Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
  _________________________
FORM 6-K
  _________________________
Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2017
Commission file number 1- 12874
  _________________________
TEEKAY CORPORATION
(Exact name of Registrant as specified in its charter)
  _________________________
4 th Floor, Belvedere Building
69 Pitts Bay Road
Hamilton, HM 08, Bermuda
(Address of principal executive office)
  _________________________
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F   ý             Form 40- F   ¨
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1).
Yes   ¨             No    ý
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7).
Yes   ¨             No    ý







 

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TEEKAY CORPORATION AND SUBSIDIARIES
REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017
INDEX

 
PAGE
 
 


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ITEM 1 - FINANCIAL STATEMENTS
TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF (LOSS) INCOME
(in thousands of U.S. Dollars, except share and per share amounts)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
$
 
$
 
$
 
$
Revenues
500,781

 
547,639

 
1,558,209

 
1,776,366

Voyage expenses
(42,454
)
 
(37,213
)
 
(133,891
)
 
(97,102
)
Vessel operating expenses
(200,456
)
 
(204,156
)
 
(599,500
)
 
(625,672
)
Time-charter hire expense
(28,645
)
 
(33,810
)
 
(98,106
)
 
(111,727
)
Depreciation and amortization
(136,942
)
 
(141,688
)
 
(422,713
)
 
(426,924
)
General and administrative expenses
(27,662
)
 
(30,052
)
 
(88,641
)
 
(92,890
)
Asset impairments (note 7a)
(243,659
)
 
—

 
(245,159
)
 
(43,649
)
Net loss on sale of vessels, equipment and other operating assets (note 7b)
(7,926
)
 
(7,838
)
 
(25,095
)
 
(54,413
)
Restructuring charges (note 12)
(2,883
)
 
(3,117
)
 
(5,059
)
 
(22,921
)
(Loss) income from vessel operations
(189,846
)
 
89,765

 
(59,955
)
 
301,068

Interest expense
(74,499
)

(68,490
)
 
(219,237
)
 
(213,948
)
Interest income
1,900

 
1,143

 
4,917

 
3,507

Realized and unrealized (losses) gains on non-designated derivative instruments  (note 14 )
(6,128
)
 
29,926

 
(43,173
)
 
(166,967
)
Equity income (loss) (note 7c)
1,264

 
21,070

 
(36,373
)
 
73,706

Foreign exchange (loss) gain  (notes 8 and 14 )
(2,642
)
 
6,116

 
(22,888
)
 
(19,555
)
Loss on deconsolidation of Teekay Offshore (note 3)
(103,188
)
 
—

 
(103,188
)
 
—

Other (loss) income
(4,705
)
 
480

 
(5,169
)
 
(20,806
)
(Loss) income before income taxes
(377,844
)
 
80,010

 
(485,066
)
 
(42,995
)
Income tax (expense ) recovery (note 15)
(5,221
)
 
133

 
(11,767
)
 
(2,366
)
Net (los s) income
(383,065
)
 
80,143

 
(496,833
)
 
(45,361
)
Less: Net loss (income) attributable to non-controlling
interests (note 3)
370,483

 
(74,071
)
 
358,843

 
(75,159
)
Net (loss) income attributable to the shareholders of Teekay Corporation
(12,582
)
 
6,072

 
(137,990
)
 
(120,520
)
Per common share of Teekay Corporation   (note 16)
 
 
 
 
 
 
 
•   Basic (loss) income attributable to shareholders of Teekay Corporation
(0.15
)
 
0.07

 
(1.60
)
 
(1.63
)
•   Diluted (loss) income attributable to shareholders of Teekay Corporation
(0.15
)
 
0.07

 
(1.60
)
 
(1.63
)
•  Cash dividends declared
0.055

 
0.055

 
0.165

 
0.165

Weighted average number of common shares outstanding   (note 16)
 
 
 
 
 
 
 
•  Basic
86,261,330

 
84,887,101

 
86,232,315

 
76,887,689

•  Diluted
86,261,330

 
84,973,745

 
86,232,315

 
76,887,689


The accompanying notes are an integral part of the unaudited consolidated financial statements.

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TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(in thousands of U.S. Dollars)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
$
 
$
 
$
 
$
Net (los s) income
(383,065
)
 
80,143

 
(496,833
)
 
(45,361
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Other comprehensive income (loss) before reclassifications
 
 
 
 
 
 
 
Unrealized (loss) gain on marketable securities
(262
)
 
39

 
438

 
49

Unrealized (loss) gain on qualifying cash flow hedging instruments
(509
)
 
4,664

 
(4,094
)
 
(33,529
)
Pension adjustments, net of taxes
(59
)
 
234

 
(171
)
 
665

Foreign exchange gain (loss) on currency translation
257

 
(44
)
 
668

 
43

Amounts reclassified from accumulated other comprehensive income (loss) relating to:
 
 
 
 
 
 
 
Realized loss on qualifying cash flow hedging instruments
 
 
 
 
 
 
 
To interest expense  (note 14)
424

 
—

 
1,186

 
—

To equity income
793

 
902

 
1,776

 
2,723

Other comprehensive income (loss)
644

 
5,795

 
(197
)
 
(30,049
)
Comprehensive (loss) income
(382,421
)
 
85,938

 
(497,030
)
 
(75,410
)
Less: Comprehensive loss (income) attributable to non-controlling interests
370,036

 
(77,974
)
 
359,793

 
(54,060
)
Comprehensive (loss) income attributable to shareholders of Teekay Corporation
(12,385
)
 
7,964

 
(137,237
)
 
(129,470
)
The accompanying notes are an integral part of the unaudited consolidated financial statements.

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TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(in thousands of U.S. Dollars, except share and per share amounts)
 
 
As at
September 30,
2017
 
As at
December 31,
2016
 
$
 
$
 
(note 3)
 
 
ASSETS
 
 
 
Current
 
 
 
Cash and cash equivalents (note 8)
453,283

 
567,994

Restricted cash
27,848

 
107,672

Accounts receivable, including non-trade of $20,983 (2016 – $33,924) and related party balance of $9,459 (2016 – $26,471)
137,461

 
295,357

Assets held for sale
23,400

 
61,282

Net investment in direct financing leases  (note 6)
9,683

 
154,759

Prepaid expenses and other (note 14)
36,698

 
84,899

Current portion of loans to equity-accounted investees
165,118

 
9,471

Total current assets
853,491

 
1,281,434

Restricted cash - non-current
74,301

 
129,576

Vessels and equipment  (note 8)
 
 
 
At cost, less accumulated depreciation of $1,253,417 (2016 – $3,294,021)
2,946,312

 
7,666,975

Vessels under capital leases, at cost, less accumulated amortization of $40,803 (2016 – $69,072) (note 6)
874,670

 
484,253

Advances on newbuilding contracts and conversion costs  (note 10a )
492,800

 
987,658

Total vessels and equipment
4,313,782

 
9,138,886

Net investment in direct financing leases - non-current (note 6)
624,122

 
505,835

Loans to equity-accounted investees and joint venture partners, bearing interest between nil and LIBOR plus margins up to 3%
145,804

 
292,209

Equity-accounted investments (notes 3 and 10b)
1,187,648

 
1,010,308

Other non-current assets  (note 14)
90,059

 
190,699

Intangible assets – net
97,949

 
89,175

Goodwill
43,692

 
176,630

Total assets
7,430,848

 
12,814,752

LIABILITIES AND EQUITY
 
 
 
Current
 
 
 
Accounts payable
22,166

 
53,507

Accrued liabilities and other (notes 12 and 14)
195,605

 
395,163

Advances from affiliates
79,208

 
8,522

Current portion of derivative liabilities (note 14)
71,956

 
115,813

Current portion of long-term debt (note 8 )
727,434

 
998,591

Current obligation under capital leases
115,690

 
40,353

Current portion of in-process revenue contracts
14,983

 
34,511

Total current liabilities
1,227,042

 
1,646,460

Long-term debt (note 8)
2,621,078

 
5,640,955

Long-term obligation under capital leases
739,532

 
352,486

Derivative liabilities (note 14)
62,288

 
415,041

In-process revenue contracts
27,635

 
88,179

Other long-term liabilities (note 15 )
131,115

 
333,236

Total liabilities
4,808,690

 
8,476,357

Commitments and contingencies  (notes 6, 8, 10, and 14 )


 


Redeemable non-controlling interest (notes 3 and 10e )
—

 
249,102

Equity
 
 
 
Common stock and additional paid-in capital ($0.001 par value; 725,000,000 shares authorized; 86,262,990 shares outstanding and issued (2016 – 86,149,975)) (note 9)
892,094

 
887,075

Retained earnings
(93,802
)
 
22,893

Non-controlling interest
1,833,095

 
3,189,928

Accumulated other comprehensive loss
(9,229
)
 
(10,603
)
Total equity
2,622,158

 
4,089,293

Total liabilities and equity
7,430,848

 
12,814,752

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of U.S. Dollars)
 
 
Nine Months Ended September 30,
 
2017
 
2016
 
$
 
$
Cash and cash equivalents provided by (used for)
 
 
 
OPERATING ACTIVITIES
 
 
 
Net loss
(496,833
)
 
(45,361
)
Non-cash items:
 
 
 
Depreciation and amortization
422,713

 
426,924

Amortization of in-process revenue contracts
(22,307
)
 
(21,191
)
Unrealized gains on derivative instruments
(94,532
)
 
(10,847
)
Loss on sale of vessels, equipment and other operating assets ( note 7 )
25,095

 
54,413

        Asset impairments (note 7)
245,159

 
43,649

Equity loss (income), net of dividends received
72,159

 
(37,393
)
Income tax expense
11,767

 
2,366

Unrealized foreign exchange loss and other
111,216

 
96,257

Deconsolidation loss (note 3)
103,188

 
—

Change in operating assets and liabilities
72,558

 
28,797

Expenditures for dry docking
(38,704
)
 
(33,841
)
Net operating cash flow
411,479

 
503,773

FINANCING ACTIVITIES
 
 
 
Proceeds from issuance of long-term debt, net of issuance costs
680,261

 
1,568,348

Prepayments of long-term debt
(314,029
)
 
(1,532,606
)
Scheduled repayments of long-term debt (note 8)
(615,337
)
 
(616,343
)
Proceeds from financing related to sales and leaseback of vessels
153,000

 
—

Decrease in restricted cash
105,999

 
27,384

Net proceeds from equity issuances of subsidiaries (note 5)
8,521

 
190,007

Net proceeds from equity issuances of Teekay Corporation
—

 
101,900

Distributions paid from subsidiaries to non-controlling interests
(88,133
)
 
(98,657
)
Cash dividends paid
(14,235
)
 
(12,667
)
Other financing activities
(24,348
)
 
(17,567
)
Net financing cash flow
(108,301
)
 
(390,201
)
INVESTING ACTIVITIES
 
 
 
Expenditures for vessels and equipment
(694,507
)
 
(547,345
)
Proceeds from sale of vessels and equipment
67,440

 
163,588

Proceeds from sale-leaseback of vessels
335,830

 
355,306

Investment in equity-accounted investments
(109,580
)
 
(63,120
)
Advances to joint ventures and joint venture partners
(12,576
)
 
(12,259
)
Cash of Teekay Offshore upon deconsolidation, net of proceeds received
(17,977
)
 
—

Other investing activities
13,481

 
17,162

Net investing cash flow
(417,889
)
 
(86,668
)
(Decrease) increase in cash and cash equivalents
(114,711
)
 
26,904

Cash and cash equivalents, beginning of the period
567,994

 
678,392

Cash and cash equivalents, end of the period
453,283

 
705,296

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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TEEKAY CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY
(in thousands of U.S. Dollars, except share amounts)
 
 
TOTAL EQUITY
 
 
 
Thousands
of Shares
of Common
Stock
Outstanding
#
 
Common
Stock and
Additional
Paid-in
Capital
$
 
Retained
Earnings
(Accumulated
Deficit)
$
 
Accumulated
Other
Compre-
hensive
Loss
$
 
Non-
controlling
Interests
$
 
Total
$
 
Redeemable
Non-
controlling
Interest
$
Balance as at December 31, 2016
86,150

 
887,075

 
22,893

 
(10,603
)
 
3,189,928

 
4,089,293

 
249,102

Net loss
 
 
 
 
(137,990
)
 
 
 
(358,843
)
 
(496,833
)
 
 
Reclassification of redeemable non-controlling interest in net income
 
 
 
 
 
 
 
 
(18,610
)
 
(18,610
)
 
18,610

Other comprehensive income (loss)
 
 
 
 
 
 
753

 
(950
)
 
(197
)
 
 
Dividends declared
 
 
 
 
(14,250
)
 
 
 
(87,092
)
 
(101,342
)
 
(13,699
)
Reinvested dividends
1

 
3

 
 
 
 
 
 
 
3

 
 
Employee stock compensation and other ( note 9 )
112

 
5,016

 
 
 
 
 
 
 
5,016

 
 
Dilution gains on equity issuances of subsidiaries ( note 5 )
 
 
 
 
35,545

 
 
 
 
 
35,545

 
 
Impact of deconsolidation of Teekay Offshore (note 3)
 
 
 
 
 
 
643

 
(882,473
)
 
(881,830
)
 
(255,802
)
Changes to non-controlling interest from equity contributions and other
 
 
 
 


 
(22
)
 
(8,865
)
 
(8,887
)
 
1,789

Balance as at September 30, 2017
86,263

 
892,094

 
(93,802
)
 
(9,229
)
 
1,833,095

 
2,622,158

 
—

The accompanying notes are an integral part of the unaudited consolidated financial statements.

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TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

 
1.
Basis of Presentation
The unaudited interim consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles (or GAAP ). They include the accounts of Teekay Corporation (or Teekay ), which is incorporated under the laws of the Republic of the Marshall Islands, and its wholly-owned or controlled subsidiaries (collectively, the Company ). Certain of Teekay’s significant non-wholly owned subsidiaries are consolidated in these financial statements even though Teekay owns less than a  50% ownership interest in the subsidiaries. These significant subsidiaries include the following publicly traded subsidiaries (collectively, the  Public Subsidiaries ): Teekay LNG Partners L.P. (or  Teekay LNG ); Teekay Tankers Ltd. (or  Teekay Tankers ); and, until September 25, 2017, Teekay Offshore Partners L.P. (or  Teekay Offshore ). On September 25, 2017, Teekay, Teekay Offshore and Brookfield Business Partners L.P. together with its institutional partners (collectively, Brookfield ) finalized a strategic partnership (or the Brookfield Transaction ) which resulted in the deconsolidation of Teekay Offshore as of that date (see Note 3). Although Teekay owned less than  50%  of Teekay Offshore, Teekay maintained control of Teekay Offshore until September 25, 2017 by virtue of its  100% ownership interest in the general partner of Teekay Offshore, which is a master limited partnership. In connection with Brookfield's acquisition of a 49 % interest in Teekay Offshore's general partner, Teekay Offshore GP LLC (or TOO GP ), Teekay and Brookfield entered into an amended limited liability company agreement whereby Brookfield obtained certain participatory rights in the management of TOO GP, which resulted in Teekay deconsolidating Teekay Offshore for accounting purposes on September 25, 2017. Subsequent to the closing of the Brookfield Transaction, Teekay has significant influence over Teekay Offshore and accounts for its investment in Teekay Offshore using the equity method.
Certain information and footnote disclosures required by GAAP for complete annual financial statements have been omitted and, therefore, these unaudited interim consolidated financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2016 , included in the Company’s Annual Report on Form 20-F, filed with the U.S. Securities and Exchange Commission (or SEC ) on April 12, 2017. In the opinion of management, these unaudited interim consolidated financial statements reflect all adjustments, consisting solely of a normal recurring nature, necessary to present fairly, in all material respects, the Company’s consolidated financial position, results of operations, cash flows and changes in total equity for the interim periods presented. The results of operations for the three and nine months ended September 30, 2017 , are not necessarily indicative of those for a full fiscal year. Significant intercompany balances and transactions have been eliminated upon consolidation. In addition, certain of the comparative figures have been reclassified to conform to the presentation adopted in the current period relating to certain operating activities in the Company's consolidated statements of cash flows.
The preparation of financial statements in conformity with GAAP 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. Given current credit markets, it is possible that the amounts recorded as derivative assets and liabilities could vary by material amounts prior to their settlement.
2.
Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (or FASB ) issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (or ASU 2014-09 ). ASU 2014-09 will require an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update creates a five-step model that requires entities to exercise judgment when considering the terms of the contract(s) which include (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue as each performance obligation is satisfied. ASU 2014-09 is effective for the Company January 1, 2018 and will be applied as a cumulative-effect adjustment as of this date. The Company expects that the adoption of ASU 2014-09 may result in a change in the method of recognizing revenue for voyage charters, whereby the Company’s method of determining proportional performance will change from discharge-to-discharge to load-to-discharge. This would result in no revenue being recognized from discharge of the prior voyage to loading of the current voyage and all revenue being recognized from loading of the current voyage to discharge of the current voyage. In addition, the Company expects that the adoption of ASU 2014-09 may result in a change in the timing of the recognition of voyage expenses incurred during the period from discharge of the prior voyage to loading of the current voyage. The Company’s current policy is to expense such costs as incurred, and following adoption of ASU 2014-09 it is expected certain costs will be deferred and amortized over the load-to-discharge period. The Company expects that these principles will also be applied to voyage charters that are included in revenue sharing arrangements and, consequently, a portion of the Company’s monthly net revenue allocation from these revenue sharing arrangements would be deferred and recognized in future months. These changes would result in revenue and voyage expenses being recognized later than under the Company’s existing revenue and expense recognition policies, which may cause additional volatility in revenue and earnings between periods. ASC 2014-09 also changes the criteria to be used in determining whether the Company is operating as a principal or an agent in an arrangement. The Company expects that it will be considered to be the principal in certain crewing services it provides to other vessel owners and consequently the revenues earned and costs incurred will be presented on a gross basis compared with its current net presentation. The Company is in the final stages of completing its assessment of ASU 2014-09 and is focused on developing process changes, determining the transitional impact and completing other items required for the adoption of ASU 2014-09.

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TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (or ASU 2016-02 ). ASU 2016-02 establishes a right-of-use model that requires a lessee to record a right of use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The Company expects to adopt ASU 2016-02 on January 1, 2018 . A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the fi nancial statements, with certain practical expedients available. The Company expects that the adoption of ASU 2016-02 will result in a change in accounting method for the lease portion of the daily charter hire for the Company’s chartered-in vessels accounted for as operating leases and office leases with firm periods of greater than one year. Under ASU 2016-02, the Company will recognize a right-of-use asset and a lease liability on the balance sheet for these charters and office leases, whereas currently no right-of-use asset or lease liability is recognized. This will have the result of increasing the Company’s assets and liabilities. The pattern of expense recognition of chartered-in vessels and office leases is expected to remain substantially unchanged, unless the right-of-use asset becomes impaired. Based on lease agreements the Company has entered into on or prior to September 30, 2017, the increase to the Company’s assets and liabilities is expected to be less than $250 million . Such amount is preliminary and is subject to change based on the Company finalizing its methodology to divide contracts into their lease and non-lease components and finalizing the determination of the rate to discount future lease payments. The Company is in the final stages of completing its assessment of ASU 2016-02, and is focused on developing process changes, determining the transitional impact and completing other items required for the adoption of ASU 2016-02.
In March 2016, the FASB issued Accounting Standards Update 2016-09, Improvements to Employee Share-Based Payment Accounting (or ASU 2016-09 ). ASU 2016-09 simplifies aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statements of cash flows. The Company adopted ASU 2016-09 on January 1, 2017 and the impact was immaterial. This new accounting guidance changed the presentation of cash payments for tax withholdings on share-settled equity awards from an operating cash outflow to financing cash outflow on the Company's statements of cash flows, and this change was applied retrospectively.
In June 2016, the FASB issued Accounting Standards Update 2016-13,  Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments . This update replaces the incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This update is effective for the Company on January 1, 2020, with a modified-retrospective approach. The Company is currently evaluating the effect of adopting this new guidance.
In August 2016, the FASB issued Accounting Standards Update 2016-15,  Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments , which, among other things, provides guidance on two acceptable approaches of classifying distributions received from equity method investees in the statements of cash flows. This update is effective for the Company on January 1, 2018, with a retrospective approach. The Company is currently evaluating the effect of adopting this new guidance.
In November 2016, the FASB issued Accounting Standards Update 2016-18, Statement of Cash Flows: Restricted Cash (or ASU 2016-18). ASU 2016-18 requires that the statements of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Entities will also be required to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. ASU 2016-18 is effective for the Company on January 1, 2018.  Adoption of ASU 2016-18 will result in the Company’s statements of cash flows to be modified to include changes in restricted cash in addition to changes in cash and cash equivalents.

In January 2017, the FASB issued Accounting Standards Update 2017-01, Clarifying the Definition of a Business , (or ASU 2017-01). ASU 2017-01 changes the definition of a business to assist entities with evaluating when a set of transferred assets and activities is a business. ASU 2017-01 requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. ASU 2017-01 also requires a business to include at least one substantive process and narrows the definition of outputs by more closely aligning it with how outputs are described in ASC 606. ASU 2017-01 is effective for annual reporting periods beginning after December 15, 2017, and for interim periods within those years. Early adoption is allowed and accounted for prospectively. If the adoption of ASU 2017-01 is completed prior to the closing of Teekay Tankers' merger with Tanker Investments Limited (or TIL ) (see note 7c), this acquisition is expected to be accounted for as an asset acquisition, otherwise the acquisition is expected to be accounted for as a business combination. Unlike a business combination, no goodwill or bargain purchase gain is recognized as part of an asset acquisition, and transaction costs are not expensed.

In August 2017, the FASB issued Accounting Standards Update 2017-12,  Derivatives and Hedging - Targeted Improvements to Accounting for Hedging Activities (or ASU 2017-12 ). ASU 2017-12 eliminates the requirement to separately measure and report hedge ineffectiveness and generally requires, for qualifying hedges, the entire change in the fair value of a hedging instrument to be presented in the same income statement line as the hedged item. The guidance also modifies the accounting for components excluded from the assessment of hedge effectiveness, eases documentation and assessment requirements and modifies certain disclosure requirements. ASU 2017-12 will be effective for the Company January 1, 2019. The Company is currently evaluating the effect of adopting this new guidance.


3.
Deconsolidation of Teekay Offshore

On September 25, 2017, Teekay, Teekay Offshore and Brookfield finalized the Brookfield Transaction, which included, amongst others, the following:

•
Brookfield and Teekay invested $610.0 million and $30.0 million , respectively, in exchange for 244.0 million and 12.0 million common units of Teekay Offshore, respectively, and 62.4 million and 3.1 million common unit warrants (or the Brookfield Transaction Warrants ),

Page 9 of 70
Table of Contents
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

with an exercise price of $0.01 per unit, a term of seven years, and which are exercisable when Teekay Offshore's common unit volume-weighted average price is equal to or greater than $4.00 per common unit for 10 consecutive trading days until September 25, 2024;

•
Brookfield acquired from Teekay a 49% interest in Teekay Offshore's general partner in exchange for $4.0 million and an option to purchase an additional 2.0% interest in Teekay Offshore's general partner from Teekay in exchange for 1.0 million of the Brookfield Transaction Warrants initially issued to Brookfield;

•
Teekay Offshore repurchased and cancelled all of its outstanding Series C-1 and Series D Preferred Units at a per unit redemption value of $18.20 and $23.75 per unit, respectively, which included Teekay's investment in 1,040,000 Series D Preferred Units. The Series D tranche B Warrants to purchase Teekay Offshore common units, which were issued as part of the Series D Preferred Units on June 29, 2016, were amended to reduce the exercise price from $6.05 to $4.55 per unit; and

•
Brookfield acquired from a subsidiary of Teekay, the $200 million subordinated promissory note issued by Teekay Offshore on July 1, 2016 and which Brookfield extended the maturity from 2019 to 2022, in consideration for $140.0 million and 11.4 million of the Brookfield Transaction Warrants initially issued to Brookfield.

In connection with the acquisition of the 49% interest in Teekay Offshore's general partner, TOO GP, Teekay and Brookfield entered into an amended limited liability company agreement whereby Brookfield obtained certain participatory rights in the management of TOO GP, which resulted in Teekay deconsolidating Teekay Offshore for accounting purposes on September 25, 2017. Subsequent to the closing of the Brookfield Transaction, Teekay has significant influence over Teekay Offshore and accounts for its investment in Teekay Offshore using the equity method. Teekay Offshore is a related party of Teekay, and Brookfield is not a related party of Teekay.

The following table shows the accounting impact from the deconsolidation of Teekay Offshore on September 25, 2017. On such date, the Company recognized both the net cash proceeds it received from Brookfield and the fair value of its retained interests in Teekay Offshore, including common units, warrants, and vessel charters with Teekay Offshore, and derecognized the carrying value of both Teekay Offshore’s net assets and the non-controlling interest in Teekay Offshore, with the difference between the amounts recognized and derecognized being the loss on deconsolidation.
 
As of September 25, 2017
Net cash proceeds received by Teekay
139,693

Fair value of common units and General Partner interest of Teekay Offshore
150,132

Fair value of warrants
36,596

Fair value of vessel charters with Teekay Offshore
16,412

Carrying value of the non-controlling interest in Teekay Offshore
1,138,275

Subtotal
1,481,108

Less:
 
Carrying value of Teekay Offshore's net assets on deconsolidation
(1,584,296
)
Loss on deconsolidation of Teekay Offshore
(103,188
)

The $150.1 million fair value of Teekay's retained investment in Teekay Offshore, consisting of approximately 14% in its outstanding common units and a 51% interest in TOO GP, was determined with reference to the market price of Teekay Offshore's common units on September 25, 2017.
Subsequent to the formation of Teekay Offshore, Teekay sold certain vessels to Teekay Offshore. Even though Teekay Offshore was not a wholly-owned subsidiary of Teekay, all of the gain or loss on sales of these vessels was fully eliminated upon consolidation. Consequently, the portion of the gain or loss attributable to Teekay’s reduced interest in the vessels was deferred. The total unrecognized net deferred gain relating to the vessels previously sold from Teekay to Teekay Offshore was $349.6 million . Upon deconsolidation of Teekay Offshore, such amount was recognized as an increase to net loss (income) attributable to non-controlling interests for the three and nine months ended September 30, 2017. 
As at September 30, 2017, Teekay has recorded $123.6 million in advances to Teekay Offshore and $43.6 million in advances from Teekay Offshore in current portion of loans to equity-accounted investees and advances from affiliates, respectively, on the unaudited consolidated balance sheets.
Teekay Corporation and its wholly-owned subsidiaries directly and indirectly provide substantially all of Teekay Offshore’s commercial, technical, crew training, strategic, business development and administrative service needs. In connection with the Brookfield Transaction, Teekay has agreed to transfer to Teekay Offshore certain of Teekay’s subsidiaries that provide certain of these services and certain related personnel, commencing January 1, 2018. As at September 30, 2017 , two shuttle tankers and three FSO units of Teekay Offshore were employed on long-term time-charter-out or bareboat contracts with subsidiaries of Teekay.

Page 10 of 70
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TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

4.
Segment Reporting
The Company allocates capital and assesses performance from the separate perspectives of its two publicly-traded subsidiaries Teekay LNG and Teekay Tankers (together, the Daughter Companies ), Teekay and its remaining subsidiaries (or Teekay Parent ), and its equity-accounted investment in Teekay Offshore, as well as from the perspective of the Company's lines of business. The primary focus of the Company’s organizational structure, internal reporting and allocation of resources by the chief operating decision maker is on the Daughter Companies, Teekay Parent and its equity-accounted investment in Teekay Offshore (the Legal Entity approach ) and its segments are presented accordingly on this basis. The Company (excluding its equity-accounted investment in Teekay Offshore) has three primary lines of business: (1) offshore production (floating production, storage and off-loading (or FPSO ) units), (2) liquefied gas carriers (liquefied natural gas (or LNG ) and liquefied petroleum gas (or LPG ) carriers), and (3) conventional tankers. The Company manages these businesses for the benefit of all stakeholders. The Company incorporates the primary lines of business within its segments, as in certain cases there is more than one line of business in each Daughter Company and the Company believes this information allows a better understanding of the Company’s performance and prospects for future net cash flows. Subsequent to the Brookfield Transaction on September 25, 2017, the Company assesses the performance of, and makes decisions to allocate resources to, its investment in Teekay Offshore as a whole and not at the level of the individual lines of business within Teekay Offshore, which are (1) offshore production (FPSO units), (2) offshore logistics (shuttle tankers, the HiLoad DP unit, floating storage and offtake (or FSO ) units, a unit for maintenance and safety (or UMS ) and long-distance towing and offshore installation vessels), and (3) conventional tankers. The Company has therefore determined that its equity-accounted investment in Teekay Offshore represents a separate operating segment and that individual lines of business within Teekay Offshore are no longer disclosed in the Company's operating segments. All segment information for prior periods has been retroactively adjusted to be consistent with the change in segment presentation of Teekay Offshore, beginning with the third quarter of 2017.
The following table includes results for the Company’s revenues by segment for the three and nine months ended September 30, 2017 and 2016 :
 
Revenues
 
Three Months Ended
Nine Months Ended
 
September 30,
September 30,
 
2017
2016
2017
2016
 
$
$
$
$
Teekay Offshore (1)(2)
255,781

286,298

796,711

877,470

 
 
 
 
 
Teekay LNG
 
 
 
 
Liquefied Gas Carriers (2)
92,700

87,260

271,078

250,342

Conventional Tankers
11,585

13,398

35,291

45,328

 
104,285

100,658

306,369

295,670

 
 
 
 
 
Teekay Tankers (3)
 
 
 
 
Conventional Tankers (2)
91,238

109,554

330,512

427,349

 
 
 
 
 
Teekay Parent
 
 
 
 
Offshore Production
51,254

53,592

143,769

167,398

Conventional Tankers (2)
1,041

6,982

4,965

30,566

Other
19,727

17,258

47,149

60,698

 
72,022

77,832

195,883

258,662

 
 
 
 
 
Eliminations and other
(22,545
)
(26,703
)
(71,266
)
(82,785
)
 
500,781

547,639

1,558,209

1,776,366


(1)
On September 25, 2017, the Company deconsolidated Teekay Offshore (see Note 3). The revenue figures above are those of Teekay Offshore until the date of deconsolidation.
(2)
Certain vessels are chartered between the Daughter Companies or Teekay Offshore and Teekay Parent. The amounts in the table below represent revenue earned by each segment from other segments within the group. Such intersegment revenue for the three and nine months ended September 30 , 2017 and 2016 is as follows:

Page 11 of 70
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TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

 
Three Months Ended
Nine Months Ended
 
September 30,
September 30,
 
2017
2016
2017
2016
 
$
$
$
$
Teekay Offshore
9,211

13,554

33,429

38,472

Teekay LNG - Liquefied Gas Carriers
9,296

9,429

26,851

28,075

Teekay Tankers - Conventional Tankers
—

417

—

5,405

Teekay Parent - Conventional Tankers
—

—

—

—

 
18,507

23,400

60,280

71,952

(3) On May 31, 2017, Teekay Tankers acquired from Teekay Parent the remaining 50% interest in Teekay Tanker Operations Ltd. (or TTOL ); Teekay Tankers acquired its initial 50% interest in TTOL in August 2014. As a result of the acquisition, the financial information for Teekay Tankers prior to the date that Teekay Tankers acquired its remaining 50% interest in TTOL is retroactively adjusted to include 100% of the results of TTOL during the periods they were under common control of Teekay and had begun operations.
The following table includes results for the Company’s (loss) income from vessel operations by segment for the three and nine months ended September 30, 2017 and 2016 :
 
(Loss) Income from Vessel Operations (1)
 
Three Months Ended
Nine Months Ended
 
September 30,
September 30,
 
2017
2016
2017
2016
 
$
$
$
$
Teekay Offshore (2)
40,384

61,739

147,060

174,309

 
 
 
 
 
Teekay LNG
 
 
 
 
Liquefied Gas Carriers
44,902

48,009

128,281

130,682

Conventional Tankers
(34,580
)
2,625

(42,010
)
(15,511
)

10,322

50,634

86,271

115,171


 
 
 
 
Teekay Tankers (3)
 
 
 
 
Conventional Tankers
(13,734
)
(3,207
)
(1,406
)
86,565


 
 
 
 
Teekay Parent
 
 
 
 
Offshore Production
(223,957
)
(13,116
)
(262,986
)
(39,159
)
Conventional Tankers
(3,077
)
(363
)
(8,524
)
(13,644
)
Other
216

(5,922
)
(20,370
)
(22,174
)

(226,818
)
(19,401
)
(291,880
)
(74,977
)

 
 
 
 
 
(189,846
)
89,765

(59,955
)
301,068


(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)
On September 25, 2017, the Company deconsolidated Teekay Offshore (see Note 3). The income from vessel operations figures above are those of Teekay Offshore until the date of deconsolidation.
(3)
On May 31, 2017, Teekay Tankers acquired from Teekay Parent, the remaining 50% interest in TTOL; Teekay Tankers acquired its initial 50% interest in TTOL in August 2014. As a result of the acquisition, the financial information for Teekay Tankers prior to the date that Teekay Tankers acquired its remaining 50% interest in TTOL is retroactively adjusted to include 100% of the results of TTOL during the periods they were under common control of Teekay and had begun operations.
Commencing on September 25, 2017, the Company accounts for its investment in Teekay Offshore using the equity method, and recognized an equity loss of $3.1 million for the three and nine months ended September 30, 2017. In the period after deconsolidation of Teekay Offshore to September 30, 2017, Teekay Offshore incurred impairment charges of $316.7 million which did not impact the equity loss recognized by Teekay as Teekay recorded its equity-accounted investment in Teekay Offshore at fair value on September 25, 2017.

A reconciliation of total segment assets to total assets presented in the accompanying unaudited consolidated balance sheets is as follows:


Page 12 of 70
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TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)


September 30, 2017
December 31, 2016

$
$
Teekay Offshore
302,706

5,354,702

Teekay LNG - Liquefied Gas Carriers
4,307,812

3,957,088

Teekay LNG - Conventional Tankers
115,168

193,553

Teekay Tankers - Conventional Tankers
1,675,347

1,870,211

Teekay Parent - Offshore Production
382,790

635,364

Teekay Parent - Conventional Tankers
32,153

55,937

Teekay Parent - Other
59,882

13,208

Cash and cash equivalents
453,283

567,994

Other assets not allocated
124,793

281,244

Eliminations
(23,086
)
(114,549
)
Consolidated total assets
7,430,848

12,814,752

 
5.
Equity Financing Transactions of the Daughter Companies and Teekay Offshore
During the nine months ended September 30, 2017 , one of the Company's publicly traded subsidiaries, Teekay Tankers, and Teekay Offshore, prior to the Brookfield Transaction on September 25, 2017, completed the following equity issuances:
 
Number of shares / units
#
 
Total Proceeds
Received
$
 
Less:
Teekay
Corporation
Portion
$
 
Offering
Expenses
$
 
Net Proceeds
Received from
Non-controlling
Interests
$
Nine Months Ended September 30, 2017
 
 
 
 
 
 
 
 
 
Teekay Tankers Continuous Offering Program
3,800,000

 
8,826

 
—

 
(305
)
 
8,521

Teekay Tankers Private Placement
2,155,172

 
5,000

 
(5,000
)
 
—

 
—

Teekay Tankers Direct Equity Placement (1)
13,775,224

 
25,897

 
(25,897
)
 
—

 
—

Teekay Offshore Private Placements (2)
6,521,518

 
29,817


(17,160
)

(212
)
 
12,445


(1)
In May 2017, Teekay Tankers issued Class B common stock to the Company as consideration for its acquisition of the remaining 50% interest in TTOL.
(2)
In February 2017 and May 2017, respectively, Teekay Offshore issued common units (including the general partner's 2% proportionate capital contribution) as a payment-in-kind for the distributions on Teekay Offshore's Series C-1 and D Preferred Units and on Teekay Offshore's common units and general partner interest held by subsidiaries of Teekay.
In June 2016, Teekay Offshore agreed with Teekay that, until the Teekay Offshore's Norwegian Kroner (or NOK ) bonds maturing in 2018 had been repaid, all cash distributions (other than with respect to distributions, if any, on incentive distribution rights) to be paid by Teekay Offshore to Teekay or its affiliates, including Teekay Offshore's general partner, would instead be paid in common units or from the proceeds of the sale of common units. Teekay Offshore issued Teekay 2.4 million common units (including the general partner's 2% proportionate capital contribution) as a payment-in-kind for the distributions on Teekay Offshore's Series D Preferred Units, common units and general partner interest held by subsidiaries of Teekay.
In April 2017 and June 2017, respectively, Teekay Offshore issued common units (including the general partner's 2% proportionate capital contribution) as a payment-in-kind for the interest due on Teekay Offshore's $200 million loan due to Teekay. Teekay Offshore issued Teekay 1.7 million common units (including the general partner's 2% proportionate capital contribution) as a payment-in-kind for the loan interest.


Page 13 of 70
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TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

6.
Vessel Charters
The minimum estimated charter hire and rental payments for the remainder of the year and the next four fiscal years, as at September 30, 2017 , for the Company’s chartered-in and chartered-out vessels were as follows:
 
Vessel Charters (1)
Remainder
of 2017
 
2018
 
2019
 
2020
 
2021
 
(in millions of U.S. Dollars)
Charters-in – operating leases
18.0

 
57.4

 
56.1

 
52.0

 
44.9

Charters-in – capital leases (2)
44.7

 
138.9

 
119.5

 
118.9

 
110.2

Charters-in – related to capital leases (3)
4.1

 
16.3

 
16.3

 
16.3

 
16.3

 
66.8

 
212.6

 
191.9

 
187.2

 
171.4

 
 
 
 
 
 
 
 
 
 
Charters-out – operating leases (4)
146.9

 
469.8

 
392.6

 
350.5

 
289.3

Charters-out – direct financing leases (5)
15.1

 
45.9

 
39.1

 
39.2

 
39.1

 
162.0

 
515.7

 
431.7

 
389.7

 
328.4

 
(1)
Teekay LNG owns a 69% ownership interest in Teekay BLT Corporation (or the Teekay Tangguh Joint Venture ), which is a party to operating leases whereby the Teekay Tangguh Joint Venture is leasing two LNG carriers (or the Tangguh LNG Carriers ) to a third party, which is in turn leasing the vessels back to the joint venture. This table does not include Teekay LNG’s minimum charter hire payments to be paid and received under these leases for the Tangguh LNG Carriers, which are described in Note 9 to the audited consolidated financial statements filed with the Company’s Annual Report on Form 20-F for the year ended December 31, 2016 . Under the terms of the leasing arrangement for the Tangguh LNG Carriers, whereby the Teekay Tangguh Joint Venture is the lessee, the lessor claims tax depreciation on its lease of these vessels. As is typical in these types of leasing arrangements, tax and change of law risks are assumed by the lessee. Lease payments under the lease arrangements are based on certain tax and financial assumptions at the commencement of the leases. If an assumption proves to be incorrect, the lessor is entitled to increase the lease payments to maintain its agreed after-tax margin.
The carrying amount of tax indemnification guarantees of Teekay LNG relating to the leasing arrangement through the Teekay Tangguh Joint Venture as at September 30, 2017 was $7.2 million ( December 31, 2016 – $7.5 million ) and is included as part of other long-term liabilities in Teekay LNG’s consolidated balance sheets. The tax indemnification is for the duration of the lease contracts with the third party plus the years it would take for the lease payments to be statute barred, which will end in 2033 for the vessels. Although there is no maximum potential amount of future payments, the Teekay Tangguh Joint Venture may terminate the lease arrangement on a voluntary basis at any time. If the lease arrangement terminates, the Teekay Tangguh Joint Venture will be required to pay termination sums to the lessor sufficient to repay the lessor’s investment in the vessels and to compensate it for the tax effect of the terminations, including recapture of any tax depreciation.

(2)
As at September 30, 2017 , Teekay LNG was a party, as lessee, to capital leases on two Suezmax tankers, the Teide Spirit and the Toledo Spirit . Under these capital leases, the owner has the option to require Teekay LNG to purchase the two vessels. The charterer, who is also the owner, also has the option to cancel the charter contracts and the cancellation options are first exercisable in November 2017 and August 2018, respectively. The amounts in the table above assume the owner will not exercise its options to require Teekay LNG to purchase either of the vessels from the owner, but rather assume the owner will cancel the charter contracts when the cancellation right is first exercisable (in November 2017 and August 2018 , respectively) and sell the vessels to a third party, upon which the remaining lease obligations will be extinguished. Therefore, the table above does not include any amounts after the expected cancellation date of the leases. In August 2017, the charterer of the Teide Spirit gave formal notification to Teekay LNG of its intention to terminate its charter, subject to certain conditions being met and third-party approvals being received. In October 2017, the charterer notified Teekay LNG that it has marketed the Teide Spirit for sale and, upon sale of the vessel, it will concurrently terminate its existing charter contract with Teekay LNG.
Teekay LNG is also a party to capital leases on three LNG carriers, the Creole Spirit, the Oak Spirit and the Torben Spirit . Upon delivery of the Creole Spirit in February 2016, the Oak Spirit in July 2016 and the Torben Spirit in March 2017, Teekay LNG sold these vessels to a third party and leased them back under 10 -year bareboat charter contracts ending in 2026 and 2027. The bareboat charter contracts are accounted for as capital leases. Teekay LNG guarantees the obligations of the bareboat charter contracts. In addition, the guarantee agreements require Teekay LNG to maintain minimum levels of tangible net worth and aggregate liquidity, and not to exceed a maximum amount of leverage.
As at September 30, 2017 , Teekay LNG had sale-leaseback agreements in place for five of its eight LNG carrier newbuildings scheduled to deliver during the remainder of 2017 and 2018, and at such dates, the buyers will take delivery and charter each respective vessel back to Teekay LNG. As at September 30, 2017 , Teekay LNG had received $211.2 million from the buyers, which has been recorded as current portion and long-term obligations under capital lease in Teekay LNG's consolidated balance sheets, and Teekay LNG has secured a further $699 million in capital lease financing to be received in the remainder of 2017 to 2018.

(3) In July 2017, Teekay Tankers completed a 153.0 million sale-leaseback financing transaction relating to four of its Suezmax tankers, the Athens Spirit , Beijing Spirit , Moscow Spirit and Sydney Spirit . Under this arrangement, Teekay Tankers has agreed to transfer the vessels to subsidiaries of the financial institution (or collectively the Lessors ) and lease the vessels back from the Lessors on bareboat charters for a 12 -year term. Teekay Tankers has the option to repurchase the vessels from July 2020 to July 2029. The Lessors are companies whose only assets and operations are to hold Teekay Tankers' leases and vessels. Teekay Tankers operates the vessels during the lease term and as a result, is the primary beneficiary of the Lessors and consolidates the Lessors for financial reporting purposes. The liabilities of the Lessors are loans and are non-recourse to Teekay Tankers. The amounts funded to the Lessors materially match the funding received by Teekay Tankers' subsidiaries. As a result, the amounts due by Teekay Tankers' subsidiaries to the Lessors have been included in obligations under capital leases as representing the Lessor's loans. The bareboat charters also require that Teekay Tankers maintain minimum levels of cash and aggregate liquidity.

(4) The minimum scheduled future operating lease revenues do not include revenue generated from new contracts entered into after September 30, 2017 , revenue from unexercised option periods of contracts that existed on September 30, 2017 , revenues from vessels in the Company's equity-accounted investments, or variable or contingent revenues. Therefore, the minimum scheduled future operating lease revenues should not be construed to reflect total charter hire revenues that may be recognized for any of the years.


Page 14 of 70
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TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

(5)
The Tangguh LNG Carriers’ time-charter contracts and two bareboat charter contracts for two LNG carriers chartered to Awilco LNG ASA (or Awilco ) are accounted for as direct financing leases. In June 2017, Teekay LNG amended the charters with Awilco to defer a portion of charter hire and extend the bareboat charter contracts and related purchase obligations on both vessels to December 2019. The amendments have the effect of deferring between $10,600 per day and $20,600 per day per vessel from July 1, 2017 until December 2019, with such deferred amounts added to the purchase obligation amounts. As a result of the contract amendments, the charter contracts with Awilco will be reclassified to operating leases from direct finance leases upon the expiry of the original terms of the contracts with Awilco in November 2017 and August 2018.
7.
Asset Impairments, Loss on Sale of Vessels, Equipment and Other Operating Assets and Write-Down of Equity I nvestment
a) Asset Impairments

In September 2017, the estimated future cash flows and carrying value of the asset groups for the Petrojarl Foinaven FPSO unit and Petrojarl Banff FPSO unit, each owned by Teekay Parent, changed upon the deconsolidation of Teekay Offshore. For the Petrojarl Foinaven FPSO, two shuttle tankers, which are owned by Teekay Offshore, were removed from the carrying value of the asset group and the estimated future cash flows of the asset group was changed to include the in-charter costs of these two vessels to be paid by Teekay to Teekay Offshore. For the Petrojarl Banff FPSO, the carrying value of an FSO, which is owned by Teekay Offshore, was removed from the carrying value of the asset group and the estimated future cash flows of the asset group was changed to include the in-charter costs of the FSO unit to be paid by Teekay to Teekay Offshore. This change in asset groups and a re-evaluation of the estimated future net cash flows of the units resulted in impairment charges of $205.7 million for the Petrojarl Foinaven FPSO and Petrojarl Banff FPSO, for the three and nine months ended September 30, 2017. The impairment charges are included in the Company's Teekay Parent Segment - Offshore Production.

In August 2017, the charterer for the African Spirit Suezmax tanker gave formal notice to Teekay LNG that it will not exercise its one -year extension option under the charter contract and will redeliver the vessel to Teekay LNG in November 2017. As a result, Teekay LNG wrote-down the vessel to its estimated resale value. The Company's consolidated statements of (loss) income for the three and nine months ended September 30, 2017, includes a write-down of $12.5 million to the estimated resale value of this vessel. The write-down is included in the Company's Teekay LNG Segment - Conventional Tankers.

Under Teekay LNG's charter contracts for the Teide Spirit and Toledo Spirit Suezmax tankers, the charterer, who is also the owner of the vessels, has the option to cancel the charter contracts 13 years following commencement of the respective charter contracts. In August 2017, the charterer of the Teide Spirit gave formal notification to Teekay LNG of its intention to terminate its charter contract subject to certain conditions being met and third-party approvals being received. In October 2017, the charterer notified Teekay LNG that it is marketing the Teide Spirit for sale and, upon sale of the vessel, it will concurrently terminate its existing charter contract with Teekay LNG. The charterer’s cancellation option for the Toledo Spirit is first exercisable in August 2018. Given Teekay LNG's prior experience with this charterer, Teekay LNG expects it will also cancel the charter contract and sell the Toledo Spirit to a third party in 2018. Teekay LNG wrote-down the vessels to their estimated fair values based on their expected future discounted cash flows and recorded a $25.5 million write down on a combined basis of the Teide Spirit and Toledo Spirit . The write-downs are included in the Company's Teekay LNG Segment - Conventional Tankers.
During the second quarter of 2016, Teekay Offshore cancelled the UMS construction contracts for two UMS newbuildings. As a result, the carrying values of these two UMS newbuildings were written down to $ nil . The Company's consolidated statements of (loss) income for the nine months ended September 30, 2016 include a $43.7 million write-down related to these two UMS newbuildings. The write-down is included in the Company’s Teekay Offshore Segment.
b) Net Loss on Sale of Vessels, Equipment and Other Operating Assets
The following tables show the loss on sale of vessels, equipment and other operating assets for the three and nine months ended September 30, 2017 and 2016 :

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TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

 
 
 
 
 
 
Net Loss on Sale of Vessels, Equipment and Other Assets
 
 
 
 
 
 
Three Months Ended September 30,
Segment

Asset Type

Completion of Sale Date

2017
$

2016
$
Teekay Tankers Segment - Conventional Tankers
 
2 Aframaxes
 
(1)  
 
(7,926
)
 
—

Teekay Tankers Segment - Conventional Tankers
 
MR Tanker
 
Aug-2016
 
—

 
(7,903
)
Other
 
 
 
 
 
—

 
65

Total
 
 
 
 
 
(7,926
)
 
(7,838
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loss on Sale of Vessels, Equipment and Other Assets
 
 
 
 
 
 
Nine Months Ended September 30,
Segment
 
Asset Type
 
Completion of Sale Date
 
2017
$
 
2016
$
Teekay LNG Segment - Conventional Tankers
 
Suezmax
 
(2)  
 
(12,600
)
 
—

Teekay Tankers Segment - Conventional Tankers
 
3 Aframaxes
 
(1)  
 
(10,669
)
 
—

Teekay Tankers Segment - Conventional Tankers
 
Suezmax
 
Mar-2017
 
(1,469
)
 
—

Teekay LNG Segment - Conventional Tankers
 
2 Suezmaxes
 
Apr/May-2016
 
—

 
(27,439
)
Teekay Parent Segment - Conventional Tankers
 
VLCC Tanker
 
Oct-2016
 
—

 
(12,536
)
Teekay Tankers Segment - Conventional Tankers
 
2 MR Tankers
 
Aug/Nov-2016
 
—

 
(14,323
)
Other
 
 
 
 
 
(357
)
 
(115
)
Total
 
 
 
 
 
(25,095
)
 
(54,413
)

(1) Two vessels were sold and delivered to their respective buyers in June and September 2017 and another vessel is classified as held for sale at September 30, 2017.

(2) Teekay LNG has commenced marketing the vessel for sale and the vessel is classified as held for sale at September 30, 2017.

c) Write-Down of Equity Investment

On May 31, 2017, Teekay Tankers entered into a merger agreement (or the Merger Agreement ) to acquire the remaining 27.0 million issued and outstanding common shares of Tanker Investments Ltd. (or TIL ), by way of a share-for-share exchange of 3.3 shares of Teekay Tankers Class A common stock for each outstanding share of TIL common stock. Teekay Tankers and Teekay currently own approximately 3.4 million and 2.5 million common shares, or 11.3% and 8.2% of TIL, respectively. As the Company accounts for its current investment in TIL under the equity method of accounting, the Company will be required to remeasure its previously held equity investment to fair value at the acquisition date. Historically, the Company had not recognized an other than temporary impairment in its equity investment in TIL as the Company expected to recover its value over the anticipated hold period.  Based on the pending transaction, the Company has recognized an other than temporary impairment and remeasured its investment in TIL to fair value at June 30, 2017 based on the TIL share price at that date, resulting in a write-down of $48.6 million included in the Company's consolidated statements of (loss) income , and included in equity income (loss), for the nine months ended September 30, 2017. When the merger transaction is completed, the Company is required to again remeasure its equity investment in TIL to fair value based on the relative share exchange value at the date of the acquisition, which could result in an additional gain or loss.  On November 17, 2017, the TIL shareholders approved the merger and the Teekay Tankers’ shareholders approved an increase in the authorized number of Teekay Tankers’ Class A common shares, to permit the issuance of Class A common shares as merger consideration. Subject to the completion of the remaining closing conditions, the Company expects the merger to close on or about November 27, 2017. Upon the closing of the merger, TIL will become a wholly-owned subsidiary of Teekay Tankers.


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TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

8.
Long-Term Debt
 
September 30, 2017
 
December 31, 2016
 
$
 
$
Revolving Credit Facilities
884,749

 
1,119,808

Senior Notes (8.5%) due January 15, 2020
592,657

 
592,657

Norwegian Kroner-denominated Bonds due through 2021
389,320

 
628,257

U.S. Dollar-denominated Term Loans due through 2028
1,264,070

 
3,702,997

U.S. Dollar Bonds due through 2024
—

 
466,680

Euro-denominated Term Loans due through 2023
233,764

 
219,733

Other U.S. Dollar-denominated loan
10,000

 
—

Total Principal
3,374,560

 
6,730,132

Unamortized discount and debt issuance costs
(26,048
)
 
(90,586
)
Total debt
3,348,512

 
6,639,546

Less current portion
(727,434
)
 
(998,591
)
Long-term portion
2,621,078

 
5,640,955

As of September 30, 2017 , the Company had seven revolving credit facilities (or the Revolvers ) available, which, as at such date, provided for aggregate borrowings of up to $1.1 billion , of which $0.2 billion was undrawn. Interest payments on the loans under the Revolvers are based on LIBOR plus margins; at September 30, 2017 and December 31, 2016 , the margins ranged between 0.45% and 4.00% . The aggregate amount available under the Revolvers is scheduled to decrease by $24.9 million (remainder of 2017 ), $741.6 million ( 2018 ), $ nil ( 2019 ), $ nil ( 2020 ) and $292.7 million (thereafter). The Revolvers are collateralized by first-priority mortgages granted on 39 of the Company’s vessels, together with other related security, and include a guarantee from Teekay or its subsidiaries for all outstanding amounts. Included in other security are 38.2 million common units of Teekay Offshore, 25.2 million common units of Teekay LNG, and 16.8 million Class A common shares in Teekay Tankers, which secure a $200.0 million credit facility. Five other revolving credit facilities as of December 31, 2016 totaling $291.8 million as of that date, related to Teekay Offshore, which was deconsolidated in September 2017.
The Company’s 8.5% senior unsecured notes are due January 15, 2020 with an original principal amount of $450 million (the Original Notes ). The Original Notes issued on January 27, 2010 were sold at a price equal to 99.181% of par. In November 2015, the Company issued an aggregate principal amount of $200 million of the Company’s 8.5% senior unsecured notes due on January 15, 2020 (or the Notes ) at 99.01% of face value, plus accrued interest from July 15, 2015. The Notes are an additional issuance of the Company's Original Notes (cumulatively referred to as the 8.5% Notes ). The Notes were issued under the same indenture governing the Original Notes, and are fungible with the Original Notes. The discount on the 8.5% Notes is accreted through the maturity date of the notes using the effective interest rate of 8.670%  per year.
The Company capitalized issuance costs of $13.3 million which will be amortized to interest expense over the term of the 8.5% Notes. As of September 30, 2017 , the unamortized balance of the capitalized issuance cost was $4.3 million which is recorded in long-term debt in the unaudited consolidated balance sheet. The 8.5% Notes rank equally in right of payment with all of Teekay's existing and future senior unsecured debt and senior to any future subordinated debt of Teekay. The 8.5% 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 of its subsidiaries.
 
The Company may redeem the 8.5% Notes in whole or in part at any time before their maturity date at a redemption price equal to the greater of (i)  100% of the principal amount of the 8.5% Notes to be redeemed and (ii) the sum of the present values of the remaining scheduled payments of principal and interest on the 8.5% Notes to be redeemed (excluding accrued interest), discounted to the redemption date on a semi-annual basis, at the treasury yield plus 50 basis points , plus accrued and unpaid interest to the redemption date.
Teekay LNG has a total of NOK 3.1 billion in senior unsecured bonds in the Norwegian bond market at September 30, 2017 that mature through October 2021. As of September 30, 2017 , the total carrying amount of the senior unsecured bonds was $ 389.3 million . The bonds are listed on the Oslo Stock Exchange. The interest payments on the bonds are based on NIBOR plus margins which range from 3.70% to 6.00% . The Company entered into cross currency rate swaps to swap all interest and principal payments of the bonds into U.S. Dollars, with the interest payments fixed at rates ranging from 5.92% to 7.72% , and the transfer of the principal amount fixed at $430.5 million upon maturity in exchange for NOK 3.1 billion (see Note 14 ). Three other senior unsecured NOK bonds as of December 31, 2016 with a total carrying amount of $256.9 million as of that date related to Teekay Offshore, which was deconsolidated in September 2017.

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TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

As of September 30, 2017 , the Company had eight U.S. Dollar-denominated term loans outstanding, which totaled $1.3 billion in aggregate principal amount ( December 31, 2016 – $3.7 billion ). Interest payments on the term loans are based on LIBOR plus a margin . At September 30, 2017 , the margins ranged between 0.30% and 2.8% ( December 31, 2016 , the margins ranged between 0.30% and 3.5% ). The term loan payments are made in quarterly or semi-annual payments commencing three or six months after delivery of each newbuilding vessel financed thereby, and eight of the term loans have balloon or bullet repayments due at maturity. The term loans are collateralized by first-priority mortgages on 16 ( December 31, 2016 – 46 ) of the Company’s vessels, together with certain other security. In addition, at December 31, 2016 , all but $56.2 million of the outstanding term loans were guaranteed by Teekay or its subsidiaries. Fifteen term loans as of December 31, 2016 of $2.2 billion as of that date related to Teekay Offshore, which was deconsolidated in September 2017.
During May 2014, Teekay Offshore issued $300 million of five -year senior unsecured bonds that mature in July 2019 in the U.S. bond market. In September 2013 and November 2013, Teekay Offshore issued a total of $174.2 million of ten -year senior bonds that mature in December 2023 in a U.S. private placement. In February 2015, Teekay Offshore issued $30.0 million in senior bonds that mature in June 2024 in a U.S. private placement. These three senior U.S. Dollar bonds as of December 31, 2016 with a total carrying value of $466.7 million as of that date related to Teekay Offshore, which was deconsolidated in September 2017.
Teekay LNG has two Euro-denominated term loans outstanding, which, as at September 30, 2017 , totaled 197.9 million Euros ( $233.8 million ) ( December 31, 2016 – 208.9 million Euros ( $219.7 million )). Teekay LNG is repaying the loans with funds generated by two Euro-denominated, long-term time-charter contracts. Interest payments on the loans are based on EURIBOR plus margins. At September 30, 2017 and December 31, 2016 , the margins ranged between 0.60% and 2.25% . The Euro-denominated term loans reduce in monthly payments with varying maturities through 2023, are collateralized by first-priority mortgages on two of Teekay LNG's vessels, together with certain other security, and are guaranteed by Teekay LNG and one of its subsidiaries.
Both the Euro-denominated term loans and the NOK-denominated bonds are revalued at the end of each period using the then-prevailing U.S. Dollar exchange rate. Due primarily to the revaluation of the Company’s NOK-denominated bonds, the Company’s Euro-denominated term loans, capital leases and restricted cash, and the change in the valuation of the Company’s cross currency swaps, the Company recognized foreign exchange (losses) gains of $(2.6) million (2016 - $6.1 million ) and $(22.9) million (2016 - $(19.6) million ) during the three and nine months ended September 30, 2017 and 2016, respectively.
The weighted-average interest rate on the Company’s aggregate long-term debt as at September 30, 2017 was 4.2% ( December 31, 2016 – 4.0% ). This rate does not include the effect of the Company’s interest rate swap agreements (see Note 14 ).
Teekay has guaranteed obligations pursuant to certain credit facilities of Teekay Tankers. As at September 30, 2017 , the aggregate outstanding balance on such credit facilities was $139.2 million . In September 2017, as part of the Brookfield Transaction (see Note 3), Teekay was released from all of its previous guarantees relating to Teekay Offshore's long-term debt and interest rate swap and cross currency swap agreements.
The aggregate annual long-term debt principal repayments required to be made by the Company subsequent to September 30, 2017 , including the impact of the debt refinancing by Teekay LNG in November 2017 (see note 17), are $0.1 billion (remainder of 2017 ), $1.1 billion ( 2018 ), $0.2 billion ( 2019 ), $1.0 billion ( 2020 ), $0.6 billion ( 2021 ) and $0.4 billion (thereafter).
Among other matters, the Company’s long-term debt agreements generally provide for maintenance of minimum consolidated financial covenants and four loan agreements require the maintenance of vessel market value to loan ratios. As at September 30, 2017 , these ratios ranged from 116.4% to 232.0% compared to their minimum required ratios of 105.0% to 135.0% . The vessel values used in these ratios are the appraised values prepared by the Company based on second hand sale and purchase market data. Changes in the LNG/LPG carrier and conventional tanker markets could negatively affect the Company's compliance with these ratios. Certain loan agreements require that a minimum level of free cash be maintained and as at September 30, 2017 and December 31, 2016 , this amount was $50.0 million for the Company, excluding Teekay LNG. Most of the loan agreements also require that the Company maintain an aggregate minimum level of free liquidity and undrawn revolving credit lines with at least six months to maturity of 5.0% of total debt for either Teekay Parent or Teekay Tankers, which as at September 30, 2017 , such amounts were $47.3 million and $39.8 million , respectively. In addition, certain loan agreements require Teekay LNG to maintain a minimum level of tangible net worth and liquidity, and not exceed a maximum level of financial leverage. As at September 30, 2017 , the Company was in compliance with all covenants under its credit facilities and other long-term debt.
9.
Capital Stock
The authorized capital stock of Teekay at September 30, 2017 and December 31, 2016 was 25 million shares of preferred stock, with a par value of $1 per share, and 725 million shares of common stock, with a par value of $0.001 per share. As at September 30, 2017 , Teekay had no shares of preferred stock issued.
During the nine months ended September 30, 2017 , Teekay issued 0.1 million shares of common stock pursuant to stock options, restricted stock units and restricted stock awards.
During the nine months ended September 30, 2017 and 2016 , the Company granted 732,314 and 916,015 stock options with exercise prices of $10.18 and $9.44 per share, respectively, 344,319 and 238,609 restricted stock units with fair values of $3.5 million and $2.3 million , respectively, nil and 311,691 performance share units with fair values of $ nil and $3.6 million , respectively, and 89,387 and 67,000  shares of restricted stock awards with fair values of $0.9 million and $0.6 million , respectively, to certain of the Company’s employees and directors. Each stock option has a ten -year term and vests equally over three years from the grant date. Each restricted stock unit, restricted stock award and performance share unit is equal in value to one share of the Company’s common stock plus reinvested dividends from the grant date to the vesting date. The restricted stock units vest equally over three years from the grant date and the performance share units vest three years from the grant date. Upon vesting, the value of the restricted stock units, restricted stock awards and performance share units

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TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

are paid to each grantee in the form of shares or cash. The number of performance share units that vest will range from zero to a multiple of the original number granted, based on certain performance and market conditions.
The weighted-average grant-date fair value of stock options granted during March 2017 was $4.71 per stock option. The fair value of each stock option granted was estimated on the grant date using the Black-Scholes option pricing model. The following weighted-average assumptions were used in computing the fair value of the stock options granted: expected volatility of 62.4% ; expected life of 5.5 years; dividend yield of 2.5% ; risk-free interest rate of 2.0% ; and estimated forfeiture rate of 7.4% . The expected life of the stock options granted was estimated using the historical exercise behavior of employees. The expected volatility was generally based on historical volatility as calculated using historical data during the five years prior to the grant date.
Share-based Compensation of Subsidiaries
During the nine months ended September 30, 2017 and 2016 , 56,950 and 76,084 common units of Teekay Offshore, 17,345 and 32,723  common units of Teekay LNG and nil and 9,358 shares of Class A common stock of Teekay Tankers, respectively, with aggregate values of $0.6 million and $0.7 million , respectively, were granted and issued to the non-management directors of the general partners of Teekay Offshore and Teekay LNG and the non-management directors of Teekay Tankers as part of their annual compensation for 2017 and 2016 .
Teekay Offshore, Teekay LNG and Teekay Tankers grant equity-based compensation awards as incentive-based compensation to certain employees of Teekay’s subsidiaries that provide services to Teekay Offshore, Teekay LNG and Teekay Tankers. During March 2017 and 2016, Teekay Offshore and Teekay LNG granted phantom unit awards and Teekay Tankers granted restricted stock-based compensation awards with respect to 321,318 and 601,368 common units of Teekay Offshore, 60,809 and 132,582 common units of Teekay LNG and 382,437 and 279,980 Class A common shares of Teekay Tankers, respectively, with aggregate grant date fair values of $3.5 million and $4.9 million , respectively, based on Teekay Offshore, Teekay LNG and Teekay Tankers’ closing unit or stock prices on the grant dates. Each phantom unit or restricted stock unit is equal in value to one of Teekay Offshore’s, Teekay LNG’s or Teekay Tankers’ common units or common shares plus reinvested distributions or dividends from the grant date to the vesting date. The awards vest equally over three years from the grant date. Upon vesting, the awards are paid to a substantial majority of the grantees in the form of common units or common shares, net of withholding tax. During March 2017, Teekay Tankers granted 486,329 and 396,412 stock options with an exercise price of $2.23 per share to officers and non-management directors of Teekay Tankers, respectively. Each stock option granted in March 2017 has a ten -year term and vests equally over three years from the grant date. During March 2016, Teekay Tankers granted 216,043 stock options with an exercise price of $3.74 per share to an officer of Teekay Tankers. Each stock option granted in March 2016 has a ten -year term and vests equally over three years from the grant date.
10.
Commitments and Contingencies
a.
Vessels Under Construction
As at September 30, 2017 , the Company was committed to the construction of eight LNG carriers for a total cost of approximately $1.7 billion , including capitalized interest and other miscellaneous construction costs. Vessels in which the Company holds an interest through non-consolidated joint ventures are excluded from the above amounts and are described in Note 10b. Two LNG carriers are scheduled for delivery in late-2017, four LNG carriers are scheduled for delivery in 2018 and two LNG carriers are scheduled for delivery in 2019 . As at September 30, 2017 , payments made towards these commitments totaled $0.5 billion . As at September 30, 2017 , the remaining payments required to be made under these newbuilding and conversion capital commitments were $377.0 million (remainder of 2017 ), $536.7 million ( 2018 ), and $252.1 million ( 2019 ).
b.
Joint Ventures and Equity-Accounted Investments

Teekay LNG’s share of commitments to fund newbuilding and other construction contract costs of its equity-accounted joint ventures as at September 30, 2017 are as follows:

Total
Remainder of 2017
2018
2019
2020
 
$
$
$
$
$
Equity-accounted joint ventures (i)
1,183,589
110,937
556,064
318,683
197,905

(i)
The commitment amounts relating to Teekay LNG’s share of costs for newbuilding and other construction contracts in Teekay LNG’s equity-accounted joint ventures are based on Teekay LNG’s ownership percentage in each respective joint venture as of September 30, 2017 . These commitments are described in more detail in Note 15 of the Company’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year-ended December 31, 2016 . As of September 30, 2017 , based on the Teekay LNG's ownership percentage in each respective joint venture, Teekay LNG's equity-accounted joint ventures have secured $336 million of financing related to the remaining commitments included in the table above.
c.
Liquidity
Management is required to assess if the Company will have sufficient liquidity to continue as a going concern for the one-year period following the issuance of its financial statements. The Company had a consolidated net loss of $496.8 million and consolidated cash flows from operating activities of $411.5 million during the nine months ended September 30, 2017 , and ended the third quarter of 2017 with a working capital deficit of $373.6 million . This working capital deficit primarily relates to the scheduled maturities in the next 12 months and repayments of approximately $0.7 billion of outstanding consolidated debt, which amount was classified as current liabilities as at September 30, 2017 . In

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TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

addition to these obligations, the Company also anticipates that Teekay LNG will be required to make payments related to commitments to fund vessels under construction (see Notes 10a and 10b).
Based on these factors, over the one-year period following the issuance of their unaudited consolidated financial statements, the Company’s consolidated subsidiaries, Teekay Tankers and Teekay LNG, will need to obtain additional sources of financing, in addition to amounts generated from operations, to meet their minimum liquidity requirements under their financial covenants related to these subsidiaries. These anticipated potential sources of financing include: refinancing various loan facilities of Teekay Tankers and Teekay LNG; negotiating new secured debt financings related to vessels under construction or other unencumbered operating vessels for Teekay LNG; raising additional capital through equity and bond issuances; and negotiating extensions or redeployments of existing assets. Teekay Tankers recently announced a proposed merger with TIL which, upon completion, is expected to increase Teekay Tankers' liquidity. The success of these initiatives of the Daughter Companies may impact the liquidity of Teekay Parent as a result of certain guarantees provided by Teekay Parent and through the payment of dividends/distributions by the Daughter Companies to Teekay Parent.
The Company is actively pursuing the alternatives described above, which it considers probable of completion based on the Company’s history of being able to complete equity and bond issuances, refinance similar loan facilities and to obtain new debt financing for its vessels under construction, as well as the progress it has made on the financing process to date. The Company is in various stages of completion on these matters.
Based on the Company’s liquidity at the date these unaudited consolidated financial statements were issued, the liquidity the Company expects to generate from operations over the following year, and by incorporating the Company’s plans to raise additional liquidity that it considers probable of completion, the Company expects that it will have sufficient liquidity to continue as a going concern for at least the one-year period following the issuance of these unaudited consolidated financial statements.
d.
Legal Proceedings and Claims

The Company may, from time to time, be involved in legal proceedings and claims that arise in the ordinary course of business. The Company believes that any adverse outcome of existing claims, other than with respect to the items noted below, individually or in the aggregate, would not have a material effect on its financial position, results of operations or cash flows, when taking into account its insurance coverage and indemnifications from charterers.

Class Action Complaint

Following the Company’s announcement in December 2015 that Teekay's Board of Directors had reduced the Company’s quarterly dividend to $0.055 per share, down from a dividend of $0.55 per share in the fourth quarter of 2015 dividend payable in February 2016 and the subsequent decline of the price of the Company’s common stock, a class action complaint was filed on March 1, 2016 in the U.S. District Court for the District of Connecticut against the Company and certain of its officers. As a result of the Company's motion to transfer the action, the case was transferred to the U.S. District Court for the Western District of Washington on November 18, 2016. The lead plaintiff in the action filed an Amended Class Action Complaint on January 13, 2017. The Amended Complaint includes claims that the Company and certain of its officers violated Section 10(b) of the U.S. Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The Amended Complaint alleges that the Company and certain of its officers violated U.S. federal securities laws by making materially false and misleading statements regarding the Company’s ability and intention to increase its future dividends beyond the initial dividend increase to $0.55 per share that the Company announced in September 2014 and first declared in the second quarter of 2015, thereby artificially inflating the price of its common stock. The lead plaintiff is seeking unspecified monetary damages, including reasonable costs and expenses incurred in this action. The Court held a hearing on the motion to dismiss on October 25, 2017. On November 7, 2017, the Court ruled in the Company's favor on all claims and dismissed the Amended Complaint with prejudice.

Teekay Nakilat Capital Lease

Teekay LNG owns a 70% interest in Teekay Nakilat Corporation (or Teekay Nakilat Joint Venture ) that was the lessee under three separate 30 -year capital lease arrangements with a third party for the three LNG carriers (or the RasGas II LNG Carriers ). Under the terms of the leasing arrangements in respect of the RasGas II LNG Carriers, the lessor claimed tax depreciation on the capital expenditures it incurred to acquire these vessels. As is typical in these leasing arrangements, tax and change of law risks were assumed by the lessee, in this case the Teekay Nakilat Joint Venture. Lease payments under the lease arrangements were based on certain tax and financial assumptions at the commencement of the leases and subsequently adjusted to maintain its agreed after-tax margin. On December 22, 2014, the Teekay Nakilat Joint Venture terminated the leasing arrangements of the RasGas II LNG Carriers. However, the Teekay Nakilat Joint Venture remains obligated to the lessor to maintain the lessor’s agreed after-tax margin from the commencement of the lease to the lease termination date and placed $6.8 million on deposit with the lessor as security against any future claims, which deposit is recorded as part of restricted cash - non-current in the Company's unaudited consolidated balance sheets.

The UK taxing authority (or HMRC ) has been challenging the use of similar lease structures in the UK courts. One of those challenges was eventually decided in favor of HMRC (Lloyds Bank Equipment Leasing No. 1 or LEL1 ), with the lessor and lessee choosing not to appeal the decision further. The LEL 1 tax case concluded that capital allowances were not available to the lessor.  On the basis of this conclusion, HMRC is now asking lessees on other leases, including the Teekay Nakilat Joint Venture, to accept that capital allowances are not available to their lessor. The Teekay Nakilat Joint Venture does not accept this contention and has informed HMRC of this position. It is not known at this time whether the Teekay Nakilat Joint Venture would eventually prevail in court. If the former lessor of the RasGas II LNG Carriers were to lose on a similar claim from HMRC, Teekay LNG’s 70% share of the potential exposure is estimated to be approximately $42 million . Such estimate is primarily based on information received from the lessor.

Page 20 of 70
Table of Contents
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

e.
Redeemable Non-Controlling Interest
In July 2015, Teekay Offshore issued in a private placement 10.4 million of its 8.60% Series C Cumulative Convertible Perpetual Preferred Units (or Series C Preferred Units ) in a private placement. The terms of the Series C Preferred Units provided that at any time after the 18 -month anniversary of the closing date, at the election of each holder, the Series C Preferred Units could be converted on a one -for- one basis into common units of Teekay Offshore. In addition, if after the three -year anniversary of the closing date, the volume weighted average price of the common units exceeded $35.925 , Teekay Offshore had the option to convert the Series C Preferred Units into common units. The Series C Preferred Units could be redeemed in cash if a change of control occurred in Teekay Offshore.
In June 2016, Teekay Offshore and the unitholders of the Series C Preferred Units exchanged approximately 1.9 million of the Series C Preferred Units for approximately 8.3 million common units of Teekay Offshore and also exchanged the remaining approximately 8.5 million Series C Preferred Units for approximately 8.5 million Series C-1 Preferred Units. The terms of the Series C-1 Preferred Units were equivalent to the terms of the Series C Preferred Units, with the exception that at any time after the 18 -month anniversary of the original Series C Preferred Units closing date, at the election of each holder, each Series C-1 Preferred Unit was convertible into 1.474 common units of Teekay Offshore. In addition, if a unitholder of the Series C-1 Preferred Units elected to convert their Series C-1 Preferred Units into common units of Teekay Offshore, Teekay Offshore had the option to redeem these Series C-1 Preferred Units for cash based on the closing market price of the common units of Teekay Offshore instead of issuing common units. Furthermore, if after the three -year anniversary of the closing date, the volume weighted average price of the common units exceeded 150% of $16.25 per unit, Teekay Offshore had the option to convert the Series C-1 Preferred Units into common units. Consistent with the terms of the Series C Preferred Units, the Series C-1 Preferred Units might have been redeemed in cash if a change of control occurred in Teekay Offshore. As a result, the Series C-1 Preferred Units were, prior to the deconsolidation of Teekay Offshore in September 2017, included on the Company’s unaudited consolidated balance sheet as part of temporary equity which is above the equity section but below the liabilities section.
In June 2016, Teekay Offshore issued 4.0 million of its 10.50% Series D Cumulative Convertible Perpetual Preferred Units (or Series D Preferred Units ). The Series D Preferred Units had no mandatory redemption date, but they were redeemable at Teekay Offshore's option after June 29, 2021 for a 10% premium to the liquidation value and for a 5% premium to the liquidation value any time after June 29, 2022. The Series D Preferred Units were exchangeable into common units of Teekay Offshore at the option of the holder at any time after June 29, 2021, based on the 10 -trading day volume weighted average price at the time of the notice of exchange or $4.00 . A change of control event involving the purchase of all outstanding common units for consideration of at least 90% cash or a change in ownership of the general partner of Teekay Offshore by 50% or more would have resulted in the Series D Preferred Units being redeemable for cash. As a result, the Series D Preferred Units, net of Teekay's units, were, prior to the deconsolidation of Teekay Offshore in September 2017, included on the Company’s unaudited consolidated balance sheet as part of temporary equity which is above the equity section but below the liabilities section.
As part of the Brookfield Transaction (see Note 3), Teekay Offshore repurchased and cancelled all of its outstanding Series C-1 and Series D Preferred Units.
f.
Other
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 maintains what it believes is appropriate liability insurance that reduces its exposure and enables the Company to recover future amounts paid up to the maximum amount of the insurance coverage, less any deductible amounts pursuant to the terms of the respective policies, the amounts of which are not considered material.
11.
Financial Instruments
a.
Fair Value Measurements
For a description of how the Company estimates fair value and for a description of the fair value hierarchy levels, see Note 10 in the Company’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended December 31, 2016 .
The following table includes the estimated fair value and carrying value of those assets and liabilities that are measured at fair value on a recurring and non-recurring basis as well as the estimated fair value of the Company’s financial instruments that are not accounted for at fair value on a recurring basis.

Page 21 of 70
Table of Contents
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

 
 
 
September 30, 2017
 
December 31, 2016
 
Fair
Value
Hierarchy
Level
 
Carrying
Amount
Asset
(Liability)
$
 
Fair
Value
Asset
(Liability)
$
 
Carrying
Amount
Asset
(Liability)
$
 
Fair
Value
Asset
(Liability)
$
Recurring
 
 
 
 
 
 
 
 
 
Cash and cash equivalents, restricted cash, and marketable securities
Level 1
 
556,194

 
556,194

 
805,567

 
805,567

Derivative instruments (note 14)
 
 
 
 
 
 
 
 
 
Interest rate swap agreements – assets (1)
Level 2
 
3,100

 
3,100

 
7,943

 
7,943

Interest rate swap agreements – liabilities (1)
Level 2
 
(86,493
)
 
(86,493
)
 
(302,935
)
 
(302,935
)
Cross currency interest swap agreement (1)
Level 2
 
(41,268
)
 
(41,268
)
 
(237,165
)
 
(237,165
)
Foreign currency contracts
Level 2
 
537

 
537

 
(2,993
)
 
(2,993
)
Stock purchase warrants
Level 3
 
32,135

 
32,135

 
575

 
575

Time-charter swap agreement
Level 3
 
—

 
—

 
208

 
208

Freight forward agreements
Level 1
 
(79
)
 
(79
)
 
—

 
—

Non-recurring
 
 
 
 
 
 
 
 
 
Vessels and equipment
Level 3
 
130,200

 
130,200

 
11,300

 
11,300

Vessels held for sale
Level 2
 
6,400

 
6,400

 
61,282

 
61,282

Vessels under capital leases
Level 3
 
52,914

 
52,914

 
—

 
—

Long-term investments
Level 2
 
—

 
—

 
6,000

 
6,000

Other
 
 
 
 
 
 
Loans to equity-accounted investees and joint venture partners – Current
(2)
 
165,118

 
(2
)
 
11,821

 
(2
)
Loans to equity-accounted investees and joint venture partners – Long-term
(2)
 
145,804

 
(2
)
 
292,209

 
(2
)
Long-term receivable included in accounts receivable and other assets (3)
Level 3
 
5,028

 
5,004

 
10,985

 
10,944

Long-term debt – public (note 8)
Level 1
 
(974,349
)
 
(996,360
)
 
(1,503,472
)
 
(1,409,996
)
Long-term debt – non-public (note 8)
Level 2
 
(2,374,163
)
 
(2,334,229
)
 
(5,136,074
)
 
(5,009,900
)
Obligations related to capital leases, including current portion
Level 2
 
(150,956
)
 
(150,671
)
 
—

 
—

 
(1)
The fair value of the Company's interest rate swap and cross currency swap agreements at September 30, 2017 includes $3.0 million ( December 31, 2016 - $15.8 million ) accrued interest expense which is recorded in accrued liabilities on the unaudited consolidated balance sheets.
(2)
In the unaudited interim consolidated financial statements, the Company’s loans to and equity investments in equity-accounted investees form the aggregate carrying value of the Company’s interests in entities accounted for by the equity method. The fair value of the individual components of such aggregate interests is not determinable.
(3)
As at September 30, 2017 , the estimated fair value of the non-interest bearing receivable from Royal Dutch Shell plc (or Shell ) is based on the remaining future fixed payments as well as an estimated discount rate. The estimated fair value of this receivable as of September 30, 2017 was $5.0 million ( December 31, 2016 – $10.9 million ) using a discount rate of 8.0% . As there is no market rate for the equivalent of an unsecured non-interest bearing receivable from Shell, the discount rate is based on unsecured debt instruments of similar maturity held by the Company, adjusted for a liquidity premium. A higher or lower discount rate would result in a lower or higher fair value asset.
Time-charter swap agreement - Changes in fair value during the three and nine months ended September 30, 2017 for Teekay Tankers' time-charter swap agreement, which is described in Note 14 below and was measured at fair value on the recurring basis using significant unobservable inputs (Level 3), are as follows:

Page 22 of 70
Table of Contents
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

 
 
Nine Months Ended September 30, 2017
 
 
$
Fair value asset - beginning of the period
 
875

Settlements
 
(1,106
)
Realized and unrealized gain
 
231

Fair value asset - at the end of the period
 
—


The estimated fair value of the time-charter swap agreement was based in part upon the Company’s projection of future Aframax spot market tanker rates, which were derived from current Aframax spot market tanker rates and estimated future rates, as well as an estimated discount rate. The time-charter swap agreement ended on April 30, 2017.
Stock purchase warrants - As at September 30, 2017 , Teekay held 14.5 million Brookfield Transaction Warrants (see Note 3). The Brookfield Transaction Warrants allow the holders to acquire one common unit of Teekay Offshore for each Brookfield Transaction Warrant for an exercise price of $0.01 per common unit, which warrants become exercisable when Teekay Offshore's common unit volume-weighted average price is equal to or greater than $4.00 per common unit for 10 consecutive trading days until September 25, 2024. The fair value of the Brookfield Transaction Warrants was $34.7 million and $30.5 million on September 25, and September 30, 2017, respectively.

As of September 30, 2017 , in addition to the Brookfield Transaction Warrants, Teekay held a total of 1,755,000 warrants to purchase common units of Teekay Offshore that were issued in connection with Teekay Offshore's private placement of Series D Preferred Units in June 2016 (or the Series D Warrants ) with an exercise price of $4.55 , which have a  seven -year term and are exercisable any time after  six months following their issuance date. The Series D Warrants will be net settled in either cash or common units at Teekay Offshore’s option. The fair value of the Series D Warrants was $1.9 million and $1.6 million on September 25, and September 30, 2017, respectively.

The estimated fair value of the Brookfield Transaction Warrants and the Series D Warrants was determined using a Black-Scholes pricing model and is based, in part, on the historical price of common units of Teekay Offshore, the risk-free rate, vesting conditions and the historical volatility of Teekay Offshore. The estimated fair value of these Brookfield Transaction Warrants and Series D Warrants as of September 30, 2017 was based on the historical volatility of Teekay Offshore's common units of 84.2% . A higher or lower volatility would result in a higher or lower fair value of this derivative asset.
During January 2014, the Company received from TIL stock purchase warrants entitling it to purchase up to 1.5 million shares of common stock of TIL (see Note 14). In May 2017, Teekay Tankers entered into the Merger Agreement with TIL. Under the terms of the Merger Agreement, warrants to purchase or acquire shares of common stock of TIL that have not been exercised as of the effective time of the merger, will be cancelled. As a result, no value is recorded for this warrant in the Company's balance sheet at September 30, 2017 .
Changes in fair value during the three and nine months ended September 30, 2017 and 2016 for the Company’s Brookfield Transaction Warrants, Series D Warrants and the TIL stock purchase warrants, which are described above and were measured at fair value on the recurring basis using significant unobservable inputs (Level 3), are as follows: 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
$
 
$
 
$
 
$
Fair value at the beginning of the period
—

 
1,833

 
575

 
10,328

Fair value on issuance
36,596

 
—

 
36,596

 
—

Unrealized loss included in earnings
(4,461
)
 
(399
)
 
(5,036
)
 
(8,894
)
Fair value at the end of the period
32,135

 
1,434

 
32,135

 
1,434


Vessels and equipment – In September 2017, the Company determined that two FPSO units, the Petrojarl Foinaven FPSO and the Petrojarl Banff FPSO, were impaired and wrote down the carrying values of the units to their estimated fair values, which in aggregate was approximately $113 million (see note 7a). The Company has determined the discounted cash flows using the current projected time charter rates and costs, discounted at an estimated market participant rate of 10% .  For both units, the Company has included the existing contracted time charter rates and operating costs as well as projected future use on another field.  The projected future use of each of the FPSO units takes into consideration the Company’s estimated upgrade costs and projected time charter rates that could be contracted in future periods. In establishing these estimates, the Company has considered current discussions with potential customers, available information regarding field expansions and historical experience redeploying FPSO units.  
b.
Financing Receivables
The following table contains a summary of the Company’s financing receivables by type of borrower and the method by which the Company monitors the credit quality of its financing receivables on a quarterly basis.

Page 23 of 70
Table of Contents
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

Class of Financing Receivable
 
Credit Quality Indicator
 
Grade
 
September 30, 2017
 
December 31, 2016
$
 
$
Direct financing leases
 
Payment activity
 
Performing
 
633,805

 
660,594

Other loan receivables
 
 
 
 
 
 
 
 
Loans to equity-accounted investees and joint venture partners
 
Other internal metrics
 
Performing
 
310,922

 
304,030

Long-term receivable included in other assets
 
Payment activity
 
Performing
 
11,577

 
17,712

 
 
 
 
 
 
956,304

 
982,336

12.
Restructuring Charges
During the three and nine months ended September 30, 2017 , the Company recorded restructuring charges of $ 2.9 million and $5.1 million , respectively. The restructuring charges primarily related to: severance costs resulting from the termination of the charter contract for the Arendal Spirit UMS in Teekay Offshore and the resulting decommissioning of the unit; reorganization and realignment of resources of certain of the Company's strategic development function to better respond to the changing business environment; and reorganization of the Company's FPSO business to create better alignment with the Company's offshore operations.
During the three and nine months ended September 30, 2016 , the Company recorded restructuring charges of $3.1 million and $22.9 million , respectively. The restructuring related to the closure of two offices and seafarers' severance amounts related to a tug business in Western Australia, reorganization of the Company's FPSO business to create better alignment with the Company's offshore operations, and reductions to charges previously accrued. The charges related to the seafarers' severance were partly recovered from the customer and the recovery is included in revenues on the unaudited consolidated statements of (loss) income .
At September 30, 2017 and December 31, 2016 , $1.4 million and $5.6 million , respectively, of restructuring liabilities were recorded in accrued liabilities on the unaudited consolidated balance sheets.
13.
Accumulated Other Comprehensive Loss
As at September 30, 2017 and December 31, 2016 , the Company’s accumulated other comprehensive loss (or AOCI ) consisted of the following components:
 
 
September 30,
 
December 31,
 
2017
 
2016
 
$
 
$
Unrealized loss on qualifying cash flow hedging instruments
398

 
(41
)
Pension adjustments, net of tax recoveries
(12,332
)
 
(12,160
)
Unrealized gain (loss) on marketable securities
22

 
(416
)
Foreign exchange gain on currency translation
2,683

 
2,014

 
(9,229
)
 
(10,603
)

Page 24 of 70
Table of Contents
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

14.
Derivative Instruments and Hedging Activities

The Company uses derivatives to manage certain risks in accordance with its overall risk management policies.

Foreign Exchange Risk
The Company economically hedges portions of its forecasted expenditures denominated in foreign currencies with foreign currency forward contracts.

As at September 30, 2017 , the Company was committed to the following foreign currency forward contracts:
 
 
 
 
 
Fair Value /
Carrying
Amount
Of Asset
$
 
Expected Maturity
 
Contract Amount in
Foreign Currency
 
Average
Forward Rate  (1)
 
 
2017
 
2018
 
 
 
 
$
 
$
Norwegian Kroner
130,000

 
8.24

 
537

 
3,616

 
12,153

 
(1)
Average contractual exchange rate represents the contracted amount of foreign currency one U.S. Dollar will buy.
The Company enters into cross currency swaps, and pursuant to these swaps the Company receives the principal amount in NOK on the maturity date of the swap, in exchange for payment of a fixed U.S. Dollar amount. In addition, the cross currency swaps exchange a receipt of floating interest in NOK based on NIBOR plus a margin for a payment of U.S. Dollar fixed interest. The purpose of the cross currency swaps is to economically hedge the foreign currency exposure on the payment of interest and principal amounts of the Company’s NOK-denominated bonds due in 2018, 2020 and 2021. In addition, the cross currency swaps economically hedge the interest rate exposure on the NOK bonds due in 2018, 2020 and 2021. The Company has not designated, for accounting purposes, these cross currency swaps as cash flow hedges of its NOK-denominated bonds due in 2018, 2020 and 2021. As at September 30, 2017 , the Company was committed to the following cross currency swaps:
 
 
 
 
 
 
 
 
 
 
Fair Value /
Carrying
Amount of
Asset /
(Liability)
$
 
 
Notional
Amount
NOK
 
Notional
Amount
USD
 
Floating Rate Receivable
 
 
 
 
 
 
 
Reference
Rate
 
Margin
 
Fixed Rate
Payable
 
 
Remaining
Term (years)
900,000
 
150,000

 
NIBOR
 
4.35%
 
6.43%
 
(39,088
)
 
0.9
1,000,000
 
134,000

 
NIBOR
 
3.70%
 
5.92%
 
(9,862
)
 
2.6
1,200,000
 
146,500

 
NIBOR
 
6.00%
 
7.70%
 
7,682

 
4.1
 
 
 
 
 
 
 
 
 
 
(41,268
)
 
 

Interest Rate Risk
The Company enters into interest rate swap agreements, which exchange a receipt of floating interest for a payment of fixed interest, to reduce the Company’s exposure to interest rate variability on its outstanding floating-rate debt. The Company designates certain of its interest rate swap agreements as cash flow hedges for accounting purposes.
 

Page 25 of 70
Table of Contents
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

As at September 30, 2017 , the Company was committed to the following interest rate swap agreements related to its LIBOR -based debt and EURIBOR -based debt, whereby certain of the Company’s floating-rate debt were swapped with fixed-rate obligations: 
 
Interest
Rate
Index
 
Principal
Amount
 
Fair Value /
Carrying
Amount of
Asset /
(Liability)
$
 
Weighted-
Average
Remaining
Term
(years)
 
Fixed
Interest
Rate
(%) (1)
LIBOR-Based Debt:
 
 
 
 
 
 
 
 
 
U.S. Dollar-denominated interest rate swaps (2)
LIBOR
 
1,014,701

 
(31,522
)
 
5.2
 
2.8

U.S. Dollar-denominated interest rate swaps (3)
LIBOR
 
331,933

 
(20,538
)
 
1.8
 
3.4

U.S. Dollar-denominated interest rate swaption   (4)
LIBOR
 
160,000

 
(535
)
 
0.3
 
2.0

U.S. Dollar-denominated interest rate swaption   (4)
LIBOR
 
160,000

 
15

 
0.3
 
3.1

EURIBOR-Based Debt:
 
 
 
 
 
 
 
 
 
Euro-denominated interest rate swaps   (5) (6)
EURIBOR
 
233,763

 
(30,813
)
 
3.2
 
3.1

 
 
 
 
 
(83,393
)
 
 
 
 

(1)
Excludes the margins the Company pays on its variable-rate debt, which, as of September 30, 2017 , ranged from 0.3% to 4.0% .
(2)
Includes interest rate swaps with the notional amount reducing quarterly or semi-annually.
(3)
Forward-starting interest rate swaps with inception dates ranging from October 2017 to April 2018. Interest rate swaps are being used to economically hedge expected interest payments on new debt that is planned to be outstanding from 2017 to 2024 . These interest rate swaps are subject to mandatory early termination in 2018 and 2020 whereby the swaps will be settled based on their fair value at that time.
(4)
During August 2015, as part of its hedging program, Teekay LNG entered into interest rate swaption agreements whereby it has a one-time option in January 2018 to enter into an interest rate swap at a fixed rate of 3.10% with a third party, and the third party has a one-time option in January 2018 to require Teekay LNG to enter into an interest rate swap at a fixed rate of 1.97% . If Teekay LNG or the third party exercises its option, there will be a cash settlement in January 2018 for the fair value of the interest rate swap in lieu of taking delivery of the actual interest rate swap.
(5)
Principal amount reduces monthly to 70.1 million Euros ( $82.8 million ) by the maturity dates of the swap agreements.
(6)
Principal amount is the U.S. Dollar equivalent of 197.9 million Euros.

Stock Purchase Warrants

During September 2017 , as part of the Brookfield Transaction (see Note 3), Teekay was released from all of its previous guarantees relating to Teekay Offshore's interest rate swap and cross currency swap agreements.

As at September 30, 2017 , Teekay held 14.5 million Brookfield Transaction Warrants (see Notes 3 and 11). The fair value of the Brookfield Transaction Warrants were $34.7 million and $30.5 million on September 25, and September 30, 2017, respectively.

As of September 30, 2017 , Teekay held 1,755,000 Series D Warrants (see Notes 3 and 11). The fair value of the Series D Warrants were $1.9 million and $1.6 million on September 25, and September 30, 2017, respectively.
 
As of September 30, 2017, Teekay held 1,500,000 TIL common stock purchase warrants. Upon completion of the merger pursuant to the Merger Agreement (see Note 7c), the TIL stock purchase warrants will be cancelled. As a result, no value is recorded for this warrants on the Company's unaudited balance sheet as at September 30, 2017 (see Note 11 ).

Time-charter Swap Agreement

Effective June 1, 2016, Teekay Tankers entered into a time-charter swap agreement for 55% of two Aframax-equivalent vessels. Under such agreement, Teekay Tankers received $27,776 per day, net of a 1.25% brokerage commission, and paid 55% of the net revenue distribution of two Aframax-equivalent vessels employed in Teekay Tankers' Aframax revenue sharing arrangement, less $500 per day, for a period of 11 months plus an additional two months at the counterparty's option. The purpose of the agreement was to reduce Teekay Tankers’ exposure to spot tanker market rate variability for certain of its vessels that were employed in the Aframax revenue sharing arrangement. Teekay Tankers did not designate, for accounting purposes, the time-charter swap as a cash flow hedge. The fair value of the time-charter swap agreement at September 30, 2017 was $ nil ( December 31, 2016 - an asset of $0.2 million ). As of May 1, 2017, the time-charter swap counter-party did not exercise the two -month option and the agreement expired during May 2017.

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Table of Contents
TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

Forward Freight Agreements
Teekay Tankers uses forward freight agreements (or FFAs ) in non-hedge-related transactions to increase or decrease its exposure to spot market rates, within defined limits. Net gains and losses from FFAs are recorded within realized and unrealized (loss) gain on non-designated derivative instruments in the Company's unaudited consolidated statements of (loss) income . The fair value of the forward freight agreement at September 30, 2017 was a liability of $ 0.1 million .

Tabular Disclosure

The following table presents the location and fair value amounts of derivative instruments, segregated by type of contract, on the Company’s unaudited consolidated balance sheets.
 
Prepaid Expenses and Other
 
Other Non-Current Assets
 
Accrued
Liabilities and Other
 
Current
Portion of
Derivative
Liabilities
 
Derivative
Liabilities
 
$
 
$
 
$
 
$
 
$
As at September 30, 2017
 
 
 
 
 
 
 
 
 
Derivatives designated as a cash flow hedge:
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
—

 
587

 
(25
)
 
(1,366
)
 
(605
)
Derivatives not designated as a cash flow hedge:
 
 
 
 
 
 
 
 
 
Foreign currency contracts
537

 
—

 
—

 
—

 
—

Interest rate swap agreements
220

 
3,069

 
(2,256
)
 
(28,978
)
 
(54,039
)
Cross currency swap agreements
—

 
8,688

 
(700
)
 
(41,612
)
 
(7,644
)
Stock purchase warrants
—

 
32,135

 
—

 
—

 
—

Forward freight agreements
29

 
—

 
(108
)
 
—

 
—

 
786

 
44,479

 
(3,089
)
 
(71,956
)
 
(62,288
)
As at December 31, 2016
 
 
 
 
 
 
 
 
 
Derivatives designated as a cash flow hedge:
 
 
 
 
 
 
 
 
 
Interest rate swap agreements
—

 
1,340

 
(363
)
 
(1,033
)
 
(52
)
Derivatives not designated as a cash flow hedge:
 
 
 
 
 
 
 
 
 
Foreign currency contracts
119

 
—

 
—

 
(2,601
)
 
(511
)
Interest rate swap agreements
212

 
9,839

 
(11,979
)
 
(59,055
)
 
(233,901
)
Cross currency swap agreements
—

 
—

 
(3,464
)
 
(53,124
)
 
(180,577
)
Stock purchase warrants
—

 
575

 
—

 
—

 
—

Time-charter swap agreement
875

 
—

 
(667
)
 
—

 
—

 
1,206

 
11,754

 
(16,473
)
 
(115,813
)
 
(415,041
)
 
As at September 30, 2017 , the Company had multiple interest rate swaps, cross currency swaps and foreign currency forward contracts with the same counterparty that are subject to the same master agreements. Each of these master agreements provides for the net settlement of all derivatives subject to that master agreement through a single payment in the event of default or termination of any one derivative. The fair value of these derivatives is presented on a gross basis in the Company’s unaudited consolidated balance sheets. As at September 30, 2017 , these derivatives had an aggregate fair value asset amount of $11.3 million and an aggregate fair value liability amount of $85.8 million . As at September 30, 2017 , the Company had $14.2 million on deposit with the relevant counterparties as security for swap liabilities under certain master agreements. The deposit is presented in restricted cash on the unaudited consolidated balance sheets.


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TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

For the periods indicated, the following table presents the effective portion of gains (losses) on interest rate swap agreements designated and qualifying as cash flow hedges (excluding such agreements in equity-accounted investments):

Three Months Ended September 30, 2017

Effective Portion

Effective Portion
Ineffective

Recognized in AOCI (1)

Reclassified from AOCI (2)
Portion (3)

$
 
$
$
 
(115)

(424)
(7)
Interest expense
(115)

(424)
(7)






Three Months Ended September 30, 2016

Effective Portion
 
Effective Portion
Ineffective

Recognized in AOCI (1)
 
Reclassified from AOCI (2)
Portion (3)

1,482
 
—
(3)
Interest expense
1,482
 
—
(3)

Nine Months Ended September 30, 2017
 
Effective Portion
 
Effective Portion
Ineffective
 
Recognized in AOCI (1)
 
Reclassified from AOCI (2)
Portion (3)
 
$
 
$
$
 
(1,677)
 
(1,186)
(762)
Interest expense
(1,677)
 
(1,186)
(762)
 
 
 
 
 
 
Nine Months Ended September 30, 2016
 
Effective Portion
 
Effective Portion
Ineffective
 
Recognized in AOCI (1)
 
Reclassified from AOCI (2)
Portion (3)
 
(12,543)
 
—
(59)
Interest expense
(12,543)
 
—
(59)
 
 
 
 
 
 

(1) Recognized in accumulated other comprehensive loss (or AOCI ).
(2) Recorded in AOCI during the term of the hedging relationship and reclassified to earnings.
(3) Recognized in the ineffective portion of gains (losses) on derivative instruments designated and qualifying as cash flow hedges.

As at September 30, 2017 , the Company estimated, based on then current interest rates, that it would reclassify approximately $0.8 million of net losses on interest rate swaps from accumulated other comprehensive loss to earnings during the next 12 months.


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TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

Realized and unrealized (losses) and gains from derivative instruments that are not designated for accounting purposes as cash flow hedges are recognized in earnings and reported in realized and unrealized losses on non-designated derivatives in the unaudited consolidated statements of (loss) income . The effect of the (losses) and gains on derivatives not designated as hedging instruments in the unaudited consolidated statements of (loss) income is as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
$
 
$
 
$
 
$
Realized (losses) gains relating to:
 
 
 
 
 
 
 
Interest rate swap agreements
(15,729
)
 
(22,219
)
 
(48,199
)
 
(67,808
)
Interest rate swap agreement terminations
—

 
—

 
(610
)
 
(8,140
)
Foreign currency forward contracts
1,609

 
(2,583
)
 
638

 
(9,915
)
Time charter swap agreement
—

 
1,096

 
1,106

 
1,222

Forward freight agreements
234

 
—

 
347

 
—

 
(13,886
)
 
(23,706
)
 
(46,718
)
 
(84,641
)
Unrealized gains (losses) relating to:
 
 
 
 
 
 
 
Interest rate swap agreements
11,575

 
47,816

 
5,181

 
(96,055
)
Foreign currency forward contracts
735

 
6,006

 
4,383

 
21,070

Stock purchase warrants
(4,461
)
 
(398
)
 
(5,036
)
 
(8,894
)
Time charter swap agreement
—

 
208

 
(875
)
 
1,553

Forward freight agreements
(91
)
 
—

 
(108
)
 
—

 
7,758

 
53,632

 
3,545

 
(82,326
)
Total realized and unrealized (losses) gains on derivative instruments
(6,128
)
 
29,926

 
(43,173
)
 
(166,967
)

Realized and unrealized (losses) gains of the cross currency swaps are recognized in earnings and reported in foreign currency exchange (loss) gain in the consolidated statements of (loss) income . The effect of the losses on cross currency swaps on the consolidated statements of (loss) income is as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
$
 
$
 
$
 
$
Realized losses on maturity and termination of cross currency swaps
—

 
—

 
(25,733
)
 
(32,628
)
Realized losses
(4,234
)
 
(5,612
)
 
(16,369
)
 
(15,551
)
Unrealized gains
41,653

 
40,019

 
91,749

 
93,232

Total realized and unrealized gains on cross currency swaps
37,419

 
34,407

 
49,647

 
45,053


The Company is exposed to credit loss to the extent the fair value represents an asset in the event of non-performance by the counterparties to the foreign currency forward contracts, and cross currency and interest rate swap agreements; however, the Company does not anticipate non-performance by any of the counterparties. In order to minimize counterparty risk, the Company only enters into derivative transactions with counterparties that are rated A- or better by Standard & Poor’s or A3 or better by Moody’s at the time of the transaction. In addition, to the extent possible and practical, interest rate swaps are entered into with different counterparties to reduce concentration risk.

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TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)

15.
Income Tax (Expense) Recovery
The components of the provision for income tax (expense) recovery are as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
$
 
$
 
$
 
$
Current
(3,410
)
 
(41
)
 
(9,355
)
 
(8,753
)
Deferred
(1,811
)
 
174

 
(2,412
)
 
6,387

Income tax (expense) recovery
(5,221
)
 
133

 
(11,767
)
 
(2,366
)
The following reflects the changes in the Company’s unrecognized tax benefits, recorded in other long-term liabilities, from January 1, 2017 to September 30, 2017 :
 
$
Balance of unrecognized tax benefits as at January 1, 2017
19,492

Increase for positions taken in prior years
1,045

Increase for positions related to the current period
4,874

Decrease related to statute of limitations
(663
)
Decrease due to deconsolidation of Teekay Offshore ( note 3 )

(1,503
)
Balance of unrecognized tax benefits as at September 30, 2017
23,245

The majority of the net increase for positions for the nine months ended September 30, 2017 relates to potential tax on freight income.
The Company does not presently anticipate such unrecognized tax benefits will significantly increase or decrease in the next 12 months; however, actual developments could differ from those currently expected.
16.
Net (Loss) Income Per Share
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
$
 
$
 
$
 
$
Net (loss) income attributable to the shareholders of Teekay Corporation
(12,582
)
 
6,072

 
(137,990
)
 
(120,520
)
The Company's portion of the Inducement Premium and Exchange Contribution charged to retained earnings by Teekay Offshore (note 10e)
—

 
—

 
—

 
(4,993
)
Net (loss) income attributable to the shareholders of Teekay Corporation - basic and diluted
(12,582
)
 
6,072

 
(137,990
)
 
(125,513
)
Weighted average number of common shares
86,261,330

 
84,887,101

 
86,232,315

 
76,887,689

Dilutive effect of stock-based compensation
—

 
86,644

 
—

 
—

Common stock and common stock equivalents
86,261,330

 
84,973,745

 
86,232,315

 
76,887,689

(Loss) income per common share:
 
 
 
 
 
 
 
 - Basic
(0.15
)
 
0.07

 
(1.60
)
 
(1.63
)
 - Diluted
(0.15
)
 
0.07

 
(1.60
)
 
(1.63
)
Stock-based awards that have an anti-dilutive effect on the calculation of diluted loss per common share, are excluded from this calculation. For the three and nine months ended September 30, 2017 , options to acquire 3.9 million shares of Common Stock had an anti-dilutive effect on the calculation of diluted income per common share ( three and nine months ended September 30, 2016 - 3.8 million ). In periods where a loss attributable to shareholders of Teekay has been incurred all stock-based awards are anti-dilutive.
17.
Subsequent Events

a)
On October 13, 2017, Teekay LNG's joint venture with China LNG, CETS Investment Management (HK) Co. Ltd. and BW LNG Investments Pte. Ltd. (or the Pan Union Joint Venture ), took delivery of its first LNG carrier newbuilding, the Pan Asia, of which Teekay LNG has a 30% ownership interest, and concurrently commenced its 20 -year charter contract with Shell.

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TEEKAY CORPORATION AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(all tabular amounts stated in thousands of U.S. Dollars, other than share and per share data)


b)
On October 19, 2017, Teekay LNG took delivery of an LNG carrier newbuilding, the Macoma, which concurrently commenced its six -year charter contract with Shell.

c)
On October 23, 2017, Teekay LNG issued 6.8 million units (including 0.8 million units issued upon partial exercise of the underwriter's over-allotment option) of its Series B Preferred Units at $25.00 per unit in a public offering for net proceeds of approximately $164 million . Distributions are payable on the Series B Preferred Units from the issuance date to October 14, 2027, at a rate of 8.5% per annum of the stated liquidation preference of $25.00 and from and after October 15, 2027, at a floating rate equal to three-month LIBOR plus a margin of 6.241% . At any time on or after October 15, 2027, Teekay LNG may redeem the Series B Preferred Units, in whole or in part, at a redemption price of $25.00 per unit plus all accumulated and unpaid distributions thereon to the date of redemption. Teekay LNG expects to use the net proceeds from the public offering for general partnership purposes, which may include debt repayments or funding installment payments on future newbuilding deliveries. The Series B Preferred Units are listed on the New York Stock Exchange.

d)
On November 1, 2017, Teekay LNG took delivery of an LNG carrier newbuilding, the Murex, which concurrently commenced its seven -year charter contract with Shell.

e)
On November 6, 2017, Teekay LNG completed a $327 million long-term debt facility to finance (a) floating storage unit (or FSU ) to be chartered on a 20 -year charter contract to the Bahrain regasification project scheduled to commence in the third quarter of 2018 and (b) one LNG carrier newbuilding to be chartered on a 13 -year charter contract with BP Plc starting in early-2019.

f)
On November 10, 2017, Teekay LNG refinanced its $170 million revolving credit facility, which was scheduled to mature in 2017, with a
new $190 million revolving credit facility maturing in November 2018.

g)
On November 16, 2017, Teekay LNG cancelled the bareboat contracts on all six of Teekay LNG's LPG carriers on charter to Skaugen. Teekay LNG expects to transfer the commercial management of these vessels, in addition to the Norgas Sonoma , into a newly formed pool, the Teekay Multigas Pool L.L.C., which is owned and operated by Teekay LNG.

h)
On November 17, 2017, the shareholders of Teekay Tankers voted in favor of increasing the authorized number of its Class A common shares to permit the issuance of Class A common shares as consideration for the merger with TIL. Concurrently, the merger was approved by the shareholders of TIL. Subject to the completion of the remaining closing conditions, Teekay Tankers expects the merger to close on or about November 27, 2017.



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ITEM 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the unaudited consolidated financial statements and accompanying notes contained in “Item 1 – Financial Statements” of this Report on Form 6-K and with our audited consolidated financial statements contained in “Item 18 – Financial Statements” and with Management’s Discussion and Analysis of Financial Condition and Results of Operations in “Item 5 – Operating and Financial Review and Prospects” of our Annual Report on Form 20-F for the year ended December 31, 2016 . Unless otherwise indicated, references in this Report to “Teekay,” the “Company,” “we,” “us” and “our” and similar terms refer to Teekay Corporation and its subsidiaries.
Overview
Teekay Corporation (or Teekay ) is an operational leader and project developer in the marine midstream space and provides a comprehensive set of marine services to the world's leading oil and gas companies. We have general partnership interests in two publicly-listed master limited partnerships, Teekay LNG Partners L.P. (or Teekay LNG ) and Teekay Offshore Partners L.P. (or  Teekay Offshore ), we have a controlling ownership interest of publicly-listed Teekay Tankers Ltd. (or Teekay Tankers ), and we have a small fleet of directly-owned vessels. Teekay LNG and Teekay Tankers are consolidated in Teekay's financial statements and, up to the closing of the strategic partnership (or the Brookfield Transaction ) with Brookfield Business Partners L.P., together with its institutional partners (collectively Brookfield ) on September 25, 2017, Teekay Offshore was also consolidated in Teekay's financial statements. In connection with Brookfield's acquisition of the 49% interest in Teekay Offshore's general partner, Teekay Offshore GP LLC (or TOO GP ), Teekay and Brookfield entered into an amended limited liability company agreement whereby Brookfield obtained certain participatory rights in the management of TOO GP, which resulted in Teekay deconsolidating Teekay Offshore for accounting purposes on September 25, 2017. Subsequent to the closing of the Brookfield Transaction, Teekay has significant influence over Teekay Offshore and accounts for its investment in Teekay Offshore using the equity method. Please read “Equity-Accounted Investment in Teekay Offshore - Recent Developments in Teekay Offshore” for additional information about the Brookfield Transaction.
RECENT DEVELOPMENTS AND RESULTS OF OPERATIONS
To understand our financial condition and results of operations, a general understanding of our organizational structure is required. Our organizational structure can be divided into (a) our controlling interests in our publicly-listed subsidiaries Teekay LNG and Teekay Tankers (together, the Daughter Companies ), (b) Teekay and its remaining subsidiaries, which is referred to in this Report as Teekay Parent, and (c) our equity-accounted investment in Teekay Offshore. For further information on our organizational structure, please read “Item 5. Operating and Financial Review and Prospects – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Structure”, in our Annual Report on Form 20-F for the year ended December 31, 2016 .
The results of operations that follow have first been divided into (a) our controlling interests in our publicly-traded subsidiaries Teekay LNG and Teekay Tankers, (b) Teekay Parent, and (c) the results of Teekay Offshore until its deconsolidation on September 25, 2017. Within the first two of these three groups, we have further subdivided the results into their respective lines of business. The following table (a) presents revenues and income from vessel operations for each of these two subsidiaries, for Teekay Parent, and for Teekay Offshore until its deconsolidation on September 25, 2017, and (b) reconciles these amounts to our unaudited consolidated financial statements. Please read "Item 1 - Financial Statements: Note 4 - Segment Reporting" for information about our lines of business and segments.

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Revenues
 
Income (Loss) from Vessel Operations
Three Months Ended
 
Nine Months Ended
 
Three Months Ended
 
Nine Months Ended
 
September 30,
 
September 30,
 
September 30,
 
September 30,
(in thousands of U.S. dollars)
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
Teekay Offshore (1)
255,781

 
286,298

 
796,711

 
877,470

 
40,384

 
61,739

 
147,060

 
174,309

Teekay LNG
104,285

 
100,658

 
306,369

 
295,670

 
10,322

 
50,634

 
86,271

 
115,171

Teekay Tankers
91,238

 
109,554

 
330,512

 
427,349

 
(13,734
)
 
(3,207
)
 
(1,406
)
 
86,565

Teekay Parent
72,022

 
77,832

 
195,883

 
258,662

 
(226,818
)
 
(19,401
)
 
(291,880
)
 
(74,977
)
Elimination of intercompany (2)(3)
(22,545
)
 
(26,703
)
 
(71,266
)
 
(82,785
)
 
—

 
—

 
—

 
—

Teekay Corporation Consolidated
500,781

 
547,639

 
1,558,209

 
1,776,366

 
(189,846
)
 
89,765

 
(59,955
)
 
301,068

 
(1)
On September 25, 2017, Teekay deconsolidated Teekay Offshore (see “Equity Accounted Investment in Teekay Offshore - Recent Developments in Teekay Offshore” for additional information). The revenues and income from vessel operations amounts above are those of Teekay Offshore until the date of deconsolidation.
(2)
During the nine months ended September 30, 2017 , Teekay chartered in three floating storage and off-take (or FSO) units and two shuttle tankers from Teekay Offshore, and two liquefied natural gas (or LNG) carriers from Teekay LNG. During the nine months ended September 30, 2016 , Teekay chartered in three FSO units, two shuttle tankers and one Aframax tanker from Teekay Offshore, two Aframax tankers from Teekay Tankers, and two LNG carriers from Teekay LNG.
(3)
During 2014, Teekay sold to Teekay Tankers a 50% interest in Teekay Tankers Operations Ltd (or TTOL ), which owns our conventional tanker commercial management and technical management operations, including direct ownership in five commercially managed revenue sharing arrangements of the Teekay group. Following that sale, Teekay Tankers and Teekay Parent each accounted for their 50% interests in TTOL as equity-accounted investments and, as such, TTOL’s results were reflected in equity income of Teekay Tankers and Teekay Parent. Upon consolidation of Teekay Tankers into Teekay, the results of TTOL were accounted for on a consolidated basis by Teekay. On May 31, 2017, Teekay Tankers acquired from Teekay Parent, the remaining 50% interest in TTOL. As a result of the acquisition, the financial information for Teekay Tankers prior to the date that Teekay Tankers acquired interests in TTOL are retroactively adjusted to include the results of TTOL on a consolidated basis during the periods they were under common control of Teekay and had begun operations.
There are a number of factors that should be considered when evaluating our historical financial performance and assessing our future prospects and we use a variety of financial and operational terms and concepts when analyzing our results of operations. These items can be found in Item 5 – “Operating and Financial Review and Prospects” in our Annual Report on Form 20-F for the year ended December 31, 2016 .
In accordance with United States generally accepted accounting principles (or GAAP ), we report gross revenues in our consolidated statements of (loss) income and include voyage expenses among our operating expenses. However, shipowners base economic decisions regarding the deployment of their vessels upon anticipated time-charter equivalent (or TCE ) rates and industry analysts typically measure bulk shipping freight rates in terms of TCE rates. This is because under time charter contracts and floating production, storage and offloading (or FPSO ) service contracts, the customer usually pays the voyage expenses while under voyage charters and contracts of affreightment (or CoAs ) the ship-owner 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 revenues less voyage expenses (or Net Revenues ), a non-GAAP financial measure, and TCE rates where applicable.
Summary
Teekay's consolidated income from vessels operations decreased to $(60.0) million for the nine months ended September 30, 2017 compared to $301.1 million for the nine months ended September 30, 2016. The primary reasons for this net decrease in our consolidated results are as follows:


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CHART-A0F98E32A77857CFAD9A02.JPG

•
in Teekay Parent, the write-downs of the Petrojarl Foinaven and Petrojarl Banff FPSO units, lower results on the Petrojarl Foinaven as a result the temporary scheduled shutdown in the third quarter of 2017, and a contract amendment related to the Hummingbird Spirit FPSO which reduced its revenues, partially offset by a contract amendment related to the Petrojarl Banff FPSO which increased its revenues and the loss on sale of the Shoshone Spirit VLCC in 2016;
•
in Teekay LNG, the write-downs of the European Spirit, African Spirit, Teide Spirit and Toledo Spirit conventional tankers in 2017 and a decrease in revenue due to uncertainty of collection of hire relating to Teekay LNG's six LPG carriers on charter to I.M. Skaugen SE (or Skaugen ) in the first nine months of 2017;
•
in Teekay Tankers, lower average TCE rates earned in the spot tanker market in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, and various vessel employment changes, in-chartered vessel redeliveries and vessel sales in 2016 and 2017; and
•
in Teekay Offshore, the termination of the charter contract of the Petrojarl Varg in 2016, lower towage fleet rates and utilization during the nine months ended September 30, 2017, and the redelivery of the Navion Saga, partially offset by the UMS fleet due to the write-down in 2016 relating to the cancellation of two UMS newbuildings contracts;
partially offset by
•
in Teekay LNG, the loss on sale of vessels recorded in 2016 upon the charterer, Centrofin Management Inc. (or Centrofin ), exercising its purchase options on the Bermuda Spirit and Hamilton Spirit in February 2016 and March 2016, respectively and the deliveries of the Oak Spirit , Creole Spirit and Torben Spirit LNG carrier newbuildings in 2016 and 2017.
Details of the changes to our results of operations for each of our segments for the three and nine months ended September 30, 2017 compared to same periods in the prior year are provided in the following sections.
Teekay LNG
Recent Developments in Teekay LNG

In November, 2017, Teekay LNG cancelled the bareboat charter contracts for its six LPG carriers chartered to I.M. Skaugen SE (or Skaugen ) for non-payment by Skaugen of charter hire. The bareboat charter contracts had terms ending between 2019 and 2026. As at March 31, 2017, Teekay LNG had not been paid by Skaugen for a portion of the charter hire for the vessels for the period from August 2016 to March 31, 2017, relating to these six vessels and totaling approximately $12.9 million. As an alternative payment for a portion of these amounts, Skaugen offered to Teekay LNG its 35% ownership interest in an LPG carrier, the Norgas Sonoma , which is owned by Skaugen Gulf Petchem Carriers B.S.C.(c), a joint venture between Skaugen (35%), The National Oil & Gas Authority B.S.C.(c) (or Nogaholding ) (35%) and Suffun Bahrain W.L.L. (or Suffun ) (30%)

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(or the Skaugen LPG Joint Venture ). Both Nogaholding and Suffun exercised their option to participate in the sale of the Norgas Sonoma and as a result, on April 20, 2017, Teekay LNG acquired a 100% ownership interest in the Skaugen LPG Joint Venture for an aggregate purchase price of $13.2 million, including the application of $4.6 million of the outstanding hire owing to Teekay LNG by Skaugen to acquire Skaugen's 35% ownership interest in the Skaugen LPG Joint Venture. Following Teekay LNG's acquisition of Skaugen LPG Joint Venture, Teekay LNG continues to trade the Norgas Sonoma in the Norgas pool. There is uncertainty about Skaugen's ability to pay amounts they owe to Teekay LNG. Amounts owing to Teekay LNG from Skaugen under the charters amounted to approximately $6 million each quarter, based on the contracted charter rates. As at September 30, 2017 , Skaugen owed Teekay LNG an aggregate of approximately $20.7 million under the six charters based on the contracted charter rates, and such amounts have not been recorded as revenue given the uncertainty of its collection. Following the cancellation by Teekay LNG of the six charters, Teekay LNG expects to transfer the commercial management of these vessels, in addition to the Norgas Sonoma , into a newly formed pool, the Teekay Multigas Pool L.L.C., which Teekay LNG will own and operate. The pool fleet is expected to reach at least 12 vessels by the end of 2017, including third party partner vessels.

In October 2017, Teekay LNG took delivery of an LNG carrier newbuilding, the Macoma , which concurrently commenced its six-year charter contract with Royal Dutch Shell Plc (or Shell ) on October 20, 2017. On November 1, 2017, Teekay LNG took delivery of another LNG carrier newbuilding, the Murex, which concurrently commenced its seven-year charter contract with Shell on November 1, 2017.

In October 2017, Teekay LNG's joint venture with China LNG, CETS Investment Management (HK) Co. Ltd. and BW LNG Investments Pte. Ltd. (or the Pan Union Joint Venture ), took delivery of its first LNG carrier newbuilding, the Pan Asia , of which Teekay LNG has a 30% ownership interest, which concurrently commenced its 20-year charter contract with Shell.

In August 2017, the charterer of the Teide Spirit gave formal notification to Teekay LNG of its intention to terminate its charter contract subject to certain conditions being met and third-party approvals being received. In October 2017, the charterer notified Teekay LNG that it is marketing the Teide Spirit for sale and, upon sale of the vessel, the charterer would concurrently terminate its existing charter contract with Teekay LNG. The charterer’s cancellation option for the Toledo Spirit is first exercisable in August 2018. Given Teekay LNG's prior experience with this charterer, it is expected that the charterer will also cancel the charter contract and sell the Toledo Spirit to a third party in 2018. As a result, Teekay LNG recorded a write-down of $25.5 million on a combined basis related to the Teide Spirit and Toledo Spirit for the three and nine months ended September 30, 2017.

In late-June 2017, the charterer for the European Spirit Suezmax tanker gave formal notice to Teekay LNG that it would not exercise its one-year extension option under the charter contract and the charterer redelivered the vessel to Teekay LNG in late-August 2017. Upon receiving this notification, Teekay LNG commenced marketing the vessel for sale and recorded a $12.6 million write-down of the vessel for the nine months ended September 30, 2017. In addition, during the third quarter of 2017, Teekay LNG recorded a write-down of the African Spirit of $12.5 million as Teekay LNG received notification from the charterer of the vessel in August 2017 that it would redeliver the vessel back to Teekay LNG upon completion of its charter contract in November 2017.

In May 2017, the Teekay LNG's 52% joint venture with Marubeni Corporation (or the Teekay LNG-Marubeni Joint Venture ) secured short-term charter contracts for two of its vessels trading in the short-term market. The Magellan Spirit commenced a six-month contract (plus two three-month option periods) in July 2017 and the Arwa Spirit will commence a 15-month charter contract in the fourth quarter of 2017.

In May 2017, Teekay LNG entered into a 10-year $181 million sale-leaseback agreement with Bank of Communications Financial Leasing Co. Ltd. (or BCL ) for one of its eight wholly-owned LNG carrier newbuildings, which vessel is scheduled to deliver in mid-2018. BCL will take delivery of the vessel and charter it back to Teekay LNG. At the end of the 10-year lease, Teekay LNG has an obligation to repurchase the vessel from BCL.

In May 2017, the Teekay LNG-Marubeni Joint Venture signed an 18-month charter contract (plus one-year extension option) with a major Japanese utility company, commencing in the fourth quarter of 2018. This charter contract will be serviced by the Methane Spirit, which is currently trading in the short-term market.

In April 2017, Teekay LNG entered into a 10-year $174 million sale-leaseback agreement with China Construction Bank Financial Leasing Co. Ltd. (or CCBL ) for one of its eight wholly-owned LNG carrier newbuildings, which vessel is scheduled to deliver in late-2017. CCBL will take delivery of the vessel and charter it back to Teekay LNG. At the end of the 10-year lease, Teekay LNG has an obligation to repurchase the vessel from CCBL.

In March 2017 and July 2017, Exmar LPG BVBA (or the Exmar LPG Joint Venture ), of which Teekay LNG has a 50% ownership interest, took delivery of the Kallo LPG carrier and Kruibeke LPG carrier, respectively, and upon deliveries sold and leased back the vessels. In April 2017, Exmar LPG Joint Venture entered into a shipbuilding agreement with Hyundai Heavy Industries Co., Ltd. for one additional LPG carrier newbuilding scheduled for delivery in mid-2018. As at September 30, 2017, the Exmar LPG Joint Venture had three LPG carrier newbuildings scheduled for delivery in 2018. The Exmar LPG Joint Venture has secured long-term vessel financing that will be available upon delivery for two of its three remaining LPG carrier newbuildings. The installment payments on the third LPG carrier newbuilding are expected to be financed by the joint venture's existing liquidity and the joint venture expects to secure long-term financing prior to vessel delivery.

Teekay LNG has two LNG carriers currently on bareboat charter contracts with Awilco LNG ASA (or Awilco ) with fixed contract terms ending in November 2017 and August 2018 with one-year extension options. Awilco has a purchase obligation under the charter contracts to repurchase each vessel from Teekay LNG at the end of their respective terms. Awilco is currently facing financial challenges, including going concern issues, and its ability to continue to make charter payments to Teekay LNG and to honor its purchase obligations is in question. In June 2017, Teekay LNG amended the charter contracts with Awilco to defer a portion of charter hire and extend the bareboat charter contracts and related purchase obligations on both vessels to December 2019. A key condition of the amendments required Awilco to raise a minimum of $25 million of equity,

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which was successfully completed in May 2017. The amendments have the effect of deferring between $10,600 per day and $20,600 per day per vessel of charter hire from July 2017 until December 2019, with such deferred amounts added to the purchase obligation amounts.

In February 2017, Teekay LNG took delivery of the Torben Spirit LNG carrier newbuilding and concurrently sold this vessel to a third party and leased it back under a 10-year bareboat charter contract. The Torben Spirit commenced its 10-month plus one-year option charter contract with a major energy company on March 3, 2017. Prior to the expiration of this charter, Teekay LNG will seek to secure a long-term contract on this vessel. As at September 30, 2017 , Teekay LNG had eight wholly-owned LNG carrier newbuildings on order, which are scheduled for delivery between late-2017 and early-2019 and all of which have fixed-rate time-charter contracts in place.

Two of the six LNG carriers (or MALT LNG Carriers ) in the Teekay LNG-Marubeni Joint Venture, the Marib Spirit and Arwa Spirit , are currently under long-term contracts expiring in 2029 with Yemen LNG Ltd. (or YLNG ), a consortium led by Total SA. Due to the political situation in Yemen, YLNG decided to temporarily close operation of its LNG plant in Yemen in 2015. As a result, the Teekay LNG-Marubeni Joint Venture agreed in December 2015 to defer a portion of the charter payments for the two LNG carriers from January 1, 2016 to December 31, 2016 and further deferrals were agreed in August 2016 and in January 2017 to extend the deferral period to December 31, 2017. Once the LNG plant in Yemen resumes operations, it is intended that YLNG will repay the deferred amounts in full, plus interest over a period of time to be agreed upon. However, there is no assurance if or when the LNG plant will resume operations or if YLNG will repay the deferred amounts, and this deferral period may extend beyond 2017. Teekay LNG's proportionate share of the estimated impact of the charter payment deferral for 2017 compared to original charter rates earned prior to December 31, 2015, is estimated to be a reduction to equity income ranging from $5 million to $7 million per quarter, depending on any sub-chartering employment opportunities.
Operating Results – Teekay LNG
The following table compares Teekay LNG’s operating results and number of calendar-ship-days for its vessels for the three and nine months ended September 30, 2017 and 2016 .
(in thousands of U.S. Dollars, except calendar-ship-days)
Liquefied Gas
 
Conventional
 
Teekay LNG
Carriers
 
Tankers
 
Total
 
Three Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
92,700

 
87,260

 
11,585

 
13,398

 
104,285

 
100,658

Voyage expenses
(716
)
 
(175
)
 
(750
)
 
(180
)
 
(1,466
)
 
(355
)
Vessel operating expenses
(22,172
)
 
(16,751
)
 
(4,552
)
 
(5,304
)
 
(26,724
)
 
(22,055
)
Depreciation and amortization
(22,580
)
 
(19,317
)
 
(2,400
)
 
(4,724
)
 
(24,980
)
 
(24,041
)
General and administrative expenses (1)
(2,330
)
 
(3,008
)
 
(463
)
 
(565
)
 
(2,793
)
 
(3,573
)
Loss on sale of vessels
—

 
—

 
(38,000
)
 
—

 
(38,000
)
 
—

Income (loss) from vessel oper ations
44,902

 
48,009

 
(34,580
)
 
2,625

 
10,322

 
50,634

 
 
 
 
 
 
 
 
 
 
 
 
Equity income
1,417

 
13,514

 
—

 
—

 
1,417

 
13,514

 
 
 
 
 
 
 
 
 
 
 
 
Calendar-Ship-Days  (2)
 
 
 
 
 
 
 
 
 
 
 
Liquefied Gas Carriers
2,116

 
1,916

 
—

 
—

 
2,116

 
1,916

Conventional Tankers
—

 
—

 
460

 
552

 
460

 
552


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(in thousands of U.S. Dollars, except calendar-ship-days)
Liquefied Gas
 
Conventional
 
Teekay LNG
Carriers
 
Tankers
 
Total
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
271,078

 
250,342

 
35,291

 
45,328

 
306,369

 
295,670

Voyage expenses
(1,664
)
 
(418
)
 
(2,235
)
 
(936
)
 
(3,899
)
 
(1,354
)
Vessel operating expenses
(62,211
)
 
(48,717
)
 
(13,902
)
 
(17,603
)
 
(76,113
)
 
(66,320
)
Depreciation and amortization
(69,639
)
 
(58,476
)
 
(8,255
)
 
(12,045
)
 
(77,894
)
 
(70,521
)
General and administrative expenses (1)
(9,283
)
 
(12,049
)
 
(2,309
)
 
(2,816
)
 
(11,592
)
 
(14,865
)
Asset impairments
—

 
—

 
(50,600
)
 
(27,439
)
 
(50,600
)
 
(27,439
)
Income (loss) from vessel operations
128,281

 
130,682

 
(42,010
)
 
(15,511
)
 
86,271

 
115,171

 
 
 
 
 
 
 
 
 
 
 
 
Equity income
6,797

 
52,579

 
—

 
—

 
6,797

 
52,579

 
 
 
 
 
 
 
 
 
 
 
 
Calendar-Ship-Days  (2)
 
 
 
 
 
 
 
 
 
 
 
Liquefied Gas Carriers
6,108

 
5,508

 
—

 
—

 
6,108

 
5,508

Conventional Tankers
—

 
—

 
1,535

 
1,887

 
1,535

 
1,887

 
 
 
 
 
 
 
 
 
 
 
 
 
(1)
Includes direct general and administrative expenses and indirect general and administrative expenses allocated to the liquefied gas carriers and conventional tankers based on estimated use of corporate resources.
(2)
Calendar-ship-days presented relate to consolidated vessels.
Teekay LNG – Liquefied Gas Carriers
As at September 30, 2017 , Teekay LNG’s liquefied gas fleet, including newbuildings, included 50 LNG carriers and 30 LPG/Multigas carriers, in which its interests ranged from 20% to 100%. However, the table above only includes the 16 LNG carriers and seven LPG/Multigas carriers that are accounted for under the consolidation method of accounting.
The number of calendar-ship-days for Teekay LNG’s liquefied gas carriers consolidated in its financial results increased to 6,108 days for the nine months ended September 30, 2017 from 5,508 days for the same period in 2016 , as a result of the deliveries of the Creole Spirit, Oak Spirit, and Torben Spirit in February 2016, July 2016, and February 2017, respectively. During the nine months ended September 30, 2017 , two of Teekay LNG's consolidated vessels in this segment were off-hire for repairs, two vessels were off-hire for scheduled dry dockings, and the Torben Spirit was idle for three days prior to its charter contract commencement, compared to three consolidated vessels in this segment being off-hire for a combined 15 days and the Creole Spirit and Oak Spirit being idle for 12 days and 15 days, respectively, prior to their charter contract commencements in the same period last year.
Income from vessel operations for Teekay LNG’s liquefied gas carriers decreased to $44.9 million and $128.3 million for the three and nine months ended September 30, 2017 , respectively, compared to $48.0 million and $130.7 million , respectively, for the same periods last year, primarily as a result of:

•
decreases of $6.3 million and $15.7 million for the three and nine months ended September 30, 2017, respectively, due to uncertainty of collection of hire receipts relating to Teekay LNG's six LPG carriers on charter to Skaugen in the first nine months of 2017;

•
a decrease of $2.4 million for the nine months ended September 30, 2017 relating to 35 days of unscheduled off-hire in the second quarter of 2017 due to repairs required for one of Teekay LNG's LNG carriers;

•
a decrease of $2.2 million for the nine months ended September 30, 2017 due to the Hispania Spirit being off-hire for 31 days in the first quarter of 2017 for a scheduled dry docking; and

•
decreases of $1.7 million and $4.3 million for the three and nine months ended September 30, 2017, respectively, due to higher dry-dock amortization due to recent dry dockings;

partially offset by


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•
increases of $4.7 million and $18.7 million , for the three and nine months ended September 30, 2017 , respectively, as a result of the deliveries of the Oak Spirit, Creole Spirit, and Torben Spirit and the commencements of their charter contracts; and

•
an increase of $3.1 million for the nine months ended September 30, 2017, primarily related to additional revenue recognized related to the accelerated dry docking of two LNG carriers.
Equity income related to Teekay LNG’s liquefied gas carriers decreased to $1.4 million and $6.8 million for the three and nine months ended September 30, 2017 , respectively, compared $13.5 million and $52.6 million for the same periods last year, as set forth in the table below:
(in thousands of U.S. Dollars)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Angola
 
Exmar
 
Exmar
 
MALT
 
RasGas 3
 
 
 
Total
 
LNG
 
LNG
 
LPG
 
LNG
 
LNG
 
 
 
Equity
 
Carriers
 
Carriers
 
Carriers
 
Carriers
 
Carriers
 
Other
 
Income
Three months ended September 30, 2017
3,987

 
1,990

 
(2,112
)
 
(4,633
)
 
2,973

 
(788
)
 
1,417

Three months ended September 30, 2016
7,007

 
2,536

 
2,978

 
(4,232
)
 
5,424

 
(199
)
 
13,514

Difference
(3,020
)
 
(546
)
 
(5,090
)
 
(401
)
 
(2,451
)
 
(589
)
 
(12,097
)
(in thousands of U.S. Dollars)
Angola
 
Exmar
 
Exmar
 
MALT
 
RasGas 3
 
 
 
Total
 
LNG
 
LNG
 
LPG
 
LNG
 
LNG
 
 
 
Equity
 
Carriers
 
Carriers
 
Carriers
 
Carriers
 
Carriers
 
Other
 
Income
Nine months ended September 30, 2017
10,633

 
6,627

 
(1,765
)
 
(15,019
)
 
11,898

 
(5,577
)
 
6,797

Nine months ended September 30, 2016
5,241

 
6,718

 
14,796

 
9,912

 
16,329

 
(417
)
 
52,579

Difference
5,392

 
(91
)
 
(16,561
)
 
(24,931
)
 
(4,431
)
 
(5,160
)
 
(45,782
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The $3.0 million decrease and $5.4 million increase for the three and nine months ended September 30, 2017 , respectively, in Teekay LNG's 33% investment in the four Angola LNG Carriers were primarily due to mark-to-market changes on non-designated derivative instruments. The mark-to-market changes resulted from changes in long-term LIBOR benchmark interest rates for interest rate swaps compared to the same periods last year.

The $5.1 million and $16.6 million decreases for the three and nine months ended September 30, 2017 , respectively, in Teekay LNG's 50% ownership interest in the Exmar LPG Joint Venture were primarily due to more vessels trading in the spot market at lower rates during 2017 compared to higher fixed rates earned in the same periods last year, the scheduled dry dockings of the Eupen and Brussels in the second and third quarters of 2017, respectively; and the sale of the Brugge Venture in January 2017. These decreases were partially offset by revenues earned from four LPG carrier newbuildings that delivered to the Exmar LPG Joint Venture between June 2016 and July 2017.

The $24.9 million decrease for the nine months ended September 30, 2017 , in Teekay LNG's 52% investment in the MALT LNG Carriers was primarily due to a settlement payment awarded to the joint venture in 2016 for the disputed contract termination relating to the Magellan Spirit , of which Teekay LNG's proportionate share was $20.3 million; a further deferral effective August 2016 of a portion of the charter payments for the Marib Spirit and Arwa Spirit that are chartered to service the YLNG plant in Yemen, which has been closed since 2015; and lower spot rates earned on the redeployment of the Magellan Spirit and Methane Spirit after their short-term charter contracts ended in June 2016 and July 2016, respectively.
The $2.5 million and $4.4 million decreases for the three and nine months ended September 30, 2017 , respectively, in Teekay LNG's 40% ownership interest in the RasGas 3 LNG Carriers were primarily due to higher interest rate expense resulting from completion of debt refinancing in December 2016 and unrealized losses on interest rate swaps.

The $5.2 million decrease for the nine months ended September 30, 2017 , in Teekay LNG's other equity-accounted investments were primarily due to unrealized losses on interest rate swaps relating to Teekay LNG's 30% ownership interest in the assets for the development of an LNG receiving and regasification terminal in Bahrain (or the Bahrain LNG Joint Venture ) in the second quarter of 2017.
Teekay LNG – Conventional Tankers
As at September 30, 2017 , Teekay LNG’s conventional tanker fleet included four Suezmax-class double-hulled conventional crude oil tankers and one Handymax product tanker, three of which it owns (including the European Spirit , which is classified as held for sale) and two of which it leases under capital leases. All of Teekay LNG’s conventional tankers operate under fixed-rate charters; the European Spirit has been trading in the spot market as Teekay LNG continues to market it for sale.
The number of calendar-ship-days for Teekay LNG’s conventional tankers decreased to 1,535 days for the nine months ended September 30, 2017 from 1,887 days for the same period in 2016 , primarily as a result of the sales of the Bermuda Spirit, Hamilton Spirit and Asian Spirit in April 2016, May 2016 and March 2017, respectively . During the nine months ended September 30, 2017 , the Asian Spirit was idle for 34 days between the time its firm charter contract ended in January 2017 and the time the vessel was sold, compared to no off-hire days during the same period last year.

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Income (loss) from vessel operations for Teekay LNG’s conventional tankers decreased to a loss of $34.6 million and $42.0 million for the three and nine months ended September 30, 2017 , respectively, compared to income of $2.6 million and loss of $15.5 million for the same periods last year, primarily as a result of: 
•
a decrease of $25.5 million for the three and nine months ended September 30, 2017, due to the combined write-downs of the Teide Spirit and Toledo Spirit . In August 2017, the charterer of the Teide Spirit gave formal notification to Teekay LNG of its intention to terminate its charter contract subject to certain conditions being met and third-party approvals being received. In October 2017, the charterer notified Teekay LNG that it is marketing the Teide Spirit for sale and, upon sale of the vessel, it will concurrently terminate its existing charter contract with Teekay LNG. The charterer’s cancellation option for the Toledo Spirit is first exercisable in August 2018. Given Teekay LNG's prior experience with this charterer, Teekay LNG expects it will also cancel the charter contract and sell the Toledo Spirit to a third party in 2018;
•
a decrease of $12.6 million for the nine months ended September 30, 2017, due to the write-down of the European Spirit as Teekay LNG commenced marketing the vessel for sale upon receiving notification from the charterer of the vessel in late-June 2017 that it would redeliver the vessel back to Teekay LNG upon completion of its charter contract in August 2017; and
•
a decrease of $12.5 million for the three and nine months ended September 30, 2017, due to the write-down of the African Spirit as Teekay LNG received notification from the charterer of the vessel in August 2017 that it would redeliver the vessel back to Teekay LNG upon completion of its charter contract in November 2017;
partially offset by
•
an increase of $21.6 million for the nine months ended September 30, 2017 , due to the sales of the Bermuda Spirit and Hamilton Spirit in 2016 and Asian Spirit in the first quarter of 2017, including a $27.4 million loss on sale of vessels in the three months ended March 31, 2016, partially offset by the resulting decrease in operating income in the three and nine months ended September 30, 2017 .

Teekay Tankers
Recent Developments in Teekay Tankers
In September 2017, Teekay Tankers announced that the Board of Directors had authorized a share repurchase program for the repurchase of up to $45.0 million of its shares of Class A common stock in the open market. In addition, Teekay Tankers entered into a voting and support agreement with Huber Capital Management L.L.C. (or Huber Capital ), whereby Huber Capital agreed to vote its shares in favor of increasing the authorized number of shares of Teekay Tankers' Class A common stock to permit the issuance of Class A common stock as consideration for Teekay Tankers' proposed merger (or the Merger ) with Tanker Investments Limited (or TIL ).

In September 2017, Teekay Tankers entered into an agreement to sell one Aframax tanker, the Kareela Spirit . The sale is expected to be completed in the fourth quarter of 2017. The vessel was written down to its agreed sales price, resulting in a loss on sale of the vessel of $3.8 million in the three months ended September 30, 2017. Also, in September 2017, Teekay Tankers completed the sale of one Aframax tanker, the Kanata Spirit , with a loss on sale of $4.2 million recognized in the third quarter of 2017.

In July 2017, Teekay Tankers completed a $153.0 million sale-leaseback financing transaction relating to four of its Suezmax tankers. The transaction is structured as a 12-year bareboat charter at an average rate of approximately $11,100 per day, with purchase options for all four vessels throughout the lease term beginning in July 2020.

In June 2017, Teekay Tankers completed the sale of an Aframax tanker, the Kyeema Spirit . The vessel was written down to its agreed sales price in March 2017. Teekay Tankers recognized a loss on sale of the vessel of $2.8 million in the nine months ended September 30, 2017.

In May 2017, Teekay Tankers entered into a merger agreement (or the Merger Agreement ) to acquire all of the remaining issued and outstanding shares of TIL in a share-for-share merger at an exchange ratio of 3.3 shares of Teekay Tankers' Class A common stock for each share of TIL common stock. TIL owns a modern fleet of ten Suezmax tankers, six Aframax tankers and two Long Range 2 (or LR2) product tankers with an average age of 7.3 years. On November 17, 2017, the TIL shareholders approved the merger and the Teekay Tankers’ shareholders approved an increase in the authorized number of Teekay Tankers’ Class A common shares, to permit the issuance of Class A common shares as merger consideration. Subject to the completion of the remaining closing conditions, Teekay Tankers expects the merger to close on or about November 27, 2017. Upon the closing of the merger, TIL will become a wholly-owned subsidiary of Teekay Tankers.

As part of the accounting for the Merger Agreement, GAAP treats Teekay Tankers' existing non-controlling interest (or equity investment) in TIL as being disposed of at its existing fair value and concurrently repurchased at such fair value which forms part of the cost of the acquisition of the 100% controlling interest in TIL. As a result of the expected closing of the merger, Teekay Tankers recognized an impairment of $28.1 million during the quarter ended June 30, 2017 related to its equity investment in TIL, based on the TIL share price at June 30, 2017. If the merger is completed, Teekay Tankers will be required to again remeasure its equity investment to fair value at the relative share price at the date of the acquisition, which could result in an additional gain or loss. There were no significant changes to the estimated fair value of TIL in the third quarter of 2017 and as a result, no additional impairment was recognized.

On May 31, 2017, Teekay Tankers completed the acquisition from Teekay of the remaining 50% interest in TTOL for $39.0 million, which included $13.1 million for assumed working capital, in exchange for Teekay Tankers' issuance to Teekay of approximately 13.8 million shares of its Class B common stock and working capital consideration of $13.1 million.


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Prior to May 31, 2017, Teekay Tankers owned 50% of TTOL and accounted for this investment using the equity method of accounting. Since Teekay Tankers acquired the remaining 50% of TTOL on May 31, 2017, Teekay Tankers owns 100% of TTOL and now consolidate its results. Periods prior to May 31, 2017 have been recast to include 100% of TTOL results on a consolidated basis in accordance with common control accounting as required under GAAP.

In January and March 2017, Teekay Tankers completed the sales of two Suezmax tankers, the Ganges Spirit and Yamuna Spirit , for an aggregate sales price of $32.6 million. Teekay Tankers recognized a loss on sale of the vessels of $1.8 million in the nine months ended September 30, 2017.

Operating Results – Teekay Tankers
The following table compares Teekay Tankers’ operating results and number of calendar-ship-days for its vessels for the three and nine months ended September 30, 2017 and 2016 .
(in thousands of U.S. Dollars, except calendar-ship-days)
Three Months Ended
 
Nine Months Ended
September 30,
 
September 30,
 
2017
 
2016
 
2017
 
2016
Revenues
91,238

 
109,554

 
330,512

 
427,349

Voyage expenses
(18,303
)
 
(14,638
)
 
(61,488
)
 
(36,488
)
Vessel operating expenses
(40,958
)
 
(44,783
)
 
(131,949
)
 
(136,245
)
Time-charter hire expense
(5,835
)
 
(11,335
)
 
(27,459
)
 
(47,964
)
Depreciation and amortization
(24,328
)
 
(25,888
)
 
(73,652
)
 
(78,576
)
General and administrative
(7,622
)
 
(8,214
)
 
(24,875
)
 
(27,188
)
Loss on sale of vessels
(7,926
)
 
(7,903
)
 
(12,495
)
 
(14,323
)
(Loss) income from vessel operations
(13,734
)
 
(3,207
)
 
(1,406
)
 
86,565

 
 
 
 
 
 
 
 
Equity (loss) income
(274
)
 
567

 
(27,174
)
 
6,416

 
 
 
 
 
 
 
 
Calendar-Ship-Days (1)
 
 
 
 
 
 
 
Conventional Tankers
3,940

 
4,637

 
12,318

 
14,683


(1)
Calendar-ship-days presented relate to owned and in-chartered consolidated vessels.
Tanker Market and TCE Rates
Crude tanker spot rates declined in line with seasonal norms during the third quarter of 2017, as refiners reduced crude oil purchases ahead of autumn maintenance programs. This decline in spot tanker rates was exacerbated by a drawdown in global oil inventories during the third quarter, as crude oil prices moved into a backwardated pricing structure. According to the International Energy Agency ( IEA ), global oil inventories fell by a net 53 million barrels ( mb ) during the third quarter, including a 44 mb decline in floating storage. This had a negative impact on spot tanker rates as the vessels used for floating storage returned to the active trading fleet, which increased vessel supply, although some of the older vessels were sold for scrap.
Crude tanker spot rates received some renewed support towards the end of the third quarter due to hurricane activity in the U.S. Gulf and Caribbean region, which disrupted vessel operations and tightened vessel supply. Crude tanker rates have strengthened further into the fourth quarter of 2017 due to an increase in tanker demand as refineries complete seasonal maintenance. In addition, an increase in long-haul exports from the Atlantic to the Pacific has led to an increase in tanker ton-mile demand in recent weeks. This has been led by U.S. crude exports, which at the end of September 2017 hit a record high of almost 2 million barrels per day ( mb/d ). Higher U.S. crude exports have also added to U.S. Gulf lightering demand in the form of increased reverse lightering operations.
The global tanker fleet grew by 24.5 million deadweight tons (mdwt), or 4.4%, in the first nine months of 2017. This influx of new vessels has put downward pressure on tanker fleet utilization during the year; however, tanker fleet growth is expected to moderate in the coming months, having passed the peak of newbuilding deliveries and as the pace of scrapping picks up. A total of 7.1 mdwt of tankers was scrapped in the first nine months of 2017, a significant increase from 2.5 mdwt of scrapping for the entire year of 2016. In addition, there have been a number of newbuilding contract cancellations so far in 2017, as some shipyards have been unable to acquire refund guarantees from financial institutions. For 2017 as a whole, Teekay Tankers forecasts tanker fleet growth of just over 5%, down from approximately 6% in 2016. Lower fleet growth is expected in 2018 and 2019 as the orderbook continues to roll-off and as tanker scrapping increases, with additional upside from potential further cancellations of newbuilding contracts due to the lack of available refund guarantees.
Global oil demand continues to grow at a robust rate, with the IEA now forecasting demand growth of 1.6 mb/d in 2017 versus a forecast of 1.3 mb/d growth at the start of 2017. The IEA forecasts a further 1.4 mb/d of demand growth in 2018, with most of the growth coming from the Asia-

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Pacific region. High oil demand growth in Asia is drawing more barrels from the Atlantic region into the Pacific, particularly as the Middle East OPEC nations maintain supply cuts, which is positive for overall ton-mile demand.
Overall, Teekay Tankers expects tanker rates to recover during the fourth quarter of 2017, in line with seasonal norms. Looking ahead to 2018, Teekay Tankers expects that a period of lower tanker fleet growth coupled with stronger oil demand and a more balanced oil market should be positive for tanker fleet utilization and therefore crude spot tanker rates, particularly during the second half of the year.

Teekay Tankers – Conventional Tankers
As at September 30, 2017 , Teekay Tankers owned 35 double-hulled conventional oil and product tankers, time-chartered in two Aframax vessels from third parties, had four Suezmax vessels under capital leases from third parties, and owned a 50% interest in one Very Large Crude Carrier (or VLCC) . The average fleet size (including in-chartered vessels), as measured by calendar-ship-days, decreased during the three and nine months ended September 30, 2017 , compared to the same periods in the prior year due to the redeliveries of various in-chartered vessels to their owners at various times during 2016 and 2017 and the sale of two Suezmax product tankers, two Aframax tankers and two MR product tankers in 2016 and 2017 , partially offset by the addition of two Aframax in-chartered vessels that were delivered to us during 2016 and 2017.
Loss from vessel operations increased to $13.7 million and $1.4 million for the three and nine months ended September 30, 2017 , respectively, compared to a loss of $3.2 million and income of $86.6 million , respectively, for the same periods in the prior year, primarily as a result of:
•
decreases of $12.1 million and $57.7 million for the three and nine months ended September 30, 2017 , respectively, due to lower average realized rates earned by Teekay Tankers' Suezmax, Aframax and LR2 fleets;
•
a net decrease of $24.4 million for the nine months ended September 30, 2017 , due to various vessel employment changes in response to changing tanker market rates;
•
a net decrease of $12.6 million for the nine months ended September 30, 2017 , primarily due to the redeliveries of various in-chartered vessels to their owners at various times during 2016 and 2017 and the sale of two Suezmax product tankers, two Aframax tankers and two MR product tankers in 2016 and 2017 , partially offset by the addition of two Aframax in-chartered vessels that were delivered to us during 2016 and 2017;
•
a decrease of $1.2 million for the nine months ended September 30, 2017 , due to in-process revenue contract amortization that Teekay Tankers recognized in revenue in the first quarter of 2016; and
•
a decrease of $1.0 million for the three months ended September 30, 2017 , due to more off-hire days compared to the same period in the prior year;
partially offset by 
•
increases of $1.3 million and $3.6 million for the three and nine months ended September 30, 2017 , respectively, primarily due to higher transition costs incurred in 2016 compared to 2017 directly relating to 12 Suezmax tankers which Teekay Tankers acquired in the latter part of 2015, lower insurance costs and transitioning technical management in-house;
•
an increase of $1.2 million for the nine months ended September 30, 2017 , primarily due to higher legal expenses incurred in the first quarter of 2016 related to the STX Offshore & Shipbuilding Co., Ltd. arbitration;
•
an increase of $1.2 million for the nine months ended September 30, 2017 , due to fewer off-hire days compared to the same period in the prior year; and
•
an increase of $0.8 million for the nine months ended September 30, 2017 , due to higher average rates earned on out-chartered Aframax tankers.
Equity loss was $0.3 million and $27.2 million for the three and nine months ended September 30, 2017 , respectively, compared to equity income of $0.6 million and $6.4 million , respectively, for the same periods in the prior year. The changes were primarily due to:
 
•
decreases of $0.7 million and $32.7 million for the three and nine months ended September 30, 2017, respectively, primarily due to a $28.1 million write-down of Teekay Tankers' investment in TIL to its fair market value and lower equity earnings resulting from lower average realized spot rates earned; and

•
decreases of $0.1 million and $1.1 million for the three and nine months ended September 30, 2017, respectively, from Teekay Tankers' High-Q joint venture primarily resulting from a profit share payment recognized in the second quarter of 2016 as VLCC rates averaged above certain thresholds, triggering a profit sharing arrangement with the customer.

Teekay Parent
Recent Developments in Teekay Parent

In October 2017, Teekay Parent terminated prior to their expiration dates the charter-in contracts for its last two remaining in-chartered conventional tankers, the Constitution Spirit and Sentinel Spirit , resulting in a total net termination fee payment of approximately $1.6 million. The vessels were redelivered in October 2017.

In September 2017, Teekay and Teekay Offshore completed the Brookfield Transaction, which is explained more fully in “Equity Accounted Investment in Teekay Offshore - Recent Developments in Teekay Offshore.”

The Petrojarl Banff FPSO unit has been operating on the Banff field since its delivery nearly 20 years ago under a charter contract with Canadian Natural Resources (or CNR ) that permitted CNR to terminate the contact at any time with six months’ notice. In January 2017, Teekay Parent entered into a contract amendment with CNR to ensure the unit will stay on the current field at least until the third quarter of 2018 and to revise the charter rate structure to include a variable component (through an oil price and oil production tariff) in addition to a fixed charter rate.

In the first half of 2016, the Hummingbird Spirit FPSO unit was operating in the latter part of its charter contract with Centrica Energy (or Centrica ) whereby Centrica could terminate the contract at any time with 90 days’ notice. In June 2016, Teekay Parent entered into a contract amendment
with Centrica to extend the firm period to September 2017 (with Centrica's right to terminate the contract no earlier than March 1, 2017) in exchange for a lower fixed charter rate and an oil price tariff. The contract amendment took effect on July 1, 2016. In February 2017, Teekay Parent entered into a new heads of terms with Centrica to extend the contract for an additional three years from October 2017 to September 2020. This contract extension was completed during the second quarter of 2017.
Operating Results – Teekay Parent
The following table compares Teekay Parent’s operating results and the number of calendar-ship-days for its vessels for the three and nine months ended September 30, 2017 and 2016 .
 
(in thousands of U.S. Dollars, except calendar-ship-days)
Offshore
 
Conventional
 
Other and
 
Teekay Parent
Production
 
Tankers
 
Corporate G&A
 
Total
 
Three Months Ended September 30, 2017
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
51,254

 
53,592

 
1,041

 
6,982

 
19,727

 
17,258

 
72,022

 
77,832

Voyage expenses
(9
)
 
(165
)
 
(92
)
 
(106
)
 
(461
)
 
(705
)
 
(562
)
 
(976
)
Vessel operating expenses
(40,438
)
 
(32,998
)
 
(1,457
)
 
(3,698
)
 
(9,879
)
 
(6,920
)
 
(51,774
)
 
(43,616
)
Time-charter hire expense
(7,714
)
 
(11,394
)
 
(2,423
)
 
(3,348
)
 
(11,831
)
 
(12,048
)
 
(21,968
)
 
(26,790
)
Depreciation and amortization
(17,320
)
 
(17,713
)
 
—

 
—

 
79

 
113

 
(17,241
)
 
(17,600
)
General and administrative expenses (1)
(4,071
)
 
(3,966
)
 
(146
)
 
(193
)
 
2,767

 
(1,777
)
 
(1,450
)
 
(5,936
)
Asset impairments
(205,659
)
 
—

 
—

 
—

 
—

 
—

 
(205,659
)
 
—

Restructuring charges
—

 
(472
)
 
—

 
—

 
(186
)
 
(1,843
)
 
(186
)
 
(2,315
)
(Loss) income from vessel o perations
(223,957
)
 
(13,116
)
 
(3,077
)
 
(363
)
 
216

 
(5,922
)
 
(226,818
)
 
(19,401
)
 
 
 
 
 
 
 
 
 
 
 
 
 

 


Equity (loss) income
(750
)
 
2,479

 
(774
)
 
102

 
(1,485
)
 
(328
)
 
(3,009
)
 
2,253

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Calendar-Ship-Days  (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FPSO Units
276

 
276

 
—

 
—

 
—

 
—

 
276

 
276

Conventional Tankers
—

 
—

 
184

 
290

 
—

 
—

 
184

 
290

Gas Carriers
—

 
—

 
—

 
—

 
184

 
184

 
184

 
184

FSO Units
92

 
92

 
—

 
—

 
184

 
184

 
276

 
276

Shuttle Tankers
184

 
184

 
—

 
—

 
—

 
—

 
184

 
184

Bunker Barges
—

 
—

 
—

 
—

 
92

 
184

 
92

 
184



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(in thousands of U.S. Dollars, except calendar-ship-days)
Offshore
 
Conventional
 
Other and
 
Teekay Parent
Production
 
Tankers
 
Corporate G&A
 
Total
 
Nine Months Ended September 30, 2017
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
2017
 
2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenues
143,769

 
167,398

 
4,965

 
30,566

 
47,149

 
60,698

 
195,883

 
258,662

Voyage expenses
(18
)
 
(183
)
 
2

 
(254
)
 
(1,334
)
 
(2,360
)
 
(1,350
)
 
(2,797
)
Vessel operating expenses
(110,840
)
 
(115,850
)
 
(4,877
)
 
(8,807
)
 
(26,788
)
 
(19,550
)
 
(142,505
)
 
(144,207
)
Time-charter hire expense
(26,814
)
 
(25,275
)
 
(8,182
)
 
(20,234
)
 
(34,565
)
 
(35,859
)
 
(69,561
)
 
(81,368
)
Depreciation and amortization
(51,959
)
 
(53,309
)
 
—

 
(1,717
)
 
198

 
337

 
(51,761
)
 
(54,689
)
General and administrative
expenses (1)
(11,355
)
 
(10,623
)
 
(432
)
 
(663
)
 
(3,228
)
 
(6,160
)
 
(15,015
)
 
(17,446
)
Asset impairments
(205,659
)
 
—

 
—

 
(12,535
)
 
—

 
—

 
(205,659
)
 
(12,535
)
Restructuring charges
(110
)
 
(1,317
)
 
—

 
—

 
(1,802
)
 
(19,280
)
 
(1,912
)
 
(20,597
)
Loss from vessel operations
(262,986
)
 
(39,159
)
 
(8,524
)
 
(13,644
)
 
(20,370
)
 
(22,174
)
 
(291,880
)
 
(74,977
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Equity income (loss)
1,190

 
(573
)
 
(21,455
)
 
5,047

 
(2,672
)
 
(891
)
 
(22,937
)
 
3,583

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Calendar-Ship-Days (2)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
FPSO Units
819

 
822

 
—

 
—

 
—

 
—

 
819

 
822

Conventional Tankers
—

 
—

 
546

 
1,088

 
—

 
—

 
546

 
1,088

Gas Carriers
—

 
—

 
—

 
—

 
546

 
548

 
546

 
548

FSO Units
273

 
274

 
—

 
—

 
546

 
548

 
819

 
822

Shuttle Tankers
546

 
548

 
—

 
—

 
—

 
—

 
546

 
548

Bunker Barges
—

 
—

 
—

 
—

 
273

 
548

 
273

 
548


(1)
Includes direct general and administrative expenses and indirect general and administrative expenses allocated to offshore production, conventional tankers and other and corporate G&A based on estimated use of corporate resources.
(2)
Apart from three FPSO units in 2017 and 2016 and one conventional tanker in 2016, all remaining calendar-ship-days presented relate to in-chartered days.
Teekay Parent – Offshore Production

Offshore Production consists primarily of Teekay Parent's FPSO units. As at September 30, 2017 , Teekay Parent had direct interests in three 100%-owned operating FPSO units.

The Hummingbird Spirit FPSO unit's charter contract includes an incentive compensation component based on the oil price. In addition, the Petrojarl Foinaven FPSO unit’s charter contract includes incentives based on total oil production for the year, certain operational measures, and the average annual oil price. The declines in the price of oil have negatively impacted Teekay Parent's incentive compensation under these contracts and may negatively impact its future revenues if the oil prices remain at or fall below current levels.

Asset impairments for the three months and nine months ended September 30, 2017 primarily relate to the impairments of the Petrojarl Banff and Petrojarl Foinaven FPSO units. Factors contributing to the impairments included changes to the estimated cash flows and carrying values of the asset group for impairment assessment purposes under US GAAP as a result of the deconsolidation of Teekay Offshore on September 25, 2017, and a re-evaluation of the estimated future net cash flows of the units. Please read "Item 1 - Financial Statements: Note 7a - Asset Impairments".
Loss from vessel operations for Teekay Parent’s Offshore Production business was $224.0 million and $263.0 million for the three and nine months ended September 30, 2017 , respectively, compared to losses of $13.1 million and $39.2 million for the same periods last year. The changes were primarily as a result of: 
•
an increase in loss of $205.7 million for the three and nine months ended September 30, 2017, from impairment charges in respect of the Petrojarl Banff and Petrojarl Foinaven FPSO units, described above;
•
an increase in loss of $15.2 million for the nine months ended September 30, 2017, related to the  Hummingbird Spirit  FPSO unit primarily due to the contract amendment described above that took effect on July 1, 2016; and

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•
increases in losses of $10.9 million and $17.8 million , for the three and nine months ended September 30, 2017, respectively, related to the  Petrojarl Foinaven  FPSO unit primarily due to lower revenue earned and higher repairs and maintenance costs incurred during the shutdown in the third quarter for 2017, and insurance proceeds recognized in 2016;
partially offset by
•
decreases in losses of $5.6 million and $10.6 million , respectively, for the three and nine months ended September 30, 2017, related to the  Petrojarl Banff  FPSO unit primarily due to higher day rate and tariff earned in 2017 due to the contact amendment described above and higher repairs and maintenance costs in 2016 due to the temporary loss of two mooring lines in the second quarter of 2016, partially offset by insurance proceeds received in 2016;
•
a decrease in loss of $2.9 million for the nine months ended September 30, 2017, primarily due to cost-saving initiatives in 2016 through to 2017; and
•
decrease in loss of $1.4 million for the nine months ended September 30, 2017 primarily due to reorganization of the FPSO business in 2016.
Teekay Parent – Conventional Tankers
As at September 30, 2017 , Teekay Parent had chartered in two conventional tankers from third parties. The average fleet size (including in-chartered vessels), as measured by calendar-ship-days, decreased during the three and nine months ended September 30, 2017 , compared to the same periods in the prior year due to the redeliveries of one Aframax in-chartered vessel to Teekay Offshore and two Aframax in-chartered vessels to Teekay Tankers and due to the sale of one VLCC during 2016.
Loss from vessel operations for Teekay Parent’s conventional tankers was $3.1 million and $8.5 million for the three and nine months ended September 30, 2017 , respectively, compared to losses of $0.4 million and $13.6 million in the same periods in the prior year. The changes were primarily as a result of:
•
a decrease in loss of $12.5 million for the three and nine months ended September 30, 2017, due to the write-down of the VLCC to its agreed sales price in the second quarter of 2016; and
•
a decrease in loss of $4.0 million for the nine months ended September 30, 2017, due to a cancellation fee paid by Teekay Parent to Teekay Offshore in the first quarter of 2016 related to the termination of a time-charter contract;
partially offset by
•
increases in losses of $2.2 million and $5.3 million for the three and nine months ended September 30, 2017, respectively, due to the redeliveries of one Aframax in-chartered vessel to Teekay Offshore and two Aframax in-chartered vessels to Teekay Tankers and the sale of the VLCC;
•
an increase in loss of $2.0 million for the nine months ended September 30, 2017, due to a distribution received from Gemini Pool L.L.C. in the first quarter of 2016; and
•
increases in losses of $1.4 million and $5.1 million for the three and nine months ended September 30, 2017, respectively, due to lower average realized TCE rates earned during such periods.
Teekay Parent – Other and Corporate G&A
As at September 30, 2017 , Teekay Parent had two chartered-in LNG carriers owned by Teekay LNG, two chartered-in FSO units owned by Teekay Offshore and one chartered-in bunker barge from a third party.
Income (loss) from vessel operations for Teekay Parent’s Other and Corporate G&A was income of $0.2 million and a loss of $20.4 million for the three and nine months ended September 30, 2017 , respectively, compared to losses of $5.9 million and $22.2 million in the same periods in the prior year. The changes were primarily as a result of: 
•
decreases in losses of $3.4 million and $7.7 million for the three and nine months ended September 30, 2017, respectively, from Teekay Parent's in-chartered LNG carriers primarily due to the start of the one-year charter contract for the Polar Spirit LNG carrier in the second quarter of 2017 and the start of a seven-month contract for the Arctic Spirit LNG carrier in the third quarter of 2017; and
•
a decrease in loss of $3.3 million for the three months ended September 30, 2017, due to certain cost recoveries from Teekay Offshore in the third quarter of 2017;
partially offset by
•
an increase in loss of $3.4 million for the nine months ended September 30, 2017, due to an increase in general and administrative expenses, primarily due to an increase in legal costs, and restructuring charges incurred in 2017 relating to the reorganization and realignment of resources of certain of Teekay's strategic development functions to better respond to the changing business environment;
•
an increase in loss of $1.7 million for the nine months ended September 30, 2017, due to transaction fees received from TIL in the first quarter of 2016 for our arrangement of the sale of the Voss Spirit and Hemsedal Spirit by TIL; and
•
increases in losses of $1.0 million and $1.3 million for the three and nine months ended September 30, 2017, respectively, due to higher operating costs related to our ship management business in Australia.


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Equity loss was $3.0 million and $22.9 million , respectively, for the three and nine months ended September 30, 2017 , compared to equity income of $2.3 million and $3.6 million in the same periods in the prior year, primarily due to a $20.5 million write-down of Teekay Parent's investment in TIL in June 2017 and lower equity earnings from lower average realized spot rates earned by TIL in the 2017 periods.

Equity Accounted Investment in Teekay Offshore
Recent Developments in Teekay Offshore
In September 2017, Teekay, Teekay Offshore and Brookfield finalized the strategic partnership with Brookfield and related transactions (or the Brookfield Transaction ), which included, among other things, the following:
•
Brookfield and Teekay invested $610.0 million and $30.0 million, respectively, in exchange for 244.0 million and 12.0 million common units of Teekay Offshore, respectively, and 62.4 million and 3.1 million common unit warrants (or the Brookfield Transaction Warrants ), with an exercise price of $0.01 per unit, a term of seven years, and which are exercisable when Teekay Offshore's common unit volume-weighted average price is equal to or greater than $4.00 per common unit until the seventh anniversary of the closing of the transaction for 10 consecutive trading days until September 25, 2024;

•
Brookfield acquired from Teekay a 49% interest in Teekay Offshore's general partner in exchange for $4.0 million and an option to purchase an additional 2.0% interest in Teekay Offshore's general partner from Teekay in exchange for 1.0 million of the Brookfield Transaction Warrants initially issued to Brookfield;

•
Teekay Offshore repurchased and cancelled all of its outstanding Series C-1 and Series D Preferred Units at a redemption value of $18.20 and $23.75 per unit, respectively, which included Teekay's investment in 1,040,000 Series D Preferred Units. The Series D tranche B Warrants to purchase Teekay Offshore common units, which were issued as part of the Series D Preferred Units on June 29, 2016, were amended to reduce the exercise price from $6.05 to $4.55;

•
Brookfield acquired from a subsidiary of Teekay, the $200 million subordinated promissory note issued by Teekay Offshore on July 1, 2016 and which Brookfield extended the maturity from 2019 to 2022, in consideration for $140.0 million and 11.4 million of the Brookfield Transaction Warrants initially issued to Brookfield;

•
Teekay Offshore has reached agreement in principle with the lenders of the Arendal Spirit UMS debt facility to extend the mandatory prepayment date to September 30, 2018, in exchange for a principal prepayment of $30 million, which was paid in October 2017; and
•
Certain financial institutions providing interest rate swaps to Teekay Offshore (i) lowered the fixed interest rate on the swaps, (ii) extended the termination option of the swaps by two years to 2021, and (iii) eliminated the financial guarantee and security package previously provided by Teekay in return for a prepayment amount and fees.
As part of the Brookfield Transaction, Teekay Offshore has reduced its existing common unit distribution to $0.01 per common unit to reinvest cash in the business and further strengthen Teekay Offshore’s balance sheet.

For additional information about these and related proposed transactions, please see Teekay’s Report on Form 6-K furnished to the SEC on August 1, 2017.

In early-October 2017, the  Randgrid  FSO, which was converted from one of Teekay Offshore's shuttle tankers at Sembcorp’s Sembawang shipyard in Singapore, commenced its three-year charter contract with Statoil ASA ( Statoil ), including 12 additional one-year extension options, on the Gina Krog oil and gas field in the Norwegian sector of the North Sea.
In October 2017 and November 2017, Teekay Offshore took delivery of the first two East Coast of Canada shuttle tanker newbuildings, the Beothuk Spirit and the Norse Spirit, which are expected to commence 15-year charter contracts, plus extension options in December 2017 and January 2018, respectively, with a group of oil companies. These newbuildings will replace the existing in-chartered vessels servicing the East Coast of Canada, with the first vessel transferring to the North Sea to operate in Teekay Offshore's contract of affreightment (or CoA ) fleet and the second vessel redelivering to its owner.
In October 2017, Teekay Offshore took delivery of the third of four state-of-the-art SX-157 Ulstein Design ultra-long distance towing and offshore installation newbuildings, the ALP Sweeper , constructed by Niigata Shipbuilding & Repair in Japan. Due to the delayed delivery of the vessel, Teekay Offshore received a reimbursement from the shipyard of $8.1 million during the second quarter of 2017.
In October 2017, the Navion Saga FSO unit was delivered to its buyers. Teekay Offshore received gross proceeds of $7.4 million, resulting in a gain on sale of approximately $0.5 million recorded during the fourth quarter of 2017. The unit had been classified as held for sale as at September 30, 2017.
In July 2017, Teekay Offshore entered into shipbuilding contracts with Samsung Heavy Industries Co. Ltd., to construct two Suezmax DP2 shuttle tanker newbuildings, for an aggregate fully built-up cost of approximately $294 million , with options to order up to two additional vessels. These newbuilding vessels will be constructed based on Teekay Offshore's New Shuttle Spirit design which incorporates technologies to increase fuel efficiency and reduce emissions, including LNG propulsion technology. Upon delivery in late-2019 and early-2020, these vessels will provide shuttle tanker services in the North Sea under Teekay Offshore's existing master agreement with Statoil, which will add vessel capacity to service Teekay Offshore's CoA portfolio in the North Sea.

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In July 2017, Teekay Offshore signed an amendment to the Petrojarl I FPSO five-year charter contract with Queiroz Galvão Exploração e Produção SA (or QGEP ). The amended charter contract includes an extension to the delivery window for the project and an adjusted charter rate profile which reduces the day rate for the FPSO unit during the first 18 months of production. During the final 3.5 years of the contract, the charter contract will revert to a rate that is higher than the original day rate plus oil price and production tariffs, which will provide the potential for Teekay Offshore to recover more than the reduction given in the first 18 months of the charter contract. The start-up of oil production on the Atlanta Field is expected to occur in the first quarter of 2018.
In June 2017, Teekay Offshore took delivery of the ALP Defender , the second of the four state-of-the-art SX-157 Ulstein Design ultra-long distance towing and offshore installation newbuildings being constructed by Niigata Shipbuilding & Repair in Japan. Due to the delayed delivery of the vessel, during the second quarter of 2017, Teekay Offshore received a reimbursement from the shipyard of $8.5 million and received an advance payment on a $15.8 million reimbursement related to delayed deliveries of the remaining two ultra-long distance towing and offshore installation newbuildings, which were not yet delivered at that time.
In June 2017, Teekay Offshore finalized a three-year shuttle tanker CoA to service a development in the U.K. North Sea. The CoA which is expected to commence during the third quarter of 2017 and require the use of up to approximately 0.6 shuttle tanker equivalents per annum, will be serviced by Teekay Offshore's existing CoA shuttle tanker fleet.
In May 2017, Teekay Offshore completed a five-year contract extension, plus extension options, for the Falcon Spirit FSO unit, which extension commenced June 1, 2017. The contract extension includes a termination fee payable if the contract is terminated prior to mid-2018. The Falcon Spirit FSO unit operates on the Al Rayyan field located offshore Qatar.
In April 2017, Petroleo Netherlands B.V. notified Logitel Offshore Norway AS, a subsidiary of Teekay Offshore, that Petroleo Netherlands B.V. was terminating the charter contract for the Arendal Spirit UMS and would not pay the charter hire payments from November 2016. Teekay Offshore has disputed the termination and is reviewing its legal options, including the initiation of a claim for unpaid standby fees and damages for wrongful termination of the time-charter contract. The unit is currently proceeding into lay-up. In mid-April 2016, during the process of lifting off the gangway connecting the Arendal Spirit to an FPSO unit, the gangway of the Arendal Spirit suffered damage. During the gangway replacement, the Arendal Spirit was declared off-hire. The gangway was replaced in mid-June 2016 and the Arendal Spirit was declared on-hire in early-July 2016. In early-November 2016, the unit experienced an operational incident relating to the dynamic positioning system and, as a result, Petroleo Netherlands B.V. suspended its charter hire payments beginning November 6, 2016 to complete an operational review relating to this incident.
In March 2017, Teekay Offshore finalized a five-year shuttle tanker CoA, plus extension options, with a consortium of oil companies to service a development located in the U.K. Central North Sea. This CoA is expected to commence during the first quarter of 2018 and will be serviced by Teekay Offshore's existing CoA shuttle tanker fleet. The CoA is expected to require the use of up to approximately 0.6 shuttle tanker equivalents per annum.
In March 2017, Teekay Offshore entered into a six-month, customer-funded, front-end engineering and design (or FEED ) study agreement for the Petrojarl Varg FPSO unit with Alpha Petroleum Resources Limited, which is backed by private equity firm Petroleum Equity, for the development of the Cheviot field, formerly known as the Emerald field, located in the U.K. sector of the North Sea. The purpose of the FEED study is to define the modifications required for the Petrojarl Varg FPSO unit and use it to negotiate the terms of a potential FPSO contract for the development of the Cheviot field. The FEED study is due to be completed in late-2017.


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Operating Results – Teekay Offshore
The following table compares Teekay Offshore’s operating results and number of calendar-ship-days for its vessels for the three and nine months ended September 25, 2017 and three and nine months ended September 30, 2016 .
(in thousands of U.S. Dollars, except calendar-ship-days)
Teekay Offshore
Three Months Ended
Nine Months Ended

September 30,
September 30,

2017 (1)
 
2016
2017 (1)
 
2016



 

 
 
 
Revenues
255,781

 
286,298

796,711

 
877,470

Voyage expenses
(23,465
)
 
(21,495
)
(68,802
)
 
(57,427
)
Vessel operating expenses
(81,110
)
 
(94,073
)
(249,805
)
 
(279,972
)
Time-charter hire expense
(19,329
)
 
(18,894
)
(60,592
)
 
(53,045
)
Depreciation and amortization
(70,393
)
 
(74,159
)
(219,406
)
 
(223,138
)
General and administrative expenses
(18,403
)
 
(15,201
)
(46,399
)
 
(43,491
)
Asset impairments (2)
—

 
—

(1,500
)
 
(43,650
)
Net gain (loss) on sale of equipment
—

 
65

—

 
(115
)
Restructuring charges
(2,697
)
 
(802
)
(3,147
)
 
(2,323
)
Income from vessel operations
40,384

 
61,739

147,060

 
174,309


 
 


 
 
 
Equity income
4,128

 
4,937

12,028

 
13,846




 


 
 
 
Calendar-Ship-Days (3)


 


 
 
 
Shuttle Tankers
2,703

 
2,977

8,378

 
8,908

FSO Units
602

 
644

1,869

 
1,918

FPSO Units
516

 
552

1,602

 
1,644

Towage Units
688

 
571

2,018

 
1,663

UMS Unit
86

 
92

267

 
274

Conventional Tankers
172

 
184

534

 
548


(1)
On September 25, 2017, we deconsolidated Teekay Offshore ( please read "Item 1 - Financial Statements: Note 3 - Deconsolidation of Teekay Offshore") . Figures represent Teekay Offshore's results for the period up to September 25, 2017.
(2)
Commencing on September 25, 2017, Teekay accounts for its investment in Teekay Offshore using the equity method, and recognized an equity loss of $3.1 million for the three and nine months ended September 30, 2017. In the period after deconsolidation of Teekay Offshore to September 30, 2017, Teekay Offshore incurred impairment charges of $316.7 million which did not impact the equity loss recognized by Teekay as Teekay recognized its equity-accounted investment in Teekay Offshore at fair value on September 25, 2017.
(3)
Calendar-ship-days presented relate to owned and in-chartered consolidated vessels up to September 25, 2017.

As at September 30, 2017, Teekay Offshore's FPSO fleet consisted of the Petrojarl Knarr , the Petrojarl Varg, the Cidade de Rio das Ostras (or Rio das Ostras ) , the Piranema Spirit , the Voyageur Spirit , and the Petrojarl I FPSO units , all of which Teekay Offshore owns 100%, and the Itajai and the Libra FPSO units, of which Teekay Offshore owns 50%. One equity accounted FPSO unit, the Libra FPSO unit owned through Teekay Offshore's 50/50 joint venture with Odebrecht Oil and Gas S.A., has completed its conversion into an FPSO unit and arrived at the Libra field located in the Santos Basin offshore Brazil where it is expected to commence operations in the fourth quarter of 2017. The Petrojarl I FPSO unit has undergone upgrades at the Damen Shipyard Group's DSR Schiedam Shipyard (or Damen ) in the Netherlands and will complete upgrades at the Aibel AS shipyard in Norway. The Petrojarl I FPSO unit is scheduled to commence operations under a five-year charter contract with QGEP in early-2018.
In late-2015, Teekay Offshore received a termination notice for the Petrojarl Varg FPSO charter contract from Repsol S.A. (or Repsol ), based on a termination right that was specific to the Petrojarl Varg FPSO contract. In accordance with the termination provision of the charter contract, the charterer ceased paying the capital component of the charter hire six months prior to the redelivery date, which occurred at the end of July 2016.
FPSO units provide production, processing and storage services to oil companies operating offshore oil field installations. These services are typically provided under long-term, fixed-rate FPSO contracts, some of which also include certain incentive compensation or penalties based on the level of oil production and other operational measures. Historically, the utilization of FPSO units and other vessels in the North Sea, where the Petrojarl Knarr and Voyageur Spirit operate, is higher in the winter months, as favorable weather conditions in the summer months provide opportunities for repairs and maintenance to Teekay Offshore's units and the offshore oil platforms, which generally reduces oil production. The

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strengthening or weakening of the U.S. Dollar relative to the Norwegian Kroner, Brazilian Real, and British Pound may result in significant decreases or increases, respectively, in Teekay Offshore's revenues and vessel operating expenses.
As at September 30, 2017, Teekay Offshore's shuttle tanker fleet consisted of 30 vessels that operate under fixed-rate CoAs, time charters and bareboat charters, five shuttle tanker newbuildings (two of which shuttle tanker newbuildings were delivered to Teekay Offshore in October 2017 and November 2017, respectively), and the HiLoad DP unit, which is currently in lay-up. Of these 36 shuttle tankers, six are owned through 50%-owned subsidiaries and three were chartered-in. The remaining vessels are owned 100% by Teekay Offshore. One unit, the Navion Marita was held for sale as at September 2017. All of Teekay Offshore's operating shuttle tankers, with the exception of the HiLoad DP unit, provide transportation services to energy companies in the North Sea, Brazil and the East Coast of Canada. Teekay Offshore's shuttle tankers occasionally service the conventional spot tanker market. The strengthening or weakening of the U.S. Dollar relative to the Norwegian Kroner, Euro and Brazilian Real may result in significant decreases or increases, respectively, in Teekay Offshore's vessel operating expenses.
The average size of Teekay Offshore's owned shuttle tanker fleet decreased for the three and nine months ended September 30, 2017, compared to the same periods last year, primarily due to the sale of the Navion Torinita and the Navion Europa in January 2016 and November 2016, respectively. Five shuttle tanker newbuildings have been excluded from calendar-ship-days as these vessels were not yet delivered to Teekay Offshore as at September 30, 2017.
As at September 30, 2017, Teekay Offshore's FSO fleet consisted of five units that operate under fixed-rate time charters or fixed-rate bareboat charters, for which Teekay Offshore's ownership interests range from 89% to 100%, one unit, the Randgrid, for which Teekay Offshore's ownership interest is 100%, and one idle unit, the Navion Saga , for which Teekay Offshore's ownership interest is 100%. The Randgrid completed its conversion from a shuttle tanker to an FSO unit in June 2017 and commenced operations in early-October 2017 at the Gina Krog oil and gas field located in the North Sea, under a three-year time-charter contract, which includes 12 additional one-year extension options. The Navion Saga FSO unit was sold in October 2017.
FSO units provide an on-site storage solution to oil field installations that have no oil storage facilities or that require supplemental storage. Teekay Offshore's revenues and vessel operating expenses for the FSO segment are affected by fluctuations in currency exchange rates, as a significant component of revenues are earned and vessel operating expenses are incurred in Norwegian Kroner and Australian Dollars for certain vessels. The strengthening or weakening of the U.S. Dollar relative to the Norwegian Kroner or Australian Dollar may result in significant decreases or increases, respectively, in Teekay Offshore's revenues and vessel operating expenses.
As at September 30, 2017, Teekay Offshore's UMS fleet consisted of one unit, the Arendal Spirit , in which Teekay Offshore owns a 100% interest. The Arendal Spirit was off-hire from mid-April 2016 until early-July 2016 due to damage suffered to the gangway of the unit. No revenue has been recognized for this unit since November 2016, for the reasons described above.

As at September 30, 2017, Teekay Offshore's towage vessel fleet consisted of eight long-distance towing and offshore installation vessels and two long-distance towing and offshore installation vessel newbuildings, one of which, the ALP Sweeper, delivered in October 2017 and the remaining one is scheduled to deliver in early-2018. Teekay Offshore owns a 100% interest in each of the vessels in the towage fleet. Long-distance towing and offshore installation vessels are used for the towage, station-keeping, installation and decommissioning of large floating objects, such as exploration, production and storage units, including FPSO units, floating liquid natural gas units and floating drill rigs.
The average number of Teekay Offshore's owned towing and offshore installation vessels increased for the three and nine months ended September 30, 2017, compared to the same periods last year, due to the delivery of two newbuilding vessels, the ALP Striker and the ALP Defender, in September 2016 and June 2017, respectively. The average number of Teekay Offshore's chartered-in towing and offshore installation vessels increased for the nine months ended September 30, 2017, compared to the same period last year, due to the in-chartering of two vessels for a project completed during the nine months ended September 30, 2017.
As at September 30, 2017, Teekay Offshore's conventional tanker fleet consisted of two in-chartered conventional tankers. One vessel is fixed on a two-year time-charter-out contract that commenced in March 2016 and the other vessel is trading in the spot conventional tanker market.
Income from vessel operations for Teekay Offshore decreased to $40.4 million and $147.1 million for the three and nine months ended September 30, 2017, compared to $61.7 million and $174.3 million for the same periods last year, primarily as a result of:
FPSO Fleet
•
a decrease of $13.7 million for the nine months ended September 30, 2017 for the Petrojarl Varg due to no longer receiving the capital portion of the charter hire for the Petrojarl Varg FPSO since February 1, 2016 and the unit being in lay-up since August 1, 2016 subsequent to the termination of the charter contract by Repsol and net revenue received for offshore field studies in 2016;
•
decreases of $3.2 million and $2.6 million, respectively, for the three and nine months ended September 30, 2017, for the Piranema Spirit primarily due to the timing of repair and maintenance costs;
•
decreases of $2.7 million and $4.2 million, respectively, for the three and nine months ended September 30, 2017 , for the Voyageur Spirit FPSO, primarily due to a decrease in incentive compensation; and
•
decreases of $0.8 million and $1.0 million, respectively, for the three and nine months ended September 30, 2017 , for the Petrojarl I FPSO primarily due to higher pre-operational costs incurred as the unit continues upgrades and is scheduled to commence operations in early-2018;
partially offset by
•
increases of $2.5 million and $6.5 million , respectively, for the three and nine months ended September 30, 2017 , for the Petrojarl Knarr FPSO primarily due to a one-time performance bonus earned during the third quarter of 2017 and crew and repair and maintenance costs in 2016 relating to the unit preparing for its final performance test, which was completed during the third quarter of 2016; and

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•
increase of $4.2 million for the three months ended September 30, 2017 for the Petrojarl Varg primarily due to lower costs from the unit being in lay-up since August 1, 2016.
Shuttle Tanker Fleet
•
increases of $6.3 million and $11.3 million , respectively, for the three and nine months ended September 30, 2017, due to an increase in project revenues, mainly due to providing offloading services to Statoil for the Gina Krog field as an interim measure pending the start-up of the recently converted Randgrid FSO unit in October 2017;
•
increases of $4.4 million and $9.2 million , respectively, for the three and nine months ended September 30, 2017, primarily due to an increase in revenues in Teekay Offshore's CoA fleet mainly due to higher fleet utilization and higher average rates; and
•
an increase of $2.7 million for the nine months ended September 30, 2017, due to cost savings as a result of the sale of one vessel in November 2016;
partially offset by
•
decreases of $3.9 million and $13.1 million , respectively, for the three and nine months ended September 30, 2017, due to the in-chartering of one vessel from September 2016.
FSO Fleet
•
decreases of $3.7 million and $10.3 million , respectively, for the three and nine months ended September 30, 2017, due to the redelivery to Teekay Offshore of the Navion Saga in October 2016 and the write-down of the Falcon Spirit as a result of a decrease in the estimated residual value of the unit.
UMS Fleet
•
a decrease of $12.5 million and an increase of $11.4 million , respectively, for the three and nine months ended September 30, 2017, primarily due to the termination of the Arendal Spirit UMS charter contract in April 2017, partially offset by the write-down relating to the cancellation of two UMS newbuilding contracts in June 2016.
Towage Fleet
•
a decrease of $8.8 million for the nine months ended September 30, 2017, mainly due to lower utilization for the towage fleet as a result of lower demand in the offshore market, and increased costs associated with the delivery of the ALP Striker and ALP Defender in September 2016 and June 2017, respectively, partially offset by an increase in the owned and chartered-in fleet size.
Conventional Tanker Fleet
•
a decrease of $7.6 million for the nine months ended September 30, 2017, primarily due a $4.0 million termination fee received from Teekay Parent for the early termination of the time-charter-out contract of the Kilimanjaro Spirit in March 2016, and the in-chartering of the Blue Pride and the Blue Power conventional tankers from March 2016, partially offset by lower costs as a result of the sale of two conventional tankers in March 2016.
General and Administrative Expenses
•
increases of $4.7 million and $4.4 million, respectively, for the three and nine months ended September 30, 2017, mainly due to costs associated with the Brookfield Transaction and higher business development fees relating to its FPSO segment, partially offset by lower management fees relating to the FPSO and shuttle tanker segments primarily from its cost saving initiatives and lower expenses as a result of the redelivery and lay-up of the Petrojarl Varg FPSO unit in August 2016.
Impact of Deconsolidation of Teekay Offshore
•
a decrease of $2.6 million for the three and nine months ended September 30, 2017, which is the income from vessel operations of Teekay Offshore for five days subsequent to its deconsolidation on September 25, 2017, which was recognized in equity income, and which is not included in the above results. Please read "Item 1 - Financial Statements: Note 3 - Deconsolidation of Teekay Offshore and Note 4 - Segment Reporting".

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Other Consolidated Operating Results
The following table compares our other consolidated operating results for the three and nine months ended September 30, 2017 and 2016 :
(in thousands of U.S. dollars, except percentages)
Three Months Ended
 
Nine months ended
September 30,
 
September 30,
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
 
$
 
$
 
 
 
$
 
$
 
 
Interest expense
(74,499
)
 
(68,490
)
 
8.8

 
(219,237
)
 
(213,948
)
 
2.5

Interest income
1,900

 
1,143

 
66.2

 
4,917

 
3,507

 
40.2

Realized and unrealized (losses) gains on non-designated derivative instruments
(6,128
)
 
29,926

 
(120.5
)
 
(43,173
)
 
(166,967
)
 
(74.1
)
Foreign exchange (loss) gain
(2,642
)
 
6,116

 
(143.2
)
 
(22,888
)
 
(19,555
)
 
17.0

Loss on deconsolidation of Teekay Offshore
(103,188
)
 
—

 
100.0

 
(103,188
)
 
—

 
100.0

Other (loss) income
(4,705
)
 
480

 
(1,080.2
)
 
(5,169
)
 
(20,806
)
 
(75.2
)
Income tax (expense) recovery
(5,221
)
 
133

 
(4,025.6
)
 
(11,767
)
 
(2,366
)
 
397.3

Interest Expense. Interest expense increased to $74.5 million and $219.2 million for the three and nine months ended September 30, 2017 , respectively, from $68.5 million and $213.9 million , respectively, for the same periods in the prior year, primarily due to:

•
increases of $3.8 million and $7.9 million, respectively, for the three and nine months ended September 30, 2017, due to an increase in the weighted-average interest rates on Teekay Offshore's long-term debt;

•
an increase of $2.3 million for the nine months ended September 30, 2017, due to the ineffective portion of the unrealized loss, and the reclassification of the realized loss from accumulated other comprehensive loss to interest expense, on interest rate swaps designated as cash flow hedges relating to Teekay Offshore's towage segment;

•
increases of $1.9 million and $9.4 million for the three and nine months ended September 30, 2017, respectively, relating to interest incurred on the capital lease obligations in Teekay LNG for the Creole Spirit , Oak Spirit and Torben Spirit commencing upon their deliveries in 2016 and 2017;

•
increases of $1.4 million and $4.5 million for the three and nine months ended September 30, 2017, respectively, as a result of Teekay LNG's issuances of NOK bonds in October 2016 and January 2017, net of the bond repurchases in October 2016 and the maturity of certain of the NOK bonds in May 2017;

•
increases of $1.3 million and $2.8 million for the three and nine months ended September 30, 2017, respectively, as a result of interest expense accretion in Teekay LNG on the Pan Union Joint Venture crew training and site supervision obligation, and higher LIBOR rates net of debt principal repayments;

•
an increase of $1.2 million for the three and nine months ended September 30, 2017 due to increased drawdown of Teekay Parent's equity margin loan; and

•
increases of $0.5 million for the three and nine months ended September 30, 2017 primarily due to additional interest expenses incurred related to the sale and leaseback of four Suezmax tankers in Teekay Tankers;

partially offset by

•
a decrease of $5.5 million for the nine months ended September 30, 2017, primarily due to a termination fee and write-off in 2016 of deferred loan costs due to the cancellation of a portion of Teekay Parent's equity margin loan in 2016;

•
a decrease of $4.8 million for the nine months ended September 30, 2017, due to interest expense incurred relating to costs associated with the delay in the delivery of a UMS newbuilding in the first and second quarters of 2016 up until its construction contract cancellation by subsidiaries of Teekay Offshore in late-June 2016;

•
a decrease of $0.7 million for the nine months ended September 30, 2017, primarily due to higher expenses incurred in the three months ended March 31, 2016, related to the refinancing of Teekay Tanker's debt facilities, partially offset by the additional expense related to the sale and leaseback of four Suezmax tankers in the three months ended September 30, 2017;

•
decreases of $0.8 million and $3.0 million, respectively, for the three and nine months ended September 30, 2017, due to decreases in Teekay Offshore's total debt balance;


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•
decreases of $0.5 million and $1.5 million, respectively, for the three and nine months ended September 30, 2017, due to the repayment of the bridge loan relating to the Shoshone Spirit upon its sale by Teekay Parent in 2016; and

•
decreases of $0.5 million and $3.5 million for the three and nine months ended September 30, 2017, respectively, compared to the same periods last year, due to increases in capitalized interest relating to additional advances to the Yamal LNG Joint Venture and Bahrain LNG Joint Venture for newbuilding installments and construction costs.
On September 25, 2017, we deconsolidated Teekay Offshore (please read "Item 1 - Financial Statements: Note 3 - Deconsolidation of Teekay Offshore"). As a result, consolidated interest expense decreased by $2.5 million for the three and nine months ended September 30, 2017, compared to the same periods of the prior year.
Realized and unrealized (losses) gains on non-designated derivative instruments . Realized and unrealized losses related to derivative instruments that are not designated as hedges for accounting purposes are included as a separate line item in the consolidated statements of (loss) income . Net realized and unrealized losses on non-designated derivatives were $6.1 million and $43.2 million , respectively, for the three and nine months ended September 30, 2017 , compared to a net realized and unrealized gain of $29.9 million and a net realized and unrealized loss of $167.0 million , respectively, for the three and nine months ended September 30, 2016 , as detailed in the table below:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2017
 
2016
 
2017
 
2016
 
$
 
$
 
$
 
$
Realized (losses) gains relating to:
 
 
 
 
 
 
 
Interest rate swap agreements
(15,729
)
 
(22,219
)
 
(48,199
)
 
(67,808
)
Interest rate swap agreement terminations
—

 
—

 
(610
)
 
(8,140
)
Foreign currency forward contracts
1,609

 
(2,583
)
 
638

 
(9,915
)
Time charter swap agreement
—

 
1,096

 
1,106

 
1,222

Forward freight agreements
234

 
—

 
347

 
—

 
(13,886
)
 
(23,706
)
 
(46,718
)
 
(84,641
)
Unrealized gains (losses) relating to:
 
 
 
 
 
 
 
Interest rate swap agreements
11,575

 
47,816

 
5,181

 
(96,055
)
Foreign currency forward contracts
735

 
6,006

 
4,383

 
21,070

Stock purchase warrants
(4,461
)
 
(398
)
 
(5,036
)
 
(8,894
)
Time charter swap agreement
—

 
208

 
(875
)
 
1,553

Forward freight agreements
(91
)
 
—

 
(108
)
 
—

 
7,758

 
53,632

 
3,545

 
(82,326
)
Total realized and unrealized (losses) gains on derivative instruments
(6,128
)
 
29,926

 
(43,173
)
 
(166,967
)
The realized (losses) gains relate to amounts we actually realized or paid to settle such derivative instruments.
For the nine months ended September 30, 2017 and 2016 , we had interest rate swap agreements with aggregate average net outstanding notional amounts of approximately $3.1 billion and $3.4 billion, respectively, with average fixed rates of approximately 3.2% and 3.3%, respectively. Short-term variable benchmark interest rates during these periods were generally less than 2.0% and, as such, we incurred realized losses of $15.7 million and $48.2 million , respectively, during the three and nine months ended September 30, 2017 , compared to realized losses of $22.2 million and $67.8 million , respectively, for the same periods last year under the interest rate swap agreements. We also incurred realized losses of $0.6 million and $8.1 million for the nine months ended September 30, 2017 and 2016, respectively, from the early termination of an interest rate swap.
We recognized realized gains of $1.6 million and $0.6 million , respectively, during the three and nine months ended September 30, 2017 , compared to realized losses of $2.6 million and $9.9 million , respectively, for the same periods last year under the foreign currency forward contracts.
We recognized realized gains on a time charter swap agreement of $ nil and $1.1 million , respectively, during the three and nine months ended September 30, 2017 , compared to $1.1 million and $1.2 million , respectively, for the same periods last year. The time-charter swap agreement ended on April 30, 2017.
Primarily as a result of significant changes in the long-term benchmark interest rates during the three and nine months ended September 30, 2017 , compared with the same periods in 2016, we recognized unrealized gains of $11.6 million and $5.2 million , respectively, in the three and nine months ended September 30, 2017 , compared to an unrealized gain of $47.8 million and an unrealized loss of $96.1 million , respectively, for the same periods last year under the interest rate swap agreements.
We recognized unrealized gains of $0.7 million and $4.4 million , respectively, during the three and nine months ended September 30, 2017 , compared to unrealized gains of $6.0 million and $21.1 million , respectively, for the same periods last year under the foreign currency forward contracts.


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As at September 30, 2017 , Teekay held 14.5 million Brookfield Transaction Warrants. Please read “Financial Statements: Note 3 – Deconsolidation of Teekay Offshore". The fair value of the Brookfield Transaction Warrants was $34.7 million and $30.5 million on September 25, and September 30, 2017, respectively. During the three and nine months ended September 30, 2017 , we recognized $4.2 million of unrealized losses on these warrants. Please read “Financial Statements: Note 14 – Derivative Instruments and Hedging Activities.”

As of September 30, 2017 , Teekay held 1,755,000 Teekay Offshore stock purchase warrants with an exercise price of $4.55 , which have a seven-year term and are exercisable any time after six months following their issuance date. The fair value of the warrants was $1.9 million and $1.6 million on September 25, and September 30, 2017, respectively. During the three and nine months ended September 30, 2017 , we recognized $0.3 million of unrealized losses on these warrants. Please read “Financial Statements: Note 14 – Derivative Instruments and Hedging Activities.”
In January 2014, we and Teekay Tankers received TIL stock purchase warrants entitling us and Teekay Tankers to purchase up to 1.5 million shares of common stock of TIL at a fixed price of $10 per share. On May 31, 2017, TIL entered into a definitive agreement to merge with Teekay Tankers. Following the completion of the merger, TIL will become a wholly-owned subsidiary of Teekay Tankers, and as a result, the stock purchase warrants are valued at $nil at September 30, 2017. During the three and nine months ended September 30, 2017 , we recognized $nil and $0.6 million of unrealized losses on the stock purchase warrants, compared to unrealized losses of $0.4 million and $8.9 million , respectively for the same periods last year. Please read “Financial Statements: Note 14 – Derivative Instruments and Hedging Activities.”
For the three and nine months ended September 30, 2017 , we recognized unrealized losses on a time charter swap agreement of $ nil and $0.9 million , respectively, compared to unrealized gains of $0.2 million and $1.6 million for the same periods last year. The time-charter swap agreement ended on April 30, 2017.
Foreign Exchange (Loss) Gain. Foreign currency exchange losses were $2.6 million and $22.9 million , respectively, for the three and nine months ended September 30, 2017 , compared to a foreign exchange gain of $6.1 million and a foreign exchange loss $19.6 million , respectively, for the same periods last year. Our foreign currency exchange losses, substantially all of which are unrealized, are due primarily to the relevant period-end revaluation of our NOK-denominated debt and our Euro-denominated term loans, capital leases and restricted cash for financial reporting purposes and the realized and unrealized gains (losses) on our cross currency swaps. Gains on NOK-denominated and Euro-denominated monetary liabilities reflect a stronger U.S. Dollar against the NOK and Euro on the date of revaluation or settlement compared to the rate in effect at the beginning of the period. Losses on NOK-denominated and Euro-denominated monetary liabilities reflect a weaker U.S. Dollar against the NOK and Euro on the date of revaluation or settlement compared to the rate in effect at the beginning of the period. For the three and nine months ended September 30, 2017 , foreign currency exchange losses include realized losses of $4.2 million ( 2016 – $5.6 million ) and $16.4 million ( 2016 - $15.6 million ), and unrealized gains of $41.7 million ( 2016 – $40.0 million ) and $91.7 million ( 2016 - $93.2 million ) on our cross currency swaps, and realized losses on maturity and termination of NOK bonds of $ nil ( 2016 - $ nil ) and $25.7 million ( 2016 - $32.6 million ) offset by the NOK bond gain, and unrealized losses of $23.6 million ( 2016 – $28.4 million) and $29.1 million ( 2016 - $61.3 million) on the revaluation of our NOK-denominated debt.
Loss on deconsolidation of Teekay Offshore. Loss on deconsolidation of Teekay Offshore was $103.2 million for the three and nine months ended September 30, 2017 . Please read "Item 1 - Financial Statements: Note 3 - Deconsolidation of Teekay Offshore".
Other (loss) income. Other loss was $4.7 million and $5.2 million , respectively, for the three and nine months ended September 30, 2017 , compared to other income of $0.5 million and other loss of $20.8 million , respectively, for the same periods last year. Other loss for the three and nine months ended September 30, 2017 includes $4.5 million related to a settlement agreement entered into between CeFront Technology AS and certain subsidiaries of Teekay Offshore. The decrease in loss for the nine months ended September 30, 2017, is also impacted by the cancellation by subsidiaries of Teekay Offshore of the two UMS construction contracts recorded during the nine months ended September 30, 2016, resulting in the recognition of an expense relating to estimated potential damages of $38.0 million, partially offset by a $14.5 million gain associated with the extinguishment of contingent liabilities relating to the UMS newbuildings and a $2.1 million gain relating to the reassessment of a contingent liability fair value associated with the  Arendal Spirit  UMS for the nine months ended September 30, 2016.
Income Tax Expense. Income tax expense was $5.2 million and $11.8 million , respectively, for the three and nine months ended September 30, 2017 , compared to a recovery of $0.1 million and an expense of $2.4 million , respectively, for the same periods last year. These increases in income tax expense were primarily due to increases in deferred tax expense during the three and nine months ended September 30, 2017 , due to changes in our future income assumptions given the sustained low oil price and a reversal of an uncertain tax position during the nine months ended September 30, 2017 , as a result of receiving a favorable ruling from the relevant tax authority. These increases were partially offset by a decrease in current tax expense mainly due to Teekay Offshore's withholding tax accrual recorded during the three and nine months ended September 30, 2016 due to an estimated tax liability relating to its Singapore entities.

LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Cash Needs
Teekay Corporation – Consolidated
Overall, our consolidated operations are capital intensive. We finance the purchase of our vessels primarily through a combination of borrowings from commercial banks or our joint venture partners, the issuance of equity and debt securities (primarily by our publicly-traded subsidiaries) and cash generated from operations. In addition, we may use sale and leaseback arrangements as a source of long-term liquidity. We use our revolving credit facilities 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 revolving credit facilities. We have pre-arranged financing of approximately $1.36 billion, which mostly relates to Teekay LNG's remaining capital expenditure commitments. We are in the process of seeking to obtain additional debt financing from various sources for Teekay LNG's remaining capital commitments relating to its portion of newbuildings on order as at September 30, 2017 . As at September 30, 2017 , Teekay Corporation’s total consolidated cash and cash equivalents was $453.3 million , compared to $568.0 million at December 31, 2016 . Teekay Corporation’s total consolidated liquidity, including cash, cash equivalents and
undrawn credit facilities, was $627.7 million as at September 30, 2017 , compared to $1.0 billion as at December 31, 2016 . The cash and liquidity amounts as at September 30, 2017 exclude any amounts related to Teekay Offshore, due to its deconsolidation on September 25, 2017.

Completion of the Brookfield Transaction on September 25, 2017 improved Teekay Parent’s current liquidity and our estimate of Teekay Parent’s future liquidity. As part of the transaction, Teekay Parent received approximately $140 million in cash, which included the $140 million of cash proceeds from the sale of the $200 million Teekay Offshore promissory note to Brookfield, the $25.7 million, including accrued interest, received from Teekay Offshore from its repurchase of the Series D preferred units and the $4 million received from the sale of 49% of the general partner of Teekay Offshore, partially offset by an investment of $30 million in additional common units and warrants of Teekay Offshore. We used $110 million of these proceeds to pay down our equity margin revolving credit facility and the balance for general corporate purposes.
We expect these transactions will have a positive impact on the amount of cash available to Teekay Parent on a quarterly basis going forward due to a reduction in borrowing costs on the equity margin revolving credit facility and as the interest on the $200 million Teekay Offshore promissory note and the distributions on the series D preferred units were previously being paid in common units of Teekay Offshore, rather than cash. In addition, while Teekay Offshore concurrently reduced its quarterly common unit distribution from $0.11 to $0.01 upon completion of the Brookfield Transaction, such reduction did not have a material impact to Teekay Parent’s quarterly cash flow as the common unit distributions to Teekay were previously being paid in common units of Teekay Offshore, rather than cash. Furthermore, as part of the Brookfield Transaction, certain financial institutions providing loans and interest rate swaps to Teekay Offshore, eliminated the financial guarantee and security package previously provided by Teekay Parent, thus eliminating a potential risk to Teekay Parent’s liquidity position.
Since early 2016, Teekay Parent and the Daughter Companies have been executing on a series of financing initiatives intended to contribute to the funding of our upcoming capital expenditures and debt maturities, which are explained in the Teekay Parent and Daughter sections that follow.

Our revolving credit facilities and term loans are described in “Item 1 – “Financial Statements: Note 7 – Long-Term Debt.” They contain covenants and other restrictions typical of debt financing secured by vessels that restrict the ship-owning subsidiaries from, among other things: incurring or guaranteeing indebtedness; changing ownership or structure, including mergers, consolidations, liquidations and dissolutions; making dividends or distributions if we are in default; making capital expenditures in excess of specified levels; making certain negative pledges and granting certain liens; selling, transferring, assigning or conveying assets; making certain loans and investments; or entering into a new line of business. Among other matters, our long-term debt agreements generally provide for maintenance of minimum consolidated financial covenants and four loan agreements require the maintenance of vessel market value to loan ratios. As at September 30, 2017 , these ratios ranged from 116% to 232% compared to their minimum required ratios of 105% to 135% . The vessel values used in these ratios are the appraised values prepared by us based on second hand sale and purchase market data. Changes in the LNG/LPG carrier, conventional tanker, or FPSO markets could negatively affect our compliance with these ratios. Certain loan agreements require that a minimum level of free cash be maintained and as at September 30, 2017 and December 31, 2016 , this amount was $50.0 million for us, excluding Teekay LNG. Most of the loan agreements also require that we maintain an aggregate minimum level of free liquidity and undrawn revolving credit lines with at least six months to maturity of 5% of total debt for either Teekay Parent or Teekay Tankers, which as at September 30, 2017 , such amounts were $47.3 million and $39.8 million , respectively. In addition, certain loan agreements require Teekay LNG to maintain a minimum level of tangible net worth and liquidity, and not exceed a maximum level of financial leverage. As at September 30, 2017 , we were in compliance with all covenants under its credit facilities and other long-term debt.

The aggregate consolidated annual long-term debt principal repayments required to be made by us subsequent to September 30, 2017 , are $0.1 billion (remainder of 2017 ), $1.1 billion ( 2018 ), $0.2 billion ( 2019 ), $1.0 billion ( 2020 ), $0.6 billion ( 2021 ) and $0.4 billion (thereafter).

We conduct our funding and treasury activities based on corporate policies designed 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 Australian Dollars, British Pounds, Canadian Dollars, Euros, Japanese Yen, Norwegian Kroner and Singapore Dollars.

We are exposed to market risk from foreign currency fluctuations and changes in interest rates, spot tanker market rates for vessels and bunker fuel prices. We use forward foreign currency contracts, cross currency and interest rate swaps, forward freight agreements and bunker fuel swap contracts to manage currency, interest rate, spot tanker rates and bunker fuel price risks. Please read "Item 3 - Quantitative and Qualitative Disclosures About Market Risk".

Teekay Parent
Teekay Parent owns three FPSO units and continues to in-charter a number of vessels. Teekay Parent’s primary short-term liquidity needs are the payment of operating expenses, dry-docking expenditures, debt servicing costs, dividends on its shares of common stock and scheduled repayments of long-term debt, as well as funding its other working capital requirements. Teekay Parent’s primary sources of liquidity are cash and cash equivalents, cash flows provided by operations, dividends/distributions and management fees received from the Daughter Companies and other investments, its undrawn credit facilities and proceeds from the sale of vessels to external parties (and in the past, Teekay LNG, Teekay Tankers and Teekay Offshore). As at September 30, 2017 , Teekay Parent’s total cash and cash equivalents was $231.7 million , compared to $146.4 million at December 31, 2016 . Teekay Parent’s total liquidity, including cash, cash equivalents and undrawn credit facilities, was $271.9 million as at September 30, 2017 , compared to $279.4 million as at December 31, 2016 .

As of September 30, 2017 , Teekay had the ability to sell additional shares of its common stock having an aggregate offering price of up to $40.3 million under its continuous offering program.


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Teekay’s equity margin revolving credit facility is secured by common units of Teekay Offshore and Teekay LNG and shares of Class A common stock of Teekay Tankers that are owned by Teekay. In June 2016, Teekay amended the facility by further reducing its aggregate potential borrowings from $300 million to $150 million, extending its maturity date from January 2018 to December 2018 and amending the formula which further limits the amount available to borrow based on the value of the common units of Teekay Offshore and Teekay LNG and the shares of Class A common stock of Teekay Tankers which are pledged as collateral. The amendment resulted in an increase in the loan-to-value ratio which increased the availability under the facility from approximately $34 million to $150 million. In April 2017, Teekay further amended the facility by increasing the aggregate potential borrowings from $150 million to $200 million. As of September 30, 2017 , Teekay Parent had $126.9 million drawn on this facility, and $40.3 million undrawn.

We believe that Teekay Parent’s existing cash and cash equivalents and undrawn long-term borrowings, in addition to all other sources of cash including cash from operations, and after considering initiatives described below that are planned by the Daughter Companies, will be sufficient to meet its existing liquidity needs for at least the next 12 months.

Teekay LNG
Teekay LNG's business model is to employ its vessels on fixed-rate contracts primarily with large energy companies and their transportation subsidiaries. Teekay LNG's primary liquidity needs for the remainder of 2017 through 2018 include payment of its quarterly distributions, including payments of distributions on its common units and Series A and Series B Preferred Units, operating expenses, dry-docking expenditures, debt service costs, scheduled repayments of long-term debt, bank debt maturities, committed capital expenditures and the funding of general working capital requirements. Teekay LNG anticipates that its primary sources of funds for its short-term liquidity needs will be cash flows from operations, proceeds from financings, proceeds from equity offerings, and dividends from its equity-accounted joint ventures. For the remainder of 2017 through 2018, Teekay LNG expects that its existing liquidity, combined with the cash flow it expects to generate from its operations and receive as dividends from its equity-accounted joint ventures, will be sufficient to finance a portion of its liquidity needs, including the equity portion of its committed capital expenditures. Teekay LNG's remaining liquidity needs include the requirement to secure financing for an adequate portion of its committed capital expenditures, to refinance its loan facilities maturing in 2018 and to repay its NOK-denominated bonds due in 2018 and, possibly, to fund the potential exposure relating to the lease arrangements that the Teekay Nakilat Joint Venture had previously entered into. Teekay LNG already has committed debt financing in place for the following vessels and projects: all five of its wholly-owned LNG carriers under construction, of which two were delivered to Teekay LNG in October and November 2017, that will be chartered to a wholly-owned subsidiary of Shell; Teekay LNG's wholly-owned LNG carrier under conversion to a floating storage unit (or FSU ) for the Bahrain LNG Joint Venture; Teekay LNG's wholly-owned LNG carrier newbuilding to be chartered on a 13-year charter contract with BP; the vessels under construction in the Pan Union Joint Venture, of which one was delivered to Teekay LNG in October 2017; two of the three LPG carrier newbuildings in the Exmar LPG Joint Venture; and the assets of the Bahrain LNG Joint Venture formed for the development of an LNG receiving and regasification terminal in Bahrain. Teekay LNG is actively seeking debt financings for one wholly-owned LNG carrier under construction, the six LNG carriers under construction for the Yamal LNG Joint Venture, for one LPG carrier newbuilding in the Exmar LPG Joint Venture, and for the other requirements described above.

Teekay LNG's liquidity needs beyond 2018 are currently expected to decline compared to the remainder of 2017 and 2018, as a majority of Teekay LNG's capital expenditure commitments relate to the remainder of 2017 and 2018. Teekay LNG's ability to continue to expand the size of its fleet over the long-term is dependent upon its ability to generate operating cash flow, obtain long-term bank borrowings and other debt, as well as Teekay LNG's ability to raise debt or equity financing through public or private offerings.

As at September 30, 2017 , Teekay LNG's consolidated cash and cash equivalents were $161.0 million , compared to $126.1 million at December 31, 2016 . Teekay LNG's total liquidity, which consists of cash, cash equivalents and undrawn credit facilities, was $251.0 million as at September 30, 2017 , compared to $369.8 million as at December 31, 2016 . The decrease in total consolidated liquidity was primarily due to repayment of NOK bonds in May 2017, funding of Teekay LNG projects including advances to the Bahrain LNG Joint Venture and Yamal LNG Joint Venture, and equity contribution into the Teekay LNG-Marubeni Joint Venture. These cash expenditures were partially offset by proceeds from Teekay LNG's NOK bond issuance in January 2017, proceeds from sale-leaseback transactions completed during 2017, and dividends and return of capital received from Teekay LNG's equity-accounted joint ventures.

As at September 30, 2017 , Teekay LNG had a working capital deficit of $527.8 million , which is primarily the result of: an aggregate amount of $296.4 million of Teekay LNG's credit facilities being classified as current portion of long-term debt due to their maturity dates in mid-2018; $113.0 million of Teekay LNG's NOK bonds being classified as current due to their maturity dates in September 2018; and $51.1 million of current capital lease obligations relating to two Suezmax tankers, under which the owner has the option to require Teekay LNG to purchase the vessels. However, Teekay LNG believes that the owner will not exercise its options to require Teekay LNG to purchase either of the two vessels, but rather Teekay LNG expects that the owner will cancel the charter contracts when the cancellation right is first exercisable (in November 2017 and August 2018, respectively) and sell the vessels to a third party, upon which the remaining lease obligations will be extinguished. Teekay LNG expects to manage its working capital deficit primarily with net operating cash flow and dividends from its equity-accounted joint ventures, equity issuances such as Teekay LNG's recent issuance of its Series B Preferred Units in October 2017, debt refinancings (including the refinancing of a revolving credit facility completed in November 2017), sale-leaseback financings, and, to a lesser extent, existing undrawn revolving credit facilities. As at September 30, 2017 , Teekay LNG had undrawn revolving credit facilities of $90.0 million.

Teekay LNG believes that its existing cash and cash equivalents and undrawn long-term borrowings, in addition to other expected sources of cash including cash from operations and the initiatives described above, will be sufficient to meet its existing liquidity needs for at least the next 12 months.


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Teekay Tankers
Teekay Tankers' primary sources of liquidity are cash and cash equivalents, cash flows provided by its operations, its undrawn credit facilities, proceeds from sales of vessels, and capital raised through financing transactions. As at September 30, 2017 , Teekay Tankers' total consolidated cash and cash equivalents was $60.6 million , compared to $94.2 million at December 31, 2016 . Teekay Tankers' cash balance as at September 30, 2017 decreased primarily as a result of repayments of its long-term debt and dividends paid on its shares of common stock, which were partially offset by cash flow from its operations, proceeds received from the sales of the two Suezmax tankers and two Aframax tankers and proceeds Teekay Tankers received from the sale of its common stock through the continuous offering program and a private placement to Teekay.

Teekay Tankers' total consolidated liquidity, including cash and undrawn credit facilities, was $104.8 million as at September 30, 2017 , compared to $102.4 million as at December 31, 2016 . Teekay Tankers anticipates that its primary sources of funds for its short-term liquidity needs will be cash flows from operations, existing cash and cash equivalents and undrawn long-term borrowings, refinancing existing loans and proceeds of new financings or equity issuances, which Teekay Tankers believe will be sufficient to meet its existing liquidity needs for at least the next 12 months; however, such financing may not be available on acceptable terms, if at all.

Teekay Tankers' short-term liquidity requirements are for the payment of operating expenses, dry-docking expenditures, debt servicing costs, dividends on its shares of common stock, scheduled repayments and prepayments of long-term debt, as well as funding its other working capital requirements. Teekay Tankers' short-term charters and spot market tanker operations contribute to the volatility of its net operating cash flow, and thus impact Teekay Tankers' ability to generate sufficient cash flows to meet its short-term liquidity needs. 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.

Commencing with the dividend paid in the first quarter of 2016, Teekay Tankers adopted a dividend policy under which quarterly dividends are expected to range from 30% to 50% of its quarterly adjusted net income, subject to the discretion of Teekay Tankers' Board of Directors, with a minimum quarterly dividend of $0.03 per share. Adjusted net income is a non-GAAP measure which excludes specific items affecting net income that are typically excluded by securities analysts in their published estimates of our financial results. Specific items affecting net income include foreign exchange gain or losses, unrealized gains or losses on derivative instruments and gains or losses on sale of vessels.

Teekay Tankers' long-term capital needs are primarily for capital expenditures and debt repayment. Generally, Teekay Tankers expects that its long-term sources of funds will primarily be cash balances, long-term bank borrowings and other debt or equity financings, which may include equity issuances from its continuous offering program. Teekay Tankers expects that it will rely upon external financing sources, including bank borrowings and the issuance of debt and equity securities, to fund acquisitions and expansion capital expenditures, including opportunities Teekay Tankers may pursue to purchase additional vessels.

In January and March 2017, Teekay Tankers completed the sales of two Suezmax tankers for an aggregate sales price of $32.6 million. Teekay Tankers used the proceeds from these sales to repay a portion of one of its corporate revolving credit facilities. As at March 31, 2017, that revolving credit facility was fully repaid. In March 2017, Teekay Tankers also agreed to sell one Aframax tanker for a sales price of $7.5 million. The sale of the vessel was completed in June 2017 and the proceeds were used to repay a portion of Teekay Tankers' main corporate revolving facility.

In May 2017, Teekay Tankers entered into the Merger Agreement with TIL to acquire all of the issued and outstanding shares of TIL, which owns 18 mid-sized conventional tankers, in a share-for-share exchange. On November 17, 2017, the TIL shareholders approved the merger and the Teekay Tankers’ shareholders approved an increase in the authorized number of Teekay Tankers’ Class A common shares, to permit the issuance of Class A common shares as merger consideration. Subject to the completion of the remaining closing conditions, Teekay Tankers expects the merger to close on or about November 27, 2017. Upon completion of the merger, Teekay Tankers expects the transaction will increase their liquidity by approximately $70 million based on TIL's cash balances and amounts available to be drawn on the TIL revolving credit facilities. The credit facilities contain a covenant that requires TIL to maintain a free liquidity of not less than the lower of (i) $25.0 million and (ii) $2.0 million per vessel owned as long as the number of vessels owned by TIL is less than 25. If TIL owns 25 or more vessels, the covenant requires TIL to maintain a free liquidity of the aggregate of (i) $25.0 million and (ii) $1.3 million multiplied by the number of vessels owned by TIL in excess of 25. TIL is also required to maintain a minimum capitalization ratio, a minimum level of tangible net worth, a minimum ratio of net income before interest and certain non-cash items to interest expense and the fair market value of collateral vessels shall be equal to at least 150 percent of the drawn amount under the revolving credit facilities. As at September 30, 2017, TIL was in compliance with all its covenants in respect of these credit facilities.

In July 2017, Teekay Tankers completed a sale-leaseback financing transaction relating to four of its Suezmax tankers. The transaction is structured as a 12-year bareboat charter at an average rate of approximately $11,100 per day, with purchase options for all four vessels throughout the lease term beginning in July 2020. Teekay Tankers used the proceeds from this transaction to repay a portion of one of its corporate revolving credit facilities.

In September 2017, Teekay Tankers completed the sale of one Aframax tanker for $6.3 million. Teekay Tankers used the proceeds from this sale to repay a portion of one of its corporate revolving credit facilities. In September 2017, Teekay Tankers also entered into an agreement to sell one Aframax tanker for a sales price of $6.4 million, and the sale is expected to be completed in the fourth quarter of 2017.

Teekay Tankers believes that its existing cash and cash equivalents and undrawn long-term borrowings, in addition to other expected sources of cash including cash from operations and the initiatives described above, will be sufficient to meet its existing liquidity needs for at least the next 12 months.


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Teekay Offshore
As of September 25, 2017, as a result of the Brookfield Transaction, Teekay Offshore is deconsolidated. Teekay retains ownership of approximately 14% of Teekay Offshore's outstanding common units and a 51% interest in Teekay Offshore's general partner, but no longer has in place any financial guarantees with respect to Teekay Offshore's long-term debt and interest rate swap and cross currency swap agreements.
Cash Flows
The following table summarizes our consolidated cash and cash equivalents provided by (used for) operating, financing and investing activities for the periods presented:
(in thousands of U.S. Dollars)
Nine Months Ended September 30,
 
2017
 
2016
 
$
 
$
Net operating cash flows
411,479

 
503,773

Net financing cash flows
(108,301
)
 
(390,201
)
Net investing cash flows
(417,889
)
 
(86,668
)
Operating Cash Flows
Our consolidated net cash flow from operating activities fluctuates primarily as a result of changes in vessel utilization and TCE rates, changes in interest rates, fluctuations in working capital balances, the timing and amount of dry-docking expenditures, repairs and maintenance activities, vessel additions and dispositions, and foreign currency rates. Our exposure to the spot tanker market has contributed significantly to fluctuations in operating cash flows historically as a result of highly cyclical spot tanker rates. In addition, the production performance of certain of our FPSO units that operate under contracts with a production-based compensation component has contributed to fluctuations in operating cash flows. As the charter contracts of some of our FPSO units include incentives based on average annual oil prices, the reduction in global oil prices during recent years has negatively impacted our operating cash flows.
Consolidated net cash flow from operating activities decreased to $411.5 million for the nine months ended September 30, 2017 , from $503.8 million for the nine months ended September 30, 2016 . This decrease was primarily due to a $173.2 million increase in net loss mainly from operations (before depreciation, amortization, asset impairments, loss on sale of vessels, equipment and other operating assets, and the amortization of in-process revenue contracts) of our businesses. This decrease was also due to an increase of $4.9 million in dry-dock expenditures for the nine months ended September 30, 2017 , compared to the corresponding period of 2016. These decreases were partially offset by a decrease from changes to non-cash working capital items of $43.8 million, a decrease in interest expense, including realized losses on interest rate swaps and cross currency swaps, of $30.0 million and a decrease in realized losses in foreign currency forward contracts and time charter swap agreements of $10.8 million.
For a further discussion of changes in income from vessel operations before depreciation, amortization, asset impairments, net loss on sale of vessels and equipment and the amortization of in-process revenue contracts of our businesses, please read “Results of Operations.”
Financing Cash Flows
The Daughter Companies hold most of our liquefied gas carriers (Teekay LNG) and our conventional tanker assets (Teekay Tankers). From and including the respective initial public offerings of these subsidiaries, Teekay has been selling assets that are a part of these businesses to the Daughter Companies. Historically, the Daughter Companies have distributed operating cash flows to their owners in the form of distributions or dividends. The Daughter Companies raised net proceeds from issuances of new equity to the public and to third-party investors of $8.5 million in the nine months ended September 30, 2017 , compared to $190.0 million in the same period last year. Teekay Parent raised net proceeds from issuances of new equity to the public and to third party investors and two entities established by our founder (including Resolute Investments, Inc., our largest shareholder) of $101.9 million in the nine months ended September 30, 2016. There was a decrease in restricted cash of $106.0 million in the nine months ended September 30, 2017 , compared to $27.4 million in the same period last year.
We use our credit facilities to partially finance capital expenditures. Occasionally, we will use revolving credit facilities to finance these 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 revolving credit facilities. We actively manage the maturity profile of our outstanding financing arrangements. Our net proceeds from the issuance of long-term debt, which is proceeds from the issuance of long-term debt, net of debt issuance costs and prepayments of long-term debt, were $366.2 million in the nine months ended September 30, 2017 , and $35.7 million in the same period last year. Scheduled repayments decreased by $1.0 million in the nine months ended September 30, 2017 , compared to the same period last year.
Teekay Tankers received $153.0 million in 2017 from the sale-leaseback financing transactions completed on four Suezmax tankers.
Investing Cash Flows
During the nine months ended September 30, 2017 , we incurred capital expenditures for vessels and equipment of $694.5 million , primarily for capitalized vessel modifications and shipyard construction installment payments. We received proceeds of $67.4 million as a result of Teekay LNG's sale of the Asian Spirit and Teekay Tankers' sales of two Suezmax tankers, two Aframax tankers and one lightering support vessel during the nine months ended September 2017. Teekay LNG received $335.8 million from the sale-leaseback financing transactions completed on the Torben Spirit and five of its wholly-owned LNG carrier newbuildings. Teekay LNG contributed $143.5 million to its equity-accounted joint ventures and loans to joint ventures for the nine months ended September 30, 2017 , primarily to fund newbuilding installments in the Yamal LNG Joint Venture and project expenditures for the Bahrain LNG project. Teekay LNG received a $40.3 million return of capital from its joint venture with

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QGTC Nakilat (1643-6) Holdings Corporation (or the RasGas 3 Joint Venture ) upon completion of its debt refinancing. Teekay LNG has a 40% ownership interest in the joint venture. Teekay incurred an $18.0 million cash outflow as a result of the Brookfield Transaction (please read "Item 1 - Financial Statements: Note 3 - Deconsolidation of Teekay Offshore").

During the nine months ended September 30, 2016, we incurred capital expenditures for vessels and equipment of $547.3 million, primarily for capitalized vessel modifications and shipyard construction installment payments. Teekay Offshore incurred $238.3 million of expenditures for vessels and equipment, Teekay LNG incurred $302.3 million, primarily for newbuilding installment payments and shipbuilding supervision costs for its LNG carrier newbuildings, and contributed $33.0 million to its equity accounted joint ventures for the nine months ended September 30, 2016, and Teekay Tankers incurred $3.9 million of capitalized expenditures. In addition, Teekay Offshore made a $52.9 million investment in its joint ventures and received proceeds of $55.5 million from the sale of the  Navion Torinita  shuttle tanker and the Fuji Spirit and Kilimanjaro Spirit conventional tankers. Teekay LNG received proceeds of $355.3 million from the sale-leaseback financing transactions completed on the  Creole Spirit  and  Oak Spirit  in February 2016 and proceeds of $94.3 million from the sales of the  Bermuda Spirit  and  Hamilton Spirit  in April 2016 and May 2016.
CONTRACTUAL OBLIGATIONS AND CONTINGENCIES
The following table summarizes our long-term contractual obligations as at September 30, 2017 :

 
 
Remainder of
 

 

 

 

 
Beyond

Total
 
2017
 
2018
 
2019
 
2020
 
2021
 
2021

In millions of U.S. Dollars
Teekay LNG
 
 
 
 
 
 
 
 
 
 
 
 
 
Bond repayments  (1)(2)
389.3

 
—

 
113.0

 
—

 
125.6

 
150.7

 
—

Scheduled repayments of long-term debt (1)(3)
504.8

 
35.9

 
114.5

 
78.7

 
72.0

 
42.6

 
161.1

Repayments on maturity of long-term debt  (1)(3)
1,012.0

 
10.2

 
489.6

 
10.2

 
148.8

 
152.3

 
200.9

Commitments under capital leases (4)
1,049.9

 
44.7

 
138.9

 
119.5

 
118.9

 
110.2

 
517.7

Commitments under operating leases (5)
274.7

 
5.9

 
23.9

 
23.9

 
23.9

 
23.9

 
173.2

Newbuildings installments/shipbuilding supervision (6)
2,349.3

 
487.9

 
1,092.7

 
570.8

 
197.9

 
—

 
—


5,580.0

 
584.6


1,972.6


803.1


687.1


479.7


1,052.9

Teekay Tankers
 
 
 
 
 
 
 
 
 
 
 
 
 
Scheduled repayments of long-term debt (7)
299.4

 
26.8

 
91.2

 
89.4

 
89.4

 
2.6

 
—

Repayments on maturity of long-term debt (7)
352.8

 
—

 
63.8

 
—

 
—

 
289.0

 
—

Scheduled repayments of capital lease obligations (8)
151.0

 
1.8

 
7.2

 
7.7

 
8.2

 
8.7

 
117.4

Chartered-in vessels (operating leases) (9)
29.5

 
2.5

 
9.0

 
8.3

 
8.3

 
1.4

 
—


832.7

 
31.1

 
171.2

 
105.4

 
105.9

 
301.7

 
117.4

Teekay Parent
 
 
 
 
 
 
 
 
 
 
 
 
 
Bond repayments (10)
592.7

 
—

 
—

 
—

 
592.7

 
—

 
—

Scheduled repayments of long-term debt (10)
66.6

 
13.3

 
53.3

 
—

 
—

 
—

 
—

Repayments on maturity of long-term debt (10)
156.9

 
—

 
156.9

 
—

 
—

 
—

 
—

Chartered-in vessels (operating leases) (11)
199.0

 
15.5

 
48.4

 
47.8

 
43.7

 
43.6

 
—

Asset retirement obligation
26.4

 
—

 
26.4

 


 
—

 
—

 
—

 
1,041.6

 
28.8

 
285.0

 
47.8

 
636.4

 
43.6

 
—

 
(1)
Euro-denominated and NOK-denominated obligations are presented in U.S. Dollars and have been converted using the prevailing exchange rate as of September 30, 2017 .
(2)
Excludes expected interest payments of $5.4 million (remainder of 2017 ), $18.9 million ( 2018 ), $16.0 million ( 2019 ), $13.1 million ( 2020 ), and $5.1 million ( 2021 ). Expected interest payments are based on NIBOR at September 30, 2017 , plus margins that range up to 6.00%, as well as the prevailing U.S. Dollar/NOK exchange rate as of September 30, 2017 . The expected interest payments do not reflect the effect of the related cross-currency swaps that Teekay LNG has used as an economic hedge of its foreign exchange and interest rate exposure associated with its NOK-denominated long-term debt.
(3)
Excludes expected interest payments of $9.4 million (remainder of 2017 ), $30.3 million ( 2018 ), $22.5 million ( 2019 ), $17.8 million ( 2020 ), $11.8 million ( 2021 ) and $33.4 million (beyond 2021 ). Expected interest payments reflect the refinancing completed in November 2017 of one of our revolving credit facilities and are based on LIBOR or EURIBOR at September 30, 2017 , plus margins on debt that has been drawn that ranges up to 2.80% (variable-rate loans), as well as the prevailing U.S. Dollar/Euro exchange rate as of September 30, 2017 . The expected interest payments do not reflect the effect of related interest rate swaps or swaptions that Teekay LNG has used as an economic hedge of certain of its variable-rate debt. The repayment amounts reflect the November 2017 refinancing

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of one of Teekay LNG's revolving credit facilities maturing in 2017 with a new $190 million revolving credit facility maturing in November 2018. In addition, the above table does not reflect scheduled debt repayments in Teekay LNG's equity-accounted joint ventures.
(4)
Includes, in addition to lease payments, amounts Teekay LNG may be or is required to pay to purchase the leased vessels at the end of their respective lease terms. For two of Teekay LNG's 10 capital lease obligations, the lessor has the option to sell two Suezmax tankers to Teekay LNG at any time during the remaining lease terms; however, in this table Teekay LNG has assumed the lessor will not exercise its right to sell the two Suezmax tankers to it until after the lease terms expire, which is during late-2017 to mid-2018. The purchase price for any Suezmax tanker Teekay LNG is required to purchase would be based on the unamortized portion of the vessel construction financing costs for the vessels, which are included in the table above. We expect Teekay LNG to satisfy any such purchase price by assuming the existing vessel financing, although it may be required to obtain separate debt or equity financing to complete any purchases if the lenders do not consent to its assuming the financing obligations.
(5)
Teekay LNG has corresponding leases whereby it is the lessor and expects to receive approximately $244.4 million for these leases from the remainder of 2017 to 2029.
(6)
As of September 30, 2017 , Teekay LNG has agreements for the construction of eight wholly-owned LNG carrier newbuildings, of which the estimated remaining costs totaled $1.2 billion , including estimated interest and construction supervision fees. Teekay LNG has secured $1.0 billion of financing related to the commitments seven of the eight LNG carrier newbuildings included in the table above.
As part of the acquisition of an ownership interest in the Pan Union Joint Venture, Teekay LNG agreed to assume Shell’s obligation to provide shipbuilding supervision and crew training services for the four LNG carrier newbuildings and to fund its proportionate share of the remaining newbuilding installments. The estimated remaining costs for the shipbuilding supervision and crew training services and Teekay LNG's proportionate share of newbuilding installments totaled $165.5 million as of September 30, 2017 . However, as part of this agreement with Shell, Teekay LNG expects to recover $4.7 million of the shipbuilding supervision and crew training costs from Shell between the remainder of 2017 and 2019, and the Pan Union Joint Venture has secured financing of $128 million based on Teekay LNG's proportionate share of the remaining newbuilding installments as of September 30, 2017 .
In July 2014, the Yamal LNG Joint Venture, in which Teekay LNG has a 50% ownership interest, entered into agreements for the construction of six LNG carrier newbuildings. As at September 30, 2017 , Teekay LNG's 50% share of the estimated remaining costs for these six newbuildings totaled $811.6 million . The Yamal LNG Joint Venture intends to secure financing for these newbuildings.
The Bahrain LNG Joint Venture, in which Teekay LNG has a 30% ownership interest, is developing an LNG receiving and regasification terminal in Bahrain. The project will be owned and operated under a 20-year agreement commencing in early-2019 with a fully-built up cost of approximately $889 million . As at September 30, 2017 , Teekay LNG's 30% share of the estimated remaining costs is $151.4 million , of which the Bahrain LNG Joint Venture has secured debt financing of $152.0 million .
The table above includes Teekay LNG's proportionate share of the newbuilding costs for three LPG carrier newbuildings scheduled for delivery during 2018 in the Exmar LPG Joint Venture. As at September 30, 2017 , Teekay LNG's 50% share of the estimated remaining costs for these three newbuildings totaled $55.1 million , including estimated interest and construction supervision fees. Exmar LPG Joint Venture has secured financing of $56.0 million for the three LPG carrier newbuildings.

(7)
Excludes expected interest payments of $4.8 million (remainder of 2017 ), $16.7 million ( 2018 ), $13.4 million ( 2019 ), $10.7 million ( 2020 ), and $4.6 million ( 2021 ). Expected interest payments are based on the existing interest rates for variable-rate loans at LIBOR plus margins that range from 0.30% to 2.00% at September 30, 2017 . The expected interest payments do not reflect the effect of related interest rate swaps that Teekay Tankers has used to hedge certain of its floating-rate debt.
(8)
Excludes imputed interest payments of $2.3 million (remaining in 2017 ), $9.0 million ( 2018 ), $8.6 million ( 2019 ), $8.1 million ( 2020 ), $7.6 million ( 2021 ) and $36.3 million (thereafter).
(9)
Excludes payments required if Teekay Tankers executes all options to extend the terms of in-chartered leases signed as of September 30, 2017 . If Teekay Tankers exercises all options to extend the terms of signed in-chartered leases, it would expect total payments of $2.5 million (remainder of 2017 ), $10.6 million ( 2018 ), $8.5 million ( 2019 ), $8.3 million ( 2020 ), and $1.4 million ( 2021 ).
(10)
Excludes expected interest payments of $15.5 million (remainder of 2017 ), $55.9 million ( 2018 ), $50.4 million ( 2019 ), and $25.2 million ( 2020 ). Expected interest payments are based on the existing interest rate for a fixed-rate loan at 8.5% and existing interest rates for variable-rate loans that are based on LIBOR plus margins which ranged between 3.95% and 4.0% as at September 30, 2017 . The expected interest payments do not reflect the effect of related interest rate swaps that Teekay Parent uses as an economic hedge of certain of its variable rate debt.
(11)
Excludes internal time-charter-in commitments between Teekay Parent and its subsidiary, Teekay LNG.

Off-Balance Sheet Arrangements
We have no 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. The details of our equity-accounted investments are shown in “Item 18 – Financial Statements: Note 22 – Equity-Accounted Investments” of our Annual Report on Form 20-F for the year ended December 31, 2016 .
CRITICAL ACCOUNTING ESTIMATES
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. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our consolidated financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could materially differ from our assumptions and estimates. Accounting estimates and assumptions that we consider to be the most critical to an understanding of our consolidated financial statements because they inherently involve significant judgments and uncertainties, are discussed in this section and “Item 5—Operating and Financial Review and Prospects” in our Annual Report on Form 20-F for the year ended December 31, 2016 . There were no significant changes in accounting estimates and assumptions from those discussed in such Annual Report on Form 20-F.

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Goodwill
Based on conditions that existed at September 30, 2017 , we do not believe that there is a reasonable possibility that the goodwill attributable to our reporting units with goodwill might be impaired. However, certain factors that impact this assessment are inherently difficult to forecast and, as such, we cannot provide any assurance that an impairment will or will not occur in the future. An assessment for impairment involves a number of assumptions and estimates that are based on factors that are beyond our control. Some of these factors are referenced in the following section entitled “Forward-Looking Statements.”
FORWARD-LOOKING STATEMENTS
This Report on Form 6-K for the nine months ended September 30, 2017 , contains certain forward-looking statements (as such term is defined in Section 21A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended) concerning future events and our operations, performance and financial condition, including, among others, statements regarding:

•
our future financial condition and results of operations and our future revenues, expenses and capital expenditures, and our expected financial flexibility to pursue capital expenditures, acquisitions and other expansion opportunities;
•
meeting our going concern needs and our liquidity needs;
•
our ability to refinance existing debt obligations, raise additional debt and equity capital to fund capital expenditures, negotiate extensions or redeployments of existing assets and sell partial interests in certain assets;
•
our business strategy and other plans and objectives for future operations;
•
our future growth prospects and future trends of the markets in which we operate;
•
offshore, LNG, LPG, LR2 and tanker market conditions and fundamentals, including the balance of supply and demand in these markets and spot tanker charter rates, fleet growth, price of oil, and oil production in the tanker market, including the expected recovery in tanker freight rates in 2018;
•
the relative size of the newbuilding orderbook and the pace of future newbuilding orders in the tanker industry generally;
•
operating expenses, availability of crew and crewing costs, number of off-hire days, dry-docking requirements and durations and the adequacy and cost of insurance;
•
our expectations and estimates regarding future charter business, including with respect to minimum charter hire payments, revenues and our vessels' ability to perform to specifications and maintain their hire rates in the future;
•
certainty of completion, estimated delivery and completion dates, commencement dates of charters, intended financing and estimated costs for newbuildings, acquisitions and conversions;
•
the expected technical and operational capabilities of newbuildings;
•
our ability to obtain charter contracts for newbuildings or other vessels;
•
our expectations on our customers’ ability to pay for our services;
•
our ability to maximize the use of our vessels, including the re-deployment or disposition of vessels no longer under long-term time charter;
•
future capital expenditure and the availability of capital resources to fund capital expenditures;
•
future debt refinancings and our ability to fulfill our debt obligations;
•
compliance with financing agreements and the expected effect of restrictive covenants in such agreements;
•
the outcome and cost of disputes, claims and potential claims against or involving us;
•
the completion of the merger of Teekay Tankers and TIL and the resulting effect on Teekay Tankers’ liquidity;
•
Teekay LNG's expectations regarding its ability to sell the European Spirit;
•
the future resumption of a LNG plant in Yemen operated by YLNG and expected repayment of deferred hire amounts on Teekay LNG’s two 52% owned vessels, the Marib Spirit and Arwa Spirit, on charter to YLNG, and the expected reduction to Teekay LNG's equity income in 2017 as a result of the charter payment deferral;
•
Teekay LNG's expectations regarding the ability of Skaugen, YLNG and its other customers to make charter payments to it;
•
Teekay LNG's expectations regarding the ability of Awilco to make charter payments and fulfill purchase obligations to Teekay LNG in accordance with the terms of its charter contract agreements;
•
our expectations regarding the expected charter contract commencement for two of Teekay LNG's 52% owned LNG carriers in the Teekay LNG-Marubeni Joint Venture;
•
our expectations regarding whether the UK taxing authority can successfully challenge the tax benefits available under certain of Teekay LNG's former and current leasing arrangements, and the potential financial exposure to Teekay LNG if such a challenge is successful;
•
our expectation that the owner of two of Teekay LNG's Suezmax tankers under capital leases, the Teide Spirit and the Toledo Spirit, will cancel the related charter contracts for the vessels in 2017 and 2018 and sell them to third parties, rather than requiring Teekay LNG to purchase the vessels under capital leases;
•
our expectations regarding the schedule and performance of the Bahrain LNG Joint Venture and Bahrain LNG project and our expectations regarding the supply, modification, charter and timing of completion of the conversion of the FSU vessel for the project;
•
the expected cost of supervision and crew training in relation to the Pan Union Joint Venture and Teekay LNG's expected recovery of a portion of those costs;

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•
the future valuation or impairment of goodwill;
•
the expected lifespan of our vessels, including our expectations as to any impairment of our vessels;
•
expected uses of proceeds from vessel or securities transactions;
•
the ability of the counterparties for our derivative contracts to fulfill their contractual obligations;
•
our hedging activities relating to foreign exchange, interest rate and spot market risks, and potential variance in the amounts recorded as derivative assets and liabilities;
•
our exposure to foreign currency fluctuations;
•
our expectations regarding uncertain tax positions;
•
the timing and amounts of dividends distributed by our equity accounted joint ventures;
•
the effects of adopting new accounting guidance;
•
the establishment of the new Teekay Multigas Pool L.L.C. and the expected size thereof; and
•
our dividend policy and our ability to pay cash dividends on our shares of common stock or any increases in quarterly distributions, and the distribution and dividend policies of our publicly-listed subsidiaries, Teekay LNG and Teekay Tankers, and our equity-accounted investee, Teekay Offshore, including the ability to increase the distribution levels of Teekay Offshore and Teekay LNG in the future.
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. The following factors are among those that could cause actual results to differ materially from the forward-looking statements, which involve risks and uncertainties, and that should be considered in evaluating any such statement: failure to achieve or the delay in achieving expected benefits of our financing initiatives; changes in oil prices; changes in vessel values; changes in production of or demand for oil, petroleum products, LNG and LPG, either generally or in particular regions; changes in anticipated levels of vessel newbuilding orders or rates of vessel scrapping; competitive factors in the markets in which we operate; loss of any customer, time-charter or vessel; changes in the financial stability of our charterers; changes in trading patterns significantly affecting overall vessel tonnage requirements; the timing of implementation of new laws and regulations; spot tanker market rate fluctuations; changes in the typical seasonal variations in tanker charter rates; changes in the offshore production of oil or demand for shuttle tankers, FSOs, FPSOs, LNG or LPG carriers, UMS or towage vessels; effects of the issuance of additional shares of common stock and other equity securities on cash distributions; the outcome of discussions or legal action with third parties relating to existing or potential disputes or claims (including among others, the outcome of discussions with QGEP and lenders of the Petrojarl I loan facility relating to the project delays in the delivery of the unit; and potential claims relating to the Arendal Spirit UMS and cancelled UMS newbuilding contracts); delays in the start-up of offshore oil fields related to the CoA contracts of the actual vessel equivalent requirements of new CoAs; potential inability to obtain charters related to newbuildings or other vessels; decreases in oil production by or increased operating expenses for FPSO units; trends in prevailing charter rates for shuttle tanker and FPSO contract renewals; the potential for early termination of long-term contracts and our ability to renew or replace long-term contracts or complete existing contract negotiations; shipyard production or vessel conversion delays and cost overruns; our exposure to currency exchange rate fluctuations; the failure of Teekay Tankers to complete the merger with TIL or to achieve expected benefits from the merger with TIL; changes in our expenses; changes in tax regulations or the outcome of tax positions; our future capital expenditure requirements and the inability to secure financing for such requirements; our potential inability to raise financing to refinance debt maturities; the inability of us to complete vessel sale transactions; potential failure of the Yamal LNG Project to be completed for any reason, including due to lack of funding as a result of existing or future sanctions against Russian entities and individuals, which may affect partners in the project; potential delays or cancellation of the Yamal LNG Project; the potential inability of Skaugen or Awilco to make payments under or relating to charter contracts; the potential failure of the YLNG project in Yemen to recommence operations or for YLNG to pay deferred charter hire amounts; conditions in the capital markets and lending markets; potential inability to implement our growth strategy; and other factors discussed in our filings from time to time with the SEC, including our Report on Form 20-F for the fiscal year ended December 31, 2016. We expressly disclaim any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in our expectations with respect thereto or any change in events, conditions or circumstances on which any such statement is based.

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ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from foreign currency fluctuations and changes in interest rates, bunker fuel prices and spot tanker market rates for vessels. We use foreign currency forward contracts, cross currency and interest rate swaps, bunker fuel swap contracts and forward freight agreements to manage currency, interest rate, bunker fuel price and spot tanker market rate risks, but we do not use these financial instruments for trading or speculative purposes , except as noted below under Spot Tanker Market Rate Risk. Please read “Item 1 – Financial Statements: Note 14 – Derivative Instruments and Hedging Activities.”

Foreign Currency Fluctuation Risk
Our primary economic environment is the international shipping market. Transactions in this market generally utilize the U.S. Dollar. Consequently, a substantial majority of our revenues and most of our operating costs are in U.S. Dollars. We incur certain voyage expenses, vessel operating expenses, dry-docking and overhead costs in foreign currencies, the most significant of which are the Australian Dollar, Brazilian Real, British Pound, Canadian Dollar, Euro, Norwegian Kroner and Singapore Dollar. There is a risk that currency fluctuations will have a negative effect on the value of cash flows.
We reduce our exposure at times by entering into foreign currency forward contracts. In most cases, we hedge our net foreign currency exposure for the following nine to 12 months. We generally do not hedge our net foreign currency exposure beyond three years forward.
As at September 30, 2017 , we had the following foreign currency forward contracts:
 
 
 
 
 
Fair Value /
Carrying
Amount
Of Asset
(Liability) (3)
$
 
Expected Maturity
 
Contract Amount in
Foreign Currency (1)
 
Average
Forward Rate  (2)
 
 
2017 (3)
 
2018 (3)
 
 
 
 
$
 
$
Norwegian Kroner
130,000

 
8.24

 
537

 
3,616

 
12,153


(1)
Foreign currency contract amounts in thousands.
(2)
Average contractual exchange rate represents the contracted amount of foreign currency one U.S. Dollar will buy.
(3)
Contract amounts and fair value amounts in thousands of U.S. Dollars.
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 September 30, 2017 , we had Euro-denominated term loans of 197.9 million Euros ( $233.8 million ). We receive Euro-denominated revenue from certain of our time-charters. These Euro cash receipts generally are sufficient to pay the principal and interest payments on our Euro-denominated term loans. Consequently, we have not entered into any foreign currency forward contracts with respect to our Euro-denominated term loans, although there is no assurance that our net exposure to fluctuations in the Euro will not increase in the future.
We enter into cross currency swaps in connection with our NOK bond issuances, and pursuant to these swaps we receive the principal amount in NOK on the maturity date of the swap, in exchange for payment of a fixed U.S. Dollar amount. In addition, the cross currency swaps exchange a receipt of floating interest in NOK based on NIBOR plus a margin for a payment of U.S. Dollar fixed interest. The purpose of the cross currency swaps is to economically hedge the foreign currency exposure on the payment of interest and principal of our NOK bonds due in 2018, 2020 and 2021. In addition, the cross currency swaps economically hedge the interest rate exposure on the NOK bonds due in 2018, 2020 and 2021. We have not designated, for accounting purposes, these cross currency swaps as cash flow hedges of our outstanding NOK-denominated bonds due in 2018, 2020 and 2021. As at September 30, 2017 , we were committed to the following cross currency swaps:
 
 
 
 
 
 
 
 
 
 
Fair Value /
Carrying
Amount of
Asset /
(Liability) (1)
$
 
 
Notional
Amount
NOK (1)
 
Notional
Amount
USD (1)
 
Floating Rate Receivable
 
 
 
 
 
 
 
Reference
Rate
 
Margin
 
Fixed Rate
Payable
 
 
Remaining
Term (years)
900,000
 
150,000

 
NIBOR
 
4.35
%
 
6.43
%
 
(39,088
)
 
0.9
1,000,000
 
134,000

 
NIBOR
 
3.70
%
 
5.92
%
 
(9,862
)
 
2.6
1,200,000
 
146,500

 
NIBOR
 
6.00
%
 
7.70
%
 
7,682

 
4.1
 
 
 
 
 
 
 
 
 
 
(41,268
)
 
 

(1)
In thousands of Norwegian Kroner and U.S. Dollars.

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Interest Rate Risk
We are exposed to the impact of interest rate changes primarily through our floating-rate borrowings that require us to make interest payments based on LIBOR, NIBOR or EURIBOR. Significant increases in interest rates could adversely affect our operating margins, results of operations and our ability to service our debt. We use interest rate swaps to reduce our exposure to market risk from changes in interest rates. Generally, our approach is to economically hedge a substantial majority of floating-rate debt associated with our vessels that are operating on long-term fixed-rate contracts. We manage the rest of our floating-rate debt exposure based on our outlook for interest rates and other factors.
We are exposed to credit loss in the event of non-performance by the counterparties to the interest rate swap agreements. In order to minimize counterparty risk, we only enter into derivative transactions with counterparties that are rated A- or better by Standard & Poor’s or A3 or better by Moody’s at the time of the transaction. In addition, to the extent possible and practical, interest rate swaps are entered into with different counterparties to reduce concentration risk.
The table below provides information about our financial instruments at September 30, 2017 , that 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
 
Fair Value
Asset /
(Liability)
 
 
 
Balance
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
2018
 
2019
 
2020
 
2021
 
Thereafter
 
Total
 
Rate (1)
 
(in millions of U.S. dollars)
Long-Term Debt:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable Rate ($U.S.) (2)
81.7

 
829.2

 
168.3

 
299.4

 
475.0

 
295.2

 
2,148.8

 
(2,109.6
)
 
3.1
%
Variable Rate (Euro) (3)(4)
4.5

 
140.2

 
10.0

 
10.8

 
11.5

 
56.8

 
233.8

 
(224.6
)
 
1.2
%
Variable Rate (NOK) (4)(5)
—

 
113.0

 
—

 
125.6

 
150.7

 
—

 
389.3

 
(395.5
)
 
5.6
%
Fixed-Rate Debt ($U.S.)
—

 
—

 
—

 
592.7

 
—

 
—

 
592.7

 
(600.9
)
 
8.5
%
Average Interest Rate
—
%
 
—
%
 
—
%
 
8.5
%
 
—
%
 
—
%
 
8.5
%
 
 
 
 
Capital Lease Obligations
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Variable-Rate ($U.S.) (6)
1.8

 
7.2

 
7.7

 
8.2

 
8.7

 
117.4

 
151.0

 
(150.7
)
 
6.2
%
Fixed-Rate ($U.S.) (7)
37.2

 
85.1

 
58.2

 
62.5

 
56.8

 
404.5

 
704.3

 
(704.3
)
 
4.4
%
Average Interest Rate (8)
4.5
%
 
5.2
%
 
4.6
%
 
4.6
%
 
4.6
%
 
4.1
%
 
4.4
%
 
 
 
 
Interest Rate Swaps:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contract Amount ($U.S.) (9)
48.9

 
309.2

 
226.9

 
244.4

 
275.9

 
241.3

 
1,346.6

 
(52.1
)
 
2.9
%
Average Fixed Pay Rate (2)
3.7
%
 
3.3
%
 
2.6
%
 
3.0
%
 
2.1
%
 
3.4
%
 
2.9
%
 
 
 
 
Contract Amount (Euro) (4)(10)
4.5

 
140.2

 
10.0

 
10.7

 
11.6

 
56.8

 
233.8

 
(30.8
)
 
3.1
%
Average Fixed Pay Rate (3)
3.1
%
 
2.6
%
 
3.7
%
 
3.7
%
 
3.7
%
 
3.9
%
 
3.1
%
 
 
 
 

(1)
Rate refers to the weighted-average interest rate for our long-term debt and capital lease obligations, including the margin we pay on our floating-rate, which, as of September 30, 2017 , ranged from 0.3% and 4.0% for U.S. Dollar denominated debt. The average interest rate for our capital lease obligations is the weighted-average interest rate implicit in our lease obligations at the inception of the leases.
(2)
Interest payments on U.S. Dollar-denominated debt and interest rate swaps are based on LIBOR. The repayment amounts exclude a non-interest bearing loan of $10.0 million and reflect the refinancing completed in November 2017 of one of Teekay LNG's revolving credit facilities scheduled to mature in 2017 with a new $190.0 million revolving credit facility maturing in November 2018.
(3)
Interest payments on Euro-denominated debt and interest rate swaps are based on EURIBOR.
(4)
Euro-denominated and NOK-denominated amounts have been converted to U.S. Dollars using the prevailing exchange rate as of September 30, 2017 .
(5)
Interest payments on our NOK-denominated debt and on our cross currency swaps are based on NIBOR. Our NOK-denominated debt has been economically hedged with cross currency swaps, to swap all interest and principal payments at maturity into U.S. Dollars, with the interest payments fixed at rates between 5.92% to 7.70% , and the transfer of principal fixed at $430.5 million upon maturities.
(6)
Rate refers to the weighted-average effective interest rate for our long-term debt, including the margin we pay on our variable-rate, and the average imputed interest rate we pay for our capital lease obligations.
(7)
The amount of capital lease obligations represents the present value of minimum lease payments together with our purchase obligation, as applicable.
(8)
The average interest rate is the weighted-average interest rate implicit in the capital lease obligations at the inception of the leases. Interest rate adjustments on these leases have corresponding adjustments in charter receipts under the terms of the charter contracts to which these leases relate.
(9)
The average variable receive rate for our interest rate swaps is set quarterly at the 3-month LIBOR or semi-annually at the 6-month LIBOR. The table above does not reflect Teekay LNG's swaption agreements, whereby it has a one-time option to enter into an interest rate swap at a fixed rate with a third party, and the third party has a one-time option to require Teekay LNG to enter into an interest rate swap at a fixed rate. If Teekay LNG or the third party exercises its option, there will be cash settlements for the fair value of the interest rate swap in lieu of taking delivery of the actual interest rate swap. The net fair value of the interest

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rate swaption agreements as at September 30, 2017 was a liability of $0.5 million . Please read “Item 1 - Financial Statements: Note 14 - Derivative Instruments and Hedging Activities”.
(10)
The average variable receive rate for our Euro-denominated interest rate swaps is set at 1-month EURIBOR.

Equity Price Risk
We are exposed to the changes in the unit price of Teekay Offshore. We have stock purchase warrants entitling us to purchase an aggregate of 14.5 million common units of Teekay Offshore for an exercise price of $0.01 per common unit, which warrants become exercisable when Teekay Offshore's common unit volume-weighted average price is equal to or greater than $4.00 per common unit for 10 consecutive trading days until September 25, 2024. In addition, we hold 1.8 million warrants to purchase common units of Teekay Offshore that were issued in connection with Teekay Offshore's private placement of Series D Preferred Units in June 2016 with an exercise price of $4.55, which have a seven-year term and are exercisable any time after six months following their issuance date. The Series D Warrants will be net settled in either cash or common units at Teekay Offshore’s option.
Commodity Price Risk
From time to time we may use bunker fuel swap contracts relating to a portion of our bunker fuel expenditures. As at September 30, 2017 , we were not committed to any bunker fuel swap contracts.
Spot Tanker Market Rate Risk
We are exposed to fluctuations in spot tanker market rates which can adversely affect our revenues. To reduce its exposure, Teekay Tankers uses FFAs in non-hedge-related transactions to increase or decrease its exposure to spot market rates, within defined limits. Net gains and losses from FFAs are recorded within realized and unrealized losses (gains) on non-designated derivative instruments in our consolidated statements of loss (income).


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ITEM 4 -      CONTROLS AND PROCEDURES

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended) during the nine months ended September 30, 2017 , that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.


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TEEKAY CORPORATION AND SUBSIDIARIES
SEPTEMBER 30, 2017
PART II – OTHER INFORMATION
Item 1 – Legal Proceedings
See “Part I, Item 1 – Financial Statements: Note 9c – Commitments and Contingencies – Legal Proceedings and Claims” in this Report.
Item 1A – Risk Factors
In addition to the other information set forth in this Report on Form 6-K, you should carefully consider the risk factors discussed in Part I, “Item 3. Key Information – Risk Factors” in our Annual Report on Form 20-F for the year ended December 31, 2016 , as well as in Part II -- Other Information, Items 1A -- Risk Factors in our Report on Form 6-K for the quarter ended June 30, 2017, which could materially affect our business, financial condition or results of operations and the price and value of our securities .
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3 – Defaults Upon Senior Securities
None
Item 4 – Mine Safety Disclosures
Not applicable
Item 5 – Other Information
None
Item 6 - Exhibits
The following exhibits are filed as part of this Report:  
  4.1
Warrant Agreement dated as of September 25, 2017, by and between Teekay Offshore Partners L.P. and Teekay Shipping Limited
 
 
  4.2
Second Amended and Restated Limited Liability Company Agreement of Teekay Offshore GP L.L.C., dated as of September 25, 2017, by and between Teekay Holdings Limited and Brookfield TK TOGP L.P.
 
 
  4.3
Registration Rights Agreement, dated as of September 25, 2017, by and between Teekay Offshore Partners L.P., Teekay Corporation and Brookfield TK TOLP L.P.
 
 
10.1
Investment Agreement, dated as of July 26, 2017, between Teekay Offshore Partners L.P. and Teekay Holdings Limited (incorporated by reference to Exhibit 10.1 of the Company's Report on Form 6-K (File No. 1-12874), furnished to the SEC on August 1, 2017)
 
 
10.2
Purchase Agreement, dated as of July 26, 2017, between Teekay Holdings Limited and Brookfield TK TOGP L.P. (incorporated by reference to Exhibit 10.2 of the Company’s Report on Form 6-K (File No.1-12874), furnished to the SEC on August 1, 2017)
 
 
10.3
Amended and Restated Subordinate Promissory Note, dated as of July 26, 2017, by and between Teekay Offshore Partners L.P., Teekay Corporation and Brookfield TK TOLP L.P. (incorporated by reference to Exhibit 10.3 of the Company’s Report on Form 6-K (File No.1-12874), furnished to the SEC on August 1, 2017)

 
 
10.4
Master Services Agreement, dated as of September 25, 2017, by and between Teekay Corporation, Teekay Offshore Partners L.P. and Brookfield TK TOLP L.P.
 
 
10.5
Trademark License Agreement, dated as of September 25, 2017, by and between Teekay Corporation and Teekay Offshore Partners L.P.


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THIS REPORT ON FORM 6-K IS HEREBY INCORPORATED BY REFERENCE INTO THE FOLLOWING REGISTRATION STATEMENTS OF THE COMPANY:
 
•
REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 033-97746) FILED WITH THE SEC ON OCTOBER 4, 1995;
•
REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-42434) FILED WITH THE SEC ON JULY 28, 2000;
•
REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-119564) FILED WITH THE SEC ON OCTOBER 6, 2004;
•
REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-147683) FILED WITH THE SEC ON NOVEMBER 28, 2007;
•
REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-166523) FILED WITH THE SEC ON MAY 5, 2010;
•
REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-187142) FILED WITH THE SEC ON MARCH 8, 2013;
•
REGISTRATION STATEMENT ON FORM F-3 (NO. 333-212787) FILED THE WITH SEC ON JULY 29, 2016; AND
•
REGISTRATION STATEMENT ON FORM F-3 (NO. 333-213213) FILED THE WITH SEC ON AUGUST 19, 2016.

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
TEEKAY CORPORATION
 
 
 
 
Date: November 22, 2017
By:
 
/s/ Vincent Lok
 
 
 
Vincent Lok
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)

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Exhibit 4.1

TEEKAY OFFSHORE PARTNERS L.P.
(as Issuer)
and
TEEKAY SHIPPING LIMITED
Warrant Agreement
Dated as of September 25, 2017

Warrants Exercisable for
Common Units
 

 
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TABLE OF CONTENTS
Page
ARTICLE 1. DEFINITIONS                                 3
Section 1.01      Definitions                                 3
Section 1.02      Rules of Construction                             8

ARTICLE 2. THE WARRANTS                                 9
Section 2.01      Issuance and Acquisition of Warrants                     9
Section 2.02      Form and Dating; Legends                         9
Section 2.03      Execution                                 10
Section 2.04      Replacement Warrants                         10
Section 2.05    Outstanding Warrants                             10
Section 2.06    Cancellation                                 10
Section 2.07    Registration, Transfer and Exchange                     10
Section 2.08    Restrictions on Transfer and Exchange                 11

ARTICLE 3. SEPARATION OF WARRANTS; TERMS OF WARRANTS; EXERCISE
OF WARRANTS                                         12
Section 3.01Terms of Warrants; Exercise of Warrants                 12
Section 3.02    Conditional Exercise                             13
Section 3.03    Privatization Event                             13
Section 3.04    Cost Basis Information                         14

ARTICLE 4. COVENANTS OF THE PARTNERSHIP                     14
Section 4.01    Maintenance of Office or Agency                     14
Section 4.02    Payment of Taxes                             15
Section 4.03    Rule 144 Information                             15
Section 4.04    Reservation of Warrant Units                         15

ARTICLE 5. ADJUSTMENTS                                 15
Section 5.01    Adjustments                                 15
Section 5.02    Fractional Interests                             23
Section 5.03    Notices to Warrantholders                         23
Section 5.04    No Rights as Unitholders                         24

ARTICLE 6. MISCELLANEOUS                                 24
Section 6.01    Warrantholder Actions                         24
Section 6.02    Notices                                 24
Section 6.03    Supplements and Amendments                     26
Section 6.04    Governing Law                              27
Section 6.05    No Adverse Interpretation of Other Agreements             27
Section 6.06    Successors and Assigns                         27
Section 6.07    Duplicate Originals                             28

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Section 6.08    Separability                                 28
Section 6.09    Table of Contents and Headings                     28
Section 6.10    Benefits of this Agreement                         28
Section 6.11    Good Faith Determinations                         28
Section 6.12    Obligations Limited to Parties to Agreement                 28
Section 6.13    Confidentiality                             28

EXHIBITS
Exhibit A     Form of Warrant
Exhibit B     Restricted Legend


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WARRANT AGREEMENT, dated as of September 25, 2017, between TEEKAY OFFSHORE PARTNERS L.P., a Republic of the Marshall Islands limited partnership (as further defined below, the “ Partnership ”), and TEEKAY SHIPPING LIMITED, a Bermuda corporation (the “ Investor ”).
WHEREAS, pursuant to that Investment Agreement (the “ Investment Agreement ”), dated as of July 26, 2017, between the Partnership and Teekay Holdings Limited, a Bermuda corporation (“ Teekay Holdings ”), the Partnership agreed to issue, sell and deliver to Teekay Holdings, and Teekay Holdings agreed to purchase and acquire from the Partnership, pursuant to the terms and subject to the conditions set forth in the Investment Agreement, (i) an aggregate of 12,000,000 Common Units and (ii) an aggregate of 3,059,055 warrants (the “ Warrants ”), that upon exercise may be net unit settled for Common Units (the Common Units issuable on exercise of the Warrants being referred to herein as the “ Warrant Units ”); and
WHEREAS, on September 25, 2017, Teekay Holdings assigned its rights under the Investment Agreement to receive the 12,000,000 Common Units and the Warrants to the Investor; and
WHEREAS, in connection with the Investment Agreement, and as a condition thereunder, the Partnership is issuing to the Investor, and the Investor is acquiring from the Partnership, 3,059,055 Warrants.
NOW, THEREFORE, in consideration of the premises and the mutual agreements set forth in the Investment Agreement and herein, the parties hereto agree as follows:
Article 1.
DEFINITIONS
Section 1.01      Definitions . As used in this Agreement, the following terms shall have the following respective meanings.
“ act ” has the meaning assigned to such term in Section 6.01 .
“ Affiliate ” shall have the meaning ascribed to it, on the date hereof, in Rule 405 under the Securities Act.
“ Agreement ” means this Warrant Agreement, as amended or supplemented from time to time.
“ Average VWAP ” per unit over a certain period means the arithmetic average of the VWAP per unit for such period.
“ Board of Directors ” means the Board of Directors of the General Partner or, with respect to any action to be taken by the Board of Directors, any committee of the Board of Directors duly authorized to take such action.

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“ Business Combination ” means a merger, sale, consolidation, statutory exchange or similar transaction that requires the approval of the Partnership’s unitholders.
“ Business Day ” means Monday through Friday of each week, except that a legal holiday recognized as such by the government of the United States of America or the State of New York shall not be regarded as a Business Day.
“ Capital Stock ” means:
(1)
in the case of a corporation, corporate stock;
(2)
in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;
(3)
in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests, respectively; and
(4)
any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person, but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.
“ Cash Redemption Value ” has the meaning assigned to such term in Section 3.03.
“ Closing Sale Price ” of the Common Units means, as of any date, the closing sale price per unit (or if no closing sale price is reported, the average of the closing bid and ask prices or, if more than one in either case, the average of the average closing bid and the average closing ask prices) on such date as reported on the principal United States securities exchange on which the Common Units are traded or, if the Common Units are not listed on a United States national or regional securities exchange, in the over-the-counter market as reported by OTC Markets Group Inc. or a similar organization. In the absence of such a listing or quotation, the Closing Sale Price shall be, subject to Section 5.01(e), an amount determined by the Board of Directors to be the fair market value of a Common Unit.
“ Code ” means the U.S. Internal Revenue Code of 1985, as amended.
“ Commission ” means the United States Securities and Exchange Commission.
“ Common Units ” has the meaning specified therefor in Article I of the Partnership Agreement.
“ Convertible Securities ” means any stock or securities (other than Options) directly or indirectly convertible into or exercisable or exchangeable for Common Units.

    4

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“ Ex-Date ” means, when used with respect to any issuance of or distribution in respect of the Common Units or any other securities, the first date on which the Common Units or such other securities trade without the right to receive such issuance or distribution.
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“ Exercise Date ” has the meaning assigned to such term in Section 3.03.
“ Exercise Notice ” has the meaning assigned to such term in Section 3.01(b) .
“ Exercise Price ” means the applicable exercise price for the Warrants as set forth on Exhibit A , subject to adjustment pursuant to Section 5.01 .
“ Exercise Units ” has the meaning assigned to such term in Section 3.01(c) .
“ Expiration Time ” has the meaning assigned to such term in Section 3.01(a) .
“ GAAP ” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board Accounting Standards Codification or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the Issue Date.
“ General Partner ” means Teekay Offshore GP L.L.C., a Republic of the Marshall Islands limited liability company, and its successors and permitted assigns that are admitted to the Partnership as general partner of the Partnership, in its capacity as general partner of the Partnership (except as the context otherwise requires).
“ Holder ” or “ Warrantholder ” means the registered holder of any Warrant.
“ Independent Financial Expert ” means a nationally recognized financial advisory firm mutually agreed by the Partnership and the holders of a majority of the Warrants. If the Partnership and the holders of a majority of the Warrants are unable to agree on an Independent Financial Expert for a valuation contemplated herein, each of them shall choose promptly a separate Independent Financial Expert and these two Independent Financial Experts shall choose promptly a third Independent Financial Expert to conduct such valuation; provided that no firm may be selected as the Independent Financial Expert if it has had a material relationship with the Partnership, the General Partner or the Holders or their respective Affiliates within the preceding two (2) years.
“ Initial Distribution Amount ” means $0.01.
“ Investment Agreement ” has the meaning assigned to such term in the Recitals.
“ Investor ” has the meaning assigned to such term in the Recitals.

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“ Issue Date ” means the date of this Agreement.
“ Market Value ” means the Average VWAP during a 10 consecutive Trading Day period ending on the Trading Day immediately prior to the date of determination.
“ National Securities Exchange ” means an exchange registered with the Commission under Section 6(a) of the Exchange Act.
“ Net Unit Settlement ” has the meaning assigned to such term in Section 3.01(c).
“ Officer ” means the Chief Executive Officer, the President, any Executive Vice President, any Senior Vice President, any Vice President, the Chief Financial Officer, the Treasurer, the Secretary or any Assistant Secretary of the General Partner.
“ Option Value ” means the value of an Option based on the Black and Scholes Option Pricing model obtained from the “OV” function on Bloomberg determined as of the day prior to the public announcement of the applicable Option for pricing purposes and reflecting (i) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of the applicable Option as of the applicable date of determination, (ii) an expected volatility equal to the greater of (a) 100% and (b) the 100 day volatility obtained from the “HVT” function on Bloomberg as of the day immediately following the public announcement of the issuance of the applicable Option, (iii) the underlying price per share used in such calculation shall be the highest VWAP of the Common Units on any Trading Day during the period beginning on the day prior to the execution of definitive documentation relating to the issuance of the applicable Option and ending on the day of the public announcement of such issuance and (iv) a 360 day annualization factor.
“ Options ” means any rights, warrants or options to subscribe for or purchase Common Units or Convertible Securities.
“ Partnership ” means Teekay Offshore Partners L.P., a Republic of the Marshall Islands limited partnership, and any successors thereto.
“ Partnership Agreement ” means the Fifth Amended and Restated Agreement of Limited Partnership of the Partnership, as amended or modified.
“ Person ” means any individual, corporation, general partnership, limited partnership, limited liability partnership, joint venture, association, joint-stock company, trust, limited liability company, unincorporated organization or government or any agency or political subdivision thereof.
“ Privatization Event ” means an event or series of events by which (a) the Partnership’s Common Units are no longer traded on a national securities exchange or (b) the Partnership’s reporting obligations under the Exchange Act are terminated; provided that the holders of Common Units receive consideration in connection therewith with a fair market value of no less than the Threshold Price per Common Unit if prior to January 1, 2021, or 82.5% of the Threshold Price per Common Unit if January 1, 2021 or later, if such event or series of events is a merger, consolidation, share exchange or similar transaction.

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“ Pro Rata Repurchases ” means any purchase of Common Units by the Partnership or any Affiliate thereof pursuant to (i) any tender offer or exchange offer directed to all of the holders of Common Units subject to Section 13(e) or 14(e) of the Exchange Act or Regulation 14E promulgated thereunder or (ii) any other tender offer available to substantially all holders of Common Units, in the case of both (i) and (ii), whether for cash, shares of Capital Stock of the Partnership, other securities of the Partnership, evidences of indebtedness of the Partnership or any other Person or any other property (including shares of Capital Stock, other securities or evidences of indebtedness of a subsidiary), or any combination thereof, effected while the Warrants are outstanding. The “Effective Date” of a Pro Rata Repurchase means the date of purchase with respect to any Pro Rata Purchase.
“ Public Stock ” means common stock listed on a recognized U.S. national securities exchange.
“ Register ” has the meaning assigned to such term in Section 2.07(a).
“ Restricted Legend ” means the legend set forth in Exhibit B .
“ Rule 144 ” means Rule 144 promulgated under the Securities Act.
“ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“ Specified Distribution ” means:
(1)
any dividend or distribution referred to in Section 5.01(a)(i);
(2)
any rights, options or warrants referred to in Section 5.01(a)(ii);
(3)
any dividend of shares of Capital Stock of any class or series, or similar equity interests, of or relating to a subsidiary or other business unit in the case of certain spin-off transactions as described in Section 5.01(a)(iv);
(4)
any distribution in connection with the liquidation, dissolution or winding up of the Partnership, whether voluntary or involuntary; and
(5)
any quarterly dividend or distribution paid in cash to the extent such dividend or distribution is no more than the Initial Distribution Amount; provided , however , that this clause (5) shall not include any dividends or distributions to the extent that any such dividend or distribution is paid at a rate that exceeds 107.5% of the quarterly distribution rate for the immediately preceding fiscal quarter of the Partnership, on a per unit basis, in which case the amount of such dividend or distribution in excess of 107.5% of such quarterly distribution rate shall be deemed to not be a Specified Distribution under this clause (5).
“ Threshold Price ” has the meaning assigned to such term in Section 3.01(a) .

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“ Trading Day ” means a day during which trading in securities generally occurs on the New York Stock Exchange or, if the Common Units are not listed on the New York Stock Exchange, on the principal other national or regional securities exchange on which the Common Units are then listed or, if the Common Units are not listed on a national or regional securities exchange, on the principal other market on which the Common Units are then traded. If the Common Units are not so listed or traded, “Trading Day” means a Business Day.
“ Transfer Agent ” has the meaning assigned to such term in Section 4.04(b) .
“ Trigger Event ” has the meaning assigned to such term in Section 5.01(a)(vii) .
“ VWAP ” per Common Unit on any Trading Day means the per unit volume-weighted average price as displayed on Bloomberg page “ TOO US Equity AQR ” (or its equivalent successor if such page is not available) in respect of the period from 9:30 a.m. to 4:00 p.m., New York City time, on such Trading Day; or, if such price is not available, “VWAP” means the market value Common Unit on such Trading Day as determined, using a volume-weighted average method, by a nationally recognized independent investment banking firm retained by the Partnership for this purpose.
“ Warrant Exercise ” has the meaning assigned to such term in Section 3.01(b) .
“ Warrant Units ” has the meaning assigned to such term in the Recitals.
“ Warrants ” has the meaning assigned to such term in the Recitals and includes Warrants issued on the Issue Date.
Section 1.02      Rules of Construction . Unless the context otherwise requires:
(a)      a term has the meaning assigned to it;
(b)      an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;
(c)      “or” is not exclusive;
(d)      words in the singular include the plural, and words in the plural include the singular;
(e)      “herein,” “hereof” and other words of similar import refer to this Agreement as a whole and not to any particular Article, Section or other subdivision;
(f)      when the words “includes” or “including” are used herein, they shall be deemed to be followed by the words “without limitation”;
(g)      all references to Sections or Articles or Exhibits refer to Sections or Articles or Exhibits of or to this Agreement unless otherwise indicated; and

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(h)      references to agreements or instruments, or to statutes or regulations, are to such agreements or instruments, or statutes or regulations, as amended from time to time (or to successor statutes and regulations).
ARTICLE 2.     
THE WARRANTS
Section 2.01      Issuance and Acquisition of Warrants . In connection with the Investment Agreement, and as a condition thereunder, the Partnership hereby agrees to issue, subject to the conditions and restrictions contained in this Agreement, to the Investor, and the Investor hereby agrees to acquire from the Partnership, 3,059,055 Warrants. One Warrant certificate may be issued for multiple Warrants.
Section 2.02      Form and Dating; Legends.
(a)      The Warrants will be substantially in the form attached as Exhibit A . The terms and provisions contained in the form of the Warrant attached as Exhibit A constitutes, and are hereby expressly made, a part of this Agreement.
(b)      Except as otherwise provided in Section 2.02(c) or Section 2.08 , each Warrant will bear the Restricted Legend.
(c)      (i) If the Partnership determines (upon the advice of counsel and such other certifications and evidence as the Partnership may reasonably require) that a Warrant is eligible for resale pursuant to Rule 144 under the Securities Act (or a successor provision) without the need to satisfy current information or other requirements therein and that the Restricted Legend is no longer necessary or appropriate in order to ensure that subsequent transfers of the Warrant are effected in compliance with the Securities Act, or (ii) after a Warrant is sold pursuant to an effective registration statement under the Securities Act, then, in each case, the Partnership may cancel the Warrant and issue to the Holder thereof (or to its transferee) a new Warrant of like tenor, registered in the name of the Holder thereof (or its transferee), that does not bear the Restricted Legend.
(d)      By its acceptance of any Warrant bearing the Restricted Legend, each Holder thereof and each owner of a beneficial interest therein acknowledges the restrictions on transfer of such Warrant set forth in this Agreement and in the Restricted Legend and agrees that it will transfer such Warrant only in accordance with this Agreement and such legend.
Section 2.03      Execution . An Officer shall execute the Warrants for the Partnership by facsimile or manual signature in the name and on behalf of the Partnership, and a Warrant will be valid upon such execution. If an Officer whose signature is on a Warrant no longer holds that office at the time the Warrant is countersigned, the Warrant will still be valid.
Section 2.04      Replacement Warrants. The Partnership shall issue replacement Warrants for those certificates alleged to have been lost, stolen or destroyed, upon receipt by the Partnership of (i) evidence reasonably satisfactory to the Partnership of such loss, theft or destruction of such Warrants, and (ii) indemnity satisfactory to the Partnership (unless waived by the Partnership). The

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Partnership may, at its option, issue replacement Warrants for mutilated certificates upon presentation thereof without such indemnity.
Section 2.05      Outstanding Warrants .
(a)      Warrants outstanding at any time are all Warrants that have been executed by the Partnership except for:
(i)      Warrants canceled by the Partnership or delivered to the Partnership for cancellation;
(ii)      Warrants exercised by the Holder thereof; and
(iii)      any Warrant which has been replaced pursuant to Section 2.04 unless and until the Partnership receives proof satisfactory to it that the replaced Warrant is held by a bona fide purchaser, in which case the replacement Warrant issued pursuant to Section 2.04 shall be automatically canceled.
Section 2.06      Cancellation . Notwithstanding any Warrants canceled in accordance with Section 3.01 , the Partnership must promptly cancel any Warrants previously executed and delivered hereunder which the Partnership may have acquired in any manner whatsoever, and may cancel any Warrants previously executed hereunder which the Partnership has not issued and sold. The Partnership will cancel all Warrants surrendered for transfer, exchange or cancellation in accordance with customary procedures. The Partnership may not issue new Warrants to replace Warrants that have been exercised or delivered to the Partnership for cancellation.
Section 2.07      Registration, Transfer and Exchange .
(a)      The Partnership shall maintain a register (the “ Register ”) for registering the record ownership of the Warrants by the Holders and transfers and exchanges of the Warrants. Each Warrant will be registered in the name of the Holder thereof or its nominee.
(b)      Subject to compliance with Section 2.08, a Holder may transfer a Warrant to another Person or exchange a Warrant for another Warrant by presenting to the Partnership a written request therefor stating the name of the proposed transferee or requesting such an exchange, accompanied by any certification, opinion or other document required by this Agreement. The Partnership will promptly register any transfer or exchange that meets the requirements of this Section and Section 2.08 by noting the same in the Register maintained by the Partnership for such purpose; provided that no transfer or exchange will be effective until it is registered in the Register. Prior to the registration of any transfer, the Partnership and its agents will treat the Person in whose name the Warrant is registered as the owner and Holder thereof for all purposes, and will not be affected by notice to the contrary.
From time to time the Partnership will execute Warrants as necessary in order to permit the registration of a transfer or exchange in accordance with this Section. All Warrants issued upon

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transfer or exchange shall be the duly authorized, executed and delivered Warrants of the Partnership entitled to the benefits of this Agreement.
No service charge will be imposed in connection with any transfer or exchange of any Warrant, but the Partnership may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith. The Partnership shall have no obligation to effect an exchange or register a transfer unless and until it is satisfied that any payments required by the immediately preceding sentence have been made.
(c)      Subject to compliance with Section 2.08(b) , if a Warrant is transferred or exchanged for another Warrant, the Partnership will (i) cancel the Warrant being transferred or exchanged, (ii) deliver one or more new Warrants which (in the aggregate) reflect the amount equal to the amount of Warrants being transferred or exchanged to the transferee (in the case of a transfer) or the Holder of the canceled Warrant (in the case of an exchange), registered in the name of such transferee or Holder, as applicable, and (iii) if such transfer or exchange involves less than the entire amount of the canceled Warrant, deliver to the Holder thereof one or more Warrants which (in the aggregate) reflect the amount of the untransferred or unexchanged portion of the canceled Warrant, registered in the name of the Holder thereof.
Section 2.08      Restrictions on Transfer and Exchange .
(a)      The transfer or exchange of any Warrant may only be made in accordance with this Section 2.08 and Section 2.07. The Person requesting the transfer or exchange must deliver or cause to be delivered to the Partnership such certifications and evidence as the Partnership may reasonably require in order to determine that the proposed transfer or exchange is being made in compliance with the Securities Act and any applicable securities laws of any state of the United States.
(b)      No certification is required in connection with any transfer or exchange of any Warrant (or a beneficial interest therein):
(i)      after such Warrant is eligible for resale pursuant to Rule 144 under the Securities Act (or a successor provision) without the need to satisfy current information or other requirements therein; provided that the Partnership may require from any Person requesting a transfer or exchange in reliance upon this clause (i) any other reasonable certifications and evidence in order to support such certificate; or
(ii)      sold pursuant to an effective registration statement.
Any Warrant delivered in reliance upon this paragraph will not bear the Restricted Legend.
ARTICLE 3.     
SEPARATION OF WARRANTS; TERMS OF WARRANTS; EXERCISE OF WARRANTS
Section 3.01      Terms of Warrants; Exercise of Warrants .
(a)      Subject to the terms of this Agreement, each Warrant shall be exercisable for one Common Unit (prior to giving effect to Net Unit Settlement), at the election of the Holder thereof,

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either in full or from time to time in part during the period commencing on the first date that the Market Value per Common Unit is equal to or greater than $4.00, subject to the adjustments provided in Article 5 (the “ Threshold Price ”), and until 5:00 p.m., New York City time, on September 25, 2024 (the “ Expiration Time ”), and shall entitle the Holder thereof to receive from the Partnership Warrant Units pursuant to Section 3.01(c). If all or any of the Warrants are exercised following the declaration of a distribution on Common Units, no decrease to or rescindment of any such declared but unpaid distribution will be made. Each Warrant not exercised prior to the Expiration Time shall become void and all rights thereunder and all rights in respect thereof under this agreement shall cease as of such time.
(b)      In order to exercise all or any of the Warrants (each, a “ Warrant Exercise ”), the Holder thereof must deliver to the Partnership (i) such Warrants and (ii) the form of election to exercise on the reverse thereof duly filled in and signed (the “ Exercise Notice ”).
(c)      If a Holder provides an Exercise Notice pursuant to Section 3.01(b) , then the Warrant Exercise shall be “net unit settled” (a “ Net Unit Settlement ”) whereupon the Warrants that are exercised will be converted into Common Units pursuant to a cashless exercise, after which the Partnership will issue to the Holder the Warrant Units equal to the result obtained by (i) subtracting B from A, (ii) dividing the result by A, and (iii) multiplying the quotient by C as set forth in the following equation:
X = ((A - B)/A) × C
where:
X =
the Warrant Units issuable upon exercise pursuant to this paragraph (c).
A =
the Market Value on the day immediately preceding the date on which the Holder delivers the applicable Exercise Notice.
B =
the Exercise Price.
C =
the number of Common Units as to which the Warrants are then being exercised (the “ Exercise Units ”).
If the foregoing calculation results in a negative number, then no Common Units shall be issued upon exercise pursuant to this paragraph (c). For the avoidance of doubt, each Warrant entitles the Holder upon exercise at any time from the first date that the Threshold Price is met until the Expiration Time, to receive one Common Unit, prior to giving effect to Net Unit Settlement.
(d)      Upon compliance with the provisions set forth above, the Partnership shall deliver or cause to be delivered with all reasonable dispatch, to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate or certificates for the number of whole Warrant Units issuable upon the exercise of such Warrants or other securities or property to which such Holder is entitled, together with cash in lieu of fractional units as provided in Section 5.02 hereof. Such certificate or certificates or other securities or property shall be deemed to have

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been issued, and any person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Units or other securities or property, as of the date of the surrender of such Warrants, notwithstanding that the unit transfer books of the Partnership shall then be closed or the certificates or other securities or property have not been delivered.
(e)      If less than all the Warrants represented by a Warrant certificate are exercised, such Warrant certificate shall be surrendered and a new Warrant certificate of the same tenor and for the number of Warrants which were not exercised shall be executed by the Partnership and registered in such name or names as may be directed in writing by the Holder (subject to Section 2.08) and shall deliver the new Warrant certificate to the Person or Persons entitled to receive the same.
(f)      All Warrant certificates surrendered upon exercise of Warrants shall be canceled by the Partnership. Such canceled Warrant certificates shall then be disposed of by the Partnership in accordance with its standard procedures.
(g)      The Partnership shall keep copies of this Agreement and any notices given or received hereunder available for inspection by the Holders during normal business hours at its office upon reasonable notice to the Partnership by a Holder seeking inspection.
(h)      Certificates, if any, representing Warrant Units shall bear a Restricted Legend (with all references to Warrants therein replaced by references to Common Units, and with such changes thereto as the Partnership may deem appropriate in its reasonable judgment) if (i) the Warrants for which they were issued carried a Restricted Legend or (ii) the Warrant Units are issued in a transaction exempt from registration under the Securities Act (other than the exemption provided by Section 3(a)(9) of the Securities Act), in each case until and unless the circumstances set forth in Section 2.02(c) apply to such Warrant Units, and any transfers thereof shall comply with the Restricted Legend.
Section 3.02      Conditional Exercise . Notwithstanding any other provision hereof, if an exercise of any portion of a Warrant is to be made in connection with a public offering or a sale of the Partnership (pursuant to a merger, sale of assets, or otherwise), such exercise may at the election of the Holder be conditioned upon the consummation of such transaction, in which case such exercise shall not be deemed to be effective until immediately prior to the consummation of such transaction.
Section 3.03      Privatization Event . Upon the occurrence of a Privatization Event, the Partnership shall pay to such Holder of outstanding Warrants as of the date of such Privatization Event, an amount in immediately available funds equal to the Cash Redemption Value for such Warrants, not later than the date which is ten (10) Business Days after such Privatization Event and the Warrants shall thereafter be cancelled. The cash redemption value for any Warrant (the “ Cash Redemption Value ”) will equal the fair value of the Warrant as of the date of such Privatization Event as determined by an Independent Financial Expert. The Cash Redemption Value of the Warrants shall be due and payable within ten (10) Business Days after the date of the applicable Privatization Event.
Section 3.04      Cost Basis Information . For purposes of Section 6045B of the Code and the Treasury Regulations thereunder, the Partnership shall record the cost basis for Warrant Units issued

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pursuant to a cashless exercise at the time the Partnership confirms the number of Warrant Units issuable in connection with the cashless exercise.
ARTICLE 4.     
COVENANTS OF THE PARTNERSHIP
Section 4.01      Maintenance of Office or Agency . The Partnership will maintain in the United States an office or agency where Warrants may be surrendered for registration of transfer or exchange or for presentation for exercise. The Partnership hereby initially designates the Corporate Trust Office of Computershare Trust Company, N.A., a federally chartered trust company, as such office of the Partnership. The Partnership will give prompt written notice to the Holders of any change in the location of such office or agency. The Partnership may also from time to time designate one or more other offices or agencies where the Warrants may be surrendered or presented for any of such purposes and may from time to time rescind such designations. The Partnership will give prompt written notice to the Holders of any such designation or rescission and of any change in the location of any such other office or agency.
Section 4.02      Payment of Taxes . The Partnership will pay all documentary, stamp or similar issue or transfer taxes in respect of the issuance or delivery of Warrant Units upon the exercise of Warrants; provided that the exercising Holder shall be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issue of any Warrants or any Warrant Units in a name other than that of the registered holder of a Warrant surrendered upon exercise.
Section 4.03      Rule 144 Information . For so long as any of the Warrants or Warrant Units remain outstanding and constitute “restricted securities” under Rule 144, the Partnership will (i) make and keep public information available, as those terms are understood and defined in Rule 144, at all times after the date of this Agreement; (ii) so long as a Holder owns any Warrants or Warrant Units, furnish to the Holder upon written request a written statement by the Company as to its compliance with the reporting requirements of the Exchange Act; and (iii) cooperate with the Holders in any sale or transfer of Warrants or Warrant Units pursuant to Rule 144.
Section 4.04      Reservation of Warrant Units .
(a)      The Partnership will at all times reserve and keep available for issuance and delivery, free and clear of all liens, security interests, charges and other encumbrances or restrictions on sale and free and clear of all preemptive rights, such number of its Common Units or other securities of the Partnership as will from time to time be sufficient to permit the exercise in full of all outstanding Warrants pursuant to Net Unit Settlements.
(b)      The Partnership will keep a copy of this Agreement on file with the transfer agent for the Common Units (the “ Transfer Agent ”) and with every subsequent transfer agent for any of the Partnership’s securities issuable upon the exercise of the Warrants. The Partnership will supply such Transfer Agent with duly executed certificates for such purposes and will provide or otherwise make available any cash which may be payable as provided in Section 3.01 or Section 5.02 hereof. The Partnership will furnish such Transfer Agent a copy of all notices of adjustments, and certificates related thereto, transmitted to each Holder pursuant to Section 5.01(d) hereof.

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ARTICLE 5.     
ADJUSTMENTS
Section 5.01      Adjustments . The Threshold Price and the number of Warrant Units issuable upon the exercise of each Warrant pursuant to a Net Unit Settlement are subject to adjustment from time to time upon the occurrence of the events enumerated in this Section 5.01 .
In the event that, at any time as a result of the provisions of this Section 5.01 , the Holders of the Warrants shall become entitled upon subsequent exercise to receive any shares of Capital Stock of the Partnership other than Common Units, the number of such other shares so receivable upon exercise of this Warrant pursuant to a Net Unit Settlement shall thereafter be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions contained herein.
(a)      Adjustments for Change in Capital Stock .
(i)      If the Partnership pays a dividend (or other distribution) in Common Units to all holders of Common Units, then (A) the Warrant Units in effect immediately following the record date for such dividend (or distribution) shall be multiplied by the following fraction and (B) the Threshold Price in effect immediately following the record date for such dividend (or distribution) shall be divided by the following fraction:
OS 1
OS 0
where:
OS 0
=
the number of Common Units outstanding immediately prior to the record date for such dividend or distribution.
OS 1
=
the sum of (A) the number of Common Units outstanding immediately prior to the record date for such dividend or distribution and (B) the total number of Common Units constituting such dividend.
In any such event, the number of Warrant Units issuable upon exercise of each Warrant at the time of the record date for such dividend or distribution shall be proportionately adjusted so that the Holder, after such date, shall be entitled to purchase the number of Common Units that such Holder would have owned or been entitled to receive in respect of the Common Units subject to the Warrant after such date had the Warrant been exercised immediately prior to such date.
(ii)      If the Partnership issues to all holders of Common Units rights, options or warrants entitling them to subscribe for or purchase Common Units at less than the Market Value determined on the Ex-Date for such issuance, then (A) the Warrant Units in effect immediately following the close of business on the Ex-Date for such issuance shall be multiplied by the following fraction and (B) the Threshold Price in effect immediately

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following the close of business on the Ex-Date for such issuance shall be divided by the following fraction:
OS 0  + X
OS 0  + Y
where:
OS 0
=
the number of Common Units outstanding at the close of business on the record date for such issuance.
X
=
the total number of Common Units issuable pursuant to such rights, options or warrants.
Y
=
the number of Common Units equal to the aggregate price payable to exercise such rights, options or warrants divided by the Market Value determined as of the Ex-Date for such issuance.
In any such event, the number of Warrant Units issuable upon the exercise of each Warrant immediately prior to the date of the agreement on pricing of such rights, options or warrants (the “ Initial Number ”) shall be increased to the number obtained by multiplying the Initial Number by a fraction (i) the numerator of which shall be the sum of (x) the number of Common Units outstanding on such date and (y) the number of additional Common Units issuable in connection with such rights, options or warrants and (ii) the denominator of which shall be the sum of (1) the number of Common Units outstanding on such date and (2) the number of Common Units that the aggregate consideration receivable by the Partnership for the total number of Common Units so issuable in connection with such rights, options or warrants would purchase at the Market Value on the last trading day preceding the date of the agreement on pricing such rights, options or warrants.
To the extent that such rights, options or warrants are not exercised in full prior to their expiration or Common Units are otherwise not delivered in full pursuant to such rights or warrants upon the exercise of such rights or warrants, then the number of Warrant Units and Threshold Price shall be readjusted to the number of Warrant Units and Threshold Price that would have then been in effect had the adjustment made upon the issuance of such rights, options or warrants been made on the basis of the delivery of only the number of Common Units actually delivered. If such rights, options or warrants are only exercisable upon the occurrence of certain triggering events, then the number of Warrant Units and Threshold Price shall not be adjusted until such triggering events occur. In determining the aggregate offering price payable for such Common Units, the Partnership shall take into account any consideration received for such rights, options or warrants and the value of such consideration (if other than cash, to be determined by the reasonable judgment of the Board of Directors).
(iii)      If the Partnership subdivides, combines or reclassifies the Common Units into a greater or lesser number of Common Units, then (A) the number of Warrant Units in effect immediately following the effective date of such unit subdivision, combination or reclassification shall be multiplied by the following fraction and (B) the Threshold Price in

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effect immediately following the effective date of such unit subdivision, combination or reclassification shall be divided by the following fraction:
OS 1
OS 0
where:
OS 0
=
the number of Common Units outstanding immediately prior to the effective date of such unit subdivision, combination or reclassification.
OS 1
=
the number of Common Units outstanding immediately after the opening of business on the effective date of such unit subdivision, combination or reclassification.
In any such event, the number of Warrant Units issuable upon exercise of each Warrant at the time of the effective date of such subdivision, combination or reclassification shall be proportionately adjusted so that the Holder, after such date, shall be entitled to purchase the number of Common Units that such Holder would have owned or been entitled to receive in respect of the Common Units subject to the Warrant after such date had the Warrant been exercised immediately prior to such date.
(iv)      If the Partnership distributes to all holders of Common Units evidences of indebtedness, shares of Capital Stock (other than Common Units) or other assets (including cash, securities and any other property, but excluding any Specified Distributions), then (A) the number of Warrant Units in effect immediately following the close of business on the record date for such distribution shall be multiplied by the following fraction and (B) the Threshold Price in effect immediately following the close of business on the record date for such distribution shall be divided by the following fraction:
SP 0
SP 0  - FMV
where:
SP 0
=
the Closing Sale Price per Common Unit on the Trading Day immediately preceding the Ex-Date.
FMV
=
the fair market value of the portion of the distribution applicable to one Common Unit on the Trading Day immediately preceding the Ex-Date as determined by the Board of Directors.

In a spin-off, where the Partnership makes a distribution to all holders of Common Units consisting of Capital Stock of any class or series, or similar equity interests of, or relating to, a subsidiary or other business unit, (A) the number of Warrant Units shall be adjusted on the fourteenth

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Trading Day after the effective date of the distribution by multiplying the number of Warrant Units in effect immediately prior to such fourteenth Trading Day by the following fraction and (B) the Threshold Price shall be adjusted on the fourteenth Trading Day after the effective date of the distribution by dividing the Threshold Price in effect immediately prior to such fourteenth Trading Day by the following fraction:
MP 0 + MP s
MP 0
where:
MP 0
=
the average of the Closing Sale Price of the Common Units over each of the first 10 Trading Days commencing on and including the fifth Trading Day following the effective date of such distribution.
MP S
=
the average of the closing sale price of the Capital Stock or equity interests representing the portion of the distribution applicable to one Common Unit over each of the first 10 Trading Days commencing on and including the fifth Trading Day following the effective date of such distribution, or, as reported in the principal securities exchange or quotation system or market on which such shares are traded, or if not traded on a national or regional securities exchange or over-the-counter market, the fair market value of the Capital Stock or equity interests representing the portion of the distribution applicable to one Common Unit on such date as determined by the Board of Directors.
In the event that such distribution described in this clause (iv) is not so made, the number of Warrant Units and Threshold Price shall be readjusted, effective as of the date the Board of Directors publicly announces its decision not to pay such dividend or distribution, to the number of Warrant Units that would then be in effect if such dividend distribution had not been declared.
(v)      In case the Partnership effects a Pro Rata Repurchase of Common Units, then (A) the number of Warrant Units shall be adjusted by dividing the number of Warrant Units in effect immediately prior to the effective date of such Pro Rata Repurchase by the following fraction and (B) the Threshold Price shall be adjusted by multiplying the Threshold Price in effect immediately prior to the effective date of such Pro Rata Repurchase by the following fraction: the numerator of such fraction shall be (i) the product of (x) the number of Common Units outstanding immediately before such Pro Rata Repurchase and (y) the Market Value of a Common Unit on the trading day immediately preceding the first public announcement by the Partnership or any of its Affiliates of the intent to effect such Pro Rata Repurchase, minus (ii) the aggregate purchase price of the Pro Rata Repurchase, and the denominator of such fraction shall be the product of (1) the number of Common Units outstanding immediately prior to such Pro Rata Repurchase minus the number of Common Units so repurchased and (2) the Market Value per Common Unit on the trading day immediately preceding the first public announcement by the Partnership or any of its Affiliates of the intent to effect such Pro Rata Repurchase.

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(vi)      In case of any Business Combination or reclassification of Common Units (other than a reclassification of Common Units referred to in Section 5.01(a)(iii) ), the Holder’s right to receive Warrant Units upon exercise of the Warrants shall be converted into the right to exercise the Warrants to acquire the number of shares of stock or other securities or property (including cash) that the Common Units issuable (at the time of such Business Combination or reclassification) upon exercise of each Warrant immediately prior to such Business Combination or reclassification would have been entitled to receive upon consummation of such Business Combination or reclassification; and in any such case, if necessary, the provisions set forth herein with respect to the rights and interests thereafter of the Holder shall be appropriately adjusted so as to be applicable, as nearly as may reasonably be, to the Holder’s right to exercise each Warrant in exchange for any shares of stock or other securities or property pursuant to this Section 5.01(a)(vi). In determining the kind and amount of stock, securities or the property receivable upon exercise of each Warrant following the consummation of such Business Combination, if the holders of Common Units have the right to elect the kind or amount of consideration receivable upon consummation of such Business Combination, then the Holder shall have the right to make a similar election (including being subject to similar proration constraints) upon exercise of each Warrant with respect to the number of shares of stock or other securities or property that the Holder will receive upon exercise of a Warrant.
(vii)      If the Partnership issues Common Units at less than 50% of the Threshold Price per Common Unit, then the Threshold Price in effect at the close of business on the day immediately preceding the issuance date for such issuance shall be divided by the following fraction:
OS 0  + X
OS 0  + Y
where:
OS 0
=
the number of Common Units outstanding at the close of business on the day immediately preceding the issuance date for such issuance.
X
=
the total number of Common Units issued in such issuance.
Y
=
the number of Common Units equal to the aggregate price paid as consideration for the Common Units issued in such issuance divided by 56.25% of the Threshold Price per Common Unit as of the issuance date for such issuance.

The provisions of this clause (vii) shall not apply to an issuance unless such issuance has been approved by a committee of the Board of Directors composed solely of two or more directors who are Independent Directors (as such term is defined in the Second Amended and Restated Limited Liability Company Agreement of the

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General Partner, as in effect on the date hereof). No adjustment pursuant to this clause (vii) shall be made if such adjustment would result in an increase of the Threshold Price then in effect.

For purposes of this clause (vii), if the Partnership grants, issues or sells Options or Convertible Securities, and the lowest price per unit for which one Common Unit is issuable upon the conversion, exchange or exercise thereof is less than 50.0% of the Threshold Price per Common Unit, then such Common Unit shall be deemed to be outstanding and to have been issued and sold by the Partnership at the time of the issuance of such security for such price per unit. For purposes of this paragraph , the “lowest price per unit for which one Common Unit is issuable upon the conversion, exchange or exercise thereof” shall be equal to the sum of the lowest amounts of consideration (if any) received or receivable by the Partnership with respect to any one Common Unit upon the issuance of such security and upon conversion, exchange or exercise thereof less any consideration paid or payable by the Partnership with respect to such one Common Unit upon the issuance of such security and upon conversion, exchange or exercise thereof. No further adjustment of the Threshold Price shall be made upon the actual issuance of such Common Units upon the conversion, exchange or exercise or such security or upon the actual issuance of such Common Unit.

For purposes of this clause (vii), if the purchase price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for Common Units increases or decreases at any time, the Threshold Price in effect at the time of such increase or decrease shall be adjusted to the Threshold Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate, as the case may be, at the time initially granted, issued or sold. For purposes of this paragraph, if the terms of any Option or Convertible Security that was outstanding as of the date of this Agreement are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the Common Units deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this paragraph shall be made if such adjustment would result in an increase of the Threshold Price.

For purposes of this clause (vii), in case any Option is issued in connection with the issue or sale of other securities of the Partnership, together comprising one integrated transaction, (A) the Options will be deemed to have been issued for the Option Value of such Options and (B) the other securities issued or sold in such integrated transaction shall be deemed to have been issued for the difference of (x) the aggregate consideration received by the Partnership less any consideration paid or payable by the Partnership pursuant to the terms of such other securities of the Partnership, less

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(y) the Option Value. If any Common Units, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Partnership therefor. If any Common Units, Options or Convertible Securities are issued or sold for consideration other than cash, the amount of such consideration received by the Partnership will be the fair market value of such consideration, except where such consideration consists of securities, in which case the amount of consideration received by the Partnership will be the closing sale price of such security on the date of receipt. If any Common Units, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Partnership is the surviving entity, the amount of consideration therefor will be deemed to be the fair market value of such portion of the net assets and business of the non-surviving entity as is attributable to such Common Units, Options or Convertible Securities, as the case may be.


(viii)      The Partnership reserves the right to make such reductions in the Exercise Price or increases to the number of Warrant Units as it considers advisable in order that any event treated for Federal income tax purposes as a dividend of stock or stock rights will not be taxable to the recipients. In the event the Partnership elects to make such a reduction in the Exercise Price or increase in the number of Warrant Units, the Partnership shall comply with the requirements of Rule 14e-1 under the Exchange Act, and any other securities laws and regulations thereunder if and to the extent that such laws and regulations are applicable in connection with the reduction of the Exercise Price or increase in the number of Warrant Units.
(ix)      Notwithstanding any other provisions of this Section 5.01(a) , rights or warrants distributed by the Partnership to all holders of Common Units entitling the holders thereof to subscribe for or purchase shares of the Partnership’s Capital Stock (either initially or under certain circumstances), which rights or warrants, until the occurrence of a specified event or events (“ Trigger Event ”): (A) are deemed to be transferred with such Common Units; (B) are not exercisable; and (C) are also issued in respect of future issuances of Common Units, shall be deemed not to have been distributed for purposes of this Section 5.01(a) (and no adjustment to the number of Warrant Units or Threshold Price under this Section 5.01(a) will be required) until the occurrence of the earliest Trigger Event, whereupon such rights and warrants shall be deemed to have been distributed and an appropriate adjustment (if any is required) to the number of Warrant Units and Threshold Price shall be made under Section 5.01(a)(ii) . In addition, in the event of any distribution (or deemed distribution) of rights or warrants, or any Trigger Event or other event with respect thereto that was counted for purposes of calculating a distribution amount for which an adjustment to the number of Warrant Units and Threshold Price under this Section 5.01(a) was made, (1) in the case of any such rights or warrants that shall all have been redeemed or repurchased without exercise by any holders thereof, the number of Warrant Units and Threshold Price shall be readjusted upon such final redemption or repurchase to give effect to such distribution or Trigger Event, as the case may be, as though it were a cash distribution,

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equal to the per unit redemption or repurchase price received by a holder or holders of Common Units with respect to such rights or warrants (assuming such holder had retained such rights or warrants), made to all holders of Common Units as of the date of such redemption or repurchase, and (2) in the case of such rights or warrants that shall have expired or been terminated without exercise thereof, the number of Warrant Units and Threshold Price shall be readjusted as if such expired or terminated rights and warrants had not been issued. To the extent that the Partnership has a rights plan or agreement in effect upon exercise of the Warrants, which rights plan provides for rights or warrants of the type described in this clause, then upon exercise of the Warrants pursuant to a Net Unit Settlement, the Holder will receive, in addition to the Common Units to which he is entitled, a corresponding number of rights in accordance with the rights plan, unless a Trigger Event has occurred and the adjustments to the number of Warrant Units with respect thereto have been made in accordance with the foregoing. In lieu of any such adjustment, the Partnership may amend such applicable unitholder rights plan or agreement to provide that upon exercise of the Warrants pursuant to a Net Unit Settlement, the Holders will receive, in addition to the Common Units issuable upon such exercise, the rights that would have attached to such Common Units if the Trigger Event had not occurred under such applicable unitholder rights plan or agreement.
(b)      Notwithstanding anything to the contrary in Section 5.01 , no adjustment to the number of Warrant Units shall be made with respect to any distribution or other transaction if Holders are entitled to participate in such distribution or transaction as if they held a number of Common Units issuable upon exercise of the Warrants pursuant to a Net Unit Settlement immediately prior to such event, without having to exercise their Warrants.
(c)      If the Partnership shall take a record of the holders of its Common Units for the purpose of entitling them to receive a dividend or other distribution, and shall thereafter (and before the dividend or distribution has been paid or delivered to unitholders) abandon its plan to pay or deliver such dividend or distribution, then thereafter no adjustment in the number of Warrant Units or Threshold Price then in effect shall be required by reason of the taking of such record.
(d)      Notice of Adjustment. Whenever the number of Warrant Units is adjusted, the Partnership shall provide the notices required by Section 5.03 hereof.
(e)      Fair Market Value Determination . Notwithstanding anything to the contrary herein, whenever the Board of Directors is permitted or required to determine fair market value, such determination shall be made in good faith. If the Board of Directors is unable to determine the fair market value, or if the Holders of more than fifty percent (50%) of all of the Warrants then outstanding (collectively, the “ Requesting Holders ”) disagree with the Board of Director’s determination of fair market value by written notice delivered to the Partnership within thirty (30) days after the determination thereof by the Board of Directors is communicated to the Holders affected thereby, which notice specifies the Requesting Holders’ determination of such fair market value, then following a thirty (30) day period in which the Partnership and the Requesting Holders shall attempt to resolve the differences in their fair market value determinations, an Independent Financial Expert shall determine such fair market value. Such Independent Financial Expert’s determination of such

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fair market value shall be final, binding and conclusive on the Partnership and the Holders. Any and all costs and fees of such Independent Financial Expert shall be split equally between the Partnership, on the one hand, and the Requesting Holders, on the other.
(f)      When Issuance or Payment May be Deferred . In any case in which this Section 5.01 shall require that an adjustment in the number of Warrant Units be made effective as of a record date for a specified event, the Partnership may elect to defer until the occurrence of such event (i) issuing to the Holder of any Warrant exercised after such record date the number of Warrant Units and other Capital Stock of the Partnership, if any, issuable upon such exercise and pursuant to a Net Unit Settlement over and above the Warrant Units and other Capital Stock of the Partnership, if any, issuable upon such exercise and (ii) paying to such Holder any amount in cash in lieu of a fractional unit pursuant to Section 5.02 hereof; provided that the Partnership shall deliver to such Holder a due bill or other appropriate instrument evidencing such Holder’s right to receive such additional Warrant Units, other Capital Stock and cash upon the occurrence of the event requiring such adjustment.
(g)      Form of Warrants . Irrespective of any adjustments in the number of Warrant Units or the number of units purchasable upon the exercise of the Warrants, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of units as are stated in the Warrants initially issuable pursuant to this Agreement.
Section 5.02      Fractional Interests . The Partnership shall not issue fractional Warrant Units or scrip representing fractional units on the exercise of Warrants. If more than one Warrant shall be presented for exercise in full at the same time by the same Holder, the number of full Warrant Units which shall be issuable upon the exercise thereof shall be computed on the basis of the aggregate number of Warrant Units issuable on exercise of the Warrants so presented. If any fraction of a Warrant Unit would, except for the provisions of this Section 5.02 , be issuable on the exercise of any Warrants (or specified portion thereof), the Partnership shall pay an amount in cash equal to the current Closing Sale Price per Warrant Unit, as determined on the date the Warrant is presented for exercise, multiplied by such fraction, computed to the nearest whole U.S. cent.
Section 5.03      Notices to Warrantholders .
(a)      Upon any adjustment of the number of Warrant Units pursuant to Section 5.01 hereof, the Partnership shall promptly thereafter cause to be delivered to each of the Holders written notice, by first-class mail, postage prepaid, setting forth the number of Warrant Units after such adjustment and setting forth in reasonable detail the method of calculation and the facts upon which such calculations are based and setting forth the number of Warrant Units (or portion thereof) or other securities or property issuable after such adjustment, upon exercise of a Warrant. Where appropriate, such notice may be given in advance and included as a part of the notice required to be mailed under the other provisions of this Section 5.03 .

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(b)      In case:
(i)      the Partnership shall authorize the issuance to all holders of Common Units of rights, options or warrants to subscribe for or purchase Common Units or of any other subscription rights or warrants;
(ii)      the Partnership shall authorize the distribution to all holders of Common Units of evidences of its indebtedness or assets (other than dividends or distributions referred to in Section 5.01(a) hereof);
(iii)      of any reclassification or change of Common Units issuable upon exercise of the Warrants, or a tender offer or exchange offer for Common Units by the Partnership;
(iv)      of the voluntary or involuntary dissolution, liquidation or winding up of the Partnership; or
(v)      the Partnership proposes to take any action which would require an adjustment of the number of Warrant Units pursuant to Section 5.01 hereof;
then the Partnership shall cause to be given to each of the Holders, at least 10 days prior to any applicable record date, or promptly in the case of events for which there is no record date, by first-class mail, postage prepaid, a written notice stating (x) the date as of which the holders of record of Common Units to be entitled to receive any such rights, options, warrants or distribution are to be determined, (y) the initial expiration date set forth in any tender offer or exchange offer for Common Units, or (z) the date on which any such consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up is expected to become effective or consummated, and the date as of which it is expected that holders of record of Common Units shall be entitled to exchange such units for securities or other property, if any, deliverable upon such reclassification, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up. The failure to give the notice required by this Section 5.03 or any defect therein shall not affect the legality or validity of any distribution, right, option, warrant, consolidation, merger, conveyance, transfer, dissolution, liquidation or winding up, or the vote upon any action.
Section 5.04      No Rights as Unitholders . Nothing contained in this Agreement or the Warrants shall be construed as conferring upon the holders of Warrants the right to vote or to consent or to receive notice as unitholders in respect of the meetings of unitholders or any other matter, or any rights whatsoever, including the right to receive dividends, as unitholders of the Partnership, or the right to share in the assets of the Partnership in the event of its liquidation, dissolution or winding up, except in respect of Common Units received following exercise of Warrants. In addition, nothing contained in this Agreement or the Warrants shall be construed as imposing any liabilities on the Holder as a unitholder of the Partnership, whether such liabilities are asserted by the Partnership or by creditors of the Partnership.
ARTICLE 6.     
MISCELLANEOUS

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Section 6.01      Warrantholder Actions .
(a)      Any notice, consent to amendment, supplement or waiver provided by this Agreement to be given by a Holder (an “ act ”) may be evidenced by an instrument signed by the Holder delivered to the Partnership.
(b)      Any act by the Holder of any Warrant binds that Holder and every subsequent Holder of a Warrant certificate that evidences the same Warrant of the acting Holder, even if no notation thereof appears on the Warrant certificate. Subject to Section 6.02(c), a Holder may revoke an act as to its Warrants, but only if the Partnership receives the notice of revocation before the date the amendment or waiver or other consequence of the act becomes effective.
(c)      The Partnership may, but is not obligated to, fix a record date for the purpose of determining the Holders entitled to act with respect to any amendment or waiver or in any other regard. If a record date is fixed, those Persons that were Holders at such record date and only those Persons will be entitled to act, or to revoke any previous act, whether or not those Persons continue to be Holders after the record date. No act will be valid or effective for more than 90 days after the record date, unless an earlier date is required by the Partnership Agreement.
Section 6.02      Notices .
(a)      All notices, requests and other communications to any party hereunder shall be in writing and shall be deemed given if delivered personally, by facsimile (which is confirmed), emailed (which is confirmed) or sent by overnight courier (providing proof of delivery) to the parties at the following addresses:
If to the Partnership :
Teekay Offshore Partners L.P.
4th Floor, Belvedere Building
69 Pitts Bay Road
Hamilton HM 08, Bermuda
Attention:    Corporate Secretary
Facsimile:    (441) 292-3931
Email:         Edie.Robinson@teekay.com
If to the Investor:
Teekay Shipping Limited
4th Floor, Belvedere Building
69 Pitts Bay Road
Hamilton HM 08, Bermuda
Attention:    President
Facsimile:    (441) 292-3931
Email:         Edie.Robinson@teekay.com


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with a copy to (which copy alone shall not constitute notice):

Vinson & Elkins LLP
666 Fifth Avenue, 26th Floor
New York, NY 10103-0040
Attention:     Mike Rosenwasser
Facsimile:     (917) 206-8100
Email:         mrosenwasser@velaw.com

If to a Holder:
The address of such Holder as provided by the Holder to the Partnership.
The Partnership by notice to the Investor and Holders, and the Investor and each Holder by written notice to the Partnership, may designate additional or different addresses for subsequent notices or communications. All such notices, requests and other communications shall be deemed received on the date of actual receipt by the recipient thereof if received prior to 5:00 p.m. local time in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notices, requests and other communications shall be deemed not to have been received until the next succeeding Business Day in the place of receipt.
(b)      Defect in mailing a notice or communication to any particular Holder will not affect its sufficiency with respect to other Holders.
(c)      Where this Agreement provides for notice, the notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and the waiver will be the equivalent of the notice.
Section 6.03      Supplements and Amendments .
(a)      The Partnership and the Investor may amend or supplement this Agreement or the Warrants without notice to or the consent of any Holder (other than the Investor):
(i)      to cure any ambiguity, omission, inconsistency or mistake in this Agreement or the Warrants in a manner that is not inconsistent with the provisions of this Agreement and that does not adversely affect the rights, preferences and privileges of the Warrants or any Holder; or
(ii)      to make any other change that does not adversely affect the rights of any Holder.
(b)      Except as otherwise provided in paragraphs (a) or (c), this Agreement and the Warrants may be amended only by means of a written amendment signed by the Partnership, the Investor and the Holders of 66 2 / 3 % of the outstanding Warrants; provided , however , that any such amendment, modification or supplement to, this Agreement that would materially and adversely affect the economic terms of the Warrants of any Holder shall require the affirmative vote or consent

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of the holders of at least 80% of the outstanding Warrants. Any amendment or modification of or supplement to this Agreement or the Warrants, any waiver of any provision of this Agreement, and any consent to any departure by the Partnership, the Investor or any Holder from the terms of any provision of this Agreement shall be effective only in the specific instance and for the specific purpose for which such amendment, supplement, modification, waiver or consent has been made or given. In addition, any term of a specific Warrant may be amended or waived with the written consent of the Partnership and the Holder of such Warrant.
(c)      Notwithstanding the provisions of paragraph (b), without the consent of each Holder affected, an amendment or waiver may not:
(i)      increase the Exercise Price;
(ii)      reduce the term of the Warrants;
(iii)      make a material and adverse change that does not equally affect all Warrants; or
(iv)      decrease the number of Common Units, cash or other securities or property issuable upon exercise of the Warrants,
except, in each case, for adjustments expressly provided for in this Agreement.
(d)      It is not necessary for Holders to approve the particular form of any proposed amendment, supplement or waiver if their consent approves the substance thereof.
(e)      An amendment, supplement or waiver under this Section will become effective on receipt by the Partnership of written consents from the Holders of the requisite percentage of the outstanding Warrants. After an amendment, supplement or waiver under this Section becomes effective, the Partnership will send to the Holders affected thereby a notice describing the amendment, supplement or waiver in reasonable detail. Any failure of the Partnership to send such notice, or any defect therein, will not, however, in any way impair or affect the validity of any such supplemental indenture or waiver.
(f)      After an amendment, supplement or waiver becomes effective, it will bind every Holder unless it is of the type requiring the consent of each Holder affected. If the amendment, supplement or waiver is of the type requiring the consent of each Holder affected, the amendment, supplement or waiver will bind each Holder that has consented to it and every subsequent Holder of a Warrant with respect to which consent was granted.
(g)      If an amendment, supplement or waiver changes the terms of a Warrant, the Partnership may require the Holder to deliver it to the Partnership so that the Partnership may place an appropriate notation of the changed terms on the Warrant and return it to the Holder, or exchange it for a new Warrant that reflects the changed terms. However, the effectiveness of the amendment, supplement or waiver is not affected by any failure to annotate or exchange Warrants in this fashion.

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Section 6.04      Governing Law . This Agreement and the Warrants shall be governed by, and construed in accordance with, the laws of the State of New York without regard to principles of conflicts of laws. Any action against any party relating to the foregoing shall be brought in any federal or state court of competent jurisdiction located within the State of New York, and the parties hereto hereby irrevocably submit to the non-exclusive jurisdiction of any federal or state court located within the State of New York over any such action. The parties hereby irrevocably waive, to the fullest extent permitted by applicable law, any objection which they may now or hereafter have to the laying of venue of any such dispute brought in such court or any defense of inconvenient forum for the maintenance of such dispute. Each of the parties hereto agrees that a judgment in any such dispute may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law.
Section 6.05      No Adverse Interpretation of Other Agreements . This Agreement may not be used to interpret another agreement of the Partnership, and no such agreement may be used to interpret this Agreement.
Section 6.06      Successors and Assigns . All agreements of the Partnership in this Agreement and the Warrants will bind its successors and assigns. Subject to the transfer conditions referred to in any legend in effect as set forth herein and Section 2.07 and Section 2.08, each Holder may freely assign its Warrants and its rights under this Agreement, in whole or in part, to any Person.
Section 6.07      Duplicate Originals . The parties may sign any number of copies of this Agreement. Each signed copy shall be deemed an original, but all of them together represent the same agreement. A signature to this agreement executed/transmitted electronically will have the same authority, effect and enforceability as an original signature.
Section 6.08      Separability . In case any provision in this Agreement or in the Warrants is invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby.
Section 6.09      Table of Contents and Headings . The Table of Contents and headings of the Articles and Sections of this Agreement have been inserted for convenience of reference only, are not to be considered a part of this Agreement and in no way modify or restrict any of the terms and provisions of this Agreement.
Section 6.10      Benefits of this Agreement . Nothing in this Agreement shall be construed to give to any Person other than the Partnership, the Investor and the registered holders of Warrants any legal or equitable right, remedy or claim under this Agreement. This Agreement shall be for the sole and exclusive benefit of the Partnership, the Investor and the registered holders of Warrants.
Section 6.11      Good Faith Determinations . Notwithstanding anything to the contrary herein, whenever the Board of Directors is permitted or required to determine fair market value, such determination shall be made in good faith.
Section 6.12      Obligations Limited to Parties to Agreement . Each of the parties hereto covenants, agrees and acknowledges that, other than as set forth herein, no Person other than the

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Investor, the Holders, their respective permitted assignees and the Partnership shall have any obligation hereunder and that, notwithstanding that one or more of such Persons may be a corporation, partnership or limited liability company, no recourse under this Agreement or under any documents or instruments delivered in connection herewith shall be had against any former, current or future director, officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate of any of such Persons or their respective permitted assignees, or any former, current or future director, officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate of any of the foregoing, whether by the enforcement of any assessment or by any legal or equitable proceeding, or by virtue of any applicable law, it being expressly agreed and acknowledged that no personal liability whatsoever shall attach to, be imposed on or otherwise be incurred by any former, current or future director, officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate of any of such Persons or any of their respective assignees, or any former, current or future director, officer, employee, agent, general or limited partner, manager, member, stockholder or Affiliate of any of the foregoing, as such, for any obligations of such Persons or their respective permitted assignees under this Agreement or any documents or instruments delivered in connection herewith or for any claim based on, in respect of or by reason of such obligation or its creation, except, in each case, for any assignee of any Holder hereunder.
Section 6.13      Confidentiality . The Partnership agrees that all books, records, information and data pertaining to the Holders, including inter alia, personal, non-public warrant holder information, which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other Person, except as may be required by law, including pursuant to subpoenas from state or federal government authorities ( e.g. , in divorce and criminal actions).
Section 6.14     

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IN WITNESS WHEREOF , the parties hereto have caused this Agreement to be duly executed, as of the day and year first above written.

TEEKAY OFFSHORE PARTNERS L.P.
 
By:
Teekay Offshore GP L.L.C.,
 
its general partner
 
By:
/s/ Edith Robinson
 
Name: Edith Robinson
 
Title: Secretary


TEEKAY SHIPPING LIMITED
 
By
/s/ Edith Robinson
 
Name: Edith Robinson
 
Title: President




Signature Page to Warrant Agreement

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EXHIBIT A
[Face of Warrant Certificate]
[Insert legend, if applicable]
September 25, 2017
No.__________    Warrants
Warrant Certificate
This Warrant Certificate certifies that _____________________ or its registered assigns, is the registered holder of _____________________ Warrants (the “ Warrants ”), exercisable for common units (the “ Common Units ”) representing limited partnership interests in Teekay Offshore Partners L.P., a Republic of the Marshall Islands limited partnership (the “ Partnership ”). Each Warrant entitles the registered holder upon exercise at any time from the first date that the Market Value per Common Unit is equal to or greater than four dollars and zero cents ($4.00), subject to the adjustments provided in the Warrant Agreement (the “ Threshold Price ”) until 5:00 p.m., New York City time, on September 25, 2024 (the “ Expiration Time ”), to receive from the Partnership a number of fully paid and nonassessable Common Units (the “ Warrant Units ”) at an exercise price (the “ Exercise Price ”) of zero dollars and one cent ($0.01) pursuant to a Net Unit Settlement, subject to the conditions and terms set forth herein and in the Warrant Agreement referred to on the reverse hereof. The number of Warrant Units issuable is subject to adjustment upon the occurrence of certain events set forth in the Warrant Agreement.
Reference is hereby made to the further provisions of this Warrant Certificate set forth on the reverse hereof and such further provisions shall for all purposes have the same effect as though fully set forth at this place.

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IN WITNESS WHEREOF, the Partnership has caused this Warrant Certificate to be signed below by its duly authorized officer as of the date first set forth above.

TEEKAY OFFSHORE PARTNERS L.P.
By:    Teekay Offshore GP L.L.C.,
its general partner
By:        

    Name:    

    Title:    

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TEEKAY OFFSHORE PARTNERS L.P.
[Reverse of Warrant Certificate]
1.
Warrant Agreement
The Warrants evidenced by this Warrant Certificate are part of a duly authorized issue of Warrants issued or to be issued pursuant to a Warrant Agreement dated as of September 25, 2017 (the “ Warrant Agreement ”), between the Partnership and Teekay Shipping Limited, a Bermuda corporation (the “ Investor ”), which Warrant Agreement is hereby incorporated by reference in and made a part of this instrument and is hereby referred to for a description of the rights, limitation of rights, obligations, duties and immunities thereunder of the Partnership, the Investor and the holders (the words “ holders ” or “ holder ” meaning the registered holders or registered holder) of the Warrants. In the event of an inconsistency or conflict between the terms of this Warrant and the Warrant Agreement, the terms of the Warrant Agreement will prevail.
2.
Exercise
Warrants may be exercised at any time from the first date the Market Value per Common Unit is equal to or greater than the Threshold Price until the Expiration Time. In order to exercise all or any of the Warrants represented by this Warrant Certificate, the holder must deliver to the Partnership this Warrant Certificate and the form of election to exercise on the reverse hereof duly completed. The exercise of Warrants is subject to certain restrictions on exercise as described in the Warrant Agreement.
The Partnership, pursuant to the terms of the Warrant Agreement, will net settle the Warrants which are exercised into Common Units as provided in the Warrant Agreement. No Warrant may be exercised after the Expiration Time, and to the extent not exercised by such time the Warrants shall become void.
3.
Adjustments
The Warrant Agreement provides that, upon the occurrence of certain events, the number of Common Units issuable upon the exercise of each Warrant and the Threshold Price shall be adjusted.
4.
No Fractional Units
No fractions of Common Units will be issued upon the exercise of any Warrant, but the Partnership will pay the cash value thereof determined as provided in the Warrant Agreement.
5.
Registered Form; Transfer and Exchange
The Warrants have been issued in registered form. Warrant Certificates, when surrendered at the office or agency of the Partnership by the registered holder thereof, may be exchanged, in

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the manner and subject to the limitations provided in the Warrant Agreement, but without payment of any service charge (except as specified in the Warrant Agreement), for another Warrant Certificate or Warrant Certificate of like tenor evidencing in the aggregate a like number of Warrants.
Upon due presentation for registration of transfer of this Warrant Certificate at the office or agency of the Partnership a new Warrant Certificate or Warrant Certificate of like tenor and evidencing in the aggregate a like number of Warrants shall be issued to the transferee(s) in exchange for this Warrant Certificate, subject to the limitations provided in the Warrant Agreement, without charge except for any tax or other governmental charge imposed in connection therewith.
The Partnership may deem and treat the registered holder(s) thereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, of any distribution to the holder(s) hereof, and for all other purposes. This Warrant Certificate does not entitle any holder hereof to any rights of a unitholder of the Partnership.
6.
Governing Law; Jurisdiction
This Warrant shall be governed by and construed in accordance with the internal laws of the State of New York without regard to principles of conflicts of laws. The Partnership and the Holder of this Warrant each hereby irrevocably and unconditionally:
(i) submits for itself and its property in any legal action or proceeding relating solely to this Warrant or the transactions contemplated hereby, to the non-exclusive jurisdiction of the courts of the state of New York and the Federal courts of the United States of America located within the State of New York, and appellate courts thereof;
(ii)      consents that any such action or proceeding may be brought in such courts, and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same to the extent permitted by applicable law;
(iii)      agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the party, as the case may be, at its address set forth in the Register or at such other address of which the other party shall have been notified pursuant thereto;
(iv)      agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction for recognition and enforcement of any judgment or if jurisdiction in the courts referenced in the foregoing clause (i) are not available despite the intentions of the parties hereto;
(v)      agrees that final judgment in any such suit, action or proceeding brought in such a court may be enforced in the courts of any jurisdiction to which such party is subject

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by a suit upon such judgment, provided that service of process is effected upon such party in the manner specified herein or as otherwise permitted by law;
(vi)      agrees that to the extent that such party has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process with respect to itself or its property, such party hereby irrevocably waives such immunity in respect of its obligations under this Warrant Certificate, to the extent permitted by law; and
(vii)      IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING IN RELATION TO THIS AGREEMENT AND THE WARRANT ISSUED.
A copy of the Warrant Agreement may be obtained by the holder hereof upon written request to the Partnership.

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[Form of Exercise Notice]
(To Be Executed Upon Exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right, represented by this Warrant Certificate for _______________________ Common Units to be net unit settled pursuant to the Net Unit Settlement procedures set forth in the Warrant Agreement.
In a Net Unit Settlement, the undersigned requests that a certificate for such units be registered in the name of _______________________, whose address is _____________________ and that such units be delivered to _______________________, whose address is _______________________. If said number of units is less than all of the Common Units issuable hereunder, the undersigned requests that a new Warrant representing the remaining balance of such units be registered in the name of _______________________, whose address is _________________, and that such Warrant be delivered to _______________________, whose address is _______________________.

By          
NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever.

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[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s), assign(s) and transfer(s) unto ________________________________________________ (the “ Assignee ”).                (Please type or print block letters)
        

    (Please print or typewrite name and address including zip code of assignee)
the within Warrant and all rights thereunder (the “ Securities ”), hereby irrevocably constituting and appointing
    

attorney to transfer said Warrant Certificate on the books of the Partnership with full power of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED ON ALL CERTIFICATES BEARING A RESTRICTED LEGEND]
In connection with any transfer of this Warrant Certificate occurring prior to the removal of the Restricted Legend, the undersigned confirms (i) the understanding that the Securities have not been registered under the Securities Act of 1933, as amended; and (ii) that such transfer is made without utilizing any general solicitation or general advertising.

Date:          
    

Seller
By          
NOTICE: The signature to this assignment must correspond with the name as written upon the face of the within-mentioned instrument in every particular, without alteration or any change whatsoever.



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EXHIBIT B
RESTRICTED LEGEND
THIS WARRANT AND THE UNDERLYING COMMON UNITS THAT MAY BE ISSUED UPON ITS EXERCISE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.




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Exhibit 4.2

SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT

OF

TEEKAY OFFSHORE GP L.L.C.
A MARSHALL ISLANDS LIMITED LIABILITY COMPANY
Dated as of September 25, 2017
THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS INSTRUMENT IS SUBJECT TO THE CONDITIONS SPECIFIED IN THIS LIMITED LIABILITY COMPANY AGREEMENT AMONG THE MEMBERS OF THE ISSUER.
THE SECURITIES REPRESENTED BY THIS INSTRUMENT HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR TRANSFERRED IN ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER.






136199440.19  
 
 



TABLE OF CONTENTS
ARTICLE I Definitions                                     1
1.1    Definitions                                    1
1.2    Other Definitional Provisions                            9

ARTICLE II Organization of the Company                         9
2.1    Formation                                    9
2.2    Name                                        9
2.3    Registered Address; Agent                            10
2.4    Principal Office                                10
2.5    Term                                        10
2.6    Purposes and Powers                                10

ARTICLE III Management of the Company                         10
3.1    Board of Directors                                10
3.2    Officers                                    20
3.3    Fiduciary Duties                                22
3.4    Performance of Duties; Liability of Directors and Officers            22
3.5    Indemnification                                23
3.6    Prospective Amendments                            24

ARTICLE IV Members                                     24
4.1    Registered Members                                24
4.2    Limitation of Liability                                24
4.3    Withdrawal; Resignation                            24
4.4    Death of a Member                                24
4.5    Authority                                    25
4.6    Outside Activities                                25
4.7    No Effect on Lending Relationship                        25

ARTICLE V Shares; Membership                                 25
5.1    Shares Generally                                25
5.2    Authorization of Shares                            26
5.3    Issuance of Shares                                26
5.4    New Members from the Issuance of Shares                    26
5.5    Option Exercise; Right of Repurchase; Right of First Offer            26
5.6    Drag Rights                                    31
5.7    Share Ownership                                31
5.8    Preemptive Rights                                31

ARTICLE VI Capital Contributions and Capital Accounts                 32
6.1    Capital Contributions                                32
6.2    Capital Accounts                                32
6.3    Negative Capital Accounts                            34







i
 



6.4    No Withdrawal                                34
6.5    Loans from Members                                34
6.6    Status of Capital Contributions                        34

ARTICLE VII Distributions                                 34
7.1    Generally                                    34
7.2    Distributions                                    35
7.3    Withholding Taxes                                35

ARTICLE VIII U.S. Tax Allocations                             35
8.1    Allocations of Profits and Losses                        35
8.2    Regulatory and Special Allocations                        35
8.3    Curative Allocations                                36
8.4    Tax Allocations                                37

ARTICLE IX Elections and Reports                             37
9.1    Generally                                    37
9.2    Fiscal Year                                    38
9.3    Bank Accounts                                38
9.4    Tax Status                                    38
9.5    Reports                                    38
9.6    Tax Elections                                    38
9.7    Tax Controversies                                39
9.8    Passive Foreign Investment Company                    39

ARTICLE X Dissolution and Liquidation                             40
10.1    Dissolution                                    40
10.2    Liquidation                                    40

ARTICLE XI Transfer of Shares                                 42
11.1    Restrictions                                    42
11.2    General Restrictions on Transfer                        42
11.3    Procedures for Transfer                            43
11.4    Legend                                        43
11.5    Limitations                                    43

ARTICLE XII Certain Agreements                             44
12.1    Financial Statements and Confidentiality.                    44

ARTICLE XIII Miscellaneous Provisions                             46
13.1    Notices                                    46
13.2    Governing Law                                46
13.3    No Action for Partition                            46
13.4    Headings and Sections                            46
13.5    Amendments                                    46






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13.6    Interpretation                                    47
13.7    Binding Effect                                    47
13.8    Counterparts; Email and Facsimile                        47
13.9    Severability                                    47
13.10    Remedies                                    47
13.11    Business Days                                    48
13.12    Waiver of Jury Trial                                48
13.13    No Strict Construction                            48
13.14    Entire Agreement and Incorporation by Reference                48
13.15    Parties in Interest                                48
13.16    Venue and Submission to Jurisdiction                    48
13.17    Further Assurances                                49
13.18    Compliance                                    49
13.19    No Vote to Remove the General Partner                    49
13.20    Successor Corporation                            49

SCHEDULES :
Schedule A    Members Schedule as of September 25, 2017
Schedule B    Officers of the Company as of September 25, 2017
Schedule C    Consents

EXHIBITS :
Exhibit A
Certificate of Formation
Exhibit B
Form of Joinder to Second Amended and Restated Limited Liability Company Agreement








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SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
TEEKAY OFFSHORE GP L.L.C.
This SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this “ Agreement ”), dated as of September 25, 2017 (the “ Effective Date ”), of Teekay Offshore GP L.L.C., a Marshall Islands non-resident domestic limited liability company (the “ Company ”), is by and among Teekay Holdings Limited, a Bermuda corporation (“ TK ”), and Brookfield TK TOGP L.P., a Bermuda limited partnership (“ Brookfield ”).
WHEREAS, the Company was formed on August 25, 2006 pursuant to the Act, subject to a Limited Liability Company Agreement, dated as of August 25, 2006 (as subsequently amended and restated on December 19, 2006 and further amended on February 25, 2008 and February 29, 2008, the “ Limited Liability Company Agreement ”);
WHEREAS, TK and Brookfield are parties to that certain Investment Agreement, dated as of July 26, 2017 (the “ Investment Agreement ”), pursuant to which, among other things, TK has agreed to sell, transfer and assign, and Brookfield has agreed to purchase, 49% of the limited liability company interests in the Company;
WHEREAS, TK, as the existing sole Member, and Brookfield now desire to amend and restate the Limited Liability Company Agreement in its entirety upon the terms and conditions stated below and, upon the execution and delivery of this Agreement, TK and Brookfield will represent all of the Members of the Company, each holding such percentage of Shares as set forth next to its name on Schedule A attached hereto;
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein made and other good and valuable consideration, the Limited Liability Company Agreement is hereby amended and restated in its entirety as follows:
ARTICLE I
Definitions
1.1      Definitions. The following terms used in this Agreement shall have the following meanings (unless otherwise expressly provided in this Agreement):
“ Act ” means the Marshall Islands Limited Liability Company Act of 1996 of the Republic of the Marshall Islands Associations Law, as the same may be amended from time to time.
“ Adjusted Capital Account Deficit ” means, with respect to any Member, the deficit balance, if any, in such Member's Capital Account as of the end of the relevant Taxable Year, after giving effect to the following adjustments:






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(i)      Crediting to such Capital Account any amount which such Member is obligated to restore or is deemed to be obligated to restore pursuant to Treasury Regulation Sections 1.704‑1(b)(2)(ii)( c ), 1.704‑2 (g)(1), and 1.704‑2(i); and
(ii)      Debiting to such Capital Account the items described in Treasury Regulation Section 1.704‑1(b)(2)(ii)( d )( 4 ), ( 5 ) and ( 6 ).
“ Affiliate ” means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such specified Person; provided , that (i) the Company and its Subsidiaries shall not be deemed to be Affiliates of the Brookfield Members or any of their respective Affiliates, (ii) Teekay Corporation and its Subsidiaries shall not be deemed to be Affiliates of the Brookfield Members or any of their respective Affiliates, and (iii) portfolio companies (provided such portfolio companies have material operations other than the operations of the Company and the Limited Partnership) in which any of the Brookfield Members or any of their respective Affiliates has an investment (whether as debt or equity) shall not be deemed an Affiliate of the Brookfield Members or the Brookfield Members’ respective Affiliates. For the purposes of this definition, “ control ”, when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “ controlling, ” “ controlled, ” “ controlled by ” and “ under common control with ” have meanings correlative to the foregoing..
“ Bankruptcy ” means, with respect to a Member, that (i) such Member has (A) made an assignment for the benefit of creditors; (B) filed a voluntary petition in bankruptcy; (C) been adjudged bankrupt or insolvent, or had entered against such Member an order of relief in any bankruptcy or insolvency proceeding; (D) filed a petition or an answer seeking for such Member any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation or filed an answer or other pleading admitting or failing to contest the material allegations of a petition filed against such Member in any proceeding of such nature; or (E) sought, consented to, or acquiesced in the appointment of a trustee, receiver or liquidator of such Member or of all or any substantial part of such Member's properties; (ii) 120 days have elapsed after the commencement of any proceeding against such Member seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation and such proceeding has not been dismissed; or (iii) 90 days have elapsed since the appointment without such Member's consent or acquiescence of a trustee, receiver or liquidator of such Member or of all or any substantial part of such Member's properties and such appointment has not been vacated or stayed or the appointment is not vacated within 90 days after the expiration of such stay.
“ BCA ” means the Business Corporations Act of the Republic of the Marshall Islands.
“ Book Value ” means, with respect to any Company asset, the adjusted basis of such asset for U.S. federal income tax purposes, except as follows:






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(a)      The initial Book Value of any Company asset contributed or deemed contributed by a Member to the Company shall be the gross Fair Market Value of such Company asset as of the date of such contribution;
(b)      The Book Value of each Company asset may be adjusted to equal its respective gross Fair Market Value, as of the following times: (i) the acquisition of an additional interest in the Company by any new or existing Member in exchange for more than a de minimis Capital Contribution if the Board reasonably determines in good faith that such adjustment is necessary or appropriate to reflect the Members’ relative economic interests in the Company; (ii) the distribution by the Company to a Member of more than a de minimis amount of Company assets (other than cash) as consideration for all or part of its Shares unless the Board reasonably determines in good faith that such adjustment is not necessary to reflect the relative economic interests of the Members in the Company; (iii) the liquidation of the Company within the meaning of Treasury Regulations Section 1.704‑1(b)(2)(ii)( g ); and (iv) such other times as the Board shall reasonably determine in good faith are necessary or advisable to comply with the Treasury Regulations under Subchapter K of Chapter 1 of the Code;
(c)      The Book Value of a Company asset distributed to any Member shall be the Fair Market Value of such Company asset as of the date of distribution thereof;
(d)      The Book Value of each Company asset shall be increased or decreased, as the case may be, to reflect any adjustments to the adjusted basis of such Company asset pursuant to Section 734(b) or Section 743(b) of the Code, but only to the extent that such adjustments are taken into account in determining Capital Account balances pursuant to Treasury Regulations Section 1.704‑1(b)(2)(iv)( m ); provided , that Book Values shall not be adjusted pursuant to this subparagraph (d) to the extent that an adjustment pursuant to subparagraph (b) above is made in conjunction with a transaction that would otherwise result in an adjustment pursuant to this subparagraph (d); and
(e)      If the Book Value of a Company asset has been determined or adjusted pursuant to subparagraphs (a), (b) or (d) above, such Book Value shall thereafter be adjusted to reflect the Depreciation taken into account with respect to such Company asset for purposes of computing Profits and Losses.
“ Brookfield Majority Holders ” means, at any time, a Brookfield Member or Brookfield Members that own a majority of the Shares owned by all of the Brookfield Members at such time.
“ Brookfield Member ” means, collectively, any Member that is either Brookfield or a controlled Affiliate of Brookfield (including any investment fund, co-investment vehicles and/or similar vehicles or accounts, in each case managed by Brookfield Capital Partners LLC or its Affiliates) or any of their respective successors (but not including, however, any portfolio companies of any of the foregoing).






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“ Business Day ” means any day that is not a Saturday, Sunday, or other day on which commercial banks are authorized or required to close in the State of New York.
“ Canadian Tax Act ” means the Income Tax Act (Canada), R.S.C. 1985, 5th Supplement, c.1, as amended from time to time.
“ Capital Account ” means the capital account maintained for a Member pursuant to Section 6.2.
“ Capital Contribution ” means any contribution to the capital of the Company in cash or property by a Member, whenever made.
“ Certificate ” means the Certificate of Formation (as herein defined) of the Company, as such Certificate of Formation may be amended, supplemented or restated from time to time.
“ Certificate of Limited Partnership ” means the Certificate of Limited Partnership of the Limited Partnership, dated as of August 30, 2006.
“ Code ” means the United States Internal Revenue Code of 1986, as the same may be amended from time to time.
“ Common Units ” means the common units of the Limited Partnership having the powers, preferences and rights, and the qualifications, limitations and restrictions, as set forth in the Limited Partnership Agreement.
“ Company Minimum Gain ” has the meaning set forth for “partnership minimum gain” in Treasury Regulation Section 1.704‑2(d).
“ Depreciation ” means, for each Taxable Year, an amount equal to the depreciation, amortization, or other cost recovery deduction allowable with respect to an asset for such Taxable Year, except that if the Book Value of an asset differs from its adjusted basis for U.S. federal income tax purposes at the beginning of such Taxable Year, Depreciation shall be an amount which bears the same ratio to such beginning Book Value as the U.S. federal income tax depreciation, amortization, or other cost recovery deduction for such Taxable Year bears to such beginning adjusted tax basis; provided , that if the adjusted basis for U.S. federal income tax purposes of an asset at the beginning of such Taxable Year is zero and the Book Value of the asset is positive, Depreciation shall be determined with reference to such beginning Book Value using any permitted method selected by the Board.
“ Director Qualification Standards ” means (a) any requirements generally applicable to all of the Directors regarding service as a Director of the Company under applicable law or the rules and regulations of any securities exchange of which the Company or the Limited Partnership is then subject, as the same may be amended, modified or supplemented, and (b) any additional qualification standards established by the Board for eligibility of individuals to serve as Directors (there being none under this clause (b) as of the date hereof).






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“ Equity Interest ” means the ownership interest (including the limited liability company interest) of a Member in the Company, including such Member’s right (A) to distributions from the Company, including on a liquidation of the Company, (B) to an allocation of Profits, Losses, and other items of income, gain, loss, deduction and credits of the Company for U.S. tax purposes, (C) to vote on, consent to or otherwise participate in any decision of the Members and (D) to any and all other benefits to which such Member may be entitled as provided in this Agreement or the Act.
“ Exercise Date ” has the meaning set forth in Section 5.5(a) .
“ Fair Market Value ” of any asset as of any date means the purchase price which a willing buyer having all relevant knowledge would pay a willing seller for such asset in an arm's‑length transaction, as reasonably determined in good faith by the Board based on such factors as the Board, in the exercise of its reasonable business judgment, considers relevant.
“ General Partner Interest ” means the ownership interest of the Company in the Limited Partnership in its capacity as a general partner and without reference to any limited partner interest in the Limited Partnership held by the Company or its Affiliates.
“ Governmental Entity ” means any (i) federal, state or local, domestic or foreign governmental or regulatory (including any stock exchange) authority, agency, court, commission or other entity or self-regulatory organization or (ii) arbitral body (public or private).
“ Incentive Distribution Right ” means Incentive Distribution Right as defined in the Limited Partnership Agreement.
“ Independent Director ” means a Director who would be considered an “independent director” under (a) NYSE Rule 303A.02 in effect at the time such Person is elected to the Board as such rule may be amended, supplemented or replaced from time to time (whether by final rule or otherwise), (b) the Company’s corporate governance guidelines or similar policy and (c) any other applicable law, rule or regulation mandating the independence of one or more members of the Board, excluding, in each case, requirements that relate to “independence” only for members of a particular Board committee or directors fulfilling a particular function. In no event will any Person be deemed an Independent Director who is, or at any time during the previous three years was, an officer or employee of the Company, the Limited Partnership or their respective Subsidiaries. For purposes of Section 3.1(c)(i) hereof, in no event will any Person be deemed an Independent Director who is, or at any time during the previous three years was, an officer, director, employee, consultant or contractor of, or who otherwise has or had during the previous three years a material business or financial relationship with Teekay Corporation or any of its Affiliates.
“ Licensing Agreement ” means the Licensing Agreement, dated as of the date hereof, among the Limited Partnership and Teekay Corporation.
“ Liens ” means any pledges, liens, charges, mortgages, encumbrances or security interests of any kind or nature.






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“ Limited Partnership ” means Teekay Offshore Partners L.P., a Republic of the Marshall Islands limited partnership.
“ Limited Partnership Agreement ” means the Limited Partnership’s Fifth Amended and Restated Agreement of Limited Partnership, dated as of June 29, 2016, as amended from time to time.
“ Losses ” has the meaning set forth in Section 6.2 .
“ Majority of the Board ” means, at any time, a combination of any of the then Directors constituting at least a majority of the votes of all of the Directors who are then elected and qualified and remaining on the Board.
“ Majority of the Committee ” means, with respect to any committee of the Board, at any time, a combination of any of the then Directors constituting at least a majority of the votes of all of the Directors who are then appointed and qualified and remaining on such Committee.
“ Managers ” has the meaning set forth in Section 3.1(a) .
“ Master Services Agreement ” means that master services agreement among the Limited Partnership, the Company, Teekay Corporation and Brookfield TK TOLP L.P. dated as of the date hereof.
“ Member ” means each Person identified on the Members Schedule as of the date hereof who is a party to or is otherwise bound by this Agreement and each Person who may hereafter be admitted as a Member in accordance with the terms of this Agreement. The Members shall constitute the “members” (as that term is defined in the Act) of the Company.
“ Member Minimum Gain ” with respect to each Member Nonrecourse Debt, means the amount of Company Minimum Gain (as determined according to Treasury Regulation Section 1.704‑2(d)(1)) that would result if such Member Nonrecourse Debt was treated as a nonrecourse liability, determined in accordance with Treasury Regulation Section 1.704‑2(i)(3).
“ Member Nonrecourse Debt ” has the meaning set forth in Treasury Regulation Section 1.704‑2(b)(4), substituting the term “Company” for the term “partnership” and the term “Member” for the term “partner” as the context requires.
“ Member Nonrecourse Deduction ” has the meaning set forth in Treasury Regulation Section 1.704‑2(i), substituting the term “Member” for the term “partner” as the context requires.
“ Nonrecourse Deductions ” has the meaning set forth in Treasury Regulation Section 1.704‑2(b), substituting the term “Company” for the term “partnership” as the context requires.
“ Partnership Tax Audit Rules ” means Sections 6221 through 6241 of the Code, as amended by the Bipartisan Budget Act of 2015, together with any guidance issued thereunder or successor provisions and any similar provision of state or local tax laws.






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“ Person ” means any individual, corporation, partnership, limited liability company, trust, joint venture, Governmental Entity or other unincorporated entity, association or group.
“ Principal Market ” means the New York Stock Exchange, or such other U.S. national securities exchange on which the Common Units are then listed (or admitted to trading).
“ Profits ” has the meaning set forth in Section 6.2 .
“ Registration Rights Agreement ” means the registration rights agreement between the Limited Partnership, Teekay Corporation and Brookfield TK TOLP L.P. dated as of the date hereof.
“ Share ” means a share representing a fractional portion of the Equity Interests of all the Members and having the rights set forth in this Agreement and the Equity Interests represented by such Share shall be determined in accordance with such rights and the other terms of this Agreement. There shall only be a single class, and no series, of Shares of the Company.
“ Subsidiary ” means, with respect to any Person, another Person, an amount of the voting securities, other voting rights or voting partnership interests of which is sufficient to elect at least a majority of its board of directors or other governing body (or, if there are no such voting interests, more than 50% of the equity interests of which) is owned directly or indirectly by such first Person.
“ Tax Matters Partner ” has the meaning set forth in Section 9.7.
“ Taxable Year ” means the Company's taxable year ending on December 31 (or part thereof in the case of the Company's first and last taxable year), or such other year as is (i) required by Section 706 of the Code or (ii) determined by the Board (if no year is so required by Section 706 of the Code).
“ Teekay Corporation ” means Teekay Corporation, a Republic of the Marshall Islands corporation.
“ TK Event of Default ” means, with respect to any TK Member:
(a)      Bankruptcy;
(b)      the entry of a plea of guilty or no contest or finding or admission of guilt, or agreement to a non-prosecution agreement, deferred prosecution agreement, leniency agreement, civil, criminal, or regulatory settlement or administrative order or acceptance of any fine with respect to a charge by a Governmental Entity that, in each case, could reasonably be expected to have a material and adverse impact on the business, operations, or reputation of the Company or the Limited Partnership; or
(c)      a material violation or breach of, or default under, this Agreement or the Master Services Agreement by the TK Member or any of its Affiliates if such violation,






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breach or default is not curable or, if curable, is not cured on or prior to the date which is 30 days following written notice thereof given by Brookfield to TK.
“ TK Majority Holders ” means, at any time, a TK Member or TK Members that own a majority of the Shares owned by all of the TK Members at such time.
“ TK Member ” means, collectively, any Member that is TK, Teekay Corporation or a controlled Affiliate thereof.
“ Transfer ” means any sale, transfer, conveyance, assignment, gift, delivery or other disposition.
“ Treasury Regulations ” means the final or temporary regulations that have been issued by the U.S. Department of Treasury pursuant to its authority under the Code, and any successor regulations.
“ VWAP Price ” means, as of the applicable date of determination, the dollar volume-weighted average price of a Common Unit on the Principal Market during the period beginning at 9:30:01 a.m., New York time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time (or such other time as the Principal Market publicly announces is the official open of trading), and ending at 4:00:00 p.m., New York time (or such other time as the Principal Market publicly announces is the official close of trading), as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by OTC Markets LLC, in each case for the thirty (30) most recent trading days. If the VWAP Price cannot be calculated for a security on a particular date on any of the foregoing bases, the VWAP Price of such security on such date shall be the fair market value as mutually determined by the Company and the applicable Member. If the Company and the applicable Member are unable to agree upon the fair market value of such security, then the VWAP Price will be determined by an independent accounting, appraisal, investment banking firm or consultant of nationally recognized standing in the United States retained by the Company and approved by the applicable Member for such purpose. All such determinations shall be appropriately adjusted for any unit distribution, unit split, unit combination or other similar transaction during the applicable calculation period. When applying VWAP to a Member’s Equity Interest in the Company, the economic interest shall be valued on the basis of a Common Unit in the Limited Partnership.
“ Warrants ” means warrants issued by the Limited Partnership pursuant to the terms and provisions of (i) the Warrant Agreement, dated as of September 25, 2017, between the Limited Partnership and Brookfield TK TOLP L.P. and (ii) the Warrant Agreement, dated as of September 25, 2017, between the Limited Partnership and Teekay Shipping Limited.






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1.2      Other Definitional Provisions. Capitalized terms used in this Agreement which are not defined in this Article I have the meanings contained elsewhere in this Agreement. Defined terms used in this Agreement in the singular shall import the plural and vice versa.
ARTICLE II     
Organization of the Company
2.1      Formation.
(a)      The Company was formed on August 25, 2006 as a Marshall Islands non-resident domestic limited liability company upon the filing of the certificate of formation, as attached as Exhibit A hereto (the “ Certificate of Formation ”), pursuant to the Act with the Republic of the Marshall Islands Registrar of Corporations. This Agreement shall constitute the “limited liability company agreement” (as that term is used in the Act) of the Company. The rights, powers, duties, obligations and liabilities of the Members shall be determined pursuant to the Act and this Agreement. To the extent that the rights, powers, duties, obligations and liabilities of any Member are different by reason of any provision of this Agreement than they would be in the absence of such provision, this Agreement shall, to the extent permitted by the Act, control.
(b)      Any officer of the Company as an “authorized person” within the meaning of the Act, is hereby authorized, at any time that the applicable Member(s) have approved an amendment to the Certificate in accordance with the terms hereof, to promptly execute, deliver and file such amendment in accordance with the Act.
(c)      The Company shall, to the extent permissible, elect to be treated as a partnership for United States federal, state and local income tax purposes. Each Member and the Company shall file all United States tax returns and shall otherwise take all United States tax and financial reporting positions in a manner consistent with such treatment and no Member shall take any action inconsistent with such treatment. To the extent permitted by law, the Company shall not be deemed a partnership or joint venture for any purpose other than for U.S. federal, state and local income tax purposes.
2.2      Name. The name of the Company is “Teekay Offshore GP L.L.C.” or such other name or names as the Board may from time to time designate; provided, that the name shall always contain the words “Limited Liability Company”, “LLC” or “L.L.C.”.
2.3      Registered Address; Agent. Except as the Board of Directors may designate from time to time in the manner provided by law, the address of the Company’s registered agent in the Marshall Islands shall be the Trust Company Complex, Ajeltake Islands, Ajeltake Road, Majuro, Marshall Islands MH 96960, and the name of the Company’s registered agent at such address shall be the Trust Company of the Marshall Islands, Inc.
2.4      Principal Office. The principal office and the mailing address of the Company shall be Fourth Floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM 08 Bermuda.






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2.5      Term. The Company commenced on August 25, 2006 and shall have perpetual existence, unless the Company is dissolved in accordance with the Act.
2.6      Purposes and Powers. The purposes and character of the business of the Company shall be to transact any or all lawful business for which limited liability companies may be organized under the Act, provided such business is, in the reasonable discretion of the Board, necessary or appropriate to facilitate its role as general partner of the Limited Partnership. The Company shall have any and all powers which are necessary or desirable to carry out the purposes and business of the Company, including the ability to incur and guaranty indebtedness, to the extent the same may be legally exercised by limited liability companies under the Act. Notwithstanding anything herein to the contrary, nothing set forth herein shall be construed as authorizing the Company to possess any purpose or power, or to do any act or thing, forbidden by law to a limited liability company organized under the laws of the Republic of the Marshall Islands.
ARTICLE III     
Management of the Company
3.1      Board of Directors.
(a)      Establishment . There is hereby established a committee (the “ Board ” or the “ Board of Directors ”) comprised of natural Persons (the “ Directors ”) having the authority and duties set forth in this Agreement. Each Director shall be entitled to one vote. Directors need not be residents or citizens of the Marshall Islands. Each Director shall constitute a “manager” of the Company for purposes of the Act (collectively, the “ Managers ”), provided that at all times each of the Managers shall act in conformity with the authority and duties of the Directors and/or Board as specified in this Agreement.
(b)      Powers of the Board . Subject to (and except as set forth in) Section 3.1(h) and except for decisions or actions requiring the approval of the Members by non-waivable provisions of the Act or applicable law, the business and affairs of the Company shall be managed by or under the direction of the Board, and all actions outside of the ordinary course of business of the Company to be taken by or on behalf of the Company shall require the approval of a Majority of the Board. Notwithstanding anything in this Agreement to the contrary, the Board shall conduct the affairs and governance of the Company so that (i) the Company is not a resident of Canada for purposes of the Canadian Tax Act, (ii) neither the Company nor the Limited Partnership is carrying on business in Canada for purposes of the Canadian Tax Act and (iii) the Company is not doing business in the Republic of the Marshall Islands.
(c)      Number of Directors; Term of Office . As of the date hereof, and at all times prior to the Exercise Date, the authorized number of Directors of the Board is, and shall be, nine Directors. On and after the Exercise Date, the authorized number of Directors of the Board may be changed by a Majority of the Board to any of five to fifteen Directors (inclusive). The Directors shall, except as hereinafter otherwise provided for, be elected (and removed and replaced, if applicable) by Members holding a majority of the outstanding Shares and shall hold office until their respective successors are elected and qualified or until their earlier death, resignation or






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removal. As of the date hereof, the Directors are Bill Utt, Kenneth Hvid, John J. Peacock, Ian Craig, David L. Lemmon, David Levenson, Jim Reid, Walter Weathers and Bradley Weismiller, and each such Person shall hold office as a Director until his respective successor is elected and qualified or until his earlier death, resignation or removal. Notwithstanding the foregoing:
(i)      At all times prior to the Exercise Date, the TK Majority Holders will have the right to elect five Directors (each Director elected pursuant to the terms hereof by the TK Majority Holders, a “ TK Director ”), provided that three of such TK Directors must be Independent Directors and must be approved by the Brookfield Majority Holders (which approval shall not be unreasonably withheld); on and after the Exercise Date, for so long as the TK Members own at least 10% of the outstanding Common Units, on a fully-diluted basis, the TK Majority Holders will have the right to elect two TK Directors; on and after the later of (a) the Exercise Date and (b) the date on which the TK Members first no longer own 10% of the outstanding Common Units, on a fully-diluted basis, for so long as the Licensing and Franchising Agreement has not been terminated, the TK Majority Holders will have the right to elect one TK Director. The TK Directors as of the date hereof are Bill Utt, Kenneth Hvid, John J. Peacock, Ian Craig and David L. Lemmon, of whom John J. Peacock, Ian Craig and David L. Lemmon represent Independent Directors. The election rights set forth in this clause (i) are referred to as the “ TK Election Rights .”
(ii)      At all times prior to the Exercise Date, the Brookfield Majority Holders will have the right to elect four Directors (each, a “ Brookfield Director ”) and, on and after the Exercise Date, for so long as the Brookfield Members own at least 10% of the outstanding Common Units, on a fully-diluted basis, the Brookfield Majority Holders will have the right to elect two Brookfield Directors. The Brookfield Directors as of the date hereof are David Levenson, Jim Reid, Walter Weathers and Bradley Weismiller. The election rights set forth in this clause (ii) are referred to as the “ Brookfield Election Rights .”
(iii)      Each Member, upon the request of any other Member, shall vote (or, if requested by the Company, execute a written consent with respect to) all Shares over which such Member has control and shall promptly take all other necessary or desirable actions within such Member’s control to elect to the Board any individual elected pursuant to subclauses (i) or (ii) above.
(iv)      Subject to other provisions of this clause (iv), TK Directors may be removed and replaced by, and only by, the TK Majority Holders, with or without cause, subject to the provisos in clause (c)(i) above. If the number of TK Directors then in office exceeds the number of TK Directors that the TK Majority Holders then may elect pursuant to the TK Election Rights, then, at the written request of the Brookfield Majority Holders, one of the TK Directors, as specified by the TK Majority Holders (or, if the TK Majority Holders fails to do so within five (5) Business Days of such requirement not being satisfied, as specified by the Brookfield Majority Holders), shall immediately resign, and the Members shall cause such TK Director immediately to resign, from the Board effective as of the receipt of such notice, and if such TK Director does not resign, the TK Members shall remove such TK Director. The same shall be repeated until the number of TK Members does not exceed






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the number of TK Directors that the TK Majority Holders then may elect pursuant to the TK Election Rights. Subject to the other provisions of this clause (iv), Brookfield Directors may be removed and replaced by, and only by, the Brookfield Majority Holders, with or without cause. If the number of Brookfield Directors then in office exceeds the number of Brookfield Directors that the Brookfield Majority Holders then may elect pursuant to the Brookfield Election Rights, then, at the written request of the TK Majority Holders, one of the Brookfield Directors, as specified by the Brookfield Majority Holders (or, if the Brookfield Majority Holders fails to do so within five (5) Business Days of such requirement not being satisfied, as specified by the TK Majority Holders), shall immediately resign, and the Members shall cause such Brookfield Director immediately to resign, from the Board effective as of the receipt of such notice, and if such Brookfield Director does not resign, the Brookfield Members shall remove such Brookfield Director. Each TK Director and each Brookfield Director shall satisfy the Director Qualification Standards.
(v)      A Director may resign at any time by giving written notice to such effect to the Board. Any such resignation shall take effect at the time of the receipt of that notice or any later effective time specified in that notice and, unless otherwise specified in such notice, the acceptance of the resignation shall not be necessary to make it effective. Any vacancy caused by any such resignation or by the death of any Director or any vacancy for any other reason (including due to the authorization by the Board of a newly created directorship) and not filled by the Person(s) with the right to elect such Director pursuant to Sections 3.1(c)(i) or 3.1(c)(ii) may be filled by a majority of the votes of the Directors then in office, although less than a quorum, and any Director so elected to fill any such vacancy shall hold office until his successor is elected and qualified pursuant to Sections 3.1(c)(i) or 3.1(c)(ii) or until his earlier death, resignation or removal; provided that such Director can be removed with or without cause and replaced by the Person or Persons, if any, which have the right to elect such Director pursuant to Sections 3.1(c)(i) or 3.1(c)(ii), as the case may be.
(vi)      Notwithstanding anything in this Agreement to the contrary, (i) each Director shall be a natural person and (ii) at all times a majority of the Directors shall be persons who are not residents of Canada for the purposes of the Canadian Tax Act (except in the case of the death, resignation or dismissal of one or more Directors who are not residents of Canada for purposes of the Canadian Tax Act, provided that within 21 days of any such death, resignation or dismissal either (1) one or more new non-resident Directors shall be elected to replace each non-resident Director who died, resigned or was dismissed or (2) one or more Directors who are residents of Canada for purposes of the Canadian Tax Act shall resign to achieve the required non-resident majority).
(d)      Meetings of the Board . The Board shall meet at such time and at such place as the Board may designate; provided that all meetings of the Board shall take place outside of Canada. Special meetings of the Board shall be held on the call of the Chairman (as herein defined), any Director or the Company’s Chief Executive Officer or President upon at least three Business Days (if the meeting is to be held in person) or forty-eight hours (if the meeting is to be held by telephone communications or video conference) written notice to the Directors, or upon such shorter notice






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as may be approved by all of the Directors. Subject to the second sentence of clause (i) below, any director may participate in any Board (or Board committee) meeting by telephone communications or video conference. Any Director may waive such notice as to himself or herself before or after the meeting. A record shall be maintained by the Company of each meeting of the Board.
(i)      Conduct of Meetings . Any meeting of the Directors may be held in person, telephonically or by video conference. Any Board meeting held telephonically or by video conference must originate outside of Canada and a majority of the Directors participating in such meeting in person or by call or video must participate from or at a location outside Canada, and such meeting shall be deemed held at the place from where such call or video conference originated.
(ii)      Quorum . A Majority of the Board shall constitute a quorum of the Board for purposes of conducting business; provided , however , that such quorum shall be properly constituted only if a majority of the Directors included in such quorum are not residents of Canada for purposes of the Canadian Tax Act; provided , further , that, prior to the Exercise Date, a Brookfield Director must be present for such Directors to constitute a quorum, subject to the last sentence of this Section 3.1(d)(ii) . A Director may vote or be present at a meeting either in person or by proxy. At all times when the Board is conducting business at a meeting of the Board, a quorum of the Board must be present at such meeting and a majority of the Directors participating at such meeting must not be residents of Canada for purposes of the Canadian Tax Act. If a quorum shall not be present at any meeting of the Board, then the Directors present at the meeting may adjourn the meeting from time to time and shall promptly give notice to the Directors not present at the meeting of when the meeting will be reconvened. If such notice is given and the reconvened meeting is held at least 48 hours after the suspended meeting at which a quorum was not present and notice was given, then, at such reconvened meeting, the presence of at least one Brookfield Director will not be required in order for a quorum to be present (so long as all other quorum requirements provided for in this Section 3.1(d)(ii) are met); provided , however , that the only business that may be conducted at such reconvened meeting is the business specifically set forth in the original agenda for the suspended meeting.
(iii)      Attendance and Waiver of Notice . Attendance of a Director at any meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of any business on the ground that the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board need be specified in the notice or waiver of notice of such meeting.
(iv)      Actions Without a Meeting . Notwithstanding any provision contained in this Agreement, any action of the Board may be taken by written consent (which may include consent by electronic transmission, including email) of all of the Directors; provided , however , that the last Director to execute such consent shall not have done so while in Canada and each such consent shall include the location and the date of such Consent. Subject to any applicable requirements of Section 3.1(h) , any such action taken






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by the Board without a meeting shall be effective only if the consent or consents set forth the actions so taken and are in writing and are consented by each member of the Board. For purposes of this Section 3.1(d)(iv) , an “action” of the Board shall include any approval, consent or authorization of, or any other action taken by, the Board.
(e)      Compensation of the Directors . Any Director who is not an employee of the Company or any of its Subsidiaries (including the Limited Partnership) (“ Outside Directors ”) shall be entitled to receive such reasonable compensation (if any) from the Company for his or her services as such a Director of the Company as may be from time to time approved by the Board, which compensation may include a fixed sum. Each Director shall be entitled to reimbursement from the Company for reasonable and documented out‑of‑pocket expenses of attendance at each regular or special meeting of the Board pursuant to the terms of any expense reimbursement policy approved by the Board (if any). The Company shall maintain, in full force and effect, directors’ and officers’ liability insurance on customary terms. Each Director shall be covered as an insured director, in such a manner as to provide each Director in his capacity as a Director with rights and benefits under all directors’ and officers’ insurance policies no less favorable than those provided to any other Directors. The Company shall enter into indemnification agreements with each Director to agree to indemnify such Director, to the fullest extent permitted by law, subject to customary terms and provisions, from and against all liabilities, costs, expenses, losses, claims, damages or similar events related to the fact that such person is or was a Director. Each Director shall be entitled to indemnification rights pursuant to his respective indemnification agreement no less favorable than indemnification rights provided to any other Director. Any Director that is not an Outside Director shall not receive any salary or other compensation for his or her service as a Director, provided, that nothing contained in this Agreement shall be construed to preclude any Director (including the Chief Executive Officer) from serving the Company, the Limited Partnership or any of their respective Subsidiaries in any other capacity and receiving compensation for such service or from being reimbursed by the Company or any of its Subsidiaries for reasonable and documented out-of-pocket expenses of such Director in connection with being a member of the Board.
(f)      Chairman of the Board . A Majority of the Board may appoint one of the Directors to serve as the Chairman of the Board (the “ Chairman ”). The Chairman shall be a natural person who is not a resident of Canada for purposes of the Canadian Tax Act, and shall be authorized to, and shall, act in such capacity only outside of Canada. At any time, the Chairman, if any, can be removed from his or her position as Chairman by a Majority of the Board. The Chairman, in his or her capacity as the Chairman of the Board, shall not have any of the rights or powers of an officer of the Company, nor shall the Chairman have any additional voting rights. The Chairman shall preside at all meetings of the Board and at all meetings of the Members at which he or she shall be present.
(g)      Committees of the Board .
(i)      The Board may create such committees of the Board as it may, from time to time, deem necessary, appropriate or advisable, in its sole discretion, to carry on the affairs of the Company. Subject to the other provisions of this Section 3.1(g) , the Board, in its sole discretion, may establish and change the authority and responsibilities of such






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committees and may adopt one or more charters governing the size, authority and responsibilities, among other things, of such committee.
(ii)      With respect to any committee of the Board, a Majority of the Committee shall constitute a quorum of such committee for purposes of conducting business; provided , however , that such quorum shall be properly constituted only if (A) a majority of the Directors included in such quorum are not residents of Canada for purposes of the Canadian Tax Act and (B) if a Brookfield Director is a member of such committee, at least one of the Directors included in such quorum is a Brookfield Director. A Director may vote or be present at a meeting of a committee of the Board either in person or by proxy. At all times when a committee of the Board is conducting business at a meeting of such committee, a quorum of the committee must be present at such meeting and a majority of the Directors participating at such meeting must not be residents of Canada for purposes of the Canadian Tax Act. If a quorum shall not be present at any meeting of a committee of the Board, then the Directors present at the meeting may adjourn the meeting from time to time and shall promptly give notice to the committee members not present at the meeting of when the meeting will be reconvened. If such notice is given and the reconvened meeting is held at least 48 hours after the suspended meeting at which a quorum was not present and notice was given, then, at such reconvened meeting, the presence of at least one Brookfield Director will not be required in order for a quorum to be present (so long as all other quorum requirements provided for in this Section 3.1(g)(ii) are met); provided , however , that the only business that may be conducted at such reconvened meeting is the business specifically set forth in the original agenda for the suspended meeting.
(iii)      Any meeting of a committee of the Board may be held in person, telephonically or by video conference. Any in person meeting of a committee of the Board shall be held outside Canada. Any meeting of a committee of the Board held telephonically or by video conference must originate outside of Canada and a majority of the Directors participating in such meeting in person or by call or video must participate from or at a location outside Canada, and such meeting shall be deemed held at the place from where such call or video conference originated.
(iv)      Notwithstanding any provision contained in this Agreement to the contrary, any action of a committee of the Board may be taken by written consent (which may include consent by electronic transmission, including email) of all of the Directors comprising such committee without a meeting; provided , however , that the last Director to execute such consent shall not have done so while in Canada and each such consent shall include the location and the date of such Consent. Subject to any applicable requirements of Section 3.1(h) , any such action taken by any such committee of the Board without a meeting shall be effective only if the consent or consents set forth the actions so taken and are in writing and are consented by each member of such committee of the Board. For purposes of this Section 3.1(g)(iv) , an “action” of a committee of the Board shall include any approval, consent or authorization of, or any other action taken by, such committee of the Board.






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(v)      Notwithstanding anything in this Agreement to the contrary, each member of the Conflicts Committee (as defined in the Limited Partnership Agreement) shall meet the independence requirements for service on such committee set forth in the Limited Partnership Agreement and neither the Brookfield Members nor the TK Members shall have any right to appoint observers to the Conflicts Committee.
(vi)      The Board may appoint and remove (with or without cause), upon the affirmative vote of a majority of all the Directors then in office, the members of such committees; provided , however , that:
A.      such committees shall be comprised only of Directors;
B.      subject to compliance with the applicable requirements of the New York Stock Exchange (or any subsequent stock exchange on which the Limited Partnership’s equity securities are listed), any such committee shall be comprised of at least one Brookfield Director (provided the Brookfield Election Rights are still applicable) and one TK Director (provided the TK Election Rights are still applicable and TK has the right to elect at least two TK Directors) and the number of Brookfield Directors and the number of TK Directors on such committee shall be proportional (rounding up to the nearest whole number, as applicable, unless otherwise agreed by the TK Majority Holders and the Brookfield Majority Holders) to the number of Brookfield Directors and TK Directors on the Board;
C.      in the event that no Brookfield Directors are members of such a committee, the Brookfield Majority Holders shall have the right to appoint a non-voting observer to such committee (provided the Brookfield Election Rights are still applicable);
D.      in the event that no TK Directors are members of such a committee, the TK Majority Holders shall have the right to appoint a non-voting observer to such committee (provided the TK Election Rights are still applicable and TK has the right to elect at least two TK Directors); and
E.      notwithstanding anything in this Agreement to the contrary, at all times a majority of the Directors constituting any committee of the Board shall be persons who are not residents of Canada for the purposes of the Canadian Tax Act (except in the case of the death, resignation or dismissal of one or more Directors who are not residents of Canada for purposes of the Canadian Tax Act, provided that within 21 days of any such death, resignation or dismissal either (1) one or more new non-resident Directors shall be appointed to the applicable committee to replace each non-resident Director who died, resigned or was dismissed or (2) one or more Directors who are residents of Canada for purposes of the Canadian Tax Act shall resign from the applicable committee to achieve the required non-resident majority).






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(h)      Actions that require Brookfield Approval . Until the Brookfield Directors constitute a majority of the number of Directors on the Board following the Exercise Date, the following direct and indirect actions will require the prior approval of the Brookfield Majority Holders acting in their sole discretion (and, for the avoidance of doubt, the Company and the TK Directors will not cause, authorize or permit the Company, the Limited Partnership or any of the Company’s or the Limited Partnership’s Subsidiaries to undertake any such actions without the prior approval of the Brookfield Majority Holders):
(i)      authorize, issue, split, combine, subdivide or reclassify any of the Company’s or the Limited Partnership’s equity interests, or securities exercisable for, exchangeable for or convertible into the Company’s or the Limited Partnership’s equity interests, or other equity or voting interests of the Company or the Limited Partnership other than issuances of equity interests, or securities exercisable for, exchangeable for or convertible into equity interests, of the Limited Partnership pursuant to (A) the Teekay Offshore Partners L.P. 2006 Long-Term Incentive Plan as of the date hereof and (B) the Warrants issued to an Affiliate of Brookfield on the date hereof;
(ii)      any incurrence by the Company or the Limited Partnership or any of their respective Subsidiaries of indebtedness for borrowed money (including through capital leases, the issuance of debt securities or the guarantee of indebtedness of another Person) (other than (A) in connection with the refinancing or refunding of then-existing indebtedness which is then due and payable, (B) to finance an acquisition, investment or expenditure that does not require the prior approval of the Brookfield Majority Holders under Section 3.1(h)(iv)(A) or (B) ) in excess of $50 million in the aggregate at any time outstanding;
(iii)      any amendment, modification or waiver of the Certificate, this Agreement, the Certificate of Limited Partnership, the Limited Partnership Agreement, the Director Qualification Standards established under clause (b) of such definition, if any, or the corporate governance policies, ethics policies or anti-corruption policies applicable to the Company, the Limited Partnership or their respective Subsidiaries, or the conversion of either the Company or the Limited Partnership into a corporation or other form of organization;
(iv)      (A) acquiring or investing in, in a single transaction or a series of related transactions, any business or Person, by merger or consolidation, purchase of assets, properties, claims or rights or equity interests, or by any other manner, for an aggregate purchase price, including the assumption of liabilities, in excess of $50 million, (B) making capital expenditures in excess of $50   million in any fiscal year or (C) divesting, in a single transaction or a series of related transactions, any assets, properties, claims or rights or equity interests (excluding any depreciating assets that have reached the last 10% of their useful lives and are sold by the Company at fair market value) for an aggregate sales price in excess of $50 million;
(v)      the entry into or termination of, or material amendment or waiver of, the Master Services Agreement or any contract or transaction between the Company, the Limited Partnership or their respective Subsidiaries, on the one hand, and any Affiliate or






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Affiliates of the Limited Partnership, on the other, in excess of $1 million in the aggregate in any single transaction or series of related transactions;
(vi)      except as expressly permitted by any other clauses of this Section 3.1(h) , the entry into or termination of, or material amendment or waiver of, by the Company, the Limited Partnership or any of their respective Subsidiaries, any contract or other agreement (or series of related contracts or other agreements), including any joint ventures, partnerships or similar arrangements, involving an amount (which may consist of cash, property, equity or other assets) exceeding $50 million;
(vii)      the entry into or termination of, or material amendment or waiver of, by the Company, the Limited Partnership or any of their respective Subsidiaries, any contract or other agreement (or series of related contracts or other agreements), including any joint ventures, partnerships or similar arrangements, that obligates the Company, the Limited Partnership or any of their respective Subsidiaries to conduct business on an exclusive or preferential basis or that contains a non-compete or “most favored nation” provision benefiting a party other than the Company, the Limited Partnership or any of their respective Subsidiaries (or modifying or waiving such a provision benefiting the Company, the Limited Partnership or any of their respective Subsidiaries);
(viii)      the institution or settlement by the Company, the Limited Partnership or any of their respective Subsidiaries of any litigation, arbitration, mediation or other dispute resolution proceeding with an amount in controversy in excess of $5 million or which subjects the Company, the Limited Partnership or any of their respective Subsidiaries to non-monetary relief;
(ix)      any (A) merger, amalgamation or consolidation of the Company or the Limited Partnership or their respective Subsidiaries with any other entity (other than as permitted by clause (iv) above), (B) spinoff or split-off of a business or assets of the Company or the Limited Partnership (other than as permitted by clause (iv) above) or (C) other action that requires approval by holders of the Common Units of the Limited Partnership;
(x)      increase or decrease of the size of the Board;
(xi)      hire or terminate a chief executive officer; chief financial officer; president or other principal executive officer of Teekay Offshore Production; president or other principal executive officer of Teekay Offshore Logistics; managing director or other principal executive officer of ALP Maritime Services B.V; or any president or principal executive officer of any business line or reporting segment, in each case, of the Limited Partnership;
(xii)      approve a business plan or an annual budget of the Limited Partnership involving an increase in expenditures in excess of five (5%) percent over the prior fiscal year;






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(xiii)      any material change, through any acquisition, disposition of assets or otherwise, in the nature of the business or operations of the Company or the Limited Partnership and their respective Subsidiaries as of the date of this Agreement;
(xiv)      the declaration or payment by the Company of all dividends or other distributions in respect of its common equity or by the Limited Partnership of dividends or other distributions in respect of the common equity or preferred equity of the Company or the Limited Partnership, excluding, in the case of dividends declared and paid by the Limited Partnership, ordinary quarterly dividends of no more than $0.01 per unit;
(xv)      redeem, purchase or otherwise acquire any common equity or preferred equity of the Company or the Limited Partnership (other than from employees, directors and consultants performing services pursuant to an agreement under which the Company has the option to purchase such equity at or below the fair market value of such equity upon the occurrence of termination, retirement, death or disability or similar event);
(xvi)      any (A) Transfer by the Company of its General Partner Interest or Incentive Distribution Rights or (B) decision or action (including the giving of notice with respect thereto) by the Company to withdraw as general partner of the Limited Partnership;
(xvii)      with respect to the Company or the Limited Partnership, (A) commencing a voluntary case under the U.S. bankruptcy code or any applicable bankruptcy, insolvency or other similar law now or hereafter in effect in the United States or a non-U.S. jurisdiction, (B) consenting to the entry of an order for relief in an involuntary case, or the conversion of an involuntary case to a voluntary case, under any such law, (C) consenting to the appointment of or taking possession by a receiver, trustee or other custodian for all or a substantial part of its property, or (D) making a general assignment for the benefit of creditors;
(xviii)      any Board action authorized by Sections 6.2(a)(iv) , 7.3 , 8.3 , 8.4 , 9.6 , and 9.7 ; and
(xix)      agreeing, authorizing, resolving or recommending, whether in writing or otherwise, to do, or take any action reasonably likely to lead to or result in, any of the foregoing.
The Company will take all necessary actions to cause the Limited Partnership and the Limited Partnership’s Subsidiaries and their respective officers and directors to comply with the intentions of the parties as set forth in Section 3.1(h) , including, upon the Brookfield Majority Holders’ request, the removal and replacement of any director or officer of the Company, the Limited Partnership or any of their respective Subsidiaries who knowingly and willingly authorizes, approves or attempts to implement any of the actions listed in clauses (i) through (xviii) above without the requisite approval under this Section 3.1(h) .






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3.2      Officers.
(a)      Appointment of Officers . Subject to Section 3.1(h) , the Board may appoint individuals as officers (“ officers ”) of the Company, which may include a Chief Executive Officer, a President, a Chief Financial Officer, a Secretary and such other officers (such as a Chief Operating Officer, a Treasurer or any number of Vice Presidents or Assistant Secretaries) as the Board deems advisable. Each Officer shall be a natural person who is not a resident of Canada for purposes of the Canadian Tax Act, and shall be authorized to, and shall, act in such capacity only outside of Canada. No officer need be a Member or a Director. An individual may be appointed to more than one office. The officers of the Company as of the date hereof are listed on the attached Schedule B .
(b)      Duties of Officers Generally . Under the direction of and at all times subject to the authority of the Board and the terms of this Agreement, the officers shall have full and complete discretion to manage and control the day‑to‑day business, operations and affairs of the Company in the ordinary course of its business, to make all decisions affecting the day‑to‑day business, operations and affairs of the Company in the ordinary course of its business, and to take all such actions as they deem necessary or appropriate to accomplish the foregoing, in each case, unless the Board shall have previously restricted (specifically or generally) such powers. In addition, the officers shall have such other powers and duties as may be prescribed by the Board or this Agreement. The Chief Executive Officer and the President shall have the power and authority to delegate to any agents or employees of the Company rights and powers of officers of the Company to manage and control the day‑to‑day business, operations and affairs of the Company in the ordinary course of its business, as the Chief Executive Officer or the President may deem appropriate from time to time, in each case, unless the Board shall have previously restricted (specifically or generally) such powers.
(c)      Authority of Officers . Subject to Section 3.2(a) and Section 3.2(b) , any officer of the Company shall have the right, power and authority to transact business in the name of the Company or to act for or on behalf of or to bind the Company. With respect to all matters within the ordinary course of business of the Company, third parties dealing with the Company may rely conclusively upon any certificate of any officer to the effect that such officer is acting on behalf of the Company.
(d)      Removal, Resignation and Filling of Vacancy of Officers . Subject to Section 3.1(h) , the Board may remove any officer, for any reason or for no reason, at any time. Any officer may resign at any time by giving written notice to the Board, and such resignation shall take effect at the date of the receipt of that notice or any later time specified in that notice; provided, that unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any such resignation shall be without prejudice to the rights, if any, of the Company or such officer under this Agreement. A vacancy in any office because of death, resignation, removal or otherwise shall be filled in the manner prescribed in this Agreement for regular appointments to that office.
(e)      Compensation of Officers . Subject to Section 3.1(h) , an officer of the Company shall be entitled to receive compensation from the Company (if any) as determined unanimously by the Board.






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(f)      Chief Executive Officer . Under the direction of and, at all times, subject to the authority of the Board and the terms of this Agreement, the Chief Executive Officer shall have general supervision over the day‑to‑day business, operations and affairs of the Company and shall perform such duties and exercise such powers as are incident to the office of chief executive officer of a corporation organized under the BCA. The Chief Executive Officer shall have such other powers and perform such other duties as may from time to time be prescribed by the Board.
(g)      President . Under the direction of and, at all times, subject to the authority of the Board and the terms of this Agreement, the President, if any, shall perform such duties and exercise such powers as are incident to the office of president of a corporation organized under the BCA. In the absence of the Chief Executive Officer, the President shall perform the duties of the Chief Executive Officer. The President shall have such other powers and perform such other duties as may from time to time be prescribed by the Board.
(h)      Chief Financial Officer . The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the Company, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital and Shares, and, in general, shall perform all the duties incident to the office of the chief financial officer of a corporation organized under the BCA. The Chief Financial Officer shall have the custody of the funds and securities of the Company, and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Company. The Chief Financial Officer shall have such other powers and perform such other duties as may from time to time be prescribed by the Board, the Chief Executive Officer and/or the President.
(i)      Secretary . The Secretary shall (i) keep the minutes of the meetings of the Members and the Board in one or more books provided for that purpose; (ii) see that all notices to be given by the Company are duly given in accordance with the provisions of this Agreement and as required by law; (iii) be custodian of the Company records; (iv) keep a register of the addresses of each Member which shall be furnished to the Secretary by such Member; (v) have general charge of the Members Schedule; and (vi) in general perform all duties incident to the office of the secretary of a corporation organized under the BCA. The Secretary shall have such other powers and perform such other duties as may from time to time be prescribed by the Board, the Chief Executive Officer and/or the President.
(j)      Other Officers . All other officers of the Company shall have such powers and perform such duties as may from time to time be prescribed by the Board and/or the Chief Executive Officer.
(k)      Execution of Documents . Any agreements, contracts or other documents or correspondence executed by the Company, either on its own behalf or in its capacity as the general partner of the Limited Partnership, or by any Member in its capacity as a Member, shall be executed only outside of Canada.
3.3      Fiduciary Duties. Except as otherwise permitted by Section 3.1(h), the Directors, in the performance of their duties as such, shall owe to the Company and, through the Company, to the Members duties of loyalty and care of the type owed by the directors of






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a corporation to such corporation under the laws of the Republic of the Marshall Islands; provided , however , that, notwithstanding anything contained herein to the contrary, to the fullest extent permitted by law no Director shall have any duty or obligation to bring any “corporate opportunity” to the Company. The officers, in the performance of their duties as such, shall owe to the Members duties of loyalty and care of the type owed by the officers of a corporation to such corporation under the laws of the Republic of the Marshall Islands; provided , however , that, notwithstanding anything contained herein to the contrary, to the fullest extent permitted by law no officer shall have any duty or obligation to bring any “corporate opportunity” to the Company.
3.4      Performance of Duties; Liability of Directors and Officers. In performing his or her duties, each of the Directors and the officers shall be entitled to rely in good faith on the provisions of this Agreement and on information, opinions, reports, or statements (including financial statements and information, opinions, reports or statements as to the value or amount of the assets, liabilities, Profits or Losses of the Company or any facts pertinent to the existence and amount of assets from which distributions to Members might properly be paid), of the following other Persons or groups: (a) one or more officers or employees of the Company; (b) any attorney, independent accountant, or other Person employed or engaged by the Company; or (c) any other Person who has been selected with reasonable care by or on behalf of the Company, in each case as to matters which such relying Person reasonably believes to be within such other Person's professional or expert competence. The preceding sentence shall in no way limit any Person's right to rely on information to the extent provided in Section 29 of the Act. No individual who is a Director or an officer of the Company, or any combination of the foregoing, shall be personally liable under any judgment of a court, or in any other manner, for any debt, obligation, or liability of the Company, whether that liability or obligation arises in contract, tort, or otherwise, solely by reason of being a Director or an officer of the Company or any combination of the foregoing. To the full extent that the Act permits the limitation or elimination of liability of Directors, a Director shall not be liable to the Company or its Members for monetary damages for breach of fiduciary duty as a Director.
3.5      Indemnification. Notwithstanding Section 3.3, the Directors and officers of the Company shall not be liable, responsible or accountable for damages or otherwise to the Company, or to the Members, and, to the fullest extent allowed by law, each Director and each officer of the Company shall be indemnified and held harmless by the Company, including advancement of reasonable attorneys' fees and other expenses from and against all claims, liabilities, and expenses arising out of any management of Company affairs; provided that (A) such Director's or officer's course of conduct was pursued in good faith and believed by him to be in the best interests of the Company and was reasonably believed by him to be within the scope of authority conferred on such Director or officer pursuant to this Agreement and (B) such course of conduct did not constitute gross negligence, willful misconduct or fraud on the part of such Director or officer and otherwise was in accordance with the terms of this Agreement (including compliance with the relevant fiduciary duties), as determined by a final and non-appealable judgment entered by a court of competent jurisdiction. The rights of indemnification provided in this Section 3.5 are intended to provide indemnification of the Directors and the officers to the fullest extent permitted by the Act regarding a limited liability






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company’s indemnification of its directors and officers (subject to the proviso contained in the previous sentence) and will be in addition to any rights to which the Directors or officers may otherwise be entitled by contract or as a matter of law (subject to the proviso contained in the previous sentence) and shall extend to such Director's or officer's heirs, personal representatives and assigns. The absence of any express provision for indemnification herein shall not limit any right of indemnification existing independently of this Section 3.5. Each Director's and each officer's right to advancement of expenses (including legal fees and other expenses) pursuant to this Section 3.5 may be conditioned upon the delivery by such Director or such officer of a written undertaking to repay such amount if such individual is determined pursuant to this Section 3.5 or adjudicated to be ineligible for indemnification, which undertaking shall be an unlimited general obligation. It is acknowledged and agreed that the Company shall be solely liable for indemnification and expense advancement obligations to each Director and each officer (notwithstanding any other right to indemnification or advancement of expenses that such Director or officer may have) and that no Member shall be obligated to contribute, advance or lend money to the Company to pay any indemnification and expense advancement obligations pursuant to this Section 3.5.
3.6      Prospective Amendments. No amendment, modification or repeal of Section 3.4 or Section 3.5 or any provision hereof shall in any manner terminate, reduce or impair the right of any past, present or future person entitled to be indemnified by the Company hereunder, nor the obligations of the Company to indemnify any such person under and in accordance with the provisions of this Agreement as in effect immediately prior to such amendment, modification or repeal with respect to claims arising from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted.
ARTICLE IV     
Members
4.1      Registered Members. The Company shall be entitled to treat the owner of record of any Share as the owner in fact of such Share for all purposes, and accordingly shall not be bound to recognize any equitable or other claim to or interest in such Share on the part of any other Person, whether or not it shall have express or other notice of such claim or interest, except as expressly provided by this Agreement or the laws of the Republic of the Marshall Islands.
4.2      Limitation of Liability. No Member will be obligated personally for any debt, obligation or liability of the Company or of any of its Subsidiaries or other Members by reason of being a Member, whether arising in contract, tort or otherwise. No Member will have any responsibility to restore any negative balance in his or her Capital Account or to contribute to or in respect of the liabilities or obligations of the Company or of any of its Subsidiaries or return distributions made by the Company. No Member or group of Members (unless such Member is a Director or officer of the Company, and then only in such capacity as a Director or officer of the Company) shall have any fiduciary or other duty to the Company, its






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Subsidiaries or any other Member with respect to the business and affairs of the Company and its Subsidiaries or otherwise.
4.3      Withdrawal; Resignation. A Member shall not cease to be a Member as a result of the Bankruptcy of such Member or as a result of any other events specified in Section 21 of the Act. So long as a Member continues to own or hold any Shares, such Member shall not have the ability to resign as a Member prior to the dissolution and winding up of the Company and any such resignation or attempted resignation by a Member prior to the dissolution or winding up of the Company shall be null and void. As soon as any Person who is a Member ceases to own or hold any Shares, such Person shall no longer be a Member.
4.4      Death of a Member. The death of any Member shall not cause the dissolution of the Company. In such event the Company and its business shall be continued by the remaining Member or Members and the Shares owned by the deceased Member shall automatically be transferred to such Member's heirs (provided that, within a reasonable time after such transfer, the applicable heirs shall sign a joinder to this Agreement substantially in the form of Exhibit B attached hereto).
4.5      Authority. No Member, in its capacity as a Member, shall have the power to act for or on behalf of, or to bind the Company.
4.6      Outside Activities. Subject to the terms of any written agreement by or between any Member or any Affiliate of any Member to the contrary (including the Amended and Restated Omnibus Agreement dated as of December 19, 2006, among the Limited Partnership, Teekay Corporation and certain of their respective Affiliates, as amended from time to time), to the fullest extent permitted by law (a) a Member may have business interests and engage in business activities in addition to those relating to the Company, including business interests and activities which compete with the Company or its Subsidiaries, and (b) no Member or group of Members (unless such Member is an employee of the Company or one of its Subsidiaries, and then only in such capacity as an employee) shall have any duty or obligation to bring any “corporate opportunity” to the Company or any of its Subsidiaries. Subject to the terms of any written agreement by any Member or any Affiliate of any Member to the contrary, none of the Company, its Affiliates or any other Member shall have any rights by virtue of this Agreement in any business interests or activities of any other Member or any Affiliate of any other Member.
4.7      No Effect on Lending Relationship. Notwithstanding anything herein to the contrary, nothing contained in this Agreement shall affect, limit or impair the rights and remedies of any lender in their capacity as a lender to the Company, the Limited Partnership or any of their respective Subsidiaries pursuant to any agreement which the Company, the Limited Partnership or any of their respective Subsidiaries has borrowed money. Without limiting the generality of the foregoing, any such Person, in exercising its rights as a lender, including making its decision on whether to foreclose on any collateral security, shall have no duty to consider (a) its or any of its Affiliates’ status as a direct or indirect equityholder of the Company, (b) the interests of the Company or the Limited Partnership or (c) any duty it or any of its Affiliates may have hereunder or otherwise to any other direct or indirect






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equityholder of the Company or the Limited Partnership, except as may be required under the applicable loan documents or by commercial law applicable to creditors generally.
ARTICLE V     
Shares; Membership
5.1      Shares Generally. The Equity Interests of the Members shall be represented by issued and outstanding Shares (which shall not be certificated unless otherwise determined by the Board). The Company shall maintain a schedule of all Members from time to time setting forth the percentage of Shares held by them (as the same may be amended, modified or supplemented from time to time, the “Members Schedule”), a copy of which as of the execution of this Agreement is attached hereto as Schedule A. Ownership of a Share (or fraction thereof) shall not, to the extent permitted by law, entitle a Member to call for a partition or division of any property of the Company or for any accounting.
5.2      Authorization of Shares. The Company is hereby authorized to issue Shares only.
5.3      Issuance of Shares. The Company shall not, without the prior written approval of the TK Majority Holders and the Brookfield Majority Holders, have the right to issue additional Shares after the date of this Agreement. Subject to the immediately preceding sentence, the Company shall not issue any Shares to any Person that is not already a Member unless such Person has executed and delivered to the Company the documents described in Section 5.4. Upon the issuance of Shares authorized pursuant to this Agreement, the Company shall adjust the Capital Accounts of the Members as necessary in accordance with Section 6.2.
5.4      New Members from the Issuance of Shares. In order for a Person to be admitted as a Member of the Company pursuant to the issuance (subject to Section 5.3) or permitted transfer of Shares to such Person, such Person shall have executed and delivered to the Company a written undertaking to be bound by the terms and conditions of this Agreement substantially in the form of Exhibit B hereto. Upon the amendment of the Members Schedule by the Company and the satisfaction of any other applicable conditions set forth in this Agreement, including, if a condition, the receipt by the Company of payment for the issuance of the applicable Shares, such Person shall be admitted as a Member and deemed listed as such on the books and records of the Company and thereupon shall be issued his or its Shares. The Company shall also adjust the Capital Accounts of the Members as necessary in accordance with Section 6.2.
5.5      Option Exercise; Right of Repurchase; Right of First Offer.
(a)      Upon the earliest of (i) the date on which the consents set forth on Schedule C are obtained (in the reasonable judgment of the Board), (ii) the date the Board waives the requirement in clause (i) above, and (iii) a TK Event of Default, Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate) shall have the option to purchase from TK two percent (2%) of the then outstanding Shares in consideration of one million (1,000,000) Warrants (or, if TK does not own sufficient Shares, to purchase from TK Members in proportion to the TK






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Members’ ownership of Shares). The option provided by this Section 5.5(a) shall not terminate or expire until exercised by Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate). Within three (3) Business Days following the date on which Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate) notifies TK in writing that Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate) intends to exercise its option pursuant to this Section 5.5(a), TK shall sell and deliver to Brookfield two percent (2%) of the then outstanding Shares and, in exchange therefor, Brookfield shall sell and deliver to TK (or the TK Members, if applicable) one million (1,000,000) Warrants, and the Company shall update Schedule A to reflect such Transfer (the date such transactions are consummated pursuant to this Section 5.5(a) , the “Exercise Date”). The Shares and the Warrants sold and delivered pursuant to this Section 5.5(a) shall be sold free and clear of any Liens. The Company shall use its reasonable best efforts to obtain any consents, including making payments that are not material and adverse to the Company in connection with such consents, required to permit the Brookfield Holders to exercise the option set forth in this Section 5.5(a) without breaching, violating or contravening any contracts, instruments or agreements or, in the case of debt, the Company shall repay or refinance, or cause the Partnership to repay or refinance, any indebtedness required to be repaid or refinanced to permit the Brookfield Holders to exercise the option set forth in this Section 5.5(a) without breaching, violating or contravening any contracts, instruments or agreements if such a consent or an amendment thereof is not obtained, provided that doing so would not be reasonably likely to have a material adverse impact on the Company, the Limited Partnership and their respective Subsidiaries, taken as a whole. If requested by the Brookfield Majority Holders, the Board shall waive the requirements of clause (i) in the first sentence of this Section 5.5(a) unless the Board determines that such waiver is reasonably likely to have a material adverse impact on the Company, the Limited Partnership and their respective Subsidiaries, taken as a whole (it being understood that in measuring any such material adverse impact, the Board shall take into account mitigating actions that may be taken, including refinancing or repaying debt or paying a fee to obtain a consent). Without Brookfield’s prior written consent, TK will, at all times following the date of this Agreement, unless purchased pursuant to this Section 5.5 , not Transfer or pledge any Shares if such Transfer or pledge would result in TK owning less than 2% of the then outstanding Shares free and clear of any Liens.
(b)      Following the Exercise Date, Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate) shall have the option to sell to TK two percent (2%) of the then outstanding Shares in consideration of 80% of the VWAP Price per Share (and, if TK shall be unable to purchase such Shares, Brookfield shall sell to the TK Members in proportion to the TK Members’ ownership of Shares). The option provided by this Section 5.5(b) shall not terminate or expire until exercised by Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate). Within three (3) Business Days following the date on which Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate) notifies TK in writing that Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate) intends to exercise its put option pursuant to this Section 5.5(b) , Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate) shall sell and deliver to TK (or such other TK Members, as applicable) two percent (2%) of the then outstanding Shares and, in exchange therefor, TK shall pay the Brookfield Members 80% of the VWAP Price per Share by wire transfer to a bank account designated in writing by the






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Brookfield Members within two Business Days following the date on which Brookfield notifies TK in writing that Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate) intends to exercise its put option pursuant to this Section 5.5(b) , in immediately available funds, and the Company shall update Schedule A to reflect such Transfer. The Shares sold and delivered pursuant to this Section 5.5(b) shall be sold free and clear of any Liens. Following the exercise of such put option, TK (or such other TK Members, as applicable) shall have such rights as existed prior to the Exercise Date, and Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate) shall have such rights as existed prior to the Exercise Date, including but not limited to the rights set forth in Section 3.1 , Section 5.5 and Section 5.7 ; provided that following such put option (i) Section 5.5(a)(i) shall refer to any consents required to permit the Brookfield Holders to exercise the option set forth in Section 5.5(a) without resulting in a loss or termination of rights under any contract or instrument of the Limited Partnership or any of its Subsidiaries (without reference to Schedule C ) and (ii) the consideration to be paid to exercise the option in Section 5.5(a) shall be the VWAP Price per Share (rather than 1,000,000 Warrants). Without limiting the foregoing, this put option may be exercised by Brookfield in connection with the transfer of Shares by Brookfield or Brookfield’s successor under Section 13.7.
(c)      If the TK Members own at least fifteen percent (15%) in the aggregate of the outstanding Common Units of the Limited Partnership, on a fully-diluted basis, and any of the Brookfield Members propose to sell (the “ Brookfield Offering Members ”) any of their respective interests in the Company (the “ Offered Interests ”), then, subject to the terms and conditions specified in this Section 5.5(c) :
(i)      Prior to any such sale, the Brookfield Offering Members proposing to sell the Offered Interests shall notify TK in writing (the “ Offering Holder Notice ”) of such proposed sale, stating its bona fide intention to transfer the Offered Interests and identifying the percentage of Shares and Offered Common Units (as defined below) being offered, but excluding the price of such Offered Interests;
(ii)      Within fifteen (15) Business Days from the date of receipt of the Offering Holder Notice, TK may submit an offer in writing (the “ ROFO Offer Notice ,” and the offer contained in such ROFO Offer Notice, the “ ROFO Offer ”), which offer shall remain open for at least sixty (60) calendar days from the date of delivery of the ROFO Offer Notice (the “ ROFO Offer Period ”), to purchase all, but not less than all, of the Offered Interests for cash at the price specified in such ROFO Offer Notice (the “ ROFO Offer Price ”); provided that such ROFO Offer must include an offer to purchase any Common Units (the “ Offered Common Units ”) for cash at the price specified in such ROFO Offer Notice that the Brookfield Offering Members intend to sell in connection with the sale of the Offered Interests and specified in the Offering Holder Notice. Any ROFO Offer contained in any ROFO Offer Notice so delivered shall be binding upon delivery thereof and shall be irrevocable;
(iii)      During the ROFO Offer Period (which period may be extended by the Brookfield Offering Members, by written notice to TK, for a reasonable time not to exceed, in the aggregate, one hundred and eighty (180) calendar days (from the date of






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delivery of the ROFO Offer Notice), to the extent necessary to execute definitive documentation and obtain any required regulatory or governmental approvals (provided that the ROFO Offer is revocable by TK following the first 60 calendar days)), the Brookfield Offering Members may (but are not required to) sell the Offered Interests (A) to TK at the ROFO Offer Price or (B) to another Person at a price that equals or exceeds the ROFO Offer Price (it being understood that representations, warranties and other terms (other than price) of the sale of the Offered Securities may be as negotiated without reference to ROFO Offer); and
(iv)      If the Brookfield Offering Members do not receive a ROFO Offer Notice within fifteen (15) Business Days from the date of receipt of the Offering Holder Notice, TK shall be deemed to have waived all rights to purchase the Offered Interests under this Section 5.5(c) and the Brookfield Offering Members shall thereafter be free to sell the Offered Interests for the sixty (60) calendar day period following such fifteen (15) Business Day period (which period may be extended by the Brookfield Offering Members, by written notice to TK, for a reasonable time not to exceed, in the aggregate, one hundred and eighty (180) calendar days following such fifteen (15) Business Day period, to the extent necessary to execute definitive documentation and obtain any required regulatory or governmental approvals) without any further obligation to TK pursuant to this Section 5.5(c) .
(v)      If the Brookfield Offering Members do not sell the Offered Interests to TK or another Person pursuant to Section 5.5(c)(iii) or (iv) within the applicable time periods set forth in such Sections, they may not subsequently sell the Offered Interests without complying with the provisions of Section 5.5 with respect to each such sale .
(vi)      The right of first offer set forth in this Section 5.5(c) shall not apply to common shares of the Company or the Limited Partnership if the Company or the Limited Partnership is converted into a corporation.
(d)      Provided that the TK Members own at least fifteen percent (15%) in the aggregate of the outstanding Common Units of the Limited Partnership, on a fully-diluted basis, upon the Brookfield Members owning less than fifteen percent (15%) in the aggregate of the outstanding Common Units of the Limited Partnership, on a fully-diluted basis, TK shall have the option to purchase all, but not less than all, of the Shares then held by all of the Brookfield Members in consideration of the VWAP Price per Share; provided that such option may not be exercised until following the consummation of any Transfer that causes the Brookfield Members to own less than fifteen percent (15%) in the aggregate of the outstanding Common Units of the Limited Partnership, on a fully-diluted basis. Brookfield shall inform TK within two (2) Business Days of the date on which the Brookfield Members own less than fifteen percent (15%) in the aggregate of the outstanding Common Units of the Limited Partnership, on a fully-diluted basis. The option provided by this Section 5.5(d) shall terminate fifteen (15) Business Days following the date on which Brookfield notifies TK in writing that the Brookfield Members own less than fifteen percent (15%) in the aggregate of the outstanding Common Units of the Limited Partnership, on a fully-diluted basis. Within three (3) Business Days following the date on which TK notifies the Brookfield Members in writing that TK intends to exercise its option pursuant to this Section 5.5(d) , the






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Brookfield Members shall sell and deliver to TK all of their Shares and, in exchange therefor, TK shall pay the Brookfield Members the VWAP Price per Share by wire transfer to a bank account designated in writing by the Brookfield Members within two Business Days following the date on which TK notifies the Brookfield Members in writing that TK intends to exercise its option pursuant to this Section 5.5(d) , in immediately available funds, and the Company shall update Schedule A to reflect such Transfer. The Shares sold and delivered pursuant to this Section 5.5(d) shall be sold free and clear of any Liens.
(e)      Provided that the Brookfield Members own at least fifteen percent (15%) in the aggregate of the outstanding Common Units of the Limited Partnership, upon the TK Members owning less than ten percent (10%) in the aggregate of the outstanding Common Units of the Limited Partnership, on a fully-diluted basis, Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate) shall have the option to purchase all, but not less than all, of the Shares then held by all of the TK Members in consideration of the VWAP Price per Share. TK shall inform Brookfield within two (2) Business Days of the date on which the TK Members own less than ten percent (10%) in the aggregate of the outstanding Common Units of the Limited Partnership, on a fully-diluted basis. The option provided by this Section 5.5(e) shall terminate fifteen (15) Business Days following the date on which TK notifies Brookfield in writing that the TK Members own less than ten percent (10%) in the aggregate of the outstanding Common Units of the Limited Partnership, on a fully-diluted basis. Within three (3) Business Days following the date on which Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate) notifies the TK Members in writing that Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate) intends to exercise its option pursuant to this Section 5.5(e) , the TK Members shall sell and deliver to Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate) all of their Shares and, in exchange therefor, Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate) shall pay the TK Members the VWAP Price per Share by wire transfer to a bank account designated in writing by the TK Members within two Business Days following the date on which Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate) notifies the TK Members in writing that Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate) intends to exercise its option pursuant to this Section 5.5(e) , in immediately available funds, and the Company shall update Schedule A to reflect such Transfer. The Shares sold and delivered pursuant to this Section 5.5(e) shall be sold free and clear of any Liens.
(f)      On and following the Exercise Date, if a TK Event of Default has occurred, Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate) shall have the option to purchase from the TK Member all, but not less than all, of the TK Members’ Shares in consideration the VWAP Price per Share. The option provided by this Section 5.5(f) shall not terminate or expire until exercised by Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate). Within three (3) Business Days following the date on which Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate) notifies TK in writing that Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate) intends to exercise its option pursuant to this Section 5.5(f) , the TK Members shall sell and deliver to Brookfield all of their respective Shares and, in exchange therefor, Brookfield shall pay the TK Members the VWAP Price per Share by wire transfer to a






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bank account designated in writing by TK within two Business Days following the date on which Brookfield notifies TK in writing that Brookfield (or such Brookfield Member or Brookfield Members as Brookfield shall designate) intends to exercise its option pursuant to this Section 5.5(f) , in immediately available funds, and the Company shall update Schedule A to reflect such Transfer. The Shares sold and delivered pursuant to this Section 5.5(f) shall be sold free and clear of any Liens.
5.6      Drag Rights. In the event that the Brookfield Members agree to sell all or substantially all of their Common Units of the Limited Partnership and Shares of the Company, the Brookfield Members shall have the right to initiate a sale of the Company and to require each other Member to participate in a sale of the Company on the same terms and conditions as the Brookfield Members, with each other Member being entitled to be paid its pro rata share of the aggregate consideration paid to all Members in such sale of the company.
5.7      Share Ownership. Notwithstanding anything herein or in the Registration Rights Agreement to the contrary, without the prior written consent of the Brookfield Majority Holders, (a) until the time at which the transition of the Schedule 2 companies shall have occurred as provided for in the Master Services Agreement Term Sheet attached to the Investment Agreement (or in a manner which is the equivalent in all material respects to that provided for in the Master Services Agreement Term Sheet and reasonably acceptable to Brookfield), no TK Member or any controlled Affiliate of Teekay Corporation will Transfer or hedge its Common Units or Warrants of the Limited Partnership, and (b) until the second anniversary of the date of this Agreement, neither Teekay Corporation nor its controlled Affiliates may Transfer, pledge, encumber or hedge its Common Units or its Warrants in the Limited Partnership, if such Transfer, pledge, encumbrance or hedge would result in Teekay Corporation and its controlled Affiliates, collectively, owning, and having economic exposure to (immediately after such Transfer, pledge, creating such encumbrance or hedge), Common Units with a Fair Market Value of less than $100 million (if then listed or admitted to trading on a securities exchange, based on the most recent closing price on the Principal Market for the Common Units) (which economic exposure must be to the Common Units without giving credit to the Warrants); provided, however, even if the events described above in clauses (a) and/or (b) have not occurred, the TK Members and controlled Affiliates of Teekay Corporation, collectively, may Transfer Common Units and Warrants that, as a percentage of the outstanding Common Units and Warrants (on an as-converted basis) owned by them immediately following the Closing of the purchase of Common Units and Warrants pursuant to the Investment Agreement, is no more than the percentage that Brookfield and its Affiliates, collectively, have Transferred or are contemporaneously Transferring as a percentage of their Common Units and Warrants (on an as-converted basis) owned immediately following the Closing of the purchase of Common Units and Warrants pursuant to the Investment Agreement. Further, notwithstanding the above, any restriction herein shall not apply to (i) any enforcement of the liens and security interests provided for in that certain Margin Loan Agreement dated as of December 21, 2012 among Teekay Finance Limited, the lenders party thereto, and Citibank, N.A., as administrative agent, and Teekay Corporation, as such may be amended, refinanced or replaced from time to time, even if the amount borrowed or the collateral provided thereunder is increased as a result of such amendment, refinancing or






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replacement, (ii) a sale in connection with a tender offer, merger or similar transaction involving the Limited Partnership, (iii) any recapitalization involving the Limited Partnership or (iv) any Transfer of Common Units or Warrants between or among TK, Teekay Corporation or its controlled Affiliates; provided that, the case of clauses (ii) and (iii), such transaction has been approved by the Board, or in the case of clause (ii), such tender offer is with respect to the purchase of a majority of the outstanding Common Units.
5.8      Preemptive Rights. Brookfield and TK agree that preemptive rights granted to the Company pursuant to Section 5.7 of the Limited Partnership Agreement (or any additional preemptive or similar rights otherwise granted to Brookfield, any Brookfield Members or their controlled Affiliates or to TK, any TK Members or their controlled Affiliates, in each case with respect to securities of the Limited Partnership) shall be allocated between Brookfield and its controlled Affiliates and TK and its controlled Affiliates, respectively, based on the relative percentages of the Limited Partnership’s Common Units and Warrants (on an as-converted basis) owned by each of (a) Brookfield and its controlled Affiliates and (b) TK and its controlled Affiliates on the date such rights first become exercisable with respect to a proposed issuance of securities by the Limited Partnership.
ARTICLE VI     
Capital Contributions and Capital Accounts
6.1      Capital Contributions.
(a)      Ownership of Shares as of the Date Hereof . Contemporaneously with the execution of this Agreement, each Member as of the date hereof is deemed to have made the Capital Contribution and own the percentage, type, series and class of Shares, in each case, in the amounts set forth opposite such Member's name on the Members Schedule as in effect on the date hereof.
(b)      No Other Rights or Obligations . No Member shall make or be required to make any additional contributions to the Company with respect to such Member's Shares. Except as expressly provided herein, no Member, in its capacity as a Member, shall have the right to receive any cash or any other property of the Company.
6.2      Capital Accounts.
(a)      Maintenance Rules . The Company shall maintain for each Member a separate capital account (a “ Capital Account ”) in accordance with this Section 6.2(a) . Each Capital Account shall be maintained in accordance with the following provisions:
(i)      Such Capital Account shall be increased by the cash amount or Book Value of any property contributed or deemed contributed by such Member to the Company pursuant to this Agreement, such Member's allocable share of Profits and any items in the nature of income or gains which are specially allocated to such Member pursuant to Section 8.2 or Section 8.3, and the amount of any liabilities of the Company assumed by such Member or which are secured by any property distributed to such Member.






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(ii)      Such Capital Account shall be decreased by the cash amount or Book Value of any property distributed to such Member pursuant to this Agreement, such Member's allocable share of Losses and any items in the nature of deductions or losses which are specially allocated to such Member pursuant to Section 8.2 or Section 8.3 and the amount of any liabilities of such Member assumed by the Company or which are secured by any property contributed by such Member to the Company.
(iii)      If all or any portion of a Share is transferred in accordance with the terms of this Agreement, the transferee shall succeed to the Capital Account of the transferor to the extent it relates to the transferred Share (or portion thereof).
(iv)      If a new or existing Member contributes money or property to the Company (other than a de minimis amount as determined by the Board) as consideration for the issuance by the Company of any Shares after the date hereof, if a retiring or existing Member receives a distribution of money or property as consideration for any Shares of the Company after the date hereof, or upon any other events described in Treasury Regulations Section 1.704-1(b)(2)(iv)( f ), the Capital Accounts of the Members may be adjusted in accordance with Treasury Regulation Section 1.704‑1(b)(2)(iv)( f ), in the discretion of the Board.
The foregoing provisions and the other provisions of this Agreement relating to the maintenance of Capital Accounts are intended to comply with Section 1.704‑1(b) of the Treasury Regulations and shall be interpreted and applied in a manner consistent with such Treasury Regulations. If the Board determines that it is prudent to modify the manner in which the Capital Accounts, or any increases or decreases to the Capital Accounts, are computed in order to comply with such Treasury Regulations, the Board may authorize such modifications.
(b)      Definition of Profits and Losses . “ Profits ” and “ Losses ” mean, for each Taxable Year or other period, an amount equal to the Company's taxable income or loss, respectively, for such Taxable Year or other period, determined in accordance with Code Section 703(a) (for this purpose, all items of income, gain, loss or deduction required to be stated separately pursuant to Code Section 703(a)(1) shall be included in taxable income or loss), with the following adjustments:
(i)      The computation of all items of income, gain, loss and deduction shall include tax‑exempt income and those items described in Treasury Regulation Section 1.704‑1(b)(2)(iv)( i ), without regard to the fact that such items are not includable in gross income or are not deductible for U.S. federal income tax purposes.
(ii)      If the Book Value of any Company property is adjusted pursuant to Treasury Regulation Section 1.704‑1(b)(2)(iv)( e ) or ( f ), the amount of such adjustment shall be taken into account as gain or loss from the disposition of such property (provided that if the Book Value of any Company property is adjusted pursuant to Treasury Regulation Section 1.704‑1(b)(2)(iv)( f )(5)(i), the allocation of gain or loss shall be made immediately prior to the related acquisition of the interest in the Company).






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(iii)      Items of income, gain, loss or deduction attributable to the disposition of Company property having a Book Value that differs from its adjusted basis for tax purposes shall be computed by reference to the Book Value of such property.
(iv)      Items of depreciation, amortization and other cost recovery deductions with respect to Company property having a Book Value that differs from its adjusted basis for tax purposes shall be computed by reference to the property's Book Value in accordance with Treasury Regulation Section 1.704‑1(b)(2)(iv)( g ).
(v)      To the extent an adjustment to the adjusted tax basis of any Company property pursuant to Code Sections 732(d), 734(b) or 743(b) is required, pursuant to Treasury Regulation Section 1.704‑1(b)(2)(iv)( m ), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis).
(vi)      Items specially allocated pursuant to Sections 8.2 and 8.3 shall be excluded from the computation of Profits and Losses.
6.3      Negative Capital Accounts. If any Member has a deficit balance in its Capital Account, such Member shall have no obligation to restore such negative balance or to make any Capital Contributions to the Company by reason thereof, and such negative balance shall not be considered an asset of the Company or of any Member.
6.4      No Withdrawal. No Member will be entitled to withdraw any part of his or its Capital Contribution or Capital Account or to receive any distribution from the Company, except as expressly provided in this Agreement.
6.5      Loans from Members. Loans by Members to the Company shall not be considered Capital Contributions.
6.6      Status of Capital Contributions.
(a)      No Member shall receive any interest, salary or drawing with respect to its Capital Contributions or its Capital Account, except as otherwise specifically provided in this Agreement.
(b)      No Member shall be required to lend any funds to the Company or to make any additional Capital Contributions to the Company. No Member shall have any personal liability for the repayment of any Capital Contribution of any other Member.
ARTICLE VII     
Distributions
7.1      Generally.
(a)      Subject to Sections 3.1(h) , 7.1(b) , 7.2 and 7.3 , the Board shall distribute all available cash to the holders of Shares, subject to the retention and establishment of reserves, or






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payment to third parties, of such funds as the Board deems necessary with respect to the reasonable business needs of the Company which shall include the payment or the making of provision for the payment when due of the Company's obligations, including the payment of any management or administrative fees and expenses or any other obligations.
(b)      Notwithstanding any provision to the contrary contained in this Agreement, the Company shall not make any distribution to the holders of Shares if such distribution would violate Section 40 of the Act or other applicable law.
7.2      Distributions. Subject to Section 3.1(h)(xiv), distributions of available cash shall be distributed on a quarterly basis to all of the holders of Shares, pro rata. Assets other than available cash (taking such other assets into account at their Fair Market Value at the time of distributions) shall be distributed, at such times and in such amounts as the Board determines in its sole discretion, to all of the holders of Shares, pro rata.
7.3      Withholding Taxes. If the Company is required by law to make any payment on behalf of a Member in his, her or its capacity as such (including in respect of withholding taxes, personal property taxes, and unincorporated business taxes, or an imputed underpayment as defined under Section 6225 of the Code, etc.), then the Company will reduce current or subsequent distributions which would otherwise be made to such Member until the Company has recovered the amount paid on behalf of such Member (and the amount of such reduction will be deemed to have been distributed to such Member for all purposes of this Agreement), as determined in the discretion of the Board.
ARTICLE VIII     
U.S. Tax Allocations
8.1      Allocations of Profits and Losses. The Company's Profit and Loss for any fiscal period shall be allocated among the Members for U.S. tax purposes in such a manner that, as of the end of such fiscal period and to the extent possible, the Capital Account of each Member shall be equal to the respective net amount which would be distributed to such Member under this Agreement, determined as if the Company were to (a) liquidate the assets of the Company for an amount equal to their Book Value as of the end of such fiscal period and (b) distribute the proceeds in liquidation in accordance with Section 10.2.
8.2      Regulatory and Special Allocations. Notwithstanding the provisions of Section 8.1:
(a)      If there is a net decrease in Company Minimum Gain (determined according to Treasury Regulation Section 1.704‑2(d)(1)) during any Taxable Year, each Member shall be specially allocated Profits for such Taxable Year (and, if necessary, subsequent Taxable Years) in an amount equal to such Member's share of the net decrease in Company Minimum Gain, determined in accordance with Treasury Regulation Section 1.704‑2(g). The items to be so allocated shall be determined in accordance with Treasury Regulation Section 1.704‑2(f)(6) and 1.704‑2(j)(2). This paragraph is intended to comply with the minimum gain chargeback requirement in Treasury Regulation Section 1.704‑2(f) and shall be interpreted consistently therewith.






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(b)      Member Nonrecourse Deductions shall be allocated in the manner required by Treasury Regulation Section 1.704‑2(i). Except as otherwise provided in Treasury Regulation Section 1.704‑2(i)(4), if there is a net decrease in Member Minimum Gain during any Taxable Year, each Member that has a share of such Member Minimum Gain shall be specially allocated Profits for such Taxable Year (and, if necessary, subsequent Taxable Years) in an amount equal to that Member's share of the net decrease in Member Minimum Gain. Items to be allocated pursuant to this paragraph shall be determined in accordance with Treasury Regulation Sections 1.704‑2(i)(4) and 1.704‑2(j)(2). This paragraph is intended to comply with the minimum gain chargeback requirements in Treasury Regulation Section 1.704‑2(i)(4) and shall be interpreted consistently therewith.
(c)      In the event any Member unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulation Section 1.704‑1(b)(2)(ii)( d )( 4 ), ( 5 ) or ( 6 ), Profits shall be specially allocated to such Member in an amount and manner sufficient to eliminate the Adjusted Capital Account Deficit created by such adjustments, allocations or distributions as quickly as possible. This paragraph is intended to comply with the qualified income offset requirement in Treasury Regulation Section 1.704‑1(b)(2)(ii)( d ) and shall be interpreted consistently therewith.
(d)      The allocations set forth in paragraphs (a), (b) and (c) above (the “ Regulatory Allocations ”) are intended to comply with certain requirements of the Treasury Regulations under Code Section 704. Notwithstanding any other provisions of this Article VIII (other than the Regulatory Allocations), the Regulatory Allocations shall be taken into account in allocating Profits and Losses among Members so that, to the extent possible, the net amount of such allocations of Profits and Losses and other items and the Regulatory Allocations to each Member shall be equal to the net amount that would have been allocated to such Member if the Regulatory Allocations had not occurred.
8.3      Curative Allocations. If the Board determines, after consultation with counsel experienced in U.S. income tax matters, that the allocation of any item of Company income, gain, loss, deduction or credit is not specified in this Article VIII (an “unallocated item”), or that the allocation of any item of Company income, gain, loss, deduction or credit hereunder is clearly inconsistent with the Members' economic interests in the Company (determined by reference to the general principles of Treasury Regulation Section 1.704‑1(b) and the factors set forth in Treasury Regulation Section 1.704‑1(b)(3)(ii)) (a “misallocated item”), then the Board may allocate such unallocated items, or reallocate such misallocated items, to reflect such economic interests; provided that no such allocation will be made without the prior consent of each Member that would be affected thereby (which consent no such Member may unreasonably withhold) and provided further that no such allocation shall have any material effect on the amounts distributable to any Member, including the amounts to be distributed upon the complete liquidation of the Company.
8.4      Tax Allocations.
(a)      All income, gains, losses, deductions and credits of the Company shall be allocated, for U.S. federal, state and local income tax purposes, among the Members in accordance with the allocation of such income, gains, losses, deductions and credits among the Members for






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computing their Capital Accounts, except that if any such allocation for tax purposes is not permitted by the Code or other applicable law, the Company's subsequent income, gains, losses, deductions and credits shall be allocated among the Members for tax purposes, to the extent permitted by the Code and other applicable law, so as to reflect as nearly as possible the allocation set forth herein in computing their Capital Accounts. Each item of income, gain, loss, deduction and credit realized by the Company in any Taxable Year shall be allocated pro rata to the Members according to the amount of Profit or Loss, as the case may be, allocated to them in such year.
(b)      Items of Company taxable income, gain, loss and deduction with respect to any property contributed to the capital of the Company shall be allocated among the Members in accordance with Code Section 704(c) using any method permitted by the Treasury Regulations and selected by the Board, so as to take account of any variation between the adjusted basis of such property to the Company for U.S. federal income tax purposes and its Book Value.
(c)      If the Book Value of any Company property is adjusted pursuant to Section 6.2(a)(iv), subsequent allocations of items of taxable income, gain, loss and deduction with respect to such property shall take account of any variation between the adjusted basis of such property for federal income tax purposes and its Book Value for purposes of Code Section 704(c) using any method permitted by the Treasury Regulations and selected by the Board.
(d)      Allocations of tax credit, tax credit recapture, and any items related thereto shall be allocated to the Members according to their interests in such items as determined by the Board taking into account the principles of Treasury Regulation Section 1.704‑1(b)(4)(ii).
Allocations pursuant to this Section 8.4 are solely for purposes of U.S. federal, state and local taxes and shall not affect, or in any way be taken into account in computing, any Member's Capital Account or share of Profits, Losses, distributions or other items pursuant to any provisions of this Agreement.
ARTICLE IX     
Elections and Reports
9.1      Generally. The Company will keep appropriate books and records with respect to the Company's business, including all books and records required to be kept, maintained or retained pursuant to the Act or other applicable law or necessary to provide any information, lists and copies of documents required to be provided pursuant to Section 9.3. Access to the books and records of the Company shall be granted to Members and Managers as provided in the Act. Such books and records shall be kept at the principal office of the Company or at such other location outside of Canada.
9.2      Fiscal Year. Unless otherwise determined by the Board, the Company’s books and records shall be kept on a December 31 calendar year basis.
9.3      Bank Accounts. All funds of the Company will be deposited in its name in an account or accounts maintained outside Canada. Checks shall be drawn upon the Company account or accounts only for the purposes of the Company and may be signed by such persons






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as may be designated by the Board, subject to the other restrictions contained in this Section 9.3. All banking and finance activities (apart from those of a purely administrative nature) of the Company shall be conducted outside of Canada. Without limiting the foregoing: (a) no person who is resident in Canada for purposes of the Canadian Tax Act shall have sole signing authority with respect to any bank account of the Company; (b) if a person who is resident in Canada for purposes of the Canadian Tax Act has signing authority with respect to a bank account of the Company, no funds may be drawn on such bank account without authorization from one or more co-signatories who are non-residents of Canada for purposes of the Canadian Tax Act; (c) each person (other than a Canadian-resident co-signatory) who has signing authority with respect to a bank account of the Company shall exercise such signing authority only outside of Canada; and (d) treasury personnel of the Company and its Affiliates (through subcontracting arrangements) may be given electronic access to bank accounts of the Company, but only for purposes of processing payments as directed or approved by the applicable Director or officer of the Company.
9.4      Tax Status. The Members intend that the Company be treated as a partnership for United States federal, state and local income tax purposes, and the Company and each Member shall file all tax returns on the basis consistent therewith. The Company has filed, or shall file within 74 days of the Effective Date, an IRS Form 8832 electing to be treated as “disregarded as an entity separate from its owner” (within the meaning of Treasury Regulation Section 301.7701-3(b)(2)(i)(C)), which election is effective no later than the day prior to the Effective Date.
9.5      Reports. The Company will use reasonable best efforts to deliver or cause to be delivered, as soon as reasonably practicable following the end of each taxable year of the Company (and, in any event, will deliver not later than March 20) of each year, to each Person who was a Member at any time during the previous Taxable Year, all information (including a Schedule K‑1) reasonably necessary for the preparation of such Person's United States federal income tax returns and any state, local and foreign income tax returns which such Person is required to file as a result of the Company being engaged in a trade or business within such state, local or foreign jurisdiction, including a statement showing such Person's share of income, gains, losses, deductions and credits for such year for United States federal income tax purposes (and, if applicable, state, local or foreign income tax purposes). In addition, the Company will use reasonable best efforts to provide the Investor with the Form 1099 received by the Company in respect of its investment in the Limited Partnership no later than February 15 of each taxable year. The Company will cooperate with the Investor to provide any information with respect to the Company or the Limited Partnership that the Investor reasonably requests to satisfy any U.S. federal, state, local or non-U.S. tax reporting requirements of the Investor.
9.6      Tax Elections. The Board will determine whether to make or revoke any available election for the Company pursuant to the Code. Each Member will upon request supply the information necessary to give proper effect to any such election. At the request of the any Member, the Company will make an election under Section 754 of the Code, and any corresponding election under state, local or non-U.S. tax law.






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9.7      Tax Controversies. The Board shall designate the “tax matters partner” (as such term is defined in Code Section 6231 to the extent applicable for taxable years beginning before January 1, 2018) for the Company and the “partnership representative” for purposes of the Partnership Tax Audit Rules for the Company (in each case, the “Tax Matters Partner”), provided that the Board may replace the Tax Matters Partner at any time. The Tax Matters Partner is authorized and required to represent the Company (at the Company's expense) in connection with all examinations of the Company's affairs by tax authorities, including resulting administrative and judicial proceedings, and to expend Company funds for professional services and costs associated therewith, in each case, at the direction of the Board. Each Member agrees to cooperate with the Tax Matters Partner and/or the Board and to do or refrain from doing any or all things reasonably requested by the Tax Matters Partner and/or the Board with respect to the conduct of such proceedings. Subject to the foregoing proviso, the Board will have sole discretion to determine whether the Company will contest or continue to contest any tax deficiencies assessed or proposed to be assessed by any taxing authority. The Board may cause the Tax Matters Partner to take, or cause the Company to take, such other actions as may be necessary or advisable pursuant to U.S. Department of Treasury Regulations or other guidance to ratify the designation, pursuant to this Section 9.7, of the Tax Matters Partner; and each other Member agrees to take such other actions as may be requested by the Tax Matters Partner and/or the Board to ratify or confirm any such designation pursuant to this Section 9.7.
9.8      Passive Foreign Investment Company. The Board shall use reasonable best efforts to cause the Limited Partnership to determine, on an annual basis, based on the advice of the Limited Partnership’s accountant or other tax advisor, whether the Limited Partnership or any of the Limited Partnership’s Subsidiaries is a passive foreign investment company, within the meaning of Section 1297 of the Code. If the Board determines in accordance with the preceding sentence that the Limited Partnership or any of the Limited Partnership’s Subsidiaries is a passive foreign investment company, within the meaning of Section 1297 of the Code, the Board shall for that year and thereafter use its reasonable best efforts to cause the Limited Partnership, on an annual basis, to provide to the Brookfield Members such information that (a) the Brookfield Members (or their direct or indirect owners) reasonably request to enable the Brookfield Members (or their direct or indirect owners) to complete their U.S. Internal Revenue Service Forms 8621 with respect to any of their investments in the Limited Partnership and (b) will enable the Brookfield Members (or their direct or indirect owners) to make and/or maintain a “qualified electing fund” election with respect to any of their investments in the Limited Partnership, as such terms are defined in Section 1295 of the Code and the Treasury Regulations thereunder.
ARTICLE X     
Dissolution and Liquidation
10.1      Dissolution. Subject to Section 3.1(h) and Section 46 of the Act, the Company shall be dissolved and its affairs wound up only upon the happening of any of the following events:






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(a)      Upon the election to dissolve the Company upon approval by all of the parties hereto; or
(b)      The entry of a decree of judicial dissolution under Section 47 of the Act; provided , that, notwithstanding anything contained herein to the contrary, no Member shall make an application for the dissolution of the Company pursuant to Section 47 of the Act without the approval of the Board.
Dissolution of the Company shall be effective on the day on which the event occurs giving rise to the dissolution, but the Company shall not terminate until the winding up of the Company has been completed, the assets of the Company have been distributed as provided in Section 10.2 and the Certificate shall have been canceled.
10.2      Liquidation.
(a)      Liquidator . Upon dissolution of the Company, the Board will appoint a Person (who shall not be a resident of Canada for purposes of the Canadian Tax Act) to act as the “ Liquidator ,” and such Person shall act as the Liquidator unless and until a successor Liquidator is appointed as provided in this Section 10.2 . The Liquidator will agree not to resign at any time without 30 days' prior written notice to the Board. The Liquidator may be removed at any time, with or without cause, by notice of removal and appointment of a successor Liquidator approved by the Board. Any successor Liquidator will succeed to all rights, powers and duties of the former Liquidator. The right to appoint a successor or substitute Liquidator in the manner provided in this Section 10.2 will be recurring and continuing for so long as the functions and services of the Liquidator are authorized to continue under the provisions of this Agreement, and every reference in this Agreement to the Liquidator will be deemed to refer also to any such successor or substitute Liquidator appointed in the manner provided in this Section 10.2 . The Liquidator will receive as compensation for its services (1) no additional compensation, if the Liquidator is an employee of the Company or any of its Subsidiaries or of any of the Members, or (2) if the Liquidator is not such an employee, such compensation as the Board may approve, plus, in either case, reimbursement of the Liquidator's out‑of‑pocket expenses in performing its duties.
(b)      Liquidating Actions . The Liquidator will liquidate the assets of the Company and apply and distribute the proceeds of such liquidation, in the following order of priority, unless otherwise required by mandatory provisions of the Act or other applicable law:
(i)      First , to the payment of the Company's debts and obligations to its creditors (including Members and Managers), including sales commissions and other expenses incident to any sale of the assets of the Company, in order of the priority provided by the Act and other applicable law;
(ii)      Second , to the establishment of and additions to such reserves as the Board deems necessary or appropriate; and
(iii)      Third , to the Members, in accordance with Section 7.2 .






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The reserves established pursuant to clause (ii) above will be paid over by the Liquidator to a bank or other financial institution, to be held in escrow for the purpose of paying any such contingent or unforeseen liabilities or obligations and, at the expiration of such period as the Board deems advisable, such reserves will be distributed to the Members in the manner provided above in this Section 10.2(b) . The allocations and distributions provided for in this Agreement are intended to result in the Capital Account of each Member immediately prior to the distribution of the Company's assets pursuant to this Section 10.2(b) being equal to the amount distributable to such Member pursuant to this Section 10.2(b) .
(c)      Distribution in Kind . Notwithstanding the provisions of Section 10.2(b) which require the liquidation of the assets of the Company, but subject to the order of priorities set forth in Section 10.2(b) , if upon dissolution of the Company the Board determines that an immediate sale of part or all of the Company's assets would be impractical or could cause undue loss to the Members, the Board may, in its sole discretion, defer the liquidation of any assets except those necessary to satisfy Company liabilities and reserves, and may, in its absolute discretion, distribute to the Members, in lieu of cash, as tenants in common and in accordance with the provisions of Section 10.2(b) , undivided interests in such Company assets as the Liquidator deems not suitable for liquidation. Any such distribution in kind will be subject to such conditions relating to the disposition and management of such properties as the Liquidator deems reasonable and equitable and to any agreements governing the operating of such properties at such time. For purposes of any such distribution, any property to be distributed will be valued at its Fair Market Value.
(d)      Reasonable Time for Winding Up . A reasonable time will be allowed for the orderly winding up of the business and affairs of the Company and the liquidation of its assets pursuant to Section 10.2(b) in order to minimize any losses otherwise attendant upon such winding up. Distributions upon liquidation of the Company (or any Member's interest in the Company) and related adjustments will be made by the end of the Taxable Year of the liquidation (or, if later, within 90 days after the date of such liquidation) or as otherwise permitted by Treasury Regulation Section 1.704‑1(b)(2)(ii)( b ).
(e)      Termination . Upon completion of the distribution of the assets of the Company as provided in Section 10.2(b) , the Company shall be terminated and the Liquidator shall cause the cancellation of the Certificate in the Republic of the Marshall Islands and of all qualifications and registrations of the Company as a foreign limited liability company in jurisdictions other than the Republic of the Marshall Islands and shall take such other actions as may be necessary to terminate the Company.
ARTICLE XI     
Transfer of Shares
11.1      Restrictions.
(a)      Transfers by TK Members . A TK Member may Transfer Shares only if such Transfer has been approved in writing by the Brookfield Majority Holders (which approval the Brookfield Majority Holders shall provide only in their sole discretion); provided , that a TK Member may Transfer Shares to Affiliates controlled by Teekay Corporation without the approval of the






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Brookfield Majority Holders subject to this Article XI . Each TK Member agrees that, if TK is unable to fulfill any obligation relating to communications or determinations hereunder, the TK Member that owns the greatest percentage of Shares of the TK Members shall fulfill TK’s obligation therefor.
(b)      Void Transfers . Each TK Member acknowledges and agrees that, to the fullest extent permitted by applicable law, such TK Member shall not Transfer any Share(s) except in accordance with the provisions of this Article XI . Any attempted Transfer in violation of the preceding sentence shall, to the fullest extent permitted by applicable law, be deemed null and void for all purposes, and the Company will not record any such Transfer on its books or treat any purported transferee as the owner of such Share(s) for any purpose.
11.2      General Restrictions on Transfer.
(a)      Notwithstanding anything to the contrary in this Agreement, no transferee of any Share(s) received pursuant to a Transfer (but excluding transferees that were Members immediately prior to such a Transfer, who shall automatically become a Member with respect to any additional Shares they so acquire) shall become a Member in respect of or be deemed to have any ownership rights in the Share(s) so Transferred unless the purported transferee is admitted as a Member as set forth in Section 11.3 .
(b)      Following a Transfer of any Share(s) that is permitted under this Article XI, the transferee of such Share(s) shall succeed to the Capital Account associated with such Share(s) and shall receive allocations and distributions under Articles VI, VII, VIII and X in respect of such Share(s). Notwithstanding the foregoing, Profits, Losses and other items will be allocated between the transferor and the transferee according to Code Section 706.
(c)      Any Member who Transfers all of his or its Shares (i) shall cease to be a Member upon such Transfer, and (ii) shall no longer possess or have the power to exercise any rights or powers of a Member of the Company.
(d)      Brookfield shall be permitted to Transfer its Shares to a transferee who executes and delivers to the Company a joinder to this Agreement substantially in the form of Exhibit B attached hereto.
11.3      Procedures for Transfer.
(a)      The Board shall cause the Company to modify the Members Schedule from time to time to reflect any Transfer permitted under this Article XI and the admittance of any such new Member.
(b)      Subject in all events to the general restrictions on Transfers contained in Sections 11.1 , 11.2 and 11.5 , no Transfer of Share(s) may be completed to a Person that is not already a Member until the prospective transferee is admitted as a Member of the Company by executing and delivering to the Company a written undertaking to be bound by the terms and conditions of this Agreement substantially in the form of Exhibit B hereto. Upon the amendment of the Members






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Schedule by the Company, such prospective transferee shall be admitted as a Member and deemed listed as such on the books and records of the Company.
11.4      Legend. Any certificates or instruments representing the Shares, if any, will bear the following legend or one that is in similar form:
“THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE OR INSTRUMENT IS SUBJECT TO THE CONDITIONS SPECIFIED IN A LIMITED LIABILITY COMPANY AGREEMENT AMONG THE ISSUER AND ITS MEMBERS. A COPY OF SUCH LIMITED LIABILITY COMPANY AGREEMENT AS IN EFFECT FROM TIME TO TIME WILL BE FURNISHED WITHOUT CHARGE BY THE ISSUER TO THE HOLDER HEREOF UPON WRITTEN REQUEST.”
11.5      Limitations.
(a)      In order to permit the Company to qualify for the benefit of a “safe harbor” under Code Section 7704, notwithstanding anything to the contrary in this Agreement, no Transfer of any Share shall be permitted or recognized by the Company (within the meaning of Treasury Regulation Section 1.7704‑1(d)) and the Company shall not issue any Shares if and to the extent that such Transfer or issuance would cause the Company to have more than 100 partners (within the meaning of Treasury Regulation Section 1.7704‑1(h), including the look‑through rule in Treasury Regulation Section 1.7704‑1(h)(3)).
(b)      Notwithstanding anything to the contrary in this Agreement, no Share may be Transferred and the Company may not issue any Share unless (i) such Transfer or issuance, as the case may be, shall not affect the Company's existence or qualification as a limited liability company under the Act, (ii) such Transfer or issuance, as the case may be, shall not cause the Company to be classified as other than a partnership for United States federal income tax purposes, (iii) such Transfer or issuance, as the case may be, shall not result in a termination of the Company under Code Section 708, unless the Board determines that any such termination will not have a material adverse impact on the Members and (iv) such Transfer or issuance, as the case may be, shall not cause the application of the tax‑exempt use property rules of Code Sections 168(g)(l)(B) and 168(h) to the Company or its Members.
ARTICLE XII     
Certain Agreements
12.1      Financial Statements and Confidentiality.
(a)      In addition to, and without limiting, any other rights the Brookfield Members may have under the Act or other applicable law, until the Brookfield Directors constitute a majority of the Board following the Exercise Date, the Company agrees to provide each Brookfield Member the following:






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(i)      not less than 7 days prior to the end of each fiscal quarter (including for certainty the end of the fourth fiscal quarter (the end of the fiscal year)), a summary of any significant transaction and affiliate transaction entered into or completed, or expected to be entered into or completed, within such quarter;
(ii)      within 7 days after the end of each fiscal quarter (including for certainty the end of the fourth fiscal quarter (the end of the fiscal year)), a draft financial report in the form of the reporting template provided to the Company by the Brookfield Members (the “ Draft Quarterly Report ”);
(iii)      within 14 days of the end of each fiscal quarter (including for certainty the end of the fourth fiscal quarter (the end of the fiscal year)), a second financial report in the form of the reporting template provided to the Company by the Brookfield Members (the “Updated Quarterly Report”), which Updated Quarterly Report will include any updates or revisions to the Draft Quarterly Report provided by the Company in respect of such quarter;
(iv)      within 30 days of the end of each fiscal quarter (including for certainty the end of the fourth fiscal quarter (the end of the fiscal year)), the auditor of the Company and of the Limited Partnership will respond to the referral instructions provided by the Brookfield Members’ auditor;
(v)      within 60 days after the end of each fiscal year, consolidated financial statements (which shall include a consolidated balance sheet and consolidated statements of income and cash flows) for the Limited Partnership for such fiscal year audited by a firm of independent certified public accountants of recognized national standing selected by the Board in accordance with United States generally accepted accounting principles as in effect from time to time;
(vi)      within 60 days after the end of each fiscal quarter (other than the fourth fiscal quarter as set forth in clause (i) above), consolidated financial statements (which shall include a consolidated balance sheet and consolidated statements of income and cash flows) for the Limited Partnership, reviewed in accordance with AU Section 722 by a firm of independent certified public accountants of recognized national standing, in accordance with United States generally accepted accounting principles as in effect from time to time;
(vii)      within 30 days after the end of each calendar month, unaudited consolidated monthly financial reports showing income from vessel operations for the business units of the Limited Partnership for such calendar month;
(viii)      45 days following the end of each fiscal quarter (including for certainty the end of the fourth fiscal quarter (the end of the fiscal year)), a forecast in respect of the succeeding quarter;
(ix)      prior to the end of the third fiscal quarter in each fiscal year, a forecast, budget and business plan for the Limited Partnership for the succeeding five fiscal years,






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including (A) projected quarterly statements of income and (B) projected statements of cash flows and liquidity for the Limited Partnership;
(x)      any additional information reasonably required by any Brookfield Member for purposes of fulfilling its disclosure and reporting obligations pursuant to (i) any rules and regulations of the Toronto Stock Exchange or the New York Stock Exchange; (ii) the provisions of the Ontario Securities Act and any regulations promulgated thereunder; (iii) any rules or regulations of the Securities and Exchange Commission, and (iv) the requirements, the rules and regulations promulgated thereunder of the Securities Act of 1933, as amended, the Securities and Exchange Act of 1934, as amended, and the Sarbanes-Oxley Act of 2002, as amended, including in all cases where information is required for the purposes of evaluating and certifying adequate internal controls over financial reporting;
(xi)      any additional financial and operational information required by any Brookfield Member for purposes of fulfilling its public reporting requirements and/or its obligations in respect of any private fund investor reporting requirements;
(xii)      (iv)(x)    reasonable access to the auditor of the Company and of the Limited Partnership, including for purposes of discussing each Draft Quarterly Report and each Updated Quarterly Report, which Updated Quarterly Reports shall each receive sign off from the auditor of the Company and of the Limited Partnership;
(xiii)      reasonable access to the offices and the properties of each of the Company, the Limited Partnership and their respective Subsidiaries, including its and their books and records, all upon reasonable notice and at such reasonable times and as often as the Brookfield Member may reasonably request;
(xiv)      an opportunity to receive and discuss with senior management of the Limited Partnership on a regular basis, during normal business hours and without unduly interfering with the operation of the business, monthly reports regarding financial, operating, strategic and such other matters relating to the management of the Limited Partnership as may be mutually acceptable to management and the Limited Partnership in good faith, including for certainty, a quarterly call with members of the Brookfield Members’ finance team within 10 days following the end of each fiscal quarter (including for certainty the end of the fourth fiscal quarter (the end of the fiscal year)); and
(xv)      copies of all substantive materials provided to the Board at substantially the same time as such materials are provided to the Board.
Notwithstanding any provision in this Section 12.1(a) to the contrary, the information and materials described in this paragraph shall only be furnished to Brookfield Members who have provided such representations, warranties and assurances, as the Company may reasonably request that such documents (and the contents thereof) are not required by any law to be disclosed to any other Person and that such Brookfield Member will not disclose such documents (or any contents thereof) to any other Person who may be required by law to disclose such documents (or any contents thereof), in each case other than disclosure permitted by Section 12.1(b) or required by the Act.






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(b)      Confidentiality . All information disclosed by the Company pursuant to Section 12.1(a) or otherwise pursuant to this Agreement shall be confidential information of the Company (other than information which is publicly available not pursuant to a breach of this Section 12.1(b) ) and, unless otherwise provided in this Agreement or consented to by the Board in writing in advance, shall not be disclosed to any third party other than (i) employees, consultants, advisors, accountants, attorneys and other representatives of such Member recipient or its respective Affiliates on a need‑to‑know basis, (ii) in the case of any Member that is (or is controlled by) a private equity fund or other investment fund, the disclosure in a customary manner by such Member of any such information in confidence to such Member's investors, (iii) the disclosure by such Member of any such information to any prospective purchaser of Shares pursuant to a customary confidentiality agreement and (iv) subject to the next sentence, as required by law or court order. The obligations of the Members hereunder shall not apply to the extent that the disclosure of information otherwise determined to be confidential is required by applicable law, regulations, stock exchange rules or regulations, subpoena, civil investigative demand or other proceeding; provided that (x) as soon as reasonably practicable and to the extent permitted by law, such Member shall notify the Company thereof, which notice shall include the basis upon which such Member believes the information is required to be disclosed and (y) such Member shall, if requested by the Company and at the sole cost and expense of the Company, reasonably cooperate with the Company to protect the continued confidentiality thereof.
ARTICLE XIII     
Miscellaneous Provisions
13.1      Notices.
(a)      All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally against written receipt or by electronic transmission (including facsimile or email) against electronic delivery confirmation or mailed by internationally recognized overnight courier prepaid, to (i) any Member, at such Member's address set forth on the Members Schedule attached hereto or as most recently delivered to all Members by the Company, and (ii) the Company, to the Company's Chief Executive Officer, President and Secretary at the Company's principal place of business (or in any case to such other address as the addressee may from time to time designate in writing to the sender).
(b)      All such notices, requests and other communications will (i) if delivered personally to the address as provided in Section 13.1(a) be deemed given upon delivery, (ii) if delivered by electronic transmission to the facsimile number or email as provided for in Section 13.1(a) , be deemed given upon delivery if delivered on a Business Day by 5:00 p.m., New York City time, or otherwise on the next Business Day and (iii) if delivered by overnight courier to the address as provided in Section 13.1(a) , be deemed given on the earlier of the first Business Day following the date sent by such overnight courier or upon receipt (in each case regardless of whether such notice, request or other communication is received by any other person to whom a copy of such notice is to be delivered pursuant to this Section 13.1 ).
13.2      Governing Law. All issues and questions concerning the application, construction, validity, interpretation and enforcement of this Agreement and the exhibits and






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45
 



schedules to this Agreement shall be governed by, and construed in accordance with, the laws of the Republic of the Marshall Islands, and specifically the Act, without giving effect to any choice of law or conflict of law rules or provisions (whether of the Republic of the Marshall Islands or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the Republic of the Marshall Islands; provided that Sections 5.5, 5.6, 5.7 and 12.1(b) shall be governed by and construed in accordance with the internal laws of the State of New York applicable to agreements made and to be performed entirely within such State, without regard to the conflicts of law principles of such State.
13.3      No Action for Partition. No Member shall have any right to maintain any action for partition with respect to the property of the Company.
13.4      Headings and Sections. The headings in this Agreement are inserted for convenience only and are in no way intended to describe, interpret, define, or limit the scope, extent or intent of this Agreement or any provision of this Agreement. Unless the context requires otherwise, all references in this Agreement to Sections, Articles, Exhibits or Schedules shall be deemed to mean and refer to Sections, Articles, Exhibits or Schedules of or to this Agreement.
13.5      Amendments. Except as otherwise expressly set forth in this Agreement (including Section 11.3(a)), the Certificate and this Agreement may be amended or restated only upon the written consent of both the Brookfield Majority Holders and the TK Majority Holders, and any such amendment or restatement to which such written consent is obtained will be binding upon the Company and each Member.
13.6      Interpretation. The term “this Agreement” means this Agreement together with all Schedules and Exhibits hereto, as the same may from time to time be amended, modified, supplemented or restated in accordance with the terms hereof. The use in this Agreement of the term “including” and other words of similar import mean “including, without limiting the generality of the foregoing” and where specific language is used to clarify by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. References to Sections, Articles, Schedules and Exhibits are referenced to Sections or Articles of, or schedules or Exhibits to, as the case may be, this Agreement. The words “herein,” “hereof,” “hereunder” and other words of similar import refer to this Agreement as a whole, including the Schedules and Exhibits, and not to any particular section, subsection, paragraph, subparagraph or clause contained in this Agreement. Where the context so indicates, the masculine shall include the feminine, the neuter shall include the masculine and feminine, and the singular shall include the plural. References to “$” are to United States dollars.
13.7      Binding Effect . Except as otherwise provided to the contrary in this Agreement, this Agreement shall be binding upon and inure to the benefit of the Members, their respective successors and permitted assigns. All of the rights and privileges of Brookfield under this Agreement are automatically assigned to a transferee of any Brookfield Member who purchases a majority of the aggregate Shares, and a majority of the aggregate Common Units, held by all the Brookfield Members and executes and delivers to the Company a joinder to this Agreement substantially in






136199440.19  
46
 



the form of Exhibit B attached hereto and such transferee shall thereafter be Brookfield’s successor under this Agreement and all references in this Agreement to Brookfield shall thereafter refer to such transferee, including such transferee and its controlled Affiliates succeeding to the rights, privileges and obligations of the “Brookfield Members” under this Agreement.
13.8      Counterparts; Email and Facsimile. This Agreement may be executed in multiple counterparts, each of which shall be deemed to be an original and shall be binding upon the Member who executed the same, but all of such counterparts shall constitute the same agreement.
13.9      Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall to the fullest extent permitted by law be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.
13.10      Remedies. Each of the parties to this Agreement shall to the fullest extent permitted by law be entitled to enforce its rights under this Agreement specifically, to recover damages and costs (including reasonable attorney's fees) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its favor. The Members agree and acknowledge that money damages may not be an adequate remedy for any breach of the provisions of this Agreement and that any party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit, any requirement for which is hereby waived) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement.
13.11      Business Days. If any time period for giving notice or taking action under this Agreement expires on a day which is a Saturday, Sunday or other day that is not a Business Day, the time period shall be automatically extended to the Business Day immediately following such Saturday, Sunday or other day.
13.12      Waiver of Jury Trial. EACH PARTY TO THIS AGREEMENT HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT OR THE VALIDITY, PROTECTION, INTERPRETATION, COLLECTION OR ENFORCEMENT THEREOF.
13.13      No Strict Construction. The parties to this Agreement have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties to this Agreement, and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.
13.14      Entire Agreement and Incorporation by Reference. Except as otherwise expressly set forth in this Agreement, this Agreement embodies the complete agreement and understanding among the parties to this Agreement with respect to the subject matter of this






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47
 



Agreement and supersedes and preempts any prior understandings, agreements or representations by or among the parties, written or oral, which may have related to the subject matter of this Agreement in any way.
13.15      Parties in Interest. Nothing herein shall be construed to be to the benefit of or enforceable by any third party including, but not limited to, any creditor of the Company.
13.16      Venue and Submission to Jurisdiction. ANY AND ALL SUITS, LEGAL ACTIONS OR PROCEEDINGS ARISING OUT OF THIS AGREEMENT (INCLUDING AGAINST ANY DIRECTOR OR OFFICER OF THE COMPANY) SHALL TO THE FULLEST EXTENT PERMITTED BY LAW BE BROUGHT SOLELY IN THE SUPREME COURT OF THE STATE OF NEW YORK, NEW YORK COUNTY, OR THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK AND EACH MEMBER HEREBY TO THE FULLEST EXTENT PERMITTED BY LAW IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO AND ACCEPTS THE EXCLUSIVE JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF SUCH SUITS, LEGAL ACTIONS OR PROCEEDINGS; PROVIDED THAT IF THE COURTS LISTED ABOVE DO NOT HAVE JURISDICTION OR VENUE OVER ANY SUIT, LEGAL ACTION OR PROCEEDING (OR OTHERWISE REFUSE TO ADJUDICATE SUCH SUIT, LEGAL ACTION OR PROCEEDING) ARISING OUT OF THIS AGREEMENT (INCLUDING AGAINST ANY DIRECTOR OR OFFICER OF THE COMPANY), SUCH MATTER SHALL BE BROUGHT SOLELY BEFORE THE COURTS OF THE REPUBLIC OF THE MARSHALL ISLANDS AND EACH MEMBER HEREBY TO THE FULLEST EXTENT PERMITTED BY LAW IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO AND ACCEPTS THE EXCLUSIVE JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF SUCH SUITS, LEGAL ACTIONS OR PROCEEDINGS. IN ANY SUCH SUIT, LEGAL ACTION OR PROCEEDING, EACH MEMBER IRREVOCABLY AND UNCONDITIONALLY TO THE FULLEST EXTENT PERMITTED BY LAW WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS AND AGREES THAT SERVICE THEREOF MAY BE MADE BY CERTIFIED OR REGISTERED MAIL DIRECTED TO IT AT ITS ADDRESS SET FORTH IN THE BOOKS AND RECORDS OF THE COMPANY. TO THE FULLEST EXTENT PERMITTED BY LAW, EACH PARTY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OR ANY SUCH SUIT, LEGAL ACTION OR PROCEEDING IN ANY SUCH COURT AND HEREBY FURTHER WAIVES ANY CLAIM THAT ANY SUIT, LEGAL ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
13.17      Further Assurances. Each party to this Agreement shall execute and deliver such further instruments and take such additional actions as any other party may reasonably request to effect, consummate, confirm or evidence the transactions contemplated by this Agreement.






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13.18      Compliance. Each Member hereby covenants that it will not, and will cause its Subsidiaries not to, intentionally violate Anticorruption Laws in furtherance of the business of the Company and the Limited Partnership and their respective Subsidiaries. In the event the Company becomes aware of any violation of Anticorruption Laws, it will promptly notify its Members of any violation. For purposes of this Section 13.18, “Anticorruption Laws” means, collectively, the U.S. Foreign Corrupt Practices Act, the UK Bribery Act of 2010, the Brazilian Anti-Corruption Act (Law No. 12,846 of August 1, 2013 ruled by Decree No. 8420, of March 18, 2015), the Brazilian Improbity Law (Law No. 8,429 of June 2, 1992), the Canadian Corruption of Foreign Public Officials Act (S.C. 1998 c. 34, as amended June 19, 2013) and any other applicable anti-bribery or anti-corruption laws under any applicable jurisdictions.
13.19      No Vote to Remove the General Partner. As long as a TK Member has rights under this Agreement, none of the Brookfield Members shall vote Common Units in the Limited Partnership to remove the Company as the general partner of the Limited Partnership pursuant to Section 11.2 of the Limited Partnership Agreement, or elect another Person as a general partner of the Limited Partnership. As long as a Brookfield Member has rights under this Agreement, none of the TK Members shall vote Common Units in the Limited Partnership to remove the Company as the general partner of the Limited Partnership pursuant to Section 11.2 of the Limited Partnership Agreement, or elect another Person as a general partner of the Limited Partnership
13.20      Successor Corporation. If the Company undergoes any recapitalization or restructuring or change in form of organization or the Company forms a new entity to succeed to its ownership interest in the Limited Partnership, the terms of this Agreement shall apply to the recapitalized, restructured or successor entity mutatis mutandis to the extent reasonably practicable to provide the Members hereof with as nearly equivalent rights as are provided hereunder, and the Members shall make such related further changes to this Agreement as are reasonably required to achieve such nearly equivalent rights.
* * * *







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49
 



IN WITNESS WHEREOF, the undersigned, have executed this Second Amended and Restated Limited Liability Company Agreement of Teekay Offshore GP L.L.C. as of the Effective Date.

TEEKAY HOLDINGS LIMITED



By:         /s/ Edith Robinson        
Name: Edith Robinson
Title: President









136199440.19  
 
 



BROOKFIELD TK TOGP L.P., BY ITS GENERAL PARTNER, BROOKFIELD CAPITAL PARTNERS (BERMUDA) LTD.



By:         /s/ Gregory E A Morrison    
Name: Gregory E A Morrison
Title: Director








136199440.19  
 
 



Schedule A
Teekay Offshore GP L.L.C.
Members Schedule
(as of September 25, 2017)

 
 
% of Shares
Teekay Holdings Limited
4th Floor, Belvedere Building
69 Pitts Bay Road
Hamilton, HM 08, Bermuda
Attn. Corporate Secretary
Facsimile: (441) 298-2530
Email: Edie.Robinson@teekay.com

With a copy to (which copy alone shall not constitute notice):
Perkins Coie LLP
1120 NW Couch St., Tenth Floor
Portland, OR 97209
Attention: David S. Matheson
Gina K. Eiben
Facsimile: (503) 346-2008
Email: DMatheson@perkinscoie.com
GEiben@perkinscoie.com

 
51
%
Brookfield TK TOLP G.P.
c/o Brookfield Capital Partners (Bermuda) Ltd.
73 Front Street, 5th Floor
Hamilton HM 12, Bermuda
Attention: Manager - Corporate Services
Facsimile: (441) 296-4475
Email: Jane.Sheere@brookfield.com

With a copy to (which copy alone shall not constitute notice):

Brookfield TK TOLP G.P.
c/o Brookfield Capital Partners Ltd.
Brookfield Place, Suite 300
181 Bay Street
Toronto, Ontario, M5J 2T3
Attention: Ryan Szainwald, Senior Vice President
Facsimile: (416) 369-2301
Email: Ryan.Szainwald@brookfield.com

With a copy to (which copy alone shall not constitute notice):

Kirkland & Ellis LLP
601 Lexington Avenue
New York, NY 10022
Attention: Joshua N. Korff, Esq.
      Elazar Guttman, Esq.
      Ross M. Leff, Esq.
Facsimile: (212) 446-4900
Email: JKorff@kirkland.com
      Elazar.Guttman@kirkland.com
      Ross.Leff@kirkland.com
 
49
%
 
 
 
Total
 
100
%






136199440.19  
 
 











136199440.19  
 
 



Schedule B


Officers of Teekay Offshore GP L.L.C.
(as of September 25, 2017)
Edith Robinson, Corporate Secretary






136199440.19  
 
 



Schedule C
CONSENTS
The consents in respect of the contracts described in Section 6.03(l)(E) of the Company Disclosure Letter delivered pursuant to that certain Investment Agreement, dated July 26, 2017, by and between the Limited Partnership and Brookfield.






136199440.19  
 
 




Exhibit A
CERTIFICATE OF FORMATION
(Attached)






136199440.19  
 
 



Exhibit B
FORM OF JOINDER TO
SECOND AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
THIS JOINDER to the Second Amended and Restated Limited Liability Company Agreement of Teekay Offshore GP L.L.C., a Marshall Islands limited liability company (the “ Company ”), dated as of September 25, 2017, as amended or restated from time to time, by and among the Members of the Company (the “ Agreement ”), is made and entered into as of _________ by and between the Company and ________________ (“ Holder ”). Capitalized terms used herein but not otherwise defined shall have the meanings set forth in the Agreement.
WHEREAS, on the date hereof, Holder has acquired ______ Shares from _____________ and the Agreement and the Company require Holder, as a holder of such Shares, to become a party to the Agreement, and Holder agrees to do so in accordance with the terms hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Joinder hereby agree as follows:
1.      Agreement to be Bound . Holder hereby (i) acknowledges that it has received and reviewed a complete copy of the Agreement and (ii) agrees that upon execution of this Joinder, it shall become a party to the Agreement and shall be fully bound by, and subject to, all of the covenants, terms and conditions of the Agreement as though an original party thereto and shall be deemed, and is hereby admitted as, a Member for all purposes thereof and entitled to all the rights incidental thereto.
2.      Members Schedule . For purposes of the Members Schedule, the address of the Holder is as follows:
[Name]

[Address]
3.      Governing Law . This Agreement and the rights of the parties hereunder shall be interpreted in accordance with the laws of the Republic of the Marshall Islands, and all rights and remedies shall be governed by such laws without regard to principles of conflicts of laws.
4.      Counterparts . This Joinder may be executed in separate counterparts each of which shall be an original and all of which taken together shall constitute one and the same agreement.
5.      Descriptive Headings . The descriptive headings of this Joinder are inserted for convenience only and do not constitute a part of this Joinder.






136199440.19  
 
 










136199440.19  
 
 



IN WITNESS WHEREOF, the parties hereto have executed this Joinder to the Second Amended and Restated Limited Liability Company Agreement of Teekay Offshore GP L.L.C. as of the date set forth in the introductory paragraph hereof.
TEEKAY OFFSHORE GP L.L.C.



By:                         
Name:
Title:

[HOLDER]



By:                         
Name:
Title:








136199440.19  
 
 

Exhibit 4.3


REGISTRATION RIGHTS AGREEMENT
by and among
TEEKAY OFFSHORE PARTNERS L.P.,
TEEKAY CORPORATION
and
BROOKFIELD TK TOLP L.P.
Dated as of September 25, 2017




136252302.7


TABLE OF CONTENTS
Page
ARTICLE I

Resale Shelf Registration
Section 1.1      Resale Shelf Registration Statement                             1
Section 1.2      Effectiveness Period                                     2
Section 1.3      Subsequent Shelf Registration Statement                          2
Section 1.4      Supplements and Amendments                             2
Section 1.5      Subsequent Holder Notice                                 2
Section 1.6      Underwritten Offering                                 3
Section 1.7      Take-Down Notice                                   4
Section 1.8      Piggyback Registration                                 4
ARTICLE II

Additional Provisions Regarding Registration Rights
Section 2.1      Registration Procedures                                 5
Section 2.2      Suspension                                         9
Section 2.3      Expenses of Registration                                 9
Section 2.4      Information by Holders                                 9
Section 2.5      Rule 144 Reporting                                     10
Section 2.6      Subsequent Registration Rights                             10
Section 2.7      Holdback Agreement                                     10
ARTICLE III

Indemnification
Section 3.1      Indemnification by Company                                 11
Section 3.2      Indemnification by Holders                                 12
Section 3.3      Notification                                         12
Section 3.4      Contribution                                         13
ARTICLE IV

Transfer and Termination of Registration Rights
Section 4.1      Transfer of Registration Rights                             14
Section 4.2      Termination of Registration Rights                             14
ARTICLE V

Miscellaneous
Section 5.1      Amendments and Waivers                                 14
Section 5.2      Extension of Time, Waiver, Etc                             14

i
136252302.7
TABLE OF CONTENTS (CONT’D)
Page

Section 5.3      Assignment                                         14
Section 5.4      Counterparts                                         14
Section 5.5      Entire Agreement; No Third Party Beneficiary                     15
Section 5.6      Governing Law; Jurisdiction                                 15
Section 5.7      Specific Enforcement                                     15
Section 5.8      Waiver of Jury Trial                                     16
Section 5.9      Notices                                         16
Section 5.10      Severability                                         18
Section 5.11      Expenses                                         18
Section 5.12      Interpretation                                         18



ii
136252302.7


REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (this “ Agreement ”) is entered into as of September 25, 2017, by and between TEEKAY OFFSHORE PARTNERS L.P., a Republic of The Marshall Islands limited partnership (the “ Company ”), BROOKFIELD TK TOLP L.P., a Bermuda limited partnership (the “ Purchaser ”) and TEEKAY CORPORATION, a Republic of The Marshall Islands corporation (“ TK ”). Capitalized terms used but not defined elsewhere herein are defined in Exhibit A .
WHEREAS, the Company and the Purchaser are parties to the Investment Agreement, dated as of July 26, 2017 (as amended from time to time, the “ Investment Agreement ”), pursuant to which the Company is selling to the Purchaser, and the Purchaser is purchasing from the Company, (i) an aggregate of 244,000,000 Common Units (as defined below) and (ii) an aggregate of 62,440,945 Warrants (as defined below);
WHEREAS, the Purchaser and TK are parties to the Amended and Restated Subordinate Promissory Note, dated as of the date hereof, pursuant to which the Purchaser is selling to TK, and TK is purchasing from the Purchaser, an aggregate of 11,440,945 Warrants;
WHEREAS, the Company and Teekay Holdings Limited, an Affiliate of TK (“ Holdings ”), are parties to an Investment Agreement dated as of July 26, 2017 (as amended from time to time, the “ TK Investment Agreement ”), pursuant to which the Company is selling to Holdings and Holdings is purchasing from the Company, (i) an aggregate of 12,000,000 Common Units and (ii) an aggregate of 3,059,055 Warrants;
WHEREAS, TK or its Affiliates, as the owner of the Company’s general partner, currently has certain registration rights under the Fifth Amended and Restated Agreement of Limited Partnership of the Company (the “ LP Agreement ”);
WHEREAS, the Purchaser upon its acquisition of ownership interests in the Company’s general partner in connection with its investment pursuant to the Investment Agreement will have certain registration rights under the LP Agreement;
WHEREAS, both the Purchaser and TK are willing to suspend their registration rights under the LP Agreement for as long as this Agreement remains in effect; and
WHEREAS, as a condition to the obligations of (a) the Company and the Purchaser under the Investment Agreement, and (b) the Company and Holdings under the TK Investment Agreement, the Company, the Purchaser and TK are entering into this Agreement for the purpose of granting certain registration and other rights to the Purchaser, TK and the respective Affiliates of the Purchaser and TK that hold Registrable Securities, and the Purchaser, TK, the respective Affiliates of the Purchaser and TK that hold Registrable Securities and any other party that may become a party hereto pursuant to Section 4.1 and that holds Registrable Securities are referred to collectively as the “ Investors ” or “ Holders ” and individually each as an “ Investor ” or “ Holder ”.

136252302.7


NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this Agreement, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows:
Article I

Resale Shelf Registration
Section 1.1      Resale Shelf Registration Statement . Subject to the other applicable provisions of this Agreement, the Company shall, at the request of any Investor, prepare and file within twelve (12) months after the date hereof a registration statement covering the sale or distribution from time to time by the Investors, on a delayed or continuous basis pursuant to Rule 415 of the Securities Act, of all of the Registrable Securities on Form F-3 or Form S-3 (except if the Company is not then eligible to register for resale the Registrable Securities on Form F-3 or Form S-3, then such registration shall be on another appropriate form and shall provide for the registration of such Registrable Securities for resale by the Investors in accordance with any reasonable method of distribution elected by the Investors) (the “ Resale Shelf Registration Statement ”) and shall cause such Resale Shelf Registration Statement to be declared effective by the SEC within twelve (12) months after the date hereof (it being agreed that the Resale Shelf Registration Statement shall be an automatic shelf registration statement that shall become effective upon filing with the SEC pursuant to Rule 462(e) if Rule 462(e) is available to the Company for the resale of the Registrable Securities in a firmly underwritten offering and in an offering that is not firmly underwritten).
Section 1.2      Effectiveness Period . On and following the date that is the 12-month anniversary of the date hereof, the Company shall, subject to the other applicable provisions of this Agreement, use its reasonable best efforts to cause the Resale Shelf Registration Statement to be continuously effective and usable until such time as there are no longer any Registrable Securities (the “ Effectiveness Period ”).
Section 1.3      Subsequent Shelf Registration Statement . If any Shelf Registration Statement ceases to be effective under the Securities Act for any reason at any time during the Effectiveness Period, the Company shall use its reasonable best efforts to as promptly as is practicable cause such Shelf Registration Statement to again become effective under the Securities Act (including obtaining the prompt withdrawal of any order suspending the effectiveness of such Shelf Registration Statement), and shall use its reasonable best efforts to as promptly as is practicable amend such Shelf Registration Statement in a manner reasonably expected to result in the withdrawal of any order suspending the effectiveness of such Shelf Registration Statement or file an additional registration statement (a “ Subsequent Shelf Registration Statement ”) for an offering to be made on a delayed or continuous basis pursuant to Rule 415 of the Securities Act registering the resale from time to time by the Holders thereof of all securities that are Registrable Securities as of the time of such filing. If a Subsequent Shelf Registration Statement is filed, the Company shall use its reasonable best efforts to (a) cause such Subsequent Shelf Registration Statement to become effective under the Securities Act as promptly as is practicable after the filing thereof (it being agreed that the Subsequent Shelf Registration Statement shall be an automatic shelf registration statement that shall become effective upon filing with the SEC pursuant to Rule 462(e) if Rule

2
136252302.7


462(e) is available to the Company for the resale of the Registrable Securities in a firmly underwritten offering and in an offering that is not firmly underwritten) and (b) keep such Subsequent Shelf Registration Statement continuously effective and usable until the end of the Effectiveness Period. Any such Subsequent Shelf Registration Statement shall be a registration statement on Form F-3 or Form S-3 to the extent that the Company is eligible to use such form. Otherwise, such Subsequent Shelf Registration Statement shall be on another appropriate form and shall provide for the registration of such Registrable Securities for resale by the Holders in accordance with any method of distribution elected by the Investors.
Section 1.4      Supplements and Amendments . The Company shall supplement and amend any Shelf Registration Statement if required by the Securities Act or the rules, regulations or instructions applicable to the registration form used by the Company for such Shelf Registration Statement.
Section 1.5      Subsequent Holder Notice . If a Person entitled to the benefits of this Agreement becomes a Holder of Registrable Securities after a Shelf Registration Statement becomes effective under the Securities Act, the Company shall, as promptly as is reasonably practicable following delivery of written notice to the Company of such Person becoming a Holder and requesting for its name to be included as a selling securityholder in the prospectus related to the Shelf Registration Statement (a “ Subsequent Holder Notice ”):
(a)      if required and permitted by applicable law, file with the SEC a supplement to the related prospectus or a post-effective amendment to the Shelf Registration Statement so that such Holder is named as a selling securityholder in the Shelf Registration Statement and the related prospectus in such a manner as to permit such Holder to deliver a prospectus to purchasers of the Registrable Securities in accordance with applicable law;
(b)      if, pursuant to Section 1.5(a) , the Company shall have filed a post-effective amendment to the Shelf Registration Statement that is not automatically effective, use its reasonable best efforts to cause such post-effective amendment to become effective under the Securities Act as promptly as is practicable; and
(c)      notify such Holder as promptly as is reasonably practicable after the effectiveness under the Securities Act of any post-effective amendment filed pursuant to Section 1.5(a) .
Section 1.6      Underwritten Offering .
(a)      An Investor may, on or after the date that is twelve (12) months after the date hereof, deliver, from time to time, a written notice to the Company (the “ Underwritten Offering Notice ”) specifying that the sale of some or all of such Investor’s Registrable Securities subject to the Shelf Registration Statement, is intended to be conducted through an underwritten offering (the “ Underwritten Offering ”) in which Registrable Securities are sold to one or more underwriters on a firm commitment basis for reoffering to the public, or an offering that is a “bought deal” or “block trade; provided , that the Registrable Securities of such Investor requested to be included in such Underwritten Offering must have an aggregate value as of the date of such Underwritten Offering

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Notice of no less than the lesser of (i) $25 million and (ii) all of such Investor’s and its Affiliates Registrable Securities. Upon delivery of such Underwritten Offering Notice to the Company, the Company shall as soon as reasonably practicable (but in no event later than one Business Day following the date of delivery of the Underwritten Offering Notice to the Company) deliver notice of such Underwritten Offering Notice to all other Holders, who shall then have three Business Days (or two Business Days in the case of an underwritten “bought deal” or “block trade”) from the date that such notice is given to them to notify the Company in writing of the number of Registrable Securities held by such Holder that they want to be included in such Underwritten Offering. Upon receipt of an Underwritten Offering Notice, the Company shall as soon as reasonably practicable use its reasonable best efforts to facilitate such Underwritten Offering.
(b)      In the event of an Underwritten Offering, the Investors owning a majority of the Registrable Securities proposed to be sold in such Underwritten Offering shall select the underwriter(s) to administer the Underwritten Offering (subject to the consent of the Company which shall not be unreasonably withheld, conditioned or delayed). The Company and the Holders of Registrable Securities participating in an Underwritten Offering will enter into an underwriting agreement in customary form with the managing underwriter or underwriters selected for such offering.
(c)      The Company will not include in any Underwritten Offering pursuant to this Section 1.6 any securities that are not Registrable Securities without the prior written consent of the Investors (which shall not be unreasonably withheld, conditioned or delayed) owning a majority of the Registrable Securities proposed to be sold in such Underwritten Offering. If the managing underwriter or underwriters advise the Company and the Investors participating in such Underwritten Offering in writing that in its or their good faith opinion the number of Registrable Securities (and, if permitted hereunder, other securities requested to be included in such offering) exceeds the number of securities which can be sold in such offering in light of market conditions or is such so as to adversely affect the success of such offering, the Company will include in such offering only such number of securities that can be sold without adversely affecting the marketability of the offering, which securities will be so included in the following order of priority: (i) first, the Registrable Securities of the Investors that have requested to participate in such Underwritten Offering, allocated pro rata among such Investors on the basis of the total number of Registrable Securities then-held by such Investors, and (ii) second, any other securities of the Company that have been requested to be so included.
Section 1.7      Take-Down Notice . Subject to the other applicable provisions of this Agreement, at any time that any Shelf Registration Statement is effective, if an Investor delivers a notice to the Company (a “ Take-Down Notice ”) stating that it intends to effect a sale or distribution of all or part of its Registrable Securities included by it on any Shelf Registration Statement (a “ Shelf Offering ”) and stating the number of the Registrable Securities to be included in such Shelf Offering, then the Company shall amend, subject to the other applicable provisions of this Agreement, or supplement the Shelf Registration Statement as may be necessary in order to enable such Registrable Securities to be sold and distributed pursuant to the Shelf Offering.
  

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Section 1.8      Piggyback Registration .
(a)      If the Company proposes to file a registration statement under the Securities Act with respect to an offering of Common Units or securities convertible into, or exchangeable or exercisable for, Common Units, whether or not for sale for its own account (other than a registration statement (i) on Form F-4, Form S-8 or any successor forms thereto or (ii) filed to effectuate an exchange offer or any employee benefit or dividend reinvestment plan) (a “ Company-Initiated Registration ”), then the Company shall give prompt written notice of such filing, which notice shall be given no later than three (3) Business Days prior to the filing date (the “ Piggyback Notice ”) to the Investors. The Piggyback Notice shall offer such Investors the opportunity to include (or cause to be included) in such registration statement the number of Registrable Securities as each such Investor may request (each, a “ Piggyback Registration Statement ”). Subject to Section 1.8(b), the Company shall include in each Piggyback Registration Statement with respect to a Company-Initiated Registration all Registrable Securities with respect to which the Company has received written requests for inclusion therein (each, a “ Piggyback Request ”) within two (2) Business Days after the date of the Piggyback Notice.
(b)      If any of the securities to be registered pursuant to the registration giving rise to the rights under this Section 1.8 are to be sold in an underwritten offering, the Company shall use reasonable best efforts to cause the managing underwriter or underwriters of a proposed underwritten offering to permit Holders of Registrable Securities who have timely submitted a Piggyback Request, in connection with such offering to include in such offering all Registrable Securities included in each Holder’s Piggyback Request, on the same terms and subject to the same conditions as any other units of capital stock, if any, of the Company included in the offering. Notwithstanding the foregoing, if the managing underwriter or underwriters of such underwritten offering advise the Company in writing that in its or their good faith opinion the number of securities exceeds the number of securities which can be sold in such offering in light of market conditions or is such so as to adversely affect the success of such offering, the Company will include in such offering only such number of securities that can be sold without adversely affecting the marketability of the offering, which securities will be so included in the following order of priority: (i) first, the securities proposed to be sold by the Company for its own account; (ii) second, the Registrable Securities of the Investors that have requested to participate in such underwritten offering, allocated pro rata among such Investors on the basis of the total number of Registrable Securities then-held by such Investors; and (iii) third, any other securities of the Company that have been requested to be included in such offering; provided , that Holders may, prior to the time at which the offering price or underwriter’s discount is determined with the managing underwriter or underwriters, withdraw their request to be included in such registration pursuant to this Section 1.8 .
ARTICLE II     

Additional Provisions Regarding Registration Rights
Section 2.1      Registration Procedures . Subject to the other applicable provisions of this Agreement, in the case of each registration of Registrable Securities effected by the Company pursuant to Article I , the Company will:

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(a)      prepare and promptly file with the SEC a registration statement with respect to such securities and use reasonable best efforts to cause such registration statement to become and remain effective for the period of the distribution contemplated thereby, in accordance with the applicable provisions of this Agreement;
(b)      prepare and file with the SEC such amendments (including post-effective amendments) and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to keep such registration statement effective for the period specified in paragraph (a) above and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement in accordance with the Holders’ intended method of distribution set forth in such registration statement for such period;
(c)      furnish to the Holders’ legal counsel copies of the registration statement and the prospectus included therein (including each preliminary prospectus) proposed to be filed and provide such legal counsel a reasonable opportunity to review and comment on such registration statement;
(d)      if requested by the managing underwriter or underwriters, if any, or the Holders, promptly include in any prospectus supplement or post-effective amendment such information as the managing underwriter or underwriters, if any, or the Holders may reasonably request in order to permit the intended method of distribution of such securities and make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after the Company has received such request;
(e)      in the event that the Registrable Securities are being offered in an Underwritten Offering, furnish to the Holders and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus and final prospectus as the Holders or such underwriters may reasonably request in order to facilitate the public offering or other disposition of such securities;
(f)      immediately notify the Holders at any time when a prospectus relating thereto is required to be delivered under the Securities Act or of the Company’s discovery of the occurrence of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing, and, subject to Section 2.2 , at the request of the Holders, prepare as promptly as is practicable and furnish to the Holders a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing;
(g)      use its reasonable best efforts to register and qualify (or exempt from such registration or qualification) the securities covered by such registration statement under such other securities or “blue sky” laws of such jurisdictions within the United States as shall be reasonably

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requested in writing by the Holders; provided , however , that the Company shall not be required in connection therewith or as a condition thereto to (i) qualify to do business in any jurisdictions where it would not otherwise be required to qualify but for this subsection or (ii) take any action that would subject it to general service of process in any such jurisdictions;
(h)      in the event that the Registrable Securities are being offered in an underwritten public offering, enter into an underwriting agreement in accordance with the applicable provisions of this Agreement;
(i)      in connection with an Underwritten Offering, the Company shall use its reasonable best efforts to cause its officers to support the marketing of the Registrable Securities covered by such offering (including participation by the Company’s management in “ road shows ” or other similar marketing efforts);
(j)      use its reasonable best efforts to furnish, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, (i) an opinion dated such date of the legal counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering, addressed to the underwriters, if any, (ii) a “negative assurances letter”, dated such date of the legal counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and (iii) a letter dated such date from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the underwriters;
(k)      list the Registrable Securities covered by such registration statement with any securities exchange on which the Common Units are then listed;
(l)      provide a transfer agent and registrar for all such Registrable Securities not later than the effective date of such registration statement;
(m)      in connection with a customary due diligence review, make available for inspection by the Holders, any underwriter participating in any such disposition of Registrable Securities, if any, and any counsel or accountants retained by the Holders or underwriter (collectively, the “ Offering Persons ”), at the offices where normally kept, during reasonable business hours, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and cause the officers, directors and employees of the Company and its subsidiaries to supply all information and participate in customary due diligence sessions in each case reasonably requested by any such representative, underwriter, counsel or accountant in connection with such Registration Statement; provided , however , that any information that is not generally publicly available at the time of delivery of such information shall be kept confidential by such Offering Persons unless (i) disclosure of such information is required by court or administrative order or in connection with an audit or examination by, or a blanket document request from, a regulatory or self-regulatory authority, bank examiner or auditor, (ii) disclosure of such information, in the reasonable judgment of the Offering Persons, is required by law or applicable legal process (including in connection with the offer and sale of securities pursuant to the rules and regulations

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of the SEC), (iii) such information is or becomes generally available to the public other than as a result of a non-permitted disclosure or failure to safeguard by such Offering Persons in violation of this Agreement or (iv) such information (A) was known to such Offering Persons (prior to its disclosure by the Company) from a source other than the Company when such source, to the knowledge of the Offering Persons, was not bound by any contractual, legal or fiduciary obligation of confidentiality to the Company with respect to such information, (B) becomes available to the Offering Persons from a source other than the Company when such source, to the knowledge of the Offering Persons, is not bound by any contractual, legal or fiduciary obligation of confidentiality to the Company with respect to such information or (C) was developed independently by the Offering Persons or their respective representatives without the use of, or reliance on, information provided by the Company. In the case of a proposed disclosure pursuant to (i) or (ii) above, such Person shall be required to give the Company written notice of the proposed disclosure prior to such disclosure (except in the case of (ii) above when a proposed disclosure was or is to be made in connection with a registration statement or prospectus under this Agreement and except in the case of clause (i) above when a proposed disclosure is in connection with a routine audit or examination by, or a blanket document request from, a regulatory or self-regulatory authority, bank examiner or auditor);
(n)      cooperate with the Holders and each underwriter or agent participating in the disposition of Registrable Securities and their respective counsel in connection with any filings required to be made with FINRA, including the use of its reasonable best efforts to obtain FINRA’s pre-clearance or pre-approval of the registration statement and applicable prospectus upon filing with the SEC; and
(o)      as promptly as is practicable notify the Holders (i) when the prospectus or any prospectus supplement or post-effective amendment has been filed and, with respect to such registration statement or any post-effective amendment, when the same has become effective, (ii) of any request by the SEC or other federal or state governmental authority for amendments or supplements to such registration statement or related prospectus or to amend or to supplement such prospectus or for additional information, (iii) of the issuance by the SEC of any stop order suspending the effectiveness of such registration statement or the initiation of any proceedings for such purpose, (iv) if at any time the Company has reason to believe that the representations and warranties of the Company contained in any agreement contemplated by Section 2.1(f) above relating to any applicable offering cease to be true and correct or (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceeding for such purpose.
The Holders agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 2.1(f) , 2.1(o)(ii) or 2.1(o)(iii) , the Holders shall discontinue disposition of any Registrable Securities covered by such registration statement or the related prospectus until receipt of the copies of the supplemented or amended prospectus, which supplement or amendment shall, subject to the other applicable provisions of this Agreement, be prepared and furnished as soon as practicable, or until the Holder is advised in writing by the Company that the use of the applicable prospectus may be resumed, and have received copies of any amended or

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supplemented prospectus or any additional or supplemental filings which are incorporated, or deemed to be incorporated, by reference in such prospectus (such period during which disposition is discontinued being an “ Interruption Period ”) and, if requested by the Company, the each Holder shall use its commercially reasonable efforts to return to the Company all copies then in their possession, of the prospectus covering such Registrable Securities at the time of receipt of such request. As soon as practicable after the Company has determined that the use of the applicable prospectus may be resumed, the Company will notify the Holders thereof. In the event the Company invokes an Interruption Period hereunder and in the reasonable discretion of the Company the need for the Company to continue the Interruption Period ceases for any reason, the Company shall, as soon as practicable, provide written notice to the Holders that such Interruption Period is no longer applicable.
Section 2.2      Suspension . (a) The Company shall be entitled from time to time on no more than two occasions of up to 60 days each in any twelve (12) month period and for a period of time not to exceed in the aggregate ninety (90) days in any twelve (12) month period, to (x) defer any registration of Registrable Securities and shall have the right not to file and not to cause the effectiveness of any registration covering any Registrable Securities, (y) suspend the use of any prospectus and registration statement covering any Registrable Securities and (z) require the Holders of Registrable Securities to suspend any offerings or sales of Registrable Securities pursuant to a registration statement, if the Company delivers to the Holders a certificate signed by an executive officer certifying that such registration and offering would (i) require the Company to make an Adverse Disclosure or (ii) materially interfere with any bona fide material financing, acquisition, disposition or other similar transaction involving the Company or any of its subsidiaries then under consideration. Such certificate shall contain a statement of the reasons for such suspension and an estimate of the anticipated length of such suspension. The Holders shall keep the information contained in such certificate confidential subject to the same terms set forth in Section 2.1(m) . If the Company defers any registration of Registrable Securities in response to a Underwritten Offering Notice or requires the Investors or the Holders to suspend any Underwritten Offering, the Investors shall be entitled to withdraw such Underwritten Offering Notice and if they do so, such request shall not be treated for any purpose as the delivery of an Underwritten Offering Notice pursuant to Section 1.6 .
Section 2.3      Expenses of Registration . All Registration Expenses incurred in connection with any registration pursuant to Article I shall be borne by the Company. All Selling Expenses relating to securities registered on behalf of the Holders shall be borne by the Holders of the Registrable Securities included in such registration.
Section 2.4      Information by Holders . The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder or Holders and their Affiliates, the Registrable Securities held by them and the distribution proposed by such Holder or Holders and their Affiliates as the Company or its representatives may reasonably request and as shall be required in connection with any registration, qualification or compliance referred to in this Agreement. It is understood and agreed that the obligations of the Company under Article I are conditioned on the timely provisions of the foregoing information by such Holder or

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Holders and, without limitation of the foregoing, will be conditioned on compliance by such Holder or Holders with the following:
(a)      such Holder or Holders will, and will cause their respective Affiliates to, cooperate with the Company in connection with the preparation of the applicable registration statement and prospectus and, for so long as the Company is obligated to keep such registration statement effective, such Holder or Holders will and will cause their respective Affiliates to, provide to the Company, in writing and in a timely manner, for use in such registration statement (and expressly identified in writing as such), all information regarding themselves and their respective Affiliates and such other information as may be required by applicable law to enable the Company to prepare or amend such registration statement, any related prospectus and any other documents related to such offering covering the applicable Registrable Securities owned by such Holder or Holders and to maintain the currency and effectiveness thereof;
(b)      during such time as such Holder or Holders and their respective Affiliates may be engaged in a distribution of the Registrable Securities, such Holder or Holders will, and they will cause their Affiliates to, comply with all laws applicable to such distribution; and
(c)      on receipt of any notice from the Company of the occurrence of any of the events specified in Section 2.1(f) or clauses (ii) or (iii) of Section 2.1(o) , or that otherwise requires the suspension by such Holder or Holders and their respective Affiliates of the offering, sale or distribution of any of the Registrable Securities owned by such Holder or Holders, such Holders shall, and they shall cause their respective Affiliates to, cease offering, selling or distributing the Registrable Securities owned by such Holder or Holders until the offering, sale and distribution of the Registrable Securities owned by such Holder or Holders may recommence in accordance with the terms hereof and applicable law.
Section 2.5      Rule 144 Reporting . With a view to making available the benefits of Rule 144 to the Holders, the Company agrees that, for so long as an Investor owns Registrable Securities, the Company will:
(a)      use its reasonable best efforts to make and keep public information available, as those terms are understood and defined in Rule 144, at all times after the date of this Agreement;
(b)      so long as an Investor owns any Common Units or Warrants, furnish to the Investor upon written request a written statement by the Company as to its compliance with the reporting requirements of the Exchange Act; and
(c)      cooperate with the Investors in any sale or transfer of Registrable Securities pursuant to Rule 144.
Section 2.6      Subsequent Registration Rights . So long as the Investors hold any Registrable Securities in respect of which registration rights provided for in Article I of this Agreement remain in effect, the Company will not, directly or indirectly, without the prior written consent of each of the Investors, grant to any Person or agree to otherwise become obligated in respect of (i) the rights of registration in the nature or substantially in the nature of those set forth

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in Article I of this Agreement that would have priority over or parity with the Registrable Securities with respect to the inclusion of such securities in any registration or (ii) demand registration rights exercisable prior to such time as the Investors can first exercise its rights under Article I .
Section 2.7      Holdback Agreement . If during the Effectiveness Period, the Company shall file a registration statement (other than in connection with the registration of securities issuable pursuant to an employee stock option, stock purchase or similar plan or pursuant to a merger, exchange offer or a transaction of the type specified in Rule 145(a) under the Securities Act) with respect to an underwritten public offering of Common Units or securities convertible into, or exchangeable or exercisable for, such securities or otherwise informs the Holders that it intends to conduct such an offering utilizing an effective registration statement or pursuant to an underwritten Rule 144A and/or Regulation S offering and provides such Holder the opportunity to participate in such offering as provided in Article I , the Holders shall, if requested by the managing underwriter or underwriters, enter into a customary “lock-up” agreement relating to the sale, offering or distribution of Registrable Securities, in the form reasonably requested by the managing underwriter or underwriters, covering the period commencing on the date of the prospectus pursuant to which such offering may be made and continuing until up to 90 days from the date of such prospectus (or such shorter period for which a lock-up shall apply to the Company).
ARTICLE III     

Indemnification
Section 3.1      Indemnification by Company . To the extent permitted by applicable law, the Company will, with respect to any Registrable Securities covered by a registration statement or prospectus, or as to which registration, qualification or compliance under applicable “blue sky” laws has been effected pursuant to this Agreement, indemnify and hold harmless each Holder, each Holder’s current and former officers, directors, partners, members, managers, shareholders, accountants, attorneys, agents and employees, and each Person controlling such Holder within the meaning of Section 15 of the Securities Act (collectively, the “ Company Indemnified Parties ”), from and against any and all expenses, claims, losses, damages, costs (including costs of preparation and reasonable attorney’s fees and any legal or other fees or expenses actually incurred by such party in connection with any investigation or proceeding), judgments, fines, penalties, charges, amounts paid in settlement and other liabilities, joint or several, (or actions in respect thereof) (collectively, “ Losses ”) to the extent arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, preliminary prospectus, offering circular, “issuer free writing prospectus” (as such term is defined in Rule 433 under the Securities Act) or other document, in each case related to such registration statement, or any amendment or supplement thereto, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rules or regulations thereunder applicable to the Company and (without limiting the preceding portions of this Section 3.1 ), the Company will reimburse each of the Company Indemnified Parties for any reasonable and documented out-of-pocket legal expenses and any other reasonable and documented out-of-pocket

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expenses actually incurred in connection with investigating, defending or, subject to the last sentence of this Section 3.1 , settling any such Losses or action, as such expenses are incurred; provided that the Company’s indemnification obligations shall not apply to amounts paid in settlement of any Losses or action if such settlement is effected without the prior written consent of the Company (which consent shall not be unreasonably withheld or delayed), nor shall the Company be liable to a Holder in any such case for any such Losses or action to the extent that it arises out of or is based upon a violation or alleged violation of any state or federal law (including any claim arising out of or based on any untrue statement or alleged untrue statement or omission or alleged omission in the registration statement or prospectus) which occurs in reliance upon and in conformity with written information regarding such Holder furnished to the Company by such Holder or its authorized representatives expressly for use in connection with such registration by or on behalf of any Holder.
Section 3.2      Indemnification by Holders . To the extent permitted by applicable law, each Holder will, if Registrable Securities held by such Holder are included in the securities as to which registration or qualification or compliance under applicable “blue sky” laws is being effected, indemnify, severally and not jointly with any other Holders of Registrable Securities, the Company, each of its representatives, each Person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act (collectively, the “ Holder Indemnified Parties ”), against all Losses (or actions in respect thereof) to the extent arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, preliminary prospectus, offering circular, “issuer free writing prospectus” or other document, in each case related to such registration statement, or any amendment or supplement thereto, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, and will reimburse each of the Holder Indemnified Parties for any reasonable and documented out-of-pocket legal expenses and any other reasonable and documented out-of-pocket expenses actually incurred in connection with investigating, defending or, subject to the last sentence of this Section 3.2 , settling any such Losses or action, as such expenses are incurred, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular, “issuer free writing prospectus” or other document in reliance upon and in conformity with written information regarding such Holder furnished to the Company by such Holder or its authorized representatives and stated to be specifically for use therein; provided , however, that in no event shall any indemnity under this Section 3.2 payable by any Holder exceed an amount equal to the net proceeds received by such Holder in respect of the Registrable Securities sold pursuant to the registration statement. The indemnity agreement contained in this Section 3.2 shall not apply to amounts paid in settlement of any Losses or action if such settlement is effected without the prior written consent of the applicable Holder (which consent shall not be unreasonably withheld or delayed).
Section 3.3      Notification . If any Person shall be entitled to indemnification under this Article III (each, an “ Indemnified Party ”), such Indemnified Party shall give prompt notice to the party required to provide indemnification (each, an “ Indemnifying Party ”) of any claim or of the commencement of any proceeding as to which indemnity is sought. The Indemnifying Party shall

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have the right, exercisable by giving written notice to the Indemnified Party as promptly as reasonably practicable after the receipt of written notice from such Indemnified Party of such claim or proceeding, to assume, at the Indemnifying Party’s expense, the defense of any such claim or litigation, with counsel reasonably satisfactory to the Indemnified Party and, after notice from the Indemnifying Party to such Indemnified Party of its election to assume the defense thereof, the Indemnifying Party will not (so long as it shall continue to have the right to defend, contest, litigate and settle the matter in question in accordance with this paragraph) be liable to such Indemnified Party hereunder for any legal expenses and other expenses subsequently incurred by such Indemnified Party in connection with the defense thereof; provided, however, that an Indemnified Party shall have the right to employ separate counsel in any such claim or litigation, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party unless the Indemnifying Party shall have failed within a reasonable period of time to assume such defense and the Indemnified Party is or would reasonably be expected to be materially prejudiced by such delay. The failure of any Indemnified Party to give notice as provided herein shall relieve an Indemnifying Party of its obligations under this Article III only to the extent that the failure to give such notice is materially prejudicial or harmful to such Indemnifying Party’s ability to defend such action. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the prior written consent of each Indemnified Party (which consent shall not be unreasonably withheld or delayed), consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. The indemnity agreements contained in this Article III shall not apply to amounts paid in settlement of any claim, loss, damage, liability or action if such settlement is effected without the prior written consent of the Indemnifying Party, which consent shall not be unreasonably withheld or delayed. The indemnification set forth in this Article III shall be in addition to any other indemnification rights or agreements that an Indemnified Party may have. An Indemnifying Party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such Indemnifying Party with respect to such claim, unless in the reasonable judgment of any Indemnified Party a conflict of interest may exist between such Indemnified Party and any other Indemnified Parties with respect to such claim.
Section 3.4      Contribution . If the indemnification provided for in this Article III is held by a court of competent jurisdiction to be unavailable to an Indemnified Party, other than pursuant to its terms, with respect to any Losses or action referred to therein, then, subject to the limitations contained in this Article III , the Indemnifying Party, in lieu of indemnifying such Indemnified Party hereunder, shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses or action in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party, on the one hand, and the Indemnified Party, on the other, in connection with the actions, statements or omissions that resulted in such Losses or action, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party, on the one hand, and the Indemnified Party, on the other hand, shall be determined by reference to, among other things, whether any action in question, including any untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact, has been made (or omitted) by, or relates to information supplied by such Indemnifying Party or such Indemnified Party, and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent any such

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action, statement or omission. The Company and the Holders agree that it would not be just and equitable if contribution pursuant to this Section 3.4 was determined solely upon pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding sentence of this Section 3.4 . Notwithstanding the foregoing, the amount each Holder will be obligated to contribute pursuant to this Section 3.4 will be limited to an amount equal to the net proceeds received by such Holder in respect of the Registrable Securities sold pursuant to the registration statement which gives rise to such obligation to contribute. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.
ARTICLE IV     

Transfer and Termination of Registration Rights
Section 4.1      Transfer of Registration Rights . Any rights granted to the Purchaser or Investor under this Agreement may be transferred or assigned to any Person in connection with a transfer of Common Units or Warrants to such Person; provided, however, that (i) prior written notice of such assignment of rights is given to the Company, (ii) such

Person that becomes the owner of any Registrable Securities executes and delivers to the Company a joinder to this Agreement substantially in the form of Exhibit B attached hereto and (iii) such transfer is (A) with respect to Common Units or Warrants (on an as-exercised basis), collectively, that represents five percent (5%) or more of the aggregate outstanding Common Units of the Limited Partnership or (B) of Registrable Securities then held by any Investor to an Investor or an Affiliate of an Investor.
Section 4.2      Termination of Registration Rights . The rights of any particular Holder to cause the Company to register securities under Article I shall terminate with respect to such Holder upon the date upon which such Holder no longer holds any Registrable Securities.
Section 4.3      Suspension of Registration Rights Under LP Agreement. For so long as this Agreement remains in effect, the registration rights contained in this Agreement supersede the registration rights in the LP Agreement set forth in Section 7.12 of the LP Agreement and the Investors agree to suspend their rights to exercise registration rights pursuant to Section 7.12 of the LP Agreement and agree not to transfer their Registrable Securities to any Affiliate unless such Affiliate agrees to suspend its rights to exercise registration rights pursuant to Section 7.12 of the LP Agreement upon and following the transfer of such Registrable Securities.
ARTICLE V     

Miscellaneous
Section 5.1      Amendments and Waivers . Subject to compliance with applicable law, this Agreement may be amended or supplemented in any and all respects by written agreement of the

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Company and the Purchaser; provided that (a) no amendment or supplement that may adversely affect a Holder with respect to a term differently than the consenting Holders may be effected without the written consent of each affected Holder (other than insofar as such terms are different from the outset) and (b) no consent to an amendment or supplement need be obtained from any non-affected Holder; provided , however , so long as TK or its Affiliates own Registrable Securities, TK’s rights hereunder may not be adversely affected without TK’s or its Affiliates’ consent, as applicable.

Section 5.2      Extension of Time, Waiver, Etc . The parties hereto may, subject to applicable law, (a) extend the time for the performance of any of the obligations or acts of the other party or (b) waive compliance by the other party with any of the agreements contained herein applicable to such party or, except as otherwise provided herein, waive any of such party’s conditions. Notwithstanding the foregoing, no failure or delay by the parties hereto in exercising any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right hereunder. Any agreement on the part of a party hereto to any such extension or waiver shall be valid only if set forth in an instrument in writing signed on behalf of such party.
Section 5.3      Assignment . Except as provided in Section 4.1 , neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned, in whole or in part, by operation of law or otherwise, by any of the parties hereto without the prior written consent of the other party hereto.
Section 5.4      Counterparts . This Agreement may be executed in one or more counterparts (including by facsimile or electronic mail), each of which shall be deemed to be an original but all of which taken together shall constitute one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered to the other parties hereto.
Section 5.5      Entire Agreement; No Third Party Beneficiary . This Agreement, including the Transaction Documents (as defined in the Investment Agreement), constitutes the entire agreement, and supersedes all other prior agreements and understandings, both written and oral, among the parties and their Affiliates, or any of them, with respect to the subject matter hereof and thereof. No provision of this Agreement shall confer upon any Person other than the parties hereto and their permitted assigns any rights or remedies hereunder.
Section 5.6      Governing Law; Jurisdiction .
(a)      This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York applicable to contracts executed in and to be performed entirely within that State, regardless of the laws that might otherwise govern under any applicable conflict of laws principles.
(b)      All legal or administrative proceedings, suits, investigations, arbitrations or actions (“ Actions ”) arising out of or relating to this Agreement shall be heard and determined in

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the Supreme Court of the State of New York, New York County, and the United States District Court for the Southern District of New York, and the parties hereto hereby irrevocably submit to the exclusive jurisdiction and venue of such courts in any such Action and irrevocably waive the defense of an inconvenient forum or lack of jurisdiction to the maintenance of any such Action. The consents to jurisdiction and venue set forth in this Section 5.6 shall not constitute general consents to service of process in the State of New York and shall have no effect for any purpose except as provided in this paragraph and shall not be deemed to confer rights on any Person other than the parties hereto. Each party hereto agrees that service of process upon such party in any Action arising out of or relating to this Agreement shall be effective if notice is given by overnight courier at the address set forth in Section 5.9 of this Agreement. The parties hereto agree that a final judgment in any such Action shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable law; provided , however , that nothing in the foregoing shall restrict any party’s rights to seek any post-judgment relief regarding, or any appeal from, a final trial court judgment.
Section 5.7      Specific Enforcement . The parties acknowledge and agree that (a) the parties shall be entitled to an injunction or injunctions, specific performance or other equitable relief to enforce specifically the terms and provisions hereof in the courts described in Section 5.6 without proof of damages or otherwise, this being in addition to any other remedy to which they are entitled under this Agreement and (b) the right of specific enforcement is an integral part of this Agreement and without that right, neither the Company, the Invesor nor TK would have entered into this Agreement. The parties hereto agree not to assert that a remedy of specific enforcement is unenforceable, invalid, contrary to law or inequitable for any reason, and agree not to assert that a remedy of monetary damages would provide an adequate remedy or that the parties otherwise have an adequate remedy at law. The parties hereto acknowledge and agree that any party seeking an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in accordance with this Section 5.7 shall not be required to provide any bond or other security in connection with any such order or injunction.
Section 5.8      Waiver of Jury Trial . EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (A) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER, (B) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVER, (C) IT MAKES SUCH WAIVER VOLUNTARILY AND (D) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVER AND CERTIFICATIONS IN THIS SECTION 5.8 .

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Section 5.9      Notices . All notices, requests and other communications to any party hereunder shall be in writing and shall be deemed given if delivered personally, by facsimile (which is confirmed), emailed (which is confirmed) or sent by overnight courier (providing proof of delivery) to the parties at the following addresses:
If to the Company, to it at:
Teekay Offshore Partners L.P
4th Floor, Belvedere Building
69 Pitts Bay Road
Hamilton HM 08, Bermuda
Attention:     Corporate Secretary
Facsimile:     (441) 292-3931
Email:        Edie.Robinson@teekay.com

with a copy to (which copy alone shall not constitute notice):
Vinson & Elkins LLP
666 Fifth Avenue, 26th Floor
New York, NY 10103-0040
Attention:     Mike Rosenwasser
Facsimile:     (917) 206-8100
Email:        mrosenwasser@velaw.com

If to the Purchaser, to it at:
Brookfield TK TOLP L.P.
c/o Brookfield Business Partners L.P.
181 Bay Street PO Box 762
Toronto, Ontario, M5J 2T3
Attention:     Ryan Szainwald
Lyndsay Hatlelid
Facsimile:    (416) 369-2301
Email:        Ryan.Szainwald@brookfield.com
Lyndsay.Hatlelid@brookfield.com

with a copy (which shall not constitute notice) to:
Kirkland & Ellis LLP
601 Lexington Avenue
New York, NY 10022
Attention:    Joshua N. Korff, Esq.
        Elazar Guttman, Esq.
        Ross M. Leff, Esq.
Facsimile:    (212) 446-4900
Email:        JKorff@kirkland.com
Elazar.Guttman@kirkland.com

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Ross.Leff@kirkland.com

If to an Investor, other than the Purchaser, to such address of the Investor as the Investor specifies by notice to the other parties hereto.

If to TK, to it at:
Teekay Corporation
4th Floor, Belvedere Building
69 Pitts Bay Road
Hamilton HM 08, Bermuda
Attention:     Corporate Secretary
Facsimile:     (441) 298-2530
Email:        Edie.Robinson@teekay.com

with a copy to (which copy alone shall not constitute notice):
Perkins Coie LLP
1120 N.W. Couch Street, 10th Floor
Portland, Oregon 97209-4128
Attention:     David Matheson
                    Gina Eiben
Facsimile:     (503) 346-2008
Email:                     dmatheson@perkinscoie.com
                     geiben@perkinscoie.com

or such other address, email address or facsimile number as such party may hereafter specify by like notice to the other parties hereto. All such notices, requests and other communications shall be deemed received on the date of actual receipt by the recipient thereof if received prior to 5:00 p.m. local time in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt.
Section 5.10      Severability . If any term, condition or other provision of this Agreement is determined by a court of competent jurisdiction to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other terms, provisions and conditions of this Agreement shall nevertheless remain in full force and effect. Upon such determination that any term, condition or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible to the fullest extent permitted by applicable law.
Section 5.11      Expenses . Except as provided in Section 2.3 , all costs and expenses, including fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses.

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Section 5.12      Interpretation . The rules of interpretation set forth in Section 8.06 of the Investment Agreement shall apply to this Agreement, mutatis mutandis .
[ Signature pages follow ]



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IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the date first above written.
COMPANY:

TEEKAY OFFSHORE PARTNERS L.P.
   
By: Teekay Offshore GP L.L.C., its general partner


By:              /s/ Edith Robinson                             
       Name:  Edith Robinson
       Title:    Secretary

 






SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
136252302.7


PURCHASER:

BROOKFIELD TK TOLP L.P.
   
By:              /s/Gregory E A Morrison                  
       Name:  Gregory E A Morrison
       Title:    Director


 




SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
136252302.7




TEEKAY CORPORATION
    
By:              /s/ Edith Robinson                            
       Name:  Edith Robinson
       Title:    Assistant Corporate Secretary

SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
136252302.7


EXHIBIT A

DEFINED TERMS
1. The following capitalized terms have the meanings indicated:
“ Adverse Disclosure ” means public disclosure of material non-public information that, in the reasonable judgment of the Company (after consultation with legal counsel): (i) would be required to be made in any registration statement filed with the SEC by the Company so that such registration statement would not be materially misleading; (ii) would not be required to be made at such time but for the filing, effectiveness or continued use of such registration statement; and (iii) the Company has a bona fide business purpose for not disclosing publicly.
“ Affiliate ” means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, such specified Person; provided , that (i) the Company and its Subsidiaries shall not be deemed to be Affiliates of the Investor or any of its Affiliates, (ii) the Parent and its Subsidiaries shall not be deemed to be Affiliates of the Investor or any of its Affiliates, and (iii) portfolio companies in which the Investor or any of its Affiliates has an investment (whether as debt or equity) shall not be deemed an Affiliate of the Investor or the Investor’s Affiliates. For the purposes of this definition, “ control ”, when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “ controlling, ” “ controlled, ” “ controlled by ” and “ under common control with ” have meanings correlative to the foregoing.
“ Business Day ” means any day except a Saturday, a Sunday or other day on which the SEC or banks in the City of New York are authorized or required by law to be closed.
“ Common Units ” means all common units of the Company currently or hereafter existing.
“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and any successor statute thereto, and the rules and regulations of the SEC promulgated thereunder.
“ FINRA ” means the Financial Industry Regulatory Authority, Inc.
“ Person ” means any individual, corporation, limited liability company, partnership, joint venture, association, trust, unincorporated organization or any other entity, including a governmental authority.
“ register ”, “ registered ” and “ registration ” refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement or the automatic effectiveness of such registration statement, as applicable.
“ Registrable Securities ” means, as of any date of determination, (a) Common Units issued to the Purchaser pursuant to the Investment Agreement, (b) Common Units issued to TK or its Affiliates pursuant to the TK Investment Agreement and (c) Common Units beneficially owned by

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Purchaser or its Affiliates or TK or its Affiliates as of the date of this Agreement (in each case, whether or not subsequently transferred to any Investor) and any Common Units hereafter acquired by any Investor pursuant to the exercise of the Warrants, and any other securities issued or issuable with respect to any such Common Units or Warrants by way of unit split, unit dividend, distribution, recapitalization, merger, exchange, replacement or similar event or otherwise. As to any particular Registrable Securities, once issued, such securities shall cease to be Registrable Securities when (i) such securities are sold or otherwise transferred pursuant to an effective registration statement under the Securities Act, (ii) such securities shall have ceased to be outstanding, (iii) such securities have been transferred in a transaction in which the Holder’s rights under this Agreement are not assigned to the transferee of the securities pursuant to Section 4.1 or (iv) all of such Holder’s securities may be resold without restriction on manner of sale or volume within one three-month period pursuant to Rule 144, provided that any such security that ceases to be a Registrable Security under this clause (iv) will again be deemed a Registrable Security if a subsequent decrease in trading volume results in the holder thereof not being able to sell such securities during such period without restriction as to volume or manner of sale pursuant to Rule 144.
“ Registration Expenses ” means any and all expenses incident to the performance of or compliance with any registration or marketing of securities, including all (i) registration and filing fees, FINRA fees and all other fees and expenses payable in connection with the listing of securities on any securities exchange or automated interdealer quotation system, (ii) fees and expenses of compliance with any securities or “blue sky” laws (including reasonable fees and disbursements of counsel in connection with “blue sky” qualifications of the securities registered), (iii) expenses in connection with the preparation, printing, mailing and delivery of any Registration Statements, prospectuses and other documents in connection therewith and any amendments or supplements thereto, (iv) security engraving and printing expenses, (v) internal expenses of the Company (including all salaries and expenses of its officers and employees performing legal or accounting duties), (vi) fees and disbursements of counsel for the Company and customary fees and expenses for independent certified public accountants retained by the Company (including the expenses relating to any comfort letters or costs associated with the delivery by independent certified public accountants of any comfort letters to be provided pursuant to  Section 2.1  hereof), (vii) fees and expenses of any special experts retained by the Company in connection with such registration, (viii) reasonable fees and expenses of any counsel to the Holders, (ix) fees and expenses in connection with any review of the underwriting arrangements or other terms of the offering, and all fees and expenses of any “qualified independent underwriter” or other independent appraiser participating in any offering, including the fees and expenses of any counsel thereto, (x) fees and disbursements of underwriters customarily paid by issuers or sellers of securities, but excluding any underwriting fees, discounts and commissions attributable to the sale of Registrable Securities, (xi) costs of printing and producing any agreements among underwriters, underwriting agreements, any “blue sky” or legal investment memoranda and any selling agreements and other documents in connection with the offering, sale or delivery of the Registrable Securities, (xii) transfer agents’ and registrars’ fees and expenses and the fees and expenses of any other agent or trustee appointed in connection with such offering, (xiii) expenses relating to any analyst or investor presentations or any “road shows” undertaken in connection with the registration, marketing or selling of the Registrable Securities, (xiv) fees and expenses payable in connection with any ratings of the Registrable Securities, including expenses relating to any presentations to rating agencies, and

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(xv) all other costs and expenses incurred by the Company or its officers in connection with their compliance with the Company’s obligations under this Agreement.
“ Rule 144 ” means Rule 144 promulgated under the Securities Act and any successor provision.
“ Rule 462(e) ” means Rule 462(e) promulgated under the Securities Act and any successor provision.
“ Selling Expenses ” means all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders.
“ SEC ” means the U.S. Securities and Exchange Commission.
“ Securities Act ” means the Securities Act of 1933, as amended, and any successor statute thereto, and the rules and regulations of the SEC promulgated thereunder.
“ Shelf Registration Statement ” means the Resale Shelf Registration Statement or a Subsequent Shelf Registration Statement, as applicable.
“ Warrants ” means the warrants issued or transferred to the Purchaser and TK or its Affiliates pursuant to the Investment Agreement, the TK Investment Agreement or the Amended and Restated Promissory Note (as defined in the Investment Agreement), and all warrants issued upon division or combination of, or substitution in for, such warrants.


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2.      The following terms are defined in the Sections of the Agreement indicated:
INDEX OF TERMS

Term
Section
Actions
Section 5.6(b)
Agreement
Preamble
Company
Preamble
Company-Initiated Registration
Section 1.8(a)
Company Indemnified Parties
Section 3.1
Effectiveness Period
Section 1.2
Holder
Recitals
Holder Indemnified Parties
Section 3.2
Holders
Recitals
Indemnified Party
Section 3.3
Indemnifying Party
Section 3.3
Interruption Period
Section 2.1(o)
Investment Agreement
Recitals
Investor
Recitals
Investor-Initiated Registration
Section 1.8(b)
Investors
Recitals
Losses
Section 3.1
Offering Persons
Section 2.1(m)
Piggyback Notice
Section 1.8(a)
Piggyback Registration Statement
Section 1.8(a)
Piggyback Request
Section 1.8(a)
Purchaser
Preamble
Resale Shelf Registration Statement
Section 1.1
Shelf Offering
Section 1.7
Subsequent Holder Notice
Section 1.5
Subsequent Shelf Registration Statement
Section 1.3
Take-Down Notice
Section 1.7
TK Investment Agreement
Recitals
Underwritten Offering
Section 1.6(a)
Underwritten Offering Notice
Section 1.6(a)




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EXHIBIT B

FORM OF JOINDER TO
REGISTRATION RIGHTS AGREEMENT
THIS JOINDER (this “ Joinder ”) to the Registration Rights Agreement (the “ Agreement ”) dated as of September 25, 2017 by and among TEEKAY OFFSHORE PARTNERS L.P., a Delaware corporation (the “ Company ”), BROOKFIELD TK TOLP L.P., TEEKAY CORPORATION and the other parties thereto from time to time, is made and entered into as of _________ by and between the Company and _________________ (“ Holder ”). Capitalized terms used herein but not otherwise defined shall have the meanings set forth in the Agreement.
WHEREAS, Holder has acquired [ [ _____ Common Units] / [_______ Warrants] ] from ___________.
NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Joinder hereby agree as follows:
1.     Agreement to be Bound . Holder hereby (i) acknowledges that Holder has received and reviewed a complete copy of the Agreement and (ii) agrees that upon execution of this Joinder, Holder shall become a party to the Agreement and shall be fully bound by, and subject to, all of the covenants, terms and conditions of the Agreement as though an original party thereto as an Investor.
2.     Successors and Assigns . Except as otherwise provided in the Agreement, this Joinder shall bind and inure to the benefit of and be enforceable by the Company and Holder.
3.     Notices . For purposes of Section 5.9 of the Agreement, all notices, demands or other communications to the Holder shall be directed to:
[Name]

[Address]
4.     Counterparts; Facsimile Signatures . This Joinder may be executed in separate counterparts each of which shall be an original and all of which taken together shall constitute one and the same agreement. Facsimile counterpart signatures to this Agreement shall be acceptable and binding.
5.     Governing Law . This Joinder shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to any rules, principles or provisions of choice of law or conflict of laws.
6.     Descriptive Headings . The descriptive headings of this Joinder are inserted for convenience only and do not constitute a part of this Joinder.

B-1
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B-2
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IN WITNESS WHEREOF, the parties hereto have executed this Joinder to the Registration Rights Agreement as of the date set forth in the introductory paragraph hereof.

TEEKAY OFFSHORE PARTNERS L.P.
By:
Teekay Offshore GP L.L.C., its general partner
By:
__________________________________
 
Name:
 
Title:  

 
[HOLDER]
By:
__________________________________
 
Name:
 
Title:



B-3
136252302.7
EXECUTION COPY


MASTER SERVICES AGREEMENT
This MASTER SERVICES AGREEMENT (this “ Agreement ”), dated as of September 25, 2017, is by and among (i) Teekay Corporation, a Marshall Islands corporation (“ TKC ”), on behalf of itself and any of its Affiliates which, as of the date of this Agreement or at any time hereafter for as long as this Agreement remains in effect, will provide services to Teekay Offshore Partners L.P., a Marshall Islands limited partnership (“ TOO ”) and its Subsidiaries, (ii) TOO, on behalf of itself and its Subsidiaries, and (iii) for purposes of Sections 2.2 , 4.3 , 6.1 , 8.2 , 9.1 and Article 10 , Brookfield TK TOLP L.P. (“ Investor ”), a Bermuda limited partnership. TKC, TOO and Investor are sometimes referred to as the “ Parties ”. Reference is made to that certain Investment Agreement, dated as of July 26, 2017, by and among Investor and TOO (the “ Investment Agreement ”). Capitalized terms used but not otherwise defined herein shall have the meanings set forth in the Investment Agreement.
WHEREAS, this Agreement is the Master Services Agreement referenced in the Investment Agreement and the entry into this Agreement is a condition precedent to Investor’s obligations to effect the Transactions and to effectuate the Closing;
WHEREAS, concurrently with the execution of the Investment Agreement, the Parties entered into a term sheet (the “ Term Sheet ”) with respect to this Agreement, which Term Sheet contained certain covenants and obligations of the Parties;
WHEREAS, after giving effect to the Closing of the transactions contemplated by the Investment Agreement, TKC is the beneficial owner of 51% of the issued and outstanding equity interests of Teekay Offshore GP L.L.C., a Marshall Islands limited liability company (“ TOO GP ”);
WHEREAS, TOO desires certain Persons to be transitioned to TOO, and TKC is willing to transition such Persons upon the terms and subject to the conditions set forth herein;
WHEREAS, TOO and TKC desire to set forth the general framework governing the provision of services between TOO and TKC from and after the date hereof; and
WHEREAS, each Party hereby acknowledges and confirms that such Party will, directly or indirectly, receive a substantial economic benefit as a result of the Transactions; NOW THEREFORE, in consideration of good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the Parties hereto, the Parties hereby agree as follows:
Article 1.
DEFINED TERMS
As used in this Agreement (including the recitals hereto), the following terms shall have the following meanings:
“ Adjustment Calculations ” shall have the meaning ascribed to such term in Section 2.3 .


Exhibit 10.4

“ Adjustment Dispute Notice ” shall have the meaning ascribed to such term in Section 2.3 .
“ Alternative Transfer ” shall have the meaning ascribed to such term in Section 2.2 .
“ Bankrupt ” means, with respect to a Person, that (i) such Person has (A) made a general assignment for the benefit of creditors; (B) filed a voluntary petition in bankruptcy; (C) been adjudged bankrupt or insolvent, or had entered against such Person an order of relief in any bankruptcy or insolvency proceeding; (D) filed a petition or an answer seeking for such Person any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief from its debts under any statute, law or regulation or filed an answer or other pleading admitting or failing to contest the material allegations of a petition filed against such Person in any proceeding of the nature of a bankruptcy proceeding or similar matter; or (E) sought, consented to, or acquiesced in the appointment of a trustee, receiver or liquidator of such Person or of all or any substantial part of such Person’s properties; (ii) 120 days have elapsed after the commencement of any proceeding against such Person seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation and such proceeding has not been dismissed; or (iii) 90 days have elapsed since the appointment without such Person’s consent or acquiescence of a trustee, receiver or liquidator of such Person or of all or any substantial part of such Person’s properties and such appointment has not been vacated or stayed or the appointment is not vacated within 90 days after the expiration of such stay.
“ Complaining Party ” shall have the meaning ascribed to such term in Section 6.2 .
“ Confidential Information ” shall have the meaning ascribed to such term in Section 7.02(a) .
“ Current Service Agreement ” shall have the meaning ascribed to such term in Section 4.1 .
“ Current Services ” shall have the meaning ascribed to such term in Section 4.1 .
“ Dedicated TNK Employee ” shall have the meaning ascribed to such term in Section 3.4 .
“ Disclosing Party ” shall have the meaning ascribed to such term in Section 7.02(a) .
“ Dispute ” shall have the meaning ascribed to such term in Section 6.2 .
“ Dispute Notice ” shall have the meaning ascribed to such term in Section 6.2 .
“ DOC ” shall mean a document of compliance issued in accordance with the requirements of the International Maritime Safety Code and the relevant flag state government.
“ DOC Issuance ” shall have the meaning ascribed to such term in Section 2.1 .
“ Entity Transfer ” shall have the meaning ascribed to such term in Section 2.2 .
“ Evaluation Period ” shall have the meaning ascribed to such term in Section 4.3(a) .
“ FPSO ” shall have the meaning ascribed to such term in Section 4.2(a) .

 
2
 

Exhibit 10.4

“ Further Transition ” shall have the meaning ascribed to such term in Section 5.1 .
“ GAAP ” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board Accounting Standards Codification or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the date hereof.
“ Historic Practice ” shall have the meaning ascribed to such term in Section 4.3(c) .
“ Indemnitee ” shall have the meaning ascribed to such terms in Section 9.4 .
“ Indemnitor ” shall have the meaning ascribed to such terms in Section 9.4(a) .
“ Initial Schedule 2 Entity Consideration Value ” shall have the meaning ascribed to such term in Section 2.2 .
“ Investment Agreement ” shall have the meaning ascribed to such term in the Preamble.
“ Investor ” shall have the meaning ascribed to such term in the Preamble.
“ Losses ” shall mean any claim, loss, liability, cost, damage, deficiency, assessment, fine, judgment, fee, cost or expense (including reasonable, duly-documented out-of-pocket legal fees and expenses and other reasonable, duly-documented out-of-pocket costs incurred in investigating, preparing and defending the foregoing).
“ LP Agreement ” shall mean the Fifth Amended and Restated Agreement of Limited Partnership of TOO, dated as of June 29, 2016, as amended, supplemented or otherwise modified.
“ New Service Agreement ” shall have the meaning ascribed to such term in Section 5.1 .
“ New Services ” shall have the meaning ascribed to such term in Section 5.3 .
“ Parties ” shall have the meaning ascribed to such term in the Preamble.
“ Pre-Closing Service ” shall have the meaning ascribed to such term in Section 3.2(e) .
“ Principal Representative ” shall have the meaning ascribed to such term in Section 6.1 .
“ Receiving Party ” shall have the meaning ascribed to such term in Section 7.02(a) .
“ Responding Party ” shall have the meaning ascribed to such term in Section 6.2 .
“ Response ” shall have the meaning ascribed to such term in Section 6.2 .
“ Schedule 1 Employees ” shall mean the employees, consultants and contractors of those Persons listed on Schedule 1 .
“ Schedule 2 Employees ” shall mean the employees, consultants and contractors of those Persons listed on Schedule 2 .
“ Schedule 2 Entities ” shall mean those Persons listed on Schedule 2 .
“ Schedule 2 Entity Consideration Difference ” shall have the meaning ascribed to such term in Section 2.3 .
“ Schedule 2 Entity Consideration Value ” shall have the meaning ascribed to such term in Section 2.3 .

 
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Exhibit 10.4

“ Schedule 2 Entity Financial Statements ” shall have the meaning ascribed to such term in Section 8.1 .
“ Schedule 3 Dedicated Employees ” shall mean those employees, consultants and contractors of the Schedule 3 Entities who, as of the date of the Investment Agreement, spent substantially all of their business time dedicated to the TOO Business.
“ Schedule 3 Entities ” shall mean those Persons listed on Schedule 3 .
“ Schedule 3 Services ” shall have the meaning ascribed to such term in Section 5.1 .
“ Schedule 3 Transferred Employee ” shall have the meaning ascribed to such term in Section 3.1 .
“ Service Provider ” shall have the meaning ascribed to such term in Section 4.1 .
“ Service Recipient ” shall have the meaning ascribed to such term in Section 4.1 .
“ Shared Service Evaluation ” shall have the meaning ascribed to such term in Section 5.1 .
“ Term Sheet ” shall have the meaning ascribed to such term in the Preamble.
“ Termination Costs ” shall have the meaning ascribed to such term in Section 4.3(b) .
“ TKC ” shall have the meaning ascribed to such term in the Preamble.
“ TKC Entities ” shall mean, collectively, TKC and its Subsidiaries (other than any TOO Entity).
“ TKC Indemnitees ” shall have the meaning ascribed to such term in Section 9.2 .
“ TNK ” shall have the meaning ascribed to such term in Section 3.4 .
“ TNOL ” shall mean Teekay Navion Offshore Loading Pte. Ltd.
“ TNOL Service Agreements ” shall have the meaning ascribed to such term in Section 4.2(b) .
“ TOO ” shall have the meaning ascribed to such term in the Preamble.
“ TOO Business ” shall mean the business of TOO and its Subsidiaries, (which shall include, for certainty, the services provided to the TOO Entities by the TKC Entities as of the Closing Date as well as any services provided by any TKC Entity or TKC Employee on behalf of TOO), including the Offshore Restricted Business (as defined in the Amended and Restated Omnibus Agreement among, inter alia, Teekay Shipping Corporation, Teekay LNG Partners L.P., TOO and TOO GP).
“ TOO Entities ” shall mean, collectively, TOO and its Subsidiaries. For the avoidance of doubt, each Schedule 2 Entity shall be a TOO Entity from and after the Transfer Date.
“ TOO GP ” shall have the meaning ascribed to such term in the Preamble.
“ TOO Indemnitees ” shall have the meaning ascribed to such term in Section 9.1 .
“ Transfer Date ” shall have the meaning ascribed to such term in Section 2.2 .
“ Transition Manager ” shall have the meaning ascribed to such term in Section 6.1 .
ARTICLE 2.     
REORGANIZATION

 
4
 

Exhibit 10.4

Section 2.1      Document of Compliance . TKC and TOO shall use their respective commercially reasonable efforts to cause a DOC to be issued (the time such DOC is issued, the “ DOC Issuance ”) to either (as directed in writing to TKC by TOO) Teekay Shipping Norway AS as soon as practicable following the Closing, and TKC shall keep TOO informed of the progress of such issuance at all times. Until the DOC Issuance has occurred, TKC shall, and shall cause its Affiliates to, use its commercially reasonable efforts to do all things and take all actions necessary to maintain any current DOC and safety case reasonably necessary for the TOO Business in full force and effect. TOO shall bear all reasonable, duly-documented out-of-pocket costs and expenses incurred by the TKC Entities and the TOO Entities in obtaining such DOC. Transfer of Certain Entities. On January 1, 2018, TKC shall cause each Schedule 2 Entity to be transferred to a TOO Entity (including, for certainty, any new entity formed by TOO for such purpose, as directed in writing to TKC by TOO) by transferring all equity or other ownership interest issued by such Schedule 2 Entity to the designated TOO Entity (the “Entity Transfer”). The agreements and documents executed, delivered or filed in connection with each Entity Transfer shall be in a form and substance reasonably acceptable to TKC, TOO and Investor to reflect a valid transfer and shall include the form of purchase agreement (each, a “Purchase Agreement”) substantially in the form attached hereto as Exhibit B. In connection with an Entity Transfer, TOO shall pay to the relevant seller entity an amount in cash, or if the calculated value is negative, TKC shall pay, or cause to be paid, and TOO shall be entitled to receive, an amount in cash from the applicable seller entity, equal to such Schedule 2 Entity’s stockholder’s equity as of the Transfer Date, determined in accordance with GAAP on a basis consistent with past practice (the “Initial Schedule 2 Entity Consideration Value”), in each case, as of the time of the Entity Transfer, as estimated by TOO, taking into consideration any other reasonable adjustments as the Parties and Investor may agree based on commercial principles. Illustrative examples of the calculation of the consideration to be paid in connection with the Entity Transfers are set forth in Exhibit A hereto. To the extent that TKC and TOO reasonably agree that (A) any Entity Transfer is not commercially reasonable due to material adverse tax consequences or other material adverse commercial impacts, or (B) it may otherwise be materially beneficial to either party (and not materially detrimental to the other party) to effect an Alternative Transfer (as defined below), TKC shall take all steps reasonably necessary to transfer to TOO or a Subsidiary of TOO (as directed in writing to TKC by TOO and Investor) all employees, assets and liabilities related to the TOO Business (to the extent reflected on the balance sheet/financial statements of such Schedule 2 Entity as of the date of such transfer of the applicable Transferred Entity) for substantially similar consideration (the “Alternative Transfer”). All Entity Transfers and, to the extent there are any, Alternative Transfers shall be completed on January 1, 2018 (the “ Transfer Date ”).
Section 2.2      TK Event of Default . Notwithstanding anything in this Agreement to the contrary, upon the occurrence of a TK Event of Default (as defined in the Amended and Restated GP LLC Agreement), TKC shall use commercially reasonable efforts to immediately cause an Entity Transfer or Alternative Transfer with respect any or all of the Schedule 2 Entities (as directed in writing by TOO). Settlement of Intercompany Balances . At the Transfer Date, there shall be no intercompany balances (other than trade receivables and payables arising in the ordinary course of business) between any TKC Entity, on the one hand, and any Schedule 2 Entity, on the other hand.

 
5
 

Exhibit 10.4

ARTICLE 3.     
EMPLOYEES
Section 3.1      Transition of Schedule 3 Dedicated Employees . At any time during the Evaluation Period, TOO may request that TKC permit and use commercially reasonable efforts to facilitate the transfer the employment or other engagement of any Person who is a Schedule 3 Dedicated Employee to a TOO Entity (as directed in writing by TOO) as soon as reasonably practicable following such request on substantially similar terms (each such person, a “Schedule 3 Transferred Employee”). All such requests and transfers of employment shall be made in accordance with applicable Law. TKC shall, and shall cause the other TKC Entities to, make all Schedule 3 Transferred Employees freely available for employment or other engagement by the TOO Entities. Except as set forth in this Article 3, TOO shall be responsible for the pro rata portion (based on the percentage of professional time such Schedule 3 Dedicated Employee devoted to the TOO Business in the one year period prior to the date hereof) of any and all Losses incurred by TKC or any of its Subsidiaries (other than TOO GP and its Subsidiaries) in connection with the termination of such Schedule 3 Transferred Employee and/or the process of offering such Schedule 3 Transferred Employee employment with TOO and the implementation of such offer.
(a)      TKC shall use, and shall cause its Subsidiaries (including, for certainty, any applicable Schedule 2 Entity) to use, their respective commercially reasonable efforts to cause the transfer of David Wong’s employment to a Schedule 2 Entity prior to the applicable Transfer Date.
Section 3.2      Continuation of Employment; Certain Benefits . TKC shall not, and shall cause the other TKC Entities not to, transfer any Schedule 2 Employee (prior to the Transfer Date) or Schedule 3 Dedicated Employee (in the case of any Schedule 3 Transferred Employee who has accepted an offer from a TOO Entity, prior to the date on which such person’s employment is transferred to a TOO Entity) to a Person not listed on the applicable schedule.
(a)      With respect to each Schedule 2 Employee, until the Transfer Date, TKC shall, and shall cause the other TKC Entities to, use their respective commercially reasonable efforts to cause such Schedule 2 Employees to continue to be dedicated to, and provide services to, the TOO Business consistent with past practice.
(b)      With respect to each Schedule 3 Dedicated Employee (in the case of any Schedule 3 Transferred Employee who has accepted an offer from a TOO Entity, prior to the date on which such person’s employment is transferred to a TOO Entity), TKC shall, and shall cause the other TKC Entities to, use their respective commercially reasonable efforts to cause such Schedule 3 Dedicated Employee to continue to be dedicated to, and provide services to, the TOO Business consistent with past practice.
(c)      TOO and TKC hereby agree (i) that each of them will cooperate and use commercially reasonable efforts to ensure (x) that the transfer of the Schedule 3 Transferred Employees shall not constitute or give rise to a severance of employment of any Schedule 3 Transferred Employee prior to or upon such consummation of such transfers and (y) that the Schedule 3 Transferred Employees will have continuous and uninterrupted employment immediately before and immediately after the date of their transfer and (ii) to comply, in all material respects, with the

 
6
 

Exhibit 10.4

requirements under applicable Laws in respect of such transfers. TOO shall assume or retain all Losses in respect of claims made by any Schedule 3 Dedicated Employees for statutory, contractual or common law severance or other separation benefits (including claims for wrongful dismissal, notice of termination of employment or pay in lieu of notice) (“ Severance Compensation ”) arising out of, relating to or in respect of such Schedule 3 Dedicated Employee’s refusal to accept a transfer of employment to a TOO Entity or a Schedule 2 Entity in connection herewith.
(d)      From and after the applicable transfer time, TOO shall, and TOO shall cause the TOO Entities (including any Schedule 2 Entity after the Transfer Date) to, give each Transferred Schedule 3 Employee full credit for such Transferred Schedule 3 Employee’s service with the TKC Entities (and with any predecessor employer) (such service, “ Pre-Closing Service ”) for purposes of eligibility to participate, vesting (other than with respect to any equity based compensation plan) and determining level of benefits (in the case of paid time off, vacation and severance only) under any Company Plan and employment-related entitlements provided, sponsored, maintained or contributed to by any TOO Entity or any Schedule 2 Entity in which such Transferred Schedule 3 Employee is eligible to participate after the Closing Date, in each case, to the same extent such Pre-Closing Service was recognized by the TKC Entities immediately prior to the time such Person’s employment was transferred under a similar benefit plan, except to the extent such credit would result in duplication of benefits for the same period of service or with respect to benefit accruals under any defined benefit pension plan.
(e)      For purposes of determining the number of vacation days to which each Schedule 3 Transferred Employee shall be entitled during the calendar year in which the applicable transfer occurs, TOO shall, and shall cause the TOO Entities to, and TKC shall cause the Schedule 2 Entities to, honor all vacation days earned but not yet taken by such Schedule 3 Transferred Employee as of the applicable time their employment is transferred (as reasonably determined by TOO in good faith).
(f)      The TOO Entities shall assume or retain the pro rata portion (based on the percentage of professional time such Schedule 3 Transferred Employee devoted to the TOO Business in the one year period prior to the date hereof) of all Losses incurred by TKC or any of its Subsidiaries (other than TOO GP and its Subsidiaries) in respect of claims made by any Schedule 3 Transferred Employee for statutory, contractual or common law employment-related entitlements or other employment related claims arising out of, relating to or in respect of any such Schedule 3 Transferred Employee’s transfer of employment to a TOO Entity in connection herewith.  
Section 3.3      Talent Management . TKC and TOO agree that the parties will engage in good faith discussions at the Board level to review the talent within the TKC Entities and the TOO Entities with a goal of providing career development opportunities for key individuals within their respective organizations. Such opportunities could be by way of permanent transfer or temporary secondment or such other methodology as the parties consider appropriate in the circumstances. Provided, however, neither party shall hire or engage an employee from the other organization without the prior consent of the board of directors of the other party. This Section 3.3 shall cease to apply with respect to any Transferred Employee one year after such Transferred Employee ceases to be employed by any TKC Entity for any reason. TNOL Employees . TKC shall

 
7
 

Exhibit 10.4

have the right to offer employment with TKC or one of its Subsidiaries to any employee of TNOL who the parties reasonably determine spends substantially all of his or her time providing services to Teekay Tankers Ltd. or one of its Subsidiaries (collectively, “ TNK ”) (such employee, a “ Dedicated TNK Employee ”). TKC shall bear all costs associated with the transfer of the employment of such Persons who accept employment with TKC, as well as any severance or other costs incurred by the TOO Entities in connection with the transfer or termination of such employment. TKC shall be responsible for all Losses incurred by the TOO Entities in connection with the termination of any Dedicated TNK Employee who has accepted an offer for employment pursuant to Section 3.4 hereof or the process of offering such Dedicated TNK Employee employment with TNK and the implementation of such offer.
Section 3.4      Current Service Agreements . The TKC Entities, on the one hand, and the TOO Entities and the Schedule 2 Entities, on the other hand, are as of the date of this Agreement, and will be as of the Closing Date, parties to service Contracts (the “ Current Service Agreements ”) pursuant to which the TKC Entities (in such capacity, the “ Service Provider ”) provide the TOO Entities and the Schedule 2 Entities (in such capacity, the “ Service Recipient ”) services related to the conduct of their respective businesses (the “ Current Services ”). Unless otherwise agreed by TKC and TOO in accordance with the terms of this Agreement or otherwise in writing, from and after the date hereof, TKC shall, and shall cause the other TKC Entities to, (x) maintain the Current Service Agreements in full force and effect, and (y) ensure the continued provision of all Current Services by the Service Providers to the Service Recipients in accordance with the terms (including with respect to costs) of the Current Service Agreements and this Agreement subject to such changes resulting from compliance with the terms of this Agreement. Other Services . As of the Closing Date, certain entities set forth on Schedules 1 and 2 provide services to TKC related to the TKC Entities’ businesses under certain existing service agreements. In that regard, the Parties agree as follows:
(a)      Tanker Services . After the Closing, TNOL shall continue to provide commercial management services in accordance with the terms of the service agreements listed on Exhibit C (the “ TNOL Service Agreements ”), consistent with past practices.
Section 3.5      Amendments to Current Service Agreements . Effective as of the Closing Date, all Current Service Agreements shall hereby be amended, automatically and without further action by the Parties or their respective Subsidiaries, such that, notwithstanding anything to the contrary in the Current Services Agreements or this Agreement, the following provisions shall apply with respect to all Current Services and Current Service Agreements: Termination of Services . Service Providers may not terminate any Current Service Agreement, or any Current Service provided thereunder, for any reason during the 12 month period following Closing (the “ Evaluation Period ”) other than with respect to an event of default by the Service Recipients under the applicable agreement. At any time following the Closing, a Service Recipient may terminate any Current Service Agreement, or any Current Service provided thereunder, for any reason or for no reason, whether during the Evaluation Period or otherwise, at any time upon at least thirty (30) days (or such shorter period to which the applicable Service Provider agrees in writing) prior written notice to the Service Provider; provided , however , that prior to the Exercise Date (as defined in the Amended and Restated GP LLC Agreement), Investor’s consent shall be required prior to any such termination.

 
8
 

Exhibit 10.4

In the event a Service Recipient elects to terminate any Current Services, TKC shall, or shall cause the applicable Service Provider to, provide reasonable assistance necessary to ensure a smooth transition prior to the termination of such Current Services. For clarity, any termination of any Current Service Agreement or any Current Service shall not affect TOO’s rights to transfer or hire any Schedule 3 Dedicated Employees under Article 3 .
(a)      Cost of Termination. Any costs directly associated with the termination of any Current Services (including TOO’s pro rata share of any severance costs to be paid to any employee (based on the percentage of professional time such employee devoted to the TOO Business in the one (1) year period prior to the date hereof) who is made redundant, the costs of terminating software license seats or terminating leases for excess office space or sub-letting such space where software or space has been exclusively used in the TOO Business and costs associated with providing transition services to TOO, if any (collectively, “ Termination Costs ”), shall be borne by TOO. Notwithstanding the foregoing, if any such termination is due to the Service Provider’s material breach of the applicable Current Service Agreement, including the terms and conditions set forth in this Section 4.3 , which breach is not cured within thirty (30) days of Service Recipient’s notice to the applicable Service Provider describing such breach, the TKC Entities shall bear all Termination Costs associated with such termination. For clarity, in no event shall TOO be responsible for any costs associated with the termination of any Current Services in respect of any resources (such as employees, office lease space or software license seats) to the extent such resources are allocated to, or otherwise required to be held by, any TKC Entity in the operation of the business of the TKC Entities.
(b)      Service Level . TKC shall, and shall cause each Service Provider to, provide the Current Services, including with respect to the levels of care, quality, diligence and frequency, consistent with the conduct of the TOO Business during the 12-month period prior to the date hereof (such standard, “ Historic Practice ”) and, in any event, with not less than a reasonable degree of care, quality and diligence. In addition, TKC shall, and shall cause each Service Provider to, (i) establish and enforce policies that require performance of the Current Services in accordance with applicable Laws (including, for certainty, all Sanctions Laws, Money Laundering Laws, and Anticorruption Laws), (ii) give the Current Services substantially the same priority as it accords its own operations in the ordinary course of business, consistent with Historic Practice, (iii) assign sufficient resources and qualified personnel (based on education, training, experience and skill) to perform the Current Services, consistent with Historic Practice, and (iv) promptly notify the applicable Service Recipient of any staffing or resource problems that could reasonably be expected to materially affect the provision of the Current Services; provided that any such staffing or resource problems shall not affect or otherwise modify the obligations of such Service Provider to provide the applicable Current Services.
(c)      Cooperation . TKC shall, and shall cause the TKC Entities, on the one hand, and TOO shall, and shall cause the TOO Entities, on the other hand, to use good faith efforts to cooperate with each other in all matters relating to the provision and receipt of the Current Services.  Subject to the applicable Service Provider’s and Service Recipient’s information security, access, nondisclosure and confidentiality, and other reasonable policies and requirements, such cooperation will include exchanging information, providing necessary access to people, equipment and systems,

 
9
 

Exhibit 10.4

cooperating with respect to obtaining and providing all consents, licenses, sublicenses, approvals, and/or rights reasonably necessary to permit the applicable Service Provider and Service Recipient to perform its obligations, and providing mutual assistance with respect to any actions necessary for the extension of Current Services.
(d)      Modified or Additional Services . In the event that, during the Evaluation Period, a Service Recipient identifies the need to modify a Current Service or add an additional service, TKC and TOO shall, and shall cause the TKC Entities and the TOO Entities, as applicable, to, promptly work together in good faith and use commercially reasonable efforts to modify such Current Service or add such additional service to the applicable Current Service Agreement, under which Service Provider shall provide (or arrange for the provision of) such modified or additional service (which shall be considered a Current Service) to Service Recipient.  The fees for such new or modified Current Service shall be determined on a “cost plus” basis in a manner consistent with the provision of other Current Services under the Current Services Agreements and the applicable OECD transfer pricing guidelines, and unless otherwise agreed by the Parties, such modified Current Service or additional service shall be provided consistent with the terms and conditions set forth in this Section 4.3 . 
(e)      Performance by Affiliates and Subcontractors . A Service Provider may use one or more of its Affiliates or third party subcontractors to perform all or any portion of Service Provider’s duties under any Current Service Agreement, provided that (i) such Service Provider shall use the same degree of care in selecting any such third party service providers as it would if such third party service providers were being retained to provide similar services to such Service Provider (and in no event lower than a reasonable degree of care), (ii) such Service Provider remains primarily responsible for the performance of such Affiliates and subcontractors as if it was performed by such Service Provider, including such Affiliates’ and subcontractors’ acts and omissions, and (iii) the applicable Service Recipient’s payment or reimbursement obligations are not changed by such use.
(f)      Records; Audits.   Each Service Provider shall maintain all books, records, receipts, invoices, reports, and other documents and information relating to the Current Services in accordance with its standard accounting practices and procedures.  Each Service Provider shall make such books, records, receipts, invoices and other documents and information reasonably available, on reasonable prior written notice and during ordinary business hours, to the applicable Service Recipient and its auditors during the term of the applicable Current Service Agreements and for one (1) year afterwards for purposes of confirming such Service Provider’s compliance with the terms of the applicable Current Service Agreements.  Each Service Provider will cooperate with the applicable Service Recipient and its auditors, as reasonably requested by such Service Recipient, in connection with any audit.
(g)      Dispute Resolution . Any disputes with respect to any Current Service or Current Service Agreement shall be resolved in accordance with the dispute resolution process in Article 6 hereof.
(h)      Compliance with Laws . In providing the Current Services, each Service Provider shall hold and maintain all Permits and insurance policies, and shall not (i) take any action

 
10
 

Exhibit 10.4

(or make any omission) that violates, conflicts with, results in a breach of or constitutes a default under, its certificate of organization or other charter instrument or by-laws, (ii) take any action (or make any omission) that results in the suspension, termination, cancellation, non-renewal or adverse modification of any Permit or insurance policies or (iii) violate, in any material respect, any Law applicable to such Service Provider or Service Recipient (including, for certainty, all Sanctions Laws, Money Laundering Laws, and Anticorruption Laws).
(i)      GP Interest Option . For the avoidance of doubt, the exercise by Brookfield TK TOGP L.P. of its option to purchase 2% of the limited liability company interests in TOO GP shall not violate or constitute a default (or constitute an event which, with notice or lapse of time or both, would constitute a violation or default) under any of the terms, conditions or provisions of any Current Service Agreement or accelerate any obligations or rights under or give a right of termination of (whether or not with notice, lapse of time or both) any such Current Service Agreement.
The Parties acknowledge and agree that the foregoing amendments have been approved by the board of directors of each of TKC, TOO GP, the Conflicts Committee of TOO, Investor and the other parties to this Section 4.3.
Section 3.6      Further Amendments . The Parties agree to review the terms of the Current Services Agreements during the Evaluation Period and to negotiate in good faith any amendments to the Current Services Agreements that the Parties reasonably believe are required to reflect an arm’s length relationship between the Service Provider and the Service Recipient. The Parties acknowledge and agree that such amendments may include additions of, or changes to, provisions concerning payment terms, dispute resolution procedures, representations and warranties, indemnities, limitations of liability or termination rights, and any provisions added or changed by way of such amendment shall be consistent with such terms as would be reasonably expected to be included in an agreement governing the provision of similar services between arm’s length parties. The Parties acknowledge and agree that any material amendments to the Current Services Agreements contemplated by this Section 4.4 shall be subject to approval by the board of directors of each of TKC, TOO GP, the Conflicts Committee of TOO, and, prior to the Exercise Date, Investor, each such approval not to be unreasonably withheld, conditioned or delayed. Order of Precedence . In the event of any conflict between the terms of this Agreement and the Current Services Agreements, the terms of this Agreement shall prevail.
Section 3.7      Shared Service Evaluation; Further Transition . During the Evaluation Period, TOO shall evaluate, and TKC shall provide reasonable assistance to TOO in so evaluating, whether any of the Schedule 3 Entities should continue to provide Current Services (the “ Schedule 3 Services ”) to the TOO Entities and the Schedule 2 Entities, and, if so, on what terms and conditions, including with respect to duration (such actions, the “ Shared Service Evaluation ”). Based on the Shared Service Evaluation, the applicable TOO Entity and/or Schedule 2 Entity may elect any of the following (collectively, the “ Further Transition ”), whether during the Evaluation Period or otherwise: (i) termination of any Schedule 3 Services (or any portion thereof), (ii) continuation of any Schedule 3 Services under the applicable Current Service Agreement, or (iii) entry into one or more new service agreements with respect to any Schedule 3 Services or any other

 
11
 

Exhibit 10.4

service reasonably required to conduct the TOO Business with the applicable TKC Entity (which may be in the form of an amendment to a Current Service Agreement) (each, a “ New Service Agreement ”). TKC and TOO shall cause the TKC Entities and the TOO Entities to use commercially reasonable efforts to complete the Shared Service Evaluation and enter into the applicable New Service Agreements or effect such other Further Transition within the Evaluation Period. In the event the applicable TOO Entity and/or Schedule 2 Entity elects to enter into one or more New Service Agreements, TKC and TOO shall cause the applicable TKC Entity and TOO Entity to negotiate in good faith the terms and conditions (including with respect to price and duration) under which any such Schedule 3 Services or other services will be provided on a going forward basis in accordance with this Article 5 . The Parties acknowledge and agree that any material amendments to the Current Services Agreements shall be subject to approval by the board of directors of each of TKC, TOO GP, the Conflicts Committee of TOO, and, prior to the Exercise Date, Investor, each such approval not to be unreasonably withheld, conditioned or delayed. Termination . In the event the applicable TOO Entity elects to terminate any Schedule 3 Services, TKC shall cause the applicable TKC Entity to provide reasonable assistance necessary to ensure a smooth transition prior to the termination of such Schedule 3 Services. Any costs associated with the termination of any Schedule 3 Services shall be allocated between the TKC Entities and the TOO Entities in accordance with Section 4.3(b) . For clarity, any termination of Schedule 3 Services shall not affect TOO’s rights to transfer or hire any Schedule 3 Dedicated Employees under Article 3 .
Section 3.8      Transition Managers; Principal Representatives . TKC and TOO shall each appoint one individual (the “ Transition Manager ”) (i) to have primary responsibility and oversight for the Shared Service Evaluation and to facilitate the Further Transition, and (ii) to be TKC’s or TOO’s primary point of contact for matters relating to the Current Service Agreements and this Agreement (including with respect to the Shared Service Evaluation, the Further Transition, and amendments to be made pursuant to Section 4.4 ). The initial Transition Managers will be Brock Wlad (for TKC) and David Wong (for TOO). Further, TKC and TOO shall each appoint one principal representative (the “ Principal Representative ”) to have overall responsibility for the management and administration of his or her Party’s activities with respect to the Shared Service Evaluation and overall rights and obligations with respect to the agreements or other transactions contemplated by the Current Service Agreements and this Agreement (including with respect to the Shared Service Evaluation, the Further Transition, and amendments to be made pursuant to Section 4.4 ). The initial Principal Representative will be Arthur Bensler (for TKC) and Ingvild Saether (for TOO). Each of TKC and TOO may appoint a new Transition Manager or Principal Representative by providing the other Party with prior written notice thereof; provided, that prior to the Exercise Date, any new Transition Manager or Principal Representative appointed by TOO shall require the prior written approval of Investor. Resolution by Transition Managers . To the extent that the applicable TKC Entity and TOO Entity do not agree on any terms or conditions for a New Service Agreement or how to effect a proposed Further Transition, or otherwise have any disputes under the Current Service Agreements or this Agreement (including with respect to the Shared Service Evaluation, the Further Transition), such dispute (a “ Dispute ”) will be initially referred to the Transition Managers by either Party (in such role, the “ Complaining Party ”) by delivering written notice (a “ Dispute Notice ”) to the Transition Manager of the other Party (the “ Responding Party ”) setting forth in reasonably sufficient detail the position of the Complaining Party with respect to the Dispute, including the factual basis of such position.  Within fifteen (15) days after delivery of the Dispute

 
12
 

Exhibit 10.4

Notice, TKC or TOO, as applicable, will cause the Responding Party to submit to the Transition Manager of the Complaining Party a written response (the “ Response ”) setting forth in reasonably sufficient detail the Responding Party’s position concerning the Dispute. Within five (5) days after delivery of such a Response, the Transition Managers shall meet and confer at a mutually acceptable time, and thereafter as often as they deem reasonably necessary, in an effort to resolve the Dispute through good faith negotiation.  Such meetings may be by telephone or other means acceptable to each of the Transition Managers.  The Parties shall, and shall cause their respective Subsidiaries to, cooperate in good faith with respect to any reasonable requests for exchanges of information regarding the Dispute or a Response thereto for the purpose of engaging in such dispute resolution negotiations. 
Section 3.9      Timing; Delays; Adjustment of fees . In the event that any of the actions contemplated by this Agreement are frustrated or unduly delayed by TKC, all fees payable to TKC under any Current Service Agreement or New Service Agreement from and after such time and other fees related to employee or entity transfers shall be reduced by an amount to be agreed between the parties, acting reasonably. In the event that TKC incurs additional reasonable, duly-documented out-of-pocket costs in connection with the provision of services under any Current Services Agreement due to the requirements of this Agreement, the fees payable to TKC under such agreement will be adjusted by an amount agreed between the parties, acting reasonably, to take into consideration such additional reasonable, duly-documented out-of-pocket costs. Confidentiality .
(a)      Exclusions . Specifically excluded from the foregoing obligations is any and all information that the Receiving Party can show (i) is already known to the Receiving Party at the time of disclosure and is not known by the Receiving Party to be subject to a confidentiality obligation (other than any information that is transferred to Service Recipient under the Purchase Agreement) or thereafter is independently developed by the Receiving Party without breach of this Agreement; (i) is already in the public domain at the time of disclosure, or thereafter becomes publicly known other than as the result of a breach by the Receiving Party of its obligations under this Agreement; (i) is lawfully disclosed to the Receiving Party without breach of this Agreement; or (i) is independently developed by or for the Receiving Party without reference to or reliance upon the Confidential Information.
(b)      Required Disclosures . If, upon advice of counsel, any of Disclosing Party’s Confidential Information must be produced by the Receiving Party pursuant to applicable Law, then the Receiving Party shall promptly, if permissible, notify the Disclosing Party and, insofar as is permissible and reasonably practicable without placing the Receiving Party under penalty of applicable Law, give the Disclosing Party an opportunity to appear and to object to such production before producing the requested information.
(c)      Return of Confidential Information . Upon the termination or expiration of this Agreement, each Party, as a Receiving Party, shall, at the option of the other Party, as a Disclosing Party, return to such Disclosing Party all Confidential Information of such Disclosing Party or destroy such Confidential Information and provide a written certification of destruction with respect thereto to such Disclosing Party. In no event shall a Receiving Party be required to return or destroy any Confidential Information that is (i) required by applicable Law to be kept by the Receiving

 
13
 

Exhibit 10.4

Party or (ii) retained in archival back-up tapes or similar storage media, which shall only be used by the Receiving Party for archival purposes.
Section 3.10      Compliance with Laws; Confidentiality and Data Protection . Each Party shall, and shall cause its Subsidiaries to, perform its obligations hereunder, under the Current Service Agreements and under the New Service Agreements in accordance with applicable Law. TKC shall cause the TKC Entities, on the one hand, and TOO shall cause the TOO Entities, on the other hand, to use good faith efforts to cooperate with each other to develop and put in place appropriate obligations with respect to confidentiality and data security in relation to the Current Service Agreements, including as is necessary or appropriate to comply with applicable Law.  Without limiting the foregoing, each of TKC and TOO hereby covenants that it will not, and will cause the TKC Entities and TOO Entities, as applicable, not to, violate Anticorruption Laws in connection with this Agreement. In the event TKC or TOO becomes aware of any such violation of this Section 7.3 , it will promptly notify the other Parties of any violation. Records; Audits . Each of TKC and TOO shall maintain all books, records, receipts, invoices, reports, and other documents and information relating to this Agreement in accordance with its standard accounting practices and procedures.  Each of TKC and TOO shall make such books, records, receipts, invoices and other documents and information reasonably available, during ordinary business hours, to the other Party and its auditors during the term of this Agreement and for one (1) year afterwards for purposes of confirming such Party’s compliance with the terms of this Agreement.  Each Party will cooperate with the other Party and its auditors, as reasonably requested by such other Party, in connection with any audit.
Section 3.11      Representations and Acknowledgements by TKC . TKC hereby represents, warrants, acknowledges and confirms to TOO that:
(i)      TKC has full power and authority to execute, deliver and perform its obligations under this Agreement;
(ii)      this Agreement constitutes a valid and binding obligation of TKC, as applicable, enforceable against TKC, as applicable, in accordance with its terms, except as enforceability hereof may be limited by bankruptcy, insolvency or other laws affecting creditor’s rights generally and limitations on the availability of equitable remedies;
(iii)      there are no material liabilities of any Schedule 2 Entity required to be disclosed pursuant to GAAP (including for certainty any unfunded liabilities under any defined benefits plan) other than those liabilities set forth on the face of TKC’s consolidated financial statements;
(iv)      Exhibit D contains a true and complete list of all Current Service Agreements;
(v)      the provision of Current Services to any Service Recipient by any Service Provider in accordance with any Current Service Agreement will not (i) violate, conflict with, result in a breach of or constitute a default under, its certificate of organization or other charter instrument, by-laws, or any Contract to which such Service Provider or Service Recipient is a party

 
14
 

Exhibit 10.4

or by which such Service Provider or Service Recipient is otherwise bound, (ii) cause the suspension, termiantion, cancellation, non-renewal or adverse modification of any Permit or material insurance policies or (iii) violate, in any material respect, any Law applicable to such Service Provider or Service Recipient;
(vi)      the conduct of the TOO Business by the TOO Entities does not require any assets or services from the TKC Entities except for the Current Services provided pursuant to the Current Service Agreements;
(vii)      (A) Exhibit C contains a true and complete list of all TNOL Service Agreements, (B) Exhibit D contains a true and complete list of all service agreements pursuant to which any TKC Entity provides services to any TOO Entity or any Schedule 2 Entity,
(viii)      other than (A) pursuant to the TNOL Service Agreements set forth on Exhibit C and (B) from and after the Transfer Date, the TKC FPSO Service Agreements, no TOO Entity or Schedule 2 Entity provides services to any TKC Entity and
(ix)      As of the date hereof, no TKC Entity provides services to any TOO Entity or any Schedule 2 Entity other than pursuant to a service agreement set forth on Exhibit D;
(x)      the Schedule 2 Entity Financial Statements and the financial statements delivered pursuant to Section 2.3 hereof (A) have been or will be, as applicable, prepared in good faith based on assumptions believed by TKC to be reasonable as of the dates thereof and present fairly, in all material respects, the financial condition of each of the Schedule 2 Entities, in each case as of the respective dates thereof and their results of operations for the respective periods covered thereby, (B) are based or will be based, as applicable, on the historical accounting practices and policies of TKC and the Schedule 2 Entities and derived from the historical consolidated financial statements of TKC and its Subsidiaries, which are prepared in accordance with GAAP and (C) have been or will be, as applicable, prepared in accordance with GAAP (except, in the case of unaudited quarterly financial statements subject to normal year-end adjustments) applied on a consistent basis during the periods covered thereby;
(xi)      Schedules 2 and 3 collectively contain a true and complete list of all of TKC’s Affiliates (other than TOO GP, TOO and their respective Subsidiaries) that, as of the Closing Date, provide services, directly or indirectly (including, for clarity, by employing or otherwise engaging Persons that provide services to TOO and its Subsidiaries) to TOO and its Subsidiaries; and
(xii)      the lists of Schedule 2 Employees and Schedule 3 Employees contain all information regarding such person’s employment as is required by the Term Sheet and are, as of the date hereof, true, complete and correct in all respects;
(xiii)      subject to the DOC Issuance and receipt of similar approvals, neither the execution and delivery of this Agreement by TKC, nor the consummation by TKC of the transactions contemplated hereby, nor performance or compliance by TKC with any of the terms or provisions hereof or thereof, will (A) conflict with or violate any provision of (1) TKC’s

 
15
 

Exhibit 10.4

organizational documents or (2) any similar organizational documents of any of the TKC Entities or (B) violate or constitute a default (or constitute an event which, with notice or lapse of time or both, would constitute a violation or default) under any of the terms, conditions or provisions of any Contract to which any TKC Entity is a party or accelerate any obligations or rights under or give a right of termination of (whether or not with notice, lapse of time or both) any such Contract, (C) violate any Law, judgment, writ or injunction of any Governmental Entity applicable to any TKC Entity or (D) result in the creation of any Lien on any properties or assets of any TKC Entity, except as, individually or in the aggregate, have not had and would not reasonably be expected to have a material adverse effect on TOO; and
(xiv)      subject to the DOC Issuance and receipt of similar approvals, no consent or approval of, or filing, license, permit or authorization, declaration or registration with, any Governmental Entity are necessary for the execution and delivery of this Agreement by TKC, the performance by TKC of its obligations hereunder and thereunder and the consummation by the TKC Entities of the transactions contemplated hereby, except in those cases as individually or in the aggregate would not reasonably be expected to have a material adverse effect on TOO.
Section 3.12      Representations and Acknowledgements by TOO and Investor . Each of TOO and Investor hereby severally represents, warrants, acknowledges and confirms to TKC that (a) such Person has full power and authority to execute, deliver and perform its obligations under this Agreement and (b) this Agreement constitutes a valid and binding obligation of such Person, enforceable against such Person, in accordance with its terms, except as enforceability hereof may be limited by bankruptcy, insolvency or other laws affecting creditor’s rights generally and limitations on the availability of equitable remedies.

INDEMNIFICATION
Section 3.13      TKC Indemnity . TKC shall indemnify, defend and hold harmless, and hereby releases, TOO GP, TOO, each Subsidiary of TOO, Investor and each of their respective officers, directors, affiliates, employees, stockholders (other than any TKC Entities), consultants, contractors, agents, and other representatives, and each of the successors and assigns of any of the foregoing (collectively, the “ TOO Indemnitees ”), from and against: any and all Losses arising from or relating to third party claims arising from or relating any breach of this Agreement or failure to provide the services contemplated hereby, in each case, by any TKC Entity (except solely if, and only to the extent due to a breach of this Agreement by the TOO Entities or that is due to the gross negligence or willful misconduct on the part of the TOO Entities); and
(a)      No remedy shall be available hereunder to the extent it is duplicative of a remedy actually received pursuant to a Purchase Agreement. Indemnification Procedures . In order to receive the benefits of the indemnity under this Article 9 , a Person seeking indemnification (each, an “ Indemnitee ”) must:
(b)      allow the Indemnitor to assume the control of the defense and settlement (including all decisions relating to litigation, defense and appeal) of any such claim; provided that : (A) the Indemnitor has confirmed its indemnification obligation with respect to such claim to the

 
16
 

Exhibit 10.4

Indemnitee under this Article 9 , (B) no such settlement may adversely affect the rights or obligations of such Indemnitee under this Agreement without the Indemnitee’s prior written consent; and (C) any settlement reached without the prior written consent of such Indemnitee shall be for monetary damages only (which amount shall be fully indemnified hereunder by the Indemnitor) and not for any equitable relief and shall not include any admission or ongoing obligation or restriction on the part of such Indemnitee; and
(c)      reasonably cooperate with the Indemnitor, at the Indemnitor’s request and expense, in its defense of the claim (including making documents and records available for review and copying and making Persons within such Indemnitee’s control available for pertinent interview and testimony), including by negotiating appropriate joint defense agreements and similar arrangements to, as fully as possible, provide such cooperation without vitiating any legal privilege to which such Indemnitee is entitled.
(d)      If the Indemnitor defends the claim, the Indemnitee may at its sole expense and using attorneys of its choice, participate in, but shall not have any control of, the defense of such claim. The Indemnitor shall have no liability under, as applicable, Section 9.1 or Section 9.2 as to any claim for which settlement or compromise of such claim, or an offer of settlement or compromise of such claim, is made by an Indemnitee without the prior written consent of the Indemnitor.
(e)      All reasonable, duly-documented, out-of-pocket costs and expenses incurred by an Indemnitee in connection with enforcement of this Article 9 shall also be reimbursed by the Indemnitor (net of reasonable costs and expenses of recovery).
(f)      For the purposes of the indemnification provisions set forth in this Article 9 , any amounts payable hereunder or thereunder shall be determined on the basis of the net effect after giving effect to any actual cash payments, setoffs or recoupment or any payments in each case actually received, realized or retained by the indemnified Party (including any amounts recovered by the indemnified Party under insurance policies, but excluding self-insurance arrangements) as a result of any event giving rise to a claim for such indemnification. If the amount for which an indemnifying Party is obligated to provide indemnity hereunder is reduced due to recoveries by the applicable indemnified Parties under one or more insurance policies, then to the extent required by the terms of such policies, the applicable insurance indemnitors shall be subrogated to the rights of the indemnified Parties hereunder with respect to the claims giving rise to such amount payable under this Article 9 ; provided that in no event shall such insurance indemnitors be entitled to seek a recovery from the indemnifying Party in excess of the amount by which such amount payable under this Article 9 had been reduced.
Section 3.14      Limitations of Liability . UNDER NO CIRCUMSTANCES WHATSOEVER SHALL ANY PARTY, ITS AFFILIATES, OR ANY OF THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, STOCKHOLDERS, AGENTS AND REPRESENTATIVES, OR ANY OF THE SUCCESSORS OR ASSIGNS OF ANY OF THE FOREGOING PERSONS, BE LIABLE TO THE OTHER PARTY OR ANY OF ITS AFFILIATES IN CONTRACT, TORT, NEGLIGENCE, BREACH OF STATUTORY DUTY OR OTHERWISE FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL, INCIDENTAL OR PUNITIVE

 
17
 

Exhibit 10.4

DAMAGES OR ANY LOST PROFITS, LOSS OF USE, DAMAGE TO GOODWILL OR LOSS OF BUSINESS IN CONNECTION WITH THIS AGREEMENT, EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND EACH PARTY, ON BEHALF OF ITSELF AND EACH OF ITS AFFILIATES HEREBY WAIVES ON BEHALF OF ITSELF AND ITS AFFILIATES ANY AND ALL CLAIMS FOR SUCH DAMAGES, INCLUDING ANY CLAIM FOR LOST PROFITS, LOSS OF USE, DAMAGE TO GOODWILL OR LOSS OF BUSINESS WHETHER ARISING IN CONTRACT, TORT OR OTHERWISE. NOTHING CONTAINED HEREIN SHALL LIMIT THE INDEMNITY OBLIGATIONS SET FORTH IN THIS SECTION 9.5 WITH RESPECT TO ANY LOSSES PAYABLE TO ANY THIRD PARTY IN CONNECTION WITH ANY THIRD PARTY CLAIMS. The Parties intend that no double remedies or recoveries are intended or permitted under this Agreement and that claims asserted under one Section or subsection of this Agreement may not also be asserted under another such subsection of this Agreement or under the Investment Agreement or the Related Agreements if such assertion would result in double recovery.

MISCELLANEOUS
Section 3.15      Notices . All notices, requests, permissions, waivers or other communications required or permitted to be given under this Agreement shall be in writing and shall be delivered by hand or sent by facsimile or email or sent, postage prepaid, by registered, certified or express mail or overnight courier service and shall be deemed given when so delivered by hand, by facsimile (which is confirmed), by email (which is confirmed) or if mailed, three days after mailing (one Business Day in the case of express mail or overnight courier service) to the Parties at the following addresses or facsimiles or emails (or at such other address or facsimile or email for a Party as shall be specified by like notice):(a)    If to TKC:
Teekay Corporation
c/o Teekay Shipping (Canada) Ltd. Suite 2000, 550 Burrard Street
Vancouver, BC, V6C 2K2
Attention:    Arthur Bensler
Facsimile:    (604) 609-6447
Email:        art.bensler@teekay.com
with a copy to (which copy alone shall not constitute notice):
Teekay Corporation
c/o Teekay Shipping (Canada) Ltd. Suite 2000, 550 Burrard Street
Vancouver, BC, V6C 2K2
Attention:    Brock Wlad
Facsimile:    (604) 609-6447
Email:        Brock.Wlad@teekay.com

 
18
 

Exhibit 10.4

(b)    If to the Investor:
Brookfield TK TOLP L.P.
c/o Brookfield Capital Partners (Bermuda) Ltd.
73 Front Street, 5th Floor
Hamilton HM 12, Bermuda
Attention: Manager - Corporate Services
Facsimile:     (441) 296-4475
Email:          Jane.Sheere@brookfield.com
with a copy to (which copy alone shall not constitute notice):
Brookfield TK TOLP L.P.
c/o Brookfield Business Partners L.P.
181 Bay Street PO Box 762
Toronto, Ontario, M5J 2T3
Attention:     Ryan Szainwald
        Lyndsay Hatlelid
Facsimile:    (416) 369-2301
Email:        Ryan.Szainwald@brookfield.com
        Lyndsay.Hatlelid@brookfield.com
and a copy to (which copy alone shall not constitute notice):
Kirkland & Ellis LLP
601 Lexington Avenue
New York, NY 10022
Attention:    Elazar Guttman, Esq.
        Ross M. Leff, Esq.
Facsimile:    (212) 446-4900
Email:        Elazar.Guttman@kirkland.com
         Ross.Leff@kirkland.com
(c)    If to TOO:
4 th Floor, Belvedere Building
69 Pitts Bay Road
Hamilton HM 08, Bermuda
Attention:     Corporate Secretary
Facsimile:     (441) 292-3931
Email:         Edie.Robinson@teekay.com

 
19
 

Exhibit 10.4

with copies (which copies alone shall not constitute notice) to (i) Investor and (ii):
Kirkland & Ellis LLP
601 Lexington Avenue
New York, NY 10022
Attention:    Elazar Guttman, Esq.
        Ross M. Leff, Esq.
Facsimile:    (212) 446-4900
Email:        Elazar.Guttman@kirkland.com
         Ross.Leff@kirkland.com
Section 3.16      Amendments, Waivers, Etc . This Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed by the Party against whom such amendment or waiver shall be enforced. The failure of any Party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, shall not constitute a waiver by such Party of its right to exercise any such other right, power or remedy or to demand such compliance. Counterparts and Facsimile . This Agreement may be executed in two or more identical counterparts (including by facsimile or electronic transmission), each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument, and shall become effective when one or more counterparts have been signed by each of the parties hereto and delivered (by facsimile, electronic transmission or otherwise) to the other parties.
(a)      Without prejudice to any other rights or remedies the Parties may have, each Party acknowledges and agrees that damages alone would not be an adequate remedy for any breach of the terms of this Agreement. Accordingly the Parties acknowledge that each Party shall be entitled to the remedies of injunction, specific performance or other equitable relief for any threatened or actual breach of the terms of the Agreement.
(b)      Each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of the courts of England and Wales, for the purposes of any Action or other proceeding arising out of this Agreement and the rights and obligations arising hereunder, and irrevocably and unconditionally waives any objection to the laying of venue of any such Action or proceeding in any such court, and further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such Action or proceeding has been brought in an inconvenient forum. Each party hereto agrees that service of any process, summons, notice or document by registered mail to such party’s respective address set forth in Section 10.1 shall be effective service of process for any such Action or proceeding.
Section 3.17      Interpretation . When a reference is made in this Agreement to an Article or Section, such reference shall be to an Article or Section of this Agreement unless otherwise indicated. Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”. The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this

 
20
 

Exhibit 10.4

Agreement as a whole and not to any particular provision of this Agreement. The words “date hereof” shall refer to the date of this Agreement. The word “or” shall not be exclusive. The word “extent” in the phrase “to the extent” shall mean the degree to which a subject or other thing extends, and shall not simply mean “if”. All references to “$” mean the lawful currency of the United States of America. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Except as specifically stated herein, any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. Except as otherwise specified herein, references to a Person are also to its successors and permitted assigns. Each of the parties hereto has participated in the drafting and negotiation of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement must be construed as if it is drafted by all the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of authorship of any of the provisions of this Agreement. Severability . If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced because of any Law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party hereto. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be effectuated as originally contemplated to the greatest extent possible.
Section 3.18      No Partnership . Nothing in this Agreement is intended to, or shall be deemed to, establish any partnership or joint venture between any of the Parties, constitute any Party the agent of another Party or authorize any Party to make or enter into any commitments for or on behalf of any other party.
[Signature pages follow]


 
21
 

Exhibit 10.4

IN WITNESS WHEREOF, the Parties have executed this Master Services Agreement as of the date first above written.
TKC :
TEEKAY CORPORATION


By: /s/ Edith Robinson                
Name: Edith Robinson
Title: Assistant Corporate Secretary
TOO :
TEEKAY OFFSHORE PARTNERS, L.P., BY ITS GENERAL PARTNER, TEEKAY OFFSHORE GP, L.L.C.


By: /s/ Edith Robinson                
Name: Edith Robinson
Title: Secretary

[Signature Page to Master Services Agreement]
Exhibit 10.4

TEEKAY BUSINESS PROCESS SERVICES INC.


By: /s/ Alex Verchez                
Name: Alex Verchez
Title: President


[Signature Page to Master Services Agreement]
Exhibit 10.4

TEEKAY SHIPPING (AUSTRALIA) PTY LTD.


By: /s/     Yesheng Xia                
Name: Yesheng Xia
Title: Secretary


[Signature Page to Master Services Agreement]
Exhibit 10.4

TEEKAY SHIPPING (CANADA) LTD.


By: /s/ Arthur Bensler                
Name: Arthur Bensler
Title: President


[Signature Page to Master Services Agreement]
Exhibit 10.4

TEEKAY SHIPPING (GLASGOW) LTD.


By: /s/ Arthur Bensler                
Name: Arthur Bensler
Title: Director

[Signature Page to Master Services Agreement]
Exhibit 10.4

TEEKAY SHIPPING LIMITED


By: /s/ Edith Robinson                
Name: Edith Robinson
Title: President & Secretary


[Signature Page to Master Services Agreement]
Exhibit 10.4

TEEKAY SHIPPING (UK) LTD.


By: /s/ Anne Liversedge                
Name: Anne Liversedge
Title: Director

[Signature Page to Master Services Agreement]
Exhibit 10.4

TEEKAY SHIPPING PHILIPPINES, INC.


By: /s/ John Adams                
Name: John Adams
Title: Director


[Signature Page to Master Services Agreement]
Exhibit 10.4

TEEKAY SHIPPING (INDIA) PVT. LTD.


By: /s/ John Adams                
Name: John Adams
Title: Director





[Signature Page to Master Services Agreement]
Exhibit 10.4

for purposes of Sections 2.2 , 4.3 , 6.1 , 8.2 , 9.1 and Article 10 :
INVESTOR :

BROOKFIELD TK TOLP L.P., BY ITS GENERAL PARTNER, BROOKFIELD CAPITAL PARTNERS (BERMUDA) LTD.


By: /s/ Gregory E. A. Morrison            
Name: Gregory E. A. Morrison
Title: Director



[Signature Page to Master Services Agreement]

Exhibit 10.4

Schedule 1
Teekay (Atlantic) Management ULC
Teekay Petrojarl Producao Petrolifera do Brasil Ltda.
Teekay Piranema Servicios de Petroleo Ltda.
OOG-TKP Producao de Petroleo Ltda.
OOGTK Libra Producao de Petroleo Ltda.
ALP Maritime Services B.V.
Teekay Petrojarl I Servicios de Petroleo Ltda.
Teekay Navion Offshore Loading Pte. Ltd.






Exhibit 10.4

Schedule 2
Transferred Entities
Teekay Shipping Norway AS
Teekay Petrojarl Production AS
Teekay Petrojarl UK Limited
Teekay do Brasil Servicios Maritimos Ltda.
Teekay Offshore Crewing AS
Teekay Norway (Marine HR) AS
Teekay Petrojarl Offshore Crew AS






Exhibit 10.4

Schedule 3
Schedule 3 Entity
Description of Schedule 3 Services Provided
Teekay Shipping (Canada) Ltd.
Strategic services; procurement services; sales & purchase services, newbuildings and projects; market and industry research services; public company accounting & reporting, forecasting, accounting research services; legal services; taxation services, finance, treasury, debt & capital market services; investor relations services; long-term strategic planning & analysis services; global on-shore & offshore application support, network maintenance & support, cyber security, helpdesk & training services; internal audit, compliance and risk management services; HR services, global training services, equity compensation administration, corporate communication services; office & facilities management; insurance and claims services
Teekay Shipping Philippines Inc.
Marine HR and global seafarer training services
Teekay Business Process Services Inc.
Procurement services; HSEQ services; document management services; CAD services; shuttle simulator services; AP/AR transaction processing and back-office accounting services; global on-shore & offshore application support, network maintenance and support, cyber security, helpdesk & training services; HR services; office & facilities management services
Teekay Shipping (Australia) Pty. Ltd.
FSO operational services; FSO business development services
Teekay Corporation
Legal services
Teekay Shipping (Glasgow) Ltd.
Procurement services; marine HR services; technical management services; global on-shore & offshore application support, network maintenance & support, cyber security, helpdesk & training services; internal audit, risk management & compliance services
Teekay Shipping (UK) Ltd.
Technical management services, legal services.
Teekay Shipping (India) Pvt. Ltd.
HSEQ services
Teekay Shipping Limited
Construction supervision services
 
 



Exhibit 10.4

Exhibit A

Illustrative calculations of Entity Transfer consideration


Exhibit 10.4

Exhibit B

Form of Transfer Agreement



Exhibit 10.4

Exhibit C

TKC Service Agreements relating to TNOL



Exhibit 10.4

Exhibit D

Service Agreements relating to provision of services to TOO



Exhibit 10.5


Trademark License Agreement
This Trademark License Agreement (this “ Agreement ”), dated as of September 25, 2017 (the “ Effective Date ”), is entered into by and between:
Teekay Corporation , a corporation organized and existing under the laws of the Marshall Islands with its registered address at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands and an address for service of legal process at 4th Floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM08, Bermuda (“ Teekay ”); and
Teekay Offshore Partners L.P. , a limited partnership organized and existing under the laws of the Marshall Islands, with its registered address at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, Marshall Islands and an address for service of legal process at 4th Floor, Belvedere Building, 69 Pitts Bay Road, Hamilton, HM08, Bermuda (“ TOO ”) (each of Teekay and TOO a “ Party ” and, collectively, the “ Parties ”).
Recitals
A.    Teekay owns or otherwise possesses rights in the Licensed Marks, and Teekay has the right to grant a license of the Licensed Marks to TOO under the terms set forth herein;
B.    Prior to the consummation of the transactions contemplated by that certain Investment Agreement (the “ Investment Agreement ”), effective as of July 26, 2017, by and between TOO and Brookfield TK TOLP L.P.(the “ Investor ”), TOO used the Licensed Marks in connection with its business (as further defined below, the “ TOO Business ”);
C.      Teekay continues to use and display the Licensed Marks in connection with several of Teekay’s businesses (as further defined below, the “ Retained Businesses ”); and
D.    In connection with the Investment Agreement, TOO desires to obtain a license to continue use of the Licensed Marks in connection with the operation of the TOO Business, subject to the terms and conditions set forth in this Agreement, and Teekay desires to grant a license of the Licensed Marks to TOO subject to the terms and conditions set forth in this Agreement.
NOW THEREFORE for valuable consideration, the receipt and sufficiency of which each of Teekay and TOO hereby acknowledges, Teekay and TOO agree as follows:
1.
Definitions.
Unless otherwise defined in this Agreement, capitalized terms used in this Agreement will have the meanings ascribed to them in the Investment Agreement. The terms “ Offshore Assets ” and “ Offshore Restricted Business ” will have the meaning ascribed to them in the Omnibus Agreement, dated May 10, 2005, between Teekay Shipping Corporation, Teekay LNG General Partner, Teekay LNG OLLC and Teekay LNG MLP, and related amendments (the “ Omnibus Agreement ”). As used in this Agreement (including the recitals hereto), the following terms shall have the following meanings:

Page 1


1.1      “ Affiliate ” means, as to any specified Party, any other Person, which directly or indirectly controls, is controlled by or is under common control with, such specified Party. For the purposes of this definition, “ control ”, when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms “ controlling , ” “ controlled, ” “ controlled by ” and “ under common control with ” have meanings correlative to the foregoing.
1.2      “ Applicable Legal Requirement ” means any applicable foreign, state, federal and local laws, statutes, common laws, ordinances, acts, codes, rules, regulations, orders, executive orders, judgments, injunctions, rulings, penalties, fines, writs, decrees, governmental guidelines or interpretations having the force of law, permits and determinations of Governmental Entities having jurisdiction over any of the Parties.
1.3      “ Funnels ” means the smokestack or chimney of a Vessel.
1.4      “ Licensed Mark ” means (a) each registered and unregistered trademark and service mark of Teekay set forth in Schedule A (together with any new marks described in (c) below, the “ Teekay Trademarks ”), (b) vessel livery, uniform designs and other elements of trade dress used in the TOO Business prior to the Effective Date (together with any new trade dress as described in (c) below, the “ Licensed Trade Dress ”), and (c) any registered and unregistered trademark and service mark or trade dress adopted by Teekay for use in the Retained Businesses after the Effective Date.
1.5      “ Person ” means an individual, natural Person, corporation, limited liability company, general partnership, limited partnership, association, trust, governmental entity or other entity.
1.6      “ Retained Businesses ” means the businesses owned or controlled by Teekay or its Affiliates other than the TOO Business.
1.7      “ TOO Business ” means the business of TOO and its Subsidiaries as conducted during the 12-month period prior to the Effective Date (taking into account any services provided to TOO or any of its Subsidiaries by Teekay or its Affiliates as of the Closing Date), including the Offshore Restricted Business, and any expansions of such business in the same or substantially related fields subject, in all respects, to the restrictions of the Omnibus Agreement.
1.8      “ Vessel ” means each tanker vessel, FSO, FPSO or other vessel controlled and operated by TOO in connection with the TOO Business during the term of this Agreement, but excluding (a) the ALP towage vessels, and (b) any other vessel in-chartered by TOO where TOO does not have the right to place TOO markings and livery on the vessel.
2.
Trademark License.
2.1      Grant of License . Subject to the terms, conditions and limitations set forth in this Agreement, Teekay hereby grants to TOO under Teekay’s rights in each Licensed Mark, a non-transferable (except as provided in Section 9.8), irrevocable and perpetual (subject to Sections 6.2, 6.3, and 6.4), nonexclusive (except as provided in the Omnibus Agreement), world-wide, royalty-free right, effective during the term of this Agreement, with no right to grant sublicenses except (a) to its

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Subsidiaries engaged in the TOO Business, (b) to its Affiliates permitted to use the Teekay Trademarks pursuant to Section 2.5, and (c) as otherwise specified Section 2.3, in each case to use each Licensed Mark in connection with the TOO Business.
2.2      Use of the Licensed Marks. During the term of the Agreement:
(a)      Vessels . TOO will display the applicable Teekay Trademarks on the Funnel of each Vessel and elsewhere on the Vessel in a manner consistent with the use of each such Teekay Trademark in the operation of the TOO Business during the 12-month period prior to the Effective Date and the operation of the Retained Businesses following the Effective Date (“ Brand Practice ”), unless otherwise expressly provided in this Agreement or otherwise agreed in writing by the Parties, and will maintain the appearance of each Vessel (i) substantially in accordance with the applicable Licensed Trade Dress comprising vessel livery and (ii) in a manner consistent with Brand Practice, unless otherwise expressly provided in this Agreement or otherwise agreed in writing by the Parties.
(b)      Uniforms, Apparel and Related Soft Goods . TOO will display the applicable Teekay Trademarks and use the applicable Licensed Trade Dress comprising uniforms, apparel and soft good designs to provide such items to crew members and employees in a manner consistent with Brand Practice, unless otherwise expressly provided in this Agreement or otherwise agreed in writing by the Parties.
(c)      Stationary and Related Materials . Without limiting the license granted pursuant to Section 2.1, TOO may use the Licensed Marks on stationary (including letterhead, invoices and business forms, business cards) and related materials used in the operation of the TOO Business.
(d)      Advertising, Promotional Materials, and Facility Signage . Without limiting the license granted pursuant to Section 2.1, TOO may use the Licensed Marks to advertise, describe, solicit customers, engage third-parties, hire employees, and otherwise promote the TOO Business in all media now known or later developed.
2.3      Sublicensing . TOO may (itself or through its licensed Subsidiaries) sublicense the Licensed Marks to its Affiliates and other Persons providing services to TOO in connection with the TOO Business for use exclusively in (a) support of the TOO Business or (b) performing services on behalf of TOO or its licensed Subsidiaries that pertain to operation of the TOO Business. TOO may not enter into any other sublicensing arrangement without the prior written consent of Teekay, which consent may be granted or withheld in Teekay’s sole discretion and may be conditioned on and subject to additional terms and conditions established by Teekay. All sublicense agreements shall be in conformance with the requirements of this Agreement provided that TOO shall not be required to enter into written sublicenses with its Subsidiaries (or cause its Subsidiaries to enter into written sublicenses), and TOO will be liable for any misuse of the Licensed Marks by any sublicensee as if such misuse was committed by TOO itself. TOO will provide Teekay an annual report of any active sublicenses (other than sublicenses with TOO’s Subsidiaries) and the use for which each such sublicensee will use the Licensed Marks.
2.4      Style Guidelines . TOO shall use the Licensed Marks in accordance with the “Teekay Style Guidelines,” the current version of which is attached hereto as Schedule B (as may be modified by

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Teekay from time to time, the “ Style Guidelines ”). From time to time and without TOO’s approval, Teekay may modify certain elements of the Licensed Marks or the Style Guidelines. Accordingly, Teekay does not represent and warrant that the Licensed Marks or any of their elements will be maintained or used in any particular fashion. In the event that Teekay makes modifications to the Licensed Marks or the Style Guidelines, TOO will be subject to any such modifications effective upon reasonable written notification from Teekay; provided, however, that TOO shall be allowed a reasonable transition period to make such modifications to affected Vessels, to materials used in connection with the TOO Business bearing pre-modified Licensed Marks and with respect to any other uses of the Licensed Marks permitted hereunder. In no event shall TOO or its Subsidiaries or their respective sublicensees be required to comply with style guidelines or other restrictions with respect to the use of the Licensed Marks that do not generally apply to other entities using the Licensed Marks.
2.5      Specifically Prohibited Uses of the Teekay Trademarks . TOO may not use the Teekay Trademarks or any confusingly similar terms or marks in any corporate names, trade names, business names, domain names or URLs except (a) TOO may use any Teekay Trademark in the name of any of its Subsidiaries (whether now or hereafter existing) engaged in the TOO Business or in the name of investment entities that are Affiliated with the TOO Business but that do not directly operate the TOO Business, or (b) with the prior written consent of Teekay; provided, however, that the use of name “Teekay” in the name of TOO is expressly permitted. Notwithstanding the foregoing, in the event that TOO or any of its Subsidiaries desire to use any Teekay Trademark, or any portion or derivative thereof, in any domain name or URL (a “ Teekay Domain Name ”), TOO shall submit a written request to Teekay, setting forth the domain name or URL that it desires to use, and Teekay will (x) consider TOO’s request in good faith and shall not withhold its consent to such use unless Teekay reasonably believes that the use of such Teekay Domain Name would interfere with the conduct of the Retained Businesses or impair the goodwill associated with the Teekay Trademarks and (y) if such Teekay Domain Name is consented to, and is not already registered with a domain name authority, cooperate with TOO, at TOO’s cost, in registering such Teekay Domain Name, listing Teekay as the registrant, with a mutually agreeable domain name authority. Any use of any Teekay Domain Name consented to in accordance with this Section 2.5 shall be subject to all of the provisions of this Agreement that are applicable thereto, as if it were a “Teekay Trademark” hereunder with respect to such applicable provisions.
2.6      Prestige of Licensed Marks . TOO acknowledges that the Licensed Marks, and in particular the “Teekay” name, are world renowned, have established international prestige and goodwill, and hold a certain position in the marketplace, and that it is of great importance to Teekay that in the operation of the TOO Business, the high standards and reputation that Teekay has established and its position in the marketplace be maintained.  Accordingly, TOO shall comply with the terms of this Agreement with respect to the use of the Licensed Marks and the quality of the services offered in connection therewith and shall otherwise use commercially reasonable efforts to conduct the TOO Business in a manner that safeguards the prestige and goodwill of the Teekay Trademarks.
2.7      Obligations on Teekay. During the term of this Agreement, Teekay shall continue to use the Licensed Marks in the Retained Businesses (a) in a manner that is consistent with the standards and attributes described in Section 2.6 and (b) in connection with services that are of a quality that is at least as high as the quality of services required to be offered by TOO and its Subsidiaries under the Licensed Marks under the terms of this Agreement.

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2.8      Covenants by Teekay . During the term of this Agreement, Teekay shall not use the Licensed Marks in connection with any (a) Offshore Assets or Offshore Restricted Business other than in connection with any Offshore Assets or Offshore Restricted Business owned by Teekay or Affiliates engaged in the Retained Businesses as of the Effective Date or (b) activities expressly permitted pursuant to the Omnibus Agreement. Further, Teekay shall cause its Subsidiaries not to use the Licensed Marks in connection with the Offshore Assets or Offshore Restricted Business other than in connection with activities expressly provided for pursuant to the Omnibus Agreement. The restrictions set forth in this Section 2.8 will terminate and be of no further effect upon any termination of the Omnibus Agreement by TOO or the General Partner.
2.9      Non-Disparagement . During the term of the Agreement, each Party shall not knowingly injure, disparage, criticize or dilute the reputation of the other Party or the goodwill symbolized by the Licensed Marks, other than truthful statements or statements contained in and relevant to any claim or defense contained in a claim filed in connection with a dispute pursuant to Section 9.13 between the Parties including to enforce or judicially construe this Agreement.
2.10      Reservation of Rights . All rights not specifically granted to TOO herein are reserved by Teekay. Nothing in this Agreement shall restrict Teekay’s current or future commitments under secured lending or financing arrangements pledging the Licensed Marks as collateral under such obligations and TOO acknowledges that the Licensed Marks are (or may become) subject to liens and encumbrances, the terms of which may be amended from time to time, arising as a result of such obligations (“ Permitted Liens ”).
2.11      Removal of Teekay Trademarks from Vessels . TOO will remove each Teekay Trademark wherever it has been used on each Vessel (a) prior to transferring any controlling ownership interest in such Vessel to any Person (other than transfers to an Affiliate of TOO) or will contractually require such Person to promptly remove each Teekay Trademark upon assuming a controlling ownership interest in the Vessel; (b) prior to using such Vessel in connection with any business other than the TOO Business; and (c) prior to displaying anywhere on such Vessel any trademark or service mark other than a Teekay Trademarks or trademark, service mark or logo owned by or exclusively licensed to TOO or any of its Subsidiaries as of the Effective Date.
2.12      Modification or Replacement of Licensed Marks . Teekay reserves the right to modify, replace, or discontinue use of a Licensed Mark. In such an event, (a) Teekay will provide TOO a minimum of 3 months written notice of Teekay’s intent to modify, replace, or discontinue use of a Licensed Mark, other than the “Teekay” word mark, including, as applicable, providing TOO with samples of any modified or replacement Licensed Mark, and (b) the Parties will negotiate in good faith a transition plan for TOO’s implementation of such modification, replacement or discontinuance which will include a commercially reasonable amount of time to accomplish such transition in an orderly manner consistent with the transition plan and timing adopted by the Remaining Businesses.
3.
Ownership of Licensed Marks.
3.1      Protection of Licensed Marks . TOO shall not at any time during the term of this Agreement or thereafter do or permit to be done any act or thing which it knows, or reasonably should know, would impair the rights of Teekay with respect to such Licensed Marks. TOO will not represent

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that it has any ownership in the Licensed Marks or in any registration of them and shall not attempt to register a Licensed Mark alone or as part of its own trademark or service mark in any jurisdiction. TOO will use the Licensed Marks only in the manner permitted under this Agreement. TOO will not oppose or seek to cancel any registrations or applications for registration of the Licensed Marks or challenge the ownership or validity of any of the Licensed Marks in any United States or foreign court or agency, including the United States Patent and Trademark Office or the trademark office of any other jurisdiction.
3.2      Abandonment . Notwithstanding anything to the contrary herein, except in connection with a modification, replacement or discontinuance of a Licensed Mark pursuant to Section 2.12:
(a)      In the event that Teekay intends to abandon or abandons (due to lack of use for a period of three (3) years or longer) any Licensed Marks (including any registrations or applications for registration thereof), Teekay shall at TOO’s request, transfer all of its right, title and interest in and to such trademark or trade dress for nominal consideration and this Agreement shall terminate. Teekay will take all reasonably necessary actions requested by TOO, at TOO’s expense, to give full force and effect to the transfer of rights set out in this Section 3.2 in any jurisdiction in the world.
(b)      If Teekay intends not to renew or otherwise fails to maintain any registration for any Teekay Trademark, Teekay will use commercially reasonable efforts to timely notify TOO, and if TOO reasonably believes that the loss of the registration would be material to the TOO Business, upon TOO’s request and at TOO’s cost, Teekay will make all filings and take all other actions necessary to maintain the registration in full force and effect.
3.3      Confusingly Similar Marks . Except as permitted under this Agreement, during the term and during the three (3) year period following the termination of this Agreement, TOO shall not use or authorize the use of, or apply to register, any configuration, mark, name, design, ship livery, trade dress, logo or other designation identical or confusingly similar (as defined by Applicable Legal Requirements) to any Licensed Mark. During the Term of this Agreement, prior to adopting, registering, applying for registering, announcing or marketing any new trademark and trade dress for the TOO Business, TOO shall provide Teekay with an opportunity to review such trademark and trade dress in order to determine whether in Teekay’s view such new trademark or trade dress is confusingly similar (as defined by Applicable Legal Requirements) to any Licensed Mark.
3.4      Modifications By TOO . TOO shall not develop or authorize the development of variations or derivations of the Teekay Trademarks (each a “ Derivative Mark ”) without the prior express written consent of Teekay, which consent may be withheld in Teekay’s sole discretion, for any or no reason. In the event that Teekay grants the consent contemplated in this Section 3.4, any such Derivative Mark created shall be included in the Licensed Marks licensed hereunder, Teekay shall own all the rights in such Derivative Mark, and, upon Teekay’s reasonable request, TOO shall execute any documents required to transfer such rights to Teekay. All uses and rights of and to the Derivative Mark shall inure to the exclusive benefit of Teekay, and subject to Section 3.2(b), Teekay may register and protect the same in its own name, as it deems necessary or appropriate.
3.5      Goodwill . TOO recognizes the value of the publicity and goodwill associated with the Licensed Marks and that all related rights and goodwill belong exclusively to Teekay. Accordingly, TOO

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shall use commercially reasonable efforts in connection with its use of the Licensed Marks to safeguard the goodwill of the Licensed Marks at the level established and maintained by Teekay. All use of the Licensed Marks will inure to the sole benefit of Teekay and TOO will neither acquire or be allowed to claim any rights to the Licensed Marks.
3.6      Reasonable Assistance . TOO agrees to provide Teekay with such reasonable assistance as Teekay may require in protecting the Licensed Marks, provided that Teekay shall reimburse TOO for its out of pocket expenses incurred in providing such assistance, including executing all documents and completing any and all other actions reasonably requested by Teekay to perfect and/or maintain Teekay’s rights in each Licensed Mark.
3.7      Restrictions on Use of Each Licensed Mark . TOO will not use any Licensed Mark other than in compliance with the terms, conditions, limitations and provisions set forth in this Agreement.
4.
Quality Control.
4.1      General . During the term of this Agreement, TOO will operate the TOO Business under the Licensed Marks in accordance with the terms of this Agreement and in compliance with all Applicable Legal Requirements applicable to its conduct of the TOO Business and its performance of its obligations under this Agreement. As an integral part of Teekay’s control over the nature and quality of services rendered and goods sold under the Licensed Marks, the operation of the TOO Business, including all products, services and activities marketed, promoted, offered and provided under the Licensed Marks, shall be of a quality and nature comparable to the operation of the TOO Business, products, services and activities as provided by TOO prior to the Effective Date and to the operation of the Retained Businesses following the Effective Date or otherwise agreed in writing by the Parties.
4.2      Key Performance Indicators . Teekay has established a set of key performance indicators (each, a “ KPI ”), which are described in Schedule C attached hereto, relating to the performance of the TOO Business. Each KPI specifies the manner of data collection, analysis and reporting of performance against such KPI to be conducted. TOO will use commercially reasonable efforts to maintain performance of the TOO Business at levels substantially consistent with or exceeding the performance of the Retained Business as measured by the KPIs, but in any event, no more stringent than the KPIs achieved in the 12-month period prior to the Effective Date.
4.3      KPI Reporting and Evaluation . TOO will provide the board of the general partner of TOO (the “ General Partner ”) with periodic reports of the performance of the TOO Business against the KPIs, but in no event less frequently than quarterly. Teekay will provide the board of the General Partner with reports of the performance of the Retained Business against the same KPIs with at minimum the same frequency as above. TOO’s report will include a comparison of its KPI performance against targets and against the Teekay KPI performance and, in the event of any shortfall by TOO, proposed remediation measures. Within five days following provision of any KPI report to the board of the General Partner, TOO will provide Teekay with a copy of such KPI report, provided, however, Teekay will limit circulation of such KPI reports to Teekay personnel with a need to know such information in connection with their job functions, which personnel shall be made aware of the confidential nature of such information and shall agree not to disclose such information other than as expressly permitted under this Agreement.

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4.4      Force Majeure . In the event of any acts of God, strikes, acts of the sabotage, terrorism or war, blockades, insurrections, riots, epidemics, nuclear and radiation activity or fallout, lockouts or other labor issues directly or indirectly affecting the TOO Business, embargoes and shortages in labor or supplies, civil disturbances and explosions, any government action or other adverse event, in each case, which materially affects the operations of the TOO Business, Teekay shall not be deemed in breach of this Agreement for any failure to achieve any KPI (other than any KPI expressly measuring performance in connection with any such situation), but shall use commercially reasonable efforts to maintain performance of the TOO Business.
4.5      Inspection Rights . TOO will from time to time, as reasonably requested by Teekay, during regulator business hours and upon reasonable advance written notice, allow and assist Teekay in inspecting each Vessel on which a Licensed Mark is used and all facilities of TOO associated with the operation of the TOO Business to assist Teekay in exercising Teekay’s rights to control of the nature and quality of the products and services offered or provided by TOO associated with Licensed Marks; provided, however, that Teekay shall not conduct an inspection of any given Vessel or facility more than once in any 12-month period, unless during the prior 12-month period, Teekay was in breach of the quality control provisions of this Agreement. TOO will provide to Teekay, upon reasonable request, specimens of use by TOO of each Licensed Mark.
4.6      Personnel .
(a)      TOO shall ensure that all TOO personnel act and comport themselves in a manner substantially consistent with Brand Practice unless otherwise expressly provided in this Agreement or otherwise agreed in writing by the Parties. TOO personnel that are involved in the operation of the TOO Business will be required to comply with policies substantially similar to those set forth in the Teekay Operational Leadership Handbook set forth on Schedule D.
(b)      Notwithstanding the foregoing, TOO personnel will in no event be deemed employees of Teekay for any purpose and shall not be entitled to participate in any employee benefits, welfare or retirement plans or programs of Teekay (including medical insurance, life insurance, paid leave, vacation, sick leave, pension, profit sharing, disability). TOO is solely responsible for ensuring that all required forms and paperwork for passports, visas, work permits, and any other required documentation are complete, compliant with all Applicable Legal Requirements, and current for TOO and TOO’s personnel. No TOO personnel shall hold himself or herself out as an executive, officer or employee of Teekay or its Affiliates. TOO will be solely shall be responsible for payment of worker’s compensation, disability benefits or unemployment insurance for TOO personnel, as well as for withholding or paying employment related taxes. TOO will indemnify, defend, and hold harmless Teekay, its Affiliates, and their respective partners, directors, officers and employees from any and all claims of TOO’s personnel in connection with arising from or in connection with their employment or provision of services or their participation in any of the programs described in this Section 4.6 of TOO’s, including any claims for workers’ compensation.
5.
Enforcement of the Licensed Marks.

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5.1      Enforcement by Teekay . TOO shall promptly notify Teekay of (a) any claim that is asserted, and of any action or proceeding that is threatened or commenced, in which a third party alleges that any of the Licensed Marks infringe any trademark rights of such third party or any other Person, (b) of any action or proceeding that is threatened or commenced in which the revocation, cancellation, or declaration of invalidity of any registration for any of the Licensed Marks is sought, and (c) of any infringement of any Licensed Mark by any third party related to the TOO Business. Teekay shall be permitted (but not obligated) to handle and control any such claims or potential claims (or resulting action or proceeding) in such manner as Teekay, in its sole discretion and at its expense, shall determine; provided, however, that Teekay shall not resolve any dispute in any manner that would adversely affect the rights licensed to TOO hereunder without TOO’s prior written consent, such consent not to be unreasonably withheld. Teekay shall solely retain all recoveries in any such enforcement proceedings, provided that TOO shall be reimbursed for its out of pocket expenses incurred in connection therewith. TOO may, at its option and expense, participate, with counsel of its choice, in the settlement of, or defense against, such claim (or resulting action or proceeding), and Teekay shall consider TOO’s input in good faith, but control of the defense shall at all times remain with Teekay.
5.2      Enforcement by TOO . In the event that Teekay fails timely to defend or enforce any Licensed Mark (including any registration or application for registration thereof, but excluding any Licensed Mark that has been modified, replaced or discontinued pursuant to Section 2.12), TOO shall have the right (but not be obligated) to defend and enforce such Licensed Mark, at its sole expense, and Teekay shall, at TOO’s expense, provide TOO with all such reasonable assistance, cooperation, information and documentation that TOO reasonably requests in connection therewith, including by joining as a party to such action; provided, that TOO shall consult with Teekay in good faith prior to making any material filings. TOO shall solely retain all recoveries in any such enforcement proceedings, provided that Teekay shall be reimbursed for its out of pocket expenses incurred in connection therewith.
6.
Term & Termination.
6.1      Term of Agreement . This Agreement will become effective as of the Effective Date and will remain in effect until terminated in accordance with this Section 6.
6.2      Termination for Failure to Maintain Quality Standards or other Breach . Teekay may terminate this Agreement upon ninety (90) days’ prior written notice to TOO if: (a) TOO fails to comply with its obligations to use such Licensed Mark as set forth in Sections 2, 3 and 4 in any material respect, or otherwise uses such Licensed Mark in a manner not permitted under the terms of this Agreement, or otherwise materially breaches any provision of this Agreement, and b) TOO fails to cure such failure or breach, or take reasonable steps (in consultation with Teekay) to cure to such failure, within six (6) months following receipt of written notice from Teekay identifying such failure in reasonable detail.
6.3      Termination for Cause . Teekay may terminate this Agreement on thirty (30) days’ prior written notice to TOO:
(a)      if TOO (i) files a petition in bankruptcy, (ii) becomes or is adjudicated bankrupt or insolvent, (iii) makes a general assignment for the benefit of creditors as a result of actual or threatened insolvency or an arrangement pursuant to any bankruptcy law, (iv) permits or suffers a receiver to be appointed for its business or all or substantially all of its property, (v) permits or

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suffers any writ of attachment, garnishment or execution to be filed or levied against a substantial portion of its assets, and fails to have such writ, garnishment, or execution removed within sixty (60) days, or (vi) ceases to carry on all or substantially all of its business; or
(b)      in the event of a sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of TOO’s assets except to the extent the successor in interest to such assets will continue to conduct the TOO Business and agrees in writing to be bound by the terms of this Agreement.
6.4      Termination by TOO . TOO may terminate this Agreement for any reason upon thirty (30) days’ prior written notice to Teekay.
6.5      Post-Termination Transition . If this Agreement is terminated for any reason, the licenses granted by Teekay to TOO hereunder will terminate immediately, and TOO shall have a period of 12 months to remove the Licensed Marks from the Vessels and to cease using the Licensed Marks elsewhere in the TOO Business (the “ Transition Period ”). During the Transition Period, to the extent TOO continues to use the Licensed Marks, any such use shall be in compliance with terms of this Agreement.
7.
Liability, Indemnification and Warranties.
7.1      Waiver of Liability . Except as expressly set forth herein, to the fullest extent permitted by Applicable Legal Requirements, Teekay will not be liable to TOO or for any costs, expenses, loss or damage (whether direct, indirect or consequential) arising from TOO’s exercise of any rights granted under this Agreement or Applicable Legal Requirements.
7.2      Limitation of Liability . Under no circumstances will either Party be liable for any consequential, special, indirect, incidental or punitive damages whatsoever (including to the extent any of the foregoing arise in the form of lost profits) arising out of or in connection with this Agreement, even if the Party has been advised of the possibility of such damages.
7.3      Indemnification .
(a)      Each Party shall indemnify, defend and hold harmless the other Party, and such other Party’s Affiliates and their respective officers, directors, partners, shareholders, employees and agents, successors and assigns, from and against any and all third party claims, liabilities, demands, judgments or causes of action, and costs and expenses (including reasonable attorneys’ fees and costs) (the “ Losses ”) arising out of or as a result of any breach by such indemnifying Party of any agreement, representation, warranty, covenant and/or obligation made by such indemnifying Party pursuant to this Agreement.
(b)      Teekay shall indemnify, defend and hold harmless TOO and its Affiliates, respective officers, directors, partners, shareholders, employees and agents, successors and assigns, from and against any and all Losses related to trademark or trade dress infringement arising out of the use of the Licensed Marks by TOO in accordance with the terms of this Agreement.

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(c)      Subject to Teekay’s indemnification obligations under this Section 7.3, TOO shall indemnify, defend and hold harmless Teekay and its Affiliates, respective officers, directors, partners, shareholders, employees and agents, successors and assigns, from and against any and all Losses, arising out of the operation of the TOO Business or TOO’s compliance with its obligations under this Agreement, or the use of the Licensed Marks by TOO, including TOO’s unauthorized use of the Licensed Marks.
7.4      Mutual Representations and Warranties . Each Party represents and warrants to the other Party that: (a) it is duly organized, validly existing and in good standing as a corporation or other entity as represented herein under the Applicable Legal Requirement of its jurisdiction of incorporation, organization, or chartering; (b)(i) it has the full right, power and authority to enter into this Agreement, to grant the rights and licenses granted hereunder and to perform its obligations hereunder, and (ii) the execution of this Agreement by its representative whose signature is set forth at the end hereof has been duly authorized by all necessary corporate action of the Party; and (c) when executed and delivered by such Party, this Agreement will constitute the legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms.
8.
Confidentiality.
8.1      Confidentiality Obligations . Except as provided in Section 8.2, each Party agrees not to disclose or otherwise make available to any third party any trade secrets or other confidential information of the other Party received in connection with each Party’s exercise of its rights or performance of its obligations under this Agreement, excluding any such information that becomes generally known to the public other than as a result of a Party’s breach of this Section 8.1. For the avoidance of doubt, any KPI reports that may be provided by each Party to the other pursuant to Section 4.3 shall be deemed confidential information for purposes of this Section 8.
8.2      Permitted Disclosures . Each Party may disclose such information (a) to its sublicensees, lenders, investors, potential acquirors, and legal, tax, accounting, business, regulatory, and financial advisors in connection with the evaluation, negotiation, and/or implementation of this Agreement, (b) to its personnel (including personnel of its Affiliates) having a need to know such confidential information in connection with such Party’s rights and obligations under this Agreement, (c) as required by any Applicable Legal Requirement, and (d) to the extent reasonably required in connection with the resolution of any dispute under Section 9.13; provided that any Persons receiving such confidential information will be obligated to comply with the confidentiality provisions in Section 8.1.
9.
Miscellaneous.
9.1      Entire Agreement . This Agreement constitutes the entire Agreement between Teekay and TOO with respect to the subject matter of this Agreement and merges all prior negotiations and discussions between Teekay and TOO with respect to the subject matter of this Agreement. Teekay will have no claim against TOO, and TOO will have no claim against Teekay, with respect to any agreement or understanding, written or oral, on the subject matter made prior to the Effective Date of this Agreement, and the Parties hereby agree that the Trademark Use Agreement, dated January 15, 2007, by and among TOO, Teekay and Teekay Offshore Partner, L.P. is terminated as of the Effective Date.

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Nothing in this Agreement shall limit the rights or obligations of the Parties under the Investment Agreement.
9.2      Termination Rights Under Omnibus Agreement . For the term of this Agreement, including any post termination transition period described in Section 6.5 hereof, TOO and the General Partner will not exercise any rights of termination under Section 8.4 of the Omnibus Agreement.
9.3      Independent Contractor Relationship . Nothing in this Agreement shall be interpreted or construed to make the Parties partners, joint venturers, representatives or agents of each other, nor shall either Party so represent to any third Person. The Parties are acting in performance of this Agreement as independent contractors engaged in the operation of their respective businesses. The Parties acknowledge and agree that this Agreement constitutes a license of trademark and intellectual property rights and does not give rise to a franchise relationship and neither Party will make any claims to the applicability of franchise or similar laws. Without limiting the foregoing, neither Party shall negotiate, enter into or sign any written or oral contract or agreement on behalf of the other Party or its Affiliates or otherwise bind the other Party or its Affiliates with respect to any liability or obligation.
9.4      Modification; Waiver . Subject to the right of Teekay to amend Schedule A by adding or deleting one or more Licensed Marks, this Agreement will not be modified except by a document signed and made part of this Agreement by an authorized signing officer of each of Teekay and TOO. No waiver by a Party of any breach of this Agreement will be effective unless it is in writing and the waiver will not prevent the subsequent enforcement of that provision, nor will it be deemed to be a waiver of any subsequent breach.
9.5      No Third Party Beneficiaries . Except for the rights of the indemnified parties under Section 7.3, nothing herein, expressed or implied, is intended or shall be construed to confer upon or give to any Person other than the Parties hereto any legal or equitable right, remedy, claim or other benefit under or by reason of this Agreement.
9.6      Amendment . This Agreement may be amended, supplemented or otherwise modified only by a written instrument executed by both Parties.
9.7      Severability . Any provision of this Agreement which is, or is deemed to be, unenforceable in any jurisdiction will be severable from this Agreement in that jurisdiction without in any way invalidating the remaining provisions of this Agreement, and that unenforceability will not make that provision unenforceable in any other jurisdiction.
9.8      Assignment; Successors . This Agreement will be binding on and inure to the benefit of the Parties, their successors, and permitted assigns. Neither Party may assign this Agreement, or any of its rights and obligations under this Agreement, to any third party without the prior written consent of the other Party; provided, however, that (a) Teekay shall be permitted to assign this Agreement to any subsequent owner of the Licensed Marks upon written notice to TOO provided that such Person agrees in writing to be bound by the terms and conditions of this Agreement, (b) TOO shall be permitted to assign this Agreement to an Affiliate or in connection with the sale of all or substantially of its assets, provided, that TOO notifies Teekay of such assignment and that any such successor in interest agrees in writing to

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be bound by the terms and conditions of this Agreement, and (c) TOO may pledge this agreement as collateral to any financing source.
9.9      Insolvency Matters .
(a)      All rights and licenses granted to TOO under or pursuant to this Agreement are, and will otherwise be deemed to be, for purposes of Title 11 of the United States Code, as amended from time to time (the “ Bankruptcy Code ”), a license of rights to “intellectual property” as defined under Section 101 of the Bankruptcy Code. The Parties agree that TOO will retain and may fully exercise all of their respective rights and elections as licensees of intellectual property under the Bankruptcy Code. The Parties further agree and acknowledge that enforcement by the Parties of their respective rights under Section 365(n) of the Bankruptcy Code in connection with this Agreement shall not violate the automatic stay of Section 362 of the Bankruptcy Code and waive any right to object on such basis.
(b)      To the extent any license of rights under or pursuant to this Agreement does not constitute a license to “intellectual property” as defined under Section 101 of the Bankruptcy Code, Teekay hereby acknowledges and agrees that: (i) this Agreement is a material inducement to TOO paying Teekay the consideration due under the Investment Agreement and TOO is relying on this Agreement in connection with its business and investment planning; (ii) this Agreement gives Teekay sufficient control over the quality of the products sold by TOO; (iii) Teekay (and any debtor-in-possession or trustee of the business of Teekay) cannot and shall not attempt to reject this Agreement pursuant to Section 365 of the U.S. Bankruptcy Code or any foreign equivalent; and (iv) in the event Teekay (or any debtor-in-possession or trustee of the business of Teekay) does seek to reject this Agreement and in the event such relief is granted, (w) the rejection shall be treated merely as breach of the contract by Teekay and not its avoidance, rescission, or termination, (x) does not terminate TOO’s right to use such license (subject, in all events, to TOO’s compliance with the terms and obligations of this Agreement and Teekay’s continued enforcement and quality control rights hereunder) and has no effect upon the contract’s continued existence, (y) TOO may elect rights under Section 365(n) of the U.S. Bankruptcy Code or any foreign equivalent, and (z) TOO shall be entitled to seek other equitable treatment relating to such rejection.
9.10      Counterparts . This Agreement may be executed in two counterparts with the same effect as if both Parties had signed the same document; both counterparts will be construed together and will constitute one and the same agreement.
9.11      Interpretation . When a reference is made in this Agreement to an Article or Section, such reference shall be to an Article or Section of this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words “include”, “includes” or “including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation”. The words “hereof”, “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The words “date hereof” shall refer to the date of this Agreement. The word “or” shall not be exclusive. The word “extent” in the phrase “to the extent” shall mean the degree to which a subject or other thing extends, and shall not

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simply mean “if”. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Except as specifically stated herein, any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein. Except as otherwise specified herein, references to a Person are also to its successors and permitted assigns. Each of the Parties has participated in the drafting and negotiation of this Agreement. If an ambiguity or question of intent or interpretation arises, this Agreement must be construed as if it is drafted by all the Parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of authorship of any of the provisions of this Agreement.
9.12      Further Assurances . Each Party shall execute and deliver on or after the Effective Date such further agreements and other documents and take such other actions as the other Party reasonably requests in order to carry out the intent and accomplish the purposes of this Agreement, including, where applicable, to record this Agreement with any Governmental Entity.
9.13      Dispute Resolution . In the event of dispute arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, is not resolved after good faith discussions between the Persons responsible for the administration of this Agreement, either Party may require that the dispute be referred to the CEOs of the respective Parties who shall attempt in good faith to resolve such dispute.     
(a)      If the CEOs cannot resolve such dispute within thirty (30) days of the matter being referred to them, either Party may refer such dispute for resolution by mediation in accordance with the then-current International Expedited Procedures of International Arbitration Rules of the International Centre for Dispute Resolution, as amended from time to time, or any successor thereto (the “ ICDR Rules ”).
(b)      If the dispute is not settled by mediation within sixty (60) days of the appointment of the mediator, or such other period as the Parties shall agree in writing, the dispute shall be referred to and finally resolved by final and binding arbitration conducted in English by one arbitrator in New York City, New York, U.S.A., in accordance with the ICDR Rules. The arbitrator shall promptly render a written decision, together with a written opinion setting forth in reasonable detail the grounds for such decision. The Parties shall bear the costs of the arbitration equally. Judgment may be entered in any court of competent jurisdiction to enforce the award entered by the arbitrator.
(c)      For clarity, Teekay shall not terminate this Agreement to the extent that a dispute over the basis for such termination remains pending under this Section 9.13.
(d)      Notwithstanding the foregoing, either Party may seek immediate injunctive relief or other interim relief from any court of competent jurisdiction as necessary to enforce the provisions of this Agreement.

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9.14      Jury Waiver . EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, CLAIM OR OTHER PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (a) CERTIFIES THAT NO REPRESENTATIVE OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF ANY ACTION, CLAIM OR OTHER PROCEEDING, SEEK TO ENFORCE THE FOREGOING WAIVER AND (b) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION 9.14.
9.15      Governing Law . This Agreement is governed by and construed in accordance with the internal laws of the State of New York, and each of the Parties irrevocably and unconditionally submits to the exclusive jurisdiction of the Supreme Court of the State of New York, New York County, and the United States District Court for the Southern District of New York.
[Signature Page Follows]


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IN WITNESS WHEREOF the Parties hereto have caused this Agreement to be executed by their duly authorized officers the day and year first above written.
TEEKAY CORPORATION
TEEKAY OFFSHORE PARTNERS L.P., BY ITS
    GENERAL PARTNER, TEEKAY OFFSHORE GP.
By: /s/ Edith Robinson        By: /s/ Edith Robinson    
Name: Edith Robinson         Name: Edith Robinson
Title: Assistant Corporate Secretary        Title: Secretary


[Signature Page to Trademark License Agreement]



Schedule A

Teekay Trademarks

[See attached]



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Schedule B

Teekay Style Guidelines

[See attached]


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Schedule C

KPIs

[See attached]

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Schedule D

Teekay Operational Leadership Handbook

[See attached]


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