| (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 December 31, 2004
OR
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 1- 12874
TEEKAY SHIPPING CORPORATION
(Exact name of Registrant as specified in its charter)
Republic of The Marshall Islands
(Jurisdiction of
incorporation or organization)
TK House, Bayside Executive Park, West Bay Street &
Blake Road, P.O. Box AP-59212, 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, par value of $0.001 per share 8.32% First Preferred Ship Mortgage Notes due 2006 7.25% PEPS Unit |
Name of each exchange on which registered
New York Stock Exchange 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.
82,951,275 shares of Common Stock, par value of $0.001 per share.
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.
Indicate by check mark which financial statement item the registrant has elected to follow:
TEEKAY SHIPPING CORPORATION
INDEX TO REPORT
ON FORM 20-F
Page
PART I.
Item 1. Identity of Directors, Senior Management and Advisors..................... Not applicable
Item 2. Offer Statistics and Expected Timetable................................... Not applicable
Item 3. Key Information................................................................. 3
Item 4. Information on the Company...................................................... 9
Item 5. Operating and Financial Review and Prospects.................................... 19
Item 6. Directors, Senior Management and Employees...................................... 29
Item 7. Major Shareholders and Related Party Transactions............................... 33
Item 8. Financial Information........................................................... 34
Item 9. The Offer and Listing........................................................... 34
Item 10. Additional Information.......................................................... 35
Item 11. Quantitative and Qualitative Disclosures About Market Risk...................... 37
Item 12. Description of Securities Other than Equity Securities.................... Not applicable
PART II.
Item 13. Defaults, Dividend Arrearages and Delinquencies................................. 39
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.... 39
Item 15. Controls and Procedures......................................................... 39
Item 16A. Audit Committee Financial Expert................................................ 39
Item 16B. Code of Ethics.................................................................. 39
Item 16C. Principal Accountant Fees and Services.......................................... 39
Item 16D. Exemptions from the Listing Standards for Audit Committees...................... 40
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.......... 40
PART III.
Item 17. Financial Statements...................................................... Not applicable
Item 18. Financial Statements............................................................ 40
Item 19. Exhibits........................................................................ 40
Signature ................................................................................ 44
PART I
This Annual Report should be read in conjunction with the consolidated financial statements and accompanying notes included in this report.
In addition to historical information, this Annual Report contains forward-looking statements that involve risks and uncertainties. Such forward-looking statements relate to future events and our operations, objectives, expectations, performance, financial condition and intentions. When used in this Annual Report, the words “expect,” “intend,” “plan,” “believe,” “anticipate,” “estimate” and variations of such words and similar expressions are intended to identify forward-looking statements. Forward-looking statements in this Annual Report include, in particular, statements regarding: our future growth prospects; tanker market fundamentals, including the balance of supply and demand in the tanker market, and spot tanker charter rates; future capital expenditures; delivery dates of and financing for newbuildings, and the commencement of service of newbuildings under long-term time charter contacts; the impact of the Teekay Spain acquisition to our earnings, future cash flow from vessel operations and strategic position; the growth prospects of the LNG shipping sector, including increased competition, and the joint venture company with the former controlling shareholder of Teekay Spain; the initial public offering of Teekay LNG Partners L.P.; the expected impact of IMO regulations and regulations of the European Union Parliament; the expected lifespan of a new LNG carrier; the expected impact of the heightened environmental and quality concerns of insurance underwriters, regulators and charterers; the growth of the global economy and global oil demand; and the proceeds and gains in the first and second quarters of 2006 relating to the sale of certain of our vessels. Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate or imply future results, performance or achievements, and may contain the words believe, anticipate, expect, estimate, project, will be, will continue, will likely result, or words or phrases of similar meanings. These statements involve known and unknown risks and are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements. Important factors that could cause actual results to differ materially include, but are not limited to: changes in production of or demand for oil, petroleum products and LNG, either generally or in particular regions; the cyclical nature of the tanker industry and our dependence on oil markets; greater or less than anticipated levels of tanker newbuilding orders or greater or less than anticipated rates of tanker scrapping; changes in trading patterns significantly impacting overall tanker tonnage requirements; changes in applicable industry laws and regulations and the timing of implementation of new laws and regulations; changes in typical seasonal variations in tanker charter rates; changes in the offshore production of oil, competitive factors in the markets in which we operate; our potential inability to integrate effectively the operations of Teekay Spain or any other future acquisitions; the potential for early termination of long-term contracts and inability of the Company to renew or replace long-term contracts; shipyard production delays; conditions in the public equity markets; the ultimate number of common units and price per unit, if any, issued by Teekay LNG Partners L.P. in its proposed public offering; and other factors detailed from time to time in our periodic reports.
Forward-looking statements in this Annual Report are necessarily estimates reflecting the judgment of senior management and involve known and unknown risks and uncertainties. These forward-looking statements are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements. Accordingly, these forward-looking statements should, be considered in light of various important factors, including those set forth in this Annual Report under the heading “Factors That May Affect Future Results.”
We do not intend to revise any forward-looking statements in order to reflect any change in our expectations or events or circumstances that may subsequently arise. You should carefully review and consider the various disclosures included in this Annual Report and in our other filings made with the SEC that attempt to advise interested parties of the risks and factors that may affect our business, prospects and results of operations.
Item 1. Identity of Directors, Senior Management and Advisors
Not applicable.
Item 2. Offer Statistics and Expected Timetable
Not applicable.
Item 3. Key Information
Set forth below are selected consolidated financial and other data of Teekay Shipping Corporation together with its subsidiaries (sometimes referred to as “Teekay,” the “Company,” “we” or “us”), for the years ended December 31, 2004, 2003, 2002, 2001 and 2000, which have been derived from our consolidated financial statements. The data below should be read in conjunction with the consolidated financial statements and the notes thereto and the Report of Independent Registered Public Accounting Firm therein, with respect to the consolidated financial statements for the years ended December 31, 2004, 2003, and 2002, and “Item 5. Operating and Financial Review and Prospects,” included herein.
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States.
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
2004 2003 2002 2001 2000
(in thousands, except share, per share data and ratios)
Income Statement Data:
Voyage revenues.................... $2,219,238 $1,576,095 $783,327 $1,039,056 $893,226
Total operating expenses (1)....... (1,398,052) (1,283,131) (663,981) (655,593) (565,551)
Income from vessel operations...... 821,186 292,964 119,346 383,463 327,675
Interest expense................... (121,518) (80,999) (57,974) (66,249) (74,540)
Interest income.................... 18,528 3,921 3,494 9,196 13,021
Equity income from joint ventures.. 13,730 6,970 4,523 17,324 9,546
Gain (loss) on sale of marketable
securities......................... 93,175 517 (1,130) 758 -
Other - net........................ (67,661) (46,009) (14,868) (7,974) (5,682)
Net income......................... 757,440 177,364 53,391 336,518 270,020
Per Share Data:
Net income - basic (2)............. $9.14 $2.22 $0.67 $4.24 $3.51
Net income - diluted (2)........... 8.63 2.18 0.66 4.16 3.43
Cash dividends declared (2)........ 0.51 0.45 0.43 0.43 0.43
Balance Sheet Data (at end of year):
Cash and marketable securities..... $ 427,037 $ 387,795 $ 298,255 $ 196,004 $ 223,123
Restricted cash.................... 448,812 2,672 8,785 7,833 -
Vessels and equipment.............. 3,531,287 2,574,860 2,066,657 2,043,098 1,607,716
Total assets....................... 5,503,740 3,588,044 2,723,506 2,467,781 1,974,099
Total debt (including capital lease
obligations)....................... 2,744,545 1,636,758 1,130,822 935,702 797,484
Capital stock...................... 534,938 492,653 470,988 467,341 452,808
Total stockholders' equity......... 2,237,358 1,651,827 1,421,898 1,398,200 1,098,512
Number of outstanding shares of
common stock (2)................... 82,951,275 81,222,350 79,384,120 79,100,652 78,290,438
Other Financial Data:
Net voyage revenues (3)............ $1,786,843 $1,181,439 $ 543,872 $ 789,494 $ 644,269
Net operating cash flow............ 814,704 455,575 179,531 500,086 321,314
Total debt to total
capitalization (4) (5)............. 54.9% 49.5% 43.9% 39.8% 42.1%
Net debt to total net
capitalization (5) (6)............. 45.3% 44.5% 36.4% 34.3% 34.3%
Capital expenditures:
Vessel and equipment
purchases, gross (7).......... 548,587 372,433 135,650 184,983 43,512
| (1) | Total operating expenses includes vessel write-downs and (gain) loss on sale of vessels, and restructuring charges as follows: |
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
2004 2003 2002 2001 2000
(in thousands)
Vessel write-downs and
(gain) loss on sale of
vessels..................... $(79,254) $90,389 $- $- $1,004
Restructuring charges....... 1,002 6,383 - - -
--------------- ---------------- --------------- -------------- --------------
(78,252) 96,772 - - 1,004
=============== ================ =============== ============== ==============
| (2) | On May 17, 2004, we effected a two-for-one stock split relating to our common stock. All per share data and number of outstanding shares of common stock give effect to this stock split retroactively. |
| (3) | Consistent with general practice in the shipping industry, we use net voyage revenues (defined as voyage revenues less voyage expenses) as a measure of equating revenues generated from voyage charters to revenues generated from time charters, which assists us in making operating decisions about the deployment of our vessels and their performance. Under time charters the charterer pays the voyage expenses, whereas under voyage charter contracts the ship owner pays the voyage expenses. Some voyage expenses are fixed, and the remainder can be estimated. If we, as the ship owner, pay the voyage expenses, we typically pass the approximate amount of these expenses on to our customers by charging higher rates under the contract or billing the expenses to them. As a result, although voyage revenues from different types of contracts may vary, the net revenues after subtracting voyage expenses, which we call net voyage revenues, are comparable across the different types of contracts. We principally use net voyage revenues, a non-GAAP financial measure, because it provides more meaningful information to us than voyage revenues, the most directly comparable GAAP financial measure. Net voyage revenues are also widely used by investors and analysts in the shipping industry for comparing financial performance between companies and to industry averages. The following table reconciles net voyage revenues with voyage revenues. |
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
2004 2003 2002 2001 2000
(in thousands)
Voyage revenues......... $2,219,238 $1,576,095 $783,327 $1,039,056 $893,226
Voyage expenses......... (432,395) (394,656) (239,455) (249,562) (248,957)
---------------- --------------- --------------- --------------- --------------
Net voyage revenues..... 1,786,843 1,181,439 543,872 789,494 644,269
================ =============== =============== =============== ==============
| (4) | Total capitalization represents total debt, minority interest and total stockholders’ equity. |
| (5) | As at December 31, 2004, we had $143.7 million of Premium Equity Participating Security Units due May 18, 2006 (or Equity Units) outstanding. If these Equity Units, which were issued on February 16, 2003, were presented as equity, our total debt to total capitalization would have been 52.1% as of December 31, 2004 (December 31, 2003 — 45.2%) and our net debt to total capitalization would have been 41.9% as of December 31, 2004 (December 31, 2003 – 39.8%). We believe that this presentation as equity for the purposes of these calculations is consistent with the requirement of each Equity Unit holder to purchase for $25 a specified fraction of a share of our common stock on February 16, 2006. |
| (6) | Net debt represents total debt less cash, cash equivalents, restricted cash and short-term marketable securities. Total net capitalization represents net debt, minority interest and total stockholders’ equity. |
| (7) | Excludes vessels purchased in connection with our acquisitions of Ugland Nordic Shipping AS in 2001, Navion AS in 2003 and Teekay Shipping Spain S.L. ( or Teekay Spain) in 2004. Please see Item 5 – Operating and Financial Review and Prospects. |
Historically, the tanker industry has been cyclical, experiencing volatility in profitability due to changes in the supply of, and demand for, tanker capacity. Increases or decreases in the supply of tankers could have a material adverse effect on our business, financial condition and results of operations. The supply of tanker capacity is influenced by the number and size of new vessels built, older vessels scrapped, converted and lost, the number of vessels that are out of service and regulations that may effectively cause early obsolescence of tonnage. The demand for tanker capacity is influenced by, among other factors: global and regional economic conditions; increases and decreases in production of and demand for crude oil and petroleum products; increases and decreases in OPEC oil production quotas; the distance crude oil and petroleum products need to be transported by sea; and developments in international trade and changes in seaborne and other transportation patterns.
Because many of the factors influencing the supply of and demand for tanker capacity are unpredictable, the nature, timing and degree of changes in tanker industry conditions are also unpredictable.
Demand for our vessels and services in transporting crude oil and petroleum products depends upon world and regional oil markets. Any decrease in shipments of crude oil in those markets could have a material adverse effect on our business, financial condition and results of operations. Historically, those markets have been volatile as a result of the many conditions and events that affect the price, production and transport of oil, as well as competition from alternative energy sources. A slowdown of the United States and world economies may result in reduced consumption of crude oil and petroleum products and a decreased demand for our vessels and services.
Terrorist attacks, such as the attacks that occurred in the United States on September 11, 2001, the bombings in Spain on March 11, 2004, the current conflict in Iraq and current and future conflicts, may adversely affect our business, operating results, financial condition, ability to raise capital or future growth. Continuing hostilities in the Middle East may lead to additional armed conflicts or to further acts of terrorism and civil disturbance in the United States, Spain or elsewhere, which may contribute further to economic instability and disruption of oil and liquefied natural gas (or LNG ) production and distribution, which could result in reduced demand for our services. In addition, oil and LNG facilities, shipyards, vessels, pipelines and oil and gas fields could be targets of future terrorist attacks. Any such attacks could lead to, among other things, bodily injury or loss of life, vessel or other property damage, increased vessel operational costs, including insurance costs, and the inability to transport oil and LNG to or from certain locations. Terrorist attacks, war or other events beyond our control that adversely affect the distribution, production or transportation of oil or LNG to be shipped by us could entitle our customers to terminate our charter contracts, which could harm our cash flow and our business.
Because our operations are primarily conducted outside of the United States, they may be affected by economic, political and governmental conditions in the countries where we are engaged in business or where our vessels are registered. Any disruption caused by these factors could harm our business. In particular, we derive a substantial portion of our revenues from shipping oil and LNG from politically unstable regions. Past political conflicts in these regions, particularly in the Arabian Gulf, have included attacks on ships, mining of waterways and other efforts to disrupt shipping in the area. In addition to acts of terrorism, vessels trading in this and other regions have also been subject, in limited circumstances, to piracy. Future hostilities or other political instability in the Arabian Gulf or other regions where we operate or may operate could have a material adverse effect on the growth of our business, results of operations and financial condition. In addition, tariffs, trade embargoes and other economic sanctions by Spain, the United States or other countries against countries in the Middle East, Southeast Asia or elsewhere as a result of terrorist attacks, hostilities or otherwise may limit trading activities with those countries, which could also harm our business.
During 2004 and 2003, we derived approximately 62% and 63%, respectively, of our net voyage revenues from the vessels in our spot tanker segment. Our spot tanker segment consists of conventional crude oil tankers, oil/bulk/ore carriers and product carriers operating on the spot market or subject to time charters or contracts of affreightment priced on a spot-market basis or short-term fixed-rate contracts. We consider contracts that have an original term of less than three years in duration to be short-term. All of our very large crude carrier fleet, and substantially all of our conventional Aframax tanker fleet, and large product and small product tanker fleets, and approximately half of our Suezmax tanker fleet are among the vessels included in our spot tanker segment. Due to our dependence on the spot charter market, declining charter rates in a given period generally will result in corresponding declines in operating results for that period. The spot charter market is highly competitive and spot charter rates are subject to significant fluctuations based on tanker and oil supply and demand. Charter rates have varied significantly in the last few years. Future spot charters may not be available at rates that will be sufficient to enable our vessels to be operated profitably or to provide sufficient cash flow to service our debt obligations.
Demand for our shuttle tankers in transporting crude oil and petroleum products depends upon the amount of oil produced from offshore oil fields, especially in the North Sea, where our shuttle tankers primarily operate. As oil prices increase, the prospect of offshore oil exploration and development of offshore oil fields, which cost more to develop than land oil fields, becomes more attractive to oil companies. However, when oil prices decline, it becomes less attractive for oil companies to explore for oil offshore and develop offshore oil fields. If the amount of oil produced from offshore oil fields declines, especially in the North Sea, our shuttle tanker business could be harmed. In addition, if for environmental or other reasons, there is a change in policy towards using pipelines rather than oceangoing vessels in transporting crude oil and petroleum products from offshore oil fields, our shuttle tanker business could be adversely affected, which could have a material adverse effect on our business, financial condition and results of operations. As at December 31, 2004, we had 41 vessels (including 12 chartered-in vessels and one tanker held for sale) in our shuttle tanker fleet. Most of our shuttle tanker revenues are derived from long-term contracts of affreightment. Revenue under most of these contracts depends upon the amount of oil we transport, the production of which is beyond our control and which can vary depending upon the nature of a given oil field and the field operator’s production decisions.
A portion of our growth strategy focuses on expansion in the LNG shipping sector and, thus, depends on continued growth in world and regional demand for LNG and LNG shipping and supply of LNG.
Demand for LNG and LNG shipping could be negatively affected by a number of factors, such as increases in the costs of natural gas derived from LNG relative to the cost of natural gas generally, increases in the production of natural gas in areas linked by pipelines to consuming areas, increases in the price of LNG relative to other energy sources, the availability of new energy sources, and negative global or regional economic or political conditions. Reduced demand for LNG and LNG shipping would have a material adverse effect on future growth of our LNG segment, and could harm that segment’s results.
Growth of the LNG market may be limited by infrastructure constraints and community and environmental group resistance to new LNG infrastructure over concerns about the environment, safety and terrorism. If the LNG supply chain is disrupted or does not continue to grow, or if a significant LNG explosion, spill or similar incident occurs, it could have a material adverse effect on our business, results of operations and financial condition.
Our crude oil and product tankers operate in highly competitive markets. Competition arises primarily from other conventional Aframax and shuttle tanker owners, including major oil companies and independent companies. We also compete with owners of other size tankers. Our market share is insufficient to enforce any degree of pricing discipline in the markets in which we operate and our competitive position may erode in the future. Any new markets that we enter could include participants that have greater financial strength and capital resources than we have. We may not be successful in entering new markets.
One of our objectives is to enter into additional long-term, fixed-rate LNG time charters. The process of obtaining new long-term time charters is highly competitive and generally involves an intensive screening process and competitive bids, and often extends for several months. We expect substantial competition for providing marine transportation services for potential LNG projects from a number of experienced companies, including state-sponsored entities and major energy companies affiliated with the LNG project requiring LNG shipping services. Many of these competitors have greater experience in the LNG market and significantly greater financial resources than do we. We anticipate that an increasing number of marine transportation companies, including many with strong reputations and extensive resources and experience will enter the LNG transportation sector. This increased competition may cause greater price competition for time charters. As a result of these factors, we may be unable to expand our relationships with existing customers or to obtain new customers on a profitable basis, if at all, which would have a material adverse effect on our business, results of operations and financial condition.
We have derived, and believe that we will continue to derive, a significant portion of our voyage revenues from a limited number of customers. One customer accounted for 17% ($373.7 million) of our consolidated voyage revenues during 2004. The same customer accounted for 15% ($239.5 million) of our consolidated voyage revenues during 2003. No customer accounted for more than 10% of our consolidated voyage revenue during 2002. The loss of any significant customer or a substantial decline in the amount of services requested by a significant customer could have a material adverse effect on our business, financial condition and results of operations.
Our operations are affected by extensive and changing environmental protection laws and other regulations and international conventions. We have incurred, and expect to continue to incur, substantial expenses in complying with these laws and regulations, including expenses for ship modifications and changes in operating procedures. Additional laws and regulations may be adopted that could limit our ability to do business or further increase our costs, which could harm our business. This could have a material adverse effect on our business, financial condition and results of operations.
The United States Oil Pollution Act of 1990 (or OPA 90 ) in particular has increased our expenses. OPA 90 provides for the phase-in of the exclusive use of double-hull tankers at United States ports, as well as potentially unlimited liability for owners, operators and demise or bareboat charterers for oil pollution in U.S. waters. To comply with the OPA 90, tanker owners generally incur increased costs in meeting additional maintenance and inspection requirements, in developing contingency arrangements for potential spills and in obtaining required insurance coverage. OPA 90 contains financial responsibility requirements for vessels operating in U.S. waters and requires owners and operators of vessels to establish and maintain with the United States Coast Guard evidence of insurance or of qualification as a self-insurer or other evidence of financial responsibility sufficient to meet their potential liabilities under the OPA 90.
Following the example of the OPA 90, the International Maritime Organization (or IMO ), the United Nations’ agency for maritime safety, has adopted regulations for tanker design and inspection that are designed to reduce oil pollution in international waters. Most recently, on December 9, 2003 the IMO announced regulations accelerating the phase out of single hull tankers. The regulations also impose a more rigorous inspection regime for older tankers and ban the carriage of heavy oils on single-hull tankers. As a result of changes to these regulations, we recorded a non-cash write-down of the book value of certain vessels totalling $56.9 million during the fourth quarter of 2003. The IMO’s accelerated phase out schedule will affect two of our existing vessels, effectively reducing the economic life of each of these vessels. Please see Item 4. Information on the Company: Regulations.
Our shuttle tankers primarily operate in the North Sea. In addition to the regulations imposed by the IMO, countries having jurisdiction over North Sea areas impose regulatory requirements in connection with operations in those areas. These regulatory requirements, together with additional requirements imposed by operators of North Sea oil fields, require that we make further expenditures for sophisticated equipment, reporting and redundancy systems on our shuttle tankers and for the training of seagoing staff. Additional regulations and requirements may be adopted or imposed that could limit our ability to do business or further increase the cost of doing business in the North Sea.
A principal component of our strategy is to continue to grow by expanding our business both in the geographic areas and markets where we have historically focused as well as into new geographic areas, market segments and services. We may not be successful in expanding our operations and any expansion may not be profitable. Our strategy of growth through acquisitions, including our acquisition in April 2004 of Teekay Spain , involves business risks commonly encountered in acquisitions of companies, including: disruption of our ongoing business; difficulties in integrating the operations, personnel and business culture of acquired companies; difficulties of coordinating and managing geographically separate organizations; adverse effects on relationships with our existing suppliers and customers, and those of the companies acquired; difficulties entering geographic markets or new market segments in which we have no or limited experience; and loss of key officers and employees of acquired companies.
Our failure to effectively integrate businesses we may acquire in the future may harm our business and results of operations.
The process of integrating operations could also cause an interruption of, or loss of momentum in, the activities of one or more of an acquired company’s businesses and our businesses. Members of our senior management may be required to devote considerable amounts of time to this integration process, which will decrease the time they will have to manage our business, service existing customers and attract new customers. If our senior management is not able to effectively manage the integration process, or if any significant business activities are interrupted as a result of the integration process, our business could suffer.
Present and future acquisitions may not be profitable to us at the time of their completion and may not generate revenues sufficient to justify our investment. In addition, our acquisition growth strategy exposes us to risks that may harm our results of operations and financial condition, including risks that we may: fail to realize anticipated benefits, such as cost-savings, revenue and cash flow enhancements and earnings accretion; decrease our liquidity by using a significant portion of our available cash or borrowing capacity to finance acquisitions; incur additional indebtedness, which may result in significantly increased interest expense or financial leverage, or issue additional equity securities to finance acquisitions, which may result in significant shareholder dilution; incur or assume unanticipated liabilities, losses or costs associated with the business acquired; or incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges.
Our growth has placed and will continue to place significant demands on our management, operational and financial resources. As we expand our operations, we must effectively manage and monitor operations, control costs and maintain effective quality and control in geographically dispersed markets. Our future growth and financial performance will also depend on our ability to: recruit, train, manage and motivate our employees to support our expanded operations; and continue to improve our customer support, financial controls and information systems.
These efforts may not be successful and may not occur in a timely or efficient manner. Failure to effectively manage our growth and the system and procedural transitions required by expansion in a cost-effective manner could have a material adverse affect on our business.
The operation of oil tankers and LNG carriers is inherently risky. Although we carry protection and indemnity insurance, all risks may not be adequately insured against, and any particular claim may not be paid. In addition, we do not carry insurance on our oil tankers covering the loss of revenues resulting from vessel off-hire time due to its cost compared to our off-hire experience. In the future, we may not continue to maintain off-hire insurance for our LNG carriers. Any claims covered by insurance would be subject to deductibles, and since it is possible that a large number of claims may be brought, the aggregate amount of these deductibles could be material. Certain of our insurance coverage is maintained through mutual protection and indemnity associations, and as a member of such associations we may be required to make additional payments over and above budgeted premiums if member claims exceed association reserves.
We may be unable to procure adequate insurance coverage at commercially reasonable rates in the future. For example, more stringent environmental regulations have led in the past to increased costs for, and in the future may result in the lack of availability of, insurance against risks of environmental damage of pollution. A catastrophic oil spill or marine disaster could exceed our insurance coverage, which could harm our business, financial condition and operating results. Any uninsured or underinsured loss could harm our business and financial condition. In addition, our insurance may be voidable by the insurers as a result of certain of our actions, such as our ships failing to maintain certification with applicable maritime self-regulatory organizations.
Changes in the insurance markets attributable to terrorist attacks may also make certain types of insurance more difficult for us to obtain. In addition, the insurance that may be available to us may be significantly more expensive than our existing coverage.
Oil spills related to the sinkings of the tanker Erika off the coast of France in 1999 and the tanker Prestige off the coast of Spain in 2002, and other tanker-related environmental incidents have created increased demand for modern vessels operated by ship management companies with a reputation for safety and environmental compliance. Any event involving our tankers that results in material environmental damage or pollution could harm our reputation for safety and environmental compliance and decrease the demand for our services, which could harm our business.
We operate our tankers in markets that have historically exhibited seasonal variations in demand and, therefore, in charter rates. This seasonality may result in quarter-to-quarter volatility in our results of operations. Tanker markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling. The oil price volatility resulting from these factors has historically led to increased oil trading activities in the winter months. As a result, our revenues have historically been weaker during fiscal quarters ended June 30 and September 30, and, conversely, revenues have been stronger in fiscal quarters ended December 31 and March 31.
We are typically required to expend substantial sums as progress payments during construction of a newbuilding, but we do not derive any revenue from the vessel until after its delivery. In addition, under some of our time charters if our delivery of a vessel to a customer is delayed, we may be required to pay liquidated damages in amounts equal to or, under some charters, almost double the hire rate during the delay. For prolonged delays, the customer may terminate the time charter and, in addition to the resulting loss of revenues, we may be responsible for additional substantial liquidated charges.
If we were unable to obtain financing required to complete payments on any of our newbuilding orders, we could effectively forfeit all or a portion of the progress payments previously made. As of December 31, 2004, we had 15 newbuildings on order with deliveries scheduled between 2005 and 2008. We may order additional newbuildings in the future.
Substantially all of our revenues are earned in U.S. Dollars, although we are paid in Euros and Australian Dollars under some of our charters. A portion of our operating costs are incurred in currencies other than U.S. Dollars. This partial mismatch in operating revenues and expenses could lead to fluctuations in net income due to changes in the value of the U.S. dollar relative to other currencies, in particular the Norwegian Kroner, the Australian Dollar, the Canadian Dollar, the Singapore Dollar, the Japanese Yen, the British Pound and the Euro. We also make payments under two Euro-denominated term loans. If the amount of our Euro-denominated obligations exceeds our Euro denominated revenues, we must convert other currencies, primarily the U.S. Dollar, into Euros. An increase in the strength of the Euro relative to the U.S. Dollar would require us to convert more U.S. Dollars to Euros to satisfy those obligations.
Because we report our operating results in U.S. Dollars, changes in the value of the U.S. Dollar relative to other currencies also result in fluctuations of our reported revenues and earnings. In addition, under U.S. accounting guidelines, all foreign currency-denominated monetary assets and liabilities, such as cash and cash equivalents, accounts receivable, restricted cash, accounts payable, long-term debt and capital lease obligations, are revalued and reported based on the prevailing exchange rate at the end of the period. This revaluation causes us to report significant non-monetary foreign currency exchange gains and losses each period. The primary source of these gains and losses is our Euro-denominated term loans.
At December 31, 2004, approximately $1,561.8 million, or 74%, of our debt bore interest at floating interest rates. To partially mitigate this interest rate exposure, we have entered into interest rate swaps that effectively change our interest rate exposure from floating LIBOR and EURIBOR rates to average fixed-rates. Please see Item 11 – Quantitative and Qualitative Disclosures About Market Risk.
If we are not exempt from tax under Section 883 of the United States Internal Revenue Code, the shipping income derived from the United States sources attributable to our subsidiaries’ transportation of cargoes to or from the United States will be subject to U.S. federal income tax. If our subsidiaries were subject to such tax, our net income and cash flow would be reduced by the amount of such tax. Currently, we have claimed an exemption under Section 883. We cannot give any assurance that future changes and shifts in ownership of our stock will not preclude us from being able to satisfy the existing exemption.
In the years ended December 31, 2004 and 2003, approximately 15.2% and 12.3%, respectively, of our gross shipping revenues were derived from U.S. sources attributable to the transportation of cargoes to or from the United States. The average U.S. federal income tax on such U.S. source income, in the absence of exemption under Section 883, would have been 4% thereof, or approximately $13.7 million and $7.8 million, respectively, for the years ended December 31, 2004 and 2003.
We are a leading provider of international crude oil and petroleum product transportation services through our spot tanker fleet, which includes the world’s largest fleet of Aframax-size oil tankers, our fixed-rate fleet, which includes the world’s largest fleet of shuttle tankers, and our LNG fleet. Our tankers and LNG carriers provide transportation services to major oil companies, oil traders and government agencies worldwide.
Our spot tanker segment includes our conventional crude oil tankers, and product carriers operating on the spot market or subject to time charters or contracts of affreightment priced on a spot-market basis or short-term fixed-rate contracts (contracts less than three years). As of December 31, 2004, our Aframax vessels, which had a total cargo capacity of approximately 7.1 million tonnes, represented approximately 9% of the total tonnage of the world Aframax fleet. Please see Item 4 – Information on the Company: Our Fleet.
Our fixed-rate tanker segment includes our shuttle tanker operations, floating storage and off-take vessels, a liquid petroleum gas carrier and certain conventional crude oil, methanol and product tankers on long-term fixed-rate time-charter contracts or contracts of affreightment, under which we carry an agreed quantity of cargo for a customer over a specified trade route within a given period of time. As of December 31, 2004, our shuttle tanker fleet, which had a total cargo capacity of approximately 4.9 million tonnes, represented approximately 68% of the total tonnage of the world shuttle tanker fleet. Please see Item 4 – Information on the Company: Our Fleet.
Our fixed-rate LNG segment includes our seven LNG carriers, including three newbuildings, on long-term fixed-rate time charter contracts. As of December 31, 2004, our LNG Fleet, including newbuildings, had a total cargo carrying capacity of 1.0 million cubic meters.
The Teekay organization was founded in 1973. We are incorporated under the laws of the Republic of The Marshall Islands as Teekay Shipping Corporation and maintain our principal executive headquarters at TK House, Bayside Executive Park, West Bay Street & Blake Road, P.O. Box AP-59212, Nassau, The Bahamas. Our telephone number at such address is (242) 502-8820. Our principal operating office is located at Suite 2000, Bentall 5, 550 Burrard Street, Vancouver, British Columbia, Canada, V6C 2K2. Our telephone number at such address is (604) 683-3529.
Acquisition of Teekay Shipping Spain S.L., formerly Naviera F. Tapias S.A.
On April 30, 2004, we acquired all of the outstanding shares of Naviera F. Tapias S.A. and renamed it Teekay Shipping Spain S.L. (or Teekay Spain ). Teekay Spain is the leading independent owner and operator of LNG carriers and crude oil tankers in Spain. We also entered into an agreement with an entity controlled by the former controlling shareholder of Teekay Spain to establish a 50/50 joint venture that will pursue new business in the oil and gas shipping sectors that relate only to the Spanish market or are led by Spanish entities or entities controlled by a Spanish Company. The acquisition of Teekay Spain has provided us with a platform from which to expand our presence in the high growth LNG shipping sector and positions us as a key supplier of LNG shipping to Spain, the world’s third largest importer of LNG. We funded this acquisition with a combination of cash, cash generated from operations and borrowings under existing credit facilities.
As at December 31, 2004, Teekay Spain’s LNG fleet consisted of four vessels, which are all contracted under long-term fixed-rate charters to major Spanish energy companies. As at December 31, 2004, Teekay Spain’s conventional crude oil tanker fleet consisted of five Suezmax tankers, and two newbuildings scheduled for delivery in 2005. Four Suezmax tankers and one newbuilding are contracted under long-term fixed-rate charters with a major Spanish oil company. We sold the Suezmax tanker newbuilding not contracted under a long-term fixed-rate charter upon its delivery in March 2005.
Acquisition of 50% of PetroTrans Holdings Ltd.
On September 30, 2003, we acquired 50% of the issued and outstanding shares of PetroTrans Holdings Ltd., the parent company of Skaugen PetroTrans Inc. (or SPT) .
SPT is a lightering company operating out of Houston, Texas. Lightering is the process of ship-to-ship transfer of oil cargo, which is required when vessels transporting oil are too large to enter ports that are not deep enough or have narrow entrances or small berths. The lightering process consists of maneuvering a smaller tanker (service vessel) alongside the larger tanker, typically with both vessels underway. The service vessel transports the oil cargo to the port. SPT lighters approximately 14% of all seaborne crude oil delivered to U.S. ports.
Acquisition of Navion AS
In April 2003, we completed our acquisition of 100% of the issued and outstanding shares of Navion AS. Navion, based in Stavanger, Norway, operates primarily in the shuttle tanker and the conventional crude oil and product tanker markets. Its modern shuttle tanker fleet, which as of December 31, 2004, consisted of eight owned and 12 chartered-in vessels (excluding six vessels chartered-in from our shuttle tanker subsidiary, Ugland Nordic Shipping AS, and our other subsidiaries), provides logistical services to the Norwegian state-owned oil company, Statoil ASA, and other oil companies in the North Sea under fixed-rate, long-term contracts of affreightment. Subsequent to the acquisition, the operations of UNS and the shuttle tanker operations of Navion were combined into one business unit, Teekay Navion Shuttle Tankers. Navion’s modern, chartered-in, conventional tanker fleet, which as of December 31, 2004, consisted of 12 crude oil tankers and 16 product tankers, operates primarily in the Atlantic region, providing services to Statoil and other oil companies. In addition, Navion owns two floating storage and off-take vessels currently trading as conventional crude oil tankers in the Atlantic region, one chartered-in methanol carrier and one liquid petroleum gas carrier on long-term charter to Statoil. Through Navion Chartering AS, an entity owned jointly with Statoil, Navion has a right of first refusal on Statoil’s oil transportation requirements at the prevailing market rate until December 31, 2007. In addition to tanker operations, Navion also assembles, installs, operates and leases equipment that reduces volatile organic compound emissions during loading, transportation and storage of oil and oil products.
Additional information about these acquisitions, including our financing of them, is included in Item 5 – Operating and Financial Review and Prospects.
The vessels in our spot tanker segment compete primarily in the Aframax market. In the Aframax market, international seaborne oil and other petroleum products transportation services are provided by two main types of operators: captive fleets of major oil companies (both private and state-owned) and independent ship owner fleets. Many major oil companies and other oil trading companies, the primary charterers of the vessels owned or controlled by us, also operate their own vessels and transport their own oil and oil for third party charterers in direct competition with independent owners and operators. Competition for charters in the Aframax spot charter market is intense and is based upon price, location, the size, age, condition and acceptability of the vessel, and the reputation of the vessel’s manager.
We compete principally with other Aframax owners in the spot charter market through the global tanker charter market. This market is comprised of tanker broker companies that represent both charterers and ship owners in chartering transactions. Within this market, some transactions, referred to as “market cargoes,” are offered by charterers through two or more brokers simultaneously and shown to the widest possible range of owners; other transactions, referred to as “private cargoes,” are given by the charterer to only one broker and shown selectively to a limited number of owners whose tankers are most likely to be acceptable to the charterer and are in position to undertake the voyage.
As of December 31, 2004, other large operators of Aframax tonnage (including newbuildings on order) included Malaysian International Shipping Corporation (approximately 36 Aframax vessels), Novorossiisk Sea Shipping Co. (approximately 27 Aframax vessels), General Maritime Corporation (approximately 26 Aframax vessels), British Petroleum (approximately 20 Aframax vessels) and Minerva (approximately 17 Aframax vessels).
Our competition in the Aframax (75,000 to 119,999 dwt) market is also affected by the availability of other size vessels that compete in our markets. Suezmax (120,000 to 199,999 dwt) size vessels and Panamax (50,000 to 74,999 dwt) size vessels can compete for many of the same charters for which we compete. Because of their large size, Very Large Crude Carriers (200,000 to 319,999 dwt) (or VLCCs ) and Ultra Large Crude Carriers (320,000+ dwt) (or ULCCs ) rarely compete directly with Aframax tankers for specific charters. However, because VLCCs and ULCCs 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.
We believe that we have competitive advantages in the Aframax tanker market as a result of the quality, type and dimensions of our vessels and our market share in the Indo-Pacific and Atlantic Basins. As of December 31, 2004, our Aframax tanker fleet (excluding Aframax-size shuttle tankers and newbuildings) had an average age of approximately 7.7 years, compared to an average age for the world oil tanker fleet, including Aframax tankers, of approximately 9.6 years and for the world Aframax tanker fleet of approximately 9.7 years.
We have chartering staff located in Vancouver, Canada; Stavanger, Norway; Tokyo, Japan; London, England; Houston, USA; and Singapore. Each office serves our clients headquartered in that office’s region. Fleet operations, vessel positions and charter market rates are monitored around the clock. We believe that monitoring such information is critical to making informed bids on competitive brokered business.
During 2004, approximately 62% of our net voyage revenues were earned by the vessels in the spot tanker segment, compared to approximately 63% in 2003 and 73% in 2002. Please see Item 5 — Operating and Financial Review and Prospects: Results of Operations.
The vessels in our fixed-rate tanker segment compete primarily in the offshore loading business. These offshore loading vessels called shuttle tankers, transport oil from offshore production platforms to onshore storage and refinery facilities. Our shuttle tankers are primarily subject to long-term, fixed-rate time-charter contracts for a specific offshore oil field or under contracts of affreightment for various fields. The number of voyages performed under these contracts of affreightment normally depends upon the oil production of each field. Competition for charters is based primarily upon price, availability, the size, technical sophistication, age and condition of the vessel and the reputation of the vessel’s manager. Technical sophistication of the vessel is especially important in harsh operating environments such as the North Sea. Although the size of the world shuttle tanker fleet has been relatively unchanged in recent years, conventional tankers could be converted into less sophisticated shuttle tankers by adding specialized equipment to meet the requirements of the oil companies. Shuttle tanker demand may also be affected by the possible substitution of sub-sea pipelines to transport oil from offshore production platforms.
As of December 31, 2004, there were approximately 64 vessels in the world shuttle tanker fleet (including newbuildings), the majority of which operate in the North Sea. We currently own 29 shuttle tankers, including one classified as held for sale and charter in an additional 12 shuttle tankers. Other shuttle tanker owners in the North Sea include Knutsen OAS Shipping AS and JJ Ugland Group, which as of December 31, 2004 owned approximately 15 and five shuttle tankers, respectively. The remaining owners in the North Sea each owned three or fewer vessels as of that date.
We believe that we have significant competitive advantages in the shuttle tanker market as a result of the quality, type and dimensions of our vessels and our market share in the North Sea.
During 2004, approximately 36% of our net voyage revenues were earned by the vessels in the fixed-rate tanker segment, compared to approximately 37% in 2003 and 27% in 2002. Please see Item 5 — Operating and Financial Review and Prospects: Results of Operations.
The vessels in our fixed-rate LNG segment compete in the LNG market. LNG carriers are usually chartered to carry LNG pursuant to time charter contracts, where a vessel is hired for a fixed period of time, usually between 20 and 25 years, and the charter rate is payable to the owner on a monthly basis. LNG shipping historically has been transacted with these long-term, fixed-rate time charter contracts. LNG projects require significant capital expenditures and typically involve an integrated chain of dedicated facilities and cooperative activities. Accordingly, the overall success of an LNG project depends heavily on long-range planning and coordination of project activities, including marine transportation. Although most shipping requirements for new LNG projects continue to be provided on a long-term basis, spot voyages (typically consisting of a single voyage) and short term time charters of less than 12 months duration have grown from 1% of the market in 1992 to 8% in 2002.
We compete principally with other private and state-controlled energy and utilities companies that generally operate captive LNG fleets, and independent ship owners and operators. Many major energy companies compete directly with independent owners by transporting LNG for third parties in addition to their own LNG. Given the complex, long-term nature of LNG projects, major energy companies historically have transported LNG through their captive fleets. However, independent fleet operators recently have been obtaining an increasing percentage of charters for new or expanded LNG projects as major energy companies continue to divest non-core businesses. As of December 31, 2004, independent owners owned approximately 45% of the world LNG fleet, including approximately 25% owned by independent Japanese and South Korean owners. Approximately 60% of newbuilding orders are from independent owners.
LNG carriers transport LNG internationally between liquefaction facilities and import terminals. After natural gas is transported by pipeline from production fields to a liquefaction facility, it is supercooled to a temperature of approximately negative 260 degrees Fahrenheit. This process reduces its volume to approximately 1 / 600 th of its volume in a gaseous state. The reduced volume facilitates economical storage and transportation by ship over long distances, enabling countries with limited natural gas reserves or limited access to long-distance transmission pipelines to meet their demand for natural gas. LNG carriers include a sophisticated containment system that holds and insulates the LNG so it maintains its liquid form. LNG that evaporates during the voyage and converts to natural gas (called boil-off) is used as fuel to help propel the vessel. The LNG is transported overseas in specially built tanks on double-hulled ships to a receiving terminal, where it is offloaded and stored in heavily insulated tanks. In regasification facilities at the receiving terminal, the LNG is returned to its gaseous state ( or regasified) and then shipped by pipeline for distribution to natural gas customers.
Most new vessels, including all of our vessels, are being built with a membrane containment system. These systems are built inside the carrier and consist of insulation between thin primary and secondary barriers and designed to accommodate thermal expansion and contraction without overstressing the membrane. New LNG carriers are generally expected to have a lifespan of approximately 40 years. Unlike the oil tanker industry, there currently are no regulations that require the phase-out from trading of LNG carriers after they reach a certain age. As at December 31, 2004, there were approximately 177 vessels in the world LNG fleet, with an average age of approximately 13.6 years. In addition, there are approximately 104 additional LNG carriers under construction or on order for delivery through 2009.
Our fixed-rate LNG segment consists of LNG carriers subject to long-term, fixed-rate time-charter contracts. The acquisition of Teekay Spain on April 30, 2004 established our entry into the LNG shipping sector. Our fixed-rate LNG segment includes four LNG carriers. Two of the LNG carriers have been included from the date of the Teekay Spain acquisition. We took delivery of one LNG carrier in July 2004, which commenced service under a 25-year time-charter contract (with a charterer’s option to extend an additional five years). We took delivery of another LNG carrier in December 2004, which commenced service under a 20-year time-charter contract (with a charterer’s option to extend an additional ten years). As at December 31, 2004, we had three newbuilding LNG carriers on order, which will commence service under long-term contracts with Ras Lafan Liquefied Natural Gas Co. Limited II (or RasGas II ), a joint venture company between a subsidiary of ExxonMobil Corporation and Qatar Petroleum, upon delivery, scheduled for the fourth quarter of 2006 and the first half of 2007. The vessels will be time-chartered to RasGas II for a period of 20 years (with a charterer’s option to extend for periods up to an additional 15 years). These LNG charter contracts are subject, in certain circumstances, to termination and vessel purchase rights.
During 2004, approximately 2% of our net voyage revenues were earned by the vessels in the fixed-rate LNG segment. We did not operate LNG carriers prior to 2004. Please see Item 5 – Operating and Financial Review and Prospects: Results of Operations.
Safety is our top operational priority. Our vessels are operated in a manner intended to protect the safety and health of our employees, the general public and the environment. We actively manage the risks inherent in our business and are committed to eliminating incidents that threaten safety, such as groundings, fires, collisions and petroleum spills. We are also committed to reducing emissions and waste generation.
Customers and tanker rating services have recognized us for safety, quality and service. Given the emphasis by customers on quality as a result of stringent environmental regulations, and heightened concerns about liability for oil pollution, we believe that our emphasis on quality and safety provide us with a favorable competitive profile. We are one of a few companies who have fully integrated our health, safety, environment and quality management systems. This results in increased efficiencies in operations and management as any redundancies in each of the four standards is reduced. As well, one management system for operations ensures that strategies and programs are aligned when in comes to business, customer, safety, environment, or quality drivers.
We have achieved certification under the standards reflected in International Standards Organization’s (or ISO ) 9001 for quality assurance, ISO 14001 for environment management systems, OHSAS 18001 for Occupational Health and Safety, and the IMO’s International Management Code for the Safe Operation of Ships and Pollution Prevention on a fully integrated basis. As part of ISM Code compliance, all of our vessels’ safety management certificates are being maintained through ongoing internal audits performed by our certified internal auditors and intermediate audits performed by Det Norske Veritas.
The critical ship management functions of vessel maintenance, crewing, purchasing, shipyard supervision, insurance and financial management services are carried out “in-house” in our various facilities around the world for most of our fleet. These functions are supported by onboard and onshore systems for maintenance, inventory, purchasing and budget management. Since 1995, IUM Shipmanagement AS, a company in which we own a 51% interest through our wholly owned subsidiary UNS, has provided ship management services for certain of our shuttle tankers, including crewing and maintenance. OSM Ship Management AS (or OSM ), a company which is unrelated to us, provides ship management services for most of the shuttle tankers acquired as part of our acquisition of Navion. OSM is under contract to provide these services to Navion until September 30, 2006.
In 2003, we established a purchasing alliance with two other shipping companies and named it Teekay Bergesen Worldwide. This alliance leverages the purchasing power of the combined fleets, mainly in such commodity areas as lube oils, paints and other chemicals.
The generally uniform design of some of our existing and newbuilding vessels and the adoption of common equipment standards should also result in operational efficiencies, including with respect to crew training and vessel management, equipment operation and repair, and spare parts ordering.
Our organization is divided into four key areas: Teekay Tanker Services; Teekay Navion Shuttle Tankers; Teekay Gas & Offshore; and Teekay Marine Services. These centers of expertise work closely with customers and internally to ensure a thorough understanding of our customers’ requirements and to develop tailored solutions. •
| • | Teekay Tanker Services is responsible for the commercial management of our conventional crude oil and product tanker transportation services. We offer a full range of flexible, customer-focused shipping solutions through our worldwide network of commercial offices. |
| • | Teekay Navion Shuttle Tankers offers a wide range of shuttle tanker and project services. Our expertise and partnerships allow us to create solutions for customers producing crude oil from offshore installations. |
| • | Teekay Gas & Offshore offers a diverse range of mooring, floating storage and offloading solutions. In addition, we now also offer gas shipping services, pursuing the LNG and compressed natural gas markets. |
| • | Teekay Marine Services provides a vast range of marine services and products across all our operations as well as to third-parties. |
We pursue an intensively customer- and operations-oriented business strategy designed to achieve superior operating results. We believe that we have four key competitive strengths:
| • | a strong network of customer relationships developed by providing consistent performance, innovative solutions, and exceptional customer service to quality-sensitive customers, |
| • | a disciplined acquisition strategy that has resulted in our achieving a market concentration in the Aframax market and the shuttle tanker market, which is sufficient to facilitate comprehensive coverage of charterer requirements and provides a base for efficient operation and a high degree of capacity utilization in those markets; |
| • | a highly-integrated global network of approximately 5,500 sea staff and shore employees, with comprehensive market intelligence and operational and technical sophistication. This includes full-service marine operations capabilities and experienced management in all functions critical to our operations, which affords a focused marketing effort, high quality and tight cost controls, improved capacity utilization and effective operations and safety monitoring; and |
| • | a strong balance sheet that we believe allows us to take advantage of appropriate investment opportunities throughout the tanker cycle. |
As part of our growth strategy, we will continue to consider strategic opportunities, including business acquisitions, such as our acquisitions of Teekay Spain in 2004 and Navion and our joint venture, Skaugen PetroTrans Inc. (or SPT ), in 2003. To the extent we enter new geographic areas or tanker market segments, there can be no assurance that we will be able to compete successfully. New markets may involve competitive factors that differ from those of the Aframax market segment in the Indo-Pacific and Atlantic Basins and the North Sea shuttle tanker market and may include participants that have greater financial strength and capital resources than we have.
Our growth strategy is to leverage our existing competitive strengths to continue to expand our business. We anticipate that the continued upgrade and expansion of our tanker business will continue to be a key component of our strategy. In addition, we believe that our full-service marine operations capabilities, reputation for safety and quality and strong customer orientation provide us with the opportunity to expand our business by providing additional value-added and innovative services, in many cases to existing customers. Finally, we intend to identify expansion opportunities in new tanker market segments, geographic areas and services to which our competitive strengths are well suited, such as our entry into the shuttle tanker market through our acquisitions of UNS and Navion and our entry into the LNG market through our acquisition of Teekay Spain, as described above. We may choose to pursue such opportunities through internal growth, joint ventures or business acquisitions.
The operation of any ocean-going vessel carries an inherent risk of catastrophic marine disasters, death or injury of persons 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 and LNG is subject to the risk of spills and to business interruptions due to political circumstances in foreign countries, hostilities, labor strikes and boycotts. The occurrence of any of these events may result in loss of revenues or increased costs.
We carry “hull and machinery” and “protection and indemnity” insurance coverage to protect against most of the accident-related risks involved in the conduct of our business. Hull and machinery insurance covers loss of or damage to a vessel due to marine perils such as collisions, grounding and weather. Protection and indemnity insurance indemnifies us against other liabilities incurred while operating vessels, including injury to our crew, third parties, cargo loss and pollution. The current available amount of our coverage for pollution is $1 billion per vessel per incident. We also carry insurance policies covering war risks (including piracy and terrorism) and, for our LNG carriers, loss of revenues resulting from vessel off-hire time due to a marine casualty or an officer or crew strike. However, we my not continue to carry this “loss of hire” insurance based on its cost compared to our off-hire experience. We believe that our current insurance coverage is adequate to protect against most of the accident-related risks involved in the conduct of our business and that we maintain appropriate levels of environmental damage and pollution insurance coverage. However, we cannot assure that all covered risks are adequately insured against, that any particular claim will be paid or that we will be able to procure adequate insurance coverage at commercially reasonable rates in the future. More stringent environmental regulations have resulted in increased costs for, and may result in the lack of availability of, insurance against the risks of environmental damage or pollution.
We use in our operations a thorough risk management program that includes, among other things, computer-aided risk analysis tools, maintenance and assessment programs, a seafarers competence training program, seafarers workshops and membership in emergency response organizations.
Because our operations are primarily conducted outside of the United States, they may be affected by currency fluctuations and by changing economic, political and governmental conditions in the countries where we engage in business or where our vessels are registered.
During 2004, we derived approximately 23% of our total net voyage revenues from our operations in the Indo-Pacific Basin, compared to approximately 27% during 2003. Past political conflicts in that region, particularly in the Arabian Gulf, have included attacks on tankers, mining of waterways and other efforts to disrupt shipping in the area. Vessels trading in the region have also been subject to, in limited instances, acts of piracy. In addition to tankers, oil pipelines, LNG facilities and offshore oil fields could also be targets of terrorist attacks. The escalation of existing or the outbreak of future hostilities or other political instability in this region or other regions where we operate could affect our trade patterns, increase insurance costs, increase tanker operational costs and otherwise adversely affect our operations and performance. In addition, tariffs, trade embargoes, and other economic sanctions by the United States or other countries against countries in the Indo-Pacific Basin or elsewhere as a result of terrorist attacks or other hostilities may limit trading activities with those countries, which could also adversely affect our operations and performance.
We have derived, and believe that we will continue to derive, a significant portion of our voyage revenues from a limited number of customers. Our customers include major oil companies, major oil traders, large oil consumers and petroleum product producers, government agencies, and various other entities dependent upon the tanker transportation trade. One customer, an international oil company, accounted for 17% ($373.7 million) of our consolidated voyage revenues during 2004. The same customer accounted for 15% ($239.5 million) of our consolidated voyage revenues during 2003. No customer accounted for more than 10% of our consolidated voyage revenues during 2002. No other customer accounted for more than 10% of our consolidated voyage revenues during 2004 or 2003. The loss of any significant customer or a substantial decline in the amount of services requested by a significant customer could have a material adverse effect on our business, financial condition and results of operations.
The following list provides additional information with respect to our vessels as at December 31, 2004.
--------------------------------------------------------------------------------------------------------------------
Number of Vessels(1)
-----------------------------------------------------------------------
Owned Vessels Vessels Held Chartered-in Newbuildings on Total
for Sale Vessels Order
--------------------------------------------------------------------------------------------------------------------
Spot Tanker Segment:
Very Large Crude Carriers - - 1 - 1
Suezmax Tankers (2) 2 - 4 1 7
Aframax Tankers 28 8 18 5 59
Large Product Tankers - - 5 3 8
Small Product Tankers - - 10 - 10
--------------------------------------------------------------------------------------------------------------------
Total Spot Tanker Segment 30 8 38 9 85
====================================================================================================================
Fixed-Rate Tanker Segment:
Shuttle Tankers (3) 28 1 12 - 41
Conventional Tankers 12 - - 3 15
Floating Storage & Offtake (or FSO) 4 - - - 4
Units (4)
LPG / Methanol Carriers 1 - 1 - 2
--------------------------------------------------------------------------------------------------------------------
Total Fixed-Rate Tanker Segment 45 1 13 3 62
====================================================================================================================
Fixed-Rate LNG Segment 4 - - 3 7
--------------------------------------------------------------------------------------------------------------------
Total 79 9 51 15 154
====================================================================================================================
(1)
Excludes vessels managed for third parties.
(2)
We have sold the Suezmax tanker newbuilding in the Spot Tanker Segment
in March 2005.
(3)
Includes seven shuttle tankers of which our
ownership interests range from 50% to 70.25%.
(4)
Includes one FSO unit of which our ownership interest is 89%.
Our vessels are of Australian, Bahamian, Canadian, Cayman Islands, Liberian, Norwegian, Norwegian International Ship and Spanish registry.
Many of our Aframax vessels and some of our shuttle tankers have been designed and constructed as substantially identical sister ships. These vessels can, in many situations, be interchanged, providing scheduling flexibility and greater capacity utilization. In addition, spare parts and technical knowledge can be applied to all the vessels in the particular series, thereby generating operating efficiencies.
As of December 31, 2004, we had 15 newbuildings on order, which will require remaining payments of $363.7 million in 2005, $255.9 million in 2006, $140.9 million in 2007, and $50.7 million due in 2008 under the terms of the contracts. Please see Item 5. Operating and Financial Review and Prospects – Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Please see Note 9 of the consolidated financial statements for information with respect to major encumbrances against our vessels.
The seafaring staff operating our vessels regularly inspect them and perform much of the necessary routine maintenance. Shore-based operational and technical specialists also inspect our vessels at least twice a year for conformity with established criteria. Upon completion of each inspection, recommendations are made for improving the overall condition of the vessel and its maintenance, safety and crew welfare. All recommendations are monitored until they are completed. Our objectives are to:
| • | maintain the structural integrity of the vessel; |
| • | ensure reliability; |
| • | optimize performance in terms of speed and fuel consumption; and |
| • | ensure the vessel's appearance will support our brand and meet customer expectations. |
To achieve our vessel structural integrity objective, we use a comprehensive “Structural Integrity Management System” developed by us. This system is designed to monitor the condition of our vessels closely and to ensure that structural strength and integrity are maintained throughout a vessel’s life.
All of our vessels have been certified as being “in-class” by their respective classification societies: Bureau Veritas, Det Norske Veritas, Lloyd’s Register of Shipping or American Bureau of Shipping. Every vessel’s hull and machinery is “classed” by a classification society. The classification society certifies that the vessel has been built and maintained in accordance with the rules of that classification society and complies with applicable rules and regulations of the country of registry of the vessel and the international conventions of which that country is a signatory, although for some of our vessels we obtain this latter certification directly from the relevant flag state authorities. Each vessel is inspected by a classification society surveyor annually, with either the second or third annual inspection being a more detailed survey (an Intermediate Survey ) and the fourth or fifth annual inspection being the most comprehensive survey (a Special Survey ). The inspection cycle resumes after each Special Survey. Vessels also may be required to be drydocked at each Intermediate and Special Survey for inspection of the underwater parts of the vessel and resulting repairs. Intermediate Surveys of steam-propelled LNG vessels may be done while the vessel is in service, but in all instances the inspection requires shutting down the vessel’s main boiler, which slows travel if in service. In-water surveys generally take vessels out of service for one day, but out-of-service surveys of steam-propelled LNG vessels can take up to seven days. All of our LNG carriers, including our newbuildings, are steam-propelled. Many of our vessels have qualified with their respective classification societies for drydocking every four or five years in connection with the Special Survey and are no longer subject to the Intermediate Survey drydocking process. To qualify, we were required to enhance the resiliency of the underwater coatings of each vessel and mark the hull to accommodate underwater inspections by divers.
In addition to the classification inspections, many of our customers regularly inspect our vessels as a precondition to chartering, and regular inspections are standard practice under long-term charters as well. Port and flag state control authorities, such as the U.S. Coast Guard, the Australian Maritime Safety Authority and Spain’s flag administration (or classification societies acting on behalf of the flag state control authorities), also inspect some of our vessels. We believe that our relatively new, well-maintained and high-quality vessels should provide us with a competitive advantage in the current environment of increasing regulation and customer emphasis on quality of service.
We have obtained approval for our safety management system as being in compliance with the ISM Code. Our safety management system has also been certified as being compliant with ISO 9001, 14001 and OSHAS 18001 standards. To maintain compliance, the system is audited regularly by either the vessels’ flag state or, when nominated by them, of the classification societies. Certification is valid for five years subject to satisfactorily completing internal and external audits.
Please see Exhibit 8.1 for a list of our significant subsidiaries as at December 31, 2004.
Our business and the operation of our vessels are significantly affected by international conventions and national, state and local laws and regulations in the jurisdictions in which our vessels operate, as well as in the country of their registration. Because these conventions, laws, and regulations change frequently, we cannot predict the ultimate cost of compliance or their impact on the resale price or useful life of our vessels. Additional conventions, laws and regulations may be adopted that could limit our ability to do business or increase the cost of our doing business and that may materially adversely affect our operations. We are required by various governmental and quasi-governmental agencies to obtain permits, licenses and certificates with respect to our operations. Subject to the discussion below and to the fact that the kinds of permits, licenses and certificates required for the operations of the vessels we own will depend on a number of factors, we believe that we will be able to continue to obtain all permits, licenses and certificates material to the conduct of our operations.
We believe that the heightened environmental and quality concerns of insurance underwriters, regulators and charterers will generally lead to greater inspection and safety requirements on all vessels in the oil tanker and LNG carrier markets and will accelerate the scrapping of older vessels throughout these industries.
Regulation—International Maritime Organization (or IMO ). IMO regulations relating to pollution prevention for tankers apply to many jurisdictions in which our tanker fleet operates. These regulations provide that:
| • | tankers between 25 and 30 years old must be of double-hull construction or of a mid-deck design with double-side construction, unless they have wing tanks or double-bottom spaces, not used for the carriage of oil, which cover at least 30% of the length of the cargo tank section of the hull, or are capable of hydrostatically balanced loading which ensures at least the same level of protection against oil spills in the event of collision or stranding; |
| • | tankers 30 years old or older must be of double-hull construction or mid-deck design with double-side construction; and |
| • | all tankers are 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 (a) is the subject of a contract for a major conversion or original construction on or after July 6, 1993, (b) commences a major conversion or has its keel laid on or after January 6, 1994, or (c) completes a major conversion or is a newbuilding delivered on or after July 6, 1996.
On December 9, 2003, the IMO revised its regulations relating to the prevention of pollution from tankers. These regulations, which came into effect on April 5, 2005, will accelerate the mandatory phase-out of single-hull tankers and impose a more rigorous inspection regime for older tankers. As of the date of this report, we estimate that upon their effectiveness, the regulations will ban from world-wide trading the oldest single-hull tankers, representing approximately 3% to 5% of the current world tanker fleet. It is expected that a further 22% to 24% of the existing world tanker fleet will be excluded from the majority of the oil tanker trades by 2010. These regulations identify three categories of single-hull tankers, which include double-bottom and double-side tankers:
| • | “Category 1 oil tanker” means any oil tanker of 20,000 dwt and above carrying crude oil, fuel oil, heavy diesel oil or lubricating oil as cargo, and of 30,000 dwt and above carrying other oils, which does not have segregated ballast tanks; |
| • | “Category 2 oil tanker” means any oil tanker of 20,000 dwt and above carrying crude oil, fuel oil, heavy diesel oil or lubricating oil as cargo, and of 30,000 dwt and above carrying other oils, which has segregated ballast tanks; and |
| • | “Category 3 oil tanker” means an oil tanker of 5,000 dwt and above but less than the tonnage specified for Category 1 and 2 oil tankers. |
All of the single-hull tankers we operate are Category 2 oil tankers. As illustrated in the following table, the most recent IMO regulations provide for the phase-out on a rolling basis of Category 1 oil tankers during 2005 and of Category 2 oil tankers by 2010.
----------------------------------------- -----------------------------------------------------------------------
Category of Oil Tanker Year To Be Removed From Service
----------------------------------------- -----------------------------------------------------------------------
Category 1 ............................ April 5, 2005 for ships delivered on April 5, 1982 or earlier
2005 for ships delivered after April 5, 1982
----------------------------------------- -----------------------------------------------------------------------
Category 2 and Category 3 ............. April 5, 2005 for ships delivered on April 5, 1977 or earlier
2005 for ships delivered after April 5, 1977 but before 1978
2006 for ships delivered in 1978 and 1979
2007 for ships delivered in 1980 and 1981
2008 for ships delivered in 1982
2009 for ships delivered in 1983
2010 for ships delivered in 1984 or later
----------------------------------------- -----------------------------------------------------------------------
However, under certain conditions, Category 2 and Category 3 oil tankers may continue in operation beyond the date set forth in the table above. For Category 2 and Category 3 oil tankers fitted with (a) double bottoms or double sides, not used for the carriage of oil, that extend to the entire cargo tank length or (b) double hull spaces, not meeting minimum distance protection requirements, which are not used for the carriage of oil and that extend to the entire cargo tank length, the vessel’s flag state may allow continued operation beyond 2010, provided that the ship was in service on July 1, 2001, the flag state is satisfied by verification of the official records that the ship complied with the conditions specified, and that those conditions remain unchanged. Such continued operation must not go beyond the date on which the ship reaches 25 years of age measured from the date of delivery. In spite of this flag-state exemption, a port state may declare that it does not accept entry of such vessels after their phase-out date. The European Union, Cyprus and Malta have already declared that they will not permit the entry of such vessels.
Vessels must pass a Condition Assessment Scheme (or CAS ) Survey after 2005 for Category 1 oil tankers, and after 2010 for Category 2 oil tankers. The CAS Survey includes surveys of the hull structure, including cargo tanks, pump rooms, cofferdams, pipe tunnels, void spaces within the cargo area and all ballast tanks.
The IMO’s accelerated phase out schedule will affect two of our existing vessels, effectively reducing the economic life of each of these vessels. As a result of these regulations, we recorded non-cash write-down of the book value of the affected vessels totaling $56.9 million during the fourth quarter of 2003. The following table outlines the impact of these regulations on the remaining two vessels:
Number Year of IMO Year of IMO
of Vessel Hull Year Phase-Out Phase-Out Date
Vessels Type Type Built (No Exemption) (1) (With Exemption) (1)
--------------- ----------- ----------------------- ------------- -------------------- ----------------------
1 Aframax Single-Hull 1989 2010 2014
1 Aframax Single-Hull 1990 2010 2015
| (1) | As described above, under certain conditions flag states may permit an exemption which allows continued operation of Category 2 or 3 tankers in the waters of the flag state beyond 2010 subject to satisfactory results from the CAS until the ship reaches 25 years of age or the anniversary date of the delivery in 2015, whichever is earlier. |
IMO regulations also include the International Convention for Safety of Life at Sea (or SOLAS ), including amendments to SOLAS implementing the International Security Code for Ports and Ships (or ISPS ), the ISM Code and the International Code for Construction and Equipment of Ships Carrying Liquefied Gases in Bulk (or the IGC Code). SOLAS provides rules for the construction of and equipment required for commercial vessels and includes regulations for safe operation. Flag states which have ratified the convention and the treaty generally employ the classification societies, which have incorporated SOLAS requirements into their class rules, to undertake surveys to confirm compliance.
SOLAS and other IMO regulations concerning safety, including those relating to treaties on training of shipboard personnel, lifesaving appliances, radio equipment and the global maritime distress and safety system, are applicable to our operations. Non-compliance with IMO regulations, including SOLAS, the ISM Code, ISPS and the IGC Code, may subject us to increased liability or penalties, may lead to decreases in available insurance coverage for affected vessels and may result in the denial of access to or detention in some ports.
The ISM Code requires vessel operators to obtain a safety management certification for each vessel they manage, evidencing the shipowner’s compliance with requirements of the ISM Code relating to the development and maintenance of an extensive “Safety Management System.” Such a system includes, among other things, the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. Each of the existing vessels in our fleet currently is ISM Code-certified, and we expect to obtain safety management for each newbuilding vessel upon delivery. However, there can be no assurance that we will be able to maintain such certification in the future.
ISPS was adopted in December 2002 in the wake of heightened concern over worldwide terrorism and became effective on July 1, 2004. The objective of ISPS is to enhance maritime security by detecting security threats to ships and ports and by requiring the development of security plans and other measures designed to prevent such threats. The United States implemented ISPS with the adoption of the Maritime Transportation Security Act of 2002 (or MTSA ), which requires vessels entering U.S. waters to obtain certification of plans to respond to emergency incidents there, including identification of persons authorized to implement the plans. Each of the existing vessels in our fleet currently complies with the requirements of ISPS and MTSA, and we expect all newbuildings to comply upon delivery.
LNG carriers are also subject to regulation under the IGC Code. Each LNG carrier must obtain a certificate of compliance evidencing that it meets the requirements of the IGC code, including requirements relating to its design and construction. Each of our LNG carriers currently is in compliance with the IGC code, and each of our newbuilding shipbuilding contracts requires compliance prior to delivery.
Environmental Regulations—The United States Oil Pollution Act of 1990 (or OPA 90 ). OPA 90 established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills, including discharges of oil cargoes, fuel (or bunkers ) or lubricants. 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 200-mile exclusive economic zone around the United States.
Under OPA 90, vessel owners, operators and demise or bareboat charterers are “responsible parties” and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels. These other damages are defined broadly to include:
| • | natural resources damages and the costs of assessment thereof, |
| • | real and personal property damages, |
| • | net loss of taxes, royalties, rents, fees and other lost revenues, |
| • | lost profits or impairment of earning capacity due to property or natural resources damage, |
| • | net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards, and |
| • | loss of subsistence use of natural resources. |
OPA 90 limits the liability of responsible parties to the greater of $1,200 per gross ton or $10 million per tanker that is over 3,000 gross tons (subject to possible adjustment for inflation). These limits of liability would not apply if the incident was proximately caused by violation of applicable U.S. federal safety, construction or operating regulations, including IMO conventions to which the United States is a signatory, or by the responsible party’s gross negligence or willful misconduct, or if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with the oil removal activities. We currently plan to continue to maintain for each of our vessels pollution liability coverage in the amount of $1 billion per incident. A catastrophic spill could exceed the coverage available, which could harm our business, financial condition and results of operations.
Under OPA 90, with limited exceptions, all newly built or converted tankers delivered after January 1, 1994 and operating in United States waters must be built with double-hulls, and existing vessels that do not comply with the double-hull requirement must be phased out over a 20-year period (1995 to 2015) based on size, age and hull construction. Vessels with double-sides and double-bottoms are granted an additional five years of service life before being phased out. 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 offshore.
OPA 90 requires owners and operators of vessels, including LNG carriers, to establish and maintain with the United States Coast Guard (or 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 (or CERCLA) 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 (or COFR ) provide, in accordance with OPA 90, that claimants may bring suit directly against an insurer or guarantor that furnishes COFR; 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 COFR under pre-OPA 90 laws, including the major protection and indemnity organizations, have 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 shipowner or operator must have a net worth and working capital, measured in assets located in the United States against liabilities located anywhere in the world, that exceeds the applicable amount of financial responsibility. We have complied with the Coast Guard regulations by providing a financial guaranty from a related company evidencing sufficient self-insurance for all our vessels trading into the United States or by providing third-party guarantees. If other vessels in our fleet trade into the United States in the future, we expect to provide guaranties through self-insurance, or to obtain such guaranties from third-party insurers.
OPA 90 and CERCLA permit individual states to impose their own liability regimes with regard to oil or hazardous substance pollution incidents occurring within their boundaries, and some states have enacted legislation providing for unlimited liability for spills. We intend to comply with all applicable state regulations in the ports where our vessels call.
Owners or operators of tankers operating in United States waters are required to file vessel response plans with the Coast Guard, and their tankers are required to operate in compliance with their Coast Guard approved plans. Such response plans must, among other things:
| • | address a “worst case” scenario and identify and ensure, through contract or other approved means, the availability of necessary private response resources to respond to a “worst case discharge;" |
| • | describe crew training and drills; and |
| • | identify a qualified individual with full authority to implement removal actions. |
We have filed vessel response plans with the Coast Guard for the tankers we own and have received approval of such plans for all vessels in our fleet to operate in United States waters.
OPA 90 allows U.S. State legislatures to pre-empt associated regulation if the state’s regulations are equal or more stringent. Several coastal states such as California, Washington and Alaska require state specific COFR and vessel response plans.
CERCLA contains a similar liability regime to OPA 90, but applies to the discharge of “hazardous substances” rather than “oil.” Petroleum products and LNG should not be considered hazardous substances under CERCLA, but additives to oil or lubricants used on LNG carriers might fall within its scope. CERCLA imposes strict liability upon the owner, operator or bareboat charterer of a vessel for cleanup costs and damages arising from a discharge of hazardous substances.
OPA 90 and CERCLA do not preclude claimants from seeking damages for the discharge of oil and hazardous substances under other applicable law, including maritime tort law. Such claims could include attempts to characterize the transportation of LNG aboard a vessel as an ultra-hazardous activity under a doctrine that would impose strict liability for damages resulting from that activity. The application of this doctrine varies by jurisdiction. There can be no assurance that a court in a particular jurisdiction will not determine that the carriage of oil or LNG aboard a vessel is an ultra-hazardous activity, which would expose us to strict liability for damages we cause to injured parties even when we have not acted negligently.
On June 4, 2003, the European Union Parliament passed legislation that will accelerate the phase-out of single-hull tankers between now and 2010, ban the carriage of heavy crude oil and heavy fuel oils on single-hull tankers in European waters and impose a Condition Assessment Scheme for single-hull tankers older than 15 years. This new regulation effectively banned all Category 1 single hull tankers over the age of 23 years immediately, with all remaining Category 1 single hull tankers being phased out by 2005. The phase-out date for Category 2 single hull tankers is 2010, with double sided or double bottomed tankers being phased-out by the earlier of 2015 or 25 years of age. The regulations became effective on October 21, 2003, and immediately banned approximately 11% of the existing world tanker fleet from trading in European waters.
Although the United States is not a party, 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 (or CLC ) , and the Convention for the Establishment of an International Fund for Oil Pollution of 1971, as amended. Under these conventions, which are applicable to vessels that carry persistent oil (not LNG) as cargo, 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. Many 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 $6.7 million plus approximately $938 per gross registered tonne above 5,000 gross tonnes with an approximate maximum of $134 million per vessel, 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.
In addition, the IMO, various countries and states, such as Australia, the United States and the State of California, and various regulators, such as port authorities, the U.S. Coast Guard and the U.S. Environmental Protection Agency, have either adopted legislation or regulations, or are separately considering the adoption of legislation or regulations, aimed at regulating the discharge of ballast water as a potential pollutant.
Our shuttle tankers primarily operate in the North Sea. In addition to the regulations imposed by the IMO, countries having jurisdiction over North Sea areas impose regulatory requirements in connection with operations in those areas. These regulatory requirements, together with additional requirements imposed by operators in North Sea oil fields, require that we make further expenditures for sophisticated equipment, reporting and redundancy systems on our shuttle tankers and for the training of seagoing staff. Additional regulations and requirements may be adopted or imposed that could limit our ability to do business or further increase the cost of doing business in the North Sea.
The following discussion is a summary of the principal United States, Bahamian, Bermudian, Marshall Islands, Norwegian and Spanish tax laws applicable to us. The following discussion of tax matters, as well as the conclusions regarding certain issues of tax law that are reflected in such discussion, are based on current law. No assurance can be given that changes in or interpretation of existing laws will not occur or will not be retroactive or that anticipated future factual matters and circumstances will in fact occur. Our views have no binding effect or official status of any kind, and no assurance can be given that the conclusions discussed below would be sustained if challenged by taxing authorities.
The following discussion is based upon the provisions of the U.S. Internal Revenue Code of 1986, as amended (or the Code ), existing and proposed U.S. Treasury Department regulations, administrative rulings, pronouncements and judicial decisions, all as of the date of this Annual Report.
We have made special U.S. tax elections in respect of some of our vessel-owning or vessel-operating subsidiaries that are potentially subject to U.S. tax as a result of deriving income attributable to the transportation of cargoes to or from the United States. Our Norwegian, Canadian and Spanish subsidiaries that occasionally transport cargoes to and from the United States are eligible to claim exemption from United States tax under the United States-Norway, United States-Canada or United States-Spain Income Tax Treaties. Other subsidiaries that are considered to derive income from sources within the United States rely on our ability to claim exemption under Section 883 of the Code.
For 2004 and 2003, approximately 15.2% and 12.3%, respectively, of our gross shipping revenues were derived from U.S. sources attributable to the transportation of cargoes to or from the United States. The average U.S. federal income tax on such U.S. source income, in the absence of exemption under Section 883, would have been 4% thereof, or approximately $13.7 million and $7.8 million, respectively, for 2004 and 2003.
Under Section 883 of the Code, we will be exempt from U.S. Taxation on our U.S. source shipping income if:
| (a) | Teekay is organized in a qualified foreign country which is one that grants an equivalent exemption from tax to corporations organized in the United States in respect of the shipping income for which exemption is being claimed under Section 883 (referred to as the “country of organization requirement”); and |
| (b) | Teekay can satisfy any one of the following three stock ownership requirements: |
| • | more than 50% of Teekay's stock, in terms of value, is beneficially owned by individuals who are residents of a qualified foreign country; |
| • | Teekay is a “controlled foreign corporation” within the meaning of Section 957 of the Code and more than 50% of our shipping income is includible in the gross income of U.S. persons that own 10% or more of our stock; or |
| • | our stock is “primarily and regularly” traded on an established securities market in the United States or any qualified foreign country (referred to as the “publicly-traded requirement”). |
Final Treasury regulations interpreting Section 883 were promulgated in August 2003 and became effective for tax years beginning after September 24, 2004 (January 1, 2005 for calendar year taxpayers). For purposes of this discussion, we have assumed these regulations apply for 2004. As of the date of this report, we believe that we qualify for the Section 883 exemption from U.S. tax on U.S. source shipping income under the final Treasury Regulations on the basis that we satisfy the country of organization requirement because we are organized in the Marshall Islands and the publicly-traded requirement because our stock is primarily and regularly traded on an established securities market in the United States within the meaning of the Section 883 of the Code and the Treasury Regulations thereunder. We can give no assurance that any changes in the ownership of our stock subsequent to the date of this report will permit us to continue to qualify for the Section 883 exemption.
If we do not qualify for the Section 883 exemption, we would be subject to U.S. federal income taxation under one of two alternative tax regimes (the 4% gross basis tax or the net basis tax). We may be subject to a 4% U.S. federal income tax on the U.S. source portion of our gross income (without the benefit of deductions) attributable to shipping transportation that begins or ends in the United States. For this purpose, the U.S. source portion of such gross income is deemed to be 50% of the income attributable to transportation that begins or ends in the United States.
If we have transportation income that is deemed to be "effectively connected" with a trade or business in the U.S. and we do not qualify for the Section 883 exemption, we may be subject to corporate income tax on a net basis (currently the highest statutory rate is 35%); however, we do not expect to have any transportation income that is U.S. effectively connected income.
We believe that neither we nor our subsidiaries will be subject to taxation under the laws of the Marshall Islands, the Bahamas or Bermuda, and distributions by our subsidiaries to us also will not be subject to any taxes under the laws of such countries.
Our Norwegian subsidiaries are subject to the ordinary Norwegian corporate tax legislation, which in general charges a 28% tax on taxable income. As of December 31, 2004, the operations of our Norwegian subsidiaries consisted of:
| • | ownership and operation of 11 shuttle tankers (including two 50%-owned vessels); |
| • | 12 in-chartered shuttle tankers; |
| • | ownership and operation of two FSO vessels currently trading as conventional crude oil tankers; |
| • | commercial management services for certain of our crude oil and product tankers; |
| • | our 51% interest in IUM; and |
| • | 11 plants installed on shuttle tankers that reduce volatile organic compound emissions during loading, transportation and storage of oil and oil products. |
We don’t expect that payment of Norwegian income taxes will have a material effect on our results.
Spain imposes income taxes on income generated by our Spanish subsidiary’s shipping related activities at a rate of 35%. Our Spanish subsidiary’s vessels are registered in the Canary Islands Special Ship Registry. Consequently, we are allowed a credit, equal to 90% of the tax payable on income from the commercial operation of the Canary Islands registered ships, against the tax otherwise payable. This effectively results in an income tax rate of approximately 3.5% on income from the operation of these vessels. Vessel sales are subject to the full 35% Spanish tax rate. A 20% reinvestment credit it available if the entire gross proceeds from the vessel sale are reinvested in a qualifying asset and if the asset disposed of has been held for a minimum period of one year.
We record deferred taxes on the consolidated financial statements in accordance with accounting principles generally accepted in the United States. Please see Note 1 to our December 31, 2004 audited consolidated financial statements included elsewhere in this annual report on Form 20-F. We don’t expect Spanish income taxes will have a material effect on our results.
Teekay is one of the world’s leading providers of international crude oil and petroleum product transportation services. We estimate that we transported more than 10% of the world’s seaborne oil in 2004. Through our acquisition of Teekay Shipping Spain S.L. (or Teekay Spain ) (formerly Naviera F. Tapias S.A.), we have also expanded into the liquefied natural gas (or LNG ) shipping sector. As at December 31, 2004, our fleet (excluding vessels managed for third parties) consisted of 154 vessels (including 15 newbuildings on order, 51 vessels time-chartered-in, nine vessels held for sale and five vessels owned by joint ventures). Our conventional tankers provide for a total cargo-carrying capacity of approximately 19.1 million deadweight tonnes (or mdwt ), and our LNG and LPG carriers have total cargo-capacity of approximately 1.0 million cubic meters.
Our voyage revenues are derived from:
| • | Voyage or “spot” charters, which are charters priced on a current, or “spot,” market rate; |
| • | Time-charters, whereby vessels are chartered to customers for a fixed period of time at rates that are generally fixed, but may contain a variable component, such as an inflation adjustment or a current market rate component; and |
| • | Contracts of affreightment, where we carry an agreed quantity of cargo for a customer over a specified trade route within a given period of time. |
The table below illustrates the primary distinctions among these types of charters and contracts:
Contract of
Voyage Charter(1) Time-Charter Bareboat-Charter Affreightment
Typical contract length........ Single voyage One year or more One year or more One year or more
Hire rate basis(2)............. Varies Daily Daily Typically daily
Voyage expenses (3) ........... We pay Customer pays Customer pays We pay
Vessel operating expenses (3).. We pay We pay Customer pays We pay
Off-hire(4) ................... Customer does Varied Customer Customer typically
not pay typically pays does not pay
(1) Under a consecutive voyage charter, the customer pays for idle time.
(2) "Hire" rate refers to the basic payment from the charterer for the use of the vessel.
(3) Defined below under "Important Financial and Operational Terms and Concepts."
(4) "Off-hire" refers to the time a vessel is not available for service.
Our fleet is divided into three main segments, the spot tanker segment, the fixed-rate tanker segment and the fixed-rate LNG segment.
Spot Tanker Segment
Our spot tanker segment consists of conventional crude oil tankers and product carriers operating on the spot market or subject to time charters or contracts of affreightment priced on a spot-market basis or short-term fixed-rate contracts. We consider contracts that have an original term of less than three years in duration to be short-term. All of our very large crude carrier (or VLCC ) fleet and substantially all of our conventional Aframax, large product and small product tanker fleets are among the vessels included in the spot tanker segment. Our spot market operations contribute to the volatility of our revenues, cash flow from operations and net income. Historically, the tanker industry has been cyclical, experiencing volatility in profitability and asset values resulting from changes in the supply of, and demand for, vessel capacity. In addition, tanker spot markets historically have exhibited seasonal variations in charter rates. Tanker spot markets are typically stronger in the winter months as a result of increased oil consumption in the northern hemisphere and unpredictable weather patterns that tend to disrupt vessel scheduling. As at December 31, 2004, we had five Aframax tankers on order in our spot tanker segment scheduled to be delivered between January 2005 and March 2007, three large product tankers scheduled to be delivered between August 2005 and December 2006, and one Suezmax tanker which delivered in March 2005 and was sold concurrently with its delivery.
Fixed-Rate Tanker Segment
Our fixed-rate tanker segment includes our shuttle tanker operations, floating storage and offtake (or FSO ) vessels, liquid petroleum gas carriers, and conventional crude oil, methanol and product tankers on long-term fixed-rate time-charter contracts or contracts of affreightment. Our shuttle tanker business, which is operated through our subsidiaries Navion AS (or Navion ) and Ugland Nordic Shipping (or UNS ), provides services to oil companies, primarily in the North Sea, under long-term fixed-rate contracts of affreightment or time-charter agreements. Historically, the utilization of shuttle tankers in the North Sea is higher in the winter months as favorable weather conditions in the summer months provide opportunities for repairs and maintenance to the offshore oil platforms, which generally reduces oil production. As at December 31, 2004, we had on order two newbuilding conventional crude oil Aframax tankers and one newbuilding conventional crude oil Suezmax tanker in our fixed-rate tanker segment. Upon delivery of the Aframax tankers, which is scheduled for January and March 2008, the vessels will commence 10-year long-term charters to our SPT joint venture. The Suezmax tanker will commence a 20-year time charter contract with Compania Espanola de Petroleos, S.A. (or CEPSA ), a Spanish energy conglomerate, upon delivery scheduled for July 2005. In April 2004, we commenced a charter contract to provide Unocal Thailand with an FSO vessel (the Pattani Spirit) for a minimum of 10 years.
Fixed-Rate LNG Segment
Our fixed-rate LNG segment consists of LNG carriers subject to long-term, fixed-rate time-charter contracts. The acquisition of Teekay Spain on April 30, 2004 established our entry into the LNG shipping sector. Our fixed-rate LNG segment includes four LNG carriers acquired as part of the Teekay Spain acquisition, including the delivery of one LNG carrier in July 2004, which commenced service under a 25-year time-charter contract (with a charterer’s option to extend an additional five years), and the delivery of another LNG carrier in December 2004, which commenced service under a 20-year time-charter contract (with a charterer’s option to extend an additional ten years). As at December 31, 2004, we had three newbuilding LNG carriers on order, which will commence service under long-term contracts with Ras Lafan Liquefied Natural Gas Co. Limited II (or RasGas II ), a joint venture company between a subsidiary of ExxonMobil Corporation and Qatar Petroleum, upon their deliveries, which are scheduled for the fourth quarter of 2006 and the first half of 2007. The vessels will be time-chartered to RasGas II for a period of 20 years, with a charterer’s option to extend for periods up to an additional 15 years. These LNG charter contracts are subject, in certain circumstances, to termination and vessel purchase rights in favor of RasGas II.
On April 30, 2004 we acquired 100% of the issued and outstanding shares of Teekay Shipping Spain S.L. for $298.2 million in cash and the assumption of existing debt and remaining newbuilding commitments. We believe the long-term, fixed-rate nature of Teekay Spain’s charter contracts will add stability to our cash flow and earnings throughout the tanker market cycle. Please see Item 4. Information on the Company: Acquisition of Teekay Shipping Spain S.L. and Item 18 — Financial Statements: Note 3 — Acquisition of Teekay Shipping Spain S.L.
On September 30, 2003, we acquired 50% of the issued and outstanding shares of PetroTrans Holdings Ltd., the parent company of Skaugen PetroTrans Inc. (or SPT) . Please see Item 4. Information on the Company: Acquisition of 50% of PetroTrans Holdings Ltd. and Item 18 — Financial Statements: Note 5 — Acquisition of 50% of PetroTrans Holdings Ltd.
In April 2003, we completed our acquisition of 100% of the issued and outstanding shares of Navion AS for approximately $774.2 million in cash, including transaction costs of approximately $7.0 million. Please see Item 4. Information on the Company: Acquisition of Navion AS and Item 18—Financial Statements: Note 4 — Acquisition of Navion AS.
In November 2004, our wholly-owned subsidiary, Teekay LNG Partners L.P. (or Teekay LNG Partners ), filed a registration statement with the U.S. Securities and Exchange Commission for an initial public offering of its common units. Teekay LNG Partners is a Marshall Islands limited partnership recently formed by us as part of our strategy to expand our operations in the LNG sector. Upon the closing of the offering, Teekay LNG Partners will provide LNG and crude oil marine transportation services through a fleet of LNG carriers and Suezmaz class crude oil tankers, primarily consisting initially of vessels we obtained through our acquisition of Teekay Spain. Teekay GP L.L.C. is a wholly owned subsidiary of Teekay Shipping Corporation and the general partner of Teekay LNG Partners. Please see Item 18 — Financial Statements: Note 17 – Commitments and Contingencies.
As described above under “Item 4. Information on the Company: Regulations,” in 2003 both the International Maritime Organization (or IMO ), the United Nations’ global maritime regulatory body, and the European Union Parliament adopted regulations that, among other things, accelerate the phasing-out of single-hull tankers.
As a result of these regulations, which became effective April 5, 2005, we recorded a $56.9 million non-cash write-down in our spot tanker segment in 2003, and reduced the estimated useful lives from 25 years to approximately 21 years for the two remaining vessels affected by these regulatory changes.
Management believes that these IMO regulations may result in further discrimination against older single-hull vessels.
We are not aware of any other regulatory changes or environment liabilities that we anticipate will have a material impact on our current or future operations.
We use a variety of financial and operational terms and concepts when analyzing our performance. These include the following:
Voyage Revenues. Voyage revenues primarily include revenues from voyage charters, time charters and contracts of affreightment. Voyage revenues are affected by hire rates and the number of calendar-ship-days a vessel operates. Voyage revenues are also affected by the mix of business between time charters, voyage charters and contracts of affreightment. Hire rates for voyage charters are more volatile, as they are typically tied to prevailing market rates at the time of a voyage.
Forward Freight Agreements. We are exposed to market risk for vessels in our spot tanker segment from changes in spot market rates for vessels. In certain cases we use forward freight agreements (or FFAs ) to manage this risk. FFAs involve contracts to provide a fixed number or theoretical voyages at fixed-rates, thus hedging a portion of our exposure to the spot charter market. These agreements are recorded as assets or liabilities and measured at fair value. Changes in the fair value of the FFAs are recognized in other comprehensive income (loss) until the hedged item is recognized as voyage revenue in income. The ineffective portion of a change in fair value is immediately recognized into income through voyage revenues.
Voyage Expenses. Voyage expenses are all expenses unique to a particular voyage, including any bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions. Voyage expenses are typically paid by the customer under time charters and by us under voyage charters and contracts of affreightment. When we pay voyage expenses, we typically add them to our hire rates at an approximate cost.
Net Voyage Revenues. Net voyage revenues represent voyage revenues less voyage expenses. Because the amount of voyage expenses we incur for a particular charter depends upon the form of the charter, we use net voyage revenues to improve the comparability between periods of reported revenues that are generated by the different forms of charters. We principally use net voyage revenues, a non-GAAP financial measure, because it provides more meaningful information to us than voyage revenues, the most directly comparable financial measure under accounting principles generally accepted in the U.S. (or GAAP ).
Time Charter Equivalent (TCE) Rates. Bulk shipping industry freight rates are commonly measured in the shipping industry at the net voyage revenues level in terms of time charter equivalent (or TCE ) rates, which represent net voyage revenues divided by calendar-ship-days.
Vessel Operating Expenses. Under all types of charters for our vessels, we are responsible for vessel operating expenses, which include crewing, repairs and maintenance, insurance, stores, lube oils and communication expenses.
Income from Vessel Operations. To assist us in evaluating our operations by segment, we analyze our income from vessel operations for each segment, which represents the income we receive from the segment after deducting operating expenses and depreciation and amortization, but prior to the deduction of net interest expense, income taxes, foreign currency and interest rate swap gains or losses and other income and losses.
Drydocking. We must periodically drydock each of our vessels for inspection, repairs and maintenance and any modifications to comply with industry certification or governmental requirements. Generally, we drydock each of our vessels every two and a half to five years, depending upon the type of vessel and its age. In addition, a shipping society classification intermediate survey is performed on our LNG carriers between the second and third year of the five-year drydocking period. We capitalize a substantial portion of the costs incurred during drydocking and for the survey and amortize those costs on a straight-line basis from the completion of a drydocking or intermediate survey to the estimated completion of the next drydocking. We expense costs related to routine repairs and maintenance incurred during drydocking that do not improve or extend the useful lives of the assets. The number of drydockings undertaken in a given period, the size of the vessels and the nature of the work performed determine the level of drydocking expenditures.
Depreciation and Amortization. Our depreciation and amortization expense typically consists of the following three components:
| • | charges related to the depreciation of the historical cost of our fleet (less an estimated residual value) over the estimated useful lives of our vessels; |
| • | charges related to the amortization of drydocking expenditures over the estimated number of years to the next scheduled drydocking; and |
| • | charges related to the amortization of the fair value of the time charters, contracts of affreightment and intellectual property where amounts have been attributed to those items on acquisitions of subsidiary companies. These amounts are amortized over the period which the asset is expected to contribute to the future cash flows of the Company. |
Calendar-ship-days. Calendar-ship-days are equal to the aggregate number of calendar days in a period that our vessels operate during that period.
Restricted Cash Deposits. Under capital lease arrangements for two of our LNG carriers, we (a) borrow under term loans and deposit the proceeds into restricted cash accounts and (b) enter into capital leases, also referred to as “bareboat charters,” for the vessels. The restricted cash deposits approximate the present value of the remaining amounts we owe under the lease arrangements, including our obligation to purchase the vessels at the end of the lease terms. The restricted cash deposits and interest earned thereon will fully fund the payments under these bareboat charters, including our obligation to purchase the vessels. During vessel construction, we borrow under the term loans and make restricted cash deposits that approximate the construction installment payments. We also maintain cash on deposit relating to certain other term loans and other obligations. Please see Item 18 – Financial Statements: Note 11 – Capital Leases and Restricted Cash.
During 2004, tanker spot rates rose to the highest level in three decades as strong global oil demand growth and a higher level of oil supplies from long-haul sources increased the tanker demand. In early 2005, reduced oil production by Middle East OPEC members, lower Iraqi oil exports, and unforeseen production outages in the North Sea caused tanker rates to decline, although they remained at high levels.
Global oil demand, an underlying driver of tanker demand, rose to 82.5 million barrels per day (or mb/d ) during 2004, an increase of 2.7 mb/d, or 3.4%, from 2003. Strong global economic growth led by China, non-OECD Asian countries and North America helped push oil demand to record levels.
Global oil supply increased by 3.4 mb/d, or 4.3%, to 83.0 mb/d in 2004 from 79.6 mb/d in 2003 due in part to a 1.4 mb/d rise in long-haul Middle East OPEC oil production. Non-OPEC production rose by 1.0 mb/d mainly as a result of rising output in the former Soviet Union. At its January 30, 2005 meeting, OPEC (excluding Iraq) voted to leave its existing quota limit unchanged at 27.0 mb/d, citing a forecasted balance between oil supply and demand for the first quarter of 2005.
The size of the world tanker fleet rose to 334.0 million deadweight tonnes (or mdwt ) as of December 31, 2004, up 17 mdwt, or 5.4% from December 31, 2003. Deliveries of tanker newbuildings aggregated 27.8 mdwt in 2004, exceeding total deletions of 10.8 mdwt.
As at December 31, 2004, the world tanker order book rose to 89.6 mdwt, representing 26.8% of the total world tanker fleet, up from 77.6 mdwt, or 24.5%, as of December 31, 2003.
The outlook for the tanker market for the remainder of 2005 is positive, since the balance between tanker demand and tanker supply is expected to continue to be relatively tight during this period. The International Energy Agency is forecasting an increase in oil demand of 1.8 mb/d, or 2.2%, in 2005 over 2004, which should typically lead to an approximate 4.0% increase in tanker demand. The 31.0 mdwt in scheduled new tanker deliveries in 2005 are expected to be largely offset by the increase in tanker demand and the impact of the recent IMO regulations, which are expected to phase-out approximately 3 to 5% of the existing world tanker fleet, or 10 to 15 mdwt, during 2005.
In accordance with GAAP, we report gross voyage revenues in our income statements and include voyage expenses among our operating expenses. However, shipowners base economic decisions regarding the deployment of their vessels in the spot market segment upon anticipated TCE rates, and industry analysts typically measure bulk shipping freight rates in terms of TCE rates. This is because under time charter contracts the customer usually pays the voyage expenses whereas under voyage charters and contracts of affreightment the shipowner usually pays the voyage expenses, which typically are added to the hire rate at an approximate cost. Accordingly, the discussion of revenue below focuses on net voyage revenues (i.e. voyage revenues less voyage expenses) and TCE rates of our three reportable segments where applicable. Please see Item 18 — Financial Statements: Note 2 – Segment Reporting.
The following tables compare our operating results by reportable segment for 2004, 2003 and 2002, and compare our net voyage revenues (which is a non-GAAP financial measure) by reportable segment for 2004, 2003, and 2002 to the most directly comparable GAAP financial measure:
----------- ---------------------------------------- ------------------------------ -------------------------------
Year Ended December 31, 2004 Year Ended December 31, 2003 Year Ended December 31, 2002
Fixed Fixed Fixed
Spot -Rate Fixed Spot -Rate Spot -Rate
Tanker Tanker -Rate LNG Tanker Tanker Tanker Tanker
Segment Segment Segment Total Segment Segment Total Segment Segment Total
($000's) ($000's) ($000's) ($000's) ($000's) ($000's) ($000's) ($000's) ($000's) ($000's)
----------- ---------- -------- --------- ---------- --------- --------- --------- ---------- --------- ---------
Voyage
Revenues 1,450,791 725,061 43,386 2,219,238 1,081,974 494,121 1,576,095 632,281 151,046 783,327
Voyage
Expenses (355,116) (7,058) (221) (432,395) (342,928) (51,728) (394,656) (234,376) (5,079) (239,455)
----------- ---------- -------- --------- ---------- ---------- --------- --------- ---------- --------- ---------
Net Voyage
Revenues 1,095,675 648,003 43,165 1,786,843 739,046 442,393 1,181,439 397,905 145,967 543,872
----------- ---------- -------- --------- ---------- ---------- --------- --------- ---------- --------- ---------
----------- ---------------------------------------- ------------------------------ -------------------------------
Year Ended December 31, 2004 Year Ended December 31, 2003 Year Ended December 31, 2002
Fixed Fixed Fixed
Spot -Rate Fixed Spot -Rate Spot -Rate
Tanker Tanker -Rate LNG Tanker Tanker Tanker Tanker
Segment Segment Segment Total Segment Segment Total Segment Segment Total
(%) (%) (%) (%) (%) (%) (%) (%) (%) (%)
----------- ---------- -------- --------- ---------- --------- --------- --------- ---------- --------- ---------
Voyage
Revenues 65 33 2 100 69 31 100 81 19 100
Voyage
Expenses 82 18 - 100 87 13 100 98 2 100
----------- ---------- -------- --------- ---------- --------- --------- --------- ---------- --------- ---------
Net Voyage
Revenues 62 36 2 100 63 37 100 73 27 100
----------- ---------- -------- --------- ---------- --------- --------- --------- ---------- --------- ---------
The following table outlines the TCE rates earned by the vessels in our spot tanker segment for 2004, 2003 and 2002:
--------------- -------------------------------- ------------------------------ -------------------------------
Year Ended December 31, 2004 Year Ended December 31, 2003 Year Ended December 31, 2002
TCE per TCE per TCE per
Net Voyage calendar- Net Voyage calendar- Net Voyage calendar-
Vessel Type Revenues Calendar ship-day Revenues Calendar ship-day Revenues Calendar ship-day
($000's) Days ($) ($000's) Days ($) ($000's) Days ($)
--------------- ------------ -------- ---------- ----------- -------- --------- ----------- --------- ---------
VLCC 67,129 887 75,681 36,891 819 45,044 6,257 365 17,141
Suezmax(1) 133,706 2,423 55,182 62,329 1,841 33,856 - - -
Aframax(1) 813,371 20,697 39,299 535,570 21,489 24,923 340,643 21,383 15,930
Oil/Bulk/Ore (2) 3,269 157 20,822 39,849 2,451 16,258 32,749 2,920 11,215
Large Product 50,221 1,962 25,597 17,331 560 30,948 - - -
Small Product 49,175 3,515 13,990 27,960 2,416 11,573 - - -
--------------- ------------ -------- ---------- ----------- -------- --------- ----------- --------- ---------
Totals 1,116,871 29,641 37,680 719,930 29,576 24,342 379,649 24,668 15,390
=============== ============ ======== ========== =========== ======== ========= =========== ========= =========
| (1) | The Suezmax net voyage revenues exclude losses on FFAs of $11.3 million (2004) and gains on FFAs of $0.6 million (2003). The Aframax net voyage revenues exclude losses on FFAs of $10.5 million (2004) and losses on FFAs of $0.3 million (2003). We were not a party to any FFAs during 2002. |
| (2) | The oil/bulk/ore fleet’s net voyage revenues exclude $0.5 million (2004), $18.8 million (2003), and $18.2 million (2002) of net voyage revenues earned by the minority pool participants in the Panamax oil/bulk/ore pool that we operated prior to our disposition of all of our oil/bulk/ore carriers and the termination of the pool in 2004. |
We acquired Teekay Spain on April 30, 2004. Consequently, our 2004 financial results for our segments only reflect Teekay Spain’s results of operations commencing May 1, 2004. We completed our acquisition of Navion on April 1, 2003. Consequently, our 2003 financial results for our segments only reflect Navion’s results of operations on that date.
Spot Tanker Segment
TCE rates for the vessels in our spot tanker segment primarily depend on oil production and consumption levels, the number of vessels scrapped, the number of newbuildings delivered and charterers’ ‘reference for modern tankers. As a result of our dependence on the spot tanker market, any fluctuations in TCE rates will affect our revenues and earnings. As a result of the previously mentioned strong tanker freight rates during 2004, our average TCE rate for the vessels in our spot tanker segment increased 54.8% to $37,680 for 2004, from $24,342 for 2003. During 2004, approximately 62% of our net voyage revenues were earned by the vessels in the spot tanker segment, compared to approximately 63% in 2003. The decrease from 2003 was due primarily to our acquisition of Teekay Spain and its fixed-rate Suezmax tanker and LNG fleet and the sale of 11 older spot vessels as part of our fleet renewal program, partially offset by the increase in spot tanker rates compared to 2003 and an increase in the chartered-in vessels in our spot tanker segment.
The following table provides a summary of the change in fleet size, based on calendar-ship-days, of our spot tanker segment by owned and chartered-in vessels:
-------------------------------------- --------------------------------------------------- --------------------------
Year Ended December 31,
-------------------------------------- --------------------------------------------------- --------------------------
2004 2003 Percentage Change
(Calendar Days) (Calendar Days) (%)
-------------------------------------- ------------------------- ------------------------- --------------------------
Owned Vessels 16,181 21,206 (23.7)
Chartered-in Vessels 13,460 8,370 60.8
-------------------------------------- ------------------------- ------------------------- --------------------------
Total 29,641 29,576 0.2
====================================== ========================= ========================= ==========================
The average fleet size of our spot tanker fleet (including vessels chartered-in) increased slightly in 2004, primarily due the delivery of four Aframax newbuildings and an increase in the number of vessels chartered-in due to the inclusion of Navion for a fully year in 2004, compared to nine months in 2003, as well as the sale and leaseback of three Aframax tankers in December 2003. These increases were substantially offset by the sale of 11 older tankers in the spot tanker segment during 2004.
Net voyage revenues for the spot tanker segment increased 48.3% to $1,095.7 million for 2004, from $739.0 million for 2003. This increase was primarily due to the increases in average TCE rates from 2003.
Vessel operating expenses, which include crewing, repairs and maintenance, insurance, stores and lubes, and communication expenses, decreased 26.0% to $93.4 million for 2004, from $126.3 million for 2003. The decrease in vessel operating expenses was primarily due to the sale of 11 older vessels during the year.
Time-charter hire expense increased 56.3% to $263.1 million for 2004, from $168.3 million for 2003. This increase was due primarily to the previously mentioned increase of chartered-in vessels.
Depreciation and amortization expense decreased 10.2% to $95.6 million for 2004, from $106.4 million for 2003. The decrease was primarily attributable to the previously mentioned vessel dispositions, partially offset by the deliveries of the four newbuilding Aframax tankers during 2004 and the increased amortization of older vessels due to the accelerated depreciation of vessels affected by the previously mentioned IMO regulations. Depreciation and amortization expense included amortization of drydocking costs of $16.1 million for 2004, compared to $22.3 million for 2003. The decrease in drydock amortization was primarily due to the previously mentioned sale of older vessels that require more frequent drydocks.
Gain on sale of vessels for 2004 of $72.1 million included gains on the sale of the 11 older vessels, as well as amortization of a deferred gain on the sale and leaseback of the three Aframax tankers in December 2003. The write-downs and loss on sale of vessels for 2003 of $90.3 million was primarily comprised of the write-down of vessel values as a result of the previously mentioned IMO regulations and vessels sold in 2003.
We incurred restructuring charges of $1.0 million in 2004 relating to the closure of our Oslo, Norway office. Restructuring charges of $4.4 million in 2003 relate to the closure of our Oslo, Norway and Melbourne, Australia offices, and severance costs related to the termination of seafaring staff.
Fixed-Rate Tanker Segment
The following table provides a summary of the change in fleet size, based on calendar ship days, of our fixed-rate tanker segment by owned and chartered-in vessels:
-------------------------------------- --------------------------------------------------- --------------------------
Year Ended December 31,
-------------------------------------- --------------------------------------------------- --------------------------
2004 2003 Percentage Change
(Calendar Days) (Calendar Days) (%)
-------------------------------------- ------------------------- ------------------------- --------------------------
Owned Vessels 14,808 10,196 45.2
Chartered-in Vessels 5,905 4,370 35.1
-------------------------------------- ------------------------- ------------------------- --------------------------
Total 20,713 14,566 42.2
====================================== ========================= ========================= ==========================
The average fleet size of our fixed-rate tanker segment (including vessels chartered-in) increased significantly in 2004 compared to 2003, primarily due to our acquisition of Teekay Spain, which included four Suezmax tankers in this segment, and the delivery of four newbuildings in 2004. In addition, the results of Navion, including its fixed-rate shuttle tanker fleet, were only included for nine months in 2003, compared to a full year in 2004.
Net voyage revenues increased 46.5% to $648.0 million for 2004, from $442.4 million for 2003 primarily due to the increase in fleet size. The shuttle tankers acquired as part of our acquisition of Navion generated, on average, more revenue per ship than the remaining vessels in our fixed-rate tanker segment. During 2004, approximately 36% of our net voyage revenues were earned by the vessels in the fixed-rate tanker segment, compared to approximately 37% in 2003.
Vessel operating expenses increased 39.3% to $117.6 million for 2004, from $84.4 million for 2003. The increase in vessel operating expenses was primarily due to the increase in fleet size and the appreciation of other major currencies against the U.S. Dollar. The shuttle tankers acquired as part of our acquisition of Navion incurred, on average, higher operating costs per ship than the remaining vessels in our fixed-rate tanker segment.
Time-charter hire expense increased 42.4% to $194.1 million for 2004, from $136.3 million for 2003. The increase is due primarily to Navion’s chartered-in shuttle tankers being included for the full year in 2004, but only for nine months in 2003, the date of the Navion acquisition.
Depreciation and amortization expense increased 52.1% to $129.1 million for 2004, from $84.9 million for 2003. The increase was mainly due to increased vessel cost amortization during 2004 as a result of the increase in fleet size of owned vessels in this segment, the amortization of the estimated fair market value of the time charter contracts we acquired as part of the Teekay Spain acquisition and a full year of amortization during 2004 of the contracts of affreightment we acquired as part of the 2003 Navion acquisition. Depreciation and amortization expense included amortization of drydocking costs of $7.3 million for 2004, compared to $4.2 million for 2003.
Gain on sale of vessels for 2004 of $7.2 million represents gains on the sale of three older vessels. Loss on sale of vessels for 2003 of $0.1 million relate to the sale of a shuttle tanker in our fixed-rate tanker segment.
We incurred no restructuring charges in 2004 in our fixed-rate tanker segment. Restructuring charges of $2.0 million in 2003 relate to the closure of our Oslo, Norway and Melbourne, Australia offices, and severance costs related to the termination of seafaring staff.
Fixed-Rate LNG Segment
The results of our fixed-rate LNG segment reflect the operations of our four LNG carriers (including one newbuilding that delivered in July 2004, and one newbuilding that delivered in December 2004) acquired as part of our acquisition of Teekay Spain on April 30, 2004. The total number of calendar ship days of our LNG carriers during 2004 was 660. We had no LNG shipping operations prior to the Teekay Spain acquisition.
Net voyage revenues totaled $43.2 million for 2004, or $65,402 per calendar-ship-day. During 2004 approximately 2% of our net voyage revenues were earned by the vessels in the fixed-rate LNG segment.
Vessel operating expenses totaled $7.5 million for 2004, or $11,377 per calendar-ship-day.
Depreciation and amortization was $12.9 million in 2004, which includes $3.6 million of amortization of time-charter contracts acquired as part of the Teekay Spain acquisition.
Other Operating Results
General and administrative expenses increased 53.5% to $130.7 million for 2004, from $85.1 million for 2003, primarily as a result of the Teekay Spain acquisition, the inclusion of Navion for 12 months in 2004 compared to only nine months in 2003, an increase in the accrual for performance-based bonuses in 2004, including $12.5 million authorized by the Board of Directors in addition to the regular bonus plan, and the appreciation of several major currencies against the U.S. Dollar.
Interest expense increased 50.0% to $121.5 million for 2004, from $81.0 million for 2003. This increase primarily reflects interest on the additional debt we incurred in connection of our acquisitions of Navion and Teekay Spain.
Interest income increased 372.5% to $18.5 million for 2004, compared to $3.9 million for 2003. This increase was primarily due to interest earned on higher average cash and restricted cash balances. Please see “Important Financial and Operational Terms and Concepts — Restricted Cash Deposits” above.
Equity income from 50%-owned joint ventures increased 97.0% to $13.7 million for 2004, from $7.0 million for 2003, primarily as a result of our acquisition of a 50% interest in SPT during September 2003.
Gain on sale of marketable securities was $93.2 million in 2004, compared to $0.5 million in 2003. During 2004 we sold our investments in marketable securities. Please see Item 18 – Financial Statements: Note 6 – Investments in Marketable Securities.
Other loss of $67.7 million for 2004 was primarily comprised of foreign exchange losses of $42.7 million, income taxes of $35.0 million and a $0.8 million loss on redemption of $13.4 million of our 8.32% First Preferred Ship Mortgage Notes, partially offset by dividend income from our joint ventures and leasing income from our volatile organic compound emissions equipment. Other loss of $46.0 million for 2003 was primarily comprised of income taxes of $36.5 million, a $5.4 million loss on redemption of $57.9 million of our 8.32% First Preferred Ship Mortgage Notes, a write-down of marketable securities, goodwill and other assets, minority interest expense, and foreign exchange losses, partially offset by dividend income from Nordic American Tanker Shipping Ltd. (or NATS ), and leasing income from our volatile organic compound emissions equipment.
As a result of the foregoing factors, net income increased to $757.4 million for 2004, from $177.4 million for 2003.
We completed our acquisition of on April 1, 2003. Consequently, our 2003 financial results for our segments only reflect Navion’s results of operations for nine months.
Spot Tanker Segment
As a result of strengthening in tanker freight rates during 2003, our average TCE rate for the vessels in our spot tanker segment increased 58.2% to $24,342 for 2003, from $15,390 for 2002. During 2003, approximately 63% of our net voyage revenues were earned by the vessels in the spot tanker segment, compared to approximately 73% in 2002. The decrease from 2002 was due primarily to our acquisition of Navion and its shuttle tanker fleet that is part of our fixed-rate tanker segment, partially offset by an increase in spot tanker rates compared to 2002.
The following table provides a summary of the change in fleet size, based on calendar ship days, of our spot tanker segment by owned and chartered-in vessels:
-------------------------------------- --------------------------------------------------- --------------------------
Year Ended December 31,
-------------------------------------- --------------------------------------------------- --------------------------
2003 2002 Percentage Change
(Calendar Days) (Calendar Days) (%)
-------------------------------------- ------------------------- ------------------------- --------------------------
Owned Vessels 21,206 22,824 (7.1)
Chartered-in Vessels 8,370 1,844 353.9
-------------------------------------- ------------------------- ------------------------- --------------------------
Total 29,576 24,668 19.9
====================================== ========================= ========================= ==========================
The average fleet size of our spot tanker fleet (including vessels chartered-in) increased in 2003, primarily due to our acquisition of Navion, and the delivery of three chartered-in newbuildings (two Aframax tankers delivered in April 2003 and August 2003, and a VLCC delivered in June 2003) and a vessel under capital lease (an Aframax tanker delivered in September 2003). These increases were partially offset by the sale of 16 older tankers in the spot tanker segment during 2003 as part of our fleet renewal program. The average fleet size of our owned spot tanker fleet decreased in 2003.
Net voyage revenues for the spot tanker segment increased 85.7% to $739.0 million for 2003, from $397.9 million for 2002. These increases were primarily due to the increases in average fleet size and average TCE rates from 2002.
Vessel operating expenses, which include crewing, repairs and maintenance, insurance, stores and lubes, and communication expenses, decreased 1.3% to $126.3 million for 2003, from $128.0 million for 2002. The decrease in vessel operating expenses was primarily due to the decreased size of our owned spot tanker fleet, partially offset by higher repairs and maintenance costs on our remaining vessels.
Time-charter hire expense increased 237.0% to $168.3 million for 2003, from $49.9 million for 2002. This increase was due primarily to the addition of the chartered-in vessels included as part of the Navion acquisition and the previously mentioned delivery of three additional chartered-in vessels.
Depreciation and amortization expense increased 0.9% to $106.4 million for 2003, from $105.4 million for 2002. The increase was primarily attributable to the larger fleet size resulting from our acquisition of Navion and increased drydock amortization, substantially offset by the effect of the previously mentioned vessel dispositions. Depreciation and amortization expense included amortization of drydocking costs of $22.3 million for 2003, compared to $18.1 million for 2002. The increase in drydock amortization was primarily due to an increase in the amount of work done in drydock on most vessels during 2003 and an increase in the frequency of required drydockings for older vessels.
As previously mentioned, we wrote down the book values of certain of our tankers by $56.9 million in the fourth quarter of 2003 due to changes in IMO regulations, and we sold 16 older vessels in our spot tanker segment in 2003. These dispositions resulted in a $34.7 million write-down in the book value of these vessels, partially offset by a $1.3 million gain on the sale of some of the vessels. There were no vessel write-downs or vessel dispositions in our spot tanker segment in 2002.
Restructuring charges of $4.4 million in 2003 related to the closure of our Oslo, Norway and Melbourne, Australia offices, and severance costs related to the termination of seafaring staff. There were no restructuring changes in our spot tanker segment in 2002.
Fixed-Rate Tanker Segment
The following table provides a summary of the change in fleet size, based on calendar-ship-days of our fixed-rate tanker segment by owned and chartered-in vessels:
-------------------------------------- --------------------------------------------------- --------------------------
Year Ended December 31,
-------------------------------------- --------------------------------------------------- --------------------------
2003 2002 Percentage Change
(Calendar Days) (Calendar Days) (%)
-------------------------------------- ------------------------- ------------------------- --------------------------
Owned Vessels 10,196 6,249 63.2
Chartered-in Vessels 4,370 - -
-------------------------------------- ------------------------- ------------------------- --------------------------
Total 14,566 6,249 133.1
====================================== ========================= ========================= ==========================
The average fleet size of our fixed-rate tanker segment (including vessels chartered-in) more than doubled in 2003 compared to 2002, primarily due to our acquisition of Navion and the addition of four shuttle tankers (including deliveries of two newbuilding shuttle tankers) in 2003. In addition, the first three of five newbuilding conventional tankers on 12-year charters to ConocoPhillips were delivered in the second half of 2003.
Net voyage revenues increased 203.1% to $442.4 million for 2003, from $146.0 million for 2002, primarily due to the increase in fleet size. The shuttle tankers acquired as part of our acquisition of Navion generated, on average, more revenue per ship than the remaining vessels in our fixed-rate tanker segment. During 2003, approximately 37% of our net voyage revenues were earned by the vessels in the fixed-rate tanker segment, compared to approximately 27% in 2002.
Vessel operating expenses increased 110.7% to $84.4 million for 2003, from $40.1 million for 2002. The increase in vessel operating expenses was primarily due to the increase in fleet size. The shuttle tankers acquired as part of our acquisition of Navion incurred, on average, higher operating costs per ship than the remaining vessels in our fixed-rate tanker segment. Other less significant reasons for the increase in vessel operating expenses were higher repair, maintenance and crewing costs, and the appreciation of the Norwegian Kroner against the U.S. Dollar.
Time-charter hire expense was $136.3 million for 2003. We incurred no time-charter hire expense in 2002, as we did not have any chartered-in tankers in the fixed-rate tanker segment prior to our acquisition of Navion. As at December 31, 2003, we had 13 chartered-in shuttle tankers and one chartered-in methanol carrier.
Depreciation and amortization expense increased 93.4% to $84.9 million for 2003, from $43.9 million for 2002. The increase was mainly due to increased vessel cost amortization as a result of the increase in fleet size of our owned vessels and the amortization of the estimated fair market value of the contracts of affreightment we acquired as part of the Navion acquisition. Depreciation and amortization expense included amortization of drydocking costs of $4.2 million for 2003, compared to $3.7 million for 2002.
Loss on sale of vessels for 2003 of $0.1 million related to the sale of a shuttle tanker in our fixed-rate tanker segment. There were no vessel dispositions in our fixed-rate tanker segment in 2002.
Restructuring charges of $2.0 million in 2003 relate to the closure of our Oslo, Norway and Melbourne, Australia offices, and severance costs related to the termination of seafaring staff. No restructuring charges were incurred in 2002 in our fixed-rate tanker segment.
Other Operating Results
General and administrative expenses increased 48.7% to $85.1 million for 2003, from $57.2 million for 2002, primarily as a result of the Navion acquisition, a special compensation expense to an executive officer and the appreciation of several major currencies against the U.S. Dollar.
Equity income from 50%-owned joint ventures increased 54.1% to $7.0 million for 2003, from $4.5 million for 2002, primarily as a result of our acquisition of a 50% interest in SPT during September 2003.
Interest expense increased 39.7% to $81.0 million for 2003, from $58.0 million for 2002. This increase primarily reflects interest on the additional debt we incurred to acquire Navion.
Interest income increased 12.2% to $3.9 million for 2003, compared to $3.5 million for 2002. This increase was primarily due to interest earned on higher average cash balances, partially offset by lower interest rates.
Other loss of $46.0 million for 2003 was primarily comprised of income taxes of $36.5 million, a loss on redemption of $57.9 million of our 8.32% First Preferred Ship Mortgage Notes, a write-down of available-for-sale securities, goodwill and other assets, minority interest expense, and foreign exchange losses, partially offset by dividend income from Nordic American Tanker Shipping Ltd., leasing income from our volatile organic compound emissions equipment and a gain on the disposition of available-for-sale securities. Other loss of $14.9 million for 2002 was primarily comprised of income taxes of $11.4 million, the settlement of a contingent payment relating to our purchase in 1993 of all the issued and outstanding shares of Palm Shipping Inc. (now Teekay Chartering Limited), a loss on sale of available-for-sale securities, and minority interest expense, partially offset by dividend income from Nordic American Tanker Shipping Ltd., and foreign exchange gains.
As a result of the foregoing factors, net income increased to $177.4 million for 2003, from $53.4 million for 2002.
As at December 31, 2004, our total cash and cash equivalents was $427.0 million, compared to $292.3 million at December 31, 2003. Our total liquidity, including cash, short-term marketable securities and undrawn long-term borrowings, was $1,258.2 million as at December 31, 2004, up from $774.8 million as at December 31, 2003. The increase in liquidity was mainly the result of cash generated by our operating activities, proceeds from the sale of 14 older vessels during the year and the sale of our marketable securities during the year, partially offset by our debt repayments, cash used for capital expenditures and payment of dividends. In our opinion, working capital is sufficient for our present requirements.
Net cash flow from operating activities increased to $814.7 million in 2004 from $455.6 million in 2003, mainly reflecting the significant increase in our average spot TCE rates.
Scheduled debt repayments were $150.3 million during 2004 compared to $62.2 million during 2003. Repayments of capital lease obligations were $66.1 million in 2004 compared to $0.3 million in 2003. Debt prepayments were $1,731.2 million during 2004 compared to $1,466.8 million during 2003. Of our 2004 debt prepayments, $1,326.0 million resulted from our drawing down and subsequently prepaying under some of our eight long-term revolving credit facilities (the Revolvers) in anticipation of the closing of the Teekay Spain acquisition and for internal restructuring purposes. In addition, in 2004 a total of $391.0 million of cash generated from operations and from proceeds of longer-term financings was used to prepay certain term loans, and $14.2 million was used to repurchase a portion of the 8.32% First Preferred Ship Mortgage Notes (the 8.32% Notes ). Occasionally we use our Revolvers to temporarily finance capital expenditures until longer-term financing is obtained, at which time we typically use all or a portion of the proceeds from the longer-term financings to prepay outstanding amounts under the Revolvers. Please see Item 18 — Financial Statements: Note 9 – Long-Term Debt.
As at December 31, 2004, our total debt was $2,108.0 million, compared to $1,600.1 million as at December 31, 2003. As at December 31, 2004, our Revolvers provided for borrowings of up to $1,361.2 million, of which $831.2 million was undrawn. The amount available under the Revolvers reduces by $142.2 million (2005), $165.2 million (2006), $130.1 million (2007), $444.3 million (2008), $39.4 million (2009) and $440.0 million (thereafter). All of the Revolvers are collateralized by first priority mortgages granted on 52 of the Company’s vessels, together with other related collateral, and include a guarantee from Teekay for all amounts outstanding under the Revolvers. Our 8.32% Notes are due February 1, 2006 and are subject to a sinking fund which retires $45.0 million principal amount of the 8.32% Notes on February 1 of each year, commencing 2004. Our 7.25% Premium Equity Participating Security Units are due May 18, 2006 and our unsecured 8.875% Senior Notes are due July 15, 2011. Our outstanding term loans reduce in monthly, quarterly or semi-annual payments with varying maturities through 2023. Please see Item 18 – Financial Statements: Note 9 – Long-Term Debt.
Among other matters, our long-term debt agreements generally provide for the maintenance of certain vessel market value-to-loan ratios and minimum consolidated financial covenants, prepayment privileges (in some cases with penalties), and restrictions against the incurrence of new investments by the specified subsidiaries without prior lender consent. The amount of Restricted Payments, as defined, that we can make, including dividends and purchases of our own capital stock, was limited to $892.8 million as of December 31, 2004. Certain of the loan agreements require that we maintain a minimum level of free cash. As at December 31, 2004, this amount was $100 million. Certain of the loan agreements also require that a minimum level of free liquidity and undrawn revolving credit lines (excluding undrawn revolving credit lines with less than 6 months to maturity) be maintained. As at December 31, 2004, this amount was $205.8 million.
We conduct our funding and treasury activities within corporate policies to minimize borrowing costs and maximize investment returns while maintaining the safety of the funds and appropriate levels of liquidity for our purposes. We hold cash and cash equivalents primarily in U.S. dollars, with some balances held in Japanese Yen, Singapore Dollars, Canadian Dollars, Australian Dollars, British Pounds, Euros and Norwegian Kroner.
We are exposed to market risk from foreign currency fluctuations, changes in interest rates, spot market rates for vessels, and bunker fuel prices. We use forward foreign currency contracts, interest rate swaps, forward freight agreements and bunker fuel swap contracts to manage currency, interest rate, bunker fuel price risks and spot tanker rates, but we do not use these financial instruments for trading or speculative purposes. Please see Item 11 – Quantitative and Qualitative Disclosures About Market Risk.
Dividends declared during 2004 were $42.4 million, or $0.5125 per share. In October 2004, we increased our quarterly dividend from $0.125 per share to $0.1375 per share.
In November 2004, we announced that our Board of Directors authorized the repurchase of up to 3,000,000 shares of our common stock. As at December 31, 2004, we had repurchased 1,400,200 shares of our common stock at an average price of $43.73 per share. In January 2005, we repurchased an additional 1,599,800 shares at an average price of $42.27, for a total of 3,000,000 shares repurchased.
In November 2004, our subsidiary Teekay LNG Partners filed a registration statement with the Securities and Exchange Commission for an initial public offering of its common units. Proceeds from the offering will be used to repay debt the partnership will owe to us and to pay offering expenses. Proceeds of any exercise of the over-allotment option will be used to repay debt under ship financing arrangements of the partnership. Please see Item 18 – Financial Statements: Note 17 – Commitments and Contingencies.
During 2004, we incurred capital expenditures for vessels and equipment of $548.6 million. These capital expenditures primarily represented installment payments on our newbuildings. Cash expenditures for drydocking decreased to $32.9 million for 2004, compared to $42.7 million during 2003, due primarily to the sale of 11 older vessels during 2004.
As at December 31, 2004, we were committed to the construction of seven Aframax tankers, two Suezmax tankers, three product tankers and three LNG carriers scheduled for delivery between January 2005 and March 2008. Please see Item 18 – Financial Statements: Note 17 – Commitments and Contingencies.
We are also committed to capital leases on one Aframax tanker, four Suezmax tankers and two LNG carriers. The leases require minimum scheduled payments of $780.4 million, including a purchase obligation payment, over the remaining terms of the leases. Please see Item 18 – Financial Statements: Note 11 – Capital Leases and Restricted Cash.
The following table summarizes our long-term contractual obligations as at December 31, 2004 (in millions of U.S. dollars).
--------------------------------------------- --------- --------- --------- --------- --------- --------- ----------
2005 2006 2007 2008 2009 There- Total
after
--------------------------------------------- --------- --------- --------- --------- --------- --------- ----------
Long-term debt 119.5 219.5 36.4 284.0 189.3 1,259.3 2,108.0
--------------------------------------------- --------- --------- --------- --------- --------- --------- ----------
Chartered-in vessels (operating leases) 365.5 289.3 197.3 120.9 83.5 192.8 1,249.3
--------------------------------------------- --------- --------- --------- --------- --------- --------- ----------
Commitment for chartered-in vessels
(capital leases) 130.1 317.7 39.7 41.3 42.8 208.8 780.4
--------------------------------------------- --------- --------- --------- --------- --------- --------- ----------
Newbuilding installments (1) 363.7 255.9 141.0 50.7 - - 811.3
--------------------------------------------- --------- --------- --------- --------- --------- --------- ----------
Volatile organic compound emissions
equipment 31.5 - - - - - 31.5
--------------------------------------------- --------- --------- --------- --------- --------- --------- ----------
Total 1,010.3 1,082.4 414.4 496.9 315.6 1,660.9 4,980.5
============================================= ========= ========= ========= ========= ========= ========= ==========
| (1) | Includes $38.0 million of installments on a newbuilding that was sold upon delivery during the first quarter of 2005. Please see Item 18 – Financial Statements: Note 21 – Subsequent Events. |
The sale of 14 older vessels during 2004 generated gross proceeds of $440.6 million.
In 2004 we sold our investments in A/S Dampskibsselskabet Torm and Nordic American Tanker Shipping Ltd. for proceeds of $135.4 million. Please see Item 18 — Financial Statements: Note 6 – Investments in Marketable Securities.
As part of our growth strategy, we will continue to consider strategic opportunities, including the acquisition of additional vessels and expansion into new markets. We may choose to pursue such opportunities through internal growth, joint ventures or business acquisitions. We intend to finance any future acquisitions through various sources of capital, including internally-generated cash flow, existing credit facilities, additional debt borrowings and the issuance of additional shares of capital stock.
We and certain of our subsidiaries have guaranteed our share of the outstanding mortgage debt in four 50%-owned joint venture companies. Please see Item 18 — Financial Statements: Note 17 – Commitments and Contingencies. We do not believe theses off-balance sheet arrangements have and we have no other off-balance sheet arrangements that have or are reasonably likely to have, a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
We prepare our consolidated financial statements in accordance with GAAP, which require us to make estimates in the application of our accounting policies based on our best assumptions, judgments, and opinions. Following is a discussion of the accounting policies that involve a high degree of judgment and the methods of their application. For a further description of our material accounting policies, please see Item 18 – Financial Statements: Note 1 – Summary of Significant Accounting Policies.
Revenue Recognition
We generate a majority of our revenues from spot voyages and voyages servicing contracts of affreightment. Within the shipping industry, the two methods used to account for voyage revenues and expenses are the percentage of completion and the completed voyage methods. Most shipping companies, including us, use the percentage of completion method. For each method, voyages may be calculated on either a load-to-load or discharge-to-discharge basis. In other words, revenues are recognized ratably either from the beginning of when product is loaded for one voyage to when it is loaded for another voyage, or from when product is discharged (unloaded) at the end of one voyage to when it is discharged after the next voyage.
In applying the percentage of completion method, we believe that in most cases the discharge-to-discharge basis of calculating voyages more accurately reflects voyage results than the load-to-load basis. At the time of cargo discharge, we generally have information about the next load port and expected discharge port, whereas at the time of loading we are normally less certain what the next load port will be. We use this method of revenue recognition for all spot voyages and voyages servicing contracts of affreightment, with an exception for our shuttle tankers servicing contracts of affreightment with offshore oil fields. In this case a voyage commences with tendering of notice of readiness at a field, within the agreed lifting range, and ends with tendering of notice of readiness at a field for the next lifting. However, we do not begin recognizing voyage revenue until a charter has been agreed to by the customer and us, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage.
We recognize revenues from time charters daily over the term of the charter as the applicable vessel operates under the charter. We do not recognize revenues during days that the vessel is off-hire.
Vessel Lives and Impairment
The carrying value of each of our vessels represents its original cost at the time of delivery or purchase less depreciation or impairment charges. We depreciate our vessels on a straight-line basis over a vessel’s estimated useful life, less an estimated residual value. Depreciation is calculated using an estimated useful life of 25 years for Aframax, Suezmax, VLCC and product tankers, and 35 years for LNG carriers, from the date the vessel was originally delivered from the shipyard, or a shorter period if regulations prevent us from operating the vessels to 25 years or 35 years, respectively. In the shipping industry, the use of a 25-year vessel life for Aframax, Suezmax, VLCC and product tankers has become the prevailing standard. In addition, the use of a 30 to 40 year vessel life for LNG carriers is typical. However, the actual life of a vessel may be different, with a shorter life potentially resulting in an impairment loss. We have reduced the estimated useful lives from 25 years to approximately 21 years for our two remaining vessels affected by the International Maritime Organization’s regulatory changes announced in 2003. We are not aware of any other regulatory changes or environmental liabilities that we anticipate will have a material impact on our current or future operations.
The carrying values of our vessels may not represent their fair market value at any point in time since the market prices of secondhand vessels tend to fluctuate with changes in charter rates and the cost of newbuildings. Both charter rates and newbuilding costs tend to be cyclical in nature. We review vessels and equipment for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. We measure the recoverability of an asset by comparing its carrying amount to future undiscounted cash flows that the asset is expected to generate over its remaining useful life. If we consider a vessel or equipment to be impaired, we recognize impairment in an amount equal to the excess of the carrying value of the asset over its fair market value.
Drydocking
Generally, we drydock each vessel every two and a half to five years. In addition, a shipping society classification intermediate survey is performed on our LNG carriers between the second and third year of the five-year drydocking period. We capitalize a substantial portion of the costs we incur during drydocking and for the survey and amortize those costs on a straight-line basis from the completion of a drydocking or intermediate survey to the estimated completion of the next drydocking. We expense costs related to routine repairs and maintenance incurred during drydocking that do not improve or extend the useful lives of the assets. When significant drydocking expenditures occur prior to the expiration of the original amortization period, the remaining unamortized balance of the original drydocking cost and any unamortized intermediate survey costs are expensed in the month of the subsequent drydocking.
Goodwill and Intangible Assets
We allocate the cost of acquired companies to the identifiable tangible and intangible assets and liabilities acquired, with the remaining amount being classified as goodwill. Certain intangible assets, such as time charter contracts, contracts of affreightment and intellectual property are amortized over time. Our future operating performance will be affected by the future amortization of intangible assets and potential impairment charges related to goodwill. Accordingly, the allocation of the purchase price to intangible assets and goodwill has a significant impact on our future operating results. The allocation of the purchase price of the acquired companies to intangible assets and goodwill requires management to make significant estimates and assumptions, including estimates of future cash flows expected to be generated by the acquired assets and the appropriate discount rate to value these cash flows.
Goodwill and indefinite lived intangible assets are not amortized, but reviewed for impairment annually, or more frequently if impairment indicators arise. The process of evaluating the potential impairment of goodwill and intangible assets is highly subjective and requires significant judgment at many points during the analysis. The fair value of our reporting units was estimated based on discounted expected future cash flows using a weighted average cost of capital rate. The estimates and assumptions regarding expected cash flows and the discount rate require considerable judgment and are based upon existing contracts, historical experience, financial forecasts, and industry trends and conditions.
On December 16, 2004, the Financial Accounting Standards Board (or FASB ) issued FASB Statement No. 123(R) (or SFAS 123(R) ), Share-Based Payment , which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation . SFAS 123(R) supersedes APB 25. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an acceptable alternative.
SFAS 123(R) must be adopted no later than July 1, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. We expect to adopt SFAS 125(R) on July 1, 2005.
SFAS 123(R) permits public companies to adopt its requirements using one of the following two methods:
| 1. | A “modified prospective” method in which compensation cost is recognized beginning with the effective date based on (a) the requirements of SFAS 123(R) for all share-based payments granted after the effective date and (b) the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123(R) that remain unvested on the effective date. |
| 2. | A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures, either (a) all prior periods presented or (b) prior interim periods of the year of adoption. |
We plan to adopt SFAS 123(R) using the modified-prospective method.
Our directors and executive officers as of the date of this annual report and their ages as of December 31, 2004 are listed below:
Name Age Position C. Sean Day 55 Director and Chair of the Board Bjorn Moller 47 Director, President and Chief Executive Officer Axel Karlshoej 64 Director and Chair Emeritus Bruce C. Bell 57 Director Dr. Ian D. Blackburne 58 Director Leif O. Hoegh 41 Director Thomas Kuo-Yuen Hsu 58 Director Eileen A. Mercier 57 Director Tore I. Sandvold 57 Director Peter Antturi 46 President, Teekay Navion Shuttle Tankers, a division of Teekay Shipping Corporation Arthur Bensler 47 SVP, Secretary and General Counsel Peter Evensen 46 EVP and Chief Financial Officer David Glendinning 50 President, Teekay Gas and Offshore, a division of Teekay Shipping Corporation Jennifer Gordon 43 SVP, Corporate Resources Vincent Lok 36 SVP and Treasurer Graham Westgarth 50 President, Teekay Marine Services, a division of Teekay Shipping Corporation Paul Wogan 42 President, Teekay Tanker Services, a division of Teekay Shipping Corporation
Certain biographical information about each of these individuals is set forth below:
C. Sean Day has served as our Chair of the Board since September 1999. Mr. Day has served as Chair of Teekay GP L.L.C.‘s board of directors since it was formed in November 2004. From 1989 to 1999, he was President and Chief Executive Officer of Navios Corporation, a large bulk shipping company based in Stamford, Connecticut. Prior to this, Mr. Day held a number of senior management positions in the shipping and finance industry. He is currently serving as a director of Kirby Corporation. Mr. Day also serves as the Chair of the Board of Resolute Investments, Inc., our largest shareholder. Please see Item 7 – Related Party Transactions.
Bjorn Moller became our President and Chief Executive Officer in April 1998. Mr. Moller has served as Vice Chair and a Director of Teekay GP L.L.C. since it was formed in November 2004. Mr. Moller has over 20 years’ experience in the shipping industry and has served in senior management positions with Teekay for more than 15 years. He has headed our overall operations since January 1997, following his promotion to the position of Chief Operating Officer. Prior to this, Mr. Moller headed our global chartering operations and business development activities.
Axel Karlshoej was Chair of the Board from June 1994 to September 1999, and has been Chair Emeritus since stepping down as Chair. Mr. Karlshoej is President and serves on the compensation committee of Nordic Industries, a California general construction firm with which he has served for the past 30 years. He is the older brother of the late J. Torben Karlshoej, Teekay’s founder.
Bruce C. Bell is the Managing Director of Oceanic Bank and Trust Limited, a Bahamian bank and trust company, a position he has held since March 1994. Mr. Bell has served as the Secretary of Teekay GP L.L.C. since it was formed in November 2004. Prior to joining Oceanic Bank and Trust, Mr. Bell was engaged in the private practice of law in Canada, specializing in corporate/commercial, banking and international business transactions. From May 2000 until May 2003, Mr. Bell served as our Corporate Secretary. Mr. Bell is a director and the Vice President of Resolute Investments, Inc., our largest shareholder. Please see Item 7 – Related Party Transactions.
Dr. Ian D. Blackburne has over 25 years’ experience in petroleum refining and marketing, and in March 2000 he retired as Managing Director and CEO of Caltex Australia Limited, a large petroleum refining and marketing conglomerate based in Australia. He is currently serving as Chairman of CSR Limited and is a director of Suncorp-Metway Ltd., Mayne Group Limited, Australian public companies in the diversified industrial and financial sectors. Dr. Blackburne is also the Chairman of the Australian Nuclear Science and Technology Organization.
Leif O. Höegh was appointed as a director in June 1999 in connection with our acquisition of Bona Shipholding Ltd. He served as a director of Bona from November 1993 to June 1999 and as its Chairman from June 1998 to June 1999. Mr. Höegh is the joint controlling shareholder and Deputy Chairman of Leif Höegh and Co. Ltd., a shipping company. He also serves as a director of NeoMed Management Ltd. and as the Chairman of Höegh Capital Partners, Inc.
Thomas Kuo-Yuen Hsu has served 30 years with, and is presently a director of CNC Industries, an affiliate of the Expedo Group of Companies that manages a fleet of nine vessels ranging in size from 30,000 dwt to 150,000 dwt. He has been a Committee Director of the Britannia Steam Ship Insurance Association Limited since 1988.
Eileen A. Mercier has over 30 years’ experience in a wide variety of financial and strategic planning positions, including Senior Vice President and Chief Financial Officer for AbitibiPrice Inc. from 1990 to 1995. She also currently serves as a director for Hydro One Inc., ING Bank of Canada, the Ontario Teachers' Pension Plan, Quebecor World Inc., York University, the University Health Network and, and as a director and audit committee member for CGI Group Inc., ING Canada Inc., Shermag Inc. and Winpak Ltd.
Tore I. Sandvold has over 30 years’ experience in the oil and energy industry. From 1973 to 1987 he served in the Norwegian Ministry of Industry, Oil & Energy in a variety of positions in the area of domestic and international energy policy. From 1987 to 1990 he served as the Counselor for Energy in the Norwegian Embassy in Washington, D.C. From 1990 to 2001 Mr. Sandvold served as Director General of the Norwegian Ministry of Oil & Energy, with overall responsibility for Norway’s national and international oil and gas policy. From 2001 to 2002 he served as Chairman of the Board of Petoro, the Norwegian state-owned oil company that is the largest oil asset manager on the Norwegian continental shelf. From 2002 to the present, Mr. Sandvold, through his company, Sandvold Energy AS, has acted as advisor to companies and advisory bodies in the energy industry. Mr. Sandvold serves on other boards, including those of Schlumberger Limited., E. on Ruhrgas Norge AS, Lambert Energy Advisory Ltd., University of Stavanger, Offshore Northern Seas, and the Energy Policy Foundation of Norway.
Peter Antturi joined Teekay in September 1991. Since then, he has held a number of finance and accounting positions, including Controller from March 1992 until his promotion to the position of Senior Vice President, Treasurer and Chief Financial Officer in October 1997. In 2003 he became President of Navion AS upon the closing of our acquisition of Navion. In November 2003 Mr. Antturi was appointed President of our Teekay Navion Shuttle Tankers division, which is responsible for the shuttle tanker activities and projects of our two wholly owned subsidiaries, Navion AS and Ugland Nordic Shipping AS. Prior to joining Teekay, Mr. Antturi held various accounting and finance roles in the shipping industry since 1985.
Arthur Bensler joined Teekay in September 1998 as General Counsel. He was promoted to the position of Vice President in March 2002 and became our Corporate Secretary in May 2003. He was appointed Senior Vice President in February 2004. Prior to joining Teekay, Mr. Bensler was a partner in a large Vancouver, Canada law firm, where he practiced corporate, commercial and maritime law from 1986 until joining Teekay.
Peter Evensen joined Teekay in May 2003 as Senior Vice President, Treasurer and Chief Financial Officer. He was appointed Executive Vice President and Chief Financial Officer in February 2004. Mr. Evensen has served as the Chief Executive Officer and Chief Financial Officer of Teekay GP L.L.C. since it was formed in November 2004 and as Director of Teekay GP L.L.C. since January 2005. Mr. Evensen has over 20 years’ experience in banking and shipping finance. Prior to joining Teekay, Mr. Evensen was Managing Director and Head of Global Shipping at J.P. Morgan Securities Inc. and worked in other senior positions for its predecessor firms. His international industry experience includes positions in New York, London and Oslo.
David Glendinning joined Teekay in January 1987. Since then, he has held a number of senior positions, including service as Vice President, Marine and Commercial Operations from January 1995 until his promotion to Senior Vice President, Customer Relations and Marine Project Development in February 1999. In November 2003 Mr. Glendinning was appointed President of our Teekay Gas and Offshore division, which is responsible for our initiatives in the LNG business and other areas of gas activity as well as building on our international presence in the floating storage and offtake (or FSO ) business and related offshore activities. Prior to joining Teekay, Mr. Glendinning, who is a Master Mariner, had 18 years’ sea service on oil tankers of various types and sizes.
Jennifer Gordon joined Teekay in April 2004 as Senior Vice President, Corporate Resources. Prior to joining Teekay, Ms. Gordon was Senior Vice President, Human Resources of Placer Dome Inc., an international gold, silver and copper mining company. Her experience includes positions in human resources management at Finning International Inc., Colgate-Palmolive Canada Inc. and Suncor Energy Inc.
Vincent Lok joined Teekay in 1993. Since that time, he has held a number of finance and accounting positions, including Controller from 1997 until his promotion to the position of Vice President, Finance in March 2002. He was appointed Senior Vice President and Treasurer in February 2004. Prior to joining Teekay, Mr. Lok worked in the Vancouver, Canada audit practice of Deloitte & Touche.
Graham Westgarth joined Teekay in February 1999 as Vice President, Marine Operations. He was promoted to the position of Senior Vice President, Marine Operations in December 1999. In November 2003 Mr. Westgarth was appointed President of our Teekay Marine Services division, which is responsible for all of our marine and technical operations as well as marketing a range of services and products to third-parties, such as marine consulting services and computer-based marine training software. He has extensive shipping industry experience. Prior to joining Teekay Mr. Westgarth was General Manager of Maersk Company (UK), where he joined as Master in 1987. His international industry experience includes 18 years’ sea service with five years in a command position.
Paul Wogan joined Teekay in November 2000 as the Managing Director of the London office. He was promoted to the position of Vice President, Business Development in March 2002. In November 2003 Mr. Wogan was appointed President of our Teekay Tanker Services division, which is responsible for the commercial management of our conventional crude oil and product tanker transportation services. Prior to joining Teekay, Mr. Wogan was with the chartering arm of a major crude oil and product carrier fleet controlled by the Ceres Hellenic Group (Livanos), which subsequently founded Seachem Tankers Ltd., a chemical tanker company, where he served as the Chief Executive Officer from 1997 until joining Teekay.
Director Compensation
During 2004, the eight non-employee directors received, in the aggregate, approximately $484,000 in cash fees for their services as directors, plus reimbursement of their out-of-pocket expenses. In addition, each non-employee director received a $50,000 annual retainer to be paid by way of a grant of restricted stock or stock options under our 2003 Equity Incentive Plan, at the director’s election. During 2004, certain of the directors elected to receive this annual retainer in the form of stock options to purchase an aggregate of 14,400 shares of our common stock at an exercise price of $33.63 per share. These options expire March 9, 2014, ten years after the date of the grant. Certain other directors elected to receive this annual retainer in the form of 14,260 shares of restricted stock. In addition to the $50,000 annual retainer, the Chair of the Board received a further $228,000 retainer in the form of a grant of restricted stock under our 2003 Equity Incentive Plan.
Annual Executive Compensation
The aggregate compensation earned by Teekay’s nine executive officers listed above ( or the Executive Officers) for 2004 was $14.3 million. This is comprised of base salary ($3.1 million), annual bonus ($4.3 million), special bonus ($6.0 million) and pension and other benefits ($0.9 million). These amounts were paid primarily in Canadian Dollars, but are reported here in U.S. Dollars using an exchange rate of 1.20 Canadian Dollars for each U.S. Dollar, the exchange rate on December 31, 2004. Teekay’s annual bonus plan considers both company performance, through comparison to established targets and financial performance of peer companies, and individual performance. Due to the extraordinary performance of Teekay during the previous four years, the Compensation and Human Resource Committee granted a special bonus to our senior management during 2004.
Long-Term Executive Compensation
Teekay’s long-term incentive programs are designed to encourage creation of long-term value for our shareholders, employee retention and equity ownership. The programs consist of stock option grants, stock appreciation rights and restricted stock awards. All grants in 2004 and 2005 have been made under our 2003 Equity Incentive Plan.
During 2004, we granted stock options to purchase an aggregate of 339,400 shares of our common stock, 15,494 restricted share units and stock appreciation rights (or SARs) with respect to 33,200 shares of common stock to the Executive Officers under our 2003 Equity Incentive Plan. The weighted-average exercise price of these stock options and SARs is $33.72 per share. These options and SARs, which vest equally over three years, expire March 9, 2014, ten years after the date of the grant. The restricted share units vest on December 31, 2006. Upon vesting, the restricted share units will be paid in the form of cash.
In March 2005, we awarded 303,291 restricted share units to our Executive Officers as incentive based compensation. Each restricted share unit is equal in value to one share of our common stock and reinvested dividends from the date of the grant to the vesting of the restricted share unit. Based on the grant date share price of $46.80 per share, the restricted share units had a notional value of $14.2 million on the date of the grant. The restricted share units vest in three equal amounts on March 31, 2006, March 31, 2007 and November 30, 2007. Upon vesting, the restricted share units will be paid to each grantee in the form of cash or shares of Teekay's common stock, at the election of the grantee.
As at December 31, 2004 we had reserved pursuant to our 1995 Stock Option Plan, which was terminated with respect to new grants effective September 10, 2003, and our 2003 Equity Incentive Plan, which was adopted effective on the same date (together, the Plans ) 6,716,413 shares of common stock for issuance upon exercise of options granted or to be granted. During 2004, 2003, and 2002 we granted options under the Plans to acquire up to 833,840, 2,119,160 and 2,052,050 shares of common stock, respectively, to eligible officers, employees, and directors. The options under the Plans have a 10-year term and vest equally over three years from the grant date, except for one grant of 50,000 options which will vest 100% on December 31, 2006. The outstanding options under the Plan are exercisable at prices ranging from $8.44 to $34.37 per share, with a weighted-average exercise price of $20.47 per share, and expire between July 19, 2005 and April 5, 2014.
The Board of Directors consists of nine members. The Board of Directors is divided into three classes, with members of each class elected to hold office for a term of three years in accordance with the classification indicated below or until his or her successor is elected and qualifies. Directors Thomas Kuo-Yuen Hsu, Axel Karlshoej, and Bjorn Moller have terms expiring in 2005 and have been nominated by the Board of Directors for re-election at the 2005 Annual Meeting of Shareholders. Directors Bruce C. Bell, C. Sean Day, and Dr. Ian D. Blackburne have terms expiring in 2006. Directors Leif O. Höegh, Eileen A. Mercier and Tore I. Sandvold have terms expiring in 2007.
There are no service contracts between us and any of our directors providing for benefits upon termination of their employment or service.
The Board has determined that each of the current members of the Board, other than C. Sean Day and Bjorn Moller, has no material relationship with us, either directly or as a partner, shareholder or officer of an organization that has a relationship with us, and is independent within the meaning of our director independence standards, which reflect the NYSE director independence standards as currently in effect and as they may be changed from time to time. In making this determination the Board considered Bruce C. Bell's relationship with our largest shareholder and concluded this relationship does not create a concern regarding his independence from our management.
The Board has the following three committees: Audit Committee, Compensation and Human Resources Committee, and Nominating and Governance Committee. The membership of these committees during 2004 and the function of each of the committees are described below. Each of the committees is currently comprised of independent members and operates under a written charter adopted by the Board. All of the committee charters are available under “Corporate Governance” in the Investor Centre of our Web site at www.teekay.com. During 2004, the Board held nine meetings. Each director attended all Board meetings, except for two Board meetings at which one director each was absent from each. Each director attended all applicable committee meetings.
Our Audit Committee is composed entirely of directors who satisfy applicable NYSE and SEC audit committee independence standards. Our Audit Committee includes Eileen A. Mercier (Chair), Leif O. Höegh and Tore I. Sandvold. All members of the committee are financially literate and the Board has determined that Ms. Mercier qualifies as an audit committee financial expert and that her membership on four other public company audit committees will not interfere with her service on Teekay’s Audit Committee. The Audit Committee assists the Board in fulfilling its responsibilities for general oversight of: the integrity of our financial statements; our compliance with legal and regulatory requirements; the independent auditors’ qualifications and independence; and the performance of our internal audit function and independent auditors.
During 2004, our Compensation and Human Resource Committee included Axel Karlshoej (Chair), C. Sean Day, Ian D. Blackburne and Thomas Kuo-Yuen Hsu. Effective March 2005, C. Sean Day ceased to be a member of this committee. The Compensation and Human Resource Committee: reviews and approves corporate goals and objectives relevant to the Chief Executive Officer’s compensation, evaluates the Chief Executive Officer’s performance in light of these goals and objectives and, either as a Committee or with the Board’s other independent directors, determines the Chief Executive Officer’s compensation; reviews and approves the evaluation process and compensation structure for executives, other than the Chief Executive Officer, evaluates their performance and sets their compensation based on this evaluation; reviews and makes recommendations to the Board regarding compensation for directors; establishes and administers long-term incentive-compensation and equity-based plans; and oversees our other compensation plans, policies and programs.
During 2004, our Nominating and Governance Committee included C. Sean Day (Chair), Bruce C. Bell and Eileen A. Mercier. Effective March 2005, C. Sean Day ceased to be a member of this committee and Ian D. Blackburne and Thomas Kuo-Yuen Hsu became members of this committee. The Nominating and Governance Committee: identifies individuals qualified to become Board members; selects and recommends to the Board director and committee member candidates; develops and recommends to the Board corporate governance principles and policies applicable to us, monitors compliance with these principles and policies and recommends to the Board appropriate changes; and oversees the evaluation of the Board and management.
As at December 31, 2004, we employed approximately 4,800 seagoing and 700 shore-based personnel, compared to approximately 4,000 seagoing and 700 shore-based personnel in 2003, and 3,650 seagoing and 450 shore-based personnel as at December 31, 2002. The increase in personnel from December 31, 2003 to December 31, 2004 was primarily due to our acquisition of Teekay Spain. The increase in personnel from December 31, 2002 to December 31, 2003 was primarily due to our acquisition of Navion in April 2003.
We regard attracting and retaining motivated seagoing personnel as a top priority. Through our global manning organization comprised of offices in Glasgow, Scotland, Grimstad, Norway, Riga, Latvia, Manila, Philippines, Mumbai, India, Sydney, Australia, and Madrid, Spain, we offer seafarers highly competitive employment packages and comprehensive benefits. We also provide excellent opportunities for personal and career development, which relate to our philosophy of promoting internally.
During fiscal 1996, we entered into a Collective Bargaining Agreement with the Philippine Seafarers’ Union, an affiliate of the International Transport Workers’ Federation (or ITF ), and a Special Agreement with ITF London that covers substantially all of our junior officers and seamen. We are also party to Enterprise Bargaining Agreements with various Australian maritime unions that covers officers and seamen employed through our Australian operations. Our officers and seamen for our Spanish-flagged vessels are covered by a collective bargaining agreement with Spain’s Union General de Trabajdores and Comisiones Obreras. We believe our relationships with these labor unions are good.
We see our commitment to training as fundamental to the development of the highest caliber seafarers for our marine operations. Our cadet training program is designed to balance academic learning with hands-on training at sea. We have relationships with training institutions in Canada, Croatia, India, Latvia, Norway, Philippines, Turkey, and the United Kingdom. After receiving formal instruction at one of these institutions, the cadets’ training continues on board a Teekay vessel. We also have a career development plan that is designed to ensure a continuous flow of qualified officers who are trained on our vessels and are familiar with our operational standards, systems and policies. We believe that high-quality manning and training policies will play an increasingly important role in distinguishing larger independent tanker companies that have in-house, or affiliate, capabilities from smaller companies that must rely on outside ship managers and crewing agents.
The following table sets forth certain information regarding beneficial ownership, as of March 15, 2005, of our common stock by the directors and Executive Officers as a group. The information is not necessarily indicative of beneficial ownership for any other purpose. Under SEC rules a person or entity beneficially owns any shares that the person or entity has the right to acquire as of May 14, 2005 (60 days after March 15, 2005) through the exercise of any stock option or other right. Unless otherwise indicated, each person or entity has sole voting and investment power (or shares such powers with his or her spouse) with respect to the shares set forth in the following table. Information for certain holders is based on information delivered to us.
| Identity of Person or Group | Shares Owned | Percent of Class | |
| All directors and Executive Officers (17 persons)..................................................... | 644,441 (1) (3) | 0.8% (2) |
| (1) | Includes 508,669 shares of common stock subject to stock options exercisable by May 14, 2005 under our 1995 and 2003 Stock Option Plans with a weighted-average exercise price of $20.14 that expire between May 13, 2008 and March 9, 2014. Excludes (a) 570,097 shares of common stock subject to stock options exercisable after May 14, 2005 under our 1995 and 2003 Stock Option Plans with a weighted average exercise price of $35.50, that expire between March 10, 2013 and March 9, 2014 (b) shares owned by Resolute Investments, Inc. (Please see Item 7 – Major Shareholders and Related Party Transactions) and (c) 303,291 restricted share units which will be paid to each grantee in the form of cash or shares of Teekay's common stock, at the election of the grantee. |
| (2) | Each director and Executive Officer beneficially owns less than one percent of the outstanding shares of common stock. |
| (3) | Each director is expected to acquire at least 10,000 shares of Teekay’s common stock by no later than the later of May 14, 2008 or the fifth anniversary of the date on which the director joined the Board. In addition, each Executive Officer is expected to acquire shares of Teekay's common stock equivalent in value to one to three times their annual base salary by 2010. |
(a) The following table sets forth information regarding beneficial ownership, as of March 15, 2005, of Teekay’s common stock by each person we know to beneficially own more than 5% of the common stock. Information for certain holders is based on their latest filings with the SEC or information delivered to us. The number of shares beneficially owned by each person or entity is determined under SEC rules and the information is not necessarily indicative of beneficial ownership for any other purpose. Under SEC rules a person or entity beneficially owns any shares as to which the person or entity has or shares voting or investment power. In addition, a person or entity beneficially owns any shares that the person or entity has the right to acquire as of May 14, 2005 (60 days after March 15, 2005) through the exercise of any stock option or other right. Unless otherwise indicated, each person or entity has sole voting and investment power (or shares such powers with his or her spouse) with respect to the shares set forth in the following table.
| Identity of Person or Group | Shares Owned | Percent of Class | |
|
Resolute Investments, Inc. (1).....................................................................................................
FMR Corp., Edward C. Johnson 3rd and Abigail P. Johnson, as a group(2).............................. Neuberger Berman, Inc. and Neuberger Berman, LLC, as a group(3) ...................................... |
32,631,380
11,554,017 8,338,419 |
39.3%
13.9% 10.1% |
| (1) | Two of our directors are officers and directors of Resolute Investments, Inc. Two additional Teekay directors are directors of the entity that ultimately controls Resolute. Please see “—-Related Party Transactions.” |
| (2) | Includes sole voting power as to 330,922 shares and sole dispositive power as to 11,554,017 shares. This information is based on the Schedule 13G/A filed by this group with the SEC on February 14, 2005. Based on prior information filed with the SEC, FMR Corp.‘s beneficial ownership in Teekay was 11.4% on March 15, 2004 and 14.03% on March 15, 2003. |
| (3) | Includes sole voting power as to 5,532,750 shares, shared voting power as to 1,274,100 shares and shared dispositive power as to 8,338,419 shares. Neuberger Berman, LLC and Neuberger Berman Management Inc. both have shared voting and dispositive power. Neuberger Berman, LLC and Neuberger Management Inc. serve as sub-adviser and investment manager, respectively, of Neuberger Berman Inc.‘s mutual funds. This information is based on the Schedule 13G/A filed by this group on February 15, 2005. Based on prior information filed with the SEC, Neuberger Berman Inc’s beneficial ownership in Teekay was 7.0% on March 15, 2004 and less than 5% on March 15, 2003. |
Our major shareholders have the same voting rights as our other shareholders. No corporation or foreign government or other natural or legal person owns more than 50% of our outstanding common stock. We are not aware of any arrangements, the operation of which may at a subsequent date result in a change in control of Teekay.
As at December 31, 2004, Resolute Investments, Inc. (or Resolute ) owned 39.3% of our outstanding Common Stock. Two of our directors, C. Sean Day, who is also Chair of our Board, and Bruce Bell, are directors and the Chairman and Vice President, respectively, of Resolute. Two additional directors, Thomas Kuo-Yuen Hsu and Axel Karlshoej, are among the Managing Directors of The Kattegat Trust Company Limited, which is the trustee of the trust that owns all of Resolute’s outstanding equity.
Bruce Bell is also the Managing Director of Oceanic Bank and Trust Limited. Payments made by us to Oceanic Bank and Trust Limited in respect of corporate administration fees and shared office costs for 2004, totaled approximately $0.5 million.
In 1993 we purchased all of the issued and outstanding shares of Palm Shipping Inc. (now Teekay Chartering Limited) from an affiliate of Resolute. During 2002, we accrued and expensed in other (loss) income $ 6.0 million as a settlement of a contingent payment, which was required under the terms of the Palm Shipping acquisition agreement. We paid this amount in February 2003.
Please see Item 18 below.
From time to time we have been, and we expect to continue to be, subject to legal proceedings and claims in the ordinary course of our business, principally personal injury and property casualty claims. Such claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. We are not aware of any legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our financial condition or results of operations.
Commencing with the fiscal quarter ended September 30, 1995, we declared and paid quarterly cash dividends in the amount of $0.1075 per share on our common stock. We increased our quarterly dividend from $0.1075 per share to $0.125 per share on our common stock in the fourth quarter of 2003 and from $0.125 per share to $0.1375 per share on our common stock during the fourth quarter of 2004. On May 17, 2004, we effected a two-for-one stock split relating to our common stock. All per share data give effect to this stock split retroactively. Subject to financial results and declaration by the Board of Directors, we currently intend to continue to declare and pay a regular quarterly dividend in such amount per share on our common stock. Pursuant to our dividend reinvestment program, holders of common stock are permitted to choose, in lieu of receiving cash dividends, to reinvest any dividends in additional shares of common stock at then prevailing market prices, but without brokerage commissions or service charges.
The timing and amount of dividends, if any, will depend, among other things, on our results of operations, financial condition, cash requirements, restrictions in financing agreements and other factors deemed relevant by our Board of Directors. Because we are a holding company with no material assets other than the stock of our subsidiaries, our ability to pay dividends on the common stock is dependent on the earnings and cash flow of our subsidiaries. The indenture relating to our 8.32% First Preferred Ship Mortgage Notes due 2006 and certain of the agreements governing our (and our subsidiaries’) credit facilities provide that our ability to pay dividends is subject to limitations based upon our cumulative net income plus certain additional amounts, including the proceeds we receive from any issuance of our capital stock. We do not believe that the restrictions contained in that indenture or in other financing agreements to which we and our subsidiaries are party to will restrict payment of cash dividends on the common stock for the foreseeable future.
On November 24, 2004, we announced that our wholly-owned subsidiary, Teekay LNG Partners L.P. (or Teekay LNG Partners ), had filed a registration statement with the SEC for an initial public offering of its common units. Teekay LNG Partners is a Marshall Islands partnership recently formed by us as part of our strategy to expand our operations in the LNG shipping sector. This master limited partnership will provide LNG and crude oil marine transportation services under long-term, fixed-rate contracts with major energy and utility companies through its fleet of four LNG carriers and five Suezmax class crude oil tankers, primarily consisting of vessels we obtained through our acquisition of Teekay Spain in April 2004. After the offering, we will own approximately an 81 percent interest in the partnership (including our 2% general partner interest). The offering will increase if the underwriters exercise in full their over-allotment option, reducing our ownership to approximately 79 percent.
Our common stock is traded on the New York Stock Exchange (or NYSE ) under the symbol “TK”. The following table sets forth the high and low closing sales prices for our common stock on the NYSE for each of the periods indicated. (1)
Years Ended Dec. 31, Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2004 2003 2002 2001 2000
----------- ----------- ----------- ----------- ------------ ---------- ----------- -----------
High $54.4500 $28.6750 $20.8500 $26.3050 $25.4375
Low 27.9500 17.8550 13.1750 12.7450 7.6563
Quarters Ended Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31,
2004 2004 2004 2004 2003 2003 2003 2003
----------- ----------- ----------- ----------- ------------ ---------- ----------- -----------
High $54.4500 $43.3800 $37.6500 $34.9350 $28.6750 $23.6250 $21.8350 $21.5800
Low 41.1400 34.5600 29.4100 27.9500 20.9550 20.9750 18.1250 17.8550
Months Ended Feb. 28, Jan. 31, Dec. 31, Nov. 30, Oct. 31, Sep. 30,
2005 2005 2004 2004 2004 2004
----------- ----------- ----------- ----------- ------------ ---------- ----------- -----------
High $50.0100 $44.3700 $50.3600 $54.4500 $48.9800 $43.3800
Low 44.9600 40.1200 41.1400 44.7000 43.7100 35.6500
| (1) | The Company’s Board of Directors authorized a two-for-one stock split relating to our common stock, which was effected in May 2004 in the form of a 100% stock dividend. All stockholders of record on May 3, 2004 received one additional share of common stock for each share held. The above table gives effect to this stock split retroactively. |
Our Premium Equity Participating Security Units due May 18, 2006 (or Equity Units) are traded on the NYSE under the symbol “TK PR”. The following table sets forth the high and low closing sales prices for our Equity Units on the NYSE for each of the periods indicated.
Years Ended Dec. 31, Dec. 31,
2004 2003 (1)
----------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
High $63.3400 $36.1400
Low 35.2400 24.8600
Quarters Ended Dec. 31, Sep. 30, Jun. 30, Mar. 31, Dec. 31, Sep. 30, Jun. 30, Mar. 31,
2004 2004 2004 2004 2003 2003 2003 2003 (1)
----------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
High $63.3400 $50.3800 $44.6900 $42.9300 $36.1400 $30.4500 $29.5000 $27.1000
Low 48.1900 41.2500 36.3900 35.2400 28.0500 28.0100 25.4700 24.8600
Months Ended Feb. 28, Jan. 31, Dec. 31, Nov. 30, Oct. 31, Sep. 30,
2005 2005 2004 2004 2004 2004
----------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
High $57.3300 $51.4000 $58.5600 $63.3400 $57.1500 $50.3800
Low 52.1900 46.5400 48.1900 51.9600 50.8900 42.3300
(1) Period beginning February 11, 2003
Our 8.32% Notes are listed for trading on the NYSE. The 8.32% Notes were first offered on the market January 19, 1996. As no active trading market exists for these 8.32% Notes, no historical pricing information is included here.
Our Articles of Incorporation and Bylaws have previously been filed as exhibits 2.1, 2.2, and 2.3 to our Annual Report on Form 20-F (File No. 1-12874), filed with the SEC on March 30, 2000, and are hereby incorporated by reference into this Annual Report.
The rights, preferences and restrictions attaching to each class of our capital stock are described in the section entitled “Description of Capital Stock” of our Rule 424(b) prospectus (File No. 1-12874), filed with the SEC on June 10, 1998, and hereby incorporated by reference into this Annual Report, provided that since the date of such prospectus (1) the par value of our capital stock has been changed to $0.001 per share, (2) our authorized capital stock has been increased to 725,000,000 shares of common stock and 25,000,000 shares of Preferred Stock, (3) we have been domesticated in the Republic of the Marshall Islands and (4) we have adopted a staggered Board of Directors, with directors serving three-year terms.
The necessary actions required to change the rights of holders of the stock and the conditions governing the manner in which annual general meetings and special meetings of shareholders are convoked are described in our Bylaws filed as exhibit 2.3 to our Annual Report on Form 20-F (File No. 1-12874), filed with the SEC on March 30, 2000, and hereby incorporated by reference into this Annual Report.
We have in place a rights agreement that would have the effect of delaying, deferring or preventing a change in control of Teekay. The rights agreement has been filed as part of our Form 8-A (File No. 1-12874), filed with the SEC on September 11, 2000, and hereby incorporated by reference into this Annual Report.
There are no limitations on the rights to own securities, including the rights of non-resident or foreign shareholders to hold or exercise voting rights on the securities imposed by the laws of the Republic of the Marshall Islands or by our Articles of Incorporation or Bylaws.
The following is a summary of each material contract, other than material contracts entered into in the ordinary course of business, to which we or any of our subsidiaries is a party, for the two years immediately preceding the date of this Annual Report:
(a) Indenture, dated January 29, 1996, for U.S. $225,000,000 8.32% First Preferred Ship Mortgage Notes due 2006, Teekay Shipping Corporation as Issuer; United States Trust Company of New York as Trustee; VSSI Oceans Inc., VSSI Atlantic Inc., VSSI Appian Inc., Senang Spirit Inc., Exuma Spirit Inc., Nassau Spirit Inc., and Andros Spirit Inc. as Guarantors.
(b) 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.
(c) Amended and Restated Reimbursement Agreement dated April 16, 1998 (amended May 1999) relating to a U.S. $74,000,000 Credit facility made available by RABO Australia Limited to Barrington (Australia) Pty Limited, Palmerston (Australia) Pty Limited, VSSI Australia Limited, VSSI Transport Inc. and Alliance Chartering Pty Limited and Nedship Bank (America) N.V. as Guarantor.
(d) Amended and Restated Guarantee dated April 16, 1998 made by Teekay Shipping Corporation in favor of Nedship Bank (America) N.V. relating to the U.S. $74,000,000 facility granted by RABO Australia Limited and guaranteed by Nedship Bank (America) N.V.
(e) Agreement, dated March 26, 1999, for the amalgamation of Northwest Maritime Inc., a 100% owned subsidiary of Teekay Shipping Corporation, and Bona Shipholding Ltd.
(f) Amendment and Restatement Agreement, dated June 11, 1999, relating to a US $500,000,000 Revolving Loan Agreement made available to Bona Shipholding Ltd. by Chase Manhattan plc, Citibank International plc and various other banks.
(g) Reimbursement Agreement, dated February 16, 2001, between Karratha Spirit Pty Ltd and Nedship Bank (America) N.V.
(h) Agreement, dated February 16, 2001, for a U.S. $34,000,000 Term Loan Facility to be made available to Karratha Spirit Pty Ltd by RABO Australia Limited.
(i) Indenture dated June 22, 2001 among Teekay Shipping Corporation and The Bank of New York Trust Company of Florida (formerly U.S. Trust Company of Texas, N.A.) for U.S. $250,000,000 8.875% Senior Notes due 2011.
(j) Amendment and Restatement Agreement, dated September 14, 2001, relating to a U.S. $500,000,000 Revolving Loan Agreement between Bona Shipholding Ltd., Teekay Shipping Corporation, J.P. Morgan Securities Inc., Citibank International plc and various other banks.
(k) First Supplemental Indenture dated as of December 6, 2001, among Teekay Shipping Corporation and The Bank of New York Trust Company of Florida, N.A. for U.S. $100,000,000 8.875% Senior Notes due 2011.
(l) Share Sale and Purchase Agreement by and among Statoil ASA and Statpet AS and Norsk Teekay AS dated December 15, 2002.
(m) Supplemental Indenture No. 1 between Teekay Shipping Corporation and The Bank of New York, as trustee dated as of February 18, 2003.
(n) Purchase Contract Agreement between Teekay Shipping Corporation and The Bank of New York, as purchase contract agent dated as of February 18, 2003.
(o) Pledge Agreement between Teekay Shipping Corporation and The Bank of New York, as collateral agent dated as of February 18, 2003.
(p) Remarketing Agreement between Teekay Shipping Corporation and Morgan Stanley & Co. Incorporated dated as of February 18, 2003.
(q) Underwriting Agreement between Teekay Shipping Corporation, Morgan Stanley & Co. Incorporated and Salmon Smith Barney dated as of February 11, 2003.
(r) Agreement, dated March 10, 2003, for a U.S. $180,000,000 Secured Credit Facility to be made available to Cork Spirit LLC, Donegal Spirit LLC, Limerick Spirit LLC, Shannon Spirit LLC and Galway Spirit LLC by Den Norske Bank ASA, Deutsche Bank AG, DVB Bank AG and Nordea Bank Finland Plc and various other banks.
(s) Agreement, dated June 26, 2003, for a U.S. $550,000,000 Secured Reducing Revolving Loan Facility between Norsk Teekay Holdings Ltd., Den Norske Bank ASA and various other banks.
(t) Share purchase agreement dated March 15, 2004 regarding the acquisition of Naviera F. Tapias S.A. (renamed Teekay Shipping Spain S.L.)
(u) Agreement, dated September 1, 2004 for a U.S. $550,000,000 Credit Facility Agreement to be made available to Teekay Nordic Holdings Incorporated by Nordea Bank Finland PLC, New York Branch.
(v) Amendment dated September 30, 2004 to Agreement, dated June 26, 2003, for a U.S. $550,000,000 Secured Reducing Revolving Loan Facility between Norsk Teekay Holdings Ltd., Den Norske Bank ASA and various other banks.
(w) Annual Executive Bonus Plan
We are not aware of any governmental laws, decrees or regulations in the Republic of The Marshall Islands that restrict the export or import of capital, including foreign exchange controls, or that affect the remittance of dividends, interest or other payments to non-resident holders of our securities.
We are not aware of any limitations on the right of non-resident or foreign owners to hold or vote our securities imposed by the laws of the Republic of the Marshall Islands or our Articles of Incorporation and Bylaws.
Teekay Shipping Corporation was incorporated in the Republic of Liberia on February 9, 1979 and was domesticated in the Republic of The Marshall Islands on December 20, 1999.
Marshall Islands Tax Consequences. Because Teekay and our subsidiaries do not, and do not expect that we will, conduct business or operations in the Republic of The Marshall Islands, and because all documentation related to the public offering of our common stock was executed outside of the Republic of The Marshall Islands, under current Marshall Islands law, no taxes or withholdings will be imposed by the Republic of The Marshall Islands on distributions made to holders of shares of our common stock, so long as such persons do not reside in, maintain offices in, nor engage in business in the Republic of The Marshall Islands. Furthermore, no stamp, capital gains or other taxes will be imposed by the Republic of The Marshall Islands on the purchase, ownership or disposition by such persons of shares of our common stock.
Bahamian Tax Consequences . Under current Bahamian law, no taxes or withholdings will be imposed by the Commonwealth of the Bahamas on distributions made in respect of the shares of our common stock, and no stamp, capital gains or other taxes will be imposed by the Commonwealth of the Bahamas on the ownership or disposition of the shares of our common stock, as there are no personal income or corporation taxes, capital gains taxes or death duties in the Commonwealth of the Bahamas.
Documents concerning us that are referred to herein may be inspected at our principal executive headquarters at TK House, Bayside Executive Park, West Bay Street & Blake Road, P.O. Box AP-59212, Nassau, The Bahamas. Those documents electronically filed via the Electronic Data Gathering, Analysis, and Retrieval (or EDGAR ) system may also be obtained from the SEC’s website at www.sec.gov or from the SEC public reference room at Judiciary Plaza, 450 Fifth Street, Washington, D.C. 20549. Further information on the operation of the public reference rooms may be obtained by calling the SEC at 1-800-SEC-0330. Copies of documents can be requested from the SEC public reference rooms for a copying fee.
We are exposed to market risk from foreign currency fluctuations, changes in interest rates, bunker fuel prices and spot market rates for vessels. We use foreign currency forward contracts, interest rate swaps, bunker fuel swap contracts and forward freight agreements to manage currency, interest rate, bunker fuel price risks and spot market rates but do not use these financial instruments for trading or speculative purposes.
Our primary economic environment is the international shipping market. This market utilizes the U.S. Dollar as its functional currency. Consequently, virtually all of our revenues and most of our operating costs are in U.S. dollars. We incur certain voyage expenses, vessel operating expenses, drydocking, and overhead costs in foreign currencies, the most significant of which are Japanese Yen, Singapore Dollars, Canadian Dollars, Australian Dollars, British Pounds, Euro and Norwegian Kroner. During 2004, approximately 33% of vessel and voyage costs, overhead and drydock expenditures were denominated in these currencies. However, we have some ability to shift the purchase of goods and services from one country to another and, thus, from one currency to another, on relatively short notice.
We enter into forward contracts as a hedge against changes in certain foreign exchange rates. As at December 31, 2004, we had the following foreign currency forward contracts:
Expected Maturity Date
(contract amounts in USD'000's) 2005 2006
------------------- -------------------
Norwegian Kroner
Contract amount $ 54,046 $5,000
Average contractual exchange rate 7.33 7.82
Canadian Dollar
Contract amount $ 45,151 -
Average contractual exchange rate 1.29 -
To the extent the hedge is effective, changes in the fair value of the forward contract are either offset against the fair value of assets or liabilities through income, or recognized in other comprehensive income until the hedged item is recognized in income. The ineffective portion of a forward contract’s change in fair value will be immediately recognized in income.
Although the majority of our transactions, assets and liabilities are denominated in U.S. Dollars, certain of our subsidiaries have foreign currency denominated liabilities. There is a risk that currency fluctuations will have a negative effect on the value of our cash flows. We have not entered into any forward contracts to protect against the translation risk of our foreign currency denominated liabilities. As at December 31, 2004, we had Euro denominated term loans of 325.8 million Euros ($443.7 million) included in long-term debt, and Norwegian Kroner denominated deferred income taxes of approximately 666.1 million NOK ($110.3 million) included in other long-term liabilities. Our Euro denominated revenues approximate our Euro denominated expenses and Euro denominated loan and interest payments. For this reason we have not entered into any Euro forward contracts.
We invest our cash and marketable securities in financial instruments with maturities of less than six months within the parameters of our investment policy and guidelines.
We use interest rate swaps to manage the impact of interest rate changes on earnings and cash flows. Changes in the fair value of our interest rate swaps are either offset against the fair value of assets or liabilities through income, or recognized in other comprehensive income until the hedged item is recognized in income. The ineffective portion of an interest rate swap change in fair value is immediately recognized in income. Premiums and receipts, if any, are recognized as adjustments to interest expense over the lives of the individual contracts.
The table below provides information about our financial instruments at December 31, 2004, which are sensitive to changes in interest rates, including our debt and capital lease obligations and interest rate swaps. For long-term debt and capital lease obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. For interest rate swaps, the table presents notional amounts and weighted average interest rates by expected contractual maturity dates.
Expected Maturity Date
(in USD'000's There-
except for percentages) 2005 2006 2007 2008 2009 after Rate (9)
------------------------------ ----------- ----------- ----------- ----------- ----------- ----------- ------------
Long-Term Debt:
Fixed-Rate Debt 45,000 149,656 - - - 351,530 8.07%
Average Interest Rate 8.32% 6.09% - - - 8.875%
Variable Rate Debt
U.S. Dollar Denominated (1) 63,418 60,472 26,384 273,288 177,751 516,769 3.34%
Euro Denominated (2)(3) 11,059 9,342 10,023 10,753 11,536 391,025 3.35%
Capital Lease Obligations: (4)
Fixed-Rate Obligations 7,978 135,313 3,355 3,537 3,709 69,274 7.81%
Average Interest Rate (5) 7.80% 8.86% 6.13% 6.20% 6.25% 6.01%
Interest Rate Swaps: (6)(4)
Contract Amount (8) 100,000 - 500,000 - 200,000 734,000 4.21%
Average Fixed Pay Rate (1) 2.25% - 2.79% - 4.24% 5.44%
Contract Amount 6,485 7,023 7,606 8,200 140,476 158,494 6.68%
Average Fixed Pay Rate (1) 6.76% 6.76% 6.76% 6.76% 6.96% 6.41%
Contract Amount (Euro
Denominated)(3) 8,340 9,342 10,023 10,753 11,536 391,025 5.90%
Average Fixed Pay Rate (2) 5.90% 5.90% 5.90% 5.90% 5.90% 5.89%
| (1) | Interest payments on U.S. Dollar denominated debt and interest rate swaps are based on LIBOR. |
| (2) | Interest payments on Euro denominated debt and interest rate swaps are based on EURIBOR. |
| (3) | Euro denominated amounts have been converted to U.S. Dollars using the prevailing exchange rate as of December 31, 2004. |
| (4) | Excludes capital lease obligations of $413.3 million on two of our LNG carriers. Under the terms of these lease obligations, we are required to have on deposit with financial institutions an amount of cash that, together with the interest earned thereon, will fully fund the amount owing under the capital lease obligations. Consequently, we are not subject to interest rate risk from these obligations. |
| (5) | The average interest rate is the weighted-average interest rate implicit in the capital lease obligations at the inception of the leases. |
| (6) | The average variable receive rate for our interest rates swaps is set monthly at 1-month LIBOR or EURIBOR or semi-annually at the 6-month LIBOR or EURIBOR. |
| (7) | In February 2005, we entered into an additional $200.0 million of interest rate swap agreements. Please see Item 18 — Financial Statements: Note 21 – Subsequent Events. |
| (8) | The inception date of the interest rate swaps maturing in 2009 is 2006. The inception dates of the interest rate swaps maturing after 2009 are 2006 ($478.0 million) and 2007 ($256.0 million). |
| (9) | Rate refers to the weighted-average effective interest rate for our debt, including the margin we pay on our floating-rate debt, as at December 31, 2004 and average fixed pay rate for our swap agreements. The average fixed pay rate on our interest rate swaps excludes the margin we pay on our floating-rate debt. |
We use bunker fuel swap contracts as a hedge to protect against the change in the cost of forecasted bunker fuel costs for certain vessels being time-chartered-out and for vessels servicing certain contracts of affreightment. To the extent the hedge is effective, changes in the fair value of the forward contract are either offset against the fair value of assets or liabilities through income, or recognized in other comprehensive income until the hedged item is recognized in income. The ineffective portion of a forward contract’s change in fair value is immediately recognized in income. As at December 31, 2004, we were committed to bunker fuel swap contracts totaling 22,650 metric tonnes with a weighted-average price of $158.14 per tonne, which expire between January and December 2005.
We use written forward freight agreements as a hedge to protect against the change in spot market rates earned by some of our vessels. As at December 31, 2004, we were committed to forward freight agreements totaling 4.8 million metric tonnes with a notional principal amount of $40.0 million, which expire between January and December 2005.
The following table sets forth further information on the magnitude of these foreign currency forward contracts, interest rate swap agreements, bunker fuel swap contracts, and forward freight agreements:
Contract Carrying Amount Fair
(in USD'000's) Amount Asset Liability Value
------------------------------------------ ----------------- ---------------- ------------------ ------------------
December 31, 2004
Foreign Currency Forward Contracts $ 104,197 $ 16,635 $ $ 16,635
Interest Rate Swap Agreements 2,304,860 158,482 (158,482)
Bunker Fuel Swap Contracts 3,582 98 98
Forward Freight Agreements 39,967 3,276 (3,276)
Debt (including capital lease obligations) 2,744,545 2,744,545 (2,801,553)
December 31, 2003
Foreign Currency Forward Contracts $ 146,912 $ 20,944 $ $ 20,944
Interest Rate Swap Agreements 710,000 9,953 (9,953)
Bunker Fuel Swap Contracts 696 183 183
Forward Freight Agreements 13,385 1,178 (1,178)
Debt (including capital lease obligations) 1,636,758 1,636,758 (1,686,002)
Not applicable.
None.
None.
We conducted an evaluation of our disclosure under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer. Based on our evaluation, we concluded that disclosure controls and procedures were effective as of December 31, 2004.
During 2004 there was no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Our Chief Executive Officer and Chief Financial Officer do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Teekay have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
The Board has determined that director and Chair of the Audit Committee, Eileen A. Mercier, qualifies as an audit committee financial expert and is independent under applicable NYSE and SEC standards.
We have adopted Standards for Business Conduct that include a Code of Ethics for all employees and directors. This document is available under “Corporate Governance” in the Investor Centre of our Web site ( www.teekay.com ). We also intend to disclose any waivers to or amendments of our Standards of Business Conduct or Code of Ethics for the benefit of our directors and executive officers on our website.
Our principal accountant for 2004 and 2003 was Ernst & Young LLP, Chartered Accountants. The following table shows the fees we paid or accrued for audit and other services provided by Ernst & Young LLP for 2004 and 2003.
Fees 2004 2003
----------------- ----------------
Audit Fees (1) $907,777 $454,780
Audit-Related Fees (2) 395,176 76,120
Tax Fees (3) 232,640 329,570
All Other Fees (4) 1,900 1,605
----------------- ----------------
Total $1,537,493 $862,075
================= ================
| (1) | Audit fees represent fees for professional services provided in connection with the audit of our consolidated financial statements and review of our quarterly consolidated financial statements and audit services provided in connection with other statutory or regulatory filings. |
| (2) | Audit-related fees consisted primarily of accounting consultations, employee benefit plan audits, services related to business acquisitions and divestitures and other attestation services. |
| (3) | For 2004 and 2003, respectively, tax fees principally included international tax planning fees of $62,455 and $175,290, corporate tax compliance fees of $38,849 and $67,070, and personal and expatriate tax services fees of $131,336 and $87,210. |
| (4) | All other fees principally include subscription fees to an internet database of accounting information. |
The Audit Committee has the authority to pre-approve permissible audit-related and non-audit services not prohibited by law to be performed by our independent auditors and associated fees. Engagements for proposed services either may be separately pre-approved by the Audit Committee or entered into pursuant to detailed pre-approval policies and procedures established by the Audit Committee, as long as the Audit Committee is informed on a timely basis of any engagement entered into on that basis. The Audit Committee separately pre-approved all engagements and fees paid to our principal accountant in 2004.
Not applicable.
In November 2004, Teekay announced that its Board of Directors had authorized the repurchase of up to 3,000,000 shares of its Common Stock in the open market. By January 31, 2005, we had repurchased the maximum number authorized. The following table shows the monthly stock repurchase activity:
Total Number of Maximum Number of
Shares Purchased as Shares that May
Month of Repurchase Total Number Part of Publically Yet Be Purchased
of Shares Average Price Announced Plans or Under the Plans or
Purchased Paid per Share Program Program
----------------- ----------------- ----------------------- --------------------
December 2004................... 1,400,200 $43.73 1,400,200 1,599,800
January 2005.................... 1,599,800 42.27 1,599,800 0
----------------- ----------------- ----------------------- --------------------
3,000,000 $42.95 3,000,000 0
================= ================= ======================= ====================
Not applicable.
The following financial statements and schedule, together with the report of Ernst & Young LLP, Chartered Accountants thereon, are filed as part of this Annual Report:
Page
Report of Independent Registered Public Accounting Firm................................................... F-1
Consolidated Financial Statements
Consolidated Statements of Income......................................................................... F-2
Consolidated Balance Sheets............................................................................... F-3
Consolidated Statements of Cash Flows..................................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity................................................ F-5
Notes to the Consolidated Financial Statements............................................................ F-6
Schedule A to the Consolidated Financial Statements....................................................... F-21
All other schedules for which provision is made in the applicable accounting regulations of the SEC are not required, are inapplicable or have been disclosed in the Notes to the Consolidated Financial Statements and therefore have been omitted.
The following exhibits are filed as part of this Annual Report:
1.1 Amended and Restated Articles of Incorporation of Teekay Shipping Corporation. (9)
1.2 Articles of Amendment of Articles of Incorporation of Teekay Shipping Corporation. (9)
1.3 Amended and Restated Bylaws of Teekay Shipping Corporation. (9)
2.1 Registration Rights Agreement among Teekay Shipping Corporation, Tradewinds Trust Co. Ltd., as Trustee for
the Cirrus Trust, and Worldwide Trust Services Ltd., as Trustee for the JTK Trust. (1)
2.2 Specimen of Teekay Shipping Corporation Common Stock Certificate. (1)
2.3 Indenture dated January 29, 1996 among Teekay Shipping Corporation, VSSI Oceans Inc., VSSI Atlantic Inc.,
VSSI Appian Inc., Senang Spirit Inc., Exuma Spirit Inc., Nassau Spirit Inc., Andros Spirit Inc. and United
States Trust Company of New York, as Trustee. (5)
2.4 Specimen of Teekay Shipping Corporation's 8.32% First Preferred Ship Mortgage Notes Due 2008. (5)
2.5 Bahamian Statutory Ship Mortgage dated January 29, 1996 by Nassau Spirit Inc. to United States Trust
Company of New York. (3) (5)
2.6 Deed of Covenants dated January 29, 1996 by Nassau Spirit Inc. to United States Trust Company of New York.
(3) (5)
2.7 First Preferred Ship Mortgage dated January 29, 1996 by VSSI Oceans Inc. to United States Trust Company of
New York, as Trustee. (4)
2.8 Assignment of Time Charter dated January 29, 1996 by Nassau Spirit Inc. to United States Trust Company of
New York, as Trustee. (3) (5)
2.9 Assignment of Insurance dated January 29, 1996 by Nassau Spirit Inc. to United States Trust Company of New
York, as Trustee. (3) (5)
2.10 Pledge Agreement and Irrevocable Proxy dated January 29, 1996 by Teekay in favor of United States Trust
Company of New York, as Trustee. (5)
2.11 Guarantee dated January 29, 1996 by Nassau Spirit Inc. in favor of United States Trust Company of New
York, as Trustee. (3) (5)
2.12 Assignment of Freights and Hires dated January 29, 1996 by Nassau Spirit Inc. to United States Trust
Company of New York, as Trustee. (3) (5)
2.13 Cash Collateral Account Agreement dated January 29, 1996 between Nassau Spirit Inc. and United States
Trust Company of New York, as Trustee. (3) (5)
2.14 Investment Account Agreement dated January 29, 1996 between Teekay Shipping Corporation and United States
Trust Company of New York, as Trustee. (5)
2.15 Indenture dated June 22, 2001 among Teekay Shipping Corporation and The Bank of New York Trust Company of
Florida (formerly U.S. Trust Company of Texas, N.A.). for U.S. $250,000,000 8.875% Senior Notes due 2011.
(14)
2.16 First Supplemental Indenture dated as of December 6, 2001, among Teekay Shipping Corporation and The Bank
of New York Trust Company of Florida, N.A. for U.S. $100,000,000 8.875% Senior Notes due 2011. (15)
2.17 Exchange and Registration Rights Agreement dated June 22, 2001 among Teekay Shipping Corporation and
Goldman, Sachs & Co., Morgan Stanley & Co. Incorporated, Salomon Smith Barney Inc., Deutsche Banc Alex.
Brown Inc. and Scotia Capital (USA) Inc. (14)
2.18 Exchange and Registration Rights Agreement dated December 6, 2001 between Teekay Shipping Corporation and
Goldman, Sachs & Co. (15)
2.19 Specimen of Teekay Shipping Corporation's 8.875% Senior Notes due 2011. (14)
2.20 Form of Supplemental Indenture No. 1 between Teekay Shipping Corporation and The Bank of New York, as
trustee. (18)
2.21 Form of Purchase Contract Agreement between Teekay Shipping Corporation and The Bank of New York, as
purchase contract agent. (18)
2.22 Form of Pledge Agreement between Teekay Shipping Corporation and The Bank of New York, as collateral
agent. (18)
2.23 Form of Remarketing Agreement between Teekay Shipping Corporation and Morgan Stanley & Co. Incorporated.
(18)
2.24 Form of Underwriting Agreement Between Teekay Shipping Corporation, Morgan Stanley & Co. Incorporated and
Salomon Smith Barney. (18)
4.1 1995 Stock Option Plan. (1)
4.2 Amendment to 1995 Stock Option Plan. (10)
4.3 Amended 1995 Stock Option Plan. (12)
4.4 Form of Indemnification Agreement between Teekay and each of its officers and directors. (1)
4.5 Time Charter, as amended, dated February 1, 1992 between VSSI Appian Inc. and Palm Shipping Inc. (4)
4.6 Time Charter, as amended, dated August 1, 1992 between Exuma Spirit Inc. and Palm Shipping Inc. (4)
4.7 Time Charter, as amended, dated May 1, 1992 between Nassau Spirit Inc. and Palm Shipping Inc. (4)
4.8 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. (7)
4.9 Agreement, dated March 26, 1999, for the amalgamation of Northwest Maritime Inc., a 100% owned subsidiary
of Teekay Shipping Corporation, and Bona Shipholding Ltd. (8)
4.10 Agreement, dated April 16, 1998, for a U.S. $30,000,000 Term Loan Facility to be made available to VSSI
Australia Limited by RABO Australia Limited. (9)
4.11 Agreement, dated December 18, 1997, for a U.S. $44,000,000 Term Loan Facility to be made available to
Barrington (Australia) Pty Limited and Palmerston (Australia) Pty Limited by RABO Australia Limited. (9)
4.12 Amended and Restated Reimbursement Agreement, dated April 16, 1998, Among Barrington (Australia) Pty
Limited, Palmerston (Australia) Pty Limited, VSSI Australia Limited, VSSI Transport Inc. and Alliance
Chartering Pty Limited and Nedship Bank (America) N.V., The Bank of New York and Landesbank
Schleswig-Holstein. (9)
4.13 Amendment No. 1, dated May 1999, to Amended and Restated Reimbursement Agreement dated April 16, 1998
among Barrington (Australia) Pty Limited, Palmerston (Australia) Pty Limited, VSSI Australia Limited, VSSI
Transport Inc. and Alliance Chartering Pty Limited and Nedship Bank (America) N.V.,
The Bank of New York and Landesbank Schleswig-Holstein. (9)
4.14 Amended and Restated Agreement, date June 11, 1999, for a U.S. $500,000,000 Revolving Loan between Bona
Shipholding Ltd., Chase Manhattan plc, Citibank International plc and various other banks. (9)
4.15 Amendment and Restatement Agreement, dated June 11, 1999, relating to a U.S. $500,000,000 Revolving Loan
Agreement between Bona Shipholding Ltd., Chase Manhattan plc, Citibank International plc and various other
banks. (9)
4.16 Rights agreement, dated as of September 8, 2000, between Teekay Shipping Corporation and The Bank of New
York, as Rights Agent. (11)
4.17 Reimbursement Agreement, dated January 1, 2000, between Fleet Management Inc. and Teekay Shipping
Corporation. (12)
4.18 Reimbursement Agreement, dated February 16, 2001, between Karratha Spirit Pty Ltd and Nedship Bank
(America) N.V. (13)
4.19 Agreement, dated February 16, 2001, for a U.S. $34,000,000 Term Loan Facility to be made available to
Karratha Spirit Pty Ltd by RABO Australia Limited. (13)
4.20 Amendment and Restatement Agreement, dated September 14, 2001, relating to a U.S. $500,000,000 Revolving
Loan Agreement between Bona Shipholding Ltd., Teekay Shipping Corporation, J.P. Morgan Securities Inc.,
Citibank International plc and various other banks. (17)
4.21 Share Sale and Purchase Agreement by and among Statoil ASA and Statpet AS and Norsk Teekay AS dated
December 15, 2002. (19)
4.22 Agreement, dated March 10, 2003, for a U.S. $180,000,000 Secured Credit Facility to be made available to
Cork Spirit LLC, Donegal Spirit LLC, Limerick Spirit LLC, Shannon Spirit LLC and Galway Spirit LLC by Den
Norske Bank ASA, Deutsche Bank AG, DVB Bank AG and Nordea Bank Finland Plc and various other banks. (20)
4.23 Agreement, dated June 26, 2003, for a U.S. $550,000,000 Secured Reducing Revolving Loan Facility between
Norsk Teekay Holdings Ltd., Den Norske Bank ASA and various other banks. (21)
4.24 Share purchase agreement dated March 15, 2004 regarding the acquisition of Naviera F. Tapias S.A. (renamed
Teekay Shipping Spain S.L.) (22)
4.25 2003 Equity Incentive Plan. (23)
4.26 Agreement, dated September 1, 2004 for a U.S. $550,000,000 Credit Facility Agreement to be made available
to Teekay Nordic Holdings Incorporated by Nordea Bank Finland PLC
4.27 Amendment dated September 30, 2004 to Agreement, dated June 26, 2003, for a U.S. $550,000,000 Secured
Reducing Revolving Loan Facility between Norsk Teekay Holdings Ltd., Den Norske Bank ASA and various other
banks.
4.28 Annual Executive Bonus Plan
8.1 List of Significant Subsidiaries
12.1 Rule 13a-14(a)/15d-14(a) Certification of Teekay's Chief Executive Officer
12.2 Rule 13a-14(a)/15d-14(a) Certification of Teekay's Chief Financial Officer
13.1 Teekay Shipping Corporation Certification of Bjorn Moller, Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2 Teekay Shipping Corporation Certification of Peter Evensen, Chief Financial Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
15.1 Letter from Ernst & Young LLP, as independent chartered accountants, dated April 7, 2005, regarding
audited financial information.
| (1) | 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. |
| (2) | 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. |
| (3) | 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. |
| (4) | 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. |
| (5) | 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. |
| (6) | 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. |
| (7) | Previously filed as an exhibit to the Company’s Annual Report on Form 20-F (File No. 1-12874), filed with the SEC on May 20, 1998, and hereby incorporated by reference to such Annual Report. |
| (8) | 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, 1999, and hereby incorporated by reference to such Annual Report. |
| (9) | Previously filed as an exhibit to the Company’s Annual Report on Form 20-F (File No.1-12874), filed with the SEC on March 30, 2000, and hereby incorporated by reference to such Annual Report. |
| (10) | Previously filed as an exhibit to the Company’s Form 6-K (File No.1-12874), filed with the SEC on May 2, 2000, and hereby incorporated by reference to such Report. |
| (11) | Previously filed as an exhibit to the Company’s Form 8-A (File No.1-12874), filed with the SEC on September 11, 2000, and hereby incorporated by reference to such Annual Report. |
| (12) | Previously filed as an exhibit to the Company’s Annual Report on Form 20-F (File No.1-12874), filed with the SEC on April 2, 2001, and hereby incorporated by reference to such Annual Report. |
| (13) | Previously filed as an exhibit to the Company’s Form 6-K (File No.1-12874), filed with the SEC on May 24, 2001, and hereby incorporated by reference to such Report. |
| (14) | Previously filed as an exhibit to the Company’s Registration Statement on Form F-4 (Registration No. 333-64928), filed with the SEC on July 11, 2001, and hereby incorporated by reference to such Registration Statement. |
| (15) | Previously filed as an exhibit to the Company’s Registration Statement on Form F-4 (Registration No. 333-76922), filed with the SEC on January 17, 2002, and hereby incorporated by reference to such Registration Statement. |
| (16) | Previously filed as an exhibit to the Company’s Registration Statement on Form F-4, as Amended (Registration No. 333-76922), filed with the SEC on February 5, 2002, and hereby incorporated by reference to such Registration Statement. |
| (17) | Previously filed as an exhibit to the Company’s Annual Report on Form 20-F (File No.1-12874), filed with the SEC on March 29, 2002, and hereby incorporated by reference to such Annual Report. |
| (18) | Previously filed as an exhibit to the Company’s Report on Form 6-K (File No.1-12874), filed with the SEC on February 12, 2003, and hereby incorporated by reference to such Report. |
| (19) | Previously filed as an exhibit to the Company’s Report on Form 6-K (File No.1-12874), filed with the SEC on April 1, 2003, and hereby incorporated by reference to such Report. |
| (20) | Previously filed as an exhibit to the Company’s Report on Form 6-K (File No.1-12874), filed with the SEC on May 15, 2003, and hereby incorporated by reference to such Report. |
| (21) | Previously filed as an exhibit to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on August 14, 2003, and hereby incorporated by reference to such Report. |
| (22) | Previously filed as an exhibit to the Company’s Report on Form 6-K (File No. 1-12874), filed with the SEC on May 14, 2004, and hereby incorporated by reference to such Report. |
| (23) | Previously filed as an exhibit to the Company’s Registration Statement on Form S-8 (File No. 333-11956), filed with the SEC on October 6, 2004, and hereby incorporated by reference to such Registration Statement. |
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.
|
TEEKAY SHIPPING CORPORATION
By: /s/ Peter Evensen Peter Evensen Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
Dated: April 7, 2005
To the Board of Directors and
Stockholders of
TEEKAY SHIPPING CORPORATION
We have audited the accompanying consolidated balance sheets of Teekay Shipping Corporation and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial schedule listed in the Index: Item 18. 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 the standards of the Public Company Accounting Oversight Board (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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, based on our audits, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Teekay Shipping Corporation and subsidiaries at December 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years ended December 31, 2004 in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
|
Vancouver, Canada,
February 18, 2005 |
/s/ ERNST & YOUNG LLP
Chartered Accountants |
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2004 2003 2002
$ $ $
---------------- ------------------ -----------------
VOYAGE REVENUES 2,219,238 1,576,095 783,327
------------------------------------------------------------- ---------------- ------------------ -----------------
OPERATING EXPENSES
Voyage expenses 432,395 394,656 239,455
Vessel operating expenses 218,489 210,696 168,035
Time-charter hire expense 457,180 304,623 49,949
Depreciation and amortization 237,498 191,237 149,296
General and administrative 130,742 85,147 57,246
Vessel write-downs and (gain) loss on sale
of vessels (note 19) (79,254) 90,389 -
Restructuring charge (note 15 ) 1,002 6,383 -
------------------------------------------------------------- ---------------- ------------------ -----------------
Total operating expenses 1,398,052 1,283,131 663,981
------------------------------------------------------------- ---------------- ------------------ -----------------
Income from vessel operations 821,186 292,964 119,346
------------------------------------------------------------- ---------------- ------------------ -----------------
OTHER ITEMS
Interest expense (121,518) (80,999) (57,974)
Interest income 18,528 3,921 3,494
Equity income from joint ventures 13,730 6,970 4,523
Gain (loss) on sale of marketable securities (note 6) 93,175 517 (1,130)
Other - net (note 15) (67,661) (46,009) (14,868)
------------------------------------------------------------- ---------------- ------------------ -----------------
Total other items (63,746) (115,600) (65,955)
------------------------------------------------------------- ---------------- ------------------ -----------------
Net income 757,440 177,364 53,391
------------------------------------------------------------- ---------------- ------------------ -----------------
Earnings per common share (note 20)
o Basic 9.14 2.22 0.67
o Diluted 8.63 2.18 0.66
Weighted average number of common shares
o Basic 82,829,336 79,986,746 79,261,994
o Diluted 87,729,037 81,466,294 80,504,792
============================================================= ================ ================== =================
The accompanying notes are an integral part of the consolidated financial statements.
As at As at
December 31, December 31,
2004 2003
$ $
----------------- ----------------
ASSETS
Current
Cash and cash equivalents (note 9) 427,037 292,284
Restricted cash (note 11) 96,087 2,672
Accounts receivable 210,089 146,523
Prepaid expenses and other assets 54,717 39,054
Vessels held for sale (note 19) 129,952 -
------------------------------------------------------------------------------ ----------------- ----------------
Total current assets 917,882 480,533
------------------------------------------------------------------------------ ----------------- ----------------
Marketable securities (note 6) - 95,511
Restricted cash (note 11) 352,725 -
Vessels and equipment (note 9)
At cost, less accumulated depreciation of
$960,597 (2003 - $1,034,747) 2,613,379 2,386,642
Vessels under capital leases, at cost, less accumulated
depreciation of $11,047 (2003 - $438) (note 11) 665,331 37,562
Advances on newbuilding contracts (note 17) 252,577 150,656
------------------------------------------------------------------------------ ----------------- ----------------
Total vessels and equipment 3,531,287 2,574,860
------------------------------------------------------------------------------ ----------------- ----------------
Net investment in direct financing leases (note 4) 109,215 73,073
Investment in joint ventures (note 5) 59,637 54,392
Other assets 85,893 60,333
Intangible assets - net (note 7) 277,511 118,588
Goodwill (note 7) 169,590 130,754
------------------------------------------------------------------------------ ----------------- ----------------
Total assets 5,503,740 3,588,044
============================================================================== ================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current
Accounts payable 61,607 51,817
Accrued liabilities (note 8) 144,415 119,594
Current portion of long-term debt (note 9) 119,453 102,062
Current obligation under capital leases (notes 11 and 17) 88,934 1,159
------------------------------------------------------------------------------ ----------------- ----------------
Total current liabilities 414,409 274,632
------------------------------------------------------------------------------ ----------------- ----------------
Long-term debt (note 9) 1,988,551 1,498,044
Long-term obligation under capital leases (note 11) 547,607 35,493
Other long-term liabilities (notes 1 and 10) 301,091 112,726
------------------------------------------------------------------------------ ----------------- ----------------
Total liabilities 3,251,658 1,920,895
------------------------------------------------------------------------------ ----------------- ----------------
Commitments and contingencies (notes 10, 11, 16 and 17)
Minority interest 14,724 15,322
Stockholders' equity
Capital stock (note 13) 534,938 492,653
Retained earnings 1,758,552 1,095,650
Accumulated other comprehensive (loss) income (56,132) 63,524
------------------------------------------------------------------------------ ----------------- ----------------
Total stockholders' equity 2,237,358 1,651,827
------------------------------------------------------------------------------ ----------------- ----------------
Total liabilities and stockholders' equity 5,503,740 3,588,044
============================================================================== ================= ================
The accompanying notes are an integral part of the consolidated financial statements.
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2004 2003 2002
$ $ $
---------------- ---------------- ---------------
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES 757,440 177,364 53,391
Net income
Non-cash items:
Depreciation and amortization 237,498 191,237 149,296
(Gain) loss on sale of vessels (79,254) (1,188) -
Gain on sale of marketable securities (93,175) (517) 1,130
Loss on write-down of vessels - 91,577 -
Loss on write-down of marketable securities - 4,910 -
Loss on repurchase of bonds (note 15) 769 5,385 -
Equity income (net of dividends received:
December 31, 2004 - $12,576;
December 31, 2003 - $7,420;
December 31, 2002 - $1,748) (1,154) 450 (2,775)
Income taxes (note 15) 35,048 36,501 11,413
Other - net 16,971 (3,191) (5,049)
Change in non-cash working capital items related to
operating activities (note 18) (26,550) (4,256) 7,038
Expenditures for drydocking (32,889) (42,697) (34,913)
--------------------------------------------------------------- ---------------- ---------------- ---------------
Net operating cash flow 814,704 455,575 179,531
--------------------------------------------------------------- ---------------- ---------------- ---------------
FINANCING ACTIVITIES
Proceeds from long-term debt 1,631,181 1,993,270 255,185
Capitalized loan costs (9,960) (12,442) -
Scheduled repayments of long-term debt (150,314) (62,240) (51,830)
Prepayments of long-term debt (1,731,223) (1,466,815) (8,000)
Repayments of capital lease obligations (66,109) (345) -
Decrease (increase) in restricted cash 8,342 6,113 (952)
Issuance of Common Stock upon exercise of stock options 51,279 25,015 4,221
Repurchase of Common Stock (61,237) - (1,547)
Cash dividends paid (42,362) (35,719) (34,073)
--------------------------------------------------------------- ---------------- ---------------- ---------------
Net financing cash flow (370,403) 446,837 163,004
--------------------------------------------------------------- ---------------- ---------------- ---------------
INVESTING ACTIVITIES
Expenditures for vessels and equipment (548,587) (372,433) (135,650)
Proceeds from sale of vessels and equipment 440,556 242,111 -
Proceeds from sale of marketable securities 135,357 9,642 6,675
Purchase of marketable securities - (37,291) -
Purchase of Teekay Shipping Spain S.L.,
net of cash acquired of $11,191 (note 3) (286,993) - -
Purchase of Navion AS (note 4) - (704,734) (76,000)
Purchase of intangible assets - (7,250) -
Decrease (increase) in investment in joint ventures (4,369) 25,500 (26,000)
Purchase of PetroTrans Holdings Ltd. (note 5) (357) (25,050) -
Net investment in direct financing leases (note 4) (43,892) (20,322) -
Other (1,263) (4,926) (1,885)
--------------------------------------------------------------- ---------------- ---------------- ---------------
Net investing cash flow (309,548) (894,753) (232,860)
--------------------------------------------------------------- ---------------- ---------------- ---------------
Increase in cash and cash equivalents 134,753 7,659 109,675
Cash and cash equivalents, beginning of the period 292,284 284,625 174,950
--------------------------------------------------------------- ---------------- ---------------- ---------------
Cash and cash equivalents, end of the period 427,037 292,284 284,625
=============================================================== ================ ================ ===============
The accompanying notes are an integral part of the consolidated financial statements.
Accumulated
Other
Thousands Compre- Compre- Total
of Common Common Retained hensive hensive Stockholders'
Shares Stock Earnings Income (Loss) Income Equity
# $ $ $ $ $
----------------------------------- ------------- ---------- ------------ --------------- ----------- --------------
Balance as at December 31, 2001 79,100 467,341 935,660 (4,801) 1,398,200
----------------------------------- ------------- ---------- ------------ --------------- ----------- --------------
Net income 53,391 53,391 53,391
Other comprehensive income:
Unrealized loss on marketable
securities (239) (239) (239)
Reclassification adjustment for
loss on marketable securities
included in net income 737 737 737
Unrealized gain on derivative instruments
(note 16) 3,023 3,023 3,023
Reclassification adjustment for gain on
derivative instruments (note 16) (1,815) (1,815) (1,815)
-----------
Comprehensive income 55,097
-----------
Dividends declared (34,079) (34,079)
Reinvested dividends 2 6 6
Exercise of stock options 380 4,221 4,221
Repurchase of Common Stock (98) (580) (967) (1,547)
----------------------------------- ------------- ---------- ------------ --------------- ----------- --------------
Balance as at December 31, 2002 79,384 470,988 954,005 (3,095) 1,421,898
----------------------------------- ------------- ---------- ------------ --------------- ----------- --------------
Net income 177,364 177,364 177,364
Other comprehensive income:
Unrealized gain on marketable
securities 53,540 53,540 53,540
Reclassification adjustment for
loss on marketable securities
included in net income 4,899 4,899 4,899
Unrealized gain on derivative
instruments (note 16) 8,639 8,639 8,639
Reclassification adjustment for
gain on derivative instruments
(note 16) (459) (459) (459)
-----------
Comprehensive income 243,983
-----------
Dividends declared (35,719) (35,719)
Reinvested dividends 2 3 3
Exercise of stock options 1,764 25,015 25,015
7.25% Premium Equity Participating Security
Units contract adjustment fee (4,803) (4,803)
Issuance of Common Stock (note 13) 72 1,450 1,450
----------------------------------- ------------- ---------- ------------ --------------- ----------- --------------
Balance as at December 31, 2003 81,222 492,653 1,095,650 63,524 1,651,827
----------------------------------- ------------- ---------- ------------ --------------- ----------- --------------
Net income 757,440 757,440 757,440
Other comprehensive income:
Unrealized gain on marketable
securities 39,369 39,369 39,369
Reclassification adjustment for
gain on marketable securities
included in net income (92,539) (92,539) (92,539)
The accompanying notes are an integral part of the consolidated financial statements.
| 1. | Summary of Significant Accounting Policies |
| Basis of presentation |
| The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. They include the accounts of Teekay Shipping Corporation (“Teekay”), which is incorporated under the laws of the Republic of the Marshall Islands, and its wholly owned or controlled subsidiaries (the “Company”). Significant intercompany balances and transactions have been eliminated upon consolidation. |
| The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. |
| Certain of the comparative figures have been reclassified to conform with the presentation adopted in the current period. |
| Reporting currency |
| The consolidated financial statements are stated in U.S. Dollars because the Company operates in international shipping markets, the Company’s primary economic environment, which typically utilize the U.S. Dollar as the functional currency. Transactions involving other currencies during the year are converted into U.S. Dollars using the exchange rates in effect at the time of the transactions. At the balance sheet date, monetary assets and liabilities that are denominated in currencies other than the U.S. Dollar are translated to reflect the year-end exchange rates. Resulting gains or losses are reflected separately in the accompanying consolidated statements of income. |
| Operating revenues and expenses |
| The Company recognizes revenues from time charters and bareboat charters daily over the term of the charter as the applicable vessel operates under the charter. The Company does not recognize revenue during days that the vessel is off-hire. All voyage revenues from voyage charters are recognized on a percentage of completion method. The Company uses a discharge-to-discharge basis in determining percentage of completion for all spot voyages, and voyages servicing contracts of affreightment (“COAs”) whereby it recognizes revenue ratably from when product is discharged (unloaded) at the end of one voyage to when it is discharged after the next voyage. The Company does not begin recognizing voyage revenue until a charter has been agreed to by the customer and the Company, even if the vessel has discharged its cargo and is sailing to the anticipated load port on its next voyage. Shuttle tanker voyages servicing COAs with offshore oil fields commence with tendering of notice of readiness at a field, within the agreed lifting range, and ends with tendering of notice of readiness at a field for the next lifting. 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, which will be earned in subsequent periods. |
| Voyage expenses are all expenses unique to a particular voyage, including bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions. Vessel operating expenses include crewing, repairs and maintenance, insurance, stores, lube oils and communication expenses. Voyage expenses are recognized ratably over the duration of the voyage, and vessel operating expenses are recognized when incurred. |
| Cash and cash equivalents |
| The Company classifies all highly-liquid investments with a maturity date of three months or less when purchased as cash and cash equivalents. |
| Cash interest paid during the years ended December 31, 2004, 2003 and 2002 totaled $130.1 million, $81.9 million and $65.3 million, respectively. |
| 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 and losses on available-for-sale securities are reported as a component of other comprehensive income. |
| Vessels and equipment |
| All pre-delivery costs incurred during the construction of newbuildings, including interest, supervision and technical costs, are capitalized. The acquisition cost and all costs incurred to restore used vessel purchases to the standard required to properly service the Company’s customers are capitalized. |
| Depreciation is calculated on a straight-line basis over a vessel’s estimated useful life, less an estimated residual value. Depreciation is calculated using an estimated useful life of 25 years for crude oil tankers and 35 years for liquefied natural gas (“LNG”) carriers from the date the vessel is delivered from the shipyard, or a shorter period if regulations prevent us from operating the vessels for 25 years or 35 years, respectively. Depreciation of vessels and equipment for the years ended December 31, 2004, 2003 and 2002 aggregated $189.4 million, $152.4 million and $127.5 million, respectively. Depreciation and amortization includes depreciation on all owned vessels and vessels accounted for as capital leases. (see Note 19). |
| Interest costs capitalized to vessels and equipment for the years ended December 31, 2004, 2003 and 2002 aggregated $9.9 million, $8.5 million and $6.0 million, respectively. |
| Gains on vessels sold and leased back under capital leases are deferred and amortized over the remaining estimated useful life of the vessel. Losses on vessels sold and leased back under capital leases are recognized immediately when the fair value of the vessel at the time of sale-leaseback is less than its book value. In such case, the Company would recognize a loss in the amount by which book value exceeds fair value. |
| Generally, the Company drydocks each vessel every two and a half to five years. In addition, a shipping society classification intermediate survey is performed on the Company’s LNG carriers between the second and third year of the five-year drydocking period. The Company capitalizes a substantial portion of the costs incurred during drydocking and for the survey and amortizes those costs on a straight-line basis from the completion of a drydocking or intermediate survey to the estimated completion of the next drydocking. The Company expenses costs related to routine repairs and maintenance incurred during drydocking that do not improve or extend the useful lives of the assets. When significant drydocking expenditures occur prior to the expiration of the original amortization period, the remaining unamortized balance of the original drydocking cost and any unamortized intermediate survey costs are expensed in the month of the subsequent drydocking. Amortization of drydocking expenditures for the years ended December 31, 2004, 2003 and 2002 aggregated $23.5 million, $26.4 million and $21.8 million, respectively. |
| The Company reviews vessels and equipment for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of these assets is measured by comparison of their carrying amount to future undiscounted cash flows the assets are expected to generate over their remaining useful lives. If vessels and equipment are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value of the assets exceeds their fair market value (see Note 19). |
| Direct financing leases |
| The Company assembles, installs, operates and leases equipment that reduces volatile organic compound emissions (“VOC Equipment”) during loading, transportation and storage of oil and oil products. Leasing of the VOC Equipment is accounted for as a direct financing lease, with lease payments received being allocated between the net investment in the lease and other income using the effective interest method so as to produce a constant periodic rate of return over the lease term. |
| Investment in joint ventures |
| The Company has a 50% participating interest in eight joint venture companies (2003 — five). Five of these joint ventures each own one shuttle tanker. One of the joint ventures, which was formed on April 30, 2004, will pursue new business in the oil and gas shipping sectors that relate only to the Spanish market or are led by Spanish entities or entities controlled by a Spanish company (see Note 3). One joint venture has a first right of refusal on Statoil’s oil transportation requirements at the prevailing market rate until December 31, 2007 (see Note 4). One joint venture is a lightering company acquired on September 30, 2003 (see Note 5). The joint ventures are accounted for using the equity method, whereby the investment is carried at the Company’s original cost plus its proportionate share of undistributed earnings. |
| Investment in the Panamax OBO Pool |
| All Panamax oil/bulk/ore carriers (“OBOs”) owned by the Company were operated through a pool that was managed by the Company until its termination in 2003, when the Company sold all of its OBO carriers. The participants in the pool were the companies contributing vessel capacity to it. The voyage revenues and expenses of these vessels have been included on a 100% basis in the consolidated financial statements. The minority pool participants’ share of the results has been deducted as time charter hire expense prior to termination of the pool. |
| Loan costs |
| Loan costs, including fees, commissions and legal expenses, which are presented as other assets are capitalized and amortized on a straight-line basis over the term of the relevant loan. Amortization of loan costs is included in interest expense. |
| Derivative instruments |
| The Company utilizes derivative financial instruments to reduce risk from foreign currency fluctuations, changes in interest rates, changes in spot market rates for vessels and changes in bunker fuel prices and does not use them for trading purposes. Statement of Financial Accounting Standards No. 133 (“SFAS 133”) “Accounting for Derivative Instruments and Hedging Activities,” which was amended in June 2000 by SFAS No. 138 and in May 2003 by SFAS No. 149, establishes accounting and reporting standards for derivatives instruments and hedging activities. |
| Derivative instruments are recorded as other assets or other long-term liabilities, measured at fair value. Derivatives that are not hedges or are not designated as hedges are adjusted to fair value through income. If the derivative is a hedge, depending upon the nature of the hedge, changes in the fair value of the derivatives are either offset against the fair value of assets, liabilities or firm commitments through income, or recognized in other comprehensive income (loss) until the hedged item is recognized in income. The ineffective portion of a derivative’s change in fair value is immediately recognized in income (see Note 16). |
| Goodwill and intangible assets |
| Goodwill and indefinite lived intangible assets are not amortized, but reviewed for impairment annually, or more frequently if impairment indicators arise. Intangible assets with finite lives are amortized over their useful lives. |
| The Company’s intangible assets consist primarily of time charter contracts acquired as part of the purchase of Teekay Shipping Spain S.L (“Teekay Spain”) and COAs acquired as part of the purchase of Navion AS (“Navion”). The time charter contracts are being amortized on a straight line basis over the life of the contracts. The COAs are being amortized over the life of the COAs, with the amount amortized each year being weighted based on the projected revenue to be earned from the COAs. |
| Income taxes |
| The legal jurisdictions in which Teekay and the majority of its subsidiaries are incorporated do not impose income taxes upon shipping-related activities. The Company’s Australian shipowning subsidiaries, its Canadian subsidiary Teekay Canadian Tankers Ltd., its Norwegian subsidiaries UNS and Navion and its Spanish subsidiary Teekay Spain are subject to income taxes (see Note 15). Included in other long-term liabilities are deferred income taxes of $121.4 million at December 31, 2004, $78.2 million at December 31, 2002, and $43.7 million at December 31, 2002. The Company accounts for such taxes using the liability method pursuant to Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes.” |
| Accounting for Stock-Based Compensation |
| Under Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation,” disclosures of stock-based compensation arrangements with employees are required and companies are encouraged (but not required) to record compensation costs associated with employee stock option awards, based on estimated fair values at the grant dates (see also “Recent Accounting Pronouncements” below). The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed in APB Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees.” 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. |
| The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123 to stock-based employee compensation (see Note 13). |
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2004 2003 2002
$ $ $
-------------------- ------------------- ------------------
Net income - as reported........................... 757,440 177,364 53,391
Less: Total stock-based compensation expense....... 8,996 8,243 7,538
-------------------- ------------------- ------------------
Net income - pro forma............................. 748,444 169,121 45,853
==================== =================== ==================
Basic earnings per common share:
As reported........................................ 9.14 2.22 0.67
Pro forma.......................................... 9.04 2.11 0.58
Diluted earnings per common share:
As reported........................................ 8.63 2.18 0.66
Pro forma.......................................... 8.53 2.08 0.57
| For the purpose of the above pro forma calculations, the fair value of each option granted was estimated on the date of the grant using the Black-Scholes option-pricing model. The following weighted-average assumptions were used in computing the fair value of the options granted: risk-free average interest rates of 2.7% for the year ended December 31, 2004; 2.8% for the year ended December 31, 2003 and 4.7% for the year ended December 31, 2002, respectively; dividend yield of 3.0%; expected volatility of 30%; and expected lives of five years. |
| Comprehensive income |
| The Company follows Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive Income,” which establishes standards for reporting and displaying comprehensive income and its components in the consolidated financial statements. |
| Recent Accounting Pronouncements |
| On December 16, 2004, the Financial Accounting Standards Board (“FASB”) issued FASB Statement No. 123(R) (“SFAS 123(R)”), Share-Based Payment , which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation . SFAS 123(R) supersedes APB 25. SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an acceptable alternative. |
| SFAS 123(R) must be adopted no later than July 1, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. The Company expects to adopt SFAS 125(R) on July 1, 2005. |
| SFAS 123(R) permits public companies to adopt its requirements using one of the following two methods: |
| 1. | A “modified prospective” method in which compensation cost is recognized beginning with the effective date based on (a) the requirements of SFAS 123(R) for all share-based payments granted after the effective date and (b) the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123(R) that remain unvested on the effective date; or |
| 2. | A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption. |
| The Company plans to adopt SFAS 123(R) using the modified-prospective method. |
| The adoption of SFAS 123(R)‘s fair value method will have a significant impact on our result of operations, although it will have not impact on our overall financial position. The impact of adoption of SFAS 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS (R) in prior periods, the impact of that standard would have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income and earnings per share in the above table. |
| 2. | Segment Reporting |
| The Company is engaged in the international marine transportation of crude oil, clean petroleum products and LNG through the operation of its tankers and LNG carriers. All of the Company’s revenues are earned in international markets. |
| One customer, an international oil company, accounted for 17% ($373.7 million) of the Company’s consolidated voyage revenues during the year ended December 31, 2004. One customer, an international oil company, accounted for 15% ($239.5 million) of the Company’s consolidated voyage revenues during the year ended December 31, 2003. No customer accounted for more than 10% of the Company’s consolidated voyage revenues during the year ended December 31, 2002. No other customer accounted for more than 10% of the Company’s consolidated voyage revenues during the fiscal periods presented herein. |
| The Company has three reportable segments: its spot tanker segment, its fixed-rate tanker segment, and its fixed-rate LNG segment. The Company’s spot tanker segment consists of conventional crude oil tankers and product carriers operating in the spot market or subject to time charters or contracts of affreightment priced on a spot-market basis or on short-term fixed-rate contracts. The Company considers contracts that have an original term of less than three years in duration to be short-term. The Company’s fixed-rate tanker segment consists of shuttle tankers, floating storage and offtake vessels, liquid petroleum gas carriers and conventional crude oil and product tankers subject to long-term, fixed-rate time-charter contracts or contracts of affreightment. The Company’s fixed-rate LNG segment consists of LNG carriers subject to long-term, fixed-rate time-charter contracts. The Company had no LNG operations prior to the acquisition of Teekay Spain on April 30, 2004 (see Note 3). Segment results are evaluated based on income from vessel operations. The accounting policies applied to the reportable segments are the same as those used in the preparation of the Company’s consolidated financial statements. |
| The following tables present results for these segments for the years ended December 31, 2004, 2003 and 2002. |
---------------------------------------------------- ------------- -------------- --------------- -------------
Spot Fixed-Rate Fixed-Rate
Tanker Tanker LNG
Year ended December 31, 2004 Segment Segment Segment Total
$ $ $ $
---------------------------------------------------- ------------- -------------- --------------- -------------
Voyage revenues - external.......................... 1,450,791 725,061 43,386 2,219,238
Voyage expenses.................................... 355,116 77,058 221 432,395
Vessel operating expenses.......................... 93,394 117,586 7,509 218,489
Time-charter hire expense.......................... 263,122 194,058 - 457,180
Depreciation and amortization...................... 95,570 129,074 12,854 237,498
General and administrative (1) .................... 70,371 56,431 3,940 130,742
Vessel write-downs/(gain) loss on sale of vessels.. (72,101) (7,153) - (79,254)
Restructuring charge............................... 1,002 - - 1,002
------------- -------------- --------------- -------------
Income from vessel operations...................... 644,317 158,007 18,862 821,186
============= ============== =============== =============
Voyage revenues - intersegment..................... - 4,607 - 4,607
Equity income...................................... 7,040 6,690 - 13,730
Investments in joint ventures at December 31, 2004. 29,034 30,603 - 59,637
Total assets at December 31, 2004.................. 1,119,302 2,080,855 1,517,027 4,717,184
Expenditures for vessels and equipment (2) ........ 214,572 191,085 142,930 548,587
---------------------------------------------------- ------------- -------------- --------------- -------------
Spot Fixed-Rate Fixed-Rate
Tanker Tanker LNG
Year ended December 31, 2003 Segment Segment Segment Total
$ $ $ $
---------------------------------------------------- ------------- -------------- --------------- -------------
Voyage revenues - external......................... 1,081,974 494,121 - 1,576,095
Voyage expenses.................................... 342,928 51,728 - 394,656
Vessel operating expenses.......................... 126,261 84,435 - 210,696
Time-charter hire expense.......................... 168,344 136,279 - 304,623
Depreciation and amortization...................... 106,374 84,863 - 191,237
General and administrative (1) .................... 53,338 31,809 - 85,147
Vessel write-downs/(gain) loss on sale of vessels.. 90,326 63 - 90,389
Restructuring charge............................... 4,382 2,001 - 6,383
------------- -------------- --------------- -------------
Income from vessel operations...................... 190,021 102,943 - 292,964
============= ============== =============== =============
Voyage revenues - intersegment..................... - 8,499 - 8,499
Equity income...................................... 1,441 5,529 - 6,970
Investments in joint ventures at December 31, 2003. 26,345 28,047 - 54,392
Total assets at December 31, 2003.................. 1,144,087 1,798,617 - 2,942,704
Expenditures for vessels and equipment (2) ........ 28,684 343,749 - 372,433
---------------------------------------------------- ------------- -------------- --------------- -------------
Spot Fixed-Rate Fixed-Rate
Tanker Tanker LNG
Year ended December 31, 2002 Segment Segment Segment Total
$ $ $ $
---------------------------------------------------- ------------- -------------- --------------- -------------
Voyage revenues - external......................... 632,281 151,046 - 783,327
Voyage expenses.................................... 234,376 5,079 - 239,455
Vessel operating expenses.......................... 127,953 40,082 - 168,035
Time-charter hire expense.......................... 49,949 - - 49,949
Depreciation and amortization...................... 105,407 43,889 - 149,296
General and administrative (1) .................... 47,188 10,058 - 57,246
------------- -------------- --------------- -------------
Income from vessel operations...................... 67,408 51,938 - 119,346
============= ============== =============== =============
Voyage revenues - intersegment..................... - - - -
Equity income (loss)............................... (711) 5,234 - 4,523
Investments in joint ventures at December 31, 2002. - 56,354 - 56,354
Total assets at December 31, 2002.................. 1,424,863 785,227 - 2,210,090
Expenditures for vessels and equipment............. 90,966 44,684 - 135,650
| (1) | Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of corporate resources). |
| (2) | Excludes vessels purchased as part of the Company’s acquisition of Teekay Spain in April 2004, and Navion AS in April 2003. |
| A reconciliation of total segment assets to amounts presented in the consolidated balance sheets is as follows: |
December 31, December 31,
2004 2003
$ $
------------------ ------------------
Total assets of all segments.......................................... 4,717,184 2,942,704
Cash, restricted cash and marketable securities........................ 428,437 390,467
Accounts receivable and other assets................................... 358,119 254,873
------------------ ------------------
Consolidated total assets........................................... 5,503,740 3,588,044
================== ==================
| 3. | Acquisition of Teekay Shipping Spain S.L. |
| On April 30, 2004, the Company acquired all of the outstanding shares of Naviera F. Tapias S.A. and its subsidiaries and renamed it Teekay Shipping Spain, S.L. Teekay Spain engages in the marine transportation of crude oil and LNG. The Company acquired Teekay Spain for $298.2 million in cash, plus the assumption of debt and remaining newbuilding commitments. Management believes the acquisition of the Teekay Spain business has provided the Company with a strategic platform from which to expand its presence in the liquefied natural gas (“LNG”) shipping sector and immediate access to reputable LNG operations. The Company anticipates this will benefit it when bidding on future LNG projects. These benefits contributed to the recognition of goodwill. In the transaction, Teekay also entered into an agreement with an entity controlled by the former controlling shareholder of Teekay Spain to establish a 50/50 joint venture that will pursue new business in the oil and gas shipping sectors that relate only to the Spanish market or are led by Spanish entities or entities controlled by a Spanish company. Teekay Spain’s results of operations have been consolidated with the Company’s results commencing May 1, 2004. |
| As at December 31, 2004, the Company’s LNG fleet consisted of four LNG vessels. All four vessels were contracted under long-term, fixed-rate time charters to major Spanish energy companies. As at December 31, 2004, Teekay Spain’s conventional crude oil tanker fleet consisted of five Suezmax tankers and two newbuildings scheduled for delivery in 2005. Four Suezmax tankers and one newbuilding are contracted under long-term, fixed-rate time charters with a major Spanish oil company. |
| The following table summarizes the fair value of the assets acquired and liabilities assumed by the Company at April 30, 2004, the date of the Teekay Spain acquisition. |
As at
April 30, 2004
$
------------------
ASSETS
Cash, cash equivalents and short-term restricted cash 85,092
Other current assets 7,415
Vessels and equipment 821,939
Restricted cash – long term 311,664
Other assets – long-term 15,355
Intangible assets subject to amortization:
Time-charter contracts (weighted average remaining useful life of
19.2 years) 183,052
Goodwill ($3.6 million fixed-rate tanker segment and $35.7 million
fixed-rate LNG segment) 39,279
----------------------------------------------------------------------------- --------------- ------------------
Total assets acquired 1,463,796
============================================================================= =============== ==================
LIABILITIES
Current liabilities 98,428
Long-term debt 668,733
Obligations under capital leases 311,011
Other long-term liabilities 87,439
----------------------------------------------------------------------------- --------------- ------------------
Total liabilities assumed 1,165,611
============================================================================= =============== ==================
Net assets acquired (cash consideration) 298,185
============================================================================= =============== ==================
| (1) | The following table shows comparative summarized consolidated pro forma financial information for the Company for the years ended December 31, 2004 and 2003, giving effect to the acquisition of 100% of the outstanding shares in Teekay Spain as if it had taken place on January 1 of each of the periods presented: |
Pro Forma
Year Ended December 31,
2004 2003
(unaudited) (unaudited)
$ $
---------------------- -----------------------
Voyage revenues.................................................. 2,259,956 1,662,804
Net income (1)................................................... 769,240 104,820
Earnings per share
- Basic.......................................................... 9.29 1.31
- Diluted........................................................ 8.77 1.29
| (1) | The results of Teekay Spain for the four months ended April 30, 2004 and the year ended December 31, 2003 included foreign exchange gains of $18.0 million and foreign exchange losses of $71.5 million, respectively. Substantially all of these foreign exchange gains and losses were unrealized. |
| 4. | Acquisition of Navion AS |
| In April 2003, Teekay completed its acquisition of 100% of the issued and outstanding shares of Navion AS for approximately $774.2 million in cash, including transaction costs of approximately $7.0 million. The Company made a deposit of $76.0 million towards the purchase price on December 16, 2002. The remaining portion of the purchase price was paid on closing. The Company funded its acquisition of Navion by borrowing under a $500 million 364-day credit facility (subsequently replaced by a $550 million revolving credit facility), together with available cash and borrowings under other existing revolving credit facilities. Navion’s results of operation have been consolidated with Teekay’s results commencing April 1, 2003. |
| Navion, based in Stavanger, Norway, operates primarily in the shuttle tanker and the conventional crude oil and product tanker markets. Its modern shuttle tanker fleet, which as of December 31, 2004, consisted of eight owned and 12 chartered-in vessels (excluding six vessels chartered-in from the Company’s shuttle tanker subsidiary Ugland Nordic Shipping AS (“UNS”), and other subsidiaries of the Company), provides logistical services to the Norwegian state-owned oil company, Statoil ASA, and other oil companies in the North Sea under fixed-rate, long-term contracts of affreightment. Subsequent to the acquisition, the operations of UNS and the shuttle tanker operations of Navion were combined into one business unit, Teekay Navion Shuttle Tankers. The projected benefits resulting from the combined operations as well as possible growth opportunities in the North Sea and elsewhere in the world resulted in the recognition of goodwill. Navion’s modern, chartered-in, conventional tanker fleet, which as of December 31, 2004, consisted of 12 crude oil tankers and 15 product tankers, operates primarily in the Atlantic region, providing services to Statoil and other oil companies. In addition, Navion owns two floating storage and offtake vessels currently trading as conventional crude oil tankers in the Atlantic region, one chartered-in methanol carrier and one liquid petroleum gas (“LPG”) carrier on long-term charter to Statoil. Through Navion Chartering AS, an entity owned jointly with Statoil, Navion has a first right of refusal on Statoil’s oil transportation requirements at the prevailing market rate until December 31, 2007. In addition to tanker operations, Navion also constructs, installs, operates and leases equipment that reduces volatile organic compound emissions during loading, transportation and storage of oil and oil products. |
| The following table summarizes the fair value of the assets acquired and liabilities assumed by the Company at April 1, 2003, the date of the Navion acquisition. |
ASSETS
Current assets 64,457
Vessels and equipment 543,003
Net investment in direct financing leases 45,558
Other assets – long-term 3,835
Intangible assets subject to amortization:
Contracts of affreightment (15-year sum-of-years declining balance) 117,000
Goodwill (fixed-rate tanker segment) 40,033
---------------------------------------------------------------------------------------------- -----------------
Total assets acquired 813,886
============================================================================================== =================
LIABILITIES
Current liabilities 36,270
Other long-term liabilities 3,463
---------------------------------------------------------------------------------------------- -----------------
Total liabilities assumed 39,733
============================================================================================== =================
Net assets acquired (cash consideration) 774,153
============================================================================================== =================
| The following table shows comparative summarized consolidated pro forma financial information for the Company for the year ended December 31, 2003, giving effect to the acquisition of 100% of the outstanding shares in Navion as if the acquisition had taken place on January 1 of each of the years presented: |
Pro Forma Year Ended December 31, 2003 2002 (unaudited) (unaudited) $ $ ---------------- ----------------- Voyage revenues........................................................ 1,804,528 1,453,650 Net income............................................................. 223,403 69,401 Net income per common share - Basic ........................................................... 2.79 0.88 - Diluted.......................................................... 2.74 0.86
| 5. | Acquisition of 50% of PetroTrans Holdings Ltd. |
| On September 30, 2003, Teekay acquired 50% of the issued and outstanding shares of PetroTrans Holdings Ltd., the parent company of Skaugen PetroTrans Inc. (“SPT”). The acquisition was completed for approximately $25 million in cash, and an “earn-out element” to be calculated based on the financial performance of SPT over the five year period following the transaction. During 2004, the Company paid $0.4 million in earn out payments. The Company funded this acquisition with available cash. |
| SPT is a lightering company operating out of Houston, Texas. Lightering is the process of ship-to-ship transfer of oil cargo, which is required when vessels transporting oil are too large to enter ports that are not deep enough, or have narrow entrances or small berths. The lightering process consists of maneuvering a smaller tanker (the “service vessel”) alongside the larger tanker, typically with both vessels underway. Once the oil cargo is transferred to the service vessel, the service vessel transports the oil cargo to the port. |
| The acquisition of the 50% interest in PetroTrans Holdings Ltd. is being accounted for using the equity method, whereby the investment is carried at the Company’s original cost plus its proportionate share of undistributed earnings. The excess carrying value of the Company’s investment over its underlying equity in the net assets of PetroTrans Holdings Ltd., which amounts to approximately $15.7 million, has been accounted for as goodwill. This investment is included in investments in joint ventures. |
| 6. | Investments in Marketable Securities |
Gross Approximate
Unrealized Market and
Cost Gains Carrying Values
$ $ $
----------------- ------------------ ------------------
December 31, 2003
Available-for-sale equity securities.................. 42,180 53,331 95,511
================= ================== ==================
| Marketable securities at December 31, 2003 represent 5,812,000 shares in A/S Dampskibsselskabet Torm (“Torm”) and 351,221 shares in Nordic American Tanker Shipping Ltd. |
| During the year ended December 31, 2004, the Company sold its investment in marketable securities for proceeds of $135.4 million, which resulted in a gain on sale of marketable securities of $93.2 million. |
| 7. | Goodwill and Intangible Assets |
| The changes in the carrying amount of goodwill for the year ended December 31, 2004 for the Company’s reporting segments, are as follows: |
Fixed- Fixed-
Spot Rate Rate
Tanker Tanker LNG
Segment Segment Segment Other Total
$ $ $ $ $
-------------- -------------- -------------- -------------- --------------
Balance as of January 1, 2004.... - 128,575 - 2,179 130,754
Goodwill acquired................ - 3,648 35,631 137 39,416
Goodwill impairment ............. - - - (580) (580)
-------------- -------------- -------------- -------------- --------------
Balance as of December 31, 2004.. - 132,223 35,631 1,736 169,590
============== ============== ============== ============== ==============
| As at December 31, 2004 intangible assets consisted of: |
Weighted-Average Gross Carrying Accumulated Net Carrying
Amortization Period Amount Amortization Amount
(years) $ $ $
---------------------- ------------------ ---------------- -------------------
Contracts of affreightment....... 10.2 124,250 (30,880) 93,370
Time-charter contracts........... 19.2 182,552 (4,095) 178,457
Intellectual property............ 7.0 7,701 (2,017) 5,684
---------------------- ------------------ ---------------- -------------------
15.4 314,503 (36,992) 277,511
====================== ================== ================ ===================
| Aggregate amortization expense of intangible assets for the year ended December 31, 2004 was approximately $25.7 million ($13.4 million – 2003). Amortization of intangible assets for the five fiscal years subsequent to December 31, 2004 is expected to be $25.2 million (2005), $22.3 million (2006), $21.3 million (2007), $20.3 million (2008), and $19.3 million (2009). |
| 8. | Accrued Liabilities |
December 31, December 31,
2004 2003
$ $
---------------- -----------------
Voyage and vessel........................................................ 79,566 63,362
Interest................................................................. 21,137 26,351
Payroll and benefits..................................................... 43,712 29,881
---------------- -----------------
144,415 119,594
================ =================
| 9. | Long-Term Debt |
December 31, December 31,
2004 2003
$ $
---------------- -----------------
Revolving Credit Facilities.............................................. 530,000 430,000
First Preferred Ship Mortgage Notes (8.32%) due through 2006............. 50,906 109,314
Premium Equity Participating Security Units (7.25%) due May 18, 2006 .... 143,750 143,750
Senior Notes (8.875%) due July 15, 2011 ................................. 351,530 351,765
USD denominated Term Loans due through 2022 ............................. 588,080 565,277
Euro denominated Term Loans due through 2023 ............................ 443,738 -
---------------- -----------------
2,108,004 1,600,106
Less current portion..................................................... 119,453 102,062
---------------- -----------------
1,988,551 1,498,044
================ =================
| As of December 31, 2004, the Company had eight long-term revolving credit facilities (the “Revolvers”) available, which, as at such date, provided for borrowings of up to $1,361.2 million, of which $831.2 million was undrawn. Interest payments are based on LIBOR (December 31, 2004: 2.6%; December 31, 2003: 1.2%) plus a margin depending on the financial leverage of the Company; at December 31, 2004, the margins ranged between 0.60% and 0.93% (2003 – 0.50% and 1.25%). The total amount available under the Revolvers reduces by $142.2 million (2005), $165.2 million (2006), $130.1 million (2007), $444.3 million (2008), $39.4 million (2009) and $440.0 million (thereafter). All of the Revolvers are collateralized by first priority mortgages granted on 52 of the Company’s vessels, together with other related collateral, and include a guarantee from Teekay for all amounts outstanding under the Revolvers. |
| The 8.32% First Preferred Ship Mortgage Notes due February 1, 2006 (the “8.32% Notes”) are collateralized by first preferred mortgages on three of the Company’s Aframax tankers, together with certain other related collateral, and are guaranteed by the three subsidiaries of Teekay that own the mortgaged vessels (the “8.32% Notes Guarantor Subsidiaries”) to a maximum of 95% of the fair value of their net assets. As at December 31, 2004, the fair value of these net assets approximated $117.4 million. The 8.32% Notes are also subject to a sinking fund, which retires $45.0 million principal amount on each February 1, commencing 2004. During 2004, the Company repurchased and cancelled a principal amount of $13.4 million of the 8.32% Notes. Condensed financial information regarding Teekay, the 8.32% Notes Guarantor Subsidiaries, and non-guarantor subsidiaries of Teekay is set out in Schedule A of these consolidated financial statements. |
| The 7.25% Premium Equity Participating Security Units due May 18, 2006 (the “Equity Units”) are unsecured and subordinated to all of the Company’s senior debt. The Equity Units are not guaranteed by any of the Company’s subsidiaries and effectively rank behind all existing and future secured debt. Each Equity Unit includes (a) a forward contract that requires the holder to purchase for $25 a specified fraction of a share of the Company’s Common Stock on February 16, 2006 and (b) a $25 principal amount, subordinated note due May 18, 2006. The forward contracts provide for contract adjustment payments of 1.25% annually and the notes bear interest at 6.0% annually. Upon settlement on February 16, 2006 of the 5.75 million forward contracts included in the Equity Units, the Company will issue between 6,534,300 and 7,982,150 shares of its Common Stock (depending on the average closing price of the Common Stock for the 20-trading day period ending on the third trading day prior to February 16, 2006). |
| The net proceeds of the offering of the Equity Units have been allocated between the notes and the forward contracts in proportion to their respective fair market values at the time of the issuance. The present value of the Equity Units contract adjustment payments have been charged to stockholders’ equity, with an offsetting credit to liabilities. This liability is accreted over three years by interest charges to the income statement based on a constant rate calculation. Subsequent contract adjustment payments reduce this liability. Upon settlement of each forward contract, the $25 received on each purchase contract will be credited to stockholders’ equity in conjunction with the issuance of the requisite number of shares of the Company’s Common Stock. |
| Before the issuance of the Company’s Common Stock upon settlement of the purchase contracts, the purchase contracts will be reflected in the Company’s diluted earnings per share calculations using the treasury stock method. Under this method, the number of shares of the Company’s Common Stock used in calculating diluted earnings per share is deemed to be increased by the excess, if any, of the number of shares that would be issued upon settlement of the purchase contracts (based on the settlement formula applied at the end of the reporting period) over the number of shares that could be purchased by the Company in the market (at the average market price during the period) using the proceeds receivable upon settlement. |
| The 8.875% Senior Notes due July 15, 2011 (the “8.875% Notes”) rank equally in right of payment with all of Teekay’s existing and future senior unsecured debt and senior to Teekay’s existing and future subordinated debt. The 8.875% Notes are not guaranteed by any of Teekay’s subsidiaries and effectively rank behind all existing and future secured debt of Teekay and other liabilities, secured and unsecured, of its subsidiaries. |
| The Company has several term loans outstanding, which, as at December 31, 2004, totaled $588.1 million (USD denominated) and 325.8 million Euros ($443.7 million). As part of certain capital leases, the Company has two long-term time-charter contracts that are denominated in Euros, the funds from which will be used to repay the associated Euro denominated term loans. Interest payments on the U.S. Dollar denominated term loans are based on LIBOR (December 31, 2004: 2.6%; December 31, 2003: 1.2%) plus a margin. Interest payments on the EURO denominated term loans are based on EURIBOR (December 31, 2004: 2.1%) plus a margin. At December 31, 2004, the margins ranged between 0.50% and 1.3%. The term loans reduce in monthly, quarterly or semi-annual payments with varying maturities through 2023. All term loans of the Company are collateralized by first preferred mortgages on the vessels to which the loans relate, together with certain other collateral and guarantees from Teekay. Certain term loans of UNS totaling $16.8 million and certain term loans of Teekay Spain totaling $787.1 million are not guaranteed by Teekay. |
| The weighted average effective interest rate on the Company’s long term debt as at December 31, 2004 was 4.6% (December 31, 2003 – 4.5%). These rates do not reflect the effect of our interest rate swaps. (see Note 16) |
| Pursuant to long-term debt agreements, the amount of Restricted Payments, as defined, that the Company can make, including dividends and purchases of its own capital stock, was limited as of December 31, 2004, to $892.8 million. Certain loan agreements require that a minimum level of free cash be maintained. As at December 31, 2004, this amount was $100.0 million. Certain of the loan agreements also require that a minimum level of free liquidity and undrawn revolving credit lines (excluding undrawn revolving credit lines with less than 6 months to maturity) be maintained. As at December 31, 2004, this amount was $205.8 million. |
| The aggregate annual long-term debt principal repayments required to be made for the five fiscal years subsequent to December 31, 2004 are $119.5 million (2005), $219.5 million (2006), $36.4 million (2007), $284.0 million (2008), $189.3 million (2009) and $1,259.3 million (thereafter). |
| 10. | Operating Leases |
| Charters-out |
| Time charters and bareboat charters of the Company’s vessels to third parties are accounted for as operating leases. As at December 31, 2004, minimum scheduled future revenues to be received on time charters and bareboat charters currently in place are approximately $5,516.3 million, comprised of $395.8 million (2005), $337.3 million (2006), $352.2 million (2007), $351.5 million (2008), $349.8 million (2009) and $3,729.7 million (thereafter). |
| The minimum scheduled future revenues should not be construed to reflect total charter hire revenues for any of the years. |
| Charters-in |
| As at December 31, 2004, minimum commitments under vessel operating leases are approximately $1,249.3 million, comprised of $365.5 million (2005), $289.3 million (2006), $197.3 million (2007) $120.9 million (2008), $83.5 million (2009) and $192.8 million (thereafter). |
| During December 2003, the Company sold and leased back three Aframax tankers which are accounted for as vessel operating leases. The sale generated a $16.8 million deferred gain, which was included in other long-term liabilities and is being amortized over the 7-year term of the leases. |
| 11. | Capital Leases and Restricted Cash |
| Capital Leases |
| Aframax and Suezmax Tankers. As at December 31, 2004, the Company was a party to capital leases on one Aframax tanker and four Suezmax tankers. Under the terms of the lease arrangements – which include the Company’s contractual right to full operation of the vessels pursuant to bareboat charters – the Company is required to purchase these vessels at the end of their respective lease terms for a fixed price. As at December 31, 2004, the remaining commitments under these capital leases, including the purchase obligations, approximated $282.7 million (including imputed interest of $59.6 million), repayable as follows: |
Year Commitment
--------------------- ------------------
2005 ................................................................. $ 25.1 million
2006 ................................................................. 149.9 million
2007 ................................................................. 8.0 million
2008 ................................................................. 8.0 million
2009 ................................................................. 7.9 million
Thereafter ................................................................. 83.8 million
| LNG Carriers. As at December 31, 2004, the Company was a party to capital leases on two LNG carriers, which are structured as “Spanish tax leases”. Under the terms of the Spanish tax leases, the Company will purchase these vessels at the end of their respective lease terms in 2006 and 2011, both of which purchase obligations have been fully funded with restricted cash deposits described below. As at December 31, 2004, the weighted-average interest rate implicit in the Spanish tax leases was 5.7%. As at December 31, 2004, the commitments under these capital leases, including the purchase obligations, approximated 365.3 million Euros ($497.7 million) (including imputed interest of 61.9 million Euros, ($84.4 million)), repayable as follows: |
Year Commitment
--------------------- -------------------------------------------
2005 ............................................ 77.1 million Euros ($105.0 million)
2006 ............................................ 123.2 million Euros ($167.8 million)
2007 ............................................ 23.3 million Euros ($31.7 million)
2008 ............................................ 24.4 million Euros ($33.3 million)
2009 ............................................ 25.6 million Euros ($34.9 million)
Thereafter ............................................ 91.7 million Euros ($125.0 million)
| Restricted Cash |
| Under the terms of the Spanish tax leases for our LNG carriers, the Company is required to have on deposit with financial institutions an amount of cash that approximates the present value of the remaining amounts owing under the leases (including the obligations to purchase the LNG carriers at the end of the lease periods). This amount was 309.5 million Euros ($421.6 million) as at December 31, 2004. These cash deposits are restricted to being used for capital lease payments and have been fully funded with term loans (see Note 9) and a Spanish government grant. The interest rates earned on the deposits approximate the interest rate implicit in the Spanish tax leases. As at December 31, 2004, the weighted-average interest rate earned on the deposits was 5.3%. |
| The Company also maintains restricted cash deposits relating to certain term loans and other obligations. As at December 31, 2004, this amount was $27.2 million (2003 – $2.7 million). |
| 12. | Fair Value of Financial Instruments |
| Long-term debt – The fair values of the Company’s fixed-rate long-term debt are either based on 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, foreign exchange contracts, bunker fuel swap contracts and freight forward agreements – The fair value of these financial instruments, 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, foreign exchange rates, bunker fuel prices, spot market rates for vessels, and the current credit worthiness of the swap counter parties. |
| The estimated fair value of the Company’s financial instruments is as follows: |
December 31, 2004 December 31, 2003
Carrying Fair Carrying Fair
Amount Value Amount Value
$ $ $ $
--------------- ---------------- ---------------- -----------------
Cash and cash equivalents, marketable
securities, and restricted cash ............. 875,849 875,849 390,467 390,467
Long-term debt (including capital
lease obligations)........................... (2,744,545) (2,801,553) (1,636,758) (1,686,002)
Derivative instruments (note 16) ..............
Interest rate swap agreements ............... (158,482) (158,482) (9,953) (9,953)
Foreign currency contracts .................. 16,635 16,635 20,944 20,944
Bunker fuel swap contracts................... 98 98 183 183
Freight forward agreements .................. (3,276) (3,276) (1,178) (1,178)
| The Company transacts all of its derivative instruments through investment grade rated financial institutions and requires no collateral from these institutions. |
| 13. | Capital Stock |
| The authorized capital stock of Teekay at December 31, 2004 was 25,000,000 shares of Preferred Stock, with a par value of $1 per share, and 725,000,000 shares of Common Stock, with a par value of $0.001 per share. As at December 31, 2004, Teekay had 82,951,275 shares of Common Stock and no shares of Preferred Stock issued and outstanding. On May 17, 2004, Teekay effected a two-for-one stock split relating to its common stock. All earnings per share and share capital amounts disclosed in these financial statements give effect to this stock split retroactively. |
| In November 2004, Teekay announced that its Board of Directors had authorized the repurchase of up to 3,000,000 shares of its Common Stock in the open market. As at December 31, 2004, Teekay had repurchased 1,400,200 shares of Common Stock since such authorization at an average price of $43.73 per share. In January 2005, Teekay repurchased an additional 1,599,800 shares at an average price of $42.27, for a total of 3,000,000 shares repurchased. |
| In September 2003, the Company’s 1995 Stock Option Plan was terminated with respect to new grants and the Company’s 2003 Equity Incentive Plan was adopted. As at December 31, 2004, the Company had reserved pursuant to its 1995 Stock Option Plan and 2003 Equity Incentive Plan (collectively referred to as the “Plans”) 6,716,413 shares of Common Stock for issuance upon exercise of options or equity awards granted or to be granted. During the years ended December 31, 2004, 2003, and 2002, the Company granted options under the Plans to acquire up to 833,840, 2,119,160, and 2,052,050 shares of Common Stock, respectively, to certain eligible officers, employees, and directors of the Company. The options under the Plans have a 10-year term and vest equally over three years from the grant date, except for one grant of 50,000 options which will vest 100% on December 31, 2006. |
| During 2004, the Company granted 14,260 shares of restricted stock awards (2003 – 10,000) to certain of the Company’s Directors. The stock will be released from a forfeiture provision equally over three years from the date of the award. |
| During 2003, the Company granted 72,500 shares of restricted stock with a fair value of $1.4 million, based on the quoted market price, as compensation to one of the Company’s executive officers. |
| A summary of the Company’s stock option activity and related information for the years ended December 31, 2004, 2003 and 2002, is as follows: |
December 31, 2004 December 31, 2003 December 31, 2002
------------------------ ------------------------- -------------------------
Weighted- Weighted- Weighted-
Average Average Average
Options Exercise Options Exercise Options Exercise
(000's) Price (000's) Price (000's) Price
# $ # $ # $
---------- ------------- ----------- ------------- ---------- --------------
Outstanding-beginning of year.. 7,254 17.18 7,014 15.73 5,480 14.02
Granted........................ 834 33.67 2,119 19.55 2,052 19.56
Exercised...................... (3,125) 16.41 (1,764) 14.17 (380) 11.08
Forfeited...................... (242) 19.39 (115) 19.64 (138) 16.93
---------- ----------- ----------
Outstanding-end of year........ 4,721 20.47 7,254 17.18 7,014 15.73
---------- ----------- ----------
Exercisable - end of year ..... 1,980 15.82 3,328 14.20 3,478 12.49
========== =========== ==========
Weighted-average fair value
of options granted during
the year (per option) ....... 9.60 4.23 4.90
| Exercise prices for the options outstanding as of December 31, 2004 ranged from $8.44 per share to $34.37 per share. These options have a weighted-average remaining contractual life of 7.1 years. |
| Further details regarding the Company’s outstanding and exercisable stock options at December 31, 2004 are as follows: |
Outstanding Options Exercisable Options
-------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Options Remaining Exercise Options Exercise
(000's) Life Price (000's) Price
Range of Exercise Prices # (years) $ # $
---------------------------------- ----------- ---------------- -------------- ------------- ---------------
$ 8.44 - $ 9.99 339 4.6 8.46 339 8.46
$10.00 - $14.99 548 4.1 12.54 548 12.54
$15.00 - $19.99 2,534 7.6 19.45 638 19.14
$20.00 - $24.99 471 6.3 20.57 455 20.59
$25.00 - $29.99 - - - - -
$30.00 - $34.37 829 9.2 33.67 - -
----------- -------------
4,721 7.1 20.47 1,980 15.82
=========== =============
| 14. | Related Party Transactions |
| As at December 31, 2004, Resolute Investments, Inc. (or Resolute ) owned 39.3% of our outstanding Common Stock. Two of our directors, C. Sean Day, who is also Chair of our Board, and Bruce Bell, are directors and the Chairman and Vice President, respectively, of Resolute. Two additional directors, Thomas Kuo-Yuen Hsu and Axel Karlshoej, are among the Managing Directors of The Kattegat Trust Company Limited, which is the trustee of the trust that owns all of Resolute’s outstanding equity. |
| Payments made by the Company to Resolute, Oceanic Bank and Trust Limited, a Bahamian bank and trust company, or companies related through common ownership in respect of port agent services, legal and administration fees, shared office costs, and consulting fees for the years ended December 31, 2004, 2003 and 2002 totaled $0.5 million, $0.5 million, and $0.9 million respectively. In addition to being a director of Resolute, Bruce Bell is also the Managing Director of Ocanic Bank and Trust Limited. |
| In 1993 the Company purchased all of the issued and outstanding shares of Palm Shipping Inc. (now Teekay Chartering Limited) from an affiliate of Resolute Investments, Inc. During the year ended December 31, 2002, the Company accrued and expensed in other (loss) income $ 6.0 million as a settlement of a contingent payment, that was required under the terms of the Palm Shipping acquisition agreement. |
| 15. | Other Loss |
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2004 2003 2002
$ $ $
--------------- -------------- -------------
Income tax expense............................................ (35,048) (36,501) (11,413)
Loss on bond repurchase....................................... (769) (5,385) -
Foreign exchange (loss) gain.................................. (42,704) (3,855) 3,897
Write-down in the carrying value of marketable securities..... - (4,910) -
Miscellaneous................................................. 10,860 4,642 (7,352)
--------------- -------------- -------------
(67,661) (46,009) (14,868)
=============== ============== =============
| During the year ended December 31, 2004, the Company incurred $1.0 million of restructuring and severance costs associated with the closure of the Company’s office in Oslo, Norway. During the year ended December 31, 2003, the Company incurred $6.4 million of restructuring costs associated with closure of the Company’s offices in Oslo, Norway and Melbourne, Australia, and severance costs related to the termination of seafaring staff. |
| 16. | Derivative Instruments and Hedging Activities |
| The Company uses derivatives only for hedging purposes. The following summarizes the Company’s risk strategies with respect to market risk from foreign currency fluctuations, changes in interest rates, spot market rates for vessels, bunker fuel prices, and the effect of these strategies on the Company’s financial statements. |
| The Company hedges portions of its forecasted expenditures denominated in foreign currencies with foreign exchange forward contracts and a portion of its bunker fuel expenditures with bunker fuel swap contracts. As at December 31, 2004, the Company was committed to foreign exchange contracts for the forward purchase of approximately Norwegian Kroner 435.5 million and Canadian Dollars 58.3 million for U.S. Dollars at an average rate of Norwegian Kroner 7.38 per U.S. Dollar and Canadian Dollar 1.29 per U.S. Dollar, respectively. The foreign exchange forward contracts mature as follows: $99.2 million in 2005; and $5.0 million in 2006. |
| The Company hedges a portion of its bunker fuel expenditures with bunker fuel swap contracts. As at December 31, 2004, the Company was committed to bunker fuel swap contracts totalling 22,650 metric tonnes with a weighted-average price of $158.14 per tonne. The fuel swap contracts expire between January and December 2005. |
| As at December 31, 2004, the Company was committed to the following interest rate swap agreements related to its LIBOR and EURIBOR based debt, whereby certain of the Company’s floating rate debt was swapped with fixed-rate obligations: |
Weighted- Interest Average Fixed Rate Principal Remaining Interest Index Amount Term Rate $ (years) (%)(1) -------------- -------------- ------------ -------------- U.S. Dollar denominated interest rate swaps LIBOR 600,000 0.8 2.8 U.S. Dollar denominated interest rate swaps (2) LIBOR 934,000 9.0 5.4 U.S. Dollar denominated interest rate swaps (3) LIBOR 328,459 21.4 6.7 Euro denominated interest rate swaps (4) (5) EURIBOR 442,401 19.4 5.9 _____________________________________________________________________________
| (1) | Excludes the margin the Company pays on its variable-rate debt (see Note 9). |
| (2) | Inception dates of swaps are 2006 ($600.0 million) and 2007 ($334.0 million). |
| (3) | Principal amounts reduce monthly to zero by the maturity dates of the swap agreements. |
| (4) | Principal amount reduces monthly to 70.1 million Euros ($95.5 million) by the maturity dates of the swap agreements. |
| (5) | Principal amount is the U.S. Dollar equivalent of 324.8 million Euros. |
| The Company hedges certain of its voyage revenues through the use of forward freight agreements. Forward freight agreements involve contracts to provide a fixed number of theoretical voyages at fixed-rates, thus hedging a portion of the Company’s exposure to the spot charter market. As at December 31, 2004, the Company was committed to forward freight agreements totaling 4.8 million metric tonnes with a notional principal amount of $40.0 million. The forward freight agreements expire between January and December 2005. |
| The Company is exposed to credit loss in the event of non-performance by the counter parties to the interest rate swap agreements, foreign exchange forward contracts, bunker fuel swap contracts, and forward freight agreements; however, the Company does not anticipate non-performance by any of the counter parties. |
| During the year ended December 31, 2004, the Company recognized a net gain of $0.9 million (2003 – net gain of $0.5 million) relating to the ineffective portion of its interest rate swap agreements and foreign currency forward contracts. The ineffective portion of these derivative instruments is presented as interest expense and other (loss) income, respectively. |
| As at December 31, 2004, the Company estimates, based on current foreign exchange rates, bunker fuel prices, interest rates and spot market rates for vessels, that it will reclassify approximately $24.9 million of net loss on derivative instruments from accumulated other comprehensive income to earnings during the next 12 months due to actual voyage, vessel operating, drydocking and general and administrative expenditures and the payment of interest expense associated with the floating-rate debt. |
| As at December 31, 2004 and 2003, the Company’s accumulated other comprehensive (loss) income consisted of the following components: |
December 31, 2004 December 31, 2003
$ $
---------------------- ----------------------
Unrealized (losses) gains on derivative instruments............ (56,132) 10,193
Unrealized gain on marketable securities....................... - 53,331
---------------------- ----------------------
(56,132) 63,524
====================== ======================
| 17. | Commitments and Contingencies |
| As at December 31, 2004, the Company was committed to the construction of seven Aframax tankers, two Suezmax tankers, three product tankers and three LNG carriers scheduled for delivery between January 2005 and March 2008, at a total cost of approximately $1,050.6 million, excluding capitalized interest. As of December 31, 2004, payments made towards these commitments totaled $239.4 million, excluding $13.2 million of capitalized interest and other miscellaneous construction costs. Long-term financing arrangements existed for $749.6 million of the unpaid cost of these vessels. It is the Company’s intention to finance the remaining unpaid amount of $61.6 million through incremental debt or surplus cash balances, or a combination thereof. As of December 31, 2004, the remaining payments required to be made under these newbuilding contracts were $363.7 million in 2005, $255.9 million in 2006, $140.9 million in 2007, and $50.7 million in 2008. Two of the Aframax tankers will be subject to 10-year long-term charters to Skaugen PetroTrans Inc., a joint venture of the Company, upon delivery in 2008. |
| Under the terms of the joint venture agreement with an entity controlled by the former controlling shareholder of Teekay Spain, Teekay will make capital contributions to the joint venture company of $50.0 million in share premium. In the event that Teekay has not contributed the $50.0 million equity prior to April 30, 2007, it will be required to pay the other partner an amount no more than $25.0 million calculated by a pre-determined formula based on the occurrence of certain future events. |
| The Company has been awarded a contract by a consortium of major oil companies to construct and install on six of its shuttle tankers volatile compound emissions plants, which reduce emissions during cargo operations. These plants are leased to the consortium of major oil companies. The construction and installation of these plants are expected to be completed by the end of 2005 at a total cost of approximately $91.3 million. As at December 31, 2004, the remaining payments required to be made towards these commitments totaled $31.5 million. |
| Teekay and certain subsidiaries of Teekay have guaranteed their share of the outstanding mortgage debt in four 50%-owned joint venture companies. As of December 31, 2004, Teekay and these subsidiaries had guaranteed $99.6 million of such debt, or 50% of the total $199.1 million in outstanding mortgage debt of the joint venture companies. The outstanding mortgage debt has maturity dates ranging from May 2008 to June 2014. These joint venture companies own an aggregate of five shuttle tankers. |
| On November 24, 2004, the Company announced that its wholly-owned subsidiary, Teekay LNG Partners L.P. (“Teekay LNG Partners”), had filed a registration statement with the U.S. Securities and Exchange Commission for an initial public offering of its common units. Teekay LNG Partners is a Marshall Islands limited partnership recently formed by the Company as part of its strategy to expand its operations in the LNG shipping sector. Teekay LNG Partners will provide LNG and crude oil marine transportation services under long-term, fixed-rate contracts with major energy and utility companies through its fleet of four LNG carriers and five Suezmax class crude oil tankers, primarily consisting of vessels the Company obtained through its acquisition of Teekay Spain in April 2004. After the offering, the Company currently anticipates that it will own approximately an 81 percent interest in the partnership (including its 2% general partner interest), which would be reduced to approximately 79 percent if the underwriters exercise in full their over-allotment option. |
| The Company enters into indemnification agreements with certain officers and directors. In addition, the Company enters into other indemnification agreements in the ordinary course of business. The maximum potential amount of future payments required under these indemnification agreements is unlimited. However, the Company believes that it maintains appropriate liability insurance that limits the exposure and enables the Company to recover any future amounts paid, less any deductible amounts pursuant to the terms of the respective policies, the amounts of which are not considered material. |
| 18. | Change in Non-Cash Working Capital Items Related to Operating Activities |
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2004 2003 2002
$ $ $
--------------- ---------------- ----------------
Accounts receivable.................................... (60,494) (26,587) (13,508)
Prepaid expenses and other assets...................... (1,189) 9,474 (5,002)
Accounts payable....................................... 11,484 14,627 27,375
Accrued liabilities.................................... 23,649 (1,770) (1,827)
--------------- ---------------- ----------------
(26,550) (4,256) 7,038
=============== ================ ================
| 19. | Vessel Sales, Vessels Held for Sale and Vessel Write-downs |
| During 2004, the Company sold 10 Aframax tankers built between 1988 and 1993, two Suezmax tankers built in 1989 and 1991, one 1993 built Very Large Crude Carrier, and one 1982 built shuttle tanker. The results for the year ended December 31, 2004 include a gain on sale from these vessels totaling $76.9 million. |
| During December 2004, the Company entered into agreements to sell eight Aframax tankers built between 1989 and 1991, and one 1986 built shuttle tanker, all scheduled to be delivered in the first quarter of 2005. The Company expects to record a gain of approximately $86.6 million relating to their sale. These vessels were reclassified on the December 31, 2004 balance sheet from vessels and equipment to vessels held for sale. |
| In December 2003, the Company also sold and leased back three Aframax tankers which are accounted for as vessel operating leases. The sale generated a $16.8 million deferred gain, which has been included in other long-term liabilities and is being amortized over the seven-year term of the leases. The amortization of this deferred gain was $2.4 million in 2004. |
| During 2003, the Company sold eight 1980‘s-built Aframax tankers and eight 1980‘s-built Panamax oil/bulk/ore carriers. The results for the year ended December 31, 2003 include a $34.7 million write-down in the book value of these vessels, partially offset by a $1.2 million gain on sale from these vessels. |
| In 2003 the International Maritime Organization (“IMO”), the United Nations’ global maritime regulatory body, announced stricter regulations governing the tanker industry on a worldwide basis. The IMO regulations, which became effective April 5, 2005, will accelerate the mandatory phase-out of single-hull tankers as well as impose a more rigorous inspection regime for older tankers. As a result of these regulations, the Company recorded a $56.9 million non-cash write-down in the fourth quarter of 2003, and reduced the estimated useful lives from 25 years to approximately 21 years for its two remaining vessels affected by these regulatory changes. |
| 20. | Earnings Per Share |
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
2004 2003 2002
$ $ $
----------------- ---------------- ----------------
Net income available for common stockholders.... 757,440 177,364 53,391
================= ================ ================
Weighted average number of common shares........ 82,829,336 79,986,746 79,261,994
Dilutive effect of employee stock options and
restricted stock awards......................... 2,189,053 1,479,548 1,242,798
Dilutive effect of Equity Units................. 2,710,648 - -
----------------- ---------------- ----------------
Common stock and common stock equivalents....... 87,729,037 81,466,294 80,504,792
================= ================ ================
Earnings per common share:
- Basic....................................... 9.14 2.22 0.67
- Diluted..................................... 8.63 2.18 0.66
| For the years ended December 31, 2003 and 2002, the anti-dilutive effect of 3.3 million and 1.8 million shares attributable to outstanding stock options and the Equity Units were excluded from the calculation of diluted earnings per share. For the year ended December 31, 2004, no outstanding stock options or Equity Units were anti-dilutive. |
| 21. | Subsequent Events |
| a) | In February 2005 the Company entered into $200.0 million of interest rate swap agreements related to its LIBOR-based debt whereby certain of the Company’s floating-rate debt will be swapped with fixed-rate obligations with a weighted-average interest rate of approximately 4.5% commencing in February, 2005 and maturing in February 2015. |
| b) | During the first quarter of 2005, the Company entered into agreements to sell three Aframax tankers built in 1988 and 1989, two Suezmax tankers, one built in 1990 and one under construction, and one Shuttle tanker built in 1991. The Company expects that the total proceeds from the sale of these vessels will be approximately $212.5 million. These vessels are scheduled to be delivered to the buyers between March 2005 and July 2005. The Company expects to record gains totaling approximately $43.5 million relating to the sale of these vessels. |
SCHEDULE A
Year Ended December 31, 2004
----------------- -------------- ---------------- --------------- ----------------
8.32% Notes Teekay
Teekay Guarantor Non-Guarantor Shipping Corp.
Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $
----------------- -------------- ---------------- --------------- ----------------
Voyage revenues 64,765 2,199,627 (45,154) 2,219,238
Operating expenses 15,140 25,841 1,402,225 (45,154) 1,398,052
----------------- -------------- ---------------- --------------- ----------------
(Loss) income from vessel (15,140) 38,924 797,402 - 821,186
operations
Net interest expense (48,963) - (54,027) - (102,990)
Equity in net income of
subsidiaries 811,509 - - (811,509) -
Other income (loss) 10,034 (32) 29,242 - 39,244
----------------- -------------- ---------------- --------------- ----------------
Net income 757,440 38,892 772,617 (811,509) 757,440
Retained earnings, beginning
of the year 1,095,650 5,107 1,343,883 (1,348,990) 1,095,650
Retained earnings adjustment (1) - (9,544) 9,544 - -
Dividends declared (42,407) - - - (42,407)
Repurchase of Common Stock (52,131) - - - (52,131)
----------------- -------------- ---------------- --------------- ----------------
Retained earnings, end
of the year 1,758,552 34,455 2,126,044 (2,160,499) 1,758,552
================= ============== ================ =============== ================
| (1) | During 2003 and 2004, the Company repurchased $129.1 million of the 8.32% Notes. Consequently, four of the Company’s guarantor subsidiaries were released from the guarantee of the 8.32% Notes during the second quarter of 2004. |
Year Ended December 31, 2003
----------------- -------------- ---------------- --------------- ----------------
8.32% Notes Teekay
Teekay Guarantor Non-Guarantor Shipping Corp.
Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $
----------------- -------------- ---------------- --------------- ----------------
Voyage revenues - 59,571 1,565,727 (49,203) 1,576,095
Operating expenses 13,417 41,335 1,277,582 (49,203) 1,283,131
----------------- -------------- ---------------- --------------- ----------------
(Loss) income from vessel
operations (13,417) 18,236 288,145 - 292,964
Net interest expense (35,326) - (41,752) - (77,078)
Equity in net income of
subsidiaries 216,690 - - (216,690) -
Other income (loss) 9,417 (17) (47,922) - (38,522)
----------------- -------------- ---------------- --------------- ----------------
Net income 177,364 18,219 198,471 (216,690) 177,364
Retained earnings (deficit),
beginning of the year 954,005 (13,112) 1,145,412 (1,132,300) 954,005
Dividends declared (35,719) - - - (35,719)
Repurchase of Common Stock - - - - -
----------------- -------------- ---------------- --------------- ----------------
Retained earnings,
end of the year 1,095,650 5,107 1,343,883 (1,348,990) 1,095,650
================= ============== ================ =============== ================
(See Note 9)
SCHEDULE A
Year Ended December 31, 2002
----------------- -------------- ---------------- --------------- ----------------
8.32% Notes Teekay
Teekay Guarantor Non-Guarantor Shipping Corp.
Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $
----------------- -------------- ---------------- --------------- ----------------
Voyage revenues - 36,480 889,079 (142,232) 783,327
Operating expenses 17,191 34,314 754,708 (142,232) 663,981
----------------- -------------- ---------------- --------------- ----------------
(Loss) income from vessel (17,191) 2,166 134,371 - 119,346
operations
Net interest expense (41,575) - (12,905) - (54,480)
Equity in net income of
subsidiaries 111,177 - - (111,177) -
Other income (loss) 980 - (12,455) - (11,475)
----------------- -------------- ---------------- --------------- ----------------
Net income 53,391 2,166 109,011 (111,177) 53,391
Retained earnings (deficit),
beginning of the year 935,660 (15,278) 1,036,401 (1,021,123) 935,660
Dividends declared (34,079) - - - (34,079)
Repurchase of Common Stock (967) - - - (967)
----------------- -------------- ---------------- --------------- ----------------
Retained earnings (deficit),
end of the year 954,005 (13,112) 1,145,412 (1,132,300) 954,005
================= ============== ================ =============== ================
(See Note 9)
SCHEDULE A
Year Ended December 31, 2004
----------------- -------------- ---------------- --------------- ----------------
8.32% Notes Teekay
Teekay Guarantor Non-Guarantor Shipping Corp.
Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $
----------------- -------------- ---------------- --------------- ----------------
Net income 757,440 38,892 772,617 (811,509) 757,440
Other comprehensive income
Unrealized gain on
available-for-sale securities - - 39,369 - 39,369
Reclassification adjustment
for gain on available-
for-sale securities
included in net income - - (92,539) - (92,539)
Unrealized loss on derivative
instruments - - (94,822) - (94,822)
Reclassification adjustment for
loss on derivative instruments - - 28,336 - 28,336
----------------- -------------- ---------------- --------------- ----------------
Comprehensive income 757,440 38,892 652,961 (811,509) 637,784
================= ============== ================ =============== ================
Year Ended December 31, 2003
----------------- -------------- ---------------- --------------- ----------------
8.32% Notes Teekay
Teekay Guarantor Non-Guarantor Shipping Corp.
Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $
----------------- -------------- ---------------- --------------- ----------------
Net income 177,364 18,219 198,471 (216,690) 177,364
Other comprehensive income
Unrealized gain on
available-for-sale securities - - 53,540 - 53,540
Reclassification adjustment
for loss on available-
for-sale securities
included in net income - - 4,899 - 4,899
Unrealized gain on derivative
instruments - - 8,639 - 8,639
Reclassification adjustment for
gain on derivative instruments - - (459) - (459)
----------------- -------------- ---------------- --------------- ----------------
Comprehensive income 177,364 18,219 265,090 (216,690) 243,983
================= ============== ================ =============== ================
Year Ended December 31, 2002
----------------- -------------- ---------------- --------------- ----------------
8.32% Notes Teekay
Teekay Guarantor Non-Guarantor Shipping Corp.
Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $
----------------- -------------- ---------------- --------------- ----------------
Net income 53,391 2,166 109,011 (111,177) 53,391
Other comprehensive income
Unrealized loss on
available-for-sale securities - - (239) - (239)
Reclassification adjustment
for loss on available-
for-sale securities
included in net income - - 737 - 737
Unrealized gain on derivative
instruments - - 3,023 - 3,023
Reclassification adjustment for
gain on derivative instruments - - (1,815) - (1,815)
----------------- -------------- ---------------- --------------- ----------------
Comprehensive income 53,391 2,166 110,717 (111,177) 55,097
================= ============== ================ =============== ================
(See Note 9)
SCHEDULE A
As at December 31, 2004
----------------------------------------------------------------------------------
8.32% Notes Teekay
Teekay Guarantor Non-Guarantor Shipping Corp.
Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $
------------------ ------------ ----------------- --------------- ----------------
ASSETS
Cash and cash equivalents - - 427,037 - 427,037
Other current assets 5,292 326 630,227 (145,000) 490,845
------------------ ------------ ----------------- --------------- ----------------
Total current assets 5,292 326 1,057,264 (145,000) 917,882
Vessels and equipment (net) - 86,525 3,531,287 (86,525) 3,531,287
Advances due from subsidiaries 135,617 - - (135,617) -
Investment in direct financing
leases - - 109,215 - 109,215
Other assets (principally
restricted cash and
investments in subsidiaries) 2,726,786 - 438,618 (2,726,786) 438,618
Investment in joint ventures - - 59,637 - 59,637
Intangible assets - net - - 277,511 - 277,511
Goodwill - - 169,590 - 169,590
------------------ ------------ ----------------- --------------- ----------------
2,867,695 86,851 5,643,122 (3,093,928) 5,503,740
================== ============ ================= =============== ================
LIABILITIES & STOCKHOLDERS'
EQUITY
Current liabilities 26,120 1,062 532,227 (145,000) 414,409
Long-term debt and other long-term
liabilities 548,085 - 2,289,164 - 2,837,249
Due (from) to affiliates - (94,594) 594,374 (499,780) -
------------------ ------------ ----------------- --------------- ----------------
Total liabilities 574,205 (93,532) 3,415,765 (644,780) 3,251,658
------------------ ------------ ----------------- --------------- ----------------
Minority Interest - - 14,724 - 14,724
Stockholders' Equity
Capital stock 534,938 11 5,955 (5,966) 534,938
Contributed capital - 145,917 136,766 (282,683) -
Retained earnings 1,758,552 34,455 2,126,044 (2,160,499) 1,758,552
Accumulated other comprehensive
loss - - (56,132) - (56,132)
------------------ ------------ ----------------- --------------- ----------------
Total stockholders' equity 2,293,490 180,383 2,212,633 (2,449,148) 2,237,358
------------------ ------------ ----------------- --------------- ----------------
2,867,695 86,851 5,643,122 (3,093,928) 5,503,740
================== ============ ================= =============== ================
As at December 31, 2003
----------------------------------------------------------------------------------
8.32% Notes Teekay
Teekay Guarantor Non-Guarantor Shipping Corp.
Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $
------------------ ------------ ----------------- --------------- ----------------
ASSETS
Cash and cash equivalents - - 292,284 - 292,284
Other current assets 1,429 344 282,476 (96,000) 188,249
------------------ ------------ ----------------- --------------- ----------------
Total current assets 1,429 344 574,760 (96,000) 480,533
Vessels and equipment (net) - 242,182 2,332,678 - 2,574,860
Advances due from subsidiaries 309,071 - - (309,071) -
Investment in direct financing
leases - - 73,073 - 73,073
Other assets (principally
marketable securities and
investments in subsidiaries) 1,911,491 - 155,844 (1,911,491) 155,844
Investment in joint ventures - - 54,392 - 54,392
Intangible assets - net - - 118,588 - 118,588
Goodwill - - 130,754 - 130,754
------------------ ------------ ----------------- --------------- ----------------
2,221,991 242,526 3,440,089 (2,316,562) 3,588,044
================== ============ ================= =============== ================
LIABILITIES & STOCKHOLDERS'
EQUITY
Current liabilities 25,371 1,746 343,515 (96,000) 274,632
Long-term debt and other long-term
liabilities 608,317 - 1,037,946 - 1,646,263
Due (from) to affiliates - (133,657) 493,190 (359,533) -
------------------ ------------ ----------------- --------------- ----------------
Total liabilities 633,688 (131,911) 1,874,651 (455,533) 1,920,895
------------------ ------------ ----------------- --------------- ----------------
Minority Interest - - 15,322 - 15,322
Stockholders' Equity
Capital stock 492,653 23 5,943 (5,966) 492,653
Contributed capital - 369,307 136,766 (506,073) -
Retained earnings 1,095,650 5,107 1,343,883 (1,348,990) 1,095,650
Accumulated other comprehensive
loss - - 63,524 - 63,524
------------------ ------------ ----------------- --------------- ----------------
Total stockholders' equity 1,588,303 374,437 1,550,116 (1,861,029) 1,651,827
------------------ ------------ ----------------- --------------- ----------------
2,221,991 242,526 3,440,089 (2,316,562) 3,588,044
================== ============ ================= =============== ================
(See Note 9)
SCHEDULE A
Year Ended December 31, 2004
--------------------------------------------------------------------------------
8.32% Notes Teekay
Teekay Guarantor Non-Guarantor Shipping Corp.
Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $
--------------- ------------- ----------------- -------------- -----------------
Cash and cash equivalents
provided by (used for)
OPERATING ACTIVITIES
--------------- ------------- ----------------- -------------- -----------------
Net cash flow from
operating activities (62,726) 48,384 829,046 814,704
--------------- ------------- ----------------- -------------- -----------------
FINANCING ACTIVITIES
Net proceeds from
long-term debt - - 1,621,221 - 1,621,221
Scheduled repayments of
long-term debt (58,408) - (158,015) - (216,423)
Prepayments of long-term
debt - - (1,731,223) - (1,731,223)
Other 121,134 (48,159) (116,953) - (43,978)
--------------- ------------- ----------------- -------------- -----------------
Net cash flow from
financing activities 62,726 (48,159) (384,970) - (370,403)
--------------- ------------- ----------------- -------------- -----------------
INVESTING ACTIVITIES
Expenditures for vessels
and equipment - (225) (548,362) - (548,587)
Purchase of Teekay Shipping
Spain S.L. - - (286,993) - (286,993)
Proceeds from dispositions
of vessels and equipment - - 440,556 - 440,556
Other - - 85,476 - 85,476
--------------- ------------- ----------------- -------------- -----------------
Net cash flow from
investing activities - (225) (309,323) - (309,548)
--------------- ------------- ----------------- -------------- -----------------
Increase in cash and cash
equivalents - - 134,753 - 134,753
Cash and cash equivalents,
beginning of the year - - 292,284 - 292,284
--------------- ------------- ----------------- -------------- -----------------
Cash and cash equivalents,
end of the year - - 427,037 - 427,037
=============== ============= ================= ============== =================
Year Ended December 31, 2003
--------------------------------------------------------------------------------
8.32% Notes Teekay
Teekay Guarantor Non-Guarantor Shipping Corp.
Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $
--------------- ------------- ----------------- -------------- -----------------
Cash and cash equivalents
provided by (used for)
OPERATING ACTIVITIES
--------------- ------------- ----------------- -------------- -----------------
Net cash flow from
operating activities (25,377) 28,996 451,956 - 455,575
--------------- ------------- ----------------- -------------- -----------------
FINANCING ACTIVITIES
Net proceeds from
long-term debt 80,594 - 1,900,234 - 1,980,828
Scheduled repayments of
long-term debt - - (62,585) - (62,585)
Prepayments of long-term
debt - - (1,466,815) - (1,466,815)
Other (55,217) (28,572) 79,198 - (4,591)
--------------- ------------- ----------------- -------------- -----------------
Net cash flow from
financing activities 25,377 (28,572) 450,032 - 446,837
--------------- ------------- ----------------- -------------- -----------------
INVESTING ACTIVITIES
Expenditures for vessels
and equipment - (424) (372,009) - (372,433)
Purchase of Navion AS - - (704,734) - (704,734)
Proceeds from dispositions of
vessels and equipment - 242,111 - 242,111
Other - - (59,697) - (59,697)
--------------- ------------- ----------------- -------------- -----------------
Net cash flow from
investing activities - (424) (894,329) - (894,753)
--------------- ------------- ----------------- -------------- -----------------
Increase in cash and
cash equivalents - - 7,659 - 7,659
Cash and cash equivalents,
beginning of the year - - 284,625 - 284,625
--------------- ------------- ----------------- -------------- -----------------
Cash and cash equivalents,
end of the year - - 292,284 - 292,284
=============== ============= ================= ============== =================
Year Ended December 31, 2002
--------------------------------------------------------------------------------
8.32% Notes Teekay
Teekay Guarantor Non-Guarantor Shipping Corp.
Shipping Corp. Subsidiaries Subsidiaries Eliminations & Subsidiaries
$ $ $ $ $
--------------- ------------- ----------------- -------------- -----------------
Cash and cash equivalents
provided by (used for)
OPERATING ACTIVITIES
--------------- ------------- ----------------- -------------- -----------------
Net cash flow from
operating activities (51,914) 16,531 214,914 - 179,531
--------------- ------------- ----------------- -------------- -----------------
FINANCING ACTIVITIES
Net proceeds from
long-term debt - - 255,185 - 255,185
Scheduled repayments of
long-term debt - - (51,830) - (51,830)
Prepayments of long-term
debt - - (8,000) - (8,000)
Other 51,914 (14,953) (69,312) - (32,351)
--------------- ------------- ----------------- -------------- -----------------
Net cash flow from
financing activities 51,914 (14,953) 126,043 - 163,004
--------------- ------------- ----------------- -------------- -----------------
INVESTING ACTIVITIES
Expenditures for vessels
and equipment - (1,578) (134,072) - (135,650)
Purchase of Navion AS - - (76,000) - (76,000)
Other - - (21,210) - (21,210)
--------------- ------------- ----------------- -------------- -----------------
Net cash flow from
investing activities - (1,578) (231,282) - (232,860)
--------------- ------------- ----------------- -------------- -----------------
Increase in cash and
cash equivalents - - 109,675 - 109,675
Cash and cash equivalents,
beginning of the year - - 174,950 - 174,950
--------------- ------------- ----------------- -------------- -----------------
Cash and cash equivalents,
end of the year - - 284,625 - 284,625
=============== ============= ================= ============== =================
(See Note 9)
EXHIBIT 4.28
Teekay Shipping Corporation
Annual Executive Bonus Plan
Summary
The Annual Executive Bonus Plan (the “Plan”) of Teekay Shipping Corporation (the “Company”) is a variable cash incentive program designed to:
| • | Attract, retain and motivate a high-caliber executive leadership team; |
| • | Pay competitively and consistently within an appropriately defined market; |
| • | Align executive compensation with shareholder interests; and |
| • | Focus on matching reward with the executive’s performance and the Company’s financial performance in the fiscal year through comparison to established targets and the financial performance of peer companies. |
Eligibility
Participants are approved solely at the discretion of the Compensation and Human Resources Committee (the “Committee”).
Administration
The Committee is responsible for administering the Plan. The Committee has the authority to review and recommend for Board approval the inception of the Plan and its operation, including but not limited to, the authority to:
| • | Review and approve any amendments to the Plan; |
| • | Adopt rules for the administration, interpretation and application of the Plan; |
| • | Interpret, amend or revoke any such rules; |
| • | Approve eligible participants; and |
| • | Review and approve annual bonus awards. |
The Chief Executive Officer ("CEO") will administer and interpret this plan under the authority of the Committee as its delegate, and make recommendations to the Committee in the exercise of its powers.
Award Determination
The Committee, in its sole discretion, will approve “target bonuses” for each participant. These target bonuses are a percentage of the participant’s base salary which ranges between 35 to 60% of annual base salary. The target bonuses are adjusted upwards or downwards based upon a “Performance Factor”, which is comprised of an Individual Performance Factor (“IPF”) (33% weighting) and a Company Performance Factor (“CPF”) (67% weighting).
For each participant in the Plan, the CEO approves an IPF that reflects the participant’s performance relative to the individual performance expectations for the performance period. Individual performance expectations vary to reflect each executive’s role in the Company. A participant's performance can result in an IPF between 0 and 2.0.
The Committee approves the CPF by assessing the Company's financial performance against pre-established annual goals for the following components:
| • | Total shareholder return (“TSR”) relative to the TSR of Company’s peer group (1); |
| • | Return on invested capital (“ROIC”) for the Company’s spot tanker segment relative to ROIC of the Company’s spot tanker peer group (1); and |
| • | ROIC for each of the Company’s segments relative to its weighted average cost of capital (“WACC”) (2). |
The CPF is based on a weighted-average of the performance factors for these components.
Award Payouts
Unless otherwise determined by the Committee, the bonus period will be for the most recently completed fiscal year and will be paid on an annual basis, typically in March of the following year. Although there is no maximum bonus that any participant may receive under the Plan, the Committee has the authority to recalibrate the bonus formula to achieve compensation levels that are within intended ranges based upon compensation benchmarking surveys.
| (1) | This component of the CPF results in a performance factor between 0 and 2.0. |
| (2) | This component of the CPF results in a performance factor of 1.0 when the ROIC for each of the Company’s segments is equivalent to its WACC. The performance factor increases 0.5 for each percentage point that ROIC is greater than WACC. There is no maximum performance factor; however, if ROIC is less than WACC this performance factor is zero. |
EXHIBIT 8.1
The following is a list of the Company’s significant subsidiaries as at March 15, 2005.
State or Proportion of
Jurisdiction of Ownership
Incorporation Interest
Name of Significant Subsidiary
BONA SHIPHOLDING LTD............................................... BERMUDA 100%
IUM SHIPMANAGEMENT AS.............................................. NORWAY 51%
NAVION OFFSHORE LOADING AS......................................... NORWAY 100%
NAVION SHIPPING LTD................................................ MARSHALL ISLANDS 100%
NORSK TEEKAY AS.................................................... NORWAY 100%
NORSK TEEKAY HOLDINGS LTD.......................................... MARSHALL ISLANDS 100%
SINGLE SHIP COMPANIES (3).......................................... AUSTRALIA 100%
SINGLE SHIP COMPANIES (4).......................................... SPAIN 100%
SINGLE SHIP LIMITED LIABILITY COMPANIES (63)....................... MARSHALL ISLANDS 100%
TEEKAY CHARTERING LIMITED.......................................... MARSHALL ISLANDS 100%
TEEKAY LIGHTERING SERVICES LLC..................................... MARSHALL ISLANDS 100%
TEEKAY NAVION OFFSHORE LOADING PTE LTD............................. SINGAPORE 100%
TEEKAY NORDIC HOLDINGS INC......................................... MARSHALL ISLANDS 100%
TEEKAY NORGE AS.................................................... NORWAY 100%
TEEKAY NORWAY AS................................................... NORWAY 100%
TEEKAY SHIPPING (CANADA) LTD....................................... CANADA 100%
TEEKAY SHIPPING LIMITED............................................ BAHAMAS 100%
TEEKAY SHIPPING SPAIN SL........................................... SPAIN 100%
UGLAND NORDIC SHIPPING AS.......................................... NORWAY 100%
EXHIBIT 12.1
I, Bjorn Moller, President and Chief Executive Officer of the company, certify that:
| 1. | I have reviewed this report on Form 20-F of Teekay Shipping Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| c) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
| Dated: April 7, 2005 |
By:
/s/ Bjorn Moller
Bjorn Moller President and Chief Executive Officer |
EXHIBIT 12.2
I, Peter Evensen, Executive Vice President and Chief Financial Officer of the company, certify that:
| 1. | I have reviewed this report on Form 20-F of Teekay Shipping Corporation; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. | The company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the company and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| c) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the period covered by the report that has materially affected, or is reasonably likely to materially affect, the company’s internal control over financial reporting; and |
| 5. | The company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s internal control over financial reporting. |
| Dated: April 7, 2005 |
By:
/s/ Peter Evensen
Peter Evensen Executive Vice President and Chief Financial Officer |
EXHIBIT 13.1
In connection with the annual report of Teekay Shipping Corporation (the “ Company ”) on Form 20-F for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “ Form 20-F ”), I Bjorn Moller, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Form 20-F fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2) The information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: April 7, 2005
By:
/s/ Bjorn Moller
Bjorn Moller
President and Chief Executive Officer
EXHIBIT 13.2
In connection with the annual report of Teekay Shipping Corporation (the “ Company ”) on Form 20-F for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “ Form 20-F ”), I Peter Evensen, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Form 20-F fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2) The information contained in the Form 20-F fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: April 7, 2005
By:
/s/ Peter Evensen
Peter Evensen
Executive Vice President and Chief Financial Officer
EXHIBIT 15.1
We are aware of the incorporation by reference in the Registration Statement (Form S-8 No. 333-42434) pertaining to the Amended 1995 Stock Option Plan of Teekay Shipping Corporation (“Teekay”), in the Registration Statement (Form S-8 No. 333-119564) pertaining to the 2003 Equity Incentive Plan and the Amended 1995 Stock Option Plan of Teekay, in the Registration Statement (Form F-3 No. 333-102594) and related Prospectus of Teekay for the registration of up to $500,000,000 of its common stock, preferred stock, warrants, stock purchase contracts, stock purchase units or debt securities and in the Registration Statement (Form F-3 No. 33-97746) and related Prospectus of Teekay for the registration of 2,000,000 shares of Teekay common stock under its Dividend Reinvestment Plan of our report dated February 18, 2005, with respect to the consolidated financial statements and the financial schedule of Teekay included in the Annual Report (Form 20-F) for the year ended December 31, 2004.
|
Vancouver, Canada,
April 7, 2005 |
/s/ ERNST & YOUNG LLP
Chartered Accountants |
CONFORMED COPY
CREDIT FACILITY
AGREEMENT
between
TEEKAY SHIPPING CORPORATION
as Parent Guarantor
TEEKAY NORDIC HOLDINGS
INCORPORATED
as Original Borrower
NORDEA BANK FINLAND
PLC, NEW YORK BRANCH
as Bookrunner
NORDEA BANK FINLAND PLC,
NEW YORK BRANCH and DNB NOR BANK ASA
as Lead Arrangers
NORDEA BANK FINLAND
PLC, NEW YORK BRANCH
as Administrative Agent
and as Security Trustee
and
WHITE & CASE
7-11 Moorgate
London EC2R 6HH
Page
1. DEFINITIONS AND INTERPRETATION.............................................................................1 2. THE CREDIT FACILITY.......................................................................................22 3. CONDITIONS................................................................................................23 4. DRAWDOWN..................................................................................................24 5. SCHEDULED COMMITMENT REDUCTIONS AND REPAYMENTS............................................................25 6. CANCELLATION..............................................................................................26 7. VOLUNTARY PREPAYMENT......................................................................................27 8. MANDATORY COMMITMENT REDUCTIONS AND PREPAYMENTS...........................................................28 9. INTEREST..................................................................................................29 10. MARKET DISRUPTION AND ALTERNATIVE INTEREST RATES.......................................................30 11. FEES...................................................................................................31 12. TAXES..................................................................................................32 13. TAX RECEIPTS...........................................................................................33 14. INCREASED COSTS........................................................................................33 15. ILLEGALITY.............................................................................................34 16. REPRESENTATIONS AND WARRANTIES.........................................................................35 17. FINANCIAL INFORMATION..................................................................................40 18. FINANCIAL CONDITION....................................................................................43 19. COVENANTS..............................................................................................44 20. SALE AND LEASEBACK.....................................................................................52 21. ADDITIONAL OBLIGORS AND NEW VESSELS....................................................................55 22. EVENTS OF DEFAULT......................................................................................56 23. DEFAULT INTEREST.......................................................................................60 24. GUARANTEE AND INDEMNITY................................................................................61 25. ADMINISTRATIVE AGENT AND OBLIGORS' AGENT...............................................................64 26. BORROWERS' INDEMNITIES.................................................................................70 27. CURRENCY OF ACCOUNT....................................................................................71 28. PAYMENTS...............................................................................................72 29. SHARING AMONG THE FINANCE PARTIES......................................................................73 30. CALCULATIONS AND ACCOUNTS..............................................................................74 31. ASSIGNMENTS AND TRANSFERS..............................................................................76 32. COSTS AND EXPENSES.....................................................................................78 33. REMEDIES AND WAIVERS...................................................................................79 34. NOTICES AND DELIVERY OF INFORMATION....................................................................79 35. ENGLISH LANGUAGE.......................................................................................82 36. PARTIAL INVALIDITY.....................................................................................82 37. AMENDMENTS.............................................................................................82 38. THIRD PARTY RIGHTS.....................................................................................84 39. COUNTERPARTS...........................................................................................84 40. GOVERNING LAW..........................................................................................8441. JURISDICTION...........................................................................................84 SCHEDULE 1 LENDERS AND COMMITMENTS..............................................................................86 SCHEDULE 2 FORM OF TRANSFER CERTIFICATE.........................................................................88 SCHEDULE 3......................................................................................................92 PART I - CONDITIONS PRECEDENT TO FIRST DRAWDOWN........................................................92 PART II - CONDITIONS SUBSEQUENT DOCUMENTS..............................................................95 PART III - FORM OF OFFICER'S CERTIFICATE...............................................................96 PART IV - INITIAL SECURITY DOCUMENTS..................................................................100 SCHEDULE 4 FORM OF DRAWDOWN REQUEST............................................................................101 SCHEDULE 5 ASSOCIATED COSTS RATE...............................................................................103 SCHEDULE 6.....................................................................................................106 PART I - PERMITTED SALE AND LEASEBACK.................................................................106 PART II - FORM OF ACCESSION NOTICE....................................................................107 PART III - ACCESSION DOCUMENTS........................................................................110 PART IV - FORM OF NOVATION DEED.......................................................................113 SCHEDULE 7 FORM OF COMPLIANCE CERTIFICATE......................................................................116 SCHEDULE 8 COMMITMENT REDUCTION SCHEDULE.......................................................................117 SCHEDULE 9 COLLATERAL VESSELS..................................................................................118 SCHEDULE 10 COLLATERAL VESSEL PROVISIONS.......................................................................121
THIS AGREEMENT is dated 1 September 2004 (this “ Agreement ”) and made between:
(1) TEEKAY SHIPPING CORPORATION , a Republic of Marshall Islands corporation (the “ Parent Guarantor ”)'
(2) TEEKAY NORDIC HOLDINGS INCORPORATED , a Republic of Marshall Islands corporation (the “ Original Borrower”);
(3) NORDEA BANK FINLAND PLC, NEW YORK BRANCH (the “ Bookrunner ”);
(4) NORDEA BANK FINLAND PLC, NEW YORK BRANCH and DNB NOR BANK ASA (the “ Lead Arrangers ”);
(5) NORDEA BANK FINLAND PLC, NEW YORK BRANCH (as agent for and on behalf of the Finance Parties, the “Administrative Agent ”);
(6) NORDEA BANK FINLAND PLC, NEW YORK BRANCH (as security trustee for and on behalf of the Finance Parties, the “ Security Trustee ”);
(7) THE SUBSIDIARY GUARANTORS (as defined below); and
(8) THE LENDERS (as defined below).
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
Except as otherwise defined, in this Agreement the following terms have the meanings set out below.
“ Accession Notice ” means a duly completed accession notice in the form of Part II of Schedule 6 ( Form of Accession Notice ).
“ Additional Appraisal Package ” means an appraisal relating to a Collateral Vessel provided or to be provided pursuant to and in accordance with Clause 17.6 ( Additional Appraisal Package ).
“ Additional Obligor ” means the Leaseback Borrower or any Substitute Vessel Owner, in each case, as the context may require.
“ Advance ” means, save as otherwise provided in this Agreement, an advance made or to be made (as from time to time reduced by repayment) by the Lenders under Tranche A and/or Tranche B, as the case may be.
“ Affiliate ” means in relation to a person, any other person directly or indirectly controlling, controlled by or under direct or indirect common control with that person, and for these purposes “ control ” shall be construed so as to include the ownership, either directly or indirectly and legally or beneficially, of more than 33% of the issued share capital of a company or the ability to control, either directly or indirectly, the affairs or the composition of the board of directors (or equivalent of it) of a company and “ controlling ”, “ controlled by ” and “under common control with ” shall be construed accordingly.
“ Annual Appraisal Package ” means an appraisal prepared in relation to a Collateral Vessel provided or to be provided pursuant to Clause 17.5 ( Annual Appraisal Packages ).
“ Appraisal Package ” means in respect of a Collateral Vessel, the Initial Appraisal Package or if applicable, the most recent Annual Appraisal Package or Additional Appraisal Package (as the case may be), relating to such Collateral Vessel.
“ Approved Valuer ” means any one of H. Clarkson & Co Ltd, Simpson Spence & Young Shipbrokers Ltd, Fearnley AS, R.S. Platou AS or P. Bassoe AS or such other valuer as may be approved from time to time by the Administrative Agent.
“ Associated Costs Rate ” means, in relation to any Advance or Unpaid Sum, the rate determined in accordance with Schedule 5 ( Associated Costs Rate ).
“ Authorisation ” means an authorisation, consent, approval, resolution, licence, exemption, filing, notarisation or registration.
“ Available Commitments ” means the aggregate of the Tranche A Available Commitments and the Tranche B Available Commitments.
“ Available Credit ” means, on any day, the sum of Free Liquidity and the aggregate of all amounts available to be drawn by members of the Group under any revolving credit lines (excluding undrawn revolving credit lines with less than 6 months to maturity) including, as applicable, pursuant to this Agreement.
“ Bareboat Charters ” means the bareboat charter arrangements in force at the date of this Agreement relating to the Collateral Vessels ‘Nordic Brasilia’, ‘Nordic Spirit’, ‘Petroatlantic’ and ‘Petronordic’, together with any other bareboat charters entered into from time to time pursuant to and in accordance with Clause 19.10(a) (Chartering ).
“ Borrowers ” means the Original Borrower and (if applicable) the Leaseback Borrower and “ Borrower ” means either of them, as the context requires.
“ Break Costs ” means the amount (if any) by which:
| (a) | the interest which a Lender should have received for the period from the date of receipt of all or any part of its participation in an Advance or Unpaid Sum to the last day of the current Interest Period or Term in respect of that Advance or Unpaid Sum, had the principal amount of such Advance or Unpaid Sum received been paid on the last day of that Interest Period or Term; |
exceeds:
| (b) | the amount which that Lender would be able to obtain by placing an amount equal to the principal amount of such Advance or Unpaid Sum received or recovered by it on deposit with a leading bank in the London interbank market for a period starting on the Business Day following such receipt or recovery and ending on the last day of the current Interest Period or Term. |
“ Business Day ” means a day (other than a Saturday or Sunday) on which banks generally are open for business in London and New York.
“ Centre of Main Interests ” has the meaning given to it in Article 3(1) of Council Regulation (EC) NO 1346/2000 of 29 May, 2000 on Insolvency Proceedings.
| (a) | in respect of the Parent Guarantor, any person or two or more persons acting in concert (excluding Resolute Investments Inc. or any successor thereto) acquires: |
| (i) | legally or beneficially and either directly or indirectly, more than 50% of the entire issued share capital of the Parent Guarantor; or |
| (ii) | the right or ability to control, either directly or indirectly, the affairs or the composition of the majority of the board of directors (or equivalent of it) of the Parent Guarantor; |
| (b) | in respect of the Original Borrower, the Parent Guarantor ceases to own: |
| (i) | legally or beneficially and either directly or indirectly, the entire issued share capital of the Original Borrower; or |
| (ii) | the right or ability to control, either directly or indirectly, the affairs or the composition of the board of directors (or equivalent of it) of the Original Borrower; and |
| (c) | in respect of the Leaseback Borrower, any change in the constitution or identity of the partnership of the Leaseback Borrower which has not been previously approved by the Administrative Agent (acting reasonably), provided that this paragraph shall not apply to a transfer of an equity interest in the Leaseback Borrower by an entity (x) to another member of its group or (y) to a member of the Group, if the completion of such transfer has been notified to the Administrative Agent within 10 Business Days following the occurrence of the same, |
in each case by virtue of ownership of share capital, contract or otherwise.
“ Charterer ” means, from time to time, each member of the Group or (if applicable) the Leaseback Group which has entered into a Relevant Third Party Charter with a third party in respect of a Collateral Vessel to the extent that such Relevant Third Party Charter remains in effect at the relevant time.
“ Collateral Vessels ” means the Tranche A Vessels and the Tranche B Vessels.
“ Collateral Vessel Provisions ” means each of the terms and conditions contained in Schedule 10 ( Collateral Vessel Provisions ).
“ Commitment ” means, in relation to a Lender at any time, its Tranche A Commitment and/or its Tranche B Commitment, as the context may require.
“ Commitment Reduction Date ” means each of the dates referred to in the applicable column of Schedule 8 (Commitment Reduction Schedule ), provided that if any such day is not a Business Day, the Commitment Reduction Date will be the next succeeding Business Day in the then current calendar month (if there is one) or the immediately preceding Business Day (if there is not).
“ Compliance Certificate ” means a certificate substantially in the form set out in Schedule 7 ( Form of Compliance Certificate ).
“ Credit Facility ” means the credit facility to be provided to the Borrowers pursuant to Clause 2.1 ( Revolving Credit Facility ) and Clause 2.2 ( Consolidation on Leaseback Completion Date ).
“ Cross Guarantee Obligations ” means, from time to time, the aggregate of:
| (a) | the Tranche A Obligations; |
| (b) | the Tranche B Obligations; and |
| (c) | all other amounts due and payable to any Finance Party by the Borrowers (or either of them) under the Finance Documents, |
in each case, as applicable at the relevant time.
“ Cross Guarantors ” means the Original Borrower and the Subsidiary Guarantors (excluding the Tranche A Vessel Owners).
“ Default ” means an Event of Default or any event or circumstance which (with the expiry of a grace period, the giving of notice, the making of any determination under any of the Finance Documents or any combination of any of the foregoing) would be an Event of Default.
“ Disposal Date ” in relation to a sale or other disposal to a third party of a Collateral Vessel and except as otherwise provided, means the date on which such sale or other disposal is completed by delivery of that Collateral Vessel to the relevant person acquiring such Collateral Vessel.
“ Document of Compliance ” has the meaning given to it in the ISM Code.
“ Drawdown Date ” means the date on which an Advance is (or is requested to be) made under this Agreement.
“ Drawdown Request ” means a duly completed notice in the form set out in Schedule 4 ( Form of Drawdown Request ).
“ Earnings ” in relation to a Collateral Vessel, means:
| (a) | all freights, hires and any other moneys whatsoever which may at any time be earned by, or become payable to or for the account of, its owner and which arise out of or as a result of the ownership or operation of the relevant Collateral Vessel by such owner or its agents (net of normal brokerage commissions); |
| (b) | all moneys and claims for moneys due and to become due to its owner under, and all claims for damages arising out of the breach of, any charter or contract of affreightment which may be entered into in relation to the relevant Collateral Vessel and any and all claims and causes of action for money, losses or damages that may accrue to or belong to such owner and which arise out of or which are in any way connected with the present or future use, operation or management of such Collateral Vessel; and |
| (c) | all moneys and claims for moneys due and to become due to its owner, and all claims for damages in respect of a requisition for hire (other than a requisition for hire constituting a total loss) or use of the relevant Collateral Vessel or its owner’s interest therein. |
“ Encumbrance ” means:
| (a) | a mortgage, charge, pledge, lien or other encumbrance or security interest securing any obligation of any person; |
| (b) | any arrangement under which money or claims to, or the benefit of, a bank or other account may be applied, set-off or made subject to a combination of accounts so as to effect payment of sums owed or payable to any person; or |
| (c) | any other type of preferential arrangement (including title transfer and retention arrangements) having a similar effect. |
“ Event of Default ” means any of the events or circumstances described as such in Clause 22 ( Events of Default ).
“ Environmental Affiliate ” means an agent or employee of a Subsidiary Guarantor or a person in a contractual relationship with a Subsidiary Guarantor in respect of the Collateral Vessel owned by it (including, without limitation, the operation of or the carriage of cargo of such Collateral Vessel).
“ Environmental Approvals ” means any present or future permit, licence, approval, ruling, variance, exemption or other authorisation required under the applicable Environmental Laws.
“ Environmental Claim ” means any and all enforcement, clean-up, removal, administrative, governmental, regulatory or judicial actions, orders, demands or investigations instituted or completed pursuant to any Environmental Laws or Environmental Approvals together with any claims made by any third person relating to damage, contribution, loss or injury resulting from any Environmental Incident.
“ Environmental Incident ” means:
| (a) | any release of Environmentally Sensitive Material from a Collateral Vessel; or |
| (b) | any incident in which Environmentally Sensitive Material is released from a vessel other than such Collateral Vessel and which involves a collision between that Collateral Vessel and such other vessel or some other incident of navigation or operation, in either case, in connection with which the relevant Collateral Vessel is actually or potentially liable to be arrested, attached, detained or injuncted and/or where any guarantor, any manager (or any sub-manager of such Collateral Vessel) or any of its officers, employees or other persons retained or instructed by it (or such sub-manager) are at fault or allegedly at fault or otherwise liable to any legal or administrative action; or |
| (c) | any other incident in which Environmentally Sensitive Material is released otherwise than from such Collateral Vessel and in connection with which that Collateral Vessel is actually or potentially liable to be arrested and/or where any guarantor, any manager (or any sub-manager of the relevant Collateral Vessel) or any of its officers, employees or other persons retained or instructed by it (or such sub-manager) are at fault or allegedly at fault or otherwise liable to any legal or administrative action. |
“ Environmental Laws ” means all present and future laws, regulations, treaties and conventions of any applicable jurisdiction which:
| (a) | have as a purpose or effect the protection of, and/or prevention of harm or damage to, the environment; |
| (b) | relate to the carriage of Environmentally Sensitive Material or to actual or threatened releases of Environmentally Sensitive Material; |
| (c) | provide remedies or compensation for harm or damage to the environment; or |
| (d) | relate to Environmentally Sensitive Materials or health or safety matters. |
“ Environmentally Sensitive Material ” means (i) oil and oil products and (ii) any other waste, pollutant, contaminant or other substance (including any liquid, solid, gas, ion, living organism or noise) that may be harmful to human health or other life or the environment or a nuisance to any person or that may make the enjoyment, ownership or other territorial control of any affected land, property or waters more costly for such person to a material degree.
“ Facility Office ” means:
| (a) | in relation to the Administrative Agent, the office identified with its signature below or such other office as it may, from time to time, select for performance of its agency function under this Agreement; and |
| (b) | in relation to a Lender, the office from time to time designated by it to the Administrative Agent for the purposes of this Agreement (or, in the case of a Transferee, at the end of the Transfer Certificate to which it is a party as Transferee) or such other office as such Lender may from time to time select. |
“ Fees Letter ” means the fees letter dated 11 June 2004 from Nordea Bank Finland Plc, New York Branch (as Bookrunner, Lead Arrangers and Administrative Agent) to the Borrower.
“ Finance Documents” means:
| (a) | this Agreement, any Novation Deeds, Accession Notices, Transfer Certificates and the Fees Letter; |
| (b) | the Security Trust Deed; |
| (c) | the Security Documents; |
| (d) | any other agreement or document entered into or executed pursuant to or contemplated by any of the foregoing documents; and |
| (e) | any other agreement or document designated a “Finance Document” in writing by the Administrative Agent with the agreement of an Obligor. |
“ Finance Parties ” means the Administrative Agent, the Bookrunner, the Lead Arrangers, the Security Trustee and the Lenders and “ Finance Party ” means any of them.
“ Financial Indebtedness ” means any Indebtedness of any person for or in respect of:
| (a) | moneys borrowed or raised; |
| (b) | amounts raised under any acceptance credit facility; |
| (c) | amounts raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or similar instruments; |
| (d) | amounts raised pursuant to any issue of shares of the relevant person which are expressed to be redeemable; |
| (e) | the amount of any liability in respect of leases or hire purchase contracts which would, in accordance with GAAP, be treated as finance or capital leases; |
| (f) | the amount of any liability in respect of any purchase price for assets or services, the payment of which is deferred for a period in excess of one hundred and eighty (180) days; |
| (g) | all reimbursement obligations whether contingent or not in respect of amounts paid under a letter of credit or similar instrument; |
| (h) | all interest rate, currency swap and similar agreements obliging the making of payments, whether periodically or upon the happening of a contingency (and the value of such Indebtedness shall be the mark-to-market valuation of such transaction at the relevant time); |
| (i) | amounts raised under any other transaction (including, without limitation, any forward sale or purchase agreement) having the commercial effect of a borrowing; and |
| (j) | any guarantee of Indebtedness falling within paragraphs (a) to (i) above. |
“ Financial Quarter ” means the period commencing on the day immediately following any Quarter Date in each year, and ending on the next succeeding Quarter Date.
“ Free Liquidity ” means, on any date, the aggregate of:
| (a) | cash and cash equivalents; and |
| (b) | marketable securities, |
to which the Parent Guarantor shall have free, immediate and direct access and as may be ascertained from the balance sheets contained in the annual or quarterly statements for the Group provided to the Lenders under this Agreement.
“ GAAP ” means generally accepted accounting principles in the United States of America.
“ GMT ”means Greenwich Mean Time.
“ Group ” means the Parent Guarantor and its Subsidiaries from time to time.
“ Guarantors ” means the Subsidiary Guarantors, the Parent Guarantor and following the Leaseback Completion Date, the Original Borrower and “ Guarantor ” means any one of them, as the context requires.
“ Holding Company ” means a company, corporation or partnership of which another company, corporation or partnership is a Subsidiary.
“ Increased Cost ”means:
| (a) | any reduction in the rate of return from the Credit Facility or on a Finance Party’s (or an Affiliate’s) overall capital; |
| (b) | any additional or increased cost; or |
| (c) | any reduction of any amount due and payable under any Finance Document, |
which is incurred or suffered by a Finance Party or any of its Affiliates to the extent that it is attributable to that Finance Party having agreed to make available its Commitment or having funded or performed its obligations under any Finance Document.
“ Indebtedness ” includes any obligation (whether incurred as principal or as surety) for the payment or repayment of money, whether present or future, actual or contingent (including interest and other charges relating to it).
“ Initial Appraisal Package ” means, in relation to a Collateral Vessel, a written estimate (to be provided pursuant to Clause 3.1 ( Conditions Precedent )) confirmed in writing by an Approved Valuer and dated no more than 30 days prior to its delivery to the Administrative Agent as to inter alia the Market Value of the relevant Collateral Vessel as at the date of such estimate.
“ Initial Security Documents ” means the documents listed in Part IV of Schedule 3 ( Initial Security Documents ).
“ Instructing Group ”means:
| (a) | before the making of any Advance under this Agreement, a Lender or group of Lenders whose Available Commitments amount in aggregate to more than 66 2/3% of all the Available Commitments; and |
| (b) | thereafter, a Lender or group of Lenders to whom in aggregate more than 66 2/3% of the aggregate amount of the Outstandings are (or if there are no Outstandings at such time, immediately prior to repayment of all such Outstandings, were then) owed. |
“ Interest Period ” means, save as otherwise provided in this Agreement, any of those periods mentioned in Clause 9.1 ( Interest Periods following Leaseback Completion Date ).
“ Intra-Group Charter Party ” means each of the persons being party to an Intra-Group Charter from time to time.
“ Intra-Group Charters ” means the chartering agreements or other arrangements between members of the Group in effect from time to time in respect of the Collateral Vessels.
“ ISM Code ” means the International Management Code for the Safe Operation of Ships and for Pollution Prevention adopted by the International Maritime Organisation.
“ Law ” means any:
| (a) | common or customary law; |
| (b) | constitution, decree, judgment, legislation, order, ordinance, regulation, statute, treaty or other legislative measure in any jurisdiction; and |
| (c) | present or future directive, regulation, practice, concession or requirement which has the force of law and which is issued by any governmental body, agency or department or any central bank or other fiscal, monetary, regulatory, self-regulatory or other authority or agency. |
“ Leaseback Borrower ” has the meaning given to it in Part I of Schedule 6 ( Permitted Sale and Leaseback ).
“ Leaseback Completion Date ” means the Business Day specified by the Administrative Agent in the Leaseback Completion Date Notice on which the completion of the Permitted Sale and Leaseback is deemed to have occurred for the purposes of this Agreement.
“ Leaseback Completion Date Notice ” has the meaning given to it in Clause 20.3 ( Leaseback Completion Date ).
“ Leaseback Disclosures ” means the documents and other information relating to the Permitted Sale and Leaseback provided by the Parent Guarantor to the Lenders (through the Administrative Agent) prior to the date of this Agreement.
“ Leaseback Group ” means the Leaseback Borrower and each of the Tranche A Vessel Owners.
“ Leaseback Period ” means the period commencing on the date of this Agreement and ending on the first anniversary of such date.
“ Lender ” means a person which:
| (a) | is named in Schedule 1 ( Lenders and Commitments ); or |
| (b) | has become a party to this Agreement in accordance with the provisions of Clause 31 ( Assignments and Transfers ), |
which (in each case) has not ceased to be a party to this Agreement in accordance with the terms of this Agreement.
“ LIBOR ” means, in relation to any amount owed by an Obligor under this Agreement on which interest for a given period is to accrue:
| (a) | the rate per annum which appears on the Telerate page 3750 (British Bankers’ Association Interest Settlement Rates) (or such other page as may replace such page 3750 on such system or on any other system of the information vendor for the time being designated by the British Bankers’ Association to calculate the BBA Interest Settlement Rate (as defined in the British Bankers’ Association’s Recommended Terms and Conditions dated August 1985)) for such period at or about 11.00 a.m. on the Quotation Date for such period; or |
| (b) | if no such rate is displayed, the arithmetic mean (rounded upwards, if not already such a multiple, to one sixteenth of a percent) of the rates (as notified to the Administrative Agent) at which each of the Reference Banks was offering to prime banks in the London interbank market deposits in dollars for such period at or about 11.00 a.m. on the Quotation Date for such period. |
“ Loss or Sale Commitment Reduction ” in relation to a total loss or sale (or other disposal to a third party) of a Collateral Vessel, means an amount equal to:
| (a) | the Total Tranche A Commitments (in the case of a Tranche A Vessel) or the Total Tranche B Commitments (in the case of a Tranche B Vessel); multiplied by |
| (b) | the applicable fraction, |
and for the purposes of this definition, “ applicable fraction ” shall mean the Market Value of the relevant Collateral Vessel divided by the aggregate Market Value of all such Tranche A Vessels or Tranche B Vessels (as the case may be).
“ MAP Pollution ” means mortgagee additional perils (pollution) insurance.
“ Margin ” means 0.70% per annum.
“ Market Value ” means, in relation to one or more Collateral Vessels (as the context may require) at any time, the appraised value thereof in dollars determined on the basis of a sale (for cash and prompt delivery) by a willing seller to a willing buyer, free of any contract of affreightment, charter and encumbrances and at arm’s length on normal commercial terms, being the appraised value referred to in the Appraisal Package relating to each such Collateral Vessel.
“ Material Adverse Effect ” means a material adverse change in, or a material adverse effect on:
| (a) | the financial condition, assets, prospects or business of any Obligor or on the consolidated financial condition, assets, prospects or business of the Group; |
| (b) | the ability of any Obligor (or if applicable, the Parent Guarantor on its behalf) to perform and comply with its obligations under any Finance Document or to avoid any Default; |
| (c) | the validity, legality or enforceability of any Finance Document; or |
| (d) | the validity, legality or enforceability of any Security expressed to be created pursuant to any Security Document or the priority and ranking of any such Security, |
provided that, in determining whether any of the foregoing circumstances shall constitute such a material adverse change or material adverse effect for the purposes of this definition, the Finance Parties shall consider such circumstance in the context of (x) the Group taken as a whole and (y) the ability of the Parent Guarantor to perform each of its obligations under the Finance Documents.
“ Material Subsidiary ”means:
| (a) | the Original Borrower and each Subsidiary Guarantor; and |
| (b) | any other Subsidiary of the Parent Guarantor or of the Leaseback Borrower (as the case may be) whose assets, as determined in accordance with GAAP and as shown from the most recent financial statements available to the Administrative Agent relating to it, as multiplied by the Relevant Percentage in respect of such Subsidiary, equal or exceed 10% of the aggregate value of the assets of the Group or the Leaseback Group (as the case may be) as determined in accordance with GAAP and as shown from the most recently available financial statements of the Group or the Leaseback Group (as applicable), |
provided that:
| (i) | in respect of any Subsidiary of the Parent Guarantor or of the Leaseback Borrower (as applicable), only the value of its assets as multiplied by the Relevant Percentage in respect of such Subsidiary shall be taken into account in the computation of the value of the assets of the Group or the Leaseback Group (as the case may be); and |
| (ii) | a statement by the auditors of the Parent Guarantor or (if applicable) the Leaseback Borrower to the effect that, in their opinion, a Subsidiary of the Parent Guarantor or the Leaseback Borrower (as the case may be) is or is not or was or was not at any particular time a Material Subsidiary shall, in the absence of manifest error, be conclusive and binding on each of the parties to this Agreement. |
“ Maturing Advance ” has the meaning given to it in Clause 5.1(d) ( Commitment Reduction and Repayment ).
“ Maturity Date ” means the date falling on the tenth anniversary of this Agreement.
“ Member State ” means a member of the European Community.
“ MII ” means mortgagee interest insurance.
“ Necessary Authorisations ” means all Authorisations of any person including any government or other regulatory authority required by applicable Law to enable it to:
| (a) | lawfully enter into and perform its obligations under the Transaction Documents to which it is party; |
| (b) | ensure the legality, validity, enforceability or admissibility in evidence in England and, if different, its jurisdiction of incorporation, of such Transaction Documents to which it is party; and |
| (c) | carry on its business from time to time. |
“ New Vessel ” means any vessel which:
| (a) | is a conventional tanker or shuttle tanker, of aframax or suezmax size, with a double hull; |
| (b) | has a Market Value equal to or greater than; |
| (i) | 1 times (in the case of a vessel built in 1998 or later); |
| (ii) | 1.25 times (in the case of a vessel built in 1997 or 1996); or |
| (iii) | 1.50 times (in the case of a vessel built in 1995 or earlier), |
| that of the Collateral Vessel or Collateral Vessels (taken together) which such vessel substitutes or is to substitute, pursuant to Clause 19.12(b)(ii) ( Disposal of Assets and Collateral Vessel Substitution ); |
| (c) | is registered with a Pre-Approved Flag and has a classification with a Pre-Approved Classification Society (or such other flag and/or classification society as may be acceptable to the Administrative Agent); and |
| (d) | has been built no earlier than 1992, |
in each case, as determined by the Administrative Agent (in consultation with the Parent Guarantor) on the basis of such information as may be required by the Administrative Agent for the purposes of such determination pursuant to Clause 17.6 ( Additional Appraisal Package ) or otherwise provided that, notwithstanding the foregoing criteria, for the purposes of a substitution of the Nordic Sarita for the Collateral Vessel ‘Falster Spirit’ pursuant to and in accordance with Clause 19.12(b)(ii) ( Disposal of Assets and Collateral Vessel Substitution ), the Nordic Sarita shall constitute a “New Vessel” for the purposes of this Agreement.
“ Nordic Sarita ” means the Suezmax double hull shuttle tanker built in 1986 at the Daewoo yard with a dwt of 124,472 which (as at the date of this Agreement) is owned by Ugland Nordic Shipping AS and is registered on Norwegian flag.
“ Novation Deed ” means a duly completed novation deed substantially in the form of Part IV of Schedule 6 ( Form of Novation Deed ).
“ Obligors ” means the Borrowers and the Guarantors and “ Obligor ” means any of them.
“ Obligors’ Agent ” means the Parent Guarantor in its capacity as agent for the Obligors, pursuant to Clause 25.17 (Obligors’ Agent ).
“ Original Consolidated Financial Statements ” means the audited consolidated financial statements of the Parent Guarantor in respect of its financial year ended 31 December 2003.
“ Original Guarantors ” means the Subsidiary Guarantors being original parties to this Agreement.
“ Original Obligors ” means the Original Guarantors, the Parent Guarantor and the Original Borrower.
“ Other Parties ” has the meaning given to it in Clause 21.2 ( Novation of Leaseback Borrower ).
“ Outstandings ” means, at any time, the aggregate outstanding amount (if any) of all Advances, at such time.
“ Participating Member State ” means any member of the European Community that at the relevant time has adopted the euro as its lawful currency in accordance with legislation of the European Community relating to Economic and Monetary Union.
“ Permitted Liens ” in relation to a Collateral Vessel, means:
| (a) | liens for master and crew’s wages, liens in respect of salvage (including contract salvage) and general average; and |
| (b) | other liens covered by insurance, repairer’s liens and liens incurred in the ordinary course of trading such Collateral Vessel, of an aggregate amount not exceeding $5,000,000. |
“ Permitted Sale and Leaseback ” means a sale and leaseback transaction entered into or to be entered into pursuant to and in accordance with Clause 20 ( Sale and Leaseback ).
“ Petrobras ” means Petróleo Brasileiro S.A. and/or any of its Subsidiaries and Affiliates.
“ Pre-Approved Classification Societies ” means Det Norske Veritas, Lloyd’s Register of Shipping and The American Bureau of Shipping.
“ Pre-Approved Flag ” means a vessel registration in a Pre-Approved Jurisdiction, NIS or (solely in the case of the Collateral Vessels ‘Nordic Brasilia’ and ‘Nordic Spirit’ or any other Collateral Vessels on bareboat charter to Petrobras in accordance with this Agreement) Brazil.
“ Pre-Approved Jurisdiction ” means the Marshall Islands, the Bahamas, Liberia and the Cayman Islands.
“ Proportion ” in relation to a Lender, means:
| (a) | in relation to an Advance to be made under this Agreement, the proportion borne by such Lender’s Available Commitments in respect of the Credit Facility to all the Available Commitments; |
| (b) | in relation to an Advance or Advances outstanding under this Agreement, the proportion borne by such Lender’s share of such Advance or Advances to the amount of all Advances for the time being; |
| (c) | if paragraph (a) does not apply and there are no Outstandings, the proportion borne by the aggregate of such Lender’s Available Commitments to all the Available Commitments (or if the Available Commitments are then zero, by its Available Commitment to all of the Available Commitments immediately prior to their reduction to zero); and |
| (d) | if paragraph (b) does not apply and there are any Outstandings, the proportion borne by such Lender’s share of the Outstandings to the amount of all the Outstandings for the time being. |
“ Quarter Date ” means any of 31 March, 30 June, 30 September and 31 December.
“ Quotation Date ” means, in relation to any period for which an interest rate is to be determined, 2 Business Days before the first day of that period.
“ Recovering Finance Party ” has the meaning given to it in Clause 29.1 ( Payments to Finance Parties ).
“ Reference Banks ” means the principal London offices of HSBC Bank plc, The Royal Bank of Scotland plc and Lloyds TSB Bank plc or such other bank or banks as may be appointed as such by the Administrative Agent after consultation with the Parent Guarantor.
“ Relevant Percentage ” means, in respect of any Subsidiary of the Parent Guarantor or the Leaseback Borrower (as applicable) at any time, the percentage of the equity share capital or the partnership capital, as the case may be, of such Subsidiary which is beneficially owned (free from Encumbrances) by the Parent Guarantor or the Leaseback Borrower (as the case may be) at such time.
“ Relevant Third Party Charters ” means the Third Party Time Charters and the Bareboat Charters which, from time to time, have an unexpired term in excess of 36 months, at such time.
“ Rollover Advance ” has the meaning given to it in Clause 5.1(d) ( Commitment Reduction and Repayment ).
“ Rollover Date ” means in relation to any Advance (or if the Leaseback Completion Date has occurred, any Tranche B Advance), the last day of its Term provided that, if any such day is not a Business Day, the Rollover Date will be the next succeeding Business Day in the then current calendar month (if there is one) or the preceding Business Day (if there is not).
“ Safety Management Certificate ” has the meaning given to it in the ISM Code.
“ Security ” means a mortgage, charge, pledge, lien or encumbrance or other security interest securing any obligation of any person or any other agreement or arrangement having a similar effect.
“ Security Documents ” means:
| (a) | each of the Initial Security Documents; |
| (b) | any other document (executed at any time) conferring or evidencing any Encumbrance, guarantee or other assurance against financial loss for, or in respect of, any of the obligations of the Obligors (or any of them) under this Agreement (including, but not limited to, any vessel mortgage or deed of covenant delivered in respect of such obligations pursuant to this Agreement which is not an Initial Security Document); and |
| (c) | any other document executed at any time pursuant to any covenant in any of the Security Documents referred to in paragraph (a) or (b) above. |
“ Security Trust Deed ” means the security trust deed entered into or to be entered into in relation to this Agreement between the Parent Guarantor and the Finance Parties.
“ Sharing Payment ” has the meaning given to it in Clause 29.1 ( Payments to Finance Parties ).
“ Subsidiary ” of a company, corporation or partnership means any company, corporation or partnership:
| (a) | more than 50% of the issued share capital or equity capital of which is legally or beneficially owned, directly or indirectly, by the first-mentioned company, corporation or partnership; or |
| (b) | where the first-mentioned company, corporation or partnership owns the right or ability to control directly or indirectly the affairs or the composition of the board of directors (or equivalent of it, if applicable) of such company or corporation; or |
| (c) | which is a Subsidiary of another Subsidiary of the first-mentioned company, corporation or partnership. |
“ Subsidiary Guarantors ” means the entities named under the heading ‘Vessel and Owner’ in Schedule 9 ( Collateral Vessels ) as the owners of the relevant Collateral Vessels and each Substitute Vessel Owner which has acceded to this Agreement as a Subsidiary Guarantor (excluding any Superseded Guarantor or other entity which has ceased to be a Subsidiary Guarantor in accordance with this Agreement).
“ Substitute Vessel Owner ” means a Subsidiary (or entity which is to become a Subsidiary) of the Parent Guarantor or the Leaseback Borrower (as applicable) to whom ownership of a Collateral Vessel is (or is to be) transferred pursuant to and in accordance with sub-paragraph (i) or (ii) (as the case may be) of Clause 19.12(b) ( Disposal of Assets and Collateral Vessel Substitution ), in each case, as the context may require.
“ Superseded Guarantor ” means a Subsidiary Guarantor which has transferred (or is to transfer) the Collateral Vessel owned by it pursuant to and in accordance with sub-paragraph (i) or (ii) (as the case may be) of Clause 19.12(b) ( Disposal of Assets and Collateral Vessel Substitution ).
“ Supplemental Leaseback Disclosures ” means any documents or other information relating to the Permitted Sale and Leaseback delivered from time to time following the execution of this Agreement pursuant to Clause 20.4 (Supplemental Leaseback Disclosures ).
“ Term ” in relation to an Advance, means the period for which such Advance is borrowed, as specified in the relevant Drawdown Request or as otherwise provided pursuant to this Agreement.
“ Third Party Time Charters ” means each time charter from time to time entered into in respect of a Collateral Vessel between a member of the Group or (if applicable) the Leaseback Group and a third party.
“ Total Debt ” means the aggregate of:
| (a) | the amount calculated in accordance with GAAP shown as each of “long term debt”, “short term debt” and “current portion of long term debt” on the latest consolidated balance sheet of the Parent Guarantor; and |
| (b) | the amount of any liability in respect of any lease or hire purchase contract entered into by the Parent Guarantor and/or any of its Subsidiaries which would, in accordance with GAAP, be treated as a finance or capital lease. |
“ Total Loss Date ” in relation to the total loss of a Collateral Vessel, means:
| (a) | if it consists of an actual total loss, at noon GMT on the actual date of loss or, if that is not known, on the date on which the Collateral Vessel was last heard of; |
| (b) | if it consists of a requisitioning for title, at noon GMT on the date on which the same is expressed to take effect by the person making the same; and |
| (c) | if it consists of a constructive, compromised, arranged or agreed total loss, at noon GMT on the date on which a notice of abandonment of the Collateral Vessel is given to her insurers for the time being or (if her insurers for the time being do not admit liability in respect of such claim for total loss) at the time on which a total loss is subsequently adjudged to have occurred by a competent court or arbitration tribunal or liability in respect thereof as a total loss is admitted by insurers. |
“ Total Tranche A Commitments ” means, at any time, the aggregate of the Tranche A Commitments of the Lenders at such time.
“ Total Tranche B Commitments ” means, at any time, the aggregate of the Tranche B Commitments of the Lenders at such time.
“ Tranche A ” has the meaning given to it in Clause 2.1(a) ( Revolving Credit Facility ).
“ Tranche A Available Commitment ” means, in relation to a Lender, at any time and save as otherwise provided in this Agreement, its Tranche A Commitment at such time adjusted to take account of:
| (a) | any cancellation or reduction of it or any transfer by such Lender or any transfer to it, in each case, pursuant to the terms of this Agreement; and |
| (b) | in the case of any proposed Advance, the proportion of any other Advance corresponding to Tranche A which, pursuant to any other Drawdown Request, is to be made on or before the proposed Drawdown Date, |
less the amount of its share of the Tranche A Outstandings at such time, provided always that such amount shall not be less than zero.
“ Tranche A Commitment ” means, in relation to a Lender at any time, and save as otherwise provided in this Agreement (including by virtue of the operation of Clause 20.6(b)(i) ( Collateral Vessel Conversion )), the amount set opposite its name in the relevant column of Schedule 1 ( Lenders and Commitments ) or as specified in the Transfer Certificate pursuant to which such Lender becomes a party to this Agreement.
“ Tranche A Commitment Reduction ” means the amount referred to in the applicable column in Schedule 8 ( Commitment Reduction Schedule ) in respect of Tranche A for such Commitment Reduction Date, adjusted to reflect the effect of the operation (if any) of Clause 20.6(b)(ii) ( Collateral Vessel Conversion ).
| (a) | the aggregate Market Value of the Tranche B Vessels which are to be the subject of the relevant conversion; divided by |
| (b) | the aggregate Market Value of all the Tranche B Vessels immediately prior to such conversion; multiplied by |
| (c) | the aggregate Tranche B Commitments or (for the purposes of an adjustment to the Tranche A Outstandings or Tranche B Outstandings (as the case may be) under Clause 20.6(b)(i) ( Collateral Vessel Conversion )) the Tranche B Outstandings immediately prior to such conversion, |
as determined by the Administrative Agent (in consultation with the Parent Guarantor) on the basis of the Additional Appraisal Packages required by the Administrative Agent for the purposes of such determination pursuant to Clause 17.6 ( Additional Appraisal Package ) or such other Appraisal Packages as the Administrative Agent may select.
“ Tranche A Obligations ” means, at any time, the Tranche A Outstandings and all interest (including default interest) accrued but unpaid in respect of Tranche A at the relevant time pursuant to this Agreement.
“ Tranche A Outstandings ” means, at the relevant time, the aggregate outstanding principal amount of the Tranche A Advances, at such time.
“ Tranche A Vessel Owners ” means, as applicable from time to time, the Subsidiary Guarantors being the owners of the Tranche A Vessels.
“ Tranche A Vessels ” means the vessels referred to under the heading ‘Vessel and Owner’ in Schedule 9 ( Collateral Vessels ) (subject to any substitution (in relation to a New Vessel) or conversion (from a Tranche B Vessel) or disposal from time to time of such vessels pursuant to and in accordance with Clause 19.12(b) ( Disposal of Assets and Collateral Vessel Substitution ) and/or Clause 20.6 ( Collateral Vessel Conversion )).
“ Tranche B ” has the meaning given to it in Clause 2.1(b) ( Revolving Credit Facility ).
“ Tranche B Available Commitment ” means, in relation to a Lender, at any time and save as otherwise provided in this Agreement, its Tranche B Commitment at such time adjusted to take account of:
| (a) | any cancellation or reduction of it or any transfer by such Lender or any transfer to it, in each case, pursuant to the terms of this Agreement; and |
| (b) | in the case of any proposed Advance, the proportion of any other Advance corresponding to Tranche B which, pursuant to any other Drawdown Request, is to be made on or before the proposed Drawdown Date, |
less the amount of its share of the Tranche B Outstandings at such time, provided always that such amount shall not be less than zero.
“ Tranche B Commitment ” means, in relation to a Lender at any time, and save as otherwise provided in this Agreement (including by virtue of the operation of Clause 20.6(b)(i) ( Collateral Vessel Conversion )), the amount set opposite its name in the relevant column of Part I of Schedule 1 ( Lenders and Commitments ) or as specified in the Transfer Certificate pursuant to which such Lender becomes a party to this Agreement.
“ Tranche B Commitment Reduction ” means the amount referred to in the applicable column in Schedule 8 ( Commitment Reduction Schedule ) in respect of Tranche B for such Commitment Reduction Date, adjusted to reflect the operation (if any) of Clause 20.6(b)(ii) ( Collateral Vessel Conversion ).
“ Tranche B Obligations ” means, at any time, the Tranche B Outstandings, together with all interest (including default interest) accrued but unpaid in respect of Tranche B at the relevant time pursuant to this Agreement.
“ Tranche B Outstandings ” means, at any time, the aggregate outstanding amount of the Tranche B Advances, at such time.
“ Tranche B Vessels ” means the vessels referred to under the heading ‘Vessel and Owner’ in Schedule 9 ( Collateral Vessels ) (subject to any substitution (in relation to a New Vessel) or conversion (to a Tranche A Vessel) or disposal from time to time of such vessels pursuant to and in accordance with Clause 19.12(b) ( Disposal of Assets and Collateral Vessel Substitution ) and/or Clause 20.6 ( Collateral Vessel Conversion )).
“ Transaction Documents ”means:
| (a) | the Finance Documents; and |
| (b) | the Relevant Third Party Charters. |
“ Transfer Certificate ” means a duly completed transfer certificate in the form set out in Schedule 2 ( Form of Transfer Certificate ) and signed by a Lender and a Transferee whereby such Lender seeks to procure the transfer to such Transferee of all or a part of such Lender’s rights, benefits and obligations under this Agreement as contemplated in Clause 31 ( Assignments and Transfers ).
“ Transfer Date ” means, in relation to any Transfer Certificate, the date for the making of the transfer as specified in such Transfer Certificate.
“ Transferee ” means a person to which a Lender seeks to transfer all or part of its rights, benefits and obligations under this Agreement pursuant to and in accordance with Clause 31 ( Assignments and Transfers ).
“ Unpaid Sum ” means any sum due and payable by an Obligor under any Finance Document but unpaid.
All accounting expressions which are not otherwise defined in this Agreement shall be construed in accordance with GAAP.
Unless a contrary indication appears, any reference in this Agreement to:
the “ Administrative Agent ”, the “ Bookrunner ”, a “ Lead Arranger ”, the “ Security Trustee ” or a “ Lender ” shall be construed so as to include their respective and any subsequent successors, transferees and permitted assigns in accordance with their respective interests;
“ continuing ” in relation to a Default shall be construed as meaning that (a) the circumstances constituting such Default continue unremedied and (b) neither the Administrative Agent (being duly authorised to do so) nor the Lenders have waived such of its or their rights under this Agreement as arise as a result of that event;
the “ equivalent ” on any given date in one currency (the “ first currency ”) of an amount denominated in another currency (the “ second currency ”) is a reference to the amount of the first currency which could be purchased with the second currency at the Administrative Agent’s spot rate of exchange for the purchase of the first currency with the second currency in the London foreign exchange market at or about 11a.m. on such date;
“ month ” is a reference to a period starting on one day in a calendar month and ending on the numerically corresponding day in the next succeeding calendar month save that, where any such period would otherwise end on a day which is not a Business Day, it shall end on the next succeeding Business Day, unless that day falls in the calendar month succeeding that in which it would otherwise have ended, in which case it shall end on the immediately preceding Business Day provided that, if a period starts on the last Business Day in a calendar month or if there is no numerically corresponding day in the month in which that period ends, that period shall end on the last Business Day in that later month (and references to “ months ” shall be construed accordingly);
a “ person ” shall be construed as a reference to any person, firm, company, corporation, government, state or agency of a state or any association or partnership (whether or not having separate legal personality) of two or more of the foregoing;
“ tax ” shall be construed so as to include all present and future taxes, charges, imposts, duties, levies, deductions or withholdings of any kind whatsoever, or any amount payable on account of or as security for any of the foregoing, by whomsoever on whomsoever and wherever imposed, levied, collected, withheld or assessed together with any penalties, additions, fines, surcharges or interest relating to it and “ taxes ” and “ taxation ” shall be construed accordingly;
“ VAT ” shall be construed as value added tax including any equivalent or analogous tax which may apply from time to time in the relevant place;
a “ wholly-owned Subsidiary ” of a company, corporation or partnership shall be construed as a reference to any company, corporation or partnership which has no other members or partners except that other company, corporation or partnership and that other company’s, corporation’s or partnership’s wholly-owned Subsidiaries or nominees for that other company, corporation or partnership or its wholly-owned Subsidiaries; and
the “ winding-up ”, “ dissolution ”, “ administration ” or “ reorganisation ” of a company, corporation or partnership shall be construed so as to include any equivalent or analogous proceedings under the Law of the jurisdiction in which such person is incorporated or any jurisdiction in which such person carries on business, including the seeking of liquidation, winding-up, reorganisation, dissolution, administration, arrangement, adjustment, protection from creditors or relief of debtors.
Unless the contrary indication appears, any reference in this Agreement to:
“ arrest ” (as a noun) includes any arrest, detention, attachment, distraint, restraint, impounding or filing of a libel and “ arrest ” (as a verb) shall be construed accordingly;
“ contract of affreightment ” means any contract or engagement of affreightment or for the carriage or transportation of cargo relating to a vessel or vessels entered from time to time by the owner of such vessel or any person on its behalf;
“ requisition for title ” (as a verb) includes, in relation to an asset, to compulsorily acquire, expropriate, nationalise, seize, capture, forfeit, condemn as a prize or otherwise act so as to divest the owner thereof of title thereto and noun forms of such verb shall be construed accordingly;
“ total loss ” in relation to a vessel, shall be construed so as to include (a) any actual, constructive, agreed, arranged or compromised total loss of such vessel including such as may occur during a requisition for hire of that vessel and (b) the requisition for title of such vessel (otherwise than by requisition for hire) by any government or other competent authority or by any person acting or purporting to act by the authority of the same and from which such vessel has not been released within a period of ninety days following the occurrence of such event; and
a “ vessel ” or a “ Collateral Vessel ” includes her boilers, engines, machinery, masts, spares, boats, anchors, chains, tackle, apparel, furniture, fittings, freights, computers and other equipment and all other appurtenances belonging or appertaining to her (whether owned at the date of this Agreement or acquired later and whether or not on board but excluding such as may be leased to the owner of such vessel) and all additions, replacements and improvements thereto.
“ US$ ", “ $ ” and “ dollar ” denote the lawful currency for the time being of the United States of America and “ € ” and “ euro ” denote the lawful currency for the time being of each Participating Member State.
Any reference in this Agreement to a statute or a statutory provision shall, save where a contrary intention is specified, be construed as a reference to such statute or statutory provision as the same shall have been, or may be, amended or re-enacted.
Any reference in this Agreement to a time shall, unless otherwise specified, be construed as a reference to New York time.
Unless otherwise stated, any reference in this Agreement to any agreement or document (including any reference to this Agreement) shall be construed as a reference to:
| (a) | such agreement or document as amended, varied, novated or supplemented from time to time; |
| (b) | any other agreement or document whereby such agreement or document is so amended, varied, supplemented or novated; and |
| (c) | any other agreement or document entered into pursuant to or in accordance with any such agreement or document. |
The Lenders grant to the Original Borrower, upon the terms and subject to the conditions of this Agreement, a revolving credit facility in a maximum aggregate amount of US$500,000,000 comprising two tranches as follows:
| (a) | US$320,000,000 (“ Tranche A ”); and |
| (b) | US$180,000,000 (“ Tranche B ”), |
in each case, subject to any adjustment to the amount of such tranches during the Leaseback Period pursuant to and in accordance with Clause 20.6 ( Collateral Vessel Conversion ).
On the Leaseback Completion Date, each Tranche A Advance shall be converted and consolidated into a single Advance, which shall be deemed to have been advanced to the Leaseback Borrower (in place of the Original Borrower) on the Leaseback Completion Date and shall have a single Term commencing on such date and ending on the Maturity Date.
| (a) | The Credit Facility is to be applied by the Borrowers: |
| (i) | to refinance existing Indebtedness relating to the Collateral Vessels; and |
| (ii) | for the general corporate purposes of the Parent Guarantor and its Subsidiaries and following the occurrence of the Leaseback Completion Date, those of the Leaseback Group. |
| (b) | The Borrowers shall apply all amounts borrowed under this Agreement in or towards satisfaction of the purposes referred to in paragraph (a) above and none of the Finance Parties shall be obliged to concern themselves with such application. |
The obligations of each Finance Party under this Agreement are several and the failure by a Finance Party to perform any of its obligations under this Agreement shall not affect the obligations of any of the Obligors towards any other party to this Agreement nor shall any other party be liable for the failure by such Finance Party to perform its obligations under this Agreement.
The rights of each Finance Party are several and any debt arising under this Agreement at any time from an Obligor to any Finance Party shall be a separate and independent debt. Each Finance Party may, except as otherwise stated in this Agreement, separately enforce its rights under this Agreement.
| (a) | The obligations of the Finance Parties to make an Advance under this Agreement shall be conditional upon the Administrative Agent having confirmed to the Parent Guarantor that it has received the documents and other evidence listed in Part I of Schedule 3 ( Conditions Precedent to first Drawdown ) (excluding the Relevant Documents, in the case of an Advance to be made solely under Tranche A but without prejudice to Clause 11.1 ( Commitment Fee )) and that each is satisfactory, in form and substance, to the Administrative Agent. The Administrative Agent shall notify the Parent Guarantor and the Lenders promptly upon being so satisfied. |
| (b) | For the purposes of this Clause 3.1, “ Relevant Documents ” means: |
| (i) | any documents and other evidence to be executed and/or delivered by Golar-Nor Offshore AS, Fronape International Company or Petrobras (in each case) as third party charterer under the Relevant Third Party Charter to which such entity is a party; |
| (ii) | deeds of covenant in respect of the Collateral Vessels being subject to a Bareboat Charter as at the date of this Agreement; and |
| (iii) | any notices to be delivered by members of the Group to any of the third parties referred to in the foregoing sub-paragraph (i), |
| in each case, to the extent required by paragraphs 5(c) or 10 under Part I or paragraphs 2 and 4 under Part IV of Schedule 3 ( Conditions Precedent to first Drawdown ). |
The Parent Guarantor shall procure (and each relevant Obligor shall ensure) that as soon as practicable after the initial Drawdown Date and in any event within 10 days thereafter, there shall have been delivered to the Administrative Agent each of the documents listed in Part II of Schedule 3 ( Conditions Subsequent Documents ), each in form and substance satisfactory to the Administrative Agent. The Administrative Agent shall notify the Parent Guarantor and the Lenders promptly upon being so satisfied.
Save as otherwise provided in this Agreement, an Advance will be made by the Lenders to the Original Borrower if:
| (a) | the Administrative Agent has received from the Original Borrower a duly completed Drawdown Request for that Advance not later than 10.00 a.m. on a day which is not more than 10 nor less than 3 Business Days prior to the proposed Drawdown Date for such Advance, receipt of which shall oblige the Original Borrower to borrow the amount requested on the date stated upon the terms and subject to the conditions contained in this Agreement; |
| (b) | the proposed Drawdown Date for the Advance is a Business Day which precedes the Maturity Date; |
| (c) | immediately following the making of such Advance, there will be no more than 6 Advances outstanding; |
| (d) | the proposed amount of such Advance is equal to the amount of the corresponding Available Commitments or less than such amount but equal to a minimum amount of US$5,000,000 and an integral multiple of US$1,000,000; |
| (e) | each of the representations and warranties made in Clause 16 ( Representations and Warranties ) is true and will continue to be true, in each case, in all respects, following the making of the relevant Advance, provided that, any such representation which expressly relates to a given date or period shall be required to be true solely in respect of that date or period; |
| (f) | the proposed Term or Interest Period (as applicable) of such Advance is a period of 1, 3 or 6 months or such other period as each of the Lenders may agree (but in each such case) ending on or before the Maturity Date; |
| (g) | no Default (or in the case of a Rollover Advance, Event of Default) has occurred and is continuing or would result from the making of the relevant Advance; and |
| (h) | in the case of an Advance, other than in the case of a Rollover Advance, the interest rate applicable to such Advance’s first Interest Period or Term (as the case may be) will not have to be determined under Clause 10 ( Market Disruption and Alternative Interest Rates ). |
Each Lender will participate through its Facility Office in each Advance made pursuant to Clause 4.1 ( Conditions to each Advance ) in its respective Proportion.
| (a) | The Original Borrower shall repay the full amount of each Advance made to it on the last day of its Term. |
| (b) | The Leaseback Borrower shall repay the Advance made to it in instalments by repaying an amount equal to the Tranche A Commitment Reduction on each Commitment Reduction Date. |
| (c) | Without prejudice to the obligations of the Borrowers in sub-paragraph (a) and (b) above, the Total Tranche A Commitments and the Total Tranche B Commitments of the Lenders shall be reduced (on the basis of each Lender’s Proportion) pursuant to a cancellation thereof in an amount equal to the Tranche A Commitment Reduction or Tranche B Commitment Reduction as applicable on such Commitment Reduction Date and each Borrower shall (in respect of each Advance made to it) repay an amount necessary to ensure that the Tranche A Outstandings and the Tranche B Outstandings applicable on such date do not exceed the Total Tranche A Commitments and the Total Tranche B Commitments respectively, in each case, in effect following such cancellation. |
| (d) | Without prejudice to the Original Borrower’s obligation to repay the full amount of each Advance made to it on the last day of its Term, where, on the same day on which the Original Borrower is due to repay an Advance (a “ Maturing Advance ”) it has also requested that an Advance be made to it (a “ Rollover Advance”), subject to the Lenders being obliged to make such Rollover Advance under Clause 4.1 (Conditions to each Advance ) (taking into account the amount of the Maturing Advance, for the purposes of paragraph (d) of such Clause, but without prejudice to paragraph (c) of this Clause 5.1 ( Commitment Reduction and Repayment )), the amount to be so repaid and the amount to be so drawn down shall be netted off against each other so that the amount which the Original Borrower is actually required to repay or, as the case may be, the amount which the Lenders are actually required to advance to the Original Borrower, shall be the net amount remaining after such netting off. |
Without prejudice to the provisions of Clause 5.1 ( Commitment Reduction and Repayment ), on the Maturity Date, the Borrowers shall repay the Tranche A Obligations and the Original Borrower shall repay the Tranche B Obligations (if any) which remain due and payable by them respectively on such date.
Prior to each Commitment Reduction Date, the Administrative Agent shall confirm, by notice to the Borrowers, the amounts (if any) which are to fall due from them on such Commitment Reduction Date under this Clause 5 ( Scheduled Commitment Reductions and Repayments ) provided that, a failure on the part of the Administrative Agent to deliver such a notice, shall not affect the obligations of the relevant Borrower in respect of such amounts which have fallen due.
| (a) | Without prejudice to paragraph (b) of this Clause 5.4, the Leaseback Borrower may not reborrow any part of Tranche A which is repaid or prepaid. |
| (b) | Subject to Clause 4.1 ( Conditions to each Advance ) and the other provisions of this Agreement, the Original Borrower may reborrow any part of the Credit Facility which is repaid (provided that, for the avoidance of doubt, this paragraph (b) shall not apply to Tranche A if the Leaseback Completion Date has occurred). |
The Original Borrower may, by giving to the Administrative Agent not less than 3 Business Days’ prior written notice to that effect, cancel the whole or any part of the Available Commitments and any such cancellation shall reduce the relevant Available Commitments of the Lenders rateably, provided that, such cancellation shall be in respect of the aggregate of all Available Commitments or an integral multiple of US$5,000,000.
Any notice of cancellation given by the Original Borrower pursuant to Clause 6.1 ( Voluntary Cancellation ) shall be irrevocable and shall specify the date upon which such cancellation is to be made and the amount of such cancellation.
| (a) | On the Maturity Date, any Available Commitments in respect of the Credit Facility shall automatically be cancelled and the Commitment of each Lender in relation to the Credit Facility shall automatically be reduced to zero. |
| (b) | On the Leaseback Completion Date, any Tranche A Available Commitments shall automatically be cancelled and the Commitment of each of the Lenders representing such Tranche A Available Commitments shall automatically be reduced to zero. |
A Borrower owing any Outstandings shall, if it has given the Administrative Agent at least 5 Business Days’ prior written notice to that effect, prepay such Outstandings, in whole or in part (but if in part, in a minimum amount of US$5,000,000 and an integral multiple of US$1,000,000), together with accrued interest on the amount prepaid without premium or penalty but subject to the payment of any Break Costs.
If any sum payable to any Lender by an Obligor is required to be increased under Clause 12.1 ( Tax Gross-up ) or a Lender claims indemnification from an Obligor under the provisions of Clause 12.2 ( Tax Indemnity ) or Clause 14.1 (Increased Costs ) and within six months thereafter the Administrative Agent receives from such Obligor, while the circumstances giving rise to such increase or indemnification continue, at least 5 Business Days’ prior notice of its intention to repay or to cause to be repaid such Lender’s share of the Outstandings, the relevant Obligor shall immediately upon the expiry of such 5 Business Day period (or if earlier, in the case of any particular Advance, on the last day of the then current Interest Period or Term (as the case may be) relating to such Advance), repay such Lender’s portion of each Advance together with any Break Costs accruing in relation thereto.
| (a) | Any amounts prepaid pursuant to Clause 7.1 ( Voluntary Prepayment ), shall be applied by the Administrative Agent, in or towards the repayment of the relevant Outstandings, following which (solely in respect of Tranche A Outstandings, if the Leaseback Completion Date has occurred and otherwise without prejudice to Clause 5.4 ( Reborrowing )) each of the Tranche A Commitment Reductions shall immediately be reduced on a pro rata basis, pursuant to a cancellation thereof in an amount equal to such prepayment. |
| (b) | Any amounts prepaid pursuant to Clause 7.2 ( Right of Prepayment and Cancellation in relation to a single Lender ), shall be applied by the Administrative Agent, in or towards the discharge of the applicable share of the Outstandings owed to the relevant Lender on the date of such repayment until the same are repaid in full, following which each of the remaining Tranche A Commitment Reductions and Tranche B Commitment Reductions shall immediately be reduced on a pro rata basis in an aggregate amount equal to the Commitment of such Lender, pursuant to a cancellation thereof. |
Any notice of prepayment given by a Borrower or the Parent Guarantor as the case may be pursuant to Clause 7.1 (Voluntary Prepayment ) shall be irrevocable, shall specify the date upon which such repayment is to be made and the amount of such repayment and shall oblige the relevant Borrower to make such repayment, and the Parent Guarantor to ensure that such repayment is made, on such date.
No Obligor shall repay or prepay all or any part of any Advance, except at the times and in the manner expressly provided for in this Agreement.
| (a) | If a Collateral Vessel is sold or otherwise disposed of to a third party, including a deemed disposal pursuant to Clause 19.14(b)(ii) ( Registration ) or an indirect disposal by way of a transfer of a controlling interest in the relevant person being the owner of such Collateral Vessel or any of its Holding Companies (other than pursuant to and in accordance with Clause 19.12(b) ( Disposal of Assets and Collateral Vessel Substitution )), or is the subject of a total loss, the Total Tranche A Commitments (in the case of a Tranche A Vessel) or the Total Tranche B Commitments (in the case of a Tranche B Vessel) shall be reduced pursuant to a cancellation thereof in an amount equal to the Loss or Sale Commitment Reduction and the Original Borrower or (in respect of a Tranche A Vessel following the Leaseback Completion Date), the Leaseback Borrower, shall prepay an amount necessary to ensure that the Tranche A Outstandings or the Tranche B Outstandings (as applicable) do not exceed the Total Tranche A Commitments or the Total Tranche B Commitments (as the case may be), such amount to be applied in or towards the discharge of such Tranche A Outstandings or Tranche B Outstandings at such time, in accordance with Clause 8.2 ( Application of Mandatory Prepayments ), together with accrued interest on the amount prepaid without premium or penalty but subject to the payment of any Break Costs arising in respect of such prepayment, provided that, no prepayment shall be required to be made under this Clause 8.1 ( Total Loss or Sale ) if: |
| (i) | on the Disposal Date or the Total Loss Date (as the case may be), the aggregate Market Value of (x) all the remaining Collateral Vessels, exceeds 143% of the aggregate Commitments at such time (if the Leaseback Completion Date has not occurred and/or if the relevant Collateral Vessel is a Tranche A Vessel) or (y) all the remaining Tranche B Vessels, exceeds 143% of the aggregate Tranche B Commitments at such time (if the Leaseback Completion Date has occurred and the relevant Collateral Vessel is a Tranche B Vessel); or |
| (ii) | the relevant Collateral Vessel has been replaced by one or more other vessels pursuant to and in accordance with Clause 19.12(b) ( Disposal of Assets and Collateral Vessel Substitution ) (x) in the case of a total loss, within six months of the Total Loss Date or (y) in the case of a sale or other disposal to a third party, on or before the Disposal Date. |
| (b) | A prepayment required under this Clause 8.1 shall be payable: |
| (i) | in the case of a sale or other disposition of a Collateral Vessel, on the Disposal Date (provided that in the case of a deemed disposal pursuant to Clause 19.14(b) ( Registration ), such prepayment shall be payable within 30 days following the relevant Disposal Date); or |
| (ii) | in the case of a total loss of a Collateral Vessel, on the earlier of the date on which the requisition compensation or insurance proceeds in respect of the relevant total loss have been received by or on behalf of an Obligor or the Security Trustee and the date which falls six months after the Total Loss Date. |
Any amount prepaid pursuant to Clause 8.1 ( Total Loss or Sale ), shall be applied by the Administrative Agent, in or towards the discharge of the Tranche A Outstandings or the Tranche B Outstandings (as the case may be) pro rata to the aggregate amount of such Outstandings on the date of such prepayment until the same are repaid in full, following which each of the Tranche A Commitment Reductions or Tranche B Commitment Reductions (as applicable) shall immediately be reduced on a pro rata basis, pursuant to a cancellation thereof in an amount equal to such prepayment.
With effect from the Leaseback Completion Date, the period for which the Tranche A Advance is outstanding shall be divided into successive periods (each an “ Interest Period ”) each of which (other than the first) shall start on the last day of the preceding such period.
| (a) | The duration of each Interest Period or Term (as applicable) shall, save as otherwise provided in this Agreement, be 1, 3 or 6 months, in each case as the relevant Borrower may, by not less than 5 Business Days’ prior notice to the Administrative Agent, select or such other period as the Lenders may agree, provided that, if that Borrower fails to give such notice of selection in relation to an Interest Period or Term (as the case may be), the duration of that Interest Period or Term shall, subject to the other provisions of this Clause 9 ( Interest ), be 3 months. |
| (b) | Any Interest Period or Term that would otherwise end during the month preceding or extend beyond a Commitment Reduction Date or (if applicable) the Leaseback Completion Date relating to the relevant Outstandings, shall be of such duration that it shall end on the Commitment Reduction Date or the Leaseback Completion Date (as the case may be). |
| (a) | On the last day of its Term (and, if such Term of any Advance exceeds 3 months, on the expiry of each period of 3 months during such Term) the Original Borrower shall pay accrued interest on each Advance made to it (or, following the Leaseback Completion Date, each Tranche B Advance). |
| (b) | On the last day of each Interest Period (or if such day is not a Business Day, on the immediately succeeding Business Day in the then current calendar month (if there is one) or the preceding Business Day (if there is not)), and if the relevant Interest Period exceeds 3 months, on the expiry of each 3 month period during that Interest Period, the Leaseback Borrower shall pay accrued interest on the Tranche A Advance made to it. |
The rate of interest applicable to an Advance during each Term or Interest Period (as applicable) relating to it shall be the rate per annum which is the sum of:
| (a) | the Margin; |
| (b) | the Associated Costs Rate for such Advance; and |
| (c) | LIBOR, |
for such Interest Period or Term (as the case may be).
If, in relation to any Interest Period or Term:
| (a) | at or about 11.00 a.m. on the Quotation Date for such Interest Period or Term, paragraph (b) of the definition of LIBOR applies and none or only one of the Reference Banks supplies a rate for the purpose of determining LIBOR for the relevant period; or |
| (b) | before the close of business in London on the Quotation Date for such Interest Period or Term, the Administrative Agent has been notified by a Lender to whom, or each of a group of Lenders, to whom in aggregate, 35% or more of the relevant Advance is owed (or, in the case of an undrawn Advance, if made, would be owed) that the cost to it of obtaining matching deposits for the relevant Advance in the London interbank market would be in excess of LIBOR, |
then the Administrative Agent shall notify the Parent Guarantor and the Lenders of such event and, notwithstanding anything to the contrary in this Agreement, Clause 10.2 ( Substitute Interest Period and Interest Rate ) shall apply (if the relevant Advance is a Rollover Advance). If either paragraph (a) or (b) applies to a proposed Advance (other than a Rollover Advance), such Advance shall not be made.
| (a) | If paragraph (a) of Clause 10.1 ( Market Disruption ) applies, the duration of the relevant Interest Period or Term shall be 1 month or, if less, such that it shall end on the next succeeding Commitment Reduction Date. |
| (b) | If either paragraph of Clause 10.1 ( Market Disruption ) applies to an Advance, the rate of interest applicable to each Lender’s Portion of such Advance during the relevant Interest Period or Term shall (subject to any agreement reached pursuant to Clause 10.3 ( Alternative Rate )) be the rate per annum which is the sum of: |
| (i) | the Margin; |
| (ii) | the rate per annum notified to the Administrative Agent by such Lender as soon as practicable after the commencement of such Interest Period or Term to be that which expresses as a percentage rate per annum the cost to such Lender of funding from whatever sources it may select its portion of such Advance during such Interest Period or Term; and |
| (iii) | the Associated Costs Rate, if any, applicable to such Lender’s participation in the relevant Advance. |
If:
| (a) | Clause 10.1 (Market Disruption) applies; or |
| (b) | by reason of circumstances affecting the London interbank market during any period of 3 consecutive Business Days, LIBOR is not available to prime banks in the London interbank market, |
then, if the Administrative Agent or the Parent Guarantor so requires, the Administrative Agent and the Parent Guarantor shall enter into negotiations with a view to agreeing an alternative basis:
| (a) | for determining the rate of interest from time to time applicable to Advances; and/or |
| (b) | upon which the Advances may be maintained (whether in dollars or some other currency) thereafter, |
and any such alternative basis that is agreed shall take effect in accordance with its terms and be binding on each party to this Agreement, provided that the Administrative Agent may not agree any such alternative basis without the prior consent of each Lender.
The Original Borrower shall pay to the Administrative Agent for distribution to the Lenders on the basis of each such Lender’s Proportion, an annual commitment fee equal to 0.40% which shall accrue on a daily basis for the period from the date of this Agreement up to and including the Maturity Date in respect of the aggregate of the Available Commitments applicable on each such day and shall be payable quarterly in arrears.
The Parent Guarantor shall pay to the Administrative Agent (or shall procure the payment of) the other fees specified in the Fees Letter, at the times, and in the manner, set out in such letter.
All sums payable by an Obligor under any Finance Document shall be paid in full without set-off or counterclaim or any restriction or condition and, except to the extent required by any law or regulation, free and clear of any deduction or withholding on account of tax or otherwise. If an Obligor or any other related person is required by any law or regulation to make any such deduction or withholding, the relevant Obligor shall, together with the relevant payment, pay such additional amount as will ensure that the person to which the relevant sum is owed receives and is entitled to retain, free and clear of any such deduction or withholding, the full amount which it would have received if no such deduction or withholding had been required.
Without prejudice to the provisions of Clause 12.1 ( Tax Gross-up ), if any Finance Party (or its Affiliate) or the Administrative Agent on its behalf is required to make any payment on account of tax (not being a tax imposed on and calculated by reference to the net income paid to and received by its Facility Office by the jurisdiction in which it is incorporated or in which its Facility Office is located) or otherwise on or in relation to any sum received or receivable hereunder by such Finance Party or Affiliate or the Administrative Agent on its behalf (including any sum received or receivable under this Clause 12 ( Taxes )) or any liability in respect of any such payment is asserted, imposed, levied or assessed against such Finance Party or Affiliate or the Administrative Agent on its behalf, the Parent Guarantor shall, upon demand of the Administrative Agent, promptly indemnify such Finance Party or Affiliate against such payment or liability, together with any interest, penalties, costs and expenses payable or incurred in connection therewith.
A Lender intending to make a claim pursuant to Clause 12.2 ( Tax Indemnity ) shall notify the Administrative Agent of the event by reason of which it is entitled to do so and provide a reasonable written explanation of the basis and calculation of such claim, whereupon the Administrative Agent shall notify the Parent Guarantor, provided that nothing herein shall require such Lender to disclose any confidential information relating to the organisation of its affairs.
In the event that an additional payment is made under Clause 12.1 ( Tax Gross-up ) or Clause 12.2 ( Tax Indemnity ) and a Finance Party, in its sole discretion, determines that it has received or been granted a credit against relief or remission for, or repayment of, any relevant tax paid or payable by it in respect of or calculated with reference to the deduction or withholding giving rise to the relevant payment or liability, that Finance Party shall, to the extent that it can do so without prejudice to the retention of the amount of such credit, relief, remission or repayment, pay to the relevant Obligor such amount as that Finance Party shall, in its sole discretion, have concluded to be attributable to the relevant payment or liability. Any such payment shall be conclusive evidence of the amount due to the relevant Obligor hereunder and shall be accepted by such Obligor in full and final settlement of its rights of reimbursement hereunder in respect of the relevant payment or liability. Nothing herein contained shall interfere with the right of a Finance Party to arrange its tax affairs in whatever manner it thinks fit and, in particular, no Finance Party shall be under any obligation to claim credit, relief, remission or repayment from or against its corporate profits or similar tax liability in respect of the amount of the relevant payment or liability in priority to any other claims, reliefs, credits or deductions available to it. Any such reimbursement to be made by a Finance Party pursuant to this Clause 12.4 shall be made as soon as possible after such credit or remission or repayment has, in the reasonable opinion of the relevant Finance Party, been received or granted.
If, at any time, an Obligor is required by law to make any deduction or withholding from any sum payable by it hereunder (or if thereafter there is any change in the rates at which or the manner in which such deductions or withholdings are calculated), such Obligor shall promptly notify the Administrative Agent.
If an Obligor makes any payment hereunder in respect of which it is required to make any deduction or withholding, it shall pay the full amount required to be deducted or withheld to the relevant taxation or other authority within the time allowed for such payment under applicable law and shall deliver to the Administrative Agent for each Finance Party, within thirty days after it has made such payment to the applicable authority, an original receipt (or a certified copy thereof) or other appropriate document issued by such authority evidencing the payment to such authority of all amounts so required to be deducted or withheld in respect of that Finance Party’s share of such payment.
Subject to Clause 14.3 ( Exceptions ), the Parent Guarantor shall, within 3 Business Days of a demand by the Administrative Agent, pay for the account of a Finance Party, the amount of any Increased Cost incurred by that Finance Party or any of its Affiliates as a result (directly or indirectly) of:
| (a) | the introduction or implementation of or any change in (or in the interpretation, administration or application of) any Law, regulation, practice or concession or any directive, requirement, request or guidance (whether or not having the force of Law) of any central bank, including the European Central Bank, the Financial Services Authority or any other fiscal, monetary, regulatory or other authority; or |
| (b) | compliance with any Law, regulation, practice, concession or any such directive, requirement, request or guidance made after the date of this Agreement. |
| (a) | A Finance Party intending to make a claim pursuant to Clause 14.1 ( Increased Costs ) shall, as soon as reasonably practicable after becoming aware of the circumstances giving rise to such claim, notify the Administrative Agent of the event giving rise to the claim and provide a reasonable written explanation of the basis and calculation of such claim to the Administrative Agent, following which the Administrative Agent shall promptly notify the Parent Guarantor. |
| (b) | Each Finance Party shall, as soon as practicable after a demand by the Administrative Agent, provide a certificate confirming the amount (if any) of its Increased Costs. |
Clause 14.1 ( Increased Costs ) does not apply to the extent any Increased Cost is:
| (a) | compensated for by Clause 12.2 ( Tax Indemnity ); |
| (b) | compensated for by the payment of the Associated Costs Rate; or |
| (c) | attributable to the wilful breach by the relevant Finance Party or any of its Affiliates of any Law or regulation. |
If it becomes unlawful in any relevant jurisdiction for a Lender to perform any of its obligations as contemplated by this Agreement or to fund or maintain its participation in any Advance:
| (a) | that Lender shall promptly notify the Administrative Agent upon becoming aware of that event; |
| (b) | upon the Administrative Agent notifying the Parent Guarantor, the Available Commitments of that Lender will immediately be cancelled and its Commitments reduced to zero and such Lender shall not thereafter be obliged to participate in any Advance; and |
| (c) | each Borrower shall repay that Lender’s participation in the Advances made to that Borrower on the last day of the current Interest Period or Term for each Advance occurring after the Administrative Agent has notified the Parent Guarantor or, if earlier, the date specified by the Lender in the notice delivered to the Administrative Agent (being no earlier than the last day of any applicable grace period permitted by Law), together with accrued interest and all other amounts owing to that Lender under the Finance Documents. |
Each Obligor (and in the case of Clause 16.18(d) ( Ownership, Security, Intra-Group Charters and Relevant Third Party Charters ), the Parent Guarantor on behalf of each Intra-Group Charter Party) makes the representations and warranties set out in this Clause 16 to each Finance Party on the date of this Agreement, on each Drawdown Date and on the last day of each Interest Period and Term (other than Clause 16.2 ( No Deductions or Withholding ) which shall be made only on the date of this Agreement) by reference to the facts and circumstances then existing on such date, and acknowledges that each Finance Party has entered into this Agreement in reliance on such representations and warranties.
It is a corporation or limited liability company (or in the case of the Leaseback Borrower, a limited liability partnership) duly organised or formed under the laws of its jurisdiction of incorporation, organisation or formation (as the case may be) with power to enter into the Finance Documents and to exercise its rights and perform its obligations under the Finance Documents and all corporate and other action required to authorise its execution of the Finance Documents and its performance of its obligations thereunder has been duly taken.
Under the laws of its jurisdiction of incorporation or organisation in force at the date hereof, it will not be required to make any deduction or withholding from any payment it may make under any of the Finance Documents.
Under the laws of its jurisdiction of incorporation or organisation in force at the date hereof, its Indebtedness hereunder will, to the extent that it exceeds the realised value of any Security granted in respect of its Indebtedness hereunder, rank at least pari passu with all its other unsecured Indebtedness save that which is preferred solely by any bankruptcy, insolvency or other similar laws of general application.
In any proceedings taken in its jurisdiction of incorporation in relation to any of the Finance Documents, it will not be entitled to claim for itself or any of its assets immunity from suit, execution, attachment or other legal process.
In any proceedings taken in its jurisdiction of incorporation or organisation in relation to any of the Finance Documents in which there is an express choice of the law of a particular country as the governing law thereof, that choice of law and any judgment or (if applicable) arbitral award obtained in that country will be recognised and enforced.
As at the date hereof, all acts, conditions and things required to be done, fulfilled and performed in order (a) to enable it lawfully to enter into, exercise its rights under and perform and comply with the obligations expressed to be assumed by it in the Transaction Documents, (b) to ensure that the obligations expressed to be assumed by it in the Transaction Documents are legal, valid and binding and (c) to make the Transaction Documents admissible in evidence in its jurisdiction of incorporation or organisation, have been done, fulfilled and performed.
Under the laws of its jurisdiction of incorporation or organisation in force at the date hereof, it is not necessary that any of the Finance Documents be filed, recorded or enrolled with any court or other authority in its jurisdiction of incorporation or organisation (other than the Registrar of Companies for England and Wales or the relevant maritime registry, to the extent applicable, in respect of any Security Document) or that any stamp, registration or similar tax be paid on or in relation to any of the Finance Documents.
The obligations expressed to be assumed by it in the Finance Documents are legal and valid obligations, binding on it in accordance with the terms of the Finance Documents and no limit on its powers will be exceeded as a result of the borrowings, granting of security or giving of guarantees contemplated by the Finance Documents or the performance by it of any of its obligations thereunder.
Neither the Parent Guarantor nor the Leaseback Borrower (if applicable) nor any Material Subsidiary have taken any corporate action nor have any other steps been taken or legal proceedings been started or (to the best of the Parent Guarantor’s (and if applicable, the Leaseback Borrower’s) knowledge and belief) threatened against the Parent Guarantor, the Leaseback Borrower or any Material Subsidiary for its winding-up, dissolution, administration or reorganisation or for the appointment of a receiver, administrator, administrative receiver, trustee or similar officer of it or of any or all of its assets or revenues which might have a material adverse effect on the business or financial condition of the Group or (if applicable) the Leaseback Group taken as a whole.
| (a) | Neither the Parent Guarantor nor the Leaseback Borrower (as applicable) nor any Material Subsidiary is unable, or admits or has admitted its inability, to pay its debts or has suspended making payments in respect of any of its debts. |
| (b) | Neither the Parent Guarantor nor the Leaseback Borrower (as applicable) nor any Material Subsidiary, by reason of actual or anticipated financial difficulties, has commenced, or intends to commence, negotiations with one or more of its creditors with a view to rescheduling any of its Indebtedness. |
| (c) | The value of the assets of each of the Parent Guarantor and the Leaseback Borrower (as applicable) and of each Material Subsidiary of the Parent Guarantor or the Leaseback Borrower (as the case may be) is not less than its liabilities (taking into account contingent and prospective liabilities). |
| (d) | No moratorium has been, or may, in the reasonably foreseeable future be, declared in respect of any Indebtedness of the Parent Guarantor, the Leaseback Borrower or any Material Subsidiary. |
| (a) | Without prejudice to paragraph (b) of this Clause 16.11, neither the Parent Guarantor nor the Leaseback Borrower (if applicable) nor any Material Subsidiary is in breach of or in default under any agreement to which it is a party or which is binding on it or any of its assets to an extent or in a manner which might have a material adverse effect on the business or financial condition of the Group or the Leaseback Group (as the case may be) taken as a whole. |
| (b) | No Default is continuing or might reasonably be expected to result from the making of any Advance. |
No action or administrative proceeding of or before any court, arbitral body or agency which is not covered by adequate insurance or which might have a material adverse effect on the business or financial condition of the Group or (if applicable) the Leaseback Group taken as a whole has been started or is reasonably likely to be started.
The Original Consolidated Financial Statements and all other annual financial statements relating to the Group and (if applicable) the Leaseback Group required to be delivered under Clause 17.1 ( Annual Financial Statements ), were each prepared in accordance with GAAP and such annual financial statements and all quarterly financial statements (as applicable) required to be delivered under Clause 17.2 ( Quarterly Financial Statements ) give (in conjunction with the notes thereto) a true and fair view of (in the case of annual financial statements) or fairly represent (in the case of quarterly financial statements) the financial condition of the Group and (if applicable) the Leaseback Group at the date as of which they were prepared and the results of the Group’s and (if applicable) the Leaseback Group’s operations during the financial year then ended.
Since the publication of the last financial statements relating to the Group or (if applicable) the Leaseback Group delivered pursuant to this Agreement, there has been no material adverse change in the business or financial condition of the Group or the Leaseback Group (as the case may be) taken as a whole.
As at the date to which the Original Consolidated Financial Statements were prepared neither the Parent Guarantor nor the Leaseback Borrower (as applicable) nor any Material Subsidiary had any material liabilities (contingent or otherwise) which were not disclosed thereby (or by the notes thereto) or reserved against therein nor any unrealised or anticipated losses arising from commitments entered into by it which were not so disclosed or reserved against therein.
Its execution of the Finance Documents and its exercise of its rights and performance of its obligations thereunder will not result in the existence of nor oblige the Parent Guarantor nor the Leaseback Borrower (as applicable) nor any Material Subsidiary to create any Encumbrance over all or any of its present or future revenues or assets, other than pursuant to the Finance Documents.
Its execution of the Finance Documents and its exercise of its rights and performance of its obligations under any of the Finance Documents do not constitute and will not result in any breach of any agreement or treaty to which it is a party.
| (a) | Each Obligor (other than the Parent Guarantor and (if the Leaseback Completion Date has occurred) any Tranche A Vessel Owner and the Leaseback Borrower) is a wholly-owned Subsidiary of the Parent Guarantor. |
| (b) | Subject to the occurrence of the Leaseback Completion Date, each Tranche A Vessel Owner is or (pursuant to the Permitted Sale and Leaseback) will be a wholly-owned Subsidiary of the Leaseback Borrower. |
| (c) | Each Obligor is the legal and beneficial owner of all assets and other property which it purports to charge, mortgage, pledge, assign or otherwise secure pursuant to each Security Document and those Security Documents to which it is a party create and give rise to valid and effective Security having the ranking expressed in those Security Documents. |
| (d) | Without prejudice to the generality of Clause 16.1 ( Status and Due Authorisation ), Clause 16.6 ( Validity and Admissibility in Evidence ) and Clause 16.8 ( Binding Obligations ): |
| (i) | each Intra-Group Charter Party is a wholly-owned Subsidiary of the Parent Guarantor and the Parent Guarantor has the right and/or ability to control, either directly or indirectly, the affairs or composition of the board of directors (or equivalent of it) of such Intra-Group Charter Party; |
| (ii) | in respect of each Collateral Vessel being subject to a Relevant Third Party Charter, such Relevant Third Party Charter together with each applicable Intra-Group Charter comprise the only chartering arrangements relating to such Collateral Vessel to which any member of the Group is a party and the Intra-Group Charter Parties are the only persons being party to such Intra-Group Charters; |
| (iii) | pursuant to and in accordance with the Intra-Group Charters and under applicable Law, each Charterer has a valid and enforceable right to enter into and perform its obligations under each of the Relevant Third Party Charters to which it is a party and to provide valid, enforceable and perfected Security in favour of the Security Trustee in respect of such Relevant Third Party Charters; and |
| (iv) | the copies of the Relevant Third Party Charters which are delivered to the Administrative Agent from time to time, represent all of the Relevant Third Party Charters in effect at such time. |
The Necessary Authorisations required by it, are in full force and effect, and it is in compliance with the material provisions of each such Necessary Authorisation relating to it and, to the best of its knowledge, none of the Necessary Authorisations relating to it are the subject of any pending or threatened proceedings or revocation.
Any amount borrowed hereunder, and the performance of its obligations hereunder and under the other Finance Documents, will be for its own account and will not involve any breach by it of any law or regulatory measure relating to “money laundering” as defined in Article 1 of the Directive (91/308/EEC) of the Council of the European Communities.
Where an Obligor is incorporated in a Member State, its Centre of Main Interests is the place in which its registered office is situated.
The representation and warranties of the Obligors in this Clause 16 ( Representations and Warranties ) are subject to:
| (a) | the principle that equitable remedies are remedies which may be granted or refused at the discretion of the court; |
| (b) | the limitation of enforcement by laws relating to bankruptcy, insolvency, liquidation, reorganisation, court schemes, moratoria, administration and other laws generally affecting or limiting the rights of creditors; |
| (c) | the time barring of claims under any applicable limitation acts; |
| (d) | the possibility that a court may strike out provisions for a contract as being invalid for reasons of oppression, undue influence or similar; and |
| (e) | any other reservations or qualifications of law expressed in any legal opinions obtained by the Lenders in connection with the Credit Facility. |
The Parent Guarantor shall, as soon as the same become available, but in any event within 120 days after the end of its financial year, deliver to the Administrative Agent for distribution to the Lenders, its audited consolidated financial statements and if the Leaseback Completion Date has occurred, the audited consolidated financial statements of the Leaseback Borrower, in each case, for such financial year.
The Parent Guarantor shall, as soon as the same become available, but in any event within 90 days after the end of each Quarter Date, deliver to the Administrative Agent for distribution to the Lenders, its unaudited consolidated financial statements for such quarterly period (and if the Leaseback Completion Date has occurred, the unaudited consolidated financial statements of the Leaseback Borrower for such quarterly period).
The Parent Guarantor shall from time to time, promptly on the request of the Administrative Agent, furnish the Administrative Agent for distribution to the Lenders, with such information about the business and financial condition of the Group and (if applicable) the Leaseback Group as the Administrative Agent may reasonably require.
The Parent Guarantor shall ensure that:
| (a) | each set of financial statements delivered by it pursuant to Clause 17.1 ( Annual Financial Statements ) and Clause 17.2 ( Quarterly Financial Statements ), is certified by a duly authorised representative of the Parent Guarantor (in the case of annual financial statements) as giving a true and fair view of (or in the case of quarterly financial statements, as fairly representing), its financial condition or, as the case may be, the financial condition of the Group or (if applicable) the Leaseback Group as at the end of the period to which those financial statements relate and of the results of its operations or, as the case may be, those of the Group or the Leaseback Group (as the case may be), during such period; and |
| (b) | each set of financial statements delivered by it pursuant to Clause 17.1 ( Annual Financial Statements ) and (in the case of sub-paragraph (i) and (iii) below), Clause 17.2 ( Quarterly Financial Statements ): |
| (i) | is prepared in accordance with GAAP, consistently applied; |
| (ii) | has been audited by an internationally recognised firm of independent auditors qualified to audit accounts in accordance with GAAP; and |
| (iii) | is accompanied by a Compliance Certificate signed by a duly authorised representative of the Parent Guarantor. |
The Parent Guarantor shall, on each date on which it is required to deliver annual financial statements under Clause 17.1 ( Annual Financial Statements ), deliver to the Administrative Agent a written estimate of the Market Value of each of the Collateral Vessels made by an Approved Valuer on a date not more than thirty days prior to such date for delivery to the Administrative Agent, such estimate to be provided at the sole cost of the Parent Guarantor.
Without prejudice to Clause 17.5 ( Annual Appraisal Packages ), prior to the substitution of a New Vessel for an existing Collateral Vessel pursuant to Clause 19.12(b) ( Disposal of Assets and Collateral Vessel Substitution ), the conversion of a Tranche B Vessel to a Tranche A Vessel pursuant to Clause 20.6 ( Collateral Vessel Conversion ) or the sale or other disposal to a third party of a Collateral Vessel pursuant to Clause 8.1 ( Total Loss or Sale), the Parent Guarantor shall deliver to the Administrative Agent promptly upon request, a written estimate of the Market Value of the Collateral Vessels (including, as applicable, any New Vessel) made by an Approved Valuer on a date not more than thirty days prior to such date for delivery to the Administrative Agent, such estimate to be provided at the sole cost of the Parent Guarantor.
Any Appraisal Package delivered pursuant to this Agreement shall be binding and conclusive as regards each of the Obligors.
The Obligors shall (and the Parent Guarantor shall procure that each other Obligor shall) promptly provide the Administrative Agent and the Approved Valuer with any information which the Administrative Agent or such Approved Valuer may reasonably request in relation to the preparation of an Appraisal Package (or part thereof) and, if the Obligors fail to provide the information by the date specified in the relevant request, such Appraisal Package may be prepared on any basis which the Approved Valuer or the Administrative Agent considers prudent.
The Parent Guarantor will:
| (a) | provide to the Administrative Agent on request, copies of the classification certificates of each Collateral Vessel and her machinery and of all material damage or survey reports on such Collateral Vessel; |
| (b) | keep full, proper and up-to-date books of account, documents, records, data and other information (including, if applicable, computer programmes) in respect of the Collateral Vessel, each Subsidiary Guarantor and each Borrower or procure that such managers and other officers of such Collateral Vessel, Subsidiary Guarantor or Borrower do so, and permit the Administrative Agent for itself and as agent for and on behalf of the other Finance Parties or any persons nominated by the Administrative Agent in such capacity on reasonable notice to inspect and (subject to the provision by the Administrative Agent of a confidentiality undertaking acceptable to the Parent Guarantor (acting reasonably)) copy and make extracts from the same, or procure that such managers or other officers do so and promptly upon request of the Administrative Agent, furnish satisfactory evidence that the wages and allotments and the insurance and pension contributions of the master and crew are being promptly and regularly paid; |
| (c) | promptly notify the Administrative Agent of any occurrence whereby a Collateral Vessel has become, or is, with the passage of time or otherwise, likely to become, a total loss and furnish the Administrative Agent with full information of any casualty or other accident or damage to such Collateral Vessel involving an amount in excess of US$3,000,000 (or its equivalent in any other currency); |
| (d) | notify the Administrative Agent of any material requirement or recommendation made by any insurer or classification society or by any competent authority which is not complied with within any time limit specified by such person (as such requirement or reccomendation may be extended or modified from time to time) or, if no such time limit is specified, as soon as reasonably practicable; and |
| (e) | notify the Administrative Agent of any intention to lay-up a Collateral Vessel. |
Without prejudice to the other provisions of this Clause 17 ( Financial Information ), each Obligor shall (and the Parent Guarantor shall procure that each of the other Obligors shall) from time to time on the request of the Administrative Agent, provide the Administrative Agent with such information about the business of the Group and (if applicable) the Leaseback Group and its financial condition or any member of the Group or the Leaseback Group, as the case may be (including such member’s business) as the Administrative Agent may reasonably require.
| (a) | If: |
| (i) | the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made after the date of this Agreement; |
| (ii) | any change in the status of an Obligor or the composition of the shareholders of an Obligor after the date of this Agreement; or |
| (iii) | a proposed assignment or transfer by a Lender in accordance with Clause 31 ( Assignments and Transfers ) of any of its rights and/or obligations under this Agreement to a party that is not a Lender prior to such assignment or transfer, |
| obliges the Administrative Agent or any Lender (or, in the case of paragraph (iii) above, any prospective new Lender) to comply with “know your customer” or similar identification procedures in circumstances where the necessary information is not already available to it, each Obligor shall (and the Parent Guarantor shall procure that each other Obligor shall) promptly upon the request of the Administrative Agent or such Lender supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Administrative Agent (for itself or on behalf of such Lender) or such Lender (for itself or, in the case of the event described in paragraph (iii) above, on behalf of any prospective new Lender) in order for the Administrative Agent, such Lender or, in the case of the event described in paragraph (iii) above, any prospective new Lender, to carry out and be satisfied with the results of all necessary “know your customer” or other checks in relation to any relevant person pursuant to the transactions contemplated in the Finance Documents. |
| (b) | Each Lender shall promptly upon the request of the Administrative Agent supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Administrative Agent (for itself) in order for the Administrative Agent to carry out and be satisfied with the results of all necessary “know your customer” or other checks on Lenders or prospective new Lenders pursuant to the transactions contemplated in the Finance Documents. |
The Parent Guarantor shall ensure that, at all times, the financial condition of the Group, as evidenced by the financial statements of the Parent Guarantor provided pursuant to Clause 17.1 ( Annual Financial Statements ) and Clause 17.2 ( Quarterly Financial Statements ) shall be such that:
| (a) | Free Liquidity is at least US$100,000,000; and |
| (b) | Available Credit is at least 7.5% of Total Debt, |
provided that, following any change in GAAP, the Administrative Agent (on the instructions of an Instructing Group and in consultation with the Parent Guarantor) may require an amendment to the foregoing financial covenants which it deems logical and necessary having regard to the nature of such changes in policy and the intended substance of such financial covenants.
The Parent Guarantor shall maintain a listing of its equity share capital on a recognised stock exchange acceptable to the Administrative Agent.
| (a) | Subject to paragraph (b) of this Clause 19.2, no member of the Group or (if the Leaseback Completion Date has occurred) the Leaseback Group shall merge or consolidate with any other entity. |
| (b) | Paragraph (a) of this Clause 19.2 shall not apply in the case of a merger or consolidation between: |
| (i) | the Parent Guarantor and any other entity where the Parent Guarantor is to be the only surviving entity; or |
| (ii) | the Original Borrower (or any of its Subsidiaries) and the Parent Guarantor in accordance with the foregoing sub-paragraph (i) of this Clause 19.2. |
Each Obligor shall (and the Parent Guarantor shall procure that each other Obligor shall) obtain, comply with the terms of and do all that is necessary to maintain in full force and effect all authorisations, approvals, licences and consents required in or by the laws and regulations of its jurisdiction of incorporation or organisation and all other applicable jurisdictions, to enable it lawfully to enter into and perform its obligations under the Finance Documents and to ensure the legality, validity, enforceability or admissibility in evidence of the Finance Documents in its jurisdiction of incorporation or organisation and all other applicable jurisdictions.
Each Obligor shall (and the Parent Guarantor shall procure that each other Obligor shall) promptly, upon becoming aware of the same, inform the Administrative Agent of the occurrence of any Default and, upon receipt of a written request to that effect from the Administrative Agent, confirm to the Administrative Agent that, save as previously notified to the Administrative Agent or as notified in such confirmation, no Default has occurred.
Each Obligor shall (and the Parent Guarantor shall procure that each other Obligor shall) ensure that at all times the claims of the Finance Parties against it under this Agreement rank at least pari passu with the claims of all its other unsecured creditors save those whose claims are preferred by any bankruptcy, insolvency, liquidation, winding-up or other similar laws of general application.
Each Obligor shall (and the Parent Guarantor shall procure that each other Obligor shall) ensure that each Collateral Vessel which it owns is at all times technically and commercially managed by a member of the Group or (if applicable) the Leaseback Group (excluding any Collateral Vessels being the subject of a Bareboat Charter).
Each Obligor shall (and the Parent Guarantor shall procure that each other Obligor shall) ensure that each Collateral Vessel which it owns maintains the highest classification required for the purpose of the relevant trade of such Collateral Vessel which shall be with a Pre-Approved Classification Society or such other society as may be acceptable to the Administrative Agent, in each case, free from any overdue recommendations and conditions affecting that Collateral Vessel’s class.
| (a) | Subject to paragraph (d) of this Clause 19.8, other than pursuant to the Finance Documents, neither the Leaseback Borrower (if applicable) nor any Subsidiary Guarantor shall (and the Parent Guarantor shall procure that no Subsidiary Guarantor shall) incur any Financial Indebtedness except (subject to paragraph (b) of this Clause 19.8) any such Indebtedness owed to any member of the Group or the Leaseback Group (if any), provided that: |
| (i) | such inter-group Financial Indebtedness is unsecured and fully subordinated in right of payment to the rights of each of the Finance Parties under the Finance Documents in accordance with paragraph (c) of this Clause 19.8; and |
| (ii) | each Subsidiary Guarantor and the Leaseback Borrower may incur Financial Indebtedness in the ordinary course of operating the Collateral Vessel owned by it provided that in respect of each such Subsidiary Guarantor or the Leaseback Borrower (as the case may be), the aggregate of such Financial Indebtedness does not exceed US$1,000,000 in the case of each such Collateral Vessel at any time. |
| (b) | No member of the Leaseback Group may incur any Financial Indebtedness to any member of the Group (other than for the purposes of an investment in the Leaseback Borrower, which (subject to paragraph (c) of this Clause 19.8) is fully subordinated to the rights of each of the Finance Parties under the Finance Documents, by a member of the Group pursuant to the Permitted Sale and Leaseback) and no member of the Group other than the Parent Guarantor may incur any Financial Indebtedness to any member of the Leaseback Group. |
| (c) | To the extent permitted under the foregoing provisions of this Clause 19.8, any member of the Group and/or the Leaseback Group (as applicable) may service Financial Indebtedness owed to any other member of the Group and/or the Leaseback Group (as the case may be) in accordance with the terms of such Financial Indebtedness, provided that, on any day on which an amount remains due and payable by an Obligor under any Finance Document, such amount shall be discharged in preference to any such Financial Indebtedness owed by such Obligor to another member of the Group and/or (as applicable) the Leaseback Group which is also due and payable on such day and notwithstanding the foregoing provisions of this Clause 19.8, following the occurrence of an Event of Default which is continuing, any payment by an Obligor in respect of Financial Indebtedness owed to another member of the Group and/or (as applicable) the Leaseback Group shall require the prior consent of the Security Trustee. |
| (d) | Any Obligor may enter into an interest rate hedge, currency swap or similar arrangement for a notional amount not exceeding the Outstandings as applicable from time to time. |
Each Subsidiary Guarantor shall (and the Parent Guarantor shall procure that each Subsidiary Guarantor shall) obtain and maintain a certificate of financial responsibility in relation to any Collateral Vessel which it owns, which is to call the United States of America.
| (a) | Subject to paragraph (b) of this Clause 19.10 and without prejudice to any other Security required to be provided in connection with any charter or contract of affreightment for a Collateral Vessel pursuant to the Finance Documents, each Obligor may enter into any charter party (including one or more bareboat charters) and/or contract of affreightment of any type or duration, in respect of any vessel, provided that, the entry into a bareboat charter with Petrobras in respect of a Collateral Vessel after the date of this Agreement shall require the prior consent of an Instructing Group. |
| (b) | In relation to each Relevant Third Party Charter in effect from time to time (to the extent that the same was not required to be provided pursuant to and in accordance with Clause 3.1 ( Conditions Precedent)), the Parent Guarantor shall procure the delivery to the Security Trustee of an Encumbrance in relation to such Relevant Third Party Charter (including in respect of the Earnings of the relevant Collateral Vessel), such Encumbrance to be provided in form and substance reasonably satisfactory to the Security Trustee, provided that such Encumbrance shall not restrict the operation by the relevant Obligors of the accounts into which such Earnings are to be paid from time to time unless an Event of Default has occurred and is continuing, in which case, the Parent Guarantor shall pay (or shall procure that) all amounts standing to the credit of such accounts representing such Earnings shall be applied promptly, as the Security Trustee may direct. |
| (c) | Without prejudice to paragraph (d) of this Clause 19.10, following the occurrence of an Event of Default which is continuing, each Subsidiary Guarantor being the owner of a Collateral Vessel which is the subject of one or more Intra-Group Charters shall (and the Parent Guarantor shall procure that each Subsidiary Guarantor and any other Intra-Group Charter Party shall): |
| (i) | effect the immediate and unconditional suspension of each and every right and remedy whatsoever available to it (whether in respect of charter hire due and payable for the time being or otherwise); |
| (ii) | except as otherwise permitted with the prior consent of the Security Trustee, at all times thereafter, maintain such suspension in full; and |
| (iii) | take all such steps as are necessary in the reasonable determination of the Security Trustee in connection with any enforcement of the Security created in respect of the relevant Collateral Vessel pursuant to the Security Documents (including, without limitation, to terminate any Intra-Group Charters relating to such Collateral Vessel and to ensure that the Security Trustee is able to freely deal with that Collateral Vessel for the purposes of such enforcement). |
| (d) | The Parent Guarantor (for itself and on behalf of each Intra-Group Charter Party) and each Subsidiary Guarantor acknowledges and agrees that each of the rights and remedies of the Intra-Group Charter Parties which arise from time to time pursuant to the Intra-Group Charters are and shall at all times be fully subordinate in right of payment to the rights and remedies of the Finance Parties under the Finance Documents so that the Intra-Group Charter Parties may make payments falling due and payable from time to time under the Intra-Group Charters to which they are a party in accordance with the terms of such Intra-Group Charters but on any day on which an amount remains due and payable by an Obligor or a Charterer under a Finance Document, such amount shall be discharged in preference to any such amount owed by such Obligor or such Charterer to an Intra-Group Charter Party which is also due and payable on such day. |
Neither the Leaseback Borrower (if applicable) nor any Subsidiary Guarantor shall (and the Parent Guarantor shall procure that no Subsidiary Guarantor shall) create, or permit to subsist, any Encumbrance (other than pursuant to the Finance Documents) over all or any part of its present or future revenues or assets, other than:
| (a) | an Encumbrance which has been the subject of the prior approval of an Instructing Group; |
| (b) | an Encumbrance arising either by operation of law or in the ordinary course of business of such Subsidiary Guarantor or the Leaseback Borrower (as the case may be) which is discharged in the ordinary course of business; or |
| (c) | a Permitted Lien. |
| (a) | Subject to paragraph (b) of this Clause 19.12, neither the Leaseback Borrower (if applicable) nor any Subsidiary Guarantor shall (and the Parent Guarantor shall procure that no Subsidiary Guarantor shall) sell, lease, transfer or otherwise dispose of, by one or more transactions (whether related or not), the whole or any part of its revenues or assets (and the Parent Guarantor shall procure that no member of the Group or (if applicable) the Leaseback Group otherwise disposes of a Collateral Vessel, including indirectly by way of a transfer of any equity interest), other than: |
| (i) | the sale of a Collateral Vessel to a third party where (x) the net proceeds of such sale will be sufficient for the relevant Borrower to make any prepayment required pursuant to and in accordance with Clause 8.1 ( Total Loss or Sale ) (when taken together with any additional portion of such prepayment to be funded by the Group or (if applicable) the Leaseback Group in accordance with this Agreement) or (y) no prepayment will be required in relation to such sale by virtue of sub-paragraph (i) or (ii) of Clause 8.1(a) ( Total Loss or Sale ); or |
| (ii) | pursuant to the Permitted Sale and Leaseback. |
| (b) | Subject to compliance with Clause 17.6 ( Additional Appraisal Package ) and Clause 21 ( Additional Obligors and New Vessels ) (and provided that no Default has occurred and is continuing), the Parent Guarantor may at any time (by notice to the Lenders (through the Administrative Agent)) elect: |
| (i) | to transfer the ownership of a Tranche A Collateral Vessel from the Subsidiary Guarantor being the current owner of such vessel to another entity (such other entity to be (x) incorporated or established in a Pre-Approved Jurisdiction or other jurisdiction acceptable to the Administrative Agent and (y) a Subsidiary of the Parent Guarantor); or |
| (ii) | to substitute one or more New Vessels for any of the existing Collateral Vessels by way of a transfer of the ownership of such New Vessel (or the entity which owns it) to the Parent Guarantor or any of its Subsidiaries (provided that, any such Subsidiary is incorporated or established in a Pre-Approved Jurisdiction or other jurisdiction acceptable to the Administrative Agent), following which, the Security Trustee at the expense of the Parent Guarantor shall effect the release of such existing Collateral Vessel from the mortgage and other Security (as applicable) created over it pursuant to the Security Documents. |
Except pursuant to the Permitted Sale and Leaseback, no Obligor shall (and the Parent Guarantor shall procure that no other Obligor shall) sell, transfer or otherwise dispose of any of its assets on terms whereby such asset is or may be leased to or reacquired or acquired by any member of the Group or (if applicable) the Leaseback Group, in circumstances where the transaction is entered into primarily as a method of raising finance or of financing the acquisition cost of an asset, except for assets acquired in the ordinary course of trade.
| (a) | No Subsidiary Guarantor shall (and the Parent Guarantor shall procure that no Subsidiary Guarantor shall) change or permit a change to the flag of the Collateral Vessel which it owns other than to a Pre-Approved Flag or such other flag as may be acceptable to the Administrative Agent. |
| (b) | In relation to any Collateral Vessel from time to time on charter to Petrobras and (provided that such charter has been entered into in accordance with this Agreement) subject to the prior delivery by the Security Trustee to the Parent Guarantor of a quiet enjoyment undertaking satisfactory to the Parent Guarantor in favour of Petrobras in respect of such Collateral Vessel: |
| (i) | where pursuant to any Law a registration is required to be effected and maintained at the Brazilian Special Registry in respect of such Collateral Vessel, within 60 days of the completion of such registration (or if later, within 60 days of the delivery by the Security Trustee of the aforementioned quiet enjoyment undertaking relating to such Collateral Vessel), the Parent Guarantor shall procure the delivery to the Security Trustee by the relevant Subsidiary Guarantor in form and substance satisfactory to the Security Trustee, of a power of attorney authorising the Security Trustee to cancel such registration or de-register such Collateral Vessel from such register following the occurrence of any event which entitles the relevant member of the Group or Leaseback Group to withdraw that Collateral Vessel from such charter or otherwise repossess it or to terminate such charter; and |
| (ii) | if the Parent Guarantor fails to deliver any such power of attorney in accordance with sub-paragraph (i) above, immediately upon the expiry of such 60 day period, the relevant Collateral Vessel shall for the purposes of this Agreement be deemed to have been disposed of (the day immediately following such expiry being the Disposal Date) and the relevant Borrower shall comply with its obligations under Clause 8 ( Mandatory Commitment Reductions and Prepayments ). |
Each Obligor shall (and the Parent Guarantor shall procure that each other Obligor shall) comply (and procure that the manager of each Collateral Vessel which it owns, if not managed by it, complies) in all material respects with the ISM Code or any replacement thereof and in particular (without prejudice to the generality of the foregoing) shall ensure that it holds (or procures that such other manager holds) a valid and current Document of Compliance issued pursuant to the ISM Code and a valid and current Safety Management Certificate issued in respect of such Collateral Vessel pursuant to the ISM Code and such Obligor shall (and the Parent Guarantor shall procure that each other Obligor shall), promptly upon request, supply the Administrative Agent with copies of the same.
Without prejudice to Clause 19.15 ( ISM Compliance ) or any other specific provision of the Finance Documents relating to an Authorisation, each Obligor shall (and the Parent Guarantor shall procure that each other member of the Group and (if applicable) the Leaseback Group shall):
| (a) | obtain, comply with and do all that is necessary to maintain in full force and effect all Necessary Authorisations (if a failure to do the same may cause a Material Adverse Effect); and |
| (b) | promptly upon request, supply certified copies to the Administrative Agent of all Necessary Authorisations. |
Each Obligor shall (and the Parent Guarantor shall procure that each other member of the Group and (if applicable) each member of the Leaseback Group shall) comply with all applicable laws to which it may be subject, if a failure to do the same may have a Material Adverse Effect.
Neither the Leaseback Borrower (if applicable) nor any Subsidiary Guarantor shall (and the Parent Guarantor shall procure that no Subsidiary Guarantor shall) make any loans, grant any credit (save in the ordinary course of business) or give any guarantee or indemnity (except pursuant to the Finance Documents) to or for the benefit of any person or otherwise voluntarily assume any liability, whether actual or contingent, in respect of any obligation of any other person, otherwise than to another member of the Group and/or the Leaseback Group in accordance with Clause 19.8 ( Financial Indebtedness ).
Following the occurrence of a Default which is continuing, no Obligor shall (and the Parent Guarantor shall procure that no other Obligor shall) pay, make or declare any dividend or other distribution.
The Parent Guarantor will ensure that all payments and provision of guarantees, security and other assistance by and between members of the Group and/or (if applicable) the Leaseback Group have been and will be made in compliance with applicable local laws and regulations concerning fraudulent conveyance, financial assistance by a company for the acquisition of or subscription for its own shares or the shares of its parent or any other company or concerning the protection of shareholders’ capital.
Except to the extent expressly permitted by the Finance Documents, neither of the Borrowers nor any Subsidiary Guarantor shall (and the Parent Guarantor shall procure that no Subsidiary Guarantor shall) carry on any business other than that of owning, chartering and operating vessels or, in the case of the Borrowers, being a Holding Company or other owner of persons doing the same.
| (a) | The Obligors shall (and the Parent Guarantor shall procure that the other Obligors shall) maintain hull and machinery insurance and war risks in respect of: |
| (i) | the Collateral Vessels, in an aggregate amount equal to not less than the greater of (x) 110% of the aggregate of the Commitments and (y) the aggregate Market Value of such Collateral Vessels; and |
| (ii) | each Collateral Vessel, in an amount equal to not less than the Market Value of such Collateral Vessel. |
| (b) | The Obligors shall (and the Parent Guarantor shall procure that the other Obligors shall) maintain oil pollution and protection and indemnity insurance on the Collateral Vessels in an aggregate amount equal to at least US$1,000,000,000 in respect of each incident or where (in the reasonable opinion of an Instructing Group, which shall take into consideration the price at which such cover can be obtained in the market) such insurance cannot be obtained in the international insurance market following due diligence (other than where the absence of available cover is caused by a history of accidents and/or spillage in respect of certain of the Collateral Vessels and/or their owners), such insurance shall be for an aggregate amount equal to at least US$500,000,000 in respect of each incident (or such other amount as may be agreed by an Instructing Group). |
| (c) | For the avoidance of doubt, the Obligors shall not be required to maintain MII or MAP Pollution in respect of any Collateral Vessel. |
| (a) | Each deed of covenant or (if a deed of covenant is not required in the relevant jurisdiction) each mortgage to be delivered in relation to a Collateral Vessel pursuant to this Agreement (other than each Collateral Vessel being subject to a Bareboat Charter as at the date of this Agreement), shall incorporate all of the Collateral Vessel Provisions, subject only to such amendments as are necessary for the purposes of the governing law of such deed of covenant or mortgage (as the case may be). |
| (b) | Each Obligor shall (and the Parent Guarantor shall procure that each other Obligor shall) comply with each such mortgage and (if applicable) deed of covenant to which it is a party, including (without limitation) the Collateral Vessel Provisions (as applicable) contained therein. |
No Obligor shall (and the Parent Guarantor shall procure that no other Obligor shall), without the prior written consent of an Instructing Group, transfer or allow to change its Centre of Main Interests.
Each Obligor shall (and the Parent Guarantor shall procure that each other Obligor shall) at its own expense, promptly take all such action as the Administrative Agent or the Security Trustee may reasonably require for the purpose of perfecting or protecting any Finance Party’s rights with respect to the Security created or evidenced (or intended to be created or evidenced) by the Security Documents.
On or before the expiry of the Leaseback Period and subject to Clause 20.2 ( Conditions ), the Parent Guarantor may enter into a sale and leaseback transaction in respect of all of the Tranche A Vessels.
A sale and leaseback transaction under Clause 20.1 ( Permitted Sale and Leaseback ) shall require the approval of an Instructing Group unless in relation to such transaction:
| (a) | each of the representations made in Clause 16 ( Representations and Warranties ) is true and will continue to be true, in each case, in all respects, following the completion of such transaction, provided that any such representation which expressly relates to a given date or period shall be required to be true solely in respect of that date or period; |
| (b) | no Default has occurred and is continuing or will result from the completion of such transaction; |
| (c) | the structure of such transaction reflects the description contained in Part I of Schedule 6 ( Permitted Sale and Leaseback ) as further supplemented by the Leaseback Disclosures; |
| (d) | on (or where applicable, prior to, if the same will not materially prejudice the interests of the Lenders) the completion of such transaction: |
| (i) | pursuant to and in accordance with Clause 21.2 ( Novation of Leaseback Borrower ), the Original Borrower will be released from and the Leaseback Borrower will assume its rights and obligations in respect of each of the Tranche A Obligations; |
| (ii) | to the extent applicable (but without prejudice to Clause 24.10 ( Limitation upon Permitted Sale and Leaseback )), pursuant to and in accordance with Clause 19.12(b) ( Disposal of Assets and Collateral Vessel Substitution ), the relevant Subsidiary Guarantors will be released from (and the relevant Substitute Vessel Owners will assume) liability as Guarantors in respect of the Tranche A Obligations; |
| (iii) | to the extent necessary, the relevant Obligors shall (and the Parent Guarantor shall procure that each other Obligor shall) provide such additional or alternative security in favour of the Security Trustee and such other documents (in each case, in a form and substance satisfactory to it) as will be required to ensure inter alia that on (and if applicable, prior to) completion of such transaction, the Lenders have the benefit of a security package substantially the same as that which the Obligors purported to provide pursuant to the Security Documents prior to such completion, including (to the extent applicable in the relevant jurisdiction where the ownership of a Collateral Vessel is to be transferred by a Subsidiary Guarantor for the purposes of such transaction), but not limited to, a vessel mortgage and deed of covenant in respect of such Collateral Vessel from the relevant Substitute Vessel Owner (each of which complies with Clause 19.23(a) ( Collateral Vessel Provisions )); and |
| (iv) | the Administrative Agent has received a legal opinion (in form and substance satisfactory to it) relating to the Leaseback Borrower in respect of each of (x) the relevant local law applicable to (aa) the jurisdiction of incorporation or establishment of the Leaseback Borrower and (bb) such transaction (y) the tax structure and treatment of the Leaseback Group and (z) the Finance Documents (including, without limitation, the Novation Deed, any Accession Notice and any Security Document) entered into by the Obligors for the purposes of the completion of the Permitted Sale and Leaseback in accordance with this Agreement; and |
| (e) | the interest rate applicable to the first Interest Period of the Tranche A Advance will not have to be determined under Clause 10 ( Market Disruption and Alternative Interest Rates ), |
provided that (x) it shall be the sole responsibility of the Parent Guarantor to demonstrate that the conditions in this Clause 20.2 have been met in relation to the Permitted Sale and Leaseback (y) any determination by the Administrative Agent under this Clause 20.2 shall be made solely on the basis of the relevant evidence made available to it at the applicable time by any person and (z) without prejudice to Clause 25.9(a) ( Exclusion of Liability ), the Administrative Agent shall be entitled to rely on the prima facie accuracy, completeness and efficacy of any such evidence, without incurring any liability to any person in connection with the same.
Subject to (i) the satisfaction of the conditions contained in Clause 20.2 ( Conditions ) and (ii) the receipt of all information required by the Administrative Agent under Clause 20.5 ( Information Required by Administrative Agent ), the Administrative Agent, by notice to the Parent Guarantor and each Lender (the “ Leaseback Completion Date Notice ”), shall confirm the Leaseback Completion Date (which shall be a date falling no earlier than 10 Business Days following the delivery of such notice by the Administrative Agent).
Promptly upon receipt of any information whatsoever which would warrant a material change to the description of the Permitted Sale and Leaseback as contained in Part I of Schedule 6 ( Permitted Sale and Leaseback ) and/or the Leaseback Disclosures, the Parent Guarantor shall procure the prompt delivery of such information to the Lenders (through the Administrative Agent).
In addition to any Supplemental Leaseback Disclosures, during the Leaseback Period, the Parent Guarantor shall regularly provide the Administrative Agent with such accurate and up to date information relating to the preparations for the completion of the Permitted Sale and Leaseback (whether or not requested by the Administrative Agent) for the purposes of its compliance with the provisions of Clause 20.3 ( Leaseback Completion Date ), including (but not limited to) any information concerning the proposed timing for the completion of the Permitted Sale and Leaseback and any steps required to be taken by any party to a Finance Document in relation to such completion.
| (a) | At any time during the Leaseback Period, a Subsidiary Guarantor (or the Parent Guarantor on its behalf) may elect to convert the Tranche B Vessel (if any) owned by it into a Tranche A Vessel (subject to the provision of at least 10 Business Days prior notice to the Administrative Agent, such notice to specify the date on which the conversion is to take effect in accordance with this Clause 20.6). |
| (b) | Immediately upon such conversion: |
| (i) | the Total Tranche A Commitments and the Tranche A Outstandings shall be increased, and the Total Tranche B Commitments and the Tranche B Outstandings shall be reduced; and |
| (ii) | each Tranche A Commitment Reduction shall be increased and each Tranche B Commitment Reduction shall be reduced, |
| in each case, on the basis of each Lender’s Proportion by an aggregate amount equal to the Tranche Adjustment Amount. Following an adjustment pursuant to this paragraph (b), the Administrative Agent shall deliver to the Borrowers and the Lenders, details of the principal repayments required to be made from time to time under Clause 5 ( Scheduled Commitment Reductions and Repayments ) in the form of Schedule 8 ( Commitment Reduction Schedule ), as amended to reflect such adjustment provided that, a failure on the part of the Administrative Agent to deliver such a notice, shall not affect the obligations of the relevant Borrower in respect of such amounts which are to fall due. |
| (a) | Prior to any disposal of a Collateral Vessel to a Substitute Vessel Owner pursuant to Clause 19.12(b)(i) ( Disposal of Assets and Collateral Vessel Substitution ) (whether in relation to the Permitted Sale and Leaseback or otherwise), the Parent Guarantor shall procure that there is delivered to the Administrative Agent an Accession Notice duly executed by itself, each Borrower (as applicable) and the relevant Substitute Vessel Owner, together with the documents set out in Part III of Schedule 6 (Accession Documents ) (in each case, to the extent reasonably required by the Administrative Agent). |
| (b) | Prior to any substitution of a New Vessel for one or more existing Collateral Vessels pursuant to Clause 19.12(b)(ii) ( Disposal of Assets and Collateral Vessel Substitution ) (whether in relation to the Permitted Sale and Leaseback or otherwise), the Parent Guarantor shall procure that there is delivered to the Administrative Agent the documents set out in Part III of Schedule 6 ( Accession Documents ) (in each case, to the extent reasonably required by the Administrative Agent). |
Without prejudice to the liability of the Parent Guarantor and the Cross Guarantors in respect of the Cross Guarantee Obligations and subject to the delivery to the Administrative Agent of a duly executed Novation Deed and to the provisions of Clause 21.1 ( Accession Documents ), with effect from the Leaseback Completion Date:
| (a) | the Original Borrower and the other parties to this Agreement (the “ Other Parties ”), shall be released from any further obligations towards one another in respect of Tranche A and their respective rights against one another in relation to Tranche A and the Tranche A Obligations shall be cancelled (such rights and obligations being referred to in this Clause 21.2 as “ relevant obligations ”); |
| (b) | the Leaseback Borrower and the Other Parties shall assume obligations towards one another and/or acquire rights against one another which differ from the relevant obligations only insofar as the Leaseback Borrower and the Other Parties have assumed and/or acquired the same in place of the Original Borrower and the Other Parties; |
| (c) | the Leaseback Borrower and the Other Parties shall acquire the same rights and benefits and assume the same obligations between themselves as they would have acquired and assumed had the Leaseback Borrower been an original party to this Agreement as a Borrower in respect of Tranche A and the Tranche A Obligations, with the rights, benefits and obligations acquired or assumed by it as a result of such transfer (but subject always to Clause 24.10 ( Limitation upon Permitted Sale and Leaseback )); and |
| (d) | the Leaseback Borrower shall become a party to this Agreement as the Borrower in respect of Tranche A and the Tranche A Obligations. |
In respect of any Substitute Vessel Owner, upon delivery of a duly executed Accession Notice to the Administrative Agent (but subject to compliance by the Parent Guarantor with Clause 21.1 ( Accession Documents )), the Substitute Vessel Owner being party to it, the other Obligors (including, if applicable, the Leaseback Borrower) and the Finance Parties, will assume such obligations towards one another and/or acquire such rights against each other as they would each have assumed or acquired had such Substitute Vessel Owner been an original party to this Agreement as a Guarantor, such Substitute Vessel Owner shall become a party to this Agreement as a Guarantor and in relation to any Superseded Guarantor, such Superseded Guarantor shall cease to be a party to this Agreement and to be liable in respect of any obligations which would otherwise accrue to it from the date of such release under Clause 24 ( Guarantee and Indemnity ).
Each of Clauses 22.1 ( Failure to Pay ) to Clause 22.18 ( Change of Control ) describes the circumstances which constitute an Event of Default for the purposes of this Agreement.
| (a) | An Obligor fails to pay any amount of principal due from it under this Agreement at the time, in the currency and otherwise in the manner specified herein provided that, if such Obligor can demonstrate to the reasonable satisfaction of the Administrative Agent that it has given all necessary instructions to effect such payment and the non-receipt thereof is attributable solely to an error in the banking system, such payment shall instead be deemed to be due, solely for the purposes of this paragraph (a), within 3 Business Days of the date on which it actually fell due under this Agreement. |
| (b) | An Obligor fails to pay any other amount due from it under a Finance Document and such failure continues unremedied for 5 Business Days or, in the case of sums payable on demand, 10 Business Days, after such demand has been duly made on the relevant Obligor. |
Any representation or statement made by any Obligor in any Finance Document to which it is a party or in any notice or other document, certificate or statement delivered by it pursuant thereto or in connection therewith is or proves to have been incorrect or misleading, where the circumstances causing the same give rise to a Material Adverse Effect.
An Obligor fails duly to perform or comply with any of the obligations expressed to be assumed by it under Clause 19.1 ( Stock Exchange ), Clause 19.2 ( Consolidation ), Clause 19.3 ( Maintenance of Legal Validity ), Clause 19.5 (Claims Pari Passu ), Clause 19.6 ( Management of Collateral Vessels ), Clause 19.8 ( Financial Indebtedness ), Clause 19.11 ( Negative Pledge ), Clause 19.12 ( Disposal of Assets and Collateral Vessel Substitution ), Clause 19.13 ( Sale and Leaseback ), Clause 19.18 ( Loans and Guarantees ), Clause 19.20 ( Financial Assistance and Fraudulent Conveyance) or Clause 19.22 ( Insurance ).
An Obligor fails duly to perform or comply with any of its obligations under Clause 18 ( Financial Condition ) at any time.
An Obligor fails duly to perform or comply with any of the obligations expressed to be assumed by it in any Transaction Document (other than those referred to in Clause 22.3 ( Specific Covenants ) or Clause 22.4 ( Financial Condition )) and such failure is not remedied within 30 days after the Administrative Agent has given notice thereof to the Parent Guarantor.
Any Indebtedness of a member of the Group or (if applicable) the Leaseback Group is not paid when due (or within any applicable grace period) or any Indebtedness of a member of the Group or (as the case may be) the Leaseback Group is declared to be or otherwise becomes due and payable prior to its specified maturity where (in either case) the aggregate of all such unpaid or accelerated Indebtedness of members of the Group or (if applicable) the Leaseback Group is equal to or greater than US$50,000,000 or its equivalent in any other currency.
An Obligor is unable to pay its debts as they fall due, commences negotiations with any one or more of its creditors with a view to the general readjustment or rescheduling of its Indebtedness or makes a general assignment for the benefit of its creditors or a composition with its creditors.
An Obligor takes any corporate action or other steps are taken or legal proceedings are started for its winding-up, dissolution, administration or re-organisation or for the appointment of a liquidator, receiver, administrator, administrative receiver, conservator, custodian, trustee or similar officer of it or of any or all of its revenues or assets or any moratorium is declared or sought in respect of any of its Indebtedness.
| (a) | Any Obligor fails to comply with or pay any sum due from it (within 30 days of such amount falling due) under any final judgment or any final order made or given by any court or other official body of a competent jurisdiction in an aggregate amount equal to or greater than US$50,000,000 (or its equivalent in any other currency), being a judgment or order against which there is no right of appeal or if a right of appeal exists, where the time limit for making such appeal has expired. |
| (b) | Any execution or distress is levied against, or an encumbrancer takes possession of, the whole or any part of, the property, undertaking or assets of an Obligor in an aggregate amount equal to or greater than US$50,000,000 (or its equivalent in any other currency), other than any execution or distress which is being contested in good faith and which is either discharged within 30 days or in respect of which adequate security has been provided within 30 days to the relevant court or other authority to enable the relevant execution or distress to be lifted or released. |
| (c) | Notwithstanding the foregoing paragraphs of this Clause 22.9, any levy of any distress on or any arrest, condemnation, confiscation, requisition for title or use, compulsory acquisition, seizure, detention or forfeiture of a Collateral Vessel (or any part thereof) or any exercise or purported exercise of any lien or claim on or against a Collateral Vessel where the release of or discharge the lien or claim on or against such Collateral Vessel has not been procured within 30 days. |
Any event occurs which, under the laws of any jurisdiction, has a similar or analogous effect to any of those events mentioned in Clause 22.7 ( Insolvency and Rescheduling ), Clause 22.8 ( Winding-up ) or Clause 22.9 ( Execution or Distress ).
Insurance is not maintained in respect of any Collateral Vessel in accordance with the terms of the Collateral Vessel Provisions or (in the case of each Collateral Vessel being subject to a Bareboat Charter as at the date of this Agreement) the applicable agreements (if any) delivered to the Administrative Agent pursuant to paragraph 5 under Part IV of Schedule 3 ( Initial Security Documents ).
| (a) | Any Environmental Claim is pending or made against it or any of its Environmental Affiliates or in connection with a Collateral Vessel, where such Environmental Claim has a Material Adverse Effect. |
| (b) | Any actual Environmental Incident occurs in connection with a Collateral Vessel, where such Environmental Incident has a Material Adverse Effect. |
Any Obligor repudiates any Finance Document to which it is a party or does or causes to be done any act or thing evidencing an intention to repudiate any such Finance Document.
At any time any act, condition or thing required to be done, fulfilled or performed in order:
| (a) | to enable any Obligor lawfully to enter into, exercise its rights under and perform the respective obligations expressed to be assumed by it in the Finance Documents; |
| (b) | to ensure that the obligations expressed to be assumed by each Obligor in the Finance Documents are legal, valid and binding; or |
| (c) | to make the Finance Documents admissible in evidence in any applicable jurisdiction is not done, fulfilled or performed within 30 days after notification from the Administrative Agent to the relevant Obligor requiring the same to be done, fulfilled or performed. |
At any time it is or becomes unlawful for any Obligor to perform or comply with any or all of its obligations under the Finance Documents to which it is a party or any of the obligations of the relevant Obligor hereunder are not or cease to be legal, valid and binding and such illegality is not remedied or mitigated to the satisfaction of the Administrative Agent within 30 days after it has given notice thereof to the relevant Obligor.
At any time there shall occur a change in the financial condition of any Obligor which, in the reasonable opinion of an Instructing Group, materially impairs such Obligor’s ability to discharge its obligations under the Finance Documents to which it is a party in the manner provided therein and such change, if capable of remedy, is not so remedied within 15 Business Days of the delivery of a notice confirming such change by the Administrative Agent to the relevant Obligor.
The auditors of the Group or the Leaseback Group qualify their report on any audited consolidated financial statements of the Group or the Leaseback Group (as the case may be) in any regard which, in the opinion of the Administrative Agent, is material in the context of the Finance Documents and the transactions contemplated thereby.
A Change of Control occurs in relation to the Parent Guarantor or either Borrower.
Upon the occurrence of an Event of Default and while the same is continuing at any time thereafter, the Administrative Agent may (and, if so instructed by an Instructing Group, shall) by written notice to the Parent Guarantor:
| (a) | declare all or any part of the Outstandings to be immediately due and payable (whereupon the same shall become so payable together with accrued interest thereon and any other sums then owed by any Obligor under the Finance Documents) or declare all or any part of the Outstandings to be due and payable on demand of the Administrative Agent; and/or |
| (b) | declare that any undrawn portion of the Credit Facility shall be cancelled, whereupon the same shall be cancelled and the corresponding Commitment of each Lender shall be reduced to zero; and/or |
| (c) | exercise or direct the Security Trustee to exercise any rights and remedies in existence or arising under the Finance Documents. |
If, pursuant to paragraph (a) of Clause 22.19 ( Acceleration ), the Administrative Agent declares all or any part of the Outstandings to be due and payable on demand of the Administrative Agent, then, and at any time thereafter, the Administrative Agent may (and, if so instructed by an Instructing Group, shall) by written notice to the Parent Guarantor:
| (a) | require repayment of all or the relevant part of the Advances on such date as it may specify in such notice (whereupon the same shall become due and payable on such date together with accrued interest thereon and any other sums then owed by any Obligor under the Finance Documents) or withdraw its declaration with effect from such date as it may specify in such notice; and/or |
| (b) | select as the duration of any Interest Period or Term which begins whilst such declaration remains in effect a period of 6 months or less. |
If any sum due and payable by an Obligor under this Agreement is not paid on the due date therefor in accordance with the provisions of Clause 28 ( Payments ) or if any sum due and payable by an Obligor pursuant to a judgment of any court in connection with this Agreement is not paid on the date of such judgment, the period beginning on such due date or, as the case may be, the date of such judgment and ending on the Business Day on which the obligation of such Obligor to pay the Unpaid Sum is discharged shall be divided into successive periods, each of which (other than the first) shall start on the last day of the preceding such period (which shall be a Business Day) and the duration of each of which shall (except as otherwise provided in this Clause 23 ( Default Interest )) be selected by the Administrative Agent.
During each such period relating thereto as is mentioned in Clause 23.1 ( Consequences of Non-Payment ) an Unpaid Sum shall bear interest at the rate per annum which is the sum from time to time of 2%, the Margin, the Associated Costs Rate at such time and LIBOR on the Quotation Date therefor, provided that:
| (a) | if, for any such period, LIBOR cannot be determined, the rate of interest applicable to each Lender’s portion of such Unpaid Sum shall be the rate per annum which is the sum of 2%, the Margin and the Associated Costs Rate at such time and the rate per annum shall be that notified to the Administrative Agent by such Lender as soon as practicable after the beginning of such period as being that which expresses as a percentage rate per annum the cost to such Lender of funding from whatever sources it may select its portion of such Unpaid Sum during such period; and |
| (b) | if such Unpaid Sum is all or part of an Advance which became due and payable on a day other than the last day of an Interest Period or Term relating thereto, the first Interest Period applicable to it shall be of a duration equal to the unexpired portion of that Interest Period or Term and the rate of interest applicable thereto from time to time during such Interest Period shall be that which exceeds by 2% the rate which would have been applicable to it had it not so fallen due. |
Any interest which shall have accrued under Clause 23.2 ( Default Rate ) in respect of an Unpaid Sum shall be due and payable and shall be paid by the Obligor owing such sum at the end of the period by reference to which it is calculated or on such other dates as the Administrative Agent may specify by written notice to such Obligor.
Any Unpaid Sum shall (for the purposes of this Clause 23 ( Default Interest ), Clause 14 ( Increased Costs ), Clause 26 ( Borrowers’ Indemnities ) and Schedule 5 ( Associated Costs Rate )) be treated as an advance and accordingly in those provisions the term “ Advance ” includes any Unpaid Sum and the term “ Interest Period ” and “ Term ”, in relation to an Unpaid Sum, includes each such period relating thereto as is mentioned in Clause 23.1 (Consequences of Non-Payment ).
Subject to Clause 24.10 ( Limitation upon Permitted Sale and Leaseback ), each Guarantor irrevocably and unconditionally guarantees, jointly and severally, to each of the Finance Parties the due and punctual payment by the Borrowers (and either of them) (or in the case of the Original Borrower in its capacity as a Guarantor, by the Leaseback Borrower) of all sums payable by any of them under each of the Finance Documents and agrees that promptly on demand it will pay to the Administrative Agent each and every sum of money which either Borrower (or in the case of the Original Borrower in its capacity as a Guarantor, the Leaseback Borrower) is at any time liable to pay to any Finance Party under or pursuant to any Finance Document which is due but unpaid.
Subject to Clause 24.10 ( Limitation upon Permitted Sale and Leaseback ), each Guarantor irrevocably and unconditionally agrees, jointly and severally, as primary obligor and not only as surety, to indemnify and hold harmless each Finance Party on demand by the Administrative Agent from and against any loss incurred by such Finance Party as a result of any of the obligations of either Borrower (or in the case of the Original Borrower in its capacity as a Guarantor, the Leaseback Borrower) under or pursuant to any Finance Document being or becoming void, voidable, unenforceable or ineffective as against that Borrower for any reason whatsoever (whether or not known to that Finance Party or any other person) the amount of such loss being the amount which the Finance Party suffering it would otherwise have been entitled to recover from such Borrower.
Subject to Clause 24.10 ( Limitation upon Permitted Sale and Leaseback ), the obligations of each Guarantor under this Agreement shall constitute and be continuing obligations which shall not be released or discharged by any intermediate payment or settlement of all or any of the obligations of either Borrower under the Finance Documents, shall continue in full force and effect until the unconditional and irrevocable payment and discharge in full of all amounts owing by either Borrower under each of the Finance Documents and are in addition to and independent of, and shall not prejudice or merge with, any other security (or right of set-off) which any Finance Party may at any time hold in respect of such obligations or any of them.
If the Administrative Agent makes demand of the Guarantors or any of them pursuant to this Clause 24 ( Guarantee and Indemnity ):
| (a) | the Administrative Agent may open a new account or accounts in respect of the liabilities of either Borrower to which this guarantee relates or any of them (and if it does not do so it shall be treated as if it had done so at the time it made such demand); and |
| (b) | thereafter any amounts paid by a Borrower (or any other person) to the Administrative Agent in respect of the liabilities of either Borrower under any of the Finance Documents shall be credited (or be treated as having been credited) to a new account and not as having been applied in or towards payment of such liabilities or any of them. |
Where any release, discharge or other arrangement in respect of any obligation of a Borrower, or any Security any Finance Party may hold therefor, is given or made in reliance on any payment or other disposition which is avoided or must be repaid (whether in whole or in part) in an insolvency, liquidation or otherwise and whether or not any Finance Party has conceded or compromised any claim that any such payment or other disposition will or should be avoided or repaid (in whole or in part), the provisions of this Clause 24 ( Guarantee and Indemnity ) shall continue as if such release, discharge or other arrangement had not been given or made.
None of the Finance Parties shall be obliged, before exercising or enforcing any of the rights conferred upon them in respect of the Guarantors by this Agreement or by Law, to seek to recover amounts due from either Borrower or to exercise or enforce any other rights or Security any of them may have or hold in respect of any of the obligations of the Borrowers (or either of them) under any of the Finance Documents.
Neither the obligations of the Guarantors contained in this Agreement nor the rights, powers and remedies conferred on the Finance Parties in respect of the Guarantors by this Agreement or by Law shall be discharged, impaired or otherwise affected by:
| (a) | the winding-up, dissolution, administration or re-organisation of either Borrower or any other person or any change in the status, function, control or ownership of either Borrower or any such other person; |
| (b) | any of the obligations of either Borrower or any other person under any Finance Document or any security held by any Finance Party therefor being or becoming illegal, invalid, unenforceable or ineffective in any respect; |
| (c) | any time or other indulgence being granted to or agreed (i) to or with a Borrower or any other person in respect of its obligations or (ii) in respect of any security granted under any Finance Document; |
| (d) | any amendment to, or any variation, waiver or release of, any obligation of, or any security granted by, a Borrower or any other person under any Finance Document; |
| (e) | any total or partial failure to take, or perfect, any security proposed to be taken in respect of the obligations of a Borrower or any other person under a Finance Document; |
| (f) | any total or partial failure to realise the value of, or any release, discharge, exchange or substitution of, any security held by any Finance Party in respect of a Borrower’s obligations under any Finance Document; or |
| (g) | any other act, event or omission which might operate to discharge, impair or otherwise affect any of the obligations of any of the Guarantors under the Finance Documents or any of the rights, powers or remedies conferred upon the Finance Parties or any of them thereby or by Law. |
Any rights which any Guarantor may at any time have by way of contribution or indemnity in relation to any of the obligations of a Borrower under any of the Finance Documents or to claim or prove as a creditor of a Borrower or any other person or its estate in competition with the Finance Parties or any of them, shall (so long as there remains any sums owed by the Borrowers or either of them under any of the Finance Documents) be exercised by such Guarantor only if and to the extent that the Administrative Agent so requires and in such manner and upon such terms as the Administrative Agent may specify and each Guarantor shall hold any moneys, rights or Security held or received by it as a result of the exercise of any such rights on trust for the Administrative Agent for application in or towards payment of any sums at any time owed by the Borrowers or either of them under any of the Finance Documents as if such moneys, rights or Security were held or received by the Administrative Agent under this Agreement.
No Finance Party shall be obliged to apply any sums held or received by it in respect of the obligations of the Borrowers (or either of them) under any of the Finance Documents in or towards payment of amounts owing under any of the Finance Documents, and any such sum may, in the relevant Finance Party’s discretion (but always acting in good faith), be credited to a suspense or impersonal account and held in such account pending the application from time to time (as the relevant Finance Party may think fit) of such sums in or towards the discharge of such liabilities owed to it under the Finance Documents as such Finance Party may select.
With effect from the Leaseback Completion Date (if any), but without prejudice to the obligations of the Parent Guarantor and the Cross Guarantors in respect of the Cross Guarantee Obligations, the obligations of the Tranche A Vessel Owners under this Clause 24 ( Guarantee and Indemnity ) shall be limited to the Tranche A Obligations outstanding from time to time, any payment by a Tranche A Vessel Owner pursuant to this Clause 24 ( Guarantee and Indemnity ) shall be applied as and when required pursuant to this Agreement in or towards the discharge of the Tranche A Obligations and it is agreed and acknowledged that the maximum amount recoverable from the Tranche A Vessel Owners collectively under Clause 24.1 ( Guarantee ) and Clause 24.2 ( Indemnity ) with effect from the Leaseback Completion Date shall not exceed the aggregate of the Tranche A Obligations.
Each of the other Finance Parties appoints the Administrative Agent to act as its agent under and in connection with the Finance Documents and authorises the Administrative Agent to exercise the rights, powers, authorities and discretions specifically delegated to it under or in connection with the Finance Documents together with any other incidental rights, powers, authorities and discretions.
| (a) | The Administrative Agent shall promptly inform each Lender of the contents of any notice or document received by it in its capacity as Administrative Agent from any of the Obligors under this Agreement. |
| (b) | The Administrative Agent shall promptly notify the Lenders of the occurrence of any Event of Default or any default by an Obligor in the due performance of or compliance with its obligations under any Finance Document upon becoming aware of the same. |
| (c) | If so instructed by an Instructing Group, the Administrative Agent shall refrain from exercising any power or discretion vested in it as agent under any Finance Document. |
| (d) | The duties of the Administrative Agent under the Finance Documents are, save to the extent otherwise expressly provided, solely mechanical and administrative in nature. |
Except as specifically provided in the Finance Documents, the Bookrunner and the Lead Arrangers shall have no obligations of any kind to any other party under or in connection with any Finance Document.
| (a) | Nothing in the Finance Documents constitutes the Administrative Agent, either of the Lead Arrangers or the Bookrunner as a trustee or fiduciary of any other person. |
| (b) | The Administrative Agent, the Lead Arrangers or the Bookrunner shall not be bound to account to any Lender for any sum or the profit element of any sum received by it for its own account. |
The Administrative Agent, the Lead Arrangers and the Bookrunner may accept deposits from, lend money to and generally engage in any kind of banking or other business with any member of the Group and (if applicable) the Leaseback Group.
| (a) | The Administrative Agent may rely on: |
| (i) | any representation, notice or document believed by it to be genuine, correct and appropriately authorised; and |
| (ii) | any statement made by a director, authorised signatory or employee of any person regarding any matters which may reasonably be assumed to be within his knowledge or within his power to verify. |
| (b) | The Administrative Agent may assume, unless it has received notice to the contrary in its capacity as agent for the Lenders, that: |
| (i) | no Default has occurred; |
| (ii) | any right, power, authority or discretion vested in this Agreement upon any party, the Lenders or an Instructing Group has not been exercised; and |
| (iii) | any notice or request made by the Parent Guarantor is made on behalf of and with the consent and knowledge of all the Obligors. |
| (c) | The Administrative Agent may engage, pay for and rely on the advice or services of any lawyers, accountants, surveyors or other experts. |
| (d) | The Administrative Agent may act in relation to the Finance Documents through its personnel and agents. |
| (a) | Unless a contrary indication appears in a Finance Document, the Administrative Agent shall (i) act in accordance with any instructions given to it by an Instructing Group (or, if so instructed by an Instructing Group, refrain from acting or exercising any right, power, authority or discretion vested in it as Administrative Agent) and (ii) shall not be liable for any act (or omission) if it acts (or refrains from taking any action) in accordance with such an instruction of an Instructing Group. |
| (b) | Unless a contrary indication appears in a Finance Document, any instructions given by an Instructing Group will be binding on all the Finance Parties. |
| (c) | The Administrative Agent may refrain from acting in accordance with the instructions of an Instructing Group (or, if appropriate, all the Lenders) until it has received such security or collateral as it may require for any cost, loss or liability which it may incur in complying with such instructions. |
| (d) | In the absence of instructions from an Instructing Group (or, if appropriate, the Lenders), the Administrative Agent may act (or refrain from taking action) as it considers to be in the best interest of the Lenders. |
| (e) | The Administrative Agent is not authorised to act on behalf of a Lender in any legal or arbitration proceedings relating to any Finance Document without first obtaining the Lender’s consent to do so. |
The Administrative Agent and the Lead Arrangers are not responsible for:
| (a) | the adequacy, accuracy and/or completeness of any information (whether oral or written) supplied by any Finance Party or an Obligor or any other person in or in connection with any Finance Document; or |
| (b) | the legality, validity, effectiveness, adequacy or enforceability of any Finance Document or any other agreement, arrangement or document entered into, made or executed in anticipation of or in connection with any Finance Document. |
| (a) | Without limiting paragraph (b) of this Clause 25.9, the Administrative Agent will not be liable for any action taken by it under or in connection with any Finance Document, unless directly caused by its gross negligence or wilful misconduct. |
| (b) | Each of the Lenders agrees that it will not take any proceedings, or assert or seek to assert any claim, against any officer, employee or agent of the Administrative Agent in respect of any claim it might have against the Administrative Agent or in respect of any act or omission of any kind by that officer, employee or agent in relation to any Finance Document and agrees that any officer, employee or agent of the Administrative Agent may enforce this provision. |
| (c) | The Administrative Agent will not be liable for any delay (or any related consequences) in crediting an account with an amount required under the Finance Documents to be paid by it if it has taken all necessary steps as soon as reasonably practicable to comply with the regulations or operating procedures of any recognised clearing or settlement system used by it for that purpose. |
Each Lender shall (in its relevant Proportion (as determined at all times for these purposes in accordance with paragraph (c) of the definition of “Proportion”)) indemnify the Administrative Agent from time to time on demand by the Administrative Agent against any cost, loss or liability incurred by the Administrative Agent (otherwise than by reason of its gross negligence or wilful misconduct) in acting as Administrative Agent under the Finance Documents (unless it has been reimbursed therefor by an Obligor pursuant to the terms of the Finance Documents).
| (a) | The Administrative Agent may resign and appoint one of its Affiliates acting through an office in New York City or London as successor Administrative Agent by giving notice to the Lenders and the Parent Guarantor. |
| (b) | Alternatively, the Administrative Agent may resign without having designated a successor as agent under paragraph (a) above (and shall do so if so required by an Instructing Group) by giving notice to the Lenders and the Parent Guarantor, in which case an Instructing Group (after consultation with the Parent Guarantor) may appoint a successor Administrative Agent. |
| (c) | If an Instructing Group has not appointed a successor Administrative Agent in accordance with paragraph (b) above within 30 days after notice of resignation was given, the Administrative Agent (after consultation with the Parent Guarantor) may appoint a successor Administrative Agent (acting through an office in New York City or London). |
| (d) | The retiring Administrative Agent shall, at the Parent Guarantor’s cost, make available to its successor such documents and records and provide such assistance as its successor may reasonably request for the purposes of performing its functions as Administrative Agent under the Finance Documents. |
| (e) | The resignation notice of the Administrative Agent shall only take effect upon the appointment of a successor Administrative Agent. |
| (f) | Upon the appointment of a successor, the retiring Administrative Agent shall be discharged from any further obligation in respect of the Finance Documents but shall remain entitled to the benefit of this Clause 25 ( Administrative Agent and Obligors’ Agent ). The Administrative Agent’s successor and each of the other parties to this Agreement shall have the same rights and obligations amongst themselves as they would have had if such successor Administrative Agent had been an original party as the Administrative Agent. |
| (a) | The Administrative Agent (in acting as agent for the Finance Parties) shall be regarded as acting through its respective agency division which in each case shall be treated as a separate entity from any other of its divisions or departments. |
| (b) | If information is received by another division or department of the Administrative Agent, it may be treated as confidential to that division or department and the Administrative Agent shall not be deemed to have notice of it. |
| (c) | Notwithstanding any other provision of any Finance Document to the contrary, the Finance Parties are not obliged to disclose to any other person (i) any confidential information or (ii) any other information if the disclosure would, or might in its reasonable opinion, constitute a breach of any Law. |
The Administrative Agent may treat each Lender as a Lender, entitled to payments under this Agreement and acting through its Facility Office, unless it has received not less than 5 Business Days’ prior notice from that Lender to the contrary in accordance with the terms of this Agreement.
Each Lender shall supply the Administrative Agent with any information required by the Administrative Agent in order to calculate the Associated Costs Rate in accordance with Schedule 5 ( Associated Costs Rate ).
Without affecting the responsibility of any Obligor for information supplied by it or on its behalf in connection with any Finance Document, each Lender confirms to the Administrative Agent, the Lead Arrangers and the Bookrunner that it has been, and will continue to be, solely responsible for making its own independent appraisal and investigation of all risks arising under or in connection with any Finance Document including but not limited to:
| (a) | the financial condition, status and nature of each member of the Group and (if applicable) the Leaseback Group; |
| (b) | the legality, validity, effectiveness, adequacy or enforceability of any Finance Document and any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document; |
| (c) | whether that Lender has recourse, and the nature and extent of that recourse, against any party or any of its respective assets under or in connection with any Finance Document, the transactions contemplated by the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document; and |
| (d) | the adequacy, accuracy and/or completeness of any information provided by the Administrative Agent, the Lead Arrangers, the Bookrunner or by any other person under or in connection with any Finance Document, the transactions contemplated by the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document. |
If any party owes an amount to the Administrative Agent under any Finance Document, the Administrative Agent may, after giving notice to that party, deduct an amount not exceeding that amount from any payment to that party which the Administrative Agent would otherwise be obliged to make under the Finance Documents and apply the amount deducted in or towards satisfaction of the amount owed. For the purposes of the Finance Documents, that party shall be regarded as having received such payment without any such deduction.
| (a) | Each Obligor (other than the Parent Guarantor) irrevocably authorises the Parent Guarantor to act on its behalf as its agent in relation to the Finance Documents and irrevocably authorises: |
| (i) | the Parent Guarantor on its behalf to supply all information concerning itself, its financial condition and otherwise to the relevant persons contemplated under this Agreement and to give all notices and instructions to execute on its behalf any Finance Document and to enter into any agreement in connection with the Finance Documents notwithstanding that the same may affect such Obligor, without further reference to or the consent of such Obligor; and |
| (ii) | each Finance Party to give any notice, demand or other communication to be given to or served on such Obligor pursuant to the Finance Documents to the Parent Guarantor on its behalf, |
| and in each such case, such Obligor will be bound thereby as though such Obligor itself had supplied such information, given such notice and instructions, executed such Finance Document and agreement or received any such notice, demand or other communication. |
| (b) | Every act, omission, agreement, undertaking, settlement, waiver, notice or other communication given or made by the Obligors’ Agent under any Finance Document, or in connection with this Agreement (whether or not known to any other Obligor and whether occurring before or after such Obligor became an Obligor under this Agreement), shall be binding for all purposes on all other Obligors as if the other Obligors had expressly made, given or concurred with the same. In the event of any conflict between any notices or other communications of the Obligors’ Agent and any other Obligor, those of the Obligors’ Agent shall prevail. |
Each Lender and each Obligor will co-operate with the Administrative Agent to complete any legal requirements imposed on the Administrative Agent in connection with the performance of its duties under this Agreement and shall supply any information requested by the Administrative Agent in connection with the proper performance of those duties.
Each Borrower undertakes to indemnify:
| (a) | each of the Finance Parties against any cost, claim, loss, expense (including legal fees and disbursements) or liability, which any of them may sustain or incur as a consequence of the occurrence of any Default; and |
| (b) | each Lender against any loss it may suffer or incur as a result of its funding or making arrangements to fund its portion of an Advance requested by a Borrower under this Agreement but not made by reason of the operation of any one or more of the provisions of this Agreement (save as a result of the gross negligence or wilful default of the relevant Lender). |
| (a) | Each Borrower shall, within 3 Business Days of demand by the Administrative Agent on behalf of a Finance Party, pay to that Finance Party its Break Costs attributable to all or any part of any Advance or Unpaid Sum being paid by that Borrower on a day other than the last day of an Interest Period or Term for that Advance or Unpaid Sum. |
| (b) | Each Lender shall, as soon as reasonably practicable after a demand by the Administrative Agent, provide a certificate confirming the amount of its Break Costs for any Interest Period or Term in which they accrue. |
The dollar is the currency of account and payment for each and every sum at any time due from any Obligor under this Agreement provided that:
| (a) | each repayment of any Outstandings or Unpaid Sum (or part of it) shall be made in the currency in which those Outstandings or Unpaid Sum are denominated on their due date; |
| (b) | interest shall be payable in the currency in which the sum in respect of which such interest is payable was denominated when that interest accrued; |
| (c) | each payment in respect of costs and expenses shall be made in the currency in which the same were incurred; and |
| (d) | each payment pursuant to Clause 12.2 ( Tax Indemnity ) or Clause 14.1 ( Increased Costs ) shall be made in the currency specified by the Finance Party claiming under it. |
If any sum due from an Obligor under this Agreement or any order or judgment given or made in relation to this Agreement has to be converted from the currency (the “ first currency ”) in which the same is payable under this Agreement or under such order or judgment into another currency (the “ second currency ”) for the purpose of (a) making or filing a claim or proof against such Obligor, (b) obtaining an order or judgment in any court or other tribunal or (c) enforcing any order or judgment given or made in relation to this Agreement, the Parent Guarantor shall indemnify and hold harmless each of the persons to whom such sum is due from and against any loss suffered or incurred as a result of any discrepancy between (x) the rate of exchange used for such purpose to convert the sum in question from the first currency into the second currency and (y) the rate or rates of exchange at which such person may in the ordinary course of business purchase the first currency with the second currency upon receipt of a sum paid to it in satisfaction, in whole or in part, of any such order, judgment, claim or proof.
On each date on which this Agreement requires an amount to be paid by an Obligor or any of the Lenders under this Agreement, such Obligor or, as the case may be, such Lender shall make the same available to the Administrative Agent by payment in same day funds (or such other funds as may for the time being be customary for the settlement of transactions in the relevant currency) to such account or bank as the Administrative Agent may have specified for this purpose and any such payment which is made for the account of another person shall be made in time to enable the Administrative Agent to make available such person’s portion of it to such other person in accordance with Clause 28.2 ( Same Day Funds ).
Save as otherwise provided in this Agreement, each payment received by the Administrative Agent for the account of another person shall be made available by the Administrative Agent to such other person (in the case of a Lender, for the account of its Facility Office) for value the same day by transfer to such account of such person with such bank in London or New York as such person shall have previously notified to the Administrative Agent for this purpose.
Any payment required to be made by an Obligor under this Agreement shall be calculated without reference to any set-off or counterclaim and shall be made free and clear of, and without any deduction for or on account of, any set-off or counterclaim.
If the Administrative Agent receives a payment that is insufficient to discharge all the amounts then due and payable by an Obligor under the Finance Documents, the Administrative Agent shall, unless otherwise instructed by an Instructing Group, apply that payment towards the obligations of that Obligor under the Finance Documents in the following order:
| (a) | first , in or towards payment pro rata of any unpaid fees, costs and expenses incurred by the Administrative Agent under the Finance Documents; |
| (b) | secondly , in or towards payment pro rata of any accrued interest or commission due but unpaid under any Finance Document; |
| (c) | thirdly , in or towards payment pro rata of any principal due but unpaid under any Finance Document; and |
| (d) | fourthly , in or towards payment pro rata of any other sum due but unpaid under the Finance Documents, |
and such application shall override any appropriation made by an Obligor.
Where a sum is to be paid under this Agreement to the Administrative Agent for the account of another person, the Administrative Agent shall not be obliged to make the same available to that other person (or to enter into or perform any exchange contract in connection therewith) until it has been able to establish to its satisfaction that it has actually received such sum, but if it does so and it proves to be the case that it had not actually received such sum, then the person to whom such sum (or the proceeds of such exchange contract) was (or were) so made available shall on request refund the same to the Administrative Agent together with an amount sufficient to indemnify and hold harmless the Administrative Agent from and against any cost or loss it may have suffered or incurred by reason of its having paid out such sum (or the proceeds of such exchange contract) prior to its having received such sum.
If a Finance Party (a “ Recovering Finance Party ”) receives or recovers any amount from an Obligor other than in accordance with Clause 28 ( Payments ) and applies that amount to a payment due under the Finance Documents then:
| (a) | the Recovering Finance Party shall, within 3 Business Days, notify details of the receipt or recovery to the Administrative Agent; |
| (b) | the Administrative Agent shall determine whether the receipt or recovery is in excess of the amount the Recovering Finance Party would have been paid had the receipt or recovery been received or made by the Administrative Agent and distributed in accordance with Clause 28.4 ( Partial Payments ), without taking account of any tax which would be imposed on the Administrative Agent in relation to the receipt, recovery or distribution; and |
| (c) | the Recovering Finance Party shall, within 3 Business Days of demand by the Administrative Agent, pay to the Administrative Agent an amount (the “ Sharing Payment ”) equal to such receipt or recovery less any amount which the Administrative Agent determines may be retained by the Recovering Finance Party as its share of any payment to be made, in accordance with Clause 28.4 ( Partial Payments ). |
The Administrative Agent shall treat the Sharing Payment as if it had been paid by the relevant Obligor and distribute it between the Finance Parties (other than the Recovering Finance Party) in accordance with Clause 28.4 ( Partial Payments ).
| (a) | On a distribution by the Administrative Agent under Clause 29.2 ( Redistribution of Payments ), the Recovering Finance Party will be subrogated to the rights of the Finance Parties which have shared in the redistribution. |
| (b) | If and to the extent that the Recovering Finance Party is not able to rely on its rights under paragraph (a) above, the relevant Obligor shall be liable to the Recovering Finance Party for a debt equal to the Sharing Payment which is immediately due and payable. |
If any part of the Sharing Payment received or recovered by a Recovering Finance Party becomes repayable and is repaid by that Recovering Finance Party, then:
| (a) | each Finance Party which has received a share of the relevant Sharing Payment pursuant to Clause 29.2 (Redistribution of Payments ) shall, upon the request of the Administrative Agent, pay to the Administrative Agent for the account of that Recovering Finance Party an amount equal to its share of the Sharing Payment (together with an amount as is necessary to reimburse that Recovering Finance Party for its share of any interest on the Sharing Payment which that Recovering Finance Party is required to pay); and |
| (b) | that Recovering Finance Party’s rights of subrogation in respect of any reimbursement shall be cancelled and the relevant Obligor will be liable to the reimbursing Finance Party for the amount so reimbursed. |
| (a) | This Clause 29 ( Sharing Among the Finance Parties ) shall not apply to the extent that the Recovering Finance Party would not, after making any payment pursuant hereto, have a valid and enforceable claim against the relevant Obligor. |
| (b) | A Recovering Finance Party is not obliged to share with any other Finance Party under any amount which the Recovering Finance Party has received or recovered as a result of taking legal or arbitration proceedings, if: |
| (i) | it notified such other Finance Party of the legal or arbitration proceedings; and |
| (ii) | such other Finance Party had an opportunity to participate in those legal or arbitration proceedings but did not do so as soon as reasonably practicable having received notice of it or did not take separate legal or arbitration proceedings. |
Interest and commitment fees shall accrue from day to day and shall be calculated on the basis of a year of 360 days and the actual number of days elapsed.
Save as otherwise provided in this Agreement, on any occasion a Reference Bank or Lender fails to supply the Administrative Agent with an interest rate quotation required of it under the foregoing provisions of this Agreement, the rate for which such quotation was required shall be determined from those quotations which are supplied to the Administrative Agent.
Each Lender shall maintain in accordance with its usual practice accounts evidencing the amounts from time to time lent by and owing to it under this Agreement.
The Administrative Agent shall maintain on its books a control account or accounts in which shall be recorded:
| (a) | the amount of any Advance or Unpaid Sum and each Lender’s share in it; |
| (b) | the amount of all principal, interest and other sums due or to become due from each of the Obligors to any of the Lenders under the Finance Documents and each Lender’s share in it; and |
| (c) | the amount of any sum received or recovered by the Administrative Agent under this Agreement and each Lender’s share in it. |
In any legal action or proceeding arising out of or in connection with this Agreement, the entries made in the accounts maintained pursuant to Clause 30.3 ( Maintain Accounts ) and Clause 30.4 ( Control Accounts ) shall be prima facie evidence of the existence and amounts of the specified obligations of the Obligors.
A certificate of a Finance Party as to the amount for the time being required to indemnify it against any Tax Liability pursuant to Clause 12.2 ( Tax Indemnity ) or any Increased Cost pursuant to Clause 14.1 ( Increased Costs ) shall be prima facie evidence of the existence and amounts of the specified obligations of the Obligors.
A certificate of the Administrative Agent as to the amount at any time due from either Borrower under this Agreement (or the amount which, but for any of the obligations of either Borrower under this Agreement being or becoming void, unenforceable or ineffective, at any time, would have been due from such Borrower under this Agreement) shall, in the absence of manifest error, be prima facie evidence for the purposes of Clause 24 (Guarantee and Indemnity ).
This Agreement shall be binding upon and enure to the benefit of each party to this Agreement and its or any subsequent successors, permitted assignees and Transferees.
Except pursuant to and in accordance with Clause 20 ( Sale and Leaseback ) and Clause 21 ( Additional Obligors and New Vessels ), none of the rights, benefits and obligations of an Obligor under this Agreement shall be capable of being assigned or transferred, and each Obligor undertakes not to seek to assign or transfer any of its rights, benefits and obligations under this Agreement.
Any Lender may, at any time and at its own cost, assign all or any of its rights and benefits under the Finance Documents in accordance with Clause 31.4 ( Assignments ) or transfer all or any of its rights, benefits and obligations under the Finance Documents in accordance with Clause 31.5 ( Transfer Certificate ) provided that such assignment or transfer:
| (a) | is the subject of the prior approval of the Borrowers (which approval shall not be unreasonably withheld); and |
| (b) | the principal amount to be assigned or transferred by the relevant Lender: |
| (i) | is at least US$5,000,000; and |
| (ii) | consists of Tranche A Commitment and Tranche B Commitment (in each case, if any) which corresponds pro rata to such Lender’s respective participation in the Tranche A Commitments and Tranche B Commitments of all the Lenders, as applicable immediately prior to such assignment or transfer. |
If any Lender wishes to assign all or any of its rights and benefits under the Finance Documents, unless and until the relevant assignee has agreed with the other Finance Parties that it shall be under the same obligations towards each of them as it would have been under if it had been an original party to the Finance Documents as a Lender, such assignment shall not become effective and the other Finance Parties shall not be obliged to recognise such assignee as having the rights against each of them which it would have had if it had been such a party to this Agreement.
If any Lender wishes to transfer all or any of its rights, benefits and/or obligations under the Finance Documents, such transfer may be effected by novation through the delivery to the Administrative Agent of a duly completed and duly executed Transfer Certificate in which event, on the later of the Transfer Date specified in such Transfer Certificate and the fifth Business Day after (or such earlier Business Day endorsed by the Administrative Agent on such Transfer Certificate falling on or after) the date of delivery of such Transfer Certificate to the Administrative Agent:
| (a) | to the extent that in such Transfer Certificate the Lender party to it seeks to transfer its rights, benefits and obligations under the Finance Documents, each of the Obligors and such Lender shall be released from further obligations towards one another under the Finance Documents and their respective rights against one another shall be cancelled (such rights and obligations being referred to in this Clause 31.5 as “ discharged rights and obligations ”); |
| (b) | each of the Obligors and the Transferee party to it shall assume obligations towards one another and/or acquire rights against one another which differ from the discharged rights and obligations only insofar as such Obligor and such Transferee have assumed and/or acquired the same in place of such Obligor and such Lender; |
| (c) | the other Finance Parties and the Transferee shall acquire the same rights and benefits and assume the same obligations between themselves as they would have acquired and assumed had such Transferee been an original party to the Finance Documents as a Lender with the rights, benefits and obligations acquired or assumed by it as a result of such transfer; and |
| (d) | such Transferee shall become a party to this Agreement as a Lender, |
provided that, such transfer shall be conditional upon the performance by the Administrative Agent of all “know your customer” or other checks relating to any person that it is required to carry out where the transfer is to a new Lender.
On the date upon which a transfer takes effect pursuant to Clause 31.5 ( Transfer Certificate ) the Transferee in respect of such transfer shall pay to the Administrative Agent for its own account a transfer fee of US$3,000.
Any Lender may disclose to any of its Affiliates, to any actual or potential assignee or Transferee, to any person who may otherwise enter into contractual relations with such Lender in relation to this Agreement or any person to whom, and to the extent that, information is required to be disclosed by any applicable Law, such information about the Obligors, the Group and (if applicable) the Leaseback Group as such Lender shall consider appropriate. Provided that the Parent Guarantor may require such Lender to obtain from its relevant Affiliate or such actual or potential assignee or transferee or such other person, a confidentiality undertaking in substantially the form previously delivered to the Parent Guarantor by the Lenders being original parties to this Agreement in relation to such information concerning the Group and (if applicable) the Leaseback Group which has been supplied to such Lender on a confidential basis.
The Borrowers shall, from time to time on demand of the Administrative Agent, reimburse the Administrative Agent, the Security Trustee and each of the Lead Arrangers for all costs and expenses (including legal fees and disbursements) reasonably incurred by them in connection with the negotiation, preparation and execution of the Finance Documents, the completion of the transactions therein contemplated and primary syndication of the Facilities (including publicity expenses).
The Borrowers shall, from time to time on demand of the Administrative Agent, reimburse each Finance Party for all costs and expenses (including legal fees and disbursements) reasonably incurred in or in connection with the preservation and/or enforcement of any of the rights of such Finance Party under the Finance Documents.
The Borrowers shall pay all stamp, registration, documentary and other taxes (including any penalties, additions, fines, surcharges or interest relating thereto) to which any of the Finance Documents or any judgment given in connection therewith is or at any time may be subject and shall, from time to time on demand of the Administrative Agent, indemnify the Finance Parties against any liabilities, costs, claims and expenses resulting from any failure to pay or any delay in paying those taxes. The Administrative Agent shall be entitled (but not obliged) to pay those taxes (whether or not they are its primary responsibility) and to the extent that it does so, claim under this Clause 32.3.
If an Obligor requests any amendment or waiver in accordance with Clause 37 ( Amendments ), the relevant Obligor shall, on demand of the Administrative Agent, reimburse the Finance Parties for all costs and expenses (including legal fees and disbursements) reasonably incurred by any of the Finance Parties in responding to or complying with such request.
If any Obligor fails to perform any of its obligations under this Clause 32 ( Costs and Expenses ), each Lender shall indemnify and hold harmless each of the Administrative Agent, the Lead Arrangers and/or the Security Trustee from and against its Proportion (as determined at all times for these purposes in accordance with paragraph (c) of the definition of “Proportion”) of any loss incurred by any of them as a result of such failure and the relevant Obligor shall forthwith reimburse each Lender for any payment made by it pursuant to this Clause 32.5.
| (a) | All amounts expressed to be payable under any Finance Document by any Obligor to a Finance Party shall be exclusive of any VAT. If VAT is chargeable on any supply made by a Finance Party to any Obligor under any Finance Document (whether that supply is taxable pursuant to the exercise of an option or otherwise), that Obligor shall pay to that Finance Party (in addition to and at the same time as paying that consideration) an amount equal to the amount of the VAT as further consideration. |
| (b) | No payment or other consideration to be made or furnished to any Obligor pursuant to or in connection with any Finance Document may be increased or added to by reference to (or as a result of any increase in the rate of) any VAT which shall be or may become chargeable in respect of any taxable supply. |
| (c) | Where a Finance Document requires any party to reimburse a Finance Party for any costs or expenses, that party shall also pay any amount of those costs or expenses incurred referable to VAT chargeable thereon. |
Where under any Finance Document an Obligor has an obligation to indemnify or reimburse any Finance Party in respect of any loss or payment, the calculation of the amount payable by way of indemnity or reimbursement shall take account of the likely tax treatment in the hands of that Finance Party (as determined by it) of the amount payable by way of indemnity or reimbursement and of the loss or payment in respect of which that amount is payable.
No failure to exercise, nor any delay in exercising, on the part of the Finance Parties or any of them, any right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise thereof or the exercise of any other right or remedy. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by Law.
Each communication to be made under this Agreement shall be made in writing and, unless otherwise stated, shall be made by fax or letter.
Subject to Clause 34.3 ( Use of Websites ) and to Clause 34.4 ( Electronic Communication ), any communication or document to be made or delivered by one person to another pursuant to this Agreement shall in the case of any person other than a Lender or the Leaseback Borrower (unless that other person has by 15 days’ written notice to the Administrative Agent specified another address) be made or delivered to that other person at the address identified with its signature below or, in the case of a Lender, at the address from time to time designated by it to the Administrative Agent for the purpose of this Agreement (or, in the case of a Transferee at the end of the Transfer Certificate to which it is a party as Transferee) or, in the case of the Leaseback Borrower, at the address designated in the applicable Novation Deed or such other address as may from time to time be designated by it to the Administrative Agent for such purpose (by notice to the Administrative Agent at least 15 days prior to which such address is to take effect for such purpose) and shall be deemed to have been made or delivered (in the case of any communication made by fax) when despatched and the transmission report of the sender indicates that the fax transmission has been received by the addressee or (in the case of any communication made by letter) when left at the address or (as the case may be) 5 days after being deposited in the post postage prepaid in an envelope addressed to it at that address provided that any communication or document to be made or delivered to the Administrative Agent shall be effective only when received by the Administrative Agent and then only if the same is expressly marked for the attention of the department or officer identified with the Administrative Agent’s signature below (or such other department or officer as the Administrative Agent shall from time to time specify for this purpose). Any communication which would otherwise be deemed to have been received on a day which is not a Business Day shall be deemed to have been received on the next succeeding Business Day.
| (a) | Without prejudice to the obligation of each Obligor when providing information to a Lender to do so (in each case) through the Administrative Agent, any information required to be delivered to the Lenders, may be delivered to those Lenders (the “ Website Lenders ”) who accept such method of communication by posting the relevant information onto an electronic website designated by the Parent Guarantor and the Administrative Agent (the “ Designated Website ”) if: |
| (i) | the Administrative Agent expressly agrees (after consultation with each of the Lenders) that it will accept communication of the information by this method; |
| (ii) | both the Parent Guarantor and the Administrative Agent are aware of the address of, and any relevant password specifications for, the Designated Website; and |
| (iii) | the information is in a format previously agreed between the Parent Guarantor and the Administrative Agent. |
| If any Lender (a “ Paper Form Lender ”) does not agree to the delivery of such information electronically then the Administrative Agent shall notify the Parent Guarantor accordingly and the Parent Guarantor shall supply the information to the Administrative Agent (in sufficient copies for each Paper Form Lender) in paper form. |
| (b) | The Administrative Agent shall supply each Website Lender with the address of, and any relevant password specifications for, the Designated Website following designation of that website by the Parent Guarantor and the Administrative Agent. |
| (c) | The Administrative Agent shall, as soon as reasonably practicable after becoming aware of the occurrence of such event, notify the other parties to this Agreement if: |
| (i) | the Designated Website cannot be accessed due to technical failure; |
| (ii) | the password specifications for the Designated Website change; |
| (iii) | any new information which is required to be provided under this Agreement is posted onto the Designated Website; |
| (iv) | any existing information which has been provided under this Agreement and posted onto the Designated Website is amended; or |
| (v) | it becomes aware that the Designated Website or any information posted onto the Designated Website is or has been infected by any electronic virus or similar software. |
| If the Administrative Agent notifies the other parties to this Agreement under paragraph (c)(i) or paragraph (c)(v) above, all information to be provided by any Obligor under this Agreement after the date of that notice shall be supplied in paper form unless and until the Administrative Agent and each Website Lender is satisfied that the circumstances giving rise to the notification are no longer continuing. |
| (d) | Any Website Lender may request, through the Administrative Agent, one paper copy of any information required to be provided under this Agreement which is posted onto the Designated Website. The relevant Obligor shall comply with any such request within 10 Business Days. |
| (a) | Any communication to be made between the Administrative Agent and a Lender or between an Obligor and the Administrative Agent under or in connection with the Finance Documents may be made by electronic mail or other electronic means, if the Administrative Agent, the relevant Lender and/or the Parent Guarantor (as the case may be): |
| (i) | agree that, unless and until notified to the contrary, this is to be an accepted form of communication; |
| (ii) | notify each other in writing of their electronic mail address and/or any other information required to enable the sending and receiving of information by that means; and |
| (iii) | notify each other of any change to their address or any other such information supplied by them. |
| (b) | Any electronic communication made between the Administrative Agent and a Lender or between the Administrative Agent and an Obligor will be effective only when actually received in readable form and in the case of any electronic communication made by a Lender or an Obligor to the Administrative Agent only if it is addressed in such a manner as the Administrative Agent shall specify for this purpose. |
Each communication and document made or delivered by one party to another pursuant to this Agreement shall be in the English language or (if requested by the Administrative Agent) accompanied by a translation of it into English certified (by an officer of the person making or delivering the same) as being a true and accurate translation of it.
If, at any time, any provision of this Agreement is or becomes illegal, invalid or unenforceable in any respect under the Law of any jurisdiction, such illegality, invalidity or unenforceability shall not affect:
| (a) | the legality, validity or enforceability of the remaining provisions of this Agreement; or |
| (b) | the legality, validity or enforceability of such provision under the Law of any other jurisdiction. |
37. AMENDMENTS
Except as provided in Clauses 37.2 ( Consent ), 37.3 ( Technical Amendments ) and 37.5 ( Guarantees and Security ), the Administrative Agent, if it has the prior written consent of an Instructing Group, and the Obligors affected thereby, may from time to time agree in writing to amend this Agreement or to waive, prospectively or retrospectively, any of the requirements of this Agreement and any amendments or waivers so agreed shall be binding on all the Finance Parties and all the Obligors.
An amendment or waiver relating to the following matters shall not be made without the prior written consent of each Lender affected thereby:
| (a) | any increase in the Commitment of such Lender; |
| (b) | a reduction in the proportion of any amount received or recovered (whether by way of set-off, combination of accounts or otherwise) in respect of any amount due from an Obligor under this Agreement to which any Lender is entitled; |
| (c) | a decrease in the Margin, or the principal amount of, any Advance or any interest payment, fees or other amounts due under this Agreement to any Lender from an Obligor or any other party to this Agreement; |
| (d) | any change in the currency of account; |
| (e) | the deferral of the date for payment of any principal, interest, fee or any other amount due under this Agreement to any Lender from an Obligor or any other party to this Agreement; |
| (f) | the deferral of the Maturity Date; |
| (g) | the obligations of the Parent Guarantor or (subject to Clause 37.5 ( Guarantees and Security )) any other Guarantor, under Clause 24 ( Guarantee and Indemnity ); |
| (h) | any reduction to the percentage set forth in the definition of Instructing Group; or |
| (i) | a change to any provision which contemplates the need for the consent or approval of all the Lenders. |
Notwithstanding Clause 37.1 ( Amendments ), the Administrative Agent may determine administrative matters and make technical amendments arising out of manifest errors on the face of this Agreement, where such amendments would not prejudice or otherwise be adverse to the position of any Lender under this Agreement, without reference to the Lenders.
Notwithstanding any other provision of this Agreement, the Administrative Agent shall not be obliged to agree to any amendment or waiver if the same would:
| (i) | amend or waive any provision of Clause 25 ( Administrative Agent and Obligors’ Agent ), Clause 32 ( Costs and Expenses ) or this Clause 37 ( Amendments ); or |
| (ii) | otherwise amend or waive any of the Administrative Agent’s rights under this Agreement or subject the Administrative Agent to any additional obligations under this Agreement. |
The release of a Guarantor from any of its obligations under Clause 24 ( Guarantee and Indemnity ) or a release of any Security under the Security Documents, in each case, other than in accordance with the terms of this Agreement, shall require prior consent of all the Lenders, provided that the Administrative Agent or the Security Trustee (as applicable) in its discretion shall be permitted to effect any such release (excluding, for the avoidance of doubt, a release of the Parent Guarantor from any of its obligations under Clause 24 ( Guarantee and Indemnity )) to the extent required in connection with:
| (a) | the Permitted Sale and Leaseback; |
| (b) | the sale or other disposal to a third party of a Collateral Vessel (or of a Subsidiary Guarantor) or a total loss of a Collateral Vessel, subject to (x) receipt by the Administrative Agent on the Disposal Date or the Total Loss Date (as the case may be) of the prepayment required to be made by the relevant Borrower in respect of the same or (y) a determination by the Administrative Agent that no such prepayment is required, in each case, pursuant to and in accordance with Clause 8.1 ( Total Loss or Sale); or |
| (c) | the substitution of a Collateral Vessel pursuant to and in accordance with Clause 19.12(b) ( Disposal of Assets and Collateral Vessel Substitution ). |
38. THIRD PARTY RIGHTS
| (a) | A person which is not a party to this Agreement (a “ third party ”) shall have no right to enforce any of its provisions except that: |
| (i) | a third party shall have those rights it would have had if the Contracts (Rights of Third Parties) Act 1999 had not come into effect; and |
| (ii) | each of Clause 12.2 ( Tax Indemnity ), Clause 14 ( Increased Costs ) and Clause 25.9(b) ( Exclusion of Liability ) shall be enforceable by any third party referred to in such clause as if such third party were a party to this Agreement. |
| (b) | The parties to this Agreement may without the consent of any third party vary or rescind this Agreement. |
39. COUNTERPARTS
This Agreement may be executed in any number of counterparts and all of such counterparts taken together shall be deemed to constitute one and the same instrument.
This Agreement shall be governed by, and construed in accordance with, English Law.
Each of the parties to this Agreement irrevocably agrees for the benefit of each of the Finance Parties that the courts of England shall have exclusive jurisdiction to hear and determine any suit, action or proceedings, and to settle any disputes, which may arise out of or in connection with this Agreement (respectively “ Proceedings ” and “Disputes ”) and, for such purposes, irrevocably submits to the jurisdiction of such courts.
Each of the Obligors irrevocably waives any objection which it might now or hereafter have to Proceedings being brought or Disputes being settled in the courts of England and agrees not to claim that any such court is an inconvenient or inappropriate forum.
Each of the Obligors which is not incorporated in England agrees that the process by which any Proceedings are begun may be served on it by being delivered in connection with any Proceedings in England, to Teekay Shipping (UK) Limited at 49 St. James Street, London SW1A 1JT or its registered office for the time being. If the appointment of the person mentioned in this Clause 41.3 ceases to be effective in respect of any of the Obligors, the relevant Obligor shall immediately appoint a further person in England to accept service of process on its behalf in England and, failing such appointment within 15 days, the Administrative Agent shall be entitled to appoint such person by notice to the relevant Obligor. Nothing contained in this Agreement shall affect the right to serve process in any other manner permitted by Law.
Nothing in Clause 41.1 ( Courts of England ) shall (or shall be construed so as to) limit the right of the Finance Parties or any of them to take Proceedings against any of the Obligors in any other court of competent jurisdiction nor shall the taking of Proceedings in any one or more jurisdictions preclude the taking of Proceedings in any other jurisdiction (whether concurrently or not) if and to the extent permitted by applicable Law.
To the extent that any Obligor may in any jurisdiction claim for itself or its assets or revenues immunity from suit, execution, attachment (whether in aid of execution, before judgment or otherwise) or other legal process and to the extent that in any such jurisdiction there may be attributed to itself, its assets or revenues such immunity (whether or not claimed), such Obligor irrevocably agrees not to claim, and irrevocably waives, such immunity to the full extent permitted by the laws of such jurisdiction.
This Agreement has been entered into on the date stated at the beginning of this Agreement.
SCHEDULE 1
LENDERS AND COMMITMENTS
Tranche A
------------------------------------------------------------------- --------------------------------------------
Lender Commitment
------------------------------------------------------------------- --------------------------------------------
Nordea Bank Norge ASA, Grand Cayman Branch US$32,000,000
------------------------------------------------------------------- --------------------------------------------
DnB NOR Bank ASA US$32,000,000
------------------------------------------------------------------- --------------------------------------------
HSBC Bank plc US$24,000,000
------------------------------------------------------------------- --------------------------------------------
ING Bank N.V. US$24,000,000
------------------------------------------------------------------- --------------------------------------------
Danish Ship Finance (Danmarks Skibskreditfond) US$18,240,000
------------------------------------------------------------------- --------------------------------------------
Deutsche Schiffsbank Aktiengesellschaft US$18,240,000
------------------------------------------------------------------- --------------------------------------------
Dresdner Bank AG in Hamburg US$18,240,000
------------------------------------------------------------------- --------------------------------------------
Fokus Bank ASA US$18,240,000
------------------------------------------------------------------- --------------------------------------------
Landesbank Hessen-Thuringen Girozentrale US$18,240,000
------------------------------------------------------------------- --------------------------------------------
Lloyds TSB Bank plc US$18,240,000
------------------------------------------------------------------- --------------------------------------------
NIB Capital Bank N.V. US$18,240,000
------------------------------------------------------------------- --------------------------------------------
The Royal Bank of Scotland plc US$18,240,000
------------------------------------------------------------------- --------------------------------------------
Scotiabank Europe plc US$18,240,000
------------------------------------------------------------------- --------------------------------------------
Vereins- und Westbank AG US$18,240,000
------------------------------------------------------------------- --------------------------------------------
The Governor and Company of the Bank of Ireland US$12,800,000
------------------------------------------------------------------- --------------------------------------------
Skandinaviska Enskilda Banken AB (publ.) US$12,800,000
------------------------------------------------------------------- --------------------------------------------
Total: US$320,000,000
=================================================================== ============================================
Tranche B
------------------------------------------------------------------- --------------------------------------------
Lender Commitment
------------------------------------------------------------------- --------------------------------------------
Nordea Bank Norge ASA, Grand Cayman Branch US$18,000,000
------------------------------------------------------------------- --------------------------------------------
DnB NOR Bank ASA US$18,000,000
------------------------------------------------------------------- --------------------------------------------
HSBC Bank plc US$13,500,000
------------------------------------------------------------------- --------------------------------------------
ING Bank N.V. US$13,500,000
------------------------------------------------------------------- --------------------------------------------
Danish Ship Finance (Danmarks Skibskreditfond) US$10,260,000
------------------------------------------------------------------- --------------------------------------------
Deutsche Schiffsbank Aktiengesellschaft US$10,260,000
------------------------------------------------------------------- --------------------------------------------
Dresdner Bank AG in Hamburg US$10,260,000
------------------------------------------------------------------- --------------------------------------------
Fokus Bank ASA US$10,260,000
------------------------------------------------------------------- --------------------------------------------
Landesbank Hessen-Thuringen Girozentrale US$10,260,000
------------------------------------------------------------------- --------------------------------------------
Lloyds TSB Bank plc US$10,260,000
------------------------------------------------------------------- --------------------------------------------
NIB Capital Bank N.V. US$10,260,000
------------------------------------------------------------------- --------------------------------------------
The Royal Bank of Scotland plc US$10,260,000
------------------------------------------------------------------- --------------------------------------------
Scotiabank Europe plc US$10,260,000
------------------------------------------------------------------- --------------------------------------------
Vereins- und Westbank AG US$10,260,000
------------------------------------------------------------------- --------------------------------------------
The Governor and Company of the Bank of Ireland US$7,200,000
------------------------------------------------------------------- --------------------------------------------
Skandinaviska Enskilda Banken AB (publ.) US$7,200,000
------------------------------------------------------------------- --------------------------------------------
Total: US$180,000,000
=================================================================== ============================================
To: Nordea Bank Finland Plc, New York Branch (as the "Administrative Agent" )
This Transfer Certificate relates to an agreement (the “ Credit Facility Agreement ”) dated 1 September 2004 and made between Teekay Shipping Corporation (the “ Parent Guarantor ”), Teekay Nordic Holdings Incorporated (as the “Original Borrower ”), Nordea Bank Finland Plc, New York Branch (as the “ Bookrunner ”), Nordea Bank Finland Plc, New York Branch and DnB NOR Bank ASA (as the “ Lead Arrangers ”), the Administrative Agent, Nordea Bank Finland Plc, New York Branch (as the “ Security Trustee ”), the vessel owning entities named therein (as the “ Subsidiary Guarantors ”) and the persons named therein as lenders (as from time to time amended, varied, novated or supplemented).
| 1. | Terms defined in the Credit Facility Agreement shall, subject to any contrary indication, have the same meanings in this Transfer Certificate. The terms “Lender”, “Transferee”, “Lender’s Participation” and “Portion Transferred” are defined in the Schedule to this Transfer Certificate. |
| 2. | The Lender: |
| (a) | confirms that the details in the Schedule to this Transfer Certificate are an accurate summary of the Lender’s participation in the Credit Facility Agreement and the Interest Periods or Terms (as the case may be) for existing Advances as at the date of this Transfer Certificate; and |
| (b) | requests the Transferee to accept and procure the transfer to the Transferee of the Portion Transferred by countersigning and delivering this Transfer Certificate to the Administrative Agent at its address for the service of notices designated to the Administrative Agent in accordance with the Credit Facility Agreement. |
| 3. | The Transferee requests the Administrative Agent to accept this Transfer Certificate as being delivered to the Administrative Agent pursuant to and for the purposes of Clause 31.5 ( Transfer Certificate ) of the Credit Facility Agreement so as to take effect in accordance with the terms of it on the Transfer Date or on such later date as may be determined in accordance with the terms of it. |
| 4. | The Transferee confirms that it has received a copy of the Credit Facility Agreement together with such other information as it has required in connection with this transaction and that it has not relied and will not rely on the Lender to check or enquire on its behalf into the legality, validity, effectiveness, adequacy, accuracy or completeness of any such information and further agrees that it has not relied and will not rely on the Lender to assess or keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of any Obligor. |
| 5. | The Transferee undertakes with the Lender and each of the other parties to the Credit Facility Agreement that it will perform in accordance with their terms all those obligations which by the terms of the Credit Facility Agreement will be assumed by it after delivery of this Transfer Certificate to the Administrative Agent and satisfaction of the conditions (if any) subject to which this Transfer Certificate is expressed to take effect. |
| 6. | The Lender makes no representation or warranty and assumes no responsibility with respect to the legality, validity, effectiveness, adequacy or enforceability of the Credit Facility Agreement, any other Finance Document or other document relating to it and assumes no responsibility for the financial condition of any Obligor or for the performance and observance by any Obligor of any of its obligations under the Credit Facility Agreement, any Finance Document or any other document relating to it and any and all such conditions and warranties, whether express or implied by Law or otherwise, are excluded. |
| 7. | The Lender gives notice that nothing in this Transfer Certificate or in the Credit Facility Agreement (or any other Finance Document or other document relating to it) shall oblige the Lender (a) to accept a re-transfer from the Transferee of the whole or any part of its rights, benefits and/or obligations under the Credit Facility Agreement transferred pursuant to this Transfer Certificate or (b) to support any losses directly or indirectly sustained or incurred by the Transferee for any reason whatsoever (including the failure by any Obligor or any other party to the Credit Facility Agreement (or any document relating to it) to perform its obligations under any such document) and the Transferee acknowledges the absence of any such obligation as is referred to in (a) and (b) above. |
| 8. | This Transfer Certificate and the rights, benefits and obligations of the parties under this Transfer Certificate shall be governed by and construed in accordance with English Law. |
| * delete as appropriate. |
1.
Lender:
2.
Transferee:
3.
Transfer Date:
4. Lender’s Participation Interest Period/Term Portion Transferred
5. Commitment Portion Transferred
6. Outstandings Term Portion Transferred
| * Details of the Lender’s Available Commitment should not be completed after the applicable Termination Date. |
[ Lender ] [ Transferee ]
By: By:
Date: Date:
Facility Office Address:
Contact Name:
Account for Payments:
Fax:
Telephone:
The Administrative Agent hereby acknowledges the transfer effected by this Transfer Certificate and confirms that such transfer took effect on [the Transfer Date referred to above]/[[date] (notwithstanding paragraph 3 of this Schedule)].
By:
Date:
| 1. | Corporate Documents |
In relation to each Original Obligor and each Charterer which is required to enter into a Security Document pursuant to this Agreement:
| (a) | a copy of its up to date constitutional documents and, if applicable, a good standing certificate; |
| (b) | a copy of resolutions of the board of directors of such Original Obligor (or to the extent applicable, in the case of each Subsidiary Guarantor, resolutions of its sole member) or (as applicable) such Charterer (and in the case of each Charterer being a corporation, a resolution of its shareholders) approving the execution, delivery and performance of each of the Transaction Documents to which it is party and the terms and conditions of it and authorising a named person or persons to sign each Transaction Document to which it is party and any documents to be delivered by such Original Obligor or Charterer (as the case may be) pursuant to it, together with copies of any powers of attorney or other instruments of authority required in connection therewith; and |
| (c) | a duly completed certificate of a duly authorised officer of such Original Obligor or (as applicable) such Charterer in the form attached in Part III of Schedule 3 ( Form of Officer’s Certificate ) (subject to the necessary amendments to such form contemplated therein). |
| 2. | Authorisations |
A copy of each Necessary Authorisation as is, in the opinion of counsel to the Administrative Agent, necessary to render the Finance Documents to which any Original Obligor or Charterer (as applicable) is party legal, valid, binding and enforceable, to make the Finance Documents admissible in evidence in such Original Obligor’s or Charterer’s (as the case may be) jurisdiction of incorporation and in England and to enable such Original Obligor or Charterer (as the case may be) to perform its obligations thereunder.
| 3. | Initial Appraisal Packages and Insurance Report |
| (a) | Initial Appraisal Packages in respect of each of the Collateral Vessels (demonstrating that the aggregate Market Value of all Collateral Vessels is equal to at least US$715,000,000); and |
| (b) | An insurance report prepared by Bank Assure addressed to the Finance Parties (or accompanied by written confirmation that such report may be relied upon by them) relating to the insurance maintained in respect of the Collateral Vessels. |
| 4. | Financial Statements |
Copies of the Original Consolidated Financial Statements of the Group.
| 5. | Finance Documents |
Original duly executed copies of:
(a) this Agreement;
(b) the Security Trust Deed; and
(c) the Initial Security Documents, together with all documents required to be delivered pursuant thereto.
| 6. | Process Agent |
Written confirmation from the process agent (a) referred to in Clause 41.3 ( Service of Process) and (b) appointed by each Charterer which is to enter into a Security Document, in each case, in respect of its acceptance of such appointment as process agent.
| 7. | Legal Opinions |
An opinion of:
| (a) | White & Case, legal advisers to the Administrative Agent and the Lead Arrangers on matters of English law; |
| (b) | Watson, Farley & Williams, legal advisers to the Parent Guarantor on matters of Marshall Islands law; and |
| (c) | Kluge Advokatfirma, legal advisers to the Administrative Agent and the Lead Arrangers on matters of Norwegian law. |
in each case addressed to the Administrative Agent (for itself and on behalf of the Finance Parties).
| 8. | Collateral Vessels |
| (a) | Evidence that the mortgage entered into or to be entered into by each Subsidiary Guarantor has been (or will be simultaneously with the making of the Advances to be made on the initial Drawdown Date) duly registered and/or recorded as a valid first priority ship mortgage in favour of the Security Trustee in respect of the relevant Collateral Vessel in accordance with the laws of the relevant jurisdiction. |
| (b) | Evidence that the relevant Collateral Vessel: |
| (i) | is (or will be simultaneously with the making of the Advances to be made on the initial Drawdown Date) definitively and permanently registered in the name of the applicable Subsidiary Guarantor in full compliance with Clause 19.14 ( Registration ) (including the provision of certificates of ownership from appropriate authorities); |
| (ii) | is in the absolute and unencumbered ownership of such Subsidiary Guarantor, save as contemplated by the Finance Documents; |
| (iii) | has a classification which complies in all respects with Clause 19.7 ( Classification ); and |
| (iv) | without prejudice to paragraph 3(b) ( Initial Appraisal Packages and Insurance Report ) above, is insured in accordance with the Finance Documents and all requirements therein in respect of insurances for the time being applicable have been complied with. |
| (c) | Copies of the Documents of Compliance and of the Collateral Vessel’s Safety Management Certificate in respect of each Collateral Vessel (together with any other relevant details of the applicable safety management system relating to such Collateral Vessel which the Administrative Agent may reasonably require). |
(d) The results of maritime registry searches relating to each Collateral Vessel.
| 9. | Relevant Third Party Charters |
Copies of each of the Relevant Third Party Charters.
| 10. | Other Evidence |
Any other documents or other evidence that the Administrative Agent may reasonably require, by notice to the Parent Guarantor.
An opinion of:
| (a) | Higgs & Johnson, legal advisers to the Administrative Agent and the Lead Arrangers on matters of Bahamian law; and |
| (b) | Kluge Advokatfirma, legal advisers to the Administrative Agent and the Lead Arrangers on matters of Norwegian law. |
To: Nordea Bank Finland Plc, New York Branch (as the " Administrative Agent ")
Dear Sirs,
We refer to an agreement (the “ Credit Facility Agreement ”) dated 1 September 2004 and made between Teekay Shipping Corporation (the “ Parent Guarantor ”), Teekay Nordic Holdings Incorporated (as the “ Original Borrower ”), Nordea Bank Finland Plc, New York Branch (as the “ Bookrunner ”), Nordea Bank Finland Plc, New York Branch and DnB NOR Bank ASA (as the “ Lead Arrangers ”), the Administrative Agent, Nordea Bank Finland Plc, New York Branch (as the “ Security Trustee ”), the vessel owning entities named therein (as the “ Subsidiary Guarantors ”) and the persons named therein as lenders (as from time to time amended, varied, novated or supplemented). Terms defined or construed in the Credit Facility Agreement have the same meanings and constructions when used in this Certificate.
I, [name], [a][an] [Director][General Partner][Officer] of [name of Obligor/Charterer] of [address] (the “Relevant Company ”):
CERTIFY that:
| (a) | attached to this Certificate marked “ A ” is a true, correct, complete and up-to-date copy of the Relevant Third Party Charter to which the Relevant Company is a party. [Include in Certificate for each Obligor or the relevant Charterer (as applicable) where a Relevant Third Party Charter is in place to which the Charterer is a party or in respect of Collateral Vessel owned by such Obligor (as the case may be).] |
| (b) | attached to this Certificate marked “ B ” are true, correct, complete and up-to-date copies of all constitutional documents and, if applicable, a good standing certificate relating to the Relevant Company; |
| (c) | attached to this Certificate marked “ C ” is a true, correct, complete and up-to-date copy of resolutions of the Relevant Company approving the execution, delivery and performance of each of the [applicable] Transaction Documents [to which it is party] and the terms and conditions thereof and authorising a named person or persons to sign each such Transaction Document and any documents to be delivered by the Relevant Company pursuant to it, together with copies of any powers of attorney or other instruments of authority required in connection therewith; |
| (d) | [attached to this Certificate marked “ D ” is a true, correct, complete and up-to-date copy of a resolution of the [shareholders][sole member] of the Relevant Company approving the execution, delivery and performance of the Transaction Documents to which it is party and the terms and conditions thereof]; |
| (e) | [attached to this Certificate and marked “ E ” is a true, correct and complete copy of all relevant Necessary Authorisations required in relation to the Transaction Documents pursuant to the Finance Documents and each such Necessary Authorisation remains in full force and effect];*** |
| (f) | [attached to this Certificate marked “ F ” is a true, complete and correct copy of the acceptance by the relevant agent in England of its appointment as agent of the Relevant Company for the purpose of accepting service of process. I confirm that such agent’s appointment remains in force as at the date of this Certificate;] [Process agent appointment required in relation to each Obligor and each Charterer being party to a Security Document.] |
| (g) | [attached to this Certificate marked “ G ” are true, complete and correct copies of the Documents of Compliance and of the Safety Management Certificate relating to the Collateral Vessel owned by the Relevant Company (together with any other relevant details of the applicable safety management system relating to such Collateral Vessel which have been requested by the Administrative Agent prior to the delivery of this Certificate);] [Include where Relevant Company is (or is to become) a Subsidiary Guarantor or where Officer’s Certificate to be delivered in respect of a New Vessel.] |
| (h) | [The Collateral Vessel owned by the Relevant Company: |
| (i) | is (or will be concurrently with the making of the Advances to be made on the initial Drawdown Date) definitively and permanently registered in the name of the applicable Subsidiary Guarantor in full compliance with Clause 19.14 ( Registration ) (as evidenced by the provision of certificates of ownership from appropriate authorities); |
| (ii) | is in the absolute and unencumbered ownership of such Subsidiary Guarantor, save as contemplated by the Finance Documents; |
| (iii) | has a classification which complies in all respects with Clause 19.7 ( Classification ); and |
| (iv) | is insured in accordance with the Finance Documents and all requirements therein in respect of Insurances for the time being applicable have been complied with.] [Include where Relevant Company is (or is to become) a Subsidiary Guarantor or where Officer’s Certificate to be delivered in respect of a New Vessel.] |
| (i) | the entry into and performance of the Finance Documents by the Relevant Company will not breach any borrowing or other Indebtedness limit to which the Relevant Company is subject; [and] |
| (j) | [the execution, delivery and performance of the Finance Documents to which the Relevant Company is a party and the performance by the Relevant Company of its obligations thereunder and under any other agreement or document executed pursuant thereto does not breach any agreement binding on the Relevant Company.] |
| [ (h) | The following persons were the duly elected and qualified directors and officers of the Relevant Company, holding the respective offices set forth opposite their names on the date of the adoption of the resolutions described in paragraph (c) above and on the date hereof: |
| Name | Position |
|
[
]
[ ] [ ] |
[
]
[ ] [ ]] |
| [ (h) | [The Relevant Company has no directors [or officers].] [The following persons are the duly elected and qualified officers of the Relevant Company on the date hereof.] |
| Name | Position |
|
[
]
[ ] [ ] |
[
]
[ ] [ ]] |
| [ (i) | The Relevant Company is authorised to issue 500 shares with a par value of $1.00 per share, [all] of which have been issued to the Parent Guarantor and are so held on the date of the adoption of the resolution described in paragraph [(d)] above and on the date hereof.] |
The following signatures are the true signatures of the persons who have been authorised to sign the relevant Finance Documents on behalf of the Relevant Company and to give notices and communications, [(including Drawdown Requests)] * , under or in connection with the Finance Documents on behalf of the Relevant Company.
Name
Position
Signature
[
]
[
]
[
]
[
]
[
]
[
]
[
]
[
]
[
]
Signed: _______________________
[Director][General Partner][Officer]
Date: [ ]
* Include in respect of the Original Borrower.
I, [name], a [Director/Secretary/General Partner/Officer] of the Relevant Company, certify that the persons whose names and signatures are set out above are duly authorised signatories of the Relevant Company and that the signatures of each of them above are their respective signatures.
Signed: _______________________
[Director/Secretary/General Partner/Officer]
Date: [ ]
| 1. | Assignments in respect of the rights of each Subsidiary Guarantor to or under (i) the Insurances (ii) the requisition proceeds (iii) the Earnings and (iv) in the case of each Collateral Vessel being subject to a Relevant Third Party Charter entered into by a Charterer incorporated in Norway, the benefit of the assignments referred to in paragraph 2(ii) below. |
| 2. | Assignments (including in respect of Earnings) by the relevant Charterer in favour of (i) the Security Trustee or (ii) where such Charterer is incorporated in Norway, the relevant Subsidiary Guarantor, in relation to each Relevant Third Party Charter. |
| 3. | Share pledges/charges in respect of the entire issued share capital or limited liability company interest (as applicable) of each Subsidiary Guarantor. |
| 4. | Vessel mortgage and (if required in the relevant jurisdiction) deed of covenant in respect of each of the Collateral Vessels (subject to Clause 19.23 ( Collateral Vessel Provisions )) incorporating the Collateral Vessel Provisions and providing inter alia for the maintenance of insurances by the bareboat charterer in respect of such Collateral Vessel and the naming of the Security Trustee as sole loss payee (in respect of a total loss). |
From: Teekay Nordic Holdings Incorporated (the " Original Borrower ")
To: Nordea Bank Finland Plc, New York Branch (the " Administrative Agent ")
Date: [ • ]
Dear Sirs,
We refer to an agreement (the “ Credit Facility Agreement ”) dated 1 September 2004 and made between Teekay Shipping Corporation (the “ Parent Guarantor ”), the Original Borrower, Nordea Bank Finland Plc, New York Branch (as the “ Bookrunner ”), Nordea Bank Finland Plc, New York Branch and DnB NOR Bank ASA (as the “ Lead Arrangers ”), the Administrative Agent, Nordea Bank Finland Plc, New York Branch (as the “ Security Trustee ”), the vessel owning entities named therein (as the “ Subsidiary Guarantors ”) and the persons named therein as lenders (as from time to time amended, varied, novated or supplemented).
Terms defined or construed in the Credit Facility Agreement shall have the same meanings and constructions when used in this request.
We give you notice that, pursuant to the Credit Facility Agreement, we wish the Lenders to make an Advance [ by way of a Rollover Advance ]* on the following terms:
(a) Amount US$ [ • ]
(b) Portion of such Advance from: Tranche A [ • ] ; Tranche B [ • ] ;
(c) Interest Period/Term [ 1/3/6 ] month [ s ] ; and
(d) Proposed date of such Advance (or if that day is not a Business Day, the next Business Day),
We confirm that, at the date of this Request, the representations and warranties referred to in Clause 4.1(e) (Conditions to each Advance ) of the Credit Facility Agreement are true and that no Default has occurred and is continuing [ and no Default ] / [ Event of Default ] * would result from the making of the Advance to which this Drawdown Request relates.
* Applicable if Drawdown Request relates to a Rollover Advance.
The proceeds of this drawdown should be credited to [ insert account details ] .
Yours faithfully
_______________________
For and on behalf of:
| 1. | The Associated Costs Rate is an addition to the interest rate to compensate Lenders for the cost of compliance with (a) the requirements of the Bank of England and/or the Financial Services Authority (or, in either case, any other authority which replaces all or any of its functions) or (b) the requirements of the European Central Bank or (c) the requirements of the National Central Bank in such Lender’s jurisdiction. |
| 2. | On the first day of each Interest Period (or as soon as possible thereafter) the Administrative Agent shall calculate, as a percentage rate, a rate (the “ Additional Cost Rate ”) for each Lender, in accordance with the paragraphs set out below. The Associated Costs Rate will be calculated by the Administrative Agent as a weighted average of the Lenders’ Additional Cost Rates (weighted in proportion to the percentage participation of each Lender in the relevant Loan) and will be expressed as a percentage rate per annum. |
| 3. | The Additional Cost Rate for any Lender lending from a Facility Office in a Participating Member State will be the percentage notified by that Lender to the Administrative Agent as the cost of complying with the minimum reserve requirements of the European Central Bank. |
| 4. | The Additional Costs Rate for a Lender lending from a Facility Office in the United Kingdom shall be calculated as follows: |
|
E x 0.01
per cent per annum
300 |
| where: |
| E | is designed to compensate the Lenders for amounts payable under the Fees Rules and is calculated by the Administrative Agent as being the average of the most recent rates of charge supplied by the Lenders to the Administrative Agent pursuant to paragraph 5 below and expressed in pounds per £1,000,000. |
| 5. | For the purposes of paragraph 4 of this Schedule, “Fees Rules” means the rules on periodic fees contained in the FSA Supervision Manual or such other law or regulation as may be in force from time to time in respect of the payment of fees for the acceptance of deposits. |
| 6. | If requested by the Administrative Agent, each Lender shall, as soon as practicable after publication by the Financial Services Authority, supply to the Administrative Agent, the rate of charge payable by that Lender to the Financial Services Authority (calculated for this purpose by that Lender as being the average of the Fee Tariffs applicable to that Lender for that financial year) and expressed in pounds per £1,000,000 of the Tariff base of that Lender. |
| 7. | For the purposes of paragraph 5 of this Schedule: |
| (a) | “ Fee Tariffs ” means the fee tariffs specified in the Fees Rules under the activity group A.1 Deposit acceptors (ignoring any minimum fee or zero rated fee required pursuant to the Fees Rules but taking into account any applicable discount rate); and |
| (b) | “ Tariff Base ” has the meaning given to it, and will be calculated in accordance with, the Fees Rules of the Tariff Base of that Lender. |
| 8. | Each Lender shall supply any information required by the Administrative Agent for the purpose of calculating its Additional Cost Rate. In particular, but without limitation, each Lender shall supply the following information in writing on or prior to the date on which it becomes a Lender: |
| (a) | its jurisdiction of incorporation and the jurisdiction of its Facility Office; and |
| (b) | any other information that the Administrative Agent may reasonably require for such purpose. |
| Each Lender shall promptly notify the Administrative Agent in writing of any change to the information provided by it pursuant to this paragraph. |
| 9. | The rates of charge of each Lender for the purpose of E above shall be determined by the Administrative Agent based upon the information supplied to it pursuant to paragraph 6 above. |
| 10. | The Administrative Agent shall have no liability to any person if such determination results in an Additional Cost Rate which over or under compensates any Lender and shall be entitled to assume that the information provided by any Lender pursuant to paragraphs 3 and 6 above is true and correct in all respects. |
| 11. | The Administrative Agent shall distribute the additional amounts received as a result of the Associated Costs Rate to the Lenders on the basis of the Additional Cost Rate for each Lender based on the information provided by each Lender pursuant to paragraphs 3 and 6 above. |
| 12. | Any determination by the Administrative Agent pursuant to this Schedule in relation to a formula, the Associated Costs Rate, an Additional Cost Rate or any amount payable to a Lender shall, in the absence of manifest error, be conclusive and binding on all parties to this Agreement. |
| 13. | The Administrative Agent may from time to time, after consultation with the Borrowers and the Lenders, determine and notify to all parties to this Agreement any amendments which are required to be made to this Schedule in order to comply with any change in law, regulation or any requirements from time to time imposed by the Financial Services Authority or the European Central Bank (or, in any case, any other authority which replaces all or any of its functions) and any such determination shall, in the absence of manifest error, be conclusive and binding on all parties to this Agreement. |
| 1. | A sale-and-leaseback transaction in respect of the Tranche A Vessels structured primarily to achieve tax efficiency for the purposes of the tax arrangements of the Group, whilst preserving the interests of the Lenders in relation to the Credit Facility. |
| 2. | A limited partnership (the “ Leaseback Borrower ”) to be established (a) in a jurisdiction and with a constitutional, administrative and legal structure which is satisfactory to the Administrative Agent and (b) with a member of the Group as a general partner. |
| 3. | Leaseback Borrower (and/or new special purpose companies owned or to be owned by Leaseback Borrower established in a suitable tax jurisdiction for chartering the Tranche A Vessels) to acquire the Tranche A Vessels and/or Subsidiary Guarantors being owners of the Tranche A Vessels (“ Relevant Subsidiary Guarantors ”). |
| 4. | Acquisition to be funded by equity investment in, and debt provided to, Leaseback Borrower (as a percentage of acquisition price) substantially as follows: (i) pursuant to the transfer of the loan from the Lenders under Tranche A (70%) and (ii) a combination of equity from CanCo (Investor) and debt from the Parent Guarantor (in each case, fully subordinated to the rights of each of the Finance Parties under the Finance Documents) (30%). |
| 5. | Leaseback Borrower and/or Relevant Subsidiary Guarantors to enter into long-term time charters (each a “Time Charter ”) in respect of the Tranche A Vessels with a subsidiary of the Parent Guarantor, which provide for charter payments (net of taxes) in amounts which are at least sufficient to meet the payment obligations of the Leaseback Borrower falling due under the Credit Facility Agreement as well as other reasonable costs and expenses associated with the operation of the Tranche A Vessels. Time Charters to be assigned in favour of the Lenders. |
| 6. | Leaseback Borrower, or its respective vessel owning subsidiaries, to enter into management agreements (each a “ Management Agreement ”) with the Parent Guarantor or a subsidiary thereof for the technical management of the Tranche A Vessels. Such Management Agreements to be assigned in favour of the Lenders. |
THIS ACCESSION NOTICE is entered into on [ ] by [ insert name of relevant Substitute Vessel Owner ] (the “ Relevant Subsidiary ”) and Teekay Shipping Corporation by way of a deed in favour of each of the Finance Parties (as defined in the Credit Facility Agreement referred to below).
| A | By an agreement (the “ Credit Facility Agreement ”) dated 1 September 2004 and made between Teekay Shipping Corporation (the “ Parent Guarantor ”), Teekay Nordic Holdings Incorporated (as the “ Original Borrower ”), Nordea Bank Finland Plc, New York Branch (as the “ Bookrunner ”), Nordea Bank Finland Plc, New York Branch and DnB NOR Bank ASA (as the “ Lead Arrangers ”), Nordea Bank Finland Plc, New York Branch (as the “ Administrative Agent ”), Nordea Bank Finland Plc, New York Branch (as the “ Security Trustee ”), the vessel owning entities named therein (as the “ Subsidiary Guarantors ”) and the persons named therein as lenders (as from time to time amended, varied, novated or supplemented), the Lenders agreed to provide the Credit Facility to the Original Borrower on the terms and subject to the conditions thereof. Terms defined or construed in the Credit Facility Agreement shall have the same meanings and constructions when used in this Notice. |
| B | Pursuant to and in accordance with the terms of the Credit Facility Agreement, the Relevant Subsidiary is to become a party to the Credit Facility Agreement as a Guarantor. |
| 1. | The Relevant Subsidiary is a company duly organised under the laws of [ insert relevant jurisdiction ] . |
| 2. | The Relevant Subsidiary confirms that it has received from the Parent Guarantor a true and up-to-date copy of the Credit Facility Agreement and of the other Finance Documents. |
| 3. | The Relevant Subsidiary undertakes, upon its becoming a Guarantor, to perform all the obligations expressed to be undertaken under the Credit Facility Agreement and the other Finance Documents by a Guarantor and agrees that it shall be bound by the Credit Facility Agreement and the other Finance Documents in all respects as if it had been an original party thereto as an Original Guarantor. [Provided that [ make such exceptions (if any) as may be necessary to limit the obligations of Relevant Subsidiary to ensure that such obligations are enforceable in accordance with applicable local law ]] . |
| 4. | The Parent Guarantor and the Relevant Subsidiary confirm that (a) no Default has occurred and is continuing or will result from the execution and delivery of this Accession Notice and (b) each of the representations made in Clause 16 ( Representations and Warranties ) is true and will continue to be true, in each case, in respect of such Relevant Subsidiary, following the accession of the Relevant Subsidiary to the Credit Facility Agreement as a Guarantor pursuant to this Accession Notice (or in the case of any such representation which expressly relates to a given date or period (following such accession), such representation is true in respect of that date or period in relation to the Relevant Subsidiary). |
| 5. | The Relevant Subsidiary confirms that it has appointed [ ] of [ ] to be its process agent for the purposes of accepting service of Proceedings in England on it. |
| 6. | The Relevant Subsidiary’s administrative details for the purposes of the Credit Facility Agreement are as follows: |
|
Address:
Contact: Telephone No: Fax No: E-mail: |
| 7. | This Accession Notice and the rights, benefits and obligations of the parties under this Accession Notice shall be governed by and construed in accordance with English law. |
| 8. | This Accession Notice has been executed as a Deed by the Parent Guarantor and the Relevant Subsidiary and signed by [?] on the date written at the beginning of this Accession Notice. |
|
THE COMMON SEAL
of
[ Name of Relevant Subsidiary ] was hereunto affixed in the presence of: |
)
) ) ) ) |
| ......................................................... |
| Director |
)
|
| ......................................................... |
| Director/Secretary |
)
|
|
OR
EXECUTED as a DEED by [Name of Relevant Subsidiary] acting by |
|
THE COMMON SEAL
of
TEEKAY SHIPPING CORPORATION was hereunto affixed in the presence of: |
)
) ) ) ) |
|
Director
)
...................................................
[ insert name of director ] |
|
Director/Secretary
)
...................................................
[ insert name of director/secretary ] |
|
OR
EXECUTED as a DEED by TEEKAY SHIPPING CORPORATION acting by THE ADMINISTRATIVE AGENT NORDEA BANK FINLAND PLC, NEW YORK BRANCH By: |
| 1. | Corporate Documents |
In relation to an Additional Obligor or (where indicated) (x) a Subsidiary Guarantor which is to acquire a New Vessel and (y) any Charterer which is required to enter into a Security Document in respect of a Relevant Third Party Charter relating to such New Vessel under this Agreement, a copy of:
| (a) | its up-to-date constitutional documents and, if applicable, a good standing certificate in respect thereof (including in respect of such Charterer); |
| (b) | a board resolution (or in the case of the Leaseback Borrower, other appropriate approval) approving the execution and delivery of the relevant Accession Notice, its accession to the Credit Facility Agreement as a Borrower and/or Guarantor (as the case may be) and the performance of its obligations under the Finance Documents and authorising a named person to sign such Accession Notice and any other documents to be delivered by it pursuant thereto, together with copies of any powers of attorney or other instruments of authority required in connection therewith; |
| (c) | in the case of any such Subsidiary Guarantor or Charterer (as the case may be), a board resolution approving the execution and delivery of the Finance Documents to be entered into in relation to such New Vessel and authorising a named person to sign such Finance Documents and any other documents to be delivered by it pursuant thereto, together with copies of any powers of attorney or other instruments of authority required in connection therewith; |
| (e) | if applicable, a copy of a shareholders’ resolution of the shareholders of such Additional Obligor, Subsidiary Guarantor or Charterer (as applicable) approving the execution, delivery and performance of the Transaction Documents to which it is party or which are to be entered into in relation to a New Vessel (as the case may be) and the terms and conditions thereof; and |
| (f) | a duly completed certificate, of a duly authorised officer of such Additional Obligor, Subsidiary Guarantor or Charterer (as the case may be) in the form of Part III of Schedule 3 ( Form of Officer’s Certificate ) (subject to the necessary amendments to such form contemplated therein). |
| 2. | Legal Opinions |
Without prejudice to the scope of Clause 20.2(d)(iv) ( Conditions ), opinions (if any) required by the Administrative Agent from such legal advisers as may be acceptable to it as to relevant Law (including in relation to any tax matters applicable to such Additional Obligor or Subsidiary Guarantor and any Security required to be provided under this Agreement by or in respect of such Additional Obligor, Charterer or New Vessel).
| 3. | Necessary Authorisations |
A copy of any Necessary Authorisation as is in the opinion of counsel to the Lenders necessary to render the Transaction Documents to which such Additional Obligor, Subsidiary Guarantor or Charterer is (or is to be) party legal, valid, binding and enforceable to make the Transaction Documents to which such Additional Obligor, Subsidiary Guarantor or Charterer is (or is to be) party admissible in evidence in such Additional Obligor’s, Subsidiary Guarantor’s or Charterer’s jurisdiction of incorporation and (if different) in England and to enable such Additional Obligor, Subsidiary Guarantor or Charterer to perform its obligations thereunder.
| 4. | Security Documents |
At least 2 original copies of any Security Documents required by the Administrative Agent pursuant to Clause 20.2(d)(iii) ( Conditions ) duly executed by the Additional Obligor, Subsidiary Guarantor or Charterer (as the case may be) together with all documents required to be delivered pursuant to it.
| 5. | Process Agent |
Written confirmation from the process agent referred to in the relevant Accession Notice, in the case of an Additional Obligor, or appointed by the Charterer which is required to enter into a Security Document pursuant to this Agreement in respect of a Collateral Vessel owed by such Additional Obligor, in each case, that it accepts its appointment as process agent.
| 6. | Collateral Vessels |
To the extent required by the Administrative Agent, in respect of any Collateral Vessel owned by, or to be acquired in connection with, the accession or novation of such Additional Obligor to this Agreement or any New Vessel:
| (a) | evidence that the mortgage entered into or to be entered into by such Additional Obligor or Subsidiary Guarantor (as the case may be) has been duly registered and/or recorded as a valid first priority ship mortgage in favour of the Security Trustee in respect of the relevant Collateral Vessel in accordance with the laws of the relevant jurisdiction; |
| (b) | evidence that the relevant Collateral Vessel: |
| (i) | is definitively and permanently registered in the name of the applicable Additional Obligor or Subsidiary Guarantor (as the case may be), is in full compliance with Clause 19.14 (Registration) (including the provision of certificates of ownership from appropriate authorities); |
| (ii) | is in the absolute and unencumbered ownership of such Additional Obligor or Subsidiary Guarantor, save as contemplated by the Finance Documents; |
| (iii) | has a classification which complies in all respects with Clause 19.7 ( Classification ); and |
| (iv) | is insured in accordance with the Finance Documents and all requirements therein in respect of Insurances for the time being applicable have been complied with; |
| (c) | copies of the Documents of Compliance and of the Collateral Vessel’s Safety Management Certificate in respect of the relevant Collateral Vessel (together with any other relevant details of the applicable safety management system relating to such Collateral Vessel which the Administrative Agent may reasonably require); and |
| (d) | the results of maritime registry searches relating to the relevant Collateral Vessel. |
| 7. | Additional Appraisal Package |
Each Additional Appraisal Package for the time being required to be delivered pursuant to Clause 17.6 ( Additional Appraisal Package ).
| 8. | Relevant Third Party Charters |
In respect of any New Vessel, copies of any Relevant Third Party Charters relating thereto.
| 9. | “Know your Customer” Checks |
In respect of each Additional Obligor, all documents and other evidence relating to it which are required for the purposes of Clause 17.11 ( “Know your Customer” Checks ).
| 10. | Other Evidence |
Such other documents or other evidence which the Administrative Agent may reasonably require.
To: Nordea Bank Finland Plc, New York Branch (the " Administrative Agent ")
From: (1) [
name of Leaseback Borrower
] (the "
Leaseback Borrower
")
(2) Teekay Nordic Holdings Incorporated
(the “
Original Borrower
”)
(3) Teekay Shipping Corporation (the “
Parent
Guarantor
”)
Dear Sirs,
| 1. | We refer to an agreement (the “ Credit Facility Agreement ”) dated 1 September 2004 and made between the Parent Guarantor, the Original Borrower, Nordea Bank Finland Plc, New York Branch (as the “ Bookrunner ”), Nordea Bank Finland Plc, New York Branch and DnB NOR Bank ASA (as the “ Lead Arrangers ”), the Administrative Agent, Nordea Bank Finland Plc, New York Branch (as the “ Security Trustee ”), the vessel owning entities named therein (as the “ Subsidiary Guarantors ”) and the persons named therein as lenders (as from time to time amended, varied, novated or supplemented). Terms defined or construed in the Credit Facility Agreement have the same meanings and constructions when used in this Deed. The Leaseback Borrower, the Parent Guarantor and the Original Borrower are referred to in this Deed as the “Relevant Obligors ”. |
| 2. | Each Relevant Obligor confirms that (a) the conditions set out in Clause 20.2 ( Conditions ) in relation to the Permitted Sale and Leaseback have been satisfied or will be satisfied immediately upon the occurrence of the Leaseback Completion Date (b) no Default has occurred and is continuing or will result from the completion of the Permitted Sale and Leaseback and (c) each of the representations made in Clause 16 ( Representations and Warranties ) is true and will continue to be true, in each case, in respect of the Leaseback Borrower, following the completion of the Permitted Sale and Leaseback (or in the case of any such representation which expressly relates to a given date or period following such completion, such representation is true in respect of that date or period in relation to the Leaseback Borrower). |
| 3. | For the purposes of the Permitted Sale and Leaseback, the Original Borrower wishes to procure the transfer to the Leaseback Borrower (and the Leaseback Borrower wishes to accept such transfer) of the Tranche A Obligations by signing this Deed and delivering the same to the Administrative Agent. |
| 4. | Each Relevant Obligor requests the Administrative Agent to accept this Deed as being delivered to the Administrative Agent pursuant to and in accordance with Clause 21.2 ( Novation of Leaseback Borrower ) so as to take effect in accordance with the terms thereof on the Leaseback Completion Date. |
| 5. | The Leaseback Borrower undertakes with each of the other parties to the Credit Facility Agreement that it will (a) perform in accordance with the terms thereof all those obligations which will be assumed by it under the Credit Facility Agreement from the Leaseback Completion Date and (b) satisfy each of the conditions (if any) subject to which this Deed is expressed to take effect. |
| 6. | The Parent Guarantor confirms (for itself and as Obligors’ Agent for the other Obligors) that, notwithstanding the occurrence of the Leaseback Completion Date, the Parent Guarantor’s guarantee and indemnity obligations and the guarantee and indemnity obligations of the other Obligors pursuant to Clause 24 ( Guarantee and Indemnity ) of the Credit Facility Agreement will apply to all of the obligations of the Leaseback Borrower under the Finance Documents in all respects in accordance with the terms of the Credit Facility Agreement as if the Leaseback Borrower had been party to the Credit Facility Agreement as the Original Borrower. |
| 7. | The Leaseback Borrower’s administrative details for the purposes of the Credit Facility Agreement are as follows: |
|
Address:
Contact: Telephone No: Fax No: E-mail: |
| 8. | This Deed and the rights, benefits and obligations of the parties under this Deed shall be governed by and construed in accordance with English Law. |
| 9. | This Deed has been executed and delivered as a deed by the Leaseback Borrower, the Original Borrower and the Parent Guarantor. |
Yours faithfully,
[ Applicable Signature Block for Leaseback Borrower when executing a deed ]
TEEKAY NORDIC HOLDINGS INCORPORATED
[ Applicable Signature Block for Original Borrower when executing a deed ]
TEEKAY SHIPPING CORPORATION
Acknowledged by the Administrative Agent:
NORDEA BANK FINLAND PLC, NEW YORK BRANCH
By:
Date:
To: Nordea Bank Finland Plc, New York Branch
(the "
Administrative Agent
")
From: Teekay Shipping Corporation (the "
Parent Guarantor
")
Date: [
•
]
Dear Sirs,
We refer to an agreement (the “ Credit Facility Agreement ”) dated 1 September 2004 and made between Teekay Nordic Holdings Incorporated (as the “ Original Borrower ”) the Parent Guarantor, Nordea Bank Finland Plc, New York Branch (as the “ Bookrunner ”), Nordea Bank Finland Plc, New York Branch and DnB NOR Bank ASA (as the “ Lead Arrangers ”), the Administrative Agent, Nordea Bank Finland Plc, New York Branch (as the “ Security Trustee ”), the vessel owning entities named therein (as the “ Subsidiary Guarantors ”) and the persons named therein as lenders (as from time to time amended, varied, novated or supplemented).
Terms defined or construed in the Credit Facility Agreement have the same meanings and constructions in this Certificate.
We attach the relevant calculation details applicable on the last day of our financial [year][quarter] ending [ • ] (the “ Relevant Period ”) which confirm that:
| 1. | Free Liquidity [was at all times equal to or greater than/fell below] $100,000,000. Therefore the condition contained in Clause 18(a) ( Financial Condition ) [has/has not] been complied with in respect of the Relevant Period. |
| 2. | Available Credit [was at all times equal to or greater than/fell below] 7.5% of Total Debt. Therefore the condition contained in Clause 18(b) ( Financial Condition ) [has/has not] been complied with. |
Signed: ………………………………….....
Duly
authorised representative of
TEEKAY SHIPPING
CORPORATION
Commitment Reduction Tranche A Tranche B
Date
(months following date Commitment (US$) Tranche A Commitment (US$) Tranche B
of this Agreement) Commitment Commitment
Reductions (US$) Reductions (US$)
0 320,000,000 180,000,000
6 311,813,920 8,186,080 175,395,330 4,604,670
12 303,441,095 8,372,825 170,685,616 4,709,714
18 294,877,265 8,563,830 165,868,462 4,817,154
24 286,118,073 8,759,192 160,941,416 4,927,046
30 277,159,061 8,959,011 155,901,972 5,039,444
36 267,995,672 9,163,389 150,747,566 5,154,406
42 258,623,244 9,372,429 145,475,574 5,271,991
48 249,037,006 9,586,237 140,083,316 5,392,258
54 239,232,083 9,804,923 134,568,047 5,515,269
60 229,203,485 10,028,598 128,926,960 5,641,086
66 218,946,109 10,257,376 123,157,187 5,769,774
72 208,454,737 10,491,372 117,255,790 5,901,397
78 197,724,031 10,730,706 111,219,768 6,036,022
84 186,748,531 10,975,501 105,046,048 6,173,719
90 175,522,652 11,225,879 98,731,491 6,314,557
96 164,040,682 11,481,970 92,272,884 6,458,608
102 152,296,780 11,743,902 85,666,939 6,605,945
108 140,284,970 12,011,810 78,910,296 6,756,643
114 128,000,000 12,284,970 72,000,000 6,910,296
120 0 128,000,000 (0) 72,000,000
Tranche A Vessels
Vessel and Year Yard Type dwt Flag Owner
Suezmax - Shuttle Tankers
Navion 2003 Samsung DH 147,500 Bahamas Stavanger (Navion Stavanger L.L.C.)
Aframax - Shuttle Tankers
Nordic 1999 Samsung DH 103,895 Bahamas Marita (Nordic Marita L.L.C.)
Nordic 1997 Imabari DH 106,506 Bahamas Svenita (Nordic Svenita L.L.C.)
Nordic 1992 Tsuneishi DH 108,153 NIS Savonita (Nordic Savonita L.L.C.)
Nordic 1992 Tsuneishi DH 106,877 Bahamas Torinita (Nordic Torinita L.L.C.)
Nordic 1992 Dalian DH 97,068 NIS Yukon (Nordic Yukon L.L.C.)
Nordic 1987 Dalian DH 80,745 NIS Trym (Nordic Troll & Trym L.L.C.)
Aframax - Conventional Tankers
Falster Spirit 1995 Hyundai DH 95,416 Bahamas (Falster Spirit L.L.C.)
Poul Spirit 1995 Onomichi DH 105,351 Bahamas (Poul Spirit L.L.C.)
Senang Spirit 1994 Imabari DH 95,649 Bahamas (Senang Spirit L.L.C.)
Torben Spirit 1994 Onomichi DH 98,662 Bahamas (Torben Spirit L.L.C.)
Samar Spirit 1992 Onomichi DH 98,640 Bahamas (Samar Spirit L.L.C.)
Tranche B Vessels
Vessel and Year Yard Type dwt Flag Owner
Suezmax - Shuttle Tankers
Nordic 2004 Samsung DH 151,294 Bahamas Brasilia (with (Nordic Brazilian Brasilia bareboat L.L.C.) registry option)
Nordic Spirit 2001 Samsung DH 151,294 Bahamas (Nordic (with Spirit Brazilian L.L.C.) bareboat registry option)
Aframax - Shuttle Tankers
Petroatlantic 2003 Samsung DH 92,995 Bahamas (Petroatlantic L.L.C.)
Petronordic 2002 Samsung DH 92,995 Bahamas (Petronordic L.L.C.)
| 1. | DEFINITIONS |
In this Schedule 10 ( Collateral Vessel Provisions ):
“ Approved Brokers ” means the insurance brokers appointed by the Subsidiary Guarantor as approved, in writing, from time to time by the Security Trustee (such approval not to be unreasonably withheld or delayed).
“ Approved Currency ” means dollars or any other currency approved, in writing, from time to time by the Security Trustee.
“ Collateral Vessel ” means, for the purpose of this Schedule 10, the collateral vessel from time to time legally and beneficially owned by the Subsidiary Guarantor.
“ Damage Notification Event ” means any circumstance or event in connection with or in relation to the Collateral Vessel which gives rise to any claim or aggregate claims against the relevant insurers, before any adjustment for any relevant franchise or deduction, which exceeds $5,000,000 or the equivalent in any other currency.
“ Environmental Affiliate ” means an agent or employee of the Subsidiary Guarantor or a person in a contractual relationship with the Subsidiary Guarantor in respect of the Collateral Vessel (including, without limitation, the operation of or the carriage of cargo of the Collateral Vessel).
“ Environmental Approvals ” means any present or future permit, licence, approval, ruling, variance, exemption or other authorisation required under the applicable Environmental Laws.
“ Environmental Claim ” means any and all enforcement, clean-up, removal, administrative, governmental, regulatory or judicial actions, orders, demands or investigations instituted or completed pursuant to any Environmental Laws or Environmental Approvals together with any claims made by any third person relating to damage, contribution, loss or injury resulting from any Environmental Incident.
| (a) | any release of Environmentally Sensitive Material from the Collateral Vessel; or |
| (b) | any incident in which Environmentally Sensitive Material is released from a vessel other than the Collateral Vessel and which involves a collision between the Collateral Vessel and such other vessel or some other incident of navigation or operation, in either case, in connection with which the Collateral Vessel is actually or potentially liable to be arrested, attached, detained or injuncted and/or where any guarantor, any manager (or any sub-manager of the Collateral Vessel) or any of its officers, employees or other persons retained or instructed by it (or such sub-manager) are at fault or allegedly at fault or otherwise liable to any legal or administrative action; or |
| (c) | any other incident in which Environmentally Sensitive Material is released otherwise than from the Collateral Vessel and in connection with which the Collateral Vessel is actually or potentially liable to be arrested and/or where any guarantor, any manager (or any sub-manager of the Collateral Vessel) or any of its officers, employees or other persons retained or instructed by it (or such sub-manager) are at fault or allegedly at fault or otherwise liable to any legal or administrative action. |
“ Environmental Laws ” means all present and future laws, regulations, treaties and conventions of any applicable jurisdiction which:
| (a) | have as a purpose or effect the protection of, and/or prevention of harm or damage to, the environment; |
| (b) | relate to the carriage of Environmentally Sensitive Material or to actual or threatened releases of Environmentally Sensitive Material; |
| (c) | provide remedies or compensation for harm or damage to the environment; or |
| (d) | relate to Environmentally Sensitive Materials or health or safety matters. |
“ Environmentally Sensitive Material ” means (i) oil and oil products and (ii) any other waste, pollutant, contaminant or other substance (including any liquid, solid, gas, ion, living organism or noise) that may be harmful to human health or other life or the environment or a nuisance to any person or that may make the enjoyment, ownership or other territorial control of any affected land, property or waters more costly for such person to a material degree.
“ Excess Risks ” means, in relation to the Collateral Vessel, the proportion of claims for general average, salvage and salvage charges not recoverable under the hull and machinery policies in respect of the Collateral Vessel as a consequence of the excess of the value at which the Collateral Vessel is assessed for the purposes of such claims is over the Collateral Vessel’s insured value.
“ Insurers ” means the underwriters or insurance companies with whom any of the Obligatory Insurances is effected and any protection and indemnity or war risks association in which the Collateral Vessel may at any time be entered.
“ ISM Code ” means the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention adopted by the International Maritime Organisation.
“ Law ” means any:
| (a) | common or customary law; |
| (b) | constitution, decree, judgment, legislation, order, ordinance, regulation, statute, treaty or other legislative measure in any jurisdiction; and |
| (c) | present or future directive, regulation, practice, concession or requirement which has the force of law and which is issued by any governmental body, agency or department or any central bank or other fiscal, monetary, regulatory, self-regulatory or other authority or agency. |
“ Mortgage ” means the first preferred mortgage in respect of the Collateral Vessel to be granted by the Subsidiary Guarantor in favour of the Security Trustee.
“ Obligatory Insurances ” means, in relation to the Collateral Vessel, any policy or contract of insurance and any entry in a protection and indemnity or war risks association which are now or may hereafter be taken out or effected by or on behalf of the Subsidiary Guarantor pursuant to Clauses 6.1, 6.2 and 6.4 herein or the provisions of any other Finance Document in respect of the Collateral Vessel or its increased value, Earnings or profits, and all the benefits thereof including all claims thereunder and returns of premium.
“ Policy ” means, in relation to the Obligatory Insurances, any binder, contract, slip, note, certificate of entry, record or any other document evidencing the contract of the Obligatory Insurance or its terms.
“ Required Insurance Amount ” means, in respect of the Collateral Vessel, an aggregate amount equal to not less than the greater of the Market Value of the Collateral Vessel and 110 per cent of the Outstandings, pro rata in respect of the Collateral Vessel.
“ Requisition Compensation ” means any monies or other compensation receivable from any government (whether civil, military or de facto) or public or local authority in relation to the Collateral Vessel or any part thereof in the event of its requisition for title, confiscation, restraint, detention, forfeiture or compulsory acquisition or seizure or requisition for hire (to the extent that a total loss occurs during such requisition for hire) by or under the order of any such government or public or local authority.
“ Security Period ” means the period beginning on the date of Mortgage and ending on the date upon which the Security Trustee is satisfied that:
| (a) | none of the Finance Parties is under any obligation (whether actual or contingent) to make advances or provide other financial accommodation to the Borrower under any of the Finance Documents; and |
| (b) | all secured obligations (however defined in the Security Documents to which the Subsidiary Guarantor is a party) have been unconditionally and irrevocably paid and discharged in full. |
“ Shipper ” shall include any person (except for the Subsidiary Guarantor or any person, firm or company acting on its behalf) who is or becomes a party to any contract of affreightment.
| 2. | REPRESENTATIONS AND WARRANTIES |
The Subsidiary Guarantor makes the representations and warranties set out in this Clause 2 and acknowledges that the Security Trustee (for the benefit of the Finance Parties) has entered into the Security Documents in reliance on the following:
| (a) | it is the sole, legal and beneficial owner of all of sixty-four sixty-fourth shares in the Collateral Vessel, free and clear of all Encumbrances except for Permitted Liens, the Mortgage and, if applicable, any deed of covenants; |
| (b) | the Collateral Vessel has been registered under a Pre-Approved Flag and is in full compliance with such flag regulations; |
| (c) | the Collateral Vessel is not (i) under arrest, detention or any similar action or (ii) in the possession of any person (other than the Collateral Vessel’s master and/or crew); |
| (d) | it has not, save for any Security Document to which it is a party, assigned or otherwise created any Encumbrance over its rights, title, interest in and benefit to any of the Earnings, the Requisition Compensation or the Obligatory Insurances (or any part thereof); |
| (e) | the Collateral Vessel is insured in accordance with the provisions of Clause 6 ( Obligatory Insurances ) and the Obligatory Insurances are valid and in full force and effect; |
| (f) | the Collateral Vessel is classified to the highest classification for vessels of a similar type to the Collateral Vessel by a Pre-Approved Classification Society, free from any recommendation or requirement of such classification society which has not been complied with in accordance with, and in the time required (as extended or modified by such classification society from time to time) by, that classification society; |
| (g) | neither its entry into, nor the performance by it of its obligations under the Security Documents to which it is a party shall: |
| (i) | give rise to or oblige it to create any Encumbrance in favour of any person other than the Security Trustee; |
| (ii) | confer any person with the right to require either payment in respect of any obligation which has not matured or repayment (whether full or partial) in respect of any indebtedness; or |
| (iii) | require it to withdraw the Collateral Vessel from service under, or terminate, any charter or contract of affreightment in respect of the Collateral Vessel; |
| (h) | it and (to the best of its knowledge) its Environmental Affiliates have complied with the provisions of all Environmental Laws and have obtained and are in full compliance with all requisite Environmental Approvals except where non-compliance or failure to obtain Environmental Approvals does not and will not have a Material Adverse Effect; |
| (i) | neither it nor (to the best of its knowledge) its Environmental Affiliates has received notice of any Environmental Claim that alleges that either it or its Environmental Affiliate is not in compliance with all Environmental Laws or Environmental Approvals, where such non-compliance has or will have a Material Adverse Effect; |
| (j) | no Environmental Claim has been made, threatened or is pending against it or to the best of its knowledge, its Environmental Affiliates in connection with the Collateral Vessel; and |
| (k) | there has been no Environmental Incident except where such incident does not and will not have a Material Adverse Effect and no person has claimed that an Environmental Incident has occurred in respect of the Collateral Vessel. |
| 3. | INSURANCE COVENANTS |
The Subsidiary Guarantor covenants with the Security Trustee (for the benefit of the Finance Parties) that, at all times, during the Security Period it shall:
| (a) | execute all such documents (including, without limitation, any guarantees and/or indemnities required by any protection and indemnity or war risks association) and ensure such documents remain in full force and effect and do all such things as may be necessary to confer the Security Trustee with the benefit of the Obligatory Insurances including, without limitation, at the request of the Security Trustee: |
| (i) | notify the insurers of the Security Trustee’s interest in the Collateral Vessel and the Obligatory Insurances by notices in the forms set out in the relevant Security Documents to which it is a party; and |
| (ii) | ensure that the Obligatory Insurances contain loss payable and, if applicable, notices of cancellation clauses substantially in the forms set out in the relevant Security Documents to which it is a party (or in such form as may be approved from time to time, in writing, by the Security Trustee); |
| (b) | promptly upon effecting the Obligatory Insurances, give written notice to the Security Trustee stating the full particulars (including, without limitation, the dates and amounts of the Obligatory Insurances) thereof; |
| (c) | punctually pay all premiums, calls, contributions or other sums payable in respect of the Obligatory Insurances and upon request by the Security Trustee promptly produce the receipts paid by it in respect of the Obligatory Insurances; |
| (d) | within thirty days following a request by the Security Trustee (such request not to be made more than once in any calendar year unless additional insurances have been effected pursuant to Clause 4(h) (Operational Covenants )), provide the Security Trustee with a detailed report signed by an independent and reputable firm of marine insurance brokers or consultants appointed by it and approved by the Security Trustee detailing the Obligatory Insurances and stating that, in the reasonable opinion of such firm, the Obligatory Insurances are adequate, each such report to be prepared at the expense of the Subsidiary Guarantor if the Security Trustee has reasonable grounds for inquiring about the adequacy of such Obligatory Insurances, but otherwise at the expense of the Security Trustee; |
| (e) | not alter materially or agree to any material alteration of any of the Obligatory Insurances without the prior written consent of the Security Trustee or consent or agree to any act or omission which might invalidate or render unenforceable any of the Obligatory Insurances in whole or in part or waive any of its rights under or in respect of any of the Obligatory Insurances; |
| (f) | cause the Approved Brokers and the managers of any protection and indemnity or war risks association in which the Collateral Vessel may be entered: |
| (i) | to hold to the order of the Security Trustee in accordance with customary market practice the originals of all Policies (and the benefit of such Obligatory Insurances) and upon request deliver certified copies of the same to the Security Trustee; |
| (ii) | to deliver to the Security Trustee a letter or letters of undertaking in the form customarily provided by the relevant protection and indemnity club in a form acceptable to the Security Trustee together with a copy of the club’s certificate of entry (if the relevant protection and indemnity club has confirmed that it will deliver the same); and |
| (iii) | in the event that the Collateral Vessel enters United States of America waters (or the territorial waters of any other country which requires special certification) to provide to the Security Trustee with such evidence as the Security Trustee may reasonably require that the Collateral Vessel has a valid and current certificate of financial responsibility for pollution by oil and/or any other Environmentally Sensitive Material issued by the relevant certifying authority in relation to the Collateral Vessel; |
| (g) | promptly notify the Security Trustee: |
| (i) | if any underwriter, insurance company or protection and indemnity or war risks association cancels any of the Obligatory Insurances or ceases to be underwriters for any purpose whatsoever in connection with that Obligatory Insurance; |
| (ii) | of any material alteration to any of the Obligatory Insurances or any failure to pay any premium, call, contribution or other amounts due or any failure to renew any of the Obligatory Insurances (other than entry in a protection and indemnity association) at least seven days before the expiry of that Obligatory Insurance and one day before expiry of the entry in the protection and indemnity association; and |
| (iii) | of any other act, omission or event of which would or might render invalid or unenforceable any of the Obligatory Insurances in whole or in part; |
| (h ) | not, without the prior written consent of the Security Trustee, settle, compromise or abandon any claim, give notice of abandonment in respect of the Collateral Vessel under any of the Obligatory Insurances other than a claim under protection and indemnity insurance or, so long as no Event of Default shall have occurred and be continuing, a claim of less than $5,000,000 (or the equivalent thereof in any other currency) arising otherwise than out of a total loss of the Collateral Vessel; |
| (i) | do all things necessary and provide all documents, evidence and information to the Security Trustee to enable the Security Trustee to collect or recover any moneys which may at any time, become payable in respect of any of the Obligatory Insurances; |
| (j) | in the case of the Obligatory Insurances in respect of protection and indemnity risks, provide for all moneys payable thereunder arising out of a claim to be paid in accordance with a loss payable clause in the relevant form set out in the relevant Security Document to which it is a party, and pay or settle, in full, any liability to which a claim relates or, as the case may be, reimburse any relevant insured which has settled that claim; |
| (k) | ensure that all payments made to the Security Trustee (or such person as the Security Trustee may direct) by or on behalf of the insurers under any of the Obligatory Insurances shall be made without any set-off, counterclaim, deductions or condition whatsoever; |
| (l) | not do (or permit to be done) or omit to do any act or thing which would or might enable the cancellation of any of the Obligatory Insurances or render any of the Obligatory Insurances invalid, void, voidable or unenforceable or render any sum paid under any of the Obligatory Insurances repayable in whole or in part; |
| (m) | take all necessary action and comply with all requirements which may from time to time be applicable to the Obligatory Insurances, and ensure that the Obligatory Insurances are not made subject to any exclusions or qualifications without the Security Trustee’s prior written consent, such consent not to be unreasonably delayed or withheld; |
| (n) | not make any changes relating to the classification, classification society, manager or operator of the Collateral Vessel without the prior written consent of the insurers and the Security Trustee other than in accordance with clause 19 ( Covenants ) of the Credit Facility Agreement; |
| (o) | if the Collateral Vessel is trading to the United States of America, during such time, make all quarterly or other voyage declarations which may be required by the protection and indemnity risks association in respect of the Collateral Vessel in order to maintain cover for such trading to the United States of America and the Exclusive Economic Zone (as defined in the United States Oil Pollution Act 1990 or any other applicable legislation) in respect of the Collateral Vessel; and |
| (p) | not do any act nor voluntarily suffer nor permit any act to be done whereby any of the Obligatory Insurances shall or may be suspended or avoided (in whole or in part) and it shall not without obtaining the prior written consent of the relevant insurers and the Security Trustee employ or allow the employment of the Collateral Vessel otherwise than in conformity with the terms and conditions of the Obligatory Insurances. |
| 4. | OPERATIONAL COVENANTS |
The Subsidiary Guarantor covenants with the Security Trustee (for the benefit of the Finance Parties) that, at all times, during the Security Period it shall:
| (a) | maintain the registration of the Collateral Vessel under a Pre-Approved Flag or under such other flag as may be approved by the Security Trustee, in writing, such approval not to be unreasonably withheld or delayed, and it shall not cause or permit to be done any act or omission whereby the registration of the Collateral Vessel at any one time would or might be defeated or imperilled; |
| (b) | not knowingly cause or permit the Collateral Vessel to be operated in any manner or employed in any trade or business contrary to or unlawful under the laws, regulations, treaties and conventions (and all rules and regulations issued thereunder) from time to time applicable to the Collateral Vessel; |
| (c) | maintain and preserve, at its own expense, the Collateral Vessel in a seaworthy condition and in good working order and repair (ordinary wear and tear excepted) and in such condition to ensure that the Collateral Vessel is free of recommendation or requirement which has not been complied with within any time limit specified by such person (as such requirement or recommendation may be extended or modified from time to time) or, if no such time limit is specified, as soon as reasonably practicable; |
| (d) | comply with all laws, regulations and requirements (statutory or otherwise) from time to time applicable in the jurisdiction where the Collateral Vessel is registered and/or in the jurisdictions where the Collateral Vessel trades and/or is operated from and take all action as is necessary to ensure that it receives certification of compliance with those laws, regulation and requirements; |
| (e) | submit the Collateral Vessel on a regular basis to all periodical or other surveys as the classification society in which the Collateral Vessel is entered may require and at the request of the Security Trustee provide the Security Trustee with copies of all classification certificates of the Collateral Vessel and its machinery and of all damage or survey reports issued in connection therewith; |
| (f) | promptly notify the Security Trustee of any substantial change in the structure of the Collateral Vessel or any other modification which might involve material alteration to the Collateral Vessel provided that it shall not without the prior written consent of the Security Trustee, cause or permit to be made any change or modification which may result in a change to the type of the Collateral Vessel; |
| (g) | promptly notify the Security Trustee of any change of the name or port of registry of the Collateral Vessel; |
| (h) | not cause or permit the Collateral Vessel to enter into, trade to, or within the territorial waters of any country where the Obligatory Insurances on the Collateral Vessel may be jeopardised or imperilled unless it has first taken out or effected, at its own cost and expense, such additional insurances as the Security Trustee and the relevant insurers may require and as shall be necessary or customary for first class ship-owners trading vessels with or within the territorial waters of such country and if required by the Security Trustee, it shall assign those insurances in favour of the Security Trustee (in form and substance satisfactory to the Security Trustee); |
| (i) | ensure that all repairs to or replacements of any damaged or worn or lost parts of equipment are effected in such manner (both as regards workmanship and quality of materials) so not as to diminish in any material way the value of the Collateral Vessel and not to remove any material part of, or any item of, equipment installed on the Collateral Vessel unless the part or item so removed is replaced by a suitable part or item which is in the same condition and value as or better condition and value than the part or item removed, is free from any Encumbrance other than in favour of the Security Trustee and becomes upon installation on the Collateral Vessel the property of the Subsidiary Guarantor and subject to the security constituted by the Mortgage or, if applicable, any deed of covenants to which it is a party provided, that the Subsidiary Guarantor or any person on its behalf may not install equipment owned by a third party unless the equipment can be removed without any risk of damage to the Collateral Vessel; |
| (j) | not, other than those already in existence and fully disclosed to the Security Trustee prior to or on the date of the Credit Facility Agreement, enter into any agreement or arrangement whereby the Earnings may be shared or pooled with any other person, except with the prior written consent of the Security Trustee, which consent shall not be unreasonably withheld provided that the Subsidiary Guarantor assigns or procures that the Security Trustee obtains an assignment of the benefit of such Earnings in favour of the Security Trustee in form and substance satisfactory to the Security Trustee; |
| (k) | not, without the prior written consent of the Security Trustee, sell, assign or transfer, or enter into any agreement to sell, assign or transfer, all or part of the Collateral Vessel to any other person other than in circumstances where the proceeds of such sale, assignment or transfer will be applied as contemplated by clause 8.2 ( Application of Mandatory Prepayments ) of the Credit Facility Agreement; |
| (l) | (and it procures that its Environmental Affiliates shall) comply in all material respects with the ISM Code, all Environmental Laws, all Environmental Approvals and all other laws or regulations applicable to it and/or the Collateral Vessel including, without limitation, requirements relating to its establishment of financial responsibility, the management of its business and its ownership, operation, use and maintenance of the Collateral Vessel and its operation and/or its carriage of cargo except where such non-compliance does not or will not have an adverse effect on the value or utility of the Collateral Vessel and provide evidence of its compliance with such laws, regulations and/or approvals upon the request of the Security Trustee; |
| (m) | not employ or operate or allow the employment or operation of the Collateral Vessel in any manner contrary to any law, regulation or approval including, without limitation, the ISM Code in any applicable jurisdiction or in breach of any United States of America, European Union or United Nations sanctions; |
| (n) | not permit or allow to occur any discharge, release, leak, migration or other escape of any Environmentally Sensitive Material into the environment on, under or from any property owned, leased, occupied or controlled by it (including, without limitation, the Collateral Vessel), where such discharge, release, leak, migration or other escape would or might have a Material Adverse Effect; |
| (o) | upon the request of the Security Trustee, conduct and complete all investigations, studies, sampling, audits and testings reasonably required by any known Environmental Incident that would or might have a Material Adverse Effect; |
| (p) | promptly notify the Security Trustee by an effective and prompt mode of communication upon receiving notice of or becoming aware of any of the following events: |
| (i) | any circumstance or event which is or is likely to constitute a Damage Notification Event; |
| (ii) | any event as a result of which the Collateral Vessel has become or might, with the passage of time or otherwise, become a total loss; |
| (iii) | any requirement or recommendation made in relation to the Collateral Vessel by any insurer or classification society or by any competent authority which is not complied with within the time limit (as extended or modified by such insurer or classification society) and/or in the manner required by that insurer, classification society or competent authority; |
| (iv) | any levy of any distress on or any arrest, condemnation, confiscation, requisition for title or use, compulsory acquisition, seizure, detention or forfeiture of the Collateral Vessel (or any part thereof), any exercise or purported exercise of any lien or claim on or against the Collateral Vessel, any Earnings or any Requisition Compensation and (save in the case of any compulsory acquisition or requisition for title or use in respect of the Collateral Vessel) procure within 30 days the release of or discharge the lien or claim on or against the Collateral Vessel, any Earnings or any Requisition Compensation by providing adequate bail, security or otherwise as the circumstances may require; |
| (v) | any Environmental Claim pending, or made against it or any of its Environmental Affiliates or in connection with the Collateral Vessel which has or will have a Material Adverse Effect; |
| (vi) | any claim for breach of the ISM Code being made against it or any of its Environmental Affiliates, any manager or otherwise in connection with the Collateral Vessel; |
| (vii) | any other matter, event or incident, actual or threatened, the effect of which would or might lead to the ISM Code not being complied with in all material respects; |
| (viii) | any known Environmental Incident which has or will have a Material Adverse Effect; |
| (ix) | any death, sickness, injury of any third party, or any loss or damage to any property of any third party caused by, or in connection with, the Collateral Vessel (or any part thereof) which might reasonably be expected to give rise to a loss which constitutes a Damage Notification Event; |
| (x) | any other event which might reasonably have a Material Adverse Effect on its ability to punctually and fully perform its obligations hereunder or under any of the Finance Documents; |
| (q) | promptly submit to the protection and indemnity association in accordance with such association’s requirements such quarterly or other declarations in respect of cargo voyages to the United States of America and any other jurisdiction which requires declaration in respect of cargo voyages; |
| (r) | not represent to any third parties nor hold out any of the Finance Parties as having any operational interest in or carrying any cargo or passengers on the Collateral Vessel or as being in any way connected or associated with any such cargo or passengers or with the operation of the Collateral Vessel; |
| (s) | not pledge the credit of any of the Finance Parties for any maintenance, service, repairs, dry-docking or modification in respect of the Collateral Vessel or for any other purpose whatsoever; |
| (t) | not sell or purport to sell (save as permitted under the Credit Facility Agreement) or execute a bill of sale of in respect of the Collateral Vessel or any interest therein; and |
| (u) | promptly pay and discharge or cause to be paid and discharged in full: |
| (i) | all liabilities which give or may give rise to maritime or possessory liens on or claims enforceable against the Collateral Vessel, any Earnings or any of the Obligatory Insurances; |
| (ii) | all taxes, assessments, governmental charges, fines, penalties, dues and other amounts due and payable in respect of the Collateral Vessel, any Earnings or any of the Obligatory Insurances; and |
| (iii) | all other outgoings whatsoever in respect of the Collateral Vessel. |
| 5. | MAINTENANCE OF SECURITY COVENANTS |
The Subsidiary Guarantor covenants with the Security Trustee (for the benefit of the Finance Parties) that, at all times, during the Security Period it shall:
| (a) | do everything necessary under all applicable laws for the purpose of perfecting the Security Documents and maintaining the Collateral Vessel as a good and valid security including, without limitation, at all times: |
| (i) | keep on board the Collateral Vessel together with the Collateral Vessel’s papers, a certified copy of the Mortgage, any mortgage book or other document of record as may be required by law to be kept on board the Collateral Vessel and cause to be recorded therein or thereon the particulars relating to the Mortgage or any other document as may be required by law and exhibit the same to the Security Trustee (including its representatives and nominees) and any person having a legal interest in or any business arrangement in connection with the Collateral Vessel; |
| (ii) | place and keep prominently in the chart room and in the master’s cabin of the Collateral Vessel a framed notice printed in plain type of such size that the paragraph of reading matter shall cover a space not less than six inches wide and nine inches high reading as follows: |
| This vessel is subject to a first priority mortgage in favour of Nordea Bank Finland Plc, New York Branch, as security trustee. Under the terms of the said first priority mortgage neither the owner nor any master nor any charterer of the vessel nor any other person has the right, power or authority to create, incur or permit to be placed on the vessel any lien whatsoever other than for the crew’s wages or salvage.”; and |
| (iii) | ensure that the interest of the Finance Parties in the Collateral Vessel is duly noted and/or recorded to the maximum extent permitted by applicable law with the registry where the Collateral Vessel is registered; |
| (b) | promptly (and in any event within 45 days of the relevant event) replace any notice as referred to in Clause 5(a)(ii) above that becomes illegible, lost, damaged or destroyed for any reason; |
| (c) | not, without the prior written consent of the Security Trustee, abandon (save in the case of extreme inclement weather) the Collateral Vessel or any part thereof; |
| (d) | not, without the prior written consent of the Security Trustee (which consent shall not be unreasonably withheld or delayed), let or agree to let the Collateral Vessel (or any part thereof) on demise charter (excluding, for the purposes of this clause, any Bareboat Charters); |
| (e) | not, without the prior written consent of the Security Trustee (which shall not be unreasonably withheld), appoint any person to act as manager of the Collateral Vessel other than in accordance with clause 19 ( Covenants ) of the Credit Facility Agreement; |
| (f) | do all such acts and execute all such documents as may be reasonably required by the Security Trustee to ensure the payment to the Security Trustee of any Requisition Compensation and any other moneys owed to the Subsidiary Guarantor in respect of any requisition for use or hire of the Collateral Vessel by or on behalf of any government or other authority; |
| (g) | not cause or permit the Collateral Vessel to be employed in any manner which will or may render it liable to confiscation, forfeiture, seizure, condemnation or destruction or any other similar action; |
| (h) | take all reasonable steps necessary to prevent any threatened arrest, detention, seizure, condemnation or any other similar action of the Collateral Vessel and to prevent any material risk of forfeiture of the Collateral Vessel and/or any risk of criminal liability to any of the Finance Parties by the adequate provision of bail, security or otherwise as the circumstances may require; and |
| (i) | not, without the prior written consent of the Security Trustee, save for any Security Document to which it is a party, assign, charge, mortgage or otherwise create (or concur in the creation of or permit to exist) any Encumbrance (in part or in whole) other than Permitted Liens over the Collateral Vessel, the Requisition Compensation, the Obligatory Insurances or the Earnings. |
| 6. | OBLIGATORY INSURANCES |
| 6.1 | The Subsidiary Guarantor shall ensure that the Collateral Vessel is, at all times, during the Security Period, insured against: |
| (a) | fire and marine risks (including hull and machinery, hull interest and freight interest insurance) and war risks in an amount equal to at least the Required Insurance Amount; and |
| (b) | protection and indemnity risks (including pollution and Excess Risks) in accordance with usual practice for a “full entry” in respect of the full value and full tonnage of the Collateral Vessel, |
| such insurance to be expressed in an Approved Currency and arranged through the Approved Brokers and to be on such terms and with such insurers or insurance companies (or, in the case of war risks and protection and indemnity risks, such war risk or protection and indemnity associations) as may be approved, in writing, by the Security Trustee from time to time (such approval not to be unreasonably withheld or delayed). |
| 6.2 | The Subsidiary Guarantor shall effect and maintain oil pollution insurance cover in respect of the Collateral Vessel in an amount equal to US$1,000,000,000 in respect of each incident (such insurance shall include cover taken out or effected under Clause 6.1 insofar as insurance risks are concerned) or where (in the reasonable opinion of an Instructing Group, which shall take into consideration the price at which such cover can be effected) such insurance cannot be obtained in the international insurance market following due diligence (other than where the absence of available cover is caused by a history of accidents and/or spillage in respect of the Collateral Vessel and/or the Subsidiary Guarantor) such insurance shall be in an amount equal to at least US$500,000,000 in respect of each incident (or such other amount as may be agreed by the Instructing Group). |
| 6.3 | If the Subsidiary Guarantor fails to take out or maintain any Obligatory Insurance required to be effected by it pursuant to the provisions of Clauses 6.1 and 6.2, the Security Trustee, for and on behalf of the Subsidiary Guarantor, may (but shall not be obliged to) effect any such insurance (without prejudice to any other right of the Security Trustee arising hereunder or under any other Finance Document) and the Subsidiary Guarantor will on demand promptly pay to the Security Trustee the amount of any payment made in connection therewith, together with interest thereon at the rate and in the manner specified in clause 23.2 ( Default Rate ) of the Credit Facility Agreement. |
| 6.4 | Without prejudice to the Subsidiary Guarantor’s continuing obligations under this Clause 6, it shall, at least seven days before the expiry of any Obligatory Insurances (other than entry in a protection and indemnity association) and at least one day before the expiry of any entry in the protection and indemnity association (or within such shorter period as the Security Trustee may from time to time agree) taken out or effected by it or on its behalf in respect of the Collateral Vessel confirm, in writing, to the Security Trustee that the same has been renewed in accordance with the terms hereunder and promptly provide certified copies of the terms and conditions of the renewal. |
| 6.5 | Without prejudice to Clause 3(h) ( Insurance Covenants ), provided that no Event of Default shall have occurred and be continuing, the Subsidiary Guarantor may settle or compromise a claim arising out of any event or circumstance which does not constitute a total loss or a Damage Notification Event of or in respect of the Collateral Vessel. Further, where in accordance with Clause 5(f) ( Maintenance of Security Covenants ) any Requisition Compensation has been paid to the Security Trustee (to the extent that it is entitled to retain the same) the Security Trustee shall, provided that the Subsidiary Guarantor is in compliance with its obligations under the Transaction Documents to which it is a party, release such proceeds to the Subsidiary Guarantor. |
| 7. | BAREBOAT CHARTER INSURANCE |
The Subsidiary Guarantor agrees that if the Collateral Vessel is subject to a Third Party Bareboat Charter or other demise charter, it shall procure that:
| (a) | the relevant bareboat charterer of the Collateral Vessel complies, in a manner satisfactory to the Security Trustee, in all respects with the provisions of Clause 6 ( Obligatory Insurances ) in respect of the Obligatory Insurances relating to the Collateral Vessel; and |
| (b) | the relevant bareboat charterer assigns to the Security Trustee all of its rights, title, interest in and benefit to the insurances taken out or effected by it or on its behalf relating to the Collateral Vessel upon terms satisfactory to the Security Trustee. |
| 8. | CHANGES TO OBLIGATORY INSURANCES |
If following a review of the Obligatory Insurances, the Security Trustee determines that such Obligatory Insurances are inadequate to protect the Finance Parties’ interest in the Collateral Vessel by reason of changes to the insurance market (other than changes permitted hereunder) having regard to comparable insurances effected by owners and operators of vessels of a similar type and age to the Collateral Vessel, the Security Trustee may by notice to the Subsidiary Guarantor require the Subsidiary Guarantor, at its own cost and expense, to promptly take such actions as in the reasonable opinion of the Security Trustee are necessary to remedy such inadequacies.
| 9. | APPLICATION OF INSURANCE MONEYS |
9.1 Prior to an Event of Default
Prior to the occurrence of an Event of Default which is continuing, the proceeds of any claim under any of the Obligatory Insurances (other than in respect of a total loss or a Damage Notification Event) shall be applied, in full, by the Subsidiary Guarantor in or towards making good the loss or damage in respect of which such proceeds have been paid (and in the event that the proceeds of any claim are received by the Security Trustee, such proceeds (provided that the Subsidiary Guarantor is not in breach of any of its obligations under any Finance Document to which it is a party) shall be paid by the Security Trustee to the Subsidiary Guarantor in reimbursement of moneys expended by it for such purpose upon providing evidence satisfactory to the Security Trustee that such sums have been or are to be applied for such purpose).
9.2 After the occurrence of an Event of Default
Upon the occurrence of an Event of Default which is continuing, the Subsidiary Guarantor shall ensure that the proceeds of any claim in respect of protection and indemnity insurance shall be paid directly by the relevant insurers to the person to which the liability covered by such insurance was incurred.
9.3 General
Without prejudice to the terms of clause 8.2 ( Application of Mandatory Prepayments ) of the Credit Facility Agreement, all monies held, received or recovered by the Security Trustee, as a consequence of a total loss or a Damage Notification Event in respect of the Collateral Vessel or an Event of Default shall be applied by the Security Trustee in accordance with the provisions of clause [ ] of the Security Trust Deed.
| 10. | SUBSIDIARY GUARANTOR’S CONTINUING OBLIGATIONS |
Notwithstanding anything contained in this Schedule 10:
| (a) | the Subsidiary Guarantor shall remain liable under each charter and each contract of affreightment in respect of the Collateral Vessel to perform all the obligations assumed by it thereunder; and |
| (b) | the Security Trustee shall not be obliged: |
| (i) | to assume or be under any obligation in any manner to perform or fulfil any obligations (including making any payments) of the Subsidiary Guarantor or any of its Environmental Affiliates under or pursuant to any charter or contract of affreightment in respect of the Collateral Vessel; |
| (ii) | to enforce against any charterer or Shipper any term or condition of any charter or contract of affreightment in respect of the Collateral Vessel; or |
| (iii) | to make any enquiries as to the nature or sufficiency of any payment received by the Security Trustee. |
| 11. | PROVISION OF INFORMATION |
The Subsidiary Guarantor agrees that it shall, at all times, during the Security Period:
| (a) | provide the Security Trustee with any information regarding the Collateral Vessel (including, without limitation, the employment, the position and the engagements of the Collateral Vessel) as reasonably requested by the Security Trustee together with details of the Earnings, payments and amounts due to the master and crew, all towages and salvages and copies of all contracts for the employment of or any other matters concerning the Collateral Vessel; |
| (b) | provide to the Security Trustee on request copies of the classification certificates of the Collateral Vessel and all machinery, damage and/or survey reports on the Collateral Vessel and of any charter and any contract of affreightment entered into by or on behalf of it in respect of the Collateral Vessel; |
| (c) | (i) ensure that the Security Trustee, its surveyors and/or other persons appointed by it will be permitted upon giving reasonable notice (and so as not to interrupt the trade of the Collateral Vessel) to board and have full and complete access to inspect the Collateral Vessel, its cargo and its logs; and |
| (d) | keep full, proper and up-to-date books of account in respect of the Collateral Vessel, or procure that the managers of the Collateral Vessel do so, and permit the Security Trustee upon giving reasonable notice to inspect, copy and make extracts from the same, or procure that the said managers do so, and provide evidence satisfactory to the Security Trustee that the wages and allotments and the insurance, tax (including PAYE) and pension contributions of the master and crew are being promptly and regularly paid in such amounts as required to fully discharge any due and payable liabilities. |
| 12. | SECURITY TRUSTEE POWERS |
Upon the occurrence of any Event of Default which is continuing, the Security Trustee shall be entitled (and the Subsidiary Guarantor agrees that the Security Trustee shall be so entitled), without notice or further demand, to immediately exercise all the powers and remedies conferred on it under such documents and in accordance with applicable law as mortgagee and chargee of the Collateral Vessel including, without limitation, the right:
| (a) | to take possession of the Collateral Vessel and exercise all the rights and powers of a mortgagee; |
| (b) | to recover and collect all freights, passage moneys, remuneration for salvage or towage services, hire moneys and all other income or earnings then due or to become due to the Subsidiary Guarantor in respect of the Collateral Vessel and to give a good receipt therefor on behalf of the Subsidiary Guarantor; |
| (c) | to require that all Policies relating to any of the Obligatory Insurances (including details of and correspondence concerning outstanding claims) be delivered to such adjusters and/or brokers and/or other insurers as the Security Trustee may nominate; |
| (d) | to collect, recover, compromise and give a good discharge for all claims then outstanding or thereafter arising under any of the Obligatory Insurances and to take over or institute or pursue all proceedings in connection therewith (as the Security Trustee in its absolute discretion thinks fit) and to permit the Approved Brokers through whom collection or recovery is effected to charge and retain the usual brokerage therefor; |
| (e) | to recover, defend, discharge, compound, release or compromise claims including, without limitation, those which (i) have given or may give rise to any charge or lien on the Collateral Vessel, (ii) have priority over the Mortgage or (iii) are or may be enforceable by proceedings against the Collateral Vessel; |
| (f) | to sell the Collateral Vessel or any share therein (whether as mortgagee, attorney-in-fact for the Subsidiary Guarantor or otherwise), with or without the benefit of any charter or other engagement, by public auction or private contract, at any place in the world, with or without advertisement (but in the case of a sale by private contract, the Security Trustee shall give prior notification thereof to the Subsidiary Guarantor), for cash, on credit or otherwise and upon such terms as the Security Trustee in its absolute discretion may determine with the power to postpone any sale and to execute legal bills or bills of sale in respect of a sale and without being answerable for any loss incurred by any sale or resulting from any postponement thereof unless such loss has occurred due to the gross negligence or wilful misconduct of the Security Trustee, and at any public sale to purchase the Collateral Vessel and to set off the purchase price of the Collateral Vessel against the secured obligations (howsoever defined in the Mortgage or, as the case may be, any deed of covenants); |
| (g) | to manage and, for such purpose, to appoint and/or remove any manager of the Collateral Vessel and to insure the Collateral Vessel on such terms and with such insurers and against such risks as the Security Trustee may in its absolute discretion think fit, and to maintain and repair the Collateral Vessel and to hold, lay up, lease, charter, operate or otherwise use the Collateral Vessel in such manner and for such period as the Security Trustee in its absolute discretion deems expedient and to do all acts and things incidental or conducive thereto in all respects as if the Security Trustee were the owner of the Collateral Vessel without being responsible for any loss thereby incurred unless such loss has occurred due to the gross negligence or wilful misconduct of the Security Trustee; |
| (h) | order the Collateral Vessel to proceed forthwith at the Subsidiary Guarantor’s risk and expense to a port or place nominated by the Security Trustee and require the Subsidiary Guarantor to give the necessary instructions to the master and/or crew of the Collateral Vessel to comply with any such instructions of the Security Trustee and if the Subsidiary Guarantor fails to give such instructions for any reason whatsoever the Security Trustee shall have the right and power to give such instructions directly to the master and/or crew; |
| (i) | recover from the Subsidiary Guarantor on first demand, all losses, expenses, payments and disbursements (including, without limitation, legal fees) incurred reasonably by the Security Trustee in respect of or, incidental to the exercise by it of any of its powers under the Mortgage or, as the case may be, the Deed of Covenants together with interest thereon at the rate as set out in clause 23.2 ( Default Rate ) of the Credit Facility Agreement from the date when such losses, expenses, payments or disbursements (including, without limitation, legal fees) were incurred by the relevant Finance Party until the date of reimbursement whether before or after judgment. |
Notwithstanding the terms of this Clause 12, the Security Trustee shall be under no duty to enquire as to the sufficiency of any payment received by it in relation to the Collateral Vessel or to take any action to recover amounts due or to enforce its rights and powers in relation thereto.
| 13. | ENVIRONMENTAL INDEMNIFICATION |
The Subsidiary Guarantor shall defend, indemnify and hold harmless each of the Finance Parties and any of its employees, agents, officers and directors from and against any claims, demands, penalties, disbursements, fines, liabilities, settlements, damages, costs or expenses of whatever kind or nature, known or unknown (including, without limitation, legal fees), contingent or otherwise, arising out of or in any way related to Environmentally Sensitive Material in, transported, stored or carried upon or forming a part of or discharge from the Collateral Vessel or in relation to any Environmental Laws, Environmental Approvals or Environmental Claims.
TEEKAY SHIPPING CORPORATION
| By: | GREG ROMANIUK |
| Address: |
c/o Teekay Shipping (Canada) Ltd.
Suite 2000 Bentall 5 550 Burrard Street Vancouver British Columbia V6C 2K2 Canada |
| Attention: | Director, Finance |
| Fax: | +1 604 681 3011 |
| Telephone: | +1 604 683 3529 |
| Email: | greg.romaniuk@teekay.com |
TEEKAY NORDIC HOLDINGS INCORPORATED
| By: | GREG ROMANIUK |
| Address: |
c/o Teekay Shipping (Canada) Ltd.
Suite 2000 Bentall 5 550 Burrard Street Vancouver British Columbia V6C 2K2 Canada |
| Attention: | Director, Finance |
| Fax: | +1 604 681 3011 |
| Telephone: | +1 604 683 3529 |
| Email: | greg.romaniuk@teekay.com |
NORDEA BANK FINLAND PLC, NEW YORK BRANCH
| By: | HANS KJELSRUD |
| Address: |
437 Madison Avenue
New York, NY 10022 USA |
| Fax: | +1 212 421 4420 |
| Attention: | Hans Chr. Kjelsrud |
| Telephone: | +1 212 318 9634 |
| Email: | hans.kjelsrud@nordea.com |
NORDEA BANK FINLAND PLC, NEW YORK BRANCH
| By: | HANS KJELSRUD |
| Address: |
437 Madison Avenue
New York, NY 10022 USA |
| Fax: | +1 212 421 4420 |
| Attention: | Hans Chr. Kjelsrud |
| Telephone: | +1 212 318 9634 |
| Email: | hans.kjelsrud@nordea.com |
DNB NOR BANK ASA
| By: | ASTRID PRESTNES NORDTORP |
| Address: |
Stranden 21
0250 Oslo Norway |
| Fax: | + 47 22 48 20 20 |
| Attention: | Astrid Prestnes Nordtorp |
| Telephone: | + 47 22 94 91 29 |
| Email: | astrid.prestnes.nordtorp@dnbnor.no |
NORDEA BANK FINLAND PLC, NEW YORK BRANCH
| By: | HANS KJELSRUD |
| Address: |
437 Madison Avenue
New York, NY 10022 USA |
| Fax: | +1 212 421 4420 |
| Attention: | Hans Chr. Kjelsrud |
| Telephone: | +1 212 318 9634 |
| Email: | hans.kjelsrud@nordea.com |
NORDEA BANK FINLAND PLC, NEW YORK BRANCH
| By: | HANS KJELSRUD |
| Address: |
437 Madison Avenue
New York, NY 10022 USA |
| Fax: | +1 212 421 4420 |
| Attention: | Hans Chr. Kjelsrud |
| Telephone: | +1 212 318 9634 |
| Email: | hans.kjelsrud@nordea.com |
NAVION STAVANGER L.L.C.
| By: | GREG ROMANIUK |
| Address: |
c/o Teekay Shipping (Canada) Ltd.
Suite 2000 Bentall 5 550 Burrard Street Vancouver British Columbia V6C 2K2 Canada |
| Attention: | Director, Finance |
| Fax: | +1 604 681 3011 |
| Telephone: | +1 604 683 3529 |
| Email: | greg.romaniuk@teekay.com |
NORDIC MARITA L.L.C.
| By: | GREG ROMANIUK |
| Address: |
c/o Teekay Shipping (Canada) Ltd.
Suite 2000 Bentall 5 550 Burrard Street Vancouver British Columbia V6C 2K2 Canada |
| Attention: | Director, Finance |
| Fax: | +1 604 681 3011 |
| Telephone: | +1 604 683 3529 |
| Email: | greg.romaniuk@teekay.com |
NORDIC SVENITA L.L.C.
| By: | GREG ROMANIUK |
| Address: |
c/o Teekay Shipping (Canada) Ltd.
Suite 2000 Bentall 5 550 Burrard Street Vancouver British Columbia V6C 2K2 Canada |
| Attention: | Director, Finance |
| Fax: | +1 604 681 3011 |
| Telephone: | +1 604 683 3529 |
| Email: | greg.romaniuk@teekay.com |
NORDIC SAVONITA L.L.C.
| By: | GREG ROMANIUK |
| Address: |
c/o Teekay Shipping (Canada) Ltd.
Suite 2000 Bentall 5 550 Burrard Street Vancouver British Columbia V6C 2K2 Canada |
| Attention: | Director, Finance |
| Fax: | +1 604 681 3011 |
| Telephone: | +1 604 683 3529 |
| Email: | greg.romaniuk@teekay.com |
NORDIC TORINITA L.L.C.
| By: | GREG ROMANIUK |
| Address: |
c/o Teekay Shipping (Canada) Ltd.
Suite 2000 Bentall 5 550 Burrard Street Vancouver British Columbia V6C 2K2 Canada |
| Attention: | Director, Finance |
| Fax: | +1 604 681 3011 |
| Telephone: | +1 604 683 3529 |
| Email: | greg.romaniuk@teekay.com |
NORDIC YUKON L.L.C.
| By: | GREG ROMANIUK |
| Address: |
c/o Teekay Shipping (Canada) Ltd.
Suite 2000 Bentall 5 550 Burrard Street Vancouver British Columbia V6C 2K2 Canada |
| Attention: | Director, Finance |
| Fax: | +1 604 681 3011 |
| Telephone: | +1 604 683 3529 |
| Email: | greg.romaniuk@teekay.com |
NORDIC TROLL & TRYM L.L.C.
| By: | GREG ROMANIUK |
| Address: |
c/o Teekay Shipping (Canada) Ltd.
Suite 2000 Bentall 5 550 Burrard Street Vancouver British Columbia V6C 2K2 Canada |
| Attention: | Director, Finance |
| Fax: | +1 604 681 3011 |
| Telephone: | +1 604 683 3529 |
| Email: | greg.romaniuk@teekay.com |
FALSTER SPIRIT L.L.C.
| By: | GREG ROMANIUK |
| Address: |
c/o Teekay Shipping (Canada) Ltd.
Suite 2000 Bentall 5 550 Burrard Street Vancouver British Columbia V6C 2K2 Canada |
| Attention: | Director, Finance |
| Fax: | +1 604 681 3011 |
| Telephone: | +1 604 683 3529 |
| Email: | greg.romaniuk@teekay.com |
POUL SPIRIT L.L.C.
| By: | GREG ROMANIUK |
| Address: |
c/o Teekay Shipping (Canada) Ltd.
Suite 2000 Bentall 5 550 Burrard Street Vancouver British Columbia V6C 2K2 Canada |
| Attention: | Director, Finance |
| Fax: | +1 604 681 3011 |
| Telephone: | +1 604 683 3529 |
| Email: | greg.romaniuk@teekay.com |
SENANG SPIRIT L.L.C.
| By: | GREG ROMANIUK |
| Address: |
c/o Teekay Shipping (Canada) Ltd.
Suite 2000 Bentall 5 550 Burrard Street Vancouver British Columbia V6C 2K2 Canada |
| Attention: | Director, Finance |
| Fax: | +1 604 681 3011 |
| Telephone: | +1 604 683 3529 |
| Email: | greg.romaniuk@teekay.com |
TORBEN SPIRIT L.L.C.
| By: | GREG ROMANIUK |
| Address: |
c/o Teekay Shipping (Canada) Ltd.
Suite 2000 Bentall 5 550 Burrard Street Vancouver British Columbia V6C 2K2 Canada |
| Attention: | Director, Finance |
| Fax: | +1 604 681 3011 |
| Telephone: | +1 604 683 3529 |
| Email: | greg.romaniuk@teekay.com |
SAMAR SPIRIT L.L.C.
| By: | GREG ROMANIUK |
| Address: |
c/o Teekay Shipping (Canada) Ltd.
Suite 2000 Bentall 5 550 Burrard Street Vancouver British Columbia V6C 2K2 Canada |
| Attention: | Director, Finance |
| Fax: | +1 604 681 3011 |
| Telephone: | +1 604 683 3529 |
| Email: | greg.romaniuk@teekay.com |
NORDIC BRASILIA L.L.C.
| By: | GREG ROMANIUK |
| Address: |
c/o Teekay Shipping (Canada) Ltd.
Suite 2000 Bentall 5 550 Burrard Street Vancouver British Columbia V6C 2K2 Canada |
| Attention: | Director, Finance |
| Fax: | +1 604 681 3011 |
| Telephone: | +1 604 683 3529 |
| Email: | greg.romaniuk@teekay.com |
NORDIC SPIRIT L.L.C.
| By: | GREG ROMANIUK |
| Address: |
c/o Teekay Shipping (Canada) Ltd.
Suite 2000 Bentall 5 550 Burrard Street Vancouver British Columbia V6C 2K2 Canada |
| Attention: | Director, Finance |
| Fax: | +1 604 681 3011 |
| Telephone: | +1 604 683 3529 |
| Email: | greg.romaniuk@teekay.com |
PETROATLANTIC L.L.C.
| By: | GREG ROMANIUK |
| Address: |
c/o Teekay Shipping (Canada) Ltd.
Suite 2000 Bentall 5 550 Burrard Street Vancouver British Columbia V6C 2K2 Canada |
| Attention: | Director, Finance |
| Fax: | +1 604 681 3011 |
| Telephone: | +1 604 683 3529 |
| Email: | greg.romaniuk@teekay.com |
PETRONORDIC L.L.C.
| By: | GREG ROMANIUK |
| Address: |
c/o Teekay Shipping (Canada) Ltd.
Suite 2000 Bentall 5 550 Burrard Street Vancouver British Columbia V6C 2K2 Canada |
| Attention: | Director, Finance |
| Fax: | +1 604 681 3011 |
| Telephone: | +1 604 683 3529 |
| Email: | greg.romaniuk@teekay.com |
NORDEA BANK NORGE ASA, GRAND CAYMAN BRANCH
By: HANS CHR. KJELSRUD
DNB NOR BANK ASA
By: ASTRID PRESTNES NORDTORP
HSBC BANK PLC
By: ADAM BYRNE
ING BANK N.V.
By: PAUL BROSNAHAN
By: HUGH BAKER
DANISH SHIP FINANCE (DANMARKS SKIBSKREDITFOND)
By: ERIK I. LASSEN
By: CHRISTIAN BEHNKE
DEUTSCHE SCHIFFSBANK AKTIENGESELLSCHAFT
By: MALTE SCHULTE-TRUX
By: LARS BOHLIG
DRESDNER BANK AG IN HAMBURG
By: DOROTHEE MILEWSKI
By: D. QIAN
FOKUS BANK ASA
By: BENT R. EIDEM
LANDESBANK HESSEN-THÜRINGEN GIROZENTRALE
By: NORBERT SCHUSTER
By: NEIL HENNESSY
LLOYDS TSB BANK PLC
By: DAVID SUMMER
By: ANTHONY STEVENS
NIB CAPITAL BANK N.V.
By: J. L. NIEUWENHUISEN
By: C. MULDER
THE ROYAL BANK OF SCOTLAND PLC
By: ROBERT JAMES MANNERS
SCOTIABANK EUROPE PLC
By: DAVID SPARKES
VEREINS- UND WESTBANK AG
By: NICOLINI HELFER
THE GOVERNOR AND COMPANY OF THE BANK OF IRELAND
By: JOHN HARTIGAN
SKANDINAVISKA ENSKILDA BANKEN AB (PUBL.)
By: BEARTE B E
By: PER FR LICH
One, St Paul's Churchyard
London EC4M 8SH
Telephone
+44 (0)20 7329 4422
Fax +44 (0)20 7606 0822
DX No. 64 Chancery Lane
www.shlegal.com
STEPHENSON HARWOOD
Page
1 Interpretation.......................................................................................2
2 Conditions...........................................................................................3
3 Representations and Warranties.......................................................................6
4 Amendments to Loan Agreement.........................................................................6
5 Confirmation and Undertaking........................................................................10
6 Communications, Law and Jurisdiction................................................................10
7 Miscellaneous.......................................................................................10
Schedule 1...................................................................................................11
The Banks........................................................................................11
Schedule 2...................................................................................................14
The Vessels......................................................................................14
| (1) | NORSK TEEKAY HOLDINGS LTD which is a company incorporated according to the law of the Marshall Islands with its registered office at c/o Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands MH-96960 and its principal place of business at TK House, Bayside Executive Park, West Bay Street & Blake Road, Nassau, The Bahamas (the " Borrower "); and |
| (2) | the banks and financial institutions listed in Schedule 1, each acting through its office at the address indicated against its name in Schedule 1 (together " the Banks " and each a " Bank "); and |
| (3) | DNB NOR BANK ASA , acting as facility agent and security trustee through its office at Stranden 21, P.O. Box 1171 Sentrum, N-0107 Oslo, Norway (in that capacity " the Agent "); and |
| (4) | DNB NOR BANK ASA , acting as arranger and underwriter through its office at Stranden 21, P.O. Box 1171 Sentrum, N-0107 Oslo, Norway (in that capacity " the Arranger ") |
SUPPLEMENTAL TO a Secured Reducing Revolving Loan Facility Agreement dated 26 June 2003 (the " Original Agreement") as amended by a first supplemental agreement dated 17 November 2003 (the " First Supplement " and together with the Original Agreement the " Loan Agreement ") each made between the Borrower, the Banks and others (the " Original Banks "), the Arrangers (as defined therein) and the Agent (in its former name of Den norske Bank ASA), on the terms and subject to the conditions of which each of the Original Banks made available to the Borrower its respective Commitment of an aggregate principal amount not exceeding five hundred and fifty million Dollars ($550,000,000) (the " Facility ").
| (A) | The Borrower wishes to restructure the Facility to enhance the financial flexibility of the Guarantor and the Borrower and has requested the consent of the Banks to such restructuring. |
| (B) | The Banks, the Arranger and the Agent have agreed to consent to such restructuring and have agreed to amend the Loan Agreement accordingly on the terms and subject to the conditions contained in this Supplemental Agreement. |
| 1 | Interpretation |
| 1.1 | In this Supplemental Agreement:- |
| " Confirmation Deed " means a deed of amendment and confirmation to be signed by the Guarantor in respect of the Guarantee in form and substance satisfactory to the Agent. |
| " Effective Date " means the date on which the Agent confirms to the Borrower that all of the conditions referred to in Clause 2.1 have been satisfied, which confirmation the Agent shall be under no obligation to give if an Event of Default or Potential Event of Default shall have occurred. |
| " Intercompany Agent " means DnB NOR Bank ASA in its capacity as agent under the Intercompany Loan Amendment and Restatement and the Intercompany Loan Agreement (as redefined in clause 4.1.5 hereof). |
| " Intercompany Loan Amendment and Restatement " means the amendment and restatement of the Intercompany Loan Agreement made or to be made between the Borrower, the Purchaser and the Intercompany Agent on terms acceptable to the Majority Banks. |
| " Navion Clipper Mortgage Transfer " means the transfer of the Bahamas ship mortgage over m.v. "NAVION CLIPPER" in favour of the Intercompany Agent and the Borrower executed or to be executed in favour of the Agent. |
| " Navion Saga Mortgage Transfer " means the transfer of the Bahamas ship mortgage over m.v. "NAVION SAGA" in favour of the Intercompany Agent and the Borrower executed or to be executed in favour of the Agent. |
| " New Guarantees " means the guarantees to be granted by the Vessel Owners in favour of the Intercompany Agent. |
| " New Security Documents " means together this Supplemental Agreement, the New Guarantees, the Confirmation Deed and the Qualifying Security Assignment. |
| " the Qualifying Mortgages " means the first priority statutory ship mortgages over the Vessels together with deeds of covenants collateral thereto to be granted by the Vessel Owners in favour of the Intercompany Agent (or, in the case of the mortgages and deeds of covenant for "NAVION CLIPPER" and "NAVION SAGA" only, in favour of the Intercompany Agent and the Borrower) (each a " Qualifying Mortgage "). |
| " Qualifying Security Assignment " means the deed of assignment of the Qualifying Security Documents to be executed by the Borrower, the Vessel Owners and the Intercompany Agent in favour of the Agent. |
| " Qualifying Security Documents " means together the New Guarantees and the Qualifying Mortgages. |
| " Trust Deed " means the deed made or to be made between the Borrower and the Intercompany Agent setting out the terms and conditions upon which the Intercompany Agent will hold the Qualifying Security; |
| " Vessel Owners " means Navion Offshore Loading AS of Norway and Navion Shipping Ltd. |
| " Vessels " means those vessels listed in Schedule 2, each of which is owned by a Vessel Owner. |
| 1.2 | All words and expressions defined in the Loan Agreement shall have the same meaning when used in this Supplemental Agreement unless the context otherwise requires, and clause 1.2 of the Original Agreement shall apply to the interpretation of this Supplemental Agreement as if it were set out in full. |
| 2 | Conditions |
| 2.1 | Before Clause 4 of this Supplemental Agreement shall take effect, the Borrower shall deliver or cause to be delivered to or to the order of the Agent the following documents and evidence:- |
| 2.1.1 | A certificate from a duly authorised officer of each of the Borrower and the Guarantor confirming that none of the documents delivered to the Agent pursuant to Clauses 3.1.1 and 3.1.3 of the Original Agreement have been amended or modified in any way since the date of their delivery to the Agent, or copies, certified by a duly authorised officer of the Borrower or the Guarantor as the case may be as true, complete, accurate and neither amended nor revoked, of any which have been amended or modified. |
| 2.1.2 | Such evidence as the Agent may reasonably require that each Vessel Owner was duly incorporated in its country of incorporation and remains in existence and, where appropriate, in good standing, with the power to enter into, and perform its obligations under the Qualifying Security Documents including (without limitation) a copy, certified by a director, officer or the secretary of the Vessel Owner in question as true, complete, accurate and unamended, of all documents establishing or limiting the constitution of such Vessel Owner. |
| 2.1.3 | A copy, certified by a director, officer or the secretary of each of the Borrower, the Guarantor and the Vessel Owners as true, complete, accurate and neither amended nor revoked, of a resolution of its directors and, where required, a resolution of the shareholders (together, where appropriate, with signed waivers of notice of any directors’ or shareholders’ meetings) approving, and authorising or ratifying the execution of, those of the New Security Documents and the Qualifying Security Documents to which the Borrower, the Guarantor or the relevant Vessel Owner (as the case may be) is or is intended to be a party and all matters incidental thereto. |
| 2.1.4 | A certificate signed by a duly authorised officer of each of the Borrower, the Guarantor and each Vessel Owner setting out the names of its directors, officers and shareholders together (where appropriate) with an official certificate of good standing or equivalent certificate in respect of each issued by its company registry. |
| 2.1.5 | The power of attorney, notarially attested and legalised where required, of each of the Borrower, the Guarantor and each Vessel Owner under which any documents are to be executed or transactions undertaken by it. |
| 2.1.6 | The Qualifying Security Assignment duly executed and all notices of assignment to be issued pursuant thereto, duly executed and served on the relevant recipients and duly acknowledged where appropriate. |
| 2.1.7 | The Navion Clipper Mortgage Transfer and the Navion Saga Mortgage Transfer each duly executed and registered with the Bahamas Maritime Authority in London together with a transcript of the register in respect of each of m.v. "NAVION CLIPPER" and m.v. "NAVION SAGA" evidencing due registration of the relevant Qualifying Mortgages in favour of the Agent. |
| 2.1.8 | The Confirmation Deed duly executed by the Guarantor. |
| 2.1.9 | The Intercompany Loan Amendment and Restatement duly executed by all parties thereto together with written confirmation from the Intercompany Agent that all conditions precedent referred to therein have been satisfied. |
| 2.1.10 | The Trust Deed duly executed by the parties thereto. |
| 2.1.11 | Payment to the Agent on behalf of each of the Banks of a restructuring fee as separately agreed. |
| 2.1.12 | The documents and evidence listed in clause 3.4 (other than those listed in clauses 3.4.1 and 3.4.2) of the Original Agreement in relation to the Vessels. |
| 2.1.13 | The originals of the Qualifying Security Documents duly executed and registered delivered to the Agent. |
| 2.1.14 | Confirmation of the Shares Charge and the Assignment. |
| 2.1.15 | Confirmation satisfactory to the Agent that all legal opinions required by the Agent on behalf of the Finance Parties will be given in substantially the form required by the Agent. |
| 2.2 | The Borrower undertakes to deliver or to cause to be delivered to the Agent, on or as soon as practicable after the Effective Date, the following additional documents and evidence:- |
| 2.2.1 | The documents and evidence listed in clause 3.5 of the Original Agreement in relation to the Vessels; and |
| 2.2.2 | Such legal opinions as the Agent shall require. |
| 2.3 | All documents and evidence delivered to the Agent pursuant to this Clause shall:- |
| 2.3.1 | be in form and substance acceptable to the Agent; |
| 2.3.2 | be accompanied, if required by the Agent, by translations into the English language, certified in a manner acceptable to the Agent; |
| 2.3.3 | if required by the Agent, be certified, notarised, legalised or attested in a manner acceptable to the Agent. |
| 3 | Representations and Warranties |
| Each of the representations and warranties contained in clause 4 of the Original Agreement as amended by the First Supplement (other than that contained in Clause 4.6) shall be deemed repeated by the Borrower at the date of this Supplemental Agreement and at the Effective Date (in addition to the dates on which they are deemed repeated under the Original Agreement), by reference to the facts and circumstances then pertaining, as if references to the Security Documents included the New Security Documents and as if references to the Intercompany Loan Agreement included the Intercompany Loan Amendment and Restatement. |
| 4 | Amendments to Loan Agreement |
| 4.1 | With effect from the Effective Date the Loan Agreement shall be read and construed as though:- |
| 4.1.1 | the definitions set forth in Clause 1.1 of this Supplemental Agreement were incorporated in clause 1.1 of the Original Agreement in alphabetical order and any existing definitions renumbered accordingly; |
| 4.1.2 | the definition of " Qualifying Security Date " contained in clause 1.1 of the Original Agreement and throughout the Loan Agreement were deleted; |
| 4.1.3 | the definition of " Margin " set forth in Clause 1.1 of the Original Agreement were deleted and replaced with the following:- |
| " Margin " means sixty five basis points (65bps) per annum." |
| 4.1.4 | the definition of " Security Documents " set forth in clause 1.1 of the Original Agreement included the New Security Documents but excluded the Cash Call Guarantee; |
| 4.1.5 | the definition " Intercompany Loan Agreement " set forth in clause 1.1 of the Original Agreement referred to the Intercompany Loan Agreement as amended and restated by the Intercompany Loan Amendment and Restatement. |
| 4.1.6 | clause 7.2 of the Original Agreement were deleted and replaced with the following:- |
| "7.2 Commitment Commission The Borrower shall pay to the Agent Commitment Commission in Dollars at the rate of thirty five basis points (35bps) per annum on any undrawn and uncancelled part of the Facility. The Commitment Commission will accrue from day to day on the basis of a 360 day year and the actual number of days elapsed and shall be paid quarterly in arrears from the Effective Date until the Commitment Termination Date with a pro rata payment being due and payable on the Commitment Termination Date." |
| 4.1.7 | clause 10.1.1 of the Original Agreement were deleted and replaced with the following:- |
| "10.1.1 | no third party rights without the Majority Banks prior written consent create or permit to arise or continue any Encumbrance on or over all or any part of the Vessels or their Earnings or Insurances except for Permitted Liens or Encumbrances arising in connection with the financing of the organic compound equipment provided on a non-recourse basis to the Borrower (the "VOC Equipment"); nor"- |
| 4.1.8 | the definitions of Minimum Rating, Qualifying Security, Cash Call Amount, Cash Call Guarantee, Permitted Borrowings and NIBD, clauses 10.1.2, 10.1.4, 10.1.5, 10.2.3, 10.3, 10.4, 10.5, 10.6 and 10.7, together with Schedule 3, of the Original Agreement were deleted; |
| 4.1.9 | the reference in the last line of clause 10.2.3 of the Original Agreement to "Clause 10.3" were amended to read "Clause 10.4"; |
| 4.1.10 | the following new clauses were inserted in the Loan Agreement:- |
| "10.3 | Valuations Deliver to the Agent a Valuation of each of the Vessels on the due date for delivery of the financial statements of the Guarantor and on such other occasions as the Agent may reasonably request. |
| 10.4 | Guarantor’s Financial Covenants At any time during the Facility Period, the Borrower shall procure that:- |
| (a) | the Guarantor maintains Free Liquidity of not less than one hundred million Dollars ($100,000,000); and |
| (b) | the aggregate of the Guarantor’s Free Liquidity and undrawn committed revolving credit lines (excluding undrawn committed revolving credit lines with less than 6 months to maturity) shall not be less than seven point five per cent (7.5%) of the Total Debt. |
| 10.5 | Dividends Provided that the Intercompany Indebtedness shall at all times be equal to or greater than the Indebtedness and no Event of Default has occurred and is continuing the Borrower may:- |
| 10.5.1 | pay any dividends or make any other distributions to shareholders; |
| 10.5.2 | make any loan or other similar financial support available to any third party or any member of the Navion Group; |
| 10.6 | Intercompany Loan Once every six months, and on the written request of the Agent, the Borrower shall deliver a certificate to the Agent confirming the amount outstanding under the Intercompany Loan Agreement, which shall at all times be at least equal to the aggregate of the Facility Outstandings and all unpaid interest, costs and expenses hereunder. |
| 10.7 | Drawdown Notice The form of drawdown notice attached as Schedule 5 of the Loan Agreement shall be modified by adding an extra paragraph as follows: |
| We hereby represent and warrant that, immediately following the advance of the Drawing referred to in this Drawdown Notice, the amount outstanding under the Intercompany Loan Agreement shall be equal to or greater than the Facility Outstandings." |
| 4.1.11 | a new clause 12.2.18 were inserted as follows:- |
| "12.2.18 Intercompany Loan Agreement if any default (other than on the part of the Intercompany Agent) occurs under the Intercompany Loan Agreement or if the Intercompany Agent is removed (or steps are taken to try to remove it) from its position as agent thereunder or if the Borrower (i) obstructs the Intercompany Agent from performance of its delegated duties or (ii) attempts to revoke the authority and discretion it has granted to the Intercompany Agent, under clause 10.3(b) of the Intercompany Loan Agreement". |
| 4.1.12 | the Commitments and Proportionate Shares of the Banks shall be amended to the amounts and percentages set out in Schedule 1. |
| 5 | Confirmation and Undertaking |
| 5.1 | In consideration of the agreement of the Banks and the Agent contained in this Supplemental Agreement, the Borrower confirms that all of its obligations under or pursuant to each of the Security Documents to which it is a party remain in full force and effect, despite the amendments to the Loan Agreement made in or pursuant to this Supplemental Agreement, as if all references in any of the Security Documents to the Loan Agreement (however described) were references to the Loan Agreement as amended and supplemented by this Supplemental Agreement. |
| 5.2 | The definition of any term defined in any of the Security Documents shall, to the extent necessary, be modified to reflect the amendments to the Loan Agreement made in or pursuant to this Supplemental Agreement. |
| 6 | Communications, Law and Jurisdiction |
| The provisions of clauses 16 and 19 of the Original Agreement shall apply to this Supplemental Agreement as if they were set out in full and as if references to the Loan Agreement were references to this Supplemental Agreement. |
| 7 | Miscellaneous |
| Clauses 17.7, 18.2, 18.20 and 18.21 of the Original Agreement shall (mutatis mutandis) apply to this Supplemental Agreement. |
IN WITNESS of which the parties to this Supplemental Agreement have executed this Supplemental Agreement the day and year first before written.
The Banks The Commitments The Proportionate Shares (%) Citibank N.A. $34,166,666.67 7.45% 33 Canada Square London E14 5LB Fax: +44 207 500 5806 Attention: Processing Unit, Loans DnB NOR Bank ASA $86,666,666.63 18.91% Stranden 21 P.O.Box 1171 Sentrum N-0107 Oslo Norway Fax no: +47 22 482894 Attention: Credit Administration, Shipping Nordea Bank Norge ASA $31,666,666.67 6.91% P.O.Box 1166 Sentrum 0107 Oslo Norway Fax no: +47 22 484 278 Attention: International Loan Administration The Governor and Company $31,666,666.67 6.91% of the Bank of Scotland Marine Finance Group Corporate Banking New Uberior House 11 Earl Grey Street Edinburgh EH3 9BN Fax no: +44 131 659 0387 Attention: Douglas Newton Fortis Capital Corp $31,666,666.67 6.91% Three Stamford Plaza 301 Tresser Boulevard Stamford, CT06901 United States of America Fax no: +1 203 705 5896 Attention: Shipping Department HSBC Bank plc $31,666,666.67 6.91% 8 Canada Square London E14 5HQ Fax no: +44 207 991 4895 Attention: Transport & Logistics, Shipping Corporate, Investment Banking and Markets ING Bank N.V. $31,666,666.67 6.91% Weena 501 3000 DA Rotterdam The Netherlands Fax no: +00 3110 444 6879 Attention: Betty Van der Ploeg Lloyds TSB Bank plc $31,666,666.67 6.91% Structured Asset Finance 25 Gresham Street London EC2V 7HN Fax no: +44 207 356 2398 Attention: Head of Ship Finance Scotiabank Europe Plc $31,666,666.67 6.91% 33 Finsbury Square London EC2A 1BB Fax no:+44 207 454 9019 Attention: Robyn Harrington/David Stuart Skandinaviska Enskilda Banken AB (publ) $31,666,666.67 6.91% 8 Kungstradgardsgatan 106 40 Stockholm For administration matters: Fax no: +47 2282 7006 Attention: Anne Geelmugden KV 108 FCA Fax no: +46 8611 0384 Attention: Shafi Quraishi For credit matters: Rosenkratz Gate 22 No-0123 Oslo Norway Fax no: +47 2282 7104 Attention: Per Olav Bucher-Johannessen Calyon $22,500,000 4.91% For administration matters: 9. Quai, du President Paul Doumer F-92400 92920 Paris La Defense Cedex France Fax no: +33 141 89 1934 Attention: Middle Office/Shipping/Mr A. Souto/M. Godet-Couery For credit matters: 122 Leadenhall Street London EC3V 4QH Fax no: +44 207 894 2307 Attention: Daniel Quirk/Marc Etcheberry HSH Nordbank AG $22,500,000 4.91% Gerhardt-Hauptmann-Platz 50, D-20095 Hamburg Federal Republic of Germany Fax no: +49 431 900 34307 Attention: Franke Hay NIB Capital Bank N.V. $22,500,000 4.91% Carnegieplein 4, 2517 KJ, The Hague PO Box 380, 2501 BH The Hague The Netherlands Fax no: +31 70 342 5577 Attention: Transportation & Energy Vereins-und Westbank AG $14,166,666.67 3.09% Alter Wall 22 D-20457 Hamburg Federal Republic of Germany Fax no: +49 40 3692 3696 Attention: Ms Eike Wilde
Vessel Flag Vessel Owner NAVION CLIPPER Bahamas Navion Offshore Loading AS NAVION NORVEGIA NOR Navion Offshore Loading AS NAVION EUROPA NOR Navion Offshore Loading AS NAVION BRITANNIA NOR Navion Offshore Loading AS NAVION SCANDIA NOR Navion Offshore Loading AS NAVION HISPANIA NOR Navion Offshore Loading AS NAVION OCEANIA NOR Navion Offshore Loading AS NAVION ANGLIA NOR Navion Offshore Loading AS NAVION SAGA Bahamas Navion Offshore Loading AS NAVION SCOTIA NIS Navion Offshore Loading AS NAVION DANIA NIS Navion Shipping Ltd
SIGNED ) by ) duly authorised ) for and on behalf of ) NORSK TEEKAY HOLDINGS LTD ) in the presence of:- ) SIGNED ) by ) duly authorised ) for and on behalf of ) CITIBANK N.A. (as a Bank) ) in the presence of:- ) SIGNED ) by ) duly authorised ) for and on behalf of ) DNB NOR BANK ASA (as a Bank) ) in the presence of:- ) SIGNED ) by ) duly authorised ) for and on behalf of ) NORDEA BANK NORGE ASA (as a Bank) ) in the presence of:- ) SIGNED ) by ) duly authorised ) for and on behalf of ) THE GOVERNOR AND COMPANY OF ) THE BANK OF SCOTLAND (as a Bank) ) in the presence of:- ) SIGNED ) by ) duly authorised ) for and on behalf of ) FORTIS CAPITAL CORP (as a Bank) ) in the presence of:- ) SIGNED ) by ) duly authorised ) for and on behalf of ) HSBC BANK PLC (as a Bank) ) in the presence of:- ) SIGNED ) by ) duly authorised ) for and on behalf of ) ING BANK N.V. (as a Bank) ) in the presence of:- ) SIGNED ) by ) duly authorised ) for and on behalf of ) LLOYDS TSB BANK PLC (as a Bank) ) in the presence of:- ) SIGNED ) by ) duly authorised ) for and on behalf of ) SCOTIABANK EUROPE PLC (as a Bank) ) in the presence of:- ) SIGNED ) by ) duly authorised ) for and on behalf of ) SKANDINAVISKA ENSKILDA ) BANKEN AB (publ) (as a Bank) ) in the presence of:- ) SIGNED ) by ) duly authorised ) for and on behalf of ) CALYON ) (as a Bank) in the presence of:- ) SIGNED ) by ) duly authorised ) for and on behalf of ) HSH NORDBANK AG (as a Bank) ) in the presence of:- ) SIGNED ) by ) duly authorised ) for and on behalf of ) NIB CAPITAL BANK N.V. (as a Bank) ) in the presence of:- ) SIGNED ) by ) duly authorised ) for and on behalf of ) VEREINS-UND WESTBANK AG ) (as a Bank) in the presence of:- ) SIGNED ) by ) duly authorised ) for and on behalf of ) DNB NOR BANK ASA ) (as the Arranger) in the presence of:- ) SIGNED ) by ) duly authorised ) for and on behalf of ) DNB NOR BANK ASA ) (as the Agent) in the presence of:- )