Lost and Stolen Securities. (a) If any mutilated Security is surrendered to the Trustee, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of like tenor and stated amount at Maturity and bearing a number not contemporaneously outstanding. (b) (1) If there shall be delivered to the Company and the Trustee (A) evidence to their satisfaction of the destruction, loss or theft of any Security and (B) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security has been acquired by a bona fide purchaser, the Company shall execute and upon its request the Trustee shall authenticate and deliver, in 36 44 lieu of any such destroyed, lost or stolen Security, a new Security of like tenor and stated amount at Maturity and bearing a number not contemporaneously outstanding. (2) In case any such mutilated, destroyed, lost or stolen Security has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security. (c) Upon the issuance of any new Security under this Section, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. (d) Every new Security issued pursuant to this Section in lieu of any mutilated, destroyed, lost or stolen Security shall constitute an original additional contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. (e) The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities. SECTION 3.07 Payment of Interest; Interest Rights Preserved. (a) Interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest. (b) Any interest on any Security which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder on the relevant Regular Record Date by virtue of having been such Holder, and such Defaulted Interest may be paid by the Company, at its election in each case, as provided in clause (1) or (2) of this Subsection (b): (1) The Company may elect to make payment of any Defaulted Interest to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on each Security and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the Persons entitled to such Defaulted Interest as in this clause provided. Thereupon the Trustee shall fix a Special Record Date for the payment of such Defaulted Interest which shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after the receipt by the Trustee of the notice of the proposed payment. The Trustee shall promptly notify the Company of such Special Record Date and, in the name and at the expense of the Company, shall cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to each Holder at his address as it appears in the Security Register, not less than 10 days prior to such Special Record Date. Notice of the proposed payment of 37 45 such Defaulted Interest and the Special Record Date therefor having been so mailed, such Defaulted Interest shall be paid to the Persons in whose names the Securities (or their respective Predecessor Securities) are registered at the close of business on such Special Record Date and shall no longer be payable pursuant to clause (2) of this Subsection (b). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this clause, such manner of payment shall be deemed practicable by the Trustee. (c) Subject to the foregoing provisions of this Section, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. SECTION 3.08 Persons Deemed Owners. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Security is registered on the Securities Register as the owner of such Security for the purpose of receiving payment of stated amount at Maturity of (and premium, if any) and (subject to Section 3.07) interest on such Security and for all other purposes whatsoever, whether or not such Security be overdue, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. SECTION 3.09 Cancellation. All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any Offer to Purchase pursuant to Section 10.09 shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee and shall be promptly cancelled by it. The Company shall deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be promptly cancelled by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by this Indenture. All cancelled Securities held by the Trustee shall be disposed of by the Trustee in accordance with its customary procedures and certification of their disposal delivered to the Company unless by Company Order the Company shall direct that cancelled Securities be returned to it. SECTION 3.10 Computation of Interest. Interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. SECTION 3.11 CUSIP Numbers. The Company in issuing the Securities may use "CUSIP" numbers and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption and other notices to Holders as a convenience to 38 46 Holders; provided, however, that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Securities or as contained in any notice of a redemption or other notice and that reliance may be placed only on the other identification numbers printed on the Securities, and any such redemption or notice shall not be affected by any defect in or such omission of such numbers. ARTICLE IV SATISFACTION AND DISCHARGE SECTION 4.01 Satisfaction and Discharge of Indenture. (a) This Indenture shall cease to be of further effect (except as to any surviving rights of registration of transfer or exchange of Securities herein expressly provided for), and the Trustee, upon a Company Order and at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture (including, but not limited to, Article Twelve), when (1) either (i) all Securities theretofore authenticated and delivered (other than (i) Securities which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.06 and (ii) Securities for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company or discharged from such trust, as provided in Section 10.03) have been delivered to the Trustee for cancellation; or (ii) all such Securities not theretofore delivered to the Trustee for cancellation (a) have become due and payable, or (b) will become due and payable at their Stated Maturity within one year, or (c) are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of subclause (a), (b) or (c) of this Subsection (a)(1)(ii), has deposited or caused to be deposited with the Trustee as trust funds in trust for the purpose an amount sufficient to pay and discharge the entire indebtedness on such Securities not theretofore delivered to the Trustee for cancellation, for stated amount at Maturity (and premium, if any) and interest to the date of such deposit (in the case of Securities which have become due and payable) or to the Stated Maturity or Redemption Date, as the case may be; (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company; and 39 47 (3) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating, as appropriate, that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture have been complied with. (b) Notwithstanding the satisfaction and discharge of this Indenture pursuant to this Article Four, the obligations of the Company to the Trustee under Section 6.07 and, if money shall have been deposited with the Trustee pursuant to subclause (ii) of Subsection (a)(1) of this Section, the obligations of the Trustee under Section 4.02 and Section 10.03(e) shall survive. SECTION 4.02 Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.03, all money deposited with the Trustee pursuant to Section 4.01 shall be held in trust and applied by it, in accordance with the provisions of the Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the stated amount at Maturity (and premium, if any) and interest for whose payment such money has been deposited with the Trustee. ARTICLE V REMEDIES SECTION 5.01 Events of Default. (a) "Event of Default", wherever used herein, means any one of the following events (whatever the reason for such Event of Default and whether it be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (1) default in the payment of the principal of (or premium, if any, on) any Security at its Maturity; or (2) default in the payment of any interest upon any Security when it becomes due and payable, and continuance of such default for a period of 30 days; or (3) default in the payment of principal and interest on Securities required to be purchased upon the occurrence of a Change of Control Triggering Event when due and payable; or (4) default in the performance, or breach, of any covenant or agreement of the Company in this Indenture (other than a covenant or agreement a default in whose performance or whose breach is elsewhere in this Section specifically dealt with), and continuance of such default or breach for a period of 30 consecutive days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in aggregate principal amount of the Outstanding Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default"; or (5) a default or defaults with respect to any issue or issues of Debt of the Company or any Subsidiary having an outstanding aggregate principal amount of $10 million or more individually or $20 million or more in the aggregate for all such issues of 40 48 all such Persons, whether such Debt now exists or shall hereafter be created, which default or defaults shall constitute a failure to pay all or any portion of the principal of such Debt when due and payable or shall have resulted in such Debt becoming or being declared due and payable prior to the date on which it would otherwise have become due and payable and such Debt has not been discharged in full or such acceleration has not been rescinded or annulled (by cure, waiver or otherwise) within 30 days of such acceleration; provided, however, that any secured Debt in excess of the limits set forth above shall be deemed to have been declared due and payable if the lender in respect thereof takes any action to enforce a security interest against, or an assignment of, or to collect on, seize, dispose of or apply any assets of the Company or its Subsidiaries (including lock-box and other similar arrangements) securing such Debt, or to set off against any bank account of the Company or its Subsidiaries in excess of $10 million; or (6) any final judgment or order (not covered by insurance) for the payment of money in excess of $10 million individually or $20 million in the aggregate for all such final judgments or orders against all such Persons (treating any deductibles, self-insurance or retention as not so covered) shall be rendered against the Company or any Subsidiary and shall not be paid or discharged, and there shall be any period of 60 consecutive days following entry of the final judgment or order in excess of $10 million individually or that causes the aggregate amount for all such final judgments or orders outstanding and not paid or discharged against all such Persons to exceed $20 million during which a stay of enforcement of such final judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (7) the Company or any Subsidiary shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against the Company or any Subsidiary seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 60 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or the Company or any Subsidiary shall take any corporate action to authorize any of the actions set forth above in this Subsection (7); (8) the Company and/or one or more Subsidiaries fails to make (A) at the final (but not any interim) fixed maturity of any issue of Debt a principal payment of $10 million or more or (B) at the final (but not any interim) fixed maturity of more than one issue of such Debt principal payments aggregating $20 million or more and, in the case of clause (A), such defaulted payment shall not have been made, waived or extended within 30 days of the payment default and, in the case of clause (B), all such defaulted payments shall not have been made, waived or extended within 30 days of the payment default that causes the amount described in clause (B) to exceed $20 million. 41 49 SECTION 5.02 Acceleration of Maturity; Rescission and Annulment. (a) If an Event of Default (other than an Event of Default specified in Subsection 5.01(a)(7)) shall occur and be continuing, then and in every such case the Trustee or the Holders of not less than 25% in aggregate principal amount of the Outstanding Securities may, and the Trustee at the request of such Holders shall, declare the entire unpaid principal of, premium, if any, and accrued interest on the Securities to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by Holders), and upon any such declaration such principal of, premium, if any, and accrued interest on the Securities shall become immediately due and payable. If an Event of Default specified in Subsection 5.01(a)(4) or (8) occurs, such declaration of acceleration shall be automatically rescinded and annulled if the event triggering such Event of Default pursuant to Subsection 5.01(a)(4) or (8) shall be remedied or cured by the Company and/or the relevant Subsidiaries or waived by the Holders of the Relevant Debt within 60 days after the declaration of acceleration with respect thereto. (b) If an Event of Default specified in Subsection 5.01(a)(7) above occurs, all unpaid principal of, premium, if any, and accrued interest on the Securities then outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder. The Holders of at least a majority in principal amount of the outstanding Securities by written notice to the Company and to the Trustee, may waive all past defaults and rescind and annul a declaration of acceleration and its consequences if: (1) the Company has paid or deposited with the Trustee a sum sufficient to pay (A) all sums paid or advanced by the Trustee under this Indenture and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, (B) all overdue interest on all Securities, (C) the principal of (and premium, if any, on), any Securities that have become due otherwise than by such declaration or occurrence of acceleration and interest thereon at the rate prescribed therefor by such Securities, and (D) to the extent that payment of such interest is lawful, interest upon overdue interest at the rate prescribed therefor by such Securities, (2) all existing Events of Default, other than the non-payment of the principal of the Securities that have become due solely by such declaration of acceleration, have been cured or waived, and (3) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. SECTION 5.03 Collection of Indebtedness and Suits for Enforcement by Trustee. (a) The Company covenants that if (1) default is made in the payment of any interest on any Security when such interest becomes due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the stated amount at Maturity of (or premium, if any, on) any Security at the Maturity thereof or, with respect to any Security required to have been purchased pursuant to an Offer to Purchase made by the Company, at the Purchase Date thereof, the Company will, upon demand of the Trustee, pay to it, for the benefit of the Holders of such Securities, the whole amount then due and payable on such Securities, including, as applicable, the stated amount at 42 50 Maturity (and premium, if any) and interest, and, to the extent that payment of such interest shall be legally enforceable, interest on any overdue stated amount at Maturity (and premium, if any) and on any overdue interest, at the rate provided by the Securities, and, in addition thereto, such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. (b) If the Company fails to pay such amounts forthwith upon such demand, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the sums so due and unpaid, may prosecute such proceeding to judgment or final decree and may enforce the same against the Company or any other obligor upon the Securities and collect the moneys adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon the Securities, wherever situated. (c) If an Event of Default occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. SECTION 5.04 Trustee May File Proofs of Claim. (a) In case of any judicial proceeding relative to the Company (or any other obligor upon the Securities), its property or its creditors, the Trustee shall be entitled and empowered, by intervention in such proceeding or otherwise, to take any and all actions authorized under the Trust Indenture Act in order to have claims of the Holders and the Trustee allowed in any such proceeding. In particular, the Trustee shall be authorized to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 6.07. (b) No provision of this Indenture shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding. SECTION 5.05 Trustee May Enforce Claims Without Possession of Securities. All rights of action and claims under this Indenture or the Securities may be prosecuted and enforced by the Trustee without the possession of any of the Securities or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. 43 51 SECTION 5.06 Application of Money Collected. Subject to Article Twelve, any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of stated amount at Maturity (or premium, if any) or interest, upon presentation of the Securities and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee under Section 6.07; and SECOND: To the payment of the amounts then due and unpaid for stated amount at Maturity of (and premium, if any) and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities for stated amount at Maturity (and premium, if any) and interest, respectively. SECTION 5.07 Limitation on Suits. No Holder of any Security shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (a) such Holder has previously given written notice to the Trustee of a continuing Event of Default; (b) the Holders of not less than 25% in aggregate stated amount at Maturity of the Outstanding Securities shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (c) such Holder or Holders have offered to the Trustee indemnity reasonably satisfactory to the Trustee against the costs, expenses and liabilities to be incurred in compliance with such request; (d) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in aggregate stated amount at Maturity of the Outstanding Securities; it being understood and intended that no one or more Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all the Holders. SECTION 5.08 Unconditional Right of Holders to Receive Stated Amount at Maturity, Premium and Interest. Notwithstanding any other provision in this Indenture, the Holder of any Security shall have the right, which is absolute and unconditional, to receive payment of the stated amount at Maturity 44 52 of (and premium, if any) and (subject to Section 3.07) interest on such Security on the respective Stated Maturities expressed in such Security (or, in the case of redemption, on the Redemption Date or in the case of an Offer to Purchase made by the Company and required to be accepted as to such Security, on the Purchase Date) and to institute suit for the enforcement of any such payment, and such rights shall not be impaired or affected without the consent of such Holder. SECTION 5.09 Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every such case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 5.10 Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities in the last paragraph of Section 3.06, no right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every right and remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 5.11 Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. SECTION 5.12 Control by Holders. The Holders of a majority in aggregate principal amount of the Outstanding Securities shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee, provided that (a) such direction shall not be in conflict with any rule of law or with this Indenture and shall not expose the Trustee to personal liability, and (b) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 5.13 Waiver of Past Defaults. (a) The Holders of not less than a majority in aggregate principal amount of the Outstanding Securities may, on behalf of the Holders of all the Securities, waive any past default hereunder and its consequences, except a default 45 53 (1) in the payment of the principal amount of (or premium, if any) or interest on any Security, or (2) in respect of a covenant or provision hereof which under Article Nine cannot be modified or amended without the consent of the Holder of each Outstanding Security affected. (b) Upon any such waiver described in Subsection (a) of this Section, such default shall cease to exist and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; provided that no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 5.14 Undertaking for Costs. In any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken, suffered or omitted by it as Trustee, a court may require any party litigant in such suit to file an undertaking to pay the costs of such suit, and may assess costs against any such party litigant, in the manner and to the extent provided in the Trust Indenture Act; provided, that neither this Section nor the Trust Indenture Act shall be deemed to authorize any court to require such an undertaking or to make such an assessment in any suit instituted by the Company or the Trustee. SECTION 5.15 Waiver of Stay or Extension Laws. The Company covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage or any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. SECTION 5.16 No Personal Liability of Incorporators, Shareholders, Officers, Directors or Employees. No recourse for the payment of the principal of, premium, if any, or interest on, any of the Securities, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture, or in any of the Securities, or because of the creation of any Debt represented thereby, shall be had against any incorporator, shareholder, officer, director, employee, Affiliate or controlling person of the Company or of any successor Person thereof. ARTICLE VI THE TRUSTEE SECTION 6.01 Certain Duties and Responsibilities. The duties and responsibilities of the Trustee shall be as provided by the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder, or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not 46 54 reasonably assured to it. Whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. SECTION 6.02 Notice of Defaults. The Trustee shall give the Holders notice of any default hereunder as and to the extent provided by the Trust Indenture Act; provided, however, that in the case of any default of the character specified in Section 5.01(a)(5), no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default. SECTION 6.03 Certain Rights of Trustee. (a) Except during the continuance of an Event of Default, the Trustee undertakes to perform such functions and duties and only such functions and duties as are specifically set forth in this Indenture, and no implied duties or obligations shall be read into this Indenture against the Trustee. During the continuance of an Event of Default, the Trustee shall exercise the same degree of care and skill as a prudent person would exercise under the circumstances in the conduct of such person's own affairs. No provision of this Indenture shall be construed to relieve the Trustee from its duties, except to the extent permitted by the Trust Indenture Act. Subject to the provisions of Section 6.01, whether or not therein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Trustee shall be subject to the provisions of this Section. (b) (1) the Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or Company Order and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officers' Certificate; (4) the Trustee may consult with counsel and the oral or written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders pursuant to this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; 47 55 (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine the books, records and premises of the Company, personally or by agent or attorney; and (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder. SECTION 6.04 Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee's certificates of authentication, shall be taken as the statements of the Company, and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities. The Trustee shall not be accountable for the use or application by the Company of Securities or the proceeds thereof. The Trustee shall not have any responsibility or liability for any information provided to Holders or any other Person, including without limitation in the solicitation of any consent or waiver hereunder, or pursuant to any offering documents, or pursuant to any Offer to Purchase. SECTION 6.05 May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other agent of the Company, in its individual or any other capacity, may become the owner or pledgee of Securities and, subject to Sections 6.08 and 6.13, may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other agent. SECTION 6.06 Money Held in Trust. Money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed with the Company. SECTION 6.07 Compensation and Reimbursement. The Company agrees (a) to pay to the Trustee from time to time reasonable compensation for all services rendered by it hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture (including the reasonable compensation and the expenses 48 56 and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its negligence, willful misconduct or bad faith; and (c) to indemnify the Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence, willful misconduct or bad faith on its part (subject to the provisions of Sections 6.01 and 6.03), arising out of or in connection with the acceptance or administration of this trust, including the reasonable costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to notify the Company shall not relieve the Company of its obligations hereunder. SECTION 6.08 Disqualification: Conflicting Interests. If the Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Indenture. SECTION 6.09 Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder which shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If such Person publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. SECTION 6.10 Resignation and Removal; Appointment of Successor. (a) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee under Section 6.11. (b) The Trustee may resign at any time by giving written notice thereof to the Company. If an instrument of acceptance by a successor Trustee shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee. (c) The Trustee may be removed at any time by Act of the Holders of a majority in aggregate stated amount at Maturity of the Outstanding Securities, delivered to the Trustee and to the Company. (d) If at any time: (1) the Trustee shall fail to comply with Section 6.08 after written request therefor by the Company or by any Holder who has been a bona fide Holder of a Security for at least six months, or (2) the Trustee shall cease to be eligible under Section 6.09 and shall fail to resign after written request therefor by the Company or by any such Holder, or 49 57 (3) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (A) the Company by a Board Resolution may remove the Trustee, or (B) subject to Section 5.14, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. (e) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, the Company, by a Board Resolution, shall promptly appoint a successor Trustee. If, within one year after such resignation, removal or incapability, or the occurrence of such vacancy, a successor Trustee shall be appointed by Act of the Holders of a majority in stated amount at Maturity of the Outstanding Securities delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Trustee and supersede the successor Trustee appointed by the Company. If no successor Trustee shall have been so appointed by the Company or the Holders and accepted appointment in the manner hereinafter provided, any Holder who has been a bona fide Holder of a Security for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee. (f) The Company shall give notice of each resignation and each removal of the Trustee and each appointment of a successor Trustee to all Holders in the manner provided in Section 1.06. Each notice shall include the name of the successor Trustee and the address of its Corporate Trust Office. SECTION 6.11 Acceptance of Appointment by Successor. (a) Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on request of the Company or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder. Upon request of any such successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts. (b) No successor Trustee shall accept its appointment unless at the time of such acceptance such successor Trustee shall be qualified and eligible under this Article. SECTION 6.12 Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to all or substantially all the corporate trust business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall 50 58 be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated, but not delivered, by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. SECTION 6.13 Preferential Collection of Claims Against Company. If and when the Trustee shall be or become a creditor of the Company (or any other obligor upon the Securities), the Trustee shall be subject to the provisions of the Trust Indenture Act regarding the collection of claims against the Company (or any such other obligor). SECTION 6.14 Appointment of Authenticating Agent. (a) The Trustee may appoint an Authenticating Agent or Agents which shall be authorized to act on behalf of the Trustee to authenticate Securities issued upon original issue and upon exchange, registration of transfer, partial conversion or partial redemption or pursuant to Section 3.06, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $50,000,000 and subject to supervision or examination by Federal or State authority. If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or to the requirements of said supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions to this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. (b) Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall otherwise be eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. (c) An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and to the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders as their names and addresses appear in the Security Register. Any successor Authenticating Agent upon 51 59 acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. (d) The Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 6.07. (e) If an appointment is made pursuant to this Section, the Securities may have endorsed thereon, in addition to the Trustee's certificate of authentication, an alternative certificate of authentication in the following form: "This is one of the Securities described in the within-mentioned Indenture. U.S. TRUST COMPANY OF TEXAS, N.A. As Trustee By ------------------------------------- As Authenticating Agent By ------------------------------------- Authorized Signatory ARTICLE VII HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY SECTION 7.01 Company to Furnish Trustee Names and Addresses of Holders. The Company will furnish or cause to be furnished to the Trustee (a) semi-annually, not more than 15 days after each Regular Record Date, a list, in such form as the Trustee may reasonably require, of the names and addresses of the Holders as of such Regular Record Date, and (b) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished; excluding from any such list names and addresses received by the Trustee in its capacity as Security Registrar. SECTION 7.02 Preservation of Information; Communications to Holders. (a) The Trustee shall preserve, in as current a form as is reasonably practicable, the names and addresses of Holders contained in the most recent list furnished to the Trustee as provided in Section 7.01 and the names and addresses of Holders received by the Trustee in its capacity as Security Registrar. The Trustee may destroy any list furnished to it as provided in Section 7.01 upon receipt of a new list so furnished. 52 60 (b) The rights of Holders to communicate with other Holders with respect to their rights under this Indenture or under the Securities and the corresponding rights and duties of the Trustee, shall be as provided by the Trust Indenture Act. (c) Every Holder of Securities, by receiving and holding the same, agrees with the Company and the Trustee that neither the Company nor the Trustee nor any agent of either of them shall be held accountable by reason of any disclosure of information as to the names and addresses of Holders made pursuant to Section 3.12 of the Trust Indenture Act. SECTION 7.03 Reports by Trustee. (a) Within 60 days after March 1 of each year commencing with the first March 1 after the first issuance of the Securities, the Trustee shall transmit to Holders such reports concerning the Trustee and its actions under this Indenture as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (b) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Trustee with each stock exchange upon which the Securities are listed, with the Commission and with the Company. The Company will notify the Trustee when the Securities are listed on any stock exchange. SECTION 7.04 Reports by Company. The Company shall file with the Trustee and the Commission, and transmit to Holders, such information, documents and other reports, and such summaries thereof, as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant to such Act; provided that any such information, documents or reports required to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall be filed with the Trustee within 15 days after the same is so required to be filed with the Commission. ARTICLE VIII CONSOLIDATIONS, MERGERS AND CERTAIN SALES OF ASSETS SECTION 8.01 The Company May Consolidate, Etc. Only on Certain Terms (a) The Company may not, in a single transaction or a series of related transactions, (i) consolidate or merge with or into any other Person or permit any other Person to consolidate or merge with or into the Company, or (ii) directly or indirectly transfer, sell, lease or otherwise dispose of all or substantially all of its assets, unless, in the case of clauses (i) or (ii) of this covenant: (1) in a transaction in which the Company does not survive or in which the Company sells, leases or otherwise disposes of all or substantially all of its assets, the successor entity to the Company is organized under (i) the laws of the United States or any State thereof or the District of Columbia, (ii) the laws of the Republic of Liberia, (iii) the laws of the Commonwealth of the Bahamas, (iv) the laws of the Republic of the 53 61 Marshall Islands or (v) the laws of any other country recognized by the United States and which, in the case of any of the events under subclause (i), (ii), (iii), (iv) or (v), shall expressly assume, by a supplemental indenture executed and delivered to the Trustee in form satisfactory to the Trustee, all of the Company's obligations under the Indenture; (2) immediately before and after giving effect to such transaction, no Event of Default or event that with the passing of time or the giving of notice, or both, would constitute an Event of Default shall have occurred and be continuing; and (3) the Company, or if applicable, the Successor Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer, lease or acquisition and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, complies with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. SECTION 8.02 Successor Substituted. Upon any consolidation of the Company with, or merger of the Company into, any other Person or any transfer, conveyance, sale, lease or other disposition of all or substantially all of the properties and assets of the Company in accordance with Section 8.01(in each such case the successor entity shall be known as the "Successor Company"), the Successor Company shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein, and thereafter, except in the case of a lease, the predecessor Person shall be relieved of all obligations and covenants under this Indenture and the Securities. ARTICLE IX SUPPLEMENTAL INDENTURES SECTION 9.01 Supplemental Indentures Without Consent of Holders. (a) Without the consent of any Holders, the Company, when authorized by a Board Resolution, and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, in form satisfactory to the Trustee, for any of the following purposes: (1) to evidence the succession of another Person to the Company and the assumption by any such successor of the covenants of the Company herein and in the Securities; or (2) to add to the covenants of the Company for the benefit of the Holders, or to surrender any right or power herein conferred upon the Company; or (3) to secure the Securities pursuant to the requirements of Section 10.08 or otherwise; or (4) to comply with any requirements of the Commission in order to effect and maintain the qualification of this Indenture under the Trust Indenture Act in connection with the issuance of the Exchange Securities and thereafter maintain the qualification of this Indenture under the Trust Indenture Act; or 54 62 (5) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not be inconsistent with the provisions of this Indenture, provided such action pursuant to this clause (5) shall not adversely affect the interests of the Holders in any material respect; or (6) to issue Additional Securities as provided in Section 3.01; (7) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee pursuant to the requirements of Section 6.11; or (8) to make any change that does not materially and adversely affect the rights of any Holder. SECTION 9.02 Supplemental Indentures with Consent of Holders. (a) With the consent of the Holders of not less than a majority in aggregate principal amount of the Outstanding Securities, by Act of said Holders delivered to the Company and the Trustee, the Company, when authorized by a Board Resolution, and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders under this Indenture; provided, however, that no such supplemental indenture shall, without the consent of the Holder of each Outstanding Security affected thereby, (1) change the Stated Maturity of the principal amount of, or any installment of interest on, any Security, or (2) reduce the principal amount of, any premium payable, or the rate of interest on, any Security, or (3) change the place of payment where, or the coin or currency in which, the principal amount of, any premium, or interest on, any Security is payable, or (4) impair the right to institute suit for the enforcement of any such payment on, or with respect to, any Security, or (5) reduce the percentage of the aggregate principal amount of the Outstanding Securities, the consent of whose Holders is necessary to modify or amend this Indenture, or (6) modify any provision of this Indenture relating to the modification or amendment of the Indenture, except as otherwise specified in this Indenture, or (7) reduce the percentage of the aggregate principal amount of the Outstanding Securities, the consent of whose Holders is required for any waiver of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences provided for in this Indenture. 55 63 (b) It shall not be necessary for any Act of Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. SECTION 9.03 Execution of Supplemental Indentures. In executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trusts created by this Indenture, the Trustee shall be entitled to receive, and (subject to Sections 6.01 and 6.03) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. SECTION 9.04 Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of Securities theretofore or thereafter authenticated and delivered hereunder shall be bound thereby. SECTION 9.05 Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act. SECTION 9.06 Reference in Securities to Supplemental Indentures. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities. ARTICLE X COVENANTS SECTION 10.01 Payment of Stated Amount at Maturity, Premium and Interest. The Company will duly and punctually pay the stated amount at Maturity of (and premium, if any) and interest on the Securities in accordance with the terms of the Securities and this Indenture. SECTION 10.02 Maintenance of Office or Agency. (a) The Company will maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be presented or surrendered for payment, where Securities may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such office or 56 64 agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee in New York, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. (b) The Company may also from time to time designate one or more other offices or agencies (in or outside the Borough of Manhattan, The City of New York) where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York, for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. SECTION 10.03 Money for Security Payments to be Held in Trust. (a) If the Company shall at any time act as its own Paying Agent, it will, on or before each due date of the stated amount at Maturity of (and premium, if any) or interest on any of the Securities, segregate and hold in trust for the benefit of the Persons entitled thereto a sum sufficient to pay the stated amount at Maturity (and premium, if any) or interest so becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided and will promptly notify the Trustee of its action or failure so to act. (b) Whenever the Company shall have one or more Paying Agents, it will, prior to each due date of the stated amount at Maturity of (and premium, if any) or interest on any Securities, deposit with a Paying Agent a sum sufficient to pay the stated amount at Maturity (and premium, if any) or interest so becoming due, such sum to be held in trust for the benefit of the Persons entitled to such stated amount at Maturity, premium or interest, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. (c) The Company will cause each Paying Agent other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent will: (1) hold all sums held by it for the payment of the stated amount at Maturity of (and premium, if any) or interest on Securities in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as herein provided; (2) give the Trustee notice of any Default by the Company (or any other obligor upon the Securities) in the making of any payment of the stated amount at Maturity (and premium, if any) or interest; and (3) at any time during the continuance of any such Default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. (d) The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same trusts as those upon which such sums were held by the Company or such 57 65 Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such money. (e) Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the stated amount at Maturity of (and premium, if any) or interest on any Security and remaining unclaimed for two years after such principal (and premium, if any) or interest has become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in a newspaper published in the English language, customarily published on each Business Day and of general circulation in The City of New York, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication, any unclaimed balance of such money then remaining will be repaid to the Company. SECTION 10.04 Corporate Existence. Subject to Article Eight, the Company will do or cause to be done all things necessary to preserve and keep in full force and effect its existence, rights (charter and statutory) and franchises; provided, however, that the Company shall not be required to preserve any such right or franchise if the Board of Directors in good faith shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not disadvantageous in any material respect to the Holders. SECTION 10.05 Maintenance of Properties. The Company will cause all material properties used or useful in the conduct of its business or the business of any Subsidiary of the Company to be maintained and kept in good condition, repair and working order and supplied with all necessary equipment and will cause to be made all necessary repairs, renewals, replacements, betterments and improvements thereof, all as in the judgment of the Company may be necessary so that the business carried on in connection therewith may be properly and advantageously conducted at all times; provided, however, that nothing in this Section shall prevent the Company from discontinuing the operation or maintenance of any of such properties if such discontinuance is, as determined by the Board of Directors in good faith, desirable in the conduct of its business or the business of any Subsidiary and not disadvantageous in any material respect to the Holders. SECTION 10.06 Payment of Taxes and Other Claims. The Company will pay or discharge or cause to be paid or discharged, before the same shall become delinquent, (a) all taxes, assessments and governmental charges levied or imposed upon the Company or any of its Subsidiaries or upon the income, profits or property of the Company or any of its Subsidiaries, and (b) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien upon the property of the Company or any of its Subsidiaries; provided, however, that the Company shall not be required to pay or discharge or cause to be paid or discharged any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings. 58 66 SECTION 10.07 Maintenance of Insurance. The Company shall, and shall cause its Subsidiaries to, keep at all times all of their properties which are of an insurable nature insured against loss or damage with insurers believed by the Company to be responsible to the extent that property of similar character is usually so insured by corporations similarly situated and owning like properties in accordance with good business practice. SECTION 10.08 Limitation on Liens. The Company may not, directly or indirectly, Incur, assume or suffer to exist any Lien on or with respect to any property or assets, now owned or hereafter acquired, to secure any present or future Relevant Debt without making effective provision for securing the Securities: (1) in the event such Debt is pari passu with the Securities, equally and ratably with such Debt as to such property or assets for so long as such Debt will be so secured, or (2) in the event such Debt is subordinate in right of payment to the Securities, prior to such Debt as to such property or assets for so long as such Debt will be so secured. SECTION 10.09 Change of Control Triggering Event. (a) Within 30 days of the occurrence of a Change of Control Triggering Event, the Company will be required to make an Offer to Purchase all Outstanding Securities at a purchase price equal to 101% of the principal amount thereof plus accrued and unpaid interest (including any Additional Interest), if any, to the date of purchase. (b) A "Change of Control" will be deemed to occur at such time as either: (1) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), other than any Permitted Holder, becomes the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act and including by reason of any change in the ultimate "beneficial ownership" of the Capital Stock of the Company) of more than 50% of the total voting power of the Voting Stock of the Company (calculated on a fully diluted basis); or (2) individuals who at the beginning of any period of two consecutive calendar years constituted the Board of Directors of the Company (together with any new directors whose election by such Board of Directors or whose nomination for election was approved by a vote of at least two-thirds of the members of such Board of Directors then still in office who either were members of such Board of Directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute at least 50% of the members of such Board of Directors then in office. (c) The Company will not be required to make an Offer to Purchase any Securities upon a Change of Control Triggering Event if it has exercised its right to redeem all of the Securities as described under Article X1 in the manner, at the times and otherwise in compliance with the requirements set forth in this Indenture applicable to an Offer to Purchase made by the Company and purchases all of the Securities validly tendered and not withdrawn under such an Offer to Purchase. 59 67 (d) If the Company fails to make the Offer to Purchase or fails to pay the purchase price and accrued interest described above on the date specified therefor, the Trustee and the Holders of Securities will have the rights described under Section 5.01. (e) In the event that the Company makes an Offer to Purchase the Securities, the Company shall comply with any applicable securities laws and regulations, including any applicable requirements of Section 14(e) of, and Rule 14e-1 under, the Exchange Act. SECTION 10.10 Provision of Financial Information. (a) Whether or not the Company is required to be subject to Section 13(a) or 15(d) of the Exchange Act, the Company shall file with the Commission copies of the annual reports, quarterly reports and other documents which the Company would have been required to file with the Commission pursuant to such Section 13(a) or 15(d) or any successor provision thereto if the Company were so required, such documents to be filed with the Commission on or prior to the respective dates (the "Required Filing Dates") by which the Company would have been required to file such documents if the Company were so required. The Company shall also in any event: (1) within 15 days of each Required Filing Date, (i) transmit by mail to all Holders of the Securities, as their names and addresses appear in the Security Register, without cost to such Holders, and (ii) file with the Trustee, copies of the annual reports, quarterly reports and other documents which the Company files with the Commission pursuant to such Section 13(a) or 15(d) or any successor provision thereto or would have been required to file with the Commission pursuant to such Section 13(a) or 15(d) or any successor provisions thereto if the Company were required to be subject to such Sections, and (2) if filing such documents by the Company with the Commission is not permitted under the Exchange Act, promptly upon written request, supply copies of such documents to any prospective Holder of Securities'. SECTION 10.11 Statement By Officers as to Default; Compliance Certificates. (a) The Company will deliver to the Trustee, within 120 days after the end of each fiscal year (which is currently December 31), of the Company ending after the date hereof an Officers' Certificate, stating that, after conducting a review of the activities of the Company and its Subsidiaries and of the Company's and its Subsidiaries performance under this Indenture, the Company has fulfilled all obligations thereunder, or whether the Company is in default in the performance and observance of any of the terms, provisions and conditions of this Indenture, and if the Company shall be in Default, specifying all such Defaults and the nature and status thereof of which it has knowledge. (b) The Company shall deliver to the Trustee, as soon as possible and in any event within 10 days after the Company becomes aware of the occurrence of an Event of Default or an event which, with notice or the lapse of time or both, would constitute an Event of Default, an Officers' Certificate setting forth the details of such Event of Default or default, and the action which the Company proposes to take with respect thereto. 60 68 SECTION 10.12 Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any covenant or condition set forth in Section 8.01, Sections 10.04 to 10.11, inclusive, and Sections 10.13 to 10.14, inclusive, if before the time for such compliance the Holders of at least a majority in stated amount at Maturity of the Outstanding Securities shall, by Act of such Holders, either waive such compliance in such instance or generally waive compliance with such covenant or condition, but no such waiver shall extend to or affect such covenant or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such covenant or condition shall remain in full force and effect; provided, however, with respect to an Offer to Purchase as to which an Offer has been mailed, no such waiver may be made or shall be effective against any Holder tendering Securities pursuant to such Offer, and the Company may not omit to comply with the terms of such Offer as to such Holder. SECTION 10.13 Indemnification of Judgment Currency. The Company shall indemnify the Trustee and any Holder against any loss incurred by the Trustee or such Holder, as the case may be, as a result of any judgment or order being given or made for any amount due under this Indenture or such Security (by reason of the Company being in default under this Indenture) and being expressed and paid in a currency (the "Judgment Currency") other than U.S. Dollars, and as a result of any variation between (i) the rate of exchange at which the U.S. Dollar amount is converted into the Judgment Currency for the purpose of such judgment or order and (ii) the spot rate of exchange in The City of New York at which the Trustee or such Holder, as the case may be, on the date that the amount of the Judgment Currency is actually received by the Trustee or such Holder. The foregoing indemnity shall constitute a separate and independent obligation of the Company and shall continue in full force and effect notwithstanding any such judgment or order as aforesaid. The term "spot rate of exchange" shall include any premiums and costs of exchange payable in connection with the purchase of, or conversion into, U.S. Dollars as quoted by The Bank of New York at its central foreign exchange desk in its head office in New York City at 12:00 noon. SECTION 10.14 Payments for Consent. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration, whether by way of interest, fee or otherwise, to any Holder of the Securities for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Securities unless such consideration is offered to be paid or is paid to all Holders of the Securities that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. SECTION 10.15 Additional Amounts. (a) All payments made by the Company under or with respect to the Securities shall be made free and clear of and without withholding or deduction for or on account of any present or future tax, duty, levy, impost, assessment or other governmental charge (hereinafter "Taxes") imposed or levied by or on behalf of any Taxing Jurisdiction, unless the Company is required to withhold or deduct Taxes by law or by the interpretation or administration thereof. If the Company is so required to withhold or deduct any amount of interest for or on account of Taxes from any payment made under or with respect to the Securities, the Company shall pay such additional amounts of interest ("Additional Amounts") as may be necessary so that the net amount received by each Holder (including Additional Amounts) after such withholding or deduction shall not be less than the amount the Holder would have received if such Taxes 61 69 had not been withheld or deducted; provided, however, that the Company will not pay any Additional Amounts in connection with any Taxes that are imposed due to any of the following ("Excluded Additional Amounts"): (1) the Holder or beneficial owner has some connection with the Taxing Jurisdiction other than merely holding the Securities or receiving principal or interest payments on the Securities (such as citizenship, nationality, residence, domicile, or existence of a business, a permanent establishment, a dependent agent, a place of business or a place of management present or deemed present within the Taxing Jurisdiction); (2) any tax imposed on, or measured by net income; (3) the Holder or beneficial owner fails to comply with any certification, identification or other reporting requirements concerning its nationality, residence, identity or connection with the Taxing Jurisdiction, if (A) such compliance is required by applicable law, regulation, administrative practice or treaty as a precondition to exemption from all or a part of the Tax, (B) the Holder or beneficial owner is able to comply with such requirements without undue hardship, and (C) at least 30 calendar days prior to the first payment date with respect to which such requirements under the applicable law, regulation, administrative practice or treaty shall apply, the Company has notified such Holder that such Holder will be required to comply with such requirements; (4) the Holder fails to present (where presentation is required) its Security within 30 calendar days after the Company has made available to the Holder a payment of principal or interest, provided that the Company will pay Additional Amounts which a Holder would have been entitled to had the Security owned by such Holder been presented on any day (including the last day) within such 30-day period; (5) any estate, inheritance, gift, value added, use or sales Taxes or any similar Taxes; (6) where any Additional Amounts are imposed on a payment on the Securities to an individual and are required to be made pursuant to any European Union Directive on the taxation of savings implementing the conclusions of the Economic and Financial Council of Ministers of the member states of the European Union (ECOFIN) Council meeting of November 26-27, 2000 or any law implementing or complying with, or introduced in order to conform to, such Directive; or (7) where the Holder or beneficial owner could avoid any Additional Amounts by requesting that a payment on the Securities be made by, or presenting the relevant Securities for payment to, another Paying Agent located in a Member State of the European Union. (b) The Company shall also (1) make such withholding or deduction and (2) remit the full amount deducted or withheld to the relevant authority in accordance with applicable law. The Company shall furnish to the Holders of the Securities, within 30 days after the date the payment of any Taxes are due pursuant to applicable law, certified copies of tax receipts evidencing such payment by the Company. 62 70 (c) The Company shall indemnify and hold harmless each Holder for the amount (other than Excluded Additional Amounts) of (1) any Taxes not withheld or deducted by the Company and levied or imposed and paid by such Holder as a result of payments made under or with respect to the Securities, (2) any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, and (3) any Taxes imposed with respect to any reimbursement under clause (1) or (2) of this paragraph (c) of this Section 10.15. (d) At least 30 days prior to each date on which any payment under or with respect to the Securities is due and payable, if the Company is aware that it will be obligated to pay Additional Amounts with respect to such payment, the Company shall deliver to the Trustee an Officers' Certificate stating the fact that such Additional Amounts will be payable, the amounts so payable and such other information necessary to enable the Trustee to pay such Additional Amounts to Holders on the payment date. Whenever in this Indenture there is mentioned, in any context, the payment of principal (and premium, if any), interest or any other amount payable under or with respect to any Security, such mention (except where expressly mentioned) shall be deemed to include mention of the payment of Additional Amounts provided for in this Section 10.15 to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof. ARTICLE XI REDEMPTION OF SECURITIES SECTION 11.01 Right of Redemption. (a) At the Company's option, the Company may redeem the Securities in whole or in part at any time at a redemption price equal to the greater of (i) 100% of the principal amount of the Securities to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the Securities to be redeemed (excluding the portion of any such interest accrued to the Redemption Date) discounted to the Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Yield, plus 50 basis points, plus, in each case, accrued and unpaid interest to the Redemption Date. (b) At the Company's option, the Company may redeem the Securities in whole, but not in part, at any time at a redemption price equal to 100% of the principal amount of the Securities to be redeemed together with accrued and unpaid interest thereon to the Redemption Date, and any other amounts owed to the Holders of the Securities under the terms of this Indenture or the Securities, upon notice mailed to each Holder of Securities at the addresses appearing in the Security Register, if, as a result of any change or amendment to the laws (or regulations promulgated thereunder) of any Taxing Jurisdiction, or any change in or amendment to any official position or administration or assessing practices regarding the application or interpretation of such laws or regulations, which change or amendment is announced or becomes effective on or after June 22, 2001, the Company has become or would become obligated to pay, on the next date on which any amount would be payable under or with respect to the Securities, any Additional Amounts, to a Holder in accordance with Section 10.15 hereof, provided that the Company determines, in its business judgment, that the obligation to pay such Additional Amounts cannot be avoided by the use of reasonable measures available to the Company which would not involve any liability of any kind to the Company, except for any cost or expense which is minimal, not including substitution of the obligor under the Securities. 63 71 SECTION 11.02 Applicability of Article. Redemption of Securities at the election of the Company or otherwise, as permitted or required by any provision of this Indenture, shall be made in accordance with such provision and this Article. SECTION 11.03 Election to Redeem; Notice to Trustee. The election of the Company to redeem the Securities shall be evidenced by a Board Resolution. In case of any redemption at the election of the Company, the Company shall, not less than 30 days nor more than 60 days prior to the Redemption Date fixed by it (unless a shorter notice period shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities to be redeemed. Such notice shall be accompanied by an Officers' Certificate and an Opinion of Counsel from the Company to the effect that such redemption shall comply with the conditions herein. SECTION 11.04 Selection by Trustee of Securities to Be Redeemed. (a) If less than all the Securities are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee, from the Outstanding Securities not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions of the principal of Securities; provided, however, that no such partial redemption shall reduce the portion of the principal amount of a Security not redeemed to less than $1,000. Securities and any portions of such Securities selected by the Trustee shall be in amounts of $1,000 or integral multiples thereof. (b) The Trustee shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. (c) For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to redemption of Securities shall relate, in the case of any Security redeemed or to be redeemed only in part, to the portion of the principal amount of such Security which has been or is to be redeemed. SECTION 11.05 Notice of Redemption. Notice of redemption shall be given by first-class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date, to each Holder of Securities to be redeemed, at his address appearing in the Security Register. All notices of redemption shall state: (a) the principal amount of each Security held by such Holder to be redeemed; (b) the Redemption Date; (c) the Redemption Price; 64 72 (d) that on the Redemption Date the Redemption Price will become due and payable upon each such Security, and that interest thereon shall cease to accrue on and after said date; (e) the CUSIP number; (f) if fewer than all of the Outstanding Securities are to be redeemed, then the identification and principal amounts at Maturity of the particular Securities to be redeemed; and (g) the place or places where such Securities are to be surrendered for payment of the Redemption Price. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at their request, by the Trustee in the name and at the expense of the Company. SECTION 11.06 Deposit of Redemption Price. On or prior to any Redemption Date, the Company shall deposit or cause to be deposited with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.03) an amount of money in same day funds (or New York Clearing House funds if such deposit is made prior to the applicable Redemption Date) sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date) accrued interest on, all the Securities which are to be redeemed on that date. SECTION 11.07 Securities Payable on Redemption Date. (a) Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest. Upon surrender of any such Security for redemption in accordance with said notice, such Security shall be paid by the Company at the Redemption Price together with accrued interest to the Redemption Date; provided, however, that installments of interest whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such on the relevant Regular Record Dates according to the terms and the provisions of Section 3.07. (b) If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal thereof (and premium, if any, thereon) shall, until paid, bear interest from the Redemption Date at the rate borne by such Security. SECTION 11.08 Securities Redeemed in Part. Any Security that is to be redeemed only in part shall be surrendered to the Paying Agent at the office of the Paying Agent or to the office or agency referred to in Section 10.02 (with, if the Company or the Trustee so require, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or such Holder's 65 73 attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security, without service charge, a replacement Security or Securities, of any authorized denomination as requested by such Holder in an aggregate principal amount equal to, and in exchange for, the principal amount of the Security so surrendered that is not redeemed. ARTICLE XII DEFEASANCE AND COVENANT DEFEASANCE SECTION 12.01 Company's Option to Effect Defeasance or Covenant Defeasance. The Company may at its option by Board Resolution, at any time, elect to have either Section 12.02 or Section 12.03 applied to the Outstanding Securities upon compliance with the conditions set forth below in this Article Twelve. SECTION 12.02 Defeasance and Discharge. Upon the Company's exercise of the option provided in Section 12.01 applicable to this Section, on the 123rd day after the deposit of funds with the Trustee (as more fully discussed below), the Company shall be deemed to have been discharged from its obligations with respect to the Outstanding Securities on the date the conditions set forth below are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Outstanding Securities and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of such Securities to receive, solely from the trust fund described in Section 12.04 and as more fully set forth in such Section, payments in respect of the stated amount at Maturity of (and premium, if any) and interest on such Securities when such payments are due, (B) the Company's obligations with respect to such Securities under Sections 3.04, 3.05, 3.06, 10.02 and 10.03, (C) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (D) this Article Twelve. Subject to compliance with this Article Twelve, the Company may exercise its option under this Section 12.02 notwithstanding the prior exercise of its option under Section 12.03. SECTION 12.03 Covenant Defeasance. Upon the Company's exercise of the option provided in Section 12.01 applicable to this Section, (a) the Company shall be released from its obligations under Sections 10.05 through 10.10, inclusive and 10.15, and clauses (2) and (3) of Section 8.01(a), (b) the occurrence of an event specified in Sections 5.01(a)(3), 5.01(a)(4) (with respect to any of Sections 10.05 through 10.10, inclusive and Section 10.15), 5.01(a)(5), 5.01(a)(6) and 5.01(a)(8) shall not be deemed to be an Event of Default (hereinafter, "covenant defeasance"). For this purpose, such covenant defeasance means that the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such Section, Clause or Article, whether directly or indirectly by reason of any reference elsewhere herein to any such Section, Clause or Article or by reason of any reference in any such Section, Clause or Article to any other provision herein or in any other document, but the remainder of this Indenture and such Securities shall be unaffected thereby. 66 74 SECTION 12.04 Conditions to Defeasance or Covenant Defeasance. (a) The following shall be the conditions to application of Section 12.02 to the then Outstanding Securities: (1) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 6.09 who shall agree to comply with the provisions of this Article Twelve applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities, (A) money in an amount, or (B) United States Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment, money in an amount, or (C) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent certified public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, the principal of (premium, if any) and each installment of interest, if any, on the Outstanding Securities on the Stated Maturity (or Redemption Date, if applicable) of such principal or installment of interest in accordance with the terms of this Indenture and of such Securities. For this purpose, "United States Government Obligations" means securities that are (x) direct obligations of the United States for the payment of which its full faith and credit is pledged or (y) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States the payment of which is unconditionally guaranteed as a full faith and credit obligation by the United States, which, in either case, are not callable or redeemable at the option of the issuer thereof, and shall also include a depository receipt issued by a bank (as defined in Section 3(a)(2) of the Securities Act) as custodian with respect to any such United States Government Obligation or a specific payment of principal of or interest on any such United States Government Obligation held by such custodian for the account of the Holder of such depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the Holder of such depository receipt from any amount received by the custodian in respect of the United States Government Obligation or the specific payment of principal of or interest on the United States Government Obligation evidenced by such depository receipt. (2) In the case of an election under Section 12.02, the Company has delivered to the trustee (A) either (i) an Opinion of Counsel to the effect that Holders will not recognize income, gain or loss for U.S. federal income tax purposes as a result of such deposit, defeasance and discharge and will be subject to U.S. federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit, defeasance and discharge had not occurred, which Opinion of Counsel must be based upon (and accompanied by copy of) a ruling of the Internal Revenue Service to the same effect or based upon a change in applicable U.S. federal income tax law after the date of the indenture or (ii) a ruling directed to the trustee received from the Internal Revenue Service to the same effect as the aforementioned Opinion of Counsel and (B) an Opinion of Counsel to the effect that the creation of the defeasance trust does not violate the Investment Company Act of 1940, as amended, and, after the passage of 123 days following the deposit, the trust fund will not be subject to 67 75 the effect of Section 547 of the United States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law. (3) Immediately after giving effect to such deposit on a pro forma basis, no Event of Default, or event that after the giving of notice or lapse of time or both would become an Event of Default, shall have occurred and be continuing on the date of such deposit or during the period ending on the 123rd day after the date of such deposit, and such deposit shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which The Company is a party or by which the Company is bound. (4) If at such time the Securities are listed on a national securities exchange, the Company has delivered to the trustee an Opinion of Counsel to the effect that the Securities will not be delisted as a result of such deposit, defeasance and discharge. (5) Such deposit, defeasance or covenant defeasance and discharge shall not result in a breach or violation of, or constitute a default under, any other agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary is bound. (6) The Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for relating to either the defeasance under Section 12.02 or the covenant defeasance under Section 12.03 (as the case may be) have been complied with. (b) (i) The provisions described in clauses (1), (2)(B), (3) and (4) in Subsection (a) and (ii) the delivery by the Company or the Trustee of an Opinion of Counsel to the effect that, among other things, the Holders will not recognize income, gain or loss for federal income tax purposes as a result of such deposit and defeasance of certain covenants and Events of Default and will be subject to U.S. federal income tax on the same amount and in the same manner and at the same times as would have been the case if such deposit and defeasance had not occurred, shall be conditions to the application of Section 12.03 to the then Outstanding Securities. SECTION 12.05 Deposited Money and United States Government Obligations to be Held in Trust: Other Miscellaneous Provisions. (a) Subject to the provisions of the last paragraph of Section 10.03, all money and United States Government Obligations (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee--collectively, for purposes of this Section 12.05, the "Trustee") pursuant to Section 12.04 in respect of the Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities, of all sums due and to become due thereon in respect of principal (and premium, if any) and interest, but such money need not be segregated from other funds except to the extent required by law. (b) The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the United States Government Obligations deposited pursuant to Section 12.04 or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the Outstanding Securities. 68 76 (c) Anything in this Article Twelve to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money or United States Government Obligations held by it as provided in Section 12.04 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent defeasance or covenant defeasance. SECTION 12.06 Reinstatement. If the Trustee or the Paying Agent is unable to apply any money in accordance with Section 12.02 or 12.03 by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article Twelve until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 12.02 or 12.03; provided, however, that if the Company makes any payment of stated amount at Maturity of (and premium, if any) or interest on any Security following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money held by the Trustee or the Paying Agent. --------------------- This Indenture may be executed in any number of counterparts, each of which so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. 69 77 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed as of the day and year first above written. TEEKAY SHIPPING CORPORATION By: ------------------------------------ Title: By: ------------------------------------ Title: U.S. TRUST COMPANY OF TEXAS, N.A., AS TRUSTEE By: ------------------------------------ Title: 70 78 ANNEX A -- Form of Regulation S Certificate REGULATION S CERTIFICATE U.S. Trust Company of Texas, N.A., As Trustee Re: Teekay Shipping Corporation 8.875% Senior Notes due July 15, 2011 (the "Securities") Reference is hereby made to the Indenture, dated as of June 22, 2001 (the "Indenture"), between Teekay Shipping Corporation and U.S. Trust Company of Texas, N.A., as Trustee. Terms used but not defined herein and defined in Regulation S or in the Indenture shall have the meanings given to them in Regulation S or the Indenture, as the case may be. This certificate relates to U.S. $_______________ stated amount at Maturity of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): ISIN No(s). ----------------------------------------------------- CERTIFICATE No(s). ---------------------------------------------- The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the United States Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. If the Specified Securities are not represented by a Global Security, they are registered in the name of the Undersigned, as or on behalf of the Owner. The Owner has requested that the Specified Securities be transferred to a person (the "Transferee") who will take delivery in the form of a Regulation S Security or an interest therein. In connection with such transfer, the Owner hereby certifies that, unless such transfer is being effected pursuant to an effective registration statement under the Securities Act, such transfer is being effected in accordance with Rule 904 or Rule 144 under the Securities Act and with all applicable securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as follows: (1) the Owner is not a distributor of the Securities, an affiliate of the Company or any such distributor or a person acting on behalf of any of the foregoing; (2) the offer of the Specified Securities was not made to a person in the United States; A-1 79 (3) either: (i) at the time the buy order was originated, the Transferee was outside the United States or the Owner and any person acting on its behalf reasonably believed that the Transferee was outside the United States, or (ii) the transaction is being executed in, on or through the facilities of the Eurobond market, as regulated by the Association of International Bond Dealers, or another designated offshore securities market and neither the Owner nor any person acting on its behalf knows that the transaction has been prearranged with a buyer in the United States; (4) no directed selling efforts in contravention of the requirements of Rule 904(b) have been made in the United States by or on behalf of the Owner or any affiliate thereof; and (5) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Purchasers under the Purchase Agreement. Dated: ------------------ (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) By: ------------------------------------ Name: Title: (If the Undersigned is a corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) A-2 80 ANNEX B -- Form of Restricted Securities Certificate RESTRICTED SECURITIES CERTIFICATE U.S. Trust Company of Texas, N.A., As Trustee Re: Teekay Shipping Corporation 8.875% Senior Notes due July 15, 2011 (the "Securities") Reference is hereby made to the Indenture, dated as of June 22, 2001 (the "Indenture"), among Teekay Shipping Corporation and U.S. Trust Company of Texas, N.A., as Trustee. Terms used but not defined herein and defined in Rule 144A or in the Indenture shall have the meanings given to them in Rule 144A or the Indenture, as the case may be. This certificate relates to U.S. $_______________ stated amount at maturity of Securities, which are evidenced by the following certificate(s) (the "Specified Securities"): CUSIP No(s). ---------------------------------------------------- CERTIFICATE No(s). ---------------------------------------------- The person in whose name this certificate is executed below (the "Undersigned") hereby certifies that either (i) it is the sole beneficial owner of the Specified Securities or (ii) it is acting on behalf of all the beneficial owners of the Specified Securities and is duly authorized by them to do so. Such beneficial owner or owners are referred to herein collectively as the "Owner". If the Specified Securities are represented by a Global Security, they are held through the United States Depositary or an Agent Member in the name of the Undersigned, as or on behalf of the Owner. If the Specified Securities are not represented by a Global Security, they are registered in the name of the Undersigned, as or on behalf of the Owner. The Owner has requested that the Specified Securities be transferred to a person (the "Transferee") who will take delivery in the form of a Restricted Security or an interest therein. In connection with such transfer, the Owner hereby certifies that such transfer is being effected in accordance with Rule 144A under the Securities Act and all applicable securities laws of the states of the United States and other jurisdictions. Accordingly, the Owner hereby further certifies as: (1) the Specified Securities are being transferred to a person that the Owner and any person acting on its behalf reasonably believe is a "qualified institutional buyer" within the meaning of Rule 144A, acquiring for its own account or for the account of a qualified institutional buyer; and B-1 81 (2) the Owner and any person acting on its behalf have taken reasonable steps to ensure that the Transferee is aware that the Owner may be relying on Rule 144A in connection with the transfer. Upon giving effect to this request to exchange a beneficial interest in Regulation S Global Securities for a beneficial interest in the Restricted Global Security, the resulting beneficial interest shall be subject to the restrictions on transfer applicable to the Restricted Global Securities pursuant to the Indenture and the Securities Act. B-2 82 This certificate and the statements contained herein are made for your benefit and the benefit of the Company and the Purchasers under the Purchase Agreement. Dated: ------------------ (Print the name of the Undersigned, as such term is defined in the second paragraph of this certificate.) By: ------------------------------------ Name: Title: (If the Undersigned is a corporation, partnership or fiduciary, the title of the person signing on behalf of the Undersigned must be stated.) B-3 EX-4.17 4 o05789ex4-17.txt EXHIBIT 4.17 1 EXHIBIT 4.17 FORM OF 8.875% SENIOR NOTE DUE 2011 OF TEEKAY SHIPPING CORPORATION [Face of Note] [INCLUDE IF SECURITY IS A GLOBAL SECURITY - THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE EXCHANGED IN WHOLE OR IN PART FOR A SECURITY REGISTERED, AND NO TRANSFER OF THIS SECURITY IN WHOLE OR IN PART MAY BE REGISTERED, IN THE NAME OF ANY PERSON OTHER THAN SUCH DEPOSITARY OR A NOMINEE THEREOF, EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.] [INCLUDE IF SECURITY IS A GLOBAL SECURITY AND THE DEPOSITORY TRUST COMPANY IS THE UNITED STATES DEPOSITARY - UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, 55 WATER STREET, NEW YORK, NEW YORK 10004, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF CEDE & CO., AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL BECAUSE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] 2 TEEKAY SHIPPING CORPORATION 8.875% Senior Notes due July 15, 2011 CUSIP NO.____ ISIN NO. No. $ Teekay Shipping Corporation, a corporation duly incorporated and existing under the laws of the Republic of the Marshall Islands (herein called the "Company", which term includes any successor Person under the Indenture hereinafter referred to), for value received, hereby promises to pay to __________, or registered assigns, the stated amount at maturity of __________ U.S. Dollars [IF THE SECURITY IS A GLOBAL SECURITY, THEN INSERT -, which stated amount at maturity may from time to time be increased or decreased to such other stated amounts at maturity, as may be set forth in the records of the Trustee hereinafter referred to in accordance with the Indenture,] on July 15, 2011, and to pay interest thereon at a rate of 8.875% per annum in cash semi-annually to the Holder of record at the close of business on January 1 and July 1, as the case may be, (the "Regular Record Date") immediately preceding the applicable Interest Payment Date, on January 15 and July 15 of each year (the "Interest Payment Dates"), commencing on January 15, 2002; interest on this Security will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from June 22, 2001. This Security will bear interest on the overdue stated amount at maturity and premium, if any, and to the extent permitted by law, overdue interest at a rate of 8.875% plus 1% per annum. The cash interest so payable, and punctually paid or duly provided for, on any Interest Payment Date will, as provided in such Indenture, be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date next preceding such Interest Payment Date. Any such interest not so punctually paid or duly provided for will forthwith cease to be payable to the Holder on such Regular Record Date and may either be paid to the Person in whose name this Security (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the payment of such Defaulted Interest to be fixed by the Trustee, notice of which states the Special Record Date, the payment date (which shall be not less than five nor more than 10 days after the Special Record Date), and the amount to be paid, and such notice shall be given to Holders of Securities not less than 10 days prior to such Special Record Date, or be paid at any time in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Securities may be listed, and upon such notice as may be required by such exchange, all as more fully provided in said Indenture. Interest on this Security shall be computed on the basis set forth in the Indenture. Payment of the stated amount at maturity of (and premium, if any) and interest on this Security will be made at the office or agency of the Company maintained for that purpose in the Borough of Manhattan, the City of New York, in such coin or currency of the United States as at the time of payment is legal tender for payment of public and private debts; provided, however, that at the option of the Company, payment of interest on this Security may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the Security Register. Reference is hereby made to the further provisions of this Security set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. 3 Unless the certificate of authentication hereon has been executed by the Trustee referred to on the reverse hereof by manual signature, this Security shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose. IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed. Dated: TEEKAY SHIPPING CORPORATION By: ------------------------------------ Title: 4 [Reverse of Note] This Security is one of a duly authorized issue of Securities of the Company designated as its 8.875% Senior Notes due July 15, 2011 (herein called the "Securities"), issued and to be issued under an indenture dated as of June 22, 2001 (herein called the "Indenture"), between the Company and U.S. Trust Company of Texas, N.A., as Trustee (herein called the "Trustee", which term includes any successor trustee under the Indenture), to which Indenture and all indentures supplemental thereto reference is hereby made for a statement of the respective rights, limitations of rights, duties and immunities thereunder of the Company, the Trustee and the Holders of the Securities and of the terms upon which the Securities are, and are to be, authenticated and delivered. As provided for in the Indenture, the Company may, subject to certain limitations, from time to time, without notice or other consent of the Holders, create and issue Additional Securities ranking pari passu with the Securities issued the date hereof so that such Additional Securities shall be consolidated and form a single series with the Securities initially issued by the Company and shall have the same terms as to status, redemption or otherwise as Securities originally issued. Any Additional Securities shall be issued with the benefit of any indenture supplemental to the Indenture. At the Company's option, the Company may redeem the Securities in whole or in part at any time at a redemption price equal to the greater of (i) 100% of the principal amount of the Securities to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the Securities to be redeemed (excluding the portion of any such interest accrued to the Redemption Date) discounted to the Redemption Date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Yield, plus 50 basis points, plus, in each case, accrued and unpaid interest to the Redemption Date. The Securities shall be subject to redemption, at the option of the Company, as a whole but not in part, at any time upon not fewer than 30 nor more than 60 days' notice mailed to each Holder of Securities at the addresses appearing in the Security Register at a redemption price equal to 100% of the principal amount of the Securities plus accrued interest to but excluding the Redemption Date if the Company has become or would become obligated to pay on the next date on which any amount would be payable under or with respect to the Securities, any Additional Amounts as a result of any change or amendment to the laws (including any regulations promulgated thereunder) of any Taxing Jurisdiction, or any change in or amendment to any official position regarding the application or interpretation of such laws or regulations, which change or amendment is announced or becomes effective on or after June 22, 2001. If less than all of the Securities are to be redeemed at any time, the Trustee shall select the Securities to be redeemed by such method as the Trustee shall deem fair and appropriate in the aggregate principal amount specified by the Company. The Trustee may select for redemption Securities and portions of Securities in amounts of U.S.$1,000 or whole multiples of U.S.$1,000. The Securities do not have the benefit of any sinking fund obligations. In the event of redemption or purchase pursuant to an Offer to Purchase of this Security in part only, a new Security or Securities for the unredeemed or unpurchased portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. If an Event of Default shall occur and be continuing, the stated amount at maturity of all the Securities may be declared due and payable in the manner and with the effect provided in the Indenture. 5 The Indenture provides that, subject to certain conditions, if a Change of Control Triggering Event occurs, the Company shall be required to make an Offer to Purchase for all or a specified portion of the Securities. The Indenture contains provisions for defeasance at any time of (i) the entire indebtedness of this Security or (ii) certain restrictive covenants and Events of Default with respect to this Security, in each case upon compliance with certain conditions set forth therein. The Indenture permits, with certain exceptions as therein provided, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Holders of the Securities under the Indenture at any time by the Company and the Trustee with the consent of the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding. The Indenture also contains provisions permitting the Holders of a majority in aggregate principal amount of the Securities at the time Outstanding, on behalf of the Holders of all the Securities, to waive compliance by the Company with certain provisions of the Indenture and certain past defaults under the Indenture and their consequences. Any such consent or waiver by the Holder of this Security shall be conclusive and binding upon such Holder and upon all future Holders of this Security and of any Security issued upon the registration of transfer hereof or in exchange herefor or in lieu hereof, whether or not notation of such consent or waiver is made upon this Security. No reference herein to the Indenture and no provision of this Security or of the Indenture shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the stated amount at maturity of (and premium, if any) and interest on this Security at the times, place and rate, and in the coin or currency, herein prescribed. As provided in the Indenture and subject to certain limitations therein set forth, the transfer of this Security is registrable in the Security Register, upon surrender of this Security for registration of transfer at the office or agency of the Company in the Borough of Manhattan, the City of New York, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar duly executed by, the Holder hereof or his attorney duly authorized in writing, and thereupon one or more new Securities, of authorized denominations and for the same aggregate stated amount at maturity, will be issued to the designated transferee or transferees. The Securities are issuable only in registered form without coupons in stated amounts of $1,000 at maturity and any integral multiple thereof. As provided in the Indenture and subject to certain limitations therein set forth, Securities are exchangeable for a like aggregate stated amount at maturity of Securities of a different authorized denomination, as requested by the Holder surrendering the same. No service charge shall be made for any such registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. Prior to due presentment of this Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name this Security is registered as the owner hereof for all purposes, whether or not this Security be overdue, and neither the Company, the Trustee nor any such agent shall be affected by notice to the contrary. Interest on this Security shall be computed on the basis of a 360-day year of twelve 30-day months. 6 All terms used in this Security which are defined in the Indenture shall have the meanings assigned to them in the Indenture. The Indenture and this Security shall be governed by and construed in accordance with the laws of the State of New York. 7 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased in its entirety by the Company pursuant to Section 10.09 of the Indenture, check the box: [ ] If you want to elect to have only a part of this Security purchased by the Company pursuant to Section 10.09 of the Indenture, state the amount (which must be in multiples of $1,000): $ -------------- Dated: Your Signature: ------------------------------------- (Sign exactly as name appears on the other side of this Security) Signature Guarantee: --------------------------------------------------- (Signature must be guaranteed by a member firm of the New York Stock Exchange or a commercial bank or trust company) EX-5.1 5 o05789ex5-1.txt EXHIBIT 5.1 1 EXHIBIT 5.1 PERKINS COIE LLP 1211 SOUTHWEST FIFTH AVENUE, SUITE 1500 - PORTLAND, OREGON 97204-3715 TELEPHONE: (503) 727-2000 - FACSIMILE: (503) 727-2222 July 11, 2001 Teekay Shipping Corporation TK House Bayside Executive Park West Bay Street and Blake Road P.O. Box AP-59213 Nassau, Commonwealth of the Bahamas RE: TEEKAY SHIPPING CORPORATION REGISTRATION STATEMENT ON FORM F-4 Dear Sirs: We have acted as counsel to Teekay Shipping Corporation, a Republic of The Marshall Islands corporation (the "Company"), in connection with its offer to exchange $1,000 principal amount of 8.875% Senior Notes due 2011 of the Company (the "Exchange Notes"), for each $1,000 principal amount of the outstanding unregistered 8.875% Senior Notes due 2011 of the Company (the "Private Notes"), which Exchange Notes are the subject of the Registration Statement on Form F-4 (as amended, the "Registration Statement"), filed by the Company today with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations promulgated thereunder (the "Rules"). The Exchange Notes will be issued pursuant to an Indenture (the "Indenture") dated June 22, 2001, between the Company and U.S. Trust Company of Texas, N.A., as Trustee (the "Trustee"). You have asked us to render our opinion as to the matters hereinafter set forth. Capitalized terms used but not defined herein shall have the same meaning as in the Registration Statement. In the course of our representation as described above, we have examined originals, or copies certified or otherwise identified to our satisfaction, of the documents described in Schedule A hereto. The documents listed in Schedule A are herein collectively referred to as the "Documents." Our opinions are based solely - -------------------------------------------------------------------------------- ANCHORAGE BELLEVUE BOISE DENVER HONG KONG LOS ANGELES MENLO PARK OLYMPIA PORTLAND SAN FRANCISCO SEATTLE SPOKANE TAIPEI WASHINGTON, D.C. 2 Teekay Shipping Corporation July 11, 2001 Page 2 upon a review of the Documents and, with your consent, we have reviewed no other documents, corporate records, certificates or other statements as a basis for the opinions expressed herein. As to matters of fact bearing upon the opinions expressed herein, we have, with your consent and without further investigation, relied upon information in certificates provided to us by the Company's directors and officers. In rendering the opinions expressed herein, we have further relied upon the following assumptions, the accuracy of which we have not independently verified: (a) Each document submitted to us for review is accurate and complete, each such document that is an original is authentic, each such document that is a copy conforms to an authentic original, and all signatures on each such document are genuine. (b) The Company is validly existing under applicable law. (c) The Company has the power, authority and legal right to execute and deliver, and to perform its obligations under, the Indenture and the Exchange Securities. (d) The Company has duly authorized, executed and delivered the Indenture and any other certificates, instruments or documents (other than the Exchange Notes) required to be executed and delivered in connection therewith. (e) The Exchange Notes have been duly authorized, executed and issued by the Company and duly authenticated by the Trustee. (f) Each of the Company and the Trustee has satisfied those legal requirements applicable to it that are necessary to make the Indenture and any other certificates, instruments or documents (other than, with respect to the Company, the Exchange Notes) required to be executed and delivered by it in connection therewith enforceable against such party in accordance with their respective terms. OPINION Based upon the foregoing examinations and assumptions and subject to the qualifications and exclusions stated below, we are of the opinion that: 3 Teekay Shipping Corporation July 11, 2001 Page 3 1. Upon (a) the Registration Statement becoming effective under the Securities Act, (b) qualification of the Indenture under the Trust Indenture Act of 1939, as amended, and (c) delivery of the Exchange Notes in exchange for the Private Notes as contemplated by the Registration Statement, the Exchange Notes will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms. 2. The summary set forth under the heading "Tax Considerations -- United States Federal Income Tax Considerations" in the final prospectus forming a part of the Registration Statement is accurate and describes the material United States federal income tax consequences expected to be relevant to the recipients of Exchange Notes in exchange for Private Notes who were initial purchasers of the Private Notes, acquired the Private Notes as a capital asset, are United States persons and are not among particular categories of investors subject to special treatment under certain United States federal income tax laws. This opinion is based on provisions of the United States Internal Revenue Code of 1986, as amended, applicable United States Treasury Department Regulations, published administrative positions and judicial decisions, all existing as of the date hereof. EXCLUSIONS AND QUALIFICATIONS The opinions expressed above are subject to the following exclusions and qualifications: a. Our opinions are as of the date hereof and we have no responsibility to update this opinion for events and circumstances occurring after the date hereof or as to facts relating to prior events that are subsequently brought to our attention. We disavow any undertaking to advise you of any changes in law. b. We express no opinion as to enforceability of any right or obligation to the extent such right or obligation is subject to and limited by (i) the effect of bankruptcy, insolvency, reorganization, receivership, conservatorship, arrangement, moratorium, fraudulent transfer or other laws affecting or relating to the rights of creditors generally or (ii) the rules governing the availability of specific performance, injunctive relief or other equitable remedies and general principles of equity, regardless of whether arising prior to, or after, the date hereof or considered in a proceeding in equity or at law. 4 Teekay Shipping Corporation July 11, 2001 Page 4 c. We are qualified to practice law in the state of New York and do not express any opinions herein concerning any laws other than the laws in their current forms of the state of New York and the federal laws of the United States of America, and we express no opinion with respect to the laws of any other jurisdiction. We consent to the filing of this opinion as an exhibit to the Registration Statement and to the references to our firm in the prospectus made part of the Registration Statement under the caption "Legal Matters." In giving this consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act or related Rules. Very truly yours, /s/ Perkins Coie LLP PERKINS COIE LLP 5 SCHEDULE A (a) The Registration Statement (b) The Indenture (c) The form of the Private Notes (d) The form of the Exchange Notes EX-8.2 6 o05789ex8-2.txt EXHIBIT 8.2 1 EXHIBIT 8.2 SEWARD & KISSELL LLP ONE BATTERY PARK PLAZA NEW YORK, NEW YORK 10004 TELEPHONE: (212) 574-1200 FACSIMILE: (212) 480-8421 WWW.SEWKIS.COM July 11, 2001 Teekay Shipping Corporation TK House, Bayside Executive Park West Bay and Blake Road P.O. Box AP-59213 Nassau, Commonwealth of the Bahamas Re: Registration on Form F-4 of 8.875% Senior Notes Due July 15, 2011 of Teekay Shipping Corporation Ladies and Gentlemen: In connection with the Registration Statement on Form F-4 filed by Teekay Shipping Corporation, a Republic of The Marshall Islands corporation (the "Company"), with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, and the rules and regulations thereunder, prepared in connection with the exchange offer of US$250 million Senior Notes due 2011 of Teekay (the "Registration Statement"), we have been requested to render our opinion as to the matters hereinafter set forth. In formulating our opinion as to the United States tax matters described below, we have examined such documents as we have deemed appropriate, including the Registration Statement and the prospectus (the "Prospectus") that forms a part thereof. We also have obtained such additional information as we have deemed relevant and necessary from representatives of the Company. Based on the facts as set forth in the Prospectus and, in particular, on the representations, covenants, assumptions, conditions and qualifications described in the Prospectus under the caption "Business-Taxation of Teekay - United States Taxation", we hereby confirm that the statements contained in the Prospectus under the caption "Business-Taxation of Teekay - United States Taxation" fairly summarize the legal matters referred to therein and fairly present the information called for with respect to such legal matters. 2 July 11, 2001 Page 2 We hereby consent to the use of our name in the Registration Statement and in the Prospectus as the same appears under the captions "Business-Taxation of Teekay - United States Taxation" and "Legal Matters," and to the use of this opinion as an exhibit to the Registration Statement. Our opinions and the tax discussion as set forth in the Prospectus under the caption "Business-Taxation of Teekay - United States Taxation" are based on the Internal Revenue Code of 1986, as amended, existing and proposed Treasury Regulations promulgated thereunder, published pronouncements of the Internal Revenue Service which may be cited or used as precedents, and the published opinions of the United States Tax Court and other United States Federal Courts, each as they exist as of the date hereof, and any of which may be changed at any time with retroactive effect. No opinion is expressed on any matters other than those specifically referred to above by reference to the Prospectus. Very truly yours, /s/ Seward & Kissell ------------------------ EX-8.3 7 o05789ex8-3.txt EXHIBIT 8.3 1 EXHIBIT 8.3 (212) 922-2200 2375.20034 July 11, 2001 Teekay Shipping Corporation TK House, Bayside Executive Park West Bay and Blake Road P.O. Box AP-59213 Nassau, Commonwealth of the Bahamas Dear Sirs: TEEKAY SHIPPING CORPORATION, REGISTRATION STATEMENT ON FORM F-4 We have acted as special counsel for Teekay Shipping Corporation, a Marshall Islands corporation (the "Company") on matters of Marshall Islands law in connection with the Registration Statement on Form F-4 (the "Registration Statement") filed by the Company with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, and the rules and regulations thereunder, in connection with the exchange offering by the Company of an aggregate principal amount of $250,000,000 of the Company's 8.875% Senior Notes due 2011 (the "Notes"). The Notes are being issued under the indenture dated as of June 22, 2001 (the "Indenture") between the Company and U.S. Trust Company of Texas, N.A., as trustee. As such counsel, we have examined the Registration Statement and such other papers, documents and certificates of public officials and certificates of officers of the Company and its subsidiaries as we have deemed relevant and necessary as the basis for the opinions hereafter expressed. In such examinations, we have assumed the genuineness of all signatures and the authenticity of all documents submitted to us as originals and the conformity to original documents of all documents submitted to us as conformed or photostatic copies. This opinion is limited to the law of the Republic of The Marshall Islands. Insofar as Marshall Islands law is involved in the rendering of this opinion, we have relied on opinions of counsel in the Marshall Islands rendered in transactions which we consider to be sufficiently similar to those contemplated by the Registration Statement in order to afford a satisfactory basis for such opinion, and upon our independent examinations of the Associations Law of the Republic of the Marshall Islands and our knowledge and interpretation of analogous laws of the United States. 2 Based on the foregoing and having regard to legal considerations which we deem relevant, we are of the opinion that the statements in the Prospectus under the captions "Tax Consideration - Marshall Islands Taxation", "Business - Taxation of Teekay - Marshall Islands Taxation" and "Business Regulation" insofar as such statements constitute summaries of the legal matters, documents or proceedings referred to therein, fairly present the information expected to be relevant to the holders of the notes offered pursuant to the Prospectus, and fairly summarize the matters referred to therein. We consent to the reference of our Firm under the captions "Tax Consideration - Marshall Islands Taxation", "Business - Taxation of Teekay - Marshall Islands Taxation" and "Legal Matters" in the Registration Statement and the related Prospectus, and to the use of this opinion as an exhibit to the Registration Statement. This opinion is solely for the benefit of and may be relied upon by the Company. This opinion may not be relied upon by any other person or entity without the prior written approval of the undersigned. Very truly yours, /s/ Watson, Farley & Williams WATSON, FARLEY & WILLIAMS EX-8.4 8 o05789ex8-4.txt EXHIBIT 8.4 1 EXHIBIT 8.4 Writer's Direct: Telephone: (242) 328-6287 Telefax: (242) 328-0386 E-Mail: gaw@gtclaw.com VIA TELEFAX: 503-795-4086 VIA E-MAIL: BOSLD@PerkinsCoie.com Our Ref: GAW/ml/T-185/5565/23 Teekay Shipping Corporation TK House, Bayside Executive Park West Bay and Blake Road P.O. Box AP-59213 Nassau, Commonwealth of the Bahamas Dear Sirs: RE: REGISTRATION STATEMENT ON FORM F-4 In connection with the Registration Statement on Form F-4 filed by Teekay Shipping Corporation, a Republic of The Marshall Islands corporation ("Teekay"), with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, and the rules and regulations thereunder, prepared in connection with the exchange offer of US$250 million Senior Notes due 2011 of Teekay (the "Registration Statement"), we have been requested to render our opinion as to the matters hereinafter set forth. In this regard, we have examined a draft as at July 11th, 2001, identified to our satisfaction, of the Registration Statement and the related Prospectus (the "Documents"), and in our examination of same, we have assumed, without independent investigation, the authenticity of all such Documents, the power, authority and legal right of all parties thereto to enter into and perform their respective obligations under the said Documents and the due authorization, execution and delivery of the said Documents by all of the parties to those Documents to which they are a party. We have also assumed the accuracy and completeness of all factual representations made in the Documents. Based upon and subject to the foregoing we are of the opinion that the summary set forth under the heading "Business - Taxation of Teekay - Bahamian Taxation" and "Tax Considerations - Bahamian Taxation" in the Prospectus forming a part of the Registration Statement is accurate and describes the Bahamian tax consequences expected to be relevant to the prospective initial purchasers of the Senior Notes Due 2011 offered pursuant to the Prospectus. We hereby consent to the use of our name in the Registration Statement and in the related Prospectus as the same appears under the captions "Business - Taxation of Teekay - Bahamian Taxation" and "Tax Considerations - Bahamian Taxation" and "Legal Matters," and to the use of this opinion as an exhibit to the Registration Statement. Our opinion expressed above is limited to the laws of the Commonwealth of The Bahamas as in effect on the date hereof. Insofar as the Registration Statement and the related Prospectus are expressed to be governed by any other system of law, we have 2 assumed with your approval the validity and enforceability of same under the applicable system of law. This opinion is solely for the benefit of and may be relied upon by Teekay. This opinion may not be relied upon by any other person or entity without the prior written approval of the undersigned. Yours faithfully, GRAHAM, THOMPSON & CO. /s/ Gilbert A. Ward PER: Gilbert A. Ward EX-8.5 9 o05789ex8-5.txt EXHIBIT 8.5 1 EXHIBIT 8.5 JK/skd/6860.16 Direct Tel: +441 298 3559 Direct Fax: +441 298-4154 Direct e-mail: cknight@ask.bm 11 July 2001 Teekay Shipping Corporation TK House, Bayside Executive Park West Bay and Blake Road P.O. Box AP-59213 Nassau, Commonwealth of the Bahamas Dear Sirs TEEKAY SHIPPING CORPORATION (THE "COMPANY") AND BONA SHIPHOLDING LTD. (THE "BERMUDA SUBSIDIARY") We have acted as legal counsel in Bermuda to the Company and the Bermuda Subsidiary and have been requested to provide this opinion to you in connection with the draft Registration Statement (as defined in the Schedule to this opinion). For the purposes of this opinion we have examined and relied upon the documents listed, and in some cases defined, in the Schedule to this opinion (the "Documents"). ASSUMPTIONS In stating our opinion we have assumed: - (a) the authenticity, accuracy and completeness of all Documents and other documentation examined by us submitted to us as originals and the conformity to authentic original documents of all Documents and other such documentation submitted to us as certified, conformed, notarised, faxed or photostatic copies; (b) that each of the Documents and all other such documentation which was received by electronic means is complete, intact and in conformity with the transmission as sent; (c) the genuineness of all signatures on the Documents; (d) the authority, capacity and power of each of the persons signing the Documents; (e) that any representation, warranty or statement of fact or law, other than as to the laws of Bermuda, made in any of the Documents is true, accurate and complete; (f) that the Bermuda Subsidiary is not carrying on investment business in or from within Bermuda under the provisions of the Investment Business Act 1998 as amended from time to time; and 2 -2- (g) that, when completed, signed and delivered, the Registration Statement will be in a form which does not differ in any material respect from the draft which we have examined for the purposes of this opinion. OPINION Based upon and subject to the foregoing and subject to the reservation set out below and to any matters not disclosed to us, we are of the opinion that the statements in the Prospectus that forms part of the Registration Statement under the captions "Business - Taxation of Teekay - Bermuda Taxation" insofar as they purport to describe the provisions of the laws of Bermuda referred to therein or legal conclusions with respect thereto, have been reviewed by us and are accurate and correct in all material respects and fairly present the information disclosed in all material respects. RESERVATION We have the following reservation: - We express no opinion as to any law other than Bermuda law and the opinion expressed herein does not relate to compliance with or matters governed by the laws of any jurisdiction except Bermuda. This opinion is limited to Bermuda law as applied by the Courts of Bermuda at the date hereof. DISCLOSURE We consent to the reference of our Firm under the captions "Business - Taxation of Teekay - Bermuda Taxation" and "Legal Matters" in the Registration Statement and the related Prospectus, and to the use of this opinion as an exhibit to the Registration Statement. This consent may be incorporated by reference in any registration statement of the Company filed pursuant to the United States Securities Act of 1933, as amended, in connection with the exchange offer of the notes. This opinion speaks as of its date and is strictly limited to the matters stated herein and we assume no obligation to review or update this opinion if applicable law or the existing facts or circumstances should change. This opinion is governed by and is to be construed in accordance with Bermuda law. It is given on the basis that it will not give rise to any legal proceedings with respect thereto in any jurisdiction other than Bermuda. This opinion is solely for the benefit of and may be relied upon by the Company. This opinion may not be relied upon by any other person or entity without the prior written approval of the undersigned. Yours faithfully /s/ Appleby Spurling & Kempe APPLEBY SPURLING & KEMPE 3 -3- SCHEDULE 1. A certified copy of the "TAX ASSURANCE", dated 21 September 1990, issued by the Registrar of Companies for the Minister of Finance in relation to the Bermuda Subsidiary 2. A draft Registration Statement dated 11 July 2001 on Form F-4 and related Prospectus to be filed by the Company with the Securities and Exchange Commission pursuant to The Securities Act of 1933 of the United States of America, as amended, and the rules and regulations thereunder, prepared in connection with the exchange offer of US$250 million Senior Notes of the Company (the "REGISTRATION STATEMENT"). EX-8.6 10 o05789ex8-6.txt EXHIBIT 8.6 1 EXHIBIT 8.6 Teekay Shipping Corporation TK House, Bayside Executive Park West Bay and Blake Road P.O.Box AP-59213 Nassau COMMONWEALTH OF THE BAHAMAS Your ref: Our ref: Lawyer in charge: Date: tso07004.b01/TVE Rolf Johan Ringdal Oslo, 11 July 2001 REGISTRATION STATEMENT ON FORM F-4 - NORWEGIAN LEGAL OPINION We act as special Norwegian counsel for Teekay Shipping Corporation (the "Company") in matters pertaining to Norwegian law in connection with the Registration Statement on Form F-4 filed by the Company (the "Registration Statement") with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, and the rules and regulations thereunder, in connection with the exchange offering by the Company of an aggregate principal amount of $250,000,000 of the Company's 8.875% Senior Notes due 2011 (the "Notes"). The Notes are being issued under the indenture dated as of June 22, 2001 (the "Indenture") between the Company and U.S. Trust Company of Texas, N.A., as trustee. You have asked us to render our opinion as to the matters hereinafter set forth. For the purpose of rendering this opinion we have examined the Registration Statement, the prospectus which forms part of the Registration Statement (the "Prospectus") and such publicly available documents in relation to the corporate existence of Ugland Nordic Shipping ASA ("UNS"), Ugland Nordic Investment AS (together the "Corporations"), KS Nordic Laurita, KS Bona Fortuna, KS Bona Freighter, KS Nordic Akarita and KS Nordic Apollo (collectively the "Partnerships", and together with the Corporations the "Companies") as we have deemed necessary. In rendering this opinion we have assumed that documents submitted to us as copies conform to the originals thereof, and all signatures thereon are authentic. We express no opinion as to the laws of any jurisdiction other than those of the Kingdom of Norway in force and effect as at the date hereof. Based on the foregoing and subject to the qualifications set out herein, we are of the opinion that the statements in the Prospectus under the captions "Business-Taxation of 2 Teekay - Norwegian Taxation" insofar as such statements constitute summaries of the legal matters, documents or proceedings referred to therein, fairly present the information called for with respect to such legal matters, documents and proceedings and fairly summarize the matters referred to therein. We consent to the reference of our Firm under the captions "Business-Taxation of Teekay - Norwegian Taxation" and "Legal Matters" in the Registration Statement and the related Prospectus, and to the use of this opinion as an exhibit to the Registration Statement. The Opinions given herein are as of the date hereof, and we assume no obligation to update or supplement this opinion to reflect any facts of circumstances which may hereafter come to our attention or to any changes in law which may occur. This Opinion is strictly limited to the matters set out above, and is not to be extended by implication to any of the matters. This Opinion is furnished by us for the benefit of the Company and may not be relied upon by any other person or entity for any other purpose without the prior written permission of the undersigned. Yours sincerely, BUGGE, ARENTZ-HANSEN & RASMUSSEN /s/ Terje Sommer Terje Sommer EX-12.1 11 o05789ex12-1.txt EXHIBIT 12.1 1 EXHIBIT 12.1 Statement Regarding Computation of Ratios Teekay Shipping Corporation Computation of Ratio of Earnings to Fixed Charges (In Thousands Except Ratios)
Three Months Ended March 31, --------------------------------------- Pro Forma Pro Forma Dec. 31, 2001 2001 2000 2000 ----------- ----------- ----------- ----------- (unaudited) (unaudited) (unaudited) (unaudited) Fixed Charges: Interest expense and amortization of deferred financing costs 21,343 14,786 19,989 106,500 Capitalized interest 487 -- -- 474 ------- ------- ------ ------- Total Fixed Charges (A) 21,830 14,786 19,989 106,974 ------- ------- ------ ------- Earnings: Net income (loss) 145,097 144,688 19,940 265,554 Add (deduct): Extraordinary items -- -- -- -- Income taxes 1,186 671 500 6,016 Minority interest expense 2,481 1,396 199 3,546 Equity income (3,368) (2,793) (819) (11,786) Interest expense and amortization of deferred financing costs 21,343 14,786 19,989 106,500 Amortization of capitalized interest 298 260 248 893 ------- ------- ------ ------- Total Earnings Available To Cover Fixed Charges (B) 167,037 159,008 40,057 370,723 ------- ------- ------ ------- Ratio of Earnings to Fixed Charges (B/A) 7.6x 10.8x 2.0x 3.5x ======= ======= ====== =======
Fiscal Years Ended ------------------------------------------------------ Dec. 31, Dec. 31, Mar. 31, Mar. 31, Mar. 31, 2000 1999 1999 1998 1997 -------- -------- -------- -------- -------- Fixed Charges: Interest expense and amortization of deferred financing costs 74,540 44,996 44,797 56,269 60,810 Capitalized interest -- 1,710 3,018 283 232 ------- ------- ------- ------- ------- Total Fixed Charges (A) 74,540 46,706 47,815 56,552 61,042 ------- ------- ------- ------- ------- Earnings: Net income (loss) 270,020 (19,595) 45,406 70,504 42,630 Add (deduct): Extraordinary items -- -- 7,306 -- -- Income taxes 999 1,500 1,900 -- -- Minority interest expense 1,874 -- -- -- -- Equity income (9,546) (721) -- -- -- Interest expense and amortization of deferred financing costs 74,540 44,996 44,797 56,269 60,810 Amortization of capitalized interest 999 668 1,146 1,135 1,119 ------- ------- ------- ------- ------- Total Earnings Available To Cover Fixed Charges (B) 338,886 26,848 100,555 127,908 104,559 ------- ------- ------- ------- ------- Ratio of Earnings to Fixed Charges (B/A) 4.6x 0.6x (A) 2.1x 2.3x 1.7x ======= ======= ======= ======= =======
EX-15.1 12 o05789ex15-1.txt EXHIBIT 15.1 1 EXHIBIT 15.1 July 10, 2001 Board of Directors Teekay Shipping Corporation We are aware of the inclusion in the Registration Statement (Form F-4 No. 33-0000) of Teekay Shipping Corporation for the registration of $250,000,000 Senior Notes due 2011 of our report dated April 26, 2001, relating to the unaudited consolidated interim financial statements of Teekay Shipping Corporation for the quarter ended March 31, 2001. Pursuant to Rule 436(c) of the Securities Act of 1933 our reports are not part of the registration statement prepared or certified by accountants within the meaning of Section 7 or 11 of the Securities Act of 1933. EX-21.1 13 o05789ex21-1.txt EXHIBIT 21.1 1 EXHIBIT 21.1 The following is a list of the of Company's significant subsidiaries as at June 1, 2001.
NAME OF STATE OR PROPORTION OF SIGNIFICANT JURISDICTION OF OWNERSHIP SUBSIDIARY INCORPORATION INTEREST - ---------- ------------- ------------- BONA SHIPHOLDING LTD. BERMUDA 100% SINGLE SHIP COMPANIES (2) AUSTRALIA 100% SINGLE SHIP LIMITED LIABILITY COMPANIES (42) MARSHALL ISLANDS 100% SOPONATA TEEKAY LIMITED BERMUDA 50% TEEKAY CHARTERING LIMITED MARSHALL ISLANDS 100% TEEKAY SHIPPING LIMITED BAHAMAS 100% UGLAND NORDIC SHIPPING ASA NORWAY 100%
EX-23.7 14 o05789ex23-7.txt EXHIBIT 23.7 1 EXHIBIT 23.7 CONSENT OF INDEPENDENT CHARTERED ACCOUNTANTS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated February 16, 2001 (except for note 13, which is as of March 6, 2001), with respect to the consolidated financial statements and schedule of Teekay Shipping Corporation ("Teekay") and subsidiaries included in the Registration Statement (Form F-4 No. 33-XXXX) and related Prospectus of Teekay for the registration of $250,000,000 of its Senior Notes due 2011. We also consent to the incorporation by reference therein of our report dated February 16, 2001 (except for note 13 which is as of March 6, 2001), with respect to the consolidated financial statements and schedule of Teekay and its subsidiaries included in its Annual Report (Form 20-F), for the fiscal year ended December 31, 2000, filed with the Securities and Exchange Commission. Nassau, Bahamas, /s/ Ernst & Young July 11, 2001. Chartered Accountants EX-23.8 15 o05789ex23-8.txt EXHIBIT 23.8 1 EXHIBIT 23.8 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Teekay Shipping Corporation on Form F-4 and related Prospectus of our reports dated April 7, 2000 and March 28, 2001 related to the financial statements of Ugland Nordic Shipping ASA. We also consent to the reference to us under the heading "Experts" in such Registration Statement. Oslo, Norway July 11, 2001 /s/ Deloitte & Touche DELOITTE & TOUCHE STATSAUTORISERTE REVISORER AS EX-25.1 16 o05789ex25-1.txt EXHIBIT 25.1 1 EXHIBIT 25.1 FORM T-1 ============================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------ STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE ------------------ CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) _______ ------------------ UNITED STATES TRUST COMPANY OF NEW YORK (Exact name of trustee as specified in its charter) New York 13-3818954 (Jurisdiction of incorporation (I.R.S. employer if not a U.S. national bank) identification No.) 114 West 47th Street 10036-1532 New York, NY (Zip Code) (Address of principal executive offices) ------------------ TEEKAY SHIPPING CORPORATION (Exact name of obligor as specified in its charter) Republic of the Marshall Islands N/A (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification No.) ------------------ TK House, Bayside Executive Park West Bay Street and Blake Road N/A P.O. Box AP-59213, Nassau (Zip Code) Commonwealth of the Bahamas ------------------ 8.875% Senior Notes due July 15, 2011 (Title of the indenture securities) 2 - 2 - GENERAL 1. GENERAL INFORMATION Furnish the following information as to the trustee: (a) Name and address of each examining or supervising authority to which it is subject. Federal Reserve Bank of New York (2nd District), New York, New York (Board of Governors of the Federal Reserve System) Federal Deposit Insurance Corporation, Washington, D.C. New York State Banking Department, Albany, New York (b) Whether it is authorized to exercise corporate trust powers. The trustee is authorized to exercise corporate trust powers. 2. AFFILIATIONS WITH THE OBLIGOR If the obligor is an affiliate of the trustee, describe each such affiliation. None 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15: Teekay Shipping Corporation currently is not in default under any of its outstanding securities for which United States Trust Company of New York is Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15 of Form T-1 are not required under General Instruction B. 16. LIST OF EXHIBITS
T-1.1 -- Organization Certificate, as amended, issued by the State of New York Banking Department to transact business as a Trust Company, is incorporated by reference to Exhibit T-1.1 to Form T-1 filed on September 15, 1995 with the Commission pursuant to the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990 (Registration No. 33-97056). T-1.2 -- Included in Exhibit T-1.1. T-1.3 -- Included in Exhibit T-1.1.
3 - 3 - 16. LIST OF EXHIBITS (cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New York, as amended, is incorporated by reference to Exhibit T-1.4 to Form T-1 filed on September 15, 1995 with the Commission pursuant to the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990 (Registration No. 33-97056). T-1.6 -- The consent of the trustee required by Section 321(b) of the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990. T-1.7 -- A copy of the latest report of condition of the trustee pursuant to law or the requirements of its supervising or examining authority.
NOTE As of July 5, 2001, the trustee had 2,999,029 shares of Common Stock outstanding, all of which are owned by its parent company, U.S. Trust Corporation. The term "trustee" in Item 2, refers to each of United States Trust Company of New York and its parent company, U. S. Trust Corporation. In answering Item 2 in this statement of eligibility as to matters peculiarly within the knowledge of the obligor or its directors, the trustee has relied upon information furnished to it by the obligor and will rely on information to be furnished by the obligor and the trustee disclaims responsibility for the accuracy or completeness of such information. ------------------ Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, United States Trust Company of New York, a corporation organized and existing under the laws of the State of New York, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of New York, and State of New York, on the 5th day of July 2001. UNITED STATES TRUST COMPANY OF NEW YORK, Trustee By: /s/Cynthia Chaney ----------------- Cynthia Chaney Assistant Vice President 4 EXHIBIT T-1.6 The consent of the trustee required by Section 321(b) of the Act. United States Trust Company of New York 114 West 47th Street New York, NY 10036 March 10, 2000 Securities and Exchange Commission 450 5th Street, N.W. Washington, DC 20549 Gentlemen: Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990, and subject to the limitations set forth therein, United States Trust Company of New York ("U.S. Trust") hereby consents that reports of examinations of U.S. Trust by Federal, State, Territorial or District authorities may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. Very truly yours, UNITED STATES TRUST COMPANY OF NEW YORK /s/Gerard F. Ganey -------------------------------------------- By: Gerard F. Ganey Senior Vice President 5 EXHIBIT T-1.7 UNITED STATES TRUST COMPANY OF NEW YORK CONSOLIDATED STATEMENT OF CONDITION MARCH 31, 2001 ($ IN THOUSANDS)
ASSETS Cash and Due from Banks $ 60,744 Short-Term Investments 61,956 Securities, Available for Sale 687,786 Loans 2,866,204 Less: Allowance for Credit Losses 17,858 ----------- Net Loans 2,848,346 Premises and Equipment 65,105 Other Assets 264,387 ----------- TOTAL ASSETS $ 3,988,324 =========== LIABILITIES Deposits: Non-Interest Bearing $ 635,939 Interest Bearing 2,338,442 ----------- Total Deposits 2,974,381 Short-Term Credit Facilities 383,958 Accounts Payable and Accrued Liabilities 300,828 ----------- TOTAL LIABILITIES $ 3,659,167 =========== STOCKHOLDER'S EQUITY Common Stock 14,995 Capital Surplus 208,551 Retained Earnings 123,254 Accumulated Other comprehensive Income (17,643) ----------- TOTAL STOCKHOLDER'S EQUITY 329,157 ----------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $ 3,988,324 ===========
I, Richard E. Brinkmann, Managing Director & Comptroller of the named bank do hereby declare that this Statement of Condition has been prepared in conformance with the instructions issued by the appropriate regulatory authority and is true to the best of my knowledge and belief. Richard E. Brinkmann, Managing Director & Controller April 16, 2001 EX-99.1 17 o05789ex99-1.txt EXHIBIT 99.1 1 EXHIBIT 99.1 TEEKAY SHIPPING CORPORATION LETTER OF TRANSMITTAL FOR TENDER OF ALL OUTSTANDING 8.875% SENIOR NOTES DUE 2011 IN EXCHANGE FOR REGISTERED 8.875% SENIOR NOTES DUE 2011 - -------------------------------------------------------------------------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON _________ __, 2001, UNLESS EXTENDED (THE "EXPIRATION DATE"). NOTES TENDERED IN SUCH EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. - -------------------------------------------------------------------------------- The Exchange Agent is: UNITED STATES TRUST COMPANY OF NEW YORK YOU CAN DELIVER THIS LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTATION TO THE EXCHANGE AGENT AT THE ADDRESSES AS FOLLOWS: BY HAND DELIVERY TO 4:30 P.M. United States Trust Company of New York 30 Broad Street, B-Level New York, NY 10004-2304 BY OVERNIGHT COURIER AND BY HAND DELIVERY AFTER 4:30 P.M. ON EXPIRATION DATE United States Trust Company of New York 30 Broad Street, 14th Floor New York, NY 10004-2304 BY REGISTERED OR CERTIFIED MAIL United States Trust Company of New York P.O. Box 84 Bowling Green Station New York, NY 10274-0084 2 BY FACSIMILE TRANSMISSION (ELIGIBLE INSTITUTIONS ONLY): United States Trust Company of New York 30 Broad Street, B-Level New York, NY 10004-2304 FAX: (646) 458-8111 CONFIRM BY TELEPHONE: (800) 548-6565 - -------------------------------------------------------------------------------- DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THE LETTER OF TRANSMITTAL IS COMPLETED. The undersigned hereby acknowledges receipt and review of the prospectus dated _________ __, 2001 of Teekay Shipping Corporation (the "Company") and this letter of transmittal. These two documents together constitute the Company's offer to exchange its 8.875% Senior Notes due 2011 (the "Exchange Notes"), the issuance of which has been registered under the Securities Act of 1933, as amended (the "Securities Act"), for a like principal amount of its issued and outstanding 8.875% Senior Notes due 2011 (the "Original Notes") (the "Exchange Offer"). The Company reserves the right, at any time or from time to time, to extend the period of time during which the Exchange Offer for the Original Notes is open, at its discretion, in which event the term "Expiration Date" shall mean the latest date to which such Exchange Offer is extended. The Company shall notify United States Trust Company of New York (the "Exchange Agent") of any extension by oral or written notice and shall make a public announcement thereof no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. This letter of transmittal is to be used by a holder of Original Notes (i) if certificates of Original Notes are to be forwarded herewith or (ii) if delivery of Original Notes is to be made by book-entry transfer to the account maintained by the Exchange Agent at The Depository Trust Company (the "DTC") pursuant to the procedures set forth in the prospectus under the caption "The Exchange Offer--Book-Entry Transfer" and an "agent's message" is not delivered as described in the prospectus under the caption "The Exchange Offer--Tendering Through DTC's Automated Tender Offer Program." Tenders by book-entry transfer may also be made by delivering an agent's message in lieu of this letter of transmittal. Holders of Original Notes whose Original Notes are not immediately available, or who are unable to deliver their Original Notes, this letter of transmittal and all other documents required hereby to the Exchange Agent on or prior to the Expiration Date for the Exchange Offer, or who are unable to complete the procedure for book-entry transfer on a timely basis, must tender their Original Notes according to the guaranteed delivery procedures set forth in the prospectus under the caption "The Exchange Offer--Guaranteed Delivery Procedures." See Instruction 2. DELIVERY OF DOCUMENTS TO THE DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. The term "holder" with respect to the Exchange Offer for Original Notes means any person in whose name such Original Notes are registered on the books of the Company, any person who holds such Original Notes and has obtained a properly completed bond power from the registered holder or any participant in the DTC system whose name appears on a security position listing as the holder of such -2- 3 Original Notes and who desires to deliver such Original Notes by book-entry transfer at DTC. The undersigned has completed, executed and delivered this letter of transmittal to indicate the action the undersigned desires to take with respect to such Exchange Offer. Holders who wish to tender their Original Notes must complete this letter of transmittal in its entirety (unless such Original Notes are to be tendered by book-entry transfer and an agent's message is delivered in lieu hereof). PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY BEFORE CHECKING ANY BOX BELOW. THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT. List below the Original Notes to which this letter of transmittal relates. If the space below is inadequate, list the registered numbers and principal amounts on a separate signed schedule and affix the list to this letter of transmittal.
- ------------------------------------------------------------------------------------------------------ DESCRIPTION OF ORIGINAL NOTES TENDERED - ------------------------------------------------------------------------------------------------------ Name(s) and Address(es) of Registered Registered Aggregate Principal Principal Amount Holder(s) Exactly as Name(s) Appear(s) on Number(s)* Amount Tendered** (Please Fill In, If Blank) Original Notes Represented by Note(s) - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------ Total - ------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry holders. ** Unless otherwise indicated, any tendering holder of Original Notes will be deemed to have tendered the entire aggregate principal amount represented by such Original Notes. All tenders must be in integral multiples of $1,000. [ ] CHECK HERE IF TENDERED ORIGINAL NOTES ARE ENCLOSED HEREWITH. [ ] CHECK HERE AND COMPLETE THE FOLLOWING IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE DTC (FOR USE BY ELIGIBLE INSTITUTIONS ONLY): Name of Tendering Institution: ------------------------------------------------- DTC Account Number(s): --------------------------------------------------------- -3- 4 Transaction Code Number(s): ---------------------------------------------------- [ ] CHECK HERE AND COMPLETE THE FOLLOWING IF TENDERED ORIGINAL NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY EITHER ENCLOSED HEREWITH OR PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT (COPY ATTACHED) (FOR USE BY ELIGIBLE INSTITUTIONS ONLY): Name(s) of Registered holder(s) of Original Notes: ----------------------------- Date of Execution of Notice of Guaranteed Delivery: ---------------------------- Window Ticket Number (if available): ------------------------------------------- Name of Eligible Institution that Guaranteed Delivery: ------------------------ DTC Account Number(s) (if delivered by book-entry transfer): ------------------- Transaction Code Number(s) (if delivered by book-entry transfer): -------------- Name of Tendering Institution (if delivered by book-entry transfer): ----------- [ ] CHECK HERE AND COMPLETE THE FOLLOWING IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO: Name: ----------------------------------------------------------------------- Address: ----------------------------------------------------------------------- ----------------------------------------------------------------------- If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Original Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: Subject to the terms and conditions of the Exchange Offer, the undersigned hereby tenders to the Company for exchange the principal amount of Original Notes indicated above. Subject to and effective upon the acceptance for exchange of the principal amount of Original Notes tendered in accordance with this letter of transmittal, the undersigned hereby exchanges, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to such Original Notes tendered for exchange hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange Agent the true and lawful agent and attorney-in-fact for the undersigned (with full knowledge that said Exchange Agent also acts as the -4- 5 agent for the Company in connection with the Exchange Offer) with respect to the tendered Original Notes with full power of substitution to (i) deliver such Original Notes, or transfer ownership of such Original Notes on the account books maintained by the DTC, to the Company and deliver all accompanying evidences of transfer and authenticity, and (ii) present such Original Notes for transfer on the books of the Company and receive all benefits and otherwise exercise all rights of beneficial ownership of such Original Notes, all in accordance with the terms of the Exchange Offer. The power of attorney granted in this paragraph shall be deemed to be irrevocable and coupled with an interest. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, exchange, assign and transfer the Original Notes tendered hereby and to acquire the Exchange Notes issuable upon the exchange of such tendered Original Notes, and that the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions, charges and encumbrances and not subject to any adverse claim, when the same are accepted for exchange by the Company. The undersigned acknowledges that the Exchange Offer is being made in reliance upon interpretations set forth in no-action letters issued to third parties by the staff of the Securities and Exchange Commission (the "SEC"), including Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley & Co. Incorporated (available June 5, 1991), Mary Kay Cosmetics, Inc. (available June 5, 1991) and similar no-action letters (the "Prior No-Action Letters"), that the Exchange Notes issued in exchange for the Original Notes pursuant to the Exchange Offer may be offered for resale, resold and otherwise transferred by holders thereof (other than any such holder that is an "affiliate" of the Company within the meaning of Rule 405 under the Securities Act), without compliance with the registration and prospectus delivery provisions of the Securities Act, PROVIDED that such Exchange Notes are acquired in the ordinary course of such holders' business and such holders are not engaging in, do not intend to engage in and have no arrangement or understanding with any person to participate in a distribution of such Exchange Notes. The SEC has not, however, considered the Exchange Offer in the context of a no-action letter, and there can be no assurance that the staff of the SEC would make a similar determination with respect to the Exchange Offer as in other circumstances. The undersigned hereby further represents to the Company that (i) any Exchange Notes received are being acquired in the ordinary course of business of the person receiving such Exchange Notes, whether or not the undersigned, (ii) neither the undersigned nor any such other person has an arrangement or understanding with any person to participate in the distribution of the Original Notes or the Exchange Notes within the meaning of the Securities Act and (iii) neither the holder nor any such other person is an "affiliate," as defined in Rule 405 under the Securities Act, of the Company or, if it is such an affiliate, it will comply with the registration and prospectus delivery requirements of the Securities Act to the extent applicable. If the undersigned is not a broker-dealer, the undersigned represents that it is not engaged in, and does not intend to engage in, a distribution of Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange Notes for its own account in exchange for Original Notes that were acquired as a result of market-making activities or other trading activities, it acknowledges that it will deliver a prospectus in connection with any resale of such Exchange Notes; however, by so acknowledging and by delivering a prospectus, the undersigned will not be deemed to admit that it is an "underwriter" within the meaning of the Securities Act. The undersigned acknowledges that if the undersigned is tendering Original Notes in the Exchange Offer with the intention of participating in any manner in a distribution of the Exchange Notes (i) the undersigned cannot rely on the position of the staff of the SEC set forth in the Prior No-Action Letters and, in the absence of an exemption therefrom, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with a secondary -5- 6 resale transaction of the Exchange Notes, in which case the registration statement must contain the selling security holder information required by Item 507 or Item 508, as applicable, of Regulation S-K of the SEC, and (ii) failure to comply with such requirements in such instance could result in the undersigned incurring liability under the Securities Act for which the undersigned is not indemnified by the Company. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the exchange, assignment and transfer of the Original Notes tendered hereby, including the transfer of such Original Notes on the account books maintained by the DTC. For purposes of the Exchange Offer, the Company shall be deemed to have accepted for exchange validly tendered Original Notes when, as and if the Company gives oral or written notice thereof to the Exchange Agent. Any tendered Original Notes that are not accepted for exchange pursuant to such Exchange Offer for any reason will be returned, without expense, to the undersigned as promptly as practicable after the Expiration Date for such Exchange Offer. All authority conferred or agreed to be conferred by this letter of transmittal shall survive the death, incapacity or dissolution of the undersigned, and every obligation of the undersigned under this letter of transmittal shall be binding upon the undersigned's successors, assigns, heirs, executors, administrators, trustees in bankruptcy and legal representatives. The undersigned acknowledges that the Company's acceptance of properly tendered Original Notes pursuant to the procedures described under the caption "The Exchange Offer--Procedures for Tendering" in the prospectus and in the instructions hereto will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. The Exchange Offer is subject to certain conditions set forth in the prospectus under the caption "The Exchange Offer--Conditions to the Exchange Offer." The undersigned recognizes that as a result of these conditions (which may be waived, in whole or in part, by the Company), the Company may not be required to exchange any of the Original Notes tendered hereby. Unless otherwise indicated under "Special Issuance Instructions," please issue the Exchange Notes issued in exchange for the Original Notes accepted for exchange, and return any Original Notes not tendered or not exchanged, in the name(s) of the undersigned (or, in the case of a book-entry delivery of Original Notes, please credit the account indicated above maintained at the DTC). Similarly, unless otherwise indicated under "Special Delivery Instructions," please mail or deliver the Exchange Notes issued in exchange for the Original Notes accepted for exchange and any Original Notes not tendered or not exchanged (and accompanying documents, as appropriate) to the undersigned at the address shown below the undersigned's signature(s). In the event that both "Special Issuance Instructions" and "Special Delivery Instructions" are completed, please issue the Exchange Notes issued in exchange for the Original Notes accepted for exchange in the name(s) of, and return any Original Notes not tendered or not exchanged to, the person(s) (or account(s)) so indicated. The undersigned recognizes that the Company has no obligation pursuant to the "Special Issuance Instructions" and "Special Delivery Instructions" to transfer any Original Notes from the name of the registered holder(s) thereof if the Company does not accept for exchange any of the Original Notes so tendered for exchange. -6- 7 - -------------------------------------------------------------------------------- SPECIAL ISSUANCE INSTRUCTIONS (SEE INSTRUCTIONS 5 AND 6) To be completed ONLY (i) if Original Notes in a principal amount not tendered, or Exchange Notes issued in exchange for Original Notes accepted for exchange, are to be issued in the name of someone other than the undersigned, or (ii) if Original Notes tendered by book-entry transfer which are not exchanged are to be returned by credit to an account maintained at the DTC other than the DTC Account Number set forth above. Issue Exchange Notes and/or Original Notes to: Name: ----------------------------------------------------------------------- Address: ----------------------------------------------------------------------- ----------------------------------------------------------------------- (INCLUDE ZIP CODE) - -------------------------------------------------------------------------------- (Tax Identification or Social Security Number) (PLEASE TYPE OR PRINT) SPECIAL DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 5 AND 6) To be completed ONLY if Original Notes in a principal amount not tendered, or Exchange Notes issued in exchange for Original Notes accepted for exchange, are to be mailed or delivered to someone other than the undersigned, or to the undersigned at an address other than that shown below the undersigned's signature. Mail or deliver Exchange Notes and/or Original Notes to: Name: ----------------------------------------------------------------------- Address: ----------------------------------------------------------------------- ----------------------------------------------------------------------- (INCLUDE ZIP CODE) - -------------------------------------------------------------------------------- (Tax Identification or Social Security Number) (PLEASE TYPE OR PRINT) [ ] Credit unexchanged Original Notes delivered by book-entry transfer to the DTC set forth below: DTC Account Number: ----------------------------------------- -7- 8 IMPORTANT PLEASE SIGN HERE WHETHER OR NOT ORIGINAL NOTES ARE BEING PHYSICALLY TENDERED HEREBY (COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 BELOW) - -> -------------------------------------------------------------------------- - -> -------------------------------------------------------------------------- (Signature(s) of Registered Holder(s) of Original Notes) Dated ________________, 2001 (The above lines must be signed by the registered holder(s) of Original Notes as your name(s) appear(s) on the Original Notes or on a security position listing, or by person(s) authorized to become registered holder(s) by a properly completed bond power from the registered holder(s), a copy of which must be transmitted with this letter of transmittal. If Original Notes to which this letter of transmittal relate are held of record by two or more joint holders, then all such holders must sign this letter of transmittal. If signature is by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, then such person must (i) set forth his or her full title below and (ii) unless waived by the Company, submit evidence satisfactory to the Company of such person's authority so to act. See Instruction 5 regarding the completion of this letter of transmittal, printed below.) Name(s): ---------------------------------------------------------------------- (Please Type or Print) Capacity: ---------------------------------------------------------------------- Address: ---------------------------------------------------------------------- (Include Zip Code) Area Code and Telephone Number: ------------------------------------------------ Taxpayer Identification or Social Security Number: ----------------------------- SIGNATURE GUARANTEE (IF REQUIRED BY INSTRUCTION 5) Certain signatures must be guaranteed by an Eligible Institution. Signature(s) Guaranteed by an Eligible Institution: ---------------------------- (Authorized Signature) -8- 9 - -------------------------------------------------------------------------------- (Title) - -------------------------------------------------------------------------------- (Name of Firm) - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- (Address, Include Zip Code) - -------------------------------------------------------------------------------- (Area Code and Telephone Number) Dated ________________, 2001 INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND ORIGINAL NOTES OR AGENT'S MESSAGE AND BOOK-ENTRY CONFIRMATIONS. All physically delivered Original Notes or any confirmation of a book-entry transfer to the Exchange Agent's account at the DTC of Original Notes tendered by book-entry transfer (a "Book-Entry Confirmation"), as well as a properly completed and duly executed copy of this letter of transmittal or facsimile hereof (or an agent's message in lieu hereof), and any other documents required by this letter of transmittal, must be received by the Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date for the Exchange Offer, or the tendering holder must comply with the guaranteed delivery procedures set forth below. THE METHOD OF DELIVERY OF THE TENDERED ORIGINAL NOTES, THIS LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF THE HOLDER AND, EXCEPT AS OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR CONFIRMED BY THE EXCHANGE AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR ORIGINAL NOTES SHOULD BE SENT TO THE COMPANY. 2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Original Notes and (a) whose Original Notes are not immediately available, (b) who cannot deliver their Original Notes, this letter of transmittal or any other documents required hereby to the Exchange Agent prior to the applicable Expiration Date or (c) who are unable to comply with the applicable procedures under the DTC's Automated Tender Offer Program on a timely basis, must tender their Original Notes according to the guaranteed delivery procedures set forth in the prospectus. Pursuant to such procedures: (i) such tender must be made by or through a firm which is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or a trust -9- 10 company having an office or correspondent in the United States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution"); (ii) prior to the applicable Expiration Date, the Exchange Agent must have received from the Eligible Institution a properly completed and duly executed notice of guaranteed delivery (by facsimile transmission, mail or hand delivery) or a properly transmitted agent's message and notice of guaranteed delivery setting forth the name and address of the holder of the Original Notes, the registration number(s) of such Original Notes and the total principal amount of Original Notes tendered, stating that the tender is being made thereby and guaranteeing that, within three New York Stock Exchange trading days after such Expiration Date, this letter of transmittal (or facsimile hereof or an agent's message in lieu hereof) together with the Original Notes in proper form for transfer (or a Book-Entry Confirmation) and any other documents required hereby, will be deposited by the Eligible Institution with the Exchange Agent; and (iii) this letter of transmittal (or facsimile hereof or an agent's message in lieu hereof) together with the certificates for all physically tendered Original Notes in proper form for transfer (or Book-Entry Confirmation, as the case may be) and all other documents required hereby are received by the Exchange Agent within three New York Stock Exchange trading days after such Expiration Date. Any holder of Original Notes who wishes to tender Original Notes pursuant to the guaranteed delivery procedures described above must ensure that the Exchange Agent receives the notice of guaranteed delivery prior to 5:00 p.m., New York City time, on the applicable Expiration Date. Upon request of the Exchange Agent, a notice of guaranteed delivery will be sent to holders who wish to tender their Original Notes according to the guaranteed delivery procedures set forth above. See "The Exchange Offer--Guaranteed Delivery Procedures" section of the prospectus. 3. TENDER BY HOLDER. Only a holder of Original Notes may tender such Original Notes in the Exchange Offer. Any beneficial holder of Original Notes who is not the registered holder and who wishes to tender should arrange with the registered holder to execute and deliver this letter of transmittal on his behalf or must, prior to completing and executing this letter of transmittal and delivering his Original Notes, either make appropriate arrangements to register ownership of the Original Notes in such holder's name or obtain a properly completed bond power from the registered holder. 4. PARTIAL TENDERS. Tenders of Original Notes will be accepted only in integral multiples of $1,000. If less than the entire principal amount of any Original Notes is tendered, the tendering holder should fill in the principal amount tendered in the fourth column of the box entitled "Description of Original Notes Tendered" above. The entire principal amount of Original Notes delivered to the Exchange Agent will be deemed to have been tendered unless otherwise indicated. If the entire principal amount of all Original Notes is not tendered, then Original Notes for the principal amount of Original Notes not tendered and Exchange Notes issued in exchange for any Original Notes accepted will be returned to the holder as promptly as practicable after the Original Notes are accepted for exchange. 5. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this letter of transmittal (or facsimile hereof) is signed by the record holder(s) of the Original Notes tendered hereby, the signature(s) must correspond exactly with the name(s) as written on the face of the Original Notes without alteration, enlargement or any change whatsoever. If this letter of transmittal (or facsimile hereof) is signed by a participant in the DTC, the signature must correspond with the name as it appears on the security position listing as the holder of the Original Notes. If this letter of transmittal (or facsimile hereof) is signed by the registered holder(s) of Original Notes listed and tendered hereby and the Exchange Notes issued in exchange therefor are to be issued (or -10- 11 any untendered principal amount of Original Notes is to be reissued) to the registered holder(s), the said holder(s) need not and should not endorse any tendered Original Notes, nor provide a separate bond power. In any other case, such holder(s) must either properly endorse the Original Notes tendered or transmit a properly completed separate bond power with this letter of transmittal, with the signatures on the endorsement or bond power guaranteed by an Eligible Institution. If this letter of transmittal (or facsimile hereof) or any Original Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, evidence satisfactory to the Company of their authority to act must be submitted with this letter of transmittal. NO SIGNATURE GUARANTEE IS REQUIRED IF (i) THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF) IS SIGNED BY THE REGISTERED HOLDER(S) OF THE ORIGINAL NOTES TENDERED HEREIN (OR BY A PARTICIPANT IN THE DTC WHOSE NAME APPEARS ON A SECURITY POSITION LISTING AS THE OWNER OF THE TENDERED ORIGINAL NOTES) AND THE EXCHANGE NOTES ARE TO BE ISSUED DIRECTLY TO SUCH REGISTERED HOLDER(S) (OR, IF SIGNED BY A PARTICIPANT IN THE DTC, DEPOSITED TO SUCH PARTICIPANT'S ACCOUNT AT THE DTC) AND NEITHER THE BOX ENTITLED "SPECIAL DELIVERY INSTRUCTIONS" NOR THE BOX ENTITLED "SPECIAL REGISTRATION INSTRUCTIONS" HAS BEEN COMPLETED, OR (ii) SUCH ORIGINAL NOTES ARE TENDERED FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION. IN ALL OTHER CASES, ALL SIGNATURES ON THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF) MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION. 6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should indicate, in the applicable box or boxes, the name and address to which Exchange Notes or substitute Original Notes for principal amounts not tendered or not accepted for exchange are to be issued or sent, if different from the name and address of the person signing this letter of transmittal. In the case of issuance in a different name, the taxpayer identification or social security number of the person named must also be indicated. Holders tendering Original Notes by book-entry transfer may request that Original Notes not exchanged be credited to such account maintained at the DTC as such noteholder may designate hereon. If no such instructions are given, such Original Notes not exchanged will be returned to the name and address (or account number) of the person signing this letter of transmittal. 7. TRANSFER TAXES. The Company will pay all transfer taxes, if any, applicable to the exchange of Original Notes pursuant to the Exchange Offer. If, however, Exchange Notes or Original Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be registered or issued in the name of, any person other than the registered holder of the Original Notes tendered hereby, or if tendered Original Notes are registered in the name of any person other than the person signing this letter of transmittal, or if a transfer tax is imposed for any reason other than the exchange of Original Notes pursuant to the Exchange Offer, then the amount of any such transfer taxes (whether imposed on the registered holder or any other persons) will be payable by the tendering holder. If satisfactory evidence of payment of such taxes or exemption therefrom is not submitted with this letter of transmittal, the amount of such transfer taxes will be billed directly to such tendering holder and the Exchange Agent will retain possession of an amount of Exchange Notes with a face amount at least equal to the amount of such transfer taxes due by such tendering holder pending receipt by the Exchange Agent of the amount of such taxes. -11- 12 8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that a holder of any Original Notes or Exchange Notes must provide the Company (as payor) with its correct taxpayer identification number ("TIN"), which, in the case of a holder who is an individual is his or her social security number. If the Company is not provided with the correct TIN, the holder may be subject to a $50 penalty imposed by the Internal Revenue Service and backup withholding of 31% on interest payments on the Exchange Notes. To prevent backup withholding, each tendering holder must provide such holder's correct TIN by completing the Substitute Form W-9 set forth herein, certifying that the TIN provided is correct (or that such holder is awaiting a TIN), and that (i) the holder has not been notified by the Internal Revenue Service that such holder is subject to backup withholding as a result of failure to report all interest or dividends or (ii) the Internal Revenue Service has notified the holder that such holder is no longer subject to backup withholding. If the Exchange Notes will be registered in more than one name or will not be in the name of the actual owner, consult the instructions on Internal Revenue Service Form W-9, which may be obtained from the Exchange Agent, for information on which TIN to report. Certain foreign individuals and entities will not be subject to backup withholding or information reporting if they submit a Form W-8, signed under penalties of perjury, attesting to their foreign status. A Form W-8 can be obtained from the Exchange Agent. If such holder does not have a TIN, such holder should consult the instructions on Form W-9 concerning applying for a TIN, check the box in Part 3 of the Substitute Form W-9, write "applied for" in lieu of its TIN and sign and date the form and the Certificate of Awaiting Taxpayer Identification Number. Checking this box, writing "applied for" on the form and signing such certificate means that such holder has already applied for a TIN or that such holder intends to apply for one in the near future. If such holder does not provide its TIN to the Company within 60 days, backup withholding will begin and continue until such holder furnishes its TIN to the Company. The Company reserves the right in its sole discretion to take whatever steps are necessary to comply with the Company's obligations regarding backup withholding. 9. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility, time of receipt, acceptance and withdrawal of tendered Original Notes will be determined by the Company in its sole discretion, which determination will be final and binding. The Company reserves the absolute right to reject any and all Original Notes not properly tendered or any Original Notes the Company's acceptance of which might, in the opinion of the Company's counsel, be unlawful. The Company also reserves the absolute right to waive any conditions of the Exchange Offer or defects or irregularities of tenders as to particular Original Notes. The Company's interpretation of the terms and conditions of the Exchange Offer (including this letter of transmittal and the instructions hereto) shall be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Original Notes must be cured within such time as the Company shall determine. Neither the Company, the Exchange Agent nor any other person shall be under any duty to give notification of defects or irregularities with respect to tenders of Original Notes nor shall any of them incur any liability for failure to give such notification. 10. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive, in whole or part, any of the conditions to the Exchange Offer set forth in the prospectus. 11. NO CONDITIONAL TENDER. No alternative, conditional, irregular or contingent tender of Original Notes will be accepted. -12- 13 12. MUTILATED, LOST, STOLEN OR DESTROYED ORIGINAL NOTES. Any holder whose Original Notes have been mutilated, lost, stolen or destroyed should contact the Exchange Agent at the address indicated above for further instructions. This letter of transmittal and related documents cannot be processed until the procedures for replacing lost, stolen or destroyed Original Notes have been followed. 13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance or for additional copies of the prospectus or this letter of transmittal may be directed to the Exchange Agent at the address or telephone number set forth on the cover page of this letter of transmittal. Holders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer. 14. WITHDRAWAL. Tenders may be withdrawn only pursuant to the limited withdrawal rights set forth in the prospectus under the caption "The Exchange Offer--Withdrawal of Tenders." IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE HEREOF OR AN AGENT'S MESSAGE IN LIEU HEREOF (TOGETHER WITH THE ORIGINAL NOTES DELIVERED BY BOOK-ENTRY TRANSFER OR IN ORIGINAL HARD COPY FORM) MUST BE RECEIVED BY THE EXCHANGE AGENT, OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT, PRIOR TO THE EXPIRATION DATE. -13- 14 - ------------------------------------------------------------------------------------------------------------------------- SUBSTITUTE Name: ___________________________________ FORM W-9 ----------------------------------------------------------------------------------- PART I--PLEASE PROVIDE YOUR TIN IN THE Social Security Number OR DEPARTMENT OF THE TREASURY BOX AT RIGHT AND CERTIFY BY SIGNING AND Employer Identification Number INTERNAL REVENUE SERVICE DATING BELOW. (if awaiting TIN write "Applied For") PAYER'S REQUEST FOR TAXPAYER ____________________________________ IDENTIFICATION NUMBER (TIN) AND CERTIFICATION - -------------------------------------------------------------------------------------------------------------------------
PART II CERTIFICATION. Under penalties of perjury, I certify that: (1) The Number shown on this form is my correct Taxpayer Identification Number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or the IRS has notified me that I am no longer subject to backup withholding. CERTIFICATION INSTRUCTIONS. You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreported interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). - ------------------------------------------------------------------------------------------------------------------------- Signature Date ---------------------------------------------------- --------------------------------------------- - ------------------------------------------------------------------------------------------------------------------------- PART III. [ ] Awaiting TIN. - ------------------------------------------------------------------------------------------------------------------------- NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31% OF ANY PAYMENT MADE TO YOU IN RESPECT OF CLICK2LEARN COMMON STOCK. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU ARE AWAITING YOUR TIN. - -------------------------------------------------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION You must complete this certificate if you wrote "applied for" in Part I of the substitute form W-9. I certify under penalties of perjury that a TIN has not been issued to me, and either (a) I have mailed or delivered an application to receive a TIN to the appropriate IRS Center or Social Security Administration Office or (b) I intend to mail or deliver such an application in the near future. I understand that if I do not provide a TIN by the time of payment, all reportable payments made to me thereafter will be subject to a 31% backup withholding tax. Signature Date ---------------------------------------------------- --------------------------------------------- - -------------------------------------------------------------------------------------------------------------------------
-14- EX-99.2 18 o05789ex99-2.txt EXHIBIT 99.2 1 EXHIBIT 99.2 TEEKAY SHIPPING CORPORATION NOTICE OF GUARANTEED DELIVERY FOR TENDER OF ALL OUTSTANDING 8/875% SENIOR NOTES DUE 2011 IN EXCHANGE FOR REGISTERED 8.875% SENIOR NOTES DUE 2011 This form, or one substantially equivalent hereto, must be used by a holder to accept the Exchange Offer of Teekay Shipping Corporation (the "Company") and to tender 8.875% Senior Notes due 2011 (the "Original Notes") to the Exchange Agent pursuant to the guaranteed delivery procedures described in "The Exchange Offer - Guaranteed Delivery Procedures" of the Company's prospectus dated ______ __, 2001 and in Instruction 2 to the related letter of transmittal. Any holder who wishes to tender Original Notes pursuant to such guaranteed delivery procedures must ensure that United States Trust Company of New York, as exchange agent (the "Exchange Agent"), receives this notice of guaranteed delivery, properly completed and duly executed, prior to the Expiration Date (as defined below) of the Exchange Offer for such series. Capitalized terms used but not defined herein have the meanings ascribed to them in the letter of transmittal. - -------------------------------------------------------------------------------- THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON _______ __, 2001, UNLESS EXTENDED (THE "EXPIRATION DATE"). NOTES TENDERED IN SUCH EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. - -------------------------------------------------------------------------------- THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS: UNITED STATES TRUST COMPANY OF NEW YORK. YOU CAN DELIVER THIS NOTICE OF GUARANTEED DELIVERY TO THE EXCHANGE AGENT AT THE ADDRESSES AS FOLLOWS: BY HAND DELIVERY TO 4:30 P.M. United States Trust Company of New York 30 Broad Street, B-Level New York, NY 10004-2304 BY OVERNIGHT COURIER AND BY HAND DELIVERY AFTER 4:30 P.M. ON EXPIRATION DATE United States Trust Company of New York 30 Broad Street, 14th Floor New York, NY 10004-2304 2 BY REGISTERED OR CERTIFIED MAIL United States Trust Company of New York P.O. Box 84 Bowling Green Station New York, NY 10274-0084 BY FACSIMILE TRANSMISSION (ELIGIBLE INSTITUTIONS ONLY): United States Trust Company of New York 30 Broad Street, B-Level New York, NY 10004-2304 FAX: (646) 458-8111 CONFIRM BY TELEPHONE: (800) 548-6565 If you deliver by facsimile transmission, you must confirm your delivery by telephone and you must deliver the original notice of guaranteed delivery by guaranteed overnight courier to the exchange agent. - -------------------------------------------------------------------------------- DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS NOTICE OF GUARANTEED DELIVERY SHOULD BE READ CAREFULLY BEFORE THE NOTICE OF GUARANTEED DELIVERY IS COMPLETED. This notice of guaranteed delivery is not to be used to guarantee signatures. If a signature on a letter of transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space in the box provided on the letter of transmittal for guarantee of signatures. Ladies and Gentlemen: The undersigned hereby tenders to the Company, in accordance with the Company's offer, upon the terms and subject to the conditions set forth in the prospectus and the related letter of transmittal, receipt of which is hereby acknowledged, the principal amount of Original Notes set forth below pursuant to the guaranteed delivery procedures set forth in the prospectus under the caption "The Exchange Offer - Guaranteed Delivery Procedures" and in Instruction 2 of the letter of transmittal. The undersigned hereby tenders the Original Notes listed below:
Certificate Number(s) (if known) of Original Notes or Account Number at Aggregate Principal Amount Aggregate Principal Amount the DTC Represented Tendered* - -------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------
-2- 3 - -------------------------------------------------------------------------------- PLEASE SIGN AND COMPLETE Names of Record Holder(s): Signature(s): - ---------------------------------- --------------------------------- - ---------------------------------- --------------------------------- Address: ------------------------------------------------------------------------ ------------------------------------------------------------------------ (Include Zip Code) Area Code and Telephone Number: ------------------------------------------------- Dated: _____________________________________, 2001 *Unless otherwise indicated, any tendering holder of Original Notes will be deemed to have tendered the entire aggregate principal amount represented by such Original Notes. All tenders must be in integral multiples of $1,000. - -------------------------------------------------------------------------------- THIS NOTICE OF GUARANTEED DELIVERY MUST BE SIGNED BY THE REGISTERED HOLDER(S) OF ORIGINAL NOTES EXACTLY AS THE NAME(S) OF SUCH PERSON(S) APPEAR(S) ON CERTIFICATES FOR ORIGINAL NOTES OR ON A SECURITY POSITION LISTING AS THE OWNER OF ORIGINAL NOTES, OR BY PERSON(S) AUTHORIZED TO BECOME HOLDER(S) BY ENDORSEMENTS AND DOCUMENTS TRANSMITTED WITH THIS NOTICE OF GUARANTEED DELIVERY. IF SIGNATURE IS BY A TRUSTEE, EXECUTOR, ADMINISTRATOR, GUARDIAN, ATTORNEY-IN-FACT, OFFICER OR OTHER PERSON ACTING IN A FIDUCIARY OR REPRESENTATIVE CAPACITY, SUCH PERSON MUST PROVIDE THE FOLLOWING INFORMATION: PLEASE PRINT NAME(S) AND ADDRESS(ES) Name(s): ------------------------------------------------------------------- ------------------------------------------------------------------- Capacity: ------------------------------------------------------------------- Address(es): ------------------------------------------------------------------- ------------------------------------------------------------------- - -------------------------------------------------------------------------------- GUARANTEE -3- 4 (Not to be used for signature guarantee) The undersigned, a firm which is a member of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or a trust company having an office or correspondent in the United States, or an "eligible guarantor institution" within the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, hereby guarantees deposit with the Exchange Agent of the letter of transmittal (or facsimile thereof or agent's message in lieu thereof), together with the Original Notes of the series tendered hereby in proper form for transfer (or confirmation of the book-entry transfer of such Original Notes into the Exchange Agent's account at the DTC described in the prospectus under the caption "The Exchange Offer - Book-Entry Transfer" and in the letter of transmittal) and any other required documents, all by 5:00 p.m., New York City time, within three New York Stock Exchange trading days following the Expiration Date for such series. Name of Firm: ----------------------------- --------------------------------- (AUTHORIZED SIGNATURE) Address: Name: --------------------------------- -------------------------- Title: --------------------------------- -------------------------- (INCLUDE ZIP CODE) (PLEASE TYPE OR PRINT) Area Code and Telephone Number: - ------------------------------------------- Date: ___________________, 2001
DO NOT SEND ORIGINAL NOTES WITH THIS FORM. ACTUAL SURRENDER OF ORIGINAL NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS. INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY 1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed and duly executed copy of this notice of guaranteed delivery (or facsimile hereof or an agent's message and notice of guaranteed delivery in lieu hereof) and any other documents required by this notice of guaranteed delivery with respect to the Original Notes must be received by the Exchange Agent at its address set forth herein prior to the Expiration Date of the Exchange Offer. Delivery of such notice of guaranteed delivery may be made by facsimile transmission, mail or hand delivery. THE METHOD OF DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY AND ANY OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE RISK OF THE HOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. As an alternative to delivery by mail, the holders may wish to consider using an overnight or hand delivery service. In all cases, sufficient time should be allowed to assure timely delivery. For a description of the guaranteed delivery procedures, see Instruction 2 of the letter of transmittal. 2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this notice of guaranteed delivery (or facsimile hereof) is signed by the registered holder(s) of the Original Notes referred to herein, the signature(s) must correspond exactly with the name(s) as written on the face of the Original Notes without alteration, enlargement or any change whatsoever. If this notice of guaranteed -4- 5 delivery (or facsimile hereof) is signed by a participant in the DTC whose name appears on a security position listing as the owner of the Original Notes, the signature must correspond with the name as it appears on the security position listing as the owner of the Original Notes. If this notice of guaranteed delivery (or facsimile hereof) is signed by a person other than the registered holder(s) of any Original Notes listed or a participant of the DTC, this notice of guaranteed delivery must be accompanied by appropriate bond powers, signed as the name(s) of the registered holder(s) appear(s) on the Original Notes or signed as the name(s) of the participant appears on the DTC's security position listing. If this notice of guaranteed delivery (or facsimile hereof) is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing and submit herewith evidence satisfactory to the Exchange Agent of such person's authority to so act. 3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance and requests for additional copies of the prospectus and this notice of guaranteed delivery may be directed to the Exchange Agent at the address set forth on the cover page hereof. Holders may also contact their broker, dealer, commercial bank, trust company or other nominee for assistance concerning the Exchange Offer. -5- -----END PRIVACY-ENHANCED MESSAGE-----