UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
(Mark One)
[ ] REGISTRATION STATEMENT PURSUANT TO SECTION
12(b) or (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31,1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from . . . . . . . . . to . . . . . . . . . .
Commission file number. . . . . 1-12874 . . . . . . . . . . . .
TEEKAY SHIPPING CORPORATION
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrant's name into English)
Republic of Liberia
(Jurisdiction of incorporation or organization)
Tradewinds Building, Fifth Floor, Bay Street,
P.O. Box SS-6293, Nassau, The Bahamas
(Address of principal executive offices)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, no par value per share New York Stock Exchange
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
Securities for which there is a reporting obligation pursuant to Section 15(d)
of the Act.
9 5/8% First Preferred Ship Mortgage Notes due 2003
8.32% First Preferred Ship Mortgage Notes due 2008
(Title of Class)
Indicate the number of outstanding shares of each of the issuer's
classes of capital or common stock as of the close of the period covered by the
annual report.
28,326,996 shares of Common Stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
Indicate by check mark which financial statement item the registrant
has elected to follow:
Item 17 Item 18 X
<PAGE>
TEEKAY SHIPPING CORPORATION
INDEX TO REPORT ON FORM 20-F
<TABLE>
<CAPTION>
PART I. Page
<S> <C>
Item 1. Description of Business.....................................................................................1
Item 2. Description of Property.....................................................................................7
Item 3. Legal Proceedings...........................................................................................9
Item 4. Control of Registrant......................................................................................10
Item 5. Nature of Trading Market...................................................................................10
Item 6. Exchange Controls and Other Limitations Affecting Security Holders.........................................11
Item 7. Taxation...................................................................................................11
Item 8. Selected Financial Data....................................................................................12
Item 9. Management's Discussion and Analysis of Financial Condition and Results of Operations......................14
Item 10. Directors and Officers of the Registrant...................................................................17
Item 11. Compensation of Directors and Officers.....................................................................19
Item 12. Options to Purchase Securities From Registrant or Subsidiaries.............................................19
Item 13. Interest of Management in Certain Transactions.............................................................19
PART II.
Item 14. Description of Securities to be Registered.....................................................Not applicable
PART III.
Item 15. Defaults Upon Senior Securities................................................................Not applicable
Item 16. Changes in Securities and Changes in Security for Registered Securities........................Not applicable
PART IV.
Item 17. Financial Statements...........................................................................Not applicable
Item 18. Financial Statements.......................................................................................20
Item 19. Financial Statements and Exhibits..........................................................................21
Signatures.....................................................................................................................24
</TABLE>
<PAGE>
PART I
Item 1. DESCRIPTION OF BUSINESS
The Company
Teekay Shipping Corporation ("Teekay"), together with its subsidiaries (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 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 (75,000 - 115,000 dwt) 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 consider strategic opportunities that may arise from time to
time, including joint ventures and business acquisitions.
The Company's fleet consists of 42 tankers: 39 Aframax oil tankers and
oil/bulk/ore carriers ("OBOs"), two smaller oil tankers, and one Very Large
Crude Carrier ("VLCC"). An additional newbuilding double-hull Aframax tanker is
scheduled for delivery on June 17, 1997. The Company's vessels are all of
Liberian or Bahamian registry. The Company's fleet has a total cargo capacity of
approximately 4.2 million tonnes and its Aframax vessels represent approximately
7.3% 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 8.2 years, compared to an average age for the world
oil tanker fleet of approximately 13.7 years and for the world Aframax tanker
fleet of approximately 12.5 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. In addition, the Company has been
recognized by customers and rating services for safety, quality and service. In
each of the last seven 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 1997), 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.
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.
1
<PAGE>
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 78% of the Company's net voyage revenues were derived from spot
voyages during fiscal 1997.
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 28 vessels in
the second-hand market, as well as disposing of 13 older (mid-1970's built)
tankers over the past four years.
Teekay is incorporated under the laws of the Republic of Liberia and maintains
its principal executive headquarters at the Tradewinds Building, Fifth Floor,
Bay Street, P.O. Box SS-6293, Nassau, Commonwealth of The Bahamas. Its telephone
number at such address is (242) 322-8020. The Company's principal operating
offices are located at 200 Burrard Street, Vancouver, British Columbia, Canada,
V6C 3L6. Its telephone number at such address is (604) 683-3529.
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. 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 (115,000 to 200,000 dwt) size vessels as well as
Panamax (50,000 to 75,000 dwt) size vessels can compete for many of the same
charters for which the Company competes. Ultra Large Crude Carriers (320,000+
dwt) ("ULCCs"), and VLCCs (200,000 to 320,000 dwt) 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 heighten
the already intense 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 26
vessels trading globally (eight of which are on time-charter from Sanko
Steamship Co. Ltd., an independent Japanese shipping company, and nine of which
are on time-charter from various other companies), Neptune Orient Lines Ltd.
(owned partially by the Singapore government), with approximately 13 vessels,
and Bona Shipholding Limited, which controls approximately 23 vessels. The
Company believes that it has 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.
2
<PAGE>
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--International Maritime Organization ("IMO"). 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 most jurisdictions in which the Company's tanker
fleet operates, 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 construction or
mid-deck design with double-side construction, and (iii) all tankers will be
subject to enhanced inspections. Also, under IMO regulations, a tanker must be
of double-hull construction or a mid-deck design with double-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.
Under the current regulations, the vessels of the Company's existing fleet will
be able to operate for substantially all of their respective economic lives
before being required to have double-hulls. Although six of the Company's
vessels are 15 years or older, the oldest of such vessels are only 17 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--The United States Oil Pollution Act of 1990 ("OPA
90"). OPA 90 established an extensive regulatory and liability regime for the
protection and cleanup of the environment from oil spills. OPA 90 affects all
owners and operators whose vessels trade to the United States or its territories
or possessions or whose vessels operate in 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
"potential 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 potential 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
3
<PAGE>
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.
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 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
4
<PAGE>
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.
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 European
Community ("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.
Risk of Loss and Insurance
The operation of any ocean-going vessel carries an inherent risk of catastrophic
marine disasters and property losses, caused by adverse weather conditions,
mechanical failures, human error, war, terrorism, piracy and other circumstances
or events. In addition, the transportation of crude oil is subject to the risk
of crude oil spills, and business interruptions due to political circumstances
in foreign countries, hostilities, labor strikes, and boycotts. 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. The Company does not carry insurance
covering the loss of revenue resulting from vessel off-hire time. There can be
no assurance, that all covered 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 have resulted in increased
costs for, and may result in the lack of availability of, insurance against the
risks of environmental damage or pollution.
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
fiscal 1997, the Company derived 97% 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.
Crewing and Staff
The Company employs approximately 270 captains, chief engineers, chief officers
and first engineers, approximately 1,200 additional personnel at sea and
approximately 126 personnel ashore.
The Company places great emphasis on attracting, through its recruiting offices
in Manila, Glasgow, and Mumbai 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. During fiscal 1996, the Company entered into a Collective Bargaining
Agreement with the Philippine Seafarers' Union (PSU), an affiliate of the
International Transport Workers' Federation (ITF), which covers substantially
all of the Company's junior officers and seamen. The Collective Bargaining
Agreement resulted in a small increase in wages and benefits for the vessel
crews.
5
<PAGE>
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 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.
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. The Company had one charterer
(an international oil company) during fiscal 1997 from which voyage revenues
exceeded 10% of the Company's consolidated voyage revenues. The voyage revenues
from such charterer amounted to $48,686,000. No other single customer has
accounted for more than 10% of the Company's consolidated voyage revenues and
net income in any of the last three fiscal years.
Taxation of the Company
The legal jurisdictions of the countries in which the Company and its
subsidiaries are incorporated do not impose income taxes upon shipping-related
activities.
6
<PAGE>
Item 2. DESCRIPTION OF PROPERTY
The Company's Fleet
The following fleet list provides information with respect to the Company's
vessels as at May 31, 1997:
<TABLE>
<CAPTION>
Year %
Series/Yard Built Type Dwt-MT Flag Ownership
Aframax Tankers (40)
<S> <C> <C> <C> <C> <C> <C>
HAMANE SPIRIT*...................... Onomichi 1997 DH 98,600 Bahamain 100%
POUL SPIRIT......................... Onomichi 1995 DH 98,600 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 100%
SEMAKAU SPIRIT...................... Imabari 1988 DS 97,172 Liberian 100%
SUDONG SPIRIT....................... Imabari 1987 DS 98,215 Liberian 100%
SINGAPORE SPIRIT.................... Imabari 1987 DS 96,960 Liberian 100%
KYUSHU SPIRIT....................... Mitsubishi 1991 DS 95,562 Bahamian 100%
KOYAGI SPIRIT....................... Mitsubishi 1989 SH 95,987 Liberian 100%
OPPAMA SPIRIT....................... Sumitomo 1980 SH 90,333 Bahamian 100%
MAGELLAN SPIRIT..................... Hitachi 1985 DS 95,000 Liberian 100%
PALM MONARCH........................ Mitsui 1981 SH 89,922 Liberian 100%
SEABRIDGE**......................... Namura 1996 DH 105,154 Liberian 0%
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%
---------
4,324,710
=========
</TABLE>
- ------------------------------------
DH Double-hull tanker
DB Double-bottom tanker
DS Double-sided tanker
SH Single-hull tanker OBO Oil/Bulk/Ore carrier
* Newbuilding presently under construction. Scheduled for delivery on June 17,
1997.
** Vessel time-chartered-in for one year commencing April 1997.
*** Pre-MARPOL vessel,i.e., non-segregated ballast tanks.
7
<PAGE>
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.
During fiscal 1997, the Company acquired a 1988-built double-sided Aframax
tanker, the SEMAKAU SPIRIT, and a 1987-built double-sided Aframax tanker
previously on time-charter, renaming it SINGAPORE SPIRIT. In addition, the
Company entered into an agreement in April 1997 for a one-year time-charter of
the SEABRIDGE, a modern, secondhand Aframax tanker, and expects to take delivery
of a newbuilding double-hull Aframax on order from a Japanese shipyard, on June
17, 1997.
The AMERSHAM, a 1981-built Aframax tanker owned by the Company's 50%-owned joint
venture, Viking Consolidated Shipping Corp. ("VCSC"), was sold in March 1997.
VCSC is 50%-directly-owned by Teekay and 50%- owned by a company associated with
Mr. Thomas Kuo-Yuen Hsu, a director of Teekay.
See note 5 to the Consolidated Financial Statements for information with respect
to major encumbrances against vessels of the Company.
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"). Vessels may also be 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. Many 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 seven
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 1997), 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.
The Company has obtained through Det Norske Veritas, the Norwegian
classification society, a certificate of compliance with the ISO 9000 standards
of total quality management. ISO 9000 is a series of international standards for
quality systems, which includes ISO 9002, the standard most commonly used in the
shipping industry. The Company has also retained Det Norske Veritas for the
audit and implementation of the International Safety Management (ISM) code,
which are required by the IMO to be completed before July 1, 1998. To date, the
Company has completed the audit and implementation of the ISM code for 17 of its
vessels and it expects to complete the audit and implementation for its
remaining vessels by December 31, 1997.
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.
8
<PAGE>
Item 3. 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, including proceedings before
the High Court of Singapore in order to determine liability for the collision
and the amount of damages recoverable. Most of such claims, to the extent they
involve potential liability to the Company, have been settled or otherwise
satisfied for amounts not material to the Company. Management believes that any
such remaining claims will be fully covered by insurance.
Litigation against the Estate of the Company's Founder
In January 1997, the plaintiff in a lawsuit against, among others, the estate of
the Company's founder, the Company and certain of the Company's subsidiaries,
shareholders and officers and directors, as more fully described under the
heading "Litigation Against the Estate of the Company's Founder" in Item 3 of
the Company's Report on Form 20-F for the fiscal year ended March 31, 1996,
agreed to dismiss the action and to release all of her alleged claims in
exchange for a cash payment by, or on behalf of, the defendants. The amount paid
by the Company in connection with such release was not material to the Company's
operations.
9
<PAGE>
Item 4. Control of Registrant
Principal Shareholders
(a) The Company is not directly or indirectly owned or controlled by another
corporation or by any foreign government.
(b) The following table sets forth certain information regarding (i) ownership
of Teekay's common stock as of March 31, 1997 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:
Identity of Person
Title of Class or Group Amount Owned Percent of Class
-------------- -------- ------------ ----------------
Common Stock, Cirrus Trust 18,433,181 shares 65.1%
no par value JTK Trust 2,858,082 shares 10.1%
All officers and * *
directors as a group
(17 persons)
(c) The Company is not aware of any arrangements, the operation of which may at
a subsequent date result in a change in control of the Company.
- --------------------
* Less than one percent of outstanding shares.
Item 5. NATURE OF TRADING MARKET
On July 19, 1995, the Company's common stock listed for trading on the New York
Stock Exchange (NYSE- TK). The following table shows sales prices for the four
quarters of fiscal 1997 and the two full quarters in fiscal 1996 that the shares
have been listed on the NYSE. The figures have been compiled from Bloomberg and
are in US dollars.
1st Q 2nd Q 3rd Q 4th Q
Fiscal 1997 4/1-6/30/96 7/1-9/30/96 10/1-12/31/96 1/1-3/31/97
----------- ----------- ------------- -----------
High 28 30 5/8 33 1/8 34 1/4
Low 25 26 1/2 28 7/8 26 1/2
3rd Q 4th Q
Fiscal 1996 10/1-12/31/95 1/1-3/31/96
------------- -----------
High 24 7/8 27
Low 23 23 1/4
Approximately 25% of all outstanding shares at March 31, 1997 were held in the
United States.
There is not an active public market within or outside the United States for
Teekay's 9 5/8% First Preferred Ship Mortgage Notes due 2003. These Notes have
been registered under the Securities Exchange Act of 1934 and Teekay does not
intend to list them on any securities exchange or to seek approval for quotation
through any automated quotation system.
10
<PAGE>
Teekay's 8.32% First Preferred Ship Mortgage Notes due 2008 are listed for
trading on the New York Stock Exchange. These Notes were first offered on the
market January 19, 1996. No active trading market exists for these Notes.
Item 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
(a) The Company is not aware of any governmental laws, decrees or
regulations in the Company's country of organization that restrict the
export or import of capital, including, but not limited to, foreign
exchange controls, or that affect the remittance of dividends, interest
or other payments to nonresident holders of the Company's securities.
(b) The Company is not aware of any limitations on the right of nonresident
or foreign owners to hold or vote securities of the Company imposed by
foreign law or by the charter or other constituent document of the
Company.
Item 7. TAXATION
Since (i) Teekay Shipping Corporation is and intends to maintain its status as a
"non-resident 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) Teekay's 9 5/8%
First Preferred Ship Mortgage Notes and 8.32% First Preferred Ship Mortgage
Notes and all documentation related to these Notes and to the public offering of
Teekay's common stock were executed outside of the Republic of Liberia, and
assuming the holders of these Notes and the common stock neither reside in,
maintain an office in, nor engage in business in, the Republic of Liberia, under
current Liberian law, no taxes or withholdings are imposed by the Republic of
Liberia on payments to be made in respect of the Notes or on distributions made
in respect of the common stock. Furthermore, no stamp, capital gains or other
taxes will be imposed by the Republic of Liberia on the ownership or disposition
of the common stock by holders thereof.
11
<PAGE>
Item 8. SELECTED FINANCIAL DATA
Set forth below are selected consolidated financial and other data of the
Company for the five fiscal periods ended March 31, 1997, which have been
derived from the Company's Consolidated Financial Statements. The data below
should be read in conjunction with the Consolidated Financial Statements and the
notes thereto and the report of Ernst & Young, independent Chartered
Accountants, with respect to the statements for the fiscal years ended March 31,
1997, 1996 and 1995, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." 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>
11 Month Fiscal
Period Ended Year Ended
Fiscal Year Ended March 31, March 31, April 30,
1997 1996 1995 1994(1) 1993
---- ---- ---- ------- ----
(U.S. Dollars in thousands, except per share and per day data and ratios)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Voyage revenues............................. $ 382,249 $ 336,320 $ 319,966 $ 317,742 $ 336,994
Voyage expenses............................. 102,037 90,575 84,957 81,052 108,805
Net voyage revenues......................... 280,212 245,745 235,009 236,690 228,189
Income from vessel operations............... 94,258 76,279 52,816 60,777 37,310
Interest expense ........................... (60,810) (62,910) (66,304) (49,713) (47,769)
Interest income. ........................... 6,358 6,471 5,904 2,904 1,156
Other income ............................... 3,050 9,895 11,848 11,777 37,862
Income from continuing operations before
foreign exchange gain (loss).............. 42,856 29,735 4,264 25,745 28,559
Foreign exchange gain (loss)(2)............. (226) (665) 991 (1,532) (77,917)
Net income (loss) from continuing operations 42,630 29,070 5,255 24,213 (49,358)
Net income from discontinued operations..... - - - 5,945 1,890
Cumulative effect of change in accounting for
marketable securities..................... - - 1,113 - -
Net income (loss)........................... 42,630 29,070 6,368 30,158 (47,468)
Per Share Data:
Net income (loss) from continuing operations $1.52 $ 1.17 $ 0.29 $ 1.35 $ (2.74)
Cumulative effect of change in accounting for
marketable securities..................... - - 0.06 - -
Net income (loss)........................... 1.52 1.17 0.35 1.68 (2.64)
Cash dividends declared per share........... 0.86 0.48 - - -
Weighted average shares outstanding
(thousands)............................... 28,138 24,837 18,000 18,000 18,000
Balance Sheet Data (at end of period):
Cash and marketable securities.............. $ 117,523 $ 101,780 $ 85,739 $ 107,246 $ 48,770
Total assets................................ 1,372,838 1,355,301 1,306,474 1,405,147 1,368,966
Total debt.................................. 699,726 725,842 842,874 945,611 884,813
Total stockholders' equity.................. 629,815 599,395 439,066 433,180 403,022
Other Financial Data:
EBITDA (3).................................. $ 191,632 $ 166,233 $ 146,775 $ 151,364 $136,123
EBITDA to interest expense (3) (4).......... 3.22x 2.69x 2.28x 3.04x 2.59x
Total debt to EBITDA (1) (3)................ 3.65 4.37 5.74 5.83 6.50
Total debt to total capitalization.......... 52.6% 54.8% 65.7% 68.6% 68.7%
Net debt to capitalization (5).............. 48.0 51.0 63.3 65.9 67.5
Capital expenditures:
Vessel purchases, gross................... $ 65,104 $ 123,843 $ 7,465 $ 163,509 $ 334,733
Drydocking................................ 23,124 11,641 11,917 13,296 16,440
Fleet Data:
Average number of ships (6)................. 41 39 42 45 50
Average age of Company's fleet
(in years) (7)........................... 8.2 7.4 7.1 7.6 7.9
TCE per ship per day (6)(8)................. $ 20,356 $ 18,438 $ 16,552 $ 17,431 $ 13,722
Vessel operating expenses per ship per
day (6)(9)................................ 4,922 4,787 4,748 4,879 4,276
Operating cash flow per ship per day (10)... 11,819 10,613 8,944 9,133 6,511
(Footnotes on following page)
</TABLE>
12
<PAGE>
(Footnotes for previous page)
(1) For the 12 months ended March 31, 1994, voyage revenues were $345.0
million; income from vessel operations was $64.4 million; net income was
$320.0 million; and EBITDA was $162.3 million. For the eleven-month
period ended March 31, 1994, EBITDA for the 12 months ended March 31,
1994 was used for purposes of computing total debt to EBITDA, in order to
facilitate comparisons to other periods.
(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.
(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) For purposes of computing EBITDA to interest expense, interest expense
includes capitalized interest but excludes amortization of loan costs.
(5) Net debt represents total debt less cash, cash equivalents and
marketable securities.
(6) Excludes vessels of discontinued operations and the joint venture.
(7) Average age of Company's fleet is the average age, at the end of the
relevant period, of all the vessels owned or leased by the Company
(excluding vessels of discontinued operations but including joint
venture vessels).
(8) 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 Research Studies Ltd. ("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 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.
(9) 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 expense, port fees
and canal tolls. 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.
(10) 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>
Item 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company is a leading provider of international crude oil and petroleum
product 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 Company's fleet consists of 42 tankers, including 39
Aframax oil tankers and oil/bulk/ore carriers, two smaller tankers, and one
VLCC, for a total cargo-carrying capacity of approximately 4.2 million tonnes.
An additional double-hull newbuilding Aframax tanker is scheduled for delivery
on June 17, 1997.
Approximately 78% of the Company's net voyage revenue is currently derived from
spot voyages. The balance of the Company's revenue is generated by two other
modes of employment: time charters, whereby vessels are chartered to customers
for a fixed period; and by contracts of affreightment, whereby the Company
carries an agreed quantity of cargo for a customer over a specified trade route
over a specified period of time. In aggregate, approximately 86% of the
Company's net voyage revenue is currently derived from spot voyages or spot
market-related contracts. This dependence on the spot market, which is within
industry norms, contributes to the volatility of the Company's revenue, cash
flow from operations, and net income. Management believes that the Company has a
competitive advantage over other tanker owners in the Aframax spot market.
Historically, the tanker industry has been cyclical, experiencing volatility in
profitability resulting from changes in the supply of and demand for tankers.
Additionally, tanker markets have exhibited seasonal variations in charter
rates. Tanker markets are typically stronger in the winter months as a result of
increased oil consumption in the northern hemisphere and unpredictable winter
weather patterns which tend to disrupt vessel scheduling.
Results of Operations
Bulk shipping industry freight rates are commonly measured at the net voyage
revenue level in terms of "time charter equivalent" (or "TCE") rates, defined as
voyage revenues less voyage expenses (excluding commissions), divided by
revenue-generating ship-days for the round-trip voyage. Voyage revenues and
voyage expenses are a function of the type of charter, either spot charter or
time charter, and port, canal and fuel costs depending on the trade route upon
which a vessel is sailing, in addition to being a function of the level of
shipping freight rates. For this reason, shipowners base economic decisions
regarding the deployment of their vessels upon anticipated TCE rates, and
industry analysts typically measure bulk shipping freight rates in terms of TCE
rates. Therefore, the discussion of revenue below focuses on net voyage revenue
and TCE rates.
Fiscal 1997, Fiscal 1996, and Fiscal 1995
The Company's net income was $42.6 million ($1.52 per share) in fiscal 1997, up
from $29.1 million ($1.17 per share) in fiscal 1996, and $6.4 million ($0.35 per
share) in fiscal 1995, reflecting improvement in the tanker charter market
accompanied by a relatively stable cost environment.
The Company sold its remaining eight mid-1970s-built tankers in fiscal years
1995 and 1996, and acquired a total of six newer Aframax tankers in fiscal years
1996 and 1997. As a result, the Company's average fleet size increased by 4.6%
in fiscal 1997 following a decrease of 7.1% from fiscal 1995 to 1996.
Net voyage revenue grew 14.0% to $280.2 million in fiscal 1997 from $245.7
million in fiscal 1996, and 4.6% in fiscal 1996 from $235.0 million in fiscal
1995, reflecting improving tanker charter market conditions and the effect of
changes in the size of the fleet. The Company's average TCE rate in fiscal 1997
was up 10.4% to $20,356 from $18,438 in fiscal 1996, after an increase of 11.4%
in fiscal 1996 from $16,552 in fiscal 1995.
Vessel operating expenses increased 7.0% to $72.6 million in fiscal 1997 from
$67.8 million in fiscal 1996, and decreased 6.7% in fiscal 1996 from $72.7
million in fiscal 1995, mainly reflecting changes in fleet size.
Depreciation and amortization expense increased 10.1% to $90.7 million in fiscal
1997 from $82.4 million in fiscal 1996, as a result of an increase in average
fleet size, and a higher than usual number of scheduled drydockings.
Depreciation and amortization expense decreased 12.8% in fiscal 1996 from $94.5
million in fiscal 1995, as a result of a decrease in average fleet size and a
revision to estimates of residual values of the Company's vessels as at April 1,
1995. The revision effectively reduced depreciation expense by approximately
$9.4 million in fiscal 1996 as compared to fiscal 1995. Depreciation and
amortization expense included amortization of drydocking costs of $10.9 million
in fiscal 1997, $8.6 million in fiscal 1996 and $10.3 million in fiscal 1995.
14
<PAGE>
General and administrative expenses rose 14.7% to $19.2 million in fiscal 1997
from $16.8 million in fiscal 1996, and 11.5% in fiscal 1996 from $15.0 million
in fiscal 1995, as the result of increases in senior management compensation,
the cost of compliance with increasingly stringent tanker industry regulations,
and greater administrative costs subsequent to the acquisition of Teekay
Shipping Limited in March 1995.
Interest expense decreased by 3.3% to $60.8 million in fiscal 1997 from $62.9
million in fiscal 1996, and by 5.1% in fiscal 1996 from $66.3 million in fiscal
1995. The decreases resulted primarily from a continued decline in the Company's
total debt, partially offset by higher interest rates resulting from the issue
of $225 million 8.32% First Preferred Ship Mortgage Notes in January 1996.
Interest income of $6.4 million in fiscal 1997, $6.5 million in fiscal 1996, and
$5.9 million in fiscal 1995, largely reflected increasing cash balances offset
in fiscal 1997 by lower interest rates.
Other income of $2.8 million in fiscal 1997 and $9.2 million in fiscal 1996
consisted primarily of gains on the sale of a 50%-owned tanker in fiscal 1997
and two vessels in fiscal 1996. Other income of $12.8 million in fiscal 1995
included an $18.2 million gain on the sale of six vessels, partially offset by
$4.3 million in losses on available-for-sale securities and a $2.1 million
equity loss from the Company's 50% investment in VCSC.
The following table illustrates the relationship between fleet size (measured in
ship-days), time charter equivalent ("TCE") per revenue-generating ship-day
performance, and operating results per calendar ship-day:
Year Ended Year Ended Year Ended
March 31/97 March 31/96 March 31/95
- ------------------------------------------------------ ----------- ------------
Total calendar ship-days 14,937 14,310 15,315
Non-revenue days 866 698 822
- ------------------------------------------------------ ----------- ------------
Revenue-generating ship-days (A) 14,071 13,612 14,493
- ------------------------------------------------------ ----------- ------------
Net voyage revenue before
commissions (B) (000s) $286,429 $250,981 $239,888
- ------------------------------------------------------ ----------- ------------
Time charter equivalent (TCE) (B/A) $20,356 $18,438 $16,552
- ------------------------------------------------------ ----------- ------------
Operating results per
calendar ship-day:
Net voyage revenue $18,760 $17,173 $15,345
Vessel operating expense 4,922 4,787 4,748
General and administrative expense 1,286 1,171 981
Drydocking expense 733 602 672
- ------------------------------------------------------ ----------- ------------
Operating cash flow per calendar ship-day $11,819 $10,613 $8,944
- ------------------------------------------------------ ----------- ------------
Liquidity and Capital Resources
The Company's total liquidity, including cash, cash equivalents and undrawn
long-term lines of credit, was $258.6 million as at March 31, 1997, up from
$197.3 million as at March 31, 1996, and $85.7 million as at March 31, 1995, as
a result of internally generated cash flow and debt refinancings. Net cash flow
from operating activities rose to $139.2 million in fiscal 1997, compared to
$98.4 million and $90.0 million in fiscal years 1996 and 1995, respectively,
reflecting an improvement in tanker charter market conditions.
The Company's scheduled debt repayments were $16.0 million during fiscal 1997,
down significantly from $57.9 million in fiscal 1996 and $87.6 million in fiscal
1995, as a result of debt refinancings which have lengthened repayment terms. In
October 1996, the Company completed two new term loan facilities (the "Term Loan
Facilities"), with seven commercial banks providing borrowings of up to $210
million in order to refinance existing debt at improved rates and credit terms.
15
<PAGE>
The Term Loan Facilities also provided an additional $49 million of liquidity to
the Company.
Dividend payments during fiscal 1997 were $24.1 million, or 86 cents per share,
of which $13.5 million was paid in cash and $10.6 million was paid in the form
of common shares issued under the Company's dividend reinvestment plan.
During fiscal 1997, the Company incurred capital expenditures for vessels and
equipment of $65.1 million, mainly as a result of the acquisition of two modern,
second-hand Aframax tankers, the SEMAKAU SPIRIT and the SINGAPORE SPIRIT
(formerly the GALAXY RIVER). These acquisitions were financed through the Term
Loan Facilities completed in October 1996. As a result of a larger number of
scheduled drydockings in fiscal 1997, capital expenditures for drydocking were
$16.6 million in fiscal 1997, compared to $7.4 million in fiscal 1996 and $14.4
million in fiscal 1995.
A double-hull newbuilding Aframax tanker is scheduled for delivery on June 17,
1997 for a total cost of $44.5 million. At March 31, 1997, payments of $8.9
million had been made towards this commitment and a $35.6 million long-term
financing arrangement exists for the remaining unpaid cost of this vessel.
FORWARD-LOOKING STATEMENTS
The Company's Annual Report to Shareholders for 1997 and this Annual Report on
Form 20-F for the fiscal year ended March 31, 1997 contain forward-looking
statements (as defined in Section 21E of the Securities Exchange Act of 1934, as
amended) which reflect management's current views with respect to future events
and financial performance, in particular the statements regarding an improvement
in the tanker market conditions and the Company's return on invested capital in
fiscal years 1998 and 1999; the Company's competitive advantage over other
tanker owners in the Aframax spot market; the number of mid-1970s-built tankers
in the market that will be phased out over the next three years; the increase in
tanker demand in 1997 and 1998; and the balance of supply and demand in the
tanker market. The following factors are among those that could cause actual
results to differ materially from the forward-looking statements and that should
be considered in evaluating any such statement: changes in production of or
demand for oil and petroleum products, either generally or in particular
regions; greater than anticipated levels of tanker newbuilding orders or less
than anticipated rates of tanker scrapping; changes in trading patterns
significantly impacting overall tanker tonnage requirements; changes in the
typical seasonal variations in tanker charter rates; unanticipated changes in
laws and regulations and the Company's ability to comply with all existing and
future laws and regulations; changes in demand for modern, high quality vessels;
risks incident to vessel operation, including pollution; and other risks
detailed from time to time in the Company's periodic reports filed with the U.S.
Securities and Exchange Commission. The Company may issue additional written or
oral forward-looking statements from time to time which are qualified in their
entirety by the cautionary statement contained in this paragraph and in other
reports hereafter filed by the Company with the U.S. Securities and Exchange
Commission.
16
<PAGE>
Item 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
Management
The directors, executive officers and senior management of the Company are
listed below:
Name Age Position
- ---- --- --------
Karlshoej, Axel 56 Director and Chairman of the Board
Hood, James N. 62 Director, President and Chief Executive
Officer
Coady, Arthur F. 63 Director, EVP and General Counsel
Dingman, Michael D. 65 Director
Feder, Morris L. 80 Director
Hsu, Steve G. K. 63 Director
Hsu, Thomas Kuo-Yuen 50 Director
Alsleben, Veronica A. E. 46 Managing Director (London)
Antturi, Peter S. 38 Controller (Vancouver)
Chad, Greg 45 VP, Corporate Services (Vancouver)
Gibson, Esther E. 42 Secretary (Nassau)
Glendinning, David 43 VP, Marine and Commercial Operations
(Vancouver)
Gurnee, Anthony 37 Chief Financial Officer, Treasurer and VP,
Business Development (Vancouver)
Meldgaard, Mads T. 32 Managing Director (Singapore)
Moller, Bjorn 39 Chief Operating Officer (Vancouver)
Nagao, Yoshio 50 Managing Director (Tokyo)
Patwardhan, Vinay S. 55 SVP, Marine Operations (Vancouver)
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 various 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. He also serves as
Director/Executive to a number of other industrial concerns.
17
<PAGE>
MORRIS L. FEDER is currently President of Worldwide Cargo Inc., a New York based
chartering firm. Mr. Feder has been employed in the shipping industry in excess
of 48 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 Shipholding
Group Inc. and was a member of the Finance and Development Committee of the
Board of Directors 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. as well as being a member of the Board of Directors of American Marine
Advisors, 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, Treasurer and Chief Financial Officer. In March 1997,
Mr. Gurnee was given corporate planning and development responsibilities, which
are reflected in his current title - Chief Financial Officer, Treasurer and Vice
President, Business Development. 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 25 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 of Oak Maritime (H.K.) Inc., Limited, a ship
management company based in Hong Kong. Mr. Hsu is a member of the Executive
Committee of Hong Kong Shipowners Association, a member of the American Bureau
of Shipping, 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 25 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 six vessels, ranging in size from 80,000 dwt
to 280,000 dwt. He has been a Committee Director of the Britannia 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 25 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).
18
<PAGE>
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 the position of Vice President, Group Chartering and Business
Development. In January 1997, Mr. Moller was appointed Chief Operating Officer.
Prior to joining the Company, Mr. Moller spent 10 years with East Asiatic
Company, including four years in tanker chartering and operations.
YOSHIO NAGAO has been employed in the shipping industry for the past 30 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 37 years,
having experience in crude tanker, product carrier, OBO, 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.
Directors are elected annually for one-year terms.
Item 11. COMPENSATION OF DIRECTORS AND OFFICERS
The aggregate annual compensation paid to the 12 executive officers and senior
managers listed in Item 10 above was $2,957,036 for fiscal 1997, 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 1997, the Company contributed an aggregate amount of
approximately $77,000 to provide pension and similar benefits for the 12
executive officers and senior managers listed above.
Item 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES
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 2,076,862 shares
of common stock has been reserved for issuance under the Plan. As of May 12,
1997, options to purchase a total of 1,053,508 shares of Teekay's common stock
were outstanding, with options to purchase a total of 515,977 shares then
exercisable and with the directors and the 12 executive officers and senior
managers listed in Item 10 above holding options to purchase a total of 688,750
shares. The options are exercisable at prices ranging from $21.50 to $27.375 per
share and expire between July 19, 2005 and May 28, 2006, ten years after the
date of grant.
Item 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Approximately 75% 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. 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 is not required to be made until after
the 9 5/8% First Preferred Ship Mortgage Notes have been paid in full.
19
<PAGE>
PART II
Item 14. DESCRIPTION OF SECURITIES TO BE REGISTERED
Not applicable.
PART III
Item 15. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
Item 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES
Not applicable.
PART IV
Item 17. FINANCIAL STATEMENTS
Not applicable.
Item 18. FINANCIAL STATEMENTS
See item 19(a) below.
20
<PAGE>
Item 19. FINANCIAL STATEMENTS AND EXHIBITS
(a) The following financial statements and schedules, together with the report
of Ernst & Young thereon, are filed as part of this Annual Report:
Page
----
Report of Independent Public Accountants..................................F-1
Consolidated Financial Statements
Consolidated Statements of Income and Retained Earnings.................F-2
Consolidated Balance Sheets.............................................F-3
Consolidated Statements of Cash Flows...................................F-4
Notes to the Consolidated Financial Statements..........................F-5
Schedule A to the Consolidated Financial Statements.....................F-19
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required, are
inapplicable or have been disclosed in the Notes to the Consolidated Financial
Statements and therefore have been omitted.
(b) The following exhibits are filed as part of this Annual Report:
*2.1 Articles of Incorporation of Teekay, with all amendments thereto.
**2.2 Bylaws of Teekay, with all amendments thereto.
+2.3 Indenture dated as of July 15, 1993 among Teekay, VSSI Sun Inc.,
Diamond Spirit Inc., VSSI Deepsea Inc., VSSI Bulkers Inc., VSSI
Star Inc., VSSI Ulsan Inc. and United States Trust Company of New
York, as Trustee.
+2.4 Registration Rights Agreement dated July 15, 1993 among Teekay,
VSSI Sun Inc., Diamond Spirit Inc., VSSI Deepsea Inc., VSSI
Bulkers Inc., VSSI Star Inc., VSSI Ulsan Inc., and Morgan Stanley
& Co. Incorporated, as Placement Agent.
+2.5 Specimen of Teekay's 9 5/8% First Preferred Ship Mortgage Note due
2003.
+++2.6 First Preferred Ship Mortgage dated July 15, 1993 by VSSI Sun Inc.
to United States Trust Company of New York, as Trustee.
+++2.7 Assignment of Time Charter dated as of July 15, 1993 from VSSI Sun
Inc. to United States Trust Company of New York, as Trustee.
+++2.8 Assignment of Insurance dated July 15, 1993 from VSSI Sun Inc. to
United States Trust Company of New York, as Trustee.
+2.9 Pledge Agreement and Irrevocable Proxy dated July 15, 1993 made by
Teekay in favor of United States Trust Company of New York, as
Trustee.
+++2.10 Guarantee dated as of July 15, 1993 by VSSI Sun Inc. in favor of
United States Trust Company of New York, as Trustee.
+++2.11 Assignment of Freights and Hires dated July 15, 1993 from VSSI Sun
Inc. to United States Trust Company of New York, as Trustee.
+++2.12 Cash Collateral Account Agreement dated July 15, 1993 between VSSI
Sun Inc. and United States Trust Company of New York, as Trustee.
+2.13 Investment Account Agreement dated July 15, 1993 between Teekay
and United States Trust Company of New York, as Trustee.
+2.14 Assumption Agreement dated August 13, 1993 between United States
Trust Company of New York, as Trustee, and Sebarok Spirit Inc.
21
<PAGE>
+2.15 Pledge Agreement and Irrevocable Proxy dated August 13, 1993 made
by Teekay in favor of United States Trust Company of New York, as
Trustee.
**2.16 Registration Rights Agreement among Teekay, Tradewinds Trust Co.
Ltd., as Trustee for the Cirrus Trust, and Worldwide Trust
Services Ltd., as Trustee for the JTK Trust.
**2.17 Specimen of Teekay Common Stock Certificate.
##2.18 Indenture dated January 29, 1996 among 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.
##2.19 Specimen of Teekay's First Preferred Ship Mortgage Notes Due 2008.
##++2.20 Bahamian Statutory Ship Mortgage dated January 29, 1996 by Nassau
Spirit Inc. to United States Trust Company of New York.
##++2.21 Deed of Covenants dated January 29, 1996 by Nassau Spirit Inc. to
United States Trust Company of New York.
##2.22 First Preferred Ship Mortgage dated January 29, 1996 by VSSI
Oceans Inc. to United States Trust Company of New York, as
Trustee.
##++2.23 Assignment of Time Charter dated January 29, 1996 by Nassau Spirit
Inc. to United States Trust Company of New York, as Trustee.
##++2.24 Assignment of Insurance dated January 29, 1996 by Nassau Spirit
Inc. to United States Trust Company of New York, as Trustee.
##2.25 Pledge Agreement and Irrevocable Proxy dated January 29, 1996 by
Teekay in favor of United States Trust Company of New York, as
Trustee.
##++2.26 Guarantee dated January 29, 1996 by Nassau Spirit Inc. in favor of
United States Trust Company of New York, as Trustee.
##++2.27 Assignment of Freights and Hires dated January 29, 1996 by Nassau
Spirit Inc. to United States Trust Company of New York, as
Trustee.
##++2.28 Cash Collateral Account Agreement dated January 29, 1996 between
Nassau Spirit Inc. and United States Trust Company of New York,
as Trustee.
##2.29 Investment Account Agreement dated January 29, 1996 between Teekay
and United States Trust Company of New York, as Trustee.
**2.30 1995 Stock Option Plan.
**2.31 Form of Indemnification Agreement between Teekay and each of its
officers and directors.
**2.32 Reducing Revolving Credit Facility Agreement dated June 6, 1995
between Chiba Spirit Inc., VSSI Sun Inc., VSSI Gemini Inc., VSSI
Carriers Inc., Mendana Spirit Inc., Musashi Spirit Inc., VSSI
Condor Inc., Palm Monarch Inc., VSSI Drake Inc., VSSI Tokyo Inc.,
VSSI Marine Inc., Tasman Spirit Inc., Vancouver Spirit Inc. and
Elcano Spirit Inc. and Den norske Bank AS, Christiania Bank og
Kreditkasse, acting through its New York Branch, and Nederlandse
Scheepshypotheskbank N.V.
+2.33 Charter Party, as amended, dated September 21, 1989 between Palm
Shipping Inc. and BP Shipping Limited.
+2.34 Time Charter, as amended, dated August 14, 1986 between VSSI Sun
Inc. and Palm Shipping Inc.
+2.35 Time Charter, as amended, dated April 1, 1989 between Diamond
Spirit Inc. and Palm Shipping Inc.
+2.36 Time Charter, as amended, dated August 14, 1986 between VSSI
Deepsea Inc. and Palm Shipping Inc.
+2.37 Time Charter, as amended, dated August 14, 1986 between VSSI
Bulkers Inc. and Palm Shipping Inc.
+2.38 Time Charter, as amended, dated August 14, 1986 between VSSI Star
Inc. and Palm Shipping Inc.
+2.39 Time Charter, as amended, dated January 15, 1990 between VSSI
Ulsan Inc. and Palm Shipping Inc.
+2.40 Time Charter, as amended, dated June 1, 1993 between Sebarok
Spirit Inc. and Palm Shipping Inc.
22
<PAGE>
#2.41 Time Charter, as amended, dated July 3, 1995 between VSSI Oceans
Inc. and Palm Shipping Inc.
#2.42 Time Charter, as amended, dated January 4, 1994 between VSSI
Atlantic Inc. and Palm Shipping Inc.
#2.43 Time Charter, as amended, dated February 1, 1992 between VSSI
Appian Inc. and Palm Shipping Inc.
#2.44 Time Charter, as amended, dated December 1, 1993 between Senang
Spirit Inc. and Palm Shipping Inc.
#2.45 Time Charter, as amended, dated August 1, 1992 between Exuma
Spirit Inc. and Palm Shipping Inc.
#2.46 Time Charter, as amended, dated May 1, 1992 between Nassau Spirit
Inc. and Palm Shipping Inc.
#2.47 Time Charter, as amended, dated November 1, 1992 between Andros
Spirit Inc. and Palm Shipping Inc.
#++2.48 Management Agreement, as amended, dated June 1, 1992 between
Teekay Shipping Limited and Nassau Spirit Inc.
2.49 Amendment No. 1, dated October 7, 1996, to Reducing Revolving
Credit Facility Agreement dated June 5, 1995 between Chiba Spirit
Inc., VSSI Sun Inc., VSSI Gemini Inc., VSSI Carriers Inc.,
Mendana Spirit Inc., Musashi Spirit Inc., VSSI Condor Inc., Palm
Monarch Inc., VSSI Drake Inc., VSSI Tokyo Inc., VSSI Marine Inc.,
Tasman Spirit Inc., Vancouver Spirit Inc. and Elcano Spirit Inc.
and Den norske Bank AS, Christiania Bank og Kreditkasse, acting
through its New York Branch, and Nederlandse Scheepshypotheskbank
N.V.
2.50 Agreement, dated October 3, 1996, for a U.S. $90,000,000 Term Loan
Facility to be made available to certain subsidiaries of Teekay
Shipping Corporation by Christiania Bank og Kreditkasse, acting
through its New York Branch, The Bank of Nova Scotia, and Banque
Indosuez.
2.51 Agreement, dated October 18, 1996, for a U.S. $120,000,000 Term
Loan Facility to be made available to certain subsidiaries of
Teekay Shipping Corporation by Den Norske Bank ASA, Nederlandse
Scheepshypothesbank N.V., The Bank of New York, and Midland Bank
PLC.
27 Financial Data Schedule
- ----------
* Previously filed as an exhibit to the Company's Registration Statement on
Form S-8, filed with the Securities and Exchange Commission (the "SEC") on
October 27, 1995, and hereby incorporated by reference to such Registration
Statement.
** Previously filed as an exhibit to the Company's Registration Statement on
Form F-1 (Registration No. 33-7573-4), filed with the SEC on July 14, 1995,
and hereby incorporated by reference to such Registration Statement.
+ Previously filed as an exhibit to the Company's Registration Statement on
Form F-1 (Registration No. 33-68680), as declared effective by the SEC on
November 29, 1993, and hereby incorporated by reference to such Registration
Statement.
++ 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.
# Previously filed as an exhibit to the Company's Registration Statement on
Form F-3 (Registration No. 33-65139), filed with the SEC on January 19,
1996, and hereby incorporated by reference to such Registration Statement.
## Previously filed as an exhibit to the Company's Annual Report on Form 20-F
(File No. 1-12874), filed with the SEC on June 4, 1996, and hereby
incorporated by reference to such Annual Report.
23
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of Section 12 of the Securities Exchange Act of
1934, the Registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this Annual Report to be signed on its behalf
by the undersigned, thereunto duly authorized.
TEEKAY SHIPPING CORPORATION
By: /s/ Anthony Gurnee
---------------------------------------------
Anthony Gurnee
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: June 11, 1997
24
<PAGE>
AUDITORS' REPORT
To the Shareholders of
Teekay Shipping Corporation
We have audited the accompanying consolidated balance sheets of Teekay Shipping
Corporation and subsidiaries as of March 31, 1997 and 1996, and the related
consolidated statements of income and retained earnings and cash flows for each
of the three years in the period ended March 31, 1997. Our audits also included
the financial statement schedule listed in the Index Item 19[a]. These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Teekay Shipping
Corporation and subsidiaries at March 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended March 31, 1997, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material aspects the
information set forth therein.
Nassau, Bahamas,
May 7, 1997. Chartered Accountants
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
AND RETAINED EARNINGS
(in thousands of U.S. dollars, except per share amounts)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
---------- ---------- ----------
1997 1996 1995
$ $ $
<S> <C> <C> <C>
NET VOYAGE REVENUES
Voyage revenues 382,249 336,320 319,966
Voyage expenses 102,037 90,575 84,957
- -----------------------------------------------------------------------------------------------------------
Net voyage revenues 280,212 245,745 235,009
- -----------------------------------------------------------------------------------------------------------
OPERATING EXPENSES
Vessel operating expenses 72,586 67,841 72,723
Time charter hire expense 3,461 2,503
Depreciation and amortization 90,698 82,372 94,452
General and administrative (note 3) 19,209 16,750 15,018
- -----------------------------------------------------------------------------------------------------------
185,954 169,466 182,193
- -----------------------------------------------------------------------------------------------------------
Income from vessel operations 94,258 76,279 52,816
- -----------------------------------------------------------------------------------------------------------
OTHER ITEMS
Interest expense (60,810) (62,910) (66,304)
Interest income 6,358 6,471 5,904
Other income (note 10) 2,824 9,230 12,839
- -----------------------------------------------------------------------------------------------------------
(51,628) (47,209) (47,561)
- -----------------------------------------------------------------------------------------------------------
Net income before cumulative effect of accounting change 42,630 29,070 5,255
Cumulative effect of change in accounting for
marketable securities (note 1 ) 1,113
- -----------------------------------------------------------------------------------------------------------
NET INCOME 42,630 29,070 6,368
Retained earnings, beginning of the year 363,690 406,547 400,179
- -----------------------------------------------------------------------------------------------------------
406,320 435,617 406,547
Exchange of redeemable preferred stock (note 8) (60,000)
Dividends declared and paid (24,142) (11,927)
- -----------------------------------------------------------------------------------------------------------
Retained earnings, end of the year 382,178 363,690 406,547
===========================================================================================================
Earnings per share amounts (note 1)
Net income before cumulative effect of accounting change $1.52 $1.17 $0.29
Cumulative effect of change in accounting for
marketable securities 0.06
Net income 1.52 1.17 0.35
Weighted average number of common shares
outstanding 28,138,187 24,837,109 18,000,000
===========================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-2
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
As at As at
March 31, March 31,
--------- ---------
1997 1996
$ $
ASSETS
Current
Cash and cash equivalents 117,523 101,780
Accounts receivable
-trade 25,745 22,213
-other 1,066 2,725
Prepaid expenses and other assets 14,666 15,331
- --------------------------------------------------------------------------------
Total current assets 159,000 142,049
- --------------------------------------------------------------------------------
Vessels and equipment (notes 1,5 and 9)
At cost, less accumulated depreciation of $457,779
(1996 - $377,105) 1,187,399 1,193,557
Advances on vessels 8,938 5,250
- --------------------------------------------------------------------------------
Total vessels and equipment 1,196,337 1,198,807
- --------------------------------------------------------------------------------
Investment 6,335 1,624
Other assets 11,166 12,821
- --------------------------------------------------------------------------------
1,372,838 1,355,301
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable 16,315 11,761
Accrued liabilities (note 4) 26,982 18,303
Current portion of long-term debt (note 5) 36,283 19,102
- --------------------------------------------------------------------------------
Total current liabilities 79,580 49,166
- --------------------------------------------------------------------------------
Long-term debt (note 5) 663,443 706,740
- --------------------------------------------------------------------------------
Total liabilities 743,023 755,906
- --------------------------------------------------------------------------------
Stockholders' equity
Capital stock (note 8) 247,637 235,705
Retained earnings 382,178 363,690
- --------------------------------------------------------------------------------
Total stockholders' equity 629,815 599,395
- --------------------------------------------------------------------------------
1,372,838 1,355,301
================================================================================
Commitments and contingencies (notes 5, 6 and 9)
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
--------- --------- ---------
1997 1996 1995
$ $ $
<S> <C> <C> <C>
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
Net income from operating activities 42,630 29,070 5,255
Add (deduct) charges to operations not requiring
a payment of cash and cash equivalents:
Depreciation and amortization 90,698 82,372 94,452
Gain on disposition of assets (8,784) (18,245)
Loss (gain) on available-for-sale securities (55) 4,303
Equity loss (income) (net of dividend received:
March 31, 1997 - $282) (2,414) (1,139) 2,089
Other - net 2,785 2,507 914
Change in non-cash working capital items related to
operating activities (note 11) 5,459 (5,556) 1,251
- -----------------------------------------------------------------------------------------------------------
Net cash flow from operating activities 139,158 98,415 90,019
- -----------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from long-term debt 240,000 448,000
Scheduled repayments of long-term debt (16,038) (57,850) (87,570)
Prepayments of long-term debt (250,078) (505,962) (15,033)
Scheduled payments on capital lease obligations (1,527)
Prepayments of capital lease obligations (43,023)
Net proceeds from issuance of Common Stock 1,283 137,872
Cash dividends paid (13,493) (7,094)
Capitalized loan costs (1,130) (5,965) (1,565)
- -----------------------------------------------------------------------------------------------------------
Net cash flow from financing activities (39,456) (35,549) (104,168)
- -----------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Expenditures for vessels and equipment (net of
capital lease financing of: (March 31, 1997 - $NIL;
March 31, 1996 - $44,550; March 31, 1995 - $NIL) (65,104) (79,293) (7,465)
Expenditures for drydocking (16,559) (7,405) (14,431)
Proceeds from disposition of assets 28,428 16,817
Net cash flow from investment (2,296) 3,273 2,650
Proceeds on sale of available-for-sale securities 111,770 110,806
Purchases of available-for-sale securities (41,993) (115,085)
Other 39
- -----------------------------------------------------------------------------------------------------------
Net cash flow from investing activities (83,959) 14,780 (6,669)
- -----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 15,743 77,646 (20,818)
Cash and cash equivalents, beginning of the year 101,780 24,134 44,952
- -----------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of the year 117,523 101,780 24,134
===========================================================================================================
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars)
1. Summary of Significant Accounting Policies
Basis of presentation
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 ("Teekay"-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.
On March 31, 1995, Teekay acquired 100% of the outstanding stock of Teekay
Shipping Limited ("TSL"), an affiliated company, for cash consideration of
$776,000 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. As a result, certain
voyage expenses which were paid to TSL have been reclassified to general and
administrative expenses, in order to conform with the presentation adopted
subsequent to March 31, 1995.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
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.
Investment
The Company's 50% interest in Viking Consolidated Shipping Corp. ("VCSC") is
carried at the Company's original cost plus its proportionate share of the
undistributed net income. On March 12, 1997, VCSC entered into an agreement to
sell its one remaining vessel and it is not anticipated that the operating
companies of VCSC will have active operations in the near future. The disposal
of this vessel and the related gain on sale has been reflected in these
consolidated financial statements (see Note 10 - Other 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.
Voyage expenses comprise all expenses relating to particular voyages, including
bunker fuel expenses, port fees, canal tolls, and brokerage commissions. Vessel
operating expenses comprise all expenses relating to the operation of vessels,
including crewing, repairs and maintenance, insurance, stores and lubes, and
miscellaneous expenses including communications.
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 (disposed of during fiscal 1996) 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 ended March 31,
1995. 1. Summary of Significant Accounting Policies - (cont'd)
Vessels and equipment
All pre-delivery costs incurred during the construction of newbuildings,
including interest costs, and supervision and technical costs are capitalized.
The acquisition cost and all costs incurred to restore used vessel purchases to
the standard required to properly service the Company's customers are
capitalized. Depreciation is calculated on a straight-line basis over a vessel's
useful life, estimated by the Company to be twenty years from the date a vessel
is initially placed in service.
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 years ended March 31, 1997 and March
31, 1996 by $9.2 million (or $0.33 per common share) and $9.4 million (or $0.38
per common share), respectively.
Interest costs capitalized to vessels and equipment for the years ended March
31, 1997, 1996 and 1995 aggregated $232,000, $106,000, and $151,000,
respectively.
Expenditures incurred during drydocking are capitalized and amortized on a
straight-line basis over the period until the next anticipated drydocking. When
significant drydocking expenditures recur prior to the expiry of this period,
the remaining balance of the original drydocking is expensed in the month of the
subsequent drydocking. Drydocking expenses amortized for the years ended March
31, 1997, 1996 and 1995 aggregated $10,941,000, $8,617,000, and $10,281,000,
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.
Other assets
Loan costs, including fees, commissions and legal expenses, are capitalized and
amortized over the term of the relevant loan. Amortization of loan costs is
included in interest expense.
Interest rate swap and cap agreements
The differential to be paid or received is accrued as interest rates change and
is recognized as an adjustment to interest expense. Premiums paid for interest
rate cap agreements are recorded at cost. Premiums and receipts, if any, are
recognized as adjustments to interest expense over the lives of the individual
contracts.
Forward contracts
The Company enters into forward contracts as a hedge against changes in foreign
exchange rates. Market value gains and losses are deferred and recognized in the
period when the hedged transaction is recorded in the accounts.
Cash flows
Cash interest paid during the years ended March 31, 1997, 1996 and 1995 totalled
$57,400,000, $59,021,000, and $65,368,000, respectively.
The Company classifies all highly liquid investments with a maturity date of
three months or less when purchased as cash and cash equivalents.
1. Summary of Significant Accounting Policies - (cont'd)
Income taxes
The legal jurisdictions of the countries in which Teekay and its subsidiaries
are incorporated do not impose income taxes upon shipping-related activities.
Earnings per share
Earnings per share amounts are 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 8 - Capital Stock). Stock options have not been
included in the computation of the earnings per share amounts since their effect
thereon would not be material.
Accounting for Stock-Based Compensation
Effective April 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." SFAS
123 requires expanded disclosures of stock-based compensation arrangements with
employees and encourages (but does not require) companies to record compensation
costs associated with employee stock option awards, based on estimated fair
values at the grant dates. The Company has chosen to continue to account for
stock-based compensation using the intrinsic value method prescribed in APB
Opinion No. 25 (APB 25) "Accounting for Stock Issued to Employees" and has
disclosed the required pro forma effect on net income and net income per share
as if the fair value method of accounting as prescribed in SFAS 123 had been
applied (see Note 8 - Capital Stock).
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.
The Company had one charterer (an international oil company) during fiscal 1997
from which voyage revenues exceeded 10% of total voyage revenues. Voyage
revenues from such charterer amounted to $48,696,000.
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. Fees and commissions incurred,
included in general and administrative expenses, for the year ended March 31,
1995 aggregated $11,826,000. Commissions incurred, related to vessel
dispositions, for the year ended March 31, 1995 aggregated $295,000.
4. Accrued Liabilities
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars)
March 31, March 31,
--------- ---------
1997 1996
$ $
Voyage and vessel 15,458 9,053
Interest 9,294 7,789
Payroll and benefits 2,230 1,461
------ ------
26,982 18,303
====== ======
<PAGE>
5. Long-Term Debt
March 31, March 31,
--------- ---------
1997 1996
$ $
Revolving Credit Facility 118,000
First Preferred Ship Mortgage Notes (8.32%)
U.S. dollar debt due through 2008 225,000 225,000
First Preferred Ship Mortgage Notes (9 5/8%)
U.S. dollar debt due through 2004 151,200 151,200
Floating rate (LIBOR + 0.65% to 1 1/2%)
U.S. dollar debt due through 2006 323,526 231,642
------- -------
699,726 725,842
Less current portion 36,283 19,102
------- -------
663,443 706,740
======= =======
As at March 31, 1997, the Revolving Credit Facility (the "Revolver") provided
for borrowings of up to $141.1 million (the "commitment amount") on a revolving
credit basis. The commitment amount reduces by $6.9 million semi-annually each
June and December together with a final balloon reduction in June 2003. Interest
payments are based on LIBOR plus a margin ranging from 0.80% to 1.25%, depending
on the financial leverage of the Company. The Revolver is collateralized by
first priority mortgages granted on ten 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 8.32% First Preferred Ship Mortgage Notes due February 1, 2008 (the "8.32%
Notes") are collateralized by first preferred mortgages on seven of the
Company's Aframax tankers, together with certain other related collateral, and
are guaranteed by seven subsidiaries of Teekay that own the mortgaged vessels
(the "8.32% Notes Guarantor Subsidiaries") to a maximum of 95% of the fair value
of their net assets. As at March 31, 1997, the fair value of these net assets
approximated $278 million. The 8.32% Notes are also subject to a sinking fund,
which will retire $45 million principal amount of the 8.32% Notes on each
February 1, commencing 2004.
Upon the 8.32% Notes achieving Investment Grade Status and subject to certain
other conditions, the guarantees of the 8.32% Notes Guarantor Subsidiaries will
terminate, all of the collateral securing the obligations of the Company and the
8.32% Notes Guarantor Subsidiaries under the Indenture and the Security
Documents will be released (whereupon the Notes will become general unsecured
obligations of the Company) and certain covenants under the Indenture will no
longer be applicable to the Company.
<PAGE>
5. Long-Term Debt (cont'd)
The 9 5/8% First Preferred Ship Mortgage Notes due July 15, 2003 (the "9 5/8%
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 six subsidiaries of Teekay that own the mortgaged vessels (the "9
5/8% Notes Guarantor Subsidiaries") to a maximum of 95% of the fair value of
their net assets. As at March 31, 1997, the fair value of these net assets
approximated $191 million. The 9 5/8% Notes are also subject to a sinking fund,
which will retire $25 million principal amount of the 9 5/8% Notes, on each July
15, commencing July 15, 1997. During first quarter of fiscal 1996, the Company
retired $23.8 million of the 9 5/8% Notes, which will be applied to reduce the
July 15, 1997 sinking fund requirement. The 9 5/8% 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:
July 15 Redemption Price
------- ----------------
1998 104.813%
1999 102.406%
2000 100.000%
Upon a Change of Control each 9 5/8% Note holder and 8.32% Note holder has the
right, unless the Company elects to redeem these Notes, to require the Company
to purchase these Notes at 101% of their principal amount plus accrued interest.
Condensed financial information regarding the Company, the 9 5/8% Notes
Guarantor Subsidiaries, the 8.32% Notes Guarantor Subsidiaries and non-guarantor
subsidiaries of the Company is set out in Schedule A of these consolidated
financial statements.
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 second preferred
mortgages have been recorded against specific vessels.
Among other matters, the long-term debt agreements generally provide for such
items as maintenance of certain vessel market value to loan ratios and minimum
consolidated financial covenants, prepayment privileges (in some cases with
penalties), and restrictions against the incurrence of additional debt and new
investments by the individual subsidiaries without prior lender consent. The
amount of Restricted Payments, as defined, that the Company can make, including
dividends and purchases of its own capital stock, is limited as of March 31,
1997, to $58.7 million.
As at March 31, 1997, the Company was committed to a series of interest rate
swap agreements whereby $150 million of the Company's floating rate debt was
swapped with fixed rate obligations having an average remaining term of 19.5
months. The swap agreements expire between October 1998 and December 1998. These
arrangements effectively change the Company's interest rate exposure on $150
million of debt from a floating LIBOR rate to an average fixed rate of 5.86%.
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.
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars)
5. Long-Term Debt (cont'd)
The aggregate annual long-term debt principal repayments required to be made for
the five fiscal years subsequent to March 31, 1997 are $36,283,000 (fiscal
1998), $69,093,000 (fiscal 1999 - 2001), and $80,324,000 (fiscal 2002).
6. Leases
Charters-out
Time charters to third parties of the Company's vessels are accounted for as
operating leases. The minimum future revenues to be received on time charters
currently in place are $34,893,000 (fiscal 1998) and $3,875,000 (fiscal 1999).
The minimum future revenues should not be construed to reflect total charter
hire revenues for any of the years.
7. Fair Value of Financial Instruments
Carrying amounts of all financial instruments approximate fair market value
except for the following:
Long-term debt - The fair values of the Company's fixed rate long-term debt are
based on either quoted market prices or estimated using discounted cash flow
analyses, based on rates currently available for debt with similar terms and
remaining maturities.
Interest rate swap and cap 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 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 estimated fair value of the Company's financial instruments is as follows:
<TABLE>
<CAPTION>
March 31, 1997 March 31, 1996
-------------- --------------
Carrying Fair Carrying Fair
Amount Value Amount Value
$ $ $ $
------ ----- ------ -----
<S> <C> <C> <C> <C>
Cash and cash equivalents 117,523 117,523 101,780 101,780
Long-term debt 699,726 695,265 725,842 723,056
Interest rate swap agreements
- net receivable (payable) position 1,154 (60)
Interest rate cap agreements 618 10
</TABLE>
The Company transacts with investment grade rated financial institutions and
requires no collateral from these institutions.
<PAGE>
8. 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 Preferred
Stock Thousands Stock Thousands
$ of shares $ of shares
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Issued and outstanding
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)
Reinvested Dividends 4,833 201
Exercise of Stock Options 259 12
--------- --------- --------- ---------
Balance March 31, 1996 235,705 27,904 0 0
Reinvested Dividends 10,649 364
Exercise of Stock Options 1,283 60
--------- --------- --------- ---------
Balance March 31, 1997 247,637 28,328 0 0
========= ========= ========= =========
</TABLE>
The Company has reserved 2,076,862 shares of Common Stock for issuance upon
exercise of options granted pursuant to the Company's 1995 Stock Option Plan
(the "Plan").
During fiscal 1997 and 1996, the Company granted options under the Plan to
acquire up to 343,250 and 796,750 shares of Common Stock (the "Grants"),
respectively, to certain eligible officers, key employees (including senior sea
staff), and directors of the Company. The options have a 10-year term and follow
a graded-vesting schedule. The options granted during fiscal 1997 vest equally
over four years from the date of grant. Three quarters of the options granted
during fiscal 1996 have vested and the remaining quarter will vest during fiscal
1998.
<PAGE>
8. Capital Stock (cont'd)
A summary of the Company's stock option activity, and related information for
the years ended March 31 follows:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996
----------- -----------
Options Weighted-Average Options Weighted-Average
(`000s) Exercise Price (`000s) Exercise Price
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding-beginning of year 779 $21.50 0 $21.50
Granted 343 27.38 797 21.50
Exercised (60) 21.50 (12) 21.50
Forfeited (6) 24.00 (6) 21.50
----- ----- ---- -----
Outstanding-end of year 1,056 $23.40 779 $21.50
===========================================================
Exercisable at end of year 519 $21.50 383 $21.50
===========================================================
</TABLE>
<TABLE>
<S> <C> <C>
Weighted-average fair value of options
granted during the year (per option) $6.72 $5.16
</TABLE>
Exercise prices for the options outstanding as of March 31, 1997 ranged from
$21.50 to $27.38 and have a weighted-average remaining contractual life of 8.57
years.
The Company applies APB 25, "Accounting for Stock Issued to Employees" and
related Interpretations in accounting for its employee stock options (see Note 1
- - Accounting for Stock-Based Compensation). Under APB 25, because the exercise
price of the Company's employee stock options equals the market price of
underlying stock on the date of grant, no compensation expense is recognized.
Had the Company recognized compensation costs for the Grants consistent with the
methods recommended by SFAS 123 (see Note 1 - Accounting for Stock-Based
Compensation), the Company's net income and net income per share for those years
ended would have been stated at the pro forma amounts as follows:
Year Ended Year Ended
March 31, 1997 March 31, 1996
$ $
--------- ----------
NET INCOME:
As reported $42,630 $29,070
Pro forma 40,679 26,842
NET INCOME PER COMMON SHARE:
As reported 1.52 1.17
Pro forma 1.45 1.08
The fair values of the Grants were estimated on the dates of grant using the
Black-Scholes option-pricing model with the following assumptions: risk-free
average interest rates of 6.44% and 6.14% for fiscal 1997 and fiscal 1996,
respectively, dividend yield of 3.0%; expected volatility of 25%; and expected
lives of 5 years.
<PAGE>
9. Commitments and Contingencies
As at March 31, 1997, the Company was committed to foreign exchange contracts
for the forward purchase of approximately Japanese Yen 100 million and Singapore
dollars 16,478,650 for U.S. dollars, at an average rate of Japanese Yen 122.12
per U.S. dollar and Singapore dollar 1.41 per U.S. dollar, respectively, for the
purpose of hedging accounts payable and accrued liabilities.
As at March 31, 1997, the Company was committed to the construction of an
Aframax vessel for a cost of $44.5 million, scheduled for delivery in June 1997.
At March 31, 1997, payments of $8.9 million had been made towards this
commitment and a $35.6 million long-term financing arrangement exists for the
remaining unpaid cost of this vessel.
10. Other Income
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
1997 1996 1995
$ $ $
---------- ---------- ----------
Gain on disposition of assets 8,784 18,245
Gain (loss) on available-for-sale securities 55 (4,303)
Equity in results of 50% owned company 2,696 1,139 (2,089)
Foreign currency exchange gain (loss) (226) (665) 991
Miscellaneous - net 354 (83) (5)
---------- ---------- ----------
2,824 9,230 12,839
========== ========== ==========
For the year ended March 31, 1997, Equity in results of the 50% owned company
includes a $2,732,000 gain on a vessel sale.
Gross realized gains on sales of available-for-sale securities for the years
ended March 31, 1996 and 1995 aggregated $1,787,000 and $691,000, respectively.
Gross realized losses on sales of available-for-sale securities for the years
ended March 31, 1996 and 1995 aggregated $1,732,000 and $4,994,000,
respectively.
11. Change in Non-Cash Working Capital Items Related to Operating Activities
Year Ended Year Ended Year Ended
March 31, March 31, March 31,
1997 1996 1995
$ $ $
---------- ---------- ----------
Accounts receivable (1,873) (4,792) 3,585
Prepaid expenses and other assets 665 (2,058) (1,597)
Accounts payable 4,554 281 (310)
Accrued liabilities 2,113 1,013 (427)
---------- ---------- ----------
5,459 (5,556) 1,251
========== ========== ==========
12. Comparative Figures
Certain of the comparative figures have been reclassified to conform with the
presentation adopted in the current period.
<PAGE>
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
SCHEDULE A
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Year Ended March 31, 1997
-------------------------------------------------------------------------------------
9 5/8% Notes 8.32% Notes Teekay
Teekay Guarantor Guarantor Non-Guarantor Shipping Corp.
Shipping Corp Subsidiaries Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $ $
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net voyage revenues 30,553 35,960 411,216 (197,517) 280,212
Operating expenses 494 22,588 34,254 326,135 (197,517) 185,954
-------------------------------------------------------------------------------------
Income (loss) from vessel operations (494) 7,965 1,706 85,081 94,258
Net interest income (expense) (34,420) 114 210 (20,356) (54,452)
Equity in net income of subsidiaries 77,352 (74,656) 2,696
Other income (loss) 192 12,707 (12,771) 128
-------------------------------------------------------------------------------------
Net income 42,630 8,079 1,916 77,432 (87,427) 42,630
Retained earnings (deficit),
beginning of the year 363,690 17,377 (1,245) 66,693 (82,825) 363,690
Dividends declared and paid (24,142) (14,400) (18,795) 33,195 (24,142)
-------------------------------------------------------------------------------------
Retained earnings (deficit),
end of the year 382,178 11,056 (18,124) 144,125 (137,057) 382,178
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31, 1996
-------------------------------------------------------------------------------------
9 5/8% Notes 8.32% Notes Teekay
Teekay Guarantor Guarantor Non-Guarantor Shipping Corp.
Shipping Corp Subsidiaries Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $ $
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net voyage revenues 29,755 49,402 390,450 (223,862) 245,745
Operating expenses 835 20,681 31,861 339,951 (223,862) 169,466
-------------------------------------------------------------------------------------
Income (loss) from vessel operations (835) 9,074 17,541 50,499 76,279
Net interest income (expense) (18,397) 394 (13,759) (24,677) (56,439)
Equity in net income of subsidiaries 47,043 (45,904) 1,139
Other income 1,259 15,940 (9,108) 8,091
-------------------------------------------------------------------------------------
Net income 29,070 9,468 3,782 41,762 (55,012) 29,070
Retained earnings (deficit),
beginning of year 406,547 22,309 (5,027) 89,301 (106,583) 406,547
Exchange of redeemable preferred stock (60,000) (60,000)
Dividends declared and paid (11,927) (14,400) (64,370) 78,770 (11,927)
-------------------------------------------------------------------------------------
Retained earnings (deficit), end of the year 363,690 17,377 (1,245) 66,693 (82,825) 363,690
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31, 1995
-------------------------------------------------------------------------------------
9 5/8% Notes 8.32% Notes Teekay
Teekay Guarantor Guarantor Non-Guarantor Shipping Corp.
Shipping Corp Subsidiaries Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $ $
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net voyage revenues 32,687 47,593 400,844 (246,115) 235,009
Operating expenses 660 24,410 29,434 373,897 (246,208) 182,193
-------------------------------------------------------------------------------------
Income (loss) from vessel operations (660) 8,277 18,159 26,947 93 52,816
Net interest income (expense) (18,302) 491 (13,736) (28,853) (60,400)
Equity in net income (loss) of subsidiaries 24,161 (26,250) (2,089)
Other income 56 1 14,871 14,928
-------------------------------------------------------------------------------------
Net income from continuing operations 5,255 8,769 4,423 12,965 (26,157) 5,255
Cumulative effect of change in accounting
for marketable securities 1,113 1,113
-------------------------------------------------------------------------------------
Net income 6,368 8,769 4,423 12,965 (26,157) 6,368
Retained earnings (deficit),
beginning of year 400,179 46,735 (9,450) 90,396 (127,681) 400,179
Dividends declared and paid (25,266) (21,989) 47,255
-------------------------------------------------------------------------------------
Retained earnings (deficit), end of the year 406,547 30,238 (5,027) 81,372 (106,583) 406,547
=====================================================================================
</TABLE>
(See Note 5)
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
SCHEDULE A
CONDENSED BALANCE SHEETS
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
As at March 31, 1997
-------------------------------------------------------------------------------------
9 5/8% Notes 8.32% Notes Teekay
Teekay Guarantor Guarantor Non-Guarantor Shipping Corp.
Shipping Corp Subsidiaries Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $ $
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents 32 9,248 8,732 99,511 117,523
Other current assets 128 667 755 40,009 (82) 41,477
-------------------------------------------------------------------------------------
Total current assets 160 9,915 9,487 139,520 (82) 159,000
Vessels and equipment (net) 137,486 344,315 714,536 1,196,337
Advances due from subsidiaries 362,704 (362,704)
Other assets (principally
investments in subsidiaries) 649,337 11,171 (643,007) 17,501
-------------------------------------------------------------------------------------
1,012,201 147,401 353,802 865,227 (1,005,793) 1,372,838
LIABILITIES & STOCKHOLDERS'
EQUITY
Current liabilities 7,386 4,573 2,581 65,122 (82) 79,580
Long-term debt 375,000 288,443 663,443
Due to parent (56) 15 356,656 (356,615)
-------------------------------------------------------------------------------------
Total liabilities 382,386 4,517 2,596 710,221 (356,697) 743,023
-------------------------------------------------------------------------------------
Stockholders' Equity
Capital stock 247,637 10 23 5,933 (5,966) 247,637
Contributed capital 131,818 369,307 4,948 (506,073)
Retained earnings (deficit) 382,178 11,056 (18,124) 144,125 (137,057) 382,178
-------------------------------------------------------------------------------------
Total stockholders' equity 629,815 142,884 351,206 155,006 (649,096) 629,815
-------------------------------------------------------------------------------------
1,012,201 147,401 353,802 865,227 (1,005,793) 1,372,838
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
As at March 31, 1996
-------------------------------------------------------------------------------------
9 5/8% Notes 8.32% Notes Teekay
Teekay Guarantor Guarantor Non-Guarantor Shipping Corp.
Shipping Corp Subsidiaries Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $ $
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents 28 8,613 5,210 87,929 101,780
Other current assets 293 1,475 1,064 37,527 (90) 40,269
-------------------------------------------------------------------------------------
Total current assets 321 10,088 6,274 125,456 (90) 142,049
Vessels and equipment (net) 139,652 362,424 696,731 1,198,807
Advances due from subsidiaries 372,233 (372,233)
Other assets (principally
investments in subsidiaries) 606,269 12,826 (604,650) 14,445
-------------------------------------------------------------------------------------
978,823 149,740 368,698 835,013 (976,973) 1,355,301
-------------------------------------------------------------------------------------
LIABILITIES & STOCKHOLDERS'
EQUITY
Current liabilities 3,228 539 613 44,876 (90) 49,166
Long-term debt 376,200 330,540 706,740
Due to parent (4) 382,023 (382,019)
-------------------------------------------------------------------------------------
Total liabilities 379,428 535 613 757,439 (382,109) 755,906
-------------------------------------------------------------------------------------
Stockholders' Equity
Capital stock 235,705 10 23 5,933 (5,966) 235,705
Contributed capital 131,818 369,307 4,948 (506,073)
Retained earnings (deficit) 363,690 17,377 (1,245) 66,693 (82,825) 363,690
-------------------------------------------------------------------------------------
Total stockholders' equity 599,395 149,205 368,085 77,574 (594,864) 599,395
-------------------------------------------------------------------------------------
978,823 149,740 368,698 835,013 (976,973) 1,355,301
=====================================================================================
</TABLE>
(See Note 5)
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
SCHEDULE A
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Year Ended March 31, 1997
-------------------------------------------------------------------------------------
9 5/8% Notes 8.32% Notes Teekay
Teekay Guarantor Guarantor Non-Guarantor Shipping Corp.
Shipping Corp Subsidiaries Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $ $
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
-------------------------------------------------------------------------------------
Net cash flow from operating activities (30,553) 20,018 23,161 126,532 139,158
-------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from long-term debt 240,000 240,000
Repayments of long-term debt (266,116) (266,116)
Net proceeds from issuance of Common Stock 1,283 1,283
Other 29,003 (14,456) (18,780) (10,390) (14,623)
-------------------------------------------------------------------------------------
Net cash flow from financing activities 30,286 (14,456) (18,780) (36,506) (39,456)
-------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Expenditures for vessels and equipment (4,927) (859) (75,877) (81,663)
Other 272 (2,568) (2,296)
-------------------------------------------------------------------------------------
Net cash flow from investing activities 272 (4,927) (859) (78,445) (83,959)
-------------------------------------------------------------------------------------
Increase in cash and cash equivalents 4 635 3,522 11,581 15,743
Cash and cash equivalents,
beginning of the year 28 8,613 5,210 87,929 101,780
-------------------------------------------------------------------------------------
Cash and cash equivalents, end of the year 32 9,248 8,732 99,510 117,523
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31, 1996
-------------------------------------------------------------------------------------
9 5/8% Notes 8.32% Notes Teekay
Teekay Guarantor Guarantor Non-Guarantor Shipping Corp.
Shipping Corp Subsidiaries Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $ $
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
-------------------------------------------------------------------------------------
Net cash flow from operating activities (23,772) 17,284 22,798 82,105 98,415
-------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from long-term debt 225,000 223,000 448,000
Repayments of long-term debt (22,580) (208,964) (332,268) (563,812)
Repayments of capital lease obligations (44,550) (44,550)
Net proceeds from issuance of Common Stock 137,872 137,872
Other (29,879) (14,400) (133,234) 164,454 (13,059)
-------------------------------------------------------------------------------------
Net cash flow from financing activities 310,413 (14,400) (386,748) 55,186 (35,549)
-------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Expenditures for vessels and equipment (656) (3,223) (82,819) (86,698)
Proceeds from disposition of assets 28,428 28,428
Other (286,710) 499 369,307 (10,046) 73,050
-------------------------------------------------------------------------------------
Net cash flow from investing activities (286,710) (157) 366,084 (64,437) 14,780
-------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (69) 2,727 2,134 72,854 77,646
Cash and cash equivalents,
beginning of the year 97 5,886 3,076 15,075 24,134
-------------------------------------------------------------------------------------
Cash and cash equivalents, end of the year 28 8,613 5,210 87,929 101,780
=====================================================================================
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31, 1995
-------------------------------------------------------------------------------------
9 5/8% Notes 8.32% Notes Teekay
Teekay Guarantor Guarantor Non-Guarantor Shipping Corp.
Shipping Corp Subsidiaries Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $ $
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
-------------------------------------------------------------------------------------
Net cash flow from operating activities (40,919) 19,403 23,110 88,425 90,019
-------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Repayments of long-term debt (21,854) (80,749) (102,603)
Other (31,518) (25,263) (188) 55,404 (1,565)
-------------------------------------------------------------------------------------
Net cash flow from financing activities (31,518) (25,263) (22,042) (25,345) (104,168)
-------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Expenditures for vessels and equipment (1,039) (3,197) (17,660) (21,896)
Proceeds from disposition of assets 16,817 16,817
Other 72,776 19 1 (74,386) (1,590)
-------------------------------------------------------------------------------------
Net cash flow from investing activities 72,776 (1,020) (3,196) (75,229) (6,669)
-------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 339 (6,880) (2,128) (12,149) (20,818)
Cash and cash equivalents, beginning of the year (242) 13,736 5,204 26,254 44,952
-------------------------------------------------------------------------------------
Cash and cash equivalents, end of the year 97 6,856 3,076 14,105 24,134
=====================================================================================
</TABLE>
(See Note 5)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM TEEKAY
SHIPPING CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 117,523
<SECURITIES> 0
<RECEIVABLES> 25,745
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 159,000
<PP&E> 1,654,116
<DEPRECIATION> 457,779
<TOTAL-ASSETS> 1,372,838
<CURRENT-LIABILITIES> 79,580
<BONDS> 663,443
0
0
<COMMON> 247,637
<OTHER-SE> 382,178
<TOTAL-LIABILITY-AND-EQUITY> 1,372,838
<SALES> 0
<TOTAL-REVENUES> 382,249
<CGS> 0
<TOTAL-COSTS> 102,037
<OTHER-EXPENSES> 185,954
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 60,810
<INCOME-PRETAX> 42,630
<INCOME-TAX> 0
<INCOME-CONTINUING> 42,630
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,630
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.52
</TABLE>
================================================================================
AMENDMENT NO. 1 TO
REDUCING REVOLVING CREDIT FACILITY AGREEMENT
DATED JUNE 5, 1995
AMONG
CERTAIN SUBSIDIARIES OF
TEEKAY SHIPPING CORPORATION,
DEN NORSKE BANK ASA,
CHRISTIANIA BANK OG KREDITKASSE,
acting through its New York branch, and
NEDERLANDSE SCHEEPSHYPOTHEEKBANK N.V.,
as Co-Arrangers,
and
THE LENDERS THEREIN NAMED
================================================================================
October 7, 1996
<PAGE>1
AMENDMENT NO. 1 TO
REDUCING REVOLVING CREDIT FACILITY AGREEMENT
--------------------------------------------
THIS AMENDMENT NO. 1 TO REDUCING REVOLVING CREDIT FACILITY AGREEMENT is
made the 7th day of October, 1996, and is by and among:
(1) Those certain Liberian corporations and Bahamian companies whose names,
jurisdictions of incorporation and registered addresses are set forth in
Schedule 1 hereto and which are signatories hereto, as joint and several
borrowers, (together, the "Borrowers", each a "Borrower");
(2) Den norske Bank ASA ("DnB"), Christiania Bank og Kreditkasse, acting
through its New York branch ("CBK"), and Nederlandse Scheepshypotheekbank
N.V. ("Nedship"), as co-arrangers (together, the "Co-Arrangers", each a
"Co-Arranger");
(3) DnB, CBK, Nedship, Deutsche Schiffsbank AG, DNI Inter Asset Bank and
Finance Company Viking (together, the "Lenders", each a "Lender"); and
(4) DnB, as agent (the "Agent") and security trustee (the "Security Trustee")
for the Lenders.
W I T N E S S E T H
WHEREAS:
A. Pursuant to that certain reducing credit facility agreement dated June 6,
1995 (the "Credit Agreement") between the Borrowers, the Co-Arrangers, the
Agent and the Security Trustee, the Lenders made available to the Borrowers
a reducing revolving credit facility (the "Credit Facility") in the maximum
principal amount of US$243,000,000 of which US$204,000,000 is presently
available.
B. The Borrowers have arranged to refinance part of the Credit Facility and
have requested that the Agent, on behalf of the Lenders, release certain
Borrowers from their obligations under the Credit Agreement in exchange for
the permanent reduction of the Credit Facility;
C. The Borrowers have requested and the Lenders have agreed to amend the
Credit Agreement pursuant to the terms hereof.
NOW THEREFORE, on consideration of the premises and such other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged by the parties, it is hereby agreed as follows:
<PAGE>2
1. DEFINITIONS. Unless otherwise defined herein, words and expressions
defined in the Credit Agreement shall bear the same meanings when used herein.
2. REPRESENTATIONS AND WARRANTIES. Each of the Borrowers hereby reaffirms
each and every representation and warranty made by it in the Credit Agreement
(updated mutatis mutandis).
3. PERFORMANCE OF COVENANTS. Each of the Borrowers hereby reaffirms that it
has duly performed and observed the covenants and undertakings set forth in the
Credit Agreement on its part to be performed, and covenants and undertakes to
continue to duly perform and observe such covenants and undertakings so long as
the Credit Agreement, as amended hereby, shall remain in effect.
4. REDUCTION IN CREDIT FACILITY. The Borrowers hereby agree to a reduction
in amounts available under the Credit Facility to $148,000,000 as of the date
hereof and to pro rata reductions of the Commitments on the Reduction Dates
pursuant to Section 5.5 of the Credit Facility.
5. RELEASE OF BORROWERS. In exchange for the permanent reduction of the
Credit Facility, the Lenders hereby agree to release VSSI Tokyo Inc. ("Tokyo"),
VSSI Sun Inc. ("Sun"), VSSI Marine Inc. ("Marine") and VSSI Carriers Inc.
("Carriers") from their obligations under the Credit Agreement and the security
interest in the collateral granted to it under or in connection with the Credit
Agreement and under or in connection with the following documents:
(1) that certain Assignment of Earnings dated June 6, 1995 by Tokyo
in favor of the Agent;
(2) that certain Assignment of Insurances dated June 6, 1995 by Tokyo
in favor of the Agent;
(3) that certain Assignment of Earnings dated June 6, 1995 by Sun in
favor of the Agent;
(4) that certain Assignment of Insurances dated June 6, 1995 by Sun
in favor of the Agent;
(5) that certain Assignment of Earnings dated June 6, 1995 by
Carriers in favor of the Agent;
(6) that certain Assignment of Insurances dated June 6, 1995 by
Carriers in favor of the Agent;
(7) that certain Assignment of Earnings dated June 6, 1995 by Marine
in favor of the Agent;
(8) that certain Assignment of Insurances dated June 6, 1995 by
Marine in favor of the Agent; and
(9) solely with respect to the shares of Tokyo, Sun, Carriers and
Marine, that certain Pledge Agreement dated June 6, 1995 by the
Guarantor in favor of the Agent.
In addition, the Lenders hereby authorize the Agent to execute and deliver
releases of mortgages with respect to each of the Mortgages over the Vessels
owned by Tokyo, Sun, Marine and Carriers and to record such releases in the
Office of the Deputy Commissioner of Maritime Affairs of the Republic of
Liberia.
6. ASSIGNMENTS BY THE BORROWER. By its execution and delivery of this
Amendment, each of the Borrowers and the Guarantor, by its consent hereto,
hereby consent and agree that (a) the Assignments (other than the Assignments
listed in Section 5) and the Pledge (to the extent that it has not been released
hereby) shall remain in full force and effect and (b) to the extent such
Assignments and Pledge have not been specifically amended in connection with the
transactions contemplated hereby, all references in such documents to the Credit
Agreement shall be deemed to refer to the Credit Agreement as amended hereby.
7. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of New York, excepting the choice of law
rules of said State.
8. COUNTERPARTS. This Amendment may be executed in as many counterparts as
may be deemed necessary or convenient, and by the different parties hereto on
separate counterparts each of which, when so executed, shall be deemed to be an
original but all such counterparts shall constitute but one and the same
agreement.
9. HEADINGS; AMENDMENT. In this Amendment, Clause headings are inserted for
convenience of reference only and shall be ignored in the interpretation of this
Amendment. This agreement cannot be amended other than by written agreement
signed by the parties hereto.
<PAGE>3
IN WITNESS whereof the parties hereto have caused this Amendment to be duly
executed by their duly authorized representatives as of the day and year first
above written.
CHIBA SPIRIT INC. PALM MONARCH INC.
By /s/ Esther E. Gibson By /s/Esther E. Gibson
-------------------- -------------------
Esther E. Gibson Esther E. Gibson
Secretary Secretary
VSSI SUN INC. VSSI DRAKE INC.
By /s/ Esther E. Gibson By /s/Esther E. Gibson
-------------------- -------------------
Esther E. Gibson Esther E. Gibson
Secretary Secretary
VSSI GEMINI INC. VSSI TOKYO INC.
By /s/ Esther E. Gibson By /s/Esther E. Gibson
-------------------- -------------------
Esther E. Gibson Esther E. Gibson
Secretary Secretary
VSSI CARRIERS INC. VSSI MARINE INC.
By /s/ Esther E. Gibson By /s/Esther E. Gibson
-------------------- -------------------
Esther E. Gibson Esther E. Gibson
Secretary Secretary
MENDANA SPIRIT INC. TASMAN SPIRIT INC.
By /s/ Esther E. Gibson By /s/Esther E. Gibson
-------------------- -------------------
Esther E. Gibson Esther E. Gibson
Secretary Secretary
MUSASHI SPIRIT INC. VANCOUVER SPIRIT INC.
By /s/ Esther E. Gibson By /s/Esther E. Gibson
-------------------- -------------------
Esther E. Gibson Esther E. Gibson
Secretary Secretary
VSSI CONDOR INC. ELCANO SPIRIT INC.
By /s/ Esther E. Gibson By /s/Esther E. Gibson
-------------------- -------------------
Esther E. Gibson Esther E. Gibson
Secretary Secretary
<PAGE>4
DEN NORSKE BANK ASA, as Agent, Security Trustee, CHRISTIANIA BANK OG
KREDITKASSE, acting through its Co-Arranger and Lender New York branch, as
Co-Arranger and Lender
By /s/ Trond H. Scheie By /s/ Hans Chr. Kjelsrud
------------------- ----------------------
Name:Trond H. Scheie Name:Hans Chr. Kjelsrud
Title: General Manager Title: Vice President
NEDERLANDSE SCHEEPSHYPOTHEEKBANK N.V., By /s/ Justin F. McCarty, III
as Co-Arranger and Lender --------------------------
Name:Justin F. McCarty, III
Title:Vice President
By /s/ Susan H. MacCurmac
---------------------- DEUTSCHE SCHIFFSBANK AG,
Name: Susan H. MacCurmac as Lender
Title: Attorney-in-fact
DNI INTER ASSET BANK, By /s/ Dr. Schiering
as Lender ----------------------
Name: Dr. Schiering
Title: Sr. General Manager
By /s/ Zimmermann
----------------------
Name: Zimmermann
Title: Manager
By /s/ Bert W.A.M. Mulders
----------------------- FINANCE COMPANY VIKING,
Name: Bert W.A.M. Mulders as Lender
Title: Vice President
By /s/ S. Angell-Hansen
----------------------
Name:S. Angell-Hansen
Title: Ass. Vice President
By /s/ D. Grimaitre
----------------------
Name: D. Grimaitre
Title: Authorized Signatory
<PAGE>5
CONSENT AND AGREEMENT
---------------------
The undersigned, referred to in the foregoing Amendment No. 1 to Reducing
Revolving Credit Facility Agreement as the "Guarantor", hereby consents and
agrees to said Amendment and to the documents contemplated thereby and to the
provisions contained therein relating to conditions to be fulfilled and
obligations to be performed by the undersigned pursuant to or in connection with
said Agreement and reaffirms the representations, warranties and covenants
relating to the undersigned contained in said Agreement.
TEEKAY SHIPPING CORPORATION
By /s/ Esther E. Gibson
--------------------
Esther E. Gibson
Secretary
<PAGE>6
SCHEDULE 1
----------
The Borrowers
-------------
Name Jurisdiction of Incorporation Registered Address
- ---- ----------------------------- ------------------
Chiba Spirit Inc. Commonwealth of the Bahamas Tradewinds Building
Bay Street
P.O. Box SS 6293
Nassau, The Bahamas
VSSI Sun Inc. The Republic of Liberia 80 Broad Street
Monrovia, Liberia
VSSI Gemini Inc. The Republic of Liberia 80 Broad Street
Monrovia, Liberia
VSSI Carriers Inc. The Republic of Liberi 80 Broad Street
Monrovia, Liberia
Mendana Spirit Inc. The Republic of Liberia 80 Broad Street
Monrovia, Liberia
Musashi Spirit Inc. The Republic of Liberia 80 Broad Street
Monrovia, Liberia
VSSI Condor Inc. The Republic of Liberia 80 Broad Street
Monrovia, Liberia
Palm Monarch Inc. The Republic of Liberia 80 Broad Street
Monrovia, Liberia
VSSI Drake Inc. The Republic of Liberia 80 Broad Street
Monrovia, Liberia
VSSI Tokyo Inc. The Republic of Liberia 80 Broad Street
Monrovia, Liberia
VSSI Marine Inc. The Republic of Liberia 80 Broad Street
Monrovia, Liberia
Tasman Spirit Inc. The Republic of Liberia 80 Broad Street
Monrovia, Liberia
Vancouver Spirit Inc. The Republic of Liberia 80 Broad Street
Monrovia, Liberia
Elcano Spirit Inc. The Republic of Liberia 80 Broad Street
Monrovia, Liberia
<PAGE> 1
AGREEMENT FOR
A
U.S. $90,000,000 TERM LOAN
FACILITY
TO BE MADE AVAILABLE TO
CERTAIN SUBSIDIARIES OF
TEEKAY SHIPPING CORPORATION
BY
CHRISTIANIA BANK OG KREDITKASSE,
New York Branch,
THE BANK OF NOVA SCOTIA and
BANQUE INDOSUEZ
October 3, 1996
<PAGE> 2
INDEX
-----
PAGE
CLAUSE 1 DEFINITIONS................................ 1
1.1 Defined Terms............................ 1
1.2 Construction............................. 14
1.3 Accounting Terms......................... 15
CLAUSE 2 REPRESENTATIONS AND WARRANTIES............. 15
2.1(a) Due Organization and Power............... 15
2.1(b) Authorization and Consents............... 16
2.1(c) Binding Obligations...................... 16
2.1(d) No Violation............................. 16
2.1(e) Litigation............................... 16
2.1(f) No Default............................... 17
2.1(g) Charters................................. 17
2.1(h) Vessel Ownership, Classification,
Seaworthiness and Insurance............ 17
2.1(i) Financial Statements..................... 18
2.1(j) Tax Returns and Payments................. 18
2.1(k) Insurance................................ 18
2.1(l) Offices.................................. 19
2.1(m) Not an Investment Company................ 19
2.1(n) Equity Ownership......................... 19
2.1(o) Environmental Matters.................... 19
2.1(p) Pending or Threatened Environmental
Claims................................ 20
2.1(q) Limited Purpose.......................... 20
2.1(r) Permitted Indebtedness................... 20
2.1(s) Survival................................. 20
CLAUSE 3 LOAN FACILITY.............................. 21
3.1(a) Purposes................................. 21
3.1(b) Making of the Loan....................... 21
3.2 Drawdown Notice.......................... 21
3.3 Effect of Drawdown Notice................ 21
CLAUSE 4 CONDITIONS PRECEDENT....................... 21
4.1 Conditions Precedent to Drawdown of the
Loan................................... 21
4.2 Break Funding Costs...................... 24
i
<PAGE> 3
CLAUSE 5 REPAYMENT, REDUCTION AND PREPAYMENT ....... 25
5.1 Repayment................................ 25
5.2 Voluntary Prepayment..................... 25
5.3 Mandatory Prepayment..................... 25
5.4 Application of Prepayment................ 26
CLAUSE 6 INTEREST AND RATE.......................... 26
6.1 Interest Rate; Default Rate.............. 26
6.2 Interest Periods......................... 26
6.3 Interest Payments........................ 27
6.4 Calculation of Interest.................. 27
CLAUSE 7 PAYMENTS................................... 27
7.1 Place of Payments, No Set Off............ 27
7.2 Tax Credits.............................. 29
CLAUSE 8 EVENTS OF DEFAULT........................... 29
8.1(a) Repayment................................ 29
8.1(b) Other Payments........................... 29
8.1(c) Representations, etc..................... 29
8.1(d) Impossibility, Illegality................ 29
8.1(e) Covenants................................ 30
8.1(f) Indebtedness............................. 30
8.1(g) Stock Ownership.......................... 30
8.1(h) Default under the Security Documents..... 31
8.1(i) Bankruptcy............................... 31
8.1(j) Sale of Assets........................... 31
8.1(k) Judgments................................ 31
8.1(l) Inability to Pay Debts................... 31
8.1(m) Financial Position....................... 31
8.1(n) Termination, Amendment or Assignment
of Charters............................ 32
8.2 Indemnification.......................... 33
8.3 Application of Moneys.................... 33
CLAUSE 9 COVENANTS................................... 34
9.1 Covenants................................ 34
9.1(A)(i) Performance of Agreements......... 34
9.1(A)(ii) Notice of Default; Change in
Classification of Vessel........ 34
ii
<PAGE> 4
9.1(A)(iii) Obtain Consents................... 34
9.1(A)(iv) Financial Statements.............. 35
9.1(A)(v) Corporate Existence............... 36
9.1(A)(vi) Books, Records, etc............... 36
9.1(A)(vii) Inspection........................ 36
9.1(A)(viii) Taxes............................. 36
9.1(A)(ix) Compliance with Statutes, etc..... 37
9.1(A)(x) Environmental Matters............. 37
9.1(A)(xi) Accountants....................... 38
9.1(A)(xii) Continue Charters................. 38
9.1(A)(xiii) Class Certificate................. 38
9.1(A)(xiv) Maintenance of Properties......... 39
9.1(A)(xv) Vessel Management................. 39
9.1(A)(xvi) Limitation on Restricted
Payments....................... 39
9.1(B)(i) Liens............................. 41
9.1(B)(ii) Loans and Advances................ 42
9.1(B)(iii) Limitation on Indebtedness........ 42
9.1(B)(iv) Guarantees, etc................... 45
9.1(B)(v) Changes in Business............... 45
9.1(B)(vi) Use of Corporate Funds............ 45
9.1(B)(vii) Issuance of Shares................ 45
9.1(B)(viii) Consolidation, Merger............. 45
9.1(B)(ix) Changes in Offices or Names....... 45
9.1(B)(x) Limitation on Transactions with
Shareholders and Affiliates..... 45
9.1(B)(xi) Change of Flag.................... 46
9.1(B)(xii) Sale of Vessel.................... 46
9.1(b)(iii) Modification of Agreements........ 46
9.2 Valuation of the Vessels................. 47
9.3 Collateral Maintenance................... 47
9.4 Release of Vessels....................... 47
9.5 Substitution of Vessels.................. 48
9.6 Inspection and Survey Reports............ 49
CLAUSE 10 ASSIGNMENT................................ 49
CLAUSE 11 ILLEGALITY, INCREASED COST,
NON-AVAILABILITY, ETC................... 49
11.1 Illegality............................... 49
11.2 Increased Cost........................... 50
11.3 Determination of Losses.................. 51
11.4 Compensation for Losses.................. 51
iii
<PAGE> 5
CLAUSE 12 CURRENCY INDEMNITY........................ 51
12.1 Currency Conversion...................... 51
12.2 Change in Exchange Rate.................. 51
12.3 Additional Debt Due...................... 52
12.4 Rate of Exchange......................... 52
CLAUSE 13 FEES AND EXPENSES......................... 52
13.1 Agency Fee............................... 52
13.2 Arrangement Fee.......................... 52
13.3 Expenses................................. 52
CLAUSE 14 APPLICABLE LAW, JURISDICTION AND WAIVER... 53
14.1 Applicable Law........................... 53
14.2 Jurisdiction............................. 53
14.3 WAIVER OF JURY TRIAL..................... 54
CLAUSE 15 THE AGENT................................. 54
15.1 Appointment of Agent..................... 54
15.2 Distribution of Payments................. 54
15.3 Holder of Interest in Note............... 55
15.4 No Duty to Examine, Etc.................. 55
15.5 Agent as Lender.......................... 55
15.6(a) Obligations of Agent..................... 55
15.6(b) No Duty to Investigate................... 55
15.7(a) Discretion of Agent...................... 55
15.7(b) Instructions of Majority Lenders......... 56
15.8 Assumption re Event of Default........... 56
15.9 No Liability of Agent or Lenders......... 56
15.10 Indemnification of Agent................. 57
15.11 Consultation with Counsel................
15.12 Resignation.............................. 57
15.13 Representations of Lenders............... 58
15.14 Notification of Event of Default......... 58
CLAUSE 16 APPOINTMENT OF SECURITY TRUSTEE........... 58
CLAUSE 17 NOTICES AND DEMANDS....................... 59
17.1 Notices.................................. 59
iv
<PAGE> 6
CLAUSE 18 MISCELLANEOUS............................. 59
18.1 Time of Essence.......................... 59
18.2 Unenforceable, etc., Provisions -
Effect................................. 59
18.3 References............................... 60
18.4 Further Assurances....................... 60
18.5 Prior Agreements, Merger................. 60
18.5 Joint and Several Obligations............ 60
18.7 Limitation of Liability.................. 61
18.8 Entire Agreement, Amendments............. 62
18.9 Headings................................. 63
v
<PAGE> 7
<PAGE> 1
TERM LOAN FACILITY AGREEMENT
----------------------------
THIS TERM LOAN FACILITY AGREEMENT is made as of the
3rd day of October, 1996, and is by and among:
(1) VSSI TOKYO INC., VSSI SUN INC., DORIO SHIPPING
LTD., VSSI MARINE INC. and VSSI CARRIERS INC., each
a corporation organized and existing under the laws
of the Republic of Liberia, as joint and several
borrowers together with any borrower(s) made a
party hereto pursuant to an Accession Agreement (as
hereinafter defined) in accordance with the terms
hereof (together, the "Borrowers", each a
"Borrower");
(2) CHRISTIANIA BANK OG KREDITKASSE, New York Branch,
THE BANK OF NOVA SCOTIA and BANQUE INDOSUEZ, as
lenders (together, the "Lenders", each a "Lender");
and
(3) CHRISTIANIA BANK OG KREDITKASSE, New York Branch,
as agent (in such capacity and any successor
thereto appointed pursuant to Section 15.12 the
"Agent") and security trustee (in such capacity and
any successor thereto, the "Security Trustee") for
the Lenders.
WITNESSETH THAT:
1. DEFINITIONS
1.1 DEFINED TERMS. In this Agreement the words and
expressions specified below shall, except where the context
otherwise requires, have the meanings attributed to them
below:
"Acceptable Accounting Firm" means Ernst & Young, or such other
recognized international accounting firm
as shall be approved by the Majority
Lenders, such approval not to be
unreasonably withheld;
"Accession Agreement" means an agreement substantially in the
form of Exhibit J hereto pursuant to
which a Wholly Owned Subsidiary of the
Guarantor is made a Borrower in
accordance with the terms hereof;
"Adjusted Consolidated Net
Income" means the aggregate net income (or loss)
of the Guarantor and its consolidated
Subsidiaries determined in accordance
with GAAP; provided that the following
items shall be excluded in computing
Adjusted Consolidated Net Income (without
duplication): (i) the effects of foreign
currency exchange adjustments under GAAP,
(ii) any gains or losses (on an after-tax
basis) attributable to vessel sales or to
prepayment of Indebtedness and (iii) any
extraordinary gains (or losses).
<PAGE> 2
"Affiliate" means with respect to any Person, any
other Person directly or indirectly
controlled by or under common control
with such Person. For the purposes of
this definition, "control" (including,
with correlative meanings, the terms
"controlled by" and "under common control
with") as applied to any Person means the
possession directly or indirectly of the
power to direct or cause the direction of
the management and policies of that
Person whether through ownership of
voting securities or by contract or
otherwise;
"Agreement" means this Agreement as the same shall be
amended, modified or supplemented from
time to time;
"Applicable Rate" means any rate of interest on the Loan
from time to time applicable pursuant to
Clause 6.1 hereof;
"Appraised Value" means the value assigned to each of the
Vessels as set forth on Schedule 1;
"Assignment and Assumption means the Assignment and Assumption
Agreement(s)" Agreement(s) executed pursuant to
Clause 10 hereof substantially in the
form of Exhibit G hereto;
"Assignment Notices" means: a) the notices with respect to the
Earnings Assignments
substantially in the form set
out in Exhibit 1 thereto or in
2
<PAGE> 3
such other form as the Lenders
may agree; and
b) the notices with respect to the
Insurances Assignments
substantially in the form set
out in Exhibit 3 thereto or in
such other form as the Lenders
may agree;
"Assignments" means the Insurances Assignments and the
Earnings Assignments;
"Banking Day(s)" means day(s) on which banks are open for
the transaction of business of the nature
required by this Agreement in Vancouver,
Canada, London, England and New York, New
York;
"Bond Offering" means that certain issue by the Guarantor
of $225,000,000 of 8.32% First Preferred
Mortgage Notes due February 1, 2008 made
pursuant to the Prospectus dated
January 19, 1996;
"Charter(s)" means the charterparty agreements entered
into by each of the Borrowers with Palm
Shipping relating to such Borrower's
Vessel, the date of each of which is set
out in Schedule 2 hereto, or any
substitute charter acceptable to the
Majority Lenders in their sole
discretion;
"Code" means the Internal Revenue Code of 1986,
as amended, and any successor statute and
regulations promulgated thereunder;
"Commitments" in relation to a Lender, means the
portion of the Loan set out opposite its
name on the signature pages hereto or, as
the case may be, in any relevant
Assignment and Assumption Agreement;
"Compliance Certificate" has the meaning ascribed thereto in
Clause 9.1(A)(iv)(a) hereof;
"Consents" means the Consent and Agreement to each
of the Earnings Assignments executed by
3
<PAGE> 4
Palm Shipping, substantially in the form
set out in Exhibit F hereto;
"Consolidated EBITDA" means, with respect to any Person for any
period, the sum of (i) Income from Vessel
Operations, (ii) depreciation expense and
(iii) amortization expense, as presented
in the financial statements of such
Person;
"Consolidated Interest
Expense" is defined to mean, with respect to any
Person for any period, the aggregate
amount of (i) interest expense and
(ii) losses on marketable securities less
(iii) interest income and (iv) gains on
marketable securities as disclosed on the
financial statements of such Person;
"Currency Agreement" means any foreign exchange contract,
currency swap agreement or other similar
agreement or arrangement designed to
protect the Guarantor or any of its
Subsidiaries against fluctuations in
currency values to or under which the
Guarantor or any of its Subsidiaries is a
party or a beneficiary on the date of
this Agreement or becomes a party or a
beneficiary thereafter;
"Default Rate" means the rate per annum equal to the sum
of the Applicable Rate and three percent
(3%);
"Dollars" and the sign "$" means the legal currency, at any relevant
time hereunder, of the United States of
America and, in relation to all payments
hereunder, in same day funds settled
through the New York Clearing House
Interbank Payments System (or such other
Dollar funds as may be determined by the
Lenders to be customary for the
settlement in New York City of banking
transactions of the type herein
involved);
"Drawdown Date" means the date, being a Banking Day
falling not later than October 31, 1996,
upon which the Borrowers have requested
4
<PAGE> 5
that the Loan be made available as
provided by Clause 3 hereof;
"Drawdown Notice" shall have the meaning ascribed thereto
in Clause 3.2 hereof;
"Earnings Assignments" means the assignments in respect of the
earnings of each Vessel from any and all
sources, including, but not limited to,
the respective Charter relating to such
Vessel, to be executed by the relevant
Borrower in favor of the Security Trustee
pursuant to Clause 4.1(c)(iv) hereof,
substantially in the form of Exhibit D
hereto;
"Environmental Approvals" shall have the meaning ascribed thereto
in Clause 2.1(o) hereof;
"Environmental Claim" shall have the meaning ascribed thereto
in Clause 2.1(o) hereof;
"Environmental Laws" shall have the meaning ascribed thereto
in Clause 2.1(o) hereof;
"Equity" means for any Person, such Person's
shareholders' equity (inclusive of
retained earnings) as reflected on such
Person's most recent quarterly unaudited
or annual audited financial statements,
as the case may be, as prepared in
accordance with GAAP;
"Event(s) of Default" means any of the events set out in
Clause 8 hereof;
"Facility Period" means the period from the Drawdown Date
of the Loan to the date upon which all
amounts owing under the Loan and all
other amounts due to the Agent, Security
Trustee and the Lenders pursuant to this
Agreement, the Note and the Security
Documents become repayable and are repaid
in full or are prepaid in full;
"FMV" means with respect to a Vessel, its Fair
Market Value as determined in accordance
with Clause 9.2 hereof;
5
<PAGE> 6
"GAAP" shall have the meaning ascribed thereto
in Clause 1.3 hereof;
"Guarantor" means Teekay Shipping Corporation, a
corporation organized and existing under
the laws of the Republic of Liberia;
"Guaranty" means the guaranty in respect of the
joint and several obligations of the
Borrowers under this Agreement to be
executed by the Guarantor in favor of the
Security Trustee pursuant to
Clause 4.1(d) hereof substantially in the
form of Exhibit B hereto;
"Indebtedness" means, 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 Person 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 and
unpaid 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 thereof or the completion
of such services, except trade payables,
(v) all obligations on account of
principal 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,
6
<PAGE> 7
the net 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;
"Indenture" means that certain Indenture dated as of
January 29, 1996 by and among, INTER
ALIA, the Guarantor and the United States
Trust Company of New York executed
pursuant to the Bond Offering;
"Insurances Assignments" means the assignments in respect of the
insurances of each Vessel, to be executed
by the relevant Borrower in favor of the
Security Trustee pursuant to
Clause 4.1(c)(iii) hereof, substantially
in the form of Exhibit E hereto;
"Interest Coverage Ratio" means, with respect to any Person on any
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 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
7
<PAGE> 8
prior to such 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 such date and (3) any
Indebtedness to be incurred on such
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 such date (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 of 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 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 such date; and (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
8
<PAGE> 9
disposition) that occur during such four-
fiscal-quarter period or thereafter and
prior to such date as if they had
occurred and such proceeds had been
applied on the first day of such four-
fiscal-quarter period; PROVIDED that to
the extent that clause (D) 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 such 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 Guarantor may
apply Consolidated EBITDA for such Vessel
based upon historical earnings of such
Vessel or, if none, of its most
comparable Vessel during the applicable
four-fiscal-quarter period, or if, in the
good faith determination of the board of
directors of the Guarantor, the Guarantor
does not have a comparable Vessel, based
upon industry average earnings for
comparable vessels;
"Interest Payment Date" means the last day of each Interest
Period and, for Interest Periods longer
than three months that day falling every
three months after the commencement
thereof until the end of such Interest
Periods; should any such day not be a
Banking Day the relevant Interest Payment
Date shall be the next following Banking
Day, unless such next following Banking
Day falls in the following calendar
month, in which case the relevant
Interest Payment Date shall be the
immediately preceding Banking Day;
"Interest Period(s)" with respect to the Facility, means any
period by reference to which an interest
rate is determined pursuant to Clause 6.2
hereof;
9
<PAGE> 10
"Interest Rate Agreements" means any interest rate protection
agreement, interest rate future
agreement, interest rate option
agreement, interest rate swap agreement,
interest rate cap agreement, interest
rate collar agreement, interest rate
hedge agreement or other similar
agreement or arrangement designed to
protect the Guarantor or any of its
Subsidiaries against fluctuations in
interest rates to or under which the
Guarantor or any of its Subsidiaries is a
party or a beneficiary on the date of
this Agreement or becomes a party or a
beneficiary hereafter;
"LIBOR" means, in relation to Interest Periods of
one (1), three (3) or six (6) months, the
rate (rounded upward to the nearest
1/16th of one percent) for deposits of
Dollars for a period equivalent to such
period at or about 11:00 a.m. (London
time) on the second London Banking Day
before the first day of such period as
displayed on Telerate page 3750 (British
Bankers' Association Interest Settlement
Rates) (or such other page as may replace
such page 3750 on such system or on any
other system of the information vendor
for the time being designated by the
British Bankers' Association to calculate
the BBA Interest Settlement Rate (as
defined in the British Bankers'
Association's Recommended Terms and
Conditions ("BBAIRS" terms) dated August
1985)), provided that if on such date no
such rate is so displayed or if the
Interest Period is other than one (1),
three (3) or six (6) months, LIBOR for
such period shall be the arithmetic mean
(rounded upward if necessary to four
decimal places) of the rates respectively
quoted to the Agent by each of the
Reference Banks at the request of the
Agent as the offered rate for deposits of
Dollars in an amount approximately equal
to the amount in relation to which LIBOR
is to be determined for a period
10
<PAGE> 11
equivalent to such period to prime banks
in the London Interbank Market at or
about 11:00 a.m. (London time) on the
second Banking Day before the first day
of such period;
"Loan" means the term loan to be made available
to the Borrowers by the Lenders pursuant
to Clause 3.1 in the principal amount of
Ninety Million Dollars ($90,000,000) or
the balance thereof from time to time
outstanding;
"Majority Lenders" Lenders whose Commitments exceed fifty
percent (50%) of total Commitments;
"Management Agreement(s)" means the agreement(s) entered into
between the Manager and each Borrower in
respect of the commercial and technical
management of the Borrowers' Vessels;
"Manager" means Teekay Shipping Limited, a Bahamian
company and a Wholly Owned Subsidiary of
the Guarantor;
"Margin" (a) if the Net Debt to Equity Ratio is
greater than 1.5:1, the Margin shall be
.85% per annum; (b) if the Net Debt to
Equity Ratio is equal to or less than
1.5:1 but greater than 1:1, the Margin
shall be .65% per annum; and (c) if the
Net Debt to Equity Ratio is equal to or
less than 1:1, the Margin shall be .55%
per annum; the Margin to be determined as
of the date hereof, and to be adjusted,
if necessary, as of the first Banking Day
following receipt by the Agent of the
most recent quarterly unaudited or annual
audited financial statements, as the case
may be, of the Guarantor together with
the Compliance Certificate of the
Guarantor (setting forth the Guarantor's
calculation of the Net Debt to Equity
Ratio);
"Materials of Environmental
Concern" shall have the meaning ascribed in Clause
2.1(o) hereof;
11
<PAGE> 12
"Maturity Date" means the day which falls seven years
from the Drawdown Date; if such day is
not a Banking Day, the next following
Banking Day, unless such next following
Banking Day falls in the following
calendar month, in which case the
Maturity Date shall be the immediately
preceding Banking Day;
"Mortgages" means the first preferred Liberian ship
mortgages on each Vessel, in each case,
to be recorded on each Vessel and
executed by the relevant Borrower in
favor of the Security Trustee, pursuant
to Clause 4.1(c)(ii) hereof, and to be
substantially in the form of Exhibit C
hereto;
"Net Debt" means (x) the sum of long term debt and
capital leases (including the current
portions) less (y) to the extent
positive, the sum of cash (including cash
held in retention accounts for the
payment of debt and cash pledged as
collateral against balance sheet
obligations) and marketable securities
less the sum of the current portion of
long term debt and capital leases
(excluding the current portion of
advances outstanding under the Revolver);
"Net Debt to Equity Ratio" means, the ratio of the Guarantor's
consolidated Net Debt to its consolidated
Equity as reflected on the most recent
quarterly unaudited or annual audited
financial statements, as the case may be,
as calculated by the Guarantor, which
calculation shall be set forth in the
Compliance Certificate accompanying such
financial statements, and agreed by the
Agent;
"Note" means the promissory note, to be executed
by the Borrowers to the order of the
Security Trustee, pursuant to
Clause 4.1(c)(i) hereof, to evidence the
Loan substantially in the form of Exhibit
A hereto;
12
<PAGE> 13
"Palm Shipping" means Palm Shipping Inc., a corporation
organized and existing under the laws of
the Republic of Liberia and an affiliate
of the Borrowers and a Wholly Owned
Subsidiary of the Guarantor;
"Person" means any individual, sole
proprietorship, corporation, partnership
(general or limited), business trust,
bank, trust company, joint venture,
association, joint stock company, trust
or other unincorporated organization,
whether or not a legal entity, or any
government or agency or political
subdivision thereof;
"Reference Banks" means Christiania Bank og Kreditkasse,
The Bank of Nova Scotia and Banque
Indosuez;
"Repayment Date" means each of the dates falling at
intervals of six months after the
Drawdown Date; if such day is not a
Banking Day, the next following Banking
Day, unless such next following Banking
Day falls in the following calendar
month, in which case the relevant
Repayment Date shall be the immediately
preceding Banking Day;
"Revolver" means that certain Reducing Revolving
Credit Facility Agreement dated June 6,
1995 between certain subsidiaries of the
Guarantor, Den norske Bank ASA as agent,
Den norske Bank ASA, Christiania Bank og
Kreditkasse and Nederlandse
Scheepshypotheekbank N.V. as arrangers,
and certain lenders providing for a
reducing revolving credit facility in the
original maximum available amount of
$243,000,000;
"Security Documents" means the Guaranty, the Mortgages, the
Earnings Assignments, the Insurances
Assignments, the Assignment Notices, the
Consents, and any other documents that
may be executed as security for the
13
<PAGE> 14
Borrowers' obligations hereunder and
under the Note;
"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;
"Taxes" means any present or future income or
other taxes, levies, duties, charges,
fees, deductions or withholdings of any
nature now or hereafter imposed, levied,
collected, withheld or assessed by any
taxing authority whatsoever;
"Total Loss" means:
(a) the actual, constructive,
arranged, agreed, or compromised
total loss of the Vessel;
(b) the requisition for title or other
compulsory acquisition or
forfeiture of the Vessel otherwise
than by requisition for hire;
(c) the capture, seizure, arrest,
detention or confiscation of the
Vessel by any government or by
persons acting or purporting to
act on behalf of any government
unless the Vessel be released from
such capture, seizure, arrest or
detention within two hundred ten
(210) days after the occurrence
thereof;
"Transaction Documents" means this Agreement, the Note and the
Security Documents and any Assignment and
Assumption Agreement;
"Vessels" means each of the Vessels listed in
Schedule 1 hereto, registered in the name
of the relevant Borrower as set forth in
such schedule;
14
<PAGE> 15
"Wholly Owned" means, with respect to any Subsidiary of
any Person, such Subsidiary of such
Person if all of the outstanding common
stock or other similar equity ownership
interests (but not including preferred
stock) in such Subsidiary (other than any
director's qualifying share or
investments by foreign nationals mandated
by applicable law) is owned directly or
indirectly by such Person.
1.2 CONSTRUCTION. Words importing the singular number
only shall include the plural and VICE VERSA. Words
importing persons shall include companies, firms, corpora-
tions, partnerships, unincorporated associations and their
respective successors and assigns.
1.3 ACCOUNTING TERMS. All accounting terms not
specifically defined herein shall be construed in accordance
with generally accepted accounting principles as in effect
from time to time in the United States of America consis-
tently applied ("GAAP") and all financial statements
submitted pursuant to this Agreement shall be prepared in
accordance with, and all financial data submitted pursuant
hereto shall be derived from financial statements prepared
in accordance with, GAAP.
2 REPRESENTATIONS AND WARRANTIES
2.1 In order to induce the Lenders, the Agent and the
Security Trustee to enter into this Agreement and to make
the Loan available, each of the Borrowers hereby represents
and warrants (which representations and warranties shall
survive the execution and delivery of this Agreement and the
Note and the drawdown of the Loan hereunder) that:
(a) DUE ORGANIZATION AND POWER. Each of the
Borrowers, the Guarantor and Palm Shipping is duly formed
and validly existing in good standing under the laws of its
respective jurisdiction of incorporation, has duly qualified
and, insofar as the Borrowers are aware, is authorized to do
business as a foreign corporation in each jurisdiction
wherein the nature of the business transacted thereby makes
such qualification necessary, has full power to carry on its
business as now being conducted and to enter into and
perform its respective obligations under the Transaction
Documents to which it is or is to be a party, and has
complied with all statutory, regulatory and other
requirements relative to such business and such agreements
15
<PAGE> 16
the noncompliance with which could reasonably be expected to
have a material adverse effect on its business, assets or
operations, financial or otherwise.
(b) AUTHORIZATION AND CONSENTS. All necessary
corporate action has been taken to authorize, and all
necessary consents and authorities have been obtained and
remain in full force and effect to permit, each of the
Borrowers, the Guarantor and Palm Shipping to enter into and
perform its obligations under the Transaction Documents to
which it is a party and, in the case of the Borrowers, to
borrow, service and repay the Loan and, as of the date of
this Agreement, no further consents or authorities are
necessary for the service and repayment of the Loan or any
part of any thereof.
(c) BINDING OBLIGATIONS. The Transaction
Documents constitute or, when executed and delivered, will
constitute, legal, valid and binding obligations of each of
the Borrowers, the Guarantor and Palm Shipping as is a party
thereto enforceable against each thereof as is a party
thereto in accordance with their terms, except to the extent
that such enforcement may be limited by equitable
principles, principles of public policy or applicable
bankruptcy, insolvency, reorganization, moratorium or other
laws affecting generally the enforcement of creditors'
rights.
(d) NO VIOLATION. The execution and delivery of,
and the performance of the provisions of, the Transaction
Documents by each of the Borrowers, the Guarantor and Palm
Shipping as is a party thereto, do not, and will not during
the term of this Agreement, contravene any applicable law or
regulation existing at the date hereof or any contractual
restriction binding on any thereof or the articles of
incorporation or by-laws (or equivalent documents) of any
thereof.
(e) LITIGATION. Except as otherwise disclosed in
writing to the Lenders on or before the date hereof, no
action, suit or proceeding is pending or threatened against
any of the Borrowers, the Guarantor and Palm Shipping before
or by any court, board of arbitration or administrative
agency which has a reasonable likelihood of resulting in any
material adverse change in the business or condition
(financial or otherwise) of any of the Borrowers, the
Guarantor and Palm Shipping.
16
<PAGE> 17
(f) NO DEFAULT. None of the Borrowers nor the
Guarantor nor Palm Shipping is in default under any
agreement by which it is bound, nor is any thereof in
default in respect of any financial commitment or
obligation.
(g) CHARTERS. Each Vessel is subject to a
Charter. The certified copies of the Charters delivered to
the Agent on or prior to the date of this Agreement are true
and complete copies thereof and constitute legal, valid and
binding obligations of the parties thereto enforceable
against such parties in accordance with their respective
terms, except to the extent that such enforcement may be
limited by equitable principles, principles of public policy
or applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting generally the enforcement
of creditors' rights, and no amendments thereof or
variations thereto have been proposed or agreed prior to the
date hereof other than immaterial changes, details of which
shall have been forwarded to the Agent. The right of each
Borrower to all moneys payable under its respective Charter
is not subject to any right of set-off or counterclaim or
any lien, charge, security interest, assignment or other
encumbrance except in favor of the Agent, the Security
Trustee or the Lenders. There are no material defaults on
the part of any party to the Charters and there is no
accrued right of any Borrower to terminate its respective
Charter with Palm Shipping or of Palm Shipping to terminate
any Charter with any Borrower.
(h) VESSEL OWNERSHIP, CLASSIFICATION, SEAWORTHINESS
AND INSURANCE. On the Drawdown Date:
(i) each Vessel will be in the sole and
absolute ownership of the respective Borrower,
unencumbered, save and except for, the Mortgage
thereon, and duly registered in the name of the
respective Borrower under the laws and flag of the
Republic of Liberia as set forth in Schedule 1
hereto;
(ii) each Vessel will be classed in the
highest classification and rating for vessels of
the same age and type with the classification
society set next to its name in Schedule 1 hereto
or such other classification society acceptable to
the Lenders without any outstanding recommendations
deemed material by the Lenders except in the case
of any Vessel which has been damaged, of which
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damage the Borrower owning such Vessel is
diligently effecting repair, the nature, extent and
estimated cost of which damage have been disclosed
to the Lenders and found by the Lenders unlikely to
have a material adverse impact on such Borrower's
ability to perform its obligations hereunder;
(iii) each Vessel will be operationally
seaworthy and in every way fit for service; and
(iv) each Vessel will be insured in accordance
with the provisions of the Mortgage thereon and the
requirements thereof in respect of such insurances
will have been complied with.
(i) FINANCIAL STATEMENTS. Except as otherwise
disclosed in writing to the Lenders on or prior to the date
hereof, all information and other data furnished by the
Borrowers and the Guarantor to the Lenders are complete and
correct, and all financial statements furnished by the
Borrowers and the Guarantor have been prepared in accordance
with GAAP and accurately and fairly present the financial
condition of the parties covered thereby as of the
respective dates thereof and the results of the operations
thereof for the period or respective periods covered by such
financial statements. Since such date or dates there has
been no material adverse change in the financial condition
or results of the operations of any of such parties and none
thereof has any contingent obligations, liabilities for
taxes or other outstanding financial obligations which are
material in the aggregate except as disclosed in such
statements, information and data.
(j) TAX RETURNS AND PAYMENTS. Each of the
Borrowers and the Guarantor has filed all tax returns
required to be filed thereby and has paid all taxes payable
thereby which have become due, other than those not yet
delinquent or the nonpayment of which would not have a
material adverse effect on any such party, as the case may
be, and except for those taxes being contested in good faith
and by appropriate proceedings or other acts and for which
adequate reserves have been set aside on its books.
(k) INSURANCE. Each of the Borrowers and the
Guarantor has insured its properties and assets against such
risks and in such amounts as are customary for companies
engaged in similar businesses.
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(l) OFFICES. Each of the chief executive office
and chief place of business of each of the Borrowers, the
Guarantors and Palm Shipping and the office in which the
financial records relating to the Vessels are kept, is, and
will continue to be, located at Tradewinds Building, Bay
Street, Nassau, the Bahamas; none of the Borrowers maintains
a place of business in Canada, the United States or the
United Kingdom.
(m) NOT AN INVESTMENT COMPANY. Neither the
Guarantor, Palm Shipping nor any of the Borrowers is an
"investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(n) EQUITY OWNERSHIP. Each of the Borrowers and
Palm Shipping is a Wholly Owned Subsidiary of the Guarantor.
On the Drawdown Date, none of the Borrowers nor Palm
Shipping will own any shares of capital stock, partnership
interest or any other direct or indirect equity interest in
any corporation, partnership or other entity.
(o) ENVIRONMENTAL MATTERS. Except as heretofore
disclosed in writing to the Lenders (i) each of the
Borrowers will, when required, be in compliance with all
applicable United States federal and state, local, foreign
and international laws, regulations, conventions and
agreements relating to pollution prevention or protection of
human health or the environment (including, without
limitation, ambient air, surface water, ground water,
navigable waters, waters of the contiguous zone, ocean
waters and international waters), including, without
limitation, laws, regulations, conventions and agreements
relating to (1) emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous materials, oil,
hazardous substances, petroleum and petroleum products and
by-products ("Materials of Environmental Concern"), or
(2) the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of
Materials of Environmental Concern ("Environmental Laws");
(ii) each of the Borrowers will, when required, have all
permits, licenses, approvals, rulings, variances,
exemptions, clearances, consents or other authorizations
required under applicable Environmental Laws ("Environmental
Approvals") and will, when required, be in full compliance
with all Environmental Approvals required to operate their
business as then being conducted; (iii) none of the
Borrowers has received any notice of any claim, action,
cause of action, investigation or demand by any person,
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<PAGE> 20
entity, enterprise or government, or any political
subdivision, intergovernmental body or agency, department or
instrumentality thereof, alleging potential liability for,
or a requirement to incur, investigatory costs, cleanup
costs, response and/or remedial costs (whether incurred by a
governmental entity or otherwise), natural resources
damages, property damages, personal injuries, attorneys'
fees and expenses, or fines or penalties, in each case
arising out of, based on or resulting from (1) the presence,
or release or threat of release into the environment, of any
Materials of Environmental Concern at any location, whether
or not owned by such person, or (2) circumstances forming
the basis of any violation, or alleged violation, of any
Environmental Law or Environmental Approval ("Environmental
Claim") (other than Environmental Claims that have been
fully and finally adjudicated or otherwise determined and
all fines, penalties and other costs, if any, payable by the
Borrowers in respect thereof have been paid in full or which
are fully covered by insurance (including permitted
deductibles)); and (iv) there are no circumstances that may
prevent or interfere with such full compliance in the
future.
(p) PENDING OR THREATENED ENVIRONMENTAL CLAIMS.
Except as heretofore disclosed in writing to the Lenders
there is no Environmental Claim pending or threatened
against any Borrower or past or present actions, activities,
circumstances, conditions, events or incidents, including,
without limitation, the release, emission, discharge or
disposal of any Materials of Environmental Concern, that
could form the basis of any Environmental Claim against any
Borrower.
(q) LIMITED PURPOSE. Each Borrower is a special
purpose company whose sole capital asset is its Vessel; no
Borrower engages in any business other than the owning of
its Vessel.
(r) PERMITTED INDEBTEDNESS. The Loan and the
Guaranty thereof are Indebtedness of the Borrowers and the
Guarantor, respectively, the incurrence of which is
permitted by Section 4.03 of the Indenture because the
Interest Coverage Ratio (as such term is defined in the
Indenture) shall be greater than 2:1 after consummation of
the transactions contemplated herein.
(s) SURVIVAL. All representations, covenants and
warranties made herein and in any certificate or other
document delivered pursuant hereto or in connection herewith
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shall survive the making of the Loan and the issuance of the
Note to be issued by the Borrowers hereunder.
3 THE LOAN
3.1 (a) PURPOSES. The Lenders shall make the Loan
available to the Borrowers for the purpose of (i) financing
the acquisition costs of the Liberian flag vessel SEMAKAU
SPIRIT and (ii) refinancing existing Indebtedness with
respect to the Vessels other than the SEMAKAU SPIRIT.
(b) MAKING OF THE LOAN. Each of the Lenders,
relying upon each of the representations and warranties set
out in Clause 2, hereby severally and not jointly agrees
with the Borrowers that, subject to and upon the terms of
this Agreement, it will on the Drawdown Date make its
Commitment available through the Agent to the Borrowers.
3.2 DRAWDOWN NOTICE. The Guarantor, on behalf of the
Borrowers, shall, at least three (3) Banking Days before the
Drawdown Date, serve a notice, such notice to be
substantially in the form of Exhibit H hereto, (a "Drawdown
Notice") on the Agent which notice shall (a) be in writing
addressed to the Agent, (b) be effective on receipt by the
Agent, (c) specify the Banking Day on which the Loan is to
be made, (d) specify the initial Interest Period, (e)
specify the disbursement instructions and (f) be
irrevocable.
3.3 EFFECT OF DRAWDOWN NOTICE. The Drawdown Notice
shall be deemed to constitute a warranty by the Borrowers
(a) that the representations and warranties stated in
Clause 2 (updated MUTATIS MUTANDIS) are true and correct on
the date of such Drawdown Notice and will be true and
correct on the relevant Drawdown Date as if made on such
date, and (b) that no Event of Default nor any event which
with the giving of notice or lapse of time or both would
constitute an Event of Default has occurred and is
continuing.
4 CONDITIONS PRECEDENT
4.1 CONDITIONS PRECEDENT TO DRAWDOWN OF THE LOAN. The
obligation of the Lenders to make the Loan available to the
Borrowers under this Agreement shall be expressly subject to
the following conditions precedent:
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(a) the Agent shall have received the following
documents in form and substance satisfactory to the Agent
and counsel to the Lenders:
(i) copies, certified as true and complete by an
officer of each of the Borrowers, the
Guarantor and Palm Shipping of the resolutions
of each such company's board of directors
(and, if necessary under appropriate law,
shareholders) evidencing approval of the
Transaction Documents to which such company is
to be a party and authorizing an appropriate
officer or officers or attorney-in-fact or
attorneys-in-fact to execute the same on its
behalf;
(ii) copies, certified as true and complete by an
officer of each of the Borrower, the Guarantor
and Palm Shipping or other applicable party,
of all documents evidencing any other
necessary action (including actions by such
parties thereto other than the Borrowers, the
Guarantor and Palm Shipping as may be required
by the Lenders), approvals or consents with
respect to this Agreement, the Note, the
Security Documents and the transactions
contemplated hereby and thereby;
(iii) copies, certified as true and complete by an
officer of each of the Borrowers, the
Guarantor and Palm Shipping, of the articles
or certificate of incorporation and by-laws
(or the equivalent thereof) of each thereof;
(iv) good standing certificates or the equivalent
thereof with respect to each of the Borrowers,
the Guarantor and Palm Shipping issued by the
appropriate authorities of the respective
jurisdiction of incorporation of such parties;
and
(v) copies, certified as true and complete by an
officer of the relevant Borrower, of the
Charter and Management Agreement relating to
its Vessel.
(b) the Agent shall have received evidence
satisfactory to the Agent and counsel to the Lenders that:
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(i) each of the Vessels is registered in the name
of such Borrower listed opposite its name in
Schedule 1 under Liberian flag and that each
such Vessel is free and clear of all liens and
encumbrances of record except for the Mortgage
thereon in favor of the Security Trustee;
(ii) each Vessel is classed in the highest
classification and rating for vessels of the
same age and type with the classification
society listed next to the Vessel in
Schedule 1 or such other classification
society acceptable to the Lenders without any
material outstanding recommendations;
(iii) each Vessel is operationally seaworthy and in
every way fit for service; and
(iv) each Vessel is insured in accordance with the
provisions of its respective Mortgage
(evidence of which shall include, without
limitation, cover notes, Certificates of Entry
and brokers' letters of undertaking and an
opinion of an independent insurance consultant
retained by the Lenders or such other evidence
as shall be reasonably satisfactory to the
Lenders) and all requirements thereof in
respect of such insurances have been
fulfilled;
(c) each Borrower shall have duly executed and
delivered:
(i) the Note,
(ii) the Mortgage relating to its Vessel,
(iii) the Insurances Assignment relating to its
Vessel,
(iv) the Earnings Assignment relating to its
Vessel, and
(v) the applicable Assignment Notices;
(d) the Guarantor shall have duly executed and
delivered the Guaranty;
(e) Palm Shipping shall have duly executed and
delivered the Consents;
(f) each of the Charters shall be in form and
substance satisfactory to the Lenders;
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<PAGE> 24
(g) the Agent and the Lenders shall have received
payment in full of all fees and expenses due to the Agent
and the Lenders on the date thereof including, without
limitation, all fees and expenses due under Clause 13
hereof;
(h) the Lenders shall have received evidence
satisfactory to it and its legal advisers that, save for the
liens created by the respective Mortgage, Earnings
Assignment and Insurances Assignment, there are no liens,
charges or encumbrances of any kind whatsoever on any Vessel
or its earnings or insurances except as permitted hereby or
by any of the Security Documents;
(i) the Lenders shall be satisfied that none of
the Borrowers or, the Guarantor, or Palm Shipping is subject
to any Environmental Claim which could have a material
adverse effect on the business, assets or results of
operations of any thereof;
(j) the Lenders shall have received a complete
copy of (i) the consolidated audited financial report of the
Guarantor for the year ending March 31, 1996, and (ii) the
consolidated unaudited financial report of the Guarantor for
the fiscal quarter ending June 30, 1996, each of which shall
include at least the balance sheet of such corporation as of
the end of such year and the related statements of income,
cash flow and retained earnings for such year all in
reasonable detail, and which, in the case of the annual
report of the Guarantor, shall be certified by an Acceptable
Accounting Firm, together with their opinion (containing no
qualifications which the Lenders deem material);
(k) the Lenders shall have received opinions from
(i) Watson, Farley & Williams, counsel to the Borrowers and
the Guarantor on matters of New York law, the Federal law of
the United States and Liberian law, (ii) Seward & Kissel,
special counsel to the Lenders, in each case in such form as
the Lenders may require, as well as such other legal
opinions as the Lenders shall require as to all or any
matters under the laws of the United States of America, the
State of New York, the Republic of Liberia and other
applicable jurisdictions covering the representations and
conditions which are the subjects of Clauses 2 and 4.
4.2 BREAK FUNDING COSTS. In the event that, on any
date specified for the making of the Loan in the Drawdown
Notice, the Lenders shall not be obliged under this
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Agreement to make the Loan available under this Agreement,
the Borrowers shall indemnify and hold the Lenders, or any
of them, fully harmless against any losses which the
Lenders, or any of them, may sustain as a result of
borrowing or agreeing to borrow funds to meet the drawdown
requirement in respect thereof and the certificate of such
Lender or Lenders shall, absent manifest error, be
conclusive and binding on the Borrowers as to the extent of
any such losses.
5 REPAYMENT AND PREPAYMENT
5.1 REPAYMENT. The Borrowers shall repay the principal
amount of the Loan with interest thereon in fourteen (14)
consecutive semiannual installments on the Repayment Dates,
the first thirteen of which shall be in the principal amount
of Five Million Dollars ($5,000,000) and the fourteenth and
last installment shall be in the principal amount of Twenty-
Five Million Dollars ($25,000,000).
5.2 VOLUNTARY PREPAYMENT. The Borrowers may prepay,
upon five (5) Banking Days written notice (which notice
shall be irrevocable), on the last day of any Interest
Period applicable to the Loan or the portion thereof to be
prepaid, the Loan or any portion thereof, without penalty.
Each prepayment shall be in a minimum amount of Five Million
Dollars ($5,000,000) plus any One Million Dollar
($1,000,000) multiples thereof or the full amount of the
Loan.
5.3 MANDATORY PREPAYMENTS. Upon the sale, Total Loss
or other disposition of any Vessel, or in connection with
the release of a Borrower from its obligations hereunder
pursuant to Clause 9.4 hereof the Borrowers shall, upon
payment to or on behalf of a Borrower or any Affiliate
thereof of the proceeds of such sale, Total Loss or other
disposition or, in the case of a release as aforesaid, on
the last day of the Interest Period following a Borrower's
request for such release, prepay the Loan, in part and
without penalty, in an amount equal to the then outstanding
balance of the Loan multiplied by a fraction, the numerator
of which is the Appraised Value of the Vessel or Vessels
subject to any such sale, Total Loss, other disposition or
release and the denominator of which is the aggregate of the
Appraised Values of all the Vessels (other than any Vessel
previously sold, disposed of or the subject of a Total Loss
or released for which a prepayment under this Clause has
heretofore been made).
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5.4 APPLICATION OF PREPAYMENTS. Any prepayments of the
Loan made hereunder (including, without limitation, those
made pursuant to Sections 5.2, 5.3 and 9.3) shall be subject
to the condition that:
(a) any partial prepayment made shall be applied
PRO RATA in or towards satisfaction of the remaining
installments of the Loan;
(b) any amounts prepaid shall not be available for
re-borrowing; and
(c) on the date of any prepayment all accrued
interest to the date of such prepayment shall be paid in
full with respect to the portion of the principal being
prepaid, together with any and all actual costs or expenses
incurred by any Lender in connection with any breaking of
funding (as certified by such Lender, which certification
shall, absent any manifest error, be conclusive and binding
on the Borrower).
6 INTEREST AND RATE
6.1 INTEREST RATE; DEFAULT RATE. The Loan shall bear
interest at the Applicable Rate, which shall be the rate per
annum equal to the aggregate of (a) LIBOR for the applicable
Interest Period and (b) the Margin. Any amounts due under
this Agreement, not paid when due, whether on a Repayment
Date, by acceleration or otherwise, shall bear interest
thereafter at the Default Rate.
6.2 INTEREST PERIODS. The Borrowers may select
Interest Periods of one, three or six months, or such other
period as selected by the Guarantor on behalf of the
Borrowers which is available to, and accepted by, the
Lenders for purposes of funding the Loan, PROVIDED, HOWEVER,
that at all times the Borrower must select an Interest
Period for a portion of the Loan so that sufficient deposits
shall mature on each Repayment Date to cover the principal
installments due on such dates. The Guarantor, on behalf of
the Borrowers, shall provide the Agent with written notice
specifying the Interest Period selected by the Borrowers at
least three (3) Banking Days prior to the Drawdown Date and
the end of any then existing Interest Period. If at the end
of any then existing Interest Period the Borrowers, or the
Guarantor on their behalf, fail to give notice as aforesaid,
the relevant Interest Period shall be three (3) months.
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6.3 INTEREST PAYMENTS. The Borrowers agree to pay
interest accrued on the Loan, in arrears, on the Interest
Payment Dates.
6.4 CALCULATION OF INTEREST. All interest shall accrue
from day to day and be calculated on the actual number of
days elapsed over a three hundred sixty (360) day year.
7 PAYMENTS
7.1 PLACE OF PAYMENTS, NO SET OFF. (a) All payments to
be made hereunder by the Borrowers shall be made on the due
dates of such payments to the Agent at its office located at
11 West 42nd Street, New York, New York 10036 or to such
other place as the Agent may direct, for the account of the
Lenders, without set-off or counterclaim and free from,
clear of and without deduction for, any Taxes, provided,
however, that if the Borrowers shall at any time be
compelled by law to withhold or deduct any Taxes from any
amounts payable to the Lenders hereunder, then, subject to
Clause 7.2, the Borrowers shall pay such additional amounts
in Dollars as may be necessary in order that the net amounts
received after withholding or deduction shall equal the
amounts which would have been received if such withholding
or deduction were not required and, in the event any
withholding or deduction is made, whether for Taxes or
otherwise, the Borrowers shall promptly send to the Lenders
such documentary evidence with respect to such withholding
or deduction as may be required from time to time by the
Lenders. Notwithstanding the preceding sentence, the
Borrowers shall not be required to pay additional amounts or
otherwise indemnify the Lenders for or on account of:
(i) Taxes based on or measured by the overall
net income of any Lender or Taxes in the nature of franchise
taxes or taxes for the privilege of doing business imposed
by any jurisdiction or any political subdivision or taxing
authority therein unless such are imposed as a result of the
activities of the Borrowers within the relevant taxing
jurisdiction;
(ii) Taxes imposed by any jurisdiction or any
political subdivision or taxing authority therein on any
Lender that would not have been imposed but for such
Lender's being organized in or conducting business in or
maintaining a place of business in the relevant taxing
jurisdiction, or engaging in activities or transactions in
the relevant taxing jurisdiction that are unrelated to the
transactions contemplated by the Transaction Documents, but
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<PAGE> 28
only to the extent such Taxes are not imposed as a result of
the activities of any of the Borrowers within the relevant
taxing jurisdiction or the jurisdiction of any of the
Borrowers under the laws of the taxing jurisdiction;
(iii) Taxes imposed on or with respect to a Lender
as a result of a transfer, sale, assignment, or other
disposition by such Lender of any interest in any
Transaction Document, any Note or any Vessel (other than a
transfer pursuant to an exercise of remedies upon an Event
of Default);
(iv) Taxes imposed on, or with respect to, a
transferee (or a subsequent transferee) of an original
Lender (and including as such a transferee a Lender whose
shares of stock have been transferred or the purchaser of a
participation in the Loan) to the extent of the excess of
such Tax over the amount of such Tax that would have been
imposed on, or with respect to, such original Lender had
there not been a transfer, sale, assignment or other
disposition of the shares of such Lender or a transfer,
sale, assignment or other disposition by such original
Lender of any interest in any Vessel, any Note or any
Transaction Document (in each case, other than any transfer
pursuant to the exercise of remedies as a result of an Event
of Default that shall have occurred and be continuing); or
(v) Taxes imposed on any Lender that would not
have been imposed but for any failure of such Lender to
comply with any return filing requirement or any
certification, information, documentation, reporting or
other similar requirement known to such Lender, if such
compliance is required to obtain or establish relief or
exemption from or reduction in such Taxes.
(b) In the event that any Borrower has actual
knowledge that the Borrowers are required to, or there
arises in any Borrower's reasonable opinion a substantial
likelihood that the Borrowers will be required to, pay an
additional amount or otherwise indemnify any Lender for or
on account of any Tax pursuant to Clause 7.1(a), the
Borrower will promptly notify the Agent and each relevant
Lender of the nature of such Tax, and shall furnish such
information to the Agent and such Lender with respect to
such Tax, as the Agent or such Lender may reasonably
request. In the event of any knowledge or opinion of a
Borrower described in the preceding sentence, the Borrowers,
the Agent and each relevant Lender shall consult in good
faith to determine what may be required to avoid or reduce
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such Tax, and shall each use reasonable efforts to avoid or
reduce such Tax (so long as such efforts do not, in the
reasonable opinion of the relevant Lender, result in any
cost to such Lender or any modification of the terms or
repayment of the Loan).
7.2 TAX CREDITS. If any Lender obtains the benefit of
a credit against its liability for Taxes imposed by any
taxing authority for all or part of the Taxes as to which
the Borrowers have paid additional amounts as aforesaid then
such Lender shall reimburse the Borrowers for the amount of
the credit so obtained. Each Lender shall use reasonable
efforts in filing such tax return as are necessary to obtain
any such credit. In connection therewith, the Lenders may
consult with their legal advisers, all fees and expenses of
which shall be for the account of the Borrowers.
8 EVENTS OF DEFAULT
8.1 In the event that any of the following events shall
occur and be continuing:
(a) REPAYMENTS. Any principal or interest payment
due hereunder, under the Note or under any of the Security
Documents is not paid on the due date; or
(b) OTHER PAYMENTS. Any fees or other amount
becoming payable to the Agent, the Security Trustee or the
Lenders under this Agreement, under the Note, or under any
of the Security Documents or under any of them is not paid
on the due date or within three (3) Banking Days after the
date of demand (as the case may be); or
(c) REPRESENTATIONS, ETC. Any representation,
warranty or other statement made by the Borrower, the
Guarantor or Palm Shipping in this Agreement or in any of
the Security Documents to which it is a party or in any
other instrument, document or other agreement delivered in
connection herewith or therewith proves to have been untrue
or misleading in any material respect as at the date as of
which made; or
(d) IMPOSSIBILITY, ILLEGALITY. It becomes
impossible or unlawful for the Borrowers, the Guarantor,
Palm Shipping or any of them to fulfill any of the covenants
and obligations contained herein, in the Note or in any of
the Security Documents to which it is a party or for the
Agent, the Security Trustee or the Lenders to exercise any
of the rights vested in any of them hereunder, under the
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Note or under any of the Security Documents and such
impossibility or illegality, in the reasonable opinion of
the Agent, the Security Trustee or the Majority Lenders,
will have a material adverse effect on their rights
hereunder, under the Note or under any of the Security
Documents or on their right to enforce any thereof; or
(e) COVENANTS. The Borrowers, the Guarantor or
Palm Shipping or any of them defaults in the performance of
any term, covenant or agreement contained in this Agreement,
in the Note or in any of the Security Documents to which
they are a party or in any of them, or in any other
instrument, document or other agreement delivered in
connection herewith or therewith, or there occurs any other
event which constitutes a default under this Agreement, the
Note or any of the Security Documents, in each case other
than an Event of Default referred to elsewhere in this
Clause 8.1, and such default, in the reasonable opinion of
the Majority Lenders, could have a material adverse effect
on their rights hereunder, under the Note or under any of
the Security Documents or on their right to enforce any
thereof and continues unremedied for a period of thirty (30)
days; or
(f) INDEBTEDNESS. The Borrowers, the Guarantor,
Palm Shipping or any Wholly Owned Subsidiary of the
Guarantor shall default in the payment when due (subject to
any applicable grace period), whether by acceleration or
otherwise, of any Indebtedness having an outstanding
principal amount of $5,000,000 or more or any party becomes
entitled to enforce the security for any such Indebtedness
and such party shall take steps to enforce the same, unless
such default or enforcement is being contested in good faith
and by appropriate proceedings or other acts and the
relevant Borrowers, the Guarantor, Palm Shipping or such
Wholly Owned Subsidiary of the Guarantor as the case may be,
shall set aside on its books adequate reserves with respect
thereto, and so long as such default or enforcement shall
not subject any Vessel to material risk of forfeiture or
loss; or
(g) STOCK OWNERSHIP. There is, without the prior
written consent of the Majority Lenders (i) any change in
the legal or beneficial stock ownership or the voting
control of the Borrowers or (ii) any pledge of the shares of
the Borrowers in favor of a party other than the Security
Agent or (iii) less than fifty-one percent (51%) of the
issued and outstanding shares of the Guarantor is held
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beneficially and of record by the Cirrus Trust and the JTK
Trust; or
(h) DEFAULT UNDER THE SECURITY DOCUMENTS. There
is an event of default under any of the Security Documents
which shall have occurred and be continuing; or
(i) BANKRUPTCY. The Borrowers, the Guarantor or
Palm Shipping commences any proceeding relating to any
substantial portion of its property under any
reorganization, arrangement or readjustment of debt,
dissolution, winding up, adjustment, composition, bankruptcy
or liquidation law or statute of any jurisdiction, whether
now or hereafter in effect ("Proceeding"), or there is
commenced against the Borrowers, the Guarantor or Palm
Shipping any Proceeding and such Proceeding remains
undismissed or unstayed for a period of thirty (30) days; or
any receiver, trustee, liquidator or sequestrator of, or
for, the Borrowers, the Guarantor or Palm Shipping or any
substantial portion of the property of any thereof is
appointed and is not discharged within a period of thirty
(30) days; or the Borrowers, the Guarantor or Palm Shipping
by any act indicates consent to or approval of or
acquiescence in any Proceeding or to the appointment of any
receiver, trustee, liquidator or sequestrator of, or for,
itself or any substantial portion of its property; or
(j) SALE OF ASSETS. The Borrowers, the Guarantor
or Palm Shipping ceases, or threatens to cease, its
operations or sells or otherwise disposes of, or threatens
to sell or otherwise dispose of, all or substantially all of
its assets or all or substantially all of its assets are
seized or otherwise appropriated; or
(k) JUDGMENTS. Any judgment or order is made the
effect whereof would be to render ineffective or invalid
this Agreement, the Note, the Security Documents or any of
them; or
(l) INABILITY TO PAY DEBTS. Any of the Borrowers,
the Guarantor or Palm Shipping is unable to pay or admits
its inability to pay its debts as they fall due or if a
moratorium shall be declared in respect of any Indebtedness
thereof; or
(m) FINANCIAL POSITION. Any change in the
financial position of the Guarantor which, in the reasonable
opinion of the Majority Lenders, is reasonably likely to
have a material adverse effect on the ability of the
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Borrowers, the Guarantor or Palm Shipping to perform its
material obligations under this Agreement, the Note, the
Security Documents or the Charters; or
(n) TERMINATION, AMENDMENT OR ASSIGNMENT OF
CHARTERS. Any of the Charters is terminated, materially
amended or modified or assigned without the prior written
consent of the Majority Lenders, or any party to any thereof
defaults or ceases to perform thereunder for any reason
whatsoever,
then the Lenders' obligation to make the Loan available
shall cease and the Agent shall, upon instructions of the
Majority Lenders, by notice to the Borrowers, declare the
then outstanding amount of the Loan, accrued interest and
any other sums payable by the Borrowers hereunder, under the
Note and under the Security Documents to be immediately due
and payable whereupon the same shall forthwith be due and
payable without presentment, demand, protest or notice of
any kind, all of which are hereby expressly waived; PROVIDED
that upon the happening of an event specified in
subclauses (i) or (l) of this Clause 8.1, the Loan, accrued
interest and any other sums payable hereunder and under the
Note shall be immediately due and payable without
declaration or other notice to the Borrowers. In such
event, the Lenders, the Agent and/or Security Trustee may
(i) proceed to protect and enforce their rights by action at
law, suit in equity or in admiralty or other appropriate
proceeding, whether for specific performance of any covenant
contained in this Agreement, in the Note or in any of the
Security Documents, or to enforce the payment of the Note or
to enforce any other legal or equitable right of the
Lenders, the Agent and/or Security Trustee, or (ii) proceed
to take any action authorized or permitted under the terms
of any of the Security Documents or by applicable laws for
the collection of all sums due, or so declared due, on the
Note, including, without limitation, the right to
appropriate and hold or apply (directly, by way of set-off
or otherwise) to the payment of the obligations of the
Borrowers to the Lenders, the Agent and/or Security Trustee
hereunder, under the Note and/or under any of the Security
Documents (whether or not then due) all moneys and other
amounts of the Borrowers, then or thereafter in possession
of the Lenders, the Agent and/or Security Trustee, inclusive
of the balance of any deposit account (demand or time,
matured or unmatured) of the Borrowers, then or thereafter
with the Lenders, the Agent and/or Security Trustee.
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8.2 INDEMNIFICATION. The Borrowers agree to, and
shall, indemnify and hold the Agent, the Security Trustee
and the Lenders harmless against any loss or costs or
expenses (including legal fees and expenses) which the
Agent, the Security Trustee and the Lenders sustain or incur
as a consequence of any default in repayment of the
principal amount of the Loan or interest accrued thereon or
any other amount payable hereunder, under the Note or under
the Security Documents (other than costs and expenses caused
by the gross negligence or willful misconduct of the Agent,
the Security Trustee or any Lender) including, but not
limited to, all actual losses incurred in liquidating or
re-employing fixed deposits made by third parties or funds
acquired to effect or maintain the Loan or any part thereof.
The Agent's, Security Trustee's or Lenders' certification of
such costs and expenses shall, absent any manifest error, be
conclusive and binding on the Borrowers.
8.3 APPLICATION OF MONEYS. Except as otherwise
provided in any Security Document, all moneys received by
the Agent, Security Trustee or Lenders under or pursuant to
this Agreement, the Note or any of the Security Documents
after the happening of any Event of Default (unless cured to
the satisfaction of the Lenders) shall be applied by the
Agent in the following manner:
(i) first, in or towards the payment or reimburse-
ment of any expenses or liabilities incurred
by the Agent, the Security Trustee or the
Lenders in connection with the ascertainment,
protection or enforcement of its rights and
remedies hereunder, under the Note and under
any of the Security Documents,
(ii) secondly, in or towards payment of any
interest owing in respect of the Loan,
(iii) thirdly, in or towards repayment of principal
owing in respect of the Loan,
(iv) fourthly, in or towards payment of all other
sums which may be owing to the Agent, the
Security Trustee or the Lenders under this
Agreement, under the Note or under any of the
Security Documents, and
(v) fifthly, the surplus (if any) shall be paid to
the Borrowers or to whomsoever else may be
entitled thereto.
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<PAGE> 34
9 COVENANTS
9.1 Each Borrower hereby covenants and undertakes with
the Lenders, the Agent and Security Trustee that, from the
date hereof and so long as any principal, interest or other
monies are owing in respect of this Agreement, the Note, the
Security Documents or any of them:
A. The Borrowers will each:
(i) PERFORMANCE OF AGREEMENTS. Duly perform and
observe, and procure the observance and
performance by all other parties thereto
(other than the Agent, the Security Trustee
and the Lenders) of, the terms of this
Agreement, the Note and the Security
Documents;
(ii) NOTICE OF DEFAULT; CHANGE IN CLASSIFICATION OF
VESSEL. Promptly inform the Agent of the
occurrence of (a) any Event of Default or of
any event which with the giving of notice or
lapse of time, or both, would constitute an
Event of Default, (b) the withdrawal of any
Vessel's rating by its classification society
or the issuance by the classification society
of any recommendation or notation affecting
class, (c) any litigation or governmental
proceeding pending or threatened against the
Borrowers, the Guarantor or Palm Shipping
which could reasonably be expected to have a
material adverse effect on the business,
assets, operations, property or financial
condition of any such party and (d) any other
event or condition of which it becomes aware
which is reasonably likely to have a material
adverse effect on its ability, or the ability
of any other party thereto, to perform its
obligations under this Agreement, the Note and
the Security Documents or any of them;
(iii) OBTAIN CONSENTS. Obtain every consent and do
all other acts and things which may from time
to time be necessary or advisable for the
continued due performance of all its and any
other party's (other than the Agent's, the
Security Trustee's or the Lenders') respective
34
<PAGE> 35
obligations under this Agreement, the Note and
the Security Documents;
(iv) FINANCIAL STATEMENTS. Deliver or cause to be
delivered to each of the Lenders:
(a) as soon as available but not later
than ninety (90) days after the end of each
fiscal year of the Guarantor complete copies
of the financial reports of the Guarantor
(together with a Compliance Certificate
substantially in the form of Exhibit I hereto,
signed by the Chief Financial Officer of the
Guarantor), on a consolidated basis, which
shall include at least the consolidated
balance sheet of the Guarantor as of the end
of such year and the related consolidated
statements of income, cash flow and retained
earnings for such year, all in reasonable
detail, certified by an Acceptable Accounting
Firm, together with their opinion (without
material qualifications) thereon;
(b) as soon as available but not later
than forty-five (45) days after the end of
each of the first three quarters of each
fiscal year of the Guarantor, balance sheets
of the Guarantor, on a consolidated basis, as
at the end of such quarter and the related
consolidated statements of income, cash flow
and retained earnings for such quarter, all in
reasonable detail, unaudited, but certified by
the chief financial officer of the Guarantor,
together, in each instance, with a Compliance
Certificate, signed by such chief financial
officer of the Guarantor;
(c) as soon as available, copies of all
reports, statements or other instruments filed
with the United States Securities and Exchange
Commission;
(d) such other statement or statements,
lists of property and accounts, budgets,
forecasts, reports and financial information
with respect to the operation and management
of the Vessels and any other vessels owned or
operated directly or indirectly by or the
35
<PAGE> 36
Guarantor, as the Agent may from time to time
reasonably request;
(v) CORPORATE EXISTENCE. Do or cause to be done,
and procure that the Guarantor and Palm
Shipping shall do or cause to be done, all
things necessary to preserve and keep in full
force and effect their respective corporate
existence, and all licenses, franchises,
permits and assets necessary to the conduct of
the business of each such corporation;
(vi) BOOKS, RECORDS, ETC. Keep, and procure that
the Guarantor and Palm Shipping shall keep,
proper books of record and account into which
full and correct entries shall be made, in
accordance with GAAP throughout the Facility
Period;
(vii) INSPECTION. Allow, and procure that the
Guarantor and Palm Shipping shall allow, any
representative or representatives designated
by the Agent or the Lenders, subject to
applicable laws and regulations, to visit and
inspect any of the properties of any such
party, and, on request, to examine the books
of account, records, reports and other papers
(and to make copies thereof and to take
extracts therefrom) of each such corporation
and to discuss the affairs, finances and
accounts of each such corporation, with the
officers and executive employees of each such
corporation all at such reasonable times and
as often as the Agent or such Lender
reasonably requests;
(viii) TAXES. Pay and discharge, and cause the
Guarantor and Palm Shipping to pay and
discharge, all taxes, assessments and
governmental charges or levies imposed upon
each such corporation or upon such
corporation's income or property prior to the
date upon which penalties attach thereto;
provided, however, that such corporations
shall not be required to pay and discharge, or
cause to be paid and discharged, any such tax,
assessment, charge or levy so long as the
legality or amount thereof shall be contested
in good faith and by appropriate proceedings
36
<PAGE> 37
or other acts and it shall set aside on its
books adequate reserves with respect thereto,
and so long as such deferment in payment shall
not subject any Vessel to material risk of
forfeiture or loss;
(ix) COMPLIANCE WITH STATUTES, ETC. Do or cause to
be done, and procure that the Guarantor and
Palm Shipping shall do or cause to be done,
all things necessary to comply with all
material laws, and the rules and regulations
thereunder, applicable to the Borrowers, the
Guarantor and Palm Shipping and including,
without limitation, those laws, rules and
regulations relating to employee benefit plans
and environmental matters;
(x) ENVIRONMENTAL MATTERS. Promptly upon the
occurrence of any of the following conditions,
provide to the Agent a certificate of the
chief executive officer thereof, specifying in
detail the nature of such condition and the
Borrowers', the Guarantor's or Palm Shipping's
proposed response or the proposed response of
any Environmental Affiliate (as such term is
hereinafter defined) of any thereof, as the
case may be: (a) the Borrowers', the
Guarantor's or Palm Shipping's receipt or the
receipt by any Environmental Affiliate of any
thereof of any communication whatsoever that
alleges that such person is not in compliance
with any applicable environmental law or
environmental approval, if such noncompliance
could reasonably be expected to have a
material adverse effect on the business,
assets, operations, property or financial
condition of the Borrowers, the Guarantor or
Palm Shipping, (b) knowledge by the Borrowers,
the Guarantor or Palm Shipping or any
Environmental Affiliate of any thereof that
there exists any Environmental Claim pending
or threatened against any such person which
could reasonably be expected to have a
material adverse effect on the business,
assets, operations, property or financial
condition of the Guarantor or (c) any release,
emission, discharge or disposal of any
material that could form the basis of any
Environmental Claim against the Guarantor or
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<PAGE> 38
any Environmental Affiliate of any thereof if
such Environmental Claim could reasonably be
expected to have a material adverse effect on
the business, assets, operations, property or
financial condition of the Guarantor. Upon
the written request by the Agent, each
Borrower will submit, and procure that the
Guarantor and Palm Shipping shall submit, to
the Agent at reasonable intervals, a report
providing an update of the status of any issue
or claim identified in any notice or
certificate required pursuant to this
subclause. For the purposes of this
subclause, "Environmental Claim" shall mean
any claim under federal, state and local
environmental, health and safety laws,
statutes or regulations. "Environmental
Affiliate" shall mean any person or entity the
liability of which for Environmental Claims
the Borrowers, the Guarantor or Palm Shipping
may have assumed by contract or operation of
law;
(xi) ACCOUNTANTS. Retain throughout the Facility
Period an Acceptable Accounting Firm as its
independent certified accountants;
(xii) CONTINUE CHARTERS. Continue to charter the
Vessels to Palm Shipping for the entire
Facility Period, and ensure that the terms of
such Charters include, INTER ALIA, that the
payments of Palm Shipping to the Borrowers
under the Charters will, in the aggregate, be
sufficient to cover all payments of the
Borrowers under this Agreement and any
operating and other expenses of such Borrower;
(xiii) CLASS CERTIFICATE. Furnish, or cause to be
furnished, to the Agent, upon any change of a
Vessel's classification status or the issuance
of a recommendation affecting class by a
Vessel's classification society or upon the
Agent's reasonable request (to be made no more
than once in any calendar year), a
confirmation of class certificate covering
each Vessel and evidencing compliance with the
applicable provisions of the Mortgage thereon
within thirty (30) days of such change or such
request;
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(xiv) MAINTENANCE OF PROPERTIES. Maintain, or cause
to be maintained, and keep, or cause to be
kept, and procure that the Guarantor and Palm
Shipping shall maintain, or cause to be
maintained, and keep, or cause to be kept, all
properties used or useful in the conduct of
its business in good condition, repair and
working order and supplied with all necessary
equipment and will cause to be made necessary
repairs, renewals and replacements thereof so
that the business carried on and in connection
therewith and every portion thereof may be
properly and advantageously conducted at all
times. In addition, each Borrower shall cause
its Vessel to be drydocked as often as
required by the Vessel's classification
society and as a prudent shipowner would
require;
(xv) VESSEL MANAGEMENT. Cause its Vessel to be
managed by the Manager or such ship manager
selected by the Borrowers and satisfactory to
the Majority Lenders pursuant to a written
management agreement acceptable to the
Majority Lenders;
(xvi) LIMITATION ON RESTRICTED PAYMENTS.
Procure that the Guarantor will not directly
or indirectly declare or pay any dividend or
make any distribution on its capital stock
(such payments being defined as "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 (the amount so expended,
if other than in cash, to be determined in
good faith by the Board of Directors, whose
determination shall be conclusive and be
evidenced by a Board Resolution) after
January 29, 1996 shall exceed the sum of
(1) 50% of the aggregate amount of the
Adjusted Consolidated Net Income (or if
Adjusted Consolidated Net Income is a loss,
minus one hundred percent (100%) of such
amount) of the Guarantor accrued on a
39
<PAGE> 40
cumulative basis during the period (taken as
one accounting period) beginning February 1,
1996 and ending on the last day of the last
fiscal quarter preceding such date PLUS
(2) the aggregate net proceeds (including the
fair market value of non-cash proceeds as
determined in good faith by the Board of
Directors) received by the Guarantor
(including the amount of any dividends
reinvested in the capital stock of the
Guarantor) from the issuance and sale
permitted by the Indenture of capital stock of
the Guarantor (other than redeemable stock),
including an issuance or sale for cash or
other property upon the conversion of any
Indebtedness of the Guarantor subsequent to
the date hereof, or from the issuance of any
options, warrants or other rights to acquire
capital stock of the Guarantor (in each case,
exclusive of any redeemable stock or any
options, warrants or other rights that are
redeemable at the option of the holder, or are
required to be redeemed, prior to the Maturity
Date) PLUS (3) $50,000,000.
The foregoing provision shall not take into
account, and shall not be violated by reason
of:
(a) 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;
(b) the redemption, repurchase, defeasance or
other acquisition or retirement for value of
Indebtedness of the Guarantor that is
subordinated in right of payment of the Loan,
with the proceeds of, or in exchange for,
Indebtedness incurred under
Clause 9.1(B)(iii)(III);
(c) the repurchase, redemption or other
acquisition by the Guarantor of capital stock
of the Guarantor in exchange for, or out of
the proceeds of a substantially concurrent
offering of, shares of capital stock of the
Guarantor (other than redeemable stock);
40
<PAGE> 41
(d) the acquisition by the Guarantor of its
Indebtedness that is subordinated in right of
payment to the Loan in exchange for or out of
the proceeds of, a substantial concurrent
offering of, shares of capital stock of the
Guarantor (other than redeemable shares);
(e) payments or distributions pursuant to or in
connection with a consolidation, merger or
transfer of assets that complies with the
applicable provisions herein; or
(f) 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 the foregoing
clauses (a) and (b), no Event of Default shall
have occurred and be continuing or occur as a
consequence of the actions or payments set
forth therein.
B. None of the Borrowers, without the prior
written consent of the Majority Lenders, will:
(i) LIENS. Create, assume or permit to exist any
mortgage, pledge, lien, charge, encumbrance or
any security interest whatsoever upon any of
such party's property or other assets, real or
personal, tangible or intangible, whether now
owned or hereafter acquired except:
(a) liens for taxes not yet payable for
which adequate reserves have been maintained;
(b) the Mortgages, the Assignments and
other liens in favor of the Security Trustee;
(c) liens, charges and encumbrances
against their respective Vessels permitted to
exist under the terms of the Mortgages;
(d) pledges of certificates of deposit
or other cash collateral securing the
Borrowers' reimbursement obligations in
connection with letters of credit now or
hereafter issued for the account of the
41
<PAGE> 42
Borrowers in connection with the establishment
of the financial responsibility of the
Borrowers under 33 C.F.R. Part 130 or 46
C.F.R. Part 540, as the case may be as the
same may be amended or replaced; and
(e) other liens, charges and
encumbrances incidental to the conduct of the
business of each such party or the ownership
of any such party's property and assets and
which do not in the aggregate materially
detract from the value of each such party's
property or assets or materially impair the
use thereof in the operation of its business;
(ii) LOANS AND ADVANCES. Make any loans or
advances to, or any investments in any person,
firm, corporation, joint venture or other
entity (including, without limitation, any
loan or advance to any officer, director,
stockholder, employee or customer of any
company affiliated with the Borrowers or the
Guarantor) except for advances and investments
in the normal course of its business and loans
or advances to the Guarantor;
(iii) LIMITATION ON INDEBTEDNESS. (a) Incur, and
shall procure that neither the Guarantor nor
Palm Shipping will, incur any Indebtedness
excluding Indebtedness hereunder to the Agent,
the Security Trustee or the Lenders and
Indebtedness existing (or for which a written
commitment has been made on or before the date
hereof) on the date hereof; PROVIDED that the
Guarantor or any of its Subsidiaries 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 the
Guarantor would be greater than 2:1.
Notwithstanding the foregoing, the Guarantor
may incur each and all of the following:
(I) Indebtedness in an aggregate principal
amount such that the aggregate principal
amount of the Indebtedness of the
Guarantor outstanding immediately after
such incurrence does not exceed the
42
<PAGE> 43
aggregate principal amount of
Indebtedness existing on the date hereof
plus $50,000,000;
(II) Indebtedness of the Guarantor to any
Wholly-Owned Subsidiary;
(III) Indebtedness issued in exchange for, or
the net proceeds of which are used to
refinance or refund, outstanding
Indebtedness of the Guarantor, other than
Indebtedness incurred under clauses (I)
or (V) of this paragraph and any
refinancings thereof, in an amount not to
exceed the principal amount so exchanged,
refinanced or refunded (plus premiums,
accrued and unpaid interest, fees and
expenses thereon);
(IV) Indebtedness (A) in respect of
performance, surety or appeal bonds
PROVIDED in the ordinary course of
business, (B) under Currency Agreements
and Interest Rate Agreements; provided
that, in the case of Currency Agreements
that relate to other Indebtedness, such
Currency Agreements do not increase the
Indebtedness of the obligor outstanding
at any time other than as a result of
fluctuations in foreign currency exchange
rates or by reason of fees, indemnities
and compensation payable thereunder, 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 the Guarantor pursuant to
such agreements, in any case incurred in
connection with the disposition of any
business, assets of the Guarantor and not
exceeding the gross proceeds therefrom,
other than Guarantees of Indebtedness
incurred by any Person acquiring all or
any portion of such business or assets of
the Guarantor for the purpose of
financing such acquisition;
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<PAGE> 44
(V) Indebtedness in connection with the
acquisition of any new Wholly-Owned
Subsidiary; PROVIDED that, with respect
to this clause 9.1(B)(iii)(a)(V), after
giving effect to the Incurrence thereof,
the Guarantor could incur at least $1.00
of Indebtedness pursuant to the first
paragraph of this Clause 9.1(B)(iii)(a);
and
(VI) Indebtedness of Palm Shipping incurred in
the ordinary course of the operation of
vessels or Indebtedness of Palm Shipping
to the Guarantor resulting from advances
to Palm Shipping by the Guarantor made in
the ordinary course of business;
(b) For purposes of determining any
particular amount of Indebtedness under this
Clause 9.1(B)(iii), guarantees or obligations
with respect to letters of credit supporting
Indebtedness otherwise included in the
determination of such particular amount shall
not be included. For purposes of determining
compliance with this Clause, (i) in the event
that an item of Indebtedness meets the
criteria of more than one of the types of
Indebtedness described above in this Clause,
the Guarantor, in its sole discretion, shall
classify such item of Indebtedness and only be
required to include the amount and type of
such Indebtedness in one of such clauses and
(ii) the amount of Indebtedness issued at a
price that is less than the principal amount
thereof shall be equal to the amount of the
liability in respect thereof determined in
conformity with GAAP. Notwithstanding any
other provision of this Clause, the maximum
amount of Indebtedness that the Guarantor may
incur pursuant to this Clause shall not be
deemed to be exceeded due solely to
fluctuations in the exchange rates of
currencies.
(c) The Guarantor shall not incur any
Indebtedness that is expressly subordinated to
any other Indebtedness of the Guarantor unless
such Indebtedness, by its terms or the terms
of any agreement or instrument pursuant to
44
<PAGE> 45
which such Indebtedness is issued or remains
outstanding, is also expressly made
subordinate to the Indebtedness of the
Guarantor under the Guaranty.
(iv) GUARANTEES, ETC. Assume, guarantee or (other
than in the ordinary course of its business)
endorse or otherwise become or remain liable,
in connection with any obligation of any
person, firm, company or other entity except
for guaranties in favor of the Lenders or the
Security Trustee on behalf of the Lenders;
(v) CHANGES IN BUSINESS. Change the nature of its
business or commence any other business;
(vi) USE OF CORPORATE FUNDS. Pay out any funds to
any company or person except (a) in the
ordinary course of business in connection with
the management of the business of the
Borrowers and the Guarantor, including the
operation and/or repair of the Vessels and
(b) the servicing of the indebtedness to the
Lenders;
(vii) ISSUANCE OF SHARES. Issue or dispose of any
shares of its own capital stock to any person;
(viii) CONSOLIDATION, MERGER. Consolidate with, or
merge into any corporation;
(ix) CHANGES IN OFFICES OR NAMES. Change the
location of the chief executive office of the
Borrowers or the Guarantor, the office of the
chief place of business any such parties, the
office of the Borrowers in which the records
relating to the earnings or insurances of the
Vessels are kept unless the Lenders shall have
received thirty (30) days prior written notice
of such change;
(x) LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS
AND AFFILIATES. None of the Borrowers will
and will procure that neither the Guarantor
nor Palm Shipping will, directly or indirectly
enter into, renew or extend any transaction
(including, without limitation, the purchase,
sale, lease or exchange of property or assets,
or the rendering of any service) or series of
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<PAGE> 46
related transactions with any holder (or any
Affiliate of such holder) of 5% or more of any
class of Capital Stock of the Guarantor or
with any Affiliate of the Guarantor, except
upon fair and reasonable terms no less
favorable to the Borrowers, the Guarantor or
Palm Shipping, than could be obtained, at the
time of such transaction or series of related
transactions or at the time of the execution
of the agreement providing therefor, in a
comparable arm's-length transaction with a
Person that is not such a holder or Affiliate.
The foregoing limitation does not limit, and
shall not apply to:
(a) transactions or series of related transactions
(I) approved by a majority of the
disinterested members of the Board of
Directors as fair to the Borrowers, the
Guarantor or Palm Shipping, or (II) for which
the Borrowers, the Guarantor or Palm Shipping,
as the case may be, delivers to the Agent a
written opinion of a nationally recognized
investment banking firm stating that the
transaction is fair to the Borrowers, the
Guarantor or Palm Shipping, as the case may
be, from a financial point of view;
(b) the payment of reasonable and customary
regular fees to directors of the Borrowers,
the Guarantor or Palm Shipping, who are not
employees of the Borrowers, the Guarantor or
Palm Shipping; or
(c) any Restricted Payments not prohibited by
Clause 9.1(A)(xvi); or
(xi) CHANGE OF FLAG. Change the flag of any Vessel
or the management of such Vessel; or
(xii) SALE OF VESSEL. Sell, transfer or otherwise
dispose of a Vessel; or
(xiii) MODIFICATION OF AGREEMENTS. Except as
contemplated by this Agreement, amend, modify
or otherwise change, or allow the Guarantor or
Palm to amend, modify or change, any of the
46
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Transaction Documents to which they are
parties.
9.2 VALUATION OF THE VESSELS. The aggregate fair market
value ("FMV") of the Vessels during the Facility Period
shall be greater than or equal to: (1) for the first two
years of the Facility Period, a minimum of 120% of the Loan
during such period, (2) for the third and fourth year of the
Facility Period, a minimum of 130% of the Loan during such
period and (3) for the fifth year of the Facility Period and
up to the Maturity Date, a minimum of 140% of the Loan
during such period (the "Relevant Percentages"). The FMV of
each Vessel shall be determined at the Agent's discretion,
but no less frequently than annually, on the basis of a
valuation (the "Valuation") provided by the Agent. In the
event one or more of the Lenders or the Borrowers disagree
with the Agent's Valuation, then the Borrowers and the Agent
shall each obtain a separate valuation (the "Additional
Valuations") from separate independent shipbrokers, and the
FMV shall be determined to be the arithmetic average of the
Additional Valuations. The cost of all Additional
Valuations obtained hereunder shall be for the account of
the party who disagrees with the Agent's Valuation.
9.3 COLLATERAL MAINTENANCE. If the FMV of the Vessels,
as determined pursuant to Clause 9.2 falls below the
Relevant Percentages, within a period of ten (10) Banking
Days following receipt by the Borrowers of written notice
from the Agent notifying the Borrowers of such shortfall
and specifying the amount thereof (which amount shall, in
the absence of manifest error, be deemed to be conclusive
and binding on the Borrowers) the Borrowers shall
(a) deliver to the Agent, upon its request, additional
collateral satisfactory to the Lenders, in their sole
discretion (including the deposit of cash in a cash
collateral account maintained with the Agent), or (b) prepay
the Loan or part thereof such that (x) the sum of (i) the
value of the Vessels, as determined in accordance with the
latest valuation delivered pursuant to Clause 9.2, plus
(ii) the value of additional collateral other than cash
collateral, such value to be determined by the Lenders, when
divided by (y) the Loan (less any cash collateral held by
the Agent in a cash collateral account) shall be equal to or
greater than the Relevant Percentage of the Loan.
9.4 RELEASE OF VESSELS. So long as no Event of Default
or event which, but for the giving of notice or passage of
time or both, would constitute an Event of Default has
occurred and is continuing, the Guarantor or the Borrowers
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may request that a Borrower be released from its obligations
hereunder and in connection herewith and that its Vessel be
released from the lien of the Mortgage thereon and the
Lenders agree to take all steps necessary to effect such
release; PROVIDED, HOWEVER, that as a condition precedent
thereto the Borrowers shall prepay prior to or simultaneous
with such release such part of the Loan as shall be
necessary to comply with Clause 5.3 hereof and PROVIDED,
FURTHER, that no such request shall be effective unless made
in writing to the Agent no fewer than fifteen (15) days
prior to the end of the then current Interest Period.
9.5 SUBSTITUTION OF VESSELS. So long as no Event of
Default or event which, but for the giving of notice or
passage of time or both, would constitute an Event of
Default has occurred and is continuing, the Guarantor or the
Borrowers may substitute a vessel (which vessel may be owned
by a Borrower made a party hereto pursuant to an Accession
Agreement) for a Vessel provided that such substitute vessel
(and, if applicable, Borrower) is approved by the Lenders
(which approval shall not be unreasonably withheld) and such
substitute vessel meets all of the following
characteristics, and the owner of such vessel meets all of
the following conditions, as the case may be:
(i) an Aframax tanker between 75,000 and 115,000
dead weight tons
(ii) built in or after 1987 but in no event more
than two years older than the Vessel sold or
released;
(iii) complies with requirements of Clause 4.1(b)
hereof;
(iv) has, at the time of substitution, a FMV
greater than or equal to the FMV of the Vessel
for which it is substituted; and
(v) the owner of the substitute Vessel has, if
relevant, executed an Accession Agreement and
has executed a counterpart of the Note, a
Mortgage, an Assignment of Earnings and an
Assignment of Insurances and the Guarantor has
reaffirmed the Guaranty and the owner and the
substitute Vessel, as the case may be, has
met the conditions, updated MUTADIS MUTANDIS,
of Clauses 4.1(a), (b), (c), (e), (f), (g),
(h), (i) and (k).
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9.6 INSPECTION AND SURVEY REPORTS. If the Lenders
shall so request, the Borrowers shall provide the Lenders
with copies of all internally generated inspection or survey
reports on the Vessels.
10 ASSIGNMENT
This Agreement shall be binding upon, and inure to
the benefit of, the Borrowers, the Agent, the Security
Trustee and the Lenders and their respective successors and
assigns, except that the Borrowers may not assign any of
their rights or obligations hereunder except as specifically
provided herein. The Lenders may, with the prior written
consent of the Borrowers (such consent not to be
unreasonably withheld) assign a portion of their rights and
obligations under this Agreement to any one or more
commercial lenders (the expenses of the Lenders in
connection with any such assignment shall be for their own
account), PROVIDED, HOWEVER, in the event of any such
assignment, such assignment is to be made pursuant to an
Assignment and Assumption Agreement substantially in the
form of Exhibit G hereto; and PROVIDED, FURTHER, that any
assignment hereunder shall be in a minimum amount of
$7,500,000 and increments of $2,500,000 (adjusted in each
case PRO RATA in increments of $100,000 for repayments or
prepayments of the Loan made hereunder but in no event less
than $5,000,000). The Borrowers will take all reasonable
actions requested by the Lenders to effect such assignment,
including, without limitation, the execution of a written
consent to such Assignment and Assumption Agreement.
11 ILLEGALITY, INCREASED COST, NON-AVAILABILITY, ETC.
11.1. ILLEGALITY. In the event that by reason of any
change in any applicable law, regulation or regulatory
requirement or in the interpretation thereof any of the
Lenders reasonably concludes that it has become unlawful for
such Lender to maintain or give effect to its obligations as
contemplated by this Agreement, such Lender shall inform
the Agent and the Borrowers to that effect, whereafter the
liability of such Lender to make its Commitment available
shall forthwith cease and the Borrowers shall be required to
prepay the then outstanding portion of such Lender's Loan
immediately in accordance with and subject to the provisions
of Clause 11.4. In any such event, but without prejudice to
the aforesaid obligations of the Borrowers to prepay the
Loan, the Borrowers and such Lender shall negotiate in good
faith with a view to agreeing on terms for making its
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Commitment available from another jurisdiction or otherwise
restructuring the Loan on a basis which is not unlawful with
respect to such Lender and Agent shall use reasonable
efforts to replace such Lender with a lender for which the
making and performance of the Agreement would not be
illegal.
11.2 INCREASED COST. If any change in applicable law,
regulation or regulatory requirement or in the interpreta-
tion or application thereof by any governmental or other
authority, shall:
(i) change the basis of taxation (excluding any
change in the rate of any Tax) to any of the
Lenders of payments of principal or interest
or any other payment due or to become due
pursuant to this Agreement (other than a
change in taxation of the overall net income
of such Lender effected by the jurisdiction of
organization or the jurisdiction of the
principal place of business of such Lender,
the United States of America, the State or
City of New York or any governmental
subdivision or other taxing authority having
jurisdiction over the Lender (unless such
jurisdiction is asserted solely by reason of
the activities of any of the Borrowers) or
such other jurisdiction where the Loan may be
repayable), or
(ii) impose, modify or deem applicable any reserve
requirements or require the making of any
special deposits against or in respect of any
assets or liabilities of, deposits with or for
the account of, or loans by, the Lenders, or
(iii) impose on the Lenders any other condition
affecting the Loan or any part thereof, and
the result of the foregoing is either to
increase the cost to the Lenders of making
available or maintaining the Loan or any part
thereof or to reduce the amount of any payment
received by the Lenders, then and in any such
case if such increase or reduction in the
opinion of the Lenders materially affects the
interests of the Lenders under or in
connection with this Agreement, then:
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(a) the Agent shall notify the Borrowers
of the happening of such event,
(b) the Borrowers agree forthwith upon
demand to pay to the Agents, Security Trustee
or the Lenders such amount as the Agent
certifies to be necessary to compensate the
Agent, the Security Trustee or the Lenders for
such additional cost or such reduction, and
(c) any such demand as is referred to in
sub-clause (b) of this Clause 11.2 may be made
by the Agent at any time before or after any
repayment of the Loan.
11.3 DETERMINATION OF LOSSES. A certificate or deter-
mination notice of the Agent, as to any of the matters
referred to in this Clause 11 shall, absent manifest error,
be conclusive and binding on the Borrowers.
11.4 COMPENSATION FOR LOSSES. Where the Loan or a
portion thereof are to be prepaid by the Borrowers pursuant
to Clause 11.1 the Borrowers agree simultaneously with such
prepayment to pay to the Agent, the Security Trustee or the
Lenders all accrued interest to the date of actual payment
and all other sums payable by the Borrowers to the Agent,
the Security Trustee or the Lenders pursuant to this
Agreement without penalty or premium.
12 CURRENCY INDEMNITY
12.1 CURRENCY CONVERSION. If for the purpose of
obtaining or enforcing a judgment in any court in any
country it becomes necessary to convert into any other
currency (the "judgment currency") an amount due in Dollars
under this Agreement, the Note or any of the Security
Documents then the conversion shall be made, in the
discretion of the Lenders, at the rate of exchange
prevailing either on the date of default or on the day
before the day on which the judgment is given or the order
for enforcement is made, as the case may be (the "conversion
date"), provided that the Lenders shall not be entitled to
recover under this clause any amount in the judgment
currency which exceeds at the conversion date the amount in
Dollars due under this Agreement, the Note and/or any of the
Security Documents.
12.2 CHANGE IN EXCHANGE RATE. If there is a change in
the rate of exchange prevailing between the conversion date
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and the date of actual payment of the amount due, the
Borrowers shall pay such additional amounts (if any, but in
any event not a lesser amount) as may be necessary to ensure
that the amount paid in the judgment currency when converted
at the rate of exchange prevailing on the date of payment
will produce the amount then due under this Agreement, the
Note and/or any of the Security Documents in Dollars; any
excess over the amount due received or collected by the
Lenders shall be remitted to the Borrowers.
12.3 ADDITIONAL DEBT DUE. Any amount due from the
Borrowers under Clause 12.2 shall be due as a separate debt
and shall not be affected by judgment being obtained for any
other sums due under or in respect of this Agreement, the
Note and/or any of the Security Documents.
12.4. RATE OF EXCHANGE. The term "rate of exchange" in
this Clause 12 means the rate at which the Lenders in
accordance with their normal practices are able on the
relevant date to purchase Dollars with the judgment currency
and includes any premium and costs of exchange payable in
connection with such purchase.
13 FEES AND EXPENSES
13.1 AGENCY FEE. The Borrowers shall pay to the Agent
annually in advance during the Facility Period commencing on
the Drawdown Date, an agency fee of $12,000 PER ANNUM.
13.2 ARRANGEMENT FEE. The Borrowers shall pay each
Lender on the Drawdown Date (or if the Lenders are not
obligated to make the Loan hereunder for any reason, on the
termination of the Lenders' obligations hereunder) an
arrangement fee of .30% of such Lender's respective
Commitment.
13.3 EXPENSES. The Borrowers jointly and severally
agree, whether or not the transactions hereby contemplated
are consummated, on demand to pay, or reimburse the Agent,
the Security Trustee and the Lenders for their payment of,
the reasonable expenses of the Agent, the Security Trustee
and the Lenders incident to said transactions (and in
connection with any supplements, amendments, waivers or
consents relating thereto or incurred in connection with the
enforcement or defense of any of the Agent's, Security
Trustee's and Lenders' rights or remedies with respect
thereto or in the preservation of the Agent, the Security
Trustee's and the Lenders' priorities under the
documentation executed and delivered in connection
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therewith) including, without limitation, all reasonable
costs and expenses of preparation, negotiation, execution
and administration of this Agreement and the documents
referred to herein, the reasonable fees and disbursements of
the Lenders' counsel in connection therewith, including
Seward & Kissel, as well as the reasonable fees and expenses
of any independent appraisers, surveyors, engineers and
other consultants retained by the Agent, the Security
Trustee and the Lenders in connection with this transaction,
all reasonable costs and expenses, if any, in connection
with the enforcement of this Agreement, the Note and the
Security Documents and stamp and other similar taxes, if
any, incident to the execution and delivery of the documents
(including, without limitation, the Note) herein
contemplated and to hold the Lenders free and harmless in
connection with any liability arising from the nonpayment of
any such stamp or other similar taxes. Such taxes and, if
any, interest and penalties related thereto as may become
payable after the date hereof shall be paid immediately by
the Borrowers to the Agent, the Security Trustee or the
Lenders, as the case may be, when liability therefor is no
longer contested by such party or parties or reimbursed
immediately by the Borrowers to such party or parties after
payment thereof (if the Agent, the Security Trustee or the
Lenders, at their sole discretion, chooses to make such
payment).
14 APPLICABLE LAW, JURISDICTION AND WAIVER
14.1 APPLICABLE LAW. This Agreement shall be governed
by, and construed in accordance with, the laws of the State
of New York.
14.2 JURISDICTION. Each of the Borrowers hereby
irrevocably submits to the jurisdiction of the courts of the
State of New York and of the United States District Court
for the Southern District of New York in any action or
proceeding brought against it by the Lenders under this
Agreement or under any document delivered hereunder and
hereby irrevocably agrees that service of summons or other
legal process on it may be served by registered mail
addressed thereto, c/o Watson, Farley & Williams, 380
Madison Avenue, New York, New York 10017. The service, as
herein provided, of such summons or other legal process in
any such action or proceeding shall be deemed personal
service and accepted by the Borrowers as such, and shall be
legal and binding upon the Borrowers for all the purposes of
any such action or proceeding. Final judgment (a certified
or exemplified copy of which shall be conclusive evidence of
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the fact and of the amount of any indebtedness of the
Borrowers to the Lenders) against the Borrowers in any such
legal action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment.
The Borrowers will advise the Lenders promptly of any change
of address for the purpose of service of process.
Notwithstanding anything herein to the contrary, the Lenders
may bring any legal action or proceeding in any other
appropriate jurisdiction.
14.3 WAIVER OF JURY TRIAL. IT IS MUTUALLY AGREED BY AND
AMONG THE BORROWERS, THE GUARANTOR, THE AGENT, THE SECURITY
TRUSTEE AND THE LENDERS THAT EACH OF THEM HEREBY WAIVES
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY ANY PARTY HERETO AGAINST ANY OTHER PARTY HERETO
ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS AGREEMENT, THE NOTE OR THE SECURITY
DOCUMENTS.
15. THE AGENT
15.1 APPOINTMENT OF AGENT. Each of the Lenders hereby
irrevocably appoints and authorizes the Agent (which for
purposes of this Clause 15 shall be deemed to include the
Agent acting in its capacity as Security Trustee pursuant to
Clause 16 hereof) to take such action as agent on its behalf
and to exercise such powers under this Agreement, the Note,
and the Security Documents as are delegated to the Agent by
the terms hereof and thereof. Neither the Agent nor any of
its directors, officers, employees or agents shall be liable
for any action taken or omitted to be taken by it or them
under this Agreement, the Notes, or the Security Documents
or in connection therewith, except for its or their own
gross negligence or willful misconduct.
15.2 DISTRIBUTION OF PAYMENTS. Whenever any payment is
received by the Agent from the Borrowers for the account of
the Lenders, or any of them, whether of principal or
interest on the Notes, commissions, fees under Clauses 13.2
and 13.4, or otherwise, it will thereafter cause to be
distributed on the same day if received before 11 a.m. New
York time, or on the next day if received thereafter, like
funds relating to such payment ratably to the Lenders
according to their respective Commitments, as the case may
be, in each case to be applied according to the terms of
this Agreement.
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15.3 HOLDER OF INTEREST IN NOTE. The Agent may treat
each Lender as the holder of all of the interest of such
Lender in the Note, as the case may be, until written notice
of transfer, in form and substance satisfactory to the
Agent, signed by such Lender shall have been filed with the
Agent.
15.4 NO DUTY TO EXAMINE, ETC. The Agent shall not be
under a duty to examine or pass upon the validity,
effectiveness or genuineness of any of the Security
Documents or any instrument, document or communication
furnished pursuant to this Agreement or in connection
therewith or in connection with any Security Document, and
the Agent shall be entitled to assume that the same are
valid, effective and genuine, have been signed or sent by
the proper parties and are what they purport to be.
15.5 AGENT AS LENDER. With respect to that portion of
the Facility made available by it, the Agent shall have the
same rights and powers hereunder as any other Lenders and
may exercise the same as though it were not the Agent, and
the term "Lender" or "Lenders" shall include the Agent in
its capacity as a Lender. The Agent and its affiliates may
accept deposits from, lend money to and generally engage in
any kind of business with the Borrower and the Guarantor as
if it were not the Agent.
15.6 (a) OBLIGATIONS OF AGENT. The obligations of the
Agent under this Agreement, under the Notes, and under the
Security Documents are only those expressly set forth herein
and therein.
(b) NO DUTY TO INVESTIGATE. The Agent shall not
at any time be under any duty to investigate whether an
Event of Default, or an event which with the giving of
notice or lapse of time, or both, would constitute an Event
of Default, has occurred or to investigate the performance
of this Agreement or any of the Security Documents by the
Borrowers or the Guarantor.
15.7 (a) DISCRETION OF AGENT. The Agent shall be
entitled to use its discretion with respect to exercising or
refraining from exercising any rights which may be vested in
it by, and with respect to taking or refraining from taking
any action or actions which it may be able to take under or
in respect of, this Agreement, the Note, and the Security
Documents, unless the Agent shall have been instructed by
the Majority Lenders to exercise such rights or to take or
refrain from taking such action; provided, however, that the
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Agent shall not be required to take any action which exposes
the Agent to personal liability or which is contrary to this
Agreement or applicable law.
(b) INSTRUCTIONS OF MAJORITY LENDERS. The Agent
shall in all cases be fully protected in acting or
refraining from acting under this Agreement, under the Note,
under the Guaranty or under any Security Document in
accordance with the instructions of the Majority Lenders,
and any action taken or failure to act pursuant to such
instructions shall be binding on all of the Lenders.
15.8 ASSUMPTION RE EVENT OF DEFAULT. Except as
otherwise provided in Clause 15.14 hereof, the Agent shall
be entitled to assume that no Event of Default, or event
which with the giving of notice or lapse of time, or both,
would constitute an Event of Default, has occurred and is
continuing, unless the Agent has been notified by the
Borrowers or the Guarantor of such fact, or has been
notified by a Lender that such Lender considers that an
Event of Default or such an event (specifying in detail the
nature thereof) has occurred and is continuing. In the
event that the Agent shall have been notified by the
Borrowers or any Lender in the manner set forth in the
preceding sentence of any Event of Default or of an event
which with the giving of notice or lapse of time, or both,
would constitute an Event of Default, the Agent shall notify
the Lenders and shall take action and assert such rights
under this Agreement under the Notes and under the Security
Documents as the Majority Lenders shall request in writing.
15.9 NO LIABILITY OF AGENT OR LENDERS. Neither the
Agent nor any of the Lenders shall be under any liability or
responsibility whatsoever:
(A) To the Borrowers or the Guarantor or any other
person or entity as a consequence of any failure or delay in
performance by, or any breach by, any other Lenders or any
other person of any of its or their obligations under this
Agreement or under any Security Document;
(B) To any Lender or Lenders, as a consequence of any
failure or delay in performance by, or any breach by, the
Borrowers or the Guarantor of any of their respective
obligations under this Agreement, under the Notes, or under
the Security Documents; or
(C) To any Lender or Lenders, for any statements,
representations or warranties contained in this Agreement,
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in any Security Document or any Document or instrument
delivered in connection with the transaction hereby
contemplated; or for the validity, effectiveness,
enforceability or sufficiency of this Agreement, the Note,
or any Security Document or any document or instrument
delivered in connection with the transactions hereby
contemplated.
15.10 INDEMNIFICATION OF AGENT. The Lenders agree to
indemnify the Agent (to the extent not reimbursed by the
Borrowers or the Guarantor), pro rata according to the
respective amounts of their Commitments, from and against
any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever (including
legal fees and expenses incurred in investigating claims and
defending itself against such liabilities) which may be
imposed on, incurred by or asserted against, the Agent in
any way relating to or arising out of this Agreement, the
Note, or any Security Document, any action taken or omitted
by the Agent thereunder or the preparation, administration,
amendment or enforcement of, or waiver of any provision of,
this Agreement, the Note, or any Security Document, except
that no Lenders shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent's gross negligence or willful
misconduct.
15.11 CONSULTATION WITH COUNSEL. The Agent may consult
with legal counsel selected by it and shall not be liable
for any action taken, permitted or omitted by it in good
faith in accordance with the advice or opinion of such
counsel.
15.12 RESIGNATION. The Agent may resign at any time by
giving 60 days' written notice thereof to the Lenders and
the Borrowers. Upon any such resignation, the Lenders shall
have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Lenders
and shall have accepted such appointment within 60 days
after the retiring Agent's giving notice of resignation,
then the retiring Agent may, on behalf of the Lenders,
appoint a successor Agent which shall be a bank or trust
company of recognized standing. The appointment of any
successor Agent shall be subject to the prior written
consent of the Borrowers, such consent not to be
unreasonably withheld. After any retiring Agent's
resignation as Agent hereunder, the provisions of this
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Clause 15 shall continue in effect for its benefit with
respect to any actions taken or omitted by it while acting
as Agent.
15.13 REPRESENTATIONS OF LENDERS. Each Lender represents
and warrants to each other Lender and the Agent that:
(i) In making its decision to enter into this Agreement
and to make its portion of the Loan available hereunder, it
has independently taken whatever steps it considers
necessary to evaluate the financial condition and affairs of
the Borrowers and the Guarantor, that it has made an
independent credit judgment and that it has not relied upon
any statement, representation or warranty by any other
Lender or the Agent; and
(ii) So long as any portion of its Commitments remain
outstanding, it will continue to make its own independent
evaluation of the financial condition and affairs of the
Borrowers and the Guarantor.
15.14 NOTIFICATION OF EVENT OF DEFAULT. The Agent hereby
undertakes to promptly notify the Lenders, and the Lenders
hereby promptly undertake to notify the Agent and the other
Lenders, of the existence of any Event of Default which
shall have occurred and be continuing of which the Agent or
any Lender has actual knowledge.
16 APPOINTMENT OF SECURITY TRUSTEE
Each of the Lenders irrevocably appoints the Security
Trustee as security trustee on their respective behalf with
regard to the (i) security, powers, rights, titles, benefits
and interests (both present and future) constituted by and
conferred on the Lenders or any of them or for the benefit
thereof under or pursuant to this Agreement, the Note or any
Security Documents (including, without limitation, the
benefit of all covenants, undertakings, representations,
warranties and obligations given, made or undertaken to any
Lender in the Agreement, the Note or any Security Document),
(ii) all moneys, property and other assets paid or
transferred to or vested in any Lender or any agent of any
Lender or received or recovered by any Lender or any agent
of any Lender pursuant to, or in connection with, this
Agreement, the Note or the Security Documents whether from
any Borrower or the Guarantor or any other person and (iii)
all money, investments, property and other assets at any
time representing or deriving from any of the foregoing,
including all interest, income and other sums at any time
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received or receivable by any Lender or any agent of any
Lender in respect of the same (or any part thereof). The
Security Trustee hereby accepts such appointment.
17 NOTICES AND DEMANDS
17.1 NOTICES. All notices, requests, demands and other
communications to any party hereunder shall be in writing
(including prepaid overnight courier, facsimile transmission
or similar writing) and shall be given to the Borrowers at
the address or telecopy number set out below and to the
Lenders, the Agent and the Security Trustee at their address
and telecopy number set out below its name on the signature
pages hereto or at such other address or telecopy number as
such party may hereafter specify for the purpose by notice
to each other party hereto. Each such notice, request or
other communication shall be effective (i) if given by
telecopy, when such telecopy is transmitted to the telecopy
number specified in this Clause and telephonic confirmation
of receipt thereof is obtained or (ii) if given by mail,
prepaid overnight courier or any other means, when received
at the address specified in this Clause or when delivery at
such address is refused.
If to the Borrowers:
c/o Teekay Shipping Limited
6th Floor, Tradewinds Building
Bay Street, P.O. Box SS 6293
Nassau, Bahamas
Fax: (809) 328-7330
18 MISCELLANEOUS
18.1 TIME OF ESSENCE. Time is of the essence of this
Agreement but no failure or delay on the part of the Lenders
to exercise any power or right under this Agreement shall
operate as a waiver thereof, nor shall any single or partial
exercise by the Lenders of any power or right hereunder
preclude any other or further exercise thereof or the
exercise of any other power or right. The remedies provided
herein are cumulative and are not exclusive of any remedies
provided by law.
18.2 UNENFORCEABLE, ETC., PROVISIONS - EFFECT. In case
any one or more of the provisions contained in this Agree-
ment, in the Note or in any of the Security Documents would,
if given effect, be invalid, illegal or unenforceable in any
respect under any law applicable in any relevant
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jurisdiction, said provision shall not be enforceable
against the Borrowers, but the validity, legality and
enforceability of the remaining provisions herein or therein
contained shall not in any way be affected or impaired
thereby.
18.3 REFERENCES. References herein to Clauses and
Schedules are to be construed as references to clauses of,
and schedules to, this Agreement.
18.4 FURTHER ASSURANCES. Each of the Borrowers agree
that if this Agreement, the Note or any of the Security
Documents shall, in the reasonable opinion of the Lenders,
at any time be deemed by the Lenders for any reason
insufficient in whole or in part to carry out the true
intent and spirit hereof or thereof, it will execute or
cause to be executed such other and further assurances and
documents as in the opinion of the Lenders may be required
in order more effectively to accomplish the purposes of this
Agreement, the Note or any of the Security Documents.
18.5 PRIOR AGREEMENTS, MERGER. Any and all prior
understandings and agreements heretofore entered into
between the Borrowers, the Guarantor and Palm Shipping on
the one part, and the Agent, the Security Trustee or the
Lenders, on the other part, whether written or oral, are
superseded by and merged into this Agreement and the other
agreements (the forms of which are exhibited hereto) to be
executed and delivered in connection herewith to which the
Borrowers, the Guarantor and Palm Shipping, the Security
Trustee and/or Agent and/or the Lenders are parties, which
alone fully and completely express the agreements between
the Borrowers, the Guarantor, the Security Trustee, the
Agent and the Lenders.
18.6 JOINT AND SEVERAL OBLIGATIONS. The obligations of
the Borrowers under this Agreement and under each provision
hereof are joint and several whether or not so specified in
any provision hereof. Each Borrower shall be entitled to
rights of contribution as against the other Borrower,
provided, however, that such rights of contribution shall
(a) not in any way condition or lessen the liability of any
Borrower as a joint and several borrower for the whole of
the obligations owed to the Lenders hereunder, under the
Note or under the Security Documents and (b) be fully
subject and subordinate to the rights of the Lenders
hereunder, under the Note and under the Security Documents.
60
<PAGE> 61
18.7 LIMITATION OF LIABILITY. Notwithstanding anything
to the contrary contained in this Agreement, the Note or any
of the other Security Documents, in the event that any court
or other judicial body of competent jurisdiction determines
that legal principles of fraudulent conveyances, fraudulent
transfers or similar concepts are applicable in evaluating
the enforceability against any particular Borrower or its
assets of this Agreement, the Note or any Security Document
granted by such Borrower as security for its obligations
hereunder and that under such principles, this Agreement,
the Note or such Security Documents would not be enforceable
against such Borrower or its assets unless the following
provisions of this Clause 18.7 had effect, then, the maximum
liability of each Borrower hereunder (the "Maximum Liability
Amount") shall be limited so that in no event shall such
amount exceed the lesser of (i) the Indebtedness and (ii) an
amount equal to the aggregate, without double counting, of
(a) ninety-five percent (95%) of the such Borrower's
Adjusted Net Worth (as hereinafter defined) on the date
hereof, or on the date enforcement of this Agreement is
sought (the "Determination Date"), whichever is greater, (b)
the aggregate fair value of such Borrower's Subrogation and
Contribution Rights (as hereinafter defined) and (c) the
amount of any Valuable Transfer (as hereinafter defined) to
such Borrower, provided that such Borrower's liability under
this Agreement shall be further limited to the extent, if
any, required so that the obligations of such Borrower under
this Agreement shall not be subject to being set aside or
annulled under any applicable law relating to fraudulent
transfers or fraudulent conveyances. In determining the
limitations, if any, on the amount of any of such Borrower's
obligations hereunder pursuant to the preceding sentence,
any rights of subrogation or contribution (collectively the
"Subrogation and Contribution Rights") which such Borrower
may have on the Determination Date with respect to any other
guarantor of the Indebtedness under applicable law shall be
taken into account. As used in this Clause 18.7,
"Indebtedness" of the Borrower shall mean, all of the
Borrower's present or future indebtedness whether for
principal, interest, fees, expenses or otherwise, to the
Lenders under this Agreement and the Security Documents. As
used herein "Adjusted Net Worth" of the respective Borrower
shall mean, as of any date of determination thereof, an
amount equal to the lesser of (a) an amount equal to the
excess of (i) the amount of the present fair saleable value
of the assets of such Borrower over (ii) the amount that
will be required to pay such Borrower's probable liability
on its then existing debts, including contingent
liabilities, as they become absolute and matured, and (b) an
61
<PAGE> 62
amount equal to (i) the excess of the sum of such Borrower's
property at a fair valuation over (ii) the amount of all
liabilities of such Borrower, contingent or otherwise, as
such terms are construed in accordance with applicable laws
governing determinations of the insolvency of debtors. In
determining the Adjusted Net Worth of such Borrower for
purposes of calculating the Maximum Liability Amount for
such Borrower, the liabilities of such Borrower to be used
in such determination pursuant to each clause (ii) of the
preceding sentence shall in any event exclude (a) the
liability of such Borrower under this Agreement and the
Security Documents to which it is a party, (b) the
liabilities of such Borrower subordinated in right of
payment to this Agreement and (c) any liabilities of such
Borrower for Subrogation and Contribution Rights to any of
the other guarantors. As used herein "Valuable Transfer"
shall mean, in respect of such Borrower, (a) all loans,
advances or capital contributions made to such Borrower with
proceeds of the Facility, (b) all debt securities or other
obligations of such Borrower acquired from such Borrower or
retired by such Borrower with proceeds of the Facility, (c)
the fair market value of all property acquired with proceeds
of the Facility and transferred, absolutely and not as
collateral, to such Borrower, (d) all equity securities of
such Borrower acquired from such Borrower with proceeds of
the Facility, and (e) the value of any other economic
benefits in accordance with applicable laws governing
determinations of the insolvency of debtors, in each such
case accruing to such Borrower as a result of the Facility
and this Agreement.
18.8 ENTIRE AGREEMENT; AMENDMENTS. This Agreement
constitutes the entire agreement of the parties hereto
including all parties added hereto pursuant to an Assignment
and Assumption Agreement. This Agreement may be executed in
any number of counterparts, each of will shall be deemed an
original, but all such counterparts together shall
constitute one and the same instrument. Any provision of
this Agreement may be amended or waived if, but only if,
such amendment or waiver is in writing and is signed by the
Borrowers and the Majority Lenders (and, if the rights or
duties of the Agent or the Security Trustee are affected
thereby, by the Agent or the Security Trustee, as
applicable); PROVIDED that no amendment or waiver shall,
unless agreed in writing by all the Lenders, (i) increase or
decrease the Commitment of any Lender or subject any Lender
to any additional obligation, (ii) reduce the principal of
or rate of interest on the Loan or any fees hereunder, (iii)
postpone the date fixed for any payment of principal of or
62
<PAGE> 63
interest on the Loan or any fees hereunder or for any
termination of any Commitment, (iv) amend Section 10, (v)
waive any condition precedent to the making of the Loan,
(vi) release any collateral or (vii) amend or modify this
Section 18.8 or otherwise change the percentage of the
Commitments or of the aggregate unpaid principal amount of
the Loan, or the number or category of Lenders, which shall
be required for the Lenders or any of them to take any
action under this Clause or any other provision of this
Agreement.
18.9 HEADINGS. In this Agreement, Clause headings are
inserted for convenience of reference only and shall not be
taken into account in the interpretation of this Agreement.
IN WITNESS whereof the parties hereto have caused
this Agreement to be duly executed by their duly authorized
representatives as of the day and year first above written.
VSSI TOKYO INC. VSSI SUN INC.
By /s/ Amy J. Bokinsky By /s/ Amy J. Bokinsky
-------------------- -------------------
Name: Amy J. Bokinsky Name: Amy J. Bokinsky
Title: Attorney-in-Fact Title: Attorney-in-Fact
DORIO SHIPPING LTD. VSSI MARINE INC.
By /s/ Amy J. Bokinsky By /s/ Amy J. Bokinsky
-------------------- -------------------
Name: Amy J. Bokinsky Name: Amy J. Bokinsky
Title: Attorney-in-Fact Title: Attorney-in-Fact
VSSI CARRIERS INC.
By /s/ Amy J. Bokinsky
--------------------
Name: Amy J. Bokinsky
Title: Attorney-in-Fact
63
<PAGE> 64
COMMITMENTS
- ------------
$35,000,000 CHRISTIANIA BANK OG KREDITKASSE,
New York Branch,
as Agent, Security Trustee and Lender
11 West 42nd Street
7th Floor
New York, NY 10036
Attention: Shipping Department
Telephone: (212) 827-4800
Telecopy: (212) 827-4888
By /s/ Justin F. McCarthy, III
---------------------------
Name: Justin F. McCarthy, III
Title: Vice President
By /s/ Hans Chr. Kjelsrud
----------------------
Name: Hans Chr. Kjelsrud
Title: Vice President
$27,500,000 THE BANK OF NOVA SCOTIA,
as Lender
Scotia House
33 Finsbury Square
London, EC2A 1BB
England
Telephone: (44-171) 826-5789
Telecopy: (44-171) 454-9019
Attention: Shipping Department
By /s/ Paul A. Schultz
-------------------
Name: Paul A. Schultz
Title: Vice President
64
<PAGE> 65
$27,500,000 BANQUE INDOSUEZ,
as Lender
47, rue de Monceau
75008 Paris
France
Telephone: (331) 44-20-20-20
Telecopy: (331) 44-20-29-87
Attention:
By /s/ Thibaud Escoffier
---------------------
Name: Thibaud Escoffier
Title: Vice-President, Shipping
65
<PAGE> 66
CONSENT AND AGREEMENT
The undersigned, referred to in the foregoing Term
Loan Agreement as the "Guarantor", hereby consents and
agrees to said Agreement and to the documents contemplated
thereby and to the provisions contained therein relating to
conditions to be fulfilled and obligations to be performed
by the undersigned pursuant to or in connection with said
Agreement and agree particularly to be bound by the
representations, warranties and covenants relating to the
undersigned contained in Clauses 2 and 9 of said Agreement
to the same extent as if the undersigned were a party to
said Agreement.
TEEKAY SHIPPING CORPORATION
By /s/ John S. Osborne, Jr.
------------------------
Name: John S. Osborne, Jr.
Title: Attorney-in-Fact
<PAGE> 1
============================================================
AGREEMENT FOR
A
U.S. $120,000,000 TERM LOAN
FACILITY
TO BE MADE AVAILABLE TO
CERTAIN SUBSIDIARIES OF
TEEKAY SHIPPING CORPORATION
BY
DEN NORSKE BANK ASA,
NEDERLANDSE SCHEEPSHYPOTHEEKBANK N.V.,
THE BANK OF NEW YORK and
MIDLAND BANK PLC
===========================================================
October 18, 1996
<PAGE> 2
INDEX
PAGE
CLAUSE 1 DEFINITIONS................................ 1
1.1 Defined Terms............................ 1
1.2 Construction............................. 16
1.3 Accounting Terms......................... 16
CLAUSE 2 REPRESENTATIONS AND WARRANTIES............. 16
2.1(a) Due Organization and Power............... 16
2.1(b) Authorization and Consents............... 17
2.1(c) Binding Obligations...................... 17
2.1(d) No Violation............................. 17
2.1(e) Litigation............................... 17
2.1(f) No Default............................... 18
2.1(g) Charters................................. 18
2.1(h) Vessel Ownership, Classification,
Seaworthiness and Insurance............ 18
2.1(i) Financial Statements..................... 19
2.1(j) Tax Returns and Payments................. 19
2.1(k) Insurance................................ 19
2.1(l) Offices.................................. 20
2.1(m) Not an Investment Company................ 20
2.1(n) Equity Ownership......................... 20
2.1(o) Environmental Matters.................... 21
2.1(p) Pending or Threatened Environmental
Claims................................ 21
2.1(q) Limited Purpose.......................... 21
2.1(r) Permitted Indebtedness................... 21
2.1(s) Survival................................. 21
CLAUSE 3 THE LOAN................................... 22
3.1(a) Purposes................................. 22
3.1(b) Loan Tranche A........................... 22
3.1(c) Loan Tranche B........................... 22
3.2 Drawdown Notice.......................... 22
3.3 Effect of Drawdown Notices............... 22
3.4 Notation on the Note..................... 23
i
<PAGE> 3
CLAUSE 4 CONDITIONS PRECEDENT....................... 23
4.1 Conditions Precedent to Drawdown of
Loan Tranche A......................... 23
4.2 Conditions Precedent to Drawdown of
Loan Tranche B......................... 26
4.3 Further Conditions Precedent............. 27
CLAUSE 5 REPAYMENT AND PREPAYMENT .................. 27
5.1 Repayment................................ 27
5.2 Voluntary Prepayment..................... 28
5.3 Mandatory Prepayment..................... 28
5.4 Application of Prepayments............... 28
5.5 Optional Cancellation of Loan Tranche B.. 29
CLAUSE 6 INTEREST AND RATE.......................... 29
6.1 Interest Rate; Default Rate.............. 29
6.2 Interest Periods......................... 29
6.3 Interest Payments........................ 29
6.4 Calculation of Interest.................. 30
CLAUSE 7 PAYMENTS................................... 30
7.1 Place of Payments, No Set Off............ 30
7.2 Tax Credits.............................. 31
CLAUSE 8 EVENTS OF DEFAULT........................... 31
8.1(a) Repayment................................ 31
8.1(b) Other Payments........................... 31
8.1(c) Representations, etc..................... 31
8.1(d) Impossibility, Illegality................ 31
8.1(e) Covenants................................ 32
8.1(f) Indebtedness............................. 32
8.1(g) Stock Ownership.......................... 32
8.1(h) Default under the Security Documents..... 34
8.1(i) Bankruptcy............................... 34
ii
<PAGE> 4
8.1(j) Sale of Assets........................... 34
8.1(k) Judgments................................ 34
8.1(l) Inability to Pay Debts................... 34
8.1(m) Financial Position....................... 34
8.1(n) Termination, Amendment or Assignment
of Charters............................ 35
8.2 Indemnification.......................... 35
8.3 Application of Moneys.................... 36
CLAUSE 9 COVENANTS................................... 37
9.1 Covenants................................ 37
9.1(A)(i) Performance of Agreements......... 37
9.1(A)(ii) Notice of Default; Change in
Classification of Vessel........ 37
9.1(A)(iii) Obtain Consents................... 37
9.1(A)(iv) Financial Statements.............. 38
9.1(A)(v) Corporate Existence............... 39
9.1(A)(vi) Books, Records, etc............... 39
9.1(A)(vii) Inspection........................ 39
9.1(A)(viii) Taxes............................. 39
9.1(A)(ix) Compliance with Statutes, etc..... 40
9.1(A)(x) Environmental Matters............. 40
9.1(A)(xi) Accountants....................... 41
9.1(A)(xii) Continue Charters................. 41
9.1(A)(xiii) Class Certificate................. 41
9.1(A)(xiv) Maintenance of Properties......... 41
9.1(A)(xv) Vessel Management................. 42
9.1(A)(xvi) Limitation on Restricted
Payments....................... 42
9.1(B)(i) Liens............................. 44
9.1(B)(ii) Loans and Advances................ 45
9.1(B)(iii) Limitation on Indebtedness........ 45
9.1(B)(iv) Guarantees, etc................... 48
9.1(B)(v) Changes in Business............... 48
9.1(B)(vi) Use of Corporate Funds............ 48
9.1(B)(vii) Issuance of Shares................ 48
9.1(B)(viii) Consolidation, Merger............. 48
9.1(B)(ix) Changes in Offices or Names....... 48
9.1(B)(x) Limitation on Transactions with
Shareholders and Affiliates..... 48
9.1(B)(xi) Change of Flag.................... 49
9.1(B)(xii) Sale of Vessel.................... 49
9.1(b)(iii) Modification of Agreements........ 50
9.2 Valuation of the Vessels................. 50
9.3 Collateral Maintenance................... 50
9.4 Release of Vessels....................... 51
9.5 Substitution of Vessels.................. 51
iii
<PAGE> 5
9.6 Inspection and Survey Reports............ 52
CLAUSE 10 ASSIGNMENT................................ 52
CLAUSE 11 ILLEGALITY, INCREASED COST,
NON-AVAILABILITY, ETC................... 52
11.1 Illegality............................... 52
11.2 Increased Cost........................... 53
11.3 Determination of Losses.................. 54
11.4 Compensation for Losses.................. 54
CLAUSE 12 CURRENCY INDEMNITY........................ 54
12.1 Currency Conversion...................... 54
12.2 Change in Exchange Rate.................. 55
12.3 Additional Debt Due...................... 55
12.4 Rate of Exchange......................... 55
CLAUSE 13 FEES AND EXPENSES......................... 55
13.1 Commitment Fee........................... 55
13.2 Agency Fee............................... 55
13.3 Arrangement Fee.......................... 55
13.4 Expenses................................. 56
CLAUSE 14 APPLICABLE LAW, JURISDICTION AND WAIVER... 56
14.1 Applicable Law........................... 57
14.2 Jurisdiction............................. 57
14.3 WAIVER OF JURY TRIAL..................... 58
CLAUSE 15 THE AGENT................................. 58
15.1 Appointment of Agent..................... 58
15.2 Distribution of Payments................. 58
15.3 Holder of Interest in Note............... 58
15.4 No Duty to Examine, Etc.................. 58
15.5 Agent as Lender.......................... 59
15.6(a) Obligations of Agent..................... 59
15.6(b) No Duty to Investigate................... 59
15.7(a) Discretion of Agent...................... 59
15.7(b) Instructions of Majority Lenders......... 59
15.8 Assumption re Event of Default........... 60
15.9 No Liability of Agent or Lenders......... 60
15.10 Indemnification of Agent................. 60
15.11 Consultation with Counsel................ 61
15.12 Resignation.............................. 61
15.13 Representations of Lenders............... 61
iv
<PAGE> 6
15.14 Notification of Event of Default......... 62
CLAUSE 16 APPOINTMENT OF SECURITY TRUSTEE........... 62
CLAUSE 17 NOTICES AND DEMANDS....................... 62
17.1 Notices.................................. 62
CLAUSE 18 MISCELLANEOUS............................. 63
18.1 Time of Essence.......................... 63
18.2 Unenforceable, etc., Provisions -
Effect................................. 63
18.3 References............................... 63
18.4 Further Assurances....................... 63
18.5 Prior Agreements, Merger................. 64
18.6 Joint and Several Obligations............ 64
18.7 Limitation of Liability.................. 64
18.8 Entire Agreement, Amendments............. 65
18.9 Headings................................. 65
v
<PAGE> 7
<PAGE> 1
TERM LOAN FACILITY AGREEMENT
THIS TERM LOAN FACILITY AGREEMENT is made as of the
18th day of October, 1996, and is by and among:
(1) Those certain Liberian corporations and Bahamian
companies whose names, jurisdictions of
incorporation and registered addresses are set
forth in Schedule 1 hereto and which are
signatories hereto, as joint and several borrowers,
together with any additional such borrower(s) made
a party hereto pursuant to an Accession Agreement
(as hereinafter defined) in accordance with the
terms hereof (together, the "Borrowers", each a
"Borrower");
(2) DEN NORSKE BANK ASA, NEDERLANDSE
SCHEEPSHYPOTHEEKBANK N.V., THE BANK OF NEW YORK and
MIDLAND BANK PLC, as lenders (together, the
"Lenders", each a "Lender"); and
(3) DEN NORSKE BANK ASA, as agent (in such capacity and
any successor thereto appointed pursuant to Section
15.12, the "Agent") and security trustee (in such
capacity and any successor thereto, the "Security
Trustee") for the Lenders.
WITNESSETH THAT:
1. DEFINITIONS
1.1 Defined Terms. In this Agreement the words and
expressions specified below shall, except where the context
otherwise requires, have the meanings attributed to them
below:
"Acceptable Accounting Firm" means Ernst & Young, or such other
recognized international accounting firm
as shall be approved by the Majority
Lenders, such approval not to be
unreasonably withheld;
"Accession Agreement" an agreement substantially in the form of
Exhibit H hereto pursuant to which a
wholly-owned subsidiary of the Guarantor
is made a Borrower in accordance with the
terms hereof;
<PAGE> 2
"Adjusted Consolidated Net
Income" means the aggregate net income (or loss)
of the Guarantor and its consolidated
Subsidiaries determined in accordance
with GAAP; provided that the following
items shall be excluded in computing
Adjusted Consolidated Net Income (without
duplication): (i) the effects of foreign
currency exchange adjustments under GAAP,
(ii) any gains or losses (on an after-tax
basis) attributable to vessel sales or to
prepayment of Indebtedness and (iii) any
extraordinary gains (or losses).
"Affiliate" means with respect to any Person, any
other Person directly or indirectly
controlled by or under common control
with such Person. For the purposes of
this definition, "control" (including,
with correlative meanings, the terms
"controlled by" and "under common control
with") as applied to any Person means the
possession directly or indirectly of the
power to direct or cause the direction of
the management and policies of that
Person whether through ownership of
voting securities or by contract or
otherwise;
"Agreement" means this Agreement as the same shall be
amended, modified or supplemented from
time to time;
"Applicable Rate" means any rate of interest on the Loan
from time to time applicable pursuant to
Clause 6.1 hereof;
"Assignment and Assumption means the Assignment and Assumption
Agreement(s)" Agreement(s) executed pursuant to
Clause 10 hereof substantially in the
form of Exhibit I hereto;
"Assignment Notices" means: a) the notices with respect to the
Earnings Assignments
substantially in the form set
out in Exhibit 1 thereto or in
such other form as the Lenders
may agree; and
2
<PAGE> 3
b) the notices with respect to the
Insurances Assignments
substantially in the form set
out in Exhibit 3 thereto or in
such other form as the Lenders
may agree;
"Assignments" means the Insurances Assignments and the
Earnings Assignments;
"Banking Day(s)" means day(s) on which banks are open for
the transaction of business of the nature
required by this Agreement in Vancouver,
Canada, Oslo, Norway, London, England and
New York, New York;
"Bond Offering" means that certain issue by the Guarantor
of $225,000,000 of 8.32% First Preferred
Mortgage Notes due February 1, 2008 made
pursuant to the Prospectus dated
January 19, 1996;
"Charter(s)" means the charterparty agreements entered
into by each of the Borrowers with Palm
Shipping relating to such Borrower's
Vessel, the date of each of which is set
out in Schedule 3 hereto, or any
substitute charter acceptable to the
Majority Lenders in their sole
discretion;
"Code" means the Internal Revenue Code of 1986,
as amended, and any successor statute and
regulations promulgated thereunder;
"Commitments" in relation to a Lender, means the
portion of the Loan set out opposite its
name on the signature pages hereto or, as
the case may be, in any relevant
Assignment and Assumption Agreement;
"Compliance Certificate" has the meaning ascribed thereto in
Clause 9.1(A)(iv)(a) hereof;
"Consents" means the Consent and Agreement to each
of the Earnings Assignments executed by
Palm Shipping, substantially in the form
set out in Exhibit F hereto;
3
<PAGE> 4
"Consolidated EBITDA" means, with respect to any Person for any
period, the sum of (i) Income from Vessel
Operations, (ii) depreciation expense and
(iii) amortization expense, as presented
in the financial statements of such
Person;
"Consolidated Interest
Expense" is defined to mean, with respect to any
Person for any period, the aggregate
amount of (i) interest expense and
(ii) losses on marketable securities less
(iii) interest income and (iv) gains on
marketable securities as disclosed on the
financial statements of such Person;
"Currency Agreement" means any foreign exchange contract,
currency swap agreement or other similar
agreement or arrangement designed to
protect the Guarantor or any of its
Subsidiaries against fluctuations in
currency values to or under which the
Guarantor or any of its Subsidiaries is a
party or a beneficiary on the date of
this Agreement or becomes a party or a
beneficiary thereafter;
"Default Rate" means the rate per annum equal to the sum
of the Applicable Rate and three percent
(3%);
"Dollars" and the sign "$" means the legal currency, at any relevant
time hereunder, of the United States of
America and, in relation to all payments
hereunder, in same day funds settled
through the New York Clearing House
Interbank Payments System (or such other
Dollar funds as may be determined by the
Lenders to be customary for the
settlement in New York City of banking
transactions of the type herein
involved);
"Drawdown Date" means, in respect of Loan Tranche A, the
date, being a Banking Day falling not
later than November 30, 1996, upon which
the Borrowers shall have requested that
Loan Tranche A be made available as
provided in Clause 3 hereof and, in
4
<PAGE> 5
respect of Loan Tranche B, the date,
being a Banking Day falling not later
than November 30, 1997, upon which the
Borrowers shall have requested that Loan
Tranche B be made available as provided
in Clause 3 hereof;
"Drawdown Notice" shall have the meaning ascribed thereto
in Clause 3.2 hereof;
"Earnings Assignments" means the assignments in respect of the
earnings of each Vessel from any and all
sources, including, but not limited to,
the respective Charter relating to such
Vessel, to be executed by the relevant
Borrower in favor of the Security Trustee
pursuant to Clause 4.1(c)(iv) hereof,
substantially in the form of Exhibit D
hereto;
"Environmental Approvals" shall have the meaning ascribed thereto
in Clause 2.1(o) hereof;
"Environmental Claim" shall have the meaning ascribed thereto
in Clause 2.1(o) hereof;
"Environmental Laws" shall have the meaning ascribed thereto
in Clause 2.1(o) hereof;
"Equity" means for any Person, such Person's
shareholders' equity (inclusive of
retained earnings) as reflected on such
Person's most recent quarterly unaudited
or annual audited financial statements,
as the case may be, as prepared in
accordance with GAAP;
"Event(s) of Default" means any of the events set out in
Clause 8 hereof;
"Facility Period" means the period from the Drawdown Date
of Loan Tranche A to the date upon which
all amounts owing under the Loan and all
other amounts due to the Agent, Security
Trustee and the Lenders pursuant to this
Agreement, the Note and the Security
Documents become repayable and are repaid
in full or are prepaid in full;
5
<PAGE> 6
"FMV" means with respect to a Vessel, its Fair
Market Value as determined in accordance
with Clause 9.2 hereof;
"GAAP" shall have the meaning ascribed thereto
in Clause 1.3 hereof;
"Guarantor" means Teekay Shipping Corporation, a
corporation organized and existing under
the laws of the Republic of Liberia;
"Guaranty" means the guaranty in respect of the
joint and several obligations of the
Borrowers under this Agreement to be
executed by the Guarantor in favor of the
Security Trustee pursuant to
Clause 4.1(d) hereof substantially in the
form of Exhibit B hereto;
"Indebtedness" means, 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 Person 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 and
unpaid 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 thereof or the completion
of such services, except trade payables,
(v) all obligations on account of
principal 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
6
<PAGE> 7
by such Person to the extent such
indebtedness is guaranteed by such
Person, and (viii) to the extent not
otherwise included in this definition,
the net 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;
"Indenture" means that certain Indenture dated as of
January 29, 1996 by and among, INTER ALIA,
the Guarantor and the United States
Trust Company of New York executed
pursuant to the Bond Offering;
"Insurances Assignments" means the assignments in respect of the
insurances of each Vessel, to be executed
by the relevant Borrower in favor of the
Security Trustee pursuant to
Clause 4.1(c)(iii) hereof, substantially
in the form of Exhibit E hereto;
"Interest Coverage Ratio" means, with respect to any Person on any
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 date to (ii) the aggregate
Consolidated Interest Expense of such
Person during such four fiscal quarters.
In making the foregoing calculation,
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<PAGE> 8
(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 such 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 such date and (3) any
Indebtedness to be incurred on such 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 such date (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 of 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 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 such date; and (D) PRO FORMA
effect shall be given to asset
8
<PAGE> 9
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 such date as if they had
occurred and such proceeds had been
applied on the first day of such four-
fiscal-quarter period; PROVIDED that to
the extent that clause (D) 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 such 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 Guarantor may
apply Consolidated EBITDA for such Vessel
based upon historical earnings of such
Vessel or, if none, of its most
comparable Vessel during the applicable
four-fiscal-quarter period, or if, in the
good faith determination of the board of
directors of the Guarantor, the Guarantor
does not have a comparable Vessel, based
upon industry average earnings for
comparable vessels;
"Interest Payment Date" means the last day of each Interest
Period and, for Interest Periods longer
than three months that day falling every
three months after the commencement
thereof until the end of such Interest
Periods; should any such day not be a
Banking Day the relevant Interest Payment
Date shall be the next following Banking
Day, unless such next following Banking
Day falls in the following calendar
month, in which case the relevant
Interest Payment Date shall be the
immediately preceding Banking Day;
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<PAGE> 10
"Interest Period(s)" with respect to the Loan, means any
period by reference to which an interest
rate is determined pursuant to Clause 6.2
hereof;
"Interest Rate Agreements" means any interest rate protection
agreement, interest rate future
agreement, interest rate option
agreement, interest rate swap agreement,
interest rate cap agreement, interest
rate collar agreement, interest rate
hedge agreement or other similar
agreement or arrangement designed to
protect the Guarantor or any of its
Subsidiaries against fluctuations in
interest rates to or under which the
Guarantor or any of its Subsidiaries is a
party or a beneficiary on the date of
this Agreement or becomes a party or a
beneficiary hereafter;
"LIBOR" means, in relation to Interest Periods of
one (1), three (3) or six (6) months, the
rate (rounded upward to the nearest
1/16th of one percent) for deposits of
Dollars for a period equivalent to such
period at or about 11:00 a.m. (London
time) on the second London Banking Day
before the first day of such period as
displayed on Telerate page 3750 (British
Bankers' Association Interest Settlement
Rates) (or such other page as may replace
such page 3750 on such system or on any
other system of the information vendor
for the time being designated by the
British Bankers' Association to calculate
the BBA Interest Settlement Rate (as
defined in the British Bankers'
Association's Recommended Terms and
Conditions ("BBAIRS" terms) dated August
1985)), provided that if on such date no
such rate is so displayed or if the
Interest Period is other than one (1),
three (3) or six (6) months, LIBOR for
such period shall be the arithmetic mean
(rounded upward if necessary to four
decimal places) of the rates respectively
quoted to the Agent by each of the
Reference Banks at the request of the
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<PAGE> 11
Agent as the offered rate for deposits of
Dollars in an amount approximately equal
to the amount in relation to which LIBOR
is to be determined for a period
equivalent to such period to prime banks
in the London Interbank Market at or
about 11:00 a.m. (London time) on the
second Banking Day before the first day
of such period;
"Loan" means the term loan to be made available
to the Borrowers by the Lenders pursuant
to Clause 3.1 in the maximum principal
amount of One Hundred Twenty Million
Dollars ($120,000,000) or the balance
thereof from time to time outstanding;
"Loan Tranche(s)" means either or both of Loan Tranche A
and/or Loan Tranche B;
"Loan Tranche A" means that portion of the Loan, in the
maximum principal amount of One Hundred
Million United States Dollars
($100,000,000), to be advanced by the
Lenders to the Borrowers pursuant to
Clause 3.1 hereof;
"Loan Tranche A Vessels" means the Bahamian flag vessels ALLIANCE
SPIRIT, KYUSHU SPIRIT and SERAYA SPIRIT
and the Liberian flag vessels SENTOSA
SPIRIT and SINGAPORE SPIRIT;
"Loan Tranche B" means that portion of the Loan, in a
principal amount not to exceed the lesser
of (i) Twenty Million United States
Dollars ($20,000,000) and (ii) 65% of the
FMV of the Vessel to be acquired with the
proceeds of Loan Tranche B, to be
advanced by the Lenders to the Borrowers
pursuant to Clause 3.1 hereof;
"Loan Tranche B Vessel" means a vessel meeting the requirements
of Clause 9.5 hereof or is otherwise
acceptable to the Majority Lenders which
is owned by a Borrower that is added to
this Agreement by its entry into an
Accession Agreement pursuant to
Clause 4.2 hereof;
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<PAGE> 12
"Majority Lenders" means Lenders whose Commitments exceed
fifty percent (50%) of total Commitments;
"Management Agreement(s)" means the agreement(s) entered into
between the Manager and each Borrower in
respect of the commercial and technical
management of the Borrowers' Vessels;
"Manager" means Teekay Shipping Limited, a Bahamian
company and a Wholly Owned Subsidiary of
the Guarantor and, in the case of the
ALLIANCE SPIRIT, Expedo Ship Management
(Canada) Ltd.;
"Margin" (a) if the Net Debt to Equity Ratio is
greater than 1.5:1, the Margin shall be
.85% per annum; (b) if the Net Debt to
Equity Ratio is equal to or less than
1.5:1 but greater than 1:1, the Margin
shall be .65% per annum; and (c) if the
Net Debt to Equity Ratio is equal to or
less than 1:1, the Margin shall be .55%
per annum; the Margin to be determined as
of the date hereof, and to be adjusted,
if necessary, as of the first Banking Day
following receipt by the Agent of the
most recent quarterly unaudited or annual
audited financial statements, as the case
may be, of the Guarantor together with
the Compliance Certificate of the
Guarantor (setting forth the Guarantor's
calculation of the Net Debt to Equity
Ratio);
"Materials of Environmental
Concern" shall have the meaning ascribed in Clause
2.1(o) hereof;
"Maturity Date" means the day which falls seven years
from the Drawdown Date of Loan Tranche A;
if such day is not a Banking Day, the
next following Banking Day, unless such
next following Banking Day falls in the
following calendar month, in which case
the Maturity Date shall be the
immediately preceding Banking Day;
"Mortgages" means (i) the first priority statutory
mortgages and deeds of covenants
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<PAGE> 13
collateral thereto with respect to each
Vessel registered under Bahamian flag and
(ii) the first preferred Liberian ship
mortgages on each Vessel registered under
Liberian flag, in each case, to be
recorded on each Vessel and executed by
the relevant Borrower in favor of the
Security Trustee, pursuant to
Clause 4.1(c)(ii) hereof, and to be
substantially in the form of Exhibits C1
and C2 hereto;
"Net Debt" means (x) the sum of long term debt and
capital leases (including the current
portions) less (y) to the extent
positive, the sum of cash (including cash
held in retention accounts for the
payment of debt and cash pledged as
collateral against balance sheet
obligations) and marketable securities
less the sum of the current portion of
long term debt and capital leases
(excluding the current portion of
advances outstanding under the Revolver);
"Net Debt to Equity Ratio" means, the ratio of the Guarantor's
consolidated Net Debt to its consolidated
Equity as reflected on the most recent
quarterly unaudited or annual audited
financial statements, as the case may be,
as calculated by the Guarantor, which
calculation shall be set forth in the
Compliance Certificate accompanying such
financial statements, and agreed by the
Agent;
"Note" means the promissory note, to be executed
by the Borrowers to the order of the
Security Trustee, pursuant to
Clause 4.1(c)(i) hereof, to evidence the
Loan substantially in the form of Exhibit
A hereto;
"Palm Shipping" means Palm Shipping Inc., a corporation
organized and existing under the laws of
the Republic of Liberia and an affiliate
of the Borrowers and a Wholly Owned
Subsidiary of the Guarantor;
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<PAGE> 14
"Person" means any individual, sole
proprietorship, corporation, partnership
(general or limited), business trust,
bank, trust company, joint venture,
association, joint stock company, trust
or other unincorporated organization,
whether or not a legal entity, or any
government or agency or political
subdivision thereof;
"Pledge" means the pledge of shares of the
Borrowers to be executed by the Guarantor
pursuant to Clause 4.1(d)(ii) hereof
together with any pledge of shares of a
Borrower added to this Agreement pursuant
to an Accession Agreement, in each case
substantially in the form of Exhibit G
hereto;
"Reference Banks" means Den norske Bank ASA, Rabobank
Nederland, The Bank of New York and
Midland Bank plc;
"Repayment Date" means each of the dates falling at
intervals of six months after the Initial
Drawdown Date; if such day is not a
Banking Day, the next following Banking
Day, unless such next following Banking
Day falls in the following calendar
month, in which case the relevant
Repayment Date shall be the immediately
preceding Banking Day;
"Revolver" means that certain Reducing Revolving
Credit Facility Agreement dated June 6,
1995 as amended from time to time between
certain subsidiaries of the Guarantor,
Den norske Bank ASA as agent, Den norske
Bank ASA, Christiania Bank og Kreditkasse
and Nederlandse Scheepshypotheekbank N.V.
as arrangers, and certain lenders
providing for a reducing revolving credit
facility in the original maximum
available amount of $243,000,000;
"Security Documents" means the Guaranty, the Pledge, the
Mortgages, the Earnings Assignments, the
Insurances Assignments, the Assignment
Notices, the Consents, and any other
14
<PAGE> 15
documents that may be executed as
security for the Borrowers' obligations
hereunder and under the Note;
"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;
"Taxes" means any present or future income or
other taxes, levies, duties, charges,
fees, deductions or withholdings of any
nature now or hereafter imposed, levied,
collected, withheld or assessed by any
taxing authority whatsoever;
"Total Loss" means:
(a) the actual, constructive,
arranged, agreed, or compromised
total loss of the Vessel;
(b) the requisition for title or other
compulsory acquisition or
forfeiture of the Vessel otherwise
than by requisition for hire;
(c) the capture, seizure, arrest,
detention or confiscation of the
Vessel by any government or by
persons acting or purporting to
act on behalf of any government
unless the Vessel be released from
such capture, seizure, arrest or
detention within two hundred ten
(210) days after the occurrence
thereof;
"Transaction Documents" means this Agreement, the Note and the
Security Documents and any Assignment and
Assumption Agreement;
"Vessels" means each of the Vessels listed in
Schedule 2 hereto, registered in the name
of the relevant Borrower as set forth in
such schedule and any Vessel acquired by
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<PAGE> 16
a Borrower made subject to this Agreement
pursuant to an Accession Agreement;
"Wholly Owned" means, with respect to any Subsidiary of
any Person, such Subsidiary of such
Person if all of the outstanding common
stock or other similar equity ownership
interests (but not including preferred
stock) in such Subsidiary (other than any
director's qualifying share or
investments by foreign nationals mandated
by applicable law) is owned directly or
indirectly by such Person.
1.2 CONSTRUCTION. Words importing the singular number
only shall include the plural and VICE VERSA. Words
importing persons shall include companies, firms, corpora-
tions, partnerships, unincorporated associations and their
respective successors and assigns.
1.3 ACCOUNTING TERMS. All accounting terms not
specifically defined herein shall be construed in accordance
with generally accepted accounting principles as in effect
from time to time in the United States of America consis-
tently applied ("GAAP") and all financial statements
submitted pursuant to this Agreement shall be prepared in
accordance with, and all financial data submitted pursuant
hereto shall be derived from financial statements prepared
in accordance with, GAAP.
2 REPRESENTATIONS AND WARRANTIES
2.1 In order to induce the Lenders, the Agent and the
Security Trustee to enter into this Agreement and to make
the Loan available, each of the Borrowers hereby represents
and warrants (which representations and warranties shall
survive the execution and delivery of this Agreement and the
Note and the drawdown of the Loan hereunder) that:
(a) DUE ORGANIZATION AND POWER. Each of the
Borrowers, the Guarantor and Palm Shipping is duly formed
and validly existing in good standing under the laws of its
respective jurisdiction of incorporation, has duly qualified
and, insofar as the Borrowers are aware, is authorized to do
business as a foreign corporation in each jurisdiction
wherein the nature of the business transacted thereby makes
such qualification necessary, has full power to carry on its
business as now being conducted and to enter into and
perform its respective obligations under the Transaction
16
<PAGE> 17
Documents to which it is or is to be a party, and has
complied with all statutory, regulatory and other
requirements relative to such business and such agreements
the noncompliance with which could reasonably be expected to
have a material adverse effect on its business, assets or
operations, financial or otherwise.
(b) AUTHORIZATION AND CONSENTS. All necessary
corporate action has been taken to authorize, and all
necessary consents and authorities have been obtained and
remain in full force and effect to permit, each of the
Borrowers, the Guarantor and Palm Shipping to enter into and
perform its obligations under the Transaction Documents to
which it is a party and, in the case of the Borrowers, to
borrow, service and repay the Loan and, as of the date of
this Agreement, no further consents or authorities are
necessary for the service and repayment of the Loan or any
part of any thereof.
(c) BINDING OBLIGATIONS. The Transaction
Documents constitute or, when executed and delivered, will
constitute, legal, valid and binding obligations of each of
the Borrowers, the Guarantor and Palm Shipping as is a party
thereto enforceable against each thereof as is a party
thereto in accordance with their terms, except to the extent
that such enforcement may be limited by equitable
principles, principles of public policy or applicable
bankruptcy, insolvency, reorganization, moratorium or other
laws affecting generally the enforcement of creditors'
rights.
(d) NO VIOLATION. The execution and delivery of,
and the performance of the provisions of, the Transaction
Documents by each of the Borrowers, the Guarantor and Palm
Shipping as is a party thereto, do not, and will not during
the term of this Agreement, contravene any applicable law or
regulation existing at the date hereof or any contractual
restriction binding on any thereof or the articles of
incorporation or by-laws (or equivalent documents) of any
thereof.
(e) LITIGATION. Except as otherwise disclosed in
writing to the Lenders on or before the date hereof, no
action, suit or proceeding is pending or threatened against
any of the Borrowers, the Guarantor and Palm Shipping before
or by any court, board of arbitration or administrative
agency which has a reasonable likelihood of resulting in any
material adverse change in the business or condition
17
<PAGE> 18
(financial or otherwise) of any of the Borrowers, the
Guarantor and Palm Shipping.
(f) NO DEFAULT. None of the Borrowers nor the
Guarantor nor Palm Shipping is in default under any
agreement by which it is bound, nor is any thereof in
default in respect of any financial commitment or
obligation.
(g) CHARTERS. Each Vessel is subject to a
Charter. The certified copies of the Charters delivered to
the Agent on or prior to the date of this Agreement are true
and complete copies thereof and constitute legal, valid and
binding obligations of the parties thereto enforceable
against such parties in accordance with their respective
terms, except to the extent that such enforcement may be
limited by equitable principles, principles of public policy
or applicable bankruptcy, insolvency, reorganization,
moratorium or other laws affecting generally the enforcement
of creditors' rights, and no amendments thereof or
variations thereto have been proposed or agreed prior to the
date hereof other than immaterial changes, details of which
shall have been forwarded to the Agent. The right of each
Borrower to all moneys payable under its respective Charter
is not subject to any right of set-off or counterclaim or
any lien, charge, security interest, assignment or other
encumbrance except in favor of the Agent, the Security
Trustee or the Lenders. There are no material defaults on
the part of any party to the Charters and there is no
accrued right of any Borrower to terminate its respective
Charter with Palm Shipping or of Palm Shipping to terminate
any Charter with any Borrower.
(h) VESSEL OWNERSHIP, CLASSIFICATION, SEAWORTHINESS AND
INSURANCE.
On each Drawdown Date:
(i) each Vessel will be in the sole and
absolute ownership of the respective Borrower,
unencumbered, save and except for, the Mortgage
thereon, and duly registered in the name of the
respective Borrower under the laws and flag of the
Republic of Liberia or the Commonwealth of the
Bahamas, as the case may be, as set forth in
Schedule 2 hereto;
(ii) each Vessel will be classed in the
highest classification and rating for vessels of
the same age and type with the classification
society set next to its name in Schedule 2 hereto
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<PAGE> 19
or such other classification society acceptable to
the Lenders without any outstanding recommendations
deemed material by the Lenders except in the case
of any Vessel which has been damaged, of which
damage the Borrower owning such Vessel is
diligently effecting repair, the nature, extent and
estimated cost of which damage have been disclosed
to the Lenders and found by the Lenders unlikely to
have a material adverse impact on such Borrower's
ability to perform its obligations hereunder;
(iii) each Vessel will be operationally
seaworthy and in every way fit for service; and
(iv) each Vessel will be insured in accordance
with the provisions of the Mortgage thereon and the
requirements thereof in respect of such insurances
will have been complied with.
(i) FINANCIAL STATEMENTS. Except as otherwise
disclosed in writing to the Lenders on or prior to the date
hereof, all information and other data furnished by the
Borrowers and the Guarantor to the Lenders are complete and
correct, and all financial statements furnished by the
Borrowers and the Guarantor have been prepared in accordance
with GAAP and accurately and fairly present the financial
condition of the parties covered thereby as of the
respective dates thereof and the results of the operations
thereof for the period or respective periods covered by such
financial statements. Since such date or dates there has
been no material adverse change in the financial condition
or results of the operations of any of such parties and none
thereof has any contingent obligations, liabilities for
taxes or other outstanding financial obligations which are
material in the aggregate except as disclosed in such
statements, information and data.
(j) TAX RETURNS AND PAYMENTS. Each of the
Borrowers and the Guarantor has filed all tax returns
required to be filed thereby and has paid all taxes payable
thereby which have become due, other than those not yet
delinquent or the nonpayment of which would not have a
material adverse effect on any such party, as the case may
be, and except for those taxes being contested in good faith
and by appropriate proceedings or other acts and for which
adequate reserves have been set aside on its books.
(k) INSURANCE. Each of the Borrowers and the
Guarantor has insured its properties and assets against such
19
<PAGE> 20
risks and in such amounts as are customary for companies
engaged in similar businesses.
(l) OFFICES. Each of the chief executive office
and chief place of business of each of the Borrowers, the
Guarantors and Palm Shipping and the office in which the
financial records relating the Vessels are kept, is, and
will continue to be, located at Tradewinds Building, Bay
Street, Nassau, the Bahamas; none of the Borrowers maintains
a place of business in Canada, the United States or the
United Kingdom.
(m) NOT AN INVESTMENT COMPANY. Neither the
Guarantor, Palm Shipping nor any of the Borrowers is an
"investment company" within the meaning of the Investment
Company Act of 1940, as amended.
(n) EQUITY OWNERSHIP. Each of the Borrowers and
Palm Shipping is a Wholly Owned Subsidiary of the Guarantor.
On the Drawdown Date, none of the Borrowers nor Palm
Shipping will own any shares of capital stock, partnership
interest or any other direct or indirect equity interest in
any corporation, partnership or other entity.
(o) ENVIRONMENTAL MATTERS. Except as heretofore
disclosed in writing to the Lenders (i) each of the
Borrowers will, when required, be in compliance with all
applicable United States federal and state, local, foreign
and international laws, regulations, conventions and
agreements relating to pollution prevention or protection of
human health or the environment (including, without
limitation, ambient air, surface water, ground water,
navigable waters, waters of the contiguous zone, ocean
waters and international waters), including, without
limitation, laws, regulations, conventions and agreements
relating to (1) emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants,
wastes, toxic substances, hazardous materials, oil,
hazardous substances, petroleum and petroleum products and
by-products ("Materials of Environmental Concern"), or
(2) the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of
Materials of Environmental Concern ("Environmental Laws");
(ii) each of the Borrowers will, when required, have all
permits, licenses, approvals, rulings, variances,
exemptions, clearances, consents or other authorizations
required under applicable Environmental Laws ("Environmental
Approvals") and will, when required, be in full compliance
with all Environmental Approvals required to operate their
20
<PAGE> 21
business as then being conducted; (iii) none of the
Borrowers has received any notice of any claim, action,
cause of action, investigation or demand by any person,
entity, enterprise or government, or any political
subdivision, intergovernmental body or agency, department or
instrumentality thereof, alleging potential liability for,
or a requirement to incur, investigatory costs, cleanup
costs, response and/or remedial costs (whether incurred by a
governmental entity or otherwise), natural resources
damages, property damages, personal injuries, attorneys'
fees and expenses, or fines or penalties, in each case
arising out of, based on or resulting from (1) the presence,
or release or threat of release into the environment, of any
Materials of Environmental Concern at any location, whether
or not owned by such person, or (2) circumstances forming
the basis of any violation, or alleged violation, of any
Environmental Law or Environmental Approval ("Environmental
Claim") (other than Environmental Claims that have been
fully and finally adjudicated or otherwise determined and
all fines, penalties and other costs, if any, payable by the
Borrowers in respect thereof have been paid in full or which
are fully covered by insurance (including permitted
deductibles)); and (iv) there are no circumstances that may
prevent or interfere with such full compliance in the
future.
(p) PENDING OR THREATENED ENVIRONMENTAL CLAIMS.
Except as heretofore disclosed in writing to the Lenders
there is no Environmental Claim pending or threatened
against any Borrower or past or present actions, activities,
circumstances, conditions, events or incidents, including,
without limitation, the release, emission, discharge or
disposal of any Materials of Environmental Concern, that
could form the basis of any Environmental Claim against any
Borrower.
(q) LIMITED PURPOSE. Each Borrower is a special
purpose company whose sole capital asset is its Vessel; no
Borrower engages in any business other than the owning of
its Vessel.
(r) PERMITTED INDEBTEDNESS. The Loan and the
Guaranty thereof are Indebtedness of the Borrowers and the
Guarantor, respectively, the incurrence of which is
permitted by Section 4.03 of the Indenture because the
Interest Coverage Ratio (as such term is defined in the
Indenture) shall be greater than 2:1 after consummation of
the transactions contemplated herein.
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<PAGE> 22
(s) SURVIVAL. All representations, covenants and
warranties made herein and in any certificate or other
document delivered pursuant hereto or in connection herewith
shall survive the making of the Loan and the issuance of the
Note to be issued by the Borrowers hereunder.
3 THE LOAN
3.1 (a) PURPOSES. The Lenders shall make the Loan
available to the Borrowers for the purpose of financing
existing Indebtedness with respect to the Vessels and
acquiring an additional vessel.
(b) LOAN TRANCHE A. Each of the Lenders, relying
upon each of the representations and warranties set out in
Clause 2, hereby severally and not jointly agrees with the
Borrowers that, subject to and upon the terms of this
Agreement, it will on the Drawdown Date for Loan Tranche A
advance Loan Tranche A to the Borrowers. The proceeds of
Loan Tranche A shall be utilized to refinance the existing
Indebtedness of the Loan Tranche A Vessels and for working
capital.
(c) LOAN TRANCHE B. Each of the Lenders, relying
upon each of the representations and warranties set out in
Clause 2, hereby severally and not jointly agrees with the
Borrowers that, subject to and upon the terms of this
Agreement, it will, no later than November 30, 1997, advance
Loan Tranche B to the Borrowers. The proceeds of Loan
Tranche B shall be utilized solely and exclusively to
acquire the Loan Tranche B Vessel.
3.2 DRAWDOWN NOTICE. The Guarantor, on behalf of the
Borrowers, shall, at least three (3) Banking Days before a
Drawdown Date, serve a notice, such notice to be
substantially in the form of Exhibit J hereto (a "Drawdown
Notice"), on the Agent which notice shall (a) be in writing
addressed to the Agent, (b) be effective on receipt by the
Agent, (c) specify the amount of the Loan Tranche to be
drawn, (d) specify the Banking Day on which the Loan Tranche
is to be drawn, (e) identify the purpose(s) of each Loan
Tranche and the Borrower(s) on whose behalf the Loan Tranche
is requested, (f) specify the initial Interest Period for
the Loan Tranche, (g) specify the disbursement instructions
and (h) be irrevocable.
3.3 EFFECT OF DRAWDOWN NOTICES. Each Drawdown Notice
shall be deemed to constitute a warranty by the Borrowers
(a) that the representations and warranties stated in
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Clause 2 (updated MUTATIS MUTANDIS) are true and correct on
the date of such Drawdown Notice and will be true and
correct on the relevant Drawdown Date as if made on such
date, and (b) that no Event of Default nor any event which
with the giving of notice or lapse of time or both would
constitute an Event of Default has occurred and is
continuing.
3.4 NOTATION ON THE NOTE. Each Loan Tranche made by
the Lenders to the Borrowers may be evidenced by a notation
of the same made by the Agent on the grid attached to the
Note, which notation, absent manifest error, shall be prima
facie evidence of the amount of the relevant Loan Tranche.
4 CONDITIONS PRECEDENT
4.1 CONDITIONS PRECEDENT TO DRAWDOWN OF LOAN TRANCHE A.
The obligation of the Lenders to make the Loan Tranche A
available to the Borrowers under this Agreement shall be
expressly subject to the following conditions precedent:
(a) the Agent shall have received the following
documents in form and substance satisfactory to the Lenders
and counsel to the Lenders:
(i) copies, certified as true and complete by an
officer of each of the Borrowers, the
Guarantor and Palm Shipping, of the
resolutions of each such company's board of
directors (and, if any necessary under
appropriate law, shareholders) evidencing
approval of the Transaction Documents to which
such company is to be a party and authorizing
an appropriate officer or officers or
attorney-in-fact or attorneys-in-fact to
execute the same on its behalf;
(ii) copies, certified as true and complete by an
officer of each of the Borrowers, the
Guarantor and Palm Shipping or other
applicable party, of all documents evidencing
any other necessary action (including actions
by such parties thereto other than the
Borrowers, the Guarantor or Palm Shipping as
may be required by the Lenders), approvals or
consents with respect to this Agreement, the
Note, the Security Documents and the
transactions contemplated hereby and thereby;
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(iii) copies, certified as true and complete by an
officer of each of the Borrowers, the
Guarantor and Palm Shipping, of the articles
or certificate of incorporation and by-laws
(or the equivalent thereof) of each thereof;
(iv) good standing certificates or the equivalent
thereof with respect to each of the Borrowers,
the Guarantor and Palm Shipping issued by the
appropriate authorities of the respective
jurisdiction of incorporation of such parties;
and
(v) copies, certified as true and complete by an
officer of the relevant Borrower, of the
Charter and Management Agreement relating to
its Vessel;
(b) the Agent shall have received evidence
satisfactory to the Lenders and counsel to the Lenders that:
(i) each of the Vessels is registered in the name
of such Borrower listed opposite its name in
Schedule 2 under the flag listed next to such
Vessel in Schedule 2 and that each such Vessel
is free and clear of all liens and
encumbrances of record except for the Mortgage
thereon in favor of the Security Trustee;
(ii) each Vessel is classed in the highest
classification and rating for vessels of the
same age and type with the classification
society listed next to the Vessel in
Schedule 2 or such other classification
society acceptable to the Lenders without any
material outstanding recommendations;
(iii) each Vessel is operationally seaworthy and in
every way fit for service; and
(iv) each Vessel is insured in accordance with the
provisions of its respective Mortgage
(evidence of which shall include, without
limitation, cover notes, Certificates of Entry
and brokers' letters of undertaking and an
opinion of an independent insurance consultant
retained by the Lenders or such other evidence
as shall be reasonably satisfactory to the
Lenders) and all requirements thereof in
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respect of such insurances have been
fulfilled;
(c) each Borrower shall have duly executed and delivered:
(i) the Note,
(ii) the Mortgage relating to its Vessel,
(iii) the Insurances Assignment relating to its
Vessel,
(iv) the Earnings Assignment relating to its
Vessel, and
(v) the Assignment Notices relating to (c) (iii)
and (c) (iv) above;
(d) the Guarantor shall have duly executed and
delivered:
(i) the Guaranty, and
(ii) the Pledge and related irrevocable proxies and
stock powers and shall have delivered to the
Agent the undated resignations of officers and
directors, the share registers and the
unissued stock certificates required to be so
delivered pursuant to the Pledge;
(e) Palm Shipping shall have duly executed and
delivered the Consents;
(f) each of the Charters shall be in form and
substance satisfactory to the Lenders;
(g) the Agent shall have received payment in full
of all fees and expenses due to the Agent and the Lenders on
the date thereof including, without limitation, all fees and
expenses due under Clause 13 hereof;
(h) the Lenders shall have received evidence
satisfactory to it and its legal advisers that, save for the
liens created by the respective Mortgage, Earnings
Assignment and Insurances Assignment, there are no liens,
charges or encumbrances of any kind whatsoever on any Vessel
or its earnings or insurances except as permitted hereby or
by any of the Security Documents;
(i) the Lenders shall be satisfied that none of
the Borrowers, the Guarantor, or Palm Shipping is subject to
any Environmental Claim which could have a material adverse
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effect on the business, assets or results of operations of
any thereof;
(j) the Lenders shall have received a complete
copy of the consolidated audited financial report of the
Guarantor for the year ending March 31, 1996, which shall
include at least the balance sheet of such corporation as of
the end of such year and the related statements of income,
cash flow and retained earnings for such year all in
reasonable detail, certified by an Acceptable Accounting
Firm, together with their opinion (containing no
qualifications which the Lenders deem material);
(k) the Borrowers shall have provided such
evidence as the Lenders may require documenting the current
legal and beneficial ownership of the shares of the
Borrowers and the legal ownership of the shares of the
Guarantor; and
(l) the Lenders shall have received opinions from
(i) Watson, Farley & Williams, counsel to the Borrowers, the
Guarantor and Palm Shipping on matters of New York law, the
Federal law of the United States and Liberian law,
(ii) Graham, Thompson & Co. special counsel to the Lenders
on Bahamian law and (iii) Seward & Kissel, special counsel
to the Lenders, in each case in such form as the Lenders may
require, as well as such other legal opinions as the Lenders
shall have required as to all or any matters under the laws
of the United States of America, the State of New York, the
Republic of Liberia and the Commonwealth of the Bahamas
covering the representations and conditions which are the
subjects of Clauses 2 and 4.
4.2 CONDITIONS PRECEDENT TO THE DRAWDOWN OF LOAN
TRANCHE B. The obligations of the Lenders to make the Loan
Tranche B available shall be subject to the following
conditions: (a) the Agent having received the Drawdown
Notice relative thereto; (b) the conditions set forth in
Clauses 4.1(a), (b), (c), (d)(ii), (e), (f), (h), (i), (k)
and (l), in each case updated mutatis mutandis for the
Vessel being financed by Loan Tranche B and the Borrower
owning same, having been met; (c) the Vessel being financed
by Loan Tranche B having met the requirements set forth in
Clause 9.5 hereof and otherwise having been accepted by the
Majority Lenders; and (d) the Borrower owning the Vessel
being financed by Loan Tranche B having executed an
Accession Agreement.
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4.3 FURTHER CONDITIONS PRECEDENT. The obligation of
the Lenders to make either Loan Advance available to the
Borrowers shall be expressly and separately from the
foregoing conditional upon, on the relevant Drawdown Date:
(a) the Agent having received a Drawdown Notice in
accordance with the terms of Clause 3.2;
(b) the representations stated in Clause 2
(updated MUTATIS MUTANDIS to such date) being true and
correct as if made on that date;
(c) no Event of Default having occurred and being
continuing and no event having occurred and being continuing
which, with the giving of notice or lapse of time, or both,
would constitute an Event of Default;
(d) the Lenders being satisfied that no Event of
Default will arise following the drawdown of the Loan
Tranche in question by reason of the drawdown of the Loan
Tranche and that no event or state of affairs exists which
constitutes, in the reasonable opinion of the Lenders, a
material risk that it will be unlawful or impossible for the
Borrowers or the Guarantor, or any other of the parties
thereto to make any payment or perform any material
obligation as required under the terms of this Agreement,
the Note and the Security Documents to which it is a party
or any of them; and
(e) there having been no material adverse change
in the financial condition of the Guarantor since the date
hereof.
5 REPAYMENT AND PREPAYMENT
5.1 REPAYMENT. The Borrowers shall repay the principal
amount of Tranche A of the Loan with interest thereon in
fourteen (14) consecutive semiannual installments on the
Repayment Dates, the first thirteen of which shall be in the
principal amount of Five Million Five Hundred Eighty-Five
Thousand Dollars ($5,585,000) and the fourteenth and last
installment shall be in the principal amount of Twenty Seven
Million Three Hundred Ninety-Five Thousand Dollars
($27,395,000). The Borrowers shall repay the principal
amount of Tranche B of the Loan in consecutive semiannual
installments with interest commencing on the Repayment Date
following the Drawdown Date for Tranche B of the Loan. The
amount of the installment of Tranche B of the Loan due on
the Maturity Date shall be an amount equal to twenty-seven
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and one-half percent (27.5%) of the original principal
amount of Tranche B, the amount of each of the installments
preceding the Maturity Date shall be an equal amount to
seventy-two and one-half percent (72.5%) of the original
principal amount of Tranche B of the Loan divided by the
number of Repayment Dates (excluding the Maturity Date)
remaining following the Drawdown Date for Tranche B.
5.2 VOLUNTARY PREPAYMENT. The Borrowers may prepay,
upon five (5) Banking Days written notice (which notice
shall be irrevocable), on the last day of any Interest
Period applicable to the Loan or the portion thereof to be
prepaid, the Loan or any portion thereof, without penalty.
Each prepayment shall be in a minimum amount of Five Million
Dollars ($5,000,000) plus any One Million Dollar
($1,000,000) multiples thereof or the full amount of the
Loan.
5.3 MANDATORY PREPAYMENTS. Upon the sale, Total Loss
or other disposition of any Vessel, or upon the release of a
Borrower from its obligations hereunder pursuant to Clause
9.4 hereof the Borrowers shall, upon payment to or on behalf
of a Borrower or any Affiliate thereof of the proceeds of
such sale, Total Loss or other disposition or, in the case
of a release as aforesaid, on the last day of the Interest
Period following a Borrower's request for such release,
prepay the Loan, in part and without penalty, in an amount
equal to the net sales proceeds of any such sales or the FMV
of the Vessel or Vessels subject to any other disposition,
release or Total Loss PROVIDED THAT, if the aggregate of the
FMV of the remaining Vessels is more than 150% of the
outstanding principal amount of the Loan, after giving
effect to the reduction by the net sales proceeds or FMV, as
the case may be, the Loan shall be reduced by only 50% of
such net sales proceeds or FMV, as the case may be.
5.4 APPLICATION OF PREPAYMENTS. Any prepayments of the
Loan made hereunder (including, without limitation, those
made pursuant to Sections 5.2, 5.3 and 9.3) shall be subject
to the condition that:
(a) any partial prepayment made shall be applied
PRO RATA in or towards satisfaction of the
remaining installments of the Loan;
(b) any amounts prepaid shall not be available for
re-borrowing; and
(c) on the date of any prepayment all accrued
interest to the date of such prepayment shall
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be paid in full with respect to the portion of
the principal being prepaid, together with any
and all actual costs or expenses incurred by
any Lender in connection with any breaking of
funding (as certified by such Lender, which
certification shall, absent any manifest
error, be conclusive and binding on the
Borrower).
5.5 OPTIONAL CANCELLATION OF LOAN TRANCHE B. The
Borrowers shall have the right at any time to request,
without penalty, on three (3) days written notice to the
Agent, the permanent cancellation of their right to draw
down Loan Tranche B.
6 INTEREST AND RATE
6.1 INTEREST RATE; DEFAULT RATE. The Loan shall bear
interest at the Applicable Rate, which shall be the rate per
annum equal to the aggregate of (a) LIBOR for the applicable
Interest Period and (b) the Margin. Any amounts due under
this Agreement, not paid when due, whether on a Repayment
Date, by acceleration or otherwise, shall bear interest
thereafter at the Default Rate.
6.2 INTEREST PERIODS. The Borrowers may select
Interest Periods of one, three or six months, or such other
period as selected by the Guarantor on behalf of the
Borrowers which is available to, and accepted by the Lenders
for purposes of funding the Loan , PROVIDED, HOWEVER, that
at all times the Borrower must select an Interest Period for
a portion of the Loan to allow the installments to be met on
each Repayment Date; PROVIDED, FURTHER, that the initial
Interest Period for Tranche B of the Loan shall commence on
the Drawdown Date of Tranche B of the Loan and end on the
last day of the then current interest period for Tranche A
of the Loan. The Guarantor, on behalf of the Borrowers,
shall provide the Agent with written notice specifying the
Interest Period selected by the Borrowers at least three (3)
Banking Days prior to the Drawdown Date and the end of any
then existing Interest Period. If at the end of any then
existing Interest Period the Borrowers, or the Guarantor on
their behalf, fail to give notice as aforesaid, the relevant
Interest Period shall be three (3) months.
6.3 INTEREST PAYMENTS. The Borrowers agree to pay
interest accrued on the Loan, in arrears, on the Interest
Payment Dates.
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6.4 CALCULATION OF INTEREST. All interest shall accrue
from day to day and be calculated on the actual number of
days elapsed over a three hundred sixty (360) day year.
7 PAYMENTS
7.1 PLACE OF PAYMENTS, NO SET OFF. (a) All payments to
be made hereunder by the Borrowers shall be made on the due
dates of such payments to the Agent at its office located at
200 Park Avenue, New York, New York 10166 or to such other
place as the Agent may direct, for the account of the
Lenders, without set-off or counterclaim and free from,
clear of and without deduction for, any Taxes, provided,
however, that if the Borrowers shall at any time be
compelled by law to withhold or deduct any Taxes from any
amounts payable to the Lenders hereunder, then, subject to
Clause 7.2, the Borrowers shall pay such additional amounts
in Dollars as may be necessary in order that the net amounts
received after withholding or deduction shall equal the
amounts which would have been received if such withholding
or deduction were not required and, in the event any
withholding or deduction is made, whether for Taxes or
otherwise, the Borrowers shall promptly send to the Lenders
such documentary evidence with respect to such withholding
or deduction as may be required from time to time by the
Lenders. Notwithstanding the preceding sentence, the
Borrowers shall not be required to pay additional amounts or
otherwise indemnify the Lenders for or on account of:
(i) Taxes based on or measured by the overall
net income of any Lender or Taxes in the nature of franchise
taxes or taxes for the privilege of doing business imposed
by any jurisdiction or any political subdivision or taxing
authority therein unless such are imposed as a result of the
activities of the Borrowers within the relevant taxing
jurisdiction;
(ii) Taxes imposed by any jurisdiction or any
political subdivision or taxing authority therein on any
Lender that would not have been imposed but for such
Lender's being organized in or conducting business in or
maintaining a place of business in the relevant taxing
jurisdiction, or engaging in activities or transactions in
the relevant taxing jurisdiction that are unrelated to the
transactions contemplated by the Transaction Documents, but
only to the extent such Taxes are not imposed as a result of
the activities of any of the Borrowers within the relevant
taxing jurisdiction or the jurisdiction of any of the
Borrowers under the laws of the taxing jurisdiction;
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(iii) Taxes imposed on or with respect to a Lender
as a result of a transfer, sale, assignment, or other
disposition by such Lender of any interest in any
Transaction Document, any Note or any Vessel (other than a
transfer pursuant to an exercise of remedies upon an Event
of Default);
(iv) Taxes imposed on, or with respect to, a
transferee (or a subsequent transferee) of an original
Lender (and including as such a transferee a Lender whose
shares of stock have been transferred or the purchaser of a
participation in the Loan) to the extent of the excess of
such Tax over the amount of such Tax that would have been
imposed on, or with respect to, such original Lender had
there not been a transfer, sale, assignment or other
disposition of the shares of such Lender or a transfer,
sale, assignment or other disposition by such original
Lender of any interest in any Vessel, any Note or any
Transaction Document (in each case, other than any transfer
pursuant to the exercise of remedies as a result of an Event
of Default that shall have occurred and be continuing); or
(v) Taxes imposed on any Lender that would not
have been imposed but for any failure of such Lender to
comply with any return filing requirement or any
certification, information, documentation, reporting or
other similar requirement known to such Lender, if such
compliance is required to obtain or establish relief or
exemption from or reduction in such Taxes.
(b) In the event that any Borrower has actual
knowledge that the Borrowers are required to, or there
arises in any Borrower's reasonable opinion a substantial
likelihood that the Borrowers will be required to, pay an
additional amount or otherwise indemnify any Lender for or
on account of any Tax pursuant to Clause 7.1(a), the
Borrower will promptly notify the Agent and each relevant
Lender of the nature of such Tax, and shall furnish such
information to the Agent and such Lender with respect to
such Tax, as the Agent or such Lender may reasonably
request. In the event of any knowledge or opinion of a
Borrower described in the preceding sentence, the Borrowers,
the Agent and each relevant Lender shall consult in good
faith to determine what may be required to avoid or reduce
such Tax, and shall each use reasonable efforts to avoid or
reduce such Tax (so long as such efforts do not, in the
reasonable opinion of the relevant Lender, result in any
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cost to such Lender or any modification of the terms or
repayment of the Loan).
7.2 TAX CREDITS. If any Lender obtains the benefit of
a credit against its liability for Taxes imposed by any
taxing authority for all or part of the Taxes as to which
the Borrowers have paid additional amounts as aforesaid then
such Lender shall reimburse the Borrowers for the amount of
the credit so obtained. Each Lender shall use reasonable
efforts in filing such tax return as are necessary to obtain
any such credit. In connection therewith, the Lenders may
consult with their legal advisers, all fees and expenses of
which shall be for the account of the Borrowers.
8 EVENTS OF DEFAULT
8.1 In the event that any of the following events shall
occur and be continuing:
(a) REPAYMENTS. Any principal or interest payment
due hereunder, under the Note or under any of the Security
Documents is not paid on the due date; or
(b) OTHER PAYMENTS. Any fees or other amount
becoming payable to the Agent, the Security Trustee or the
Lenders under this Agreement, under the Note, or under any
of the Security Documents or under any of them is not paid
on the due date or within three (3) Banking Days after the
date of demand (as the case may be); or
(c) REPRESENTATIONS, etc. Any representation,
warranty or other statement made by the Borrower, the
Guarantor or Palm Shipping in this Agreement or in any of
the Security Documents to which it is a party or in any
other instrument, document or other agreement delivered in
connection herewith or therewith proves to have been untrue
or misleading in any material respect as at the date as of
which made; or
(d) IMPOSSIBILITY, ILLEGALITY. It becomes
impossible or unlawful for the Borrowers, the Guarantor,
Palm Shipping or any of them to fulfill any of the covenants
and obligations contained herein, in the Note or in any of
the Security Documents to which it is a party or for the
Agent, the Security Trustee or the Lenders to exercise any
of the rights vested in any of them hereunder, under the
Note or under any of the Security Documents and such
impossibility or illegality, in the reasonable opinion of
the Agent, the Security Trustee or the Majority Lenders,
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will have a material adverse effect on their rights
hereunder, under the Note or under any of the Security
Documents or on their right to enforce any thereof; or
(e) COVENANTS. The Borrowers, the Guarantor or
Palm Shipping or any of them defaults in the performance of
any term, covenant or agreement contained in this Agreement,
in the Note or in any of the Security Documents to which
they are a party or in any of them, or in any other
instrument, document or other agreement delivered in
connection herewith or therewith, or there occurs any other
event which constitutes a default under this Agreement, the
Note or any of the Security Documents, in each case other
than an Event of Default referred to elsewhere in this
Clause 8.1, and such default, in the reasonable opinion of
the Majority Lenders, could have a material adverse effect
on their rights hereunder, under the Note or under any of
the Security Documents or on their right to enforce any
thereof and continues unremedied for a period of thirty (30)
days; or
(f) INDEBTEDENESS. The Borrowers, the Guarantor,
Palm Shipping or any Wholly Owned Subsidiary of the
Guarantor shall default in the payment when due (subject to
any applicable grace period), whether by acceleration or
otherwise, of any Indebtedness having an outstanding
principal amount of $5,000,000 or more or any party becomes
entitled to enforce the security for any such Indebtedness
and such party shall take steps to enforce the same, unless
such default or enforcement is being contested in good faith
and by appropriate proceedings or other acts and the
relevant Borrowers, the Guarantor, Palm Shipping or such
Wholly Owned Subsidiary of the Guarantor as the case may be,
shall set aside on its books adequate reserves with respect
thereto, and so long as such default or enforcement shall
not subject any Vessel to material risk of forfeiture or
loss; or
(g) STOCK OWNERSHIP. There is, without the prior
written consent of the Majority Lenders (i) any change in
the legal or beneficial stock ownership or the voting
control of the Borrowers or (ii) any pledge of the shares of
the Borrowers in favor of a party other than the Security
Agent or (iii) less than fifty-one percent (51%) of the
issued and outstanding shares of the Guarantor is held
beneficially and of record by the Cirrus Trust and the JTK
Trust; or
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(h) DEFAULT UNDER THE SECURITY DOCUMENTS. There
is an event of default under any of the Security Documents
which shall have occurred and be continuing; or
(i) BANKRUPTCY. The Borrowers, the Guarantor or
Palm Shipping commences any proceeding relating to any
substantial portion of its property under any
reorganization, arrangement or readjustment of debt,
dissolution, winding up, adjustment, composition, bankruptcy
or liquidation law or statute of any jurisdiction, whether
now or hereafter in effect ("Proceeding"), or there is
commenced against the Borrowers, the Guarantor or Palm
Shipping any Proceeding and such Proceeding remains
undismissed or unstayed for a period of thirty (30) days; or
any receiver, trustee, liquidator or sequestrator of, or
for, the Borrowers, the Guarantor or Palm Shipping or any
substantial portion of the property of any thereof is
appointed and is not discharged within a period of thirty
(30) days; or the Borrowers, the Guarantor or Palm Shipping
by any act indicates consent to or approval of or
acquiescence in any Proceeding or to the appointment of any
receiver, trustee, liquidator or sequestrator of, or for,
itself or any substantial portion of its property; or
(j) SALE OF ASSETS. The Borrowers, the Guarantor
or Palm Shipping ceases, or threatens to cease, its
operations or sells or otherwise disposes of, or threatens
to sell or otherwise dispose of, all or substantially all of
its assets or all or substantially all of its assets are
seized or otherwise appropriated; or
(k) JUDGMENTS. Any judgment or order is made the
effect whereof would be to render ineffective or invalid
this Agreement, the Note, the Security Documents or any of
them; or
(l) INABILITY TO PAY DEBTS. Any of the Borrowers,
the Guarantor or Palm Shipping is unable to pay or admits
its inability to pay its debts as they fall due or if a
moratorium shall be declared in respect of any Indebtedness
thereof; or
(m) FINANCIAL POSITION. Any change in the
financial position of the Guarantor which, in the reasonable
opinion of the Majority Lenders, is likely to have a
material adverse effect on the ability of the Borrowers, the
Guarantor or Palm Shipping to perform its material
obligations under this Agreement, the Note, the Security
Documents or the Charters; or
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(n) TERMINATION, AMENDMENT OR ASSIGNMENT OF
CHARTERS. Any of the Charters is terminated, materially
amended or modified or assigned without the prior written
consent of the Majority Lenders, or any party to any thereof
defaults or ceases to perform thereunder for any reason
whatsoever,
then the Lenders' obligation to make the Loan or either
Tranche thereof available shall cease and the Agent shall,
upon the instructions of the Majority Lenders, by notice to
the Borrowers, declare the then outstanding amount of the
Loan, accrued interest and any other sums payable by the
Borrowers hereunder, under the Note and under the Security
Documents to be immediately due and payable whereupon the
same shall forthwith be due and payable without presentment,
demand, protest or notice of any kind, all of which are
hereby expressly waived; PROVIDED that upon the happening of
an event specified in subclauses (i) or (l) of this
Clause 8.1, the Loan, accrued interest and any other sums
payable hereunder and under the Note shall be immediately
due and payable without declaration or other notice to the
Borrowers. In such event, the Lenders, the Agent and/or
Security Trustee may (i) proceed to protect and enforce
their rights by action at law, suit in equity or in
admiralty or other appropriate proceeding, whether for
specific performance of any covenant contained in this
Agreement, in the Note or in any of the Security Documents,
or to enforce the payment of the Note or to enforce any
other legal or equitable right of the Lenders, the Agent
and/or Security Trustee, or (ii) proceed to take any action
authorized or permitted under the terms of any of the
Security Documents or by applicable laws for the collection
of all sums due, or so declared due, on the Note, including,
without limitation, the right to appropriate and hold or
apply (directly, by way of set-off or otherwise) to the
payment of the obligations of the Borrowers to the Lenders,
the Agent and/or Security Trustee hereunder, under the Note
and/or under any of the Security Documents (whether or not
then due) all moneys and other amounts of the Borrowers,
then or thereafter in possession of the Lenders, the Agent
and/or Security Trustee, inclusive of the balance of any
deposit account (demand or time, matured or unmatured) of
the Borrowers, then or thereafter with the Lenders, the
Agent and/or Security Trustee.
8.2 INDEMNIFICATION. The Borrowers agree to, and
shall, indemnify and hold the Agent, the Security Trustee
and the Lenders harmless against any loss or costs or
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expenses (including legal fees and expenses) which the
Agent, the Security Trustee and the Lenders sustain or incur
as a consequence of any default in repayment of the
principal amount of the Loan or interest accrued thereon or
any other amount payable hereunder, under the Note or under
the Security Documents (other than costs and expenses caused
by the gross negligence or willful misconduct of the Agent,
the Security Trustee or any Lender) including, but not
limited to, all actual losses incurred in liquidating or
re-employing fixed deposits made by third parties or funds
acquired to effect or maintain the Loan or any part thereof.
The Agent's, Security Trustee's or Lenders' certification of
such costs and expenses shall, absent any manifest error, be
conclusive and binding on the Borrowers.
8.3 APPLICATION OF MONEYS. Except as otherwise
provided in any Security Document, all moneys received by
the Agent, Security Trustee or Lenders under or pursuant to
this Agreement, the Note or any of the Security Documents
after the happening of any Event of Default (unless cured to
the satisfaction of the Lenders) shall be applied by the
Agent in the following manner:
(i) first, in or towards the payment or reimburse-
ment of any expenses or liabilities incurred
by the Agent, the Security Trustee or the
Lenders in connection with the ascertainment,
protection or enforcement of its rights and
remedies hereunder, under the Note and under
any of the Security Documents,
(ii) secondly, in or towards payment of any
interest owing in respect of the Loan,
(iii) thirdly, in or towards repayment of principal
owing in respect of the Loan,
(iv) fourthly, in or towards payment of all other
sums which may be owing to the Agent, the
Security Trustee or the Lenders under this
Agreement, under the Note or under any of the
Security Documents, and
(v) fifthly, the surplus (if any) shall be paid to
the Borrowers or to whomsoever else may be
entitled thereto.
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9 COVENANTS
9.1 Each Borrower hereby covenants and undertakes with
the Lenders, the Agent and Security Trustee that, from the
date hereof and so long as any principal, interest or other
monies are owing in respect of this Agreement, the Note, the
Security Documents or any of them:
A. The Borrowers will each:
(i) PERFORMANCE OF AGREEMENTS. Duly perform and
observe, and procure the observance and
performance by all other parties thereto
(other than the Agent, the Security Trustee
and the Lenders) of, the terms of this
Agreement, the Note and the Security
Documents;
(ii) NOTICE OF DEFAULT; CHANGE IN CLASSIFICATION OF
VESSEL. Promptly inform the Agent of the
occurrence of (a) any Event of Default or of
any event which with the giving of notice or
lapse of time, or both, would constitute an
Event of Default, (b) the withdrawal of any
Vessel's rating by its classification society
or the issuance by the classification society
of any recommendation or notation affecting
class, (c) any litigation or governmental
proceeding pending or threatened against the
Borrowers, the Guarantor or Palm Shipping
which could reasonably be expected to have a
material adverse effect on the business,
assets, operations, property or financial
condition of any such party and (d) any other
event or condition of which it becomes aware
which is reasonably likely to have a material
adverse effect on its ability, or the ability
of any other party thereto, to perform its
obligations under this Agreement, the Note and
the Security Documents or any of them;
(iii) OBTAIN CONSENTS. Obtain every consent and do
all other acts and things which may from time
to time be necessary or advisable for the
continued due performance of all its and any
other party's (other than the Agent's, the
Security Trustee's or the Lenders') respective
obligations under this Agreement, the Note and
the Security Documents;
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(iv) FINANCIAL STATEMENTS. Deliver or cause to be
delivered to each of the Lenders:
(a) as soon as available but not later
than ninety (90) days after the end of each
fiscal year of the Guarantor complete copies
of the financial reports of the Guarantor
(together with a Compliance Certificate
substantially in the form of Exhibit K hereto,
signed by the Chief Financial Officer of the
Guarantor), on a consolidated basis, which
shall include at least the consolidated
balance sheet of the Guarantor as of the end
of such year and the related consolidated
statements of income, cash flow and retained
earnings for such year, all in reasonable
detail, certified by an Acceptable Accounting
Firm, together with their opinion (without
material qualifications) thereon;
(b) as soon as available but not later
than forty-five (45) days after the end of
each of the first three quarters of each
fiscal year of the Guarantor, balance sheets
of the Guarantor, on a consolidated basis, as
at the end of such quarter and the related
consolidated statements of income, cash flow
and retained earnings for such quarter, all in
reasonable detail, unaudited, but certified by
the chief financial officer of the Guarantor,
together, in each instance, with a Compliance
Certificate, signed by such chief financial
officer of the Guarantor;
(c) as soon as available, copies of all
reports, statements or other instruments filed
with the United States Securities and Exchange
Commission;
(d) such other statement or statements,
lists of property and accounts, budgets,
forecasts, reports and financial information
with respect to the operation and management
of the Vessels and any other vessels owned or
operated directly or indirectly by or the
Guarantor, as the Agent may from time to time
reasonably request;
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(v) CORPORATE EXISTENCE. Do or cause to be done,
and procure that the Guarantor and Palm
Shipping shall do or cause to be done, all
things necessary to preserve and keep in full
force and effect their respective corporate
existence, and all licenses, franchises,
permits and assets necessary to the conduct of
the business of each such corporation;
(vi) BOOKS, RECORDS, ETC. Keep, and procure that
the Guarantor and Palm Shipping shall keep,
proper books of record and account into which
full and correct entries shall be made, in
accordance with GAAP throughout the Facility
Period;
(vii) INSPECTION. Allow, and procure that the
Guarantor and Palm Shipping shall allow, any
representative or representatives designated
by the Agent or the Lenders, subject to
applicable laws and regulations, to visit and
inspect any of the properties of any such
party, and, on request, to examine the books
of account, records, reports and other papers
(and to make copies thereof and to take
extracts therefrom) of each such corporation
and to discuss the affairs, finances and
accounts of each such corporation, with the
officers and executive employees of each such
corporation all at such reasonable times and
as often as the Agent or such Lender
reasonably requests;
(viii) TAXES. Pay and discharge, and cause the
Guarantor and Palm Shipping to pay and
discharge, all taxes, assessments and
governmental charges or levies imposed upon
each such corporation or upon such
corporation's income or property prior to the
date upon which penalties attach thereto;
provided, however, that such corporations
shall not be required to pay and discharge, or
cause to be paid and discharged, any such tax,
assessment, charge or levy so long as the
legality or amount thereof shall be contested
in good faith and by appropriate proceedings
or other acts and it shall set aside on its
books adequate reserves with respect thereto,
and so long as such deferment in payment shall
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<PAGE> 40
not subject any Vessel to material risk of
forfeiture or loss;
(ix) COMPLIANCE WITH STATUTES, ETC. Do or cause to
be done, and procure that the Guarantor and
Palm Shipping shall do or cause to be done,
all things necessary to comply with all
material laws, and the rules and regulations
thereunder, applicable to the Borrowers, the
Guarantor and Palm Shipping and including,
without limitation, those laws, rules and
regulations relating to employee benefit plans
and environmental matters;
(x) ENVIRONMENTAL MATTERS. Promptly upon the
occurrence of any of the following conditions,
provide to the Agent a certificate of the
chief executive officer thereof, specifying in
detail the nature of such condition and the
Borrowers', the Guarantor's or Palm Shipping's
proposed response or the proposed response of
any Environmental Affiliate (as such term is
hereinafter defined) of any thereof, as the
case may be: (a) the Borrowers', the
Guarantor's or Palm Shipping's receipt or the
receipt by any Environmental Affiliate of any
thereof of any communication whatsoever that
alleges that such person is not in compliance
with any applicable environmental law or
environmental approval, if such noncompliance
could reasonably be expected to have a
material adverse effect on the business,
assets, operations, property or financial
condition of the Borrowers, the Guarantor or
Palm Shipping, (b) knowledge by the Borrowers,
the Guarantor or Palm Shipping or any
Environmental Affiliate of any thereof that
there exists any Environmental Claim pending
or threatened against any such person which
could reasonably be expected to have a
material adverse effect on the business,
assets, operations, property or financial
condition of the Guarantor or (c) any release,
emission, discharge or disposal of any
material that could form the basis of any
Environmental Claim against the Guarantor or
any Environmental Affiliate of any thereof if
such Environmental Claim could reasonably be
expected to have a material adverse effect on
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<PAGE> 41
the business, assets, operations, property or
financial condition of the Guarantor. Upon
the written request by the Agent, each
Borrower will submit, and procure that the
Guarantor and Palm Shipping shall submit, to
the Agent at reasonable intervals, a report
providing an update of the status of any issue
or claim identified in any notice or
certificate required pursuant to this
subclause. For the purposes of this
subclause, "Environmental Claim" shall mean
any claim under federal, state and local
environmental, health and safety laws,
statutes or regulations. "Environmental
Affiliate" shall mean any person or entity the
liability of which for Environmental Claims
the Borrowers, the Guarantor or Palm Shipping
may have assumed by contract or operation of
law;
(xi) ACCOUNTANTS. Retain throughout the Facility
Period an Acceptable Accounting Firm as its
independent certified accountants;
(xii) CONTINUE CHARTERS. Continue to charter the
Vessels to Palm Shipping for the entire
Facility Period, and ensure that the terms of
such Charters include, INTER ALIA, that the
payments of Palm Shipping to the Borrowers
under the Charters will, in the aggregate, be
sufficient to cover all payments of the
Borrowers under this Agreement and any
operating and other expenses of such Borrower;
(xiii) CLASS CERTIFICATE. Furnish, or cause to be
furnished, to the Agent, upon any change of a
Vessel's classification status or the issuance
of a recommendation affecting class by a
Vessel's classification society or upon the
Agent's reasonable request (to be made no more
than once in any calendar year), a
confirmation of class certificate covering
each Vessel and evidencing compliance with the
applicable provisions of the Mortgage thereon
within thirty (30) days of such change or such
request;
(xiv) MAINTENANCE OF PROPERTIES. Maintain, or cause
to be maintained, and keep, or cause to be
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<PAGE> 42
kept, and procure that the Guarantor and Palm
Shipping shall maintain, or cause to be
maintained, and keep, or cause to be kept, all
properties used or useful in the conduct of
its business in good condition, repair and
working order and supplied with all necessary
equipment and will cause to be made necessary
repairs, renewals and replacements thereof so
that the business carried on and in connection
therewith and every portion thereof may be
properly and advantageously conducted at all
times. In addition, each Borrower shall cause
its Vessel to be drydocked as often as
required by the Vessel's classification
society and as a prudent shipowner would
require;
(xv) VESSEL MANAGEMENT. Cause its Vessel to be
managed by the Manager or such ship manager
selected by the Borrowers and satisfactory to
the Majority Lenders pursuant to a written
management agreement acceptable to the
Majority Lenders (provided, however, that the
Lenders hereby agree to the management of the
ALLIANCE SPIRIT by Teekay Shipping Limited in
the event the Management Agreement for such
Vessel with Expedo Ship Management (Canada)
Ltd. is terminated for any reason);
(xvi) LIMITATION ON RESTRICTED PAYMENTS.
Procure that the Guarantor will not directly
or indirectly declare or pay any dividend or
make any distribution on its capital stock
(such payments being defined as "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 (the amount so expended,
if other than in cash, to be determined in
good faith by the Board of Directors, whose
determination shall be conclusive and be
evidenced by a Board Resolution) after
January 29, 1996 shall exceed the sum of
(1) 50% of the aggregate amount of the
Adjusted Consolidated Net Income (or if
Adjusted Consolidated Net Income is a loss,
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<PAGE> 43
minus one hundred percent (100%) of such
amount) of the Guarantor accrued on a
cumulative basis during the period (taken as
one accounting period) beginning February 1,
1996 and ending on the last day of the last
fiscal quarter preceding such date PLUS
(2) the aggregate net proceeds (including the
fair market value of non-cash proceeds as
determined in good faith by the Board of
Directors) received by the Guarantor
(including the amount of any dividends
reinvested in the capital stock of the
Guarantor) from the issuance and sale
permitted by the Indenture of capital stock of
the Guarantor (other than redeemable stock),
including an issuance or sale for cash or
other property upon the conversion of any
Indebtedness of the Guarantor subsequent to
the date hereof, or from the issuance of any
options, warrants or other rights to acquire
capital stock of the Guarantor (in each case,
exclusive of any redeemable stock or any
options, warrants or other rights that are
redeemable at the option of the holder, or are
required to be redeemed, prior to the Maturity
Date) PLUS (3) $50,000,000.
The foregoing provision shall not take into
account, and shall not be violated by reason
of:
(a) 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;
(b) the redemption, repurchase, defeasance or
other acquisition or retirement for value of
Indebtedness of the Guarantor that is
subordinated in right of payment of the Loan,
with the proceeds of, or in exchange for,
Indebtedness incurred under
Clause 9.1(B)(iii)(III);
(c) the repurchase, redemption or other
acquisition by the Guarantor of capital stock
of the Guarantor in exchange for, or out of
the proceeds of a substantially concurrent
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<PAGE> 44
offering of, shares of capital stock of the
Guarantor (other than redeemable stock);
(d) the acquisition by the Guarantor of its
Indebtedness that is subordinated in right of
payment to the Loan in exchange for or out of
the proceeds of, a substantial concurrent
offering of, shares of capital stock of the
Guarantor (other than redeemable shares);
(e) payments or distributions pursuant to or in
connection with a consolidation, merger or
transfer of assets that complies with the
applicable provisions herein; or
(f) 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 the foregoing
clauses (a) and (b), no Event of Default shall
have occurred and be continuing or occur as a
consequence of the actions or payments set
forth therein.
B. None of the Borrowers, without the prior
written consent of the Majority Lenders, will:
(i) LIENS. Create, assume or permit to exist any
mortgage, pledge, lien, charge, encumbrance or
any security interest whatsoever upon any of
such party's property or other assets, real or
personal, tangible or intangible, whether now
owned or hereafter acquired except:
(a) liens for taxes not yet payable for
which adequate reserves have been maintained;
(b) the Mortgages, the Assignments and
other liens in favor of the Security Trustee;
(c) liens, charges and encumbrances
against their respective Vessels permitted to
exist under the terms of the Mortgages;
(d) pledges of certificates of deposit
or other cash collateral securing the
44
<PAGE> 45
Borrowers' reimbursement obligations in
connection with letters of credit now or
hereafter issued for the account of the
Borrowers in connection with the establishment
of the financial responsibility of the
Borrowers under Title 33 Code of Federal
Regulations ("C.F.R.") Part 130 or Title 46
C.F.R. Part 540, as the case may be as the
same may be amended or replaced; and
(e) other liens, charges and
encumbrances incidental to the conduct of the
business of each such party or the ownership
of any such party's property and assets and
which do not in the aggregate materially
detract from the value of each such party's
property or assets or materially impair the
use thereof in the operation of its business;
(ii) LOANS AND ADVANCES. Make any loans or
advances to, or any investments in any person,
firm, corporation, joint venture or other
entity (including, without limitation, any
loan or advance to any officer, director,
stockholder, employee or customer of any
company affiliated with the Borrowers or the
Guarantor) except for advances and investments
in the normal course of its business and loans
or advances to the Guarantor;
(iii) LIMITATION ON INDEBTEDNESS. (a) Incur, and
shall procure that neither the Guarantor nor
Palm Shipping will, incur any Indebtedness
excluding Indebtedness hereunder to the Agent,
the Security Trustee or the Lenders and
Indebtedness existing (or for which a written
commitment has been made on or before the date
hereof) on the date hereof; PROVIDED that the
Guarantor or any of its Subsidiaries 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 the
Guarantor would be greater than 2:1.
Notwithstanding the foregoing, the Guarantor
may incur each and all of the following:
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<PAGE> 46
(I) Indebtedness in an aggregate principal
amount such that the aggregate principal
amount of the Indebtedness of the
Guarantor outstanding immediately after
such incurrence does not exceed the
aggregate principal amount of
Indebtedness existing on the date hereof
plus $50,000,000;
(II) Indebtedness of the Guarantor to any
Wholly-Owned Subsidiary;
(III) Indebtedness issued in exchange for, or
the net proceeds of which are used to
refinance or refund, outstanding
Indebtedness of the Guarantor, other than
Indebtedness incurred under clauses (I)
or (V) of this paragraph and any
refinancings thereof, in an amount not to
exceed the principal amount so exchanged,
refinanced or refunded (plus premiums,
accrued and unpaid interest, fees and
expenses thereon);
(IV) Indebtedness (A) in respect of
performance, surety or appeal bonds
PROVIDED in the ordinary course of
business, (B) under Currency Agreements
and Interest Rate Agreements; provided
that, in the case of Currency Agreements
that relate to other Indebtedness, such
Currency Agreements do not increase the
Indebtedness of the obligor outstanding
at any time other than as a result of
fluctuations in foreign currency exchange
rates or by reason of fees, indemnities
and compensation payable thereunder, 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 the Guarantor pursuant to
such agreements, in any case incurred in
connection with the disposition of any
business, assets of the Guarantor and not
exceeding the gross proceeds therefrom,
other than Guarantees of Indebtedness
incurred by any Person acquiring all or
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<PAGE> 47
any portion of such business or assets of
the Guarantor for the purpose of
financing such acquisition;
(V) Indebtedness in connection with the
acquisition of any new Wholly-Owned
Subsidiary; PROVIDED that, with respect
to this clause 9.1(B)(iii)(a)(V), after
giving effect to the Incurrence thereof,
the Guarantor could incur at least $1.00
of Indebtedness pursuant to the first
paragraph of this Clause 9.1(B)(iii)(a);
and
(VI) Indebtedness of Palm Shipping incurred in
the ordinary course of the operation of
vessels or Indebtedness of Palm Shipping
to the Guarantor resulting from advances
to Palm Shipping by the Guarantor made in
the ordinary course of business;
(b) For purposes of determining any
particular amount of Indebtedness under this
Clause 9.1(B)(iii), guarantees or obligations
with respect to letters of credit supporting
Indebtedness otherwise included in the
determination of such particular amount shall
not be included. For purposes of determining
compliance with this Clause, (i) in the event
that an item of Indebtedness meets the
criteria of more than one of the types of
Indebtedness described above in this Clause,
the Guarantor, in its sole discretion, shall
classify such item of Indebtedness and only be
required to include the amount and type of
such Indebtedness in one of such clauses and
(ii) the amount of Indebtedness issued at a
price that is less than the principal amount
thereof shall be equal to the amount of the
liability in respect thereof determined in
conformity with GAAP. Notwithstanding any
other provision of this Clause, the maximum
amount of Indebtedness that the Guarantor may
incur pursuant to this Clause shall not be
deemed to be exceeded due solely to
fluctuations in the exchange rates of
currencies.
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(c) The Guarantor shall not incur any
Indebtedness that is expressly subordinated to
any other Indebtedness of the Guarantor 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 Indebtedness of the
Guarantor under the Guaranty.
(iv) GUARANTEES, ETC. Assume, guarantee or (other
than in the ordinary course of its business)
endorse or otherwise become or remain liable,
in connection with any obligation of any
person, firm, company or other entity except
for guaranties in favor of the Lenders or the
Security Trustee on behalf of the Lenders;
(v) CHANGES IN BUSINESS. Change the nature of its
business or commence any other business;
(vi) USE OF CORPORATE FUNDS. Pay out any funds to
any company or person except (a) in the
ordinary course of business in connection with
the management of the business of the
Borrowers and the Guarantor, including the
operation and/or repair of the Vessels and
(b) the servicing of the indebtedness to the
Lenders;
(vii) ISSUANCE OF SHARES. Issue or dispose of any
shares of its own capital stock to any person;
(viii) CONSOLIDATION, MERGER. Consolidate with, or
merge into any corporation;
(ix) CHANGES IN OFFICES OR NAMES. Change the
location of the chief executive office of the
Borrowers or the Guarantor, the office of the
chief place of business any such parties, the
office of the Borrowers in which the records
relating to the earnings or insurances of the
Vessels are kept unless the Lenders shall have
received thirty (30) days prior written notice
of such change;
(x) LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS
AND AFFILIATES. None of the Borrowers will
and will procure that neither the Guarantor
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<PAGE> 49
nor Palm Shipping will, directly or indirectly
enter into, renew or extend any transaction
(including, without limitation, the purchase,
sale, lease or exchange of property or assets,
or the rendering of any service) 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 the Guarantor or
with any Affiliate of the Guarantor, except
upon fair and reasonable terms no less
favorable to the Borrowers, the Guarantor or
Palm Shipping, than could be obtained, at the
time of such transaction or series of related
transactions or at the time of the execution
of the agreement providing therefor, in a
comparable arm's-length transaction with a
Person that is not such a holder or Affiliate.
The foregoing limitation does not limit, and
shall not apply to:
(a) transactions or series of related transactions
(I) approved by a majority of the
disinterested members of the Board of
Directors as fair to the Borrowers, the
Guarantor or Palm Shipping, or (II) for which
the Borrowers, the Guarantor or Palm Shipping,
as the case may be, delivers to the Agent a
written opinion of a nationally recognized
investment banking firm stating that the
transaction is fair to the Borrowers, the
Guarantor or Palm Shipping, as the case may
be, from a financial point of view;
(b) the payment of reasonable and customary
regular fees to directors of the Borrowers,
the Guarantor or Palm Shipping, who are not
employees of the Borrowers, the Guarantor or
Palm Shipping; or
(c) any Restricted Payments not prohibited by
Clause 9.1(A)(xvi); or
(xi) CHANGE OF FLAG. Change the flag of any Vessel
or the management of such Vessel; or
(xii) SALE OF VESSEL. Sell, transfer or otherwise
dispose of a Vessel; or
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(xiii) MODIFICATION OF AGREEMENTS. Except as
contemplated by this Agreement, amend, modify
or otherwise change, or allow the Guarantor or
Palm to amend, modify or change, any of the
Transaction Documents to which they are
parties.
9.2 VALUATION OF THE VESSELS. The aggregate fair market
value ("FMV") of the Vessels during the Facility Period
shall be greater than or equal to: (1) for the first two
years of the Facility Period, a minimum of 120% of the Loan
during such period, (2) for the third and fourth year of the
Facility Period, a minimum of 130% of the Loan during such
period and (3) for the fifth year of the Facility Period and
up to the Maturity Date, a minimum of 140% of the Loan
during such period (the "Relevant Percentages"). The FMV of
each Vessel shall be determined at the Agents discretion,
but no less frequently than annually, on the basis of a
valuation (the "Valuation") provided by the Agent. In the
event the Majority Lenders or the Borrowers disagree with
the Agent's Valuation, then the Borrowers and the Agent
shall each obtain a separate valuation (the "Additional
Valuations") from separate independent shipbrokers, and the
FMV shall be determined to be the arithmetic average of the
Additional Valuations. The cost of all Additional
Valuations obtained hereunder shall be for the account of
the Borrowers.
9.3 COLLATERAL MAINTENANCE. If the FMV of the Vessels,
as determined pursuant to Clause 9.2 falls below the
Relevant Percentages, within a period of ten (10) Banking
Days following receipt by the Borrowers of written notice
from the Agent notifying the Borrowers of such shortfall and
specifying the amount thereof (which amount shall, in the
absence of manifest error, be deemed to be conclusive and
binding on the Borrowers) (a) the Borrowers shall deliver to
the Agent, upon its request, additional collateral
satisfactory to the Lenders, in their sole discretion
(including the deposit of cash in a cash collateral account
maintained with the Agent), such that (x) the sum of (i) the
value of the Vessels, as determined in accordance with the
latest valuation delivered pursuant to Clause 9.2, plus
(ii) the value of additional collateral other than cash
collateral, such value to be determined by the Lenders when
divided by (y) the Loan (less any cash collateral held by
the Agent in a cash collateral account) shall be equal to or
greater than the Relevant Percentage of the Loan or (b) the
Borrowers shall prepay the Loan or part thereof (together
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with interest thereon) as shall result in the FMV of the
Vessels being not less than the Relevant Percentage of the
Loan.
9.4 RELEASE OF VESSELS. So long as no Event of Default
or event which, but for the giving of notice of passage of
time or both, would constitute an Event of Default has
occurred and is continuing, the Guarantor or the Borrowers
may request that a Borrower be released from its obligations
hereunder and in connection herewith and that its Vessel be
released from the lien of the Mortgage thereon and the
Lenders agree to take all steps necessary to effect such
release; PROVIDED, HOWEVER, that as a condition precedent
thereto the Borrowers shall prepay prior to or simultaneous
with such release such part of the Loan as shall be
necessary to comply with Clause 5.3 hereof and PROVIDED,
FURTHER, that no such request shall be effective unless made
in writing to the Agent no fewer than fifteen (15) days
prior to the end of the then current Interest Period.
9.5 SUBSTITUTION OF VESSELS. So long as no Event of
Default or event which, but for the giving of notice or
passage of time or both, would constitute an Event of
Default has occurred and is continuing, the Guarantor or the
Borrowers may substitute a vessel (which vessel may be owned
by a Borrower made a party hereto pursuant to an Accession
Agreement) for a Vessel provided that such substitute vessel
(and, if applicable, Borrower) is approved by the Lenders
(which approval shall not be unreasonably withheld) and such
substitute vessel meets all of the following
characteristics, and the owner of such vessel meets all of
the following conditions, as the case may be:
(i) an Aframax tanker between 75,000 and 115,000
dead weight tons
(ii) built in or after 1988 but in no event more
than two years older than the Vessel sold or
released;
(iii) complies with requirements of Clause 4.1(b)
hereof;
(iv) has, at the time of substitution, a FMV
greater than or equal to the FMV of the Vessel
for which it is substituted; and
(v) the owner of the substitute Vessel has, if
relevant, executed an Accession Agreement and
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has executed a counterpart of the Note, a
Mortgage, an Assignment of Earnings and an
Assignment of Insurances and the Guarantor has
reaffirmed the Guaranty and the owner of the
substitute Vessel, as the case may be, has met
the conditions, updated MUTATIS MUTANDIS, of
Clauses 4.1(a), (b), (c), (e), (f), (g), (h),
(i) and (k).
9.6 INSPECTION AND SURVEY REPORTS. If the Lenders
shall so request, the Borrowers shall provide the Lenders
with copies of all internally generated inspection or survey
reports on the Vessels.
10 ASSIGNMENT
This Agreement shall be binding upon, and inure to
the benefit of, the Borrowers, the Agent, the Security
Trustee and the Lenders and their respective successors and
assigns, except that the Borrowers may not assign any of
their rights or obligations hereunder except as specifically
provided herein. The Lenders may, with the prior written
consent of the Borrowers (such consent not to be
unreasonably withheld) assign a portion of their rights and
obligations under this Agreement to any one or more
commercial lenders (the expenses of the Lenders in
connection with any such assignment shall be for their own
account), PROVIDED, HOWEVER, in the event of any such
assignment, such assignment is to be made pursuant to an
Assignment and Assumption Agreement substantially in the
form of Exhibit I hereto; and PROVIDED, FURTHER, that any
assignment hereunder shall be in a minimum amount of
$7,500,000 and increments of $2,500,000 (adjusted in each
case PRO RATA in increments of $100,000 for repayments or
prepayments of the Loan made hereunder but in no event less
than $5,000,000). The Borrowers will take all reasonable
actions requested by the Lenders to effect such assignment,
including, without limitation, the execution of a written
consent to such Assignment and Assumption Agreement.
11 ILLEGALITY, INCREASED COST, NON-AVAILABILITY, ETC.
11.1. ILLEGALITY. In the event that by reason of any
change in any applicable law, regulation or regulatory
requirement or in the interpretation thereof any of the
Lenders reasonably concludes that it has become unlawful for
such Lender to maintain or give effect to its obligations as
contemplated by this Agreement, such Lender shall inform the
Agent and the Borrowers to that effect, whereafter the
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liability of such Lender to make its Commitment available
shall forthwith cease and the Borrowers shall be required to
prepay the then outstanding portion of such Lender's Loan
immediately in accordance with and subject to the provisions
of Clause 11.4. In any such event, but without prejudice to
the aforesaid obligations of the Borrowers to prepay the
Loan, the Borrowers and such Lender shall negotiate in good
faith with a view to agreeing on terms for making its
Commitment available from another jurisdiction or otherwise
restructuring the Loan on a basis which is not unlawful with
respect to such Lender and Agent shall use reasonable
efforts to replace such Lender with a lender for which the
making and performance of the Agreement would not be
illegal.
11.2 INCREASED COST. If any change in applicable law,
regulation or regulatory requirement or in the interpreta-
tion or application thereof by any governmental or other
authority, shall:
(i) change the basis of taxation (excluding any
change in the rate of any Tax) to any of the
Lenders of payments of principal or interest
or any other payment due or to become due
pursuant to this Agreement (other than a
change in taxation of the overall net income
of such Lender effected by the jurisdiction of
organization or the jurisdiction of the
principal place of business of such Lender,
the United States of America, the State or
City of New York or any governmental
subdivision or other taxing authority having
jurisdiction over the Lender (unless such
jurisdiction is asserted solely by reason of
the activities of any of the Borrowers) or
such other jurisdiction where the Loan may be
repayable), or
(ii) impose, modify or deem applicable any reserve
requirements or require the making of any
special deposits against or in respect of any
assets or liabilities of, deposits with or for
the account of, or loans by, the Lenders, or
(iii) impose on the Lenders any other condition
affecting the Loan or any part thereof, and
the result of the foregoing is either to
increase the cost to the Lenders of making
available or maintaining the Loan or any part
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thereof or to reduce the amount of any payment
received by the Lenders, then and in any such
case if such increase or reduction in the
opinion of the Lenders materially affects the
interests of the Lenders under or in
connection with this Agreement, then:
(a) the Agent shall notify the Borrowers
of the happening of such event,
(b) the Borrowers agree forthwith upon
demand to pay to the Agents, Security Trustee
or the Lenders such amount as the Agent
certifies to be necessary to compensate the
Agent, the Security Trustee or the Lenders for
such additional cost or such reduction, and
(c) any such demand as is referred to in
sub-clause (b) of this Clause 11.2 may be made
by the Agent at any time before or after any
repayment of the Loan.
11.3 DETERMINATION OF LOSSES. A certificate or deter-
mination notice of the Agent, as to any of the matters
referred to in this Clause 11 shall, absent manifest error,
be conclusive and binding on the Borrowers.
11.4 COMPENSATION FOR LOSSES. Where the Loan or a
portion thereof are to be prepaid by the Borrowers pursuant
to Clause 11.1 the Borrowers agree simultaneously with such
prepayment to pay to the Agent, the Security Trustee or the
Lenders all accrued interest to the date of actual payment
and all other sums payable by the Borrowers to the Agent,
the Security Trustee or the Lenders pursuant to this
Agreement without penalty or premium.
12 CURRENCY INDEMNITY
12.1 CURRENCY CONVERSION. If for the purpose of
obtaining or enforcing a judgment in any court in any
country it becomes necessary to convert into any other
currency (the "judgment currency") an amount due in Dollars
under this Agreement, the Note or any of the Security
Documents then the conversion shall be made, in the
discretion of the Lenders, at the rate of exchange
prevailing either on the date of default or on the day
before the day on which the judgment is given or the order
for enforcement is made, as the case may be (the "conversion
date"), provided that the Lenders shall not be entitled to
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recover under this clause any amount in the judgment
currency which exceeds at the conversion date the amount in
Dollars due under this Agreement, the Note and/or any of the
Security Documents.
12.2 CHANGE IN EXCHANGE RATE. If there is a change in
the rate of exchange prevailing between the conversion date
and the date of actual payment of the amount due, the
Borrowers shall pay such additional amounts (if any, but in
any event not a lesser amount) as may be necessary to ensure
that the amount paid in the judgment currency when converted
at the rate of exchange prevailing on the date of payment
will produce the amount then due under this Agreement, the
Note and/or any of the Security Documents in Dollars; any
excess over the amount due received or collected by the
Lenders shall be remitted to the Borrowers.
12.3 ADDITIONAL DEBT DUE. Any amount due from the
Borrowers under Clause 12.2 shall be due as a separate debt
and shall not be affected by judgment being obtained for any
other sums due under or in respect of this Agreement, the
Note and/or any of the Security Documents.
12.4. RATE OF EXCHANGE. The term "rate of exchange" in
this Clause 12 means the rate at which the Lenders in
accordance with their normal practices are able on the
relevant date to purchase Dollars with the judgment currency
and includes any premium and costs of exchange payable in
connection with such purchase.
13 FEES AND EXPENSES
13.1 COMMITMENT FEE. The Borrowers shall pay to such
Lender a commitment fee in the amount of .15% PER ANNUM of
the amount of such Lender's Commitment equal to the
available but undrawn amount of such Lender's Commitment
semi-annually in arrears commencing on the date hereof
through the Drawdown Date for Loan Tranche B or the date on
which such Loan Tranche is cancelled pursuant to Clause 5.5,
as the case may be. The Commitment Fee shall accrue from
day to day and be calculated on the actual number of days
elapsed and a three hundred sixty-five (365) day year.
13.2 AGENCY FEE. The Borrowers shall pay to the Agent
annually in advance during the Facility Period commencing on
the Drawdown Date for Loan Tranche A, an agency fee of
$12,000 PER ANNUM.
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13.3 ARRANGEMENT FEE. The Borrowers shall pay each
Lender on the Drawdown Date for each Loan Tranche an
arrangement fee equal to .30% of such Lender's respective
portion of such Loan Tranche.
13.4 EXPENSES. The Borrowers jointly and severally
agree, whether or not the transactions hereby contemplated
are consummated, on demand to pay, or reimburse the Agent,
the Security Trustee and the Lenders for their payment of,
the reasonable expenses of the Agent, the Security Trustee
and the Lenders incident to said transactions (and in
connection with any supplements, amendments, waivers or
consents relating thereto or incurred in connection with the
enforcement or defense of any of the Agent's, Security
Trustee's and Lenders' rights or remedies with respect
thereto or in the preservation of the Agent, the Security
Trustee's and the Lenders' priorities under the
documentation executed and delivered in connection
therewith) including, without limitation, all reasonable
costs and expenses of preparation, negotiation, execution
and administration of this Agreement and the documents
referred to herein, the reasonable fees and disbursements of
the Lenders' counsel in connection therewith, including
Seward & Kissel as well as the reasonable fees and expenses
of any independent appraisers, surveyors, engineers and
other consultants retained by the Agent, the Security
Trustee and the Lenders in connection with this transaction,
all reasonable costs and expenses, if
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any, in connection with the enforcement of this Agreement,
the Note and the Security Documents and stamp and other
similar taxes, if any, incident to the execution and
delivery of the documents (including, without limitation,
the Note) herein contemplated and to hold the Lenders free
and harmless in connection with any liability arising from
the nonpayment of any such stamp or other similar taxes.
Such taxes and, if any, interest and penalties related
thereto as may become payable after the date hereof shall be
paid immediately by the Borrowers to the Agent, the Security
Trustee or the Lenders, as the case may be, when liability
therefor is no longer contested by such party or parties or
reimbursed immediately by the Borrowers to such party or
parties after payment thereof (if the Agent, the Security
Trustee or the Lenders, at their sole discretion, chooses to
make such payment).
14 APPLICABLE LAW, JURISDICTION AND WAIVER
14.1 APPLICABLE LAW. This Agreement shall be governed
by, and construed in accordance with, the laws of the State
of New York.
14.2 JURISDICTION. Each of the Borrowers hereby
irrevocably submits to the jurisdiction of the courts of the
State of New York and of the United States District Court
for the Southern District of New York in any action or
proceeding brought against it by the Lenders under this
Agreement or under any document delivered hereunder and
hereby irrevocably agrees that service of summons or other
legal process on it may be served by registered mail
addressed thereto, c/o Watson, Farley & Williams, 380
Madison Avenue, New York, New York 10017. The service, as
herein provided, of such summons or other legal process in
any such action or proceeding shall be deemed personal
service and accepted by the Borrowers as such, and shall be
legal and binding upon the Borrowers for all the purposes of
any such action or proceeding. Final judgment (a certified
or exemplified copy of which shall be conclusive evidence of
the fact and of the amount of any indebtedness of the
Borrowers to the Lenders) against the Borrowers in any such
legal action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment.
The Borrowers will advise the Lenders promptly of any change
of address for the purpose of service of process.
Notwithstanding anything herein to the contrary, the Lenders
may bring any legal action or proceeding in any other
appropriate jurisdiction.
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14.3 WAIVER OF JURY TRIAL. IT IS MUTUALLY AGREED BY AND
AMONG THE BORROWERS, THE GUARANTOR, THE AGENT, THE SECURITY
TRUSTEE AND THE LENDERS THAT EACH OF THEM HEREBY WAIVES
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY ANY PARTY HERETO AGAINST ANY OTHER PARTY HERETO
ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS AGREEMENT, THE NOTE OR THE SECURITY
DOCUMENTS.
15. THE AGENT
15.1 APPOINTMENT OF AGENT. Each of the Lenders hereby
irrevocably appoints and authorizes the Agent (which for
purposes of this Clause 15 shall be deemed to include the
Agent acting in its capacity as Security Trustee pursuant to
Clause 16 hereof) to take such action as agent on its behalf
and to exercise such powers under this Agreement, the Note,
and the Security Documents as are delegated to the Agent by
the terms hereof and thereof. Neither the Agent nor any of
its directors, officers, employees or agents shall be liable
for any action taken or omitted to be taken by it or them
under this Agreement, the Notes, or the Security Documents
or in connection therewith, except for its or their own
gross negligence or willful misconduct.
15.2 DISTRIBUTION OF PAYMENTS. Whenever any payment is
received by the Agent from the Borrowers for the account of
the Lenders, or any of them, whether of principal or
interest on the Notes, commissions, fees under Clauses 13.2
and 13.4, or otherwise, it will thereafter cause to be
distributed on the same day if received before 11 a.m. New
York time, or on the next day if received thereafter, like
funds relating to such payment ratably to the Lenders
according to their respective Commitments, as the case may
be, in each case to be applied according to the terms of
this Agreement.
15.3 HOLDER OF INTEREST IN NOTE. The Agent may treat
each Lender as the holder of all of the interest of such
Lender in the Note, as the case may be, until written notice
of transfer, in form and substance satisfactory to the
Agent, signed by such Lender shall have been filed with the
Agent.
15.4 NO DUTY TO EXAMINE, ETC. The Agent shall not be
under a duty to examine or pass upon the validity,
effectiveness or genuineness of any of the Security
Documents or any instrument, document or communication
furnished pursuant to this Agreement or in connection
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therewith or in connection with any Security Document, and
the Agent shall be entitled to assume that the same are
valid, effective and genuine, have been signed or sent by
the proper parties and are what they purport to be.
15.5 AGENT AS LENDER. With respect to that portion of
the Loan made available by it, the Agent shall have the same
rights and powers hereunder as any other Lenders and may
exercise the same as though it were not the Agent, and the
term "Lender" or "Lenders" shall include the Agent in its
capacity as a Lender. The Agent and its affiliates may
accept deposits from, lend money to and generally engage in
any kind of business with the Borrower and the Guarantor as
if it were not the Agent.
15.6 (a) OBLIGATIONS OF AGENT. The obligations of the
Agent under this Agreement, under the Notes, and under the
Security Documents are only those expressly set forth herein
and therein.
(b) NO DUTY TO INVESTIGATE. The Agent shall not
at any time be under any duty to investigate whether an
Event of Default, or an event which with the giving of
notice or lapse of time, or both, would constitute an Event
of Default, has occurred or to investigate the performance
of this Agreement or any of the Security Documents by the
Borrowers or the Guarantor.
15.7 (a) DISCRETION OF AGENT. The Agent shall be
entitled to use its discretion with respect to exercising or
refraining from exercising any rights which may be vested in
it by, and with respect to taking or refraining from taking
any action or actions which it may be able to take under or
in respect of, this Agreement, the Note, and the Security
Documents, unless the Agent shall have been instructed by
the Majority Lenders to exercise such rights or to take or
refrain from taking such action; provided, however, that the
Agent shall not be required to take any action which exposes
the Agent to personal liability or which is contrary to this
Agreement or applicable law.
(b) INSTRUCTIONS OF MAJORITY LENDERS. The Agent
shall in all cases be fully protected in acting or
refraining from acting under this Agreement, under the Note,
under the Guaranty or under any Security Document in
accordance with the instructions of the Majority Lenders,
and any action taken or failure to act pursuant to such
instructions shall be binding on all of the Lenders.
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15.8 ASSUMPTION RE EVENT OF DEFAULT. Except as
otherwise provided in Clause 15.14 hereof, the Agent shall
be entitled to assume that no Event of Default, or event
which with the giving of notice or lapse of time, or both,
would constitute an Event of Default, has occurred and is
continuing, unless the Agent has been notified by the
Borrowers or the Guarantor of such fact, or has been
notified by a Lender that such Lender considers that an
Event of Default or such an event (specifying in detail the
nature thereof) has occurred and is continuing. In the
event that the Agent shall have been notified by the
Borrowers or any Lender in the manner set forth in the
preceding sentence of any Event of Default or of an event
which with the giving of notice or lapse of time, or both,
would constitute an Event of Default, the Agent shall notify
the Lenders and shall take action and assert such rights
under this Agreement under the Notes and under the Security
Documents as the Majority Lenders shall request in writing.
15.9 NO LIABILITY OF AGENT OR LENDERS. Neither the
Agent nor any of the Lenders shall be under any liability or
responsibility whatsoever:
(A) To the Borrowers or the Guarantor or any other
person or entity as a consequence of any failure or delay in
performance by, or any breach by, any other Lenders or any
other person of any of its or their obligations under this
Agreement or under any Security Document;
(B) To any Lender or Lenders, as a consequence of any
failure or delay in performance by, or any breach by, the
Borrowers or the Guarantor of any of their respective
obligations under this Agreement, under the Notes, or under
the Security Documents; or
(C) To any Lender or Lenders, for any statements,
representations or warranties contained in this Agreement,
in any Security Document or any Document or instrument
delivered in connection with the transaction hereby
contemplated; or for the validity, effectiveness,
enforceability or sufficiency of this Agreement, the Note,
or any Security Document or any document or instrument
delivered in connection with the transactions hereby
contemplated.
15.10 INDEMNIFICATION OF AGENT. The Lenders agree to
indemnify the Agent (to the extent not reimbursed by the
Borrowers or the Guarantor), pro rata according to the
respective amounts of their Commitments, from and against
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any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever (including
legal fees and expenses incurred in investigating claims and
defending itself against such liabilities) which may be
imposed on, incurred by or asserted against, the Agent in
any way relating to or arising out of this Agreement, the
Note, or any Security Document, any action taken or omitted
by the Agent thereunder or the preparation, administration,
amendment or enforcement of, or waiver of any provision of,
this Agreement, the Note, or any Security Document, except
that no Lenders shall be liable for any portion of such
liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements
resulting from the Agent's gross negligence or willful
misconduct.
15.11 CONSULTATION WITH COUNSEL. The Agent may consult
with legal counsel selected by it and shall not be liable
for any action taken, permitted or omitted by it in good
faith in accordance with the advice or opinion of such
counsel.
15.12 RESIGNATION. The Agent may resign at any time by
giving 60 days' written notice thereof to the Lenders and
the Borrowers. Upon any such resignation, the Lenders shall
have the right to appoint a successor Agent. If no
successor Agent shall have been so appointed by the Lenders
and shall have accepted such appointment within 60 days
after the retiring Agent's giving notice of resignation,
then the retiring Agent may, on behalf of the Lenders,
appoint a successor Agent which shall be a bank or trust
company of recognized standing. The appointment of any
successor Agent shall be subject to the prior written
consent of the Borrowers, such consent not to be
unreasonably withheld. After any retiring Agent's
resignation as Agent hereunder, the provisions of this
Clause 15 shall continue in effect for its benefit with
respect to any actions taken or omitted by it while acting
as Agent.
15.13 REPRESENTATIONS OF LENDERS. Each Lender represents
and warrants to each other Lender and the Agent that:
(i) In making its decision to enter into this Agreement
and to make its portion of the Loan available hereunder, it
has independently taken whatever steps it considers
necessary to evaluate the financial condition and affairs of
the Borrowers and the Guarantor, that it has made an
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independent credit judgment and that it has not relied upon
any statement, representation or warranty by any other
Lender or the Agent; and
(ii) So long as any portion of its Commitments remain
outstanding, it will continue to make its own independent
evaluation of the financial condition and affairs of the
Borrowers and the Guarantor.
15.14 NOTIFICATION OF EVENT OF DEFAULT. The Agent hereby
undertakes to promptly notify the Lenders, and the Lenders
hereby promptly undertake to notify the Agent and the other
Lenders, of the existence of any Event of Default which
shall have occurred and be continuing of which the Agent or
any Lender has actual knowledge.
16 APPOINTMENT OF SECURITY TRUSTEE
Each of the Lenders irrevocably appoints the Security
Trustee as security trustee on their respective behalf with
regard to the (i) security, powers, rights, titles, benefits
and interests (both present and future) constituted by and
conferred on the Lenders or any of them or for the benefit
thereof under or pursuant to this Agreement, the Note or any
Security Documents (including, without limitation, the
benefit of all covenants, undertakings, representations,
warranties and obligations given, made or undertaken to any
Lender in the Agreement, the Note or any Security Document),
(ii) all moneys, property and other assets paid or
transferred to or vested in any Lender or any agent of any
Lender or received or recovered by any Lender or any agent
of any Lender pursuant to, or in connection with, this
Agreement, the Note or the Security Documents whether from
any Borrower or the Guarantor or any other person and (iii)
all money, investments, property and other assets at any
time representing or deriving from any of the foregoing,
including all interest, income and other sums at any time
received or receivable by any Lender or any agent of any
Lender in respect of the same (or any part thereof). The
Security Trustee hereby accepts such appointment.
17 NOTICES AND DEMANDS
17.1 NOTICES. All notices, requests, demands and other
communications to any party hereunder shall be in writing
(including prepaid overnight courier, facsimile transmission
or similar writing) and shall be given to the Borrowers at
the address or telecopy number set out below and to the
Lenders, the Agent and the Security Trustee at their address
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and telecopy number set out below its name on the signature
pages hereto or at such other address or telecopy number as
such party may hereafter specify for the purpose by notice
to each other party hereto. Each such notice, request or
other communication shall be effective (i) if given by
telecopy, when such telecopy is transmitted to the telecopy
number specified in this Clause and telephonic confirmation
of receipt thereof is obtained or (ii) if given by mail,
prepaid overnight courier or any other means, when received
at the address specified in this Clause or when delivery at
such address is refused.
If to the Borrowers:
c/o Teekay Shipping Limited
6th Floor, Tradewinds Building
Bay Street, P.O. Box SS 6293
Nassau, Bahamas
Fax: (809) 328-7330
18 MISCELLANEOUS
18.1 TIME OF ESSENCE. Time is of the essence of this
Agreement but no failure or delay on the part of the Lenders
to exercise any power or right under this Agreement shall
operate as a waiver thereof, nor shall any single or partial
exercise by the Lenders of any power or right hereunder
preclude any other or further exercise thereof or the
exercise of any other power or right. The remedies provided
herein are cumulative and are not exclusive of any remedies
provided by law.
18.2 UNENFORCEABLE, ETC., PROVISIONS - EFFECT. In case
any one or more of the provisions contained in this Agree-
ment, in the Note or in any of the Security Documents would,
if given effect, be invalid, illegal or unenforceable in any
respect under any law applicable in any relevant
jurisdiction, said provision shall not be enforceable
against the Borrowers, but the validity, legality and
enforceability of the remaining provisions herein or therein
contained shall not in any way be affected or impaired
thereby.
18.3 REFERENCES. References herein to Clauses and
Schedules are to be construed as references to clauses of,
and schedules to, this Agreement.
18.4 FURTHER ASSURANCES. Each of the Borrowers agree
that if this Agreement, the Note or any of the Security
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Documents shall, in the reasonable opinion of the Lenders,
at any time be deemed by the Lenders for any reason
insufficient in whole or in part to carry out the true
intent and spirit hereof or thereof, it will execute or
cause to be executed such other and further assurances and
documents as in the opinion of the Lenders may be required
in order more effectively to accomplish the purposes of this
Agreement, the Note or any of the Security Documents.
18.5 PRIOR AGREEMENTS, MERGER. Any and all prior
understandings and agreements heretofore entered into
between the Borrowers, the Guarantor and Palm Shipping on
the one part, and the Agent, the Security Trustee or the
Lenders, on the other part, whether written or oral, are
superseded by and merged into this Agreement and the other
agreements (the forms of which are exhibited hereto) to be
executed and delivered in connection herewith to which the
Borrowers, the Guarantor and Palm Shipping, the Security
Trustee and/or Agent and/or the Lenders are parties, which
alone fully and completely express the agreements between
the Borrowers, the Guarantor, the Security Trustee, the
Agent and the Lenders.
18.6 JOINT AND SEVERAL OBLIGATIONS. The obligations of
the Borrowers under this Agreement and under each provision
hereof are joint and several whether or not so specified in
any provision hereof. Each Borrower shall be entitled to
rights of contribution as against the other Borrower,
provided, however, that such rights of contribution shall
(a) not in any way condition or lessen the liability of any
Borrower as a joint and several borrower for the whole of
the obligations owed to the Lenders hereunder, under the
Note or under the Security Documents and (b) be fully
subject and subordinate to the rights of the Lenders
hereunder, under the Note and under the Security Documents.
18.7 LIMITATION OF LIABILITY. Notwithstanding anything
to the contrary contained in this Agreement, the Note or any
of the other Security Documents, in the event that any court
or other judicial body of competent jurisdiction determines
that legal principles of fraudulent conveyances, fraudulent
transfers or similar concepts are applicable in evaluating
the enforceability against any particular Borrower or its
assets of this Agreement, the Note or any Security Document
granted by such Borrower as security for its obligations
hereunder and that under such principles, this Agreement,
the Note or such Security Documents would not be enforceable
against such Borrower or its assets unless the following
provisions of this Clause 18.7 had effect, then, the maximum
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liability of each Borrower hereunder (the "Maximum Liability
Amount") shall be limited so that in no event shall such
amount exceed the lesser of (i) the Indebtedness and (ii) an
amount equal to the aggregate, without double counting, of
(a) ninety-five percent (95%) of the such Borrower's
Adjusted Net Worth (as hereinafter defined) on the date
hereof, or on the date enforcement of this Agreement is
sought (the "Determination Date"), whichever is greater, (b)
the aggregate fair value of such Borrower's Subrogation and
Contribution Rights (as hereinafter defined) and (c) the
amount of any Valuable Transfer (as hereinafter defined) to
such Borrower, provided that such Borrower's liability under
this Agreement shall be further limited to the extent, if
any, required so that the obligations of such Borrower under
this Agreement shall not be subject to being set aside or
annulled under any applicable law relating to fraudulent
transfers or fraudulent conveyances. In determining the
limitations, if any, on the amount of any of such Borrower's
obligations hereunder pursuant to the preceding sentence,
any rights of subrogation or contribution (collectively the
"Subrogation and Contribution Rights") which such Borrower
may have on the Determination Date with respect to any other
guarantor of the Indebtedness under applicable law shall be
taken into account. As used in this Clause 18.7,
"Indebtedness" of the Borrower shall mean, all of the
Borrower's present or future indebtedness whether for
principal, interest, fees, expenses or otherwise, to the
Lenders under this Agreement and the Security Documents. As
used herein "Adjusted Net Worth" of the respective Borrower
shall mean, as of any date of determination thereof, an
amount equal to the lesser of (a) an amount equal to the
excess of (i) the amount of the present fair saleable value
of the assets of such Borrower over (ii) the amount that
will be required to pay such Borrower's probable liability
on its then existing debts, including contingent
liabilities, as they become absolute and matured, and (b) an
amount equal to (i) the excess of the sum of such Borrower's
property at a fair valuation over (ii) the amount of all
liabilities of such Borrower, contingent or otherwise, as
such terms are construed in accordance with applicable laws
governing determinations of the insolvency of debtors. In
determining the Adjusted Net Worth of such Borrower for
purposes of calculating the Maximum Liability Amount for
such Borrower, the liabilities of such Borrower to be used
in such determination pursuant to each clause (ii) of the
preceding sentence shall in any event exclude (a) the
liability of such Borrower under this Agreement and the
Security Documents to which it is a party, (b) the
liabilities of such Borrower subordinated in right of
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payment to this Agreement and (c) any liabilities of such
Borrower for Subrogation and Contribution Rights to any of
the other guarantors. As used herein "Valuable Transfer"
shall mean, in respect of such Borrower, (a) all loans,
advances or capital contributions made to such Borrower with
proceeds of the Loan, (b) all debt securities or other
obligations of such Borrower acquired from such Borrower or
retired by such Borrower with proceeds of the Loan, (c) the
fair market value of all property acquired with proceeds of
the Loan and transferred, absolutely and not as collateral,
to such Borrower, (d) all equity securities of such Borrower
acquired from such Borrower with proceeds of the Loan, and
(e) the value of any other economic benefits in accordance
with applicable laws governing determinations of the
insolvency of debtors, in each such case accruing to such
Borrower as a result of the Loan and this Agreement.
18.8 ENTIRE AGREEMENT; AMENDMENTS. This Agreement
constitutes the entire agreement of the parties hereto
including all parties added hereto pursuant to an Assignment
and Assumption Agreement. This Agreement may be executed in
any number of counterparts, each of will shall be deemed an
original, but all such counterparts together shall
constitute one and the same instrument. Any provision of
this Agreement may be amended or waived if, but only if,
such amendment or waiver is in writing and is signed by the
Borrowers and the Majority Lenders (and, if the rights or
duties of the Agent or the Security Trustee are affected
thereby, by the Agent or the Security Trustee, as
applicable); PROVIDED that no amendment or waiver shall,
unless signed by all the Lenders, (i) increase or decrease
the Commitment of any Lender or subject any Lender to any
additional obligation, (ii) reduce the principal of or rate
of interest on the Loan or any fees hereunder, (iii)
postpone the date fixed for any payment of principal of or
interest on the Loan or any fees hereunder or for any
termination of any Commitment, (iv) amend Section 10, (v)
waive any condition precedent to the making of the Loan,
(vi) release any collateral or (vii) amend or modify this
Section 18.8 or otherwise change the percentage of the
Commitments or of the aggregate unpaid principal amount of
the Loan, or the number or category of Lenders, which shall
be required for the Lenders or any of them to take any
action under this Clause or any other provision of this
Agreement.
18.9 HEADINGS. In this Agreement, Clause headings are
inserted for convenience of reference only and shall not be
taken into account in the interpretation of this Agreement.
66
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IN WITNESS whereof the parties hereto have caused
this Agreement to be duly executed by their duly authorized
representatives as of the day and year first above written.
VSSI BOXSHIPS INC.
By /s/ Murray Flanigan
-------------------
Murray Flanigan
Attorney-in-Fact
KOBE SPIRIT INC.
By /s/ Murray Flanigan
-------------------
Murray Flanigan
Attorney-in-Fact
KYUSHU SPIRIT INC.
By /s/ Murray Flanigan
-------------------
Murray Flanigan
Attorney-in-Fact
SENTOSA SPIRIT INC.
By /s/ Murray Flanigan
-------------------
Murray Flanigan
Attorney-in-Fact
SERAYA SPIRIT INC.
By /s/ Murray Flanigan
-------------------
Murray Flanigan
Attorney-in-Fact
67
<PAGE> 68
COMMITMENTS
- ------------
$35,000,000 DEN NORSKE BANK ASA
as Agent, Security Trustee and Lender
Stranden 21
0150 Oslo
Norway
Attention:
Telephone:
Telecopy:
By /s/ Thomas Due
--------------
Thomas Due
Attorney-in-Fact
$30,000,000 NEDERLANDSE SCHEEPSHYPOTHEEKBANK N.V.
as Lender
405 Lexington Avenue, Suite 3102
New York, New York 10174
Telephone: (212)972-1801
Telecopy: (212)972-1805
Attention:
By /s/ Lawrence Rutkowski
----------------------
Lawrence Rutkowski
Attorney-in-Fact
68
<PAGE> 69
$27,500,000 THE BANK OF NEW YORK
as Lender
One Wall Street
New York, New York 10286
Telephone:
Telecopy:
Attention:
By /s/ Judith B. Tse
-----------------
Name: Judith B. Tse
Title: Vice President
$27,500,000 MIDLAND BANK PLC,
as Lender
Poultry
England
Telephone: 44-171-260-4422
Telecopy: 44-171-260-4381
Attention:
By /s/ H.C. Lutener
----------------
Name: H.C. Lutener
Title: Corporate Banking Manager
69
<PAGE> 70
CONSENT AND AGREEMENT
The undersigned, referred to in the foregoing Term
Loan Agreement as the "Guarantor", hereby consents and
agrees to said Agreement and to the documents contemplated
thereby and to the provisions contained therein relating to
conditions to be fulfilled and obligations to be performed
by the undersigned pursuant to or in connection with said
Agreement and agree particularly to be bound by the
representations, warranties and covenants relating to the
undersigned contained in Clauses 2 and 9 of said Agreement
to the same extent as if the undersigned were a party to
said Agreement.
TEEKAY SHIPPING CORPORATION
By /s/ John S. Osborne, Jr.
------------------------
John S. Osborne, Jr.
Attorney-in-fact
70
