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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form F-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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TEEKAY SHIPPING CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
REPUBLIC OF LIBERIA 4412 NOT APPLICABLE
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification
incorporation or organization) Classification Code Number) No.)
</TABLE>
ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
STATE OR OTHER PRIMARY STANDARD
JURISDICTION OF INDUSTRIAL I.R.S. EMPLOYER
NAME INCORPORATION CLASSIFICATION CODE NUMBER IDENTIFICATION NUMBER
- ---------------------------------- ---------------------------- -------------------------- ---------------------
<S> <C> <C> <C>
VSSI Oceans Inc. ................. Republic of Liberia 4412 Not Applicable
VSSI Atlantic Inc. ............... Republic of Liberia 4412 Not Applicable
VSSI Appian Inc. ................. Republic of Liberia 4412 Not Applicable
Senang Spirit Inc. ............... Commonwealth of The Bahamas 4412 Not Applicable
Exuma Spirit Inc. ................ Commonwealth of The Bahamas 4412 Not Applicable
Nassau Spirit Inc. ............... Commonwealth of The Bahamas 4412 Not Applicable
Andros Spirit Inc. ............... Commonwealth of The Bahamas 4412 Not Applicable
</TABLE>
The Additional Registrants are issuers of the Guarantees which are covered
by this Registration Statement and which guarantee the obligations of Teekay
Shipping Corporation under its First Preferred Ship Mortgage Notes due 2008.
TRADEWINDS BUILDING, SIXTH FLOOR,
BAY STREET, P.O. BOX SS-6293
NASSAU, THE BAHAMAS (809) 322-8020
(Address and telephone number of each Registrant's principal executive office)
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LAWCO OF OREGON, INC.
1211 S.W. FIFTH AVENUE, SUITE 1500, PORTLAND, OR 97204
ATTN: KAREN M. DODGE (503) 727-2000
(Name, address and telephone number of agent for service)
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Copies to:
<TABLE>
<S> <C>
ROY W. TUCKER, ESQ. ANDREW B. JANSZKY, ESQ.
PERKINS COIE SHEARMAN & STERLING
1211 S.W. FIFTH AVENUE 599 LEXINGTON AVENUE
SUITE 1500 NEW YORK, NEW YORK 10022 (212) 848-4000
PORTLAND, OR 97204 (503) 727-2000
</TABLE>
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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(c)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED PER NOTE (1) PRICE (1) FEE
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<S> <C> <C> <C> <C>
First Preferred Ship Mortgage Notes due 2008........ $225,000,000 100% $225,000,000 $45,000
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Guarantees of the First Preferred Ship Mortgage
Notes due 2008.................................... $225,000,000 (2) (2) (2)
</TABLE>
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(1) Estimated solely for purposes of calculating the registration fee.
(2) No additional consideration for the Guarantees will be paid by the
purchasers of First Preferred Ship Mortgage Notes. Pursuant to Rule 457(n)
under the Securities Act of 1933, no separate fee is payable with respect to
the Guarantees.
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THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 19, 1995
$225,000,000
TEEKAY SHIPPING CORPORATION
% FIRST PREFERRED SHIP MORTGAGE NOTES DUE 2008
---------------------
INTEREST PAYABLE AND
---------------------
Interest on the Notes will be payable semiannually on and
of each year, commencing , 1996. The Notes will be senior
obligations of Teekay Shipping Corporation, a Liberian corporation ("Teekay"),
are guaranteed by certain subsidiaries of Teekay (the "Guarantors") and are
secured by first preferred ship mortgages on seven double-hull Aframax tankers
(the "Mortgaged Vessels") owned by the Guarantors and by certain other property
and contract rights (collectively, the "Collateral"). The Notes will rank pari
passu with all existing and future senior indebtedness of Teekay and the
guarantees of the Guarantors will rank pari passu with all existing and future
senior indebtedness of each Guarantor. Notes may be redeemed, at 100% of their
principal amount, plus accrued interest to the redemption date, upon the
occurrence of an Event of Loss with respect to a Mortgaged Vessel. Notes will
also be redeemed, at 100% of their principal amount plus accrued interest to the
redemption date, pursuant to a sinking fund, which will retire up to $45 million
principal amount of Notes on each , commencing , 2004.
Upon the occurrence of a Change of Control Triggering Event, holders of the
Notes may require Teekay to repurchase the Notes at a price equal to 101% of
their principal amount, plus accrued interest to the date of purchase. See
"Description of the Notes."
Upon the Notes achieving Investment Grade Status and subject to certain
other conditions, the guarantees of the Guarantors will terminate, all of the
Collateral securing the obligations of Teekay and the Guarantors under the
Indenture and the Security Documents will be released (whereupon the Notes will
become general unsecured obligations of Teekay) and certain covenants under the
Indenture will no longer be applicable to Teekay and the Restricted
Subsidiaries. See "Description of the Notes--Fall-away Event," "--Certain
Restrictive Covenants" and "--Covenants After Fall-away Event."
SEE "RISK FACTORS" BEGINNING AT PAGE 14 OF THIS PROSPECTUS FOR CERTAIN
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE NOTES.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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<TABLE>
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INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) DISCOUNT(2) TEEKAY(1)(3)
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<S> <C> <C> <C>
Per Note................................ % % %
Total................................... $ $ $
</TABLE>
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(1) Plus accrued interest, if any, from , 1996.
(2) Teekay has agreed to indemnify the Underwriters against certain liabilities,
including liabilities under the Securities Act of 1933. See "Underwriting."
(3) Before deducting estimated expenses of $ payable by Teekay.
---------------------
The Notes offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that the Notes
will be ready for delivery in New York, New York on or about ,
1996.
GOLDMAN, SACHS & CO.
MORGAN STANLEY & CO.
INCORPORATED
SMITH BARNEY INC.
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The date of this Prospectus is , 1996.
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[WORLDWIDE OFFICES]
[MAP]
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[HIGH QUALITY TANKER OPERATIONS FOR THE NEW ERA]
[PHOTOS]
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[TEEKAY SHIPPING CORPORATION]
[PHOTOS]
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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE NOTES OFFERED
HEREBY AND TEEKAY'S 9 5/8% FIRST PREFERRED SHIP MORTGAGE NOTES DUE 2003 AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE (WITH RESPECT TO THE
NOTES OFFERED HEREBY) OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
Teekay and the Guarantors have filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form F-3 (the
"Registration Statement", which term shall encompass all amendments and exhibits
thereto) under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the securities offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all the
information set forth or incorporated by reference in the Registration
Statement, as permitted by the rules and regulations of the Commission.
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete; with respect to each
such contract, agreement or other document filed as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. Items of information omitted from
this Prospectus but contained in the Registration Statement may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the following
regional offices of the Commission: 500 West Madison Street, 14th Floor,
Chicago, Illinois 60661; and 7 World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 at prescribed rates.
Teekay is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports and other information with the Commission. All such
reports and other information may be inspected and copied at the public
reference facilities maintained by the Commission at the locations referred to
above. Such reports and other information may also be inspected at the offices
of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005,
on which exchange Teekay's common stock is listed.
The indenture pursuant to which the Notes will be issued (the "Indenture")
contains a covenant which requires Teekay 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 report thereon expressed by
independent chartered accountants, and quarterly reports for the first three
quarters of each fiscal year containing unaudited financial information.
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INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed by Teekay with the Commission are hereby
incorporated by reference in this Prospectus: (a) Annual Report of Teekay on
Form 20-F for the fiscal year ended March 31, 1995; and (b) Reports of Teekay on
Form 6-K, dated August 11, 1995 and November 9, 1995, relating to the fiscal
quarters ended June 30, 1995 and September 30, 1995, respectively.
In addition, all documents filed by Teekay with the Commission pursuant to
Sections 13(a), 13(c) or 15(d) of the Exchange Act, including any Report on Form
6-K which so provides, after the date hereof and prior to the termination of the
offering of the Notes, shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof commencing on the respective dates on which
such documents are filed with the Commission. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any statement so modified or superseded
shall not be deemed, except as so modified or superseded, to constitute a part
of this Prospectus.
Teekay will provide without charge to each person, including any beneficial
owner, to whom a copy of this Prospectus is delivered, upon the written or oral
request of such person, a copy of any or all of the documents that have been
incorporated by reference herein, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference in such documents).
Written requests for such copies may be directed to Teekay Shipping Corporation,
200 Burrard Street, Suite 2100, Vancouver, B.C., Canada V6C 3L6. Telephone
requests may be directed to (604) 683-3529.
ENFORCEABILITY OF CIVIL LIABILITIES UNDER THE FEDERAL SECURITIES LAWS
Teekay and most of its subsidiaries are incorporated in Liberia, and
certain other of its subsidiaries are incorporated in The Bahamas (where four of
the seven Guarantors are incorporated), Japan, Singapore, Australia and Panama.
Most of the directors and executive officers of Teekay and its subsidiaries are
residents of countries other than the United States. Substantially all of the
assets of Teekay and its subsidiaries and a substantial portion of the assets of
such 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 Teekay, its subsidiaries or such
directors and officers or to realize against them in the United States upon
judgments of courts of the United States predicated upon civil liabilities of
Teekay, its subsidiaries or such directors and officers under the federal
securities laws of the United States or the securities or blue sky laws of any
state within the United States. In addition, because of a lack of precedent,
investors should not assume that courts of Liberia, The Bahamas or Panama, or in
the countries where directors or officers reside or in which the assets of
Teekay, its subsidiaries or such directors and officers are located (i) would
enforce judgments of United States courts obtained in actions against Teekay,
its subsidiaries or such persons predicated upon the civil liability provisions
of the United States federal securities laws or the securities or blue sky laws
of any state within the United States or (ii) would enforce, in original
actions, liabilities against Teekay, its subsidiaries or such persons predicated
upon the United States federal securities laws or any such state securities or
blue sky laws.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless the context otherwise requires, "Teekay" refers to Teekay Shipping
Corporation (formerly named Viking Star Shipping Inc.), a Liberian corporation,
and "Company" refers to Teekay and its consolidated subsidiaries. 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 and
oil/bulk/ore carriers.
Certain statistical and graphical information contained in this Prospectus
is drawn or calculated from the Clarkson Research Studies Ltd. ("Clarkson")
database, the Drewry Shipping Consultants Ltd. ("Drewry") database and other
sources. While the Company has no reason to believe that such information is
inaccurate in any material respect, readers of this Prospectus are advised that
some information in such databases is based on estimates or subjective
judgments.
THE COMPANY
The Company is a leading provider of international crude oil and petroleum
product transportation services through the world's largest fleet of medium size
oil tankers. The Company's modern fleet provides such transportation services to
major oil companies, major oil traders and government agencies, principally in
the region spanning from the Red Sea to the U.S. West Coast (the "Indo-Pacific
Basin"). The Company believes that in each of the last four years it has
transported more crude oil and petroleum products via Aframax tankers in the
Indo-Pacific Basin than any other shipping company and estimates it has
approximately a one quarter share of the Indo-Pacific Basin Aframax market.
The Company pursues an intensively customer- and operations-oriented
business strategy, emphasizing market concentration and service quality to
achieve superior operating results. The Company believes that it has four key
competitive advantages: (i) geographic market concentration in the Indo-Pacific
Basin, which facilitates comprehensive coverage of charterer requirements, (ii)
a uniform-size fleet of Aframax tankers containing many sister ships, which
affords scheduling flexibility and permits greater capacity utilization, (iii) a
modern, well-maintained fleet that operates with high fuel efficiency and low
maintenance costs and affords greater acceptance among charterers with high
quality standards, and (iv) a full-service ship management and chartering
capability which affords a focused marketing effort, tight cost controls, and
effective operational and safety monitoring. As a result of its business
strategy, the Company has achieved consistently higher operating cash flow per
ship per day than other public bulk shipping companies. Although the Company's
business strategy has been, and in the foreseeable future will be, primarily
focused on providing services via Aframax tankers in the Indo-Pacific Basin,
management intends to closely monitor the evolution of the shipping industry and
to adapt its strategy according to changing market dynamics. The Company intends
to continue to consider strategic opportunities that may arise from time to
time, including joint ventures and business acquisitions.
The Company's fleet consists of 41 tankers: 36 Aframax (75,000-115,000 dwt)
oil tankers and oil/bulk/ore carriers ("O/B/Os"), two smaller oil tankers, one
Very Large Crude Carrier ("VLCC") and, through a joint venture, a 50% interest
in two additional Aframax oil tankers. The Company's vessels are all of Liberian
or Bahamian registry. The Company's fleet has a total cargo capacity of
approximately 4.1 million tons and its Aframax vessels represent approximately
7.0% of the total tonnage of the world Aframax fleet. While its fleet
modernization program is effectively complete, the Company intends to continue
selective purchases of modern, predominantly second-hand, high-quality tankers
should such vessels become available.
The Company's fleet is one of the most modern fleets in the world, having
an average age of approximately 6.9 years, compared to an average age for the
world oil tanker fleet of approximately 14.1 years and for the world Aframax
tanker fleet of approximately 12.3 years. A substantial portion of the world
tanker fleet will reach 20 years of age in the next three years, including
approximately 31% of Aframax tankers; none of the Company's Aframax tankers is
more than 16 years of age. In addition, the
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Company has been recognized by customers and rating services for safety, quality
and service. In each of the last five years, Tanker Advisory Center, Inc. (New
York) has rated the Company's fleet a "meritorious tanker fleet," a designation
which, in the latest publication (March 1995), placed it in the top quarter of
fleets containing 10 or more tankers. Given the age profile of the world tanker
fleet, the increasing emphasis among customers on quality as a result of
stringent environmental regulations, and heightened concerns about liability for
oil pollution, the Company believes that its modern fleet and its emphasis on
quality and safety provide it with a favorable competitive profile. See "Risk
Factors--Competition" and "--Environmental and Other Regulation" and
"Business--The International Tanker Market--Supply and Demand."
The Company's operating results in fiscal 1995 (year ended March 31, 1995)
were adversely affected by a weakened charter market caused by low tanker
demand, which resulted from a shift in crude oil distribution patterns.
Historically, incremental oil demand growth has been satisfied principally from
oil produced in the Arabian Gulf; however, in calendar 1994, incremental global
oil demand was primarily met by oil production in the North Sea and Caribbean
regions. Because of the relative proximity of the North Sea and Caribbean to
discharge points, increased production in these regions resulted in a reduction
in the average length of tanker voyages, thus adversely affecting tanker demand.
In spite of adverse charter market conditions, in fiscal 1995 the Company
generated income from vessel operations of $50.8 million and EBITDA of $146.8
million, and reduced debt by $102.6 million from internally generated cash.
Management believes that the Company's operating performance is exhibiting
near-term improvement. During the first half of fiscal 1996, despite a smaller
fleet size, the Company's income from vessel operations rose to $34.2 million
and EBITDA rose to $79.0 million, improvements of 34.6% and 7.0%, respectively,
over the first half of fiscal 1995. Based on current estimates, income from
vessel operations and EBITDA for the third quarter fiscal 1996 are anticipated
to show continued improvement in the Company's operating performance, stemming
from stronger Aframax charter rates in the Indo-Pacific Basin and, in
particular, better market conditions in the Company's core Aframax trade routes
to Australia, Japan, and the United States West Coast.
In addition, management believes that tanker supply/demand fundamentals are
improving through a combination of tanker scrapping in excess of deliveries, and
an anticipated resumption of tanker demand growth. According to Clarkson, the
worldwide tanker fleet declined by 2.5% from December 31, 1993 to November 30,
1995, with calendar 1994 marking the first annual decline in tanker fleet size
since 1986. The International Energy Agency forecasts that global oil
consumption will grow 2.3% in 1996. Management believes that longer term, due to
the expected deceleration of North Sea oil production growth, a larger
percentage of future oil demand growth will be met by Arabian Gulf oil
producers, thereby increasing tanker demand. Maritime Strategies Inc. forecasts
that tanker demand will grow 2.4% in 1996 and 3.3% in 1997. A continuation of
these trends should result in an increase in tanker charter rates which would
have a positive impact on the Company's operating results.
During the first half of fiscal 1996, the Company took steps to improve its
financial condition and flexibility. In May 1995, the Company entered into a
$243 million eight-year secured reducing revolving credit agreement (the
"Revolver") which increased liquidity, extended its debt repayment schedule, and
reduced its cost of borrowing. In July 1995, the Company completed an initial
public offering of 6.9 million shares of common stock, resulting in net cash
proceeds of $137.6 million, of which $135.0 million was used to reduce amounts
outstanding under the Revolver. As a result of these transactions, as well as
improved operating performance, as of September 30, 1995, the Company's total
liquidity, as measured by the aggregate of its cash, marketable securities and
availability under the Revolver, increased to $244.3 million from $85.7 at
fiscal 1995 year-end; and the Company's ratio of net debt to capitalization had
declined to 52% from 63% over the same period.
5
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THE OFFERING
SECURITIES OFFERED.................. $225,000,000 principal amount of %
First Preferred Ship Mortgage Notes due
2008.
MATURITY............................ , 2008.
INTEREST PAYMENT DATES.............. and of each year,
commencing .
INTEREST RATE....................... per annum.
SECURITY AND GUARANTEES............. The Notes will be (i) secured by first
preferred ship mortgages (the
"Mortgages") on seven double-hull
Aframax tankers with an average age of
31 months owned by subsidiaries of
Teekay (the "Mortgaged Vessels") and
certain other related collateral and
(ii) guaranteed by the subsidiaries of
Teekay that own the Mortgaged Vessels
(each referred to as a "Guarantor" and,
collectively, as the "Guarantors"). See
"The Subsidiary Guarantees" and "The
Mortgaged Vessels." Upon the occurrence
of the Fall-away Event (as defined
herein), the guarantees of the
Guarantors (the "Subsidiary
Guarantees") will terminate and all of
the Collateral securing the obligations
of Teekay and the Guarantors under the
Indenture and the Security Documents
(as defined herein) will be released,
whereupon the Notes will become general
senior unsecured obligations of Teekay.
See "Description of the
Notes--Fall-away Event."
LOAN TO VALUE RATIO................. At the closing of the Offering, Teekay
will deliver appraisals by two
independent shipbrokers of the values
of the Mortgaged Vessels, which values
will show that such brokers' aggregate
appraised values of such vessels, as of
December 13, 1995, were $308.5 million
and $305.5 million, respectively,
resulting in ratios of the initial
aggregate principal amount of Notes
outstanding to the aggregate appraised
value of the Mortgaged Vessels of
approximately 0.73 to 1 and 0.74 to 1,
respectively. See "The Mortgaged
Vessels." In order to release a
Mortgaged Vessel from the Collateral
securing the Notes following a
redemption or other retirement of
Notes, the Loan to Value Ratio (as
defined herein) must not exceed 0.75 to
1. See "Description of the
Notes--Release of Mortgaged Vessels."
RANKING............................. The Notes will be senior secured
indebtedness of Teekay ranking pari
passu with all other existing and
future senior indebtedness of Teekay,
and senior to any subordinated
indebtedness of Teekay. The Subsidiary
Guarantees will be senior secured
indebtedness of each Guarantor, ranking
pari passu
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with all other existing and future
senior indebtedness of such Guarantor.
SINKING FUND........................ The Notes will be subject to a sinking
fund, which will retire $45 million
principal amount of the Notes, subject
to adjustment upon certain redemption
events or cancellations of Notes, on
each , commencing 2004, at a
redemption price equal to 100% of their
principal amount, plus accrued interest
to the redemption date. See
"Description of the
Notes--Redemptions--Sinking Fund."
SALES OF MORTGAGED VESSELS.......... A Guarantor may sell a Mortgaged Vessel
or Teekay may sell all of the capital
stock of a Guarantor at any time
provided that (i) no Event of Default
(as defined herein) shall have occurred
and be continuing, (ii) the sale is to
a person that is not an "affiliate" (as
defined in Rule 405 under the
Securities Act) of Teekay, (iii) the
sale is effected in a commercially
reasonable manner, (iv) the Net Cash
Proceeds (as defined herein) from such
sale are not less than the Appraised
Value (as defined herein) of the
relevant Mortgaged Vessel as of the
date of such sale (the "Sale Date") and
(v) Teekay shall deposit with the
Trustee funds in an amount (the "Sale
Redemption Amount") equal to the Vessel
Percentage (as defined herein)
applicable to the Mortgaged Vessel sold
multiplied by the principal amount of
Notes outstanding on the Sale Date. See
"Description of the Notes--Certain
Restrictive Covenants--Limitation on
Asset Sales."
MANDATORY REDEMPTION UPON SALE OF A
MORTGAGED VESSEL.................. If a Mortgaged Vessel or the capital
stock of a Guarantor is sold in
accordance with the terms of the
Indenture, Teekay must: (a) (i) redeem
Notes in an aggregate principal amount
equal to the Sale Redemption Amount at
a redemption price equal to the greater
of (1) 100% of the principal amount of
such Notes and (2) the sum of the
present values of the remaining
scheduled payments of principal and
interest thereon discounted to the
redemption date on a semiannual basis
(assuming a 360-day year consisting of
twelve 30-day months) at the Treasury
Rate (as defined herein) plus 50 basis
points, plus accrued interest thereon
to the date of redemption and (ii)
treat any net proceeds from such sale
in excess of the aggregate principal
amount of the Notes redeemed as Sale
Excess Proceeds (as defined herein); or
(b) (i) substitute a Qualified
Substitute Vessel (as defined herein)
for the Mortgaged Vessel sold within
180 days of the Sale Date, provided
that no Event of Default shall have
occurred and be continuing and (ii)
apply the
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proceeds from such sale to repay
certain indebtedness, to invest in
certain assets or to fund working
capital and treat such proceeds, to the
extent not so applied, as Sale Excess
Proceeds. See "Description of the
Notes--Redemptions-- Mandatory
Redemption Upon Sale of a Mortgaged
Vessel." If the amount of Sale Excess
Proceeds exceeds $10 million in any
period of 12 consecutive months, Teekay
must make an offer to purchase Notes at
a purchase price at least equal to 101%
of their principal amount, plus accrued
interest. See "Description of the
Notes--Certain Restrictive
Covenants--Excess Proceeds Offers."
The requirement for mandatory
redemption or the substitution of a
Qualified Substitute Vessel upon the
sale of a Mortgaged Vessel will not
apply after the occurrence of the
Fall-away Event. See "Description of
the Notes--Fall-away Event."
MANDATORY REDEMPTION UPON LOSS OF A
MORTGAGED VESSEL.................. If an Event of Loss (as defined herein)
occurs with respect to a Mortgaged
Vessel, Teekay must: (a) (i) redeem the
Notes at 100% of their principal
amount, plus accrued interest thereon
to the redemption date, in an aggregate
principal amount (the "Loss Redemption
Amount") equal to the Vessel Percentage
applicable to the Mortgaged Vessel lost
multiplied by the principal amount of
Notes outstanding on the date such
Event of Loss was deemed to have
occurred (the "Loss Date") and (ii)
treat any net proceeds from such Event
of Loss in excess of the Loss
Redemption Amount as Loss Excess
Proceeds (as defined herein); or (b)
(i) substitute a Qualified Substitute
Vessel for the Mortgaged Vessel lost
within 180 days of the Loss Date,
provided that no Event of Default shall
have occurred and be continuing and
(ii) apply the proceeds from such Event
of Loss to repay certain indebtedness,
to invest in certain assets or to fund
working capital and treat such
proceeds, to the extent not so applied,
as Loss Excess Proceeds. See
"Description of the
Notes--Redemptions-- Mandatory
Redemption Upon Loss of a Mortgaged
Vessel." If the amount of Loss Excess
Proceeds exceeds $10 million in any
period of 12 consecutive months, Teekay
must make an offer to purchase the
Notes at a purchase price at least
equal to 100% of their principal
amount, plus accrued interest. See
"Description of the Notes--Certain
Restrictive Covenants--Excess Proceeds
Offers."
The requirement for mandatory
redemption or the substitution of a
Qualified Substitute Vessel upon the
8
<PAGE> 13
loss of a Mortgaged Vessel will not
apply after the occurrence of the
Fall-away Event. See "Description of
the Notes--Fall-away Event."
COVENANTS........................... The Indenture limits, among other
things, (i) the incurrence of
additional indebtedness, (ii) the
making of restricted payments, (iii)
the incurrence of liens, (iv) the use
of proceeds from certain asset sales,
(v) the issuance of subsidiary stock,
(vi) transactions with affiliates and
(vii) mergers, consolidations and sales
of substantially all assets. See
"Description of the Notes--Certain
Restrictive Covenants." Upon the
occurrence of the Fall-away Event, the
Company will be released from its
obligation to comply with certain
restrictive covenants and will become
subject to certain other less
restrictive covenants. See "Description
of the Notes--Fall-away Event,"
"--Certain Restrictive Covenants" and
"--Covenants After Fall-away Event."
RELEASE OF MORTGAGED VESSELS........ To the extent that Teekay acquires or
cancels Notes in accordance with the
terms of the Indenture in an aggregate
principal amount in excess of $10
million, Teekay may request the Trustee
to release a Mortgaged Vessel from the
Lien (as defined herein) of the
Indenture and related Security
Documents, provided that (i) no Event
of Default shall have occurred and be
continuing, (ii) appropriate
documentation is delivered to the
Trustee, (iii) the Appraised Value of
such Mortgaged Vessel at the time of
such release does not exceed 133% (the
reciprocal of the Maximum Loan To Value
Ratio) of the aggregate principal
amount of the Notes so acquired or
cancelled and (iv) the Loan To Value
Ratio after giving effect to such
release shall not exceed the Maximum
Loan To Value Ratio, using the
appraised values of the remaining
Mortgaged Vessels at the time of, and
after giving effect to, such release to
calculate such Loan To Value Ratio. See
"Description of the Notes--Certain
Restrictive Covenants--Release of
Mortgaged Vessels."
CHANGE OF CONTROL................... Upon the occurrence of a Change of
Control Triggering Event (as defined
herein), each holder of the Notes will
have the right (unless Teekay elects to
redeem the Notes) to require Teekay to
purchase such Holder's Notes at 101% of
their principal amount, plus accrued
interest to the date of purchase. See
"Description of the Notes--Certain
Restrictive Covenants--Repurchase of
Notes upon a Change of Control
Triggering Event."
9
<PAGE> 14
TERMINATION OF GUARANTEES, RELEASE
OF ALL COLLATERAL AND OBLIGATIONS
UNDER CERTAIN COVENANTS........... Upon the occurrence of the Fall-away
Event, the Subsidiary Guarantees will
terminate and Teekay may request the
Trustee to release all of the
Collateral and the Liens of the
Indenture and the Security Documents,
whereupon the Notes will become general
senior unsecured obligations of Teekay.
In addition, the Company will no longer
be obligated to comply with certain
covenants as described in the first
paragraph under "Description of the
Notes--Certain Restrictive Covenants."
While Teekay will remain obligated to
comply with the provisions described
under "Description of the
Notes--Covenants After Fall-away
Event," the effect of the modifications
described above will be to make the
Notes general senior unsecured
obligations of Teekay and to reduce
substantially the level of covenant
protection benefitting Holders of the
Notes. See "Description of the
Notes--Fall-away Event."
RISK FACTORS........................ Holders of Notes should carefully
consider the matters set forth in this
Prospectus under the caption "Risk
Factors."
10
<PAGE> 15
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following summary consolidated financial and other data were derived
from more detailed information and financial statements appearing elsewhere in
this Prospectus and should be read in conjunction therewith. For a discussion of
the Company's recent operating results, see "Management's Discussion and
Analysis of Results of Operations and Financial Condition." The Company changed
its fiscal year end from April 30 to March 31, effective March 31, 1994, in
order to facilitate comparison of the Company's operating results to those of
other companies within the transportation industry on a calendar quarter basis.
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR 11 MONTH
SEPTEMBER 30, ENDED PERIOD ENDED FISCAL YEAR ENDED APRIL 30,
----------------------- MARCH 31, MARCH 31, ---------------------------------------
1995 1994 1995 1994(1) 1993 1992 1991
--------- --------- ----------- ------------ ----------- --------- ---------
(UNAUDITED)
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER DAY DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Voyage revenues.............. $ 160,944 $ 162,771 $ 319,966 $ 317,742 $ 336,994 $ 414,104 $ 396,542
Voyage expenses.............. 43,452 42,515 84,957 81,052 108,805 118,678 138,954
Net voyage revenues.......... 117,492 120,256 235,009 236,690 228,189 295,426 257,588
Income from vessel
operations.................. 34,228 25,426 50,833 59,128 36,915 123,354 115,992
Interest expense............. (31,230) (31,364) (64,321) (48,064) (47,374) (39,015) (41,021)
Interest income.............. 3,182 2,903 5,904 2,904 1,156 2,369 3,982
Other income (loss).......... 4,364 979 11,848 11,777 37,862 9,981 (564)
Income (loss) from continuing
operations before foreign
exchange gain (loss)........ 10,544 (2,056) 4,264 25,745 28,559 96,689 78,389
Foreign exchange gain
(loss)(2)................... (513) 39 991 (1,532) (77,917) (7,026) (28,581)
Net income (loss) from
continuing operations....... 10,031 (2,017) 5,255 24,213 (49,358) 89,663 49,808
Net income from discontinued
operations.................. -- -- -- 5,945 1,890 1,323 1,014
Net income (loss)............ 10,031 (2,017) 6,368 30,158 (47,468) 90,986 50,822
BALANCE SHEET DATA (AT END OF
PERIOD):
Cash and marketable
securities.................. $ 109,267 $ 96,079 $ 85,739 $ 107,246 $ 48,770 $ 26,239 $ 41,864
Total assets................. 1,365,916 1,356,054 1,306,474 1,405,147 1,368,966 1,237,942 1,073,530
Total debt................... 755,784 894,797 842,874 945,611 884,813 756,454 679,032
Total stockholders' equity... 587,048 431,163 439,066 433,180 403,022 442,990 345,004
OTHER FINANCIAL DATA:
EBITDA(3).................... $ 79,002 $ 73,848 $ 146,756 $ 151,364 $ 136,123 $ 214,196 $ 189,968
Cash earnings(4)............. 51,500 46,182 100,699 115,647 126,170 183,164 149,934
Cash earnings to net
debt(1)(4)(5)............... 15.9% 11.6% 13.3% 14.7% 15.1% 25.1% 23.5%
EBITDA to interest
expense(3)(6)............... 2.52x 2.35x 2.28x 3.04x 2.59x 4.70x 4.04x
Pro forma EBITDA to interest
expense(3)(6)(7)............ 2.65 -- 2.47 -- -- -- --
Total debt to EBITDA(1)(3)... 4.78 6.06 5.74 5.83 6.50 3.53 3.57
Net debt to
EBITDA(1)(3)(5)............. 4.09 5.41 5.16 5.17 6.14 3.41 3.35
Ratio of earnings to fixed
charges(8).................. 1.33 -- 1.09 1.45 -- 2.81 1.94
Total debt to
capitalization.............. 56.3% 67.5% 65.7% 68.6% 68.7% 63.1% 66.3%
Net debt to
capitalization(5)........... 52.4 64.9 63.3 65.9 67.5 62.2 64.9
Capital expenditures:
Vessel purchases, gross..... $ 92,077 $ 4,273 $ 7,465 $ 163,509 $ 334,733 $ 373,501 $ 303,262
Drydocking.................. 4,193 7,121 11,917 13,296 16,440 6,240 33,934
FLEET DATA:
Average number of ships(9)... 39 43 42 45 50 46 41
Average age of Company's
Aframax fleet (in
years)(10).................. 6.9 7.8 6.7 7.4 8.0 7.7 7.5
TCE per ship per
day(9)(11).................. $ 17,828 $ 16,575 $ 16,552 $ 17,431 $ 13,722 $ 19,270 $ 19,083
Vessel operating expenses per
ship per day(9)(12)......... 4,731 4,886 4,748 4,879 4,276 4,245 3,859
Operating cash flow per ship
per day(13)................. 10,030 8,732 8,944 9,133 6,511 10,999 11,159
</TABLE>
(Footnotes on following page)
11
<PAGE> 16
(Footnotes for previous page)
(1) For the 12 months ended March 31, 1994, voyage revenues were $345.0
million; income from vessel operations was $62.7 million; net income was
$32.0 million; EBITDA was $162.3 million; and cash earnings were $123.2
million. For periods presented that are less than 12 months, EBITDA and
cash earnings were annualized for purposes of computing total debt to
EBITDA, net debt to EBITDA, and cash earnings to net debt, in order to
facilitate comparisons to other periods. See "Change in fiscal year end" in
Note 1 to the Consolidated Financial Statements.
(2) Prior to fiscal 1993, a significant portion of the Company's debt was
denominated in Japanese Yen. In fiscal 1993, the Company experienced a
foreign exchange translation loss of $77.9 million. Because all of the
Company's Yen-denominated debt has been converted to U.S. Dollar-
denominated debt, and because a large portion of the Company's revenues and
costs are denominated in U.S. Dollars, the Company's foreign exchange rate
risk has been substantially eliminated. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition--Foreign Exchange
Rate Fluctuation."
(3) EBITDA represents net income from continuing operations before interest
expense, income tax expense, depreciation expense, amortization expense,
minority interest, and gains or losses arising from 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 generally accepted accounting principles and
should not be considered as an alternative to net income or any other
indicator of the Company's performance required by generally accepted
accounting principles.
(4) Cash earnings represents income from continuing operations before foreign
exchange gain (loss) and before 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 generally accepted
accounting principles and should not be considered as an alternative to net
income or any other indicator of the Company's performance required by
generally accepted accounting principles.
(5) Net debt represents total debt less cash and marketable securities.
(6) For purposes of computing EBITDA to interest expense and pro forma EBITDA
to interest expense, interest expense includes capitalized interest.
(7) Pro forma EBITDA to interest expense reflects the incremental net interest
expense resulting from the Offering (using an assumed interest rate of
8.5%) and the interest savings resulting from the Company's initial public
offering of common stock in July 1995, as if both transactions had occurred
on April 1, 1994. Pro forma interest expense is calculated as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
SEPTEMBER 30, 1995 MARCH 31, 1995
------------------ -----------------
<S> <C> <C>
Interest expense................................ $ 31,230 $ 64,321
Interest expense for the period on the Notes.... 9,563 19,125
Interest savings from loan repayments resulting
from:
Note offering................................. (7,921) (14,565)
Initial public offering....................... (3,135) (9,526)
------------------ -----------------
Pro forma interest expense...................... $ 29,737 $ 59,355
================ ==============
</TABLE>
(8) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income from continuing operations before interest expense,
amortization of capitalized interest and amortization of deferred financing
costs. Fixed charges consist of interest expense, capitalized interest and
amortization of deferred financing costs. Earnings for the six months ended
September 30, 1994 and for the fiscal year ended April 30, 1993 were
insufficient to cover fixed charges. The amounts of the coverage
deficiencies were $1.5 million and $53.9 million, respectively. The
deficiency in fiscal 1993 resulted from a foreign exchange translation
loss. (See footnote 2). The ratio of earnings to fixed charges before
taking into account such loss for fiscal 1993 would have been 1.45 x.
(Footnotes continue on following page)
12
<PAGE> 17
(Footnotes continued from previous page)
(9) Excludes vessels of discontinued operations and the joint venture.
(10) Average age of Company's Aframax fleet is the average age, at the end of
the relevant period, of the Aframax tankers and O/B/Os owned or leased by
the Company (including joint venture vessels).
(11) TCE (or "time charter equivalent") is a measure of the revenue performance
of a vessel, which, on a per voyage basis, is generally determined by
Clarkson and other industry data sources by subtracting voyage expenses
(except commissions) incurred in transporting cargo (primarily bunker fuel,
canal tolls and port fees) 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 the Company's 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 the Company's total voyage days in the year.
See "Exhibit A--Definitions of Shipping Terms."
(12) Vessel operating expenses consist of all expenses relating to the operation
of vessels (other than voyage expenses), including crewing, repairs and
maintenance, insurance, stores and lubes, and miscellaneous expenses,
including communications. Ship days are calculated on the basis of a
365-day year multiplied by the average number of vessels in the Company's
fleet for the respective year.
(13) Operating cash flow represents income from vessel operations, plus
depreciation and amortization expense, less drydock expense. Ship days are
calculated on the basis of a 365-day year multiplied by the average number
of vessels in the Company's fleet for the respective year. Operating cash
flow is not required by generally accepted accounting principles and should
not be considered as an alternative to net income or any other indicator of
the Company's performance required by generally accepted accounting
principles.
13
<PAGE> 18
RISK FACTORS
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment in
the Securities.
INDEBTEDNESS OF THE COMPANY AND RESTRICTIONS IN DEBT AGREEMENTS
To finance its fleet expansion program during the period 1988-1993, the
Company incurred substantial indebtedness. As a result, a substantial portion of
cash flow from operations must be dedicated to the payment of principal of and
interest on such indebtedness, thereby limiting the amount of funds available
for working capital, capital expenditures and other purposes. The Company's
existing financing agreements impose operating and financial restrictions on the
Company that affect, and in many respects significantly limit or prohibit, the
ability of the Company to, among other things, incur additional indebtedness,
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. Several of the Company's existing financing
agreements impose restrictions on changes of control of Teekay and/or its
ship-owning subsidiaries, including a requirement for prior consent, and a
requirement that the Company make an offer to redeem certain indebtedness.
Additionally, certain of the financing arrangements between subsidiaries of
Teekay that are not Guarantors and their respective lenders contain restrictions
on dividends by and distributions from such subsidiaries to Teekay. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Liquidity and Capital Resources" and "Description of Certain
Indebtedness."
A failure to comply with any of the covenants in the Company's existing
financing agreements could result in a default thereunder or under other
agreements containing cross-default provisions, which would permit lenders to
accelerate the maturity of the indebtedness under such agreements and to
foreclose upon any collateral securing such indebtedness. Under any of these
circumstances, there can be no assurance that the Company would have sufficient
funds or other resources to satisfy all of its obligations, including its
obligations under the Notes. In addition, the secured nature of the Notes and
certain other indebtedness of the Company, together with the limitations imposed
by the Indenture and the Company's other financing agreements on its ability to
incur additional indebtedness and to take certain other actions, might
significantly impair the Company's ability to obtain other financing. See
"Description of Certain Indebtedness" and "Description of the Notes."
POTENTIAL INSUFFICIENCY OF COLLATERAL
In the event that Teekay and the Guarantors default on their obligations to
make payments in respect of the Notes, Holders of the Notes should be entitled
to payment out of the proceeds from the sale of the Collateral, prior in right
to any general unsecured creditors of the Guarantors or Teekay. In the event
that the assets and cash flow of the Guarantors are insufficient to satisfy the
Obligations under the Notes, the Holders' claims against Teekay will be
effectively against the shares of stock of subsidiaries other than the
Guarantors and any other assets owned by Teekay, and not direct claims against
the assets of such subsidiaries. Therefore, such claims would have value only to
the extent that the shares of stock of such subsidiaries have value after the
payment of the claims of the creditors of such subsidiaries or to the extent
that Teekay has other assets.
MARKET VALUE OF VESSELS
The market value of tankers can be expected to fluctuate, depending upon
general economic and market conditions affecting the tanker industry and
competition from other shipping companies, types and sizes of vessels, and other
modes of transportation. See "Business--The International Tanker Market."
Furthermore, as vessels become older, they can be expected to decline
significantly in value. Declining vessel values could affect the collateral
value of the Mortgaged Vessels as well as the Company's ability to raise cash by
refinancing vessels and, thereby, adversely impact the Company's liquidity. See
"Management's Discussion and Analysis of Results of Operations and Financial
14
<PAGE> 19
Condition--Liquidity and Capital Resources." In addition, declining vessel
values could result in a breach of certain loan covenants, which could give rise
to events of default under the relevant financing agreements. There can be no
assurance that the market value of the Mortgaged Vessels or the remainder of the
Company's fleet will not decline. See "Business--The International Tanker
Market--Supply and Demand."
CYCLICAL NATURE OF THE TANKER INDUSTRY; DEPENDENCE ON OIL MARKETS
Historically, the tanker industry has been cyclical, experiencing
volatility in profitability and asset values resulting from changes in the
supply of, and demand for, tanker capacity. The supply of tanker capacity is a
function of the number of new vessels built and older vessels scrapped,
converted and lost. The demand for tanker capacity is influenced by global and
regional economic conditions, increases and decreases in industrial production
and demand for crude oil and petroleum products, developments in international
trade and changes in seaborne and other transportation patterns. In particular,
because the Company is primarily engaged in transporting crude oil and petroleum
products, demand for the Company's vessels and its services in transporting
crude oil and petroleum products has been dependent upon world and regional oil
markets. Any decrease in shipments of crude oil in those markets could have a
material adverse effect on the Company. 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. Because many of the factors influencing the supply of, and demand for,
vessel capacity are unpredictable, the nature, timing and degree of changes in
tanker industry conditions are also unpredictable.
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, labor
stoppages 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 action. Any such event may result in loss of revenues or
increased costs.
The Company carries insurance to protect against most of the
accident-related risks involved in the conduct of its business and it maintains
environmental damage and pollution insurance coverage. There can be no
assurance, however, that all risks are adequately insured against, that any
particular claim will be paid or that the Company will be able to procure
adequate insurance coverage at commercially reasonable rates in the future. In
particular, more stringent environmental regulations may result in increased
costs for, or the lack of availability of, insurance against the risks of
environmental damage or pollution. See "Business--Risk of Loss and Insurance"
and "--Regulation."
ENVIRONMENTAL AND OTHER REGULATION
The operations of the Company are affected by changing environmental
protection laws and other regulations, compliance with which has entailed
significant expenses, including expenses for ship modifications and changes in
operating procedures. In particular, the United States Oil Pollution Act of
1990, as amended ("OPA 90"), provides for the phase-in of the exclusive use of
certain double-hull tankers at United States ports, as well as potentially
unlimited liability for owners, operators and demise or bareboat charterers for
certain oil pollution accidents in the United States and in U.S. waters. In
complying with OPA 90, tanker owners generally will incur additional costs in
meeting additional maintenance and inspection requirements, in developing
contingency arrangements for potential spills and in obtaining insurance
coverage as required by OPA 90. OPA 90 expands the pre-existing financial
responsibility requirements for vessels operating in United States 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 OPA 90.
15
<PAGE> 20
Following the example of OPA 90, the International Maritime Organization
(the United Nations' agency for maritime safety, referred to herein as the
"IMO") has adopted new regulations for tanker design and inspection which will
be phased in on a schedule depending upon vessel age. In addition, certain U.S.
states, the European Community (the "EC") and other 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.
Additional laws and regulations may be adopted which could limit the ability of
the Company to do business or increase the cost of its doing business and which
may have a material adverse affect on the operations of the Company. See
"Business--Regulation." The Company currently maintains $700 million in
insurance coverage for liability for pollution, spillage or leakage of oil for
each of its vessels. See "Business--Risk of Loss and Insurance."
DEPENDENCE ON SPOT OIL VOYAGES
During the first half of fiscal 1996, the Company derived approximately 75%
of its net voyage revenue (voyage revenues minus voyage expenses) from spot
voyages. Although dependence on the spot charter market is typical in the
Aframax segment of the tanker industry, the spot charter market is highly
competitive and spot charter rates are subject to significant fluctuations based
upon tanker and oil supply and demand. In addition, an oversupply of tankers
relative to demand has heightened price competition and adversely affected
charter rates and profitability for the tanker industry in general. Although the
Company's focus on the spot charter market may enable it to benefit from
strengthened tanker industry conditions should they occur, to do so the Company
must consistently procure spot voyage business. There can be no assurance that
future spot charters will be available at rates that will be sufficient to
enable the Company's vessels to be operated profitably. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition--General" and "Business--The International Tanker Market."
COMPETITION
The Company obtains employment for its vessels in a highly competitive
market. Competition arises primarily from other Aframax tanker owners (including
major oil companies as well as independent companies) and, to a lesser extent,
owners of other size tankers. The Company's market share is insufficient to
enforce any degree of pricing discipline in the markets in which the Company
competes. There can be no assurance that the Company's competitive position will
not erode in the future. See "Business--Competition" and "--Business Strategy."
OPERATION OF SECOND-HAND AND AGING VESSELS
The Company's fleet, as at November 30, 1995, included 9 tankers over 10
years of age, all of which were acquired second-hand. The economic lives of
properly maintained tankers are estimated by the Company to be approximately 20
years. In general, expenditures necessary for maintaining a vessel in good
operating condition increase as the age of the vessel increases. Due to
improvements in engine technology, older vessels are typically less fuel
efficient than more recently constructed vessels. In addition, changes in
governmental regulations, safety or other equipment standards may require
expenditures for alterations, or the addition of new equipment, to the Company's
vessels and may restrict the trades in which the vessels may engage. Cargo
insurance rates may increase with the age of a vessel, making older vessels less
desirable to charterers. There is no assurance that market conditions will
justify such expenditures or enable the Company to operate its vessels
profitably during the remainder of their economic lives. The Company's current
fleet replacement plan includes newbuildings and the opportunistic acquisition
of quality second-hand vessels. Second-hand vessels typically carry very limited
warranties with respect to the condition of the vessels in comparison to
warranties available for a newbuilding.
16
<PAGE> 21
EXPOSURE TO CURRENCY EXCHANGE RATE AND INTEREST RATE FLUCTUATIONS
While virtually all of the Company's revenues are earned in U.S. dollars, a
portion of the Company's operating costs are 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 and the
Singapore dollar. See "Management's Discussion and Analysis of Operations and
Financial Condition--Foreign Exchange Rate Fluctuation."
With respect to interest rate exposure, at September 30, 1995, and on a pro
forma basis after giving effect to the Offering, approximately $384.3 million
(50.5%) of the Company's then outstanding indebtedness bore interest at floating
interest rates. Therefore, increases in prevailing interest rates could
adversely affect the amounts that would be required for the payment of interest
on such indebtedness. In order to partially mitigate this exposure, the Company
has subsequently entered into $250.0 million of long-term interest rate swaps
with an average term of 36.0 months and an average fixed rate of 5.85%. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition--Liquidity and Capital Resources" and Notes 7, 11 and 16 to the
Consolidated Financial Statements.
OPERATIONS OUTSIDE THE UNITED STATES
The operations of the Company are primarily conducted outside of the United
States and, therefore, may be affected by currency fluctuations and by changing
economic, political and governmental conditions in the countries where the
Company is engaged in business or where its vessels are registered. During the
first half of fiscal 1996, the Company derived 90% of its total revenues from
its operations in the Indo-Pacific Basin. In the past, political conflicts in
such regions, 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 such regions have also been subject to, in limited instances,
acts of terrorism and piracy. Future hostilities or other political instability
in the region could affect the Company's trade patterns and adversely affect the
Company's operations and performance.
ENFORCEMENT OF MORTGAGES
Each of the Mortgaged Vessels is, and during the term of the Notes will be,
registered under either Bahamian flag or Liberian flag. The Mortgages on the
Liberian flag Mortgaged Vessels are preferred mortgage liens under Liberian
maritime law; the Mortgages on the Bahamian flag Mortgaged Vessels have similar
status under Bahamian law. Bahamian law and Liberian law provide that such
mortgages may be enforced by the mortgagee by a suit in admiralty in a
proceeding against the Mortgaged Vessel. Historically, Bahamian and Liberian
ship mortgages have been enforced in major commercial ports throughout the
world, including U.S. ports. However, the Company has been advised by Graham,
Thompson & Co., Bahamian counsel to the Company, with respect to matters of
Bahamian law, and Haight, Gardner, Poor & Havens, special counsel to the
Company, with respect to matters of United States maritime law and Liberian law,
that the priority that any of the Mortgages would have against the claims of
other lien creditors in an enforcement proceeding is generally determined by,
and will vary in accordance with, the laws of the country where the proceeding
is brought. Both Bahamian ship mortgages and Liberian ship mortgages may be
enforced against a vessel physically present in the United States, but the claim
under any such mortgage would rank behind preferred maritime liens, including
those for supplies and other necessaries provided in the United States. Since
the Mortgaged Vessels trade primarily in the Indo-Pacific Basin, there is no
assurance that, if enforcement proceedings are commenced against a Mortgaged
Vessel, the Mortgaged Vessel will be located in a jurisdiction having the same
mortgage enforcement procedures and lien priorities as the Bahamas, Liberia or
the United States, although, upon the occurrence of an Event of Default, the
Trustee may be able to effect control over the Mortgaged Vessels to direct them
to a desirable jurisdiction to arrest such vessels pursuant to judicial
foreclosure proceedings. See "The Mortgaged Vessels--The Mortgages."
17
<PAGE> 22
Although each of the Mortgaged Vessels is separately owned by a subsidiary
of Teekay, under certain circumstances a parent company and all of the
shipowning affiliates in a group under common control engaged in a joint venture
could be held liable for damages or debts owed by one of the affiliates,
including liabilities for oil spills under OPA 90 or other environmental laws.
Therefore, it is possible that all of the assets of the Company could be subject
to execution upon a judgment against Teekay or any one of its subsidiaries. The
Company currently maintains $700 million in insurance coverage for liability for
pollution, spillage or leakage of oil for each of its vessels. See
"Business--Risk of Loss and Insurance" and "--Regulation."
FRAUDULENT CONVEYANCE STATUTES
The granting of the Mortgages by the Guarantors and any payment under the
Subsidiary Guarantees could be subject to review under relevant fraudulent
conveyance statutes in the event of a bankruptcy or other similar filing by
Teekay or the Guarantors, or could be attacked in certain other circumstances by
a creditor of a Guarantor. In the event of such a filing or attack, the relevant
court could make a determination detrimental to the holders of the Notes. See
"Description of the Notes--Fraudulent Conveyance Statutes."
CONCENTRATION OF VOTING POWER
The Cirrus Trust, a trust organized under the laws of the Turks and Caicos
Islands, and the JTK Trust, a trust owned under the laws of the Bahamas (the
"Trusts"), own, as of the date of this Prospectus, approximately 75% of the
outstanding common stock of Teekay. As a result, the Trusts have the power to
elect all of the directors of Teekay and to control the vote on substantially
all other matters, including significant corporate actions, without the approval
of other stockholders. See "Ownership of Teekay."
POSSIBLE TAXATION OF THE COMPANY'S UNITED STATES SOURCE INCOME
Under the United States Internal Revenue Code of 1986, as amended (the
"Code"), the Company's shipping income and gains from United States sources may
be taxable by the United States, if not entitled to the benefits of certain
equivalent exemption provisions of the Code. Due to the absence of interpretive
regulations or other applicable authority under the relevant Code sections,
Perkins Coie, United States special tax counsel to the Company, is unable to
render an opinion in this regard and the Company, therefore, cannot provide any
assurances as to the actual effective United States tax rate (if any) which will
be imposed on the Company's U.S. source income. See "Business--Taxation of the
Company--United States Taxation."
LITIGATION
In May 1993, a lawsuit was filed in the Supreme Court of British Columbia
(the "B.C. Court") against the original representative of the estate (the
"Estate") of the Company's founder, J. Torben Karlshoej, by Mr. Karlshoej's
first wife claiming certain rights in the assets of the Estate based upon
expressed and implied contract theories, unjust enrichment and specific
performance. In April 1995, the plaintiff filed a notice of motion to amend her
claim to add the Trusts, Teekay and certain of its directors, officers and other
affiliates as defendants in the lawsuit. The B.C. Court has not yet made a
determination as to whether to grant the plaintiff's motion to amend her
statement of claim. While Teekay believes that it has meritorious defenses
against the plaintiff's claims and intends, if added as a defendant, to defend
vigorously against the claims, there can be no assurance that Teekay and its
affiliates will not be added as defendants or, if added, that they will be
successful in defending against the claims. If plaintiff were successful on her
claims, a change in control of the Company could result. See "Legal
Proceedings--Litigation against the Estate of the Company's Founder."
18
<PAGE> 23
ABSENCE OF PUBLIC MARKET FOR THE NOTES
There is currently no trading market for the Notes. Although Teekay intends
to cause the Notes to be authorized for listing on the New York Stock Exchange,
there can be no assurance, even if such authorization is obtained, that an
active market for the Notes will develop or, if any such market develops, that
it will continue to exist or as to the liquidity of such market. In addition, no
assurance can be given that a Holder of the Notes will be able to sell them in
the future or that such sale will be at a price equal to or higher than the
initial public offering price. Furthermore, the Notes may trade at a discount
from the initial public offering price depending upon many factors, including
prevailing interest rates, the Company's operating results and the market for
similar securities. The Underwriters have informed the Company that, subject to
applicable laws and regulations, they currently intend to make a market in the
Notes. However, the Underwriters are not obligated to do so, and any such market
making may be discontinued at any time without notice. Therefore, no assurance
can be given as to whether an active trading market will develop for the Notes.
See "Underwriting."
USE OF PROCEEDS
The aggregate net proceeds to be received by Teekay from the Note Offering
(after deducting Underwriters fees and commissions and estimated expenses
attributable to the offering) are estimated to be approximately $220.3 million.
Teekay intends to apply the net proceeds to prepay all outstanding indebtedness
on the Mortgaged Vessels, which indebtedness (i) bears interest at rates of
between 1.0 to 1.5 percentage points over LIBOR and (ii) is scheduled to mature
over the next twelve years. See "Management's Discussion and Analysis of Results
of Operations and Financial Condition--Liquidity and Capital Resources" and
"Description of Certain Indebtedness."
19
<PAGE> 24
CAPITALIZATION
The following table sets forth the capitalization of the Company at
September 30, 1995, and as adjusted to give effect to the sale of the Notes and
the application of the net proceeds therefrom to prepay certain indebtedness of
the Guarantors. This table should be read in conjunction with the consolidated
financial statements of the Company and the related notes thereto set forth
elsewhere in this Prospectus. See also "Use of Proceeds" and "Management's
Discussion and Analysis of Results of Operations and Financial Condition."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
-------------------------------
ACTUAL AS ADJUSTED(1)
----------- --------------
(UNAUDITED)
(U.S. DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and marketable securities....................... $ 109,267 $ 109,267
=========== ============
Current obligations(2):
Current portion of long-term debt.................. 58,906 37,358
Current portion of capital lease obligation........ 2,709 --
----------- ------------
Total current obligations....................... 61,615 37,358
----------- ------------
Long-term obligations(2):
Long-term debt..................................... 652,969 498,126
Capital lease obligation........................... 41,200 --
Notes offered hereby............................... -- 225,000
----------- ------------
Total long-term obligations..................... 694,169 723,126
----------- ------------
Stockholders' equity:
Capital stock...................................... 230,613 230,613
Retained earnings.................................. 356,578 356,578
Less net unrealized loss on marketable
securities...................................... 143 143
----------- ------------
Total stockholders' equity...................... 587,048 587,048
----------- ------------
Total capitalization.......................... $ 1,342,832 $ 1,347,532
=========== ============
</TABLE>
- ------------
(1) Reflects the net proceeds from the Offering estimated to be approximately
$220.3 million.
(2) For information concerning the Company's borrowing arrangements and lease
commitments, see "Description of Certain Indebtedness."
20
<PAGE> 25
THE COMPANY
The Company is a leading provider of international crude oil and petroleum
product transportation services through the world's largest fleet of medium size
oil tankers. The Company's modern fleet provides such transportation services to
major oil companies, major oil traders and government agencies, principally in
the Indo-Pacific Basin. The Company believes that in each of the last four years
it has transported more crude oil and petroleum products via Aframax tankers in
the Indo-Pacific Basin than any other shipping company and estimates it has
approximately a one quarter share of the Indo-Pacific Basin Aframax market.
The Company pursues an intensively customer- and operations-oriented
business strategy, emphasizing market concentration and service quality to
achieve superior operating results. The Company believes that it has four key
competitive advantages: (i) geographic market concentration in the Indo-Pacific
Basin, which facilitates comprehensive coverage of charterer requirements, (ii)
a uniform-size fleet of Aframax tankers containing many sister ships, which
affords scheduling flexibility and permits greater capacity utilization, (iii) a
modern well-maintained fleet that operates with high fuel efficiency and low
maintenance costs and affords greater acceptance among charterers with high
quality standards, and (iv) a full-service ship management and chartering
capability which affords a focused marketing effort, tight cost controls, and
effective operational and safety monitoring. As a result of its business
strategy, the Company has achieved consistently higher operating cash flow per
ship per day than other public bulk shipping companies. Although the Company's
business strategy has been, and in the foreseeable future will be, primarily
focused on providing services via Aframax tankers in the Indo-Pacific Basin,
management intends to closely monitor the evolution of the shipping industry and
to adapt its strategy according to changing market dynamics. The Company intends
to continue to consider strategic opportunities that may arise from time to
time, including joint ventures and business acquisitions.
The Company's fleet consists of 41 tankers: 36 Aframax oil tankers and
O/B/Os, two smaller oil tankers, one VLCC, and through a joint venture, a 50%
interest in two additional Aframax oil tankers. The Company's vessels are all of
Liberian or Bahamian registry. The Company's fleet has a total cargo capacity of
approximately 4.1 million tons and its Aframax vessels represent approximately
7.0% of the total tonnage of the world Aframax fleet. While its fleet
modernization program is effectively complete, the Company intends to continue
selective purchases of modern, predominantly second-hand, high-quality tankers
should such vessels become available.
The Company's fleet is one of the most modern fleets in the world, having
an average age of approximately 6.9 years, compared to an average age for the
world oil tanker fleet of approximately 14.1 years and for the world Aframax
tanker fleet of approximately 12.3 years. A substantial portion of the world
tanker fleet will reach 20 years of age in the next three years, including
approximately 31% of Aframax tankers; none of the Company's Aframax tankers is
more than 16 years of age. In addition, the Company has been recognized by
customers and rating services for safety, quality and service. In each of the
last five years, Tanker Advisory Center, Inc. (New York) has rated the Company's
fleet a "meritorious tanker fleet," a designation which, in the latest
publication (March 1995) placed it in the top quarter of fleets containing 10 or
more tankers. Given the age profile of the world tanker fleet, increasing
emphasis among customers on quality as a result of stringent environmental
regulations, and heightened concerns about liability for oil pollution, the
Company believes that its modern fleet and its emphasis on quality and safety
provide it with a favorable competitive profile. See "Risk Factors--Competition"
and "--Environmental and Other Regulation" and "Business--The International
Tanker Market--Supply and Demand."
Teekay has in the past occasionally entered into joint ventures with other
shipping companies, an activity that is common among large shipping companies.
Currently, Teekay is actively engaged in one such joint venture: it owns 50% of
Viking Consolidated Shipping Corporation ("VCSC"), which in turn owns two
Aframax tankers. One of the VCSC tankers is on long-term charter to a major oil
company; the other is currently trading on the spot market. Teekay is
negotiating the purchase of the latter vessel from VCSC.
21
<PAGE> 26
The Teekay organization was founded in 1973 by J. Torben Karlshoej to
manage and operate oil tankers. Mr. Karlshoej died in October 1992 and was
succeeded as Chief Executive Officer by Captain James Hood, who has been with
the Company since 1977. Prior to 1985, the Company chartered-in most of the
tonnage that it subsequently provided to its transportation customers. As the
availability of acceptable chartered-in tonnage declined, management began an
expansion of its owned fleet. Since 1985, the Company has significantly expanded
and modernized its owned fleet by taking delivery of 38 new vessels and
acquiring 24 vessels in the second-hand market, as well as disposing of 13 older
(mid-1970's built) tankers over the past two and one half years.
The Company's operating results in fiscal 1995 (year ended March 31, 1995)
were adversely affected by a weakened charter market caused by low tanker
demand, which resulted from a shift in crude oil distribution patterns.
Historically, incremental oil demand growth has been satisfied principally from
oil produced in the Arabian Gulf; however, in calendar 1994, incremental global
oil demand was primarily met by oil production in the North Sea and Caribbean
regions. Because of the proximity of the North Sea and Caribbean to discharge
points, increased production in these regions resulted in a reduction in the
average length of tanker voyages, thus adversely affecting tanker demand. In
spite of adverse charter market conditions, in fiscal 1995 the Company generated
income from vessel operations of $50.8 million and EBITDA of $146.8 million, and
reduced debt by $102.6 million from internally generated cash.
Management believes that the Company's operating performance is exhibiting
near-term improvement. During the first half of fiscal 1996, the Company's
income from vessel operations rose to $34.2 million and EBITDA rose to $79.0
million, improvements of 34.6% and 7.0% respectively, over the first half of
fiscal 1995. Based on current estimates, income from vessel operations and
EBITDA for the third quarter fiscal 1996 are anticipated to show continued
improvement in the Company's operating performance, stemming from stronger
Aframax charter rates in the Indo-Pacific Basin and, in particular, better
market conditions in the Company's core Aframax trade routes to Australia,
Japan, and the United States West Coast.
In addition, management believes that tanker supply/demand fundamentals are
improving through a combination of tanker scrapping in excess of deliveries, and
an anticipated resumption of tanker demand growth. According to Clarkson, the
worldwide tanker fleet declined by 2.5% from December 31, 1993 to November 30,
1995, with calendar 1994 marking the first annual decline in tanker fleet size
since 1986. The International Energy Agency forecasts that global oil
consumption will grow 2.3% in 1996. Management believes that due to the expected
topping out of North Sea oil production a large percentage of future oil demand
growth will be met by Arabian Gulf oil producers, thereby increasing tanker
demand. Maritime Strategies Inc. forecasts that tanker demand will grow 2.4% in
1996 and 3.3% in 1997. A continuation of these trends should result in an
increase in tanker charter rates which would have a positive impact on the
Company's operating results.
During the first half of fiscal 1996, the Company took steps to improve its
financial condition and flexibility. In May 1995, the Company entered into a
$243 million eight-year secured reducing revolving credit agreement (the
"Revolver") which increased liquidity, extended its debt repayment schedule, and
reduce its cost of borrowing. In July 1995, the Company completed an initial
public offering of 6.9 million shares of common stock, resulting in net cash
proceeds of $137.6 million, of which $135.0 million was used to reduce amounts
outstanding under the Revolver. As a result of these transactions, as well as
improved operating performance, as of September 30, 1995, the Company's total
liquidity, as measured by the aggregate of its cash, marketable securities and
availability under the Revolver, increased to $244.3 million from $85.7 at
fiscal 1995 year-end; and the Company's ratio of net debt to capitalization had
declined to 52 percent from 63 percent over the same period.
Teekay is incorporated under the laws of the Republic of Liberia and
maintains its principal executive headquarters at the Tradewinds Building, Sixth
Floor, Bay Street, P.O. Box SS-6293, Nassau, Commonwealth of The Bahamas. Its
telephone number at such address is (809) 322-8020. The Company's principal
operating offices are located at 200 Burrard Street, Suite 2100, Vancouver,
British Columbia, Canada, V6C 3L6. Its telephone number at such address is (604)
683-3529.
22
<PAGE> 27
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
Set forth below are selected consolidated financial and other data of the
Company for the six-month periods ended September 30, 1995 and 1994 and five
fiscal periods ended March 31, 1995. The selected financial and other data set
forth below with respect to the Company's statements of income for each of the
three fiscal periods ended March 31, 1995 and the Company's balance sheets as of
March 31, 1995 and 1994 are derived from consolidated financial statements of
the Company, which are included elsewhere in this Prospectus, that have been
audited by Ernst & Young, independent chartered accountants. The statement of
income data for each of the two fiscal years in the period ended April 30, 1992
and the balance sheet data as of April 30, 1993, 1992 and 1991 are derived from
consolidated financial statements audited by Ernst & Young but not included in
this Prospectus. The selected financial and other data set forth below with
respect to the Company's statements of income for each of the six-month periods
ended September 30, 1995 and 1994 and the Company's balance sheets as of
September 30, 1995 and 1994 have been derived from the unaudited consolidated
financial statements of the Company included elsewhere in this Prospectus,
which, in management's opinion, reflect all adjustments necessary (consisting
only of normal recurring adjustments) for a fair presentation of such financial
data. The Company's results for the six months ended September 30, 1995 are not
necessarily indicative of the eventual results for the fiscal year ending March
31, 1996.
The data below should be read in conjunction with the consolidated
financial statements and the notes thereto, the other financial information and
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" that appear elsewhere in this Prospectus. The Company changed its
fiscal year end from April 30 to March 31, effective March 31, 1994, in order to
facilitate comparison of the Company's operating results to those of other
companies within the transportation industry on a calendar quarter basis.
23
<PAGE> 28
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR 11 MONTH
SEPTEMBER 30, ENDED PERIOD ENDED FISCAL YEAR ENDED APRIL 30,
------------------------- MARCH 31, MARCH 31, ---------------------------------------
1995 1994 1995 1994(1) 1993 1992 1991
----------- ----------- ----------- ------------ ----------- ----------- -----------
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER DAY DATA AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Voyage revenues............. $ 160,944 $ 162,771 $ 319,966 $ 317,742 $ 336,994 $ 414,104 $ 396,542
Voyage expenses............. 43,452 42,515 84,957 81,052 108,805 118,678 138,954
----------- ----------- ----------- ------------ ----------- ----------- -----------
Net voyage revenues......... 117,492 120,256 235,009 236,690 228,189 295,426 257,588
Operating expenses:
Vessel operating
expenses(2)............. 33,496 38,446 72,723 73,597 79,649 71,227 57,064
Depreciation and
amortization............ 40,956 48,238 96,435 89,902 97,611 86,475 71,545
General and
administrative.......... 8,812 8,146 15,018 14,063 14,014 14,370 12,987
----------- ----------- ----------- ------------ ----------- ----------- -----------
Total operating expenses.... 83,264 94,830 184,176 177,562 191,274 172,072 141,596
----------- ----------- ----------- ------------ ----------- ----------- -----------
Income from vessel
operations................ 34,228 25,426 50,833 59,128 36,915 123,354 115,992
Interest expense............ (31,230) (31,364) (64,321) (48,064) (47,374) (39,015) (41,021)
Interest income............. 3,182 2,903 5,904 2,904 1,156 2,369 3,982
Other income (loss)......... 4,364 979 11,848 11,777 37,862 9,981 (564)
----------- ----------- ----------- ------------ ----------- ----------- -----------
Income (loss) from
continuing operations
before foreign exchange
gain (loss)............... 10,544 (2,056) 4,264 25,745 28,559 96,689 78,389
Foreign exchange gain
(loss)(3)................. (513) 39 991 (1,532) (77,917) (7,026) (28,581)
----------- ----------- ----------- ------------ ----------- ----------- -----------
Net income (loss) from
continuing operations..... 10,031 (2,017) 5,255 24,213 (49,358) 89,663 49,808
Net income from discontinued
operations................ -- -- -- 5,945 1,890 1,323 1,014
Cumulative effect of change
in accounting for
marketable securities..... -- -- 1,113 -- -- -- --
----------- ----------- ----------- ------------ ----------- ----------- -----------
Net income (loss)........... $ 10,031 $ (2,017) $ 6,368 $ 30,158 $ (47,468) $ 90,986 $ 50,822
========== ========== =========== ============= =========== ========== ==========
<CAPTION>
BALANCE SHEET DATA (AT END OF PERIOD):
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and marketable
securities................ $ 109,267 $ 96,079 $ 85,739 $ 107,246 $ 48,770 $ 26,239 $ 41,864
Total assets................ 1,365,916 1,356,054 1,306,474 1,405,147 1,368,966 1,237,942 1,073,530
Total debt.................. 755,784 894,797 842,874 945,611 884,813 756,454 679,032
Total stockholders'
equity.................... 587,048 431,163 439,066 433,180 403,022 442,990 345,004
OTHER FINANCIAL DATA:
EBITDA(4)................... $ 79,002 $ 73,848 $ 146,756 $ 151,364 $ 136,123 $ 214,196 $ 189,968
Cash earnings(5)............ 51,500 46,182 100,699 115,647 126,170 183,164 149,934
Cash earnings to net
debt(1)(5)(6)............. 15.9% 11.6% 13.3% 14.7% 15.1% 25.1% 23.5%
EBITDA to interest
expense(4)(7)............. 2.52x 2.35x 2.28x 3.04x 2.59x 4.70x 4.04x
Pro forma EBITDA to interest
expense(4)(7)(8).......... 2.65 -- 2.47 -- -- -- --
Total debt to EBITDA(1)(4).. 4.78 6.06 5.74 5.83 6.50 3.53 3.57
Net debt to
EBITDA(1)(4)(6)........... 4.09 5.41 5.16 5.17 6.14 3.41 3.35
Ratio of earnings to fixed
charges(9)................ 1.33 -- 1.09 1.45 -- 2.81 1.94
Total debt to
capitalization............ 56.3% 67.5% 65.7% 68.6% 68.7% 63.1% 66.3%
Net debt to
capitalization(6)......... 52.4 64.9 63.3 65.9 67.5 62.2 64.9
Capital expenditures:
Vessel purchases, gross... $ 92,077 $ 4,273 $ 7,465 $ 163,509 $ 334,733 $ 373,501 $ 303,262
Drydocking................ 4,193 7,121 11,917 13,296 16,440 6,240 33,934
FLEET DATA:
Average number of
ships(10)................. 39 43 42 45 50 46 41
Average age of Company's
Aframax fleet
(in years)(11)............ 6.9 7.8 6.7 7.4 8.0 7.7 7.5
TCE per ship per
day(10)(12)............... $ 17,828 $ 16,575 $ 16,552 $ 17,431 $ 13,722 $ 19,270 $ 19,083
Vessel operating expenses
per ship per day(2)(10)... 4,731 4,886 4,748 4,879 4,276 4,245 3,859
Operating cash flow per ship
per day(13)............... 10,030 8,732 8,944 9,133 6,511 10,999 11,159
</TABLE>
(Footnotes on following page)
24
<PAGE> 29
(Footnotes for previous page)
(1) For the 12 months ended March 31, 1994, voyage revenues were $345.0
million; income from vessel operations was $62.7 million; net income was
$32.0 million; EBITDA was $162.3 million; and cash earnings were $123.2
million. For periods presented that are less than 12 months, EBITDA and
cash earnings were annualized for purposes of computing total debt to
EBITDA, net debt to EBITDA, and cash earnings to net debt, in order to
facilitate comparisons to other periods. See "Change in fiscal year end" in
Note 1 to the Consolidated Financial Statements.
(2) Vessel operating expenses consist of all expenses relating to the operation
of vessels (other than voyage expenses), including crewing, repairs and
maintenance, insurance, stores and lubes, and miscellaneous expenses,
including communications. Voyage expenses comprise all expenses relating to
particular voyages, including bunker fuel expenses, port fees and canal
tolls.
(3) Prior to fiscal 1993, a significant portion of the Company's debt was
denominated in Japanese Yen. In fiscal 1993, the Company experienced a
foreign exchange translation loss of $77.9 million. Because all of the
Company's Yen-denominated debt has been converted to U.S. Dollar-
denominated debt, and because a large portion of the Company's revenues and
costs are denominated in U.S. Dollars, the Company's foreign exchange rate
risk has been substantially eliminated. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition--Foreign Exchange
Rate Fluctuation."
(4) EBITDA represents net income from continuing operations before interest
expense, income tax expense, depreciation expense, amortization expense,
minority interest, and gains or losses arising from 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 generally accepted accounting principles and
should not be considered as an alternative to net income or any other
indicator of the Company's performance required by generally accepted
accounting principles.
(5) Cash earnings represents income from continuing operations before foreign
exchange gain (loss) and before 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 generally accepted
accounting principles and should not be considered as an alternative to net
income or any other indicator of the Company's performance required by
generally accepted accounting principles.
(6) Net debt represents total debt less cash and marketable securities.
(7) For purposes of computing EBITDA to interest expense and pro forma EBITDA
to interest expense, interest expense includes capitalized interest.
(8) Pro forma EBITDA to interest expense reflects the incremental net interest
expense resulting from the Offering (using an assumed interest rate of
8.5%) and the interest savings resulting from the Company's initial public
offering of common stock in July 1995, as if both transactions had occurred
on April 1, 1994. Pro forma interest expense is calculated as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
SEPTEMBER 30, 1995 MARCH 31, 1995
------------------ -----------------
<S> <C> <C>
Interest expense................................ $ 31,230 $ 64,321
Interest expense for the period on the Notes.... 9,563 19,125
Interest savings from loan repayments resulting
from:
Note offering................................. (7,921) (14,565)
Initial public offering....................... (3,135) (9,526)
------------------ -----------------
Pro forma interest expense...................... $ 29,737 $ 59,355
================ ==============
</TABLE>
(Footnotes continue on following page)
25
<PAGE> 30
(Footnotes continued from previous page)
(9) For purposes of computing the ratio of earnings to fixed charges, earnings
consist of income from continuing operations before interest expense,
amortization of capitalized interest and amortization of deferred financing
costs. Fixed charges consist of interest expense, capitalized interest and
amortization of deferred financing costs. Earnings for the six months ended
September 30, 1994 and for the fiscal year ended April 30, 1993 were
insufficient to cover fixed charges. The amounts of the coverage
deficiencies were $1.5 million and $53.9 million, respectively. The
deficiency in fiscal 1993 resulted from a foreign exchange translation
loss. (See footnote 3.) The ratio of earnings to fixed charges before
taking into account such loss for fiscal 1993 would have been 1.45x.
(10) Excludes vessels of discontinued operations and the joint venture.
(11) Average age of Company's Aframax fleet is the average age, at the end of
the relevant fiscal period, of the Aframax tankers and O/B/Os owned or
leased by the Company (including joint venture vessels).
(12) TCE (or "time charter equivalent") is a measure of the revenue performance
of a vessel, which, on a per voyage basis, is generally determined by
Clarkson and other industry data sources by subtracting voyage expenses
(except commissions), which are incurred in transporting cargo (primarily
bunker fuel, canal tolls and port fees) from gross revenue per voyage and
dividing the remaining revenue by the total number of days required for the
round-trip voyage. For the purposes of calculating the Company's 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 the Company's total voyage days
in the year. See "Exhibit A--Definitions of Shipping Terms."
(13) Operating cash flow represents income from vessel operations, plus
depreciation and amortization expense, less drydock expense. Ship days are
calculated on the basis of a 365-day year multiplied by the average number
of vessels in the Company's fleet for the respective year. Operating cash
flow is not required by generally accepted accounting principles and should
not be considered as an alternative to net income or any other indicator of
the Company's performance required by generally accepted accounting
principles.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
GENERAL
The Company is a leading provider of international crude oil and petroleum
product transportation services through its fleet of predominantly Aframax
tankers. The charter rates that the Company is able to obtain for these services
are determined in a highly competitive global tanker charter market.
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. The Company's future operating results will be
subject to a number of uncertainties, many of which reflect the cyclical nature
of the tanker industry.
During the first half of fiscal 1996, approximately 75% of the Company's
net revenue was derived from spot voyages. This high dependence on spot voyages
contributes to the volatility of the Company's revenue, cash flow from
operations and net income. However, the Company's dependence on spot voyages is
within industry norms: the most recent comprehensive study on Aframax tankers by
Drewry, dated August 1993, shows that 90% of Aframax tankers traded on the spot
market in 1992.
Tanker charter markets have been affected by changes in the supply of, and
demand for, tanker capacity. Significant over-capacity developed in the
mid-1970s as large numbers of new vessels, ordered based on pre-1973 oil crisis
tanker demand growth expectations, were delivered into a depressed market.
Tankers built in the mid-1970s, many of which are still in service today, have
been the most significant factor in tanker supply from the time of their
delivery to this day. Management believes that many of these tankers will reach
the ends of their useful lives during the latter half of the 1990s. With the
exception of a strong tanker charter market in 1979-80 due to geo-political
events, conditions remained adverse for tanker owners from 1974 to 1986. In
particular, a persistent over-supply of tankers in a then-young world fleet (its
average age was only approximately 10 years in 1985) adversely affected the
charter market.
Charter market conditions began to improve in 1986 as a result of the
cumulative effect of several years of significant scrapping as well as increased
tanker demand. By 1988, charter rates and newbuilding orders had begun to
increase. During the period 1988-1991, significant new tonnage was delivered
into a strong charter market. Scrapping of older tonnage, which had been
expected to continue through this period as the fleet aged, slowed considerably
because it was economically feasible to operate older vessels in the prevailing
strong charter market conditions. In addition, the tanker industry had not yet
entered the current stringent regulatory environment, which management believes
has a generally adverse effect on older, substandard tonnage.
The tanker charter market experienced a decline in early 1992 as a result
of the expansion in tanker supply during the previous four years, as well as the
impact of the global recession on demand and pricing. Tanker charter rates
increased temporarily in calendar 1993 as a result of a short-term increase in
tanker demand, but declined again in calendar 1994, due to lower demand
resulting from shorter average tanker voyage distances, and in spite of a
decline in tanker supply for the first time since 1986. During the first eleven
months of calendar 1995, scrapping continued to exceed deliveries, resulting in
a further decline in tanker supply. Currently, newbuilding ordering activity has
declined and scrapping has now returned to levels which, if sustained, should
lead to a tanker market recovery.
The Company operates its tankers in markets that have historically
exhibited seasonal variations in demand and, therefore, charter rates. 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 the winter months tend to disrupt vessel scheduling. The oil price
volatility resulting from these factors has historically led to increased oil
trading activities. As a result, revenues have historically been strongest for
the Company in its third and fourth fiscal quarters.
Throughout the periods discussed in this Prospectus, the Company's average
TCE rate was higher than the industry average as calculated by the Company
(based upon data reported by Clarkson) as a consequence of higher capacity
utilization and the fuel efficiency of its modern fleet. Management
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believes that average TCE is an appropriate measure of a bulk shipping company's
net revenues for the purpose of comparisons to published industry data and
companies with similar ships. TCE, as generally calculated by industry sources,
deducts from gross revenue all direct voyage costs except for commissions. It
does not account for the opportunity cost of off-hire and idle days.
Over the past five years, certain countries have developed environmental
protection laws and regulations affecting the tanker industry. The new
requirements, in particular OPA 90 in the United States, have imposed higher
operating standards, greater liability, and a variety of higher costs upon
tanker owners and operators. One costly requirement of OPA 90 is that all
tankers ordered after June 1990 calling at U.S. ports be constructed with double
hulls. As a result, the Company's new vessels are of double hull construction
and the Company has plans to replace the older single hull vessels with double
hull vessels.
RESULTS OF OPERATIONS
SIX MONTHS ENDED SEPTEMBER 30, 1995 VERSUS SIX MONTHS ENDED SEPTEMBER 30,
1994
Operating results for the second quarter of fiscal 1996 reflected the
improvement in average TCE rates experienced by the Company's fleet during the
past 12 months. Despite a 9.3% decrease in the average size of the Company's
fleet of 100%-owned vessels from 43 vessels in the first half of fiscal 1995 to
39 in the first half of fiscal 1996, voyage revenues decreased by only 1.1% to
$160.9 million in the first half of fiscal 1996 from $162.8 million for the
first half of fiscal 1995. Net voyage revenue was down only 2.3%, to $117.5
million in the first half of fiscal 1994, from $120.3 million in the first half
of fiscal 1995. This reflects an improvement in TCE rates, as well as the
increased capacity and fuel efficiency associated with the Company's newer
fleet. In November 1995 the Company completed the sale of its last mid-1970s
built tanker. The disposal of these older and less efficient vessels over the
past two years has reduced the Company's fleet size, and has reduced voyage
expenses without reducing voyage revenues to the same extent.
Vessel operating expenses decreased 12.9% to $33.5 million in the first
half of fiscal 1996 from $38.4 million in the first half of fiscal 1995, a
result of the decline in fleet size, as well as the result of a stable operating
cost environment.
Depreciation and amortization decreased 15.1% to $41.0 million in the first
half of fiscal 1996 from $48.2 million in the first half of fiscal 1995, again a
function of the reduction in fleet size, and as a result of a revision to
estimates of residual values of the Company's vessels. This change in estimate
had the effect of reducing depreciation expense by approximately $4.8 million in
the first half of fiscal 1996. Depreciation and amortization expense included
amortization of drydocking costs of $4.2 million in the first half of fiscal
1996 and $5.0 million in the first half of fiscal 1995.
General and administrative expenses increased 8.2% to $8.8 million in the
first half of fiscal 1996 from $8.1 million in the first half of fiscal 1995,
primarily as a result of increased administrative costs subsequent to the
acquisition of Teekay Shipping Limited in March, 1995.
The combination of improved TCE rates, a more modern and efficient fleet,
and stable costs, resulted in a 34.6% increase in income from vessel operations
to $34.2 million in the first half of fiscal 1996 from $25.4 million in the
first half of fiscal 1995.
Interest expense remained virtually unchanged at $31.2 million in the first
half of fiscal 1996, compared to $31.4 million in the first half of fiscal 1995.
A continued decline in the Company's total debt and a reduction in the Company's
average credit spread on commercial bank borrowings were offset by the increase
in short-term interest rates which occurred during 1994. Changes in market
interest rates have had a delayed effect on interest expense, as rates on the
Company's floating rate debt are set in advance, for three to six month periods.
Interest income increased 9.6% to $3.2 million in the first half of fiscal 1996
from $2.9 million in the first half of fiscal 1995 as a result of higher cash
and marketable securities balances.
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Other income during the first half of fiscal 1996 was $4.4 million,
consisting primarily of a $3.7 million gain on sale of a vessel. Other income
during the first half of fiscal 1995 was $1.0 million, consisting primarily of a
$3.7 million gain on the sale of a vessel, offset by a $2.7 million loss on
marketable securities.
FISCAL 1995 VERSUS FISCAL 1994
The Company changed its fiscal year end from April 30 to March 31,
effective March 31, 1994, in order to facilitate comparison of the Company's
operating results with those of other companies within the transportation
industry on a calendar quarter basis. As a result, while the fiscal 1995 results
are for the twelve-month period ending March 31, 1995, the comparable fiscal
1994 results are for the eleven-month period ending March 31, 1994. Where
indicated in the following discussions, percentage change figures have been
annualized by adjusting fiscal 1994 results to include the unaudited results for
the month of April 1993.
Voyage revenues were $320.0 million in fiscal 1995 as compared to $317.7
million in fiscal 1994, representing an 7.2% decrease on an annualized basis
from fiscal 1994, primarily as a result of a decline in average fleet size from
45 to 42 vessels and continuing weak charter markets.
Voyage expenses were $85.0 million in fiscal 1995 as compared to $81.1
million in fiscal 1994, a decrease of 4.5% on an annualized basis, primarily as
a result of a decline in fleet size, partially offset by an increase in fuel
costs.
Vessel operating expenses were $72.7 million in fiscal 1995 as compared to
$73.6 million in fiscal 1994, representing a 9.9% decrease on an annualized
basis from fiscal 1994, primarily as a result of the decline in fleet size.
Depreciation and amortization was $96.4 million in fiscal 1995 as compared
to $89.9 million in fiscal 1994, representing a 1.0% decrease on an annualized
basis from fiscal 1994, primarily due to the decline in fleet size, partially
offset by a higher average cost base during fiscal 1995 resulting from the sale
of some of the Company's older vessels, whose annual depreciation charges were
lower than the fleet average.
General and administrative expenses were $15.0 million in fiscal 1995 as
compared to $14.1 million in fiscal 1994. On an annualized basis, this is
virtually unchanged from fiscal 1994.
As a result of the decrease in fleet size and continuing weak charter
markets, income from vessel operations decreased to $50.8 million in fiscal 1995
from $59.1 million in fiscal 1994. On an annualized basis, this represents a
19.0% decline from fiscal 1994.
Interest expense increased to $64.3 million in fiscal 1995 from $48.1
million in fiscal 1994, representing a 22.0% increase on an annualized basis
from fiscal 1994, as a result of an increase in interest rates mitigated in part
by the repayment and prepayment of long-term debt totalling $102.6 million.
Interest income was $5.9 million in fiscal 1995 as compared to $2.9 million in
fiscal 1994, representing an increase of 93.8% on an annualized basis from
fiscal 1994, as a result of increased interest rates and higher cash and
marketable securities balances; however, there were related losses of $4.3
million and $1.6 million on marketable securities included in other income
during fiscal years 1995 and 1994, respectively.
Other income during fiscal 1995 was $11.8 million, consisting primarily of
an $18.2 million gain on the sale of six vessels, partially offset by a $4.3
million loss on available-for-sale securities and a $2.1 million equity loss
from the Company's 50% investment in VCSC during the period. Other income during
fiscal 1994 was $11.8 million, consisting primarily of a $12.3 million gain on
the sale of six vessels and $1 million in equity income from VCSC, partially
offset by a $1.6 million loss on marketable securities.
There was no income from discontinued operations during fiscal 1995. Net
income from discontinued operations was $5.9 million during fiscal 1994,
primarily as a result of a $5.7 million gain arising on the
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sale of nine multipurpose dry cargo vessels obtained in connection with the
divestiture of the Company's investment in Baltimar Overseas Limited.
As a result of the foregoing factors, the Company's net income decreased to
$6.4 million in fiscal 1995 from $30.2 million in fiscal 1994, representing an
80.1% decrease on an annualized basis.
FISCAL 1994 VERSUS FISCAL 1993
As the Company has changed its fiscal year end from April 30 to March 31,
the fiscal 1994 results are for the eleven-month period ending March 31, 1994,
while the comparable fiscal 1993 results are for the twelve-month period ending
April 30, 1993. Where indicated in the following discussion, percentage change
figures have been annualized by adjusting fiscal 1994 results by a factor of
12/11. No assurance can be given that the fiscal 1994 annualized figures used to
calculate percentage changes herein accurately approximate actual results for
the month of April 1994.
Voyage revenues were $317.7 million in fiscal 1994 as compared to $337.0
million in fiscal 1993, representing a 2.8% increase on an annualized basis from
fiscal 1993, primarily as a result of higher charter rates caused by improved
spot market conditions, partially offset by a decline in average fleet size from
50 to 45 vessels.
Voyage expenses were $81.1 million in fiscal 1994 as compared to $108.8
million in fiscal 1993, a decrease of 18.7% on an annualized basis, as a result
of a reduction in fleet size and lower fuel costs.
Vessel operating expenses were $73.6 million in fiscal 1994 as compared to
$79.6 million in fiscal 1993, representing a 1.0% increase on an annualized
basis from fiscal 1993, which was primarily a result of increased insurance
costs, partially offset by a reduction in fleet size.
Depreciation and amortization was $89.9 million in fiscal 1994 as compared
to $97.6 million in fiscal 1993. On an annualized basis, depreciation and
amortization was virtually unchanged between the two periods despite a reduction
in the size of the fleet as a result of a higher average cost base in fiscal
1994 as compared to fiscal 1993 arising from six newbuildings delivered during
fiscal 1993 and three newbuildings delivered during fiscal 1994.
General and administrative expenses were $14.1 million in fiscal 1994 as
compared to $14.0 million in fiscal 1993, representing a 9.9% increase on an
annualized basis from fiscal 1993, reflecting additional administrative expenses
associated with new environmental legislation and with increased financing
activity.
Income from vessel operations was $59.1 million in fiscal 1994 as compared
to $36.9 million in fiscal 1993, representing a 74.7% increase on an annualized
basis from fiscal 1993, primarily the result of improved charter market
conditions.
Interest expense was $48.1 million in fiscal 1994 as compared to $47.4
million in fiscal 1993, representing a 10.7% increase on an annualized basis
from fiscal 1993, reflecting higher average outstanding debt during the 1994
period. The issuance of $175.0 million of 9 5/8% First Preferred Ship Mortgage
Notes in July 1993, together with borrowings associated with the delivery of
newbuildings during fiscal 1993, contributed to the higher average outstanding
debt during fiscal 1994.
During fiscal 1994, other income was $11.8 million, consisting primarily of
gains of $12.3 million from the sale of six vessels during the period. Other
income during fiscal 1993 was $37.9 million, consisting primarily of gains of
$12.2 million from the sale of six vessels and a gain of $25.0 million arising
from insurance proceeds receivable on the loss of one of the Company's vessels.
Foreign currency exchange loss decreased from $77.9 million in the fiscal
1993 to $1.5 million in fiscal 1994 reflecting the conversion into U.S. dollars
of substantially all of the Company's Japanese Yen-denominated debt by June
1993. The Company has now substantially eliminated its remaining foreign
currency exposure (other than exposure relating to its 50% interest in VCSC) and
as a result, has not incurred any material foreign exchange gains or losses
subsequent to June 1993.
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Net income from discontinued operations increased from $1.9 million in
fiscal 1993 to $5.9 million in fiscal 1994, primarily as a result of a $5.7
million gain arising on the sale of the nine multipurpose dry cargo vessels
obtained in connection with the divestiture of the Company's investment in
Baltimar Overseas Limited.
Net income improved to $30.2 million in fiscal 1994 from a loss of $47.5
million in fiscal 1993, primarily as a result of the decreased foreign exchange
loss, as well as improved charter market conditions.
LIQUIDITY AND CAPITAL RESOURCES
The liquidity requirements of the Company relate to servicing its debt,
funding the equity portion of investments in vessels, funding working capital
and maintaining cash reserves against fluctuations in operating cash flow. Net
cash flow generated by continuing operations is the main source of liquidity for
the Company. Additional sources of liquidity include proceeds from asset sales
and refinancings.
The Company operates in a capital-intensive industry requiring extensive
investment in revenue-producing assets. Funds invested are raised mainly from
borrowings and the Company's internally generated liquidity. The equity portion
of an investment in a newbuilding is usually paid in installments, commencing
one to three years in advance of delivery, for 10% to 80% of the vessel purchase
price. The equity portion of an investment in a second-hand vessel is usually
paid in two portions: 10% on signing a purchase agreement, and an additional 20%
to 50% (depending on financing) upon delivery to buyers. Repayment of the debt
incurred to purchase the vessel is made from vessel operating cash flow,
typically over 8 to 10 years, compared to the vessel's asset life of
approximately 20 years.
During the first half of fiscal 1996, the Company has undertaken further
steps to improve its financial position and liquidity. During the first quarter
of fiscal 1996, the Company refinanced certain of its existing term debt as well
as $23.8 million of 9 5/8% First Preferred Ship Mortgage Notes (the "1993
Notes") with funds available under the $243 million Revolver at improved rates
and credit terms. The Revolver also provided an additional $20 million of
liquidity to the Company. In July 1995, the Company received $137.6 million net
proceeds from its initial public offering of common stock, thereby further
boosting liquidity and reducing debt through a $135 million reduction in the
amount outstanding under the revolving credit facility.
Net cash flow from continuing operations decreased to $41.9 million in the
first half of fiscal 1996 from $51.2 million during the first half of fiscal
1995. The decrease was mainly caused by an increase in non-cash working capital
balances, partially offset by higher income from operations. Net cash flow from
continuing operations decreased 30.1% on an annualized basis (adjusting fiscal
1994 results to include April 1993 results) to $87.5 million in fiscal 1995 from
$117.4 million in the eleven months ended March 31, 1994, due to declining fleet
size, declining TCE rates and rising interest expense. Net cash flow from
continuing operations increased 52.5% on an annualized basis (adjusting fiscal
1994 results by a factor of 12/11) in fiscal 1994 from $84.0 million during
fiscal 1993, primarily as a result of a temporary improvement in charter market
conditions.
No additional debt was incurred during fiscal 1995, consistent with the
Company's decision not to take delivery of any vessels during that period.
Long-term debt increased $220.0 million in the eleven months ended March 31,
1994 as a result of the issuance of $175.0 million of the 1993 Notes and
borrowings associated with the delivery of one newbuilding. Proceeds from
long-term debt and capital leases provided $292.5 million toward the financing
of newbuildings during fiscal 1993.
During fiscal 1995, in addition to scheduled debt repayment of $87.6
million, the Company prepaid, from internally generated funds, $15.0 million of
long-term debt secured by vessels sold during the year. The Company prepaid
long-term debt and capital lease obligations of $243.3 million in the
eleven-month fiscal period ended March 31, 1994, primarily representing
prepayments out of the proceeds of the Company's issue of the 1993 Notes and the
prepayment of debts associated with vessels which were
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sold during the period. Total prepayments of long-term debt and capital lease
obligations were $131.9 million in fiscal 1993, primarily reflecting the level
of vessel sales during that period.
Capitalized loan costs were approximately $866,000 in the first half of
fiscal 1996 and $1.6 million in fiscal 1995, compared to $10.0 million in fiscal
1994. The high level of capitalized loan costs in fiscal 1994 resulted primarily
from capitalization of costs incurred on the issuance of the 1993 Notes.
The Company had outstanding a number of interest rate swap agreements with
commercial banks covering a total notional principal amount of $175 million as
at September 30, 1995. The agreements expire between October 1995 and April 1996
and have an average remaining life of 4.5 months. These agreements effectively
change the Company's interest rate exposure on $175 million of debt from a
floating LIBOR rate to an average fixed rate of 5.68%. Subsequent to September
30, 1995, the Company entered into an additional $250 million in interest rate
swap agreements with three commercial banks. These new swap agreements have an
average life of 3 years, expiring between October 1998 and December 1998, and
effectively change the Company's interest rate exposure on $250 million of debt
from a floating LIBOR rate to an average fixed rate of 5.85%. The Company also
has outstanding $200 million of interest rate caps with a strike price of 8.00%
vs. 3 month LIBOR. These caps expire in April 1997.
One vessel was sold during the second quarter of fiscal 1996, resulting in
net proceeds of $5.6 million. In addition, the Company received $17.2 million in
the first quarter of fiscal 1996 as a result of a vessel sale and the receipt of
proceeds from vessel sales receivable at the end of fiscal 1995. Subsequent to
September 30, 1995, the Company sold a vessel for $6.0 million. The Company
received cash proceeds from the disposition of assets totalling $16.8 million in
fiscal 1995 as a result of the sale of six older vessels. Proceeds from the
disposition of assets totalled $86.4 million and $156.9 million in fiscal 1994
and 1993, respectively. Proceeds from the disposition of vessels in fiscal 1994
and 1993 resulted from vessel sales which were intended to enhance the Company's
liquidity, the disposition of older vessels, and the receipt of insurance
proceeds relating to the loss of one of the Company's vessels during the fiscal
1993 period.
While its fleet modernization program is effectively complete, the Company
intends to continue selective purchases of modern, predominantly second-hand,
high quality tankers should such vessels become available. Actual acquisition of
additional tankers will be subject to a number of factors, including the
Company's expectations for future market rates, supply and demand within the
tanker industry generally, and the Company's ability to obtain financing upon
favorable terms. The Company took delivery of two modern second-hand Aframax
tankers and one newbuilding during the first half of fiscal 1996, as
replacements for older tankers recently sold, resulting in expenditures of $46.9
million net of capital lease financing of $44.6 million. Subsequent to September
30, 1995, the Company acquired a 1987-built Aframax tanker, which the Company
will time-charter for a period of one year and then purchase for $26.5 million.
In addition, the Company is negotiating the purchase of a 1989-built Aframax
tanker from VCSC and the potential purchase of one Aframax newbuilding from a
shipyard. The Company intends to finance these purchases by using existing cash
balances or credit lines. Capital expenditures for vessels and equipment, net of
capital lease financing, decreased to $7.5 million in fiscal 1995 from $65.7
million during the eleven months ended March 31, 1994 and $190.0 million in
fiscal 1993, reflecting a slowing of the Company's fleet expansion program.
Capital expenditures for drydocking decreased to $11.9 million in fiscal 1995
from $13.3 million during the eleven months ended March 31, 1994 and $16.4
million in fiscal 1993, reflecting the reduction in fleet size during these
periods.
Teekay declared its first quarterly cash dividend of $0.215 per share on
its common stock in October 1995 and currently intends to continue paying
quarterly dividends in that amount, subject to the Company's financial results
and condition and declaration by the Board of Directors. Teekay has implemented
a dividend reinvestment plan pursuant to which holders of its common stock are
permitted to choose, in lieu of receiving cash dividends, to reinvest any
dividends in additional shares of common stock. The Trusts informed Teekay, at
the time of Teekay's initial public offering, that it was their intention to
reinvest through the dividend reinvestment plan, or apply to open market
purchases, at least 50% of
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any dividends to which they are entitled through the first quarter of fiscal
1998. Since the initial public offering, the Trusts have reinvested through the
dividend reinvestment plan at least 50% of the dividends declared by Teekay to
which they were entitled.
As at September 30, 1995, the Company's total liquidity, including cash,
marketable securities and undrawn lines of credit, totalled $244.3 million, as
compared to $85.7 million as at March 31, 1995 and $107.2 million as at March
31, 1994. The Company believes that, assuming a continuation of current market
conditions, its financial resources are sufficient to meet its liquidity needs.
INFLATION
Although inflation has had a moderate impact on operating expenses,
drydocking expenses and corporate overhead, 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.
FOREIGN EXCHANGE RATE FLUCTUATION
The international tanker industry's functional currency is the U.S. dollar.
Virtually all of the Company's revenues are in U.S. dollars and most of its
operating costs are incurred in U.S. dollars. The Company incurs certain
operating expenses in foreign currencies, the most significant of which are in
Japanese Yen and Singapore dollars. During the first half of fiscal 1996,
approximately 13% of vessel and voyage costs, overhead and drydock expenditures
were denominated in these currencies. However, the Company has the ability to
shift its purchase of goods and services from one country to another and, thus,
from one currency to another, on relatively short notice.
From 1986 to 1991, a period of high growth and strong operating performance
for the Company, management borrowed funds denominated in Japanese Yen. This led
to fluctuations in net income and retained earnings, recorded as gains or losses
from foreign exchange translations in the Company's financial statements, with
corresponding increases or decreases in long-term debt. In fiscal 1993, the
Company commenced an aggressive foreign exchange hedging policy in order to
reduce its exposure to fluctuating Yen/U.S. dollar exchange rates. The Company
completed this program in July 1994 and does not intend to undertake any
unnecessary material exposure to foreign exchange fluctuations henceforth. While
the Company no longer has any Yen-denominated debt, the Company's net income may
be affected by fluctuations in equity income caused by foreign exchange gains or
losses from approximately $17.5 million (at current exchange rates) of
Yen-denominated debt held by VCSC, a joint venture in which the Company owns a
50% interest. However, the Company's 50% portion of this Yen-denominated debt is
presently hedged through a foreign exchange contract. See Note 11 to the
Consolidated Financial Statements.
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BUSINESS
The Company is a leading provider of international crude oil and petroleum
product transportation services through the world's largest fleet of medium-size
oil tankers. The Company's modern fleet consists of 41 tankers: 36 Aframax oil
tankers and oil/bulk/ore carriers, two smaller oil tankers, one VLCC, and,
through a joint venture, a 50% interest in two additional Aframax oil tankers.
The Company's fleet has a total cargo capacity of approximately 4.1 million tons
and its Aframax vessels represent approximately 7.0% of the total tonnage of the
world Aframax fleet. The Company owns a very modern fleet, with an average age
of approximately 6.9 years, compared to an average age for the world oil tanker
fleet, including Aframax tankers, of approximately 14.1 years and for the world
Aframax tanker fleet of approximately 12.3 years.
THE INTERNATIONAL TANKER MARKET
OVERVIEW
International seaborne oil and petroleum products transportation services
are provided by two main types of operators: major oil company captive fleets
(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
oil companies own, or control through long-term time charters, approximately
one-third of the current world tanker capacity, while independent companies own
or control the balance of the fleet. The oil companies use their fleets not only
to transport their own oil, but also to transport oil for third party charterers
in direct competition with independent owners and operators in the tanker
charter market. Management believes that the seaborne oil transportation
business is decentralized. According to Lloyd's World Shipowning Groups (April
1995), the largest owner by tonnage, Bergesen d.y. A/S, controls 2.7% of the
total world tanker fleet and the top 10 participants control approximately 19%
of the world tanker fleet, in each case measured by deadweight tonnage.
A significant and ongoing shift toward quality in vessels and 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;
however, since 1990 there has been an ever-increasing emphasis on environmental
protection through legislation and regulations such as OPA 90, IMO protocols,
and Classification Society procedures, demanding higher quality tanker
construction, maintenance, repair, and operations. In addition, 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 excluding tankers on
the basis of age alone. In calendar 1994, the Company's vessels were inspected
237 times by oil companies and port states, as compared to 134 and 87 times in
1993 and 1992, respectively. Management believes 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 to modern tankers with high quality management.
See "--Regulation," "--Crewing and Staff ," "--The Company's Fleet."
Pricing of oil transportation services is set in a highly competitive and
efficient global tanker charter market with tanker brokers acting as
intermediaries between ship owners and charterers. While some business is
conducted directly between ship owners and charterers, at least one broker, and
sometimes as many as three, 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
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.
34
<PAGE> 39
In order to benefit from economies of scale, tanker charterers will
typically charter the largest possible vessel to transport oil or products,
consistent with port and canal dimensional restrictions and optimal cargo lot
sizes. The oil tanker fleet is generally divided into the following six major
types of vessels, based on vessel carrying capacity: (i) Ultra Large Crude
Carriers ("ULCCs") of approximately 320,000 dwt or more; (ii) Very Large Crude
Carriers ("VLCCs") of approximately 200,000 to 320,000 dwt; (iii) Suezmax size
range of approximately 115,000 to 200,000 dwt; (iv) Aframax size range of
approximately 75,000 to 115,000 dwt; (v) Panamax size range of approximately
50,000 to 75,000 dwt; and (vi) small tankers of less than approximately 50,000
dwt. ULCCs and VLCCs typically transport crude oil in long-haul trades, such as
from the Arabian Gulf to Rotterdam via the Cape of Good Hope. Suezmax 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 engage in both medium-and short-haul trades of less than 1,500 miles and
carry crude oil or petroleum products. Panamax size tankers and smaller tankers
mostly transport petroleum products in short-haul to medium-haul trades.
In addition to the six foregoing types of tankers, oil/bulk/ore carriers or
"O/B/Os" are typically considered part of the world tanker fleet in industry
statistics. O/B/Os represent approximately 7.6% of the world tanker fleet based
on total cargo capacity. O/B/Os are of various sizes and are capable of carrying
oil or dry bulk cargoes. According to Drewry, as of October 1995, 29% of all
existing O/B/Os were trading as tankers.
Because of the size of VLCCs and ULCCs and their predominance in the
long-haul trades, more than half of the world's seaborne oil transportation (by
ton-miles) is conducted by these vessels. While the ULCC/VLCC market differs in
several respects from smaller size tanker markets, VLCCs and ULCCs have a
significant influence on the tanker charter market in general. The current
average age of the VLCC and ULCC fleet is 14.2 years compared to an average age
for the world Aframax fleet of 12.3 years.
The graphs set forth below indicate the size composition of the world
tanker fleet as of November 30, 1995.
WORLD TANKER FLEET
FIGURE
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE DEADWEIGHT PERCENTAGE
VESSEL TYPE TANKERS OF TANKERS METRIC TONS OF TONNAGE
- ----------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Smaller Tanker 1,649 49.5% 47,053 15.9%
(10,00-50,000 dwt.)
Panamax 300 9.1% 18,600 6.4%
(50,000-75,000 dwt.)
Aframax 586 17.5% 53,015 17.9%
(75,000-115,000 dwt.)
Suezmax 354 10.6% 49,862 16.9%
(115,000-200,000 dwt.)
VLCC/ULCC 443 13.3% 126,643 42.9%
(200,000 + dwt.)
----- ------ ------- ------
TOTALS: 3,332 100.0% 295,233 100.0%
===== ====== ======= ======
</TABLE>
According to industry data, at November 30, 1995, the world fleet of
Aframax tankers and O/B/Os (excluding an estimated 67 O/B/Os trading dry)
consisted of 519 vessels, constituting approximately
35
<PAGE> 40
16% of the vessels in the world tanker and O/B/O 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 ports, and are particularly well-suited for trading in
regional markets, including the Mediterranean, the Caribbean, the Northwestern
European area and the Indo-Pacific Basin. The Company owns, or controls through
joint ventures, 38 Aframax tankers and O/B/Os, which comprise roughly 7.3% of
the tankers and O/B/Os trading in oil in the current world Aframax tanker fleet.
Management estimates that approximately 30% of the ship days of the world's
Aframax tankers are spent trading in the Company's main trading region, the
Indo-Pacific Basin. The Company estimates that it has a one quarter share of the
Indo-Pacific Basin Aframax market based on ship days spent in the region. This
area contains a large number of loading and discharging points capable of
receiving Aframax size vessels. Aframax tankers in the Indo-Pacific Basin (i)
transport crude oil from three primary production locations--the Arabian Gulf,
Australia and Indonesia--to refineries and storage points located short to
medium distances away, (ii) transport petroleum products in medium-and long-haul
trades, and (iii) engage in some inter-regional trades.
SUPPLY AND DEMAND
Tanker charter rates are strongly influenced by the supply of, and demand
for, tanker capacity because of the highly competitive nature of the tanker
charter market, in large part attributable to the limited differentiation
between the transportation services provided by tanker companies of comparable
quality. Small changes in tanker utilization have historically led to relatively
large changes in tanker charter rates. Using the most recent peak and trough as
an example, according to Drewry's Shipping Statistics and Economics (May 1993),
there was an excess supply of capacity in the Aframax tanker market equal to
6.6% of the existing Aframax fleet as of April 30, 1993, compared to 3.1% as of
April 30, 1990; yet, according to information based on Drewry data, industry
average Aframax TCE rates during the Company's fiscal 1993 were approximately
40% lower than TCE rates during the Company's fiscal 1990.
SUPPLY. The supply of tankers is a function of new vessel deliveries and
the scrapping, conversion and loss of tonnage. According to Clarkson, from the
end of 1988 through the end of 1993, the world supply of tankers increased by
31.4 million dwt, which represents an average annual increase of approximately
3%. New vessels were ordered during this period largely in anticipation of the
scrapping of older and substandard tonnage as well as increased tanker demand,
which, according to Maritime Strategies International Ltd., also grew by
approximately 3% per annum during this time period. Scrapping levels remained
low due to the strong charter rates that prevailed in the industry from 1988
until 1992. Since the decline in charter rates in 1992 and the emergence of a
more stringent environmental regime, the scrapping of older tonnage has
substantially accelerated. According to Clarkson, in calendar 1994 scrapping
exceeded deliveries by 4.9 million tonnes, resulting in the first annual
decrease in tanker supply since 1986. In the first eleven months of calendar
1995, scrapping has exceeded deliveries by an additional 2.7 million tonnes,
resulting in a cumulative 2.5% decrease in tanker supply since December 31,
1993. The following graph illustrates the development of tanker supply since
1988:
36
<PAGE> 41
WORLD TANKER FLEET DEVELOPMENT
DEADWEIGHT-METRIC TONS (MILLIONS)
[FIGURE]
<TABLE>
<CAPTION>
CALENDAR YEAR DELIVERIES SCRAPPINGS FLEET SIZE
- ------------- ---------- ---------- ----------
<S> <C> <C> <C>
1988 7.3 2.6 271.9
1989 8.6 1.1 275.5
1990 8.6 3.1 283.4
1991 12.3 2.2 288.6
1992 17.0 11.3 298.2
1993 17.5 12.5 304.9
1994 10.3 15.2 308.7
Nov 1995 9.0 11.7 295.2
</TABLE>
- ------------
Information based upon Clarkson data.
* Delivery and scrapping data reflects activity for the first eleven months of
calendar 1995.
Management anticipates a continued decrease in tanker supply relative to
demand due to (i) the aging of the significant portion of the fleet that was
built prior to or in the mid-1970s and the significant costs associated with the
drydocking of these vessels to achieve a rated classification during their
fourth or fifth special surveys (described below), (ii) increased customer
emphasis on safety and quality as a result of stringent environmental
regulations and heightened concern about liability for oil spills and (iii) a
low charter rate environment which has discouraged newbuilding ordering. In
addition, a number of developments have combined to effectively increase
operating costs for the industry in general and to raise barriers to entry for
smaller, undercapitalized ship owners, operators and speculators while providing
a potential competitive advantage for well-managed companies that can operate
quality tonnage in large scale operations and have the financial strength to
weather the current weakness in charter rates. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition--General."
37
<PAGE> 42
The Company owns a very modern fleet, with an average age of approximately
6.9 years, compared to an average age for the world oil tanker fleet, including
Aframax tankers, of approximately 14.1 years and for the world Aframax tanker
fleet of approximately 12.3 years. The following chart compares, at November 30,
1995, the age profiles of the Company's Aframax fleet, the world Aframax tanker
fleet (excluding Teekay vessels) and the world tanker fleet.
COMPARISON OF FLEET AGE PROFILES
FIGURE
<TABLE>
<CAPTION>
Percentage of Fleet
-------------------
0-4 Years 5-9 Years 10-14 Years 15-19 Years 20 + Years
--------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Teekay Aframax Tanker Fleet 38 % 40 % 8 % 14 % 0 %
World Aframax Tanker Fleet 22 % 17 % 19 % 21 % 21 %
(excluding Teekay vessels)
World Tanker Fleet 23 % 14 % 11 % 25 % 27 %
</TABLE>
- ------------
Information based upon Clarkson data.
Vessels built during the peak building period of the mid-1970s, and
earlier, shown above in the 15-19 Years and 20+ Years age ranges, are now
approaching their fourth or fifth "Special Survey." Special Surveys involve
thorough inspections and typically necessitate improvements to maintain a vessel
to industry standards which would allow continued operation. Special Surveys,
required every four to five years, are conducted by independent classification
societies, the five largest of which are Lloyds Register, Nippon Kaiji Kyokai,
the American Bureau of Shipping, Det Norske Veritas and Bureau Veritas.
Insurance companies and charterers 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,
which averages approximately 20 years, than to upgrade it to maintain it in
class, particularly at a time when charter rates are at relatively low levels
and when the market has become increasingly biased against older vessels.
Approximately 35% to 45% of the vessels in the current world Aframax fleet will
face their fourth or fifth Special Survey between 1995 and 1999 and, therefore,
these ships are potential candidates for scrapping in the near future.
38
<PAGE> 43
As an illustration of the aging Aframax fleet and the substantial decline
in vessels on order that are available to replace the aging tankers, the
following chart shows, on a calendar year-end basis, the historical development
of the proportion of the Aframax tanker fleet that is 18 years or older, and the
Aframax tanker orderbook:
HISTORICAL DEVELOPMENT OF AFRAMAX FLEET
FIGURE
<TABLE>
<CAPTION>
VESSELS 18 YEARS
AND OLDER
YEAR AFRAMAX ORDERBOOK (PERCENTAGE OF
(AS AT DECEMBER 31) (# OF SHIPS) AFRAMAX FLEET)
- -------------------- ------------------ ------------------
<S> <C> <C>
1985 42 10 %
1986 33 13 %
1987 40 15 %
1988 45 15 %
1989 81 17 %
1990 83 20 %
1991 99 25 %
1992 73 29 %
1993 47 32 %
1994 42 31 %
Nov 30, 1995 43 31 %
</TABLE>
- ------------
Information based upon Clarkson data.
At any point in time, the level of scrapping activity is a function
primarily of current and prospective charter market conditions, as well as
factors which are heavily influenced by the age of the relevant vessel such as
second-hand vessel values in relation to scrap prices, current and anticipated
operating costs, and expected repair and survey costs. According to Clarkson,
scrapping of Aframax tankers and O/B/Os occurred at an average annual rate of
approximately six vessels per year for the period 1988 to 1991; 26 scrappings
occurred during 1992, 22 in 1993, 24 in 1994, and 11 as at November 1995.
At December 31, 1991, the Aframax newbuilding orderbook contained orders
for 99 vessels, equivalent to 17% of the existing fleet; at November 30, 1995,
the orderbook contained orders for 41 vessels, equivalent to approximately 7% of
the existing fleet. Orders placed for Aframax tankers occurred at an annual
average rate of 35 vessels per year for the period 1988 through 1991. Twelve
orders were placed in 1992, 15 in 1993, 20 in 1994, and 13 as at November 1995.
Typically, delivery of a vessel occurs within 18 to 36 months after ordering.
Newbuilding deliveries of Aframax tankers, which were limited during the
depressed market conditions of the early to mid-1980s, increased after 1987 with
improved market conditions and in anticipation of the replacement of an aging
fleet. Newbuilding deliveries of Aframax tankers occurred at an annual average
rate of 22 vessels for the period 1988 through 1991. Forty deliveries occurred
in 1992, 34 deliveries occurred in 1993, 23 deliveries occurred in 1994, and 9
deliveries to November 1995. Management does not anticipate newbuilding rates
will return to the levels of the late 1980s unless a substantial recovery in
charter rates justifies such increase.
DEMAND. Tanker demand is expressed in "ton-miles" and is measured as the
product of (a) the amount of oil transported in tankers, times (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.
39
<PAGE> 44
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 such production to
destinations for refining and consumption. Seaborne trading patterns are also
periodically influenced by geo-political events which divert tankers from normal
trading patterns, as well as by inter-regional oil trading activity created by
oil supply/demand imbalances. Tankers are also sometimes used as "floating
storage" by oil companies and oil traders, particularly during times of supply
uncertainty such as during the 1991 Persian Gulf War.
Two different trends in the oil market over the last few years have
strongly affected the development of the tanker market. First, the rapid
economic expansion in the Indo-Pacific Basin, the Company's primary area of
focus, has resulted in a steady and strong growth in oil consumption in that
region. According to the International Energy Agency ("IEA"), oil consumption in
the Indo-Pacific Basin increased by 5.3% in 1994 as compared to an increase of
0.2% in oil consumption in the rest of the world. In addition, between 1990 and
1994, oil consumption in the Indo-Pacific Basin increased by a compounded annual
growth rate of 4.4% as compared to a decrease of 0.7% in oil consumption in the
rest of the world.
The second trend affecting the tanker market relates to the location of oil
production relative to major discharge points, which affects the average length
of voyages. Total world oil production increased by 1.5% in 1994. Most of this
increase, however, was provided by non-Arabian Gulf production, primarily from
the North Sea and the Caribbean regions. Production in the North Sea increased
by 19.1% in 1994 as compared to an increase of 0.6% in Arabian Gulf OPEC
production during the same time period.
The tables set forth below indicate the geographic breakdown of world oil
demand and supply.
WORLD OIL DEMAND (MILLIONS OF BARRELS PER DAY)(1)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 CAGR*
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
United States West Coast(2)........................... 2.7 2.7 2.6 2.6 2.7 --
Pacific(3)............................................ 6.1 6.2 6.3 6.3 6.6 2.0%
Asia.................................................. 7.8 8.3 9.1 9.8 10.4 7.5
---- ---- ---- ---- ---- ----
Total Indo-Pacific Basin............................ 16.6 17.2 18.0 18.7 19.7 4.4
Other World........................................... 49.8 49.7 49.2 48.4 48.5 (0.7)
---- ---- ---- ---- ---- ----
Total Demand........................................ 66.4 66.9 67.2 67.1 68.2 0.7
==== ==== ==== ==== ==== ====
</TABLE>
- ------------
(1) Information based on International Energy Agency -- Monthly Oil Market
Report.
(2) Information based on U.S. Department of Energy data.
(3) Includes Australia, New Zealand, and Japan.
* Compounded annual growth rate.
WORLD OIL SUPPLY (MILLIONS OF BARRELS PER DAY)
<TABLE>
<CAPTION>
1990 1991 1992 1993 1994 CAGR*
---- ---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C> <C>
North Sea............................................. 3.8 4.0 4.3 4.7 5.6 10.2%
Other non-OPEC........................................ 38.4 37.8 36.7 35.8 35.6 (1.9)
---- ---- ---- ---- ---- ----
Total non-OPEC...................................... 42.2 41.8 41.0 40.5 41.2 (0.6)
Arabian Gulf OPEC..................................... 15.3 14.9 16.0 16.8 16.9 2.5
Other OPEC............................................ 9.5 10.2 10.2 10.1 10.4 2.3
---- ---- ---- ---- ---- ----
Total OPEC.......................................... 24.8 25.1 26.2 26.9 27.3 2.4
---- ---- ---- ---- ---- ----
Total Supply........................................ 67.0 66.9 67.2 67.4 68.5 0.6
==== ==== ==== ==== ==== ====
</TABLE>
- ------------
Information based on International Energy Agency -- Monthly Oil Market Report.
* Compounded annual growth rate.
Incremental production from the North Sea and the Caribbean results in a
less significant increase in demand for tanker services than incremental
production from the Arabian Gulf, because of the closer proximity of the North
Sea and the Caribbean to discharge points and the associated shorter average
length of voyage for oil tankers. For example, the tanker tonnage required to
ship the incremental production of one million barrels per day from the North
Sea to the United States is approximately 5 million dwt as compared to
approximately 13 million dwt of tanker tonnage required to ship the
40
<PAGE> 45
incremental production of one million barrels per day from the Middle East to
the United States, as illustrated in the graph below.
TANKER TONNAGE REQUIREMENTS TO SHIP ONE MILLION BARRELS PER DAY
[FIGURE]
<TABLE>
<CAPTION>
MILLION OF DEAD WEIGHT
TONNES
----------------------
<S> <C>
Total oil trade 6.4
M. East Exports 8.8
M. East -- US 13.0
M. East -- WE 10.0
M. East -- JPN 8.0
M. East -- Asia 6.0
Non-M. East Exp 3.8
FSU Exp 2.4
N. Sea -- US 5.2
N. Sea -- NWE 1.3
OPEC Exp 7.5
Non-OPEC 4.3
</TABLE>
- ------------
Information based on rough estimates from R.S. Platou Economic Research a.s.,
1995.
The recent shift in the origin of oil production, which resulted in a
reduction in the average voyage length for oil tankers, adversely affected total
tanker demand. According to industry sources, total tanker demand remained flat
during 1994, in spite of overall higher global oil consumption. For 1996, the
IEA forecasts a global oil consumption growth of 2.3% and a continued higher
growth rate in the Indo-Pacific Basin as compared to the rest of the world.
Management believes that, over the longer term, a larger percentage of future
oil demand growth will be met by Arabian Gulf oil producers, thereby increasing
tanker demand. Maritime Strategies Inc. forecasts that tanker demand will grow
2.4% in 1996 and 3.3% in 1997.
BUSINESS STRATEGY
The Company has always maintained a service-oriented business strategy,
seeking first to define a trading strategy and develop business relationships,
and only then to secure tanker tonnage to meet its needs. This approach to the
business was evidenced by the Company's initial reliance on high-quality
chartered-in tonnage during the period of 1976-1986 as the most cost-effective
source of tonnage. When the availability of acceptable third party vessels for
chartering-in declined, the Company decided to acquire its own high-quality
in-house fleet to service its tonnage needs.
The Company's business strategy is customer- and operations-oriented and
focuses on the transportation of crude oil and petroleum products via its
Aframax tankers for clients with transport requirements in the Indo-Pacific
Basin. With the largest concentration of Aframax tankers and O/B/Os in this
region, management believes that it provides the most comprehensive service via
Aframax tankers in the Indo-Pacific Basin.
The Company believes that its business strategy, executed with a modern,
homogenous fleet and a skilled staff, yields strong operating returns, relative
to competitors, in all charter market conditions. Specifically, the Company
believes that it has the following competitive advantages:
- GEOGRAPHICAL CONCENTRATION: By focusing on the Indo-Pacific Basin, the
Company has been able, with a relatively small share (7.0% of total
tonnage) of the world Aframax fleet, to develop a significant presence in
this region with charterers of medium-size tankers, facilitating
comprehensive coverage of charterers' requirements and providing a base
for efficient operation and a high degree of capacity utilization. The
Company estimates that it has a market share of
41
<PAGE> 46
approximately one quarter based upon ship days in this region. The
Company's principal discharge ports are in Japan, Korea, China, Taiwan,
Malaysia, Thailand, Singapore, Australia and the United States.
- LARGE FLEET OF UNIFORM-SIZE VESSELS: The Company's large fleet of
Aframax tankers, many of which are in sister vessel series (substantially
identical vessels), affords greater scheduling flexibility due to vessel
substitution opportunities.
- HIGH-QUALITY, MODERN TONNAGE: The Company's modern fleet operates with
high fuel efficiency and low maintenance and operating costs, and, in an
environment of increasingly stringent operating and safety standards,
enjoys a high level of acceptance by charterers.
- OPERATIONAL SCALE AND CONTROL: By virtue of the size of the Company's
operations which are concentrated in one geographical region, the Company
is able to service substantially all of its needs in-house, without
having to rely on outside ship managers or crewing agencies. The Company
has an experienced staff at sea and ashore, which affords a focused
marketing effort, tight cost controls, and effective operations and
safety monitoring.
The Company's business strategy has resulted in TCE rates and operating
costs that are superior to averages indicated by industry data. As a result, the
Company has achieved consistently higher operating cash flow per vessel as
compared to an average of certain other publicly traded bulk shipping companies,
which is illustrated in the graph below.
OPERATING CASH FLOW PER SHIP PER DAY
(Calendar Year Basis)
FIGURE
<TABLE>
<CAPTION>
DOLLARS PER DAY
-------------------------------------------------
*AVERAGE OF OTHER
YEARS TEEKAY FLEET AVERAGE BULK SHIPPING COMPANIES
- ----------------------- -------------------- -----------------------
<S> <C> <C>
1990 11,014 8,190
1991 11,048 9,389
1992 7,393 4,947
1993 8,426 5,034
1994 9,033 4,020
First half of 1995 9,835 3,437
</TABLE>
- ------------
Information based upon respective company financial data.
* Vessel weighted average of the following companies: Bergesen d.y. A/S, Bona
Shipholding Ltd., London & Overseas Freighters Limited, OMI Corp., Overseas
Shipholding Group, and Smedvig Tankships Limited.
Due to its adherence to stringent maintenance standards for its vessels and
operational standards for its personnel, the Company is recognized by
high-quality charterers for transportation excellence. The Company believes that
acceptance of a vessel and its operators by charterers will be as important in
the future as regulatory constraints, since charterers are increasingly
inspecting and monitoring the quality of vessels and operators.
The Company's marketing strategy has been, and in the foreseeable future
will be, focused on Aframax-size tankers in the Indo-Pacific Basin. However,
management intends to closely monitor the long-term evolution of the tanker
industry and to adapt its strategy according to changing market dynamics or
fundamentals.
42
<PAGE> 47
THE COMPANY'S FLEET
The following fleet list provides information with respect to the Company's
vessels.
<TABLE>
<CAPTION>
YEAR %
SERIES/YARD BUILT TYPE DWT-MT FLAG OWNERSHIP
----------- ---- ---- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
AFRAMAX TANKERS (38)
POUL SPIRIT.................... Onomichi 1995 DH 106,685 Liberian 100%
TORBEN SPIRIT.................. Onomichi 1994 DH 98,500 Bahamian 100%
SAMAR SPIRIT................... Onomichi 1992 DH 98,640 Bahamian 100%
LEYTE SPIRIT................... Onomichi 1992 DH 98,744 Bahamian 100%
LUZON SPIRIT................... Onomichi 1992 DH 98,629 Bahamian 100%
MAYON SPIRIT................... Onomichi 1992 DH 98,507 Bahamian 100%
TEEKAY SPIRIT.................. Onomichi 1991 SH 100,336 Bahamian 100%
PALMSTAR LOTUS................. Onomichi 1991 SH 100,314 Bahamian 100%
PALMSTAR THISTLE............... Onomichi 1991 SH 100,289 Bahamian 100%
PALMSTAR ROSE.................. Onomichi 1990 SH 100,202 Bahamian 100%
PALMSTAR POPPY................. Onomichi 1990 SH 100,031 Bahamian 100%
ONOZO SPIRIT................... Onomichi 1990 SH 100,020 Bahamian 100%
PALMSTAR CHERRY................ Onomichi 1990 SH 100,024 Bahamian 100%
PALMSTAR ORCHID................ Onomichi 1989 SH 100,047 Bahamian 100%
VICTORIA SPIRIT (OBO).......... Hyundai 1993 DH 103,153 Bahamian 100%
VANCOUVER SPIRIT (OBO)......... Hyundai 1992 DH 103,203 Bahamian 100%
SHILLA SPIRIT.................. Hyundai 1990 SH 106,677 Liberian 100%
ULSAN SPIRIT................... Hyundai 1990 SH 106,679 Liberian 100%
NAMSAN SPIRIT.................. Hyundai 1988 SH 106,670 Liberian 100%
PACIFIC SPIRIT................. Hyundai 1988 SH 106,665 Liberian 100%
PIONEER SPIRIT................. Hyundai 1988 SH 106,671 Liberian 100%
FRONTIER SPIRIT................ Hyundai 1988 SH 106,668 Liberian 100%
SENANG SPIRIT.................. Imabari 1994 DH 95,649 Bahamian 100%
SEBAROK SPIRIT................. Imabari 1993 DH 95,700 Liberian 100%
SERAYA SPIRIT.................. Imabari 1992 DS 97,119 Bahamian 100%
SENTOSA SPIRIT................. Imabari 1989 DS 97,163 Liberian 100%
ALLIANCE SPIRIT................ Imabari 1989 DS 97,088 Bahamian 50%
SUDONG SPIRIT.................. Imabari 1987 DS 98,215 Liberian 100%
GALAXY RIVER*.................. Imabari 1987 DS 96,960 Liberian 0%
KYUSHU SPIRIT.................. Mitsubishi 1991 DS 95,562 Bahamian 100%
KOYAGI SPIRIT.................. Mitsubishi 1989 SH 95,987 Liberian 100%
AMERSHAM....................... Sumitomo 1981 SH 88,360 Liberian 50%
OPPAMA SPIRIT.................. Sumitomo 1980 SH 90,333 Bahamian 100%
MAGELLAN SPIRIT................ Hitachi 1985 SH 95,000 Liberian 100%
PALM MONARCH................... Mitsui 1981 SH 89,922 Liberian 100%
MENDANA SPIRIT................. Namura 1980 SH 81,657 Bahamian 100%
HONSHU SPIRIT.................. Tsuneishi 1979 SH 88,250 Bahamian 100%
TASMAN SPIRIT**................ Onomichi 1979 SH 87,588 Liberian 100%
OTHER TANKERS (3)
MUSASHI SPIRIT................. Sasebo 1993 SH 280,654 Bahamian 100%
SCOTLAND....................... Mitsubishi 1982 DS 40,794 Bahamian 100%
CHIBA SPIRIT................... Mitsui 1980 DB 60,874 Bahamian 100%
---------
4,120,229
=========
</TABLE>
- ------------
DH Double-hull tanker
DB Double-bottom tanker
DS Double-sided tanker
SH Single-hull tanker
OBO Oil/Bulk/Ore carrier
* Vessel time-chartered for one year ending November 1996 at which time the
Company is committed to purchase.
**Pre-MARPOL vessel, i.e., non-segregated ballast tanks.
43
<PAGE> 48
Many of the Company's vessels have been designed and constructed as
substantially identical sister ships. Such 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, thereby generating operating efficiencies.
The Company has disposed of several vessels as part of its fleet
modernization program. During fiscal 1994 and fiscal 1995, the Company disposed
of 13 older Aframax tankers: two 1976-built Aframax tankers that were on
bareboat charter to the Company were redelivered to their owners, and 11 1975-to
1977-built Aframax tankers owned by the Company were sold. The total gain on
disposition of these vessels was $26.4 million. During fiscal 1994, the Company
took delivery of three Aframax double-hull newbuildings and during the first
half of fiscal 1996, the Company acquired one second-hand double-sided Aframax
tanker (SUDONG SPIRIT) and one second-hand single-hull Aframax tanker (MAGELLAN
SPIRIT). In addition, the Company has entered into an agreement to time-charter
a second-hand double-sided Aframax tanker (GALAXY RIVER) for a period of one
year and, at the end of which time, to purchase the vessel for $26.5 million and
is negotiating the purchase of a 1989-built Aframax tanker owned by VCSC and the
potential purchase of a newbuilding Aframax tanker from a shipyard.
Teekay participates in a joint venture, VCSC, which owns two Aframax
tankers. One joint venture vessel is completing a long-term time charter to a
major oil company; the other vessel currently trades on the spot market and, as
discussed above, may be sold to Teekay. Both of these vessels are included in
the above fleet list. VCSC is 50% directly owned by Teekay and 50% owned by a
company associated with Mr. Thomas Kuo-Yuen Hsu, a director of Teekay.
CLASSIFICATION AND INSPECTION
All of the Company's vessels have been certified as being "in class" by
their respective classification societies: Nippon Kaiji Kyokai, Lloyds Register,
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 such 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"). Most vessels are also
required, as part of the Intermediate Survey process, to be dry-docked every 24
to 30 months for inspection of the underwater parts of the vessel and for
necessary repair related to such inspection. A number of the Company's vessels
have qualified with their respective classification societies for drydocking
only every five years in connection with the Special Survey and are no longer
subject to the Intermediate Survey drydocking process. To so qualify, the
Company was required to enhance the resiliency of the underwater coatings of
each such 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 the Company's
customers, including the major oil companies, regularly inspect the Company's
vessels as a precondition to chartering voyages on such vessels. In each of the
last four years, Tanker Advisory Center, Inc. (New York) has rated the Company's
fleet a "meritorious tanker fleet," a designation which, in the latest
publication (March 1995), placed it in the top quarter of fleets containing 10
or more tankers. Management believes that the Company's well-maintained, high
quality tonnage should provide it with a competitive advantage in the current
environment of increasing regulation and customer emphasis on quality of
service.
Company employees perform much of the necessary ordinary course maintenance
and regularly inspect all of the Company's vessels, both at sea and while the
vessels are in port. Vessels are inspected 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, maintenance, safety and crew welfare.
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OPERATIONS AND SHIP MANAGEMENT
Through wholly owned subsidiaries located worldwide, the Company provides
substantially all of the operations, ship maintenance, crewing, technical
support, shipyard supervision, insurance and financial management services
necessary to support its fleet. While certain ship management and commercial
operations services are contracted out, the Company believes that it could
obtain a replacement provider of these services, or could provide these services
internally, without any negative impact on its operations.
Each of the Company's vessels is owned, or controlled through a capital or
operating lease, by a separate wholly owned subsidiary of Teekay. Substantially
all of the Company's vessels have been chartered to Palm under long-term
time-charters (the "Palm Charters"). Each of the Palm Charters is based upon an
industry standard form and conforms generally to industry standards for time
charters. To the extent that the freight that Palm is paid by charterers in the
employment of the Company's vessels exceeds the amounts that Palm is obligated
to pay to the Company's subsidiaries under their respective Palm Charter, Palm
retains such excess earnings. However, if such freight is less than the charter
hire under the Palm Charters, Palm is obligated to make the charter hire payment
without any adjustment. Palm is required to make fixed monthly charter hire
payments in advance to the owner or lessee of the vessel, except for periods
when the vessel is off-hire.
Under the Palm Charters, the owner or lessee, as the case may be, equips,
insures and mans its vessel so that it is fit to trade through such party's
management agreement with Teekay Shipping Limited. Each of the owners or lessees
has a lien on all of its vessel's cargoes as security for any amounts due to
Palm under the Palm Charters and Palm has a lien on the vessel for certain
amounts due and not otherwise paid by the owner or lessee. Each of the Palm
Charters terminates if the vessel is lost or title is otherwise requisitioned by
a government authority. Absent such termination, the Palm Charters' termination
dates range from February 2002 to February 2006. Certain aspects of the Palm
Charters with respect to the Mortgaged Vessels are described under "The
Mortgaged Vessels--Charters."
The Company has a worldwide chartering staff located in Vancouver, Tokyo,
London and Singapore. Each office serves the Company's clients headquartered in
such office's region. Fleet operations, vessel positions and charter market
rates are monitored around the clock. Management believes that monitoring such
information is critical to making informed bids on competitive brokered
business. Approximately 75% of the Company's net revenues were derived from spot
voyages during first half of fiscal 1996.
CREWING AND STAFF
The Company employs approximately 260 captains, chief engineers, chief
officers and first engineers, approximately 1,200 additional personnel at sea
and approximately 125 personnel ashore.
The Company places great emphasis on attracting, through its recruiting
offices in Manila and Glasgow, qualified crew members for employment on the
Company's tankers. Recruiting has become an increasingly difficult task for
operators in the tanker industry. The Company pays competitive salaries to its
personnel and tries to promote, when possible, from within their ranks.
Management believes that the well maintained quarters and equipment on the
Company's vessels help to attract and retain motivated and qualified seamen and
officers. Although the Company's employees have not historically been
represented by a union, the Company is currently negotiating a collective
bargaining agreement with a union that would, if completed, cover substantially
all of its junior officers and seamen. The Company believes that, if completed,
the collective bargaining agreement will contain wage and other terms
substantially similar to those applying to the covered personnel under the
Company's existing policies.
The Company has a cadet training program, the purpose of which is to
develop a cadre of future senior officers for the Company, with two specially
equipped vessels that are staffed with instructors and trainees. In addition to
the basic training that all seamen are required to undergo to achieve
certification, the Company provides additional training of as much as one month
for all newly hired seamen and junior officers at training facilities in the
Philippines. Safety procedures are a critical element of this training and
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continue to be emphasized through the Company's onboard training program.
Management believes that high quality manning and training policies will play an
increasingly important role in distinguishing larger independent tanker
companies which have in-house (or affiliate) capabilities, from smaller
companies that must rely on outside ship managers and crewing agents.
The Company has retained Det Norske Veritas, the Norwegian classification
society, to audit the Company's commercial and technical operations and
management procedures worldwide with a view to obtaining accreditation to ISO
9000/9002 standards of total quality management. The first stage of the process
was completed in November 1994 when the Company was found to be in compliance
with the ISO 9002 standards and was presented with its Safety and Environmental
Protection certificate. ISO 9000 is a series of international standards for
quality systems; ISO 9002 is the standard most commonly used in the shipping
industry.
CUSTOMERS
Customers of the Company include major oil companies, major oil traders,
large oil consumers and petroleum product producers, government agencies, and
various other entities dependent upon the Aframax trade. No single customer has
accounted for more than 10% of the Company's consolidated revenues or net income
in any of the last three fiscal years.
COMPETITION
International seaborne oil and petroleum products tanker transportation
services are provided by two main types of operators: major oil company captive
fleets (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 the Company, also operate their own vessels
and use such vessels not only to transport their own oil, but also to transport
oil for third party charterers in direct competition with independent owners and
operators in the tanker charter market. Competition for charters is intense and
is based upon price, location, size, age, condition and acceptability of the
vessel and its manager to charterers. In addition, an oversupply of tankers
relative to demand and depressed charter market rates have heightened price
competition and have adversely affected the Company's charter rate performance.
Competition in the Aframax segment is also affected by the availability of other
size vessels to compete in the trades in which the Company engages. Suezmax size
vessels as well as Panamax size vessels can compete for many of the same
charters for which the Company competes. ULCCs and VLCCs rarely compete directly
with Aframax tankers for specific charters. However, because ULCCs and VLCCs
comprise a substantial portion of the total capacity of the market, movements by
such vessels into Suezmax trades and of Suezmax vessels into Aframax trades
would heighten the already intense competition. See "--The International Tanker
Market--Supply and Demand--Demand" and "Risk Factors--Competition."
The Company competes principally with other Aframax owners through the
global tanker charter market, comprised of tanker broker companies which
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. Management estimates that the
Company transacts approximately one-third of its spot voyages from market
cargoes, the remainder being either private cargoes or direct cargoes transacted
directly with charterers outside this market.
Other large operators of Aframax tonnage include Shell International
Marine, a subsidiary of Royal Dutch/Shell Petroleum Corporation, with
approximately 24 vessels trading globally (6 of which are on charter from Sanko
Steamship Co. Ltd., an independent Japanese shipping company), Neptune Orient
Lines Ltd. (owned partially by the Singapore government), with approximately 14
vessels (10 of which are currently trading in the Caribbean), and Bona
Shipholding Limited, which controls approximately
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25 vessels. The Company believes that it has significant competitive advantages
in the Aframax tanker market as a result of the age, quality, type and
dimensions of its vessels and its large market share in the Indo-Pacific Basin.
Some competitors of the Company, however, may have greater financial strength
and capital resources than the Company. See "Business--Business Strategy."
RISK OF LOSS AND INSURANCE
The business of the Company is affected by a number of risks, including
mechanical failure of the vessels, collisions, property loss to the vessels,
cargo loss or damage and business interruption due to political circumstances in
foreign countries, hostilities and labor strikes. In addition, the operation of
any ocean-going vessel is subject to the inherent possibility of catastrophic
marine disaster, including oil spills and other environmental mishaps, and the
liabilities arising from owning and operating vessels in international trade.
OPA 90, by imposing potentially unlimited liability upon owners, operators and
demise (bareboat) charterers for certain oil pollution accidents in the United
States, has made liability insurance more expensive for ship owners and
operators and has also caused insurers to consider reducing available liability
coverage.
The Company maintains marine hull and machinery and war risks insurance,
which includes the risk of actual or constructive total loss, and protection and
indemnity insurance with mutual assurance associations. The Company does not
carry insurance covering the loss of revenue resulting from vessel off-hire
time. The Company believes that its current insurance coverage is adequate to
protect against most of the accident-related risks involved in the conduct of
its business and that it maintains appropriate levels of environmental damage
and pollution insurance coverage. Currently, the available amount of coverage
for pollution is $700 million per vessel per incident. However, there can be no
assurance that all risks are adequately insured against, that any particular
claim will be paid or that the Company will be able to procure adequate
insurance coverage at commercially reasonable rates in the future.
LEGAL PROCEEDINGS
GENERAL
The Company is party, as plaintiff or defendant, to a variety of lawsuits
for damages arising principally from personal injury and property casualty
claims. Such claims are covered by insurance, subject to customary deductibles.
Management believes that such claims will not have a material adverse effect on
the financial position, results of operations or liquidity of the Company.
NAGASAKI SPIRIT
On September 20, 1992, the Nagasaki Spirit, a vessel capital leased by one
of the wholly owned shipowning subsidiaries of Teekay, was struck by another
ship, the Ocean Blessing, in the Strait of Malacca, between Malaysia and
Indonesia. The Nagasaki Spirit was towed to Singapore where after inspection it
was declared a constructive total loss. The Company received approximately $53
million in insurance proceeds from the hull underwriters of the Nagasaki Spirit,
a portion of which was used to repay indebtedness on the vessel.
A number of claims have arisen as a result of the collision, and
proceedings are presently pending in the High Court of Singapore in order to
determine liability for the collision and the amount of damages recoverable.
Claims by the dependents of the crew of the Nagasaki Spirit have been settled. A
claim of approximately $1.4 million for the cost of clean up of the oil
pollution caused by the Nagasaki Spirit and associated costs has been made by
the Department of Environment for the Government of Malaysia. Another
pollution-based claim, for approximately $2.5 million plus unspecified damages,
has been filed by the Government of Indonesia in an Indonesian District Court.
Any payment made in settlement of these claims will be covered by insurance.
While it is possible that pollution damage claims may be asserted by others, the
Company believes that any liability it may have for such claims will be well
within the applicable limit of $700 million of insurance coverage per vessel per
incident. There is no deductible applicable to the pollution liability coverage.
There are also claims pending by some of the owners of
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cargo aboard the Ocean Blessing against the Company in excess of $27 million.
The liability, if any, of the Company in respect of these claims is covered by
insurance. The owners of the cargo aboard the Nagasaki Spirit have agreed not to
pursue any claims they may have against the Company.
A claim by a salvor for salvage and special compensation was arbitrated in
London. The award for salvage will be a priority claim against the proceeds of
the sale of the Nagasaki Spirit, which are currently lodged with the Singapore
Court. The proceeds of the sale were approximately $9.0 million; the salvage
award was approximately $4.9 million against the owners. The award for special
compensation in the amount of approximately $2.25 million was appealed and
overturned by the appeal arbitrator. On appeal, the High Court of Justice in
London upheld the appeal arbitrator's findings that no special compensation was
payable. The claim for special compensation was heard on further appeal by the
Court of Appeal in London in early December 1995. The liability for salvage is
covered by the sale proceeds presently lodged with the Singapore Court and any
special compensation is covered by insurance.
Management does not believe that the result of the pending litigation
involving the Nagasaki Spirit will have a material adverse effect upon the
Company. However, no assurance can be given that additional litigation will not
be commenced as a result of such collision. The Company believes that any claims
established by additional litigation arising out of such collision would be
fully covered by insurance.
LITIGATION AGAINST THE ESTATE OF THE COMPANY'S FOUNDER
In May 1993, a lawsuit against the original representative of the estate
(the "Estate") of the Company's founder, J. Torben Karlshoej, was filed in the
Supreme Court of British Columbia (the "B.C. Court") by Mr. Karlshoej's first
wife. The plaintiff, who was divorced from Mr. Karlshoej in 1971, two years
prior to the founding of the Teekay organization, alleges that she is entitled
to, among other things, an accounting of the Estate, a share of the Estate or
support from the Estate, specific performance of an express or an implied
agreement to compensate her or, alternatively, damages for breach of that
agreement, quantum meruit and/or restitution for unjust enrichment. In April
1995, the plaintiff filed with the B.C. Court a notice of motion to amend her
statement of claim to add a number of additional parties as defendants,
including Teekay, certain of Teekay's subsidiaries, the Trusts, and certain of
Teekay's officers and directors, including Mr. James Hood and Mr. Arthur Coady,
and to amend her claim to include an interim order preventing transfers or other
dispositions of Estate property, declaring that all or a portion of certain
assets are held by the Estate or other proposed additional defendants in trust
for her and conveying such interest in the property to her. The B.C. Court has
not yet made a determination as to whether to grant the plaintiff's motion to
amend her statement of claim.
In materials filed in support of her motion, plaintiff alleges the need to
add the proposed additional defendants as parties based upon their control of
property in which she is claiming an interest and their ability to provide
plaintiff with information required to inform her of the size and nature of the
assets to which she claims entitlement. The proposed amended statement of claim,
which has not yet been filed or served upon Teekay or the other proposed
additional defendants, sets forth certain factual allegations and legal theories
not contained in the original statement of claim, including allegations as to
the existence of an express or constructive trust that would give plaintiff an
undivided interest in up to one-half of the assets directly or indirectly held
by Mr. Karlshoej at any time following the divorce, including the capital stock
of Teekay. In the statement of claim, as proposed to be amended, plaintiff
alleges various facts to support her claims, including, among other things,
that: (i) a separation agreement executed by plaintiff and Torben Karlshoej in
connection with their divorce in 1971 should be declared null and void because
plaintiff lacked the capacity to enter into such an agreement (or, in the
alternative, that plaintiff executed such agreement under duress, undue
influence, unconscionability, fraud, mistake and unfairness); and (ii)
notwithstanding their divorce and the plaintiff's and Torben Karlshoej's
subsequent marriages, they "re-commenced" their "spousal relationship" and,
based on Mr. Karlshoej's promise to provide financial support to the plaintiff,
plaintiff provided certain services to Mr. Karlshoej. The amended statement of
claim also seeks certain additional relief, including a declaration that the
Estate and the proposed additional defendants hold a portion of any interest in
Teekay and its
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assets in trust for the plaintiff, and an order to prevent Teekay and the other
proposed additional defendants from disposing of any assets in which plaintiff
claims an interest.
The Company believes that plaintiff's proposed claims are without merit and
that there are several meritorious defenses to such claims. First, the Company
believes that the plaintiff faces many obstacles to any successful claim against
the Estate or the proposed additional defendants, including establishing the
invalidity of the separation agreement and of the property transfers made by Mr.
Karlshoej during his lifetime, including the transfers of the capital stock of
the Company into the Trusts. The Company also believes that there may be
insufficient jurisdictional grounds for the plaintiff to add Teekay or its
subsidiaries as defendants in the lawsuit and that, even if Teekay and its
subsidiaries do become named defendants, the plaintiff has not stated a
sustainable basis for a claim against Teekay or its assets. The Company believes
that, in the unlikely event that the plaintiff were successful at all phases of
the lawsuit, the result would be an award of money damages against the Estate or
of specific property held by the Estate or brought into the Estate through
invalidation of the transfers of property made by Mr. Karlshoej to the Trusts.
If plaintiff were awarded shares of Teekay's capital stock currently held by the
Trusts, or if such shares were otherwise required to be sold in order to satisfy
a judgment in the plaintiff's favor, a change in control of Teekay could result.
The Company believes that the possibility of invalidations of the property
transfers, including transfers of the capital stock of the Company to the
Trusts, and the possible change of control that could occur, are remote. Teekay
intends, if added as a defendant, to vigorously defend against the plaintiff's
claims. Based upon the advice of its counsel, including an assessment of the
defenses available to the Company and the defects in plaintiff's claims, the
Company does not anticipate that the outcome of the lawsuit will have a material
adverse effect upon it or its assets.
REGULATION
The business of the Company and the operation of its 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,
the Company cannot predict the ultimate cost of complying with such conventions,
laws and regulations or the impact thereof on the resale price or useful life of
its vessels. The Company is required by various governmental and quasi-
governmental agencies to obtain certain permits, licenses and certificates with
respect to its operations. Subject to the discussion below and to the fact that
the kinds of permits, licenses and certificates required for the operations of
the vessels owned by the Company will depend upon a number of factors, the
Company believes that it has been and will be able to obtain all permits,
licenses and certificates material to the conduct of its operations.
The Company believes 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--IMO. With respect to the following discussions
of the IMO regulations and OPA 90, the Company believes that, because all of the
Mortgaged Vessels are double hulled, the Company is in compliance with such
regulations and statutes. Moreover, under the current regulations, the vessels
of the Company's current fleet will be able to operate for substantially all of
their respective economic lives before being required to have double-hulls.
On March 6, 1992, the IMO adopted regulations which 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 the tanker
fleet owned by the Company may be anticipated to be operating on and after such
date, provide that (i) 25 year-old tankers 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 bottom 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,
(ii) 30 year-old tankers must be of double-hull
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construction or mid-deck design with double-side construction, and (iii) all
tankers will be subject to enhanced inspections. Some classification societies
may implement these requirements prior to the effective date of such
regulations. Also, under IMO 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 (i) is the subject of a contract for a major
conversion or original construction on or after July 6, 1993, (ii) commences a
major conversion or has its keel laid on or after January 6, 1994, or (iii)
completes a major conversion or is a newbuilding delivered on or after July 6,
1996.
Although 4 of the Company's vessels are 15 years or older, the oldest of
such vessels are only 16 years old and, therefore, the requirements currently in
effect regarding 25 and 30 year-old tankers will not affect the Company's fleet
in the near future. However, compliance with the new regulations regarding
inspections of all vessels may adversely affect the Company's operations. The
Company cannot at the present time evaluate the likelihood or magnitude of any
such adverse effect on the Company's operations due to uncertainty of
interpretation of the IMO regulations.
ENVIRONMENTAL REGULATIONS--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 United States waters, which include the United States
territorial sea and the two hundred nautical mile exclusive economic zone of the
United States.
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 oil spill containment and
clean-up costs and other damages arising from oil spills pertaining to their
vessels. These other damages are defined broadly to include (i) natural
resources damages and the costs of assessment thereof, (ii) real and personal
property damages, (iii) net loss of taxes, royalties, rents, fees and other lost
revenues, (iv) lost profits or impairment of earning capacity due to property or
natural resources damage, (v) net cost of public services necessitated by a
spill response, such as protection from fire, safety or health hazards, and (vi)
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 were
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. The Company currently insures and plans to insure each of
its vessels with pollution liability insurance in the amount of $700 million. A
catastrophic spill could exceed the insurance coverage available, in which event
there could be a material adverse effect on the Company.
OPA 90 does not by its terms impose liability on lenders or the holders of
mortgages on vessels. The Company believes, therefore, that neither the Holders
of the Notes nor the Trustee are exposed to liability under OPA 90 unless such
Holders or the Trustee participates so substantially in the overall operation or
management of the Company's vessels as to be considered the "operator" of a
vessel prior to or following an Event of Default.
Under OPA 90, with certain limited exceptions, all newly built or converted
tankers operating in United States waters must be built with double-hulls, and
existing vessels which do not comply with the double-hull requirement must be
phased out over a 25-year period (1990-2015) based on size, age and place of
discharge, unless retrofitted with double-hulls. Notwithstanding the phase-in
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
off-shore.
OPA 90 expands the pre-existing financial responsibility requirements for
vessels operating in United States waters and requires owners and operators of
vessels to establish and maintain with the United
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States Coast Guard (the "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 OPA 90. In December 1994, the Coast Guard
enacted 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,
such evidence of financial responsibility may be demonstrated by insurance,
surety bond, self-insurance, or guaranty. Under OPA 90, an owner or operator of
more than one tanker will be required only to demonstrate evidence of financial
responsibility for the tanker having the greatest maximum liability under OPA
90.
The 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 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 insurance
organizations, which typically provide certificates of financial responsibility,
including the major protection and indemnity organizations which the Company
would normally expect to provide a certificate of financial responsibility on
its behalf, 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 Coast Guard's 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. The
Company has complied with the Coast Guard regulations by providing evidence of
sufficient self-insurance.
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 have enacted legislation providing for unlimited
liability for oil spills. In some cases, states which have enacted such
legislation have not yet issued implementing regulations defining tanker owners'
responsibilities under these laws. The Company intends to comply with all
applicable state regulations in the ports where the Company's vessels call.
Also, under OPA 90 the liability of responsible parties, United States or
foreign, with regard to oil pollution damage in the United States is not subject
to any international convention.
Owners or operators of tankers operating in United States waters were
required to file vessel response plans with the Coast Guard, and their tankers
were required to be operating in compliance with their Coast Guard approved
plans by August 18, 1993. Such response plans must, among other things, (i)
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," (ii) describe crew training and drills,
and (iii) identify a qualified individual with full authority to implement
removal actions. The Company filed vessel response plans with the Coast Guard
for the tankers owned by the Company and has received approval for all vessels
in its fleet to operate in United States waters.
Outside the United States, many countries have ratified and follow the
liability scheme set out in the International Convention on Civil Liability for
Oil Pollution Damage 1969 ("CLC"). Under the CLC, a vessel's registered owner is
strictly liable for pollution damage caused on the territorial waters of a
contracting state by a discharge of persistent oil, subject to certain complete
defenses. Liability currently is limited to approximately $188 per gross
registered ton, with the exact amount tied to a unit of account which varies
according to a basket of currencies. The right to limit liability is forfeited
only where the spill is caused by the owner's actual fault or the fault of a
third party with whom the owner has a direct contractual relationship. Vessels
trading to contracting states must establish evidence of insurance covering the
limited liability of the owner.
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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.
ENVIRONMENTAL REGULATION--OTHER ENVIRONMENTAL INITIATIVES. The EC is
considering legislation that will affect the operation of oil tankers and the
liability of owners for oil pollution. It is impossible to predict what
legislation, if any, may be promulgated by the EC or any other country or
authority.
TAXATION OF THE COMPANY
The following discussion is a summary of the principal Liberian tax laws,
Bahamian tax laws and U.S. federal income tax laws applicable to the Company.
The following discussion of tax matters, as well as the conclusions regarding
certain issues of tax law that are reflected in that discussion are based on
current law and upon the advice received by the Company from its counsel. Such
advice is based, in part, on representations made by officers of the Company,
some of which relate to anticipated future factual matters and circumstances. No
assurance can be given that changes in existing laws or their interpretation
will not occur or that such changes will not be retroactive or that anticipated
factual matters and circumstances will in fact occur. The Company's and its
counsels' 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
if challenged by taxing authorities.
UNITED STATES TAXATION
The following discussion is based on the advice of Perkins Coie, special
United States tax counsel to the Company. The following discussion is based upon
the currently existing provisions of the U.S. Internal Revenue Code of 1986, as
amended (the "Code"), existing and proposed U.S. Treasury Department
regulations, current administrative rulings and court decisions.
It is anticipated that substantially all of the gross income of the
Company's subsidiaries will be derived from the ownership, use and operation of
vessels in international commerce and that such income will principally consist
of freights from the transportation of cargoes and hire or lease from time
charters and from the performance of services directly related to the use and
operation of such vessels, including services related to the chartering of such
vessels ("Shipping Income"). In general, unless exempt from U.S. taxation under
Section 883 of the Code as discussed below, Teekay's subsidiaries' Shipping
Income will be subject to U.S. federal income taxation (in the manner discussed
below) to the extent that such Shipping Income is derived from sources within
the United States. For these purposes, 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 begins and
ends in the United States is considered to be 100% derived from sources within
the United States. Based upon the Company's anticipated shipping operations, the
vessels of Teekay's subsidiaries will be operated in various parts of the world
and, although they may transport cargoes to or from what might be viewed to be
U.S. ports for U.S. tax purposes, they will not be permitted by law to transport
cargoes between U.S. ports. On average, in fiscal years 1993, 1994 and 1995, the
Company derived approximately 37% of its gross revenues from voyages originating
or terminating in U.S. ports. Therefore, based on past experience the Company
currently expects that approximately 19% of Teekay's subsidiaries' Shipping
Income would be treated as derived from U.S. sources.
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 by Teekay's subsidiaries from sources
outside the United States will not be subject to U.S. federal income tax.
Management estimates that, should it not qualify for the Section 883
exemption described below, the Company's U.S. tax liability for fiscal 1995
would not be material.
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THE CODE SECTION 883 EXEMPTION
The Company believes that, under Code Section 883, Teekay's ship owning and
operating subsidiaries are exempt from United States taxation on their Shipping
Income derived from sources within the United States.
A corporation will qualify for the benefits of Code Section 883 if, in
relevant part, (i) it 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 (ii) more than 50% of the value
of its 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"). The ownership requirement is not applicable if the
stock of the corporation (or the direct or indirect corporate parent thereof,
provided the parent is organized in a country that satisfies the country of
organization requirement) is "primarily and regularly traded on an established
securities market" in such country, in another country that grants the
equivalent exemption from tax to U.S. corporations, or in the United States (the
"publicly traded exception"), or if the subsidiary is a "controlled foreign
corporation" (the "CFC exception").
The U.S. Treasury Department has recognized the Republic of Liberia, The
Bahamas, and Panama as jurisdictions that grant an equivalent exemption to U.S.
corporations. Teekay and each of its ship owning and operating subsidiaries are
incorporated or organized in either Liberia, The Bahamas, or Panama. Therefore,
the subsidiaries' Shipping Income will be exempt from U.S. federal income
taxation if the ownership requirement is met or the Company qualifies for the
publicly traded exception. It is not anticipated that the Company will qualify
for the CFC exception.
The Company believes that the ultimate indirect owners of more than 50% of
the value of the capital stock of the Company and its subsidiaries are
individuals who would satisfy the ownership requirements on the date hereof. The
Company does not anticipate that it will have to rely on the publicly traded
exception for purposes of the Code Section 883 exemption. Compliance with the
ownership requirement and qualification for the publicly traded exception depend
upon the resolution of certain factual issues and the interpretation of the
Code. No Treasury regulations have been promulgated for purposes of the
ownership requirement and the publicly traded exception under Section 883. In
the absence of statutory and regulatory guidance under Code Section 883, special
U.S. tax counsel to the Company is unable to render an opinion in this regard.
The Company does not know of any plan regarding (i) disposition of the
interests held by the Company's current ultimate individual holders of Common
Stock or (ii) any changes in the residency of the Company's current ultimate
individual holders of Common Stock that would cause the loss of the availability
of Section 883 of the Code (or, in either case, any agreements with respect to
any of the foregoing). However, there is no agreement that would preclude the
Company's current direct or indirect holders of Common Stock from disposing of
their interests in the Company, or from changing their residence, and there can
be no assurance that such holders of Common Stock will not do so, nor is there
any assurance that a person or persons who are not qualifying holders of Common
Stock for purposes of Section 883 will not acquire sufficient beneficial
ownership of the outstanding shares of Common Stock through purchase on the New
York Stock Exchange or otherwise to preclude the availability of an exemption
under Section 883. Any change in the holdings of the current direct or indirect
holders of Common Stock or the residence of such holders of Common Stock (both
as determined for United States tax purposes), or the issuance of shares of
stock or any other change in the capitalization of the Company (other than as a
result of this Offering) could affect the continued availability of Section 883
of the Code. Accordingly, no assurance can be given that the subsidiaries'
Shipping Income derived from sources in the United States will be treated as
exempt from taxation by the United States.
TAXATION IN THE ABSENCE OF A CODE SECTION 883 EXEMPTION
NET BASIS AND BRANCH TAX REGIME. To the extent the benefits of the Section
883 exemption are unavailable, the U.S. source Shipping Income (and any U.S.
source chartering income not treated as
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Shipping Income) of each subsidiary that was "effectively connected" with the
conduct of a U.S. trade or business would be subject to U.S. federal corporate
income tax, which currently is imposed at rates of up to 35% on taxable income.
Taxable income would be determined after allowance for allocable deductions,
provided the subsidiary files true and accurate U.S. federal income tax returns
as required by the Code. In addition, under certain circumstances, the 30%
branch profits tax imposed under Section 884 of the Code would apply to the
earnings effectively connected with the conduct of such trade or business, as
determined after allowance for certain adjustments, and a branch interest tax on
certain interest paid or deemed paid by a subsidiary's U.S. trade or business.
A subsidiary's U.S. source Shipping Income (and any U.S. source chartering
income not treated as Shipping Income) would be considered "effectively
connected" with the conduct of a U.S. trade or business only if the subsidiary
has (or is considered to have) a fixed place of business in the United States
involved in the earning of such income and certain other requirements are met.
Neither Teekay nor any of its subsidiaries maintains an office or other fixed
place of business in the United States. Accordingly, based on the expected mode
of the Company's shipping operations, the Company anticipates that the
subsidiaries' U.S. source Shipping Income will not be "effectively connected"
with the conduct of a U.S. trade or business and thus will not be subject to the
net-basis U.S. federal corporate income tax.
THE 4% GROSS BASIS TAX REGIME. To the extent the benefits of Code Section
883 are unavailable, the U.S. source Shipping Income derived by Teekay's
subsidiaries that is not "effectively connected" with the conduct of a U.S.
trade or business (as described above) will be subject to a special 4% tax on a
gross basis (without benefit of deduction). As discussed above, the Company
expects that substantially less than half of the subsidiaries' gross Shipping
Income will be considered U.S. source income. Therefore, the Company believes
that the maximum effective rate of U.S. federal income tax on the subsidiaries'
gross Shipping Income would not exceed 2%. The Company does not expect that any
potential liability it may have with respect to its U.S. source Shipping Income
for prior years would be material in amount.
GAIN ON SALE OF VESSELS
To the extent the vessel of any subsidiary of Teekay makes more than an
occasional voyage to U.S. ports, that subsidiary may be considered to be engaged
in the conduct of a U.S. trade or business. As a result, unless that subsidiary
is entitled to the benefits of Code Section 883, any U.S. source gain on the
sale of such subsidiary's 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 above-described net basis and branch tax
regime. The U.S. Treasury Department has recognized the Republic of Liberia, but
neither Panama nor The Bahamas, as a jurisdiction that provides an exemption
from tax for gains realized by a U.S. corporation from the sale of a vessel, to
the extent, as the Company expects, that such gains are incidental to shipping
operations. Accordingly, if Teekay's subsidiaries incorporated in Liberia
otherwise qualify for the benefits of Section 883, gain on the sale of their
vessels (to the extent such gain is incidental to Shipping Income) should be
exempt from U.S. federal income taxation under Section 883. U.S. source gain
from the sale of vessels owned by Teekay's subsidiaries incorporated in The
Bahamas or Panama, however, may not be exempt from U.S. taxation under Section
883.
However, in general, gain from the sale by a non-U.S. corporation of a
vessel used in shipping operations will not be U.S. source gain except for the
following: (1) the aggregate of depreciation adjustments attributable to
depreciation deductions allowable for the vessel in computing U.S. source
taxable income; (2) gain in excess of such depreciation adjustments if the
vessel is sold within the U.S. and (3) the entire gain if attributable to an
office or fixed place of business maintained by the corporation in the United
States.
As the Company (1) does not expect to be earning Shipping Income that is
"effectively connected" with the conduct of a U.S. trade or business subject to
tax under the net basis and branch tax regime (described above under "--Taxation
in the Absence of a Code Section 883 Exemption"), (2) does not
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intend to permit any of its vessels to be sold in the United States and (3) does
not now and does not expect in the future to maintain an office or fixed place
of business in the United States, the Company does not expect that any gain from
the sale of the vessel by it would be subject to U.S. federal income tax.
LIBERIAN TAXATION
Based on the advice of Haight, Gardner, Poor & Havens, Liberian tax counsel
to the Company, because Teekay does not expect that it and its subsidiaries will
conduct business or operations in the Republic of Liberia, Teekay and its
subsidiaries will not be subject to taxation under the laws of the Republic of
Liberia, and distributions by its subsidiaries to Teekay will not be subject to
Liberian tax.
BAHAMIAN TAXATION
Based on the advice of Graham, Thompson & Co., Bahamian counsel to the
Company, Teekay and its subsidiaries will not be subject to taxation under the
laws of The Bahamas, and distributions by its subsidiaries to Teekay also will
not be subject to any Bahamian tax.
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MANAGEMENT
The directors, executive officers and senior management of the Company are
listed below:
<TABLE>
<CAPTION>
AGE POSITION
--- ---------------------------------------------------------
<S> <C> <C>
Karlshoej, Axel 55 Director and Chairman of the Board
Hood, James N. 60 Director, President and Chief Executive Officer
Coady, Arthur F. 62 Director, EVP and General Counsel
Dingman, Michael D. 64 Director
Feder, Morris L. 78 Director
Hsu, Steve G. K. 62 Director
Hsu, Thomas Kuo-Yuen 49 Director
Alsleben, Veronica A. E. 44 Managing Director (London)
Antturi, Peter S. 36 Controller (Vancouver)
Chad, Greg 44 VP, Corporate Services (Vancouver)
Gibson, Esther E. 40 Secretary (Nassau)
Glendinning, David 41 VP, Marine and Commercial Operations (Vancouver)
Gurnee, Anthony 35 VP, Treasurer and Chief Financial Officer (Vancouver)
Meldgaard, Mads T. 31 Managing Director (Singapore)
Moller, Bjorn 38 VP, Group Chartering and Business Development (Vancouver)
Nagao, Yoshio 49 Managing Director (Tokyo)
Patwardhan, Vinay S. 54 SVP, Marine Operations (Vancouver)
</TABLE>
Certain biographical information about each of these individuals is set
forth below:
VERONICA A. E. ALSLEBEN has been employed in ship chartering since 1973.
She joined the Company in 1989 as Chartering Manager and was subsequently
promoted to her current position as Managing Director (London). Prior to joining
the Company, Ms. Alsleben served as Vice President of a chartering office of an
international tanker company in New York City for five years.
PETER S. ANTTURI joined the Company in September 1991 as Manager,
Accounting and was promoted to his current position of Controller in March 1992.
Prior to joining the Company, Mr. Antturi held senior accounting and finance
roles in the shipping industry since 1985.
ARTHUR F. COADY is an Executive Vice President and the General Counsel of
the Company. He has served as a Director of Teekay since 1989. He joined the
Company after 30 years in private law practice in Canada, having specialized in
corporate and commercial law. In July 1995, Mr. Coady was appointed as a
director of the Bahamas Maritime Authority.
GREG CHAD joined the Company in August 1991 as Manager, Personnel. He was
promoted in June 1993 to Director, Personnel and in March 1995 to his current
position of Vice President, Corporate Services. Mr. Chad has held a number of
senior human resources and administration roles in the transportation and
communication industries since 1976.
MICHAEL D. DINGMAN is a private investor, industrial company executive and
corporate director. He was elected as a Director of Teekay in May 1995. He is
Chairman and Chief Executive Officer of The Shipston Group Limited, a
diversified international holding company, Chairman of Fisher Scientific
International Inc., and a Director of Ford Motor Company. Mr. Dingman also
serves as Director/Executive to a number of other industrial concerns.
MORRIS L. FEDER is currently President of Worldwide Cargo Inc., a recently
formed New York based chartering firm. Mr. Feder has been employed in the
shipping industry in excess of 45 years, of which 43 were spent with Maritime
Overseas Corporation, from which he retired as Executive Vice President and
Director in December 1991. He has also served as Senior Vice President and
Director of Overseas
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Shipholding Group Inc. and was a member of the Finance and Development Committee
of the Board of such company. He has served as a Director of Teekay since June
1993. Mr. Feder is a member of the American Bureau of Shipping, the Connecticut
Maritime Association and the Association of Shipbrokers and Agents USA Inc.
ESTHER E. GIBSON joined the Company in June 1988. In 1991, she was
appointed to the position of Secretary.
CAPTAIN DAVID GLENDINNING joined the Chartering Department of the Company's
London office in January 1987. Since then, he has worked in a number of senior
positions within the organization including Vice President, Commercial
Operations, a position he held for two years prior to his January 1995 promotion
to the position of Vice President, Marine and Commercial Operations. 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.
ANTHONY GURNEE joined the Company in May 1992, as General Manager, Finance
and served in that capacity until October 1992, at which time he was promoted to
the position of Vice President, Finance & Accounting. In January 1995, his title
was changed to Vice President and Chief Financial Officer. Mr. Gurnee is a
graduate of the United States Naval Academy and served six years with the United
States Navy. Prior to joining the Company, he was a shipping banker with
Citibank, N.A. for four years. He is a Member of the Institute of Chartered
Shipbrokers (MICS).
CAPTAIN JAMES N. HOOD has held a number of senior positions with the
Company since joining the organization in 1977. He was appointed President and
Chief Executive Officer of the Company in October 1992. He has served as a
Director of Teekay since June 1993. Captain Hood's qualifications include an
Extra Master's Certificate of Competency. He is a Fellow of the Institute of
Chartered Shipbrokers (FICS), a Fellow of the Nautical Institute (FNI) and a
director of Britannia Steam Ship Insurance Association Limited. In addition to
his 23 years of shore service in various senior management positions, Captain
Hood has served at sea for 19 years, including four years of command experience.
STEVE G. K. HSU is Chairman and Managing Director of Oak Steamship Company
Limited, a ship management company based in Hong Kong. Mr. Hsu is a member of
the Executive Committee of Hong Kong Shipowners Association and of the Executive
Committee of the International Association of Dry Cargo Shipowners (Intercargo),
and a council member of the International General Committee of Bureau Veritas.
He has served as a Director of Teekay since June 1993.
THOMAS KUO-YUEN HSU has served 23 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 80,000 dwt
to 280,000 dwt. He has been a Committee Director of the Brittania Steam Ship
Insurance Association Limited since 1988, and a Lloyd's Underwriting Member
since 1983. He has served as a Director of Teekay since June 1993.
AXEL KARLSHOEJ is President of Nordic Industries, a California general
construction firm with whom he has served for the past 22 years. He is the older
brother of the late J. Torben Karlshoej, the founder of the Company. He has
served as a Director and Chairman of the Board of Teekay since June 1993.
MADS T. MELDGAARD joined the Company's Chartering Department in January
1986 and served in the European and Singapore offices until December 1991, when
he was appointed Chartering Manager in the Vancouver office. Mr. Meldgaard was
promoted in January 1994 to General Manager, Chartering and again in September
1995 to his current position as Managing Director (Singapore).
BJORN MOLLER spent three years in the Company's European office before
being promoted to the position of Vice President, Chartering in 1988. Mr. Moller
served in this capacity for six years until his January 1994 appointment to the
position of Vice President, Planning and Development, later being promoted in
January 1995 to his current position as Vice President, Group Chartering and
Business Development. Prior to joining the Company, Mr. Moller spent 10 years
with East Asiatic Company, including four years in tanker chartering and
operations.
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YOSHIO NAGAO has been employed in the shipping industry for the past 28
years and is qualified as a Chief Engineer. He joined the Company from Sanko
Steamship Co. Ltd., a Japanese ship owning company, where he served as Manager
of their Technical Department. Mr. Nagao has served as Managing Director (Tokyo)
since joining the Company in 1985.
CAPTAIN VINAY S. PATWARDHAN has held senior positions with the Company
since joining the organization in 1981 including Vice President, Ship
Management, a position he held from January 1986 through January 1995, when he
was promoted to his current position: Senior Vice President, Marine Operations.
Captain Patwardhan has been employed in the shipping industry for the past 34
years, having experience in crude tanker, product carrier, O/B/O, ore oiler,
container, general cargo and bulk carrier operations, with 11 years of command
experience. Captain Patwardhan is a Master Mariner with Foreign Going
Certificate of Competency.
MANAGEMENT SUCCESSION
The Resource Committee of Teekay's Board of Directors is conducting a
search to identify a potential candidate for the position of Chief Operating
Officer of the Company. The creation of the Chief Operating Officer position is
intended to facilitate an orderly leadership succession upon the eventual
retirement of Captain James N. Hood as Chief Executive Officer.
EXECUTIVE COMPENSATION
The aggregate annual compensation paid to the 13 executive officers and
senior managers listed above was $1,829,000 for fiscal 1995, a portion of which
was attributable to payments made pursuant to bonus plans of the Company, which
consider both Company and individual performance for a given period. Currently,
the non-employee directors of Teekay receive, in the aggregate, approximately
$100,000 for their services and reimbursement of their out-of-pocket expenses in
each fiscal year during which they are directors of Teekay. In fiscal 1995, the
Company contributed an aggregate amount of $77,000 to provide pension and
similar benefits for the 13 executive officers and senior managers listed above.
Teekay's 1995 Stock Option Plan (the "Plan") entitles certain eligible
officers, key employees including senior sea staff, and directors of the Company
to receive options to acquire Common Stock of Teekay. A total of 2,148,571
shares of Common Stock has been reserved for issuance under the Plan, and
options to purchase up to 796,750 shares of Teekay's Common Stock which have
been granted. Such outstanding options will be exercisable at a price per share
equal to the initial public offering price of $21.50 per share which will expire
July 19, 2005 ten years after the date of grant.
OWNERSHIP OF TEEKAY
The following table sets forth certain information regarding (i) ownership
of Teekay's Common Stock as of November 30, 1995 by all persons known to Teekay
to own more than 10 percent of the Common Stock and (ii) the total amount of
capital stock owned by all officers and directors of Teekay as a group as of
such date:
<TABLE>
<CAPTION>
IDENTITY OF PERSON
TITLE OF CLASS OR GROUP AMOUNT OWNED PERCENT OF CLASS
- ----------------------------- ------------------------- ------------------ ----------------
<S> <C> <C> <C>
Common Stock, no par value Cirrus Trust 18,082,781 shares 65.1%
JTK Trust 2,803,575 shares 10.4%
All officers and * *
directors as a group
(17 persons)
</TABLE>
- ---------------
* Less than one percent of outstanding shares.
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The activities of Cirrus Trust and JTK Trust are under the common
supervision of Messrs. Coady, Karlshoej and Thomas Hsu, directors of Teekay, and
Mr. Shigeru Matsui, President of Matsui & Company, a Tokyo based ship brokerage
firm. The beneficiaries of such trusts include charitable institutions and
affiliated trusts.
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain indebtedness of the Company. Such
summary is qualified in its entirety by reference to the full text of the
documents which govern the transactions so summarized.
As of September 30, 1995, the subsidiaries of Teekay had obligations for
outstanding indebtedness for borrowed money under existing credit agreements in
the aggregate principal amount of $604.6 million, all of which is guaranteed by
Teekay. In addition, Teekay had indebtedness of $151.2 million of its 9 5/8%
First Preferred Ship Mortgage Notes (the "1993 Notes"). After giving effect to
the Offering and the application of the proceeds therefrom, the Company's
indebtedness, on a consolidated basis, would be approximately $760.5 million.
The following chart indicates, on a consolidated basis after giving effect to
the Offering and the application of the proceeds therefrom, the aggregate
principal amount of indebtedness that will be due and payable in each of the
next 10 fiscal years of the Company.
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT FISCAL YEAR AMOUNT
- --------------------- ------------- ----------- --------------
<S> <C> <C> <C>
1997 $37.4 million 2002 $ 72.0 million
1998 $38.6 million 2003 $ 46.5 million
1999 $62.4 million 2004 $154.4 million
2000 $62.4 million 2005 $ 47.3 million
2001 $78.3 million 2006 $ 45.8 million
</TABLE>
Credit agreements, and guarantees executed by Teekay in connection
therewith, contain various covenants which restrict the operations of the
obligors and Teekay. Such credit agreements and guarantees contain covenants
which require the obligors thereunder or Teekay, as the case may be, to conduct
their operations, including, for such obligors, the operations of their
respective vessels, in accordance with certain standards set forth in such
credit agreements or guarantees, as the case may be. The Company's Revolver
(discussed below) contains a "hull covenant" which requires the obligors to
deliver additional collateral to the lenders under such credit agreement, or
prepay a certain amount of the indebtedness under such credit agreement, in the
event that the value of the subject vessels falls below a fixed percentage of
the amount of the indebtedness under such credit agreement then outstanding. The
percentage at which the combined value of the subject vessels must remain is
120% of the outstanding indebtedness under the Revolver, with the percentage
increasing to 140% over the term of the Revolver. The Company believes that as
of September 30, 1995 it was in compliance with all of the covenants in effect
at that time.
In addition to the hull covenants, certain of the credit agreements
prohibit the payment of dividends by, or the making of distributions from, the
respective obligors during the time in which any of the indebtedness thereunder
remains outstanding. As of September 30, 1995, the amount of retained earnings
in subsidiaries of Teekay that was prohibited from being distributed as a
dividend to Teekay was $65,184.
On July 15, 1993, Teekay issued $175.0 million of its 1993 Notes in a
private placement. On December 30, 1993, Teekay completed, pursuant to a
registration rights agreement, an exchange offer whereby such privately-placed
Notes were, at the option of each holder, exchanged for Notes registered under
the Securities Act. The 1993 Notes are not listed for trading on any foreign or
United States exchange and there is currently no regular trading market for such
Notes.
The Company has a reducing revolving credit facility (the "Revolver") with
three commercial banks providing for borrowings of up to $243.0 million to
refinance certain indebtedness of the Company, to
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finance certain vessel acquisitions and to provide working capital. The Revolver
is secured by first priority mortgages granted on 14 of the Company's Aframax
tankers, together with certain other related collateral, and a guarantee from
Teekay for all amounts outstanding under the Revolver. The commitment amount
will be reduced by $9.5 million in semiannual instalments which commenced on
December 6, 1995, together with a final balloon payment coincident with the
final semiannual reduction. Interest payments are based on LIBOR plus a margin
ranging from 0.80% to 1.25% which is dependent on the financial leverage of the
Company, as calculated on a quarterly basis. Principal repayments are required
when borrowings under the Revolver exceed the commitment amount, which was
$223.0 million as of September 30, 1995.
CERTAIN TRANSACTIONS WITH RELATED PARTIES
All of the issued and outstanding shares of Teekay voting common stock are
owned by affiliated trusts, the activities of which are supervised by Messrs.
Coady, Karlshoej, and Thomas Hsu, directors of Teekay, and Mr. Shigeru Matsui,
President of Matsui & Company, a Tokyo based ship brokerage firm.
Mr. Thomas Hsu, a director of Teekay, is associated with the company that
owns the other 50% of VCSC. Teekay and its partner in VCSC have guaranteed
certain loans of VCSC. See Note 11 to the Consolidated Financial Statements
included elsewhere in this Prospectus. Certain directors of Teekay are also
officers and directors of VCSC.
In April 1993, Teekay acquired all of the issued and outstanding shares of
common stock of Palm Shipping Inc. from an affiliate of Teekay for a nominal
purchase price, plus an amount to be paid at a later date (up to a maximum of
$5.0 million plus accrued interest), contingent upon certain future events. The
payment of such purchase price by Teekay shall not occur until after the 9 5/8%
First Preferred Ship Mortgage Notes have been paid in full.
On March 31, 1995, Teekay acquired 100% of the outstanding stock of Teekay
Shipping Limited ("TSL"), an affiliated company, for cash consideration of $1.27
million representing the net book value of TSL at March 31, 1995. The impact of
this transaction on the financial position and results of operations of Teekay
is not considered significant. The assets and liabilities of TSL have been
combined with those of Teekay effective March 31, 1995. Teekay's results of
operations include those of TSL subsequent to that date.
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DESCRIPTION OF THE NOTES
The Notes will be issued under an Indenture, to be dated as of ,
1996 (the "Indenture"), among Teekay, the Guarantors and United States Trust
Company of New York, as Trustee (the "Trustee"). The following summaries of
certain provisions of the Indenture do not purport to be complete and are
subject to, and are qualified in their entirety by reference to, all the
provisions of the Indenture, including the definitions of certain terms therein.
The definitions of certain of the capitalized terms used in this "Description of
the Notes" section are summarized below under "--Certain Definitions." Wherever
particular provisions or defined terms of the Indenture not otherwise defined
herein are referred to, such provisions or defined terms are incorporated herein
by reference. Unless otherwise indicated, all references under this caption to
sections, "sec." or articles are references to the Indenture, a copy of which
will be filed with the Commission as an exhibit to the Registration Statement of
which this Prospectus is a part.
GENERAL
The Notes will represent general secured obligations of Teekay, will be
limited to $225 million in aggregate principal amount and will mature on
, 2008.
Payment of the principal of, premium, if any, and interest on the Notes
will be irrevocably and unconditionally guaranteed on a senior secured basis by
each of the Guarantors. See "The Subsidiary Guarantees." The Notes will bear
interest at the rate per annum shown on the front cover of this Prospectus from
, 1996 or from the most recent Interest Payment Date to which
interest has been paid or provided for, payable semi-annually on
and of each year, commencing
, 1996 to the Person in whose name the Note (or any predecessor
Note) is registered at the close of business on the preceding
or , as the case may be. Interest on the
Notes will be computed on the basis of a 360-day year of twelve 30-day months.
(Sections 2.01, 2.07 and 2.10) Principal of, premium, if any, and interest on
the Notes will be payable, and, except as described below, the Notes are
transferable, at the office or agency of Teekay in The City of New York
maintained for such purpose (which initially shall be the corporate trust office
of the Trustee, at 114 West 47th Street, New York, New York 10036-1552);
provided that, at the option of Teekay, payment of interest may be made by check
mailed to the address of the person entitled thereto as such address appears in
the Security Register. (Sections 2.04 and 2.05)
The Notes will be issued only in registered form, without coupons, in
denominations of $1,000 and any integral multiple thereof. (Section 2.03) No
service charge will be made for any registration of transfer or exchange of
Notes, except in certain circumstances to cover any transfer tax or other
similar governmental charge that may be payable in connection therewith.
(Section 2.06)
FALL-AWAY EVENT
In the event that (i) the Notes achieve Investment Grade Status on a pro
forma basis after giving effect to the release of the Collateral, (ii) no Event
of Default shall have occurred and be continuing and (iii) on a pro forma basis,
after giving effect to the release of the Collateral, the aggregate amount of
all Indebtedness of Teekay that is secured by a Lien plus all Indebtedness of
Restricted Subsidiaries is not greater than 15% of the Company's Consolidated
Tangible Assets (the occurrence of the events described in the foregoing clauses
(i), (ii) and (iii) being collectively referred to as the "Fall-away Event"),
upon the request of Teekay and the Guarantors and subject to the delivery of
appropriate documentation to the Trustee, the Subsidiary Guarantees will be
terminated, the Collateral securing the Obligations of Teekay and the Guarantors
under the Indenture and the Security Documents will be released and certain
covenants under the Indenture will no longer be applicable to Teekay and the
Restricted Subsidiaries. See "--Certain Restrictive Covenants." In addition,
Teekay's mandatory redemption obligations upon a loss or sale of a Mortgaged
Vessel shall no longer be applicable. As a result of such modifications, upon
the occurrence of the Fall-away Event the Notes will become general senior
unsecured obligations of Teekay and will be entitled to a substantially reduced
level of covenant protection. See "--Covenants After Fall-away Event." (Section
5.01)
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RANKING
The Indebtedness evidenced by the Notes will rank pari passu in right of
payment with all other existing and future senior indebtedness of Teekay. The
Indenture virtually prohibits the Guarantors from incurring additional
indebtedness for money borrowed. However, the Indenture permits Teekay and its
subsidiaries that are not Guarantors to incur substantial indebtedness and to
secure such indebtedness with mortgages on their assets. Certain additional
indebtedness, including indebtedness incurred upon the satisfaction of certain
financial tests, may be incurred by Teekay. As of September 30, 1995 and after
giving effect to the consummation of the Offering, the Guarantors have virtually
no other indebtedness, the other subsidiaries of Teekay have outstanding
approximately $523.8 million of indebtedness all of which is secured by
mortgages on other vessels and guaranteed by Teekay, and Teekay has no other
outstanding indebtedness except for approximately $17.8 million of other
guarantees issued by Teekay for the benefit of VCSC.
With respect to each Guarantor, claims of Holders of the Notes will rank
pari passu with claims of the creditors of such Guarantor, but will rank ahead
of such claims to the extent of the value, priority and validity of such
Guarantor's Mortgage of its respective Mortgaged Vessel. Although the Holders of
the Notes should be entitled to payment of their indebtedness out of the
proceeds of their collateral prior to the holders of any general unsecured
obligations of the Guarantors or Teekay, in the event that the assets and cash
flow of the Guarantors are insufficient to meet the obligations under the Notes,
creditors' claims against Teekay will be effectively against the shares of stock
of subsidiaries other than the Guarantors and any other assets owned by Teekay
and not direct claims against the assets of such subsidiaries. Therefore, such
claims would have value only to the extent that the shares of stock of such
subsidiaries have value after the payment of the claims of the creditors of such
subsidiaries or that Teekay has other assets.
Certain of the financing arrangements between subsidiaries of Teekay that
are not Guarantors and their respective lenders contain restrictions on
dividends by and distributions from such subsidiaries to Teekay as well as
prohibitions on other financial dealings between Teekay and such subsidiaries.
However, Palm is not restricted in such fashion and any amounts that Palm
receives as charter payments for the chartering of the Company's Vessels that
are in excess of the amount that Palm is obligated to pay to the Company's
vessel-owning subsidiaries under their respective Palm Charters would be
available to Teekay as a dividend, distribution or advance from Palm.
Upon the occurrence of the Fall-away Event, at the request of Teekay and
the Guarantors and subject to delivery of appropriate documentation to the
Trustee, the Subsidiary Guarantees will be terminated, certain covenants
described above, together with certain other covenants under the Indenture, will
no longer be applicable to Teekay and the Guarantors and the Collateral securing
the Obligations of Teekay and the Guarantors under the Indenture and the
Security Documents will be released, whereupon the Notes will become general
senior unsecured obligations of Teekay. See "--Fall-away Event," "--Certain
Restrictive Covenants" and "--Covenants After Fall-away Event."
GUARANTEES
Teekay's obligations for payment of the principal of, and premium, if any,
and interest on the Notes, the Guarantors' obligations for payment of all sums
of money payable under the Security Documents and performance of all other
provisions contained in the Indenture and the Security Documents (collectively,
the "Obligations") will be irrevocably and unconditionally guaranteed on a
senior secured basis by each of the Guarantors in the Subsidiary Guarantees. See
"The Subsidiary Guarantees."
Upon the occurrence of the Fall-away Event, the Subsidiary Guarantees will
be terminated. See "--Fall-away Event," "--Certain Restrictive Covenants" and
"--Covenants After Fall-away Event."
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SECURITY
Teekay will pledge in favor of the Trustee all of the issued and
outstanding capital stock of each Guarantor and its interest in the Investment
Account to secure the Obligations.
Each Guarantor will pledge and assign certain of its assets to the Trustee
to secure, among other things, the Notes, its Subsidiary Guarantee of the Notes
and the other Obligations. The assets to be so pledged and assigned by each
Guarantor shall include all of its right, title and interest in and to (i) its
Mortgaged Vessel, pursuant to a Mortgage issued by such Guarantor in favor of
the Trustee, which Mortgage contains covenants pursuant to which such Guarantor,
among other things, will be prohibited from selling, mortgaging or transferring
any of its interest in such vessel (other than as permitted under the
Indenture); (ii) the Charter with Palm relating to its Mortgaged Vessel,
including the right to receive all monies due and to become due under such
Charter or in respect of such Mortgaged Vessel and all claims for damages
arising under such Charter or relating to such Mortgaged Vessel; (iii) the
freights and hires relating to its Mortgaged Vessel; and (iv) all of its
policies and contracts of insurance taken out from time to time in respect of
its Mortgaged Vessel. See "The Mortgaged Vessels."
In addition, each Guarantor will grant the Trustee a security interest in
an account into which charter hire under the Palm Charters are required to be
paid following the occurrence of an Event of Default (a "Cash Collateral
Account"). See "The Mortgaged Vessels."
Upon performance and payment in full of all the Obligations, all such
pledges and assignments in favor of the Trustee shall terminate.
Upon the occurrence of the Fall-away Event, all of the Collateral securing
the obligations of Teekay and the Guarantors under the Indenture and the
Security Documents will be released. See "--Fall-away Event," "--Certain
Restrictive Covenants" and "--Covenants After Fall-away Event."
REDEMPTIONS
SINKING FUND
The Indenture will provide for the redemption on in each year,
commencing in the year 2004, of $45 million principal amount of Notes, subject
to adjustment as provided below, at a redemption price equal to 100% of their
principal amount, plus accrued interest to the redemption date. (Section 3.08)
Upon a redemption of Notes in connection with a reduction in the number of
Mortgaged Vessels securing the Notes, whether as a result of the sale of a
Mortgaged Vessel, or an Event of Loss with respect to a Mortgaged Vessel, each
sinking fund payment payable after the occurrence of such event will be
proportionately reduced (the amount of such reduction being equal to the product
of the sinking fund payment otherwise due multiplied by the Vessel Percentage of
the Mortgaged Vessel so released). Teekay may, at its option, receive a credit
against sinking fund obligations equal to the aggregate principal amount of
Notes acquired by Teekay and surrendered to the Trustee for cancellation.
(Section 3.09)
MANDATORY REDEMPTION UPON LOSS OF A MORTGAGED VESSEL
If an Event of Loss occurs at any time with respect to a Mortgaged Vessel
(the Mortgaged Vessel suffering such Event of Loss being the "Lost Mortgaged
Vessel"), Teekay shall deposit funds in an amount equal to the Vessel Percentage
applicable to the Lost Mortgaged Vessel multiplied by the principal amount of
Notes outstanding on the date (the "Loss Date") such Event of Loss was deemed to
have occurred ("the Loss Redemption Amount") (or, if an Event of Default shall
have occurred and be continuing at the time of receipt of such Event of Loss
Proceeds, such funds shall be in an amount equal to the greater of (x) the Loss
Redemption Amount and (y) the Event of Loss Proceeds) with the Trustee upon the
earlier to occur of (A) the receipt of Event of Loss Proceeds with respect to
such Event of Loss and (B) 90 days after the Loss Date, to be held in the
Investment Account until applied in accordance with subsections (a) or (b)
below, and:
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(a) (i) redeem Notes, in whole or in part, at a redemption price equal
to 100% of their principal amount, plus accrued interest to the Redemption
Date, in an aggregate principal amount equal to the Loss Redemption Amount
and (ii) treat the amount equal to the excess of the Net Event of Loss
Proceeds from such Event of Loss over the Loss Redemption Amount, if any,
as Loss Excess Proceeds; or
(b) if no Event of Default shall have occurred and be continuing (i)
notify the Trustee within 30 days of the Loss Date of its intention to
substitute a Qualified Substitute Vessel for the Lost Mortgaged Vessel,
(ii) substitute a Qualified Substitute Vessel for the Lost Mortgaged Vessel
within 180 days of the Loss Date and (iii) within 12 months after the
Vessel Tender Date (A)(1) apply an amount equal to the Net Event of Loss
Proceeds from such Event of Loss to repay unsubordinated Indebtedness of
Teekay or a Guarantor or Indebtedness of any Restricted Subsidiary or (2)
invest the amount not so applied pursuant to clause (1) (or enter into a
definitive agreement committing to so invest within 12 months after the
date of such agreement), in, generally, property or assets which will be
used in a business similar to the business of Teekay and its Restricted
Subsidiaries, or allocate such amount to working capital for general
corporate purposes and (B) treat any remaining Net Event of Loss Proceeds,
to the extent not applied pursuant to clause (A), as Loss Excess Proceeds.
(Section 3.10)
The requirement for mandatory redemption upon an Event of Loss will not
apply after the occurrence of the Fall-away Event. See "--Fall-away Event,"
"--Certain Restrictive Covenants" and "--Covenants After Fall-away Event."
MANDATORY REDEMPTION UPON SALE OF A MORTGAGED VESSEL
If a Mortgaged Vessel or the Capital Stock of a Guarantor is sold in
accordance with the terms of the Indenture (the Mortgaged Vessel so sold being
the "Sold Mortgaged Vessel"), Teekay shall deposit funds in an amount (the "Sale
Redemption Amount") equal to the Vessel Percentage applicable to the Sold
Mortgaged Vessel multiplied by the principal amount of Notes outstanding on the
date of such sale (the "Sale Date") with the Trustee upon the earlier to occur
of (A) the receipt of Net Cash Proceeds with respect to such sale and (B) 30
days after the Sale Date, to be held in the Investment Account until applied in
accordance with subsections (a) or (b) below, and:
(a) (i) redeem Notes, in whole or in part, in an aggregate principal
amount equal to the Sale Redemption Amount at a Redemption Price equal to
the greater of (A) 100% of the principal amount of such Notes and (B) the
sum of the present values of the remaining scheduled payments of principal
and interest thereon discounted to the redemption date on a semiannual
basis (assuming a 360-day year consisting of twelve 30-day months) at the
Treasury Rate plus 50 basis points, plus accrued interest thereon to the
date of redemption; and (ii) treat the amount equal to the excess of the
Net Cash Proceeds from such sale over the aggregate principal amount of the
Notes redeemed pursuant to clause (i) above, if any, as Sale Excess
Proceeds; or
(b) (i) notify the Trustee within 30 days of the Sale Date of its
intention to substitute a Qualified Substitute Vessel for the Sold
Mortgaged Vessel, (ii) substitute a Qualified Substitute Vessel for the
Sold Mortgaged Vessel within 180 days of the Sale Date and (iii) within 12
months after the Vessel Tender Date, (A)(1) apply an amount equal to the
Net Cash Proceeds from such sale to repay unsubordinated Indebtedness of
Teekay or a Guarantor or Indebtedness of any Restricted Subsidiary or (2)
invest the amount not so applied pursuant to clause (1) (or enter into a
definite agreement committing to so invest within 12 months after the date
of such agreement), in, generally, property or assets which will be used in
a business similar to the business of Teekay and its Restricted
Subsidiaries, or allocate such amount to working capital for general
corporate purposes and (B) treat any remaining Net Cash Proceeds, to the
extent not applied pursuant to clause (A), as Sale Excess Proceeds. Teekay
shall not be permitted to substitute a Qualified Substitute Vessel for the
Sold Mortgaged Vessel, and shall be obligated to redeem Notes as set forth
in subparagraph (a) above, if (A) an Event of Default shall have occurred
and be continuing,
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(B) Teekay does not deposit the Sale Redemption Amount with the Trustee as
required above, (C) the Appraised Value of the Qualified Substitute Vessel
at the Vessel Tender Date is less than the Vessel Percentage applicable to
the Sold Mortgaged Vessel multiplied by the principal amount of the Notes
outstanding at the Vessel Tender Date or (D) other requirements for the
tender of the Qualified Substitute Vessel to the Trust Estate are not
satisfied for any reason. (Section 3.11)
For purposes of subsection (a) above, the following definitions shall
apply:
"Treasury Rate" is defined to mean, with respect to any redemption date,
the rate per annum equal to the semiannual 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" is defined to mean the United States Treasury
security elected by an Independent Investment Banker as having a maturity
comparable to the remaining term of the Notes to be redeemed 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 such Notes. "Independent Investment Banker"
means one of the Reference Treasury Dealers appointed by the Trustee after
consultation with the Company.
"Comparable Treasury Price" is defined to mean, 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 p.m., 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, or (B) if the Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such Quotations. "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 Treasury Reference Dealer at 5:00 p.m. on the third business day
preceding such redemption date.
"Reference Treasury Dealer" is defined to mean each of Goldman. Sachs &
Co., Morgan Stanley & Co. Incorporated and Smith Barney Inc. and their
respective successors; provided, however, that if any of the foregoing shall
cease to be a primary U.S. Government securities dealer in New York City (a
"Primary Treasury Dealer"), Teekay shall substitute therefor another Primary
Treasury Dealer.
The requirement for mandatory redemption upon sale of a Mortgaged Vessel
will not apply after the occurrence of a Fall-away Event.
SELECTION OF NOTES TO BE REDEEMED
In the case of any partial redemption pursuant to the provisions referred
to under this caption "--Redemption", selection of the Notes for redemption will
be made on a pro rata basis among all the Holders; provided that no Note of
$1,000 in original principal amount or less shall be redeemed in part. If any
Note is to be redeemed in part only, the notice of redemption relating to such
Note shall state the portion of the principal amount thereof to be redeemed. A
new Note in principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original Note.
(Section 3.03) Unless the Company defaults in payment of the redemption price,
on and after the redemption date interest will cease to accrue on the Notes or
portions thereof called for redemption.
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CERTAIN RESTRICTIVE COVENANTS
The Indenture will provide that all of the following restrictive covenants
will be applicable to the Company unless and until the Fall-away Event occurs.
In such event, the Company will be released from its obligations to comply with
certain of the restrictive covenants described below as well as certain other
obligations. The covenants that will be released upon the Fall-away Event are
"--Limitation of Indebtedness," "--Limitation on Restricted Payments,"
"--Limitation on Dividend and Other Restrictions Affecting Restricted
Subsidiaries," "--Limitation on the Issuance of Capital Stock of Restricted
Subsidiaries," "--Limitation on Transactions with Shareholders and Affiliates,"
"--Limitation of Liens," "--Limitation on Asset Sales," the second paragraph
under "--Excess Proceeds Offer," "--Maintenance of Properties," subsection (a)
of "--Insurance," "--Performance of Agreements," "--Modification of Material
Contracts," "--Management of Mortgaged Vessels, "--Change of Flag," "--Release
of Mortgaged Vessels," "--Tender of a Qualified Substitute Vessel" and clauses
(4) and (5) under the "Consolidation, Merger and Sale of Assets" covenant.
(Section 4.03)
Upon the release of the covenants listed above after the occurrence of the
Fall-away Event, certain other less restrictive covenants under the Indenture
will become applicable to Teekay and the Restricted Subsidiaries. See
"--Covenants After Fall-away Event."
LIMITATION ON INDEBTEDNESS
Under the terms of the Indenture, Teekay will not, and will not permit any
Restricted Subsidiary to, Incur any Indebtedness (other than the Notes and
Indebtedness existing (or for which a written commitment has been made on or
prior to the Closing Date) on the Closing Date); provided that Teekay or any
Restricted Subsidiary (other than a Guarantor and Palm) may Incur Indebtedness
if, after giving effect to the Incurrence of such Indebtedness and the receipt
and application of the proceeds therefrom, the Interest Coverage Ratio of Teekay
would be greater than 2:1.
Notwithstanding the foregoing, under the Indenture (except as expressly
provided otherwise below), Teekay or any Restricted Subsidiary (other than a
Guarantor or Palm, except as provided in clause (vii) below) also may Incur
certain types of Indebtedness, including, in general, the following: (i)
Indebtedness in an aggregate principal amount such that the aggregate principal
amount of the Indebtedness of Teekay and its Restricted Subsidiaries outstanding
immediately after such Incurrence does not exceed the aggregate principal amount
of Indebtedness existing (or for which a written commitment has been made on or
prior to the Closing Date) on the Closing Date, after giving effect to the Note
Offering and the application of proceeds therefrom, plus $50 million; (ii)
Indebtedness of Teekay to any of its Wholly Owned Restricted Subsidiaries, or of
a Restricted Subsidiary to Teekay or to any other Wholly Owned Restricted
Subsidiary; (iii) Indebtedness issued in exchange for, or the net proceeds of
which are used to refinance or refund, certain outstanding Indebtedness of
Teekay or any of its Restricted Subsidiaries, subject to certain conditions,
including that such new Indebtedness, determined as of the date of Incurrence of
such new Indebtedness, does not mature prior to the Stated Maturity of the
Indebtedness so exchanged, refinanced or refunded and the Average Life of such
new Indebtedness is at least equal to the remaining Average Life of the
Indebtedness so exchanged, refinanced or refunded; (iv) Indebtedness (A) in
respect of performance, surety or appeal bonds provided in the ordinary course
of business, (B) under certain Currency Agreements and Interest Rate Agreements,
and (C) arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, or from Guarantees or letters of credit,
surety bonds or performance bonds securing any obligations of Teekay or any of
its Restricted Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted Subsidiary
of Teekay or any of its Restricted Subsidiaries and not exceeding the gross
proceeds therefrom, other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Restricted Subsidiary
of Teekay or any of its Restricted Subsidiaries for the purpose of financing
such acquisition; (v) Indebtedness under Guarantees in respect of obligations of
Unrestricted Subsidiaries in an aggregate amount not to exceed $5 million at any
one time outstanding; (vi) Acquired Indebtedness; provided that, after giving
effect to the Incurrence thereof, Teekay could Incur at least $1.00 of
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Indebtedness under the first paragraph of this covenant; and (vii) Indebtedness
of Palm (A) Incurred in the ordinary course of business in connection with the
operation of any Vessel in an aggregate principal amount not to exceed $25
million outstanding at any one time or (B) to Teekay resulting from advances to
Palm by Teekay. The covenant defines certain terms relating to how certain
amounts of Indebtedness are calculated for purposes of this covenant.
Teekay may not Incur any Indebtedness that is expressly subordinated to any
other Indebtedness of Teekay unless such Indebtedness, by its terms or the terms
of any agreement or instrument pursuant to which such Indebtedness is issued or
remains outstanding, is also expressly made subordinate to the Notes at least to
the extent that it is subordinated to such other Indebtedness.
No Guarantor may Incur any Indebtedness other than pursuant to its Security
Documents. (Section 4.04)
LIMITATION ON RESTRICTED PAYMENTS
Under the terms of the Indenture, Teekay will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, (i) declare or pay any
dividend or make any distribution on its Capital Stock (other than dividends or
distributions payable solely in shares of its or such Restricted Subsidiary's
Capital Stock (other than Redeemable Stock or Capital Stock of a Guarantor or
Palm) of the same class held by such holders or in options, warrants or other
rights to acquire such shares of Capital Stock) held by Persons other than
Teekay or any of its Wholly Owned Restricted Subsidiaries, (ii) purchase,
redeem, retire or otherwise acquire for value any shares of Capital Stock of
Teekay or any of its Subsidiaries held by Persons other than Teekay or any of
its Wholly Owned Restricted Subsidiaries, (iii) make any voluntary or optional
principal payment, or voluntary or optional redemption, repurchase, defeasance,
or other voluntary acquisition or retirement for value, of Indebtedness of
Teekay that is subordinated in right of payment to the Notes, or (iv) make any
Investment in any Affiliate of Teekay (other than a Restricted Subsidiary) or
any Unrestricted Subsidiary (such payments or any other actions described in
clauses (i) through (iv) being collectively "Restricted Payments") if, at the
time of, and after giving effect to, the proposed Restricted Payment: (A) a
Default or Event of Default shall have occurred and be continuing or (B) the
aggregate amount expended for all Restricted Payments after the date of the
Indenture shall exceed the sum of (1) 50% of the aggregate amount of the
Adjusted Consolidated Net Income (or, if the Adjusted Consolidated Net Income is
a loss, minus 100% of such amount) of Teekay accrued on a cumulative basis
during the period beginning on the first day of the month immediately following
the Closing Date and ending on the last day of the last fiscal quarter preceding
the Transaction Date plus (2) the aggregate net proceeds received by Teekay
(including the amount of any dividends reinvested in the capital stock of
Teekay) from the issuance and sale permitted by the Indenture of the Capital
Stock of Teekay (other than Redeemable Stock) to a Person who is not a
Restricted Subsidiary or an Unrestricted Subsidiary of Teekay, plus (3) an
amount equal to the net reduction in Investments in Unrestricted Subsidiaries
resulting from payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to Teekay or any
Restricted Subsidiary from Unrestricted Subsidiaries, or from redesignations of
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as
provided in the definition of "Investments"), not to exceed, in the case of any
Unrestricted Subsidiary, the amount of Investments previously made by Teekay or
any Restricted Subsidiary in such Unrestricted Subsidiary plus (4) $50 million.
In general, the foregoing paragraph shall not take into account, and shall
not be violated by reason of: (i) the payment of any dividend within 60 days
after the date of declaration thereof if, at said date of declaration, such
payment would comply with the foregoing paragraph; (ii) the redemption,
repurchase, defeasance or other acquisition or retirement for value (other than
by a Guarantor) of Indebtedness of Teekay that is subordinated in right of
payment to the Notes, with the proceeds of, or in exchange for, Indebtedness
Incurred under clause (iii) of the second paragraph of "--Certain Restrictive
Covenants--Limitation on Indebtedness"; (iii) the repurchase, redemption or
other acquisition by Teekay of Capital Stock of Teekay in exchange for, or out
of the proceeds of a substantially concurrent offering of, shares of Capital
Stock (other than Redeemable Stock) of Teekay; (iv) the acquisition by
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Teekay of Indebtedness of Teekay that is subordinated in right of payment to the
Notes in exchange for, or out of the proceeds of, a substantially concurrent
offering of, shares of Capital Stock of Teekay (other than Redeemable Stock);
(vi) payments or distributions pursuant to or in connection with a
consolidation, merger or transfer of assets that complies with the applicable
provisions of the Indenture; or (vii) certain purchases, redemptions,
acquisitions, cancellations or other retirements for a nominal value per right
of any rights granted pursuant to any shareholders' rights plan (i.e., a "poison
pill"); provided that, in the case of foregoing clauses (i) and (ii), no Default
or Event of Default shall have occurred and be continuing or occur as a
consequence of the actions or payments set forth therein. (Section 4.05)
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES
Under the terms of the Indenture, Teekay will not, and will not permit any
Restricted Subsidiary to, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability
of any Restricted Subsidiary to (i) pay dividends or make any other
distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by Teekay or any other Restricted Subsidiary, (ii)
pay any Indebtedness owed to Teekay or any other Restricted Subsidiary, (iii)
make loans or advances to Teekay or any other Restricted Subsidiary or (iv)
transfer any of its property or assets to Teekay or any other Restricted
Subsidiary.
In general, the foregoing provision shall not restrict or prohibit any
encumbrances or restrictions: (i) existing pursuant to: (A) the Indenture, the
Notes, the Security Documents or any other agreements in effect on the Closing
Date or in any Indebtedness containing any such encumbrance or restriction that
is permitted pursuant to clause (iv) below or, subject to certain conditions, in
any such extensions, refinancings, renewals or replacements of the foregoing or
(B) any agreement which imposes such encumbrances or restrictions on Persons
other than a Guarantor, Palm or any Subsidiary of a Guarantor or Palm; (ii)
existing under certain other agreements providing for the Incurrence of
Indebtedness of any Restricted Subsidiary (other than a Guarantor or Palm) that
is permitted to be Incurred under the "--Certain Restrictive
Covenants--Limitation on Indebtedness"; (iii) existing under and by reason of
applicable law; (iv) existing with respect to any Person or the property or
assets of such Person (other than a Guarantor or Palm) acquired by Teekay or any
Restricted Subsidiary and existing at the time of such acquisition, which
encumbrances or restrictions are not applicable to any Person or the property or
assets of any Person other than such Person or the property or assets of such
Person so acquired; (v) in the case of clause (iv) of the first paragraph of
this covenant, certain encumbrances and restrictions that arise in the ordinary
course of business; or (vi) with respect to a Restricted Subsidiary (other than
a Guarantor or Palm) imposed pursuant to an agreement that has been entered into
for the sale or disposition of all or substantially all of the Capital Stock of,
or all, or substantially all, of the property and assets of, such Restricted
Subsidiary. Nothing contained in this covenant shall prevent Teekay or any
Restricted Subsidiary from (1) entering into any agreement permitting the
incurrence of Liens otherwise permitted by the "--Certain Restrictive
Covenants--Limitation on Liens", (2) restricting the sale or other disposition
of property or assets of Teekay or any of its Restricted Subsidiaries that
secure Indebtedness (other than the Notes and the Subsidiary Guarantees) of
Teekay or any of its Restricted Subsidiaries or (3) amending, modifying or
supplementing any charter or similar arrangement between Palm and a
vessel-owning Subsidiary of Teekay(other than the Palm Charters) solely (A) to
lower the rates paid by Palm to such vessel-owning Subsidiary under such charter
or similar arrangement or (B) to increase the rates paid by Palm to such
vessel-owning Subsidiary under such charter or similar arrangement to the extent
required to service (x) Indebtedness for money borrowed, Incurred in good faith
(as determined by the Board of Directors) and not with the purpose of evading
the requirements of this covenant, in connection with the financing or the
refinancing of Indebtedness of such Subsidiary and (y) expenses incurred by such
Subsidiary in the ordinary course of business. (Section 4.06)
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LIMITATION ON THE ISSUANCE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
Under the terms of the Indenture, Teekay will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, issue or sell any shares of
the Capital Stock of a Restricted Subsidiary except (i) to Teekay or, except
shares of Capital Stock of a Guarantor or Palm, to another Wholly Owned
Restricted Subsidiary, (ii) other than with respect to shares of Capital Stock
of a Guarantor or Palm, to management employees of Teekay or a Restricted
Subsidiary pursuant to the exercise of stock options or stock appreciation
rights, (iii) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary for
purposes of the Indenture or (iv) other than with respect to shares of Capital
Stock of a Guarantor or Palm, to Persons who are entering into joint ventures or
other similar business relationships with Teekay or any Subsidiary other than a
Guarantor or Palm, provided that transactions pursuant to this clause (iv) are
approved in the manner set forth in clause (i) of the second paragraph under
"--Certain Restrictive Covenants--Limitation on Transactions with Shareholders
and Affiliates." (Section 4.07)
LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES
Under the terms of the Indenture, Teekay will not, and will not permit any
Restricted Subsidiary of Teekay to, directly or indirectly, enter into, renew or
extend any transaction or series of related transactions with any holder (or any
Affiliate of such holder) of 5% or more of any class of Capital Stock of Teekay
or with any Affiliate of Teekay, except upon fair and reasonable terms no less
favorable to Teekay or such Restricted Subsidiary than could be obtained in a
comparable arm's-length transaction with a Person that is not such a holder or
Affiliate.
In general, the foregoing limitation does not limit, and shall not apply to
(i) transactions or series of related transactions (A) approved by a majority of
the disinterested members of the Board of Directors as fair to Teekay or such
Restricted Subsidiary or (B) for which Teekay delivers to the Trustee a written
opinion of a nationally recognized United States investment banking firm stating
that the transaction is fair to Teekay or such Restricted Subsidiary from a
financial point of view; (ii) any transaction or series of related transactions
among Teekay and any Wholly Owned Restricted Subsidiaries (other than a
Guarantor or Palm) or among Wholly Owned Restricted Subsidiaries (other than a
Guarantor or Palm); (iii) the payment of reasonable and customary regular fees
to directors of Teekay or any Restricted Subsidiary who are not employees of
Teekay or any Restricted Subsidiary; or (iv) any Restricted Payments not
prohibited by "--Certain Restrictive Covenants--Limitation on Restricted
Payments." Notwithstanding the foregoing, any transaction or series of related
transactions that are permitted by clause (iii) or (iv) of this paragraph, the
aggregate amount of which exceeds $5 million in value, must be approved or
determined to be fair in the manner set forth in clause (i) of this paragraph.
Nothing contained in this covenant shall prevent Teekay or any Restricted
Subsidiary from amending, modifying or supplementing any charter or similar
arrangement between Palm and a vessel-owning Subsidiary of Teekay (other than
the Palm Charters) solely (A) to lower the rates paid by Palm to such
vessel-owning Subsidiary under such charter or similar arrangement or (B) to
increase the rates paid by Palm to such vessel-owning Subsidiary under such
charter or similar arrangement to the extent required to service (x)
Indebtedness for money borrowed, Incurred in good faith (as determined by the
Board of Directors) and not with the purpose of evading the requirements of this
covenant, in connection with the financing or refinancing of Indebtedness of
such Subsidiary and (y) expenses incurred by such Subsidiary in the ordinary
course of business. (Section 4.08)
LIMITATION ON LIENS
Under the terms of the Indenture, Teekay will not, and will not permit any
Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien on
any of its assets or properties without making effective provision for all of
the Notes and all other amounts due under the Indenture to be directly secured
equally and ratably with (or prior to) the obligation or liability secured by
such Lien for so long as such Lien affects such assets or properties.
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In general, under the terms of the Indenture, the foregoing limitation does
not apply to (i) Liens securing obligations under the Indenture, the Notes and
the Security Documents; (ii) other Liens existing or securing Indebtedness
existing (or for which a written commitment has been made on or prior to the
Closing Date) on the Closing Date; (iii) Liens granted after the Closing Date in
favor of the Holders; (iv) Liens on assets or properties or Capital Stock of
Teekay or a Restricted Subsidiary (other than a Guarantor and Palm) securing
Indebtedness permitted to be Incurred pursuant to the "Limitation on
Indebtedness" covenant; (v) Liens with respect to Acquired Indebtedness,
provided that such Liens do not extend to or cover any assets or properties of
Teekay or any Subsidiary of Teekay other than the assets or properties acquired;
(vi) Liens with respect to the assets of a Restricted Subsidiary (other than a
Guarantor and Palm) granted by such Restricted Subsidiary to Teekay to secure
Indebtedness owing to Teekay by such Restricted Subsidiary; (vii) certain Liens
securing permitted Indebtedness which is Incurred to refinance secured
Indebtedness; (viii) Liens on any accounts receivable accrued in the ordinary
course of business; and (ix) Permitted Liens.
Notwithstanding the foregoing, (a) Teekay will not, and will not permit a
Guarantor or Palm to, create, incur, assume or suffer to exist any Lien upon
Capital Stock pledged pursuant to the Pledge Agreements and (b) no Guarantor
will, and Teekay will not permit a Guarantor or Palm to, create, incur, assume
or suffer to exist any Lien upon any of its assets or properties, except for
Liens securing obligations under the Indenture, the Notes and the Security
Documents and Permitted Liens. (Section 4.09)
LIMITATION ON ASSET SALES
Under the terms of the Indenture, neither Teekay nor any Guarantor may
sell, assign, convey, transfer or otherwise dispose of a Mortgaged Vessel or any
other portion of the Trust Estate (other than an Incidental Asset), provided
that a Guarantor may sell a Mortgaged Vessel (together with the applicable
charters, freights and hires and other related agreements) or Teekay may sell
all of the Capital Stock of a Guarantor (any such asset proposed to be sold is
referred to herein as a "Mortgaged Vessel Asset") if such sale of a Mortgaged
Vessel Asset shall be made in compliance with each of the following conditions:
(i) no Event of Default shall have occurred and be continuing;
(ii) the sale shall be effected in a commercially reasonable manner;
(iii) the entire consideration for such sale shall be cash and the Net
Cash Proceeds of such sale shall be not less than the Appraised Value of
such Mortgaged Vessel Asset as of the date of such sale;
(iv) the sale shall be to a Person who is not an Affiliate of Teekay,
and the Board of Directors of Teekay shall have determined that the sale
was effected in a commercially reasonable fashion, which determination
shall be evidenced by a board resolution;
(v) funds in an amount equal to the Sale Redemption Amount shall be
paid in full directly to the Trustee to be held in the Investment Account
and shall be received by the Trustee free of any Lien (other than the Lien
of the Indenture); and
(vi) Teekay shall have complied with the other provisions of the
Indenture applicable to such sale.
Teekay must apply the proceeds from such sale as described above under
"--Redemptions--Mandatory Redemption upon Sale of a Mortgaged Vessel."
Teekay shall not, and shall not permit any of its Restricted Subsidiaries
to, engage in any Asset Sales (other than Asset Sales permitted by the first
paragraph of this covenant) unless (x) (A) such Asset Sale is by Teekay or by a
Restricted Subsidiary that is not a Guarantor or (B) such Asset Sale is an
Incidental Asset Sale and (y) in the event and to the extent that the Net Cash
Proceeds received by Teekay or any of its Restricted Subsidiaries from one or
more of such Asset Sales occurring on or after the
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Closing Date in any period of 12 consecutive months exceed $10 million, then
Teekay shall or shall cause a Restricted Subsidiary to (i) within 12 months
after the date Net Cash Proceeds so received exceed $10 million in any period of
12 consecutive months, in general, apply an amount equal to such excess Net Cash
Proceeds to repay certain unsubordinated Indebtedness, to invest in the business
or as working capital for general corporate purposes and (ii) treat (no later
than the end of such 12-month period referred to in clause (i) above) such
excess Net Cash Proceeds (to the extent not applied pursuant to clause (i)
above) as Sale Excess Proceeds. (Section 4.10)
EXCESS PROCEEDS OFFERS
If, as of the first day of any calendar month, the aggregate amount of Sale
Excess Proceeds not theretofore subject to a Sale Excess Proceeds Offer (as
defined below) totals at least $10 million, Teekay must, not later than the
fifteenth Business Day of such month, make an offer (a "Sale Excess Proceeds
Offer") to purchase from the holders on a pro rata basis an aggregate principal
amount of Notes equal to the Sale Excess Proceeds on such date, at a purchase
price at least equal to 101% of their principal amount, plus, in each case,
accrued interest (if any) to the date of purchase (the "Sale Excess Proceeds
Payment").
If, as of the first day of any calendar month, the aggregate amount of Loss
Excess Proceeds not theretofore subject to a Loss Excess Proceeds Offer (as
defined below) totals at least $10 million, Teekay must, not later than the
fifteenth Business Day of such month, make an offer (a "Loss Excess Proceeds
Offer," and together with a Sale Excess Proceeds Offer, an "Excess Proceeds
Offer") to purchase from the holders on a pro rata basis an aggregate principal
amount of Notes equal to the Loss Excess Proceeds on such date, at a purchase
price at least equal to 100% of their principal amount, plus, in each case,
accrued interest (if any) to the date of purchase (the "Loss Excess Proceeds
Payment," and together with a Sale Excess Proceeds Payment, an "Excess Proceeds
Payment").
The Indenture prescribes detailed procedures for making any required Excess
Proceeds Offer. (Section 4.11)
MAINTENANCE OF PROPERTIES
The Indenture will provide that Teekay will at all times and without cost
or expense to the Trustee maintain and preserve, or cause to be maintained and
preserved, the Mortgaged Vessels in accordance with the provisions of the
Mortgages. Teekay will at all times and without cost or expense to the Trustee
cause all other properties used or useful in the conduct of its business or the
business of any of its Subsidiaries, to be maintained and kept in good
condition, repair and working order and supplied with and will cause to be made
all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as in the judgment of Teekay may be necessary. (Section 4.14)
INSURANCE
The Indenture will provide that (a) Teekay and the Guarantors will at all
times maintain all insurance relating to the Mortgaged Vessels in accordance
with the provisions of the Mortgages and (b) each of Teekay and its Restricted
Subsidiaries will at all times keep all of its assets and properties (other than
the Mortgaged Vessels) which are of an insurable nature insured with insurers,
believed by Teekay and each Restricted Subsidiary to be responsible, against
loss or damage to the extent that property of similar character is usually so
insured by corporations similarly situated and owning like properties. (Section
4.15)
PERFORMANCE OF AGREEMENTS
The Indenture will provide that each of Teekay and the Guarantors will, and
Teekay will cause Palm to, perform in accordance with their terms their
respective obligations under the Palm Charters, the Security Documents, and the
insurance policies assigned to the Trustee from time to time pursuant to the
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Assignments of Insurance and any other agreements assigned to the Trustee to
secure obligations under the Indenture, the Notes and the Security Documents.
(Section 4.16)
MODIFICATION OF MATERIAL CONTRACTS
The Indenture will provide that, subject to the exceptions summarized
below, neither Teekay nor any of the Guarantors may amend or otherwise modify,
agree to any variation of, waive any breach of, release any other party from any
obligations under or consent to any act or omission by any other party which
would constitute a breach under the material provisions of any charter, freights
and hires or other agreement assigned as security for the Notes, in each case in
a manner adverse to the Holders unless the Holders of a majority of the
aggregate principal amount of Notes Outstanding consent to such amendment,
modification, variation, waiver, release or consent.
In the Indenture, Teekay and each Guarantor ratifies and confirms the Palm
Charters and agrees that they will not, and Teekay will cause Palm not to,
except as permitted in the Indenture, take or omit to take any action, the
taking or omission of which might result in an impairment of the Palm Charters,
the Indenture or the Security Documents. (Section 4.17)
MANAGEMENT OF MORTGAGED VESSELS
The Indenture will provide that, at all times while any Notes are
outstanding, the Mortgaged Vessels shall be managed and operated by Teekay or an
operator acceptable to the Trustee pursuant to management agreements on fair and
reasonable terms no less favorable to Teekay or the Guarantors than could be
obtained in a comparable arm's-length transaction with a Person that is not an
Affiliate of Teekay or a Guarantor. (Section 4.23)
CHANGE OF FLAG
So long as no Event of Default shall have occurred and be continuing,
Teekay and the Guarantors, at any time and from time to time, may cause one or
more Mortgaged Vessels to be transferred from Liberian flag to Bahamian flag or
from Bahamian flag to Liberian flag upon delivery of appropriate security
agreements and other documentation to the Trustee. After an Event of Default
shall have occurred and be continuing, the Trustee may cause one or more
Mortgaged Vessels to be transferred from Liberian flag to Bahamian flag or from
Bahamian flag to Liberian flag upon the delivery of appropriate documentation to
Teekay. (Section 9.07)
RELEASE OF MORTGAGED VESSELS
In the event that Teekay acquires and delivers to the Trustee for
cancellation Notes, in each case in an aggregate principal amount not
theretofore applied pursuant to this provision in excess of $10 million, Teekay
may request the Trustee to release a Mortgaged Vessel Asset from the Trust
Estate and from the Liens of the Indenture and the Security Documents; provided
that (i) no Event of Default shall have occurred and be continuing, (ii)
appropriate documentation is delivered to the Trustee, (iii) the Appraised Value
of the Mortgaged Vessel to be released at the time of such release does not
exceed 133% (the reciprocal of the Maximum Loan To Value Ratio) of the aggregate
principal amount of the Notes so redeemed, acquired or retired and (iv) the Loan
to Value Ratio after giving effect to such release shall not exceed the Maximum
Loan To Value Ratio, using the Appraised Value of the Mortgaged Vessel at the
time of, and after giving effect to, such release to calculate such Loan To
Value Ratio. (Section 9.04)
TENDER OF A QUALIFIED SUBSTITUTE VESSEL
On the date on which a Qualified Substitute Vessel is tendered to the Trust
Estate (a "Vessel Tender Date"), Teekay shall deliver to the Trustee, or shall
cause the owner of such vessel, which shall be a Wholly Owned Subsidiary of
Teekay(the "Tendered Vessel Owner"), to deliver to the Trustee, as the case may
be, the documents and certificates required by the Indenture, including, among
other
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things: (i) a Subsidiary Guarantee substantially in the form required by the
Indenture; and (ii) a Mortgage with respect to such vessel dated the Vessel
Tender Date and substantially in the form required by the Indenture (such
Mortgage having been duly received for recording in the appropriate registry
office). (Section 9.08)
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL TRIGGERING EVENT
The Indenture will provide 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 the Company's other debt
agreements. There can be no assurance that the Company 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. (Section 4.24)
CONSOLIDATION, MERGER AND SALE OF ASSETS
Teekay may not, in a single transaction or a series of related
transactions, (i) 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
(ii) directly or indirectly, transfer, sell, lease or otherwise dispose of all
or substantially all of its assets, unless: (1) 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 (a) the laws of the United States or any State thereof or the District of
Columbia, (b) the laws of the Republic of Liberia, (c) the laws of the
Commonwealth of the Bahamas or (d) the laws of any other country recognized by
the United States of America and which, in the case of any of (a), (b), (c) or
(d), shall expressly assume, by a supplemental indenture executed and delivered
to the Trustee in the form satisfactory to the Trustee, all of the Company's
obligations under the Indenture and, if applicable, the Security Documents; (2)
immediately before and after giving effect to such transaction and treating any
Indebtedness which becomes an obligation of Teekay or a Restricted Subsidiary as
a result of such transaction as having been incurred by Teekay or such
Restricted Subsidiary at the time of the transaction, no Default or Event of
Default shall have occurred and be continuing; (3) immediately after giving
effect to such transaction, the Consolidated Net Worth of Teekay (or other
successor entity to Teekay) and its Restricted Subsidiaries is equal to or
greater than that of Teekay and its Restricted Subsidiaries immediately prior to
the transaction; (4) immediately after giving effect to such transaction and
treating any Indebtedness which becomes an obligation of Teekay or a Restricted
Subsidiary as a result of such transaction as having been incurred by Teekay or
such Restricted Subsidiary at the time of the transaction, Teekay (including any
successor entity to Teekay) could incur at least $1.00 of additional
Indebtedness pursuant to the provisions of the Indenture described in the first
paragraph under "--Certain Restrictive Covenants--Limitation on Indebtedness";
(5) if, as a result of any such transaction, property or assets of Teekay would
become subject to a Lien prohibited by the provisions of the Indenture described
under "--Certain Restrictive Covenants--Limitation on Liens", Teekay or the
successor entity to Teekay shall have secured the Notes as required by said
covenant; and (6) certain other conditions are met. (Article Six)
COVENANTS AFTER FALL-AWAY EVENT
Upon the occurrence of the Fall-away Event and subject to certain other
conditions, the Company will no longer be obligated to comply with certain
covenants as described in the first paragraph under "--Certain Restrictive
Covenants." Under such circumstances, Teekay will remain obligated to comply
with the provisions described under "--Certain Restrictive Covenants--Excess
Proceeds Offer (except for the second paragraph thereof)," "--Certain
Restrictive Covenants--Repurchase of Notes Upon a Change of Control Triggering
Event," subsection (b) under "--Insurance" and "Consolidation, Merger
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and Sale of Assets" (except for clauses (4) and (5) thereof), and will be
obligated to comply with the following restrictive covenants:
LIMITATION ON LIENS
Following the occurrence of the Fall-away Event, Teekay will not, and will
not permit any Restricted Subsidiary to, Incur any Lien on any of its assets or
properties without making effective provision for all of the Notes and all other
amounts due under the Indenture to be directly secured equally and ratably with
(or prior to) the obligation or liability secured by such Lien for so long as
such Lien affects such assets or properties unless, at the time of the
Incurrence of such Lien, the aggregate amount of all Indebtedness of the
Restricted Subsidiaries plus the aggregate amount of all Indebtedness of Teekay
secured by a Lien on Teekay's assets shall not be greater than 15% of Teekay's
Consolidated Tangible Assets.
The foregoing limitation does not apply to (i) Liens on assets or
properties or Capital Stock of Teekay or a Restricted Subsidiary (other than
Palm) securing Indebtedness permitted to be incurred pursuant to "--Covenants
After Fall-away Event--Limitation on Indebtedness of Restricted Subsidiaries";
(ii) Liens on certain assets and properties securing Indebtedness which are
incurred to refinance Indebtedness secured by Liens on the same assets or
properties; (iii) Liens with respect to Acquired Indebtedness, provided that
such Liens do not extend to or cover any assets or properties of Teekay or any
Subsidiary of Teekay other than the assets or properties acquired; (iv) Liens
with respect to the assets of a Restricted Subsidiary (other than Palm) granted
by such Restricted Subsidiary to Teekay to secure Indebtedness owing to Teekay
by such Restricted Subsidiary; (v) Liens on any accounts receivable accrued in
the ordinary course of business; and (vi) Permitted Liens.
Notwithstanding the foregoing, Teekay will not, and will not permit Palm
to, create, incur, assume or suffer to exist any Lien upon any of Palm's assets
or properties, except for Permitted Liens. (Section 5.02)
LIMITATION ON INDEBTEDNESS OF RESTRICTED SUBSIDIARIES
Following the occurrence of a Fall-away Event, Teekay will not permit any
Restricted Subsidiary to Incur any Indebtedness unless, after giving effect to
the Incurrence of such Indebtedness and the application of the net proceeds
therefrom, the aggregate amount of Indebtedness of all Restricted Subsidiaries
plus the aggregate amount of all Indebtedness of Teekay secured by a Lien on
Teekay's assets is not greater than 15% of Teekay's Consolidated Tangible
Assets.
Notwithstanding the foregoing, under the Indenture (except as expressly
provided otherwise below), any Restricted Subsidiary (other than Palm, except as
provided in clause (v) below) also may Incur certain types of Indebtedness,
including, in general, the following: (i) Indebtedness of a Restricted
Subsidiary to Teekay or to any other Wholly Owned Restricted Subsidiary; (ii)
Indebtedness issued in exchange for, or the net proceeds of which are used to
refinance or refund, certain outstanding Indebtedness of any Restricted
Subsidiary, subject to certain conditions, including that such new Indebtedness,
determined as of the date of Incurrence of such new Indebtedness, does not
mature prior to the Stated Maturity of the Indebtedness so exchanged, refinanced
or refunded and the Average Life of such new Indebtedness is at least equal to
the remaining Average Life of the Indebtedness so exchanged, refinanced or
refunded; (iii) Indebtedness (A) in respect of performance, surety or appeal
bonds provided in the ordinary course of business, (B) under certain Currency
Agreements and Interest Rate Agreements, and (C) arising from agreements
providing for indemnification, adjustment of purchase price or similar
obligations, or from guarantees or letters of credit, surety bonds or
performance bonds securing any obligations of any Restricted Subsidiary pursuant
to such agreements, in any case incurred in connection with the disposition of
any business, assets or Restricted Subsidiary of Teekay or any of its Restricted
Subsidiaries and not exceeding the gross proceeds therefrom, other than
guarantees of Indebtedness incurred by any Person acquiring all or any portion
of such business, assets or Restricted Subsidiary of Teekay or any of its
Restricted Subsidiaries for the purpose of financing such acquisition; (iv)
Acquired Indebtedness; provided that, after giving effect to the Incurrence
thereof, the Restricted Subsidiaries could Incur at least $1.00 of Indebtedness
under the first paragraph of this covenant; and
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(v) Indebtedness of Palm (A) Incurred in the ordinary course of business in
connection with the operation of any Vessel in an aggregate principal amount not
to exceed $25 million outstanding at any one time or (B) to Teekay resulting
from advances to Palm by Teekay.
Teekay may not incur any Indebtedness that is expressly subordinated to any
other Indebtedness of Teekay unless such Indebtedness, by its terms or the terms
of any agreement or instrument pursuant to which such Indebtedness is issued or
remains outstanding, is also expressly made subordinate to the Notes at least to
the extent that it is subordinated to such other Indebtedness. (Section 5.03)
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS
AFFECTING RESTRICTED SUBSIDIARIES
Following the occurrence of the Fall-away Event, Teekay will not, and will
not permit any Restricted Subsidiary to, create or otherwise cause or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any Restricted Subsidiary to (i) pay dividends or make any
other distributions permitted by applicable law on any Capital Stock of such
Restricted Subsidiary owned by Teekay or any other Restricted Subsidiary, (ii)
pay any Indebtedness owed to Teekay or any other Restricted Subsidiary, (iii)
make loans or advances to Teekay or any other Restricted Subsidiary or (iv)
transfer any of its property or assets to Teekay or any other Restricted
Subsidiary.
In general, the foregoing provision shall not restrict or prohibit any
encumbrances or restrictions: (i) existing pursuant to the Indenture, the Notes,
or agreements in effect on the date of the Fall-away Event or in any
Indebtedness containing any such encumbrance or restriction that is permitted
pursuant to clause (iii) below or, subject to certain conditions, in any
extensions, refinancings, renewals or replacements of the foregoing; (ii)
existing under and by reason of applicable law; (iii) existing with respect to
any Person or the property or assets of such Person (other than Palm) acquired
by Teekay or any Restricted Subsidiary and existing at the time of such
acquisition, which encumbrances or restrictions are not applicable to any Person
or the property or assets of any Person other than such Person or the property
or assets of such Person so acquired and, subject to certain conditions, any
extensions, refinancings, renewals or replacements of the foregoing; (iv) in the
case of clause (iv) of the first paragraph of this covenant, certain
encumbrances and restrictions that arise in the ordinary course of business; (v)
existing pursuant to any agreement governing Indebtedness permitted to be
incurred by "--Covenants After Fall-away Event--Limitations on Indebtedness of
Restricted Subsidiaries" and, subject to certain conditions, any extensions,
refinancings, renewals or replacements of the foregoing; or (vi) with respect to
a Restricted Subsidiary (other than Palm) and imposed pursuant to an agreement
that has been entered into for the sale or disposition of all or substantially
all of the Capital Stock of, or all, or substantially all, of the property and
assets of, such Restricted Subsidiary. Nothing contained in this covenant shall
prevent Teekay or any Restricted Subsidiary from (1) entering into any agreement
permitting the incurrence of Liens otherwise permitted by "--Covenants After
Fall-away Event--Limitation on Liens", (2) restricting the sale or other
disposition of property or assets of Teekay or any of its Restricted
Subsidiaries that secure Indebtedness (other than the Notes) of Teekay or any of
its Restricted Subsidiaries or (3) amending, modifying or supplementing any
charter or similar arrangement between Palm and a vessel-owning Subsidiary of
Teekay (other than the Palm Charters) solely (A) to lower the rates paid by Palm
to such vessel-owning Subsidiary under such charter or similar arrangement or
(B) to increase the rates paid by Palm to such vessel-owning Subsidiary under
such charter or similar arrangement to the extent required to service (x)
Indebtedness for money borrowed, Incurred in good faith (as determined by the
Board of Directors) and not with the purpose of evading the requirements of this
covenant, in connection with the financing or the refinancing of Indebtedness of
such Subsidiary and (y) expenses incurred by such Subsidiary in the ordinary
course of business. (Section 5.04)
LIMITATION ON THE ISSUANCE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
Under the terms of the Indenture, Teekay will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, issue or sell any shares of
the Capital Stock of a Restricted Subsidiary except (i) to
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Teekay or, except shares of Capital Stock of Palm, to another Wholly Owned
Restricted Subsidiary, (ii) other than with respect to shares of Capital Stock
of Palm, to management employees of Teekay or a Restricted Subsidiary pursuant
to the exercise of stock options or stock appreciation rights, (iii) if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary for purposes of
the Indenture or (iv) other than with respect to shares of Capital Stock of
Palm, to Persons who are entering into joint ventures or other similar business
relationships with Teekay or any Subsidiary other than Palm. (Section 5.05)
LIMITATION ON SALES AND LEASEBACKS
Neither Teekay nor any Restricted Subsidiary may enter into any sale and
leaseback transaction involving any property or assets owned or leased by Teekay
or any Restricted Subsidiary, the acquisition of which, or completion of
construction and commencement of full operation of which, has occurred more than
120 days prior to such sale and leaseback transaction, unless Teekay or such
Restricted Subsidiary, within 360 days after the sale or transfer of such
property, (1) applies the Net Cash Proceeds from such sale, first, to the
purchase, acquisition or construction of property or assets to be used in the
business of Teekay and its Restricted Subsidiaries (which includes the entering
into, within such 360 day period, of an agreement for such purchases,
acquisition or construction of property or assets) and, second, to the repayment
or reduction of certain unsubordinated Indebtedness or as working capital for
general corporate purposes and (2) treats (no later than the end of such
12-month period referred to in clause (1) above) such excess Net Cash Proceeds
(to the extent not applied pursuant to clause (1) above) as Sale Excess
Proceeds. (Section 5.06)
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture: (a) Teekay defaults in the payment of principal of (or premium, if
any, on) any Notes when the same become due and payable at maturity, upon
acceleration, redemption or otherwise; (b) 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; (c) Teekay defaults in the deposit of any
Sinking Fund or other mandatory redemption payment, when and as due by the terms
of the Indenture; (d) Teekay or, if prior to the occurrence of the Fall-away
Event, any Guarantor, defaults in the performance of or breaches any other
covenant or agreement of Teekay or such Guarantor in the Indenture or under the
Notes or in the Security Documents, if applicable, 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 or a Guarantor to remedy the
same, shall have been given to Teekay or such Guarantor by the Trustee, or to
Teekay, such Guarantor and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Notes; (e) there occurs with respect to any
issue or issues of Indebtedness of Teekay or any of its Restricted 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 Indebtedness now exists or shall hereafter be
created, an event of default that has caused the holder thereof to declare such
Indebtedness to be due and payable prior to its Stated Maturity and such
Indebtedness 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 Indebtedness 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 Indebtedness, or to set off against any bank account
of Teekay or its Subsidiaries (in excess of $10 million); (f) 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 Restricted Subsidiary and shall not be paid or discharged, and there
shall be any period of 30 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
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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; (g) Teekay or
any Restricted 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 Restricted 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 Restricted Subsidiary shall take any
corporate action to authorize any of the actions set forth above in this
subsection (g); (h) Teekay and/or one or more Restricted Subsidiaries fails to
make (i) at the final (but not any interim) fixed maturity of any issue of
Indebtedness a principal payment of $10 million or more or (ii) at the final
(but not any interim) fixed maturity of more than one issue of such Indebtedness
principal payments aggregating $20 million or more and, in the case of clause
(i), such defaulted payment shall not have been made, waived or extended within
30 days of the payment default and, in the case of clause (ii), 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 (ii) to exceed
$10 million; (i) if prior to the occurrence of the Fall-away Event, any Security
Document ceases to be in full force and effect for a period of 30 days; or (j)
if prior to the occurrence of the Fall-away Event, any Charter ceases to be in
full force and effect or is repudiated prior to the expiration of the term of
such Charter. (Section 7.01)
If an Event of Default (other than an Event of Default specified in clause
(g) above occurs and is continuing under the Indenture, the Trustee thereunder
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 (d)
or (h) 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 (d) or (h) shall be remedied, cured by Teekay
and/or the relevant Restricted Subsidiaries or waived by the holders of the
relevant Indebtedness within 60 days after the declaration of acceleration with
respect thereto. If an Event of Default specified in clause (g) 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 (a)
Teekay has paid or deposited with the Trustee a sum sufficient to pay (i) all
sums paid or advanced by the Trustee hereunder and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel,
(ii) all overdue interest on all Notes, (iii) 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 (iv) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate prescribed therefor by such Notes,
(b) 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 (c) the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction. (Sections 7.02 and
7.04) For information as to the waiver of defaults, see "--Modification and
Waiver."
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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. (Section 6.05) A Holder may not pursue any remedy
with respect to the Indenture or the Notes unless (i) the Holder gives to the
Trustee written notice of a continuing Event of Default; (ii) the Holders of at
least 25% in aggregate principal amount of outstanding Notes make a written
request to the Trustee to pursue the remedy; (iii) 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;
(iv) the Trustee does not comply with the request within 60 days after receipt
of the request and the offer of indemnity; and (v) 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.
(Section 6.06) 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. (Section 7.07)
The Indenture will require certain officers of Teekay to certify, on or
before a date not more than 90 days after the end of each fiscal year, that a
review has been conducted of the activities of Teekay and its Restricted
Subsidiaries and Teekay's and its Restricted 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. (Section 4.19)
DEFEASANCE
DEFEASANCE AND DISCHARGE
The Indenture will provide 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) and assets and
property held in the Trust Estate will be released, on the 123rd day after the
date referred to below if, among other things, (A) Teekay has deposited with the
Trustee, in trust, 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 Indentures and the Notes, (B)
Teekay has delivered to the Trustee (i) either (x) 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 (y) a ruling directed to the
Trustee received from the Internal Revenue Service to the same effect as the
aforementioned Opinion of Counsel and (ii) 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 the effect of Section 547 of
the United States Bankruptcy Code or Section 15 of the New York Debtor and
Creditor Law, (C) 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
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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 (D) 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. (Section 11.02)
DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT
The Indenture will provide that certain provisions of the Indenture will no
longer be in effect, and assets and property held in the Trust Estate will be
released 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 (B)(ii), (C) and (D) of the preceding
paragraph and the delivery by Teekay 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
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. (Section 11.03)
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, (i) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, (ii) reduce the principal amount of, or premium, if
any, or interest on, any Note, (iii) adversely affect any right of repayment at
the option of any Holder, (iv) change the place or currency of payment of
principal of, or premium, if any, or interest on, any Note, (v) impair the right
to institute suit for the enforcement of any payment on or after the Stated
Maturity (or, in the case of a redemption, on or after the Redemption Date) of
any Note, (vi) reduce the percentage of outstanding Notes the consent of whose
Holders is necessary to modify or amend the Indenture, (vii) waive a default in
the payment of principal of, premium, if any, or interest on the Notes, (viii)
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 or except as
permitted by the Indenture, or, if prior to the Fall-away Event, permit the
creation of any Lien ranking prior to or on a parity with the Lien of the
Indenture or any Security Document, or terminate the Lien of the Indenture or
any Security Document on any property at any time subject hereto or thereto or
deprive the Holders of the security afforded by the Lien of the Indenture or the
Security Document. (Article Twelve)
NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS OR
EMPLOYEES
The Indenture will provide 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
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Notes, or because of the creation of any Indebtedness 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.
(Section 13.09)
CONCERNING THE TRUSTEE
The Indenture will provide that, except during the continuance of a
Default, the Trustee will not be liable, except for the performance of such
duties as are specifically set forth in such Indenture. If an Event of Default
has occurred and is continuing, the Trustee will 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.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of Teekay, to obtain payment of claims
in certain cases or to realize on certain property received by it in respect of
any such claims, as security or otherwise. The Trustee is permitted to engage in
other transactions; provided, however, that if it acquires any conflicting
interest, it must eliminate such conflict or resign.
GOVERNING LAW
The Indenture, the Notes and each of the Security Documents, other than the
Mortgages, provide that they are governed by the laws of the State of New York.
CONSENT TO JURISDICTION AND SERVICE
Teekay and each Guarantor have irrevocably appointed Lawco of Oregon 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.
"Acquired Indebtedness" is defined to mean Indebtedness 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.
"Adjusted Consolidated Net Income" is defined to mean, with respect to any
Person for any period, the aggregate net income (or loss) of such Person and its
consolidated Subsidiaries for such period determined in conformity with GAAP;
provided that the following items shall be excluded in computing Adjusted
Consolidated Net Income (without duplication): (i) the net income (or loss) of
such Person (other than net income (or loss) attributable to a Subsidiary of
such Person) in which any other Person (other than such Person or any of its
Subsidiaries) has a joint interest, except to the extent of the amount of
dividends or other distributions actually paid to such Person or any of its
Subsidiaries by such other Person during such period, (ii) solely for the
purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C) of the first paragraph of the "Limitation on Restricted
Payments" covenant (and in such case, except to the extent includable pursuant
to clause (i) above), the net income (or loss) of any Person accrued prior to
the date it becomes a Subsidiary of any other Person or is merged into or
consolidated with such other Person or any of its Subsidiaries or all or
substantially all of the property and assets of such Person are acquired by such
other Person or any of its Subsidiaries; (iii) the effects of foreign currency
exchange adjustments under GAAP; (iv) any gains or losses (on an after-tax
basis) attributable to Asset Sales or to prepayment of Indebtedness; (v) except
for purposes of calculating the amount of Restricted Payments that may be made
pursuant to clause (C)
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of the first paragraph of the "Limitation on Restricted Payments" covenant, any
amount paid or accrued as dividends on Preferred Stock of such Person or
Preferred Stock of any Subsidiary of such Person owned by Persons other than
such Person and any of its Subsidiaries; and (vi) all extraordinary gains and
extraordinary losses; provided that, solely for the purposes of calculating the
Interest Coverage Ratio (and in such case, except to the extent includable
pursuant to clause (i) above), "Adjusted Consolidated Net Income" of Teekay
shall include the amount of all cash dividends received by Teekay or any
Restricted Subsidiary of Teekay from an Unrestricted Subsidiary.
"Appraised Value" is defined to mean the fair market sale value as of a
specified date of a specified asset that would be obtained in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined by
an Appraiser mutually acceptable to the Trustee and Teekay. The Appraised Value
of any tanker or oil/bulk/ore carrier shall be determined free of any charters
with respect to such vessel. If the Trustee and Teekay shall not agree on an
Appraiser within 20 days of the first giving of notice by Teekay to the Trustee
requesting a determination of an Appraised Value (the "Appraisal Request Date"),
such Appraised Value shall be determined by a panel of three Appraisers, one of
whom shall be selected by Teekay, another of whom shall be selected by the
Trustee and the third of whom shall be selected by such other two Appraisers or,
if such Appraisers shall be unable to agree upon a third Appraiser within 10
days of the selection date of the second of such two Appraisers, by the American
Arbitration Association; provided that, if either party shall not select its
Appraiser within 35 days after the Appraisal Request Date, such Appraised Value
shall be determined solely by the Appraiser selected by the other party. The
Appraiser or Appraisers appointed pursuant to the foregoing procedure shall be
instructed to determine such Appraised Value within 45 days after the final
appointment of any Appraiser pursuant hereto (but in no event may such
determination be made more than 75 days following the Appraisal Request Date),
and such determination shall be final and binding upon the parties. If three
Appraisers shall be appointed, (a) if the median of the determinations of the
Appraisers shall equal the average of such determinations, such average shall
constitute the determination of the Appraisers, otherwise (b) the determination
of the Appraiser that shall differ most from the other two Appraisers shall be
excluded, the remaining two determinations shall be averaged and such average
shall constitute the determination of the Appraisers. Fees and expenses relating
to the determination of an Appraised Value shall be payable by Teekay. If any
provision of this Indenture requires a determination of Appraised Value by an
Independent Appraiser, then all Appraisers shall be Independent.
"Appraiser" means a Person engaged in the business of appraising
ocean-going vessels, including tankers, including Simpson, Spence & Young
Shipbrokers Ltd., H. Clarkson & Company Limited, E.A. Gibson Shipbrokers Ltd. or
P.F. Bassoe who, except as otherwise required by this Indenture, need not be
independent and may be employed by or affiliated with Teekay.
"Asset Sale" is defined to mean with respect to any Person, any sale,
transfer or other disposition (including by way of merger, consolidation or
sale-leaseback transactions) in one transaction or a series of related
transactions by such Person or any of its Subsidiaries to any Person other than
Teekay or any of its Restricted Subsidiaries of (A) all or any of the Capital
Stock of any Subsidiary of such Person, (B) any Vessel, or all or substantially
all of the property and assets of an operating unit or business of such Person
or any of its Subsidiaries or (C) any other property and assets of such Person
or any of its Subsidiaries outside the ordinary course of business of such
Person or such Subsidiary and, in each case, that is not governed by the
"Consolidation, Merger and Sale of Assets" covenant; provided that sales or
other dispositions of inventory, receivables and other current assets shall not
be included within the meaning of "Asset Sale".
"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.
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"Cash Collateral Account" is defined to mean each account so designated and
maintained with the Trustee pursuant to a Cash Collateral Account Agreement.
"Change of Control" is defined to mean such time as (i) a "person" or
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act),
other than the Trusts or any holding company, more than 50% of the total voting
power of the Voting Stock of which is "beneficially owned" by the Trusts,
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
(ii) 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.
"Charters" is defined to mean each time charter party between a Guarantor
and Palm with respect to such Guarantor's Mortgaged Vessel, as amended through
the date of the Indenture or a Vessel Tender Date, as the case may be, and as
the same may be further amended from time to time hereafter in accordance with
the terms of the Indenture, or as the same may be extended or renewed in
accordance with the terms of the Indenture.
"Collateral" is defined to mean, in each case as pledged and assigned to
the Trustee pursuant to the Security Documents, (1) all of the issued and
outstanding capital stock of each Guarantor and Teekay's interest in the
Investment Account to secure the Obligations, in each case as pledged in favor
of the Trustee pursuant to the Pledge Agreement; and (2) all of each Guarantor's
right, title and interest in and to (i) its respective Mortgaged Vessel,
pursuant to a Mortgage issued by such Guarantor in favor of the Trustee, which
Mortgage contains covenants pursuant to which such Guarantor, among other
things, will be prohibited from selling, mortgaging or transferring any of its
interest in such vessel (other than as permitted under the Indenture); (ii) the
Charter with Palm relating to its Mortgaged Vessel, Including the right to
receive all monies due and to become due under such Charter or in respect of
such Mortgaged Vessel and all claims for damages arising under such Charter or
relating to such Mortgaged Vessel; (iii) the freights and hires relating to its
Mortgaged Vessel; (iv) all of its policies and contracts of insurance taken out
from time to time in respect of its Mortgaged Vessel; and (v) a Cash Collateral
Account.
"Consolidated EBITDA" is defined to mean, with respect to any Person for
any period, the sum of the amounts for such period of (i) Adjusted Consolidated
Net Income, (ii) Consolidated Interest Expense, (iii) income taxes (other than
income taxes (either positive or negative) attributable to extraordinary and
non-recurring gains or losses or sales of assets), (iv) depreciation expense,
(v) amortization expense and (vi) all other non-cash items reducing Adjusted
Consolidated Net Income (including last-in-first-out adjustment for inventory),
less all non-cash items increasing Adjusted Consolidated Net Income (including
last in first out adjustment for inventory), all as determined on a consolidated
basis for such Person and its Subsidiaries in conformity with GAAP; provided
that, if a Person has any Subsidiary that is not a Wholly Owned Subsidiary of
such Person, Consolidated EBITDA of such Person shall be reduced (to the extent
not otherwise reduced in accordance with GAAP) by an amount equal to (A) the
Adjusted Consolidated Net Income of such Subsidiary multiplied by (B) the
quotient of (1) the number of shares of outstanding Common Stock of such
Subsidiary not owned on the last day of such period by such Person or any
Subsidiary of such Person divided by (2) the total number of shares of
outstanding Common Stock of such Subsidiary on the last day of such period.
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"Consolidated Interest Expense" is defined to mean, with respect to any
Person for any period, the aggregate amount of interest in respect of
Indebtedness (including amortization of original issue discount on any
Indebtedness and the interest portion of any deferred payment obligation,
calculated in accordance with the effective interest method of accounting; all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing; the net costs associated with
Interest Rate Agreements; and Indebtedness that is guaranteed by such Person)
and all but the principal component of rentals in respect of Capitalized Lease
Obligations paid, accrued or scheduled to be paid or to be accrued by such
Person and its consolidated Subsidiaries during such period, all as determined
on a consolidated basis in conformity with GAAP.
"Consolidated Net Worth" is defined to mean, at any date of determination,
shareholders' equity as set forth on the most recently available consolidated
balance sheet of Teekay and its Restricted Subsidiaries (which shall be as of a
date not more than 60 days prior to the date of such computation), less any
amounts attributable to Redeemable Stock or any equity security convertible into
or exchangeable for Indebtedness, the cost of treasury stock and the principal
amount of any promissory notes receivable from the sale of the Capital Stock of
Teekay or any Restricted Subsidiary of Teekay, each item to be determined in
accordance with GAAP (excluding the effects of foreign currency exchange
adjustments under GAAP).
"Consolidated Tangible Assets" of any Person means the sum of the Net
Tangible Assets of such Person after eliminating inter-company items, determined
on a consolidated basis in accordance with generally accepted accounting
principles, including appropriate deductions for any minority interest in Net
Tangible Assets of such Person's Restricted Subsidiaries, provided, however,
that, with respect to the Company, adjustments following the date of the
Indenture to the accounting books and records of the Company in accordance with
Accounting Principles Board Opinions Nos. 16 and 17 (or successor opinions
thereto), or otherwise resulting from the acquisition of control of the Company
by another Person shall not be given effect.
"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."
"Event of Loss" is defined to mean any of the following events: (a) the
actual or constructive total loss of a Vessel or the agreed or compromised total
loss of a Vessel, (b) the destruction of a Vessel, (c) damage to a Vessel to an
extent, determined in good faith by Teekay within 60 days after the occurrence
of such damage (and evidenced by an Officers' Certificate to such effect
delivered to the Trustee, within such 60-day period), as shall make repair
thereof uneconomical or shall render such Vessel permanently unfit for normal
use (other than obsolescence) or (d) the condemnation, confiscation,
requisition, seizure, forfeiture or other taking of title to or use of a Vessel
that shall not be revoked within six months. An Event of Loss shall be deemed to
have occurred: (i) in the event of the destruction or other actual total loss of
a Vessel, on the date of such loss; (ii) in the event of a constructive, agreed
or compromised total loss of a Vessel, on the date of the insurer's
determination of such total loss; (iii) in the case of any event referred to in
clause (c) above, upon the delivery of Teekay's Officers' Certificate to the
Trustee; or (iv) in the case of any event referred to in clause (d) above, on
the date six months after the occurrence of such event.
"Event of Loss Proceeds" is defined to mean all compensation, damages and
other payments (including insurance proceeds other than certain liability
insurance proceeds) received by Teekay, any Guarantor or the Trustee, jointly or
severally, from any Person, including any governmental authority, with respect
to or in connection with an Event of Loss.
"Fall-away Event" has the meaning set forth under "--Fall-away Event."
"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
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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 (i) except as otherwise provided, the amortization
of any amounts required or permitted by Accounting Principles Board Opinion Nos.
16 and 17 and (ii) any non-recurring charges associated with the adoption, after
the Closing Date, of Financial Accounting Standard Nos. 106 and 109.
"Gradation" is defined to mean a gradation within a Rating Category or a
change to another Rating Category, which shall include: (i) "+" 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), (ii) 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 (iii) 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.
"Guarantors" is defined to mean the following Wholly Owned Subsidiaries of
Teekay: VSSI Oceans Inc., VSSI Atlantic Inc., and VSSI Appian Inc. (each of
which is a Liberian corporation) and Exuma Spirit Inc., Nassau Spirit Inc.,
Senang Spirit Inc. and Andros Spirit Inc. (each of which is a Bahamian
corporation), each the owner of a Mortgaged Vessel, and their respective
successors and assigns. If all of the capital stock of one of such Wholly Owned
Subsidiaries, or the Mortgaged Vessel owned by such Subsidiary, shall be sold as
permitted by the Indenture, such Subsidiary will cease to be a Guarantor upon
compliance with the requirements of the Indenture relating to the release of its
Mortgaged Vessel in connection with such sale. Owners of Qualified Substitute
Vessels that are tendered to the Trust Estate pursuant to, and in accordance
with, the terms of the Indenture shall become Guarantors upon such tender in
accordance with the terms of the Indenture.
"Incidental Asset" is defined to mean any equipment, outfit, furniture,
furnishings, appliances, spare or replacement parts or stores owned by Teekay or
a Guarantor that have become obsolete or unfit for use or no longer useful,
necessary or profitable in the conduct of the business of Teekay or such
Guarantor, as the case may be. In no event shall the term "Incidental Asset"
include a Vessel or a Mortgaged Vessel.
"Indebtedness" is defined to mean, with respect to any Person at any date
of determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Persons in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto), (iv) 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, (v) all obligations of such Person as lessee
under Capitalized Leases, (vi) all Indebtedness of other Persons secured by a
Lien on any asset of such Person, whether or not such Indebtedness is assumed by
such Person; provided that the amount of such Indebtedness shall be the lesser
of (A) the fair market value of such asset at such date of determination and (B)
the amount of such Indebtedness, (vii) all Indebtedness of other Persons
guaranteed by such Person to the extent such Indebtedness is guaranteed by such
Person, and (viii) to the extent not otherwise included in this definition,
obligations under Currency Agreements and Interest Rate Agreements. The amount
of Indebtedness 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 Indebtedness issued with original issue discount is the face
amount of such Indebtedness less the remaining unamortized portion of the
original issue discount of such Indebtedness at such time as determined in
conformity with GAAP; and provided further that Indebtedness shall not include
any liability for federal, state, local or other taxes.
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"Interest Coverage Ratio" means, with respect to any Person on any
Transaction Date, the ratio of (i) the aggregate amount of Consolidated EBITDA
of such Person for the four fiscal quarters for which financial information in
respect thereof is available immediately prior to such Transaction Date to (ii)
the aggregate Consolidated Interest Expense of such Person during such four
fiscal quarters. In making the foregoing calculation, (A) pro forma effect shall
be given to (1) any Indebtedness Incurred subsequent to the end of the
four-fiscal-quarter period referred to in clause (i) and prior to the
Transaction Date (other than Indebtedness Incurred under a revolving credit or
similar arrangement to the extent of the commitment thereunder (or under any
predecessor revolving credit or similar arrangement) in effect on the last day
of such period), (2) any Indebtedness Incurred during such period to the extent
such Indebtedness is outstanding at the Transaction Date and (3) any
Indebtedness to be Incurred on the Transaction Date, in each case as if such
Indebtedness had been Incurred on the first day of such four-fiscal-quarter
period and after giving pro forma effect to the application of the proceeds
thereof as if such application had occurred on such first day; (B) Consolidated
Interest Expense attributable to interest on any Indebtedness (whether existing
or being Incurred) computed on a pro forma basis and bearing a floating interest
rate shall be computed as if the rate in effect on the date of computation
(taking into account any Interest Rate Agreement applicable to such Indebtedness
if such Interest Rate Agreement has a remaining term in excess of 12 months) had
been the applicable rate for the entire period; (C) there shall be excluded from
Consolidated Interest Expense any Consolidated Interest Expense related to any
amount of Indebtedness that was outstanding during such four-fiscal-quarter
period or thereafter but that is not outstanding or is to be repaid on the
Transaction Date, except for Consolidated Interest Expense accrued (as adjusted
pursuant to clause (B)) during such four-fiscal-quarter period under a revolving
credit or similar arrangement to the extent of the commitment thereunder (or
under any successor revolving credit or similar arrangement) in effect on the
Transaction Date; (D) pro forma effect shall be given to Asset Dispositions and
Asset Acquisitions (including giving pro forma effect to the application of
proceeds of any Asset Disposition) that occur during such four-fiscal-quarter
period or thereafter and prior to the Transaction Date as if they had occurred
and such proceeds had been applied on the first day of such four-fiscal-quarter
period; and (E) pro forma effect shall be given to asset dispositions and asset
acquisitions (including giving pro forma effect to the application of proceeds
of any asset disposition) that have been made by any Person that has become a
Restricted Subsidiary or has been merged with or into Teekay or any Restricted
Subsidiary during the four-fiscal-quarter period referred to above or subsequent
to such period and prior to the Transaction Date and that would have constituted
Asset Dispositions or Asset Acquisitions had such transactions occurred when
such Person was a Restricted Subsidiary as if such asset dispositions or asset
acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the
first day of such period; provided that to the extent that clause (D) or (E) of
this sentence requires that pro forma effect be given to an asset acquisition or
asset disposition, such pro forma calculation shall be based upon the four full
fiscal quarters immediately preceding the Transaction Date of the Person, or
division or line of business of the Person, that is acquired or disposed for
which financial information is available and provided further that for purposes
of determining the Interest Coverage Ratio with respect to the acquisition of a
Vessel or the financing thereof, the Company may apply Consolidated EBITDA for
such Vessel based upon historical earnings of such Vessel or, if none, of its
most comparable Vessel (in the good faith determination of the Board of
Directors) during the applicable four-fiscal quarter period, or if the Company
does not have a comparable Vessel, based upon industry average earnings for
comparable vessels (as determined in good faith by the Board of Directors).
"Investment Grade" is defined to mean (i) BBB- or above in the case of S&P
(or its equivalent under any successor Rating Categories of S&P), (ii) Baa3 or
above, in the case of Moody's (or its equivalent under any successor Rating
Categories of Moody's), and (iii) the equivalent in respect of the Rating
Categories of any Rating Agencies substituted for S&P or Moody's.
"Investment Grade Status" is defined to mean the existence as of a date and
thereafter if at such date the Notes are rated Investment Grade by both Rating
Agencies.
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"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).
"Loan To Value Ratio" is defined to mean, at any time, the ratio of the
aggregate principal amount of the Notes Outstanding at such time to the
aggregate Appraised Value of all Mortgaged Vessels at such time. If the Loan To
Value Ratio is required to be calculated or adjusted at a time when cash is on
deposit with the Trustee in the Investment Account as part of the Trust Estate
in connection with the sale of a Mortgaged Vessel, the occurrence of an Event of
Loss with respect to a Mortgaged Vessel, or with respect to the Additional
Mortgaged Vessel, the amount of such cash on deposit shall be deemed to be the
Appraised Value of the Vessel giving rise to such cash on deposit and such
Vessel shall be deemed to be a Mortgaged Vessel for purposes of such computation
or adjustment of Loan To Value Ratio.
"Loss Excess Proceeds" is defined to mean the total of (i) amounts treated
as Loss Excess Proceeds under "Mandatory Redemption Upon Loss of a Mortgaged
Vessel" and (ii) the amount by which the Net Event of Loss Proceeds received by
Teekay or any of its Restricted Subsidiaries from one or more Events of Loss
with respect to Vessels other than Mortgaged Vessels occurring on or after the
Closing Date in the most recent period of 12 consecutive months exceed $10
million, less (in the case of clause (ii)) the amount of such excess Net Event
of Loss Proceeds (A) used to repay unsubordinated Indebtedness of Teekay or a
Guarantor or Indebtedness of any Restricted Subsidiary, in each case owing to a
Person other than Teekay or any of its Subsidiaries or (B) invested in property
or assets of a nature or type of which will be used in a business (or in a
company having property or assets of a nature or type, or engaged in a business)
similar or related to the nature or type of the property and assets of, or the
business of, Teekay and its Restricted Subsidiaries existing on the date of such
investment or allocated to working capital for general corporate purposes (in
each case, as determined in good faith by the Board of Directors, whose
determination shall be conclusive and evidenced by a Board resolution).
"Maximum Loan To Value Ratio" is defined to mean, during any period, 0.75
to 1.
"Moody's" is defined to mean Moody's Investor Service, Inc. and its
successors.
"Mortgaged Vessels" is defined to mean, on the Closing Date, the Aframax
tankers owned by the Guarantors and named (i) the Poul Spirit, Official Number
10328, of approximately 57,463 gross and 31,958 net tons, having its home port
at the Port of Monrovia, Republic of Liberia, which vessel was built by Onomichi
Dockyard, Japan, in the year 1995, and is documented under the laws and flag of
the Republic of Liberia and is owned by VSSI Oceans Inc., (ii) the Torben
Spirit, Official Number 723526, of approximately 57,486 gross and 28,742 net
tons, having its home port at the Port of Nassau, Commonwealth of The Bahamas,
which vessel was built by Onomichi Dockyard, Japan, in the year 1994, and is
documented under the laws and flag of the Commonwealth of The Bahamas and is
owned by VSSI Atlantic Inc., (iii) the Senang Spirit, Official Number 723521, of
approximately 52,508 gross and 28,208 net tons, having its home port at the Port
of Nassau, Commonwealth of The Bahamas, which vessel was built by Imbari
Shipbuilding, Japan, in the year 1994, and is documented under the laws and flag
of the Commonwealth of The Bahamas and is owned by Senang Spirit Inc., (iv)
Mayon Spirit, Official Number 720752, of approximately 57,448 gross and 28,742
net tons, having its home port at the Port of Nassau, Commonwealth of The
Bahamas, which vessel was built by Onomichi Dockyard, Japan, in the year 1992,
and is documented under the laws and flag of the Commonwealth of The Bahamas and
is owned by VSSI Appian Inc., (v) the Leyte Spirit, Official Number 720796, of
approximately 57,448 gross and 28,742 net tons, having its home port at the Port
of Nassau, Commonwealth of The Bahamas, which vessel was built by Onomichi
Dockyard, Japan, in the year 1992, and is documented under the laws and flag of
the Commonwealth of The Bahamas and is owned by Exuma Spirit Inc., (vi) the
Luzon Spirit, Official Number 720776, of approximately 57,448 gross and 28,742
net tons, having its home port at the Port of Nassau, Commonwealth of The
Bahamas, which vessel was built by Onomichi Dockyard, Japan, in the year 1992,
and is documented under the laws and flag of the Commonwealth of The Bahamas and
is owned by Nassau Spirit Inc., (vii) the Samar Spirit, Official Number 723134,
of approximately 57,448
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gross and 28,742 net tons, having its home port at the Port of Nassau,
Commonwealth of The Bahamas, which vessel was built by Onomichi Dockyard, Japan,
in the year 1992, and is documented under the laws and flag of the Commonwealth
of The Bahamas and is owned by Andros Spirit Inc. If an Event of Loss occurs
with respect to one of such vessels, such vessel shall cease to be a Mortgaged
Vessel from and after the Loss Date. If one of such vessels shall be sold
pursuant to the terms of the Indenture, such vessel shall cease to be a
Mortgaged Vessel from and after the Sale Date. A Qualified Substitute Vessel may
be substituted for a Mortgaged Vessel in certain circumstances and such
substituted vessel shall become a Mortgaged Vessel upon substitution in
accordance with the terms of the Indenture.
"Net Cash Proceeds" is defined to mean, with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents and proceeds from the conversion of other property
received when converted to cash or cash equivalents, net of (i) brokerage
commissions and other fees and expenses (including fees and expenses of counsel
and investment bankers) related to such Asset Sale, (ii) provisions for all
taxes (whether or not such taxes will actually be paid or are payable) as a
result of such Asset Sale without regard to the consolidated results of
operations of Teekay and its Restricted Subsidiaries, taken as a whole, (iii)
payments made to repay Indebtedness or any other obligation outstanding at the
time of such Asset Sale that either (A) is secured by a Lien on the property or
assets sold or (B) is required to be paid as a result of such sale and (iv)
appropriate amounts to be provided by Teekay or any Restricted Subsidiary as a
reserve against any liabilities associated with such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as determined
in conformity with GAAP.
"Net Event of Loss Proceeds" is defined to mean, with respect to any Event
of Loss, the Event of Loss Proceeds from such Event of Loss net of related fees
and expenses and payments made to repay Indebtedness or any other obligation
outstanding at the time of such Event of Loss, provided that such Indebtedness
or other obligation is either (A) secured by a Lien on the property or assets
that suffered the Event of Loss or (B) required to be paid as a result of such
Event of Loss.
"Permitted Liens" means with respect to Teekay and Restricted Subsidiaries
(i) Liens for taxes, assessments, governmental charges or claims that are being
contested in good faith by appropriate legal proceedings promptly instituted and
diligently conducted and for which a reserve or other appropriate provision, if
any, as shall be required in conformity with GAAP shall have been made; (ii)
statutory Liens or Liens otherwise arising by operation of law of landlords and
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (iii) Liens for crews' wages and Liens incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security; (iv)
Liens incurred or deposits made to secure the performance of tenders, bids,
leases, statutory or regulatory obligations, bankers' acceptances, surety and
appeal bonds, government contracts, performance and return-of-money bonds and
other obligations of a similar nature incurred in the ordinary course of
business (exclusive of obligations for the payment of borrowed money); (v) prior
to the Fall-away Event, charters, leases or subleases granted to others in the
ordinary course of business that are subject to the relevant Mortgage and that
do not materially interfere with the ordinary course of business of Teekay and
its Restricted Subsidiaries, taken as a whole; (vi) any interest or title of a
lessor in the property subject to any Capitalized Lease or operating lease;
(vii) Liens on property of, or on shares of stock or Indebtedness of, any
corporation (other than a Guarantor, if prior to the Fall-away Event, or Palm)
existing at the time such corporation becomes, or becomes a part of, any
Restricted Subsidiary; (viii) except in the case of a Guarantor, if prior to the
Fall-away Event, or Palm, Liens in favor of Teekay or any Restricted Subsidiary;
(ix) except in the case of a Guarantor, if prior to the Fall-away Event, or
Palm,
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Liens arising from the rendering of a final judgment or order against Teekay or
any Restricted Subsidiary that does not give rise to an Event of Default; (x)
except in the case of a Guarantor, if prior to the Fall-away Event, or Palm,
Liens securing reimbursement obligations with respect to letters of credit that
encumber documents and other property relating to such letters of credit and
products and proceeds thereof; (xi) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of customs duties in
connection with the importation of goods and (xii) Liens for salvage.
"Qualified Substitute Vessel" is defined to mean, as of any date, a tanker
or oil/bulk/ore carrier of at least 80,000 dwt, which (i) was completed no
earlier than 1991 and is no older than one year older than the Vessel for which
it is being substituted, (ii) is not a Mortgaged Vessel as of such date, (iii)
is Wholly Owned by a Wholly Owned Subsidiary of Teekay, (iv) is registered under
the laws of the Republic of Liberia or the Commonwealth of the Bahamas and (v)
Vessel, has an Appraised Value at the vessel Tender Date at least equal to (and
being in as good operating condition as) the vessel for which it is being
substituted, assuming compliance by the applicable Guarantor with all the terms
of the applicable Mortgage.
"Rating Agencies" is defined to mean (i) S&P and Moody's or (ii) 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 (i) 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); (ii) 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 (iii) 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 the Company
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.
"Restricted Subsidiary" is defined to mean any Subsidiary of Teekay that is
not designated an Unrestricted Subsidiary.
"Sale Excess Proceeds" is defined to mean (i) all amounts treated as Sale
Excess Proceeds under "--Mandatory Redemption Upon Sale of a Mortgaged Vessel"
and under the second paragraph of the "Limitation on Asset Sales" covenant and
(ii) the amount of excess Net Cash Proceeds from Asset Sales not applied (or
committed to be applied) as set forth in subclause (i) of the fourth paragraph
of the "Limitation on Asset Sales" covenant.
"Security Documents" has the meaning specified in the Indenture and
includes the Mortgages, Subsidiary Guarantees, Assignments of Time Charter,
Assignments of Freights and Hires, Assignments of Insurance, Pledge Agreements
and Cash Collateral Account Agreements.
"S&P" is defined to mean Standard & Poor's Ratings Group, a division of
McGraw Hill Inc., a New York Corporation and its successors.
"Tangible Assets" of any Person means, at any date, the gross book value as
shown by the accounting books and records of such Person of all its property
both real and personal, less (i) the net book value of all its licenses,
patents, patent applications, copyrights, trademarks, trade names, goodwill,
non-compete agreements or organizational expenses and other like intangibles,
(ii) unamortized Indebtedness discount and expenses, (iii) all reserves for
depreciation, obsolescence, depletion and
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<PAGE> 93
amortization of its properties and (iv) all other proper reserves which in
accordance with generally accepted accounting principles should be provided in
connection with the business conducted by such Person, provided, however, that,
with respect to Teekay and its Restricted Subsidiaries, adjustments following
the date of the Indenture to the accounting books and records of the Company and
its Restricted Subsidiaries in accordance with Accounting Principles Board
Opinions Nos. 16 and 17 (or successor opinions there), or otherwise resulting
from the acquisition of control of Teekay by another Person shall not be given
effect.
"Subsidiary" is defined to mean, with respect to any Person, any business
entity of which more than 50% of the outstanding Voting Stock is owned directly
or indirectly by such Person and one or more other Subsidiaries of such Person;
provided that, except as the term "Subsidiary" is used in the definition of
"Unrestricted Subsidiary" set forth below, an Unrestricted Subsidiary shall not
be deemed to be a Subsidiary of the Company for purposes of the Indenture.
"Trusts" is defined to mean, collectively, the Cirrus Trust, a trust
organized under the laws of the Turks and Caicos Islands, the JTK Trust, a trust
organized under the laws of the Bahamas, which as of the date of the Indenture
owned approximately 65.1% and 10.4% of the outstanding Common Stock of Teekay,
respectively.
"Unrestricted Subsidiary" is defined to mean (i) any Subsidiary of Teekay
(other than a Guarantor, if prior to the Fall-away Event, and Palm) that at the
time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary of Teekay (including any newly acquired or newly formed Subsidiary
(other than a Guarantor, if prior to the Fall-away Event, and Palm)) to be an
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or
owns or holds any Lien on any property of, Teekay or any other Subsidiary of
Teekay that is not a Subsidiary of the Subsidiary to be so designated; provided
that either (A) the Subsidiary so designated has total assets of $1,000 or less
or (B) if such Subsidiary has assets greater than $1,000, that such designation
would be permitted under the covenant described under "--Certain Restrictive
Covenants--Limitation on Restricted Payments." The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that immediately after giving effect to such designation (x) Teekay could incur
$1.00 of additional Indebtedness under the first paragraph of the covenant
described under either "--Certain Restrictive Covenants--Limitation on
Indebtedness" or, if after the Fall-away Event, "--Covenants After Fall-away
Event--Limitation on Indebtedness" and (y) no Default or Event of Default shall
have occurred and be continuing or shall result as a consequence thereof. Any
such designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"Vessel Percentage" is defined to mean as of and after the Closing Date and
prior to any subsequent adjustment as provided below, for each of the initial
seven Mortgaged Vessels, the percentage set forth below opposite such Mortgaged
Vessel:
<TABLE>
<CAPTION>
VESSEL PERCENTAGE
---------------------------- ----------
<S> <C>
Poul Spirit................. 15.5%
Torben Spirit............... 15.1
Senang Spirit............... 15.0
Mayon Spirit................ 13.6
Leyte Spirit................ 13.6
Luzon Spirit................ 13.6
Samar Spirit................ 13.6
---------
100.0%
=========
</TABLE>
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<PAGE> 94
provided, however, that each Vessel Percentage shall be adjusted in each case
upon the occurrence of, and after giving effect to, the delivery of the
Additional Mortgaged Vessel or any Qualified Substitute Vessel as part of the
Trust Estate pursuant to the terms of the Indenture, an Event of Loss with
respect to any Mortgaged Vessel, the sale of any Mortgaged Vessel Asset or the
release of any Mortgaged Vessel from the Lien of this Indenture and the Security
Documents, in each case effected in accordance with the terms of the Indenture,
to be, for each Mortgaged Vessel remaining after such an occurrence, the
percentage that the Appraised Value of such Mortgaged Vessel at the time of and
after giving effect to such occurrence bears to the aggregate Appraised Value of
the remaining Mortgaged Vessels at the time of and after giving effect to such
occurrence. Notwithstanding the foregoing, if any Vessel Percentage is required
to be calculated or adjusted at a time when cash is on deposit with the Trustee
in the Investment Account as part of the Trust Estate as a result of the sale of
a Mortgaged Vessel or the occurrence of an Event of Loss with respect to a
Mortgaged Vessel, the amount of such cash on deposit shall be deemed to be the
Appraised Value of such Vessel giving rise to such cash on deposit and such
Vessel shall be deemed to remain a Mortgaged Vessel for purposes of such
computation or adjustment of Vessel Percentage.
FRAUDULENT CONVEYANCE STATUTES
The making of the Subsidiary Guarantees and the granting of the Mortgages
might be subject to review under relevant fraudulent conveyance statutes (the
"Fraudulent Conveyance Statutes") in a bankruptcy proceeding or proceedings
involving one or more of the Guarantors. Due to the nature of the business of
Teekay and the Guarantors and uncertainty as to where a Mortgaged Vessel
foreclosure proceeding might be commenced, it is not possible to predict where
any such proceeding or attack might be brought or made or the law that the court
might apply, although applicable law would be likely to be the law of Liberia,
The Bahamas, the State of New York in the United States or the U.S. Bankruptcy
Code.
The following discussion is based, as to U.S. Bankruptcy and New York law,
on the advice of Perkins Coie, and, as to Liberian law, on the advice of Haight,
Gardner, Poor & Havens, special Liberian counsel to the Company.
Under U.S. Bankruptcy, New York or Liberian fraudulent conveyance law, if a
court were to find that, with respect to any particular Guarantor, at the time
the Subsidiary Guarantee was made or the security was granted (collectively, the
"Transfer") by such Guarantor, it (a) made such Transfer with actual intent to
hinder, delay, or defraud any present or future creditor or (b) received less
than a reasonably equivalent value or fair consideration for the Transfer and
(i) was insolvent at the time such Transfer was made or was rendered insolvent
by virtue of such Transfer, (ii) was engaged in a business or transaction, or
was about to engage in a business or transaction for which any property
remaining with such subsidiary was an unreasonably small capital or (iii)
intended to incur, or believed that it would incur, debts beyond its ability to
pay as they matured (as the foregoing terms are defined in or interpreted under
the relevant Fraudulent Conveyance Statutes), such court could avoid the
Transfer in whole or in part. Generally, for the purposes of the Fraudulent
Conveyance Statutes, a company is considered insolvent at a particular time if
the sum of its debts (including probable liabilities or contingent obligations)
is greater than all of its property at a fair valuation, or if the present fair
salable value of its assets was then less than the amount that would be required
to pay its probable liabilities on its existing debts as they became absolute
and matured.
The proceeds of the sale of the Notes will be distributed to the Guarantors
and used, among other purposes, to pay off debt. See "Use of Proceeds." To the
extent of the funds advanced by Teekay to any particular Guarantor (and since it
is the view of Teekay that the instant transaction can in no circumstances be
considered an attempt to hinder, defraud or delay creditors), the Transfer by
any Guarantor should not be considered a fraudulent transfer under the tests set
forth above, because such Guarantor has received fair or reasonably equivalent
consideration for such Transfer.
To the extent that the Subsidiary Guarantee by any Guarantor exceeds the
value of the funds distributed to it, the determination of whether the Transfer
in question is a fraudulent transfer depends on
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<PAGE> 95
(1) whether the Transfer--a prerequisite for the funds received by such
Guarantor then used to pay off its mortgage or the other debt--so exceeds the
value and benefit received by such Guarantor that, at least to the extent of
such excess, the Guarantor did not receive reasonably equivalent value or fair
consideration for the Transfer; and, if the answer to the foregoing question is
"yes," then (2) whether following the valuation of the assets of such Guarantor,
including its rights of indemnity and contribution created in connection with
the Subsidiary Guarantee, and also of its liabilities, including an estimation
of the value of the contingent liability created by the Subsidiary Guarantee, it
is determined that such Guarantor is or has been rendered insolvent. The
Subsidiary Guarantees and the other Security Documents contain provisions
limiting each Guarantor's maximum liability under such agreements to a
percentage of its Adjusted Net Assets (as defined in the Subsidiary Guarantee).
See "The Subsidiary Guarantees." While there can be no assurance that a court,
viewing the transaction with hindsight, would determine that a particular
Guarantor received reasonably equivalent value or fair consideration for its
transfer, or was not rendered insolvent by the pertinent Transfer, to the extent
it exceeded the value of the funds advanced to that Guarantor, Teekay believes
that each of the Guarantors received proper consideration for its respective
Transfer and that no such Guarantor was rendered insolvent by the contemplated
Transfers. However, no assurance can be given that a court would concur with
such belief.
THE SUBSIDIARY GUARANTEES
Each Subsidiary Guarantee provides for the irrevocable and unconditional
guarantee by a Guarantor of the punctual payment when due, whether at stated
maturity, by acceleration or otherwise, of the principal of (and premium, if
any) and interest on the Notes and the payment of all fees, expenses and other
sums of money from time to time payable by Teekay under the Indenture and all
other Obligations. Each Subsidiary Guarantee also guarantees performance and
observance of all agreements, covenants and provisions contained in the
Indenture and the Security Documents. Each Subsidiary Guarantee provides that
the liability of each Guarantor under its Subsidiary Guarantee is absolute and
unconditional and extends to all amounts which constitute part of the
Obligations and would be owed by Teekay under the Indenture but for the fact
that they are unenforceable or not allowable due to the existence of a
bankruptcy, reorganization or similar proceeding involving Teekay. The
obligations of each Guarantor are independent of the Obligations, and a separate
action or actions may be brought and prosecuted against each Guarantor to
enforce its Subsidiary Guarantee, irrespective of whether any action is brought
against the Company or whether the Company is joined in any such action or
actions. The liability of each Guarantor will not exceed the greater of 95% of
such Guarantor's adjusted net assets on the date the Subsidiary Guarantee is
delivered and 95% of its adjusted net assets on the date any payment is made
under the Subsidiary Guarantee.
Each Guarantor will irrevocably waive any claim or right that it may
acquire against the Company arising from the existence, payment, performance or
enforcement of the Guarantor's obligations under the Subsidiary Guarantee or the
Indenture by way of subrogation, reimbursement, exoneration, contribution or
indemnification under its Subsidiary Guarantee.
In the event that a Guarantor is required by any applicable law to make,
with respect to any payment to be made pursuant to its Subsidiary Guarantee, any
deduction or withholding for or on account of any taxes, assessments or other
governmental charges imposed on such payment by any governmental or taxing
authority (other than the United States or any political subdivision or taxing
authority thereof) the Guarantor will agree to pay such additional amount as may
be necessary in order that the net amount received by the Trustee in respect of
such payment will not be less than the amount of the payment the Trustee would
have received had no deduction or withholding been required; provided, however,
that the Guarantor shall not be required to pay any additional amount on account
of a tax, assessment or other governmental charge imposed by reason of any
present or former connection between a Holder of Notes (or between a fiduciary,
settlor, beneficiary, member or shareholder of, or possessor of a power over,
such Holder, if such Holder is an estate, trust, partnership or corporation) and
the governmental or taxing authority, including, without limitation, such Holder
(or a fiduciary, settlor, beneficiary, member or shareholder of, or possessor of
a power over, such Holder) having been a citizen or resident thereof or
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<PAGE> 96
treated as a resident thereof or being or having been engaged in a trade or
business therein or having or having had a permanent establishment therein.
The Subsidiary Guarantees will terminate upon the occurrence of a Fall-away
Event. See "Description of the Notes -- Fall-away Event."
THE MORTGAGED VESSELS
The following vessels shall be mortgaged to the Trustee to secure the Notes
and the obligations of each Guarantor under the Indenture and the Security
Documents:
<TABLE>
<CAPTION>
APPRAISED VALUE AS OF
COUNTRY DECEMBER 13, 1995
YEAR OF WHERE -----------------------------------
VESSEL DELIVERY BUILT FLAG DWT APPRAISAL NO. 1 APPRAISAL NO. 2
- --------------------- -------- ------- -------- -------- --------------- ---------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Poul Spirit.......... 1995 Japan Liberian 106,685 $ 48.0 $ 47.5
Torben Spirit........ 1994 Japan Bahamian 98,500 46.5 46.0
Senang Spirit........ 1994 Japan Bahamian 95,649 46.0 46.0
Mayon Spirit......... 1992 Japan Bahamian 98,507 42.0 41.5
Leyte Spirit......... 1992 Japan Bahamian 98,744 42.0 41.5
Luzon Spirit......... 1992 Japan Bahamian 98,629 42.0 41.5
Samar Spirit......... 1992 Japan Bahamian 98,640 42.0 41.5
--------------- ---------------
Total.............. $ 308.5 $ 305.5
============ ============
</TABLE>
Each of the Mortgaged Vessels is constructed with a double hull. The
appraised values of the Mortgaged Vessels set forth above have been determined,
at the Company's expense, by E.A. Gibson Shipbrokers Limited (Appraisal No. 1)
and Simpson, Spence & Young Shipbrokers Ltd. (Appraisal No. 2), each independent
ship brokers (the "Appraisers"). Each of the Appraisers is an internationally
recognized appraisal firm with respect to the appraisal of tankers and is one of
the firms that has traditionally been used by the Company and its creditors for
appraisal matters relating to the Company's debt agreements. No limitations were
imposed by the Company on either of the Appraisers on the scope of their
investigation or the procedures followed in rendering their appraisals. The
valuations were generally based upon the prevailing market for each Mortgaged
Vessel, assuming the presence of a willing buyer and a willing seller, and
assumptions by the Appraisers that each Mortgaged Vessel is in good condition
and charter-free. In performing their appraisals of the mortgaged vessels, the
Appraisers conducted procedures which, in their opinion, are standard among
London shipbrokers. From their internal databases (compiled from various sources
of publicly available information), each of the Appraisers reviewed the vessels'
main details and characteristics. They did not perform physical inspections of
the vessels. Each of the Appraisers then reviewed the available information
regarding market trends, charter rates and recent sales of comparable vessels in
order to arrive at their appraisal estimates. The valuation calculations
attempted to account for any pertinent differences in vessel characteristics
such as deadweight tonnage, and allowed 7% per year for age differences between
the Mortgaged Vessels and recently sold comparable vessels. The Company believes
that the Mortgaged Vessels are in better condition than the Appraisers'
assumptions as to the condition of such Mortgaged Vessels.
The Mortgages, together with all other Collateral securing the Obligations
of Teekay and the Guarantors under the Indenture and the Security Documents will
be released upon the occurrence of a Fall-away Event. See "Description of the
Notes--Fall-away Event."
CHARTERS
Each of the Mortgaged Vessels has been time chartered to Palm under a
charter. The Palm Charters are based on an industry standard form and are
similar in all material respects except as set forth below.
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<PAGE> 97
General. The term and the charter hire clauses under each of the Palm
Charters provide for full amortization of the financings for the building of the
Mortgaged Vessel to which such Palm Charter relates. The Palm Charters for the
Poul Spirit, Torben Spirit, Senang Spirit, Mayan Spirit, Leyte Spirit, Luzon
Spirit, and the Samar Spirit began on 1995, 1994, 1994, 1992, 1992, 1992 and
1992, respectively. Prior to the issuance of the Notes, Teekay intends to cause
Palm and each of the Guarantors to amend each of the Palm Charters in order to
provide for a charter hire and a term such that the aggregate hire payable under
the Palm Charters will fully amortize the principal amount of the Notes. Each
Guarantor has a lien upon all of its Mortgaged Vessel's cargoes and sub-freights
as security for any amounts due under the Palm Charters, and Palm has a lien on
the Mortgaged Vessel as security for any amounts paid in advance and not earned,
the cost of fuel used, all amounts due Palm under the Palm Charters and for
claims for damages arising from any breach of the Palm Charters by the
Guarantor.
Off-hire. The revenue from the Mortgaged Vessels would be adversely
affected if any of the Mortgaged Vessels were out of service for a significant
period of time. The Palm Charters provide that in certain events a Mortgaged
Vessel will be considered off-hire, in which event it is likely that the
Mortgaged Vessel would not be available to Palm for chartering in the spot
charter market. The Company does not carry insurance covering the loss of
revenue resulting from a Mortgaged Vessel being out of service. Prolonged out of
service periods with respect to the Mortgaged Vessels would therefore adversely
affect the Company's cash flow from such Mortgaged Vessels, although the Company
believes that it could continue to meet its obligations to make principal and
interest payments on the Notes even if the amount of time the Mortgaged Vessels
were out of service rose significantly. The Mortgaged Vessels have never
incurred any significant off-hire since being delivered to the Company.
Termination. Each of the Palm Charters terminates if the Mortgaged Vessel
is lost, and also automatically terminates if the Mortgaged Vessel is
requisitioned or seized by any government authority, and such requisition or
seizure is the equivalent to requisition of title of the Mortgaged Vessel.
As of the date of this Prospectus, each of the Mortgaged Vessels was
operating on a spot voyage basis, the terms of which are set forth in a
recapitulation telex between Palm, as owner, and either a broker or charterer.
The recapitulation telex recites in detail the fundamental aspects of the
transaction: vessel, charterer, cargo, rate of hire, demurrage or overage fees,
port of loading, and port of unloading. The telex usually makes reference to a
standard form of charter-party and also recites any special provisions to be
included in such form. The parties' obligations are based on the recapitulation
telexes. The spot charter-party document is usually executed at a later date.
DRYDOCKING AND SURVEYS
Each of the Mortgaged Vessels is drydocked once every five years, the main
purpose of which is to inspect and maintain those areas of such Mortgaged Vessel
below the waterline. Drydocking usually takes one to two weeks. In addition, the
Company expects to purchase spare parts and perform repairs on its vessels from
time to time.
Since the average age of the Mortgaged Vessels is less than five years, and
because of the extensive and regular inspections carried out by Teekay, the
Company does not believe that it will incur in the foreseeable future any
material expenses on account of the results of inspections and drydocking.
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<PAGE> 98
The following table sets forth the next periodic survey and drydocking
dates for the Mortgaged Vessels:
<TABLE>
<CAPTION>
ANNUAL INTERMEDIATE SPECIAL CLASSIFICATION
VESSEL DRYDOCKING SURVEY SURVEY SURVEY SOCIETY
- ------------------------------ ---------- ------ ------------ ------- --------------
<S> <C> <C> <C> <C> <C>
Poul Spirit................... 08/00 08/96 08/98 08/00 NKK
Torben Spirit................. 01/97 11/96 07/99 01/98 NKK
Senang Spirit................. 01/97 01/96 07/99 01/98 NKK
Mayon Spirit.................. 02/97 02/96 02/00 02/97 NKK
Leyte Spirit.................. 08/97 08/96 02/00 08/97 NKK
Luzon Spirit.................. 06/97 06/96 12/99 06/97 NKK
Samar Spirit.................. 11/97 11/96 05/00 11/97 NKK
</TABLE>
THE MORTGAGES
GENERAL
Each Guarantor will grant to the Trustee a Mortgage on its Mortgaged Vessel
to secure the payment of all sums of money (whether for principal, premium, if
any, interest, fees, expenses or otherwise) from time to time payable by such
subsidiary under its Subsidiary Guarantee, the payment of the principal of (and
premium, if any) and interest on the Notes, the payment of all other sums
payable by Teekay under the Indenture and the payment of all other sums payable
under the Security Documents. The Mortgages will be recorded in accordance with
the provisions of Liberian or Bahamian law, as applicable. The maximum liability
of each Guarantor under its Mortgage is limited to the same extent as such
Guarantor's maximum liability under its Subsidiary Guarantee. See "The
Subsidiary Guarantees."
CERTAIN COVENANTS
Each Mortgage contains, among other things, the following covenants:
Registration and Documentation of the Mortgaged Vessel. The Guarantor will
not permit its Mortgaged Vessel to be operated in any manner contrary to law,
will not engage in unlawful trade, carry any cargo that would expose the
Mortgaged Vessel to penalty, forfeiture or capture, and will not permit to be
done anything which can or may injuriously affect the registration of its
Mortgaged Vessel under the laws and regulations of the Republic of Liberia or
the Commonwealth of the Bahamas, as applicable, and will at all times keep its
Mortgaged Vessel duly documented thereunder.
Restrictions on Liens. Except for its time charter and the lien of the
Mortgage and Permitted Liens under the Indenture, the Guarantor will not suffer
to be continued any lien, encumbrance or charge on its Mortgaged Vessel for
longer than 30 days after the same becomes due and payable and will pay or cause
to be discharged or make adequate provision for the satisfaction or discharge of
all claims or demands, or will cause its Mortgaged Vessel to be released or
discharged from any lien, encumbrance or charge therefor.
Maintenance of the Mortgaged Vessel. The Guarantor will at all times and
without cost or expense to the Trustee maintain and preserve, or cause to be
maintained and preserved, its Mortgaged Vessel (i) in good running order and
repair, so that the Mortgaged Vessel shall be, in every respect, seaworthy and
(ii) in at least as good condition as when originally delivered by her builder,
ordinary wear and tear excepted; and will keep the Mortgaged Vessel, or cause
her to be kept, in such condition as will entitle her to the highest
classification rating for vessels of the same type, size, age and flag in the
classification society, currently +1A1 Tanker (or its equivalent with Lloyd's
Registry of Shipping, currently +100A1), and annually will furnish the Trustee a
certificate by such classification society that such classification is
maintained.
Transfer of Flag or Sale of the Mortgaged Vessel. The Guarantor will not
transfer or change the flag or port of documentation of its Mortgaged Vessel,
except to the Commonwealth of the Bahamas or the
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<PAGE> 99
Republic of Liberia as permitted by the terms of the Indenture. Except as
permitted by the terms of the Indenture, no Guarantor will sell, mortgage,
demise charter or transfer its Mortgaged Vessel.
Insurance. The Guarantor will at all times and at its own cost and expense
cause to be carried and maintained in respect of its Mortgaged Vessel insurance
payable in United States Dollars in amounts, against risks (including, without
limitation, marine hull and machinery (including excess value) insurance, marine
protection and indemnity insurance, war risks insurance and liability arising
out of pollution and the spillage or leakage of cargo and cargo liability
insurance) and in a form which are substantially equivalent to the coverage
carried by other responsible and experienced companies engaged in the operation
of vessels similar to its Mortgaged Vessel and with insurance companies,
underwriters, funds, mutual insurance associations or clubs of recognized
standing. No insurance will provide for a deductible amount in excess of
$1,000,000 per occurrence.
In the case of all marine and war risk hull and machinery policies, the
Guarantor will cause the Trustee to be named an additional insured and will use
its best efforts (and cause its insurance broker to use its best efforts) to
cause the insurers under such policies to waive any liability of the Trustee for
premiums or calls payable under such policies. No policy is to be cancelable or
subject to lapse without at least seven business days' prior notice to the
Trustee.
For purposes of insurance against total loss, each Mortgaged Vessel is to
be insured for an amount not less than its fair value and not less, when
aggregated with the insurance on the other Mortgaged Vessels, than an amount
equal to the aggregate outstanding principal amount of the Notes, premium, if
any, and accrued interest thereon. Unless the Trustee shall have otherwise
directed during the continuance of an Event of Default as defined in the
Indenture, any loss involving damage to a Mortgaged Vessel which is not in
excess of $1,000,000 may be paid directly for repair or salvage or to reimburse
the Guarantor for the same.
In the event of an actual, constructive or compromised total loss of its
Mortgaged Vessel, any adjustment or compromise of such loss by the Guarantor
will be at the highest amount reasonably obtainable, and all insurance or other
payments for such will be paid to the Trustee and applied by the Trustee, first,
to any costs or expenses of the Trustee in connection with collecting such
payment, second to the payment of any Obligations; and any excess remaining
after payment in full of all such amounts will be paid to the Guarantor.
EVENTS OF DEFAULT AND REMEDIES
An Event of Default under the Indenture will constitute an Event of Default
under the Mortgages and, in case any one or more Events of Default shall have
occurred and be continuing, then, in each and every such case the Trustee will
have the right to:
(1) declare immediately due and payable all of the Obligations (in
which case all of the same shall be immediately due), and bring suit at
law, in equity or in admiralty, as it may be advised, to recover judgment
for the Obligations and collect the same out of any and all property of the
Guarantor whether covered by the Mortgage or otherwise;
(2) exercise all of the rights and remedies in foreclosure and
otherwise given to mortgagees by the provisions of applicable law;
(3) take and enter into possession of the Mortgaged Vessel, at any
time, wherever the same may be, without legal process and without being
responsible for loss or damage, and the Guarantors or other person in
possession forthwith upon demand of the Trustee will surrender to the
Trustee possession of the Mortgaged Vessel and the Trustee may, without
being responsible for loss or damage, hold, lay-up, lease, charter, operate
or otherwise use such Mortgaged Vessel for such time and upon such terms as
it may deem to be for its best advantage, and demand, collect and retain
all hire, freights, earnings, issues, revenues, income, profits, return
premiums, salvage awards or recoveries, recoveries in general average, and
all other sums due or to become due in respect of
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such Mortgaged Vessel or in respect of any insurance thereon from any
person whomsoever, in accordance with the terms of the Mortgage; and
(4) take and enter into possession of the Mortgaged Vessel, at any
time, wherever the same may be, without legal process, and if it seems
desirable to the Trustee and without being responsible for loss or damage,
sell such Mortgaged Vessel, at any place and at such time as the Trustee
may specify and in such manner and such place (whether by public or private
sale) as the Trustee may deem advisable, in accordance with the terms of
the Mortgage;
Any sale of a Mortgaged Vessel made in pursuance of the Trustee's right
under the Mortgage will operate to divest all right, title and interest of any
nature whatsoever of the Guarantor therein and thereto and shall bar any claim
from the Guarantor, its successors and assigns, and all persons claiming by,
through or under them.
All of the Mortgaged Vessels are registered under Liberian flag or Bahamian
flag. The Mortgages on the Liberian flag Mortgaged Vessels will be preferred
mortgage liens under Liberian maritime law. Any Mortgages on Bahamian flag
Mortgaged Vessels will have similar status under Bahamian law. Liberian law and
Bahamian law provide that such mortgages may be enforced by the mortgagee by
suit in admiralty in a proceeding against the vessel covered by the mortgage.
The priority that such a mortgage would have against the claims of other
lien creditors in an enforcement proceeding is generally determined by, and will
vary in accordance with, the law of the country where the proceeding is brought.
Liberian maritime law provides that a "preferred mortgage" is prior to all
claims except (1) costs imposed by the enforcing court, (2) liens against the
vessel arising prior in time to recording or filing of the mortgage, (3) liens
for damages arising out of tort, (4) wages of a stevedore when employed directly
by the owner, operator or master of the vessel, (5) wages of the crew of the
vessel and (6) general average and salvage, including contract salvage. Liberian
law also provides that unpaid vessel tonnage taxes, annual fees and penalties
imposed by the Liberian government are liens prior to the liens of the mortgage.
Bahamian law provides that a first priority ship mortgage has priority over all
other claims except (i) costs allowed by the court arising out of the arrest and
sale proceedings, (ii) wages and other sums due to the master, officers and
other members of the ship's complement in respect of their employment on the
ship, (iii) port, canal, and other waterway dues and pilotage dues and any other
outstanding fees payable under the Merchant Shipping Act of the Bahamas in
respect of the ship, (iv) claims against the owner in respect of loss of life or
personal injury occurring, whether on land or on water, in direct connection
with the operation of the ship, (v) claims against the owner, based on tort and
not capable of being based on contract, in respect of loss of or damage to
property occurring, whether on land or on water, in direct connection with the
operation of the ship, and (vi) claims for salvage, wreck removal and
contribution in general average.
Both Liberian ship mortgages and Bahamian ship mortgages may be enforced
against a vessel physically present in the United States, but the claim under
the mortgage would rank behind preferred maritime liens, including those for
supplies and other necessaries provided in the United States. Since the
Mortgaged Vessels will be trading primarily between the Arabian Gulf and the
West Coast of the United States, there is no assurance that, if enforcement
proceedings must be commenced against a Mortgaged Vessel, the Mortgaged Vessel
will be located in a jurisdiction having the same procedures and lien priorities
as Liberia, the Bahamas or the United States. Other jurisdictions may provide no
legal remedy at all for the enforcement of the Mortgages, or a remedy dependent
on court proceedings so expensive and time consuming as to be impractical.
Furthermore, certain jurisdictions, unlike Liberia, the Bahamas or the United
States, may not permit the Mortgaged Vessel to be sold prior to entry of a
judgment, entailing a long waiting time that could result in increased custodial
costs, deterioration in the condition of the Mortgaged Vessel and substantial
reduction in her value.
Since the Notes will also be secured by a pledge by Teekay of all the stock
of each of the Guarantors, enforcement of this pledge, including foreclosure,
may provide in effect an alternative method to transfer control over a Mortgaged
Vessel and to realize value from such collateral.
96
<PAGE> 101
As additional security for the Obligations, each Guarantor will assign to
the Trustee, among other things, all of its rights under the Charter, the
earnings of its Mortgaged Vessel and the insurance carried thereon. Each
Guarantor's maximum liability under such security agreements is limited to the
same extent as such Guarantor's maximum liability under its Subsidiary
Guarantee. See "The Subsidiary Guarantees."
All of the Collateral, including the Mortgages, will be released from the
Lien of the Indenture and the Security Documents upon the occurrence of the
Fall-away Event. See "Description of the Notes-- Fall-away Event."
TAX CONSIDERATIONS
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States federal income tax
consequences of the ownership of Notes by an initial purchaser thereof in the
Offering. Except where noted, it deals only with Notes held as capital assets by
United States Holders and does not deal with special situations, such as those
of dealers in securities or currencies, financial institutions, 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. Furthermore, 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
Internal Revenue Code of 1986, as amended (the "Code"), and regulations, rulings
and judicial decisions thereunder existing as of the date hereof, and upon the
advice received by the Company from special U.S. tax counsel. No assurance can
be given that changes in existing laws or regulations or their interpretation
will not occur, or that such changes will not be retroactive. Such authorities
may be repealed, revoked or modified so as to result in federal income tax
consequences different from those discussed below. The Company's and 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. IN ADDITION THIS DISCUSSION DOES NOT ADDRESS THE TAX
CONSEQUENCES THAT MAY BE RELEVANT TO PARTICULAR CATEGORIES OF INVESTORS SUBJECT
TO SPECIAL TREATMENT UNDER CERTAIN UNITED STATES FEDERAL INCOME TAX LAWS, SUCH
AS DEALERS IN SECURITIES, TAX-EXEMPT ENTITIES, FINANCIAL INSTITUTIONS, INSURANCE
COMPANIES AND NON-UNITED STATES HOLDERS. PERSONS CONSIDERING THE PURCHASE,
OWNERSHIP OR DISPOSITION OF NOTES SHOULD THEREFORE SATISFY THEMSELVES AS TO THE
OVERALL TAX CONSEQUENCES OF THEIR OWNERSHIP OF THE NOTES, INCLUDING THE NON-
UNITED STATES, STATE, AND LOCAL TAX CONSEQUENCES THEREOF (WHICH ARE NOT REVIEWED
HEREIN) AND CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR
CIRCUMSTANCES.
As used herein, 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 thereof, or an estate or trust the
income of which is subject to United States federal income taxation regardless
of its source. A "Non-United States Holder" of a Note is a Holder that is not a
United States Holder.
PAYMENTS OF INTEREST
The Company believes that the Notes will not be issued with "original issue
discount" ("OID") 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 OID ("OID Regulations"), and the
97
<PAGE> 102
Company will report payments to Holders accordingly. 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 method of accounting for tax purposes.
MARKET DISCOUNT
If a United States Holder purchases a Note for an amount that is less than
its stated redemption price at maturity, the amount of the difference will be
treated as "market discount" for federal income tax purposes, unless such
difference is less than a specified de minimis amount. Under the market discount
rules, a United States Holder will be required to treat any principal payment
on, or any gain on the sale, exchange, retirement or other disposition of, a
Note as ordinary income to the extent of the market discount which has not
previously been included in income and is treated as having accrued on such Note
at the time of such payment or disposition. In addition, the United States
Holder may be required to defer, until the maturity of the Note or its earlier
disposition in a taxable transaction, the deduction of all or a portion of the
interest expense on any indebtedness incurred or continued to purchase or carry
such Note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Note, unless the United
States Holder elects to accrue on a constant interest method. A United States
Holder of a Note may elect to include market discount in income currently as it
accrues (on either a ratable or constant interest method), in which case the
rule described above regarding deferral of interest deductions will not apply.
This election to include market discount in income currently, once made, applies
to all market discount obligations acquired on or after the first taxable year
to which the election applies and may not be revoked without the consent of the
Internal Revenue Service.
AMORTIZABLE BOND PREMIUM
A United States Holder that purchases a Note for an amount in excess of the
sum of all amounts payable on the Note after the purchase date other than
qualified stated interest (as defined in the OID Regulations) will generally be
considered to have purchased the Note at a "premium." A United States Holder
generally may elect to amortize the premium over the remaining term of the Note
on a constant yield method. The amount amortized in any year will be treated as
a reduction of the United States Holder's interest income from the Note. Bond
premium on a Note held by a United States Holder that does not make such an
election will decrease the gain or increase the loss otherwise recognized on
disposition of the Note. The election to amortize premium on a constant yield
method once made applies to all debt obligations held or subsequently acquired
by the electing United States Holder on or after the first day of the first
taxable year to which the election applies and may not be revoked without the
consent of the Internal Revenue Service.
SALE, EXCHANGE AND RETIREMENT OF NOTES
A United States Holder's tax basis in a Note will, in general, be the
United States Holder's cost therefor, increased by any market discount
previously included in income by the United States Holder and reduced by any
amortized premium. 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, subject to the market discount rules discussed above, 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 the
period specified for capital gain treatment (currently a holding period of 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 limitations.
98
<PAGE> 103
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to certain
payments of principal and interest paid on the Notes and to the proceeds of sale
of a Note made to United States Holders other than certain exempt recipients. A
31 percent 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.
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.
LIBERIAN TAXATION
Based on the advice of Haight, Gardner, Poor & Havens, special Liberian
counsel to the Company, since (i) the Company is and intends to maintain its
status as a "nonresident Liberian entity" under the Liberian Internal Revenue
Code, (ii) the Company is not now carrying on, and in the future does not expect
to carry on, any operations within the Republic of Liberia, and (iii) the Notes
and all related documentation will be executed outside the Republic of Liberia,
and assuming that the holders of the Notes will neither reside in, maintain
offices in, nor engage in business in, the Republic of Liberia, under current
Liberian law no taxes or withholding will be imposed by the Republic of Liberia
on payments to be made in respect of the Notes and the Guarantees.
BAHAMIAN TAXATION
Based on the advice of Graham, Thompson & Co., Bahamian counsel to the
Company, under current Bahamian law no taxes or withholding will be imposed by
The Bahamas on payments to be made in respect of the Notes and the Guarantees.
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting
Agreement, Teekay has agreed to sell to each of the Underwriters named below,
and each of the Underwriters, has severally agreed to purchase from Teekay, the
principal amount of Notes set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITER OF NOTES
----------------
<S> <C>
Goldman, Sachs & Co...................................... $
Morgan Stanley & Co. Incorporated........................
Smith Barney Inc.........................................
----------------
Total.............................................. $
=============
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all of the Notes offered hereby,
if any are taken.
The Underwriters propose to offer the Notes in part directly to retail
purchasers at the initial public offering price set forth on the cover page of
this Prospectus, and in part to certain securities dealers at such price less a
concession of % of the principal amount of the Notes. The Underwriters may
allow, and such dealers may reallow, a concession of not in excess of % of
the principal amount of the Notes to certain brokers and dealers. After the
Notes are released for sale to the public, the offering price and other selling
terms may from time to time be varied by the Underwriters.
99
<PAGE> 104
The Notes are a new issue of securities with no established trading market.
The Company has been advised by the Underwriters that they intend to make a
market in the Notes but are not obligated to do so and may discontinue market
making at any time without notice. No assurance can be given as to the liquidity
of the trading market for the Notes.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Notes and the Guarantees offered hereby and certain
legal matters will be passed upon for Teekay and the Guarantors by Perkins Coie,
Portland, Oregon, with respect to matters of United States law, and certain
legal matters will be passed upon for Teekay and the Guarantors by Haight,
Gardner, Poor & Havens, New York, New York, with respect to matters of Liberian
law and U.S. Maritime law, and by Graham, Thompson & Co., Nassau, The Bahamas,
with respect to matters of Bahamian law. Certain legal matters will be passed
upon for the Underwriters by Shearman & Sterling, New York, New York, with
respect to matters of United States law.
EXPERTS
The consolidated financial statements of Teekay and its subsidiaries as of
March 31, 1995 and 1994, and for the year ended March 31, 1995, the eleven-month
period ended March 31, 1994 and the year ended April 30, 1993, included herein
and elsewhere in the Registration Statement have been audited by Ernst & Young,
independent chartered accountants, as set forth in their report appearing
elsewhere herein and in the Registration Statement and are included in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing. The consolidated financial statements and schedule of Teekay and
its subsidiaries incorporated in this Prospectus by reference to the Annual
Report of Teekay on Form 20-F for the fiscal year ended March 31, 1995, have
been audited by Ernst & Young, independent chartered accountants, as indicated
in their report with respect thereto, and have been so incorporated in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
With respect to the unaudited interim financial information for the
six-month periods ended September 30, 1995 and 1994, included herein, the
independent chartered accountants have reported that they applied limited
procedures in accordance with professional standards for a review of such
information. However, their report with respect thereto, included herein, states
that they did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on their report on
such information should be restricted in light of the limited nature of the
review procedures applied. The independent chartered accountants are not subject
to the liability provisions of section 11 of the Securities Act for their report
on the unaudited interim financial information because that report is not a
"report" or a "part" of the registration statement prepared or certified by the
auditors within the meaning of section 7 or 11 of the Securities Act.
100
<PAGE> 105
TEEKAY SHIPPING CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Auditors' Report....................................................................... F-3
Accountants' Review Engagement Report.................................................. F-4
Consolidated Statements of Income and Retained Earnings for the six-month periods ended
September 30, 1995 and 1994 and for the fiscal periods ended March 31, 1995 and 1994
and April 30, 1993................................................................... F-5
Consolidated Balance Sheets as at September 30, 1995 and 1994 and March 31, 1995 and
1994................................................................................. F-6
Consolidated Statements of Cash Flows for the six-month periods ended September 30,
1995 and 1994 and for the fiscal periods ended March 31, 1995 and 1994 and April 30,
1993................................................................................. F-7
Notes to the Consolidated Financial Statements......................................... F-8
Schedule A to the Consolidated Financial Statements.................................... F-22
Auditors' Report....................................................................... F-27
ANDROS SPIRIT INC.
Statements of Income and Retained Earnings for the six-month periods ended September
30, 1995 and 1994 and for the fiscal periods ended March 31, 1995 and 1994 and
April 30, 1993.................................................................... F-28
Balance Sheets as at September 30, 1995 and 1994 and March 31, 1995 and 1994......... F-29
Statements of Cash Flows for the six-month periods ended September 30, 1995 and 1994
and for the fiscal periods ended March 31, 1995 and 1994 and April 30, 1993....... F-30
EXUMA SPIRIT INC.
Statements of Income and Retained Earnings for the six-month periods ended September
30, 1995 and 1994 and for the fiscal periods ended March 31, 1995 and 1994 and
April 30, 1993.................................................................... F-31
Balance Sheets as at September 30, 1995 and 1994 and March 31, 1995 and 1994......... F-32
Statements of Cash Flows for the six-month periods ended September 30, 1995 and 1994
and for the fiscal periods ended March 31, 1995 and 1994 and April 30, 1993....... F-33
NASSAU SPIRIT INC.
Statements of Income and Retained Earnings for the six-month periods ended September
30, 1995 and 1994 and for the fiscal periods ended March 31, 1995 and 1994 and
April 30, 1993.................................................................... F-34
Balance Sheets as at September 30, 1995 and 1994 and March 31, 1995 and 1994......... F-35
Statements of Cash Flows for the six-month periods ended September 30, 1995 and 1994
and for the fiscal periods ended March 31, 1995 and 1994 and April 30, 1993....... F-36
SENANG SPIRIT INC.
Statements of Income and Retained Earnings for the six-month periods ended September
30, 1995 and 1994 and for the fiscal periods ended March 31, 1995 and 1994........ F-37
Balance Sheets as at September 30, 1995 and 1994 and March 31, 1995 and 1994......... F-38
Statements of Cash Flows for the six-month periods ended September 30, 1995 and 1994
and for the fiscal periods ended March 31, 1995 and 1994.......................... F-39
VSSI APPIAN INC.
Statements of Income and Retained Earnings for the six-month periods ended September
30, 1995 and 1994 and for the fiscal periods ended March 31, 1995 and 1994 and
April 30, 1993.................................................................... F-40
Balance Sheets as at September 30, 1995 and 1994 and March 31, 1995 and 1994......... F-41
Statements of Cash Flows for the six-month periods ended September 30, 1995 and 1994
and for the fiscal periods ended March 31, 1995 and 1994 and April 30, 1993....... F-42
</TABLE>
F-1
<PAGE> 106
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
VSSI ATLANTIC INC.
Statement of Income and Retained Earnings for the six-months ended September 30, 1995
and 1994 and for the fiscal periods ended March 31, 1995 and 1994................. F-43
Balance Sheets as at September 30, 1995 and 1994 and March 31, 1995 and 1994......... F-44
Statements of Cash Flows for the six-month periods ended September 30, 1995 and 1994
and for the fiscal periods ended March 31, 1995 and 1994 and April 30, 1993....... F-45
VSSI OCEANS INC.
Statements of Income and Retained Earnings for the six-month period ended
September 30, 1995................................................................ F-46
Balance Sheets as at September 30, 1995 and 1994 and March 31, 1995.................. F-47
Statements of Cash Flows for the six-month periods ended September 30, 1995 and 1994
and for the fiscal year ended March 31, 1995...................................... F-48
Notes to the Financial Statements (for ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU
SPIRIT INC., SENANG SPIRIT INC., VSSI APPIAN INC., VSSI ATLANTIC INC., AND VSSI
OCEANS INC.)......................................................................... F-49
</TABLE>
F-2
<PAGE> 107
AUDITORS' REPORT
To the Board of Directors
TEEKAY SHIPPING CORPORATION
We have audited the accompanying consolidated balance sheets of Teekay
Shipping Corporation and subsidiaries as of March 31, 1995 and 1994, and the
related consolidated statements of income and retained earnings and cash flows
for the year ended March 31, 1995 and the eleven month period ended March 31,
1994 and the year ended April 30, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Teekay Shipping Corporation and subsidiaries at March 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the year ended
March 31, 1995 and the eleven month period ended March 31, 1994 and the year
ended April 30, 1993 in conformity with accounting principles generally accepted
in the United States.
Nassau, Bahamas,
May 15, 1995 (except for Note 16, ERNST & YOUNG
which is as of December 15, 1995). Chartered Accountants
F-3
<PAGE> 108
REVIEW ENGAGEMENT REPORT
To the Board of Directors
TEEKAY SHIPPING CORPORATION
We have reviewed the accompanying consolidated balance sheets of Teekay
Shipping Corporation and subsidiaries as of September 30, 1995 and 1994, and the
related consolidated statements of income and retained earnings and cash flows
for the six-month periods ended September 30, 1995 and 1994. These consolidated
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards generally accepted in
the United States. 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 generally
accepted auditing standards, 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, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements referred to
above for them to be in conformity with accounting principles generally accepted
in the United States.
Nassau, Bahamas ERNST & YOUNG
December 15, 1995 Chartered Accountants
F-4
<PAGE> 109
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED YEAR ENDED
--------------------------- MARCH 31, MARCH 31, APRIL 30,
1995 1994 1995 1994 1993
------------ ------------ ------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET VOYAGE REVENUES
Voyage revenues..................... $ 160,944 $ 162,771 $ 319,966 $ 317,742 $ 336,994
Voyage expenses..................... 43,452 42,515 84,957 81,052 108,805
------------ ------------ ------------ ------------- ------------
Net voyage revenues................. 117,492 120,256 235,009 236,690 228,189
------------ ------------ ------------ ------------- ------------
OPERATING EXPENSES
Vessel operating expenses (note
3)................................ 33,496 38,446 72,723 73,597 79,649
Depreciation and amortization....... 40,956 48,238 96,435 89,902 97,611
General and administrative (note
3)................................ 8,812 8,146 15,018 14,063 14,014
------------ ------------ ------------ ------------- ------------
Income from vessel operations....... 34,228 25,426 50,833 59,128 36,915
------------ ------------ ------------ ------------- ------------
Other items
Interest expense.................... (31,230) (31,364) (64,321) (48,064) (47,374)
Interest income..................... 3,182 2,903 5,904 2,904 1,156
Other income (notes 3 and 12)....... 4,364 979 11,848 11,777 37,862
------------ ------------ ------------ ------------- ------------
(23,684) (27,482) (46,569) (33,383) (8,356)
------------ ------------ ------------ ------------- ------------
Income (loss) before foreign
currency exchange gain (loss)..... 10,544 (2,056) 4,264 25,745 28,559
Foreign currency exchange gain
(loss)............................ (513) 39 991 (1,532) (77,917)
------------ ------------ ------------ ------------- ------------
Net income (loss) from continuing
operations........................ 10,031 (2,017) 5,255 24,213 (49,358)
Net income from discontinued
operations (note 4)............... 5,945 1,890
------------ ------------ ------------ ------------- ------------
Net income (loss) before cumulative
effect of accounting change....... 10,031 (2,017) 5,255 30,158 (47,468)
Cumulative effect of change in
accounting for marketable
securities (notes 1 and 5)........ 1,113
------------ ------------ ------------ ------------- ------------
Net income (loss)................... 10,031 (2,017) 6,368 30,158 (47,468)
Retained earnings, beginning of
period............................ 406,547 400,179 400,179 370,021 409,989
Exchange of redeemable preferred
stock (note 10)................... (60,000)
Contribution arising on continuity
of interest combination (note
1)................................ 7,500
------------ ------------ ------------ ------------- ------------
Retained earnings, end of the
period............................ $ 356,578 $ 398,162 $ 406,547 $ 400,179 $ 370,021
========== ========== ========== ============ ==========
Earnings (loss) per share amounts
(note 1)
Continuing operations............. $ 0.46 $ (0.11) $ 0.29 $ 1.35 $ (2.74)
Cumulative effect of change in
accounting for marketable
securities...................... $ 0.06
Net income (loss) per common
share........................... $ 0.46 $ (0.11) $ 0.35 $ 1.68 $ (2.64)
Weighted average number of common
shares outstanding................ 21,865,688 18,000,000 18,000,000 18,000,000 18,000,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 110
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
AS AT SEPTEMBER 30, AS AT MARCH 31,
------------------------- -------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT
Cash......................................... $ 60,465 $ 28,093 $ 16,500 $ 38,614
Marketable securities (notes 5 and 12)....... 48,802 67,986 69,239 68,632
Restricted cash (note 7)..................... 3,623 6,828 7,634 6,338
Accounts receivable
- -- trade..................................... 20,948 16,516 16,875 18,061
- -- vessel sales (note 12).................... 17,283 4,877
- -- other..................................... 2,812 6,534 3,271 5,776
Prepaid expenses and other assets............ 13,574 14,196 13,273 10,893
----------- ----------- ----------- -----------
Total current assets.................. 150,224 140,153 144,075 153,191
----------- ----------- ----------- -----------
Vessels and equipment (notes 1, 7, 8,
14 and 16)
At cost, less accumulated depreciation
(September 30, 1995--$343,838;
1994--$311,245;
March 31, 1995 -- $312,281;
1994--$270,833)............................ 1,152,171 1,193,580 1,142,972 1,232,754
Acquired under capital lease, less
accumulated amortization of $398........... 49,813
Advances on vessels.......................... 2,481 5,066
----------- ----------- ----------- -----------
Total vessels and equipment........... 1,201,984 1,196,061 1,148,038 1,232,754
----------- ----------- ----------- -----------
Investment................................... 4,468 8,807 3,758 8,407
Other assets................................. 9,240 11,033 10,603 10,795
----------- ----------- ----------- -----------
$ 1,365,916 $ 1,356,054 $ 1,306,474 $ 1,405,147
========== ========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable (note 3).................... $ 10,542 $ 13,738 $ 11,480 $ 11,306
Accrued liabilities (note 6)................. 12,542 16,356 13,054 15,050
Current portion of long-term debt
(note 7 and 11)............................ 58,906 86,474 74,479 89,482
Current portion of capital lease obligation
(note 8 and 11)............................ 2,709
----------- ----------- ----------- -----------
Total current liabilities............. 84,699 116,568 99,013 115,838
----------- ----------- ----------- -----------
Long-term debt (note 7 and 11)............... 652,969 808,323 768,395 856,129
Capital lease obligation (note 8 and 11)..... 41,200
----------- ----------- ----------- -----------
Total liabilities..................... 778,868 924,891 867,408 971,967
----------- ----------- ----------- -----------
STOCKHOLDERS' EQUITY
Capital stock (note 10)...................... 230,613 33,001 33,001 33,001
Retained earnings............................ 356,578 398,162 406,547 400,179
Less net unrealized loss on marketable
securities (notes 1 and 5)................. 143 482
----------- ----------- ----------- -----------
Total stockholders' equity............ 587,048 431,163 439,066 433,180
----------- ----------- ----------- -----------
$ 1,365,916 $ 1,356,054 $ 1,306,474 $ 1,405,147
========== ========== ========== ==========
</TABLE>
Commitments and contingencies (note 11)
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 111
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED YEAR ENDED
----------------------- MARCH 31, MARCH 31, APRIL 30,
1995 1994 1995 1994 1993
---------- ---------- ---------- ------------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash provided by (used for)
OPERATING ACTIVITIES
Net income (loss) from continuing
operations................................. $ 10,031 $ (2,017) $ 5,255 $ 24,213 $ (49,358)
Add (deduct) charges to operations not
requiring a payment of cash:
Depreciation and amortization.............. 40,956 48,238 96,435 89,902 97,611
Foreign currency exchange loss (gain)...... (84) (305) (1,050) 2,583 76,728
Gain on disposition of assets.............. (3,728) (3,698) (18,245) (12,347) (37,213)
Loss on marketable securities.............. 2,719 1,553
Loss on available-for-sale securities...... 110 4,303
Equity loss (income) (net of dividend
received: March 31, 1994--$500).......... (704) 2,089 (483) (441)
Minority interest.......................... (19) (208)
Other...................................... 709
Change in non-cash working capital items
related to continuing operations (note
13)...................................... (5,402) 6,301 (1,263) 11,966 (3,085)
---------- ---------- ---------- ------------- ----------
Net cash flow from continuing operations..... 41,888 51,238 87,505 117,387 84,034
Net cash flow from discontinued operations... 347 4,492
---------- ---------- ---------- ------------- ----------
Net cash flow from operating activities...... 41,888 51,238 87,505 117,734 88,526
---------- ---------- ---------- ------------- ----------
FINANCING ACTIVITIES
Proceeds from long-term debt................. 223,000 220,000 147,782
Scheduled repayments of long-term debt....... (34,880) (44,147) (87,570) (37,067) (20,750)
Prepayments of long-term debt................ (317,901) (6,533) (15,033) (132,416) (92,100)
Scheduled payments on capital lease
obligations................................ (640) (18,472) (13,139)
Prepayments of capital lease obligations..... (110,839) (39,827)
Decrease (increase) in restricted cash....... 4,011 (490) (1,296) 8,143 (1,653)
Net proceeds from stock issuance............. 137,613
Net capital contribution..................... 7,500
Payment received on direct financing
leases..................................... 2,241
Capitalized loan costs....................... (866) (942) (1,565) (9,955)
Financing activities associated with
discontinued operations.................... (20,077) (9,894)
---------- ---------- ---------- ------------- ----------
Net cash flow from financing activities...... 10,337 (52,112) (105,464) (100,683) (19,840)
---------- ---------- ---------- ------------- ----------
INVESTING ACTIVITIES
Expenditures for vessels and equipment (net
of
capital lease financing of: September 30,
1995--$44,550; 1994--$Nil; March 31,
1995--$Nil; 1994--$97,776; April 30, 1993--
$144,696).................................. (47,527) (4,273) (7,465) (65,733) (190,037)
Expenditures for drydocking.................. (4,193) (7,121) (11,917) (13,296) (16,440)
Proceeds from disposition of assets.......... 22,794 4,220 16,817 86,351 156,909
Repayments of advances to investee........... 2,650 1,479
Increase in marketable securities............ (2,073) (70,185)
Proceeds on sale of available-for-sale
securities................................. 53,332 110,806
Purchases of available-for-sale securities... (32,666) (115,085)
Other........................................ (400) 39 (50) (3,563)
Investing activities associated with
discontinued operations.................... 35,706 5,497
---------- ---------- ---------- ------------- ----------
Net cash flow from investing activities...... (8,260) (9,647) (4,155) (27,207) (46,155)
---------- ---------- ---------- ------------- ----------
(Decrease) increase in cash.................. 43,965 (10,521) (22,114) (10,156) 22,531
Cash, beginning of the period................ 16,500 38,614 38,614 48,770 26,239
---------- ---------- ---------- ------------- ----------
Cash, end of the period...................... $ 60,465 $ 28,093 $ 16,500 $ 38,614 $ 48,770
========= ========= ========= ========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE> 112
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
On April 30, 1993, Teekay Shipping Corporation ("Teekay") acquired 100% of
the outstanding stock of Palm Shipping Inc. ("Palm"), an affiliated company, for
nominal consideration. This transaction has been presented using the continuity
of interest method of accounting under which it is assumed the companies have
been combined from their inception. Accordingly, the consolidated balance sheets
include the assets and liabilities of Teekay and Palm at their carrying values,
after adjustments to conform the accounting policies of the two companies, and
the consolidated statements of income and retained earnings and cash flows
include the results of their operations for all years presented.
On March 31, 1995, Teekay acquired 100% of the outstanding stock of Teekay
Shipping Limited ("TSL"), an affiliated company, for cash consideration of $1.27
million representing the net book value of TSL at March 31, 1995. The impact of
this transaction on the financial position and results of operations of Teekay
is not considered significant. The assets and liabilities of TSL have been
combined with those of Teekay effective March 31, 1995. Teekay's results of
operations include those of TSL subsequent to that date.
In the opinion of management, the unaudited interim consolidated financial
statements contain all adjustments (consisting only of normal recurring
accruals), necessary to present fairly, in all material respects, the Company's
consolidated financial position as at September 30, 1995 and 1994 and the
related consolidated results of operations and cash flows for the six-month
periods ended September 30, 1995 and 1994. The results of operations for the
six-month period ended September 30, 1995 are not necessarily indicative of
those for a full fiscal year.
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.
Consolidation
The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States. They include the
accounts of Teekay Shipping Corporation (which is incorporated under the laws of
Liberia) and its wholly owned or controlled subsidiaries (the "Company").
Significant intercompany items and transactions have been eliminated upon
consolidation.
F-8
<PAGE> 113
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
Change in fiscal year end
The Company changed its fiscal year end from April 30 to March 31,
effective March 31, 1994. The following is a summary of selected financial
information for the comparative twelve month periods ended March 31, 1995 and
1994, and the comparative eleven-month periods ended March 31, 1994 and 1993,
respectively:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
MARCH 31,
---------------------------
1995 1994
--------- -----------
(UNAUDITED)
<S> <C> <C>
RESULTS OF OPERATIONS
Voyage revenues................................................ $ 319,966 $ 344,960
Voyage expenses................................................ 84,957 88,974
Vessel operating expenses...................................... 72,723 80,738
Depreciation and amortization.................................. 96,435 97,300
General and administrative expenses............................ 15,018 15,208
Income from vessel operations.................................. 50,833 62,740
Interest expense............................................... (64,321) (52,709)
Interest income................................................ 5,904 3,046
Other income................................................... 11,848 12,857
Income before foreign currency exchange gain (loss)............ 4,264 25,934
Foreign currency exchange gain (loss).......................... 991 (43)
Net income from continuing operations.......................... 5,255 25,891
Net income from discontinued operations........................ 6,103
Cumulative effect of change in accounting for marketable
securities................................................... 1,113
Net income..................................................... 6,368 31,994
CASH FLOWS
Net cash flow from continuing operations....................... 87,505 125,189
Net cash flow from discontinued operations..................... 505
Net cash flow used for financing activities.................... (105,464) (144,592)
Net cash flow provided by (used for) investing activities...... (4,155) 7,990
</TABLE>
F-9
<PAGE> 114
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
ELEVEN MONTHS ENDED
MARCH 31,
---------------------------
1994 1993
--------- -----------
(UNAUDITED)
<S> <C> <C>
RESULTS OF OPERATIONS
Net voyage revenues............................................ $ 236,690 $ 205,021
Income from vessel operations.................................. 59,128 33,303
Income before foreign currency exchange loss................... 25,745 28,370
Foreign currency exchange loss................................. 1,532 79,406
Net income (loss) from continuing operations................... 24,213 (51,036)
Net income from discontinued operations........................ 5,945 1,732
Net income (loss).............................................. 30,158 (49,304)
CASH FLOWS
Net cash flow from continuing operations....................... 117,387 76,232
Net cash flow from discontinued operations..................... 347 4,334
Net cash flow provided by (used for) financing activities...... (100,683) 24,069
Net cash flow used for investing activities.................... (27,207) (81,352)
</TABLE>
Investment
The Company's 50% interest in Viking Consolidated Shipping Corp. is carried
at the Company's original cost plus its proportionate share of the undistributed
net income.
Operating revenues and expenses
Voyage revenues and expenses are recognized on the percentage of completion
method of accounting. 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.
Vessel expenses comprise all expenses relating to the operation of vessels,
including crewing, repairs and maintenance, insurance, stores and lubes, and
miscellaneous expenses including communications. Voyage expenses comprise all
expenses relating to particular voyages, including bunker fuel expenses, port
fees, canal tolls, and brokerage commissions.
Marketable securities
The Company adopted the Statement of Financial Accounting Standards Board
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" ("FAS 115") for the year ended March 31, 1995. In applying FAS 115,
investments in marketable securities have been classified by management as
available-for-sale securities and are carried at fair value. Net unrealized
gains or losses on available-for-sale securities are reported as a separate
component of stockholders' equity. The cumulative effect on opening retained
earnings from application of this Statement has been reflected separately as an
adjustment to net income for the year (see Note 5).
F-10
<PAGE> 115
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
Vessels and equipment
All pre-delivery costs incurred during the construction of new buildings,
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, estimated by the Company to be twenty years from the date a vessel
is initially placed in service.
Interest costs capitalized to vessels and equipment for the six-month
periods ended September 30, 1995 and 1994 aggregated $79,000 and $63,000,
respectively, and for the year ended March 31, 1995, the eleven-month period
ended March 31, 1994, and the year ended April 30, 1993 aggregated $151,000,
$1,653,000, and $5,276,000, 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 amortization for the six-month periods ended
September 30, 1995 and 1994 aggregated $4,180,000 and $4,966,000, respectively,
and for the year ended March 31, 1995, the eleven month period ended March 31,
1994, and the year ended April 30, 1993 aggregated $10,281,000, $11,831,000 and
$16,808,000, respectively.
Vessels acquired pursuant to bareboat hire purchase agreements are
capitalized as capital leases and are amortized over the estimated useful life
of the acquired vessel.
Effective April 1, 1995, the Company revised its estimates of the residual
values of its vessels. The effect of this change in estimated residual values
was to reduce depreciation expense for the six-month period ended September 30,
1995 by $4.8 million (or $0.22 per common share).
Other assets
Loan costs, including fees, commissions and legal expenses, are capitalized
and amortized over the term of the relevant loan.
Interest rate swap agreements
The differential to be paid or received is accrued as interest rates change
and is recognized as an adjustment to interest expense.
Interest rate cap agreements
Premiums paid for interest rate cap agreements are recorded at cost and
amortized over the lives of the individual contracts.
Forward contracts
The Company enters into forward contracts as a hedge against changes in
foreign exchange rates. Market value gains and losses are recognized and the
resulting credit or debit offsets the effect of increases or decreases in
foreign exchange gains or losses.
F-11
<PAGE> 116
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
Cash flows
Cash interest paid during the six-month periods ended September 30, 1995
and 1994 aggregated $31,895,000 and $32,421,000, respectively, and for the year
ended March 31, 1995, the eleven-month period ended March 31, 1994, and for the
year ended April 30, 1993 totalled $65,358,000, $49,456,000, and $50,893,000,
respectively.
The Company classifies all highly liquid investments with a maturity date
of three months or less when purchased to be included in cash.
Income taxes
The legal jurisdictions of the countries in which the Company and its
subsidiaries are incorporated do not impose income taxes upon shipping-related
activities.
Earnings (loss) per share
Earnings (loss) per share is based upon the weighted average number of
common shares outstanding during each period, after giving effect to the 1 for 2
reverse stock split (See Note 10 -- Capital Stock). Stock options have not been
included in the computation of earnings (loss) per share since their effect
thereon would not be material.
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.
3. CONTRACTUAL RELATIONSHIPS
Prior to the acquisition of TSL (see Note 1--Basis of presentation), TSL
and its affiliated companies rendered administrative, operating and ship
management services to the Company in return for a monthly fee and commissions
at rates considered usual and customary to the industry. Amounts payable to TSL
and its affiliated companies related to these services at September 30, 1995 and
1994 amounted to $NIL and $1,825,000, respectively, and at March 31, 1995, March
31, 1994 amounted to $NIL and $1,604,000, respectively.
Fees incurred, included in general and administrative expenses, for the
six-month periods ended September 30, 1995 and 1994 aggregated $NIL and
$4,386,000, respectively, and for the year ended March 31, 1995, the
eleven-month period ended March 31, 1994, and the year ended April 30, 1993
aggregated $7,845,000, $8,074,000 and $9,174,000, respectively. Commissions
incurred, included in general and administrative expenses, for the six-month
periods ended September 30, 1995 and 1994 aggregated $NIL and $2,072,000,
respectively, and the year ended March 31, 1995, the eleven-month period ended
March 31, 1994, and the year ended April 30, 1993 aggregated $3,981,000,
$3,956,000 and $4,109,000, respectively. Commissions incurred, related to vessel
dispositions, for the six-month periods ended September 30, 1995 and 1994
aggregated $NIL and $43,500, respectively, and the year ended March 31, 1995,
the eleven-month period ended March 31, 1994, and the year ended April 30, 1993
aggregated $295,000, $579,000 and $NIL, respectively.
F-12
<PAGE> 117
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
4. DISCONTINUED OPERATIONS
In October 1992, the Company adopted a plan to divest its 50% investment in
Baltimar Overseas Limited ("Baltimar"), previously accounted for as a controlled
subsidiary, in order to focus its resources on the tanker shipping industry.
Baltimar operated a fleet of multipurpose dry cargo vessels through eighteen
single purpose shipping companies. On April 30, 1993, the Company entered into
an agreement to exchange its entire interest in Baltimar in return for the
shares of nine of Baltimar's single purpose shipping companies. No gain or loss
was recognized on this transaction. The vessels were sold in December 1993 for a
total sales price of $37.3 million resulting in a net gain of $5.7 million.
The amounts shown as discontinued operations in the accompanying
consolidated statements of income and retained earnings for 1993 represent the
results of operations prior to the plan of discontinuance.
Revenues from discontinued operations for the eleven-month period ended
March 31, 1994 and for the year ended April 30, 1993 amounted to $8,653,000, and
$27,195,000, respectively.
5. INVESTMENTS IN MARKETABLE SECURITIES
<TABLE>
<CAPTION>
APPROXIMATE
GROSS GROSS MARKET AND
UNREALIZED UNREALIZED CARRYING
COST GAINS LOSSES AMOUNT
-------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
September 30, 1995
Available-For-Sale Securities................ $ 48,945 $ 127 $ 270 $ 48,802
======== ======== ======== ==========
September 30, 1994
Available-For-Sale Securities................ $ 68,986 $ 322 $ 1,322 $ 67,986
======== ======== ======== ==========
March 31, 1995
Available-For-Sale Securities................ $ 69,721 $ 450 $ 932 $ 69,239
======== ======== ======== ==========
March 31, 1994
Available-For-Sale Securities................ $ 69,745 $ 20 $ 1,133 $ 68,632
======== ======== ======== ==========
</TABLE>
The cost and approximate market value of available-for-sale debt securities
by contractual maturity, as at September 30, 1995 and March 31, 1995 are shown
as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 MARCH 31, 1995
------------------------ ------------------------
APPROXIMATE APPROXIMATE
MARKET AND MARKET AND
CARRYING CARRYING
COST AMOUNT COST AMOUNT
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Less than one year.......................... $ 34,167 $ 34,052 $ 44,767 $ 44,424
Due after one year through five years....... 12,820 12,792 24,954 24,815
Due after 5 years........................... 1,958 1,958
-------- ----------- -------- -----------
$ 48,945 $ 48,802 $ 69,721 $ 69,239
======== ========== ======== ==========
</TABLE>
F-13
<PAGE> 118
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
The unrealized loss on marketable securities included as a separate
component of stockholders' equity decreased by $339,000 for the six-month period
ended September 30, 1995, and increased by $482,000 for the year ended March 31,
1995.
6. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
--------------------- ---------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Voyage and vessel................................ $ 5,814 $ 10,091 $ 5,776 $ 7,683
Interest......................................... 4,841 5,321 5,415 6,332
Payroll and benefits............................. 1,887 944 1,863 1,016
Other............................................ 19
-------- -------- -------- --------
$ 12,542 $ 16,356 $ 13,054 $ 15,050
======== ======== ======== ========
</TABLE>
7. LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
----------------------- -----------------------
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revolving Credit Facility.................... $ 88,000
First Preferred Ship Mortgage Notes (9 5/8%)
U.S. dollar debt due through 2004.......... 151,200 $ 175,000 $ 175,000 $ 175,000
Floating rate (LIBOR + 1% to 1 3/4%)
U.S. dollar debt due through 2006.......... 472,675 719,797 667,874 735,499
Floating rate (Japanese long-term prime +
0.7% to 1.2%)
Japanese Yen debt due through 2002......... 35,112
--------- --------- --------- ---------
711,875 894,797 842,874 945,611
Less current portion......................... 58,906 86,474 74,479 89,482
--------- --------- --------- ---------
$ 652,969 $ 808,323 $ 768,395 $ 856,129
========= ========= ========= =========
</TABLE>
In July 1994, the Company converted its remaining Japanese Yen long-term
debt of Yen 3.45 billion to U.S. denominated long-term debt of $33.5 million.
F-14
<PAGE> 119
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
The 9 5/8% First Preferred Ship Mortgage Notes due July 15, 2003 (the "1993
Notes") are collateralized by first preferred mortgages on six of the Company's
Aframax tankers, together with certain other related collateral, and are
guaranteed by the subsidiaries of Teekay that own the six mortgaged vessels. The
1993 Notes are also subject to a sinking fund, which will retire $25,000,000
principal amount of the 1993 Notes, on each July 15, commencing July 15, 1997.
The 1993 Notes are redeemable at the option of the Company, in whole or in part,
on or after July 15, 1998 at the following redemption prices expressed as a
percentage of principal.
<TABLE>
<CAPTION>
JULY 15 REDEMPTION PRICE
---------------------------------------------------- ----------------
<S> <C>
1998................................................ 104.813%
1999................................................ 102.406%
2000................................................ 100.000%
</TABLE>
In addition, the Company may, at any time prior to July 15, 1996, redeem up
to $61.25 million of the 1993 Notes at 109.625% of their principal amount from
the proceeds of a public equity offering.
Upon a Change of Control each Note holder has the right, unless the Company
elects to redeem the 1993 Notes, to require the Company to purchase the Notes at
101% of their principal amount plus accrued interest.
In May 1995, the Company negotiated a revolving credit facility (the
"Revolver") with three commercial banks providing for borrowings of up to $243
million in order to refinance certain of the existing debt obligations of the
Company and to finance vessel acquisitions. The Revolver is collateralized
initially by first priority mortgages granted on fourteen of the Company's
Aframax tankers, together with certain other related collateral, and a guarantee
from the Company for all amounts outstanding under the Revolver. The commitment
amount will be reduced by $9.5 million semi-annually commencing six months after
the initial drawdown date, together with a final balloon payment coincident with
the final semi-annual reduction. Interest payments are based on LIBOR plus a
margin ranging from 0.80% to 1.25% which is dependent on the financial leverage
of the Company. Principal repayments under the Revolver are required when the
Revolver borrowings exceed the commitment amount, which was $223 million as of
September 30, 1995.
In June, 1995, the Company made an initial drawdown under the Revolver in
the amount of $223 million and simultaneously prepaid approximately $204 million
in other floating rate debt.
In July, 1995, using part of the proceeds from the initial public offering
(see Note 10), the Company reduced the amount outstanding under the Revolver by
$135 million.
During the first quarter of fiscal 1996, the Company retired $23.8 million
of the 1993 Notes, utilizing approximately $18.5 million of funds available
under the Revolver.
All other floating rate loans are collateralized by first preferred
mortgages on the vessels to which the loans relate, together with certain other
collateral, and guarantees from the parent Company. In certain instances the
shares of the ship-owning subsidiary have been pledged as collateral or second
and third preferred mortgages have been recorded against specific vessels.
F-15
<PAGE> 120
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
Amongst other matters, the long-term debt agreements generally provide for
such items as maintenance of various hull and fleet value to loan ratios,
prepayment privileges (in some cases with penalties), restrictions on the
payment of dividends and advances to shareholders by the individual subsidiaries
(at September 30, 1995, approximately $65,000 of subsidiary retained earnings
may not be distributed to Teekay without prior lender consent), and restrictions
against the incurrence of additional debt and new investments by the individual
subsidiaries without prior lender consent. Certain bank loans require retention
deposits. Retention deposits as at September 30, 1995 were $2,717,000,
(September 30, 1994--$3,838,000, March 31, 1995--$4,443,000, March 31,
1994--$3,098,000).
As at September 30, 1995, the Company was committed to a series of interest
rate swap agreements whereby $175 million of the Company's floating rate debt
was swapped with fixed rate obligations having an average remaining term of 4.5
months. The swap agreements expire between October 1995 and April 1996. These
arrangements effectively change the Company's interest rate exposure on $175
million of debt from a floating LIBOR rate to an average fixed rate of 5.68%.
Payments and receipts under the swap agreements are being reflected as
adjustments to interest expense since the agreements are designated as hedges in
connection with long-term debt obligations. 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.
As at September 30, 1995, the Company was a party to interest rate cap
contracts which effectively limit the interest rate exposure on $200 million of
the Company's floating rate debt to a maximum of 8%. $100 million of the
contracts became effective on February 24, 1995; the remaining $100 million of
contracts became effective in October 1995. All of the contracts expire on April
1, 1997. The premiums paid by the Company have been recorded at cost and are
being amortized over the lives of the individual contracts. Receipts, if any,
under the interest rate cap contracts will be reflected as adjustments to
interest expense since the agreements are designated as hedges in connection
with long-term debt obligations.
Scheduled long-term principal debt repayments reflect the new revolving
credit facility repayment provisions.
Long-term debt principal repayments required to be made in the fiscal years
subsequent to September 30, 1995 are as follows:
<TABLE>
<S> <C>
1996 (six months from October 1, 1995 to March 31,
1996)................................................. $ 29,268
1997.................................................... 59,276
1998.................................................... 60,476
1999.................................................... 84,276
2000.................................................... 84,276
Thereafter.............................................. 394,303
---------
$ 711,875
=========
</TABLE>
F-16
<PAGE> 121
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
8. LEASES
Charters-in
On August 7, 1995, the Company took delivery of a bareboat hire purchased
vessel which is accounted for as a capital lease.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995
------------------
<S> <C>
Floating rate (LIBOR + 1.25%)
U.S. dollar capital lease due through 2008...... $ 43,909
Less current portion of capital lease
obligation...................................... 2,709
--------
$ 41,200
========
</TABLE>
The Company's commitment with respect to the capital lease in the fiscal
years subsequent to September 30, 1995 is as follows:
<TABLE>
<S> <C>
1996 (six months from October 1, 1995 to March 31,
1996)................................................. $ 2,528
1997.................................................... 5,056
1998.................................................... 5,056
1999.................................................... 5,056
2000.................................................... 5,056
Thereafter.............................................. 37,082
---------
Minimum lease payments.................................. 59,834
Less amount representing interest....................... (15,925)
---------
Net minimum lease payments.............................. $ 43,909
=========
</TABLE>
The Company holds a purchase option on this vessel which is exercisable, at
the Company's discretion, on any monthly lease payment date at a price equal to
the unpaid principal balance of the capital lease obligation outstanding as at
the date the purchase option is exercised.
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 as follows:
<TABLE>
<S> <C>
1996 (six months from October 1, 1995 to March 31,
1996).................................................. $ 14,135
1997..................................................... 12,367
1998..................................................... 855
--------
$ 27,357
========
</TABLE>
The minimum future revenues should not be construed to reflect total
charter hire revenues for any of the years.
F-17
<PAGE> 122
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
9. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash, restricted cash, and marketable securities--The carrying amounts
approximate fair value.
Long-term debt--The carrying amounts of floating rate debt approximate fair
value.
The fair values of the Company's other 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--The fair value of interest rate swaps, used
for hedging purposes, is the estimated amount that the Company would receive or
pay to terminate the swap agreements at the reporting date, taking into account
current interest rates and the current credit worthiness of the swap counter
parties.
The fair value of interest rate cap agreements is the estimated amount that
the Company would receive from selling the contracts as at the reporting date.
The fair value of foreign currency contracts used for hedging purposes is
the estimated amount that the Company would receive or pay to terminate the
contract at the reporting date, taking into account current currency exchange
rates.
The estimated fair value of the Company's financial instruments is as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1995 MARCH 31, 1995 MARCH 31, 1994
------------------------ ------------------------ ------------------------
CARRYING CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE AMOUNT FAIR VALUE
--------- ---------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash, restricted cash, and marketable
securities.............................. $ 112,890 $ 112,890 $ 93,373 $ 93,373 $ 113,584 $ 113,584
Long-term debt............................ 711,875 714,143 842,874 834,562 945,611 942,111
Interest rate swap agreements--net
receivable position..................... 90 3,047 1,679
Foreign currency contracts--net receivable
(payable) position...................... 2 (287) 78 144 3,270 3,270
Interest rate cap agreements.............. 856 59 975 820
</TABLE>
F-18
<PAGE> 123
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
10. CAPITAL STOCK
Authorized
25,000,000 Preferred Stock with a par value of $1 per share
125,000,000 Common Stock with no par value
<TABLE>
<CAPTION>
COMMON THOUSANDS PREFERRED THOUSANDS
STOCK OF SHARES STOCK OF SHARES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Issued and outstanding
Balance April 30, 1992 and 1993................ $ 33,000 18,000 $ 1 600
February 22, 1994 2-for-1 Common Stock Split... 18,000
--------- --------- ------- -------
Balance March 31, 1994 and 1995................ $ 33,000 36,000 $ 1 600
May 15, 1995 1-for-2 Reverse Common Stock
Split........................................ (18,000)
July 19, 1995 Initial Public Offering 6,900,000
shares at $21.50 per share of Common Stock
(net of share issue costs)................... 137,613 6,900
July 19, 1995 Exchange of Redeemable Preferred
Stock for 2,790,698 shares of Common Stock... 60,000 2,791 (1) (600)
--------- --------- ------- -------
Balance September 30, 1995..................... $ 230,613 27,691 $ 0 0
========= ========= ======= =======
</TABLE>
On July 19, 1995, the Company completed its initial public offering of
6,900,000 shares of its Common Stock. The Company's Common Stock was initially
offered at a price of $21.50 per share, resulting in aggregate net proceeds to
the Company of approximately $137.6 million. $135 million of the net proceeds
from the offering was used to reduce the amounts outstanding under the Company's
revolving credit facility. In conjunction with the completion of the initial
public offering, the Company exchanged all of its outstanding Redeemable
Preferred Stock for 2,790,698 shares of Common Stock.
The Company has reserved 2,148,571 shares of Common Stock for issuance upon
exercise of options granted pursuant to the Company's 1995 Stock Option Plan, of
which options to purchase up to 796,750 shares of Common Stock, at an exercise
price of $21.50 per share, were granted concurrent with the consummation of the
offering.
11. COMMITMENTS AND CONTINGENCIES
As at September 30, 1995, the Company was committed to $175 million of
interest rate swap agreements and $200 million of interest rate cap contracts
(see Note 7).
As at September 30, 1995, the Company was committed to foreign exchange
contracts for the forward purchase of approximately Japanese Yen 1 billion and
Singapore dollars 472,000 for U.S. dollars, at an average rate of Japanese Yen
per 95.18 U.S. dollar and Singapore dollar 1.40 per U.S. dollar, respectively.
Of these, contracts for Japanese Yen 850 million are attributable to a hedge in
connection with the Company's 50% portion of a Japanese Yen-denominated
long-term debt obligation held in Viking Consolidated Shipping Corp., a joint
venture in which the Company has a 50% interest. Foreign exchange gains and
losses, if any, arising from these contracts are reflected as adjustments to the
Company's equity in the results of Viking Consolidated Shipping Corp. The
remaining foreign exchange contracts are for the purpose of hedging accounts
payable and accrued liabilities.
F-19
<PAGE> 124
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
The Company has guaranteed vessel loans of Viking Consolidated Shipping
Corp. At September 30, 1995, the guaranteed portions of these loans amounted to
$17.8 million.
A lawsuit has been commenced against the representative of the estate of
the Company's founder, the late Mr. Torben Karlshoej, by Mr. Karlshoej's first
wife, claiming an interest in certain assets, including the Company, at one time
directly or indirectly held by Mr. Karlshoej. The Company, based upon advice of
its legal counsel, believes that the suit is without merit and does not
anticipate that the outcome of the lawsuit will have a material adverse effect
upon it or its assets.
12. OTHER INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED YEAR ENDED
--------------------- MARCH 31, MARCH 31, APRIL 30,
1995 1994 1995 1994 1993
-------- -------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Gain on disposition of
assets..................... $ 3,728 $ 3,698 $ 18,245 $ 12,347 $ 37,213
Loss on marketable
securities................. (2,719) (1,553)
Loss on available-for-sale
securities................. (110) (4,303)
Minority interest............ 19 208
Equity in results of 50%
owned company.............. 704 (2,089) 983 441
Miscellaneous--net........... 42 (24)
-------- -------- ---------- ----------- ---------
$ 4,364 $ 979 $ 11,848 $ 11,777 $ 37,862
======== ======== ========= =========== =========
</TABLE>
13. CHANGE IN NON-CASH WORKING CAPITAL ITEMS RELATED TO CONTINUING OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED YEAR ENDED
--------------------- MARCH 31, MARCH 31, APRIL 30,
1995 1994 1995 1994 1993
-------- -------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Accounts receivable.......... $ (3,614) $ 5,835 $ 3,585 $ 4,492 $ 316
Prepaid expenses and other
assets..................... (338) (3,303) (1,597) 6,054 (778)
Accounts payable............. (938) 2,432 (310) 22 1,427
Accrued liabilities.......... (512) 1,337 (2,941) 1,398 (4,050)
-------- -------- ---------- ----------- ----------
$ (5,402) $ 6,301 $ (1,263) $ 11,966 $ (3,085)
======== ======== ========= =========== =========
</TABLE>
14. THE 1993 NOTES GUARANTOR SUBSIDIARIES
Six of the Company's subsidiaries, Diamond Spirit Inc., Sebarok Spirit
Inc., VSSI Bulkers Inc., VSSI Deepsea Inc., VSSI Star Inc., and VSSI Ulsan Inc.
(the "1993 Notes Guarantor Subsidiaries") have guaranteed the 9 5/8% First
Preferred Ship Mortgage Notes due July 2003 issued by Teekay Shipping
Corporation to a maximum of 95% of the fair value of their net assets. As of
September 30, 1995 the fair value of the net assets of the 1993 Notes Guarantor
Subsidiaries approximated $201 million.
F-20
<PAGE> 125
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
Condensed financial information regarding the Company, the 1993 Notes
Guarantor Subsidiaries and non-1993 Notes guarantor subsidiaries of the Company
is set out on Schedule A of these financial statements.
15. COMPARATIVE FIGURES
Certain of the comparative figures have been reclassified to conform with
the presentation adopted in the current period.
16. SUBSEQUENT EVENTS
Subsequent to September 30, 1995, the Company sold a vessel for $6.0
million resulting in a net gain of approximately $5.4 million.
Subsequent to September 30, 1995, the Company entered into an additional
$250 million in interest rate swap agreements with three commercial banks. These
swap agreements have an average life of 3 years, expiring between October 1998
and December 1998, and effectively change the Company's interest rate exposure
on $250 million of debt from a floating LIBOR rate to an average fixed rate of
5.85%.
Subsequent to September 30, 1995, the Company acquired a 1987-built Aframax
tanker, whereby the Company will time-charter the vessel for a period of one
year and then purchase the vessel for $26.5 million.
In December 1995, the Company commenced a preliminary offering of $225
million First Preferred Ship Mortgage Notes due 2008.
F-21
<PAGE> 126
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES SCHEDULE A
(FORMERLY VIKING STAR SHIPPING INC.)
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 1995
---------------------------------------------------------------------------
TEEKAY 1993 NOTES NON- TEEKAY
SHIPPING GUARANTOR GUARANTOR SHIPPING CORP.
CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
--------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net voyage revenues............................ $ $ 14,592 $ 223,457 $ (120,557) $ 117,492
Operating expenses............................. 697 10,435 193,773 (121,641) 83,264
--------- ------------ ------------ ------------ --------------
Income (loss) from vessel operations.......... (697) 4,157 29,684 1,084 34,228
Net interest income (expense).................. (7,314) (60) (20,674) (28,048)
Equity in net loss (gain) income of
subsidiaries.................................. 16,879 (16,175) 704
Other income................................... 1,163 147 2,350 3,660
--------- ------------ ------------ ------------ --------------
Income (loss) before foreign currency exchange
loss (gain)................................... 10,031 4,244 11,360 (15,091) 10,544
Foreign currency exchange loss (gain).......... 513 513
--------- ------------ ------------ ------------ --------------
Net income (loss).............................. 10,031 4,244 10,847 (15,091) 10,031
Retained earnings, beginning of the period..... 406,547 22,309 84,274 (106,583) 406,547
--------- ------------ ------------ ------------ --------------
Exchange of redeemable preferred stock......... (60,000) (60,000)
Dividends paid................................. (7,200) (35,200) 42,400
--------- ------------ ------------ ------------ --------------
Retained earnings, end of the period........... $ 356,578 $ 19,353 $ 59,921 $ (79,274) $ 356,578
========== =========== ============ ============ ==============
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 1994
---------------------------------------------------------------------------
TEEKAY 1993 NOTES NON- TEEKAY
SHIPPING GUARANTOR GUARANTOR SHIPPING CORP.
CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
--------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net voyage revenues............................ $ $ 16,223 $ 225,819 $ (121,786) $ 120,256
Operating expenses............................. 801 12,442 203,494 (121,907) 94,830
--------- ------------ ------------ ------------ --------------
Income (loss) from vessel operations.......... (801) 3,781 22,325 121 25,426
Net interest income (expense).................. (8,659) 285 (20,087) (28,461)
Equity in net loss (gain) income of
subsidiaries.................................. 7,443 (7,443)
Other income................................... 979 979
--------- ------------ ------------ ------------ --------------
Income (loss) before foreign currency exchange
loss (gain)................................... (2,017) 4,066 3,217 (7,322) (2,056)
Foreign currency exchange loss (gain).......... (39) (39)
--------- ------------ ------------ ------------ --------------
Net income (loss).............................. (2,017) 4,066 3,256 (7,322) (2,017)
Retained earnings, beginning of the period..... 400,179 46,735 80,946 (127,681) 400,179
--------- ------------ ------------ ------------ --------------
Exchange of redeemable preferred stock.........
Dividends paid.................................
--------- ------------ ------------ ------------ --------------
Retained earnings, end of the period........... $ 398,162 $ 50,801 $ 84,202 $ (135,003) $ 398,162
========== ============== ============== ============== ================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1995
---------------------------------------------------------------------------
TEEKAY 1993 NOTES NON- TEEKAY
SHIPPING GUARANTOR GUARANTOR SHIPPING CORP.
CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
--------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net voyage revenues.............................. $ $ 32,687 $ 448,437 $ (246,115) $ 235,009
Operating expenses............................... 1,999 24,410 403,975 (246,208) 184,176
--------- ------------ ------------ ------------ --------------
Income (loss) from vessel operations............ (1,999) 8,277 44,462 93 50,833
Net interest income (expense).................... (16,963) 491 (41,945) (58,417)
Equity in net income (loss) of subsidiaries...... 24,161 (26,250) (2,089)
Other income..................................... 56 1 13,880 13,937
--------- ------------ ------------ ------------ --------------
Income before foreign currency exchange gain..... 5,255 8,769 16,397 (26,157) 4,264
Foreign currency exchange gain................... (991) (991)
--------- ------------ ------------ ------------ --------------
Net income from continuing operations............ 5,255 8,769 17,388 (26,157) 5,255
Cumulative effect of change in accounting for
marketable securities........................... 1,113 1,113
--------- ------------ ------------ ------------ --------------
Net income....................................... 6,368 8,769 17,388 (26,157) 6,368
Retained earnings, beginning of the period....... 400,179 46,735 80,946 (127,681) 400,179
--------- ------------ ------------ ------------ --------------
Dividends paid................................... (25,266) (21,989) 47,255 0
--------- ------------ ------------ ------------ --------------
Retained earnings, end of the period............. $ 406,547 $ 30,238 $ 76,345 $ (106,583) $ 406,547
========== ============== ============== ============== ================
</TABLE>
- ------------
NOTE: THE 1993 NOTES GUARANTOR SUBSIDIARIES HAVE GUARANTEED THE 9 5/8% FIRST
PREFERRED SHIP MORTGAGE NOTES DUE JULY 2003.
(SEE NOTE 14)
F-22
<PAGE> 127
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES SCHEDULE A
(FORMERLY VIKING STAR SHIPPING INC.)
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
ELEVEN MONTHS ENDED MARCH 31, 1994
---------------------------------------------------------------------------
TEEKAY 1993 NOTES NON- TEEKAY
SHIPPING GUARANTOR GUARANTOR SHIPPING CORP.
CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
--------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Net voyage revenues............................ $ $ 30,932 $ 447,155 $ (241,397) $ 236,690
Operating expenses............................. 921 22,666 395,484 (241,509) 177,562
--------- ------------ ------------ ------------ --------------
Income (loss) from vessel operations.......... (921) 8,266 51,671 112 59,128
Net interest income (expense).................. (11,794) (545) (32,821) (45,160)
Equity in net income (loss) of subsidiaries.... 42,873 (41,890) 983
Other income................................... 10,794 10,794
--------- ------------ ------------ ------------ --------------
Income (loss) before foreign currency exchange
loss.......................................... 30,158 7,721 29,644 (41,778) 25,745
Foreign currency exchange loss................. 1,532 1,532
--------- ------------ ------------ ------------ --------------
Net income (loss) from continuing operations... 30,158 7,721 28,112 (41,778) 24,213
Net income from discontinued operations........ 5,945 5,945
--------- ------------ ------------ ------------ --------------
Net income (loss).............................. 30,158 7,721 34,057 (41,778) 30,158
Retained earnings, beginning of the period..... 370,021 39,014 70,673 (109,687) 370,021
--------- ------------ ------------ ------------ --------------
400,179 46,735 104,730 (151,465) 400,179
Dividends paid................................. (23,784) 23,784
Contribution arising on continuity of interest
combination...................................
Net capital contribution (distribution)........
--------- ------------ ------------ ------------ --------------
Retained earnings, end of the period........... $ 400,179 $ 46,735 $ 80,946 $ (127,681) $ 400,179
========== ============== ============== ============== ================
<CAPTION>
YEAR ENDED APRIL 30, 1993
---------------------------------------------------------------------------
TEEKAY 1993 NOTES NON- TEEKAY
SHIPPING GUARANTOR GUARANTOR SHIPPING CORP.
CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
--------- ------------ ------------ ------------ --------------
<S> <C<C> <C> <C> <C> <C>
Net voyage revenues............................ $ $ 33,956 $ 474,253 $ (280,020) $ 228,189
Operating expenses............................. 111 18,806 453,154 (280,797) 191,274
--------- ------------ ------------ ------------ --------------
Income (loss) from vessel operations.......... (111) 15,150 21,099 777 36,915
Net interest income (expense).................. 1,225 (4,678) (42,765) (46,218)
Equity in net income (loss) of subsidiaries.... (48,582) 49,023 441
Other income................................... 37,214 207 37,421
--------- ------------ ------------ ------------ --------------
Income (loss) before foreign currency exchange
loss.......................................... (47,468) 10,472 15,548 50,007 28,559
Foreign currency exchange loss................. 77,917 77,917
--------- ------------ ------------ ------------ --------------
Net income (loss) from continuing operations... (47,468) 10,472 (62,369) 50,007 (49,358)
Net income from discontinued operations........ 1,890 1,890
--------- ------------ ------------ ------------ --------------
Net income (loss).............................. (47,468) 10,472 (60,479) 50,007 (47,468)
Retained earnings, beginning of the period..... 409,989 28,542 126,452 (154,994) 409,989
--------- ------------ ------------ ------------ --------------
362,521 39,014 65,973 (104,987) 362,521
Dividends paid................................. (2,800) 2,800
Contribution arising on continuity of interest
combination................................... 7,500 7,500
Net capital contribution (distribution)........ 7,500 (7,500)
--------- ------------ ------------ ------------ --------------
Retained earnings, end of the period........... $ 370,021 $ 39,014 $ 70,673 $ (109,687) $ 370,021
========== ============== ============== ============== ================
</TABLE>
- ------------
NOTE: THE 1993 NOTES GUARANTOR SUBSIDIARIES HAVE GUARANTEED THE 9 5/8% FIRST
PREFERRED SHIP MORTGAGE NOTES DUE JULY 2003.
(SEE NOTE 14)
F-23
<PAGE> 128
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES SCHEDULE A
(FORMERLY VIKING STAR SHIPPING INC.)
CONDENSED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1995
-----------------------------------------------------------------------
TEEKAY
TEEKAY 1993 NOTES SHIPPING
SHIPPING GUARANTOR NON-GUARANTOR CORP. &
CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash.......................... $ 131 $ 6,607 $ 53,727 $ 60,465
Restricted cash............... 3,623 3,623
Other current assets.......... 82 1,165 84,979 (90) 86,136
----------- ----------- ----------- ----------- -----------
Total current assets......... 213 7,772 142,329 (90) 150,224
Vessels and equipment (net)... 144,439 1,057,545 1,201,984
Advances due from
subsidiaries................. 509,850 (509,850)
Other assets (principally
investments in
subsidiaries)................ 231,281 4,665 (222,238) 13,708
----------- ----------- ----------- ----------- -----------
741,344 152,211 1,204,539 (732,178) 1,365,916
=========== =========== =========== ============ ============
LIABILITIES & STOCKHOLDERS'
EQUITY
Current liabilities........... 3,096 1,099 80,597 (93) 84,699
Long-term debt................ 151,200 501,769 652,969
Capital lease obligation...... 41,200 41,200
Due to parent................. 515,335 (515,335)
----------- ----------- ----------- ----------- -----------
Total liabilities............ 154,296 1,099 1,138,901 (515,428) 778,868
----------- ----------- ----------- ----------- -----------
Stockholders' Equity
Capital stock................. 230,613 6 5,723 (5,729) 230,613
Contributed capital........... 131,753 (131,753)
Retained earnings............. 356,578 19,353 59,921 (79,274) 356,578
Less net unrealized loss on
marketable securities........ 143 143
----------- ----------- ----------- ----------- -----------
Total stockholders' equity... 587,048 151,112 65,644 (216,756) 587,048
----------- ----------- ----------- ----------- -----------
$ 741,344 $ 152,211 $1,204,545 $ (732,184) $1,365,916
=========== =========== =========== ============ ============
<CAPTION>
AT SEPTEMBER 30, 1994
-----------------------------------------------------------------------
TEEKAY
TEEKAY 1993 NOTES SHIPPING
SHIPPING GUARANTOR NON-GUARANTOR CORP. &
CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash.......................... $ 22,421 $ 6,459 $ (787) $ 28,093
Restricted cash............... 6,828 6,828
Other current assets.......... 110 1,471 103,651 105,232
----------- ----------- ----------- ----------- -----------
Total current assets......... 110 23,892 116,938 (787) 140,153
Vessels and equipment (net)... 166,781 1,029,280 1,196,061
Advances due from
subsidiaries................. 313,934 (313,934)
Other assets (principally
investments in
subsidiaries)................ 297,009 4,215 (281,384) 19,840
----------- ----------- ----------- ----------- -----------
611,053 190,673 1,150,433 (596,105) 1,356,054
=========== =========== =========== ============ ============
LIABILITIES & STOCKHOLDERS'
EQUITY
Current liabilities...........
Long-term debt................ 4,890 1,326 111,139 (787) 116,568
Capital lease obligation...... 175,000 633,323 808,323
Due to parent................. 315,847 (315,847)
----------- ----------- ----------- ----------- -----------
Total liabilities............ 179,890 1,326 1,060,309 (316,634) 924,891
----------- ----------- ----------- ----------- -----------
Stockholders' Equity
Capital stock................. 33,001 11 5,922 (5,933) 33,001
Contributed capital........... 138,535 (138,535)
Retained earnings............. 398,162 50,801 84,202 (135,003) 398,162
Less net unrealized loss on
marketable securities........
----------- ----------- ----------- ----------- -----------
Total stockholders' equity... 431,163 189,347 90,124 (279,471) 431,163
----------- ----------- ----------- ----------- -----------
$ 611,053 $ 190,673 $1,150,433 $ (596,105) $1,356,054
=========== =========== =========== ============ ============
</TABLE>
<TABLE>
<CAPTION>
AT MARCH 31, 1995
-----------------------------------------------------------------------
TEEKAY
TEEKAY 1993 NOTES SHIPPING
SHIPPING GUARANTOR NON-GUARANTOR CORP. &
CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash.......................... $ 97 $ 6,856 $ 9,547 $ $ 16,500
Restricted cash............... 7,634 7,634
Other current assets.......... 180 1,287 118,685 (211) 119,941
----------- ----------- ----------- ----------- -----------
Total current assets......... 277 8,143 135,866 (211) 144,075
Vessels and equipment (net)... 162,812 985,226 1,148,038
Advances due from
subsidiaries................. 354,330 (354,330) 0
Other assets (principally
investments in
subsidiaries)................ 264,302 4,935 (254,876) 14,361
----------- ----------- ----------- ----------- -----------
$ 618,909 $ 170,955 $1,126,027 $ (609,417) $1,306,474
=========== =========== =========== ============ ============
LIABILITIES & STOCKHOLDERS'
EQUITY
Current liabilities........... $ 4,843 $ 2,214 $ 92,142 $ (186) $ 99,013
Long-term debt................ 175,000 593,395 768,395
Due to parent................. 358,223 (358,223)
----------- ----------- ----------- ----------- -----------
Total liabilities............ 179,843 2,214 1,043,760 (358,409) 867,408
----------- ----------- ----------- ----------- -----------
Stockholders' Equity
Capital stock................. 33,001 11 5,922 (5,933) 33,001
Contributed capital........... 138,492 (138,492) 0
Retained earnings............. 406,547 30,238 76,345 (106,583) 406,547
Less net unrealized loss on
marketable securities........ 482 482
----------- ----------- ----------- ----------- -----------
Total stockholders' equity... 439,066 168,741 82,267 (251,008) 439,066
----------- ----------- ----------- ----------- -----------
$ 618,909 $ 170,955 $1,126,027 $ (609,417) $1,306,474
=========== =========== =========== ============ ============
<CAPTION>
AT MARCH 31, 1994
-----------------------------------------------------------------------
TEEKAY
TEEKAY 1993 NOTES SHIPPING
SHIPPING GUARANTOR NON-GUARANTOR CORP. &
CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash..........................$ $ 13,736 $ 25,120 $ (242) $ 38,614
Restricted cash............... 6,338 6,338
Other current assets.......... 67 813 107,502 (143) 108,239
----------- ----------- ----------- ----------- -----------
Total current assets......... 67 14,549 138,960 (385) 153,191
Vessels and equipment (net)... 171,756 1,060,998 1,232,754
Advances due from
subsidiaries................. 323,362 (323,362)
Other assets (principally
investments in
subsidiaries)................ 288,914 4,243 (273,955) 19,202
----------- ----------- ----------- ----------- -----------
$ 612,343 $ 186,305 $1,204,201 $ (597,702) $1,405,147
=========== =========== =========== ============ ============
LIABILITIES & STOCKHOLDERS'
EQUITY
Current liabilities...........$ 4,163 $ 1,086 $ 110,837 $ (248) $ 115,838
Long-term debt................ 175,000 681,129 856,129
Due to parent................. 325,367 (325,367)
----------- ----------- ----------- ----------- -----------
Total liabilities............ 179,163 1,086 1,117,333 (325,615) 971,967
----------- ----------- ----------- ----------- -----------
Stockholders' Equity
Capital stock................. 33,001 11 5,922 (5,933) 33,001
Contributed capital........... 138,473 (138,473)
Retained earnings............. 400,179 46,735 80,946 (127,681) 400,179
Less net unrealized loss on
marketable securities........
----------- ----------- ----------- ----------- -----------
Total stockholders' equity... 433,180 185,219 86,868 (272,087) 433,180
----------- ----------- ----------- ----------- -----------
$ 612,343 $ 186,305 $1,204,201 $ (597,702) $1,405,147
=========== =========== =========== ============ ============
</TABLE>
- ------------
NOTE: THE 1993 NOTES GUARANTOR SUBSIDIARIES HAVE GUARANTEED THE 9 5/8% FIRST
PREFERRED SHIP MORTGAGE NOTES DUE JULY 2003.
(SEE NOTE 14)
F-24
<PAGE> 129
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES SCHEDULE A
(FORMERLY VIKING STAR SHIPPING INC.)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 1995
----------------------------------------------------------------------------
TEEKAY 1993 NOTES NON- TEEKAY
SHIPPING GUARANTOR GUARANTOR SHIPPING CORP.
CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
---------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Cash provided by (used for)
OPERATING ACTIVITIES
---------- ------------ ------------ ------------ --------------
Net cash flow from operating activities...... $ (8,625) $ 7,658 $ 42,855 $ $ 41,888
---------- ------------ ------------ ------------ --------------
FINANCING ACTIVITIES
Proceeds from long-term debt.................. 223,000 223,000
Repayments of long-term debt.................. (22,580) (330,201) (352,781)
Repayments of capital lease obligations....... (640) (640)
Net proceeds from stock issuance.............. 137,613 137,613
Other......................................... (155,520) (7,200) 165,865 3,145
Financing activities of discontinued
operations...................................
---------- ------------ ------------ ------------ --------------
Net cash flow from financing activities...... (40,487) (7,200) 58,024 10,337
---------- ------------ ------------ ------------ --------------
INVESTING ACTIVITIES
Expenditures for vessels and equipment........ (168) (51,552) (51,720)
Proceeds from disposition of assets........... 22,794 22,794
Other......................................... 49,146 431 (28,911) 20,666
Investing activities of discontinued
operations...................................
---------- ------------ ------------ ------------ --------------
Net cash flow from financing activities...... 49,146 263 (57,669) (8,260)
---------- ------------ ------------ ------------ --------------
Increase (decrease) in cash................... 34 721 43,210 43,965
Cash (deficiency), beginning of the period.... 97 5,886 16,500 16,500
---------- ------------ ------------ ------------ --------------
Cash (deficiency), end of the period.......... $ 131 $ 6,607 $ 59,710 $ $ 60,465
=========== ============== ============== ============== ================
<CAPTION>
SIX MONTHS ENDED SEPTEMBER 30, 1994
---------------------------------------------------------------------------
TEEKAY 1993 NOTES NON- TEEKAY
SHIPPING GUARANTOR GUARANTOR SHIPPING CORP.
CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
--------- ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Cash provided by (used for)
OPERATING ACTIVITIES
--------- ------------ ------------ ------------ --------------
Net cash flow from operating activities...... $ (8,961) $ 9,095 $ 51,104 $ $ 51,238
--------- ------------ ------------ ------------ --------------
FINANCING ACTIVITIES
Proceeds from long-term debt..................
Repayments of long-term debt.................. (50,680) (50,680)
Repayments of capital lease obligations.......
Net proceeds from stock issuance..............
Other......................................... 8,878 (10,310) (1,432)
Financing activities of discontinued
operations...................................
--------- ------------ ------------ ------------ --------------
Net cash flow from financing activities...... 8,878 0 (60,990) (52,112)
--------- ------------ ------------ ------------ --------------
INVESTING ACTIVITIES
Expenditures for vessels and equipment........ (472) (10,922) (11,394)
Proceeds from disposition of assets........... 4,220 4,220
Other......................................... (462) 62 (2,073) (2,473)
Investing activities of discontinued
operations...................................
--------- ------------ ------------ ------------ --------------
Net cash flow from financing activities...... (462) (410) (8,775) (9,647)
--------- ------------ ------------ ------------ --------------
Increase (decrease) in cash................... (545) 8,685 (18,661) (10,521)
Cash (deficiency), beginning of the period.... (242) 13,736 25,120 38,614
--------- ------------ ------------ ------------ --------------
Cash (deficiency), end of the period.......... $ (787) $ 22,421 $ 6,459 $ $ 28,093
========== ============== ============== ============== ================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1995
--------------------------------------------------------------------------------
1993 NOTES TEEKAY
TEEKAY GUARANTOR NON-GUARANTOR SHIPPING CORP.
SHIPPING CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS & SUBSIDIARIES
-------------- ------------ ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Cash provided by (used for)
OPERATING ACTIVITIES
Net cash flows from continuing operations........ $ (40,919) $ 20,403 $ 108,021 $ $ 87,505
Net cash flows from discontinued operations......
------- ------------ ------------- ------------ -------
Net cash flows from operating activities........ (40,919) 20,403 108,021 87,505
------- ------------ ------------- ------------ -------
FINANCING ACTIVITIES
Proceeds from long-term debt.....................
Repayments of long-term debts.................... (102,603) (102,603)
Payments on capital lease obligations............
Other............................................ (31,518) (25,263) 53,920 (2,861)
Financing activities of discontinued operations..
------- ------------ ------------- ------------ -------
Net cash flow from financing activities......... (31,518) (25,263) (48,683) (105,464)
------- ------------ ------------- ------------ -------
INVESTING ACTIVITIES
Expenditures for vessels and equipment........... (2,039) (17,343) (19,382)
Proceeds from disposition of assets.............. 16,817 16,817
Other............................................ 72,776 19 (74,385) (1,590)
Investing activities of discontinued operations
------- ------------ ------------- ------------ -------
Net cash flow from investing activities......... 72,776 (2,020) (74,911) (4,155)
------- ------------ ------------- ------------ -------
Increase (decrease) in cash...................... 339 (6,880) (15,573) (22,114)
Cash (deficiency), beginning of the period....... (242) 13,736 25,120 38,614
------- ------------ ------------- ------------ -------
Cash, end of the period.......................... $ 97 $ 6,856 $ 9,547 $ $ 16,500
============== ============ ============== ============ ==============
</TABLE>
- ------------
NOTE: THE 1993 NOTES GUARANTOR SUBSIDIARIES HAVE GUARANTEED THE 9 5/8% FIRST
PREFERRED SHIP MORTGAGE NOTES DUE JULY 2003.
(SEE NOTE 14)
F-25
<PAGE> 130
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES SCHEDULE A
(FORMERLY VIKING STAR SHIPPING INC.)
CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
ELEVEN MONTHS ENDED MARCH 31, 1994
-----------------------------------------------------------------------
TEEKAY
TEEKAY 1993 NOTES SHIPPING
SHIPPING GUARANTOR NON-GUARANTOR CORP. &
CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash provided by (used for)
OPERATING ACTIVITIES
Net cash flows from continuing
operations............................. $ (8,310) $ 16,849 $ 108,848 $ $ 117,387
Net cash flows from discontinued
operations............................. 347 347
----------- ----------- ----------- ----------- -----------
Net cash flow from operating
activities........................... (8,310) 16,849 109,195 117,734
----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from long-term debt............ 175,000 45,000 220,000
Repayments of long-term debt............ (75,452) (94,031) (169,483)
Payments on capital lease obligations... (47,129) (82,182) (129,311)
Other................................... (51,652) (52,367) 102,207 (1,812)
Financing activities of discontinued
operations............................. (20,077) (20,077)
----------- ----------- ----------- ----------- -----------
Net cash flow from financing
activities........................... 123,348 (174,948) (49,083) (100,683)
----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Expenditures for vessels and
equipment.............................. (1,882) (77,147) (79,029)
Proceeds from disposition of assets..... 86,351 86,351
Other................................... (114,739) 138,473 (93,969) (70,235)
Investing activities of discontinued
operations............................. 35,706 35,706
----------- ----------- ----------- ----------- -----------
Net cash flow from investing
activities........................... (114,739) 136,591 (49,059) (27,207)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash............. 299 (21,508) 11,053 (10,156)
Cash (deficiency), beginning of the
period................................. (541) 35,244 14,067 48,770
----------- ----------- ----------- ----------- -----------
Cash (deficiency), end of the period.... $ (242) $ 13,736 $ 25,120 $ $ 38,614
=========== ============ =========== ============ ===========
<CAPTION>
YEAR ENDED APRIL 30, 1993
-----------------------------------------------------------------------
TEEKAY
TEEKAY 1993 NOTES SHIPPING
SHIPPING GUARANTOR NON-GUARANTOR CORP. &
CORP. SUBSIDIARIES SUBSIDIARIES ELIMINATIONS SUBSIDIARIES
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash provided by (used for)
OPERATING ACTIVITIES
Net cash flows from continuing
operations............................. $ 3,668 $ 19,149 $ 61,909 $ (692) $ 84,034
Net cash flows from discontinued
operations............................. 4,492 4,492
----------- ----------- ----------- ----------- -----------
Net cash flow from operating
activities........................... 3,668 19,149 66,401 (692) 88,526
----------- ----------- ----------- ----------- -----------
FINANCING ACTIVITIES
Proceeds from long-term debt............ 147,782 147,782
Repayments of long-term debt............ (7,477) (105,373) (112,850)
Payments on capital lease obligations... (52,966) (52,966)
Other................................... 546 11,424 (3,882) 8,088
Financing activities of discontinued
operations............................. (10,586) 692 (9,894)
----------- ----------- ----------- ----------- -----------
Net cash flow from financing
activities........................... 546 3,947 (25,025) 692 (19,840)
----------- ----------- ----------- ----------- -----------
INVESTING ACTIVITIES
Expenditures for vessels and
equipment.............................. (9,880) (196,597) (206,477)
Proceeds from disposition of assets..... 156,909 156,909
Other................................... (4,620) (9) 2,545 (2,084)
Investing activities of discontinued
operations............................. 5,497 5,497
----------- ----------- ----------- ----------- -----------
Net cash flow from investing
activities........................... (4,620) (9,889) (31,646) (46,155)
----------- ----------- ----------- ----------- -----------
Increase (decrease) in cash............. (406) 13,207 9,730 22,531
Cash (deficiency), beginning of the
period................................. (135) 22,037 4,337 26,239
----------- ----------- ----------- ----------- -----------
Cash (deficiency), end of the period.... $ (541) $ 35,244 $ 14,067 $ $ 48,770
=========== =========== =========== =========== ===========
</TABLE>
- ------------
NOTE: THE 1993 NOTES GUARANTOR SUBSIDIARIES HAVE GUARANTEED THE 9 5/8% FIRST
PREFERRED SHIP MORTGAGE NOTES DUE JULY 2003.
(SEE NOTE 14)
F-26
<PAGE> 131
AUDITORS' REPORT
To the Board of Directors
ANDROS SPIRIT INC., EXUMA SPIRIT INC.,
NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC.,
VSSI OCEANS INC. ("The Companies")
We have audited the accompanying balance sheets of the Companies as of
March 31, 1995 and 1994, and the related statements of income and retained
earnings and cash flows for the year ended March 31, 1995 and the eleven month
period ended March 31, 1994 and the year ended April 30, 1993. These financial
statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the 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 financial position of the Companies at March 31,
1995 and 1994, and the results of their operations and their cash flows for the
year ended March 31, 1995 and the eleven month period ended March 31, 1994 and
the year ended April 30, 1993, in conformity with accounting principles
generally accepted in the United States.
Nassau, Bahamas, ERNST & YOUNG
December 15, 1995 Chartered Accountants
F-27
<PAGE> 132
ANDROS SPIRIT INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX-MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED YEAR ENDED
---------------------- MARCH 31, MARCH 31, APRIL 30,
1995 1994 1995 1994 1993
-------- -------- ---------- ------------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Voyage revenues........................ 3,981 3,608 7,613 8,922 3,856
OPERATING EXPENSES
Vessel operating expenses.............. 811 769 1,499 1,419 533
Depreciation and amortization.......... 1,458 1,543 3,084 2,851 1,287
General and administrative
(note 3)............................. 109 95 205 193 86
-------- -------- ---------- ------------- ----------
2,378 2,407 4,788 4,463 1,906
-------- -------- ---------- ------------- ----------
Income from vessel operations.......... 1,603 1,201 2,825 4,459 1,950
-------- -------- ---------- ------------- ----------
Other items
Interest expense....................... (1,165) (995) (2,176) (2,050) (615)
Interest income........................ 3 10 32 12
-------- -------- ---------- ------------- ----------
(1,162) (985) (2,144) (2,038) (615)
-------- -------- ---------- ------------- ----------
Income before foreign exchange loss.... 441 216 681 2,421 1,335
Foreign exchange loss.................. (2) (3) (4,709)
-------- -------- ---------- ------------- ----------
Net Income (loss)...................... 441 214 678 2,421 (3,374)
Retained earnings (deficit), beginning
of the period........................ (275) (953) (953) (3,374)
-------- -------- ---------- ------------- ----------
Retained earnings (deficit),
end of the period.................... 166 (739) (275) (953) (3,374)
======= ======= ======== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-28
<PAGE> 133
ANDROS SPIRIT INC.
BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT MARCH 31,
---------------------- ----------------------
1995 1994 1995 1994
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT
Cash equivalents....................................... 131 537 845 629
Accounts receivable.................................... 12 28
Prepaid expenses....................................... 171 176 142 102
-------- -------- -------- --------
Total current assets............................. 302 725 1,015 731
-------- -------- -------- --------
Vessel and equipment (note 5)
At cost, less accumulated depreciation (September 30,
1995--$8,654, 1994--$5,654; March 31, 1995--$7,196,
1994--$4,112)........................................ 53,045 56,034 54,494 57,547
-------- -------- -------- --------
53,347 56,759 55,509 58,278
======= ======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT
Accounts payable....................................... 108 101 111 63
Accrued liabilities (note 4)........................... 53 29 69 48
Current portion of long-term debt (note 5)............. 3,509 3,510 3,509 3,509
-------- -------- -------- --------
Total current liabilities........................ 3,670 3,640 3,689 3,620
-------- -------- -------- --------
Long-term debt (note 5)................................ 25,034 31,876 30,122 33,631
Due to parent--without interest or stated terms of
repayment (note 10).................................. 21,977 21,968 21,975
-------- -------- -------- --------
Total liabilities................................ 28,704 57,493 55,779 59,226
-------- -------- -------- --------
STOCKHOLDER'S EQUITY
Capital stock (note 8)................................. 5 5 5 5
Contributed surplus (note 10).......................... 24,472
Retained earnings (deficit)............................ 166 (739) (275) (953)
-------- -------- -------- --------
Total stockholder's equity....................... 24,643 (734) (270) (948)
-------- -------- -------- --------
53,347 56,759 55,509 58,278
======= ======= ======= =======
</TABLE>
Contingencies (note 11)
The accompanying notes are an integral part of the financial statements.
F-29
<PAGE> 134
ANDROS SPIRIT INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX-MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED YEAR ENDED
---------------------- MARCH 31, MARCH 31, APRIL 30,
1995 1994 1995 1994 1993
--------- --------- ---------- ------------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash provided by (used for)
OPERATING ACTIVITIES
Net Income (loss)............................. 441 214 678 2,421 (3,374)
Add (deduct) charges to operations not
requiring a payment of cash:
Depreciation and amortization............... 1,458 1,543 3,084 2,851 1,287
Foreign currency exchange loss.............. 4,636
Change in non-cash working capital items (note
9).......................................... (20) (67) 1 (505) 514
--------- --------- ---------- ------------- ----------
Net cash flow from operating activities..... 1,879 1,690 3,763 4,767 3,063
--------- --------- ---------- ------------- ----------
FINANCING ACTIVITIES
Scheduled repayments of long-term debt........ (1,755) (1,754) (3,509)
Prepayment of long-term debt.................. (3,333)
Scheduled repayments of capital lease
obligation.................................. (3,175)
Prepayments of capital lease obligation....... (11,612) (1,227)
Increase (decrease) in amount due to parent... (21,968) 2 (7) 10,549 5,469
Capital contribution from parent (note 10).... 24,472 5
--------- --------- ---------- ------------- ----------
Net cash flow from financing activities..... (2,584) (1,752) (3,516) (4,238) 4,247
--------- --------- ---------- ------------- ----------
INVESTING ACTIVITIES
Expenditures for vessels and equipment (net of
capital lease financing of: April 30,
1993--$48,518).............................. (9) (30) (31) (7,186)
Increase (decrease) in other assets........... 1 (25)
--------- --------- ---------- ------------- ----------
Net cash flow from investing activities..... (9) (30) (31) 1 (7,211)
--------- --------- ---------- ------------- ----------
(Decrease) increase in cash equivalents....... (714) (92) 216 530 99
Cash equivalents, beginning of the period..... 845 629 629 99
--------- --------- ---------- ------------- ----------
Cash equivalents, end of the period........... 131 537 845 629 99
======== ======== ======== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-30
<PAGE> 135
EXUMA SPIRIT INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX-MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED YEAR ENDED
---------------------- MARCH 31, MARCH 31, APRIL 30,
1995 1994 1995 1994 1993
-------- -------- ---------- ------------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Voyage revenues..................... 4,010 3,642 7,676 8,933 6,094
OPERATING EXPENSES
Vessel operating expenses........... 819 769 1,563 1,433 844
Depreciation and amortization....... 1,455 1,541 3,082 2,850 2,055
General and administrative (note
3)................................ 110 114 223 200 132
-------- -------- ---------- ------------- ----------
2,384 2,424 4,868 4,483 3,031
-------- -------- ---------- ------------- ----------
Income from vessel operations....... 1,626 1,218 2,808 4,450 3,063
-------- -------- ---------- ------------- ----------
Other items
Interest expense.................... (1,158) (990) (2,165) (2,016) (1,269)
Interest income..................... 4 9 29 14 2
-------- -------- ---------- ------------- ----------
(1,154) (981) (2,136) (2,002) (1,267)
-------- -------- ---------- ------------- ----------
Income before foreign exchange
loss.............................. 472 237 672 2,448 1,796
Foreign exchange loss............... (2) (2) (1) (4,682)
-------- -------- ---------- ------------- ----------
Net Income (loss)................... 472 235 670 2,447 (2,886)
Retained earnings (deficit),
beginning of the period........... 231 (439) (439) (2,886)
-------- -------- ---------- ------------- ----------
Retained earnings (deficit), end of
the period........................ 703 (204) 231 (439) (2,886)
======= ======= ======== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-31
<PAGE> 136
EXUMA SPIRIT INC.
BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT MARCH 31,
------------------------ ------------------------
1995 1994 1995 1994
--------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT
Cash equivalents.................................. 153 532 755 596
Accounts receivable............................... 15
Prepaid expenses.................................. 183 182 176 111
--------- --------- --------- ---------
Total current assets........................ 336 714 946 707
--------- --------- --------- ---------
Vessel and equipment (note 5)
At cost, less accumulated depreciation (September
30, 1995--$9,415, 1994--$6,418; March 31,
1995--$7,960, 1994--$4,877)..................... 52,245 55,217 53,679 56,731
--------- --------- --------- ---------
52,581 55,931 54,625 57,438
======== ======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT
Accounts payable.................................. 67 110 147 50
Accrued liabilities (note 4)...................... 38 35 56 52
Current portion of long-term debt (note 5)........ 3,582 3,582 3,582 3,582
--------- --------- --------- ---------
Total current liabilities................... 3,687 3,727 3,785 3,684
--------- --------- --------- ---------
Long-term debt (note 5)........................... 24,729 31,644 29,853 33,436
Due to parent--without interest or stated terms of
repayment (note 10)............................. 20,759 20,751 20,752
--------- --------- --------- ---------
Total liabilities........................... 28,416 56,130 54,389 57,872
--------- --------- --------- ---------
STOCKHOLDER'S EQUITY
Capital stock (note 8)............................ 5 5 5 5
Contributed surplus (note 10)..................... 23,457
Retained earnings (deficit)....................... 703 (204) 231 (439)
--------- --------- --------- ---------
Total stockholder's equity.................. 24,165 (199) 236 (434)
--------- --------- --------- ---------
52,581 55,931 54,625 57,438
======== ======== ======== ========
</TABLE>
Contingencies (note 11)
The accompanying notes are an integral part of the financial statements.
F-32
<PAGE> 137
EXUMA SPIRIT INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX-MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED YEAR ENDED
---------------------- MARCH 31, MARCH 31, APRIL 30,
1995 1994 1995 1994 1993
--------- --------- ---------- ------------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash provided by (used for)
OPERATING ACTIVITIES
Net Income (loss)............................. 472 235 670 2,447 (2,886)
Add (deduct) charges to operations not
requiring a payment of cash:
Depreciation and amortization............... 1,455 1,541 3,082 2,850 2,055
Foreign currency exchange loss.............. 4,583
Change in non-cash working capital items (note
9).......................................... (90) (28) 21 (591) 581
--------- --------- ---------- ------------- ----------
Net cash flow from operating activities..... 1,837 1,748 3,773 4,706 4,333
--------- --------- ---------- ------------- ----------
FINANCING ACTIVITIES
Scheduled repayments of long-term debt........ (1,791) (1,791) (3,583)
Prepayments of long-term debt................. (3,333)
Scheduled repayments of capital lease
obligation.................................. (3,187) (674)
Prepayments of capital lease obligation....... (10,859) (1,339)
Increase (decrease) in amount due to parent... (20,751) 7 (1) 9,926 (1,270)
Capital contribution from parent (note 10).... 23,457
--------- --------- ---------- ------------- ----------
Net cash flow from financing activities..... (2,418) (1,784) (3,584) (4,120) (3,283)
--------- --------- ---------- ------------- ----------
INVESTING ACTIVITIES
Expenditures for vessels and equipment (net of
capital lease financing of: April 30,
1993--$48,493).............................. (21) (28) (30) (1,013)
Increase in other assets...................... (27)
--------- --------- ---------- ------------- ----------
Net cash flow from investing activities..... (21) (28) (30) (1,040)
--------- --------- ---------- ------------- ----------
(Decrease) increase in cash equivalents....... (602) (64) 159 586 10
Cash equivalents, beginning of the period..... 755 596 596 10
--------- --------- ---------- ------------- ----------
Cash equivalents, end of the period........... 153 532 755 596 10
======== ======== ======== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-33
<PAGE> 138
NASSAU SPIRIT INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX-MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED YEAR ENDED
---------------------- MARCH 31, MARCH 31, APRIL 30,
1995 1994 1995 1994 1993
-------- -------- ---------- ------------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Voyage revenues..................... 4,054 3,790 7,827 8,259 8,265
OPERATING EXPENSES
Vessel operating expenses........... 889 763 1,522 1,472 1,171
Depreciation and amortization....... 1,418 1,505 3,011 2,786 2,760
General and administrative (note
3)................................ 111 111 220 200 178
-------- -------- ---------- ------------- ----------
2,418 2,379 4,753 4,458 4,109
-------- -------- ---------- ------------- ----------
Income from vessel operations....... 1,636 1,411 3,074 3,801 4,156
-------- -------- ---------- ------------- ----------
Other items
Interest expense.................... (1,144) (989) (2,161) (1,963) (2,038)
Interest income..................... 2 6 13 14 10
-------- -------- ---------- ------------- ----------
(1,142) (983) (2,148) (1,949) (2,028)
-------- -------- ---------- ------------- ----------
Income before foreign exchange
loss.............................. 494 428 926 1,852 2,128
Foreign exchange loss............... (2) (3) (3) (5,400)
-------- -------- ---------- ------------- ----------
Net income (loss)................... 492 425 923 1,852 (3,272)
Retained earnings (deficit),
beginning of the period........... (497) (1,420) (1,420) (3,272)
-------- -------- ---------- ------------- ----------
Retained earnings (deficit), end of
the period........................ (5) (995) (497) (1,420) (3,272)
======= ======= ======== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-34
<PAGE> 139
NASSAU SPIRIT INC.
BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT MARCH 31,
---------------------- ----------------------
1995 1994 1995 1994
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT
Cash equivalents....................................... 80 102 252 71
Accounts receivable.................................... 1
Prepaid expenses....................................... 194 187 186 105
-------- -------- -------- --------
Total current assets............................. 274 289 438 177
-------- -------- -------- --------
Vessel and equipment (note 5)
At cost, less accumulated depreciation (September 30,
1995--$9,949, 1994--$7,025; March 31, 1995--$8,531,
1994--$5,520)........................................ 50,281 53,186 51,684 54,691
-------- -------- -------- --------
50,555 53,475 52,122 54,868
======= ======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT
Accounts payable....................................... 56 89 51 99
Accrued liabilities (note 4)........................... 47 28 56 10
Current portion of long-term debt (note 5)............. 3,355 3,355 3,355 3,355
-------- -------- -------- --------
Total current liabilities........................ 3,458 3,472 3,462 3,464
-------- -------- -------- --------
Long-term debt (note 5)................................ 24,731 31,725 29,895 33,556
Due to parent--without interest or stated terms of
repayment (note 10).................................. 19,268 19,257 19,263
-------- -------- -------- --------
Total liabilities................................ 28,189 54,465 52,614 56,283
-------- -------- -------- --------
STOCKHOLDER'S EQUITY
Capital stock (note 8)................................. 5 5 5 5
Contributed surplus (note 10).......................... 22,366
Retained earnings (deficit)............................ (5) (995) (497) (1,420)
-------- -------- -------- --------
Total stockholder's equity....................... 22,366 (990) (492) (1,415)
-------- -------- -------- --------
50,555 53,475 52,122 54,868
======= ======= ======= =======
</TABLE>
Contingencies (note 11)
The accompanying notes are an integral part of the financial statements.
F-35
<PAGE> 140
NASSAU SPIRIT INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX-MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED YEAR ENDED
---------------------- MARCH 31, MARCH, 31 APRIL 30,
1995 1994 1995 1994 1993
--------- --------- ---------- ------------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash provided by (used for)
OPERATING ACTIVITIES
Net Income (loss)............................. 492 425 923 1,852 (3,272)
Add (deduct) charges to operations not
requiring a payment of cash:
Depreciation and amortization............... 1,418 1,505 3,011 2,786 2,760
Foreign currency exchange loss.............. 5,322
Change in non-cash working capital items (note
9).......................................... (12) (73) (82) 136 (176)
--------- --------- ---------- ------------- ----------
Net cash flow from operating activities..... 1,898 1,857 3,852 4,774 4,634
--------- --------- ---------- ------------- ----------
FINANCING ACTIVITIES
Scheduled repayments of long-term debt........ (1,831) (1,831) (3,661)
Prepayments of long-term debt................. (3,333)
Scheduled repayments of capital lease
obligation.................................. (3,201) (1,325)
Prepayments of capital lease obligation....... (10,230) (1,339)
Increase (decrease) in amount due to parent... (19,257) 5 (6) 8,698 (6,115)
Capital contribution from parent (note 10).... 22,366 5
--------- --------- ---------- ------------- ----------
Net cash flow from financing activities..... (2,055) (1,826) (3,667) (4,733) (8,774)
--------- --------- ---------- ------------- ----------
INVESTING ACTIVITIES
Expenditures for vessels and equipment
(net of capital lease financing of:
April 30, 1993--$47,684).................... (15) (4) 4,196
Increase in other assets...................... (26)
--------- --------- ---------- ------------- ----------
Net cash flow from investing activities..... (15) (4) 4,170
--------- --------- ---------- ------------- ----------
(Decrease) increase in cash equivalents....... (172) 31 181 41 30
Cash equivalents, beginning of the period..... 252 71 71 30
--------- --------- ---------- ------------- ----------
Cash equivalents, end of the period........... 80 102 252 71 30
======== ======== ======== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-36
<PAGE> 141
SENANG SPIRIT INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX-MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED
---------------------- MARCH 31, MARCH, 31
1995 1994 1995 1994
-------- -------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Voyage revenues.................................. 4,178 3,678 7,678 2,166
OPERATING EXPENSES
Vessel operating expenses........................ 793 693 1,484 344
Depreciation and amortization.................... 1,635 1,714 3,429 865
General and administrative (note 3).............. 112 118 233 56
-------- -------- ---------- -------------
2,540 2,525 5,146 1,265
-------- -------- ---------- -------------
Income from vessel operations.................... 1,638 1,153 2,532 901
-------- -------- ---------- -------------
Other items
Interest expense................................. (1,365) (1,093) (2,393) (499)
Interest income.................................. 11 1 6
-------- -------- ---------- -------------
(1,354) (1,092) (2,387) (499)
-------- -------- ---------- -------------
Income before foreign exchange loss.............. 284 61 145 402
Foreign exchange loss............................ (3) (2)
-------- -------- ---------- -------------
Net Income....................................... 284 58 143 402
Retained earnings, beginning of the period....... 545 402 402
-------- -------- ---------- -------------
Retained earnings, end of the period............. 829 460 545 402
======= ======= ======== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-37
<PAGE> 142
SENANG SPIRIT INC.
BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT MARCH 31,
---------------------- ----------------------
1995 1994 1995 1994
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT
Cash equivalents....................................... 479 9 217 44
Accounts receivable.................................... 2
Prepaid expenses....................................... 191 216 175 135
-------- -------- -------- --------
Total current assets............................. 670 225 394 179
-------- -------- -------- --------
Vessel and equipment (note 5)
At cost, less accumulated depreciation (September 30,
1995--$5,920, 1994--$2,570; March 31, 1995--$4,286,
1994--$856).......................................... 62,661 66,004 64,291 67,603
-------- -------- -------- --------
63,331 66,229 64,685 67,782
======= ======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT
Accounts payable....................................... 137 72 82 28
Accrued liabilities (note 4)........................... 61 58 91 128
Current portion of long-term debt (note 5)............. 3,333 3,333 3,333 3,333
-------- -------- -------- --------
Total current liabilities........................ 3,531 3,463 3,506 3,489
-------- -------- -------- --------
Long-term debt (note 5)................................ 30,833 34,166 32,499 35,833
Due to parent--without interest or stated terms of
repayment (note 10).................................. 28,135 28,130 28,053
-------- -------- -------- --------
Total liabilities................................ 34,364 65,764 64,135 67,375
-------- -------- -------- --------
STOCKHOLDER'S EQUITY
Capital stock (note 8)................................. 5 5 5 5
Contributed surplus (note 10).......................... 28,133
Retained earnings...................................... 829 460 545 402
-------- -------- -------- --------
Total stockholder's equity....................... 28,967 465 550 407
-------- -------- -------- --------
63,331 66,229 64,685 67,782
======= ======= ======= =======
</TABLE>
Contingencies (note 11)
The accompanying notes are an integral part of the financial statements.
F-38
<PAGE> 143
SENANG SPIRIT INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX-MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED
------------------------ MARCH 31, MARCH 31,
1995 1994 1995 1994
--------- --------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash provided by (used for)
OPERATING ACTIVITIES
Net Income..................................... 284 58 143 402
Add (deduct) charges to operations not
requiring a payment of cash:
Depreciation and amortization................ 1,635 1,714 3,429 865
Change in non-cash working capital items (note
9)........................................... 11 (107) (25) 21
--------- --------- ---------- -------------
Net cash flow from operating activities...... 1,930 1,665 3,547 1,288
--------- --------- ---------- -------------
FINANCING ACTIVITIES
Scheduled repayments of long-term debt......... (1,666) (1,667) (3,334)
Scheduled repayments of capital lease
obligation................................... (981)
Prepayments of capital lease obligation........ (10,500)
Increase (decrease) in amount due to parent.... (28,130) 82 77 16,013
Capital contribution from parent (note 10)..... 28,133
--------- --------- ---------- -------------
Net cash flow from financing activities...... (1,663) (1,585) (3,257) 4,532
--------- --------- ---------- -------------
INVESTING ACTIVITIES
Expenditures for vessels and equipment
(net of capital lease financing of:
March 31, 1994--$50,647)..................... (5) (115) (117) (5,776)
--------- --------- ---------- -------------
Net cash flow from investing activities...... (5) (115) (117) (5,776)
--------- --------- ---------- -------------
(Decrease) increase in cash equivalents........ 262 (35) 173 44
Cash equivalents, beginning of the period...... 217 44 44
--------- --------- ---------- -------------
Cash equivalents, end of the period............ 479 9 217 44
======== ======== ======== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-39
<PAGE> 144
VSSI APPIAN INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX-MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED YEAR ENDED
---------------------- MARCH 31, MARCH 31, APRIL 30,
1995 1994 1995 1994 1993
-------- -------- ---------- ------------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES
Voyage revenues..................... 4,677 4,346 8,967 8,704 9,057
OPERATING EXPENSES
Vessel operating expenses........... 827 880 1,633 1,410 1,414
Depreciation and amortization....... 1,322 1,408 2,819 2,619 2,802
General and administrative (note
3)................................ 115 121 234 200 207
-------- -------- ---------- ------------- ----------
2,264 2,409 4,686 4,229 4,423
-------- -------- ---------- ------------- ----------
Income from vessel operations....... 2,413 1,937 4,281 4,475 4,634
-------- -------- ---------- ------------- ----------
Other items
Interest expense.................... (1,398) (1,206) (2,595) (2,071) (2,665)
Interest income..................... 20 7 21 11
-------- -------- ---------- ------------- ----------
(1,378) (1,199) (2,574) (2,060) (2,665)
-------- -------- ---------- ------------- ----------
Income before foreign exchange
loss.............................. 1,035 738 1,707 2,415 1,969
Foreign exchange loss............... (3) (3) (1,715) (7,634)
-------- -------- ---------- ------------- ----------
Net Income (loss)................... 1,035 735 1,704 700 (5,665)
Retained earnings (deficit),
beginning of the period........... (971) (2,675) (2,675) (3,375) 2,290
-------- -------- ---------- ------------- ----------
Retained earnings (deficit), end of
the period........................ 64 (1,940) (971) (2,675) (3,375)
======= ======= ======== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-40
<PAGE> 145
VSSI APPIAN INC.
BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT MARCH 31,
---------------------- ----------------------
1995 1994 1995 1994
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT
Cash equivalents....................................... 811 372 571 303
Accounts receivable.................................... 12 12 156
Prepaid expenses....................................... 150 216 218 132
-------- -------- -------- --------
Total current assets............................. 961 600 801 591
-------- -------- -------- --------
Vessel and equipment (note 5)
At cost, less accumulated depreciation (September 30,
1995--$9,910, 1994--$7,204; March 31, 1995--$8,601,
1994--$5,741)........................................ 45,927 48,594 47,234 49,961
-------- -------- -------- --------
Other assets........................................... 173 200 186 213
-------- -------- -------- --------
47,061 49,394 48,221 50,765
======= ======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT
Accounts payable....................................... 69 122 122 101
Accrued liabilities (note 4)........................... 43 56 48 44
Current portion of long-term debt (note 5)............. 4,292 4,292 4,292 4,292
-------- -------- -------- --------
Total current liabilities........................ 4,404 4,470 4,462 4,437
-------- -------- -------- --------
Long-term debt (note 5)................................ 30,468 34,761 32,615 36,907
Due to parent--without interest or stated terms of
repayment (note 10).................................. 12,102 12,114 12,095
-------- -------- -------- --------
Total liabilities................................ 34,872 51,333 49,191 53,439
-------- -------- -------- --------
STOCKHOLDER'S EQUITY
Capital stock (note 8)................................. 1 1 1 1
Contributed surplus (note 10).......................... 12,124
Retained earnings (deficit)............................ 64 (1,940) (971) (2,675)
-------- -------- -------- --------
Total stockholder's equity....................... 12,189 (1,939) (970) (2,674)
-------- -------- -------- --------
47,061 49,394 48,221 50,765
======= ======= ======= =======
</TABLE>
Contingencies (note 11)
The accompanying notes are an integral part of the financial statements.
F-41
<PAGE> 146
VSSI APPIAN INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX-MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED YEAR ENDED
---------------------- MARCH 31, MARCH 31, APRIL 30,
1995 1994 1995 1994 1993
--------- --------- ---------- ------------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash provided by (used for)
OPERATING ACTIVITIES
Net Income (loss)............................. 1,035 735 1,704 700 (5,665)
Add (deduct) charges to operations not
requiring a payment of cash:
Depreciation and amortization............... 1,322 1,408 2,819 2,619 2,802
Foreign currency exchange loss.............. 1,715 7,536
Change in non-cash working capital items (note
9).......................................... 22 93 83 (565) (239)
--------- --------- ---------- ------------- ----------
Net cash flow from operating activities..... 2,379 2,236 4,606 4,469 4,434
--------- --------- ---------- ------------- ----------
FINANCING ACTIVITIES
Scheduled repayments of long-term debt........ (2,147) (2,146) (4,292) (3,219) (1,479)
Prepayments of long-term debt................. (1,798) (1,219)
Increase (decrease) in amount due to parent... (12,114) 7 19 961 (1,459)
Capital contribution from parent (note 10).... 12,124
--------- --------- ---------- ------------- ----------
Net cash flow from financing activities..... (2,137) (2,139) (4,273) (4,056) (4,157)
--------- --------- ---------- ------------- ----------
INVESTING ACTIVITIES
Expenditures for vessels and equipment........ (2) (27) (65) 14 (110)
Increase in other assets...................... (1) (232) (59)
--------- --------- ---------- ------------- ----------
Net cash flow from investing activities..... (2) (28) (65) (218) (169)
--------- --------- ---------- ------------- ----------
Increase in cash equivalents.................. 240 69 268 195 108
Cash equivalents, beginning of the period..... 571 303 303 108
--------- --------- ---------- ------------- ----------
Cash equivalents, end of the period........... 811 372 571 303 108
======== ======== ======== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-42
<PAGE> 147
VSSI ATLANTIC INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX-MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED
---------------------- MARCH 31, MARCH 31,
1995 1994 1995 1994
-------- -------- ---------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Voyage revenues.................................... 4,262 3,740 7,832 2,019
OPERATING EXPENSES
Vessel operating expenses.......................... 773 830 1,545 235
Depreciation and amortization...................... 1,645 1,724 3,447 573
General and administrative (note 3)................ 224 265 460 75
-------- -------- ---------- -------------
2,642 2,819 5,452 883
-------- -------- ---------- -------------
Income from vessel operations...................... 1,620 921 2,380 1,136
-------- -------- ---------- -------------
Other items
Interest expense................................... (1,367) (1,085) (2,390) (328)
Interest income.................................... 14 32 43 11
-------- -------- ---------- -------------
(1,353) (1,053) (2,347) (317)
-------- -------- ---------- -------------
Income (loss) before foreign exchange loss......... 267 (132) 33 819
Foreign exchange loss.............................. (2) (2)
-------- -------- ---------- -------------
Net Income (loss).................................. 267 (134) 31 819
Retained earnings, beginning of the period......... 850 819 819
-------- -------- ---------- -------------
Retained earnings, end of the period............... 1,117 685 850 819
======= ======= ======== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-43
<PAGE> 148
VSSI ATLANTIC INC.
BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
AT SEPTEMBER 30, AT MARCH 31,
---------------------- ----------------------
1995 1994 1995 1994
-------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT
Cash equivalents....................................... 562 268 434 3,561
Accounts receivable.................................... 13 10
Prepaid expenses....................................... 155 186 167 179
-------- -------- -------- --------
Total current assets............................. 730 454 611 3,740
-------- -------- -------- --------
Vessel and equipment (note 5)
At cost, less accumulated depreciation (September 30,
1995--$5,665, 1994--$2,297; March 31, 1995--$4,020,
1994--$572).......................................... 63,317 66,642 64,926 68,065
-------- -------- -------- --------
64,047 67,096 65,537 71,805
======= ======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT
Accounts payable....................................... 113 115 97 43
Accrued liabilities (note 4)........................... 33 37 79 48
Current portion of long-term debt (note 5)............. 3,475 3,475 3,475 3,475
-------- -------- -------- --------
Total current liabilities........................ 3,621 3,627 3,651 3,566
-------- -------- -------- --------
Long-term debt (note 5)................................ 30,697 34,172 32,434 35,909
Due to parent--without interest or stated terms of
repayment (note 10).................................. 28,611 28,601 31,510
-------- -------- -------- --------
Total liabilities................................ 34,318 66,410 64,686 70,985
-------- -------- -------- --------
STOCKHOLDER'S EQUITY
Capital stock (note 8)................................. 1 1 1 1
Contributed surplus (note 10).......................... 28,611
Retained earnings...................................... 1,117 685 850 819
-------- -------- -------- --------
Total stockholder's equity....................... 29,729 686 851 820
-------- -------- -------- --------
64,047 67,096 65,537 71,805
======= ======= ======= =======
Contingencies (note 11)
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-44
<PAGE> 149
VSSI ATLANTIC INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX-MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED YEAR ENDED
---------------------- MARCH 31, MARCH 31, APRIL 30,
1995 1994 1995 1994 1993
--------- --------- ---------- ------------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash provided by (used for)
OPERATING ACTIVITIES
Net Income (loss)............................. 267 (134) 31 819
Add (deduct) charges to operations not
requiring a payment of cash:
Depreciation and amortization............... 1,645 1,724 3,447 573
Change in non-cash working capital items
(note 9).................................... (21) 54 87 (88)
--------- --------- ---------- ------------- ----------
Net cash flow from operating activities..... 1,891 1,644 3,565 1,304
--------- --------- ---------- ------------- ----------
FINANCING ACTIVITIES
Proceeds from long-term debt.................. 45,000
Scheduled repayments of long-term debt........ (1,737) (1,737) (3,475) (616)
Prepayments of long-term debt................. (5,000)
Increase (decrease) in amount due to parent... (28,601) (2,899) (2,909) 19,346 12,164
Capital contribution from parent (note 10).... 28,611 1
--------- --------- ---------- ------------- ----------
Net cash flow from financing activities..... (1,727) (4,636) (6,384) 58,731 12,164
--------- --------- ---------- ------------- ----------
INVESTING ACTIVITIES
Expenditures for vessels and equipment........ (36) (301) (308) (56,474) (12,164)
--------- --------- ---------- ------------- ----------
Net cash flow from investing activities..... (36) (301) (308) (56,474) (12,164)
--------- --------- ---------- ------------- ----------
(Decrease) increase in cash equivalents....... 128 (3,293) (3,127) 3,561
Cash equivalents, beginning of the period..... 434 3,561 3,561
--------- --------- ---------- ------------- ----------
Cash equivalents, end of the period........... 562 268 434 3,561
======== ======== ======== ========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-45
<PAGE> 150
VSSI OCEANS INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX-MONTHS ENDED
SEPTEMBER 30,
1995
----------------
(UNAUDITED)
<S> <C>
REVENUES
Voyage revenues.................................................................... 1,265
OPERATING EXPENSES
Vessel operating expenses.......................................................... 202
Depreciation and amortization...................................................... 385
General and administrative (note 3)................................................ 51
-------
638
-------
Income from vessel operations...................................................... 627
-------
Other items
Interest expense................................................................... (462)
Interest income.................................................................... 1
-------
(461)
-------
Net income......................................................................... 166
Retained earnings, beginning of the period.........................................
-------
Retained earnings, end of the period............................................... 166
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-46
<PAGE> 151
VSSI OCEANS INC.
BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------- AT MARCH 31,
1995 1994 1995
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT
Cash equivalents............................................... 74 23 2
Accounts receivable............................................
Prepaid expenses............................................... 183
-------- -------- ------------
Total current assets..................................... 257 23 2
-------- -------- ------------
Vessel and equipment (note 5)
At cost, less accumulated depreciation (September 30,
1995--$399).................................................. 49,813
Advances on vessel............................................. 2,545 2,642
-------- -------- ------------
50,070 2,568 2,644
======= ======= ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT
Accounts payable............................................... 178 4
Accrued liabilities (note 4)................................... 179 5
Current portion of capital lease obligation (note 6)........... 2,709
-------- -------- ------------
Total current liabilities................................ 3,066 5 4
-------- -------- ------------
Capital lease obligation (note 6).............................. 41,200
Due to parent--without interest or stated terms of repayment
(note 10).................................................... 2,562 2,639
-------- -------- ------------
Total liabilities........................................ 44,266 2,567 2,643
-------- -------- ------------
STOCKHOLDER'S EQUITY
Capital stock (note 8)......................................... 1 1 1
Contributed surplus (note 10).................................. 5,637
Retained earnings.............................................. 166
-------- -------- ------------
Total stockholder's equity............................... 5,804 1 1
-------- -------- ------------
50,070 2,568 2,644
======= ======= ==========
</TABLE>
Contingencies (note 11)
The accompanying notes are an integral part of the financial statements.
F-47
<PAGE> 152
VSSI OCEANS INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX-MONTHS ENDED
SEPTEMBER 30, YEAR ENDED
---------------------- MARCH 31,
1995 1994 1995
-------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Cash provided by (used for)
OPERATING ACTIVITIES
Net Income (loss)............................................... 166
Add (deduct) charges to operations not requiring a payment of
cash:
Depreciation and amortization................................. 385
Change in non-cash working capital items (note 9)............... 170 5 4
-------- -------- ----------
Net cash flow from operating activities....................... 721 5 4
-------- -------- ----------
FINANCING ACTIVITIES
Scheduled repayments of capital lease obligation................ (641)
Increase (decrease) in amount due to parent..................... (2,639) 2,562 2,639
Capital contribution from parent (note 10)...................... 5,637 1 1
-------- -------- ----------
Net cash flow from financing activities....................... 2,357 2,563 2,640
-------- -------- ----------
INVESTING ACTIVITIES
Expenditures for vessels acquired under capital lease (net of
capital lease financing of: September 30, 1995--$44,550)...... (3,006) (2,545) (2,642)
-------- -------- ----------
Net cash flow from investing activities....................... (3,006) (2,545) (2,642)
-------- -------- ----------
Increase in cash equivalents.................................... 72 23 2
Cash equivalents, beginning of the period....................... 2
-------- -------- ----------
Cash equivalents, end of the period............................. 74 23 2
======= ======= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-48
<PAGE> 153
ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")
NOTES TO THE FINANCIAL STATEMENTS
(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
In the opinion of management, the unaudited interim financial statements
contain all adjustments (consisting only of normal recurring accruals),
necessary to present fairly, in all material respects, the Companies' financial
position as at September 30, 1995 and 1994 and their related results of
operations and cash flows for the six-month periods ended September 30, 1995 and
1994. The results of operations for the six-month period ended September 30,
1995 are not necessarily indicative of those for a full fiscal year.
Reporting currency
The Companies' financial statements are stated in U.S. dollars because the
Companies operate in international shipping markets which utilize the U.S.
dollar as the functional currency.
Change in fiscal year end
The Companies changed their fiscal year ends, from April 30 to March 31,
effective March 31, 1994 and accordingly, the results of operations and cash
flows presented for fiscal 1994 are for the eleven months ended March 31, 1994.
Operating revenues and expenses
Voyage revenues and expenses are recognized on the percentage of completion
method of accounting. Estimated losses on voyages are provided for in full at
the time such losses become evident. The balance sheets reflect the deferred
portion of revenues and expenses applicable to subsequent periods.
Vessel expenses comprise all expenses relating to the operation of vessels,
including crewing, repairs and maintenance, insurance, stores and lubes, and
miscellaneous expenses including communications.
Vessels and equipment
All pre-delivery costs incurred during the construction of new buildings,
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 Companies' customers are
capitalized. Depreciation is calculated on a straight-line basis over a vessel's
useful life, estimated by the Companies to be twenty years from the date a
vessel is initially placed in service.
F-49
<PAGE> 154
ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")
NOTES TO THE FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
Interest costs capitalized to vessels and equipment totalled approximately
the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED YEAR ENDED
------------------- MARCH 31, MARCH 31, APRIL 30,
1995 1994 1995 1994 1993
$ $ $ $ $
------- ------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Andros Spirit Inc................ 403
Exuma Spirit Inc................. 317
Nassau Spirit Inc................ 181
Senang Spirit Inc................ 584 537
VSSI Appian Inc..................
VSSI Atlantic Inc................ 887
VSSI Oceans Inc.................. 79 63 151
</TABLE>
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.
Vessels acquired pursuant to bareboat hire purchase agreements are
capitalized as capital leases and are amortized over the estimated useful life
of the acquired vessel.
Effective April 1, 1995, the Companies revised their estimates of the
residual values of their vessels. The effect of this change in estimated
residual values was to reduce depreciation expense for the six-month period
ended September 30, 1995 for each of the Companies by approximately $85,000
(except for VSSI Oceans Inc.--$25,000).
Other assets
Loan costs, including fees, commissions and legal expenses, are capitalized
and amortized over the term of the relevant loan.
F-50
<PAGE> 155
ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")
NOTES TO THE FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
Cash flows
Cash interest paid totalled approximately as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED YEAR ENDED
------------------- MARCH 31, MARCH 31, APRIL 30,
1995 1994 1995 1994 1993
$ $ $ $ $
------- ------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Andros Spirit Inc. .............. 1,192 1,000 2,156 2,046 999
Exuma Spirit Inc. ............... 1,185 995 2,144 2,324 1,252
Nassau Spirit Inc. .............. 1,139 989 2,161 1,963 2,219
Senang Spirit Inc. .............. 1,392 1,176 2,448 974
VSSI Appian Inc. ................ 1,401 1,196 2,589 2,062 2,642
VSSI Atlantic Inc. .............. 1,394 1,074 2,351 313
VSSI Oceans Inc. ................ 350 151
</TABLE>
The Companies consider all highly liquid investments with a maturity date
of three months or less when purchased to be included in cash equivalents.
Income taxes
The legal jurisdictions of the countries in which the Companies are
incorporated do not impose income taxes upon shipping-related activities.
2. BUSINESS OPERATIONS
The Companies are engaged in the ocean transportation of petroleum cargoes
worldwide through the ownership and operation of a fleet of tankers. All of the
Companies' vessels operate in international markets.
F-51
<PAGE> 156
ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")
NOTES TO THE FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
3. CONTRACTUAL RELATIONSHIPS
The Companies have entered into agreements with Teekay Shipping Limited
("TSL") an affiliated company, whereby TSL and its affiliated companies render
administrative, operating and ship management services in return for a monthly
fee and commissions at rates considered usual and customary to the industry. All
of the Companies' revenues are earned through long-term charter agreements with
Palm Shipping Inc. ("Palm"), an affiliated company, which markets the vessels on
the spot tanker market. Fees and commissions incurred, included in general and
administrative expenses, are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED YEAR ENDED
------------------- MARCH 31, MARCH 31, APRIL 30,
1995 1994 1995 1994 1993
$ $ $ $ $
------- ------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Andros Spirit Inc................ 102 85 187 178 77
Exuma Spirit Inc................. 102 105 204 178
Nassau Spirit Inc................ 102 102 204 178 169
Senang Spirit Inc................ 102 102 204 51
VSSI Appian Inc.................. 102 102 204 178 185
VSSI Atlantic Inc................ 102 102 204 34
VSSI Oceans Inc.................. 34
</TABLE>
4. ACCRUED LIABILITIES
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- MARCH 31, MARCH 31,
1995 1994 1995 1994
$ $ $ $
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Vessel
Andros Spirit Inc............................. 9
Exuma Spirit Inc.............................. 7
Nassau Spirit Inc............................. 9
Senang Spirit Inc............................. 17
VSSI Appian Inc............................... 8 1 1
VSSI Atlantic Inc............................. 1
VSSI Oceans Inc............................... 5
Interest
Andros Spirit Inc............................. 22 24 49 29
Exuma Spirit Inc.............................. 22 23 49 28
Nassau Spirit Inc............................. 5
Senang Spirit Inc............................. 27 26 54 109
VSSI Appian Inc............................... 28 28 31 18
VSSI Atlantic Inc............................. 27 26 54 15
VSSI Oceans Inc............................... 191
</TABLE>
F-52
<PAGE> 157
ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")
NOTES TO THE FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------- MARCH 31, MARCH 31,
1995 1994 1995 1994
$ $ $ $
------- ------- --------- ---------
<S> <C> <C> <C> <C>
Payroll and benefits
Andros Spirit Inc............................. 22 5 20 19
Exuma Spirit Inc.............................. 9 12 7 24
Nassau Spirit Inc............................. 33 28 56 10
Senang Spirit Inc............................. 17 32 37 19
VSSI Appian Inc............................... 7 27 16 26
VSSI Atlantic Inc............................. 6 11 24 33
VSSI Oceans Inc............................... (12)
Total accrued liabilities
Andros Spirit Inc............................. 53 29 69 48
Exuma Spirit Inc.............................. 38 35 56 52
Nassau Spirit Inc............................. 47 28 56 10
Senang Spirit Inc............................. 61 58 91 128
VSSI Appian Inc............................... 43 56 48 44
VSSI Atlantic Inc............................. 33 37 79 48
VSSI Oceans Inc............................... 179 5
</TABLE>
F-53
<PAGE> 158
ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")
NOTES TO THE FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------- MARCH 31, MARCH 31,
1995 1994 1995 1994
$ $ $ $
-------- -------- --------- ---------
<S> <C> <C> <C> <C>
Floating rate (LIBOR + 1 to 1.5%) U.S.
dollar debt through 2006
Andros Spirit Inc......................... 28,543 35,386 33,631 37,140
Exuma Spirit Inc.......................... 28,311 35,226 33,435 37,018
Nassau Spirit Inc......................... 28,086 35,080 33,250 36,911
Senang Spirit Inc......................... 34,166 37,499 35,832 39,166
VSSI Appian Inc........................... 34,760 39,053 36,907 41,199
VSSI Atlantic Inc......................... 34,172 37,647 35,909 39,384
Current portion of long-term debt incurred
above:
Andros Spirit Inc......................... 3,509 3,510 3,509 3,509
Exuma Spirit Inc.......................... 3,582 3,582 3,582 3,582
Nassau Spirit Inc......................... 3,355 3,355 3,355 3,355
Senang Spirit Inc......................... 3,333 3,333 3,333 3,333
VSSI Appian Inc........................... 4,292 4,292 4,292 4,292
VSSI Atlantic Inc......................... 3,475 3,475 3,475 3,475
</TABLE>
Each loan is collateralized by a first preferred mortgage on the vessel to
which the loan relates together with assignments of earnings and insurance, as
well as guarantees from the parent company, Teekay Shipping Corporation
(formerly Viking Star Shipping Inc.) ("Teekay").
Amongst other matters, the long-term debt agreements generally provided for
such items as 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.
Teekay intends to refinance each of the Companies' long-term debt and
capital lease obligations with the net proceeds from the proposed offering of
$225,000,000 First Preferred Ship Mortgage Notes (the "Notes"). The Notes will
be subject to a sinking fund, which will retire $45 million principal amount of
the Notes each year commencing 2004. As a result, there will be no required
principal repayments on the Companies' existing long-term debt and capital lease
obligation subsequent to the completion of the Note Offering.
6. LEASES
Charters-in
During February and March 1994, Andros Spirit Inc., Exuma Spirit Inc.,
Nassau Spirit Inc. and Senang Spirit Inc. converted each of its remaining
capital lease obligations into long-term indebtedness.
F-54
<PAGE> 159
ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")
NOTES TO THE FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
In August 1995, VSSI Oceans Inc. entered into a bareboat hire purchase
agreement which is accounted for as a capital lease. The capital lease bears an
interest rate of LIBOR + 1.25% and is due through 2008.
Charters-out
Time charters of the Companies' vessels to Palm are accounted for as
operating leases. The minimum future revenues to be received on time charters
currently in place are as follows:
ANDROS SPIRIT INC.
<TABLE>
<CAPTION>
$
--------
<S> <C>
1996 (Six months from October 1, 1995 to March 31, 1996)........................ 3,881
1997............................................................................ 7,742
1998............................................................................ 7,742
1999............................................................................ 7,742
2000............................................................................ 7,763
--------
34,870
========
</TABLE>
EXUMA SPIRIT INC.
<TABLE>
<CAPTION>
$
--------
<S> <C>
1996 (Six months from October 1, 1995 to March 31, 1996)........................ 3,911
1997............................................................................ 7,800
1998............................................................................ 7,800
1999............................................................................ 7,800
2000............................................................................ 7,821
--------
35,132
========
</TABLE>
NASSAU SPIRIT INC.
<TABLE>
<CAPTION>
$
--------
<S> <C>
1996 (Six months from October 1, 1995 to March 31, 1996)........................ 3,956
1997............................................................................ 7,891
1998............................................................................ 7,891
1999............................................................................ 7,891
2000............................................................................ 7,913
--------
35,542
========
</TABLE>
F-55
<PAGE> 160
ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")
NOTES TO THE FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
SENANG SPIRIT INC.
<TABLE>
<CAPTION>
$
--------
<S> <C>
1996 (Six months from October 1, 1995 to March 31, 1996)........................ 4,180
1997............................................................................ 8,337
1998............................................................................ 8,337
1999............................................................................ 8,337
2000............................................................................ 8,359
--------
37,550
========
</TABLE>
VSSI APPIAN INC.
<TABLE>
<CAPTION>
$
--------
<S> <C>
1996 (Six months from October 1, 1995 to March 31, 1996)........................ 4,659
1997............................................................................ 9,293
1998............................................................................ 9,293
1999............................................................................ 9,293
2000............................................................................ 9,318
--------
41,856
========
</TABLE>
VSSI ATLANTIC INC.
<TABLE>
<CAPTION>
$
--------
<S> <C>
1996 (Six months from October 1, 1995 to March 31, 1996)........................ 4,268
1997............................................................................ 8,512
1998............................................................................ 8,512
1999............................................................................ 8,512
2000............................................................................ 8,535
--------
38,339
========
</TABLE>
VSSI OCEANS INC.
<TABLE>
<CAPTION>
$
--------
<S> <C>
1996 (Six months from October 1, 1995 to March 31, 1996)........................ 3,891
1997............................................................................ 7,760
1998............................................................................ 7,760
1999............................................................................ 7,760
2000............................................................................ 7,781
--------
34,952
========
</TABLE>
The minimum future revenues should not be construed to reflect total voyage
revenues for any of the periods.
F-56
<PAGE> 161
ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")
NOTES TO THE FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
7. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments.
Cash equivalents and restricted cash--The carrying amounts represent fair
value.
Long-term debt--The carrying amounts of floating rate debt approximate fair
value.
The fair values of the Companies' long-term debt and other financial
instruments approximate their carrying values at September 30, 1995, March 31,
1995, and March 31, 1994.
8. CAPITAL STOCK
Capital stock for each of the Companies is as follows:
AUTHORIZED
500 Common Stock with no par value--VSSI Appian Inc., VSSI
Atlantic Inc., and VSSI Oceans Inc..........................
5,000 Common Stock with a par value of $1 per share--Andros
Spirit Inc., Exuma Spirit Inc., Nassau Spirit Inc., and
Senang Spirit Inc.
<TABLE>
<CAPTION>
COMMON
STOCK
$ #
------ ------
<S> <C> <C>
ISSUED AND OUTSTANDING
VSSI Appian Inc., VSSI Atlantic Inc., and VSSI Oceans Inc.... 1 500
All other Companies.......................................... 5 5,000
</TABLE>
9. CHANGE IN NON-CASH WORKING CAPITAL ITEMS
<TABLE>
<CAPTION>
SIX-MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED YEAR ENDED
--------------------- MARCH 31, MARCH 31, APRIL 30,
1995 1994 1995 1994 1993
$ $ $ $ $
-------- -------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Accounts receivable
Andros Spirit Inc.............. 28 (12) (28)
Exuma Spirit Inc............... 15 (15)
Nassau Spirit Inc.............. 1 1 (1)
Senang Spirit Inc.............. 2 (2)
VSSI Appian Inc................ 12 144 144 (66) (90)
VSSI Atlantic Inc.............. (3) (10)
VSSI Oceans Inc................
</TABLE>
F-57
<PAGE> 162
ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")
NOTES TO THE FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX-MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED YEAR ENDED
--------------------- MARCH 31, MARCH 31, APRIL 30,
1995 1994 1995 1994 1993
$ $ $ $ $
-------- -------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Prepaid expenses
Andros Spirit Inc.............. (29) (74) (40) 81 (183)
Exuma Spirit Inc............... (7) (71) (65) 66 (177)
Nassau Spirit Inc.............. (8) (82) (81) 79 (180)
Senang Spirit Inc.............. (16) (81) (40) (135)
VSSI Appian Inc................ 68 (84) (86) 22 (1)
VSSI Atlantic Inc.............. 12 (7) 12 (179)
VSSI Oceans Inc................ (183)
Accounts payable
Andros Spirit Inc.............. (3) 38 48 27 36
Exuma Spirit Inc............... (80) 60 97 (3) 52
Nassau Spirit Inc.............. 5 (10) (48) 82 (30)
Senang Spirit Inc.............. 55 44 54 28
VSSI Appian Inc................ (53) 21 21 101 (103)
VSSI Atlantic Inc.............. 16 72 54 43
VSSI Oceans Inc................ 174 4
Accrued liabilities
Andros Spirit Inc.............. (16) (19) 21 11 37
Exuma Spirit Inc............... (18) (17) 4 9 43
Nassau Spirit Inc.............. (9) 18 46 (23) 33
Senang Spirit Inc.............. (30) (70) (37) 128
VSSI Appian Inc................ (5) 12 4 (1) (22)
VSSI Atlantic Inc.............. (46) (11) 31 48
VSSI Oceans Inc................ 179 5
Deferred time charter revenue
Andros Spirit Inc.............. (624) 624
Exuma Spirit Inc............... (663) 663
Nassau Spirit Inc.............. (1) 1
Senang Spirit Inc..............
VSSI Appian Inc................ (621) (23)
VSSI Atlantic Inc..............
VSSI Oceans Inc................
</TABLE>
F-58
<PAGE> 163
ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")
NOTES TO THE FINANCIAL STATEMENTS -- (CONT'D)
(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED)
(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
SIX-MONTHS ENDED ELEVEN MONTHS
SEPTEMBER 30, YEAR ENDED ENDED YEAR ENDED
--------------------- MARCH 31, MARCH 31, APRIL 30,
1995 1994 1995 1994 1993
$ $ $ $ $
-------- -------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Total change in non-cash
working capital items
Andros Spirit Inc.............. (20) (67) 1 (505) 514
Exuma Spirit Inc............... (90) (28) 21 (591) 581
Nassau Spirit Inc.............. (12) (73) (82) 136 (176)
Senang Spirit Inc.............. 11 (107) (25) 21
VSSI Appian Inc................ 22 93 83 (565) (239)
VSSI Atlantic Inc.............. (21) 54 87 (88)
VSSI Oceans Inc................ 170 5 4
</TABLE>
10. CONTRIBUTED SURPLUS
During the period ended September 30, 1995, the Companies' parent, Teekay
contributed approximately $144.8 million to the Companies by way of a capital
contribution consisting of forgiveness of inter-company debt.
11. CONTINGENCIES
Subsequent to September 30, 1995, all of the Companies will guarantee
certain of the indebtedness of their parent company, Teekay, in conjunction with
its proposed offering of $225 million First Preferred Ship Mortgage Notes due
2008.
F-59
<PAGE> 164
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 75,000 - 115,000 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.
"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
A-1
<PAGE> 165
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.
"OIL/BULK/ORE CARRIER" 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 50,000 to 75,000 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 large financial
loss to one member by contribution towards that loss by all members.
"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.
"SMALL TANKER" A tanker generally of less than 50,000 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 115,000 to 200,000dwt of
maximum length and breadth and draught 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 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.
A-2
<PAGE> 166
"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. 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.
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.
Shipping terms supplied by Dictionary of Shipping Terms, published by
Lloyds of London Press Limited (1985), and other sources.
A-3
<PAGE> 167
[AFRAMAX FLEET]
[PHOTOS]
<PAGE> 168
[LEFT SIDE CAPACITY CHART]
<PAGE> 169
[RIGHT SIDE CAPACITY CHART]
<PAGE> 170
-----------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON $225,000,000
AS HAVING BEEN AUTHORIZED. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER
TO BUY ANY SECURITIES OTHER THAN THE
SECURITIES TO WHICH IT RELATES OR AN
OFFER TO SELL OR THE SOLICITATION OF AN TEEKAY SHIPPING
OFFER TO BUY SUCH SECURITIES IN ANY
CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE CORPORATION
DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY % FIRST PREFERRED SHIP MORTGAGE NOTES
SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT
AS OF ANY TIME SUBSEQUENT TO ITS DATE. DUE , 2008
- ------------------------------------------------------------------
[LOGO]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-------
<S> <C> <C>
Available Information............................ 2
Incorporation of Documents By Reference.......... 3
Enforceability of Civil Liabilities Under the
Federal Securities Laws........................ 3
Prospectus Summary............................... 4
Risk Factors..................................... 14
Use of Proceeds.................................. 19
Capitalization................................... 20
The Company...................................... 21 GOLDMAN, SACHS & CO.
Selected Consolidated Financial and Other Data... 23
Management's Discussion and Analysis of Results MORGAN, STANLEY & CO.
of Operations and Financial Condition.......... 27 INCORPORATED
Business......................................... 34
Management....................................... 56 SMITH BARNEY INC.
Ownership of Teekay.............................. 58
Description of Certain Indebtedness.............. 59
Certain Transactions With Related Parties........ 60
Description of the Notes......................... 61
The Subsidiary Guarantees........................ 91
The Mortgaged Vessels............................ 92
Tax Considerations............................... 97
Underwriting..................................... 99
Legal Matters.................................... 100
Experts.......................................... 100
Index to Financial Statements.................... F-1
Definitions of Shipping Terms.................... A-1
</TABLE>
<PAGE> 171
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Expenses in connection with the issuance and distribution of the securities
being registered, other than underwriting discounts and commissions, are
estimated as follows:
<TABLE>
<S> <C>
SEC Registration Fee....................................................... $45,000
NASD Filing Fee........................................................ 22,600
Printing and Engraving Expenses........................................ *
Legal Fees and Expenses................................................ *
Accountants' Fees and Expenses......................................... *
Blue Sky Expenses (including fees of counsel).......................... 25,000
Trustee Fees and Expenses.............................................. *
Rating Agency Fees and Expenses........................................ *
Miscellaneous Costs.................................................... *
----------
Total................................................................ $ *
==========
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
LIBERIAN LAW
Teekay Shipping Corporation ("Teekay") and each of VSSI Oceans Inc., VSSI
Atlantic Inc. and VSSI Appian Inc. are Liberian corporations. Section 6.13 of
the Liberian Business Corporation Act ("LBCA") provides that a Liberian
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 Liberian 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
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<PAGE> 172
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 Liberian 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 Section 6.13.
In addition, a Liberian 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 Section 6.13.
Section J of Teekay's Articles of Incorporation, as amended, provides that
to the fullest extent permitted under the LBCA, 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 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 LBCA
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 its 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.
BAHAMIAN LAW
Each of Senang Spirit Inc., Exuma Spirit Inc., Nassau Spirit Inc. and
Andros Spirit Inc. (collectively, the "Bahamian Guarantors") is a Bahamian
corporation. Section 56 of the International Business Companies Act (the
"IBCA"), under which the Bahamian Guarantors were incorporated, provides that a
corporation may indemnify any person who (a) is or was a party or is threatened
to be made a party to any threatened, pending or completed proceedings, whether
civil, criminal, administrative or investigative, by reason of the fact that the
person is or was a director or officer of the corporation or (b) is or was, at
the request of the corporation, serving as a director or officer of another
company or a partnership, joint venture, trust or other enterprise, in each case
against all expenses, including legal fees, and against all judgments, fines and
amounts paid in settlement and reasonably incurred in connection with legal,
administrative or investigative proceedings (collectively, "Losses"), if such
person acted honestly and in good faith with a view to the best interests of the
corporation and, in the case of criminal proceedings, the person had no
reasonable cause to believe that his or her conduct was unlawful. In the absence
of fraud and unless a question of law is involved, a decision of the directors
of a corporation is sufficient regarding whether the person acted honestly and
in good faith, with a view to the best interests of the corporation and whether
the person had no reasonable cause to believe his or her
II-2
<PAGE> 173
conduct was unlawful. The termination of any proceedings by any 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 honestly and in
good faith, with a view to the best interests of the corporation or that the
person had reasonable cause to believe that his or her conduct was unlawful. If
any such person is successful in defense of any proceeding for which he or she
may be indemnified as discussed above, the person is entitled to indemnification
for all Losses.
Section 57 of the IBCA provides that a corporation may purchase and
maintain insurance in relation to any person who (a) is or was a party or is
threatened to be made a party to any threatened, pending or completed
proceedings, whether civil, criminal, administrative or investigative, by reason
of the fact that the person is or was a director or officer of the corporation
or (b) is or was, at the request of the corporation, serving as a director or
officer of another company or a partnership, joint venture, trust or other
enterprise, in each case against any liability asserted against such person and
incurred thereby in that capacity, whether or not the corporation has or would
have the power to indemnify the person against the liability under Section 56 of
the IBCA.
Section 9.01 of the Articles of Association of each Bahamian Guarantor
provides that such Bahamian Guarantor shall indemnify a director or officer, a
former director or officer, or a person who acts or acted at such Bahamian
Guarantors' request as a director or officer of a body corporate, a partnership,
joint venture, trust or other enterprise of which such Bahamian Guarantor is or
was a shareholder or creditor or in which it was a participant or held an
interest and such person's heirs and legal representatives, against all costs,
charges, fines, judgments and expenses, including any amount paid to settle an
action or satisfy a judgment, reasonably incurred by such person in respect of
any civil, criminal, or administrative action or proceeding to which such person
is party by reason of such person's having acted in any such capacity.
Section 9.02 of the Articles of Association of each Bahamian Guarantor
provides that such Bahamian Guarantor may purchase and maintain insurance for
the benefit of those persons described in Section 9.01 of the Articles of
Association, against any such liability incurred by such person, as the Board of
Directors may from time to time determine.
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------------------------------------------------------------------------
<C> <S>
+1.1 Form of Underwriting Agreement
+*3.1 Articles of Incorporation of VSSI Oceans Inc.
+*3.2 Bylaws of VSSI Oceans Inc., with all amendments thereto
+*3.3 Memorandum of Association of Nassau Spirit Inc., with all amendments thereto
+*3.4 Articles of Association of Nassau Spirit Inc., with all amendments thereto
+4.1 Form of Indenture among Teekay Shipping Corporation ("Teekay"), 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
+4.2 Specimen of Teekay's First Preferred Ship Mortgage Note due 2008
+*4.3 Form of First Preferred Ship Mortgage by Nassau Spirit Inc. to United States
Trust Company of New York, as Trustee
+*4.4 Form of Assignment of Time Charter from Nassau Spirit Inc. to United States
Trust Company of New York, as Trustee
+*4.5 Form of Assignment of Insurance from Nassau Spirit Inc. to United States
Trust Company of New York, as Trustee
+*4.6 Form of Pledge Agreement and Irrevocable Proxy by Teekay in favor of United
States Trust Company of New York, as Trustee
</TABLE>
II-3
<PAGE> 174
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------------------------------------------------------------------------
<C> <S>
+*4.7 Form of Guarantee by Nassau Spirit Inc. in favor of United States Trust
Company of New York, as Trustee
+*4.8 Form of Assignment of Freights and Hires from Nassau Spirit Inc. to United
States Trust Company of New York, as Trustee
+*4.9 Form of Cash Collateral Account Agreement between Nassau Spirit Inc. and
United States Trust Company of New York, as Trustee
+4.10 Form of Investment Account Agreement between Teekay and United States Trust
Company of New York, as Trustee
+5.1 Opinion of Perkins Coie, special counsel to Teekay, regarding the legality of
the Notes and the Guarantees
+8.1 Opinion of Perkins Coie, regarding U.S. tax matters (contained in opinion
filed as Exhibit 5.1)
+8.2 Opinion of Haight, Gardner, Poor & Havens, special Liberian counsel to
Teekay, regarding Liberian tax matters
+8.3 Opinion of Graham, Thompson & Co., Bahamian counsel to Teekay, regarding
Bahamian tax matters
+10.1 Time Charter, as amended, dated July 3, 1995 between VSSI Oceans Inc. and
Palm Shipping Inc.
+10.2 Time Charter, as amended, dated January 4, 1994 between VSSI Atlantic Inc.
and Palm Shipping Inc.
+10.3 Time Charter, as amended, dated February 1, 1992 between VSSI Appian Inc. and
Palm Shipping Inc.
+10.4 Time Charter, as amended, dated December 1, 1993 between Senang Spirit Inc.
and Palm Shipping Inc.
+10.5 Time Charter, as amended, dated August 1, 1992 between Exuma Spirit Inc. and
Palm Shipping Inc.
+10.6 Time Charter, as amended, dated May 1, 1992 between Nassau Spirit Inc. and
Palm Shipping Inc.
+10.7 Time Charter, as amended, dated November 1, 1992 between Andros Spirit Inc.
and Palm Shipping Inc.
+*10.8 Management Agreement, as amended, dated June 1, 1992 between Teekay Shipping
Limited and Nassau Spirit Inc.
15.1 Letter from Ernst & Young, as independent chartered accountants, regarding
unaudited interim financial information
+23.1 Consent of Perkins Coie (contained in opinion filed as Exhibit 8.1)
+23.2 Consent of Haight, Gardner, Poor & Havens (contained in opinion filed as
Exhibit 8.2)
+23.3 Consent of Graham, Thompson & Co. (contained in opinion filed as Exhibit 8.3)
23.4 Consent of Ernst & Young, as independent chartered accountants
+23.5 Consent of E.A. Gibson Shipbrokers Limited
+23.6 Consent of Simpson, Spence & Young Shipbrokers Ltd.
25.1 Statement of Eligibility and Qualification on Form T-1 of the Eligibility of
United States Trust Company of New York, as Trustee of the Notes
</TABLE>
- ------------------
* 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.
+ To be filed by amendment.
II-4
<PAGE> 175
ITEM 17. UNDERTAKINGS.
A. Each of the undersigned Registrants hereby undertakes that, for purposes
of determining any liability under the Securities Act of 1933, each filing of
any 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 the
Registration Statement 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.
B. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrants pursuant to the provisions described under "Item 14.
Indemnification of Directors and Officers," above, or otherwise, the Registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by any of the Registrants of expenses
incurred or paid by a director, officer or controlling person of such 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 appropriate 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 Act and will be governed by the final
adjudication of such issue.
C. Each of the undersigned Registrants hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrants pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus 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.
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<PAGE> 176
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant, Teekay Shipping Corporation, certifies that it has reasonable
grounds to believe that it meets all of the requirements for filing on Form F-3
and has duly caused this Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Vancouver, Province
of British Columbia, on December 18, 1995.
TEEKAY SHIPPING CORPORATION
By: /s/ CAPTAIN JAMES N. HOOD
-------------------------------
Captain James N. Hood
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Captain
James N. Hood and Arthur F. Coady, either of whom may act without the joinder of
the other, as such person's true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, for such person, and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (whether pre-effective or post-effective) and supplements to this
Registration Statement and any registration statement for the same offering 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 all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as full to all intents and purposes as such person might
or could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents or their 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 on December 18, 1995 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- -------------------------------------------------
<C> <S>
/s/ CAPTAIN JAMES N. HOOD President, Chief Executive Officer
- ---------------------------------------- (Principal Executive Officer) and Director
Captain James N. Hood
/s/ AXEL KARLSHOEJ Chairman of the Board, Director and Authorized
- ---------------------------------------- Representative in the United States
Axel Karlshoej
/s/ ANTHONY GURNEE Vice President and Chief Financial Officer
- ---------------------------------------- (Principal Financial and Accounting Officer)
Anthony Gurnee
/s/ ARTHUR F. COADY Director
- ----------------------------------------
Arthur F. Coady
/s/ MICHAEL D. DINGMAN Director
- ----------------------------------------
Michael D. Dingman
/s/ MORRIS L. FEDER Director
- ----------------------------------------
Morris L. Feder
/s/ STEVE G. K. HSU Director
- ----------------------------------------
Steve G. K. Hsu
/s/ THOMAS KUO-YUEN HSU Director
- ----------------------------------------
Thomas Kuo-Yuen Hsu
</TABLE>
II-6
<PAGE> 177
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant, VSSI Oceans Inc., certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form F-3 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Nassau, Commonwealth of
the Bahamas, on December 18, 1995.
VSSI OCEANS INC.
By: /s/ ARTHUR F. COADY
--------------------------------
Arthur F. Coady
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Captain
James N. Hood and Arthur F. Coady, either of whom may act without the joinder of
the other, as such person's true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, for such person, and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (whether pre-effective or post-effective) and supplements to this
Registration Statement and any registration statement for the same offering 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 all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as full to all intents and purposes as such person might
or could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents or their 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 on December 18, 1995 below by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- -------------------------------------------------
<C> <S>
/s/ ARTHUR F. COADY President, Chief Executive Officer
- ---------------------------------------- (Principal Executive Officer) and Director
Arthur F. Coady
/s/ JAMES MCDONALD Treasurer (Principal Financial and Accounting
- ---------------------------------------- Officer) and Director
James McDonald
/s/ ESTHER E. GIBSON Secretary and Director
- ----------------------------------------
Esther E. Gibson
/s/ AXEL KARLSHOEJ Authorized Representative in the United States
- ----------------------------------------
Axel Karlshoej
</TABLE>
II-7
<PAGE> 178
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant, VSSI Atlantic Inc., certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form F-3 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Nassau, Commonwealth of
the Bahamas, on December 18, 1995.
VSSI ATLANTIC INC.
By: /s/ ARTHUR F. COADY
-------------------------------
Arthur F. Coady
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Captain
James N. Hood and Arthur F. Coady, either of whom may act without the joinder of
the other, as such person's true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, for such person, and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (whether pre-effective or post-effective) and supplements to this
Registration Statement and any registration statement for the same offering 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 all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as full to all intents and purposes as such person might
or could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents or their 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 on December 18, 1995 below by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- -------------------------------------------------
<C> <S>
/s/ ARTHUR F. COADY President, Chief Executive Officer
- ---------------------------------------- (Principal Executive Officer) and Director
Arthur F. Coady
/s/ JAMES MCDONALD Treasurer (Principal Financial and
- ---------------------------------------- Accounting Officer) and Director
James McDonald
/s/ ESTHER E. GIBSON Secretary and Director
- ----------------------------------------
Esther E. Gibson
/s/ AXEL KARLSHOEJ Authorized Representative in the
- ---------------------------------------- United States
Axel Karlshoej
</TABLE>
II-8
<PAGE> 179
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant, Senang Spirit Inc., certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form F-3 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Nassau, Commonwealth of
the Bahamas, on December 18, 1995.
SENANG SPIRIT INC.
By: /s/ ARTHUR F. COADY
--------------------------------
Arthur F. Coady
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Captain
James N. Hood and Arthur F. Coady, either of whom may act without the joinder of
the other, as such person's true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, for such person, and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (whether pre-effective or post-effective) and supplements to this
Registration Statement and any registration statement for the same offering 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 all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as full to all intents and purposes as such person might
or could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents or their 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 on December 18, 1995 below by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- -------------------------------------------------
<C> <S>
/s/ ARTHUR F. COADY President, Chief Executive Officer
- ---------------------------------------- (Principal Executive Officer) and
Arthur F. Coady Director
/s/ JAMES MCDONALD Treasurer (Principal Financial and Accounting
- ---------------------------------------- Officer) and Director
James McDonald
/s/ ESTHER E. GIBSON Secretary and Director
- ----------------------------------------
Esther E. Gibson
/s/ AXEL KARLSHOEJ Authorized Representative in the United States
- ----------------------------------------
Axel Karlshoej
</TABLE>
II-9
<PAGE> 180
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant, VSSI Appian Inc., certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form F-3 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Nassau, Commonwealth of
the Bahamas, on December 18, 1995.
VSSI APPIAN INC.
By: /s/ ARTHUR F. COADY
---------------------------------
Arthur F. Coady
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Captain
James N. Hood and Arthur F. Coady, either of whom may act without the joinder of
the other, as such person's true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, for such person, and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (whether pre-effective or post-effective) and supplements to this
Registration Statement and any registration statement for the same offering 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 all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as full to all intents and purposes as such person might
or could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents or their 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 on December 18, 1995 below by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- -------------------------------------------------
<C> <S>
/s/ ARTHUR F. COADY President, Chief Executive Officer
- ---------------------------------------- (Principal Executive Officer) and
Arthur F. Coady Director
/s/ JAMES MCDONALD Treasurer (Principal Financial and Accounting
- ---------------------------------------- Officer) and Director
James McDonald
/s/ ESTHER E. GIBSON Secretary and Director
- ----------------------------------------
Esther E. Gibson
/s/ AXEL KARLSHOEJ Authorized Representative in the United States
- ----------------------------------------
Axel Karlshoej
</TABLE>
II-10
<PAGE> 181
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant, Exuma Spirit Inc., certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form F-3 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Nassau, Commonwealth of
the Bahamas, on December 18, 1995.
EXUMA SPIRIT INC.
By: /s/ ARTHUR F. COADY
--------------------------------
Arthur F. Coady
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Captain
James N. Hood and Arthur F. Coady, either of whom may act without the joinder of
the other, as such person's true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, for such person, and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (whether pre-effective or post-effective) and supplements to this
Registration Statement and any registration statement for the same offering 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 all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as full to all intents and purposes as such person might
or could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents or their 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 on December 18, 1995 below by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- -------------------------------------------------
<C> <S>
/s/ ARTHUR F. COADY President, Chief Executive Officer
- ---------------------------------------- (Principal Executive Officer) and
Arthur F. Coady Director
/s/ JAMES MCDONALD Treasurer (Principal Financial and Accounting
- ----------------------------------------
James McDonald
/s/ ESTHER E. GIBSON Secretary and Director
- ----------------------------------------
Esther E. Gibson
/s/ AXEL KARLSHOEJ Authorized Representative in the United States
- ----------------------------------------
Axel Karlshoej
</TABLE>
II-11
<PAGE> 182
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant, Nassau Spirit Inc., certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form F-3 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Nassau, Commonwealth of
the Bahamas, on December 18, 1995.
NASSAU SPIRIT INC.
By: /s/ ARTHUR F. COADY
--------------------------------
Arthur F. Coady
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Captain
James N. Hood and Arthur F. Coady, either of whom may act without the joinder of
the other, as such person's true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, for such person, and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (whether pre-effective or post-effective) and supplements to this
Registration Statement and any registration statement for the same offering 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 all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as full to all intents and purposes as such person might
or could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents or their 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 on December 18, 1995 below by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- -------------------------------------------------
<C> <S>
/s/ ARTHUR F. COADY President, Chief Executive Officer
- ---------------------------------------- (Principal Executive Officer) and
Arthur F. Coady Director
/s/ JAMES MCDONALD Treasurer (Principal Financial and Accounting
- ----------------------------------------
James McDonald
/s/ ESTHER E. GIBSON Secretary and Director
- ----------------------------------------
Esther E. Gibson
/s/ AXEL KARLSHOEJ Authorized Representative in the United States
- ----------------------------------------
Axel Karlshoej
</TABLE>
II-12
<PAGE> 183
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant, Andros Spirit Inc., certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing on Form F-3 and has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Nassau, Commonwealth of
the Bahamas, on December 18, 1995.
ANDROS SPIRIT INC.
By: /s/ ARTHUR F. COADY
----------------------------------
Arthur F. Coady
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Captain
James N. Hood and Arthur F. Coady, either of whom may act without the joinder of
the other, as such person's true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, for such person, and in such
person's name, place and stead, in any and all capacities to sign any and all
amendments (whether pre-effective or post-effective) and supplements to this
Registration Statement and any registration statement for the same offering 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 all
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto each of such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as full to all intents and purposes as such person might
or could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact and agents or their 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 on December 18, 1995 below by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ---------------------------------------- -------------------------------------------------
<C> <S>
/s/ ARTHUR F. COADY President, Chief Executive Officer
- ---------------------------------------- (Principal Executive Officer) and
Arthur F. Coady Director
/s/ JAMES MCDONALD Treasurer (Principal Financial and Accounting
- ----------------------------------------
James McDonald
/s/ ESTHER E. GIBSON Secretary and Director
- ----------------------------------------
Esther E. Gibson
/s/ AXEL KARLSHOEJ Authorized Representative in the United States
- ----------------------------------------
Axel Karlshoej
</TABLE>
II-13
<PAGE> 184
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------------------------------------
<C> <S>
+1.1 Form of Underwriting Agreement
+*3.1 Articles of Incorporation of VSSI Oceans Inc.
+*3.2 Bylaws of VSSI Oceans Inc., with all amendments thereto
+*3.3 Memorandum of Association of Nassau Spirit Inc., with all amendments thereto
+*3.4 Articles of Association of Nassau Spirit Inc., with all amendments thereto
+4.1 Form of Indenture among Teekay Shipping Corporation ("Teekay"), 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
+4.2 Specimen of Teekay's First Preferred Ship Mortgage Note due 2008
+*4.3 Form of First Preferred Ship Mortgage by Nassau Spirit Inc. to United States
Trust Company of New York, as Trustee
+*4.4 Form of Assignment of Time Charter from Nassau Spirit Inc. to United States Trust
Company of New York, as Trustee
+*4.5 Form of Assignment of Insurance from Nassau Spirit Inc. to United States Trust
Company of New York, as Trustee
+*4.6 Form of Pledge Agreement and Irrevocable Proxy by Teekay in favor of United
States Trust Company of New York, as Trustee
+*4.7 Form of Guarantee by Nassau Spirit Inc. in favor of United States Trust Company
of New York, as Trustee
+*4.8 Form of Assignment of Freights and Hires from Nassau Spirit Inc. to United States
Trust Company of New York, as Trustee
+*4.9 Form of Cash Collateral Account Agreement between Nassau Spirit Inc. and United
States Trust Company of New York, as Trustee
+4.10 Form of Investment Account Agreement between Teekay and United States Trust
Company of New York, as Trustee
+5.1 Opinion of Perkins Coie, special counsel to Teekay, regarding the legality of the
Notes and the Guarantees
+8.1 Opinion of Perkins Coie, regarding U.S. tax matters (contained in opinion filed
as Exhibit 5.1)
+8.2 Opinion of Haight, Gardner, Poor & Havens, special Liberian counsel to Teekay,
regarding Liberian tax matters
+8.3 Opinion of Graham, Thompson & Co., Bahamian counsel to Teekay, regarding Bahamian
tax matters
+10.1 Time Charter, as amended, dated July 3, 1995 between VSSI Oceans Inc. and Palm
Shipping Inc.
+10.2 Time Charter, as amended, dated January 4, 1994 between VSSI Atlantic Inc. and
Palm Shipping Inc.
+10.3 Time Charter, as amended, dated February 1, 1992 between VSSI Appian Inc. and
Palm Shipping Inc.
+10.4 Time Charter, as amended, dated December 1, 1993 between Senang Spirit Inc. and
Palm Shipping Inc.
+10.5 Time Charter, as amended, dated August 1, 1992 between Exuma Spirit Inc. and Palm
Shipping Inc.
</TABLE>
<PAGE> 185
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- ---------------------------------------------------------------------------------
<C> <S>
+10.6 Time Charter, as amended, dated May 1, 1992 between Nassau Spirit Inc. and Palm
Shipping Inc.
+10.7 Time Charter, as amended, dated November 1, 1992 between Andros Spirit Inc. and
Palm Shipping Inc.
+*10.8 Management Agreement, as amended, dated June 1, 1992 between Teekay Shipping
Limited and Nassau Spirit Inc.
15.1 Letter from Ernst & Young, as independent chartered accountants, regarding
unaudited interim financial information
+23.1 Consent of Perkins Coie (contained in opinion filed as Exhibit 8.1)
+23.2 Consent of Haight, Gardner, Poor & Havens (contained in opinion filed as Exhibit
8.2)
+23.3 Consent of Graham, Thompson & Co. (contained in opinion filed as Exhibit 8.3)
23.4 Consent of Ernst & Young, as independent chartered accountants
+23.5 Consent of E.A. Gibson Shipbrokers Limited
+23.6 Consent of Simpson, Spence & Young Shipbrokers Ltd.
25.1 Statement of Eligibility and Qualification on Form T-1 of the Eligibility of
United States Trust Company of New York, as Trustee of the Notes
</TABLE>
- ------------------
* 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.
+ To be filed by amendment.
<PAGE> 1
"EXHIBIT 15.1"
To the Board of Directors of
TEEKAY SHIPPING CORPORATION
We are aware of the inclusion in the Registration Statement of Teekay
Shipping Corporation ("Teekay") for the registration of $225,000,000 First
Preferred Ship Mortgage Notes due 2008 of our report dated December 15, 1995
relating to the unaudited consolidated interim financial statements as of and
for the six-month periods ended September 30, 1995 and 1994 of Teekay.
Pursuant to Rule 436(c) of the Securities Act of 1933, as amended, our
report is 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,
as amended.
Nassau, Bahamas, ERNST & YOUNG
December 19, 1995 Chartered Accountants
<PAGE> 1
"EXHIBIT 23.4"
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 May 15, 1995 (except for note 16, which is as of
December 15, 1995), on the consolidated financial statements of Teekay Shipping
Corporation ("Teekay") and subsidiaries and dated December 15, 1995 on the
financial statements of Andros Spirit Inc., Exuma Spirit Inc., Nassau Spirit
Inc., Senang Spirit Inc., VSSI Appian Inc., VSSI Atlantic Inc. and VSSI Oceans
Inc. (the "Companies"), in the Registration Statement (Form F-3) and related
Prospectus of Teekay and certain other co-registrants for the registration of
$225,000,000 First Preferred Ship Mortgage Notes due 2008 to be issued by
Teekay.
We also consent to the incorporation by reference therein of our report
dated May 15, 1995, 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 March 31, 1995, filed with the Securities and
Exchange Commission.
Nassau, Bahamas ERNST & YOUNG
December 19, 1995 Chartered Accountants
<PAGE> 1
``EXHIBIT 25.1''
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------------
FORM T-1
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
New York, New York (Zip Code)
(Address of principal
executive offices)
--------------------------
Teekay Shipping Corporation
(Exact name of OBLIGOR as specified in its charter)
Republic of Liberia Not Applicable
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
Tradewinds Building, Sixth Floor
Bay Street, P.O. Box SS-6293 (Zip code)
Nassau, The Bahamas
(Address of principal executive offices)
--------------------------
<PAGE> 2
- 2 -
VSSI Oceans Inc.
(Exact name of GUARANTOR as specified in its charter)
Republic of Liberia Not Applicable
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
Tradewinds Building, Sixth Floor
Bay Street, P.O. Box SS-6293 (Zip code)
Nassau, The Bahamas
(Address of principal executive offices)
--------------------------
VSSI Atlantic Inc.
(Exact name of GUARANTOR as specified in its charter)
Republic of Liberia Not Applicable
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
Tradewinds Building, Sixth Floor
Bay Street, P.O. Box SS-6293 (Zip code)
Nassau, The Bahamas
(Address of principal executive offices)
--------------------------
Senang Spirit Inc.
(Exact name of GUARANTOR as specified in its charter)
Commonwealth of the Bahamas Not Applicable
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
Tradewinds Building, Sixth Floor
Bay Street, P.O. Box SS-6293 (Zip code)
Nassau, The Bahamas
(Address of principal executive offices)
--------------------------
<PAGE> 3
- 3 -
VSSI Appian Inc.
(Exact name of GUARANTOR as specified in its charter)
Republic of Liberia Not Applicable
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
Tradewinds Building, Sixth Floor
Bay Street, P.O. Box SS-6293 (Zip code)
Nassau, The Bahamas
(Address of principal executive offices)
--------------------------
Exuma Spirit Inc.
(Exact name of GUARANTOR as specified in its charter)
Commonwealth of the Bahamas Not Applicable
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
Tradewinds Building, Sixth Floor
Bay Street, P.O. Box SS-6293 (Zip code)
Nassau, The Bahamas
(Address of principal executive offices)
--------------------------
Nassau Spirit Inc.
(Exact name of GUARANTOR as specified in its charter)
Commonwealth of the Bahamas Not Applicable
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
Tradewinds Building, Sixth Floor
Bay Street, P.O. Box SS-6293 (Zip code)
Nassau, The Bahamas
(Address of principal executive offices)
--------------------------
<PAGE> 4
- 4 -
Andros Spirit Inc.
(Exact name of GUARANTOR as specified in its charter)
Commonwealth of the Bahamas Not Applicable
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
Tradewinds Building, Sixth Floor
Bay Street, P.O. Box SS-6293 (Zip code)
Nassau, The Bahamas
(Address of principal executive offices)
--------------------------
___% First Preferred Ship Mortgage Notes due 2008
(Title of the indenture securities)
================================================================================
<PAGE> 5
- 5 -
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 is currently 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).
<PAGE> 6
- 6 -
16. List of Exhibits
(cont'd)
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
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 December 15, 1995, the trustee had 2,999,020 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.
---------------------
<PAGE> 7
- 7 -
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 18th day of December, 1995.
UNITED STATES TRUST COMPANY OF
NEW YORK, Trustee
By: /s/ CYNTHIA CHANEY
---------------------------------------
GFG/pg
(rv:CC;kk121595)
<PAGE> 8
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
September 1, 1995
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
By: -------------------------
S/Gerard F. Ganey
Senior Vice President
<PAGE> 9
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED CONDENSED STATEMENT OF CONDITION
and Foreign and Domestic Subsidiaries, a member of the Federal Reserve System,
at the close of business on September 30, 1995, in accordance with a call made
by the Federal Reserve Bank of this District pursuant to the provisions of the
Federal Reserve Act.
<TABLE>
<S> <C>
ASSETS
Cash and balances due from depository institutions (from Schedule RC-A):
a. Noninterest-bearing balances and currency and coin (1) $149,564
b. Interest-bearing balances (2) 50
Securities:
a. Held-to-maturity securities 250
b. Available-for-sale securities 754,888
Federal funds sold and securities purchased under agreements to resell in domestic offices
of the bank and of its Edge Agreement subsidiaries, and in IBFs:
Federal funds sold 5,826
Loans and lease financing receivables:
Loans and leases, net of unearned income, allowance,
and reserve 1,187,125
Trading assets 0
Premises and fixed assets 57,232
Other real estate owned 9,510
Investments in unconsolidated subsidiaries and associated companies 643
Customers' liability to this bank on acceptances outstanding 0
Intangible assets 8,818
Other assets 115,546
----------
TOTAL ASSETS $2,289,452
==========
</TABLE>
- ----------
(1) Includes each items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 10
<TABLE>
<S> <C>
LIABILITIES
Deposits: $1,793,703
In domestic offices
(1) Noninterest-bearing 425,892
(2) Interest-bearing 1,367,811
---------
In foreign offices, Edge and Agreement subsidiaries, and
IBFs 22,179
(1) Noninterest-bearing 0
(2) Interest-bearing 22,179
---------
Federal funds purchased and securities sold under agreements to repurchase
in domestic offices of the bank and of its Edge and Agreement subsidiaries, and in IBFs:
Federal funds purchased 129,068
Securities sold under agreements to repurchase 5,940
Other borrowed money 28,706
Other liabilities 153,876
----------
TOTAL LIABILITIES $2,133,472
==========
EQUITY CAPITAL
Common Stock $14,995
Surplus (exclude all surplus related to preferred stock) 41,500
a. Undivided profits and capital reserves 98,580
b. Net unrealized holding gains (losses) on available-for-sale securities 905
Cumulative foreign currency translation adjustments 0
TOTAL EQUITY CAPITAL 155,980
----------
TOTAL LIABILITIES, LIMITED-LIFE PREFERRED STOCK, AND EQUITY CAPTIAL $2,289,452
==========
</TABLE>
I, RICHARD E. BRINKMANN, SENIOR VICE PRESIDENT & CONTROLLER, of the above-named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
RICHARD E. BRINKMANN, SVP & CONTROLLER
September 30, 1995
We, the undersigned directors, attest the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
H. MARSHALL SCHWARZ : Directors
JEFFREY S. MAURER :
:
GFG/pg
112195
