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, 1999 .............
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)
4th Floor, Euro Canadian Centre, Marlborough Street &
Navy Lion Road, P.O. Box SS-6293, Nassau,
Commonwealth of 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
Common Stock, no par value per share
8.32% First Preferred Ship Mortgage Notes due 2008
Name of each exchange on which registered
New York Stock Exchange
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.
None
Indicate the number of outstanding shares of each of the issuer's classes
of capital or common stock as of the close of the period covered by the annual
report.
31,648,318 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]
TEEKAY SHIPPING CORPORATION
INDEX TO REPORT ON FORM 20-F
PART I Page
Item 1. Description of Business.......................... 3
Item 2. Description of Property.......................... 10
Item 3. Legal Proceedings................................ 12
Item 4. Control of Registrant........................... 12
Item 5. Nature of Trading Market..................... 12
Item 6. Exchange Controls and Other Limitations
Affecting Security Holders....................... 13
Item 7. Taxation......................................... 13
Item 8. Selected Financial Data.......................... 14
Item 9. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 16
Item 10. Directors and Officers of the Registrant......... 24
Item 11. Executive Compensation........................... 26
Item 12. Options to Purchase Securities From Registrant or
Subsidiaries..................................... 26
Item 13. Interest of Management in Certain Transactions... 27
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, Changes in Security for
Registered Securities and Use of Proceeds........ Not applicable
PART IV.
Item 17. Financial Statements............................. Not applicable
Item 18. Financial Statements............................. 28
Item 19. Financial Statements and Exhibits................ 28
Signature ................................................. 32
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 of tankers provides transportation
services to major oil companies, 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's fleet consists of 50 vessels: 46 Aframax oil tankers and
oil/bulk/ore carriers ("O/B/Os") (including two newbuildings on order and five
vessels time-chartered-in), three smaller oil tankers, and one Very Large Crude
Carrier ("VLCC"). The Company's vessels are all of Liberian, Singaporean,
Australian, Bahamian or Marshall Islands registry. The Company's fleet has a
total cargo capacity of approximately 5.0 million tonnes and its Aframax vessels
represent approximately 7.8% of the total tonnage of the world Aframax fleet.
The two newbuilding Aframax tankers are scheduled for delivery in July and
September 1999.
The Company's fleet is one of the most modern fleets in the world, with an
average age of approximately 8.0 years, compared to an average age for the world
oil tanker fleet, including Aframax tankers of approximately 14.0 years and for
the world Aframax tanker fleet of approximately 12.3 years. The Company has been
recognized by customers and rating services for safety, quality and service. For
example, in each of the last nine years, Tanker Advisory Center, Inc. (New York)
has rated the Company's fleet a "meritorious tanker fleet," a designation which,
in the latest publication (January 1999), placed it in the top 8% of all fleets
containing five or more tankers. Given the age profile of the world tanker
fleet, increasing emphasis by 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.
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. During fiscal 1999, approximately 70% of the Company's net voyage
revenues were derived from spot voyages or time charters and contracts of
affreightment priced on a spot market basis.
The Teekay organization was founded in 1973 to manage and operate oil
tankers. 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 40 new vessels and acquiring 32 vessels in
the second-hand market, as well as disposing of 27 older tankers over the past
seven years.
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 five key
competitive strengths: (i) market concentration in the Indo-Pacific Basin, which
facilitates comprehensive coverage of charterer requirements and provides a base
for efficient operation and a high degree of capacity utilization, (ii)
full-service marine operations capabilities and experienced management in all
functions critical to its operations, which affords a focused marketing effort,
tight quality and cost controls, improved capacity utilization and effective
operations and safety monitoring, (iii) a modern, high-quality fleet that
operates with high fuel efficiency and low maintenance and operating costs and
affords greater acceptance among charterers in an environment of increasingly
stringent operating and safety standards, (iv) a large, uniform-size fleet of
Aframax (75,000-115,000 dwt) tankers, many of which are in sister vessel series
(substantially identical vessels), which facilitates scheduling flexibility due
to vessel substitution opportunities, permitting greater responsiveness to
customer demands and enhanced capacity utilization, and which results in lower
operating costs than those experienced by smaller operators and (v) a strong
network of customer relationships and a reputation for transportation excellence
among quality-sensitive customers. As a result of its business strategy, the
Company has achieved consistently higher operating cash flow per vessel as
compared to an average of certain other publicly traded shipping companies. The
Company's growth strategy is to leverage its existing competitive strengths to
continue to expand its business. The Company anticipates that the continued
upgrade and expansion of its Aframax tanker business will continue to be a key
component of its strategy. In addition, the Company believes that its
full-service marine operations capabilities, reputation for safety and quality
and strong customer orientation provide it with the opportunity to expand its
business by providing additional value-added and innovative services, in many
cases to existing customers. Finally, the Company intends to identify expansion
opportunities in new tanker market segments, geographic areas and services to
which the Company's competitive strengths are well suited. The Company may
choose to pursue such opportunities through internal growth, joint ventures or
business acquisitions, including the acquisition of Bona Shipholding Ltd.
discussed below.
Teekay is incorporated under the laws of the Republic of Liberia and
maintains its principal executive headquarters at the 4th Floor, Euro Canadian
Centre, Marlborough Street & Navy Lion Road, 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 office is located at Suite 1400, One
Bentall Centre, 505 Burrard Street, Vancouver, British Columbia, Canada, V7X
1M5. Its telephone number at such address is (604) 683-3529.
Acquisition of Bona Shipholding Ltd.
On March 26, 1999, the Company entered into an amalgamation agreement (the
"Amalgamation Agreement") with Bona Shipholding Ltd. ("Bona") under which Teekay
will acquire Bona for a combination of cash and shares. Bona owns and operates a
fleet of 26 Aframax oil tankers and O/B/Os engaged in transportation of oil, oil
products, and dry bulk commodities, primarily in the Atlantic region. Shares of
Bona Common Stock ("Bona Shares") are listed on the Oslo Stock Exchange.
For the year ended December 31, 1998, Bona earned net voyage revenues of
$148.9 million resulting in income from vessel operations of $32.3 million and
net income of $16.6 million. As of December 31, 1998, Bona's shareholders'
equity was $254.9 million, total assets were $623.5 million, and total debt was
$356.0 million. In December 1998, Bona entered into a $500.0 million credit
facility, syndicated among a group of 15 leading international shipping banks.
The loan has a two-year drawdown period and will be repaid over an eight-year
period thereafter.
As the global oil industry is undergoing consolidation, tanker companies
are serving fewer but significantly larger customers who require their shipping
partners to provide more flexible and cost competitive services on a global
basis. The proposed transaction will create a combined entity which operates 81
vessels and which will be able to offer a global service to oil companies, oil
traders, and government agencies by combining Teekay's position in the
Indo-Pacific basin with Bona's Atlantic presence. The combined entity will be
the largest operator in the Aframax segment and will be approximately three
times larger than its nearest competitor in that segment. Management believes
that the combined entity will benefit from economies of scale and that cost
savings can be realized through a reduction in combined overhead costs,
increased purchasing power, and other operational efficiencies.
Under the terms of the Amalgamation Agreement, Teekay will purchase all of
the outstanding Bona Shares (18.9 million shares) for total consideration of
approximately $137.0 million. Bona shareholders have the right to elect to
receive for each Bona Share either $7.00 cash or 0.485 shares of Teekay Common
Stock ("Teekay Shares"). Under the terms of the Amalgamation Agreement, 70% of
Bona Shareholders elected to receive consideration in the form of Teekay Shares
(totalling 6.4 million Teekay Shares) and the remaining Bona Shareholders will
receive cash consideration totalling approximately $39.9 million. Teekay will
also assume Bona's debt of approximately $314.0 million net of cash acquired.
The transaction is expected to be completed by mid-June 1999.
Competition
International seaborne oil and other petroleum products transportation
services are provided by two main types of operators: captive fleets of major
oil companies (both private and state-owned) and independent ship owner fleets.
Many major oil companies and other oil trading companies, the primary charterers
of the vessels owned or controlled by the Company, also operate their own
vessels and transport their own oil as well as oil for third party charterers in
direct competition with independent owners and operators. Competition for
charters is intense and is based upon price, location, the size, age, condition
and acceptability of the vessel, and the vessel's manager. Competition in the
Aframax segment is also affected by the availability of other size vessels that
compete in the Company's markets. Suezmax (115,000 to 200,000 dwt) size vessels
and Panamax (50,000 to 75,000 dwt) size vessels can compete for many of the same
charters for which the Company competes. Because of their large size, 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 would 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 Neptune Orient Lines Ltd.
(owned partially by the Singapore government), with approximately 25 vessels,
Shell International Marine, a subsidiary of Royal Dutch/Shell Petroleum
Corporation, with approximately 22 vessels, trading globally (15 of which are on
charter), and Tanker Pacific Management which controls 15 vessels. Management
believes that it has significant competitive advantages in the Aframax tanker
market as a result of the age, quality, type and dimensions of its vessels and
its market share in the Indo-Pacific Basin. Some competitors of the Company,
however, may have greater financial strength and capital resources than the
Company.
As part of its growth strategy, the Company will continue to consider
strategic opportunities, including business acquisitions, such as the
acquisition of Bona. To the extent the Company enters new geographic areas or
tanker market segments, there can be no assurance that the Company will be able
to compete successfully therein. New markets may involve competitive factors
which differ from those of the Aframax market segment in the Indo-Pacific Basin
and may include participants which have greater financial strength and capital
resources than the Company. Teekay may not be able to integrate the Bona
acquisition or compete in the Atlantic market successfully subsequent to the
completion of the amalgamation.
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. Additional conventions, laws and regulations may be adopted which
could limit the ability of the Company to do business or increase the cost of
its doing business and which may have a material adverse effect on the Company's
operations. 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 many jurisdictions in which the Company's tanker
fleet operates, provide that (i) tankers between 25 and 30 years old must be of
double-hull construction or of a mid-deck design with double side construction,
unless they have wing tanks or double-bottom spaces, not used for the carriage
of oil, which cover at least 30% of the length of the cargo tank section of the
hull, or are capable of hydrostatically balanced loading which ensures at least
the same level of protection against oil spills in the event of collision or
stranding, (ii) tankers 30 years old or older 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 two of the Company's
vessels are 15 years or older, the oldest of such vessels is only 19 years old
and, therefore, the IMO requirements currently in effect regarding 25 and 30
year-old tankers will not affect the Company's fleet in the near future. Bona
owns ten vessels which are 15 years or older, the oldest of which is 18 years
old. 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.
The operation of the Company's vessels is also affected by the requirements
set forth in the IMO's International Management Code for the Safe Operation of
Ships and Pollution Prevention (the "ISM Code"). The ISM Code requires
shipowners and bareboat charterers to develop and maintain an extensive "Safety
Management System" that includes the adoption of a safety and environmental
protection policy setting forth instructions and procedures for safe operation
and describing procedures for dealing with emergencies. The failure of a
shipowner or bareboat charterer to comply with the ISM Code may subject such
party to increased liability, may decrease available insurance coverage for the
affected vessels, and may result in a denial of access to, or detention in,
certain ports. Currently, each of the Company's applicable vessels is ISM
code-certified. However, there can be no assurance that such certification will
be maintained indefinitely.
Environmental Regulations-The United States Oil Pollution Act of 1990 ("OPA
90"). OPA 90 established an extensive regulatory and liability regime for the
protection and cleanup of the environment from oil spills. OPA 90 affects all
owners and operators whose vessels trade to the United States or its territories
or possessions or whose vessels operate in United States waters, which include
the United States' territorial sea and its two hundred nautical mile exclusive
economic zone.
Under OPA 90, vessel owners, operators and bareboat (or "demise")
charterers are "responsible parties" and are jointly, severally and strictly
liable (unless the spill results solely from the act or omission of a third
party, an act of God or an act of war) for all containment and clean-up costs
and other damages arising from discharges or threatened discharges of oil from
their vessels. These other damages are defined broadly to include (i) natural
resources damages and the costs of assessment thereof, (ii) real and personal
property damages, (iii) net loss of taxes, royalties, rents, fees and other lost
revenues, (iv) lost profits or impairment of earning capacity due to property or
natural resources damage, (v) net cost of public services necessitated by a
spill response, such as protection from fire, safety or health hazards, and (vi)
loss of subsistence use of natural resources. OPA 90 limits the liability of
responsible parties to the greater of $1,200 per gross ton or $10 million per
tanker that is over 3,000 gross tons (subject to possible adjustment for
inflation). These limits of liability would not apply if the incident was
proximately caused by violation of applicable United States federal safety,
construction or operating regulations or by the responsible party's gross
negligence or willful misconduct, or if the responsible party fails or refuses
to report the incident or to cooperate and assist in connection with the oil
removal activities. The Company currently plans to continue to maintain for each
of its vessels pollution liability coverage in the amount of $700 million per
incident. 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 hull
construction. Only two of the Company's vessels are over 15 years old, and the
oldest of such vessels, the single-hulled Mendana Spirit, would not be
phased-out under the double-hull regulations until January 1, 2003.
Notwithstanding the phase-out 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 requires owners and operators of vessels to establish and maintain
with the United States Coast Guard (the "Coast Guard") evidence of financial
responsibility sufficient to meet their potential liabilities under OPA 90. In
December 1994, the Coast Guard implemented regulations requiring evidence of
financial responsibility in the amount of $1,500 per gross ton for tankers,
coupling the OPA limitation on liability of $1,200 per gross ton with the
Comprehensive Environmental Response, Compensation, and Liability Act liability
limit of $300 per gross ton. Under the regulations, such evidence of financial
responsibility may be demonstrated by insurance, surety bond, self-insurance, or
guaranty. Under OPA 90, an owner or operator of a fleet of tankers is required
only to demonstrate evidence of financial responsibility in an amount sufficient
to cover the tanker in the fleet having the greatest maximum 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 contractual defense that it
may have had against the responsible party and is limited to asserting those
defenses available to the responsible party and the defense that the incident
was caused by the willful misconduct of the responsible party. Certain
organizations, which had typically provided certificates of financial
responsibility under pre-OPA 90 laws, including the major protection and
indemnity organizations, declined to furnish evidence of insurance for vessel
owners and operators if they are subject to direct actions or required to waive
insurance policy defenses.
The Coast Guard's financial responsibility regulations may also be
satisfied by evidence of surety bond, guaranty or by self-insurance. Under the
self-insurance provisions, the ship owner or operator must have a net worth and
working capital, measured in assets located in the United States against
liabilities located anywhere in the world, that exceeds the applicable amount of
financial responsibility. The Company has complied with the Coast Guard
regulations by providing a financial guaranty from a related company evidencing
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.
Owners or operators of tankers operating in United States waters are
required to file vessel response plans with the Coast Guard, and their tankers
are required to operate in compliance with their Coast Guard approved plans.
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 has filed vessel response plans with the Coast Guard for the tankers
owned by the Company and has received approval of such plans for all vessels in
its fleet to operate in United States waters.
Environmental Regulation-Other Environmental Initiatives. The European
Union is considering legislation that will affect the operation of tankers and
the liability of owners for oil pollution. It is impossible to predict what
legislation, if any, may be promulgated by the European Union or any other
country or authority.
Although the United States is not a party thereto, many countries have
ratified and follow the liability scheme adopted by the IMO and set out in the
International Convention on Civil Liability for Oil Pollution Damage, 1969, as
amended (the "CLC"), and the Convention for the Establishment of an
International Fund for Oil Pollution of 1971, as amended. Under these
conventions, a vessel's registered owner is strictly liable for pollution damage
caused on the territorial waters of a contracting state by discharge of
persistent oil, subject to certain complete defenses. Approximately one-quarter
of the countries that have ratified the CLC have increased the liability limits
through a 1992 Protocol to the CLC. The liability limits in the countries that
have ratified this Protocol are currently approximately $4.0 million plus
approximately $566.0 per gross registered tonne above 5,000 gross tonnes with an
approximate maximum of $80.5 million, 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 under the CLC where the spill is caused by the owner's
actual fault or privity and, under the 1992 Protocol, where the spill is caused
by the owner's intentional or reckless conduct. Vessels trading to contracting
states must provide evidence of insurance covering the limited liability of the
owner. In jurisdictions where the CLC has not been adopted, various legislative
schemes or common law govern, and liability is imposed either on the basis of
fault or in a manner similar to the CLC.
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. More stringent environmental regulations at times in the past have
resulted in increased costs for, and may result in the lack of availability of,
insurance against the risks of environmental damage or pollution.
Operations Outside the United States
The operations of the Company are primarily conducted outside of the United
States and, therefore, may be affected by currency fluctuations and by changing
economic, political and governmental conditions in the countries where the
Company is engaged in business or where its vessels are registered. During the
fiscal year ended March 31, 1999, the Company derived approximately 85% 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 340 captains, chief engineers, chief
officers and first engineers, approximately 1,600 additional personnel at sea
and approximately 200 personnel ashore.
The Company places great emphasis on attracting, through its recruiting
offices in Manila, Glasgow, Sydney 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 and provides competitive benefits 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), and a Special Agreement with ITF London, which covers
substantially all of the Company's junior officers and seamen. The Collective
Bargaining Agreement and the Special Agreement did not result in any significant
increase in the levels of wages paid or benefits provided to members of the
vessel crews. The Company is also a party to Enterprise Bargaining Agreements
with three Australian maritime unions, covering officers and seamen. The time
charters covering the Australian vessels provide that increases in wages or
benefits for the Company's Australian-crewed vessels will be passed on to the
customer.
The Company has a cadet training program, the purpose of which is to
develop a cadre of future senior officers for the Company, with one specially
equipped vessel staffed with an instructor 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 tanker transportation trade. Three
customers, all international oil companies, individually accounted for 12%
($51,411,000), 12% ($50,727,000), and 10% ($42,797,000), respectively, of the
Company's consolidated voyage revenues during fiscal 1999. No more than one
customer accounted for more than 10% of the Company's consolidated voyage
revenues during fiscal 1998 or fiscal 1997. The revenues from these customers
accounted for 14% ($56,357,000) and 13% ($48,696,000) of the Company's
consolidated voyage revenues in fiscal 1998 and fiscal 1997, respectively.
Taxation of the Company
The legal jurisdictions of the countries in which the Company and the
majority of its subsidiaries are incorporated do not impose income taxes upon
shipping-related activities.
Item 2. Description of Property
The Company's Fleet
The following list provides information with respect to the Company's vessels
as at May 31, 1999.
<TABLE>
<CAPTION>
Year
Series/Yard Built Type Dwt-MT Flag
Aframax Tankers (44)
<S> <C> <C> <C> <C>
HAMANE SPIRIT.............. Onomichi 1997 DH 105,300 Bahamian
POUL SPIRIT................ Onomichi 1995 DH 105,300 Liberian
TORBEN SPIRIT.............. Onomichi 1994 DH 98,600 Bahamian
SAMAR SPIRIT............... Onomichi 1992 DH 98,600 Bahamian
LEYTE SPIRIT............... Onomichi 1992 DH 98,600 Bahamian
LUZON SPIRIT............... Onomichi 1992 DH 98,600 Bahamian
MAYON SPIRIT............... Onomichi 1992 DH 98,600 Bahamian
TEEKAY SPIRIT.............. Onomichi 1991 SH 100,200 Bahamian
PALMSTAR LOTUS............. Onomichi 1991 SH 100,200 Bahamian
PALMSTAR THISTLE........... Onomichi 1991 SH 100,200 Bahamian
PALMSTAR ROSE.............. Onomichi 1990 SH 100,200 Bahamian
PALMSTAR POPPY............. Onomichi 1990 SH 100,200 Bahamian
ONOZO SPIRIT............... Onomichi 1990 SH 100,200 Bahamian
PALMSTAR CHERRY............ Onomichi 1990 SH 100,200 Bahamian
PALMSTAR ORCHID............ Onomichi 1989 SH 100,200 Bahamian
VICTORIA SPIRIT (OBO)...... Hyundai 1993 DH 103,200 Bahamian
VANCOUVER SPIRIT (OBO) .... Hyundai 1992 DH 103,200 Bahamian
SHILLA SPIRIT.............. Hyundai 1990 SH 106,700 Liberian
ULSAN SPIRIT............... Hyundai 1990 SH 106,700 Liberian
NAMSAN SPIRIT.............. Hyundai 1988 SH 106,700 Liberian
PACIFIC SPIRIT............. Hyundai 1988 SH 106,700 Liberian
PIONEER SPIRIT............. Hyundai 1988 SH 106,700 Liberian
DAMPIER SPIRIT (FSO)....... Hyundai 1988 SH 106,700 Liberian
NASSAU SPIRIT.............. Imabari 1998 DH 107,000 Bahamian
SENANG SPIRIT.............. Imabari 1994 DH 95,700 Bahamian
SEBAROK SPIRIT............. Imabari 1993 DH 95,700 Liberian
SEAFALCON*................. Imabari 1991 SH 97,100 Marshall Islands
SELETAR SPIRIT............. Imabari 1988 DS 97,300 Bahamian
SERAYA SPIRIT.............. Imabari 1992 DS 97,300 Bahamian
SENTOSA SPIRIT............. Imabari 1989 DS 97,300 Liberian
ALLIANCE SPIRIT............ Imabari 1989 DS 97,300 Bahamian
SEMAKAU SPIRIT............. Imabari 1988 DS 97,300 Liberian
SINGAPORE SPIRIT........... Imabari 1988 DS 97,300 Liberian
SUDONG SPIRIT.............. Imabari 1987 DS 97,300 Liberian
KYUSHU SPIRIT.............. Mitsubishi 1991 DS 95,600 Bahamian
KOYAGI SPIRIT.............. Mitsubishi 1989 SH 96,000 Liberian
SEABRIDGE*................. Namura 1996 DH 105,200 Liberian
SEAMASTER*................. Namura 1990 SH 101,000 Liberian
TORRES SPIRIT.............. Namura 1990 SH 96,000 Bahamian
HAKUYOU MARU*.............. Namura 1987 SH 93,000 Singaporean
MENDANA SPIRIT............. Namura 1980 SH 81,700 Bahamian
MAGELLAN SPIRIT............ Hitachi 1985 DS 95,000 Liberian
COOK SPIRIT................ Hashima 1987 DS 91,500 Bahamian
SILVER PARADISE*........... Samsung 1998 DH 105,200 Panamanian
Other Tankers (4)
MUSASHI SPIRIT (VLCC)...... Sasebo 1993 SH 280,700 Bahamian
SCOTLAND................... Mitsubishi 1982 DS 40,800 Bahamian
BARRINGTON................. Samsung 1989 DH 33,300 Australian
PALMERSTON................. Halla 1990 DB 36,700 Australian
4,780,100
Aframax Newbuildings (2)
KANATA SPIRIT** ................. Samsung 1999 DH 113,000 Bahamian
KAREELA SPIRIT** ................. Samsung 1999 DH 113,000 Bahamian
5,006,100
- -------------------------------------- ------------------ ---------------- ------------- ----------------- -------------------
DH Double-hull tanker FSO Floating storage and off-loading vessel VLCC Very Large Crude Carrier
DS Double-sided tanker OBO Oil/Bulk/Ore carrier *Time-chartered-in
DB Double-bottom tanker SH Single-hull tanker **Scheduled for delivery in
July & Sept. 1999
</TABLE>
Many of the Company's vessels have been designed and constructed as
substantially identical sister ships. Such vessels can, in many situations, be
interchanged, providing scheduling flexibility and greater capacity utilization.
In addition, spare parts and technical knowledge can be applied to all the
vessels in the particular series, thereby generating operating efficiencies.
The Company has disposed of several vessels as part of its ongoing fleet
modernization program. The Company sold two of its older Aframax tankers during
the fiscal year ended March 31, 1999, and added four newer Aframax tankers
(including three time-chartered-in vessels) to its fleet during the same period.
As a result, the Company's average fleet size increased by two vessels, or 8.9%,
in fiscal 1999 compared to fiscal 1998, following an earlier increase of two
vessels, 4.9%, in fiscal 1998 compared to fiscal 1997. The Company currently has
two double-hull newbuildings on order, with deliveries scheduled for July and
September 1999.
See Note 5 of 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 also may be
required, as part of the Intermediate Survey process, to be drydocked every 24
to 30 months for inspection of the underwater parts of the vessel and for
necessary repair related to such inspection. Many of the Company's vessels have
qualified with their respective classification societies for drydocking every
five years in connection with the Special Survey and are no longer subject to
the Intermediate Survey drydocking process. To so qualify, 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 nine years, Tanker Advisory Center, Inc. (New York) has rated the Company's
fleet a "meritorious tanker fleet," a designation which, in the latest
publication (January 1999), placed it in the top 8% of all fleets containing
five or more tankers. Management believes that the Company's well-maintained,
high quality tonnage should provide it with a competitive advantage in the
current environment of increasing regulation and customer emphasis on quality of
service.
Company employees perform much of the necessary ordinary course maintenance
and regularly inspect all of the Company's vessels, both at sea and while the
vessels are in port. The Company inspects its vessels two to four times per year
using predetermined and rigorous criteria. Each vessel is examined and specific
notations are made, and recommendations are given for improvements to the
overall condition of the vessel, maintenance, safety, and crew welfare.
The Company has obtained through Det Norske Veritas, the Norwegian
classification society, a document 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 completed the implementation of the
International Safety Management (ISM) code. The Company has obtained Documents
of Compliance (DOC) for its offices and Safety Management Certificates (SMC) for
its applicable vessels.
Item 3. Legal Proceedings
From time to time the Company has been, and expects to continue to be,
subject to legal proceedings and claims in the ordinary course of its business,
principally personal injury and property casualty claims. Such claims, even if
lacking merit, could result in the expenditure of significant financial and
managerial resources. The Company is not aware of any legal proceedings or
claims that it believes will have, individually or in the aggregate, a material
adverse effect on the Company or on its financial condition or results of
operations.
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 ownership
of Teekay's common stock, no par value (the "Common Stock"), as of March 31,
1999 by (i) each owner of 10% or more of the Common Stock and (ii) all officers
and directors of Teekay as a group:
<TABLE>
<CAPTION>
Number of Percentage of
Identity of Person or Group Shares Owned Class Owned
<S> <C> <C>
Cirrus Trust............................................................... 14,427,397 45.6%
Alliance Capital Management................................................ 4,139,330 13.1%
All officers and directors as a group (21 persons)......................... * *
</TABLE>
__________
* Less than one percent of outstanding shares.
(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.
Item 5. Nature of Trading Market
Since July 1995, the Company's Common Stock has been traded on The New York
Stock Exchange under the symbol "TK". The following table sets forth the high
and low closing sales prices for the Common Stock on The New York Stock Exchange
for each of the fiscal quarters indicated.
<TABLE>
<CAPTION>
High Low
<S> <C> <C>
Fiscal 1997
First quarter.................................................$.....28 $ 25
Second quarter......................................................30 5/8 26 1/2
Third quarter.......................................................33 1/8 28 7/8
Fourth quarter......................................................34 1/4 26 1/2
Fiscal 1998
First quarter.................................................$.....34 5/8 $ 28
Second quarter......................................................36 30 15/16
Third quarter.......................................................37 7/8 30 3/8
Fourth quarter......................................................33 9/16 27 7/8
Fiscal 1999
First quarter.................................................$ 30 7/8 $ 22 9/16
Second quarter......................................................25 1/8 18 7/16
Third quarter.......................................................18 7/16 15 15/16
Fourth quarter......................................................18 7/8 14 1/4
</TABLE>
Approximately 27% of all outstanding shares at March 31, 1999 were held in
the United States.
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. As no active trading market exists for these Notes, no
historical pricing information is included here.
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
8.32% First Preferred Ship Mortgage Notes and all documentation related to the
Notes and to the public offering of Teekay's common stock were executed outside
of the Republic of Liberia, and assuming the holders of the 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.
Item 8. Selected Financial Data
Set forth below are selected consolidated financial and other data of the
Company for the five fiscal years ended March 31, 1999, 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 LLP, independent Chartered Accountants,
with respect to the financial statements for the fiscal years ended March 31,
1999, 1998, and 1997 and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
Years Ended March 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
-----------------------------------------------------------------------------
(U.S. dollars in thousands, except per share and per day data and ratios)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Voyage revenues........................ $ 411,922 $ 406,036 $ 382,249 $ 336,320 $ 319,966
Voyage expenses........................ 93,511 100,776 102,037 90,575 84,957
Net voyage revenues.................... 318,411 305,260 280,212 245,745 235,009
Income from vessel operations.......... 85,634 107,640 94,258 76,279 52,816
Interest expense....................... (44,797) (56,269) (60,810) (62,910) (66,304)
Interest income........................ 6,369 7,897 6,358 6,471 5,904
Other income........................... 5,506 11,236 2,824 9,230 12,839
Net income before cumulative effect of
change in accounting policy and
extraordinary items................... 52,712 70,504 42,630 29,070 5,255
Cumulative effect of change in
accounting for marketable securities... - - - - 1,113
Extraordinary loss on bond redemption.. (7,306) - - - -
Net income............................. 45,406 70,504 42,630 29,070 6,368
Per Share Data:
Net income before cumulative effect of
change in accounting policy and
extraordinary items................... $ 1.70 $ 2.46 $ 1.52 $ 1.17 $ 0.29
Cumulative effect of change in
accounting for marketable securities.. - - - - 0.06
Extraordinary loss on bond redemption.. (0.24) - - - -
Net income
- basic.............................. 1.46 2.46 1.52 1.17 0.35
- diluted............................ 1.46 2.44 1.50 1.17 0.35
Cash earnings - basic(1)............... 4.72 5.78 4.75 4.51 5.48
Cash dividends declared................ 0.86 0.86 0.86 0.48 -
Balance Sheet Data (at end of period):
Cash and marketable securities......... $132,256 $ 115,254 $ 117,523 $ 101,780 $ 85,739
Total assets........................... 1,452,220 1,460,183 1,372,838 1,355,301 1,306,474
Total debt............................. 641,719 725,369 699,726 725,842 842,874
Total stockholders' equity............. 777,390 689,455 629,815 599,395 439,066
Other Financial Data:
EBITDA(2).............................. $186,069 $ 209,582 $ 191,632 $ 166,233 $ 146,756
EBITDA to interest expense(2)(3)....... 3.98x 3.80x 3.22x 2.69x 2.28x
Total debt to EBITDA(2)................ 3.45 3.46 3.65 4.37 5.74
Total debt to total capitalization..... 45.2% 51.3% 52.6% 54.8% 65.7%
Net debt to capitalization(4).......... 39.6 46.9 48.0 51.0 63.3
Cash earnings(1)....................... 146,489 165,575 133,554 112,107 98,716
Capital expenditures:
Vessel purchases, gross.............. 85,445 197,199 65,104 123,843 7,465
Drydocking (accrual basis)........... 7,213 12,409 23,124 11,641 11,917
Fleet Data:
Average number of ships(5)............. 47 43 41 39 42
Average age of Company's Aframax fleet
(in years)(6).......................... 8.0 7.6 7.9 6.8 7.3
TCE per ship per day(5)(7)(8).......... $ 19,576 $ 21,373 $ 20,356 $ 18,438 $ 16,552
Vessel operating expenses per ship per
day(8)(9)............................ 4,969 4,554 4,922 4,787 4,748
Operating cash flow per ship per
day(8)(10)........................... 10,903 12,664 11,819 10,613 8,944
</TABLE>
(Footnotes on following page)
(Footnotes for previous page)
(1) Cash earnings represents net income before cumulative effect of change in
accounting policies, extraordinary items, foreign exchange gains (losses),
and before depreciation and amortization expense. Cash earnings is included
because it is used by certain investors to measure a company's financial
performance as compared to other companies in the shipping industry. Cash
earnings is not required by generally accepted accounting principles and
should not be considered as an alternative to net income or any other
indicator of the Company's performance required by generally accepted
accounting principles.
(2) EBITDA represents net income before cumulative effect of change in
accounting policy and extraordinary items, interest expense, income tax
expense, depreciation and amortization expense, minority interest, and
gains or losses arising from prepayment of debt, foreign exchange
translation and disposal of assets. EBITDA is included because such data is
used by certain investors to measure a company's financial performance.
EBITDA is not required by 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.
(3) For purposes of computing EBITDA to interest expense, interest expense
includes capitalized interest but excludes amortization of loan costs.
(4) Net debt represents total debt less cash, cash equivalents and marketable
securities.
(5) Includes vessels time-chartered-in, but excludes vessels of a former joint
venture.
(6) Average age of Company's Aframax fleet is the average age, at the end of
the relevant period, of all the vessels owned, leased or time-chartered-in
by the Company, excluding vessels of a former joint venture.
(7) 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 Inc. ("Clarkson") and other industry data sources
by subtracting voyage expenses (except commissions) which are incurred in
transporting cargo from gross revenue per voyage and dividing the remaining
revenue by the total number of days required for the round-trip voyage.
Voyage expenses comprise all expenses relating to particular voyages,
including bunker fuel expense, port fees and canal tolls. 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.
(8) To facilitate comparison to prior years' results, excludes the results from
the Company's Australian-crewed vessels, which comprised four of the
Company's vessels during fiscal 1999 and the fourth quarter of fiscal 1998.
Vessel operating expenses for the Australian-crewed vessels are
substantially higher than those for the rest of the Company's fleet on a
per ship basis, primarily as a result of higher crew costs, with
correspondingly higher charter rates associated with the charter
arrangements for those vessels. See "Item 9. Management's Discussion and
Analysis of Results of Operations and Financial Condition-General."
(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. 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. Vessel operating expenses exclude vessels
time-chartered-in.
(10) Operating cash flow represents income from vessel operations plus
depreciation and amortization expense (other than drydock amortization
expense). Ship days are calculated on the basis of a 365-day fiscal year
multiplied by the average number of vessels in 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.
Item 9. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
The Company is a leading provider of international crude oil and petroleum
product transportation services to major oil companies, oil traders and
government agencies, principally in the region from the Red Sea to the U.S. West
Coast. The Company's current operating fleet consists of 50 vessels, including
46 Aframax oil tankers and O/B/O carriers (including two newbuildings on order
and five vessels time-chartered-in), three smaller oil tankers, and one VLCC,
for a total cargo-carrying capacity of approximately 5.0 million tonnes. The two
newbuilding Aframax tankers are scheduled for delivery in July and September
1999, respectively.
During fiscal 1999, approximately 58% of the Company's net voyage revenue
was derived from spot voyages. The balance of the Company's revenue is generated
primarily by two other modes of employment: time charters, whereby vessels are
chartered to customers for a fixed period; and contracts of affreightment
("COAs"), whereby the Company carries an agreed quantity of cargo for a customer
over a specified trade route within a specified period of time. In fiscal 1999,
12% of net voyage revenues was generated by time charters and COAs priced on a
spot market basis. In the aggregate, approximately 70% of the Company's net
voyage revenue during fiscal 1999 was derived from spot voyages or time charters
and COAs priced on a spot market basis, with the remaining 30% being derived
from fixed-rate time-charters and COAs. This dependence on the spot market,
which is within industry norms, contributes to the volatility of the Company's
revenues, cash flow from operations, and net income.
Historically, the tanker industry has been cyclical, experiencing
volatility in profitability and asset values resulting from changes in the
supply of, and demand for, vessel capacity. Additionally, tanker markets have
historically exhibited seasonal variations in charter rates. Tanker markets are
typically stronger in the winter months as a result of increased oil consumption
in the northern hemisphere and unpredictable weather patterns which tend to
disrupt vessel scheduling.
In December 1997, the Company acquired two vessels and related shore
support services from an Australian affiliate of Caltex Petroleum. These two
tankers, together with one of the Company's existing Aframax tankers, have been
time chartered to the Caltex affiliate in connection with the Company's
provision of Caltex's oil transportation requirements formerly provided by that
affiliate. The Company has converted one of its existing vessels to a floating
storage and off-loading vessel, which is sharing crews with the vessels employed
in the Caltex arrangement (together with the other three vessels involved in
this arrangement, the "Australian Vessels"). Vessel operating expenses for the
Australian Vessels are substantially higher than those for the rest of the
Company's fleet, primarily as a result of higher costs associated with employing
an Australian crew. The time-charter rates for the Australian Vessels are
correspondingly higher to compensate for these increased costs. During fiscal
1999, the Australian Vessels earned net voyage revenues and an average TCE rate
of $38.2 million and $26,329, respectively, and incurred vessel operating
expenses of $14.9 million, or $10,173 on a per ship per day basis. In
comparison, during fiscal 1998, the Australian Vessels earned net voyage
revenues and an average TCE rate of $8.4 million and $25,347, respectively, and
incurred vessel operating expenses of $3.2 million, or $10,276 on a per ship per
day basis. The results of the Australian Vessels are included in the Company's
Consolidated Financial Statements included herein.
Acquisition of Bona Shipholding Ltd.
On March 26, 1999, the Company entered into an amalgamation agreement (the
"Amalgamation Agreement") with Bona Shipholding Ltd. ("Bona") under which Teekay
will acquire Bona for a combination of cash and shares. Bona owns and operates a
fleet of 26 Aframax oil tankers and O/B/Os engaged in transportation of oil, oil
products, and dry bulk commodities, primarily in the Atlantic region. Shares of
Bona Common Stock ("Bona Shares") are listed on the Oslo Stock Exchange.
For the year ended December 31, 1998, Bona earned net voyage revenues of
$148.9 million resulting in income from vessel operations of $32.3 million and
net income of $16.6 million. As at December 31, 1998, Bona's shareholder's
equity was $254.9 million, total assets were $623.5 million, and total debt was
$356.0 million. In December 1998, Bona entered into a $500.0 million credit
facility, syndicated among a group of 15 leading international shipping banks.
The loan has a two-year drawdown period and will be repaid over an eight-year
period thereafter.
As the global oil industry is undergoing consolidation, tanker companies
are serving fewer but significantly larger customers who require their shipping
partners to provide more flexible and cost competitive services on a global
basis. The proposed transaction will create a combined entity which operates 81
vessels and which will be able to offer a global service to oil companies, oil
traders, and government agencies by combining Teekay's position in the
Indo-Pacific basin with Bona's Atlantic presence. The combined entity will be
the largest operator in the Aframax segment and will be approximately three
times larger than its nearest competitor in that segment. Management believes
that the combined entity will benefit from economies of scale and that cost
savings can be realized through a reduction in combined overhead costs,
increased purchasing power, and other operational efficiencies.
Under the terms of the Amalgamation Agreement, Teekay will purchase all of
the outstanding Bona Shares (18.9 million shares) for total consideration of
approximately $137.0 million. Bona shareholders have the right to elect to
receive for each Bona Share either $7.00 cash or 0.485 shares of Teekay Common
Stock ("Teekay Shares"). Under the terms of the Amalgamation Agreement, 70% of
Bona Shareholders elected to receive consideration in the form of Teekay Shares
(totalling 6.4 million Teekay Shares) and the remaining Bona Shareholders will
receive cash consideration totalling approximately $39.9 million. Teekay will
also assume Bona's debt of approximately $314.0 million net of cash acquired.
The transaction is expected to be completed by mid-June 1999.
The acquisition of Bona will be accounted for using the purchase method of
accounting at closing. It is not anticipated that this transaction will result
in the recording of any goodwill.
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 voyage ship-days for the round-trip voyage. Voyage revenues and voyage
expenses are a function of the type of charter, either spot charter or time
charter, and port, canal and fuel costs depending on the trade route upon which
a vessel is sailing, in addition to being a function of the level of shipping
freight rates. For this reason, shipowners 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 1999 vs. Fiscal 1998
Aframax TCE rates on the Gulf-East routes declined in October 1998 and
remained at this lower level for the balance of fiscal 1999 due to an increase
in tanker supply in conjunction with stable tanker demand. In the near-term, the
Company believes that TCE rates will remain weak as a result of low tanker
demand growth, oil production cutbacks, and the large number of newbuilding
tankers that are expected to be delivered over the next nine months. As a result
of the Company's dependence on the tanker spot market, any decline in Aframax
TCE rates will reduce the Company's revenues and earnings.
Operating results for the past two years generally reflect a cyclical peak
in average TCE rates in fiscal 1998 followed by a decline in TCE rates
experienced by the Company's fleet during the second half of fiscal 1999 and
growth in the size of the Company's fleet. In addition, the fiscal 1999 results
include a full year of results from the four Australian Vessels whereas the
fiscal 1998 results only include approximately three months of results from
three of the Australian Vessels, which have higher operating expenses and earn
correspondingly higher TCE rates. The Company sold two of its older Aframax
tankers during the fiscal year ended March 31, 1999 and added four newer Aframax
tankers (including three time-chartered-in vessels) to its fleet during the same
period. As a result, the Company's average fleet size increased by two vessels,
or 8.9%, in fiscal 1999 compared to fiscal 1998, following an earlier increase
of two vessels, or 4.9%, in fiscal 1998.
Net voyage revenues increased 4.3% to $318.4 million in fiscal 1999 from
$305.3 million in fiscal 1998, reflecting the increase in the Company's fleet
size and higher TCE rates earned on the Australian Vessels, partially offset by
lower spot TCE rates. The Company's average overall TCE rate in fiscal 1999,
excluding the Australian Vessels, was down 8.4% to $19,576 from $21,373 in
fiscal 1998.
Vessel operating expenses increased 19.7% to $84.4 million in fiscal 1999
from $70.5 million in fiscal 1998, mainly as a result of higher crewing costs
associated with the Australian Vessels and an adjustment to crew wage rates and
salaries effective April 1, 1998.
Time-charter hire expense was $29.7 million in fiscal 1999, up from $10.6
million in fiscal 1998, as the number of vessels time-chartered-in by the
Company increased to five in fiscal 1999 from two in fiscal 1998.
Depreciation and amortization expense decreased by 1.3% to $93.7 million in
fiscal 1999 from $94.9 million in fiscal 1998, primarily as a result of lower
amortization of drydocking costs during the current year due to fewer scheduled
drydockings compared to the previous fiscal year. Depreciation and amortization
expense included amortization of drydocking costs of $8.6 million and $11.7
million in fiscal years 1999 and 1998, respectively.
General and administrative expenses rose 16.1% to $25.0 million in fiscal
1999 from $21.5 million in fiscal 1998, primarily as a result of the hiring of
additional personnel in connection with the expansion of the Company's
operations, particularly in Australia. The fiscal 1999 results include the
Australian Vessels for the full year in comparison to three months in fiscal
1998 for three of the Australian Vessels.
Income from vessel operations decreased 20.4% to $85.6 million in fiscal
1999 from $107.6 million in fiscal 1998, due largely to the decline in TCE
rates.
Interest expense decreased by 20.4% to $44.8 million in fiscal 1999 from
$56.3 million in fiscal 1998, reflecting the reduction in the Company's total
debt and lower average interest rates on debt borrowings. In June 1998, the
Company completed a public offering of its Common Stock resulting in net
proceeds to the Company of approximately $69.0 million. These net proceeds,
together with other funds, were applied in August 1998 to redeem the Company's
outstanding 9 5/8% First Preferred Ship Mortgage Notes (the "9 5/8% Notes").
Other income of $5.5 million in fiscal 1999 consisted primarily of $7.1
million in gains on the sale of two vessels, offset partially by $1.9 million in
income taxes related to the Australian Vessels. Other income of $11.2 million in
fiscal 1998 consisted primarily of gains on the sale of vessels.
As a result of the foregoing factors, net income was $45.4 million in
fiscal 1999, compared to net income of $70.5 million in fiscal 1998. Net income
for fiscal 1999 included an extraordinary loss of $7.3 million arising from the
redemption of the 9 5/8% Notes and gains on asset sales of $7.1 million. Net
income for fiscal 1998 included $14.4 million in gains on asset sales.
Fiscal 1998 vs. Fiscal 1997
Operating results for fiscal 1998 compared to those for fiscal 1997
reflected the improvement in average TCE rates experienced by the Company's
fleet during that period, as well as the increase in the size of the Company's
fleet. The Company's average fleet size increased by two vessels or 4.9% in
fiscal 1998 compared to fiscal 1997.
Net voyage revenues increased 8.9% to $305.3 million in fiscal 1998 from
$280.2 million in fiscal 1997, reflecting a combination of improvement in TCE
rates and an increase in the Company's fleet size. The Company's average TCE
rate in fiscal 1998, excluding the Australian Vessels, was up 5.0% to $21,373
from $21,356 in fiscal 1997, in part due to lower bunker fuel prices.
In spite of the increase in fleet size, vessel operating expenses decreased
2.9% to $70.5 million in fiscal 1998 from $72.6 million in fiscal 1997,
primarily as a result of a reduction in insurance premiums as well as more
favorable foreign exchange rates between the U.S. Dollar and certain Asian
currencies, particularly the Japanese Yen and the Korean Won, for spare parts
and supplies purchased during the latter half of fiscal 1998.
Time-charter hire expense was $10.6 million in fiscal 1998, up from $3.5
million in fiscal 1997, as a result of two vessels time-chartered-in by the
Company during fiscal 1998 as compared to only one vessel time-chartered-in
during part of fiscal 1997.
Depreciation and amortization expense increased by 4.6% to $94.9 million in
fiscal 1998 from $90.7 million in fiscal 1997, as a result of the increase in
the average size of the Company's owned fleet, an increase in the average cost
base of the fleet resulting from the replacement of some of the Company's older
vessels with newer vessels, and an increase in the number of scheduled
drydockings. Depreciation and amortization expense included amortization of
drydocking costs of $11.7 million and $10.9 million in fiscal years 1998 and
1997, respectively.
General and administrative expenses rose 12.1% to $21.5 million in fiscal
1998 from $19.2 million in fiscal 1997, primarily as a result of the cost of
compliance with increasingly stringent tanker industry regulations, increases in
senior management compensation, and the start-up cost and additional ongoing
personnel and facility costs associated with expanding the Company's Australian
office in December 1997.
Income from vessel operations increased 14.2% to $107.6 million in fiscal
1998 from $94.3 million in fiscal 1997, due to improved TCE rates and relatively
stable costs.
Interest expense decreased by 7.4% to $56.3 million in fiscal 1998 from
$60.8 million in fiscal 1997, reflecting the reduction in the Company's average
debt balance and a lower average interest rate on debt borrowings. Interest
income of $7.9 million in fiscal 1998 and $6.4 million in fiscal 1997, largely
reflected increasing cash balances, offset in fiscal 1997 by lower interest
rates.
Other income of $11.2 million in fiscal 1998 consisted primarily of $14.4
million in gains on the sale of three vessels, offset partially by $3.5 million
in losses related to the prepayment of debt. Other income of $2.8 million in
fiscal 1997 consisted primarily of gains on the sale of vessels.
As a result of the foregoing factors, the Company's net income was $70.5
million in fiscal 1998, which included $14.4 million in gains on asset sales. In
comparison, the Company's net income was $42.6 million in fiscal 1997, which
included $2.7 million in gains on assets sales.
The following table illustrates the relationship between fleet size
(measured in ship-days), TCE performance, and operating results per calendar
ship-day. To facilitate comparison to the prior years' results, unless otherwise
indicated, the figures in the table below exclude the results from the Company's
Australian Vessels.
<TABLE>
- ------------------------------------------------------------------------- --------------------------------------------
Year Ended March 31,
1999 1998 1997
- ------------------------------------------------------------------------- -------------- --------------- -------------
<S> <C> <C> <C>
International Fleet:
Average number of ships 43 42 41
Total calendar ship-days 15,612 15,341 14,937
- ------------------------------------------------------------------------- -------------- --------------- -------------
Revenue generating ship-days (A) 14,647 14,229 14,071
- ------------------------------------------------------------------------- -------------- --------------- -------------
Net voyage revenue before commissions (B) (000s) $ 286,735 $ 304,115 $ 286,429
- ------------------------------------------------------------------------- -------------- --------------- -------------
TCE (B/A) $ 19,576 $ 21,373 $ 20,356
- ------------------------------------------------------------------------- -------------- --------------- -------------
Operating results per calendar ship-day:
Net voyage revenue $17,950 $ 19,358 $ 18,760
Vessel operating expense 4,969 4,554 4,922
General and administrative expense 1,465 1,375 1,286
Drydocking expense 613 765 733
------------------------------------------------------------------------- -------------- --------------- -------------
Operating cash flow per calendar ship-day $ 10,903 $ 12,664 $ 11,819
- ------------------------------------------------------------------------- -------------- --------------- -------------
Australian Vessels:
Operating cash flow per calendar ship-day $ 14,509 $ 13,482 N/A
- ------------------------------------------------------------------------- -------------- --------------- -------------
Total Fleet:
Operating cash flow per calendar ship-day $ 11,171 $ 12,682 $ 11,819
- ------------------------------------------------------------------------- -------------- --------------- -------------
</TABLE>
Liquidity and Capital Resources
The Company's total liquidity, including cash, marketable securities and
undrawn long-term lines of credit, was $143.3 million as at March 31, 1999, down
from $186.3 million as at March 31, 1998, and $258.6 million as at March 31,
1997. The decrease in liquidity during fiscal 1999 was primarily the result of
the use of cash balances to redeem the Company's 9 5/8% Notes in August 1998,
progress payments on the Company's two newbuildings, and the purchase of a new
vessel which was paid for using existing cash balances and borrowings under the
Company's revolving credit facility (the "Revolver"). The decrease was offset in
part by proceeds from the Company's public offering of Common Stock in June
1998, cash flow from operations, and proceeds from the disposition of two older
vessels. The Company received net proceeds of approximately $69.0 million in the
public offering to redeem the outstanding balance of the 9 5/8% Notes. The
redemption resulted in the release of mortgages on the six vessels which
collateralized the 9 5/8% Notes, increasing the number of unencumbered vessels
in the Company's fleet to thirteen as of March 31, 1999.
Net cash flow from operating activities decreased to $137.7 million in
fiscal 1999, compared to $161.1 million in fiscal 1998, and $139.2 million in
fiscal 1997. This primarily reflects the change in TCE rates during these
periods.
Scheduled debt repayments were $50.6 million during fiscal 1999, compared
to $33.9 million in fiscal 1998 and $16.0 million in fiscal 1997. The increase
in fiscal 1999 was mainly a result of a $25.0 million sinking fund payment on
the 9 5/8% Notes in July 1998. In addition to scheduled debt repayments, the
Company prepaid long-term debt of $268.0 million in fiscal 1999, primarily
representing the repurchase of the 9 5/8% Notes and prepayments of the Revolver.
Dividends declared during fiscal 1999 were $26.6 million, or $0.86 per
share, of which $26.2 million was paid in cash and the remainder was paid in the
form of shares of Common Stock issued under the Company's dividend reinvestment
plan.
Two vessels were sold in fiscal 1999, resulting in net proceeds of $23.4
million compared to net proceeds of $33.9 million in fiscal 1998 from the sale
of three vessels. In fiscal 1997, the Company sold its only 50%-owned vessel,
resulting in net proceeds of $6.4 million which the Company received in the
early part of fiscal 1998.
During fiscal 1999, the Company incurred capital expenditures for vessels
and equipment of $85.4 million, consisting mainly of payments made towards the
two newbuilding double-hull Aframax tankers scheduled for delivery in July and
September of 1999, costs related to the conversion of a tanker into a floating
storage and off-loading vessel, and the purchase of a second-hand Aframax
tanker. The Company intends to pay for the remaining cost of approximately $15.6
million for the two newbuilding vessels by using existing cash balances,
borrowings under the Revolver, or other debt financing. Cash expenditures for
drydocking were $11.7 million in fiscal 1999 compared to $18.4 million in fiscal
1998 and $16.6 million in fiscal 1997. The previous two fiscal years reflected a
larger than usual number of scheduled drydockings.
To finance the acquisition of Bona, the Company will use existing cash
balances to fund the cash portion of the total purchase price (approximately
$39.9 million) and will issue shares of Common Stock for the remaining portion
(approximately 6.4 million Teekay Shares). Teekay will also assume approximately
$314.0 million of Bona's debt net of cash acquired. As at March 31, 1999, the
Company's net debt to capitalization was 39.6%. After the completion of the Bona
acquisition, the combined entity's net debt to capitalization will increase to
approximately 50%. (See "Acquisition of Bona Shipholding Ltd.")
As part of its growth strategy, the Company will continue to consider
strategic opportunities, including the acquisition of additional vessels and the
expansion into new markets. The Company may choose to pursue such opportunities
through internal growth, joint ventures, or business acquisitions. The Company
intends to finance any future acquisitions through various sources of capital,
including internally generated cash flow, existing credit lines, additional debt
borrowings, and the issuance of additional shares of capital stock.
Market Rate Risks
The Company is exposed to market risk from foreign currency and changes in
interest rate fluctuations. The Company uses interest rate swaps and forward
foreign currency contracts to manage these risks, but does not use financial
instruments for trading or speculative purposes.
Interest Rate Risk
The Company invests its cash and marketable securities in financial
instruments with maturities of less than three months within the parameters of
its investment policy and guidelines. The majority of instruments pay a fixed
rate of return which are subject to fluctuations in market values due to changes
in market interest rates.
The Company uses interest rate swaps to manage the impact of interest rate
changes on earnings and cash flows. The differential to be paid or received
under these swap agreements is accrued as interest rates change and is
recognized as an adjustment to interest expense. Premiums and receipts, if any,
are recognized as adjustments to interest expense over the lives of the
individual contracts.
Foreign Exchange Rate Risk
The international tanker industry's functional currency is the U.S. dollar.
Virtually all of the Company's revenues and most of its operating costs are in
U.S. dollars. The Company incurs certain operating expenses, drydocking, and
overhead costs in foreign currencies, the most significant of which are Japanese
Yen, Singapore dollars, Canadian dollars, and Australian dollars. During fiscal
1999, approximately 15% of vessel and voyage costs, overhead and drydock
expenditures were denominated in these currencies. However, the Company has the
ability to shift its purchase of goods and services from one country to another
and, thus, from one currency to another, on relatively short notice.
The Company enters into forward contracts as a hedge against changes in
certain foreign exchange rates. Market value gains and losses are deferred and
recognized during the period in which the hedged transaction is recorded in the
accounts.
<TABLE>
<CAPTION>
Contract Carrying Amount Fair
(in USD 000's) Amount Asset Liability Value
- --------------------------------------- ---------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C>
1999
FX Forward Contracts $ 2,905 $ $ $ (22)
Debt 641,719 641,719 637,219
1998
FX Forward Contracts $ 10,225 $ $ $ 339
Interest Rate Swap Agreements
- net receivable (payable) position 150,000 176
Debt 725,369 725,369 737,785
- --------------------------------------- ---------------- ----------------- --------------- -----------------
</TABLE>
Year 2000 Compliance
The Company relies on computer systems, software, databases, third party
electronic data interchange interfaces and embedded processors to operate its
business. Some of these applications may be unable to appropriately interpret
the calendar year 2000 and certain other dates and some level of modification or
replacement of such applications or embedded systems will be necessary.
The Company has been actively engaged in systematically addressing the Year
2000 problem since December 1997. A Year 2000 Compliance Task Force comprised of
employees from a broad cross section of the Company has been charged with the
task of ensuring that the Company achieves Year 2000 compliance. The Task force
includes full-time dedicated Year 2000 staff. The Company expects to be largely
Year 2000 compliant by the summer of this year, and to achieve full Year 2000
compliance by mid-November of this year.
The Company's Year 2000 compliance project has been divided into several phases.
1. First, the Company completed a business and safety risk analysis to
prioritize the efforts of the Year 2000 Task Force. Those areas of the
Company's operations that posed the greatest safety risk or were the most
important to the survival and continuity of the business were assigned the
highest priority.
2. Second, a full inventory of all computer hardware and software
applications, and all systems which utilize "embedded chips", both on the
ships and in the Company's offices, has been completed. Embedded chips are
used, for example, in navigation systems, communication systems, safety and
detection systems, and electrical and electro-mechanical control systems on
the Company's vessels.
3. Third, a comprehensive audit and test program of information technology and
non-information technology systems, such as embedded chips, was developed
and is being deployed to ensure seamless operation through all of the dates
which have been identified as potentially problematic. These dates include
August 22, 1999, September 9, 1999, January 1, 2000, and February 29, 2000.
Extensive safe testing has been conducted on vessels and off-line testing
will continue later in 1999 during scheduled drydockings. We have
requested, and in many cases have received, Certificates of Compliance from
the manufacturers of the equipment identified in the inventory phase as
possibly containing date sensitive functions. In addition, the Company has
completed a "Year 2000 Readiness Survey" with its top customers, lenders,
suppliers and other organizations with which it conducts business. This
survey has confirmed that our key business partners are aware of the Year
2000 issue and are actively working toward Year 2000 compliance. This
"investigation phase" is virtually complete at this time.
4. Fourth, the Company is currently undertaking remedial action with respect
to all non-compliant systems and items. Remedial action includes modifying,
repairing or replacing systems or items which are of high safety or
business criticality, or a "work around" strategy for less critical
systems. Testing is occurring concurrently with the remedial action. The
Company has completed the majority of this work; however, the Company's two
Australian-flagged product tankers must be drydocked to have the remedial
work done. The second vessel may not be completed until mid November 1999
due to drydock availability.
5. The final phase consists of preparing contingency plans, vessel placement
strategies, and business continuity plans. These plans have been developed
and distributed. Final revisions of contingency plans are anticipated to be
distributed by the fall of 1999 which include roll-over procedures. These
plans have been developed and refined in consultation with our key business
partners. Drills are scheduled for the third and fourth quarter of 1999 to
ensure that sea and shore staff are competent with contingency
instructions.
Although the Company expects to be Year 2000 compliant in a timely manner,
no assurance can be given that all of the Company's systems will be Year 2000
compliant or that its customers, lenders, suppliers or the other organizations
with which it conducts business will become fully Year 2000 compliant in a
timely manner. If the Company does not achieve full compliance in a timely
manner or complete its Year 2000 project within its current cost estimates, or
if one or more of its key customers, bankers, lenders, suppliers or other
organizations with which it does business fails to become fully Year 2000
compliant, the Company's business, financial condition and results of operations
could be adversely affected. There are also risks inherent in the Company's
operations arising from the potential failure of systems and equipment aboard
other vessels sharing navigable waters with the Company's vessels as well as
problems which could arise from the malfunction or failure of port and
shore-based infrastructure systems.
The Company estimates that it will cost $2.0 million to achieve Year 2000
compliance. The majority of these costs will either be recovered directly from
customers of the Company pursuant to contractual arrangements currently in place
or represent ongoing equipment upgrades which would have been undertaken
regardless of the Year 2000 issues. Based on the findings of the Year 2000 Task
Force to date, the Company does not expect Year 2000 compliance costs to have a
material adverse effect on the Company.
FORWARD-LOOKING STATEMENTS
The Company's Annual Report to Shareholders for 1999 and this Annual Report
on Form 20-F for the fiscal year ended March 31, 1999 contain certain
forward-looking statements (as such term is defined in Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended) concerning future events and the Company's operations,
performance and financial condition, including, in particular, statements
regarding: Aframax TCE rates in the near-term; tanker supply and demand; supply
and demand for oil; the Company's market share in the Indo-Pacific Basin; future
capital expenditures, including expenditures for newbuilding vessels; the
Company's growth strategy and measures to implement such strategy; the Company's
competitive strengths; future success of the Company; the acquisition of Bona
and economies of scale, cost savings and other benefits that may be realized in
connection with the Bona acquisition; and Year 2000 compliance. Words such as
"expects," "intends," "plans," "believes," "anticipates," "estimates" and
variations of such words and similar expressions are intended to identify
forward-looking statements. These statements involve known and unknown risks and
are based upon a number of assumptions and estimates which are inherently
subject to significant uncertainties and contingencies, many of which are beyond
the control of the Company. Actual results may differ materially from those
expressed or implied by such forward-looking statements. Factors that could
cause actual results to differ materially include, but are not limited to:
changes in production of or demand for oil and petroleum products, either
generally or in particular regions including Asia; the cyclical nature of the
tanker industry and its dependence on oil markets; the supply of tankers
available to meet the demand for transportation of petroleum products; 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; the Company's dependence on spot oil
voyages; competitive factors in the markets in which the Company operates;
environmental and other regulation; the Company's potential inability to achieve
and manage growth; risks associated with operations outside the United States;
the potential inability of the Company to generate internal cash flow and obtain
additional debt or equity financing to fund capital expenditures and progress
payments on newbuildings; the Company's potential inability to identify embedded
processors in a timely manner or to achieve Year 2000 compliance within current
cost estimates; the failure of the Company's key business partners to achieve
Year 2000 compliance and the subsequent impact on the Company's operating
results; the Company's ability to complete the acquisition of Bona and to
successfully integrate Bona into the Company's operations; and other factors
detailed from time to time in the Company's periodic reports filed with the U.S.
Securities and Exchange Commission. The Company expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in the
Company's expectations with respect thereto or any change in events, conditions
or circumstances on which any such statement is based.
Item 10. Directors and Officers of the Registrant
Management
The directors, executive officers and senior management of the Company are
listed below:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Karlshoej, Axel 58 Director and Chairman of the Board
Moller, Bjorn 41 Director, President and Chief Executive Officer
Coady, Arthur F. 65 Director and EVP
Day, Sean 49 Director
Dingman, Michael D. 67 Director
Feder, Morris L. 82 Director
Hsu, Steve G. K. 65 Director
Hsu, Thomas Kuo-Yuen 52 Director
Hoegh, Leif O. 35 Director
Adams, John 43 Managing Director (Glasgow)
Alsleben, Veronica A. E. 48 Managing Director (London)
Antturi, Peter S. 40 VP, Treasurer and Chief Financial Officer (Vancouver)
Bendy, Paul 45 Managing Director (Australia)
Blair, Esther E. 44 Secretary (Nassau)
Chad, Greg 47 VP, Corporate Services (Vancouver)
Glendinning, David 45 SVP, Customer Service & Marine Project Development (Vancouver)
Lok, Vincent C. 31 Controller (Vancouver)
Meldgaard, Mads T. 34 VP, Chartering (Vancouver)
Murphy, Justin 38 Managing Director (Singapore)
Nagao, Yoshio 52 Managing Director (Tokyo)
Spothelfer, Pascal 38 SVP, Strategic Development (Vancouver)
Westgarth, Graham 44 VP, Marine Operations (Vancouver)
__________
</TABLE>
Certain biographical information about each of these individuals is set
forth below:
John Adams joined the Company in April 1998 as Managing Director of the
newly established Glasgow Office, where Mr. Adams heads the Company's crewing
and crew training activities. Prior to joining Teekay, Mr. Adams served for nine
years as Managing Director of Teekay Norbulk, a joint venture between the
Company and Norbulk Agencies. Mr. Adams has over 23 years experience in the
crewing and ship management business.
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 Antturi joined the Company in September 1991 as Manager, Accounting
and was promoted to the position of Controller in March 1992, and to his current
position of Vice President, Treasurer and Chief Financial Officer in October
1997. Prior to joining the Company, Mr. Antturi held various accounting and
finance roles in the shipping industry since 1985.
Paul Bendy joined the Company in December 1997 as Managing Director of the
Australia office in connection with the acquisition by the Company of an
Australian affiliate of Caltex Petroleum. From 1993 to December 1997, Mr. Bendy
held a variety of senior management positions within the Caltex Petroleum
organization, including in shipping operations management. Prior to 1993, Mr.
Bendy served for 13 years as a Marine Engineer for Caltex.
Esther E. Blair joined the Company in June 1988. In 1991, she was appointed
to the position of Secretary.
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.
Arthur F. Coady is the Executive Vice President 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.
Sean Day is the President & Chief Executive Officer of Navios Corporation,
a position he has held since 1989. Navios Corporation is a large bulk shipping
company based in Stamford, Connecticut. Prior to this he held a number of senior
management positions in the shipping and finance industry. Mr. Day was born in
South Africa and educated at the South African Merchant Marine Academy,
University of Capetown (BbusSc) and Oxford University (MA, Jurisprudence). Mr.
Day is also on the boards of various other companies.
Michael D. Dingman is a private investor, industrial company executive and
corporate director. He has served as a Director of Teekay since May 1995. He is
Chairman and Chief Executive Officer of The Shipston Group Limited, a
diversified international holding company, and a Director of Fisher Scientific
International Inc. and of Ford Motor Company. Mr. Dingman also serves as
Director/Executive to a number of other industrial concerns.
Morris L. Feder is President of Worldwide Cargo Inc., a New York based
chartering firm. Mr. Feder has been employed in the shipping industry in excess
of 49 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.
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, Vice President, Marine and Commercial Operations and is currently
the Senior Vice President, Customer Service and Marine Project Development.
Captain Glendinning has 18 years sea service on oil tankers of various types and
sizes and is a Master Mariner with British Class 1 Foreign Going Certificate of
Competency.
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 Standing Supervisor of the
National Association of Chinese Shipowners, Taiwan, 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 27 years with, and is presently Executive
Director of, Expedo & Company (London) Ltd., which is part of the Expedo Group
of Companies that manages a fleet of nine vessels, ranging in size from 30,000
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 26 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.
Vincent C. Lok joined the Company in June 1993 as a financial analyst and
was promoted to the position of Assistant Controller in July 1995, and to his
current position of Controller in October 1997. Prior to joining the Company,
Mr. Lok worked in the audit practice of Deloitte & Touche, Chartered
Accountants, for four years.
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. In January 1994, he
was promoted to the position of General Manager, Chartering, and then to
Managing Director (Singapore) in September 1995. In July 1998, Mr. Meldgaard was
promoted to Vice President, Chartering, based in Vancouver.
Bjorn Moller succeeded Captain James Hood as President and Chief Executive
Officer in April 1998. Mr. Moller has over 21 years experience in shipping and
has served in senior management positions with the Company for more than 11
years. He has headed the Company's overall operations since January 1997,
following his promotion to the position of Chief Operating Officer. Prior to
this, Mr. Moller headed the Company's global chartering operations and business
development activities.
Justin Murphy joined the Company in October 1990 and has held various
positions in the Company's operations and chartering departments. Mr. Murphy is
currently the Managing Director of the Company's Singapore office. Prior to
this, Mr Murphy served as General Manager of Business Development at the
Company's Vancouver office until August 1998. Mr. Murphy has been employed in
the chartering business for the past 21 years and is a Member of the Institute
of Chartered Shipbrokers (MICS).
Yoshio Nagao has been employed in the shipping industry for the past 32
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.
Pascal Spothelfer joined Teekay as Senior Vice-President, Strategic
Development in November 1998. From 1994 to 1998, Mr. Spothelfer served as Chief
Operating Officer and later President and Chief Executive Officer of Novatel
Inc., a Calgary based high-tech company. Prior to that, he was with Jenoptik AG
in Germany as Vice-President Business Development, and from 1990 to 1992 worked
as a consultant for the Boston Consulting Group in Munich. Mr. Spothelfer holds
a PhD in Law from the University of Basel (Switzerland) and a MBA from INSEAD
(France).
Captain Graham Westgarth joined Teekay in February 1999 as Vice President,
Marine Operations bringing 27 years of shipping industry experience with him.
Eighteen of those years were spent at sea, including 5 years in a command
position. He joined Teekay from Maersk Company (UK) where he joined as Master in
1987 before being promoted to General Manager in 1994.
Item 11. Executive Compensation
The aggregate annual compensation paid to the 15 executive officers and
senior managers listed above was $2,798,182 for fiscal 1999, 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
$120,000 for their services and reimbursement of their out-of-pocket expenses in
each fiscal year during which they are directors of Teekay. In fiscal 1999, the
Company contributed an aggregate amount of $189,089 to provide pension and
similar benefits for the 15 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, employees (including senior sea staff), and directors of the Company
to receive options to acquire Common Stock of Teekay. As of June 10, 1999, a
total of 3,641,750 shares of Common Stock had been reserved for issuance under
the Plan. As of such date, options to purchase a total of 2,612,866 shares of
Common Stock were outstanding, with options to purchase a total of 731,460
shares then exercisable and with the directors and the 15 executive officers and
senior managers listed above holding options to purchase a total of 878,500
shares, of which 166,875 are exercisable. The outstanding options are
exercisable at prices ranging from $16.88 to $33.50 per share, with a weighted
average exercise price of $23.22 per share, and expire between July 19, 2005 and
June 1, 2009, ten years after the date of grant.
Item 13. Interest of Management in Certain Transactions
As of March 31, 1999, Cirrus Trust and JTK Trust owned, in the aggregate,
approximately 55% of the Company's outstanding Common Stock. The activities of
Cirrus Trust and JTK Trust are under the common supervision of Messrs. Coady,
Karlshoej and Thomas Hsu, directors of Teekay, and Mr. Shigeru Matsui, President
of Matsui & Company, a Tokyo based ship brokerage firm. The beneficiaries of
such trusts include charitable institutions and affiliated trusts.
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.
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, Changes in Security for Registered
Securities and Use of Proceeds
Not applicable.
PART IV
Item 17. Financial Statements
Not applicable.
Item 18. Financial Statements
See item 19(a) below.
Item 19. Financial Statements and Exhibits
(a) The following financial statements and schedule, 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-13
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:
<TABLE>
<S> <C>
*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.
+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 8.32% 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.
#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.
@@2.52 Agreement, dated January 26, 1998, for a U.S. $200,000,000 Reducing
Revolving Credit Facility to be made available to certain wholly-owned
subsidiaries of Teekay Shipping Corporation by Den Norske Bank ASA,
Christiania Bank Og Kreditkasse ASA, New York Branch, and the Bank of
Nova Scotia.
2.53 Agreement, dated March 26, 1999, for the amalgamation of Northwest Maritime
Inc., a 100% owned subsidiary of Teekay Shipping Corporation, and
Bona Shipholding Ltd.
</TABLE>
_________
* 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.
@ 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 11, 1997, and hereby
incorporated by reference to such Annual Report.
SIGNATURES
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/ Peter Antturi
-------------------
Peter Antturi
Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Dated: June 10, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> F-1
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, 1999 and 1998, 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, 1999. Our audits also
included the financial 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Teekay Shipping Corporation and subsidiaries as at March 31, 1999 and 1998, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended March 31, 1999, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material aspects
the information set forth therein.
Nassau, Bahamas, /s/ ERNST & YOUNG
May 12, 1999 Chartered Accountants
<PAGE>F-2
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(in thousands of U.S. dollars, except per share amounts)
<TABLE>
<CAPTION>
Years Ended March 31,
-----------------------------------------------
1999 1998 1997
---------------- --------------- --------------
<S> <C> <C> <C>
NET VOYAGE REVENUES
Voyage revenues $ 411,922 $ 406,036 $ 382,249
Voyage expenses 93,511 100,776 102,037
- ------------------------------------------------------------------------- ---------------- --------------- --------------
Net voyage revenues 318,411 305,260 280,212
- ------------------------------------------------------------------------- ---------------- --------------- --------------
OPERATING EXPENSES
Vessel operating expenses 84,397 70,510 72,586
Time charter hire expense 29,666 10,627 3,461
Depreciation and amortization 93,712 94,941 90,698
General and administrative 25,002 21,542 19,209
- ------------------------------------------------------------------------- ---------------- --------------- --------------
232,777 197,620 185,954
- ------------------------------------------------------------------------- ---------------- --------------- --------------
INCOME FROM VESSEL OPERATIONS 85,634 107,640 94,258
- ------------------------------------------------------------------------- ---------------- --------------- --------------
OTHER ITEMS
Interest expense (44,797) (56,269) (60,810)
Interest income 6,369 7,897 6,358
Other income (note 10) 5,506 11,236 2,824
- ------------------------------------------------------------------------- ---------------- --------------- --------------
(32,922) (37,136) (51,628)
- ------------------------------------------------------------------------- ---------------- --------------- --------------
Net income before extraordinary loss 52,712 70,504 42,630
Extraordinary loss on bond redemption (note 5) (7,306)
- ------------------------------------------------------------------------- ---------------- --------------- --------------
Net income 45,406 70,504 42,630
Retained earnings, beginning of the year 428,102 382,178 363,690
- ------------------------------------------------------------------------- ---------------- --------------- --------------
473,508 452,682 406,320
Dividends declared (26,611) (24,580) (24,142)
- ------------------------------------------------------------------------- ---------------- --------------- --------------
Retained earnings, end of the year $ 446,897 $ 428,102 $ 382,178
- ------------------------------------------------------------------------- ---------------- --------------- --------------
Basic Earnings per Common Share (notes 1 and 8)
Net income before extraordinary loss $ 1.70 $ 2.46 $ 1.52
Net income $ 1.46 $ 2.46 $ 1.52
Diluted Earnings per Common Share (notes 1 and 8)
Net income before extraordinary loss $ 1.70 $ 2.44 $ 1.50
Net income $ 1.46 $ 2.44 $ 1.50
- ------------------------------------------------------------------------- ---------------- --------------- --------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>F-3
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
As at March 31,
----------------------------------
1999 1998
----------------- ----------------
<S> <C> <C>
ASSETS
Current
Cash and cash equivalents $ 118,435 $ 87,953
Marketable securities (note 3) 8,771 13,448
Accounts receivable 22,995 24,327
Prepaid expenses and other assets 16,195 13,786
- -------------------------------------------------------------------------------------- ----------------- ----------------
Total current assets 166,396 139,514
- -------------------------------------------------------------------------------------- ----------------- ----------------
Marketable securities (note 3) 5,050 13,853
Vessels and equipment (notes 1, 5 and 9)
At cost, less accumulated depreciation of $557,946
(1998 - $500,779) 1,218,916 1,297,883
Advances on newbuilding contracts 55,623
- -------------------------------------------------------------------------------------- ----------------- ----------------
Total vessels and equipment 1,274,539 1,297,883
- -------------------------------------------------------------------------------------- ----------------- ----------------
Other assets 6,235 8,933
- -------------------------------------------------------------------------------------- ----------------- ----------------
$ 1,452,220 $ 1,460,183
- -------------------------------------------------------------------------------------- ----------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable $ 11,926 $ 16,164
Accrued liabilities (note 4) 21,185 29,195
Current portion of long-term debt (note 5) 39,058 52,932
- -------------------------------------------------------------------------------------- ----------------- ----------------
Total current liabilities 72,169 98,291
- -------------------------------------------------------------------------------------- ----------------- ----------------
Long-term debt (note 5) 602,661 672,437
- -------------------------------------------------------------------------------------- ----------------- ----------------
Total liabilities 674,830 770,728
- -------------------------------------------------------------------------------------- ----------------- ----------------
Stockholders' equity
Capital stock (note 8) 330,493 261,353
Retained earnings 446,897 428,102
- -------------------------------------------------------------------------------------- ----------------- ----------------
Total stockholders' equity 777,390 689,455
- -------------------------------------------------------------------------------------- ----------------- ----------------
$ 1,452,220 $ 1,460,183
- -------------------------------------------------------------------------------------- ----------------- ----------------
Commitments and contingencies (notes 6 and 9)
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>F-4
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Years Ended March 31,
---------------------------------------------------
1999 1998 1997
----------------- ---------------- ----------------
<S> <C> <C> <C>
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
Net income $ 45,406 $ 70,504 $ 42,630
Add (deduct) charges to operations not requiring a
payment of cash and cash equivalents:
Depreciation and amortization 93,712 94,941 90,698
Gain on disposition of assets (7,117) (14,392)
Loss on bond redemption 7,306 2,175
Equity income (net of dividend received: March 31,
1997-$282) (45) (2,414)
Other-net 1,218 2,735 2,785
Change in non-cash working capital items related to
operating activities (note 11) (2,817) 5,201 5,459
- ----------------------------------------------------------------------- ----------------- ---------------- ----------------
Net cash flow from operating activities 137,708 161,119 139,158
- ----------------------------------------------------------------------- ----------------- ---------------- ----------------
FINANCING ACTIVITIES
Proceeds from long-term debt 230,000 208,600 240,000
Scheduled repayments of long-term debt (50,577) (33,876) (16,038)
Prepayments of long-term debt (268,034) (150,655) (250,078)
Net proceeds from issuance of Common Stock 68,751 5,126 1,283
Cash dividends paid (26,222) (15,990) (13,493)
Capitalized loan costs (690) (994) (1,130)
- ------------------------------------------------------------------------ ----------------- ---------------- ----------------
Net cash flow from financing activities (46,772) 12,211 (39,456)
- ----------------------------------------------------------------------- ----------------- ---------------- ----------------
INVESTING ACTIVITIES
Expenditures for vessels and equipment (85,445) (197,199) (65,104)
Expenditures for drydocking (11,749) (18,376) (16,559)
Proceeds from disposition of assets 23,435 33,863
Net cash flow from investment 6,380 (2,296)
Proceeds on sale of available-for-sale securities 13,305 14,854
Purchases of available-for-sale securities (42,154)
Other (268)
- ----------------------------------------------------------------------- ----------------- ---------------- ----------------
Net cash flow from investing activities (60,454) (202,900) (83,959)
- ----------------------------------------------------------------------- ----------------- ---------------- ----------------
Increase (decrease) in cash and cash equivalents 30,482 (29,570) 15,743
Cash and cash equivalents, beginning of the year 87,953 117,523 101,780
- ----------------------------------------------------------------------- ----------------- ---------------- ----------------
Cash and cash equivalents, end of the year $ 118,435 $ 87,953 $ 117,523
- ----------------------------------------------------------------------- ----------------- ---------------- ----------------
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>F-5
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. dollars, other than share or
per share data)
1. Summary of Significant Accounting Policies
Basis of presentation
The consolidated financial statements 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.
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.
Certain of the comparative figures have been reclassified to conform with
the presentation adopted in the current period.
Reporting currency
The consolidated financial statements are stated in U.S. dollars because
the Company operates in international shipping markets which utilize the U.S.
dollar as the functional currency.
Investment
The Company's 50% interest in Viking Consolidated Shipping Corp. ("VCSC")
was carried at the Company's original cost plus its proportionate share of the
undistributed net income. On March 12, 1997, VCSC sold 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's investments in marketable securities are classified as
available-for-sale securities and are carried at fair value. Net unrealized
gains or losses on available-for-sale securities, if material, are reported as a
separate component of stockholders' equity.
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
<PAGE>F-6
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Cont'd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or
per share data)
purchases to the standard required to properly service the Company's
customers are capitalized. Depreciation is calculated on a straight-line basis
over a vessel's useful life from the date a vessel is initially placed in
service.
Interest costs capitalized to vessels and equipment for the years ended
March 31, 1999, 1998 and 1997 aggregated $3,018,000, $283,000, and $232,000,
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, 1999, 1998 and 1997 aggregated $8,583,000, $11,737,000, and $10,941,000,
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 agreements
The differential to be paid or received, pursuant to interest rate swap
agreements, is accrued as interest rates change and is recognized as an
adjustment to interest expense. Premiums and receipts, if any, are recognized as
adjustments to interest expense over the lives of the individual contracts.
Forward contracts
The Company enters into forward contracts as a hedge against changes in
certain foreign exchange rates. Market value gains and losses are deferred and
recognized during the period in which the hedged transaction is recorded in the
accounts.
Cash flows
Cash interest paid during the years ended March 31, 1999, 1998 and 1997
totaled $48,527,000, $55,141,000, and $57,400,000, respectively.
The Company classifies all highly liquid investments with a maturity date
of three months or less when purchased as cash and cash equivalents.
Income taxes
The legal jurisdictions of the countries in which Teekay and the majority
of its subsidiaries are incorporated do not impose income taxes upon
shipping-related activities.
Accounting for Stock-Based Compensation
Under Statement of Financial Accounting Standards No. 123 ("SFAS 123"),
"Accounting for Stock-Based Compensation", disclosures of stock-based
compensation arrangements with employees are required and companies are
encouraged (but not required) to record compensation costs associated with
employee stock option awards, based on estimated fair values at the grant dates.
The Company has chosen to continue to account for stock-based
<PAGE>F-7
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Cont'd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or
per share data)
compensation using the intrinsic value method prescribed in APB Opinion No.
25 (APB 25) "Accounting for Stock Issued to Employees" and has disclosed the
required pro forma effect on net income and earning per share as if the fair
value method of accounting as prescribed in SFAS 123 had been applied (see Note
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.
Three customers, all international oil companies, individually accounted
for 12% ($51,411,000), 12% ($50,727,000), and 10% ($42,797,000), respectively,
of the Company's consolidated voyage revenues during fiscal 1999. No more than
one customer accounted for over 10% of the Company's consolidated voyage
revenues during fiscal 1998 or fiscal 1997. The revenues from these customers
accounted for 14% ($56,357,000) and 13% ($48,696,000) of the Company's
consolidated voyage revenues in fiscal 1998 and fiscal 1997, respectively.
3. Investments in Marketable Securities
<TABLE>
<CAPTION>
Gross Gross Approximate
Unrealized Unrealized Market and
Cost Gains Losses Carrying Value
$ $ $ $
-------------- --------------- --------------- -----------------
<S> <C> <C> <C> <C>
March 31, 1999
Available-for-sale securities...................... 13,865 (44) 13,821
March 31, 1998
Available for sale securities...................... 27,304 13 (16) 27,301
</TABLE>
The cost and approximate market value of available-for-sale securities
by contractual maturity, as at March 31, are shown as follows:
<TABLE>
<CAPTION>
Approximate
Market and
Cost Carrying Value
$ $
-------------- -----------------
<S> <C> <C>
March 31, 1999
Less than one year.................................................................... 8,771 8,771
Due after one year through five years................................................. 5,094 5,050
-------- ---------
13,865 13,821
======== =========
Less than one year.................................................................... 13,456 13,448
Due after one year through five years................................................. 13,848 13,853
-------- ---------
27,304 27,301
======== =========
4. Accrued Liabilities
March 31,
---------------- ----------------
1999 1998
---------------- ----------------
Voyage and vessel..................................................................... $ 8,768 $ 15,925
Interest.............................................................................. 7,552 9,272
Payroll and benefits.................................................................. 4,865 3,998
--------- ----------
$ 21,185 $ 29,195
========= ==========
</TABLE>
<PAGE>F-8
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Cont'd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or
per share data)
5. Long-Term Debt
<TABLE>
<CAPTION>
March 31,
---------------------------------
1999 1998
---------------- ----------------
<S> <C> <C>
Revolving Credit Facility............................................................... $ 169,000 $ 129,000
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 2003..................................................... 123,718
Floating rate (1999: LIBOR + 0.50% to 1%; 1998: LIBOR + 0.55% to
1%) U.S. dollar debt due through 2009................................................. 247,719 247,651
--------- ---------
641,719 725,369
Less current portion.................................................................... 39,058 52,932
--------- --------
$ 602,661 $672,437
========= ========
</TABLE>
The Company has a long-term Revolving Credit Facility (the "Revolver")
available which, as at March 31, 1999, provided for borrowings of up to $180.0
million. Interest payments are based on LIBOR (March 31, 1999: 5.00%; March 31,
1998: 5.71%) plus a margin depending on the financial leverage of the Company;
at March 31, 1999, the margin was + 0.50%. The amount available under the
Revolver reduces by $10.0 million semi-annually with a final balloon reduction
in January 2006. The Revolver is collateralized by first priority mortgages
granted on eight 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, 1999, the fair value of these net assets
approximated $179.0 million. The 8.32% Notes are also subject to a sinking fund,
which will retire $45.0 million principal amount of the 8.32% Notes on each
February 1, commencing 2004.
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.
Condensed financial information regarding the Company, the 8.32% Notes
Guarantor Subsidiaries and non-guarantor subsidiaries of the Company is set out
in Schedule A of these consolidated financial statements.
In August 1998, the Company redeemed the remaining $98.7 million of the 9
5/8% First Preferred Ship Mortgage Notes (the "9 5/8% Notes") which resulted in
an extraordinary loss of $7.3 million, or 24 cents per share, for the year ended
March 31, 1999. The redemption of the 9 5/8% Notes was financed by a public
offering of Common Stock in June 1998 (see Note 8 - Capital Stock) and existing
cash balances.
All 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 Teekay.
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,
1999, to $138.8 million.
<PAGE>9
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Cont'd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or
per share data)
The aggregate annual long-term debt principal repayments required to be
made for the five fiscal yearssubsequent to March 31, 1999 are $39,058,000
(fiscal 2000), $50,191,000 (fiscal 2001), $50,332,000 (fiscal 2002), $52,481,000
(fiscal 2003), and $139,597,000 (fiscal 2004).
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 $38,638,000 (fiscal 2000), $38,533,000 (fiscal 2001),
$38,533,000 (fiscal 2002), $38,533,000 (fiscal 2003), $38,638,000 (fiscal 2004),
and $157,645,000 thereafter.
The minimum future revenues should not be construed to reflect total
charter hire revenues for any of the years.
Charters-in
Minimum commitments under vessel operating leases are $23,358,000 (fiscal
2000), $11,848,000 (fiscal 2001), and $1,294,000 (fiscal 2002).
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 agreements and foreign exchange contracts - The fair
value of interest rate swaps and foreign exchange contracts, used for hedging
purposes, is the estimated amount that the Company would receive or pay to
terminate the agreements at the reporting date, taking into account current
interest rates, the current credit worthiness of the swap counter parties and
foreign exchange rates.
The estimated fair value of the Company's financial instruments is as follows:
<TABLE>
<CAPTION>
March 31, 1999 March 31, 1998
----------------------------------- -------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Cash, cash equivalents and marketable
securities................................ $ 132,256 $ 132,256 $ 115,254 $ 115,254
Long-term debt.............................. 641,719 637,219 725,369 737,785
Interest rate swap agreements - net
receivable (payable) position............. (176)
Foreign currency contracts.................. (22) 339
</TABLE>
The Company transacts interest rates swap and foreign currency contracts
with investment grade rated financial institutions and requires no collateral
from these institutions.
<PAGE>F-10
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Cont'd)
(all tabular amounts stated in thousands of U.S. dollars, other than share or
per share data)
8. Capital Stock
<TABLE>
<CAPTION>
Common Thousands
Stock of shares
---------------- --------------
<S> <C> <C>
Issued and outstanding
Balance March 31, 1996.................. $ 235,705 27,904
Reinvested Dividends.................... 10,649 364
Exercise of Stock Options............... 1,283 60
------------ -----------
Balance March 31, 1997.................. 247,637 28,328
Reinvested Dividends.................... 8,590 273
Exercise of Stock Options............... 5,126 232
------------ -----------
Balance March 31, 1998.................. 261,353 28,833
June 15, 1998 Share Offering
2,800,000 shares at $24.7275 per share of Common
Stock (net of share issue costs) ..... 68,700 2,800
Reinvested Dividends.................... 389 13
Exercise of Stock Options............... 51 2
------------ -----------
Balance March 31, 1999.................. $ 330,493 31,648
============ ===========
</TABLE>
In June 1998, the Company sold 2,800,000 shares in a public offering. The
Company used the net proceeds from the offering of approximately $69.0 million,
together with other funds, to redeem the outstanding 9 5/8% Notes.
In September 1998, the Company's shareholders approved an amendment to the
Company's 1995 Stock Option Plan (the "Plan") to increase the number of shares
of Common Stock reserved and available for future grants of options under the
Plan by an additional 1,800,000 shares. As of March 31, 1999, the Company had
reserved 3,641,750 shares of Common Stock for issuance upon exercise of options
granted pursuant to the Plan.
During fiscal 1999, 1998 and 1997, the Company granted options under the
Plan to acquire up to 573,000, 359,750 and 343,250 shares of Common Stock (the
"Grants"), respectively, to certain eligible officers, employees (including
senior sea staff), and directors of the Company. The options have a 10-year term
and vest equally over four years from the date of grant.
A summary of the Company's stock option activity, and related information
for the three years ended March 31, 1999 follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- ---------------------------- ---------------------------
Options Weighted-Average Options Weighted-Average Options Weighted-Average
(000's) Exercise Price (000s) Exercise Price (000s) Exercise Price
-------- ------------------ --------- ------------------ -------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of year 1,161 $ 26.66 1,056 $ 23.40 779 $ 21.50
Granted........................ 573 26.05 360 33.50 343 27.38
Exercised...................... (2) 21.50 (232) 22.02 (60) 21.50
Forfeited...................... (3) 30.44 (23) 30.39 (6) 24.00
------- ----------- ------- ---------- ------- ---------
Outstanding-end of year........ 1,729 $ 26.46 1,161 $ 26.66 1,056 $ 23.40
======= =========== ======= =========== ======== =========
Exercisable at end of year.... 731 $ 24.08 565 $ 22.14 519 $ 21.50
======= =========== ======= =========== ======== =========
Weighted-average fair value
of options granted during
the year (per option)....... $ 5.93 $ 8.13 $ 6.72
=========== ============ =========
</TABLE>
Exercise prices for the options outstanding as of March 31, 1999 ranged
from $21.50 to $33.50. These options have a weighted-average remaining
contractual life of 8.0 years.
<PAGE>F-11
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Cont'd)
(all tabular amounts stated in thousands of U.S. dollars, other than share
or per share data)
As the exercise price of the Company's employee stock options equals the
market price of underlying stock on the date of grant, no compensation expense
is recognized under APB 25.
Had the Company recognized compensation costs for the Grants consistent
with the methods recommended by SFAS 123 (see Note 1-Accounting for Stock-Based
Compensation), the Company's net income and earnings per share for those fiscal
years would have been stated at the pro forma amounts as follows:
<TABLE>
<CAPTION>
Year Ended March 31,
---------------------------------------------------------------
1999 1998 1997
--------------------- --------------------- -------------------
<S> <C> <C> <C>
Net income:
As reported.............................................. $ 45,406 $ 70,504 $ 42,630
Pro forma................................................ 43,715 69,090 40,679
Basic earnings per common share:
As reported.............................................. 1.46 2.46 1.52
Pro forma................................................ 1.41 2.41 1.45
Diluted earnings per common share:
As reported.............................................. 1.46 2.44 1.50
Pro forma................................................ 1.41 2.39 1.44
</TABLE>
Basic earnings per share is based upon the following weighted average
number of common shares outstanding: 31,063,000 shares for fiscal 1999;
28,655,000 shares for fiscal 1998; and 28,138,000 shares for fiscal 1997.
Diluted earnings per share, which gives effect to the aforementioned stock
options, is based upon the following weighted average number of common shares
outstanding: 31,063,000 shares for fiscal 1999; 28,870,000 shares for fiscal
1998; and 28,339,000 shares for fiscal 1997.
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 5.40%, 6.29%, and 6.44% for fiscal 1999, fiscal 1998
and fiscal 1997, respectively; dividend yield of 3.0%; expected volatility of
25%; and expected lives of 5 years.
9. Commitments and Contingencies
On March 26, 1999, the Company entered into an amalgamation agreement (the
"Amalgamation Agreement") with Bona Shipholding Ltd. ("Bona") under which Teekay
will acquire Bona for a combination of cash and shares. Bona owns and operates a
fleet of 26 Aframax oil tankers and oil/bulk/ore carriers engaged in
transportation of oil, oil products, and dry bulk commodities, primarily in the
Atlantic region. Bona's Common Stock ("Bona Shares") is listed on the Oslo Stock
Exchange.
Under the terms of the Amalgamation Agreement, Teekay has offered to
purchase all of the outstanding Bona Shares (18,923,774 shares) for total
consideration of approximately $136.0 million. Bona shareholders have the right
to elect to receive for each Bona Share either $7.00 cash or 0.485 shares of
Teekay Common Stock ("Teekay Shares"), provided that the number of Bona Shares
to be exchanged for Teekay Shares is greater than 9,461,887 shares but does not
exceed 13,246,641 shares (representing 50 percent and 70 percent of the number
of issued and outstanding Bona Shares), respectively. Immediately after the
completion of the amalgamation, Teekay's capital stock will increase by an
amount ranging from $69.7 million (4,589,016 Teekay Shares) to $97.6 million
(6,424,621 Teekay Shares), based on the minimum (50%) and maximum (70%)
percentage of Bona shareholders who may elect to receive Teekay Shares. Teekay
will also assume Bona's debt of approximately $314.0 million, net of cash
acquired.
The acquisition of Bona will be accounted for using the purchase method of
accounting at closing. It is not anticipated that this transaction will result
in the recording of any goodwill.
<PAGE>F-12
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - (Cont'd)
(all tabular amounts stated in thousands of U.S. dollars, other than share
or per share data)
The acquisition is subject to approval by Bona shareholders requiring a 75
percent affirmative vote in a shareholder meeting. It is expected that the
transaction will be completed by mid-June 1999.
As at March 31, 1999, the Company was committed to foreign exchange
contracts for the forward purchase of approximately Japanese Yen 100 million and
Singapore dollars 3.5 million for U.S. dollars, at an average rate of Japanese
Yen 119.8 per U.S. dollar and Singapore dollar 1.69 per U.S. dollar,
respectively, for the purpose of hedging accounts payable and accrued
liabilities.
As at March 31, 1999, the Company was committed to the construction of two
newbuilding Aframax vessels for an aggregate contract price of approximately
$71.2 million, scheduled for delivery in July and September of 1999. As at March
31, 1999, there had been payments made towards this commitment of approximately
$55.6 million.
10. Other Income
<TABLE>
<CAPTION>
Year Ended March 31,
------------------------------------------------------
1999 1998 1997
------------------- ---------------- -----------------
<S> <C> <C> <C>
Gain on disposition of assets............................. $ 7,117 $ 14,392 $
Equity in results of 50% owned company.................... 45 2,696
Write off of loan costs due to refinancing................ (1,308)
Loss on extinguishment of debt............................ (2,175)
Income taxes - deferred .................................. (1,900)
Miscellaneous - net....................................... 289 282 128
------------- ------------- -----------
$ 5,506 $ 11,236 $ 2,824
============= ============= ===========
</TABLE>
For the year ended March 31, 1997, equity in results of the 50% owned
company included a $2,732,000 gain on a vessel sale.
11. Change in Non-Cash Working Capital Items Related to Operating Activities
<TABLE>
<CAPTION>
Year Ended March 31,
-----------------------------------------------------
1999 1998 1997
------------------ ---------------- -----------------
<S> <C> <C> <C>
Accounts receivable....................................... $ 1,332 $ 2,484 $ (1,873)
Prepaid expenses and other assets......................... (2,409) 880 665
Accounts payable.......................................... (4,238) 5,814 4,554
Accrued liabilities....................................... 2,498 (3,977) 2,113
------------- ----------- ----------
$ (2,817) $ 5,201 $ 5,459
============= =========== ==========
</TABLE>
<PAGE>F-13
SCHEDULE A
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Year ended March 31, 1999
--------------- --------------- ---------------- --------------- ----------------
8.32% Notes Teekay
Teekay Guarantor Non-Guarantor Shipping Corp.
Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
--------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Net voyage revenues $ $ 37,820 $ 461,394 $ (180,803) $ 318,411
Operating expenses 356 37,214 376,010 (180,803) 232,777
--------------- --------------- ---------------- --------------- ----------------
Income (loss) from vessel operations (356) 606 85,384 85,634
Net interest income (expense) (22,857) 148 (15,719) (38,428)
Equity in net income of subsidiaries 75,698 (75,698)
Other income 227 30,710 (25,431) 5,506
--------------- --------------- ---------------- --------------- ----------------
Net income before extraordinary loss 52,712 754 100,375 (101,129) 52,712
Extraordinary loss on bond redemption (7,306) (7,306)
--------------- --------------- ---------------- --------------- ----------------
Net Income 45,406 754 100,375 (101,129) 45,406
Retained earnings (deficit),
beginning of the year 428,102 (34,324) 258,911 (224,587) 428,102
Dividends declared (26,611) (26,611)
------------- ------------ -------------- ------------ ----------------
Retained earnings (deficit),
end of the year $ 446,897 $ (33,570) $ 359,286 $ (325,716) $ 446,897
============= ============ ============== ============ ================
</TABLE>
<TABLE>
<CAPTION>
Year ended March 31, 1998
---------------------------------------------------------------------------------
8.32% Notes Teekay
Teekay Guarantor Non-Guarantor Shipping Corp.
Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
--------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Net voyage revenues $ $ 36,443 $ 495,650 $ (226,833) $ 305,260
Operating expenses 362 34,344 389,747 (226,833) 197,620
--------------- --------------- ---------------- --------------- ---------------
Income (loss) from vessel operations (362) 2,099 105,903 107,640
Net interest income (expense) (33,011) 391 (15,752) (48,372)
Equity in net income of subsidiaries 105,936 (105,891) 45
Other income (loss) (2,059) 29,179 (15,929) 11,191
--------------- --------------- ---------------- --------------- ---------------
Net income 70,504 2,490 119,330 (121,820) 70,504
Retained earnings (deficit)
Beginning of the year 382,178 (18,124) 155,181 (137,057) 382,178
Dividends declared (24,580) (18,690) (15,600) 34,290 (24,580)
--------------- --------------- ---------------- --------------- ---------------
Retained earnings (deficit),
End of the year $ 428,102 $ (34,324) $ 258,911 $ (224,587) $ 428,102
============ ========== ========== =========== =============
</TABLE>
<TABLE>
<CAPTION>
Year ended March 31, 1997
---------------- --------------- ---------------- --------------- ----------------
8.32% Notes Teekay
Teekay Guarantor Non-Guarantor Shipping Corp.
Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
---------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Net voyage revenues $ $ 35,960 $ 441,769 $ (197,517) $ 280,212
Operating expenses 494 34,254 348,723 (197,517) 185,954
---------------- --------------- ---------------- --------------- ----------------
Income (loss) from vessel operations (494) 1,706 93,046 94,258
Net interest income (expense) (34,420) 210 (20,242) (54,452)
Equity in net income of subsidiaries 77,352 (74,656) 2,696
Other income 192 12,707 (12,771) 128
---------------- --------------- ---------------- --------------- ----------------
Net income 42,630 1,916 85,511 (87,427) 42,630
Retained earnings (deficit),
beginning of the year 363,690 (1,245) 84,070 (82,825) 363,690
Dividends declared (24,142) (18,795) (14,400) 33,195 (24,142)
-------------- --------------- ---------------- --------------- ------------------
Retained earnings (deficit),
end of the year $ 382,178 $ (18,124) $ 155,181 $ (137,057) $ 382,178
================ =============== ================ =============== ================
__________
(See Note 5)
</TABLE>
<PAGE>F-14
SCHEDULE A
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONDENSED BALANCE SHEETS
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
As at March 31, 1999
----------------------------------------------------------------------------------
8.32% Notes Teekay
Teekay Guarantor Non-Guarantor Shipping Corp.
Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
----------------- ------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 5 $ 33,313 $ 85,117 $ $ 118,435
Other current assets 28 768 142,414 (95,249) 47,961
----------------- ------------- ----------------- --------------- ----------------
Total current assets 33 34,081 227,531 (95,249) 166,396
Vessels and equipment (net) 306,764 967,775 1,274,539
Advances due from subsidiaries 213,498 (213,498)
Other assets (principally marketable
securities, and investments in
subsidiaries) 792,084 11,290 (792,089) 11,285
----------------- ------------- ----------------- --------------- ----------------
$ 1,005,615 $ 340,845 $ 1,206,596 $ (1,100,836) $ 1,452,220
================= ============= ================= =============== ================
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities $ 3,225 $ 1,095 $ 163,844 $ (95,995) $ 72,169
Long-term debt 225,000 377,661 602,661
Due to (from) affiliates 3,990 163,096 (167,086)
----------------- ------------- ----------------- --------------- ----------------
Total liabilities 228,225 5,085 704,601 (263,081) 674,830
----------------- ------------- ----------------- --------------- ----------------
STOCKHOLDERS' EQUITY
Capital stock 330,493 23 5,943 (5,966) 330,493
Contributed capital 369,307 136,766 (506,073)
Retained earnings (deficit) 446,897 (33,570) 359,286 (325,716) 446,897
----------------- ------------- ----------------- --------------- ----------------
Total stockholders' equity 777,390 335,760 501,995 (837,755) 777,390
----------------- ------------- ----------------- --------------- ----------------
$ 1,005,615 $ 340,845 $ 1,206,596 $ (1,100,836) $ 1,452,220
================= ============= ================= =============== ================
</TABLE>
<TABLE>
<CAPTION>
As at March 31, 1998
----------------------------------------------------------------------------------
8.32% Notes Teekay
Teekay Guarantor Non-Guarantor Shipping Corp.
Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
------------------ ------------ ----------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 22 $ 10,687 $ 77,244 $ $ 87,953
Other current assets 13 722 165,716 (114,890) 51,561
------------------ ------------ ----------------- --------------- ----------------
Total current assets 35 11,409 242,960 (114,890) 139,514
Vessels and equipment (net) 327,460 970,423 1,297,883
Advances due from subsidiaries 324,460 (324,460)
Other assets (principally
marketable securities, and
investments in subsidiaries). 719,369 22,791 (719,374) 22,786
------------------ ------------ ----------------- --------------- ----------------
$ 1,043,864 $ 338,869 $ 1,236,174 $(1,158,724) $ 1,460,183
================== ============ ================= =============== ================
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities $ 5,691 $ 3,126 $ 186,953 $ (97,479) $ 98,291
Long-term debt 348,718 323,719 672,437
Due to (from) affiliates 737 323,882 (324,619)
------------------ ------------ ----------------- --------------- ----------------
Total liabilities 354,409 3,863 834,554 (422,098) 770,728
------------------ ------------ ----------------- --------------- ----------------
STOCKHOLDERS' EQUITY
Capital stock 261,353 23 5,943 (5,966) 261,353
Contributed capital 369,307 136,766 (506,073)
Retained earnings (deficit) 428,102 (34,324) 258,911 (224,587) 428,102
------------------ ------------ ----------------- --------------- ----------------
Total stockholders' equity 689,455 335,006 401,620 (736,626) 689,455
------------------ ------------ ----------------- --------------- ----------------
$ 1,043,864 $ 338,869 $ 1,236,174 $(1,158,724) $ 1,460,183
================== ============ ================= =============== ================
</TABLE>
__________
(See Note 5)
<PAGE>F-15
SCHEDULE A
TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands of U.S. dollars)
<TABLE>
<CAPTION>
Year Ended March 31, 1999
--------------- -------------- ---------------- --------------- ----------------
8.32% Notes Teekay
Teekay Guarantor Non-Guarantor Shipping Corp.
Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
--------------- -------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents provided by
(used for)
OPERATING ACTIVITIES
Net cash flow from operating activities $ (24,829) $ 21,261 $ 141,276 $ 137,708
--------------- -------------- ---------------- --------------- ----------------
FINANCING ACTIVITIES
Proceeds from long-term debt 230,000 230,000
Prepayments of long-term debt (108,034) (160,000) (268,034)
Repayments of long-term debt (20,645) (29,932) (50,577)
Net proceeds from issuance of Common
Stock 68,751 68,751
Other 84,740 3,252 (114,904) (26,912)
--------------- -------------- ---------------- --------------- ----------------
Net cash flow from financing activities 24,812 3,252 (74,836) (46,772)
--------------- -------------- ---------------- --------------- ----------------
INVESTING ACTIVITIES
Expenditures for vessels and equipment (1,887) (95,307) (97,194)
Other 36,740 36,740
--------------- -------------- ---------------- --------------- ----------------
Net cash flow from investing activities (1,887) (58,567) (60,454)
--------------- -------------- ---------------- --------------- ----------------
Increase (decrease) in cash and cash
equivalents (17) 22,626 7,873 30,482
Cash and cash equivalents, beginning
of the year 22 10,687 77,244 87,953
--------------- -------------- ---------------- --------------- ----------------
Cash and cash equivalents, end of the
year $ 5 $ 33,313 $ 85,117 $ 118,435
=============== ============== ================ =============== ================
</TABLE>
<TABLE>
<CAPTION>
Year Ended March 31, 1998
--------------- -------------- ---------------- --------------- ----------------
8.32% Notes Teekay
Teekay Guarantor Non-Guarantor Shipping Corp.
Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
--------------- -------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Cash and cash equivalents provided by
(used for)
OPERATING ACTIVITIES
Net cash flow from operating activities $ (32,624) $ 23,489 $ 170,254 $ 161,119
--------------- -------------- ---------------- --------------- ----------------
FINANCING ACTIVITIES
Proceeds from long-term debt 208,600 208,600
Prepayments of long-term debt (29,056) (121,599) (150,655)
Repayments of long-term debt (33,876) (33,876)
Net proceeds from issuance of Common
Stock 5,126 5,126
Other 22,254 (17,968) (21,270) (16,984)
--------------- -------------- ---------------- --------------- ----------------
Net cash flow from financing activities (1,676) (17,968) 31,855 12,211
--------------- -------------- ---------------- --------------- ----------------
INVESTING ACTIVITIES
Expenditures for vessels and equipment (3,566) (212,009) (215,575)
Other 34,290 (21,615) 12,675
--------------- -------------- ---------------- --------------- ----------------
Net cash flow from investing activities 34,290 (3,566) (233,624) (202,900)
--------------- -------------- ---------------- --------------- ----------------
(Decrease) increase in cash and cash
equivalents (10) 1,955 (31,515) (29,570)
Cash and cash equivalents, beginning
of the year 32 8,732 108,759 117,523
--------------- -------------- ---------------- --------------- ----------------
Cash and cash equivalents, end of the
year $ 22 $ 10,687 $ 77,244 $ 87,953
=============== ============== ================ =============== ================
</TABLE>
<PAGE>F-15A
<TABLE>
<CAPTION>
Year Ended March 31, 1997
--------------- -------------- ---------------- --------------- ----------------
8.32% Notes Teekay
Teekay Guarantor Non-Guarantor Shipping Corp.
Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
--------------- -------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Cash and cash equivalents provided by
(used for)
OPERATING ACTIVITIES
Net cash flow from operating activities $ (30,553) $ 23,161 $ 146,550 $ 139,158
--------------- -------------- ---------------- --------------- ----------------
FINANCING ACTIVITIES
Proceeds from long-term debt 240,000 240,000
Prepayments of long-term debt (250,078) (250,078)
Repayments of long-term debt (16,038) (16,038)
Net proceeds from issuance of Common
Stock 1,283 1,283
Other 29,003 (18,780) (24,846) (14,623)
--------------- -------------- ---------------- --------------- ----------------
Net cash flow from financing activities 30,286 (18,780) (50,962) (39,456)
--------------- -------------- ---------------- --------------- ----------------
INVESTING ACTIVITIES
Expenditures for vessels and equipment (859) (80,804) (81,663)
Other 272 (2,568) (2,296)
--------------- -------------- ---------------- --------------- ----------------
Net cash flow from investing activities 272 (859) (83,372) (83,959)
--------------- -------------- ---------------- --------------- ----------------
Increase in cash and cash equivalents 4 3,522 12,216 15,743
Cash and cash equivalents, beginning
of the year 28 5,210 96,543 101,780
--------------- -------------- ---------------- --------------- ----------------
Cash and cash equivalents, end of the
year $ 32 $ 8,732 $ 108,759 $ 117,523
=============== ============== ================ =============== ================
</TABLE>
_________
(See Note 5)
AMALGAMATION AGREEMENT
among
TEEKAY SHIPPING CORPORATION
NORTHWEST MARITIME INC.
and
BONA SHIPHOLDING LIMITED
Dated as of March 26, 1999
Table of Contents
ARTICLE I
The Amalgamation; Closing; Effective Time
1.1. The Amalgamation......................................................1
1.2. Closing 2
1.3. Effective Time........................................................2
ARTICLE II
Memorandum of Association and Bye-Laws
of the Amalgamated Company
2.1. The Memorandum of Association.........................................2
2.2. The Bye-Laws..........................................................2
ARTICLE III
Officers and Directors
of the Amalgamated Company
3.1. Directors.............................................................3
3.2. Officers 3
ARTICLE IV
Effect of the Amalgamation on Capital Stock;
Exchange of Certificates
4.1. Effect on Capital Stock...............................................3
(a) Amalgamation Consideration...................................3
(b) Cancellation of Shares.......................................4
(c) Amalgamation Sub.............................................4
4.2. Allocation of Amalgamation Consideration; Election Procedures.........4
(a) Allocation...................................................4
(b) Election Procedures..........................................4
(c) Distributions with Respect to Unexchanged Shares; Voting.....8
(d) Transfers....................................................8
(e) Fractional Shares............................................8
(f) Termination of Exchange Fund.................................9
(g) Lost, Stolen or Destroyed Certificates.......................9
(h) Affiliates...................................................9
4.3. Dissenters' Rights...................................................10
4.4. Adjustments to Prevent Dilution......................................10
4.5. Restricted Securities................................................10
ARTICLE V
Representations and Warranties
5.1. Representations and Warranties of the Company........................10
(a) Organization, Good Standing and Qualification...............10
(b) Capital Structure...........................................11
(c) Corporate Authority; Approval and Fairness..................11
(d) Governmental Filings; Consents and Approvals;
No Violations...............................................12
(e) Company Reports; Financial Statements.......................13
(f) Absence of Certain Changes..................................14
(g) Litigation and Liabilities..................................14
(h) Employee Benefits...........................................14
(i) Compliance with Laws; Permits...............................15
(j) Takeover Statutes...........................................16
(k) Environmental Matters.......................................16
(l) Taxes ...................................................17
(m) Labor Matters...............................................19
(n) Insurance...................................................19
(o) Intellectual Property.......................................20
(p) Contracts...................................................21
(q) Vessel Condition............................................22
(r) No Misleading Statements....................................22
(s) Year 2000 Compliance Plan...................................22
(t) Assets......................................................22
(u) Brokers and Finders.........................................23
5.2. Representations and Warranties of Parent and Amalgamation Sub........23
(a) Capitalization of Amalgamation Sub..........................23
(b) Organization, Good Standing and Qualification...............23
(c) Capital Structure...........................................24
(d) Corporate Authority.........................................24
(e) Governmental Filings; No Violations.........................25
(f) Parent Reports; Financial Statements........................25
(g) Absence of Certain Changes..................................26
(h) Litigation and Liabilities..................................26
(i) Brokers and Finders.........................................27
(j) Available Funds.............................................27
ARTICLE VI
Covenants
6.1. Interim Operations...................................................27
6.2. Acquisition Proposals................................................28
6.3. Information Supplied.................................................30
6.4. Stockholders Meeting.................................................30
6.5. Filings; Other Actions; Notification.................................30
6.6. Access ............................................................31
6.7. Affiliates...........................................................32
6.8. Stock Exchange Listing and De-listing................................32
6.9. Publicity............................................................32
6.10. Benefits 33
(a) Stock Options...............................................33
(b) Employee Benefits...........................................33
(c) Election to Parent's Board of Directors.....................33
6.11. Expenses 34
6.12. Indemnification......................................................34
6.13. Takeover Statute.....................................................35
6.14. Parent Vote..........................................................35
6.15. Parent Change of Domicile or Incorporation...........................35
ARTICLE VII
Conditions
7.1. Conditions to Each Party's Obligation to Effect the Amalgamation.....35
(a) Stockholder Approval........................................36
(b) Regulatory Consents.........................................36
(c) Litigation..................................................36
7.2. Conditions to Obligations of Parent and Amalgamation Sub.............36
(a) Representations and Warranties..............................36
(b) Performance of Obligations of the Company...................37
(c) Consents Under Agreements...................................37
(d) Resignations................................................37
(e) Dissenting Shares...........................................37
(f) Affiliates Letters..........................................37
7.3. Conditions to Obligation of the Company..............................37
(a) Representations and Warranties..............................37
(b) Performance of Obligations of Parent and Amalgamation Sub...38
ARTICLE VIII
Termination
8.1. Termination by Mutual Consent........................................38
8.2. Termination by Either Parent or the Company..........................38
8.3. Termination by the Company...........................................38
8.4. Termination by Parent................................................39
8.5. Effect of Termination and Abandonment................................39
ARTICLE IX
Miscellaneous and General
9.1. Survival 40
9.2. Modification or Amendment............................................41
9.3. Waiver of Conditions.................................................41
9.4. Counterparts.........................................................41
9.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL........................41
9.6. Notices 42
9.7. Entire Agreement.....................................................43
9.8. No Third Party Beneficiaries.........................................43
9.9. Obligations of Parent and of the Company.............................43
9.10. Severability.........................................................44
9.11. Interpretation.......................................................44
9.12. Assignment...........................................................44
AMALGAMATION AGREEMENT (hereinafter called this "Agreement"), dated as of
March 26, 1999, among Bona Shipholding Limited, a company incorporated under the
laws of Bermuda (the "Company"), Teekay Shipping Corporation, a company
incorporated under the laws of Liberia ("Parent"), and Northwest Maritime Inc.,
a company incorporated under the laws of the Bahamas ("Amalgamation Sub") and
wholly-owned subsidiary of Parent.
RECITALS
WHEREAS, the respective boards of directors of each of Parent,
Amalgamation Sub and the Company have approved the amalgamation of Amalgamation
Sub with and into the Company (the "Amalgamation") and approved the Amalgamation
upon the terms and subject to the conditions set forth in this Agreement;
WHEREAS, the Company and Amalgamation Sub wish to amalgamate pursuant to
the provisions of Part VII of the Companies Act 1981 of Bermuda (the "Act");
WHEREAS, the parties intend that the issuance of shares of Parent in the
Amalgamation qualify for exemption from registration under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to Regulation S thereunder;
WHEREAS, concurrently with the execution and delivery of this Agreement and
as a condition and inducement to Parent's willingness to enter into this
Agreement, certain stockholders of the Company have entered into a Stockholders
Agreement and Voting Agreements, dated as of the date of this Agreement and
attached hereto as Exhibit A (collectively, the "Stockholders/Voting
Agreements"), pursuant to which such stockholders have agreed, among other
things, to vote their shares of common stock of the Company in favor of the
Amalgamation; and
WHEREAS, the Company, Parent and Amalgamation Sub desire to make certain
representations, warranties, covenants and agreements in connection with this
Agreement.
NOW, THEREFORE, in consideration of the premises, and of the
representations, warranties, covenants and agreements contained herein, the
parties hereto agree as follows:
ARTICLE I
The Amalgamation; Closing; Effective Time
1.1. The Amalgamation. Upon the terms and subject to the conditions set
forth in this Agreement, at the Effective Time (as defined in Section1.3)
Amalgamation Sub shall be amalgamated with the Company and they shall continue
as one company (sometimes hereinafter referred to as the "Amalgamated Company").
The separate corporate existence of each of the Company and Amalgamated Sub with
all their respective rights, privileges, immunities, powers and franchises shall
continue unaffected by the Amalgamation in accordance with Section 109 of the
Act. The Amalgamation shall have the effects specified in the Act.
1.2. Closing. The closing of the Amalgamation (the "Closing") shall take
place (i) at the offices of Sullivan & Cromwell, 125 Broad Street, New York, New
York at 9:00 A.M. on the second business day following the day on which the last
to be fulfilled or waived of the conditions set forth in Article VII (other than
those conditions that by their nature are to be satisfied at the Closing, but
subject to the fulfillment or waiver of those conditions) shall be satisfied or
waived in accordance with this Agreement or (ii) at such other place and time
and/or on such other date as the Company and Parent may agree in writing (the
"Closing Date").
1.3. Effective Time. Immediately prior to and in connection with the
Closing, the Company and Parent will cause the documents required by Section 108
of the Act to be filed with the Registrar of Companies in Bermuda (the "Bermuda
Registrar"). The Amalgamation shall become effective at the time when the
Bermuda Registrar issues a Certificate of Amalgamation pursuant to Section 109
of the Act (the "Effective Time").
ARTICLE II
Memorandum of Association and Bye-Laws
of the Amalgamated Company
2.1. The Memorandum of Association. The Memorandum of Association of the
Company as in effect immediately prior to the Effective Time shall be the
Memorandum of Association of the Amalgamated Company (the "Memorandum"), until
duly amended as provided therein or by applicable law.
2.2. The Bye-Laws. The bye-laws of the Company in effect at the Effective
Time shall be the bye-laws of the Amalgamated Company (the "Bye-Laws"), until
duly amended as provided therein or by applicable law.
ARTICLE III
Officers and Directors
of the Amalgamated Company
3.1. Directors. The directors of Amalgamation Sub at the Effective Time
shall, from and after the Effective Time, be the directors of the Amalgamated
Company until their successors have been duly elected or appointed and qualified
or until their earlier death, resignation or removal in accordance with the
Memorandum and the Bye-Laws.
3.2. Officers. The officers of the Company (other than those that are
officers solely as a result of being a director) at the Effective Time shall,
from and after the Effective Time, be the officers of the Amalgamated Company
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Memorandum and the Bye-Laws;
ARTICLE IV
Effect of the Amalgamation on Capital Stock;
Exchange of Certificates
4.1. Effect on Capital Stock. At the Effective Time, as a result of the
Amalgamation and without any action on the part of the holder of any capital
stock of the Company:
(a) Amalgamation Consideration. Subject to Section 4.2, each share of the
Common Stock, par value $1.50 per share, of the Company (the "Shares") issued
and outstanding at the Effective Time (other than Shares owned by Parent,
Amalgamation Sub or any other direct or indirect subsidiary of Parent
(collectively, the "Parent Companies") or Shares that are owned by the Company
or any direct or indirect subsidiary of the Company and in each case not held on
behalf of third parties (collectively, "Excluded Shares") shall be converted
into, and become exchangeable for (the "Amalgamation Consideration"), (i) $7.00
in cash (the "Cash Consideration") or (ii) 0.485 shares of Common Stock, without
par value, of Parent (the "Parent Common Stock") (the "Stock Consideration"). At
the Effective Time, all Shares shall no longer be outstanding and shall be
canceled and retired and shall cease to exist, and the global certificate (the
"Certificate") held by Den norske Bank ("DNB"), from which the Shares are
derived and registered in the computer securities registry ("VPS") in Oslo,
shall thereafter represent only the right to receive the Amalgamation
Consideration and the right, if any, to receive pursuant to Section 4.2(e) cash
in lieu of fractional shares of Parent Common Stock into which such Shares have
been converted pursuant to this Section 4.1(a) and any dividends or other
distributions pursuant to Section 4.2(c). Parent agrees that it shall take such
steps as may be necessary in order to (i) provide a dealing facility that will
allow stockholders who would receive less than 200 shares of Stock Consideration
to have those shares sold on their behalf without brokers' fees or other
transaction costs and (ii) subject to compliance with VPS requirements, provide
stockholders the opportunity to receive Cash Consideration in Norwegian Kroner,
translated at the noon buying rate on the day on which payment is made and
without deduction for any transaction costs.
(b) Cancellation of Shares. Each Excluded Share shall, by virtue of the
Amalgamation and without any action on the part of the holder thereof, cease to
be outstanding, shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
(c) Amalgamation Sub. At the Effective Time, each share of Common Stock,
without par value, of Amalgamation Sub issued and outstanding immediately prior
to the Effective Time shall be converted into one share of common stock of the
Amalgamated Company.
4.2. Allocation of Amalgamation Consideration; Election Procedures.
(a) Allocation. Notwithstanding anything in this Agreement to the contrary,
the maximum number of Shares (the "Cash Election Number") to be converted into
the right to receive Cash Consideration in the Amalgamation shall be equal to 50
percent of the number of Shares issued and outstanding immediately prior to the
Effective Time of the Amalgamation less the Excluded Shares. The maximum number
of Shares to be converted into the right to receive Stock Consideration in the
Amalgamation (the "Stock Election Number") shall be equal to 70 percent of the
number of Shares issued and outstanding immediately prior to the Effective Time
of the Amalgamation less the Excluded Shares.
(b) Election Procedures.
(i) As of the Effective Time, Parent shall deposit, or shall cause to be
deposited, with an exchange agent selected by Parent, with the Company's prior
approval, which shall not be unreasonably withheld (the "Exchange Agent"), for
the benefit of the holders of Shares, certificates representing the shares of
Parent Common Stock and any cash to be paid pursuant to Section 4.1 and
thereafter, shall from time to time deposit, or cause to be deposited any
dividends or other distributions with respect to the Parent Common Stock to be
issued or paid pursuant to Section 4.2(c) in exchange for outstanding Shares
(such cash and certificates for shares of Parent Common Stock, together with the
amount of any dividends or other distributions payable with respect thereto,
being hereinafter referred to as the "Exchange Fund").
(ii) Subject to allocation and proration in accordance with the provisions
of this Section 4.2, each record holder of Shares (other than Excluded Shares)
issued and outstanding immediately prior to the Election Deadline (as defined
below) shall be entitled (A) to elect to receive in respect of each such Share
(x) Cash Consideration (a "Cash Election") or (y) Stock Consideration (a "Stock
Election") or (B) to indicate that such record holder has no preference as to
the receipt of Cash Consideration or Stock Consideration for such Shares (a
"Non-Election"); provided, however, that no U.S. Person (as defined in Rule
902(k) of the Securities Act other than any signatory to a Stockholder/Voting
Agreement entered into simultaneously herewith) (the "Excluded U.S. Holders")
shall be permitted to make a Stock Election. Shares in respect of which a
Non-Election is made (including shares in respect of which such an election is
deemed to have been made pursuant to this Section 4.2 and Section 4.3)
(collectively, "Non-Election Shares") shall be deemed by the Parent, in its sole
and absolute discretion, subject to Sections 4.2(b)(v)-(vii), to be, in whole or
in part, Shares in respect of which Cash Elections or Stock Elections have been
made, provided, however, that any Non-Election made by an Excluded U.S. Holder
shall be deemed to be a Cash Election. Any stockholders of the Company who
intend to exercise their appraisal rights pursuant to Section 106 of the Act
("Dissenting Stockholders") and who do not make an election pursuant to this
Section 4.2 shall be deemed to have made a Non-Election.
(iii) Elections pursuant to Section 4.2(b)(i) shall be made on a form (a
"Form of Election"), and with such other provisions to be reasonably agreed upon
by the Company and Parent, to be provided by the Exchange Agent for that purpose
to holders of record of Shares (other than holders of Excluded Shares), together
with appropriate transmittal materials, at the time of mailing to holders of
record of Shares of any proxy or information statement in connection with the
stockholders meeting referred to in Section 6.4. Elections shall be made by
mailing to the Exchange Agent a duly completed Form of Election. To be
effective, a Form of Election must be properly completed, signed and submitted
to the Exchange Agent at its designated office, by 5:00 p.m. on the business day
that is two trading days prior to the Closing Date (which date shall be publicly
announced by Parent as soon as practicable but in no event less than five
trading days prior to the Closing Date) (the "Election Deadline"). The Company
shall use its best efforts to make a Form of Election available to all Persons
(as defined below) who become holders of record of Shares (other than Excluded
Shares) between the date of mailing described in the first sentence of this
Section 4.2(b)(iii) and the Election Deadline. Parent shall determine, in its
sole and absolute discretion, which authority it may delegate in whole or in
part to the Exchange Agent, whether Forms of Election have been properly
completed, signed and submitted or revoked. The decision of Parent (or the
Exchange Agent, as the case may be) in such matters shall be conclusive and
binding. Neither Parent nor the Exchange Agent will be under any obligation to
notify any Person of any defect in a Form of Election submitted to the Exchange
Agent. A holder of Shares that does not submit an effective Form of Election
prior to the Election Deadline shall be deemed to have made a Non-Election.
(iv) An election may be revoked, but only by written notice received by the
Exchange Agent prior to the Election Deadline. Upon any such revocation, unless
a duly completed Form of Election is thereafter submitted in accordance with
paragraph (b)(ii), such Shares shall be Non-Election Shares.
(v) In the event that the aggregate number of Shares in respect of which
Cash Elections have been made (collectively, the "Cash Election Shares") exceeds
the Cash Election Number, all shares in respect of which Stock Elections have
been made (the "Stock Election Shares") and all Non-Election Shares in respect
of which Stock Elections are deemed to have been made (it being understood that
in such case all Non-Election Shares shall be deemed to be shares in respect of
which Stock Elections have been made) shall be converted into the right to
receive Stock Consideration, and all Cash Election Shares shall be converted
into the right to receive Stock Consideration or Cash Consideration in the
following manner:
(A) Cash Election Shares shall be deemed converted to Stock Election
Shares, on a pro-rata basis, so that the number of Cash Election Shares so
converted, when added to the other Stock Election Shares, shall equal as closely
as practicable 50 percent of the number of Shares issued and outstanding
immediately prior to the Effective Time of the Amalgamation less the Excluded
Shares, and all such Cash Election Shares so converted shall be converted into
the right to receive Stock Consideration (and cash in lieu of fractional
interests); provided, however, that the Cash Elections made by Excluded U.S.
Holders shall be exempt from the pro-ration of this paragraph (A); and
(B) any remaining Cash Election Shares shall be converted into the right to
receive Cash Consideration.
(vi) In the event that the aggregate number of Stock Election Shares
exceeds the Stock Election Number, all Cash Election Shares and all Non-Election
Shares in respect of which Cash Elections are deemed to have been made (it being
understood that in such case all Non-Election Shares shall be deemed to be
Shares in respect of which Cash Elections have been made) shall be converted
into the right to receive Cash Consideration, and all Stock Election Shares
shall be converted into the right to receive Stock Consideration or Cash
Consideration in the following manner:
(A) Stock Election Shares shall be deemed converted into Cash Election
Shares, on a pro-rata basis, so that the number of Stock Election Shares so
converted, when added to the other Cash Election Shares, shall equal as closely
as practicable (i) 30 percent of the number of Shares issued and outstanding
immediately prior to the Effective Time of the Amalgamation less the Excluded
Shares, and all such Shares so converted shall be converted into the right to
receive the Cash Consideration; and
(B) the remaining Stock Election Shares shall be converted into the right
to receive the Stock Consideration (and cash in lieu of fractional interests).
(vii) In the event that neither clause (v) nor clause (vi) of this
Section 4.2(b) is applicable, (x) all Cash Election Shares and all Non-Election
Shares in respect of which Cash Elections are deemed to have been made shall be
converted into the right to receive Cash Consideration, and (y) all Stock
Election Shares and all Non-Election Shares in respect of which Stock Elections
are deemed to have been made shall be converted into the right to receive Stock
Consideration (and cash in lieu of fractional interests).
(viii) The Exchange Agent, in consultation with Parent and the Company,
shall make all computations to give effect to this Section 4.2.
(ix) After the Effective Time and subject to this Section 4.2, upon
delivery of a duly completed Form of Election for Stock Consideration, the
holder of such Shares shall be entitled to receive (after giving effect to any
required tax withholdings) (a) a certificate representing that number of whole
shares of Parent Common Stock that such holder is entitled to receive pursuant
to this Article IV, (b) a check in the amount of (x) any cash in lieu of
fractional shares plus (y) any unpaid non-stock dividends and any other
dividends or other distributions that such holder has the right to receive
pursuant to the provisions of this Article IV. No interest will be paid or
accrued on any amount payable upon due surrender of the Certificates
representing Stock Election Shares.
(x) After the Effective Time and subject to this Section 4.2, upon delivery
of a duly completed Form of Election for Cash Consideration, the holder of such
Shares shall be entitled to receive (after giving effect to any required tax
withholdings) a check in the amount such holder is entitled to receive pursuant
to this Article IV.
For the purposes of this Agreement, the term "Person" shall mean any
individual, corporation (including not-for-profit entity), general or limited
partnership, limited liability company, joint venture, estate, trust,
association, organization, Governmental Entity (as defined below) or other
entity of any kind or nature.
(c) Distributions with Respect to Unexchanged Shares; Voting.
(i) All shares of Parent Common Stock to be issued pursuant to the
Amalgamation shall be deemed issued and outstanding as of the Effective Time and
whenever a dividend or other distribution is declared by Parent in respect of
the Parent Common Stock, the record date for which is at or after the Effective
Time, that declaration shall include dividends or other distributions in respect
of all shares issuable pursuant to this Agreement. No dividends or other
distributions in respect of the Parent Common Stock shall be paid to any holder
of any unsurrendered Shares until such Shares are surrendered for exchange in
accordance with this Article IV. Subject to the effect of applicable laws,
following surrender of any such Shares, there shall be issued and/or paid to
such holder of Shares, certificates representing whole shares of Parent Common
Stock issued in exchange therefor, without interest, (A) at the time of such
surrender, the dividends or other distributions with a record date after the
Effective Time theretofore payable with respect to such whole shares of Parent
Common Stock and not paid and (B) at the appropriate payment date, the dividends
or other distributions payable with respect to such whole shares of Parent
Common Stock with a record date after the Effective Time but with a payment date
subsequent to surrender.
(ii) Any holder of Shares shall be entitled to vote after the Effective
Time at any meeting of Parent stockholders the number of whole shares of Parent
Common Stock represented by such Shares, regardless of whether such holders have
surrendered such Shares.
(d) Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional shares of Parent Common Stock will be issued and any
holder of Shares entitled to receive a fractional share of Parent Common Stock
but for this Section 4.2(d) shall be entitled to receive a cash payment in lieu
thereof. Such cash payment shall be derived from the average closing price of
the shares of Parent Common Stock as quoted on the New York Stock Exchange for
the 20 trading days ended three business days prior to the Effective Time.
(e) Termination of Exchange Fund. Any portion of the Exchange Fund
(including the proceeds of any investments thereof and any Parent Common Stock)
that remains unclaimed by the stockholders of the Company for 180 days after the
Effective Time, shall be paid to Parent. Any stockholders of the Company who
have not theretofore complied with this Article IV shall thereafter look only to
Parent for payment of their shares of Parent Common Stock and any cash,
dividends and other distributions in respect thereof payable and/or issuable
pursuant to Section 4.1 and Section 4.2(c) upon due surrender of their Shares,
in each case, without any interest thereon. Notwithstanding the foregoing, none
of Parent, the Amalgamated Company, the Exchange Agent or any other Person shall
be liable to any former holder of Shares for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
(f) Affiliates. Notwithstanding anything herein to the contrary, Shares
surrendered for exchange for Stock Consideration by any "affiliate" (as
determined pursuant to Section 6.7) of the Company shall not be exchanged until
Parent has received a written agreement from such Person as provided in
Section 6.7 hereof.
4.3. Dissenters' Rights. A Dissenting Shareholder who does not vote in
favor of the Amalgamation at the Stockholders Meeting (as defined in Section 6.4
hereof) and who is not satisfied that he has been offered fair value for his
Shares may within one month of the giving of the notice of the said Stockholders
Meeting apply to the Supreme Court of Bermuda (the "Court") to appraise the fair
value of his Shares. In the event that the Amalgamation has proceded prior to
such appraisal by the Court, then within one month of the Court appraising the
value of the Shares, if the amount paid to the Dissenting Shareholder for his
Shares is less than that appraised by the Court, the Amalgamated Company shall
pay to such Dissenting Shareholder the difference between the Amalgamation
Consideration and the value appraised by the Court. The Company shall give
Parent (i) prompt notice of any written demands for appraisal, attempted
withdrawals of such demands, and any other instruments served pursuant to
applicable law received by the Company relating to stockholders' rights of
appraisal and (ii) the opportunity to direct all negotiations and proceedings
with respect to demand for appraisal under the Act. The Company shall not,
except with the prior written consent of Parent, voluntarily make any payment
with respect to any demands for appraisals of Dissenting Shares, offer to settle
or settle any such demands or approve any withdrawal of any such demands.
4.4. Adjustments to Prevent Dilution. In the event that the Company changes
the number of Shares or securities convertible or exchangeable into or
exercisable for Shares, or Parent changes the number of shares of Parent Common
Stock or securities convertible or exchangeable into or exercisable for shares
of Parent Common Stock, issued and outstanding prior to the Effective Time as a
result of a reclassification, stock split (including a reverse split), stock
dividend or distribution, recapitalization, amalgamation, merger, subdivision,
issuer tender or exchange offer, or other similar transaction, the Amalgamation
Consideration shall be equitably adjusted.
4.5. Restricted Securities. The shares of Parent Common Stock constituting
the Stock Consideration have not been registered under the Securities Act.
ARTICLE V
Representations and Warranties
5.1. Representations and Warranties of the Company. Except as set forth in
the corresponding schedules or sections of the disclosure schedule delivered to
Parent by the Company prior to 1:00 p.m. (Oslo, Norway time) on March 27, 1999
(the "Company Disclosure Schedule"), the Company hereby represents and warrants
to Parent and Amalgamation Sub that:
(a) Organization, Good Standing and Qualification. Each of the Company and
its Subsidiaries is duly organized, validly existing and in good standing under
the laws of its respective jurisdiction of organization and has all requisite
corporate or similar power and authority to own and operate its properties and
assets and to carry on its business as presently conducted and is qualified to
do business and is in good standing as a foreign corporation in each
jurisdiction where the ownership or operation of its properties or conduct of
its business requires such qualification, except where the failure to be so
qualified or in good standing, when taken together with all other such failures,
is not reasonably likely to have a Company Material Adverse Effect (as defined
below). The Company shall make available to Parent by 1:00 p.m. (Oslo, Norway
time) on March 27, 1999 a complete and correct copy of the Company's and its
Subsidiaries' memoranda of association or certificates of incorporation, as
applicable, and bye-laws or by-laws, as applicable, each as amended to date, and
together "Organizational Documents". With respect to Bona Shipping Philippines
Inc. and Bona Shipping (India) Pvt. Ltd., the foregoing is limited to the best
knowledge of the Company. The Company's and its Subsidiaries' Organizational
Documents so delivered are in full force and effect. Section 5.1(a) of the
Company Disclosure Schedule contains a correct and complete list of each
jurisdiction where the Company and each of its Subsidiaries is organized.
As used in this Agreement, the term (A) "Subsidiary" means, with respect to
the Company, Parent or Amalgamation Sub, as the case may be, any entity, whether
incorporated or unincorporated, of which such party is the general partner or
managing member or of which at least a majority of the securities or ownership
interests having by their terms ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions is directly or
indirectly owned or controlled by such party or by one or more of its respective
Subsidiaries or by such party and any one or more of its respective Subsidiaries
and (B) "Company Material Adverse Effect" means a material adverse effect on the
financial condition, properties, prospects, business or results of operations of
the Company and its Subsidiaries taken as a whole.
(b) Capital Structure. The authorized capital stock of the Company consists
of 250,000,000 Shares, of which 18,923,774 Shares were outstanding as of the
close of business on March 26, 1999. All of the outstanding Shares have been
duly authorized and are validly issued, fully paid and nonassessable. The
Company has no Shares reserved for issuance, except that, as of March 26, 1999,
there were 380,000 Shares reserved for issuance pursuant to the Company's share
option program (the "Stock Plan"). The Company Disclosure Schedule contains a
correct and complete list of each outstanding option to purchase Shares under
the Stock Plan (each a "Company Option"), including the holder, date of grant,
exercise price and number of Shares subject thereto. Each of the outstanding
shares of capital stock or other securities of each of the Company's
Subsidiaries is duly authorized, validly issued, fully paid and nonassessable
and owned by a direct or indirect wholly-owned subsidiary of the Company, free
and clear of any lien, pledge, security interest, claim, third party interest or
other encumbrance. Except as set forth above, there are no preemptive or other
outstanding rights, options, warrants, conversion rights, stock appreciation
rights, redemption rights, repurchase rights, agreements, arrangements or
commitments to issue or sell any shares of capital stock or other securities of
the Company or any of its Subsidiaries or any securities or obligations
convertible or exchangeable into or exercisable for, or giving any Person a
right to subscribe for or acquire, any securities of the Company or any of its
Subsidiaries, and no securities or obligations evidencing such rights are
authorized, issued or outstanding, except that certain stockholders (or
partners, as applicable) in Subsidiaries have preemptive rights in such
Subsdiaries. The Company does not have outstanding any bonds, debentures, notes
or other obligations the holders of which have the right to vote (or convertible
into or exercisable for securities having the right to vote) with the
stockholders of the Company on any matter.
(c) Corporate Authority; Approval and Fairness.
(i) The Company has all requisite corporate power and authority and has
taken all corporate action necessary in order to execute, deliver and perform
its obligations under this Agreement and to consummate, subject only to approval
of this Agreement by the holders of 75% of the votes cast at the stockholders'
meeting convened for such purpose (the "Company Requisite Vote"). This Agreement
is a valid and binding agreement of the Company enforceable against the Company
in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights and to general equity principles (the
"Bankruptcy and Equity Exception").
(ii) The board of directors of the Company (A) has unanimously approved
this Agreement and the Amalgamation and the other transactions contemplated
hereby and (B) shall have received, prior to the public announcement of the
execution of this Agreement, the opinion of its financial advisors, Warburg
Dillon Read, to the effect that the consideration per Share to be received by
the holders of the Shares in the Amalgamation is fair to such holders from a
financial point of view.
For purposes of this Agreement an "Affiliate" of, or a person "Affiliated"
with, a specified person, is a person that directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, the person specified.
(d) Governmental Filings; Consents and Approvals; No Violations. (i) Other
than the filings and/or notices (A) pursuant to Section 1.3, and (B) required to
be made with the Oslo Stock Exchange (the "OSE"), no notices, reports or other
filings are required to be made by the Company or any of its Subsidiaries with,
nor are any consents, registrations, approvals, permits or authorizations
required to be obtained by the Company or any of its Subsidiaries from, any
governmental or regulatory authority, agency, commission, body or other
governmental or regulatory entity ("Governmental Entity"), in connection with
the execution and delivery of this Agreement by the Company and the consummation
by the Company of the Amalgamation and the other transactions contemplated
hereby, except those that the failure to make or obtain are not, individually or
in the aggregate, reasonably likely to have a Company Material Adverse Effect or
prevent, materially delay or materially impair the ability of the Company to
consummate the transactions contemplated by this Agreement.
(ii) The execution, delivery and performance of this Agreement by the
Company do not, and the consummation by the Company of the Amalgamation and the
other transactions contemplated hereby will not, constitute or result in (A) a
breach or violation of, or a default under, the Organizational Documents of the
Company or any of its Subsidiaries, (B) a breach or violation of, or a default
under, or the acceleration of any obligations under, or the termination of, or
loss of any benefit under, or the creation of a lien, pledge, security interest,
third party interest or other encumbrance on the assets of the Company or any of
its Subsidiaries (with or without notice, lapse of time or both) pursuant to,
any agreement, lease, contract, note, mortgage, indenture, arrangement, license
or other obligation ("Contracts") binding upon the Company or any of its
Subsidiaries or their respective assets, or any Law (as defined in
Section 5.1(i)) or governmental or non-governmental permit or license to which
the Company or any of its Subsidiaries is subject or (C) any change in the
rights or obligations of any party under any of the Contracts, except, in the
case of clause (B) or (C) above, for any breach, violation, default,
acceleration, termination, creation or change that, individually or in the
aggregate, is not reasonably likely to have a Company Material Adverse Effect or
prevent, materially delay or materially impair the ability of the Company to
consummate the transactions contemplated by this Agreement.
(e) Company Reports; Financial Statements. The Company has delivered to
Parent each registration statement, report, proxy statement or information
statement prepared by it since December 31, 1998 (the "Audit Date") each in the
form (including exhibits, annexes and any amendments thereto) filed with the OSE
(collectively, including any such reports filed subsequent to the date hereof
and as amended, the "Company Reports"). As of the date hereof, (or, if amended,
as of the date of such amendment) the Company Reports did not, and any Company
Reports filed with the OSE subsequent to the date hereof shall not, contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in light of
the circumstances in which they were made, not misleading, in each case, as of
their respective dates. Each of the consolidated balance sheets included in or
incorporated by reference into the Company Reports (including the related notes
and schedules) fairly presents, or, in the case of Company Reports filed with
the OSE subsequent to the date hereof, shall fairly present, the consolidated
financial position of the Company and its Subsidiaries as of its date and each
of the consolidated statements of income and of changes in financial position
included in or incorporated by reference into the Company Reports (including any
related notes and schedules) fairly presents, or in the case of Company Reports
filed with the OSE subsequent to the date hereof, shall fairly present, the
results of operations, retained earnings and changes in financial position, as
the case may be, of the Company and its Subsidiaries for the periods set forth
therein (subject, in the case of unaudited statements, to notes and normal
year-end audit adjustments that will not be material in amount or effect), in
each case in accordance with U.S. generally accepted accounting principles
consistently applied during the periods involved, except as may be noted
therein.
(f) Absence of Certain Changes. Except as disclosed in the Company Reports
filed prior to the date hereof, since the Audit Date the Company and its
Subsidiaries have conducted their respective businesses only in, and have not
engaged in any material transaction other than according to, the ordinary and
usual course of such businesses and there has not been (i) any change in the
financial condition, properties, prospects, business or results of operations of
the Company and its Subsidiaries or any development or combination of
developments of which management of the Company has knowledge that, individually
or in the aggregate, has had or is reasonably likely to have a Company Material
Adverse Effect, other than any decrease in the market asset value of any vessels
resulting from a change in market conditions specific to the shipping industry;
(ii) any material damage, destruction or other casualty loss with respect to any
material asset or property owned, leased or otherwise used by the Company or any
of its Subsidiaries, whether or not covered by insurance; (iii) any declaration,
setting aside or payment of any dividend or other distribution in respect of the
capital stock of the Company, except for dividends or other distributions on its
capital stock publicly announced prior to the date hereof; or (iv) any change by
the Company in accounting principles, practices or methods. Since the Audit
Date, except as provided for herein or as disclosed in the Company Reports filed
prior to the date hereof, there has not been any increase in the compensation
payable or that could become payable by the Company or any of its Subsidiaries
to any officer or key employee or any amendment of any of the compensation and
benefit plans of the Company or its Subsidiaries other than increases or
amendments in the ordinary course consistent with past practice.
(g) Litigation and Liabilities. Except as disclosed in the Company Reports
filed prior to the date hereof, there are no (i) civil, criminal or
administrative actions, suits, claims, hearings, investigations or proceedings
pending or, to the knowledge of the officers of the Company, threatened against
the Company or any of its Affiliates or (ii) obligations or liabilities, whether
or not accrued, contingent or otherwise and whether or not required to be
disclosed, including those relating to matters involving any Environmental Law
(as defined in Section 5.1(k)), or any other facts or circumstances of which the
officers of the Company have knowledge that could result in any claims against,
or obligations or liabilities of, the Company or any of its Affiliates, except
for those that are not, individually or in the aggregate, reasonably likely to
have a Company Material Adverse Effect or prevent or materially burden or
materially impair the ability of the Company to consummate the transactions
contemplated by this Agreement.
(h) Employee Benefits.
(i) A copy of each bonus, deferred compensation, pension, retirement,
profit-sharing, thrift, savings, employee stock ownership, stock bonus, stock
purchase, restricted stock, stock option, employment, termination, severance,
compensation, medical, health or other plan, agreement, policy or arrangement
that covers employees, directors, former employees or former directors of the
Company and its Subsidiaries (the "Compensation and Benefit Plans") and any
trust agreement or insurance contract forming a part of such Compensation and
Benefit Plans shall be made available to Parent by 1:00 p.m. (Oslo, Norway time)
on March 27, 1999. The Compensation and Benefit Plans are listed in
Section 5.1(h) of the Company Disclosure Schedule and any "change of control" or
similar provisions therein are specifically identified in Section 5.1(h) of the
Company Disclosure Schedule.
(ii) All Compensation and Benefit Plans are in substantial compliance with
all applicable law. There is no pending or, to the knowledge of the officers of
the Company, threatened material litigation relating to the Compensation and
Benefit Plans.
(iii) All contributions required to be made under the terms of any
Compensation and Benefit Plan as of the date hereof have been timely made. The
Company and its Subsidiaries have no material unfunded liabilities with respect
to any Pension Plan.
(iv) Neither the Company nor its Subsidiaries have any obligations for
retiree health and life benefits under any Compensation and Benefit Plan. The
Company or its Subsidiaries may amend or terminate any such plan under the terms
of such plan at any time without incurring any material liability thereunder.
(v) The consummation of the Amalgamation and the other transactions
contemplated by this Agreement will not (x) entitle any employees of the Company
or its Subsidiaries to severance pay, (y) accelerate the time of payment or
vesting or trigger any payment of compensation or benefits under, increase the
amount payable or trigger any other material obligation pursuant to, any of the
Compensation and Benefit Plans or (z) result in any breach or violation of, or a
default under, any of the Compensation and Benefit Plans.
(i) Compliance with Laws; Permits. Except as set forth in the Company
Reports filed prior to the date hereof, the businesses of each of the Company
and its Subsidiaries have not been, and are not being, conducted in violation of
any multinational, federal, regional, state, local or other law, statute,
ordinance, rule, regulation, judgment, order, injunction, decree, arbitration
award, agency requirement, license or permit of any Governmental Entity
(collectively, "Laws"), except for violations or possible violations that,
individually or in the aggregate, are not reasonably likely to have a Company
Material Adverse Effect or prevent or materially burden or materially impair the
ability of the Company to consummate the transactions contemplated by this
Agreement. Except as set forth in the Company Reports filed prior to the date
hereof, no investigation or review by any Governmental Entity with respect to
the Company or any of its Subsidiaries is pending or, to the knowledge of the
officers of the Company, threatened, nor has any Governmental Entity indicated
an intention to conduct the same, except for those the outcome of which are not,
individually or in the aggregate, reasonably likely to have a Company Material
Adverse Effect or prevent or materially burden or materially impair the ability
of the Company to consummate the transactions contemplated by this Agreement. To
the knowledge of the officers of the Company, no material change is required in
the Company's or any of its Subsidiaries' processes, properties or procedures in
connection with any such Laws, and the Company has not received any notice or
communication of any material noncompliance with any such Laws that has not been
cured as of the date hereof. The Company and its Subsidiaries each has all
permits, licenses, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct its
business as presently conducted except those the absence of which are not,
individually or in the aggregate, reasonably likely to have a Company Material
Adverse Effect or prevent or materially burden or materially impair the ability
of the Company to consummate the Amalgamation and the other transactions
contemplated by this Agreement.
(j) Takeover Statutes. No "fair price", "moratorium", "control share
acquisition" or other anti-takeover statute or regulation (each a "Takeover
Statute") or any anti-takeover provision in the Company's Organizational
Documents is, or at the Effective Time will be, applicable to the Company, the
Shares, the Amalgamation or the other transactions contemplated by this
Agreement or the Stockholder/Voting Agreements.
(k) Environmental Matters. Except as disclosed in the Company Reports prior
to the date hereof or except as would not have a Company Material Adverse
Effect: (i) the Company and its Subsidiaries have complied in all material
respects at all times with all applicable Environmental Laws; (ii) no property
currently owned or operated by the Company or any of its Subsidiaries (including
soils, groundwater, surface water, buildings or other structures) is
contaminated with any Hazardous Substance; (iii) no property formerly owned or
operated by the Company or any of its Subsidiaries was contaminated with any
Hazardous Substance during or prior to such period of ownership or operation;
(iv) neither the Company nor any of its Subsidiaries is subject to liability for
any Hazardous Substance disposal or contamination on any third party property;
(v) neither the Company nor any of its Subsidiaries has been associated with any
release or threat of release of any Hazardous Substance; (vi) neither the
Company nor any of its Subsidiaries has received any notice, demand, letter,
claim or request for information alleging that the Company or any of its
Subsidiaries may be in violation of or subject to liability under any
Environmental Law; (vii) neither the Company nor any of its Subsidiaries is
subject to any order, decree, injunction or other arrangement with any
Governmental Entity or any indemnity or other agreement with any third party
relating to liability under any Environmental Law or relating to Hazardous
Substances; (viii) there are no other circumstances or conditions involving the
Company or any of its Subsidiaries that could reasonably be expected to result
in any material claim, liability, investigation, cost or restriction on the
ownership, use, or transfer of any property pursuant to any Environmental Law;
and (ix) the Company shall deliver to Parent by 1:00 p.m. (Oslo, Norway time) on
March 27, 1999 copies of all environmental reports, studies, assessments,
sampling data and other environmental information in its possession relating to
Company or its Subsidiaries or their respective current and former properties or
operations other than those environmental reports, studies, assessments,
sampling data and other environmental information that indicate or delineate a
situation or event that is not reasonably likely to have a Company Material
Adverse Effect.
As used herein, the term "Environmental Law" means any federal, state,
national, local or other statute, law, regulation, order, decree, permit,
authorization, convention, opinion, common law or agency requirement relating
to: (A) the protection, investigation or restoration of the environment, health,
safety, or natural resources, (B) the handling, use, presence, disposal, release
or threatened release of any Hazardous Substance or (C) noise, odor, indoor air,
employee exposure, wetlands, pollution, contamination or any injury or threat of
injury to persons or property relating to any Hazardous Substance.
As used herein, the term "Hazardous Substance" means any substance,
material, pollutant, contaminant or waste that is: (A) listed, classified or
regulated pursuant to any Environmental Law; (B) any petroleum product or
by-product, asbestos-containing material, lead-containing paint or plumbing,
polychlorinated biphenyls, radioactive material or radon; and (C) any other
substance, material, pollutant, contaminant or waste that is regulated under any
Environmental Law.
(l) Taxes.
(i) the Company and each of its Subsidiaries have filed all Tax Returns (as
defined below) which are required by all applicable laws to be filed by them and
such Tax Returns were complete and correct in all material respects, and have
paid, or made adequate provision on the financial statements included in the
Company Reports for the payment of, all material Taxes (as defined below) which
have or may become due and payable pursuant to said Tax Returns and all other
Taxes imposed to date other than those Taxes being contested in good faith and
for which adequate provision has been made on the most recent balance sheet
included in the Company Reports;
(ii) all Taxes which the Company and its Subsidiaries are required by law
to withhold and collect have been duly withheld and collected, and have been
paid over, in a timely manner, to the proper Taxing Authorities (as defined
below) to the extent due and payable;
(iii) neither the Company nor any of its Subsidiaries has executed any
waiver to extend, or otherwise taken or failed to take any action that would
have the effect of extending, the applicable statute of limitations in respect
of any Tax liabilities of the Company or its Subsidiaries for the taxable
periods prior to and including the most recent taxable period;
(iv) the Company (A) has never been a member of any consolidated group
(other than with its Subsidiaries) for Tax purposes; (B) is not a party to any
tax sharing agreement or arrangement (other than with its current Subsidiaries);
and (C) is not liable or potentially liable for Taxes imposed in respect of any
other Person (other than its current Subsidiaries);
(v) no material liens for Taxes exist with respect to any of the assets or
properties of the Company or its Subsidiaries, except for statutory liens for
Taxes not yet due or payable or that are being contested in good faith;
(vi) all of the Tax Returns filed by or on behalf of each of the Company
and its Subsidiaries have, with the exception of the 1998 Tax Return, been
examined by and settled with the appropriate Taxing Authorities or the statute
of limitations with respect to the relevant Tax liability has expired, for all
taxable periods through and including the period ending on the date on which the
Effective Time occurs;
(ix) all Taxes due with respect to any completed and settled audit,
examination or deficiency litigation with any Taxing Authority have been paid in
full;
(x) there is no audit, examination, deficiency, or refund litigation
pending with respect to any Taxes and during the past three years no Taxing
Authority has given written notice of the commencement of any audit,
examination, deficiency or refund litigation, with respect to any Taxes; and
(xi) the Company is not bound by any currently effective private ruling,
closing agreement or similar agreement with any Taxing Authority with respect to
any material amount of Tax.
As used in this Agreement, (i) the term "Tax" (including, with correlative
meaning, the term "Taxes") shall mean, with respect to any Person, (a) all
taxes, domestic or foreign, including without limitation any income (net, gross
or other, including recapture of any tax items such as investment tax credits),
alternative or add-on minimum tax, gross income, gross receipts, gains, sales,
use, leasing, lease, user, ad valorem, transfer, recording, franchise, profits,
property (real or personal, tangible or intangible), fuel, license, withholding
on amounts paid to or by such Person, payroll, employment, unemployment, social
security, excise, severance, stamp, occupation, premium, environmental or
windfall profit tax, custom, duty or other tax, or other like assessment or
charge of any kind whatsoever, together with any interest, levies, assessments,
charges, penalties, additions to tax or additional amounts imposed by any Taxing
Authority, (b) any joint or several liability of such Person with any other
Person for the payment of any amounts of the type described in (a) of this
definition, and (c) any liability of such Person for the payment of any amounts
of the type described in (a) as a result of any express or implied obligation to
indemnify any other Person; (ii) the term "Tax Return(s)" shall mean all
returns, consolidated or otherwise (including, without limitation, estimates,
elections and informational returns), required to be filed with any Taxing
Authority; and (iii) the term "Taxing Authority" shall mean any authority
responsible for the imposition or collection of any Tax.
(m) Labor Matters. Neither the Company nor any of its Subsidiaries is a
party to or otherwise bound by any collective bargaining agreement, contract or
other agreement or understanding with a labor union or labor organization.
Neither the Company nor any of its Subsidiaries is the subject of any material
proceeding asserting that the Company or any of its Subsidiaries has committed
an unfair labor practice or is seeking to compel it to bargain with any labor
union or labor organization nor is there pending or, to the knowledge of the
officers of the Company, threatened, nor has there been for the past five years,
any labor strike, dispute, walk-out, work stoppage, slow-down or lockout
involving the Company or any of its Subsidiaries. The Company shall make
available to Parent by 1:00 p.m. (Oslo, Norway time) on March 27, 1999 correct
and complete copies of all labor and collective bargaining agreements, Contracts
or other agreements or understandings with a labor union or labor organization
to which the Company or any of its Subsidiaries is party or by which any of them
are otherwise bound (collectively, the "Company Labor Agreements"). The
consummation of the Amalgamation and the other transactions contemplated by this
Agreement will not entitle any third party (including any labor union or labor
organization) to any payments under any of the Company Labor Agreements.
(n) Insurance. All material fire and casualty, general liability, business
interruption, product liability, sprinkler and water damage, protection and
indemnity, hull and machinery and any shipping related insurance policies
maintained by the Company or any of its Subsidiaries are and have been with
reputable insurance carriers, provide and have provided full and adequate
coverage for all normal risks incident to the business of the Company and its
Subsidiaries and their respective properties and assets, and are and have been
in character and amount at least equivalent to that carried by persons engaged
in similar businesses and subject to the same or similar perils or hazards,
except for any such failures to maintain insurance policies that, individually
or in the aggregate, are not reasonably likely to have a Company Material
Adverse Effect.
(o) Intellectual Property.
(i) The Company and each of its Subsidiaries owns, or is licensed or
otherwise possesses legally enforceable rights to use all patents, trademarks,
trade names, service marks, copyrights, and any applications therefor,
technology, know-how, computer software programs or applications, and tangible
or intangible proprietary information or materials that are used in the business
of the Company and its Subsidiaries as currently conducted, except for any such
failures to own, be licensed or possess that, individually or in the aggregate,
are not reasonably likely to have a Company Material Adverse Effect, and to the
knowledge of the officers of the Company all patents, trademarks, trade names,
service marks and copyrights held by the Company and/or its Subsidiaries are
valid and subsisting.
(ii) Except as disclosed in Company Reports filed prior to the date hereof
or as is not reasonably likely to have a Company Material Adverse Effect:
(A) the Company is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations hereunder, in
violation of any licenses, sublicenses and other agreements as to which the
Company is a party and pursuant to which the Company is authorized to use any
third-party patents, trademarks, service marks, copyrights, trade secrets or
computer software (collectively, "Third-Party Intellectual Property Rights");
(B) no claims with respect to (I) the patents, registered and material
unregistered trademarks and service marks, registered copyrights, trade names,
and any applications therefor, trade secrets or computer software owned by the
Company or any of its Subsidiaries (collectively, the "Company Intellectual
Property Rights"); or (II) Third-Party Intellectual Property Rights are
currently pending or, to the knowledge of the officers of the Company, are
threatened by any Person;
(C) the officers of the Company do not know of any valid grounds for any
bona fide claims (I) to the effect that the manufacture, sale, licensing or use
of any product as now used, sold or licensed or proposed for use, sale or
license by the Company or any of its Subsidiaries, infringes on any copyright,
patent, trademark, service mark or trade secret of any Person; (II) against the
use by the Company or any of its Subsidiaries, of any Company Intellectual
Property Right or Third-Party Intellectual Property Right used in the business
of the Company or any of its Subsidiaries as currently conducted or as proposed
to be conducted; (III) challenging the ownership, validity or enforceability of
any of the Company Intellectual Property Rights; or (IV) challenging the license
or legally enforceable right to use of the Third-Party Intellectual Rights by
the Company or any of its Subsidiaries; and
(D) to the knowledge of the officers of the Company, there is no
unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property Rights by any third party, including any employee or
former employee of the Company or any of its Subsidiaries.
(p) Contracts.
(i) Schedule 5.1(p) sets forth the following Contracts to which the Company
or any of its Subsidiaries is a party on the date hereof:
(A) any Contract the performance of which involved aggregate consideration
in excess of $250,000 and which agreement is not cancellable, without penalty,
by the Company on not more than ninety (90) days' notice;
(B) any collective bargaining agreement;
(C) any senior executive employment agreement;
(D) any agreement which relates to indebtedness in excess of $250,000 owed
by the Company or any of its Subsidiaries, or the guarantee thereof;
(E) all broker, distributor, dealer, manufacturer's representative,
franchise, agency, sales promotion, market research, marketing consulting and
advertising Contracts the performance of which involved aggregate consideration
in excess of $250,000;
(F) all Contracts with independent contractors or consultants, the
performance of which involved aggregate consideration in excess of $250,000 and
which are not cancellable without penalty or further payment and without more
than 30 days' notice;
(G) all material Contracts with any Governmental Entity;
(H) all Contracts that limit or purport to limit the ability of the Company
or any of its Subsidiaries to compete in any line of business or with any Person
or in any geographic area or during any period of time;
(I) any Contract constituting or creating a pooling arrangement, including
a list of the Vessels that are subject thereto; and
(J) any other Contracts which are material to the Company and its
Subsidiaries, taken as a whole.
(ii) The Company shall provide to Parent by 1:00 p.m. (Oslo, Norway time)
on March 27, 1999 a correct and complete copy of each Contract listed in
Schedule 5.1(p), together with any and all amendments or modifications thereto.
Each Contract listed in Schedule 5.1(p) is valid, binding, enforceable, and in
full force and effect, the Company is not in breach or default under any such
Contract and no event has occurred which, with or without notice or lapse of
time or both, would constitute a breach or default, or permit termination,
modification, or acceleration, under such Contract, except for such exceptions
(i) as are not reasonably likely, in the aggregate, to have a Company Material
Adverse Effect; (ii) resulting directly from a decrease in the market value of
any vessel due to a change in market conditions specific to the shipping
industry or (iii) due to a "change in control" clause or a clause relating to
continued listing on the OSE, in each case, contained in any Contract of the
Company related to indebtedness.
(q) Vessels. Schedule 5.1(q) of the Company Disclosure Schedule sets forth
a list of all vessels used by the Company or its Subsidiaries in connection with
their business (the "Vessels").
(r) Disclosure of Information. The Company has disclosed, or shall disclose
by 1:00 p.m. (Oslo, Norway time) on March 27, 1999, to Parent all information
material to this Agreement or the transactions contemplated hereunder.
(s) Year 2000 Compliance Plan. The Company has conducted a review of each
System used in the conduct of its business and operations to determine whether
such System is Year 2000 Compliant, and is currently implementing a compliance
plan that is intended to result in each System being Year 2000 Compliant in all
material respects no later than December 31, 1999. Each action to have been
taken prior to the date hereof under such plan has been substantially completed
and as of the date hereof the Company has no knowledge indicating that any
action to be taken under such plan after the date hereof will be materially
delayed or will fail to accomplish its purpose under the plan. "System" shall
mean software, hardware, computers and devices with embedded electronics. A
System is "Year 2000 Compliant" only if (a) it accurately processes, stores and
displays, in an unambiguous manner, date data, including calculating, comparing,
and sequencing dates correctly and without interruption, both before, during,
and after the year 2000; (b) it correctly interpolates and exchanges date data
with any other System that conforms to clause (a); and (c) the specifications
and instructions associated with such System contain no information
contradicting clause (a) or (b).
(t) Assets. Either the Company or its Subsidiaries, as the case may be,
owns, leases or has the legal right to use all the properties and assets
necessary to be used in the conduct of their business in substantially the same
manner as conducted prior to the date hereof (all such properties and assets
being the "Assets"). Either the Company or its Subsidiaries, as the case may be,
has good and marketable title to, or, in the case of leased or subleased Assets,
valid and subsisting leasehold interests in, all the Assets, free and clear of
any lien, pledge, security interest, claim or other encumbrance.
(u) Brokers and Finders. Neither the Company nor any of its officers,
directors or employees has employed any broker or finder or incurred any
liability for any brokerage fees, commissions or finders, fees in connection
with the Amalgamation or the other transactions contemplated in this Agreement
except that the Company has employed Warburg Dillon Reed as its financial
advisor, the arrangements with which have been disclosed to Parent prior to the
date hereof.
5.2. Representations and Warranties of Parent and Amalgamation Sub. Except
as set forth in the corresponding sections or subsections of the disclosure
schedule delivered to the Company by Parent on or prior to 1:00 p.m. (Oslo,
Norway time) on March 27, 1999 (the "Parent Disclosure Schedule"), Parent and
Amalgamation Sub each hereby represent and warrant to the Company that:
(a) Capitalization of Amalgamation Sub. The authorized capital stock of
Amalgamation Sub consists of 5,000 shares of Common Stock, without par value,
all of which are validly issued and outstanding. All of the issued and
outstanding capital stock of Amalgamation Sub is, and at the Effective Time will
be, owned by Parent, and there are (i) no other shares of capital stock or
voting securities of Amalgamation Sub, (ii) no securities of Amalgamation Sub
convertible into or exchangeable for shares of capital stock or voting
securities of Amalgamation Sub and (iii) no options or other rights to acquire
from Amalgamation Sub, and no obligations of Amalgamation Sub to issue, any
capital stock, voting securities or securities convertible into or exchangeable
for capital stock or voting securities of Amalgamation Sub. Amalgamation Sub has
not conducted any business prior to the date hereof and has no, and prior to the
Effective Time will have no, assets, liabilities or obligations of any nature
other than those incident to its formation and pursuant to this Agreement and
the Amalgamation and the other transactions contemplated by this Agreement.
(b) Organization, Good Standing and Qualification. Each of Parent and
Amalgamation Sub is duly organized, validly existing and in good standing under
the laws of its respective jurisdiction of organization and has all requisite
corporate or similar power and authority to own and operate its properties and
assets and to carry on its business as presently conducted and is qualified to
do business and is in good standing as a foreign corporation in each
jurisdiction where the ownership or operation of its properties or conduct of
its business requires such qualification, except where the failure to be so
qualified or in such good standing, when taken together with all other such
failures, is not reasonably likely to have a Parent Material Adverse Effect (as
defined below). Each of Parent and Amalgamation Sub shall make available to the
Company, by 1:00 p.m. (Oslo, Norway time) on March 27, 1999, a complete and
correct copy of their respective Organizational Documents.
As used in this Agreement, the term "Parent Material Adverse Effect" means
a material adverse effect on the financial condition, properties, prospects,
business or results of operations of the Parent and its Subsidiaries taken as a
whole.
(c) Capital Structure. The authorized capital stock of Parent consists of
125,000,000 shares of Parent Common Stock, of which 31,648,317 shares were
outstanding as of the close of business on March 19, 1999, and 25,000,000 shares
of Preferred Stock par value $1.00 per share (the "Parent Preferred Shares"), of
which no shares were outstanding as of the close of business on March 19, 1999.
All of the outstanding Parent Common Stock and Parent Preferred Shares have been
duly authorized and are validly issued, fully paid and nonassessable. Parent has
no Parent Common Stock or Parent Preferred Shares reserved for issuance, except
that, as of March 19, 1999, there were 3,948,571 shares of Parent Common Stock
reserved for issuance pursuant to the Teekay Shipping Corporation 1995 Stock
Option Plan (the "Parent Stock Plan"). Each of the outstanding shares of capital
stock of each of Parent's Subsidiaries is duly authorized, validly issued, fully
paid and nonassessable and owned by a direct or indirect wholly-owned subsidiary
of Parent, free and clear of any lien, pledge, security interest, claim or other
encumbrance. Except as set forth above, there are no preemptive or other
outstanding rights, options, warrants, conversion rights, stock appreciation
rights, redemption rights, repurchase rights, agreements, arrangements or
commitments to issue or to sell any shares of capital stock or other securities
of Parent or any of its Subsidiaries or any securities or obligations
convertible or exchangeable into or exercisable for, or giving any Person a
right to subscribe for or acquire, any securities of the Company or any of its
Subsidiaries, and no securities or obligation evidencing such rights are
authorized, issued or outstanding. Parent does not have outstanding any bonds,
debentures, notes or other obligations the holders of which have the right to
vote (or convertible into or exercisable for securities having the right to
vote) with the stockholders of Parent on any matter.
(d) Corporate Authority.
(i) No vote of holders of capital stock of Parent is necessary to approve
this Agreement and the Amalgamation and the other transactions contemplated
hereby. Each of the Parent and Amalgamation Sub has all requisite corporate
power and authority and has taken all corporate action necessary in order to
execute, deliver and perform its obligations under this Agreement and to
consummate the Amalgamation. This Agreement is a valid and binding agreement of
Parent and Amalgamation Sub, enforceable against each of Parent and Amalgamation
Sub in accordance with its terms, subject to the Bankruptcy and Equity
Exception.
(ii) Prior to the Effective Time, Parent will have taken all necessary
action to permit it to issue the number of shares of Parent Common Stock
required to be issued pursuant to Article IV. The Parent Common Stock, when
issued, will be validly issued, fully paid and nonassessable, and no stockholder
of Parent will have any preemptive right of subscription or purchase in respect
thereof.
(e) Governmental Filings; No Violations.
(i) Other than the filings and/or notices (A) pursuant to Section 1.3, and
(B) required to be made with the New York Stock Exchange, Inc., no notices,
reports or other filings are required to be made by Parent or Amalgamation Sub
with, nor are any consents, registrations, approvals, permits or authorizations
required to be obtained by Parent or Amalgamation Sub from, any Governmental
Entity, in connection with the execution and delivery of this Agreement by
Parent and Amalgamation Sub and the consummation by Parent and Amalgamation Sub
of the Amalgamation and the other transactions contemplated hereby, except those
that the failure to make or obtain are not, individually or in the aggregate,
reasonably likely to have a Parent Material Adverse Effect or prevent,
materially delay or materially impair the ability of Parent or Amalgamation Sub
to consummate the transactions contemplated by this Agreement.
(ii) The execution, delivery and performance of this Agreement by Parent
and Amalgamation Sub do not, and the consummation by Parent and Amalgamation Sub
of the Amalgamation and the other transactions contemplated hereby will not,
constitute or result in (A) a breach or violation of, or a default under, the
Organizational Documents of Parent and Amalgamation Sub or the Organizational
Documents of any of Parent's Subsidiaries, (B) a breach or violation of, or a
default under, or the acceleration of any obligations under, or the termination
of, or the loss of a material benefit under, or the creation of a lien, pledge,
security interest, third party right, or other encumbrance on the assets of
Parent or any of its Subsidiaries (with or without notice, lapse of time or
both) pursuant to, any Contracts binding upon Parent or any of its Subsidiaries
or any of their respective assets, or any Law or governmental or
non-governmental permit or license to which Parent or any of its Subsidiaries is
subject or (C) any change in the rights or obligations of any party under any of
the Contracts, except, in the case of clause (B) or (C) above, for breach,
violation, default, acceleration, termination, creation or change that,
individually or in the aggregate, is not reasonably likely to have a Parent
Material Adverse Effect or prevent, materially delay or materially impair the
ability of Parent or Amalgamation Sub to consummate the transactions
contemplated by this Agreement.
(f) Parent Reports; Financial Statements. Parent has delivered to the
Company each registration statement, report, proxy statement or information
statement prepared by it since March 31, 1998 (the "Parent Audit Date"), each in
the form (including exhibits, annexes and any amendments thereto) filed with the
Securities Exchange Commission ("SEC") (collectively, including any such reports
filed subsequent to the date hereof, the "Parent Reports"). As of their
respective dates, the Parent Reports did not, and any Parent Reports filed with
the SEC subsequent to the date hereof will not, contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
in which they were made, not misleading. Each of the consolidated balance sheets
included in or incorporated by reference into the Parent Reports (including the
related notes and schedules) fairly presents, or, in the case of Company Reports
filed with the SEC subsequent to the date hereof, shall fairly present, the
consolidated financial position of Parent and its Subsidiaries as of its date
and each of the consolidated statements of income and of changes in financial
position included in or incorporated by reference into the Parent Reports
(including any related notes and schedules) fairly presents, or, in the case of
Company Reports filed with the SEC subsequent to the date hereof, shall fairly
present, the results of operations, retained earnings and changes in financial
position, as the case may be, of Parent and its Subsidiaries for the periods set
forth therein (subject, in the case of unaudited statements, to notes and normal
year-end audit adjustments that will not be material in amount or effect), in
each case in accordance with U.S. generally accepted accounting principles
consistently applied during the periods involved, except as may be noted
therein.
(g) Absence of Certain Changes. Except as disclosed in the Parent Reports
filed prior to the date hereof, since the Parent Audit Date, Parent and its
Subsidiaries have conducted their respective businesses only in, and have not
engaged in any material transaction other than according to, the ordinary and
usual course of such businesses and there has not been (i) any change in the
financial condition, properties, prospects, business or results of operations of
Parent and its Subsidiaries or any development or combination of developments of
which management of Parent has knowledge that, individually or in the aggregate,
has had or is reasonably likely to result in a Parent Material Adverse Effect,
other than any decrease in the market asset value of any vessels resulting from
a change in market conditions specific to the shipping industry; (ii) any
material damage, destruction or other casualty loss with respect to any material
asset or property owned, leased or otherwise used by Parent or any of its
Subsidiaries, whether or not covered by insurance; (iii) any change by Parent in
accounting principles, practices or methods; or (iv) any declaration, setting
aside or payment of any dividend or other distribution in respect of the capital
stock of Parent, except for dividends or other distributions on its capital
stock publicly announced prior to the date hereof.
(h) Litigation and Liabilities. Except as disclosed in the Parent Reports
filed prior to the date hereof, there are no (i) civil, criminal or
administrative actions, suits, claims, hearings, investigations or proceedings
pending or, to the knowledge of the officers of Parent, threatened against
Parent or any of its Affiliates or (ii) obligations or liabilities, whether or
not accrued, contingent or otherwise and whether or not required to be disclosed
or any other facts or circumstances of which the officers of Parent have
knowledge that could result in any claims against, or obligations or liabilities
of, Parent or any of its Affiliates, except for those that are not, individually
or in the aggregate, reasonably likely to have a Parent Material Adverse Effect
or prevent or materially burden or materially impair the ability of Parent or
Amalgamation Sub to consummate the transactions contemplated by this Agreement.
(i) Compliance with Laws; Permits. Except as set forth in the Parent
Reports filed prior to the date hereof, the businesses of each of the Parent and
its Subsidiaries have not been, and are not being, conducted in violation of any
Law, except for violations or possible violations that, individually or in the
aggregate, are not reasonably likely to have a Parent Material Adverse Effect or
prevent or materially burden or materially impair the ability of the Parent to
consummate the transactions contemplated by this Agreement. Except as set forth
in the Parent Reports filed prior to the date hereof, no investigation or review
by any Governmental Entity with respect to Parent or any of its Subsidiaries is
pending or, to the knowledge of the officers of the Parent, threatened, nor has
any Governmental Entity indicated an intention to conduct the same, except for
those the outcome of which are not, individually or in the aggregate, reasonably
likely to have a Parent Material Adverse Effect or prevent or materially burden
or materially impair the ability of Parent to consummate the transactions
contemplated by this Agreement. To the knowledge of the officers of Parent, no
material change is required in Parent's or any of its Subsidiaries' processes,
properties or procedures in connection with any such Laws, and Parent has not
received any notice or communication of any material noncompliance with any such
Laws that has not been cured as of the date hereof. Parent and its Subsidiaries
each has all permits, licenses, franchises, variances, exemptions, orders and
other governmental authorizations, consents and approvals necessary to conduct
its business as presently conducted except those the absence of which are not,
individually or in the aggregate, reasonably likely to have a Parent Material
Adverse Effect or prevent or materially burden or materially impair the ability
of Parent to consummate the Amalgamation and the other transactions contemplated
by this Agreement.
(j) Environmental Matters. Except as disclosed in the Parent Reports prior
to the date hereof or except as would not have a Parent Material Adverse Effect:
(i) Parent and its Subsidiaries have complied in all material respects at all
times with all applicable Environmental Laws; (ii) no property currently owned
or operated by Parent or any of its Subsidiaries (including soils, groundwater,
surface water, buildings or other structures) is contaminated with any Hazardous
Substance; (iii) no property formerly owned or operated by Parent or any of its
Subsidiaries was contaminated with any Hazardous Substance during or prior to
such period of ownership or operation; (iv) neither Parent nor any of its
Subsidiaries is subject to liability for any Hazardous Substance disposal or
contamination on any third party property; (v) neither Parent nor any of its
Subsidiaries has been associated with any release or threat of release of any
Hazardous Substance; (vi) neither Parent nor any of its Subsidiaries has
received any notice, demand, letter, claim or request for information alleging
that Parent or any of its Subsidiaries may be in violation of or subject to
liability under any Environmental Law; (vii) neither Parent nor any of its
Subsidiaries is subject to any order, decree, injunction or other arrangement
with any Governmental Entity or any indemnity or other agreement with any third
party relating to liability under any Environmental Law or relating to Hazardous
Substances; (viii) there are no other circumstances or conditions involving
Parent or any of its Subsidiaries that could reasonably be expected to result in
any material claim, liability, investigation, cost or restriction on the
ownership, use, or transfer of any property pursuant to any Environmental Law;
and (ix) Parent shall deliver to the Company by 1:00 p.m. (Oslo, Norway time) on
March 27, 1999 copies of all environmental reports, studies, assessments,
sampling data and other environmental information in its possession relating to
Parent or its Subsidiaries or their respective current and former properties or
operations, other than those environmental reports, studies, assessments,
sampling data and other environmental information that indicate or delineate a
situation or event that is not reasonably likely to have a Parent Material
Adverse Effect.
(k) Insurance. All material fire and casualty, general liability, business
interruption, product liability, sprinkler and water damage, protection and
indemnity, hull and machinery and any shipping related insurance policies
maintained by Parent or any of its Subsidiaries are and have been with reputable
insurance carriers, provide and have provided full and adequate coverage for all
normal risks incident to the business of Parent and its Subsidiaries and their
respective properties and assets, and are and have been in character and amount
at least equivalent to that carried by persons engaged in similar businesses and
subject to the same or similar perils or hazards, except for any such failures
to maintain insurance policies that, individually or in the aggregate, are not
reasonably likely to have a Parent Material Adverse Effect.
(l) Vessels. Schedule 5.2(l) of the Parent Disclosure Schedule sets forth a
list of all vessels used by Parent or its Subsidiaries in connection with their
business (the "Vessels").
(m) Disclosure of Information. Parent has disclosed, or shall disclose by
1:00 p.m. (Oslo, Norway time) on March 27, 1999, to the Company all information
material to this Agreement or the transactions contemplated hereunder.
(n) Year 2000 Compliance Plan. Parent has conducted a review of each System
used in the conduct of its business and operations to determine whether such
System is Year 2000 Compliant, and is currently implementing a compliance plan
that is intended to result in each System being Year 2000 Compliant in all
material respects no later than December 31, 1999. Each action to have been
taken prior to the date hereof under such plan has been substantially completed
and as of the date hereof Parent has no knowledge indicating that any action to
be taken under such plan after the date hereof will be materially delayed or
will fail to accomplish its purpose under the plan.
(o) Assets. Either Parent or its Subsidiaries, as the case may be, owns,
leases or has the legal right to use all the properties and assets necessary to
be used in the conduct of their business in substantially the same manner as
conducted prior to the date hereof (all such properties and assets being the
"Assets"). Either Parent or its Subsidiaries, as the case may be, has good and
marketable title to, or, in the case of leased or subleased Assets, valid and
subsisting leasehold interests in, all the Assets, free and clear of any lien,
pledge, security interest, claim or other encumbrance.
(p) Brokers and Finders. Neither Parent nor any of its officers, directors
or employees has employed any broker or finder or incurred any liability for any
brokerage fees, commissions or finders, fees in connection with the Amalgamation
or the other transactions contemplated by this Agreement, except that Parent has
employed Goldman, Sachs & Co. as its financial advisor, the arrangements with
which have been disclosed in writing to the Company prior to the date hereof.
(q) Available Funds. Parent has or will have available to it all funds
necessary to satisfy all of its obligations hereunder and in connection with the
Amalgamation and the other transactions contemplated by this Agreement.
ARTICLE VI
Covenants
6.1. Interim Operations. The Company covenants and agrees as to itself and
its Subsidiaries that, after the date hereof and prior to the Effective Time
(unless Parent shall otherwise approve in writing and except as otherwise
expressly contemplated by this Agreement), the business of the Company and its
Subsidiaries shall be conducted in the ordinary and usual course and, to the
extent consistent therewith, the Company and its Subsidiaries shall use their
respective reasonable best efforts to preserve its business organization intact
and maintain its existing relations and goodwill with customers, suppliers,
distributors, creditors, lessors, employees and business associates. Without
limiting the generality of the foregoing, from the date hereof to the Effective
Time except as set forth in the Company Disclosure Schedule (unless Parent shall
otherwise approve in writing and except as otherwise expressly contemplated by
this Agreement):
(a) the Company shall not, and shall cause its Subsidiaries not to enter
into, terminate, or materially extend or modify any material Contract; provided,
further, that neither the Company nor any of its Subsidiaries shall enter into
(i) any time charters or bareboat charters having a term of more than sixty days
but equal to or less than 12 months without first consulting with Parent or (ii)
any time charters or bareboat charters having a term of more than 12 months,
consecutive voyage arrangements or pooling arrangements, in each case in this
clause (ii), without the prior express written consent of Parent, such consent
not to be unreasonably withheld;
(b) the Company shall not (i) issue, sell, pledge, dispose of or encumber
any capital stock owned by it in any of its Subsidiaries; (ii) amend its
Organizational Documents; (iii) split, combine or reclassify its outstanding
shares of capital stock; (iv) declare, set aside or pay any dividend payable in
cash, stock or property in respect of any capital stock other than dividends
from its direct or indirect wholly-owned Subsidiaries; or (v) repurchase, redeem
or otherwise acquire, or permit any of its Subsidiaries to purchase or otherwise
acquire, any shares of its capital stock or any securities convertible into or
exchangeable or exercisable for any shares of its capital stock;
(c) neither the Company nor any of its Subsidiaries shall (i) issue, sell,
pledge, dispose of or encumber any shares of, or securities convertible into or
exchangeable or exercisable for, or options, warrants, calls, commitments or
rights of any kind to acquire, any shares of its capital stock of any class or
any other property or assets; (ii) transfer, lease, license, guarantee, sell,
mortgage, pledge, dispose of or encumber any other property or assets (including
capital stock of any of its Subsidiaries) or incur or modify any material
indebtedness or other liability; (iii) make or authorize or commit for any
capital expenditures in amounts greater than $100,000 individually and
$1,000,000 in the aggregate, other than such capital expenditures made pursuant
to new building contracts, drydocking arrangements or Vessel upgrading
arrangements, in each case, existing on the date of this Agreement and
explicitly disclosed in the Company's 1999 budget delivered to Parent on March
26, 1999; or (iv) by any means, make any acquisition of, or investment in,
assets or stock of any other Person or entity;
(d) neither the Company nor any of its Subsidiaries shall terminate,
establish, adopt, enter into, make any new grants or awards under, amend or
otherwise modify, any Compensation and Benefit Plans or increase the salary,
wage, bonus or other compensation of any employees;
(e) neither the Company nor any of its Subsidiaries shall settle or
compromise any material claims or litigation or modify, amend or terminate any
of its material Contracts or waive, release or assign any material rights or
claims;
(f) neither the Company nor any of its Subsidiaries shall make any Tax
election or otherwise alter any Tax or accounting practice or procedure, or
permit any insurance policy naming it as a beneficiary or loss-payable payee to
be canceled or terminated;
(g) neither the Company nor any of its Subsidiaries shall take any action
or omit to take any action that would cause any of its representations and
warranties herein to become untrue in any material respect; and
(h) neither the Company nor any of its Subsidiaries shall authorize or
enter into an agreement to do any of the foregoing.
6.2. Acquisition Proposals. The Company agrees that neither it nor any of
its Subsidiaries nor any of its or their respective officers and directors
shall, and that the Company shall direct and use its best efforts to cause its
and its Subsidiaries' employees, agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
Subsidiaries) (such officers, directors, employees, agents and representatives
sometimes collectively referred to herein as "Representatives") not to, directly
or indirectly, initiate, solicit, encourage or otherwise facilitate any
inquiries or the making of any proposal or offer with respect to an
amalgamation, reorganization, share exchange, consolidation or similar
transaction involving, or any purchase of, 5% or more of the assets or any
equity securities of, the Company or any of its Subsidiaries (any such proposal
or offer being hereinafter referred to as an "Acquisition Proposal"). The
Company further agrees that neither it nor any of its Subsidiaries nor any of
their respective officers and directors shall, and that the Company shall direct
and cause its and its Subsidiaries' employees, agents and representatives
(including any investment banker, attorney or accountant retained by it or any
of its Subsidiaries) not to, directly or indirectly, engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any Person relating to, an Acquisition Proposal, whether made
before or after the date of this Agreement, or otherwise facilitate any effort
or attempt to make or implement an Acquisition Proposal; provided, however, that
nothing contained in this Agreement shall prevent the Company or its Board of
Directors from (A) providing information in response to a request therefor by a
Person who has made an unsolicited bona fide written Acquisition Proposal if the
Board of Directors receives from the Person so requesting such information an
executed confidentiality agreement on terms equivalent to those contained in the
Confidentiality Agreement (as defined in Section 9.7); (B) engaging in any
negotiations or discussions with any Person who has made an unsolicited bona
fide written Acquisition Proposal; or (C) recommending an unsolicited bona fide
written Acquisition Proposal to the stockholders of the Company, if and only to
the extent that, prior to taking any such action (i) in each such case referred
to in clause (A), (B) or (C) above, the Board of Directors of the Company
determines in good faith after receipt of a written opinion from its outside
legal counsel experienced in such matters under applicable Law that such action
is necessary in order for its directors to comply with their respective
fiduciary duties under applicable Law and (ii) in each case referred to in
clause (B) or (C) above, the Board of Directors of the Company determines in
good faith (after consultation with its financial advisor) that such Acquisition
Proposal, if accepted, is reasonably likely to be consummated, taking into
account all legal, financial and regulatory aspects of the proposal and the
Person making the proposal and would, if consummated, result in a transaction
superior to the transaction contemplated by this Agreement (any such superior
Acquisition Proposal being referred to in this Agreement as a "Superior
Proposal"). The Company will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. The Company agrees that it will
take the necessary steps to promptly inform its Representatives of the
obligations undertaken in this Section 6.2 and in the Confidentiality Agreement.
The Company will notify Parent immediately (but, in any event, no less than 24
hours thereafter) if any Acquisition Proposal or inquiry related thereto is
received by, any information is requested from, or any discussions or
negotiations are sought to be initiated or continued with, the Company or any of
its Representatives relating to an Acquisition Proposal, indicating the name of
such Person and the material terms and conditions of any Acquisition Proposal
and thereafter shall keep Parent informed, on a current basis, of the status and
terms of any such Acquisition Proposal and the status of any such negotiations
or discussions. The Company also will promptly request each Person that has
heretofore executed a confidentiality agreement in connection with its
consideration of an Acquisition Proposal to return all confidential information
heretofore furnished to such Person by or on behalf of it or any of its
Subsidiaries.
6.3. Information Supplied. The Company and Parent each agrees, as to itself
and its Subsidiaries, that none of the information supplied or to be supplied by
it or its Subsidiaries for inclusion or incorporation by reference in any proxy
statement or information statement to be disseminated in connection with the
transactions contemplated by this Agreement shall contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
6.4. Stockholders Meeting. The Company shall take, in accordance with
applicable law and its Organizational Documents, all action necessary to convene
a meeting of holders of Shares (the "Stockholders Meeting") as promptly as
practicable after execution of this Agreement to consider and vote upon the
approval of this Agreement. Subject to fiduciary obligations under applicable
law, the Company's board of directors shall recommend such approval and shall
take all lawful action to solicit such approval.
6.5. Filings; Other Actions; Notification.
(a) The Company shall promptly prepare and file with the appropriate
Governmental Entities any proxy or information statement as promptly as
practicable after the date of this Agreement. The Company shall use its best
efforts to have such proxy or information statement approved under the
applicable regulations as promptly as practicable, and promptly thereafter mail
the proxy or information statement to the stockholders of the Company.
(b) The Company and Parent shall cooperate with each other and use (and
shall cause their respective Subsidiaries to use) their respective best efforts
to take or cause to be taken all actions, and do or cause to be done all things,
necessary, proper or advisable on its part under this Agreement and applicable
Laws to consummate and make effective the Amalgamation and the other
transactions contemplated by this Agreement as soon as practicable, including
preparing and filing as promptly as practicable all documentation including,
without limitation, all information and data required to be included in any
prospectus necessary pursuant to the rules and regulations of the OSE, to effect
all necessary notices, reports and other filings and to obtain as promptly as
practicable all consents, registrations, approvals, permits and authorizations
necessary or advisable to be obtained from any third party and/or any
Governmental Entity in order to consummate the Amalgamation or any of the other
transactions contemplated by this Agreement; provided, however, that nothing in
this Section 6.5 shall require, or be construed to require, Parent to proffer
to, or agree to, sell or hold separate and agree to sell, before or after the
Effective Time, any assets, businesses, or interest in any assets or businesses
of Parent, the Company or any of their respective Affiliates (or to consent to
any sale, or agreement to sell, by the Company of any of its assets or
businesses) or to agree to any material changes or restriction in the operations
of any such assets or businesses. Subject to applicable laws relating to the
exchange of information, Parent and the Company shall have the right to review
in advance, and to the extent practicable each will consult the other on, all
the information relating to Parent or the Company, as the case may be, and any
of their respective Subsidiaries, that appear in any filing made with, or
written materials submitted to, any third party and/or any Governmental Entity
in connection with the Amalgamation and the other transactions contemplated by
this Agreement. In exercising the foregoing right, each of the Company and
Parent shall act reasonably and as promptly as practicable.
(c) The Company and Parent each shall, upon request by the other, furnish
the other with all information concerning itself, its Subsidiaries, directors,
officers and stockholders and such other matters as may be reasonably necessary
or advisable in connection with any registration statement, filing, notice or
application made by or on behalf of Parent, the Company or any of their
respective Subsidiaries to any third party and/or any Governmental Entity in
connection with the Amalgamation and the transactions contemplated by this
Agreement.
(d) The Company and Parent each shall keep the other informed of the status
of matters relating to completion of the transactions contemplated hereby,
including promptly furnishing the other with copies of notices or other
communications received by Parent or the Company, as the case may be, or any of
its Subsidiaries, from any third party and/or any Governmental Entity with
respect to the Amalgamation and the other transactions contemplated by this
Agreement. The Company and Parent each shall give prompt notice to the other of
any change that is reasonably likely to result in a Company Material Adverse
Effect or Parent Material Adverse Effect, respectively.
6.6. Access. Upon reasonable notice, and except as may otherwise be
required by applicable law, the Company shall (and shall cause its Subsidiaries
to) afford the Parent's officers, employees, counsel, accountants and other
authorized representatives ("Representatives") reasonable access, during normal
business hours throughout the period prior to the Effective Time, to its
properties, books, contracts and records and, during such period, the Company
shall (and shall cause its Subsidiaries to) furnish promptly to the other all
information concerning its business, properties and personnel as may reasonably
be requested, provided that no investigation pursuant to this Section shall
affect or be deemed to modify any representation or warranty made by the Company
and provided, further, that the foregoing shall not require the Company to
permit any inspection, or to disclose any information, that in the reasonable
judgment of the Company, would result in the disclosure of any trade secrets of
third parties or violate any of its obligations with respect to confidentiality
if the Company shall have used reasonable best efforts to obtain the consent of
such third party to such inspection or disclosure. All requests for information
made pursuant to this Section shall be directed to an executive officer of the
Company, or such Person as may be designated by the Company. All such
information shall be governed by the terms of the Confidentiality Agreement.
6.7. Affiliates. Prior to the date of the Stockholders Meeting, Parent
shall deliver to the Company a list of names and addresses of those Persons who
are, in the opinion of the Parent, as of the time of the Stockholders Meeting
referred to in Section 6.4, "affiliates" of the Company within the meaning of
Rule 145 under the Securities Act. The Company shall provide to Parent such
information and documents as Parent shall reasonably request for purposes of
reviewing such list. There shall be added to such list the names and addresses
of any other Person subsequently identified by either Parent or the Company as a
Person who may be deemed to be such an affiliate of the Company; provided,
however, that no such Person identified by Parent shall be added to the list of
affiliates of the Company if Parent shall receive from the Company, on or before
the date of the Stockholders Meeting, an opinion of counsel reasonably
satisfactory to Parent to the effect that such Person is not such an affiliate.
The Company shall exercise its best efforts to deliver or cause to be delivered
to Parent, prior to the date of the Stockholders Meeting, from each affiliate of
the Company who makes a Stock Election identified in the foregoing list (as the
same may be supplemented as aforesaid), a letter dated as of the Closing Date
substantially in the form attached as Exhibit A (the "Affiliates Letter").
6.8. Stock Exchange Listing and De-listing. Parent shall use its best
efforts to cause the shares of Parent Common Stock to be issued in the
Amalgamation to be approved for listing on the NYSE subject to official notice
of issuance, prior to the Closing Date. The Amalgamated Company shall use its
best efforts to cause the Shares to be de-listed from the OSE as soon as
practicable following the Effective Time.
6.9. Publicity. The initial press release shall be a joint press release
and thereafter the Company and Parent each shall coordinate with each other with
respect to form and content prior to issuing any press releases or otherwise
making public announcements with respect to the Amalgamation and the other
transactions contemplated by this Agreement and prior to making any filings with
any third party and/or any Governmental Entity (including any national
securities exchange) with respect thereto, except as may be required by law or
by obligations pursuant to any listing agreement with or rules of any national
securities exchange.
6.10. Benefits.
(a) Stock Options.
(i) At the Effective Time, each outstanding option to purchase Shares (a
"Company Option") under the Stock Plans, whether vested or unvested, shall be
deemed to constitute an option to acquire, on the same terms and conditions as
were applicable under such Company Option, the same number of shares of Parent
Common Stock as the holder of such Company Option would have been entitled to
receive pursuant to the Amalgamation had such holder exercised such option in
full immediately prior to the Effective Time (rounded down to the nearest whole
number), at a price per share (rounded up to the nearest whole cent) equal to
(y) the aggregate exercise price for the Shares otherwise purchasable pursuant
to such Company Option divided by (z) the number of full shares of Parent Common
Stock deemed purchasable pursuant to such Company Option in accordance with the
foregoing; provided, however, that in the case of any Company Option to which
Section 422 of the Internal Revenue Code of 1986, as amended, (the "Code")
applies, the option price, the number of shares purchasable pursuant to such
option and the terms and conditions of exercise of such option shall be
determined in accordance with the foregoing, subject to such adjustments as are
necessary in order to satisfy the requirements of Section 424(a) of the Code. At
or prior to the Effective Time, the Company shall make all necessary
arrangements with respect to the Stock Plan to permit the assumption of the
unexercised Company Options by Parent pursuant to this Section.
(ii) Effective at the Effective Time, Parent shall assume each Company
Option in accordance with the terms of the Stock Plan under which it was issued
and the stock option agreement by which it is evidenced. At or prior to the
Effective Time, Parent shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of Parent Common Stock for delivery upon
exercise of Company Options assumed by it in accordance with this Section.
(iii) Parent agrees that, after the Effective Time, Parent shall use
reasonable efforts to aid Company Option holders to reduce any taxes payable by
such holders in connection with the actions to be taken in connection with
clause (i), provided, however, that such reasonable efforts shall not require
the Company or Parent to incur any expense or make any payment.
(b) Employee Benefits. Parent agrees that, during the period commencing at
the Effective Time and ending on the first anniversary thereof, the employees of
the Company and its Subsidiaries will continue to be provided with benefits
under employee benefit plans (other than plans involving the issuance of Shares)
that are no less favorable in the aggregate than those currently provided by the
Company and its Subsidiaries to such employees. Parent will cause such employee
benefit plans to take into account for purposes of eligibility, vesting and
benefit accrual thereunder service by employees of the Company and its
Subsidiaries as if such service were with Parent. Parent guarantees that the
Company and its Subsidiaries shall be adequately funded to satisfy their current
contractual benefit obligations to their employees.
(c) Election to Parent's Board of Directors. At the Effective Time of the
Amalgamation, Parent shall promptly increase the size of its Board of Directors
in order to cause Mr. Leif O. Hoegh to be appointed to Parent's board of
directors and, subject to fiduciary obligations under applicable law, shall use
its best efforts to cause Mr. Leif O. Hoegh to be elected as a director of
Parent at the first annual meeting of stockholders of Parent with a proxy
mailing date after the Effective Time.
6.11. Expenses. The Amalgamated Company shall pay all charges and expenses,
including those of the Exchange Agent, in connection with the transactions
contemplated in Article IV, and Parent shall reimburse the Amalgamated Company
for such charges and expenses. Except as otherwise provided in Section 8.5(b),
whether or not the Amalgamation is consummated, all costs and expenses incurred
in connection with this Agreement and the Amalgamation and the other
transactions contemplated by this Agreement shall be paid by the party incurring
such expense.
6.12. Indemnification.
(a) From and after the Effective Time, Parent agrees that it will indemnify
and hold harmless each individual who at the Effective Time was a present or
former director or officer of the Company, (when acting in such capacity)
determined as of the Effective Time (the "Indemnified Parties"), against any
costs or expenses (including reasonable attorneys' fees), judgments, fines,
losses, claims, damages or liabilities (collectively, "Costs") incurred in
connection with any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative, arising out of matters
existing or occurring at or prior to the Effective Time, whether asserted or
claimed prior to, at or after the Effective Time, to the fullest extent that the
Company would have been permitted under the laws of Bermuda and the Company's
Organizational Documents in effect on the date hereof to indemnify such Person
(and Parent shall also advance expenses as incurred to the fullest extent
permitted under applicable law provided the Person to whom expenses are advanced
provides an undertaking to repay such advances if it is ultimately determined
that such Person is not entitled to indemnification); and provided, further,
that any determination required to be made with respect to whether an officer's
or director's conduct complies with the standards set forth under the laws of
Bermuda and the Company's Organizational Documents shall be made by independent
counsel selected by the Amalgamated Company.
(b) Any Indemnified Party wishing to claim indemnification under
paragraph (a) of this Section 6.13, upon learning of any such claim, action,
suit, proceeding or investigation, shall promptly notify Parent thereof. In the
event of any such claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time), (i) Parent or the Amalgamated
Company shall have the right to assume the defense thereof and Parent shall not
be liable to such Indemnified Parties for any legal expenses of other counsel or
any other expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof, (ii) the Indemnified Parties will cooperate
in the defense of any such matter and (iii) Parent shall not be liable for any
settlement effected without its prior written consent; and provided, further,
that Parent shall not have any obligation hereunder to any Indemnified Party if
and when a court of competent jurisdiction shall ultimately determine, and such
determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law.
(c) If the Amalgamated Company or any of its successors or assigns
(i) shall consolidate or amalgamate with or merge into any other corporation or
entity and shall not be the continuing or surviving corporation or entity of
such consolidation, amalgamation or merger or (ii) shall transfer all or
substantially all of its properties and assets to any individual, corporation or
other entity, then, and in each such case, proper provisions shall be made so
that the successors and assigns of the Amalgamated Company shall assume all of
the obligations set forth in this Section.
6.13. Takeover Statute. If any Takeover Statute is or may become applicable
to the Amalgamation or the other transactions contemplated by this Agreement or
the Stockholder/Voting Agreements, each of Parent and the Company and its board
of directors shall grant such approvals and take such actions as are necessary
so that such transactions may be consummated as promptly as practicable on the
terms contemplated by this Agreement or by the Amalgamation and otherwise act to
eliminate or minimize the effects of such statute or regulation on such
transactions.
6.14. Parent Vote. Parent shall vote (or consent with respect to) or cause
to be voted (or a consent to be given with respect to) any Shares and any shares
of common stock of Amalgamation Sub beneficially owned by it or any of its
Affiliates or with respect to which it or any of its Affiliates has the power
(by agreement, proxy or otherwise) to cause to be voted (or to provide a
consent), in favor of the adoption and approval of this Agreement at any meeting
of stockholders of the Company or Amalgamation Sub, respectively, at which this
Agreement shall be submitted for adoption and approval and at all adjournments
or postponements thereof (or, if applicable, by any action of stockholders of
either the Company or Amalgamation Sub by consent in lieu of a meeting).
6.15. Parent Change of Domicile or Incorporation. Notwithstanding anything
else to the contrary contained herein, Parent or any of its Subsidiaries may
take any actions that Parent desires to effect a change of domicile or
incorporation of Parent or any of its Subsidiaries so as to be governed by the
laws of the Republic of the Marshall Islands.
6.16. Regulation S of the Securities Act. Neither Parent nor the Company
shall, and each of Parent and the Company shall cause their respective
Subsidiaries not to, take any action or refrain from taking any action the
effect of which would be to cause the Amalgamation not to qualify for exemption
from registration under the Securities Act, pursuant to Regulation S thereunder.
6.17. Parent Actions. Parent shall not (i) other than in the ordinary
course of business consistent with past practice, declare, set aside or pay any
dividend in excess of $0.86 per share in 1999 payable in cash, stock or property
in respect of any capital stock other than dividends from its direct or indirect
wholly-owned Subsidiaries, (ii) repurchase, redeem or otherwise acquire, or
permit any of its Subsidiaries to purchase or otherwise acquire, any shares of
its capital stock or any securities convertible into or exchangeable or
exercisable for any shares of its capital stock, (iii) take any action which
would directly benefit Parent's stockholders as of the date hereof at the
expense of the Company's stockholders, or (iv) take any action or omit to take
any action that would cause any of the representations and warranties herein to
become untrue in any material respect.
ARTICLE VII
Conditions
7.1. Conditions to Each Party's Obligation to Effect the Amalgamation. The
respective obligation of each party to effect the Amalgamation is subject to the
satisfaction or waiver at or prior to the Effective Time of each of the
following conditions:
(a) Stockholder Approval. This Agreement shall have been duly approved by
holders of Shares constituting the Company Requisite Vote and shall have been
duly approved by the sole stockholder of Amalgamation Sub in accordance with
applicable law and the Organizational Documents of each such corporation.
(b) Regulatory Consents. Other than the filing provided for in Section 1.3,
all notices, reports and other filings required to be made prior to the
Effective Time by the Company or Parent or any of their respective Subsidiaries
with, and all consents, registrations, approvals, permits and authorizations
required to be obtained prior to the Effective Time by the Company or Parent or
any of their respective Subsidiaries from, any Governmental Entity
(collectively, "Governmental Consents") in connection with the execution and
delivery of this Agreement and the consummation of the Amalgamation and the
other transactions contemplated hereby by the Company, Parent and Amalgamation
Sub shall have been made or obtained (as the case may be), except those that the
failure to make or to obtain are not, individually or in the aggregate,
reasonably likely to have a Company Material Adverse Effect or a Parent Material
Adverse Effect, as applicable, or to provide a reasonable basis to conclude that
the parties hereto or any of their affiliates or respective directors, officers,
agents, advisors or other representatives would be subject to the risk of
criminal liability.
(c) Litigation. No court or Governmental Entity of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any statute, law,
ordinance, rule, regulation, judgment, decree, injunction or other order
(whether temporary, preliminary or permanent) that is in effect and restrains,
enjoins or otherwise prohibits consummation of the Amalgamation or the other
transactions contemplated by this Agreement (collectively, an "Order").
7.2. Conditions to Obligations of Parent and Amalgamation Sub. The
obligations of Parent and Amalgamation Sub to effect the Amalgamation are also
subject to the satisfaction or waiver by Parent at or prior to the Effective
Time of the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement that are qualified by a materiality
standard shall be true and correct as of the date of this Agreement and as of
the Closing Date as though made on and as of the Closing Date (except to the
extent any such representation or warranty expressly speaks as of an earlier
date), and the representations and warranties of the Company set forth in this
Agreement that are not qualified by a materiality standard shall be true and
correct in all material respects as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date (except to the extent
any such representation or warranty expressly speaks as of an earlier date), and
Parent shall have received a certificate signed on behalf of the Company by an
Executive Vice President, the President or the Chief Executive Officer of the
Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent shall have
received a certificate signed on behalf of the Company by an Executive Vice
President, the President or the Chief Executive Officer of the Company to such
effect.
(c) Resignations. Parent shall have received the resignations of each
director of the Company and each of its Subsidiaries.
(d) Affiliates Letters. Parent shall have received an Affiliates Letter
from each Person identified as an affiliate of the Company pursuant to
Section 6.7.
7.3. Conditions to Obligation of the Company. The obligation of the Company
to effect the Amalgamation is also subject to the satisfaction or waiver by the
Company at or prior to the Effective Time of the following conditions:
(a) Representations and Warranties. The representations and warranties of
Parent and Amalgamation Sub set forth in this Agreement that are qualified by a
materiality standard shall be true and correct as of the date of this Agreement
and as of the Closing Date as though made on and as of the Closing Date (except
to the extent any such representation or warranty expressly speaks as of an
earlier date), and the representations and warranties of Parent and Amalgamation
Sub set forth in this Agreement that are not qualified by a materiality standard
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing Date as though made on and as of the Closing
Date (except to the extent any such representation or warranty expressly speaks
as of an earlier date), and the Company shall have received a certificate signed
on behalf of Parent by an Executive Vice President, the President or the Chief
Executive Officer of Parent and on behalf of Amalgamation Sub by an Executive
Vice President, the President or the Chief Executive Officer of Amalgamation Sub
to such effect.
(b) Performance of Obligations of Parent and Amalgamation Sub. Each of
Parent and Amalgamation Sub shall have performed in all material respects all
obligations required to be performed by it under this Agreement at or prior to
the Closing Date, and the Company shall have received a certificate signed on
behalf of Parent and Amalgamation Sub by an Executive Vice President, the
President or the Chief Executive Officer of Parent to such effect.
ARTICLE VIII
Termination
8.1. Termination by Mutual Consent. This Agreement may be terminated and
the Amalgamation may be abandoned at any time prior to the Effective Time,
whether before or after the approval by stockholders of the Company referred to
in Section 7.1(a), by mutual written consent of the Company and Parent by action
of their respective Boards of Directors.
8.2. Termination by Either Parent or the Company.
(a) This Agreement may be terminated and the Amalgamation may be abandoned
at any time prior to 11:59 p.m. (Oslo, Norway time) on March 28, 1999 if either
the Parent or the Company shall determine, in either case in such party's sole
discretion, that its due diligence review of the other party has not been
satisfactory.
(b) This Agreement may be terminated and the Amalgamation may be abandoned
at any time prior to the Effective Time by action of the Board of Directors of
either Parent or the Company if (i) the Amalgamation shall not have been
consummated by September 30, 1999, whether such date is before or after the date
of approvals by the stockholders of the Company (the "Termination Date"),
(ii) the approval of the Company's stockholders required by Section 7.1(a) shall
not have been obtained at a meeting duly convened therefor or at any adjournment
or postponement thereof; provided, however, that if an Acquisition Proposal has
been made by any Person prior to the time of such vote, the Company may not
terminate this Agreement pursuant to this clause (ii) until a date that is not
less than 90 days from the date of such vote or (iii) any Order permanently
restraining, enjoining or otherwise prohibiting consummation of the Amalgamation
shall become final and non-appealable (whether before or after the approval by
the stockholders of the Company); provided, that the right to terminate this
Agreement pursuant to clause (i) above shall not be available to any party that
has breached in any material respect its obligations under this Agreement in any
manner that shall have proximately contributed to the occurrence of the failure
of the Amalgamation to be consummated.
8.3. Termination by the Company. This Agreement may be terminated and the
Amalgamation may be abandoned at any time prior to the Effective Time, whether
before or after the approval by stockholders of the Company referred to in
Section 7.1(a), by action of the Board of Directors of the Company:
(a) if (i) the Company is not in material breach of any of the terms of
this Agreement, (ii) the Board of Directors of the Company authorizes the
Company, subject to complying with the terms of this Agreement, to enter into a
binding written agreement concerning a transaction that constitutes a Superior
Proposal and the Company notifies Parent in writing that it intends to enter
into such an agreement, attaching the most current version of such agreement to
such notice, (iii) Parent does not make, within five business days of receipt of
the Company's written notification of its intention to enter into a binding
agreement for a Superior Proposal, an offer that the Board of Directors of the
Company determines, in good faith after consultation with its financial
advisors, is at least as favorable, taking into account, among other things, the
long-term prospects and interests of the Company and its stockholders, as the
Superior Proposal and (iv) the Company prior to such termination pays to Parent
in immediately available funds the fees required to be paid pursuant to
Section 8.5. The Company agrees (x) that it will not enter into a binding
agreement referred to in clause (ii) above until at least the sixth business day
after it has provided the notice to Parent required thereby and (y) to notify
Parent promptly if its intention to enter into a written agreement referred to
in its notification shall change at any time after giving such notification.
(b) if there has been a material breach by Parent or Amalgamation Sub of
any representation, warranty, covenant or agreement contained in this Agreement
that is not curable or, if curable, is not cured within 30 days after written
notice of such breach is given by the Company to the party committing such
breach.
8.4. Termination by Parent. This Agreement may be terminated and the
Amalgamation may be abandoned at any time prior to the Effective Time if (a) the
Company enters into a binding agreement for a Superior Proposal or the Board of
Directors of the Company recommends a Superior Proposal or shall have withdrawn
or adversely modified its approval or recommendation of this Agreement or failed
to reconfirm its recommendation of this Agreement within five business days
after a written request by Parent to do so, (b) there has been a material breach
by the Company of any representation, warranty, covenant or agreement contained
in this Agreement that is not curable or, if curable, is not cured within 30
days after written notice of such breach is given by Parent to the Company or
(c) if the Company, any of its Subsidiaries or any of their Representatives
shall take any actions pursuant to the proviso set forth in Section 6.2.
8.5. Effect of Termination and Abandonment. In the event of termination of
this Agreement and the abandonment of the Amalgamation pursuant to this
Article VIII, this Agreement shall become void and of no effect with no
liability on the part of any party hereto (or of any of its directors, officers,
employees, agents, legal and financial advisors or other representatives) except
for the obligations of the parties hereto contained in this Section 8.5 and in
Sections 6.11 (Expenses) and 9.6 (Notices); provided, however, except as
otherwise provided herein, no such termination shall relieve any party hereto of
any liability or damages resulting from any breach of this Agreement.
(a) In the event that (i) an Acquisition Proposal shall have been made to
the Company or any of its Subsidiaries or any of its stockholders or any Person
shall have publicly announced an intention (whether or not conditional) to make
an Acquisition Proposal with respect to the Company or any of its Subsidiaries
and thereafter this Agreement is terminated by either Parent or the Company
pursuant to Section 8.2(b)(i) or Section 8.2(b)(ii), or (ii) this Agreement is
terminated (A) by the Company pursuant to Section 8.3(a) or (B) by Parent
pursuant to Section 8.4(a), then the Company shall promptly, but in no event
later than two days after the date of such termination or such earlier time as
required by this Agreement, pay Parent a termination fee of $15,000,000 (the
"Termination Fee") and shall promptly, but in no event later than two days after
being notified of such by Parent, pay to Parent an amount equal to all of the
reasonably documented charges and expenses incurred by Parent or Amalgamation
Sub in connection with this Agreement and the transactions contemplated by this
Agreement, in each case payable by wire transfer of same day funds ("Expenses").
(b) In the event this Agreement is terminated (i) by the Company pursuant
to Section 8.2(b)(i) or Section 8.2(b)(ii), or (ii) by Parent pursuant to
Section 8.2(b)(i), Section 8.2(b)(ii) or 8.4(c) and no fee is otherwise payable
to Parent pursuant to paragraph (a) above, then, if within 18 months of such
termination, the Company enters into an agreement concerning a transaction that
constitutes an Acquisition Proposal, the Company at the time of entering into
such agreement, shall pay to Parent the Termination Fee plus Expenses, in each
case payable by wire transfer of same day funds.
(c) The Company acknowledges that the agreements contained in
Sections 8.5(b) and (c) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, Parent and Amalgamation Sub
would not enter into this Agreement; accordingly, if the Company fails to
promptly pay the amount due pursuant to either Section 8.5(b) or (c), and, in
order to obtain such payment, Parent or Amalgamation Sub commences a suit which
results in a judgment against the Company for the fee set forth therein the
Company shall pay to Parent or Amalgamation Sub its costs and expenses
(including attorneys' fees) in connection with such suit, together with interest
from the date of termination of this Agreement on the amounts owed at the prime
rate of Chase Manhattan Bank in effect from time to time during such period plus
two percent.
ARTICLE IX
Miscellaneous and General
9.1. Survival. This Article IX and the agreements of the Company, Parent
and Amalgamation Sub contained in Sections 6.8 (Stock Exchange Listing and
De-listing), 6.10 (Benefits), 6.11 (Expenses), and 6.12 (Indemnification) shall
survive the consummation of the Amalgamation. This Article IX, the agreements of
the parties contained in Section 6.11 (Expenses), Section 8.5 (Effect of
Termination and Abandonment) shall survive the termination of this Agreement.
All other representations, warranties, covenants and agreements in this
Agreement shall not survive the consummation of the Amalgamation or the
termination of this Agreement.
9.2. Modification or Amendment. Subject to the provisions of the applicable
Law, at any time prior to the Effective Time, the parties hereto may modify or
amend this Agreement, by written agreement executed and delivered by duly
authorized officers of the respective parties.
9.3. Waiver of Conditions. The conditions to each of the parties'
obligations to consummate the Amalgamation are for the sole benefit of such
party and may be waived by such party in whole or in part to the extent
permitted by applicable law.
9.4. Counterparts. This Agreement may be executed in any number of
counterparts, each such counterpart being deemed to be an original instrument,
and all such counterparts shall together constitute the same agreement.
9.5. GOVERNING LAW AND VENUE; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT SHALL BE DEEMED TO BE MADE IN AND IN ALL RESPECTS SHALL
BE INTERPRETED, CONSTRUED AND GOVERNED BY AND IN ACCORDANCE WITH THE LAW OF THE
STATE OF NEW YORK WITHOUT REGARD TO THE CONFLICT OF LAW PRINCIPLES THEREOF, WITH
THE EXCEPTION OF ANY CONTRACT PROVISIONS RELATING DIRECTLY TO THE APPROVAL OF OR
THE MECHANICS OF THE AMALGAMATION WHICH SHALL BE GOVERNED BY THE LAWS OF BERMUDA
(THE "BERMUDA GOVERNED PROVISIONS"). THE PARTIES HEREBY IRREVOCABLY SUBMIT TO
THE JURISDICTION OF THE FEDERAL AND STATE COURTS OF NEW YORK STATE SOLELY IN
RESPECT OF THE INTERPRETATION AND ENFORCEMENT OF THE PROVISIONS OF THIS
AGREEMENT AND OF THE DOCUMENTS REFERRED TO IN THIS AGREEMENT, AND IN RESPECT OF
THE TRANSACTIONS CONTEMPLATED HEREBY AND THEREBY, EXCEPT WITH RESPECT TO THE
BERMUDA GOVERNED PROVISIONS WITH RESPECT TO WHICH THE PARTIES HEREBY IRREVOCABLY
SUBMIT TO THE JURISDICTION OF THE COURTS OF BERMUDA, AND HEREBY WAIVE, AND AGREE
NOT TO ASSERT, AS A DEFENSE IN ANY ACTION, SUIT OR PROCEEDING FOR THE
INTERPRETATION OR ENFORCEMENT HEREOF OR OF ANY SUCH DOCUMENT, THAT IT IS NOT
SUBJECT THERETO OR THAT SUCH ACTION, SUIT OR PROCEEDING MAY NOT BE BROUGHT OR IS
NOT MAINTAINABLE IN SAID COURTS OR THAT THE VENUE THEREOF MAY NOT BE APPROPRIATE
OR THAT THIS AGREEMENT OR ANY SUCH DOCUMENT MAY NOT BE ENFORCED IN OR BY SUCH
COURTS, AND THE PARTIES HERETO IRREVOCABLY AGREE THAT ALL CLAIMS WITH RESPECT TO
SUCH ACTION OR PROCEEDING SHALL BE HEARD AND DETERMINED IN SUCH A NEW YORK
FEDERAL OR STATE COURT, OR AS APPLICABLE, A BERMUDA COURT. THE PARTIES HEREBY
CONSENT TO AND GRANT ANY SUCH COURT JURISDICTION OVER THE PERSON OF SUCH PARTIES
AND OVER THE SUBJECT MATTER OF SUCH DISPUTE AND AGREE THAT MAILING OF PROCESS OR
OTHER PAPERS IN CONNECTION WITH ANY SUCH ACTION OR PROCEEDING IN THE MANNER
PROVIDED IN SECTION 9.6 OR IN SUCH OTHER MANNER AS MAY BE PERMITTED BY LAW SHALL
BE VALID AND SUFFICIENT SERVICE THEREOF.
(b) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY
RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION
DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR THE
TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. EACH PARTY CERTIFIES AND
ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE
EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (ii) EACH PARTY
UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF THIS WAIVER, (iii) EACH PARTY
MAKES THIS WAIVER VOLUNTARILY, AND (iv) EACH PARTY HAS BEEN INDUCED TO ENTER
INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 9.5.
9.6. Notices. All notices or other communications under this Agreement
shall be in writing and shall be deemed duly given, effective (i) three business
days later, if sent by registered or certified mail, return receipt requested,
postage prepaid, (ii) when sent, if sent by telecopier or fax, provided that the
telecopy or fax is promptly confirmed by telephone confirmation thereof,
(iii) when served, if delivered personally to the intended recipient, and
(iv) one business day later, if sent by overnight delivery via a national
courier service, and in each case, addressed to the intended recipient at the
address set forth below. Any party may change the address to which notices or
other communications hereunder are to be delivered by giving the other party
notice in the manner herein set forth:
if to Parent or Amalgamation Sub
Teekay Shipping (Canada) LTD.,
Suite 1400, One Bentall Centre
505 Burrard Street
Vancouver, BC V7X 1M5
Canada
Attention: Mr. Arthur Bensler
fax: (604) 609-6447
(with a copy to Francis J. Aquila, Esq.,
Sullivan & Cromwell,
125 Broad Street, New York, NY 10004
fax: (212) 558-3588.)
if to the Company
Bona Shipholding Ltd.
c/o Bona Shipping AS
Radhusgaten 27
P.O. Box 470 Sentrum
N-0105 Oslo, Norway
Attention: Mr. Ragnar Belck-Olsen
fax: (47) 2231-0001
(with a copy to Stephen Knudtzon
Thommessen Krefting Greve Lund AS Advokatfirma
Haakon VII's gate 10
Postboks 1484 Vika
0116 Oslo, Norway
fax: (47) 2311-1010
and
Keith L. Kearney, Esq.,
Davis Polk & Wardwell
1 Frederick's Place
London EC2R 8AB
fax: (44) 171-418-1400
or to such other persons or addresses as may be designated in writing by
the party to receive such notice as provided above.
9.7. Entire Agreement. This Agreement (including any exhibits hereto), the
Company Disclosure Schedule, the Parent Disclosure Schedule and the
Confidentiality Agreement, dated March, 1999, between Parent and the Company
(the "Confidentiality Agreement") constitute the entire agreement, and supersede
all other prior agreements, understandings, representations and warranties both
written and oral, among the parties, with respect to the subject matter hereof.
9.8. No Third Party Beneficiaries. Except as provided in Section 6.12
(Indemnification), this Agreement is not intended to confer upon any Person
other than the parties hereto any rights or remedies hereunder.
9.9. Obligations of Parent and of the Company. Whenever this Agreement
requires a Subsidiary of Parent to take any action, such requirement shall be
deemed to include an undertaking on the part of Parent to cause such Subsidiary
to take such action. Whenever this Agreement requires a Subsidiary of the
Company to take any action, such requirement shall be deemed to include an
undertaking on the part of the Company to cause such Subsidiary to take such
action and, after the Effective Time, on the part of the Amalgamated Company to
cause such Subsidiary to take such action.
9.10. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability or the other provisions hereof. If any
provision of this Agreement, or the application thereof to any Person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other Persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
9.11. Interpretation. The table of contents and headings herein are for
convenience of reference only, do not constitute part of this Agreement and
shall not be deemed to limit or otherwise affect any of the provisions hereof.
Where a reference in this Agreement is made to a Section or Exhibit, such
reference shall be to a Section of or Exhibit to this Agreement unless otherwise
indicated. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation."
9.12. Assignment. This Agreement shall not be assignable by operation of
law or otherwise; provided, however, that Parent may designate, by written
notice to the Company, another direct or indirect wholly-owned subsidiary to be
a constituent corporation in lieu of Amalgamation Sub, in which event all
references herein to Amalgamation Sub shall be deemed references to such other
subsidiary, except that all representations and warranties made herein with
respect to Amalgamation Sub as of the date of this Agreement shall be deemed
representations and warranties made with respect to such other subsidiary as of
the date of such designation.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
BONA SHIPHOLDING LIMITED
By: /s/Stephen Knuttzon
-------------------
Vice President
TEEKAY SHIPPING CORPORATION
By: /s/Bjorn Moller
-------------------
President and CEO
NORTHWEST MARITIME INC.
By: /s/Pascal Spothelfer
--------------------
Secretary
<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> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 118,435
<SECURITIES> 8,771
<RECEIVABLES> 22,995
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 166,396
<PP&E> 1,832,485
<DEPRECIATION> 557,946
<TOTAL-ASSETS> 1,452,220
<CURRENT-LIABILITIES> 72,169
<BONDS> 602,661
0
0
<COMMON> 330,493
<OTHER-SE> 446,897
<TOTAL-LIABILITY-AND-EQUITY> 1,452,220
<SALES> 0
<TOTAL-REVENUES> 318,411
<CGS> 0
<TOTAL-COSTS> 93,511
<OTHER-EXPENSES> 232,777
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44,797
<INCOME-PRETAX> 52,712
<INCOME-TAX> 0
<INCOME-CONTINUING> 52,712
<DISCONTINUED> 0
<EXTRAORDINARY> 7,306
<CHANGES> 0
<NET-INCOME> 45,406
<EPS-BASIC> 1.46
<EPS-DILUTED> 1.46
</TABLE>
