Report of Foreign Issuer (6-k)

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 June 30, 2014

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 x 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 x

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 x

TEEKAY CORPORATION AND SUBSIDIARIES

REPORT ON FORM 6-K FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2014

INDEX


	PAGE
PART I: FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

Unaudited Consolidated Statements of (Loss) Income for the three and six months ended June 30, 2014 and 2013		3

Unaudited Consolidated Statements of Comprehensive (Loss) Income for the three and six months ended June 30, 2014 and 2013		4

Unaudited Consolidated Balance Sheets as at June 30, 2014 and December 31, 2013		5

Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013		6

Unaudited Consolidated Statement of Changes In Total Equity for the six months ended June 30, 2014		7

Notes to the Unaudited Consolidated Financial Statements		8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25

Item 3. Quantitative and Qualitative Disclosures about Market Risk		46

PART II: OTHER INFORMATION		49

SIGNATURES		51

Page 2 of 51

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						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
	$			$			$			$
REVENUES		452,254			430,707			958,748			881,744

OPERATING EXPENSES
Voyage expenses		33,439			26,154			68,451			52,469
Vessel operating expenses		201,714			195,978			402,900			383,442
Time-charter hire expense		9,714			26,544			26,006			53,996
Depreciation and amortization		103,373			109,769			206,831			212,263
General and administrative		36,945			35,395			74,823			74,666
Loan loss (recoveries) provisions (note 7b)		(2,521	)		7,042			(2,521	)		10,207
Gain on sale of vessels and equipment (note 7a)		(9,615	)		(1,341	)		(9,453	)		(1,309	)
Restructuring charges (note 12)		(244	)		1,789			395			3,843

Total operating expenses		372,805			401,330			767,432			789,577

Income from vessel operations		79,449			29,377			191,316			92,167

OTHER ITEMS
Interest expense		(49,656	)		(44,687	)		(98,989	)		(87,197	)
Interest income		793			2,018			2,576			3,036
Realized and unrealized (loss) gain on non-designated derivative instruments (note 15)		(75,331	)		56,035			(122,579	)		42,246
Equity income		35,271			47,372			62,765			74,687
Foreign exchange (loss) gain (notes 8 and 15)		(2,046	)		678			(2,940	)		2,867
Other (loss) income (note 13)		(734	)		(1,386	)		7,517			3,856

Net (loss) income before income taxes		(12,254	)		89,407			39,666			131,662
Income tax expense (note 16)		(3,193	)		(1,873	)		(5,991	)		(4,373	)

Net (loss) income		(15,447	)		87,534			33,675			127,289
Less: Net income attributable to non-controlling interests		(27,540	)		(76,167	)		(77,150	)		(122,058	)

Net (loss) income attributable to stockholders of Teekay Corporation		(42,987	)		11,367			(43,475	)		5,231

Per common share of Teekay Corporation (note 17)
• Basic (loss) income attributable to stockholders of Teekay Corporation		(0.60	)		0.16			(0.61	)		0.07
• Diluted (loss) income attributable to stockholders of Teekay Corporation		(0.60	)		0.16			(0.61	)		0.07
• Cash dividends declared		0.3163			0.3163			0.6325			0.6325
Weighted average number of common shares outstanding (note 17)
• Basic		72,036,526			70,393,531			71,687,549			70,142,301
• Diluted		72,036,526			71,314,629			71,687,549			71,142,363

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

Page 3 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in thousands of U.S. dollars)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
	$			$			$			$
Net (loss) income		(15,447	)		87,534			33,675			127,289

Other comprehensive (loss) income:
Other comprehensive (loss) income before reclassifications
Unrealized loss on marketable securities		(287	)		(1,136	)		(208	)		(2,062	)
Unrealized loss on qualifying cash flow hedging instruments		(1,121	)		(22	)		(2,064	)		(554	)
Pension adjustments, net of taxes		581			—			(132	)		1,464
Foreign exchange gain (loss) on currency translation		44			(479	)		(43	)		653
Amounts reclassified from accumulated other comprehensive (loss) income
To other income:
Impairment of marketable securities		—			2,062			—			2,062
To general and administrative expenses:
Realized loss on qualifying cash flow hedging instruments		391			88			782			84
Settlement of defined benefit pension plan		—			974			—			974

Other comprehensive (loss) income		(392	)		1,487			(1,665	)		2,621

Comprehensive (loss) income		(15,839	)		89,021			32,010			129,910
Less: Comprehensive income attributable to non-controlling interests		(27,067	)		(76,167	)		(76,320	)		(122,100	)

Comprehensive (loss) income attributable to stockholders of Teekay Corporation		(42,906	)		12,854			(44,310	)		7,810

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

Page 4 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(in thousands of U.S. dollars, except share and per share amounts)


	As at			As at
	June 30,			December 31,
	2014			2013
	$			$
ASSETS
Current
Cash and cash equivalents (note 8)		748,900			614,660
Restricted cash		3,935			4,748
Accounts receivable, including non-trade of $100,009 (2013 - $109,114) and related party balance of $15,579 (2013 - $16,371)		559,047			528,594
Assets held for sale (notes 7a and 11)		—			176,247
Net investment in direct financing leases (note 5)		23,641			21,545
Prepaid expenses and other		62,790			57,158
Current portion of loans to equity accounted investees		21,634			37,019
Current portion of investment in term loans		—			211,579
Current portion of derivative assets (note 15)		18,433			23,040

Total current assets		1,438,380			1,674,590

Restricted cash - non-current		499,108			497,984
Vessels and equipment (note 8)
At cost, less accumulated depreciation of $2,324,470 (2013 - $2,135,780)		5,894,500			5,983,128
Vessels under capital leases, at cost, less accumulated amortization of $159,701 (2013 – $152,020)		530,195			571,692
Advances on newbuilding contracts and conversion costs (notes 1 and 10a)		1,403,850			796,324

Total vessels and equipment		7,828,545			7,351,144

Net investment in direct financing leases - non-current (note 5)		750,385			705,717
Loans to equity accounted investees and joint venture partners, bearing interest between nil to 8%		133,526			132,229
Derivative assets (note 15)		113,550			69,797
Equity accounted investments (notes 4b, 4c and 4d)		807,700			690,309
Other non-current assets		214,788			159,494
Intangible assets – net		101,157			107,898
Goodwill		168,572			166,539

Total assets		12,055,711			11,555,701

LIABILITIES AND EQUITY
Current
Accounts payable		161,477			98,415
Accrued liabilities		410,502			466,824
Liabilities associated with assets held for sale (notes 7a and 11)		—			168,007
Current portion of derivative liabilities (note 15)		177,469			143,999
Current portion of long-term debt (note 8)		655,601			996,425
Current obligation under capital leases		65,716			31,668
Current portion of in-process revenue contracts		29,983			40,176

Total current liabilities		1,500,748			1,945,514

Long-term debt, including amounts due to joint venture partners of $13,282 (2013 - $13,282) (note 8)		6,076,766			5,113,045
Long-term obligation under capital leases		499,458			566,661
Derivative liabilities (note 15)		372,046			299,570
In-process revenue contracts		129,833			139,676
Other long-term liabilities (note 16)		367,698			271,621

Total liabilities		8,946,549			8,336,087

Commitments and contingencies (note 4a, 5, 8, 10 and 15)
Redeemable non-controlling interest (note 10d)		15,149			16,564
Equity
Common stock and additional paid-in capital ($0.001 par value; 725,000,000 shares authorized; 72,239,252 shares outstanding (2013 - 70,729,399); 73,038,452 shares issued (2013 - 71,528,599)) (note 9)		756,067			713,760
Retained earnings		346,385			435,217
Non-controlling interest		2,009,585			2,071,262
Accumulated other comprehensive loss (note 14)		(18,024	)		(17,189	)

Total equity		3,094,013			3,203,050

Total liabilities and equity		12,055,711			11,555,701

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

Page 5 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands of U.S. dollars)


	Six Months Ended June 30,
	2014			2013
	$			$
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
Net income		33,675			127,289
Non-cash items:
Depreciation and amortization		206,831			212,263
Amortization of in-process revenue contracts		(20,036	)		(33,286	)
Gain on sale of vessels and equipment and other assets		(9,453	)		(1,309	)
Loan loss (recoveries) provisions (note 7b)		(2,521	)		10,207
Equity income, net of dividends received		(54,577	)		(73,437	)
Income tax expense		5,991			4,373
Employee stock option compensation		(3,847	)		1,965
Unrealized foreign exchange gain		(7,244	)		(54,506	)
Unrealized loss (gain) on derivative instruments		73,640			(54,699	)
Other		(3,912	)		7,435
Change in operating assets and liabilities		7,199			(45,879	)
Expenditures for dry docking		(24,217	)		(33,592	)

Net operating cash flow		201,529			66,824

FINANCING ACTIVITIES
Proceeds from issuance of long-term debt, net of issuance costs		1,872,259			1,163,917
Scheduled repayments of long-term debt (note 8)		(613,516	)		(228,982	)
Prepayments of long-term debt		(669,413	)		(703,816	)
Repayments of capital lease obligations		(3,396	)		(5,205	)
(Increase) decrease in restricted cash		(385	)		465
Net proceeds from equity issuances of subsidiaries (note 6)		7,475			212,401
Equity contribution by joint venture partner		22,017			1,684
Issuance of Common Stock upon exercise of stock options		44,372			16,582
Distributions paid from subsidiaries to non-controlling interests		(155,567	)		(125,728	)
Cash dividends paid		(45,188	)		(45,282	)

Net financing cash flow		458,658			286,036

INVESTING ACTIVITIES
Expenditures for vessels and equipment		(602,257	)		(320,018	)
Proceeds from sale of vessels and equipment and other		165,055			39,551
Repayment of term loans		4,814			—
Purchase of ALP (net of cash acquired of $294) (note 4a)		(2,322	)		—
Investment in equity accounted investments		(50,648	)		(136,413	)
Repayments by (advances to) joint ventures and joint venture partners		6,175			(41,452	)
Investment in direct financing lease assets		(54,800	)		—
Direct financing lease payments received		8,036			6,187

Net investing cash flow		(525,947	)		(452,145	)

Increase (decrease) in cash and cash equivalents		134,240			(99,285	)
Cash and cash equivalents, beginning of the period		614,660			639,491

Cash and cash equivalents, end of the period		748,900			540,206

Supplemental cash flow information (note 18)

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

Page 6 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN TOTAL EQUITY

(in thousands of U.S. dollars)


	TOTAL EQUITY
	Thousands of Shares of Common Stock Outstanding #		Common Stock and Additional Paid-in Capital $			Retained Earnings $			Accumu- lated Other Compre- hensive Loss $			Non- controlling Interests $			Total $			Redeemable Non- controlling Interest $
Balance as at December 31, 2013		70,729		713,760			435,217			(17,189	)		2,071,262			3,203,050			16,564

Net (loss) income							(43,475	)					77,150			33,675
Reclassification of redeemable non-controlling interest in net income													(2,085	)		(2,085	)		2,085
Other comprehensive loss										(835	)		(830	)		(1,665	)
Dividends declared							(46,970	)					(166,432	)		(213,402	)		(3,500	)
Reinvested dividends		1		4												4
Exercise of stock options and other (note 9)		1,509		44,372												44,372
Employee stock compensation (note 9)				(2,069	)											(2,069	)
Dilution gain on public offering of Teekay Offshore (note 6)							1,613									1,613
Additions to non-controlling interest from equity contributions and other													30,520			30,520

Balance as at June 30, 2014		72,239		756,067			346,385			(18,024	)		2,009,585			3,094,013			15,149

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

Page 7 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than 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 information and footnote disclosures required by GAAP for complete annual financial statements have been omitted and, therefore, these interim financial statements should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2013, included in the Company’s Annual Report on Form 20-F. In the opinion of management, these unaudited 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 six months ended June 30, 2014, are not necessarily indicative of those for a full fiscal year. Significant intercompany balances and transactions have been eliminated upon consolidation.

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 market conditions, it is possible that the amounts recorded as derivative assets and liabilities could vary by material amounts prior to their settlement.

In the current period the Company has presented the conversion costs incurred at period end for the Company’s committed vessel conversions in Advances on newbuilding contracts and conversion costs on the consolidated balance sheet. Prior to June 30, 2014, the Company included these amounts in Vessels and equipment – At cost, less accumulated depreciation. All such costs incurred in comparative periods have been reclassified from Vessels and equipment – At cost, less accumulated depreciation to Advances on newbuilding contracts and conversion costs to conform to the presentation adopted in the current period. The amount reclassified as at December 31, 2013 was $29.8 million.

2.	Accounting Pronouncements Not Yet Adopted

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 companies to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This update creates a five-step model that requires companies 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 when each performance obligation is satisfied. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2016 and shall be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. Early adoption is not permitted. The Company is evaluating the effect of adopting this new accounting guidance.

In April 2014, the FASB issued Accounting Standards Update 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity (or ASU 2014-08) which raises the threshold for disposals to qualify as discontinued operations. A discontinued operation is defined as: (i) a component of an entity or group of components that has been disposed of or classified as held for sale and represents a strategic shift that has or will have a major effect on an entity’s operations and financial results; or (ii) an acquired business that is classified as held for sale on the acquisition date. ASU 2014-08 also requires additional disclosures regarding discontinued operations, as well as material disposals that do not meet the definition of discontinued operations. ASU 2014-08 is effective for fiscal years beginning on or after December 15, 2014, and interim periods within those years. Early adoption is permitted, but only for disposals (or classifications as held for sale) that have not been reported in the financial statements previously issued or available for issuance. The impact, if any, of adopting ASU 2014-08 on the Company’s financial statements will depend on the occurrence and nature of disposals that occur after ASU 2014-08 is adopted.

3.	Segment Reporting

The following tables include results for the Company’s four segments for the three and six months ended June 30, 2014 and 2013:


	Shuttle						Liquefied		Conventional
Three Months ended June 30, 2014	Tanker and FSO			FPSO			Gas		Tanker
	Segment			Segment			Segment		Segment			Total
Revenues		142,816			131,155			81,970		96,313			452,254
Voyage expenses		24,890			172			739		7,638			33,439
Vessel operating expenses		46,989			92,436			17,139		45,150			201,714
Time-charter hire expense		4,975			—			—		4,739			9,714
Depreciation and amortization		27,039			38,056			17,888		20,390			103,373
General and administrative⁽¹⁾		8,005			15,524			6,294		7,122			36,945
Loan loss recoveries		—			(2,521	)		—		—			(2,521	)
Gain on sale of vessels and equipment		—			—			—		(9,615	)		(9,615	)
Restructuring charges		(820	)		—			—		576			(244	)

Income (loss) from vessel operations		31,738			(12,512	)		39,910		20,313			79,449

Page 8 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data)



	Shuttle						Liquefied		Conventional
Three Months ended June 30, 2013	Tanker and FSO			FPSO			Gas		Tanker
	Segment			Segment			Segment		Segment			Total
Revenues		140,062			122,560			70,983		97,102			430,707
Voyage expenses		22,275			—			487		3,392			26,154
Vessel operating expenses		43,472			84,054			15,164		53,288			195,978
Time-charter hire expense		14,110			—			—		12,434			26,544
Depreciation and amortization		29,093			39,285			18,328		23,063			109,769
General and administrative⁽¹⁾		9,324			11,760			5,314		8,997			35,395
Loan loss provisions		—			—			—		7,042			7,042
Gain on sale of vessels and equipment		—			(1,338	)		—		(3	)		(1,341	)
Restructuring charges		1,043			—			—		746			1,789

Income (loss) from vessel operations		20,745			(11,201	)		31,690		(11,857	)		29,377


	Shuttle						Liquefied		Conventional
Six Months ended June 30, 2014	Tanker and FSO			FPSO			Gas		Tanker
	Segment			Segment			Segment		Segment			Total
Revenues		304,028			273,674			163,393		217,653			958,748
Voyage expenses		56,619			172			1,572		10,088			68,451
Vessel operating expenses		93,007			185,940			33,650		90,303			402,900
Time-charter hire expense		16,387			—			—		9,619			26,006
Depreciation and amortization		54,376			75,868			36,001		40,586			206,831
General and administrative⁽¹⁾		17,382			30,865			13,494		13,082			74,823
Loan loss recoveries		—			(2,521	)		—		—			(2,521	)
Gain on sale of vessels and equipment		—			—			—		(9,453	)		(9,453	)
Restructuring charges		(268	)		—			—		663			395

Income (loss) from vessel operations		66,525			(16,650	)		78,676		62,765			191,316


	Shuttle						Liquefied		Conventional
Six Months ended June 30, 2013	Tanker and FSO			FPSO			Gas		Tanker
	Segment			Segment			Segment		Segment			Total
Revenues		278,715			263,489			141,984		197,556			881,744
Voyage expenses		44,084			—			491		7,894			52,469
Vessel operating expenses		88,379			161,438			30,260		103,365			383,442
Time-charter hire expense		28,887			—			—		25,109			53,996
Depreciation and amortization		56,789			73,317			35,619		46,538			212,263
General and administrative⁽¹⁾		19,828			24,121			11,510		19,207			74,666
Loan loss provisions		—			—			—		10,207			10,207
(Gain) loss on sale of vessels and equipment		—			(1,338	)		—		29			(1,309	)
Restructuring charges		1,630			—			—		2,213			3,843

Income (loss) from vessel operations		39,118			5,951			64,104		(17,006	)		92,167

(1)	Includes direct general and administrative expenses and indirect general and administrative expenses (allocated to each segment based on estimated use of corporate resources).

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


	June 30, 2014		December 31, 2013
	$		$
Shuttle tanker and FSO segment		1,940,146		1,947,905
FPSO segment		3,340,920		2,836,998
Liquefied gas segment		3,699,293		3,616,044
Conventional tanker segment		1,576,691		1,874,101
Cash		748,900		614,660
Accounts receivable and other assets		749,761		665,993

Consolidated total assets		12,055,711		11,555,701

Page 9 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data)

4.	Investments

a)	Teekay Offshore Acquisition of ALP Maritime Services B.V.

In March 2014, our publicly-listed subsidiary Teekay Offshore Partners L.P. (NYSE: TOO) (or Teekay Offshore) acquired 100% of the shares of ALP Maritime Services B.V. (or ALP), a Netherlands-based provider of long-haul ocean towage and offshore installation services to the global offshore oil and gas industry. Concurrently with this transaction, Teekay Offshore and ALP entered into an agreement with Niigata Shipbuilding & Repair of Japan for the construction of four state-of-the-art SX-157 Ulstein Design ultra-long distance towing and anchor handling vessel newbuildings. These vessels will be equipped with dynamic positioning capability and are scheduled for delivery in 2016. Teekay Offshore is committed to acquire these newbuildings for a total cost of approximately $258 million.

Teekay Offshore acquired ALP for a purchase price of $2.6 million, which was paid in cash, and also entered into an arrangement to pay additional compensation to three former shareholders of ALP if certain requirements are satisfied. This contingent compensation consists of $2.4 million, which is payable upon the delivery and employment of ALP’s four newbuildings scheduled throughout 2016, and a further amount of up to $2.6 million, which is payable if ALP’s annual operating results from 2017 to 2021 meet certain targets. Teekay Offshore has the option to pay up to 50% of this compensation through the issuance of common units of Teekay Offshore. Each of the contingent compensation amounts is payable only if the three shareholders are employed by ALP at the time performance conditions are met. For the three and six months ended June 30, 2014, compensation costs were $0.2 million and were recorded under general and administrative expenses in the Company’s consolidated statements of (loss) income. Teekay Offshore also incurred a $1.0 million fee payable to a third party associated with the acquisition.

This acquisition of ALP and the related newbuilding orders represent Teekay Offshore’s entrance into the long-haul ocean towage and offshore installation services business. The Company believes that this acquisition allows Teekay Offshore to combine its infrastructure and access to capital with ALP’s experienced management team to further grow this niche business, which is in an adjacent sector to Teekay Offshore’s FPSO and shuttle tanker businesses. The acquisition of ALP was accounted for using the purchase method of accounting, based upon preliminary estimates of fair value.

The following table summarizes the preliminary estimates of fair values of the ALP assets acquired and liabilities assumed by Teekay Offshore on the acquisition date.


	As at
(in thousands of U.S. dollars)	March 14, 2014
	$
ASSETS
Cash and cash equivalents		294
Other current assets		404
Advances on newbuilding contracts		164
Other assets - long-term		395
Goodwill		2,032

Total assets acquired		3,289

LIABILITIES
Current liabilities		387
Other long-term liabilities		286

Total liabilities assumed		673

Net assets acquired		2,616

Consideration		2,616

The goodwill recognized in connection with the ALP acquisition is attributable primarily to the assembled workforce of ALP, including their experience, skills and abilities. Operating results of ALP are reflected in the Company’s consolidated financial statements commencing March 14, 2014, the effective date of acquisition. From the date of acquisition to June 30, 2014, the Company recognized $0.2 million of revenue and $1.7 million of net loss resulting from this acquisition.

b)	Tanker Investments Ltd.

In January 2014, Teekay and its publicly-listed subsidiary Teekay Tankers Ltd. (NYSE: TNK) (or Teekay Tankers) formed Tanker Investments Ltd. (or TIL), which seeks to opportunistically acquire, operate and sell modern second-hand tankers to benefit from an expected recovery in the current cyclical low of the tanker market. Teekay and Teekay Tankers in the aggregate purchased 5.0 million shares of common stock, representing an initial 20% interest in TIL, as part of a $250 million private placement by TIL, which represents a total investment by Teekay and Teekay Tankers of $50.0 million.

Page 10 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data)

In addition, Teekay and Teekay Tankers received stock purchase warrants entitling them to purchase in the aggregate up to 1.5 million shares of common stock of TIL at a fixed price of $10 per share. The stock purchase warrants, which had a value of $6.8 million on issuance, were received in exchange for the Company’s involvement in the formation of TIL and such amount is reflected in other income (expenses) in the Company’s consolidated statements of (loss) income. The stock purchase warrants expire on January 23, 2019. See Note 15 for additional information about these warrants. The Company also received one Series A-1 preferred share and one Series A-2 preferred share, each of which entitles the holder to elect one board member of TIL. The preferred shares do not give the holder a right to any dividends or distributions of TIL. Teekay and Teekay Tankers account for their investment in TIL using the equity method.

In March 2014, TIL issued additional common shares and listed its shares on the Oslo Stock Exchange. The issuance of shares by an equity accounted investee is accounted by the Company as if the Company had sold a proportionate share of its investment, and the resulting gain or loss is recognized in equity income in the Company’s consolidated statements of income. For the six months ended June 30, 2014, the Company recognized a gain from this investment of $4.1 million. As of June 30, 2014, the combined interest of Teekay Tankers and Teekay in TIL was 13.0%.

As of June 30, 2014, a portion of the net proceeds from the equity issuances by TIL had been used to acquire four modern Suezmax crude oil tankers from Teekay, five modern Aframax tankers and two coated Aframax tankers from third parties and two VLCC vessels from Teekay Tankers. The remaining proceeds will be used to acquire additional tankers and for general corporate purposes.

c)	Teekay LNG – Exmar LPG BVBA Joint Venture

In February 2013, the Company’s publicly-listed subsidiary Teekay LNG Partners L.P. (NYSE: TGP) (or Teekay LNG), entered into a 50/50 joint venture agreement with Belgium-based Exmar NV (or Exmar) to own and charter-in liquefied petroleum gas (or LPG) carriers with a primary focus on the mid-size gas carrier segment. The joint venture entity, called Exmar LPG BVBA took economic effect as of November 1, 2012 and, as of June 30, 2014, included 21 owned LPG carriers (including 10 newbuilding carriers scheduled for delivery between late 2014 and 2018) and four chartered-in LPG carriers. For its 50% ownership interest in the joint venture, including newbuilding payments made prior to the November 1, 2012 economic effective date of the joint venture, Teekay LNG invested approximately $133.1 million in exchange for equity and a shareholder loan and assumed approximately $108 million of its pro rata share of existing debt and lease obligations as of the economic effective date. These debt and lease obligations are secured by certain vessels in the Exmar LPG BVBA fleet. The excess of the book value of net assets acquired over Teekay LNG’s investment in the Exmar LPG BVBA, which amounted to approximately $6.0 million, has been accounted for as an adjustment to the value of the vessels, charter agreements and lease obligations of Exmar LPG BVBA, in accordance with the finalized purchase price allocation. Control of Exmar LPG BVBA is shared equally between Exmar and Teekay LNG. Teekay LNG accounts for its investment in Exmar LPG BVBA using the equity method.

d)	Teekay LNG – BG International Limited Joint Venture

In June 2014, Teekay LNG acquired from BG International Limited (or BG) its ownership interests in four 174,000-cubic meter Tri-Fuel Diesel Electric liquefied natural gas (or LNG) carrier newbuildings, which will be constructed by Hudong-Zhonghua Shipbuilding (Group) Co., Ltd. in China for a total fully built-up cost to the joint venture of approximately $1.0 billion. The vessels upon delivery, which are scheduled between September 2017 and January 2019, will each operate under 20-year fixed-rate time-charter contracts, plus extension options, with Methane Services Limited, a wholly-owned subsidiary of BG. As compensation for BG’s ownership interest in these four LNG carrier newbuildings, Teekay LNG assumed BG’s obligation to provide the shipbuilding supervision and crew training services for the four LNG carrier newbuildings up to their delivery dates pursuant to a ship construction support agreement. Teekay on behalf of Teekay LNG, will provide the shipbuilding supervision and crew training services for the four LNG carrier newbuildings up to their delivery dates. Teekay LNG estimates it will incur approximately $36.7 million of costs to provide these services, of which BG has agreed to pay a fixed amount of $20.3 million. In June 2014, Teekay LNG estimated that the fair value of the service obligation was $30.2 million and the fair value of the amount due from BG was $16.5 million. The $30.2 million service obligation is included in the current portion of in-process contracts, and the in-process contracts and the receivable from BG is included in other assets in the Company’s consolidated balance sheet. Through this transaction, Teekay LNG has a 30% ownership interest in two LNG carrier newbuildings and a 20% ownership interest in the remaining two LNG carrier newbuildings (collectively the BG Joint Venture). The excess of Teekay LNG’s investment in the BG Joint Venture over Teekay LNG’s share of the underlying carrying value of net assets acquired was approximately $13.7 million. This basis difference has notionally been allocated to the ship construction support agreements and the time-charter contracts. Teekay LNG accounts for its investment in the BG Joint Venture using the equity method.

Page 11 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data)

5.	Vessel Charters

Teekay LNG owns a 99% interest in Teekay Tangguh Borrower LLC (or Teekay Tangguh), which owns a 70% interest in Teekay BLT Corporation (or the Teekay Tangguh Joint Venture), giving Teekay LNG a 69% interest in the Teekay Tangguh Joint Venture. The joint venture is a party to operating leases whereby it 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. In addition to 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, 2013, the additional minimum estimated charter hire payments for the remainder of the year and the next four fiscal years, as at June 30, 2014, for the Company’s chartered-in and chartered-out vessels were as follows:


	Remainder
	of 2014		2015		2016		2017		2018
	(in millions of U.S. dollars)
Charters-in - operating leases		34.5		31.9		9.1		9.1		0.4
Charters-in - capital leases⁽¹⁾		42.4		31.8		31.7		55.0		51.3

		76.9		63.7		40.8		64.1		51.7

Charters-out - operating leases⁽²⁾		624.0		1,438.8		1,231.4		1,225.1		997.2
Charters-out - direct financing leases		45.0		95.5		95.8		219.8		185.6

		669.0		1,534.3		1,327.2		1,444.9		1,182.8

(1)

As at June 30, 2014 and December 31, 2013, the Company had $475.8 million and $475.6 million of restricted cash which, including any interest earned on such amounts, is restricted to being used for charter hire payments of certain vessels chartered-in under capital leases. The Company also maintains restricted cash deposits relating to certain term loans and other obligations, which cash totaled $27.3 million and $27.1 million as at June 30, 2014 and December 31, 2013, respectively.

(2)

The minimum scheduled future operating lease revenues should not be construed to reflect total charter hire revenues for any of the years. Minimum scheduled future revenues do not include revenue generated from new contracts entered into after June 30, 2014, revenue from unexercised option periods of contracts that existed on June 30, 2014 or variable or contingent revenues. In addition, minimum scheduled future operating lease revenues presented in the table have been reduced by estimated off-hire time for any period maintenance. The amounts may vary given unscheduled future events such as vessel maintenance.

6.	Equity Financing Transactions

During the six months ended June 30, 2014, one of the Company’s publicly-listed subsidiaries, Teekay Offshore, completed the following equity issuances under a continuous offering program:


	Total Proceeds Received $		Less: Teekay Corporation Portion $			Offering Expenses $			Net Proceeds Received $
Six Months ended June 30, 2014
Teekay Offshore Continuous Offering Program		7,784		(156	)		(153	)		7,475

In April 2013, the Voyageur Spirit floating, production, storage and offloading (or FPSO) unit began production and on May 2, 2013, Teekay completed the acquisition of the Voyageur Spirit FPSO unit and, immediately thereafter, Teekay Offshore acquired the unit from Teekay for an original purchase price of $540.0 million. Teekay Offshore financed the acquisition with the assumption of the $230.0 million debt facility secured by the unit, $253.0 million in cash and a $44.3 million equity private placement of common units to Teekay Corporation (including the general partner’s 2% proportionate capital contribution), which had a value of $40.0 million at the time Teekay offered to sell the units to Teekay Offshore. Upon completion of the private placement to Teekay, Teekay Offshore had 83.6 million common units outstanding. As at June 30, 2014, Teekay held a 29.2% interest in Teekay Offshore, including the Company’s 2% general partner interest. Teekay maintains control of Teekay Offshore by virtue of its control of the general partner and will continue to consolidate the subsidiary.

7.	Vessel Sales, Asset Impairments and Provisions

a)	Vessel Sales

During three months ended June 30, 2014, Teekay Tankers sold two wholly-owned subsidiaries, each of which owns one VLCC, to TIL for aggregate proceeds of $154.0 million plus related working capital on closing of $1.7 million. The Company received $154.0 million of the aggregate purchase price in cash during the second quarter of 2014 and the remainder of the purchase price was received from TIL in July 2014. The Company used a portion of the proceeds from this transaction to prepay $152 million on one of the Company’s revolving credit facilities and the remainder of the proceeds will be used for general corporate purposes. During three months ended June 30, 2014, the Company realized a net gain of $10.0 million from the sale of the two subsidiaries to TIL (See Note 7b).

During the six months ended June 30, 2014, the Company sold four 2009-built Suezmax tankers that were part of the Company’s conventional tanker segment. These vessels were classified as held for sale on the consolidated balance sheet as at December 31, 2013, with their net book values written down to their sale proceeds. During the six months ended June 30, 2014, the Company realized a net loss of $0.5 million from the sale of these vessels.

During the six months ended June 30, 2013, the Company sold a 1992-built shuttle tanker, a 1992-built conventional tanker, a 1995-built conventional tanker and a 1998-built conventional tanker, that were part of the Company’s shuttle tanker and conventional tanker segments. Three of these vessels were classified as held for sale on the consolidated balance sheet as at December 31, 2012, with their net book values written down to their sale proceeds net of cash outlays to complete the sales. All of the vessels were older vessels that the Company disposed of in the ordinary course of business.

Page 12 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data)

During the three and six months ended June 30, 2013, the Company sold sub-sea equipment from the Petrojarl I FPSO unit that is part of the Company’s FPSO segment. The Company realized a gain of $1.3 million from the sale of the equipment.

b)	Loan Loss (Recoveries) Provisions

During the three and six months ended June 30, 2014, the Company reversed a $2.5 million loss provision for an amount receivable related to an FPSO front-end engineering and design study completed in 2013 as this receivable was recovered in the current period.

During the three and six months ended June 30, 2013, the Company recorded $7.0 million and $10.2 million, respectively, of loan loss provisions in respect of its investments in three term loans. The term loan borrower was facing financial difficulty and had defaulted on its interest payment obligations since January 31, 2013. The Company reduced the net carrying amount of the investment in term loan as the value of the underlying collateral had declined during the three- and six month periods. Later in 2013, the Company increased the net carrying amount of the investments in term loans, which included accrued interest income as the estimated future cash flows, which primarily reflected the estimated value of the underlying collateral, increased during 2013. During March 2014, the Company assumed ownership of the three VLCCs that collateralized the investment in term loans (see Note 18a). At the time of assumption of ownership, these vessels had an aggregate fair value of approximately $222 million, which exceeded the carrying value of the loans. As a result, in the first quarter of 2014, the Company recognized $15.2 million of interest income, of which $11.2 million related to prior periods and was previously unrecognized, owing under the loans. In May 2014, Teekay Tankers sold two of the VLCCs to TIL and recognized a gain on sale of $10.0 million (see Note 7a).

8.	Long-Term Debt


	June 30, 2014		December 31, 2013
	$		$
Revolving Credit Facilities		1,610,450		1,919,086
Senior Notes (8.5%) due January 15, 2020		447,598		447,430
Norwegian Kroner-denominated Bonds due through January 2019		847,860		691,778
U.S. Dollar-denominated Term Loans due through 2023		3,011,214		2,523,523
U.S. Dollar Bonds due through 2023		471,118		174,150
Euro-denominated Term Loans due through 2023		330,845		340,221
U.S. Dollar-denominated Unsecured Demand Loans due to Joint Venture Partners		13,282		13,282

Total		6,732,367		6,109,470
Less current portion		655,601		996,425

Long-term portion		6,076,766		5,113,045

As of June 30, 2014, the Company had 15 revolving credit facilities (or the Revolvers) available, which, as at such date, provided for aggregate borrowings of up to $2.5 billion, of which $0.9 billion was undrawn. Interest payments are based on LIBOR plus margins; at June 30, 2014 and December 31, 2013, the margins ranged between 0.45% and 4.5%. At June 30, 2014 and December 31, 2013, the three-month LIBOR was 0.23% and 0.25%, respectively. The total amount available under the Revolvers reduces by $612.6 million (remainder of 2014), $316.2 million (2015), $740.2 million (2016), $463.7 million (2017) and $355.7 million (2018). Subsequent to June 30, 2014, Teekay Offshore received commitments to refinance $330.0 million of revolving credit facilities coming due during the remainder of 2014. Teekay Offshore expects the refinancing to be completed in September 2014, and the amount available under the new revolving credit facility will reduce quarterly by $16.5 million per quarter over five years. The Revolvers are collateralized by first-priority mortgages granted on 55 of the Company’s vessels, together with other related security, and include a guarantee from Teekay or its subsidiaries for all outstanding amounts.

The Company’s 8.5% senior unsecured notes (or the 8.5% Notes) are due January 15, 2020 with a principal amount of $450 million. The 8.5% Notes were sold at a price equal to 99.181% of par and the discount is accreted through the maturity date of the notes using the effective interest rate of 8.625% per year. The Company capitalized issuance costs of $9.4 million, which is recorded in other non-current assets in the consolidated balance sheet and is amortized to interest expense over the term of the 8.5% Notes. 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.

During 2013 and 2012, Teekay Offshore, Teekay LNG and Teekay issued in the Norwegian bond market a total of NOK 4.2 billion of senior unsecured bonds that mature between October 2015 and September 2018. As at June 30, 2014, the total carrying amount of the bonds was $684.8 million. The bonds are listed on the Oslo Stock Exchange. The interest payments on the bonds are based on NIBOR plus a margin, which ranges from 4.00% to 5.75%. The Company entered into cross currency rate swaps to swap all interest and principal payments of the bonds into U.S. dollars (or U.S. Dollars), with the interest payments fixed at rates ranging from 4.80% to 7.49%, and the transfer of principal fixed at $732.4 million upon maturity in exchange for NOK 4.2 billion (see Note 15).

Page 13 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data)

In January 2014, Teekay Offshore issued NOK 1,000 million in senior unsecured bonds that mature in January 2019 in the Norwegian bond market. As of June 30, 2014, the carrying amount of the bonds was $163.1 million. The bonds were listed on the Oslo Stock Exchange in June 2014. The interest payments on the bonds are based on NIBOR plus a margin of 4.25%. Teekay Offshore entered into a cross currency swap to swap all interest and principal payments into USD, with the interest payments fixed at a rate of 6.28%, and the transfer of the principal amount fixed at $162.2 million upon maturity in exchange for NOK 1,000 million (see Note 15).

As of June 30, 2014, the Company had 17 U.S. Dollar-denominated term loans outstanding, which totaled $3.0 billion (December 31, 2013 – $2.5 billion). Certain of the term loans with a total outstanding principal balance of $159.0 million as at June 30, 2014 (December 31, 2013 – $176.3 million) bear interest at a weighted-average fixed rate of 5.2% (December 31, 2013 – 5.2%). Interest payments on the remaining term loans are based on LIBOR plus a margin. At June 30, 2014 and December 31, 2013, the margins ranged between 0.3% and 3.25%. At June 30, 2014 and December 31, 2013, the three-month LIBOR was 0.23% and 0.25%, respectively. 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 16 of the term loans have balloon or bullet repayments due at maturity. The term loans are collateralized by first-priority mortgages on 33 (December 31, 2013 – 35) of the Company’s vessels, together with certain other security. In addition, at June 30, 2014, all but $84.1 million (December 31, 2013 – $94.4 million) of the outstanding term loans were guaranteed by Teekay or its subsidiaries.

During May 2014, Teekay Offshore issued $300 million in senior unsecured bonds that mature in July 2019 in the US bond market. As of June 30, 2014, the carrying amount of the bonds was $300.0 million. The bonds were listed on the New York Stock Exchange in June 2014. The interest payments on the bonds are fixed at a rate of 6.0%.

During 2013, Teekay Offshore had outstanding $171.1 million of ten-year senior unsecured bonds that mature in December 2023 and were issued in the second half of 2013 in a U.S. private placement to finance the Bossa Nova Spirit and the Sertanejo Spirit shuttle tankers. The bonds accrue interest at a fixed rate of 4.96%. The bonds are collateralized by first-priority mortgages on the two vessels to which the bonds relate, together with other related security.

The Company has two Euro-denominated term loans outstanding, which, as at June 30, 2014, totaled 241.7 million Euros ($330.8 million) (December 31, 2013 – 247.6 million Euros ($340.2 million)). The Company 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 a margin. At June 30, 2014 and December 31, 2013, the margins ranged between 0.6% and 2.25% and the one-month EURIBOR at June 30, 2014 was 0.1% (December 31, 2013 – 0.2%). The Euro-denominated term loans reduce in monthly payments with varying maturities through 2023, are collateralized by first-priority mortgages on two of the Company’s vessels, together with certain other security, and are guaranteed by a subsidiary of Teekay.

Both Euro-denominated term loans and 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 gains of $2.0 million (2013 – $0.7 million) and $2.9 million (2013 – $2.9 million) during the three and six months ended June 30, 2014, respectively.

The Company has one U.S. Dollar-denominated loan outstanding owing to a joint venture partner, which, as at June 30, 2014, totaled $13.3 million (2013 – $13.3 million). Interest payments on the loan are based on a fixed interest rate of 4.84%. This loan is repayable on demand.

The weighted-average effective interest rate on the Company’s aggregate long-term debt as at June 30, 2014 was 3.0% (December 31, 2013 – 3.0%). This rate does not include the effect of the Company’s interest rate swap agreements (see Note 15).

Among other matters, the Company’s long-term debt agreements generally provide for maintenance of minimum consolidated financial covenants and five loan agreements require the maintenance of vessel market value to loan ratios. As at June 30, 2014, these ratios ranged from 141.0% to 481.5% compared to their minimum required ratios of 105% to 120%, respectively. The vessel values used in these ratios are the appraised values prepared by the Company based on second hand sale and purchase market data. A further delay in the recovery of the conventional tanker market and a weakening of the LNG/LPG carrier market could negatively affect the ratios. Certain loan agreements require that a minimum level of free cash be maintained and as at June 30, 2014 and December 31, 2013, this amount was $100.0 million. 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, in amounts ranging from 5% to 7.5% of total debt. As at June 30, 2014, this aggregate amount was $377.1 million (December 31, 2013 - $344.9 million). As at June 30, 2014, the Company was in compliance with all covenants required by its credit facilities and other long-term debt.

The aggregate annual long-term debt principal repayments required to be made by the Company subsequent to June 30, 2014, are $664.2 million (remainder of 2014), $582.2 million (2015), $796.0 million (2016), $1.1 billion (2017), $1.3 billion (2018) and $2.3 billion (thereafter).

9.	Capital Stock

The authorized capital stock of Teekay at June 30, 2014 and December 31, 2013 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 June 30, 2014, Teekay had no shares of preferred stock issued. During the six months ended June 30, 2014, Teekay issued 1.5 million shares of common stock upon the exercise or issuance of stock options, restricted stock units and restricted stock awards.

Page 14 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data)

During 2008, Teekay announced that its Board of Directors had authorized the repurchase of up to $200 million of shares of its common stock in the open market. As at June 30, 2014, Teekay had repurchased approximately 5.2 million shares of common stock for $162.3 million pursuant to such authorizations. As at June 30, 2014, the total remaining amount under the share repurchase authorization was $37.7 million.

During the six months ended June 30, 2014, the Company granted 15,243 stock options with an exercise price of $56.76 per share, 81,388 restricted stock units with a fair value of $4.6 million, 50,689 performance shares with a fair value of $3.4 million and 18,230 shares of restricted stock awards with a fair value of $1.0 million 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 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 and restricted stock awards vest equally over three years from the grant date and the performance shares vest two or three years from the grant date. Upon vesting, the value of the restricted stock units, restricted stock awards and performance shares 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 the six months ended June 30, 2014 was $11.50 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 34.7%; expected life of five years; dividend yield of 4.4%; risk-free interest rate of 1.6%; and estimated forfeiture rate of 12%. 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.

10.

Commitments and Contingencies

a)	Vessels Under Construction

As at June 30, 2014, the Company was committed to the construction of five LNG carriers, four ALP towage vessels and two floating, storage and offloading (or FSO) conversions for a total cost of approximately $1.5 billion, excluding capitalized interest and other miscellaneous construction costs. Two LNG carriers are scheduled for delivery in 2016, and three LNG carriers are scheduled for delivery in 2017, the four ALP towage vessels are scheduled for delivery in 2016 and the two FSO conversions are scheduled for completion in the fourth quarter of 2014 and the fourth quarter of 2016, respectively. As at June 30, 2014, payments made towards these commitments totaled $221.4 million (excluding $4.6 million of capitalized interest and other miscellaneous construction costs) and the carrying value of completed units not yet in service was $1.2 billion. As at June 30, 2014, the remaining payments required to be made under these newbuilding and conversion capital commitments were $131.2 million (remainder of 2014), $271.2 million (2015), $445.8 million (2016), and $399.0 million (2017).

b)	Joint Ventures

As described in Note 4d, Teekay LNG has an ownership interest in the BG Joint Venture and, as part of the acquisition, agreed to assume BG’s obligation to provide shipbuilding supervision and crew training services for the four LNG carrier newbuildings up to their delivery dates pursuant to a ship construction support agreement. The shipbuilding and crew training obligation to be incurred, net of the reimbursement from BG, are estimated to be $2.5 million (remainder of 2014), $3.7 million (2015), $2.0 million (2016), $2.4 million (2017), $3.0 million (2018) and $2.8 million (thereafter).

In addition, the BG Joint Venture secured a $787.0 million debt facility to finance a portion of the estimated fully built-up cost of $1.0 billion for its four newbuilding carriers, with the remaining portion to be financed on a pro rata ownership basis by Teekay LNG and the other partners. Teekay LNG’s proportionate share of the newbuilding installments, net of the existing debt financing, is $3.8 million (remainder of 2014), $4.9 million (2015), $7.9 million (2016), $15.0 million (2017), $17.3 million (2018) and $6.3 million (thereafter).

c)	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, 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.

Navion Hispania Incident

On November 13, 2006, one of Teekay Offshore’s shuttle tankers, the Navion Hispania, collided with the Njord Bravo, an FSO unit, while preparing to load an oil cargo from the Njord Bravo. The Njord Bravo services the Njord field, which is operated by Statoil Petroleum AS (or Statoil) and is located off the Norwegian coast. At the time of the incident, Statoil was chartering the Navion Hispania from Teekay Offshore. The Navion Hispania and the Njord Bravo both incurred damage as a result of the collision. In November 2007, Navion Offshore Loading AS (or NOL) and Teekay Navion Offshore Loading Pte Ltd. (or TNOL), subsidiaries of Teekay Offshore, and Teekay Shipping Norway AS (or TSN), a subsidiary of Teekay, were named as co-defendants in a legal action filed by Norwegian Hull Club (the hull and machinery insurers of the Njord Bravo), several other insurance underwriters and various licensees in the Njord field. The plaintiffs sought damages for vessel repairs, expenses for a replacement vessel and other amounts related to production stoppage on the field, totaling NOK 213,000,000 (approximately $34.7 million).

Page 15 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data)

The appellate court in June 2013 held that NOL, TNOL and TSN are jointly and severally responsible towards the plaintiffs for all the losses as a result of the collision, plus interest accrued on the amount of damages. In addition, Statoil ASA was held not to be under an obligation to indemnify NOL, TNOL and TSN for the losses. NOL, TNOL and TSN were also held liable for legal costs associated with court proceedings. As a result of this judgment, in the second quarter of 2013 Teekay Offshore recognized a liability in the amount of NOK 213,000,000 in respect of damages, NOK 66,000,000 in respect of interest and NOK 11,000,000 in respect of legal costs, totaling NOK 290,000,000 (approximately $47.3 million), to the plaintiffs recorded in accrued liabilities. In the fourth quarter of 2013, Teekay Offshore recognized an additional liability of NOK 4,000,000 in respect of interest, bringing the total liability to NOK 294,000,000 (approximately $47.9 million). The judgment rendered deals with liability only and the ultimate amount of damages may be reduced compared to the NOK 213,000,000 claimed by the plaintiffs.

Teekay Offshore and Teekay maintain protection and indemnity insurance for damages to the Navion Hispania and insurance for collision-related costs and claims. These insurance policies are expected to cover the costs related to this incident, including any costs not indemnified by Statoil, and thus a receivable of NOK 294,000,000 (approximately $47.9 million) was concurrently recorded in accounts receivable, which equals the total cost of the claim. In addition, Teekay has agreed to indemnify Teekay Offshore for any losses it may incur in connection with this incident. In the fourth quarter of 2013, the insurer made payments directly to the plaintiffs in full settlement of interest and partial settlement of legal costs and thus Teekay Offshore, as at December 31, 2013, reduced its liability and related receivable to NOK 213,000,000 in respect of damages and approximately NOK 3,400,000 in respect of legal costs, totaling approximately NOK 216,400,000 (approximately $35.3 million). No further payments were made in the first six months of 2014.

Teekay Nakilat Capital Lease

Teekay Nakilat Corporation (or Teekay Nakilat), a subsidiary of Teekay LNG, is the lessee under 30-year capital lease arrangements with a third party for the three LNG carriers (or the RasGas II Leases). The UK taxing authority (or HMRC) has been urging the lessor as well as other lessors under capital lease arrangements that have tax benefits similar to the ones provided by the RasGas II Leases, to terminate such finance lease arrangements, and has in other circumstances challenged the use of similar structures. As a result, the lessor has requested that the Teekay Nakilat Joint Venture contemplate the termination of the RasGas II Leases or entertain other alternatives for the leasing structure. The Teekay Nakilat Joint Venture has declined the request from HMRC to voluntarily terminate the RasGas II Leases primarily because of a January 2012 court decision from the First Tribunal regarding a similar financial lease of an LNG carrier that ruled in favor of the taxpayer, as well as a 2013 decision from the Upper Tribunal that upheld the 2012 verdict. However, HMRC appealed the 2013 decision to the Court of Appeal and in August 2014, HMRC was successful in having the judgment of the First Tribunal (in favor of the taxpayer) set aside. The matter will now be reconsidered by the First Tribunal, taking into account the appellate court’s comments on their earlier judgment. If HMRC is able to successfully challenge the RasGas II Leases, the Teekay Nakilat Joint Venture could be subject to significant costs associated with the termination of the lease or increased lease payments to compensate the lessor for the lost tax benefits. Teekay LNG estimates its 70.0% share of the potential exposure to be approximately $34 million, exclusive of any interest rate swap termination costs and costs associated with any new financing.

Petrojarl Banff Storm Damage

On December 7, 2011, the Petrojarl Banff FPSO unit (or Banff), which operates on the Banff field in the U.K. sector of the North Sea, suffered a severe storm event and sustained damage to its moorings, turret and subsea equipment, which necessitated the shutdown of production on the unit. Due to the damage, the Company declared force majeure under the customer contract on December 8, 2011 and the Banff FPSO unit commenced a period of off-hire while the necessary repairs and upgrades were completed and the weather permitted re-installation of the unit on the Banff field. The Company does not have off-hire insurance covering the Banff FPSO. The repairs and upgrades were completed in 2014, and the Banff FPSO unit resumed production on the Banff field in July 2014, where it is expected to remain under contract until the end of 2018.

The Company expects that repair costs to the Banff FPSO unit and equipment and costs associated with the emergency response to prevent loss or further damage during the December 7, 2011 storm event will be primarily reimbursed through its insurance coverage, subject to a $0.8 million deductible and the other terms and conditions of the applicable policies. In addition, the Company incurred certain capital upgrade costs for the Banff FPSO unit and the Apollo Spirit related to upgrades to the mooring system required by the relevant regulatory authorities due to the extreme weather and sea states experienced during the December 7, 2011 storm. The Apollo Spirit was operating on the Banff field as a storage tanker and returned to service on the Banff field at the same time as the Banff FPSO unit. The total of these capital upgrade costs is approximately $164 million. The recovery of the capital upgrade costs from the charterer is subject to commercial negotiations or, failing agreement, the responsibility for these costs will be determined by an expedited arbitration procedure. Any capital upgrade costs not recovered from the charterer will be capitalized to the vessel cost.

d)	Redeemable Non-Controlling Interest

During 2010, an unrelated party contributed a shuttle tanker with a value of $35.0 million to a subsidiary of Teekay Offshore for a 33% equity interest in the subsidiary. The non-controlling interest owner of Teekay Offshore’s 67% owned subsidiary holds a put option which, if exercised, would obligate Teekay Offshore to purchase the non-controlling interest owner’s 33% share in the entity for cash in accordance with a defined formula. The redeemable non-controlling interest is subject to remeasurement if the formulaic redemption amount exceeds the carrying value. No remeasurement was required as at June 30, 2014.

Page 16 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data)

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 11 in the Company’s audited consolidated financial statements filed with its Annual Report on Form 20-F for the year ended December 31, 2013. 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.


				June 30, 2014						December 31, 2013
	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			1,254,309			1,254,309			1,119,966			1,119,966
Derivative instruments (note 15)
Interest rate swap agreements - assets		Level 2			122,506			122,506			91,415			91,415
Interest rate swap agreements - liabilities		Level 2			(506,314	)		(506,314	)		(410,470	)		(410,470	)
Cross currency interest swap agreement		Level 2			(63,741	)		(63,741	)		(52,219	)		(52,219	)
Foreign currency contracts		Level 2			(354	)		(354	)		(1,480	)		(1,480	)
Stock purchase warrants (notes 4b and 15)		Level 3			8,051			8,051			—			—
Non-recurring
Vessels and equipment		Level 2			—			—			17,250			17,250
Assets held for sale⁽¹⁾		Level 2			—			—			176,247			176,247
Other
Investment in term loans		Level 3			—			—			211,579			209,570
Loans to equity accounted investees and joint venture partners - Current		Level 3			21,634			21,634			37,019			37,019
Loans to equity accounted investees and joint venture partners - Long-term			⁽²⁾		133,526				⁽²⁾		132,229				⁽²⁾
Liabilities associated with assets held for sale⁽¹⁾		Level 2			—			—			(168,007	)		(168,007	)
Long-term receivable included in other assets		Level 2			16,452			16,452			—			—
Long-term debt - public (note 8)		Level 1			(1,766,576	)		(1,873,925	)		(1,313,358	)		(1,376,829	)
Long-term debt - non-public (note 8)		Level 2			(4,965,791	)		(4,830,135	)		(4,796,112	)		(4,582,274	)

(1)	The fair value of the Company’s assets held for sale and liabilities associated with assets held for sale include vessels held for sale, long-term debt and other working capital balances.

(2)

In these 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. In addition, the loans to joint venture partners together with the joint venture partner’s equity investment in joint ventures form the net aggregate carrying value of the Company’s interest in the joint ventures. The fair value of the individual components of such aggregate interests is not determinable.

Page 17 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data)

Changes in fair value during the six months ended June 30, 2014 and 2013 for the Company’s derivative instrument, TIL stock purchase warrants, which are described below and are measured at fair value on the recurring basis using significant unobservable inputs (Level 3), are as follows:


	Three Months Ended June 30,					Six Months Ended June 30,
	2014			2013		2014		2013
	$			$		$		$
Fair value at the beginning of the period		11,714			—		—		—
Fair value on issuance		—			—		6,840		—
Unrealized (loss) gain included in earnings		(3,663	)		—		1,211		—

Fair value at the end of the period		8,051			—		8,051		—

During January 2014, the Company received stock purchase warrants entitling it to purchase up to 1.5 million shares of the common stock of TIL at a fixed price of $10 per share (see Note 15). The estimated fair value of the stock purchase warrants was determined using a Monte-Carlo simulation and is based, in part, on the historical price of common shares of TIL, risk-free rate, vesting conditions and the historical volatility of the comparable companies. The estimated fair value of these stock purchase warrants as of June 30, 2014 is based on the historical volatility of the comparable companies of 54.1%. A higher or lower volatility would result in a higher or lower fair value of this derivative asset.

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.

Class of Financing Receivable

Credit Quality

Indicator

Grade

June 30, 2014
$

December 31, 2013
$

Direct financing leases

Payment activity

Performing

774,026

727,262

Other loan receivables

Investment in term loans and interest receivable

Collateral

Non-Performing⁽¹⁾

—

211,579

Loans to equity accounted investees and joint venture partners⁽²⁾

Other internal metrics

Performing

155,160

169,248

Long-term receivable included in other assets

Payment activity

Performing

50,136

31,634

979,322

1,139,723

(1)	On March 21, 2014, Teekay and Teekay Tankers took ownership of the vessels held as collateral in satisfaction of the loans and accrued interest.

(2)

The Company’s subsidiary Teekay LNG owns a 99% interest in Teekay Tangguh, which owns a 70% interest in the Teekay Tangguh Joint Venture. During the year ended December 31, 2012, the parent company of Teekay LNG‘s joint venture partner, BLT, suspended trading on the Jakarta Stock Exchange and entered into a court-supervised debt restructuring in Indonesia. The remaining loans to joint venture partner, BLT LNG Tangguh Corporation, totaling $10.3 million as at June 30, 2014 (December 31, 2013 - $28.5 million) are considered to be collectible given a signed settlement Agreement between the Company and BLT LNG Tangguh Corporation regarding repayment terms. In February 2014, the Teekay Tangguh Joint Venture declared dividends of $69.5 million, of which $14.4 million was used to offset the advances made to BLT LNG Tangguh Corporation and P.T. Berlian Laju Tanker and $6.5 million was repaid to Teekay by BLT LNG Tangguh Corporation. In addition, $1.0 million was paid to Teekay by BLT as part of the settlement agreement.

12.

Restructuring Charges

During the three and six months ended June 30, 2014, the Company recorded restructuring (reversal) charges of $(0.2) million ($1.8 million – 2013) and $0.4 million ($3.8 million – 2013), respectively. The restructuring charges in 2014 relate to the termination of the employment of certain seafarers from the reflagging of one shuttle tanker which commenced in January 2014 and was completed in March 2014 and the reversal of an accrual for costs related to the reorganization of the Company’s marine operations. The restructuring charges in 2013 primarily relate to reorganization of the Company’s marine operations intended to create better alignment with its conventional tanker business unit and its three publicly-listed subsidiaries and a lower cost organization. The Company does not expect to incur further restructuring charges associated with this reorganization.

At June 30, 2014 and December 31, 2013, $1.6 million and $4.9 million, respectively, of restructuring liabilities were recorded in accrued liabilities on the consolidated balance sheets.

Page 18 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data)

13.

Other (Loss) Income


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	$			$			$			$
TIL stock purchase warrants received		—			—			6,839			—
Loss on bond repurchase		—			—			—			(1,759	)
Volatile organic compound emission plant lease income		(166	)		39			(67	)		197
Impairment of marketable securities		—			(2,062	)		—			(2,062	)
Miscellaneous (loss) income		(568	)		637			745			7,480

Other (loss) income		(734	)		(1,386	)		7,517			3,856

14.

Accumulated Other Comprehensive Loss

As at June 30, 2014 and December 31, 2013, the Company’s accumulated other comprehensive loss consisted of the following components:


	June 30,			December 31,
	2014			2013
	$			$
Unrealized (loss) gain on qualifying cash flow hedging instruments		(436	)		17
Pension adjustments, net of tax recoveries		(19,050	)		(18,919	)
Unrealized loss on marketable securities		(379	)		(171	)
Foreign exchange gain on currency translation		1,841			1,884

		(18,024	)		(17,189	)

15.

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 June 30, 2014, the Company was committed to the following foreign currency forward contracts:


					Fair Value /
					Carrying
					Amount
					Of Asset			Expected Maturity
	Contract Amount in		Average		(Liability)			2014		2015
	Foreign Currency		Forward Rate⁽¹⁾		$			$		$
Norwegian Kroner		667,700		6.15		(400	)		54,930		53,599
Singapore Dollar		6,000		1.26		46			4,767		—

						(354	)		59,697		53,599

(1)	Average contractual exchange rate represents the contracted amount of foreign currency one U.S. Dollar will buy.

Page 19 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data)

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 at maturity of the Company’s NOK-denominated bonds due in 2015 through 2019. In addition, the cross currency swaps economically hedge the interest rate exposure on the NOK bonds due in 2015 through 2019. The Company has not designated, for accounting purposes, these cross currency swaps as cash flow hedges of its NOK-denominated bonds due in 2015 through 2019. As at June 30, 2014, the Company was committed to the following cross currency swaps:


					Fair Value /
					Carrying
Notional	Notional	Floating Rate Receivable			Amount of
Amount	Amount	Reference		Fixed Rate	Asset /	Remaining
NOK	USD	Rate	Margin	Payable	(Liability)	Term (years)
700,000	122,800	NIBOR	4.75%	5.52%	(9,537)	1.3
500,000	89,700	NIBOR	4.00%	4.80%	(8,943)	1.6
600,000	101,400	NIBOR	5.75%	7.49%	(6,337)	2.6
700,000	125,000	NIBOR	5.25%	6.88%	(14,513)	2.8
800,000	143,500	NIBOR	4.75%	5.93%	(14,285)	3.6
900,000	150,000	NIBOR	4.35%	6.43%	(7,505)	4.2
1,000,000	162,200	NIBOR	4.25%	6.28%	(2,621)	4.6

					(63,741)

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. In addition, the Company holds interest rate swaps which exchange a payment of floating rate interest for a receipt of fixed interest in order to reduce the Company’s exposure to the variability of interest income on its restricted cash deposits. The Company has not designated any of its interest rate swap agreements in its consolidated entities as cash flow hedges for accounting purposes.

As at June 30, 2014, the Company was committed to the following interest rate swap agreements related to its LIBOR-based debt, restricted cash deposits and EURIBOR-based debt, whereby certain of the Company’s floating-rate debt and restricted cash deposits were swapped with fixed-rate obligations or fixed-rate deposits:


					Fair Value /
					Carrying			Weighted-
					Amount of			Average		Fixed
	Interest		Principal		Asset /			Remaining		Interest
	Rate		Amount		(Liability)			Term		Rate
	Index		$		$			(years)		(%)⁽¹⁾
LIBOR-Based Debt:
U.S. Dollar-denominated interest rate swaps⁽²⁾		LIBOR		400,757		(91,531	)		22.6		4.9
U.S. Dollar-denominated interest rate swaps⁽³⁾		LIBOR		3,653,623		(362,136	)		6.1		3.6
U.S. Dollar-denominated interest rate swaps⁽⁴⁾		LIBOR		500,000		(7,416	)		1.2		3.1
LIBOR-Based Restricted Cash Deposit:
U.S. Dollar-denominated interest rate swaps⁽²⁾		LIBOR		469,066		121,309			22.6		4.8
EURIBOR-Based Debt:
Euro-denominated interest rate swaps^{(5) (6)}		EURIBOR		330,845		(44,034	)		6.5		3.1

						(383,808	)

(1)

Excludes the margins the Company pays on its variable-rate debt, which, as of June 30, 2014, ranged from 0.3% to 4.5%.

(2)

Principal amount reduces quarterly.

(3)

Principal amount of $200 million is fixed at 2.14%, unless LIBOR exceeds 6%, in which case the Company pays a floating rate of interest.

(4)

Interest rate swap with an aggregate principal amount of $180 million is being used to economically hedge expected interest payments on new debt that is planned to be outstanding from 2016 to 2028. The interest rate swap is subject to mandatory early termination in 2014 whereby the swap will be settled based on its fair value at that time. Interest rate swaps with an aggregate principal amount of $320 million are being used to economically hedge expected interest payments on new debt that is planned to be outstanding from 2016 to 2021. These interest rate swaps are subject to mandatory early termination in 2016 whereby the swaps will be settled based on their fair value at that time.

(5)

Principal amount reduces monthly to 70.1 million Euros ($96.0 million) by the maturity dates of the swap agreements.

(6)

Principal amount is the U.S. Dollar equivalent of 241.7 million Euros.

Stock Purchase Warrants

In January 2014, Teekay and Teekay Tankers formed TIL. Teekay and Teekay Tankers purchased an aggregate of 5.0 million shares of TIL’s common stock, representing an initial 20% interest in TIL, as part of a $250 million private placement by TIL, which represents a total investment by Teekay and Teekay Tankers of $50.0 million. In addition, Teekay and Teekay Tankers received stock purchase warrants entitling them to purchase an aggregate of up to 1.5 million shares of common stock of TIL at a fixed price of $10 per share. The estimated fair value of the warrants on issuance was $6.8 million and is included in other income in the consolidated statements of (loss) income. The stock purchase warrants vest in four equally sized tranches. Each tranche will vest and become exercisable when and if the fair market value of a share of TIL’s common stock equals or exceeds $12.50, $15.00, $17.50 and $20.00, respectively (or equivalent amounts in NOK) for such tranche for any ten consecutive trading days. The stock purchase warrants expire on January 23, 2019. The fair value of the stock purchase warrants at June 30, 2014 was $8.1 million. The Company reports the unrealized gains and losses from the stock purchase warrants in realized and unrealized (losses) gains on non-designated derivatives in the consolidated statements of (loss) income.

Page 20 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data)

Tabular Disclosure

The following table presents the location and fair value amounts of derivative instruments, segregated by type of contract, on the Company’s consolidated balance sheets.


	Current							Current
	Portion of							Portion of
	Derivative		Derivative		Accrued			Derivative			Derivative
	Assets		Assets		Liabilities			Liabilities			Liabilities
As at June 30, 2014
Derivatives not designated as a cash flow hedge:
Foreign currency contracts		696		11		—			(741	)		(320	)
Interest rate swap agreements		17,200		105,488		(22,281	)		(173,920	)		(310,295	)
Cross currency swap agreements		537		—		(39	)		(2,808	)		(61,431	)
Stock purchase warrants		—		8,051		—			—			—

		18,433		113,550		(22,320	)		(177,469	)		(372,046	)

As at December 31, 2013
Derivatives not designated as a cash flow hedge:
Foreign currency contracts		482		12		—			(1,819	)		(155	)
Interest rate swap agreements		21,779		69,785		(22,025	)		(140,503	)		(248,091	)
Cross currency swap agreements		779		—		3			(1,677	)		(51,324	)

		23,040		69,797		(22,022	)		(143,999	)		(299,570	)

As at June 30, 2014, the Company had multiple interest rate swaps and cross currency swaps with the same counterparty that are subject to the same master agreements. Each of these master agreements provides for the net settlement of all swaps subject to that master agreement through a single payment in the event of default or termination of any one swap. The fair value of these interest rate swaps are presented on a gross basis in the Company’s consolidated balance sheets. As at June 30, 2014, these interest rate swaps and cross currency swaps had an aggregate fair value asset amount of $122.0 million and an aggregate fair value liability amount of $411.2 million.

Realized and unrealized gains and losses 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 consolidated statements of income. The effect of the gains and losses on derivatives not designated as hedging instruments in the consolidated statements of income are as follows:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
	$			$			$			$
Realized (losses) gains relating to:
Interest rate swap agreements		(30,755	)		(30,899	)		(60,245	)		(61,251	)
Interest rate swap agreement terminations		—			(4,187	)		1,000			(4,187	)
Foreign currency forward contracts		110			(1,873	)		(1,175	)		(1,452	)

		(30,645	)		(36,959	)		(60,420	)		(66,890	)

Unrealized (losses) gains relating to:
Interest rate swap agreements		(39,096	)		96,911			(64,494	)		116,115
Foreign currency forward contracts		(1,926	)		(3,917	)		1,125			(6,979	)
Stock purchase warrants		(3,664	)		—			1,210			—

		(44,686	)		92,994			(62,159	)		109,136

Total realized and unrealized (losses) gains on derivative instruments		(75,331	)		56,035			(122,579	)		42,246

Page 21 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data)

Realized and unrealized losses 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 loss on cross currency swaps on the consolidated statements of (loss) income is as follows:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2014			2013			2014			2013
	$			$			$			$
Realized gain on partial termination of cross currency swap		—			—			—			6,800
Realized (losses) gains		(144	)		503			(289	)		1,565
Unrealized losses		(24,803	)		(16,399	)		(11,481	)		(54,353	)

Total realized and unrealized losses on cross currency swaps		(24,947	)		(15,896	)		(11,770	)		(45,988	)

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.

16.

Income Tax Expense

The components of the provision for income tax expense are as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	$			$			$			$
Current		(3,398	)		(1,943	)		(6,563	)		(4,057	)
Deferred		205			70			572			(316	)

Income tax expense		(3,193	)		(1,873	)		(5,991	)		(4,373	)

The following reflects the changes in the Company’s unrecognized tax benefits, recorded in other long-term liabilities, from December 31, 2013 to June 30, 2014:


Balance of unrecognized tax benefits as at January 1, 2014	$	20,304
Increase for positions related to the current period		3,822
Decrease related to statute of limitations		(972	)

Balance of unrecognized tax benefits as at June 30, 2014	$	23,154

The majority of the net increase for positions for the six months ended June 30, 2014 relates to potential tax on freight income.

The Company does not presently anticipate these uncertain tax positions, which are uncertain, will significantly increase or decrease in the next 12 months; however, actual developments could differ from those currently expected.

17.

Net (Loss) Income Per Share


	Three Months Ended June 30,					Six Months Ended June 30,
	2014			2013		2014			2013
	$			$		$			$
Net (loss) income attributable to stockholders of Teekay Corporation		(42,987	)		11,367		(43,475	)		5,231

Weighted average number of common shares		72,036,526			70,393,531		71,687,549			70,142,301
Dilutive effect of stock-based compensation		—			921,098		—			1,000,062

Common stock and common stock equivalents		72,036,526			71,314,629		71,687,549			71,142,363

(Loss) income per common share:
- Basic		(0.60	)		0.16		(0.61	)		0.07
- Diluted		(0.60	)		0.16		(0.61	)		0.07

Page 22 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data)

Stock-based awards, which have an anti-dilutive effect on the calculation of diluted (loss) income per common share, are excluded from this calculation. For the three and six months ended June 30, 2013, options to acquire 3.1 million shares of Common Stock had an anti-dilutive effect on the calculation of diluted income per common share.

18.

Supplemental Cash Flow Information

In March 2014, the Company took ownership of three VLCCs, which were collateral for all amounts owing under the investment in term loans, and the investment in term loans was concurrently discharged. The VLCCs had an estimated aggregate fair value of $222.0 million on this date, which approximated all the amounts owing under the investment in term loans. During the first quarter of 2014, second-hand vessel values for VLCCs increased and, as a result, the Company recognized $15.2 million of interest income owing under the investment in term loans in the first quarter of 2014. The assumption of ownership of the VLCCs and concurrent discharge of the loans has been treated as a non-cash transaction in the Company’s consolidated statement of cash flows.

As described in Note 4d, Teekay LNG acquired BG’s ownership interest in the BG Joint Ventures. As compensation, Teekay LNG assumed BG’s obligation (net of an agreement by BG to pay Teekay LNG approximately $20.3 million) to provide shipbuilding supervision and crew training services for the four LNG carrier newbuildings up to their delivery dates pursuant to a ship construction support agreement. The fair value of the assumed obligation of approximately $30.2 million was used to offset the purchase price and Teekay LNG’s receivable from BG and was treated as a non-cash transaction in the consolidated statement of cash flows.

19.

Subsequent Events

In July 2014, Teekay LNG, through a new 50/50 joint venture with China LNG, has finalized shipbuilding contracts for six internationally-flagged icebreaker LNG carriers for a project, located on the Yamal Peninsula in Northern Russia (or the Yamal LNG Project). The Yamal LNG Project is a joint venture between Russia-based Novatek OAO (60%), France-based Total S.A. (20%) and China-based China National Petroleum Corporation (or CNPC) (20%), and will consist of three LNG trains with a total expected capacity of 16.5 million metric tons of LNG per annum and is currently scheduled to start-up in early-2018. The joint venture between Teekay LNG and China LNG will provide the six 172,000-cubic meter ARC7 LNG carrier newbuildings to be constructed by Daewoo Shipbuilding & Marine Engineering Co., Ltd. (or DSME), of South Korea, for a total fully built-up cost of approximately $2.1 billion. The vessels, which will be constructed with maximum 2.1 meter icebreaking capabilities in both the forward and reverse directions, are scheduled to deliver at various times between the first quarter of 2018 and first quarter of 2020. Upon their deliveries, the six LNG carriers will each operate under fixed-rate time-charter contracts with Yamal Trade Pte. Ltd. until December 31, 2045, plus extension options.

In July 2014, Teekay LNG completed a public offering of 3.1 million common units (including 0.3 million common units issued upon exercise of the underwriters’ over-allotment option) at the price of $44.65 per unit, for gross proceeds of approximately $140.8 million (including a 2% proportionate capital contribution by Teekay LNG’s general partner). Teekay LNG used the net proceeds from the offering of approximately $140.5 million to prepay a portion of its outstanding debt under two of its revolving credit facilities, to fund the equity portion of its first installment payment to approximately $95 million for the six newbuilding LNG carriers ordered by Teekay LNG’s 50/50 joint venture with China LNG for the Yamal LNG Project and to fund a portion of its M-type, Electronically Controlled, Gas Injection (or MEGI) newbuildings’ shipyard installments. As a result of this public offering, Teekay’s ownership of Teekay LNG was reduced to 34.0% (including the Company’s 2% general partner interest). Teekay maintains control of Teekay LNG by virtue of its control of the general partner and will continue to consolidate the subsidiary.

In August 2014, Teekay Offshore acquired 100% of the outstanding shares of Logitel Offshore Holdings AS (Logitel), a Norway-based company focused on the high-end floating accommodation market. The purchase price for the shares of Logitel consisted of $4.0 million in cash due on closing and a potential additional cash amount of $27.6 million, subject to reductions of some or all of this potential additional amount if certain performance criteria, primarily relating to the construction of the three floating accommodation units (or FAUs) ordered from the COSCO (Nantong) Shipyard (or COSCO) in China, are not met. Two of the FAUs are currently under construction and in August 2014, Teekay Offshore exercised one of its existing six options with COSCO to construct a third FAU. Prior to the acquisition, Logitel secured a three-year fixed-rate charter contract, plus extension options, with Petroleo Brasileiro SA (or Petrobras) in Brazil for the first FAU which is scheduled to deliver in the first quarter of 2015. Teekay Offshore expects to secure charter contracts for the remaining two newbuilding FAUs prior to their respective scheduled deliveries in the fourth quarter of 2015 and the third quarter of 2016.

Teekay Offshore is committed to acquire the three FAUs ordered from COSCO for a total cost of approximately $534.0 million, including estimated site supervision costs and license fees to be paid to Sevan Marine ASA (or Sevan) to allow for use of its cylindrical hull design in these FAUs. As at the date of acquisition, payments made towards these commitments totaled $18.0 million and the remaining payments required to be made under these newbuilding contracts were $8.8 million (balance of 2014), $341.0 million (2015) and $166.2 million (2016). The amount of the license fees, in aggregate for the three FAUs ordered from COSCO, is $22.2 million, subject to reductions of some or all of this amount if certain performance criteria, primarily relating to the construction of the three FAUs ordered from COSCO, is not met. The amount of site supervision costs are based on hours spent at agreed upon hourly rates as per Teekay Offshore’s agreement with Sevan.

Page 23 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(all tabular amounts stated in thousands of U.S. dollars, other than share data)

Teekay Offshore intends to finance the initial newbuilding payments through its existing liquidity and expects to secure long-term debt financing for the units prior to their scheduled deliveries. Prior to the acquisition, financing for $60.0 million of costs incurred by Logitel relating to the acquisition of two partially completed hulls from Sevan and the subsequent construction installments to COSCO were provided by a bond agreement between Logitel and Sevan, Teekay Offshore has assumed Logitel’s obligations under the bond agreement as part of this acquisition. The bond is non-interest bearing and is repayable in amounts of $10.0 million within six months of delivery of each of the next six FAUs, including the three ordered from COSCO. The bonds are redeemable at par at any time. The bonds are convertible by Sevan. The conversion option is exercisable if the fourth of six options with COSCO is not exercised by its option expiry date on November 30, 2016. In this case, Sevan has a one-time option to receive the remaining two options with COSCO in exchange for the extinguishment of the remaining amount owing on the bond agreement. If the one-time option is not exercised by Sevan, any remaining amount owing on the bond agreement will be forgiven when there is a continuous three-year period, from the date of the latest delivery of a newbuilding FAU based on the Sevan cylindrical hull design, where no such Seven design FAUs are ordered.

On August 1, 2014, Teekay Tankers acquired from Teekay a 50% interest in its conventional tanker commercial management and technical management operations, including the direct ownership in three commercially managed tanker pools, which generate fee income from commercially managing currently a fleet of approximately 89 vessels and technically managing currently a fleet of approximately 51 vessels, including vessels owned by Teekay Tankers. The purchase price for this acquisition was approximately $15 million, paid in Class B common shares of Teekay Tankers at a price of $3.70 per share. Teekay Tankers will account for its interest in the conventional tanker commercial management and technical management operations by the equity method.

Page 24 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

JUNE 30, 2014

PART I – FINANCIAL INFORMATION

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 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 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, 2013.

References to Teekay mean Teekay Corporation, which is incorporated under the laws of the Republic of the Marshall Islands. References to the Company mean Teekay together with its wholly owned or controlled subsidiaries. Unless the context requires otherwise, references to “we,” “our” or “us” are references to Teekay Corporation and its subsidiaries.

SIGNIFICANT DEVELOPMENTS IN 2014

Recent Developments in our Gas Business

In July 2014, our publicly traded subsidiary Teekay LNG Partners L.P. (or Teekay LNG) completed a public offering of 3.1 million common units (including 0.3 million common units issued upon exercise of the underwriters’ over-allotment option) at a price of $44.65 per unit, for gross proceeds of approximately $140.8 million (including the 2% proportionate capital contribution by Teekay LNG’s general partner). Teekay LNG used the net proceeds from the offering of approximately $140.5 million to prepay a portion of its outstanding debt under two of its revolving credit facilities, to fund the equity portion of its first installment payment of approximately $95.0 million for six newbuilding LNG carriers ordered by its 50/50 joint venture with China LNG Shipping (Holdings) Limited (or China LNG) for the Yamal LNG Project and to fund a portion of its M-type, Electronically Controlled, Gas Injection (or MEGI) newbuildings’ shipyard installments. As a result of this public offering, our ownership of Teekay LNG was reduced to 34.0% (including our 2% general partner interest). We maintain control of Teekay LNG by virtue of our control of the general partner and will continue to consolidate the subsidiary. Please read “Item 1 – Financial Statements: Note 19b – Subsequent Events.”

In July 2014, Teekay LNG, through a new 50/50 joint venture with China LNG (or the Yamal LNG Joint Venture), finalized shipbuilding contracts for six internationally-flagged icebreaker LNG carriers for a project located on the Yamal Peninsula in Northern Russia (or the Yamal LNG Project). The Yamal LNG Project is a joint venture between Russia-based Novatek OAO (60%), France-based Total S.A. (20%) and China-based China National Petroleum Corporation (or CNPC) (20%) and will consist of three LNG trains with a total expected capacity of 16.5 million metric tons of LNG per annum and is currently scheduled to start-up in early-2018. The Yamal LNG Joint Venture will provide six 172,000-cubic meter ARC7 LNG carrier newbuildings, to be constructed by Daewoo Shipbuilding & Marine Engineering Co., Ltd. (or DSME), of South Korea, for a total fully built-up cost of approximately $2.1 billion. The vessels, which will be constructed with maximum 2.1 meter icebreaking capabilities in both the forward and reverse directions, are scheduled to deliver at various times between the first quarter of 2018 and first quarter of 2020. Upon their deliveries, the six LNG carriers will each operate under fixed-rate time-charter contracts with Yamal Trade Pte. Ltd. until December 31, 2045, plus extension options. The six LNG carriers constructed for the Yamal LNG Project will transport LNG from Northern Russia to Europe and Asia. Please read “Item 1 – Financial Statements: Note 19a – Subsequent Events.”

In June 2014, Teekay LNG acquired from BG International Limited (or BG) its ownership interest in four 174,000-cubic meter Tri-Fuel Diesel Electric LNG carrier newbuildings, which will be constructed by Hudong-Zhonghua Shipbuilding (Group) Co., Ltd. in China for a total fully built-up cost to the joint venture of approximately $1.0 billion. The vessels upon delivery, which are scheduled between September 2017 and January 2019, will each operate under 20-year fixed-rate time-charter contracts, plus extension options, with Methane Services Limited, a wholly-owned subsidiary of BG. As compensation for BG’s ownership interest in these four LNG carrier newbuildings, Teekay LNG assumed BG’s portion of the shipbuilding installments and its obligation to provide the shipbuilding supervision and crew training services for the four LNG carrier newbuildings up to their delivery dates pursuant to a ship construction support agreement. We on behalf of Teekay LNG, will provide the shipbuilding supervision and crew training services for the four LNG carrier newbuildings up to their delivery dates. Teekay LNG estimates that it will incur approximately $36.7 million of costs to provide these services, of which BG has agreed to pay a fixed amount of $20.3 million. In June 2014, Teekay LNG estimated that the fair value of the service obligation was $30.2 million and fair value of the amount due from BG was $16.5 million. Through this transaction, Teekay LNG has a 30% ownership interest in two LNG carrier newbuildings, with the balance of the ownership held by China LNG and CETS Investment Management (HK) Co. Ltd. (or CETS) (an affiliate of China National Offshore Oil Corporation), and a 20% ownership interest in the remaining two LNG carrier newbuildings, with the balance of the ownership held by China LNG, CETS and BW LNG Investments Pte. Ltd. (collectively the BG Joint Venture). Teekay LNG accounts for its investment in the BG Joint Venture using the equity method. Teekay LNG expects to finance its pro rata equity interest in future shipyard installment payments using a portion of its available liquidity with the balance of the total cost of the vessels financed with equity contributions by the other partners and a new $787.0 million long-term debt facility secured by the BG Joint Venture.

Recent Developments in our Offshore Business

In August 2014, our publicly traded subsidiary Teekay Offshore Partners L.P. (or Teekay Offshore) acquired Logitel Offshore Holdings Ltd. (or Logitel), a Norway-based company focused on the high-end floating accommodation market. Logitel is currently constructing two newbuilding floating accommodation units (or FAUs), based on the Sevan Marine ASA (or Sevan) cylindrical hull design, at the COSCO (Nantong) Shipyard (or COSCO) in China. In August 2014, Teekay Offshore exercised one of its existing six options with COSCO to construct a third FAU. Prior to the acquisition, Logitel secured a three-year fixed-rate charter contract, plus extension options, with Petroleo Brasileiro SA (or Petrobras) in Brazil for the first FAU, which is scheduled to deliver in the first quarter of 2015. Teekay Offshore expects to secure charter contracts for the remaining two newbuilding FAUs prior to their respective scheduled deliveries in the fourth quarter of 2015 and the third quarter of 2016. The construction agreements with COSCO for the three newbuilding FAUs have favorable payment schedules, with the majority of the purchase price due upon delivery. Teekay Offshore intends to finance the initial newbuilding payments through its existing liquidity and expects to secure long-term debt financing for the units prior to their scheduled deliveries. Please read “Item 1 – Financial Statements: Note 19c – Subsequent Events.”

Page 25 of 51

In March 2014, Teekay Offshore acquired ALP Maritime Services B.V. (or ALP), a Netherlands-based provider of long-haul ocean towage and offshore installation services to the global offshore oil and gas industry. ALP currently provides these services through a fleet of third-party owned vessels. As part of the transaction, Teekay Offshore and ALP entered into an agreement with Niigata Shipbuilding & Repair of Japan for the construction of four state-of-the-art SX-157 Ulstein Design ultra-long distance towing and anchor handling vessel newbuildings, which will be equipped with dynamic positioning capability, for a fully built-up cost of approximately $261 million, which includes the cost of acquiring ALP. These newbuildings will be capable of ultra-long distance towing and offshore unit installation and decommissioning of large floating exploration, production and storage units, including FPSO units, floating liquefied natural gas (or FLNG) units and floating drill rigs. Teekay Offshore intends to continue financing the newbuilding installments through its existing liquidity and expects to secure long-term debt financing for these vessels prior to their scheduled deliveries in 2016.

Teekay Offshore acquired ALP for a purchase price of $2.6 million, which Teekay Offshore paid in cash, and Teekay Offshore also entered into an arrangement to pay additional compensation to three former shareholders of ALP if certain requirements are satisfied. This contingent compensation consists of $2.4 million, which is payable upon the delivery and employment of ALP’s four newbuildings scheduled throughout 2016, and a further amount of up to $2.6 million, which is payable if ALP’s annual operating results from 2017 to 2021 meet certain targets. Teekay Offshore has the option to pay up to one half of this contingent compensation through the issuance of its common units. The contingent compensation amounts are payable only if the three shareholders are employed by ALP at the time the performance conditions are met. Teekay Offshore also incurred $1.0 million in fees to a third party associated with the acquisition which has been recognized in general and administrative expenses during the six months ended June 30, 2014.

This acquisition of ALP and related newbuilding orders represent Teekay Offshore’s entrance into the long-haul ocean towage and offshore installation services business, which combines Teekay Offshore’s infrastructure and access to capital with ALP’s experienced management team to further grow this niche business that is a natural complement to Teekay Offshore’s existing offshore business.

In September 2013, Teekay Offshore acquired a 2010-built HiLoad DP unit from Remora AS (or Remora), a Norway-based offshore marine technology company, for a total purchase price of approximately $60 million, including modification costs. The HiLoad DP unit is currently in the final stages of the charterer’s operational testing, which is expected to be completed during the third quarter of 2014. Upon completion of the testing, the unit is expected to commence its ten-year time-charter contract with Petrobras in Brazil and Teekay Offshore expects to recognize revenue retrospectively from April 11, 2014, the date operational testing commenced. Under the terms of an agreement between Remora and Teekay Offshore, Teekay Offshore has a right of first refusal to acquire any future HiLoad DP projects developed by Remora. In July 2013, Remora was awarded a contract by BG E&P Brasil Ltd. to perform a front-end engineering and design (or FEED) study to develop the next generation of HiLoad DP units. The design, which is based on the main parameters of the first generation design, is expected to include new features such as increased engine power and the capability to maneuver vessels larger than Suezmax conventional tankers.

Recent Developments in our Tanker Business

In January 2014, we and our publicly-listed subsidiary Teekay Tankers Ltd. (or Teekay Tankers) formed Tanker Investments Ltd. (or TIL) which seeks to opportunistically acquire, operate and sell modern secondhand tankers to benefit from an expected recover in the currently cyclical low of the tanker market. TIL completed a $250 million equity private placement in which we and Teekay Tankers co-invested $25 million each for a combined 20% initial ownership in the new company. In addition, we each received a stock purchase warrant to acquire up to an additional 750,000 shares of TIL’s common stock, linked to TIL’s future share price performance. In March 2014, TIL completed a $175 million initial public offering and listed its shares on the Oslo Stock Exchange. We did not purchase any of the shares issued on the IPO. As of June 30, 2014, the combined interest of Teekay Tankers and us in TIL was 13.0%. As of June 30, 2014, TIL had completed the acquisition of two 2010-built Very Large Crude Carrier (or VLCC) vessels from Teekay Tankers, four 2009-built Suezmax tankers from us and five 2009 and 2010-built Aframax tankers and two 2012-built coated Aframax vessels from third parties.

In March 2014, we exercised our rights under security documentation to realize the amounts owed under our investment in term loans and assumed full ownership of three VLCC vessels, which previously secured the investment in term loans. At the time of assumption of ownership, these vessels had an aggregate fair value of approximately $222 million, which exceeded the carrying value of the loans. As a result of our exercise of remedies and the increase in VLCC vessel values during early 2014, in the first quarter of 2014 we recognized $15.2 million of interest income, of which $11.2 million related to prior periods and was previously unrecognized, owing under the loans. In May 2014, Teekay Tankers sold two single-ship wholly-owned subsidiaries, each of which owns one VLCC, to TIL for aggregate proceeds of $154 million, plus related working capital on closing.

On August 1, 2014, Teekay Tankers acquired from us a 50% interest in our conventional tanker commercial management and technical management operations, including the direct ownership in three commercially managed tanker pools, which generate fee income from commercially managing currently a fleet of approximately 89 vessels and technically managing currently a fleet of approximately 51 vessels, including vessels owned by Teekay Tankers. The purchase price for this acquisition was approximately $15 million, paid in Class B common shares of Teekay Tankers at a price of $3.70 per share. Teekay Tankers will account for its interest in the conventional tanker commercial management and technical management operations by the equity method. Please read “Item 1 – Financial Statements: Note 19d – Subsequent Events.”

OTHER SIGNIFICANT PROJECTS AND DEVELOPMENTS

Storm Damage to Banff FPSO Unit

On December 7, 2011, the Petrojarl Banff FPSO unit (or Banff), which operates on the Banff field in the U.K. sector of the North Sea, suffered a severe storm event and sustained damage to its moorings, turret and subsea equipment, which necessitated the shutdown of production on the unit. Due to the damage, we declared force majeure under the customer contract on December 8, 2011 and the Banff FPSO unit commenced a period of off-hire while the necessary repairs and upgrades were completed and the weather permitted re-installation of the unit on the Banff field. We do not have off-hire insurance covering the Banff FPSO. The repairs and upgrades were completed in 2014, and the Banff FPSO unit resumed production on the Banff field in July 2014, where it is expected to remain under contract until the end of 2018.

Page 26 of 51

We expect that repair costs to the Banff FPSO unit and equipment and costs associated with the emergency response to prevent loss or further damage during the December 7, 2011 storm event will be primarily reimbursed through our insurance coverage, subject to a $0.8 million deductible and the other terms and conditions of the applicable policies. In addition, we incurred certain capital upgrade costs for the Banff FPSO unit and the Apollo Spirit related to upgrades to the mooring system required by the relevant regulatory authorities due to the extreme weather and sea states experienced during the December 7, 2011 storm. The Apollo Spirit was operating on the Banff field as a storage tanker and returned to service on the Banff field at the same time as the Banff FPSO unit. The total of these capital upgrade costs is approximately $164 million. The recovery of the capital upgrade costs from the charterer is subject to commercial negotiations or, failing agreement, the responsibility for these costs will be determined by an expedited arbitration procedure. Any capital upgrade costs not recovered from the charterer will be capitalized to the vessel cost.

RESULTS OF 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, 2013.

In accordance with United States generally accepted accounting principles (or GAAP), we report gross revenues in our income statements and include voyage expenses among our operating expenses. However, shipowners often base economic decisions regarding the deployment of their vessels upon anticipated time-charter equivalent (or TCE) rates and industry analysts typically measure shipping freight rates in terms of TCE rates. This is because under time charter contracts and FPSO service contracts the customer usually pays the voyage expenses while under voyage charters and contracts of affreightment 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 net revenues (i.e. revenues less voyage expenses) and TCE rates of our four reportable segments where applicable.

We manage our business and analyze and report our results of operations on the basis of four reportable segments: the shuttle tanker and FSO segment, the FPSO segment, the liquefied gas segment, and the conventional tanker segment, each of which are discussed below. In order to provide investors with additional information about our conventional tanker segment, we have divided the conventional tanker segment into the fixed-rate tanker sub-segment and the spot tanker sub-segment. Please read “Item 1 – Financial Statements: Note 3 – Segment Reporting.”

Shuttle Tanker and FSO Segment

Our shuttle tanker and FSO segment (which includes our Teekay Shuttle and Offshore business unit) includes our shuttle tankers, FSO units and one HiLoad DP unit, which is expected to receive final acceptance from the charterer in the third quarter of 2014. As at June 30, 2014, our shuttle tanker fleet consisted of 32 vessels that operate under fixed-rate contracts of affreightment, time charters and bareboat charters. Of the 32 shuttle tankers, six were owned through 50% owned subsidiaries of Teekay Offshore, three through a 67% owned subsidiary of Teekay Offshore and two were chartered-in by Teekay Offshore. The remaining vessels are owned 100% by Teekay Offshore. All of these shuttle tankers, with the exception of the HiLoad DP unit, provide transportation services to energy companies, primarily in the North Sea and Brazil. Our shuttle tankers service the conventional spot tanker market from time to time. Teekay Offshore has committed one shuttle tanker, the Randgrid, to conversion into an FSO unit upon the expiry of its existing shuttle tanker contract in 2015. Our FSO fleet consists of five vessels (including the Salamander, (previously named Navion Clipper), which is being converted to an FSO unit) owned by Teekay Offshore that operate under fixed-rate time charters or fixed-rate bareboat charters. Teekay Offshore has 100% ownership interests in the operating FSO units. FSO units provide an on-site storage solution to oil field installations that have no oil storage facilities or that require supplemental storage.

The following table compares our shuttle tanker and FSO segment’s operating results for the three and six months ended June 30, 2014 and 2013, and compares its net revenues (which is a non-GAAP financial measure) for the three and six months ended June 30, 2014 and 2013 to revenues, the most directly comparable GAAP financial measure. Non-GAAP financial measures may not be comparable to other companies which may calculate similar measures differently. The following table also provides a summary of the changes in calendar-ship-days and revenue days for our shuttle tanker and FSO segment:


(in thousands of U.S. dollars, except calendar-ship-days and percentages)	Three Months Ended								Six Months Ended
	June 30,								June 30,
	2014			2013		% Change			2014			2013		% Change
Revenues		142,816			140,062		2.0			304,028			278,715		9.1
Voyage expenses		24,890			22,275		11.7			56,619			44,084		28.4

Net revenues		117,926			117,787		0.1			247,409			234,631		5.4
Vessel operating expenses		46,989			43,472		8.1			93,007			88,379		5.2
Time-charter hire expense		4,975			14,110		(64.7	)		16,387			28,887		(43.3	)
Depreciation and amortization		27,039			29,093		(7.1	)		54,376			56,789		(4.2	)
General and administrative ⁽¹⁾		8,005			9,324		(14.1	)		17,382			19,828		(12.3	)
Restructuring charges		(820	)		1,043		(178.6	)		(268	)		1,630		(116.4	)

Income from vessel operations		31,738			20,745		53.0			66,525			39,118		70.1

Calendar-Ship-Days
Owned Vessels		3,185			2,885		10.4			6,335			5,700		11.1
Chartered-in Vessels		115			371		(69.0	)		393			742		(47.0	)

Total		3,300			3,256		1.4			6,728			6,442		4.4

(1)	Includes direct general and administrative expenses and indirect general and administrative expenses allocated to the shuttle tanker and FSO segment based on estimated use of corporate resources. For further discussion, please read “Other Operating Results – General and Administrative Expenses.”

Page 27 of 51

The average size of our shuttle tanker and FSO segment fleet increased for the three and six months ended June 30, 2014 compared to the same periods last year. The increase was primarily due to the delivery of four newbuilding shuttle tankers, the Samba Spirit, Lambada Spirit, Bossa Nova Spirit and the Sertanejo Spirit (or the BG Shuttle Tankers) in 2013, partially offset by the sale of the Basker Spirit in January 2013 and the redelivery of two in-chartered vessels in November 2013 and January 2014. Included in calendar-ship-days is one owned shuttle tanker that has been in lay-up since May 2012 following its redelivery to us upon maturity of its time-charter-out contract in April 2012, and one shuttle tanker that has been in lay-up since June 2014.

Net Revenues. Net revenues increased for the three and six months ended June 30, 2014, compared to the same periods last year, primarily due to:

•

increases of $19.3 million and $38.3 million for the three and six months ended June 30, 2014, respectively, due to the commencement of the ten-year time-charter out contracts of the four BG Shuttle Tankers during 2013 and early 2014;

•

an increase of $5.2 million for the six months ended June 30, 2014, due to more opportunities to trade excess shuttle tanker capacity in the conventional tanker spot market;

•

increases of $2.0 million and $2.2 million for the three and six months ended June 30, 2014, due to more opportunities to trade excess shuttle tanker capacity in short-term offshore projects; and

•

increases of $0.8 million and $1.3 million, respectively, for the three and six months ended June 30, 2014, due to an increase in reimbursable bunker expenses;

partially offset by

•

net decreases of $17.3 million and $26.6 million for the three and six months ended June 30, 2014, respectively, due to fewer revenue days as a result of the redelivery of four vessels to us in July 2013, December 2013, January 2014 and February 2014, as they completed their time-charter-out agreements, a decrease in revenues in our contract of affreightment fleet due to lower fleet utilization, a decrease in revenues from our time-chartered-out fleet from entering into new contracts and a decrease in rates as provided in certain contracts;

•

decreases of $2.0 million and $3.1 million for the three and six months ended June 30, 2014, respectively, due to more repair off-hire days in our time-chartered-out fleet compared to the same periods last year;

•

a decrease of $2.4 million for the three and six months ended June 30, 2014, primarily due to the drydocking of the Dampier Spirit during the second quarter of 2014;

•

a decrease of $0.9 million for the six months ended June 30, 2014, primarily due to the timing of vessel operating expense reimbursements on the Dampier Spirit and the appreciation of the U.S. Dollar against the Australian Dollar compared to the same period last year; and

•

a decrease of $0.6 million for the six months ended June 30, 2014, due to a recovery of expenses in 2013 relating to the 2012 drydocking of the Navion Saga and the appreciation of the U.S. Dollar against the Norwegian Kroner compared to the same period last year.

Vessel Operating Expenses. Vessel operating expenses increased for the three and six months ended June 30, 2014, compared to the same periods last year, primarily due to:

•

increases of $3.9 million and $8.1 million for the three and six months ended June 30, 2014, respectively, due to the delivery of the four BG Shuttle Tankers during 2013;

•

an increase of $1.1 million for the three and six months ended June 30, 2014, relating to the commencement of operations of the HiLoad DP unit in April 2014;

•

an increase of $0.7 million for the six months ended June 30, 2014, primarily due to an increase in repair costs; and

•

increases of $0.6 million and $0.2 million for the three and six months ended June 30, 2014, respectively, due to an increase in ship management costs due to fleet growth;

partially offset by

•

a decrease of $0.7 million for the six months ended June 30, 2014, relating to the lay-up and FSO conversion of the Navion Clipper since February 2013;

•

a decrease of $0.7 million for the six months ended June 30, 2014 for the Navion Saga, due to lower crew costs relating to a pension adjustment in the first quarter of 2014. In addition, management of the unit was outsourced until the first quarter of 2013, when management was taken in-house and transition costs were incurred in that period;

Page 28 of 51

•

decreases of $0.5 million and $1.4 million for the three and six months ended June 30, 2014, respectively, relating to the Dampier Spirit, due to lower crew costs due to the appreciation of the U.S. Dollar against the Australian Dollar compared to the same periods last year, and due to the timing of services, spares, insurance and offshore expenses compared to the same periods last year;

•

decreases of $0.4 million and $1.3 million for the three and six months ended June 30, 2014, respectively, relating to expenditures on engineering studies completed to support our FSO tenders in the first and second quarters of 2013;

•

a decrease of $0.4 million for the three and six months ended June 30, 2014, due to the lay-up of the Navion Norvegia since June 2014;

•

a decrease of $0.4 million for the three months ended June 30, 2014 due to a decrease in repair costs; and

•

decreases of $0.2 million and $1.1 million for the three and six months ended June 30, 2014, respectively, due to a decrease in crew and manning costs primarily as a result of a change in crew composition relating to the reflagging of two vessels during late 2013 and early 2014, partially offset by an increase in crew and manning costs primarily due to higher crew levels.

Time-Charter Hire Expense. Time-charter hire expense decreased for the three and six months ended June 30, 2014, compared to the same periods last year, primarily due to:

•

decreases of $7.2 million and $14.3 million for the three and six months ended June 30, 2014, respectively, due to the redelivery of the Karen Knutsen in January 2014 and the Grena in November 2013;

•

decreases $1.3 million and $0.9 million for the three and six months ended June 30, 2014, respectively, primarily relating to the drydocking of the Aberdeen in June 2014; and

•

decreases of $1.1 million and $1.6 million for the three and six months ended June 30, 2014, respectively, due to the off-hire and drydocking of the Sallie Knutsen in April 2014;

partially offset by

•

increases of $0.5 million and $4.3 million for the three and six months ended June 30, 2014, respectively, due to increased spot in-chartering of shuttle tankers.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased for the three and six months ended June 30, 2014 compared to the same periods last year, primarily due to an extension of the useful lives of the Pattani Spirit and the Apollo Spirit due to the extension of the charter period for these units and write-downs of certain older shuttle tankers to their estimated fair value in the second half of 2013, partially offset by additional amortization relating to the deliveries of the BG Shuttle Tankers.

Restructuring Charges. Restructuring charge recovery was $0.8 million for the three months ended June 30, 2014, relating to the reversal of certain amounts previously accrued for the reorganization of our shuttle tanker marine operations. Restructuring charge recovery was $0.3 million during the six months ended June 30, 2014, which is a result of the reversal described above, partially offset by charges incurred relating to the reflagging of one shuttle tanker. Restructuring charges were $1.0 and $1.6 million, respectively, for the three and six months ended June 30, 2013, resulting from a reorganization of our marine operations to create better alignment within the shuttle tanker business unit to create a reduced-cost organization going forward. Please read “Item 1 – Financial Statements: Note 12 Restructuring Charges.”

FPSO Segment

Our FPSO segment (which includes our Teekay Petrojarl business unit) includes the FPSO units and other vessels used to service our FPSO contracts. As at June 30, 2014, in addition to the four 100% owned FPSO units and the four FPSO units owned by Teekay Offshore, the FPSO segment had one FPSO unit, the Petrojarl Knarr, which delivered in June 2014 but is not yet in service, and a 50% interest held by Teekay Offshore in one FPSO unit. We use these units and vessels to provide transportation, production, processing and storage services to oil companies operating offshore oil field installations. These services are typically provided under long-term, fixed-rate charter 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 is higher in the winter months, as favorable weather conditions in the summer months provide opportunities for repairs and maintenance, which generally reduce oil production.

The charter contract for the Petrojarl I FPSO unit ended in April 2013 and the unit has since been off-hire and in lay-up. From the fourth quarter of 2012 through the second quarter of 2014, the Foinaven FPSO unit experienced lower than planned production levels due to equipment-related operational issues. In July 2013, we and the charterer agreed to temporarily halt production to repair the FPSO unit’s gas compression trains and repair the subsea system. The first compressor train was repaired in August 2013, allowing the unit to recommence partial operations. In March 2014, the Foinaven FPSO unit temporarily halted production as a result of issues with its one operating gas compressor train, and as its second compressor train had not yet completed its repair after sustaining damage in July 2013. In April 2014, one of the Foinaven FPSO’s compressor trains was repaired allowing the unit to recommence partial operations. Repairs to the second compressor train were completed in July 2014, after which the unit has been gradually increasing its oil production and is expected to be capable of producing its target production sometime during the third quarter of 2014. In May 2014, the customer extended the Hummingbird Spirit FPSO unit’s charter contract by a firm period of one year until December 31, 2015, with charterer’s options to extend the contract up to March 2017. The Banff FPSO unit completed its repairs and upgrades following storm damage in December 2011, and resumed production on the Banff field in July 2014, where it is expected to remain under contract until the end of 2018. Upon commencing production on April 13, 2013, the Voyageur Spirit FPSO unit had a specified time period to receive final acceptance from the charterer, E.ON, at which point the unit would commence full operations under the contract with E.ON. However, due to a defect encountered in one of its two gas compressors, the FPSO unit was unable to achieve final acceptance within the allowable timeframe, resulting in the FPSO unit being declared off-hire by the charterer retroactive to April 13, 2013. On August 27, 2013, repairs to the defective gas compressor on the Voyageur Spirit FPSO unit were completed and the unit achieved full production capacity. Teekay Offshore entered into an interim agreement with E.ON whereby Teekay Offshore was compensated for production beginning August 27, 2013 until final acceptance on February 22, 2014.

Page 29 of 51

The following table presents our FPSO segment’s operating results for the three and six months ended June 30, 2014 and 2013 and also provides a summary of the calendar-ship-days for our FPSO segment. The table excludes the results of the Cidade de Itajai FPSO unit, which is accounted for under the equity method.


(in thousands of U.S. dollars, except calendar-ship-days and percentages)	Three Months Ended									Six Months Ended
	June 30,									June 30,
	2014			2013			% Change			2014			2013			% Change
Revenues		131,155			122,560			7.0			273,674			263,489			3.9
Voyage expenses		172			—			100.0			172			—			100.0
Vessel operating expenses		92,436			84,054			10.0			185,940			161,438			15.2
Depreciation and amortization		38,056			39,285			(3.1	)		75,868			73,317			3.5
General and administrative ⁽¹⁾		15,524			11,760			32.0			30,865			24,121			28.0
Gain on sale of equipment		—			(1,338	)		(100.0	)		—			(1,338	)		(100.0	)
Loan loss recovery		(2,521	)		—			100.0			(2,521	)		—			100.0

(Loss) income from vessel operations		(12,512	)		(11,201	)		11.7			(16,650	)		5,951			(379.8	)

Calendar-Ship-Days
Owned Vessels		1,001			969			3.3			1,991			1,869			6.5

(1)	Includes direct general and administrative expenses and indirect general and administrative expenses allocated to the FPSO segment based on estimated use of corporate resources. For further discussion, please read “Other Operating Results – General and Administrative Expenses.”

The number of our FPSO units for the three and six months ended June 30, 2014 increased compared to the same periods last year due to the acquisition of the Voyageur Spirit FPSO unit in May 2013.

Revenues. Revenues increased for the three and six months ended June 30, 2014, compared to the same periods last year, primarily due to:

•

increases of $20.1 million and $47.3 million for the three and six months ended June 30, 2014, respectively, relating to the acquisition of the Voyageur Spirit FPSO unit;

•

increases of $3.1 million and $5.0 million for the three and six months ended June 30, 2014, respectively, relating to the Hummingbird Spirit FPSO unit primarily due to an increase in reimbursable costs, which was partially offset by lower amortization of an in-process revenue contract as the amortization period was completed; and

•

an increase of $1.1 million for the three and six months ended June 30, 2014, due to a produced water treatment plant startup on the Piranema Spirit during the second quarter of 2014;

partially offset by

•

decreases of $8.8 million and $27.5 million, for the three and six months ended June 30, 2014, respectively, compared to the same periods last year, due to the Petrojarl I FPSO unit’s contract expiry and subsequent lay-up;

•

decreases of $2.9 million and $5.0 million for the three and six months ended June 30, 2014, respectively, due to lower amortization of the in-process revenue contract for the Petrojarl Banff FPSO unit as a result of the extension of the amortization period compared to the same periods last year;

•

decreases of $1.8 million and $4.6 million, for the three and six months ended June 30, 2014, respectively, from the Petrojarl Foinaven FPSO unit’s lower tariff revenue resulting from lower production caused by the compressor issues discussed above compared to the same periods last year;

•

decreases of $2.0 million and $3.4 million for the three and six months ended June 30, 2014, respectively, due to a decrease in crew hours recharged to the charterer of the Petrojarl Varg and the strengthening of the U.S. Dollar against the Norwegian Kroner compared to the same periods last year;

•

a decrease of $3.2 million for the six months ended June 30, 2014, related to lower revenue from FEED studies compared to the same period last year; and

•

decreases of $0.6 million and $1.0 million, respectively, for the three and six months ended June 30, 2014, due to the Rio das Ostras earning only a 95% standby rate while it was being relocated to a new oil field in the first and second quarters of 2014.

Page 30 of 51

Vessel Operating Expenses. Vessel operating expenses increased during the three and six months ended June 30, 2014, respectively, compared to the same periods last year, primarily due to:

•

increases of $3.2 million and $15.9 million for the three and six months ended June 30, 2014, respectively, relating to the acquisition of the Voyageur Spirit FPSO unit;

•

increases of $6.7 million and $11.2 million for the three and six months ended June 30, 2014, respectively, relating to the Petrojarl Foinaven FPSO unit, primarily due to higher repairs and maintenance relating to the compressor repairs and higher crew costs compared to the same period last year;

•

increases of $2.3 million and $8.9 million for the three and six months ended June 30, 2014, respectively, relating to the Hummingbird Spirit FPSO unit, primarily due to higher repairs and maintenance costs associated with mooring line repairs compared to the same periods last year;

•

increases of $4.4 million and $6.6 million for the three and six months ended June 30, 2014, respectively, from pre-operating costs incurred on the Petrojarl Knarr FPSO unit compared to the same periods last year;

•

an increase of $1.6 million for the six months ended June 30, 2014, due to the commencement of operations for the Petrojarl Banff compared to the same period last year; and

•

an increase of $1.2 million for the three months ended June 30, 2014, due to fewer costs related to FEED studies compared to the same period last year;

partially offset by

•

decreases of $5.8 million and $14.6 million for the three and six months ended June 30, 2014, respectively, due to decreased costs as a result of the Petrojarl I FPSO unit’s contract expiry and resulting lay-up;

•

decreases of $2.7 million and $3.5 million for the three and six months ended June 30, 2014, respectively, relating to the Petrojarl Varg primarily due to lower crew and manning costs due to a decrease in crew hours recharged to the charterer, and the strengthening of the U.S. Dollar against the Norwegian Kroner compared to the same periods last year;

•

decreases of $1.3 million and $2.6 million for the three and six months ended June 30, 2014, respectively, relating to the Piranema Spirit FPSO unit primarily due to lower repairs and maintenance costs compared to the same periods last year; and

•

a decrease of $0.7 million for the three months ended June 30, 2014, due to higher costs during a yard stay in 2013 for Petrojarl Banff.

Depreciation and Amortization Expense. Depreciation and amortization expense decreased for the three months ended June 30, 2014 from the same period last year, primarily due to the sale of sub-sea equipment from Petrojarl I, and increased for the six months ended June 30, 2014 from the same periods last year, primarily due to the 2013 acquisition of the Voyageur Spirit FPSO unit.

Gain on sale of equipment. Gain on sale of equipment for the six months ended June 30, 2013 was related to the sale of sub-sea equipment of the Petrojarl I. Please read “Item 1 – Financial Statements: Note 7a – Vessel Sales.”

Loan loss recovery. Loan loss recovery for the three and six months ended June 30, 2014, was due to our recovering a $2.5 million receivable related to an FPSO FEED study completed in 2013 which was previously provided for. Please read “Item 1 – Financial Statements: Note 7b – Loan Loss (Recoveries) Provisions.”

Liquefied Gas Segment

As at June 30, 2014, our liquefied gas segment (which includes our Teekay Gas Services business unit) included 38 LNG carriers and 30 LPG/Multigas carriers (in which Teekay LNG’s interests ranged from 20% to 100%). However, the table below only includes 13 LNG carriers and five LPG/Multigas carriers, which are accounted for under the consolidation method of accounting. The table excludes five newbuilding LNG carriers and the following vessels accounted for under the equity method: (i) six LNG carriers relating to Teekay LNG’s joint venture with Marubeni Corporation (or the MALT LNG Carriers), (ii) the four LNG carriers relating to the Angola LNG Project (or the Angola LNG Carriers), (iii) four LNG carriers relating to Teekay LNG’s joint venture with QGTC Nakilat (1643-6) Holdings Corporation (or the RasGas 3 LNG Carriers), (iv) four newbuilding LNG carriers relating to the BG Joint Venture and (v) two LNG carriers (or the Exmar LNG Carriers) and (vi) 15 LPG carriers and 10 newbuilding LPG carriers (or the Exmar LPG Carriers) relating to our joint ventures with Exmar.

Page 31 of 51

The following table compares our liquefied gas segment’s operating results for the three and six months ended June 30, 2014 and 2013, and compares its net revenues (which is a non-GAAP financial measure) for the three and six months ended June 30, 2014 and 2013 to revenues, the most directly comparable GAAP financial measure. Non-GAAP financial measures may not be comparable to other companies which may calculate similar measures differently. The following table also provides a summary of the changes in calendar-ship-days for our liquefied gas segment:


(in thousands of U.S. dollars, except calendar-ship-days and percentages)	Three Months Ended							Six Months Ended
	June 30,							June 30,
	2014		2013		% Change			2014		2013		% Change
Revenues		81,970		70,983		15.5			163,393		141,984		15.1
Voyage expenses		739		487		51.7			1,572		491		220.2

Net revenues		81,231		70,496		15.2			161,821		141,493		14.4
Vessel operating expenses		17,139		15,164		13.0			33,650		30,260		11.2
Depreciation and amortization		17,888		18,328		(2.4	)		36,001		35,619		1.1
General and administrative ⁽¹⁾		6,294		5,314		18.4			13,494		11,510		17.2

Income from vessel operations		39,910		31,690		25.9			78,676		64,104		22.7

Calendar-Ship-Days
Owned Vessels and Vessels under Direct Financing Lease		1,638		1,456		12.5			3,258		2,896		12.5

(1)	Includes direct general and administrative expenses and indirect general and administrative expenses allocated to the liquefied gas segment based on estimated use of corporate resources. For further discussion, please read “Operating Results – General and Administrative Expenses.”

The average size of our liquefied gas segment fleet increased for the three and six months ended June 30, 2014, as a result of the acquisition and delivery of two LNG carriers from Awilco (or the Awilco LNG Carriers), the Wilforce and Wilpride, in September 2013 and November 2013, respectively. During the six months ended June 30, 2014, two of our vessels were off-hire for a total of 46 days compared to one vessel being off-hire for 62 days in the same period last year.

Net Revenues. Net revenues increased for the three and six months ended June 30, 2014, respectively, compared to the same periods last year, primarily due to:

•

increases of $6.4 million and $13.0 million for the three and six months ended June 30, 2014, respectively, as a result of the acquisition and delivery of the Awilco LNG Carriers in September 2013 and November 2013, respectively;

•

an increase of $2.2 million for the three and six months ended June 30, 2014 due to the Catalunya Spirit being off-hire for 21 days in the second quarter of 2013 for a scheduled dry docking;

•

increases of $1.5 million and $7.1 million for the three and six months ended June 30, 2014 due to the Arctic Spirit being off-hire for 41 days in the first quarter of 2013 for a scheduled dry docking, and a ballast bonus paid to us by the customer in the first quarter of 2014;

•

increases of $1.0 million and $1.5 million for the three and six months ended June 30, 2014, respectively, due to the effect on our Euro-denominated revenues from the strengthening of the Euro against the U.S. Dollar compared to the same periods in 2013; and

•

increases of $0.3 million and $0.7 million for the three and six months ended June 30, 2014 due to operating expense and dry-docking recovery adjustments under our charter provisions for Tangguh Hiri and Tangguh Sago;

partially offset by

•

decreases $0.6 million and $2.5 million for the three and six months ended June 30, 2014, respectively, due to the Galicia Spirit being off-hire for 28 days in the first quarter of 2014 for a scheduled dry docking; and

•

a decrease of $2.4 for the six months ended June 30, 2014, relating to 18 days of unscheduled off-hire in the first quarter of 2014 due to repairs required for one of our LNG carriers.

Vessel Operating Expenses. Vessel operating expenses increased for the three and six months ended June 30, 2014, respectively, from the same periods last year, primarily as a result of:

•

increases of $1.0 million and $1.9 million for the three and six months ended June 30, 2014 respectively, due to increases in ship management costs due to increases in shore-based personnel supporting the liquefied gas segment;

•

an increase of $0.7 million for the three and six months ended June 30, 2014 relating to costs to train our crew for two LNG carrier newbuildings that are expected to be delivered in the first half of 2016; and

•

increases of $0.5 million and $1.1 million for the three and six months ended June 30, 2014, respectively, as a result of higher manning costs due to wage increases relating to certain of our LNG carriers.

Depreciation and Amortization. Depreciation and amortization remained consistent for the three and six months ended June 30, 2014, compared to the same periods last year.

Conventional Tanker Segment

Our conventional tanker segment consists of conventional crude oil and product tankers that (i) are subject to long-term, fixed-rate time-charter contracts (which have an original term of one year or more), (ii) operate in the spot tanker market, or (iii) are subject to time-charters or contracts of affreightment that are priced on a spot market basis or are short-term, fixed-rate contracts (which have an original term of less than one year).

Page 32 of 51

a) Fixed-Rate Tanker Sub-Segment

Our fixed-rate tanker sub-segment, a subset of our conventional tanker segment (which includes our Teekay Gas Services, Teekay Shuttle Offshore and Teekay Tankers Services business units), includes conventional crude oil and product tankers on fixed-rate time charters with an original duration of more than one year. In addition, Teekay Tankers has a 50% interest in a Very Large Crude Carrier (or VLCC) that delivered in the second quarter of 2013 and is accounted for under the equity method. Upon delivery, this vessel commenced operations under a time-charter for a term of five years.

The following table compares our fixed-rate tanker sub-segment’s operating results for the three and six months ended June 30, 2014 and 2013, and compares its net revenues (which is a non-GAAP financial measure) for the three and six months ended June 30, 2014 and 2013 to revenues, the most directly comparable GAAP financial measure. Non-GAAP financial measures may not be comparable to other companies which may calculate similar measures differently. The following table also provides a summary of the changes in calendar-ship-days and revenue days for our fixed-rate tanker sub-segment:


(in thousands of U.S. dollars, except calendar-ship-days and percentages)	Three Months Ended							Six Months Ended
	June 30,							June 30,
	2014		2013		% Change			2014		2013		% Change
Revenues		57,001		68,301		(16.5	)		131,873		138,694		(4.9	)
Voyage expenses		1,199		1,392		(13.9	)		2,199		2,494		(11.8	)

Net revenues		55,802		66,909		(16.6	)		129,674		136,200		(4.8	)
Vessel operating expenses		29,027		30,928		(6.1	)		55,106		61,503		(10.4	)
Time-charter hire expense		1,092		1,608		(32.1	)		2,172		3,138		(30.8	)
Depreciation and amortization		12,806		14,021		(8.7	)		25,844		28,549		(9.5	)
General and administrative ⁽¹⁾		3,842		5,768		(33.4	)		8,960		11,542		(22.4	)
Loan loss provisions		—		7,042		100.0			—		10,207		100.0
Restructuring charges		272		299		(9.0	)		321		941		(65.9	)

Income from vessel operations		8,763		7,243		21.0			37,271		20,320		83.4

Calendar-Ship-Days
Owned Vessels		2,158		2,560		(15.7	)		4,353		5,146		(15.4	)
Chartered-in Vessels		91		91		—			181		181		—

Total		2,249		2,651		(15.2	)		4,534		5,327		(14.9	)

(1)	Includes direct general and administrative expenses and indirect general and administrative expenses allocated to the fixed-rate tanker sub-segment based on estimated use of corporate resources. For further discussion, please read “Operating Results – General and Administrative Expenses.”

The average fleet size of our fixed-rate tanker sub-segment (including vessels chartered-in), as measured by calendar-ship-days, decreased for the three and six months ended June 30, 2014 compared with the same periods last year due to:

•

the transfer of two Suezmax tankers, four Aframax tankers and two medium-range (or MR) product tankers to the spot tanker sub-segment; and

•

the sale of one Aframax tanker and two Suezmax tankers;

partially offset by

•

the transfer of one Aframax tanker from the spot tanker sub-segment.

The collective impact from the above noted fleet changes are referred to below as the Net Fixed-Rate Fleet Reductions.

Net Revenues. Net revenues decreased for the three and six months ended June 30, 2014 compared to the same periods last year, primarily due to:

•

decreases of $8.4 million and $15.7 million for the three and six months ended June 30, 2014, respectively, mainly due to the Net Fixed-Rate Fleet Reductions;

•

a decrease of $2.9 million for the three months ended June 30, 2014 in interest income earned on our investments in term loans;

•

a decrease of $1.5 million for the six months ended June 30, 2014 due to more off-hire days related to dry-docking activities in 2014; and

•

decreases of $0.9 million and $1.1 million for the three and six months ended June 30, 2014, respectively, relating to management services revenue;

partially offset by

•

an increase of $9.6 million for the six months ended June 30, 2014 in interest income earned on our investments in term loans; and

Page 33 of 51

•

increases of $0.6 million and $2.2 million for the three and six months ended June 30, 2014, respectively, due to higher average charter rates earned from charter renewals and new charters.

Vessel Operating Expenses. Vessel operating expenses decreased for the three and six months ended June 30, 2014 from the same periods last year, primarily due to:

•

decreases of $1.6 million and $6.8 million for the three and six months ended June 30, 2014, respectively, mainly due to the Net Fixed-Rate Fleet Reductions; and

•

decreases of $0.4 million and $1.3 million for the three and six months ended June 30, 2014, respectively, due to the timing of service and maintenance activities performed;

partially offset by

•

increases of $0.2 million and $1.4 million for the three and six months ended June 30, 2014, respectively, due to a new time-charter arrangement for two Aframax tankers.

Time-Charter Hire Expense. Time-charter hire expense decreased for the three and six months ended June 30, 2014, compared to the same periods last year, primarily due to a decrease in the in-charter contract hire rate for a MR product tanker.

Depreciation and Amortization. Depreciation and amortization expense decreased for the three and six months ended June 30, 2014, compared to the same periods last year, primarily due to the Net Fixed-Rate Fleet Reductions.

Loan Loss Provisions. Loan loss provisions for the three months and six months ended June 30, 2013 relate to allowances provided in respect of our investments in term loans. In July 2010 and February 2011, we invested a total of $183.0 million in three loans, two maturing in July 2013 and one maturing in February 2014 secured by first priority mortgages registered on two 2010-built and one 2011-built VLCC vessels, respectively. The borrowers had been in default on their interest payment obligations since January 2013, and subsequently were in default on the repayment of the loan principal on the two loans maturing in July 2013. As a result, we entered into discussions with the borrowers and the second priority mortgagee of the vessels to realize on our security for the loans. During the three and six months ended June 30, 2013, we recorded loss provisions of $7.0 million and $10.2 million, respectively, on the investment in term loans, inclusive of $6.6 million of accrued but unpaid interest as at June 30, 2013, to reflect the estimated loss that could have been incurred based on our estimates at that time of amounts recoverable. The loan loss provisions were reversed later in 2013, as the estimated future cash flows increased, primarily reflecting the increase in the estimated value of the underlying collateral.

Restructuring Charges. Restructuring charges for the three and six months ended June 30, 2014 and 2013, primarily relate to reorganization of our marine operations and certain of our commercial and administrative functions. Please read “Item 1 – Financial Statements: Note 12 – Restructuring Charges.”

b) Spot Tanker Sub-Segment

Our spot tanker sub-segment, a subset of our conventional tanker segment (which includes our Teekay Shuttle Offshore and Teekay Tankers Services business units), consists of conventional crude oil tankers and product carriers operating on the spot tanker market or subject to time-charters or contracts of affreightment that are priced on a spot-market basis or are short-term, fixed-rate contracts. We consider contracts that have an original term of less than one year in duration to be short-term. Our conventional Aframax, Suezmax, and large and medium product tankers are among the vessels included in the spot tanker sub-segment. In addition, Teekay and Teekay Tankers have an aggregate 13% interest in TIL which is accounted for under the equity method.

Our spot tanker market operations contribute to the volatility of our revenues, cash flow from operations and net income (loss). 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, spot tanker markets historically have exhibited seasonal variations in charter rates. Spot tanker 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.

The following table compares our spot tanker sub-segment’s operating results for the three and six months ended June 30, 2014 and 2013, and compares its net revenues (which is a non-GAAP financial measure) for the three and six months ended June 30, 2014 and 2013 to revenues, the most directly comparable GAAP financial measure. Non-GAAP financial measures may not be comparable to other companies which may calculate similar measures differently. The following table also provides a summary of the changes in calendar-ship-days and revenue days for our spot tanker sub-segment:


(in thousands of U.S. dollars, except calendar-ship-days and percentages)	Three Months Ended									Six Months Ended
	June 30,									June 30,
	2014			2013			% Change			2014			2013			% Change
Revenues		39,312			28,801			36.5			85,780			58,862			45.7
Voyage expenses		6,439			2,000			222.0			7,889			5,400			46.1

Net revenues		32,873			26,801			22.7			77,891			53,462			45.7
Vessel operating expenses		16,123			22,360			(27.9	)		35,197			41,862			(15.9	)
Time-charter hire expense		3,647			10,826			(66.3	)		7,447			21,971			(66.1	)
Depreciation and amortization		7,584			9,042			(16.1	)		14,742			17,989			(18.0	)
General and administrative ⁽¹⁾		3,280			3,229			1.6			4,122			7,665			(46.2	)
(Gain) loss on sale of vessels		(9,615	)		(3	)		n/a			(9,453	)		29			n/a
Restructuring charges		304			447			(32.0	)		342			1,272			(73.1	)

Income (loss) from vessel operations		11,550			(19,100	)		(160.5	)		25,494			(37,326	)		(168.3	)

Calendar-Ship-Days
Owned Vessels		1,649			1,770			(6.8	)		3,379			3,541			(4.6	)
Chartered-in Vessels		274			637			(57.0	)		557			1,287			(56.7	)

Total		1,923			2,407			(20.1	)		3,936			4,828			(18.5	)

(1)	Includes direct general and administrative expenses and indirect general and administrative expenses allocated to the spot tanker sub-segment based on estimated use of corporate resources. For further discussion, please read “Operating Results – General and Administrative Expenses.”

Page 34 of 51

The average size of our spot tanker fleet (including vessels chartered-in), as measured by calendar-ship-days, decreased for the three and six months ended June 30, 2014, compared to the same periods last year, primarily due to:

•

the in-charter redeliveries by us to their owners of five Aframax tankers;

•

the sale of four Suezmax tankers and three Aframax tankers; and

•

the transfer of one Aframax tanker to the fixed tanker sub-segment;

partially offset by

•

the transfer of two Suezmax tankers, four Aframax tankers and two MR product tankers from the fixed-rate tanker sub-segment; and

•

the new in-chartering of two Aframax tankers and the addition of the three VLCCs upon our exercise of remedies under the related collateral documents for our investments in term loans. Two of the three VLCCs were subsequently sold in May 2014.

The collective impact from the above noted fleet changes are referred to below as the Net Spot Fleet Reductions.

Tanker Market and TCE Rates

Crude tanker spot rates in the second quarter of 2014 averaged approximately 20 to 30% higher compared to the same period of 2013, reflecting improving tanker market fundamentals and higher fleet utilization compared to the previous year.

Since the beginning of the third quarter of 2014, Aframax and Suezmax spot rates experienced a counter-seasonal rally to the highest levels seen in the month of July since 2008. The third quarter rate spike was primarily due to refinery throughput increasing as seasonal refinery maintenance concluded, coupled with an increase in long-haul Suezmax movements from the Atlantic to Pacific, fear-driven stockpiling due to uncertainty caused by unrest in Iraq, and vessel delays at U.S. Gulf and Mediterranean ports. This significant increase in tanker rates during what is usually a weak part of the year for crude tankers, is a further sign of improving tanker market fundamentals and is a positive signal ahead of the seasonally stronger winter market, which begins in the fourth quarter.

Long Range 2 (LR2) product tanker rates strengthened in the early part of the second quarter due to higher naphtha exports from the Middle East and Europe to Asia before declining in June due to increased competition from cheaper liquefied petroleum gas. Medium Range (MR) product tanker spot rates weakened during the second quarter of 2014 due to a combination of lower U.S. export volumes and the impact of new fleet supply growth.

The global tanker fleet grew by 2.6 million deadweight tonnes (mdwt), or 0.5%, in the first half of 2014 compared to 10.8 mdwt, or 2.2%, in the same period of 2013. A significant portion of this fleet growth occurred in the MR product tanker sector while the world Suezmax and Aframax crude tanker fleets shrank by a net two vessels, or 0.4%, and 13 vessels, or 2.1%, respectively, during the first six months of 2014. Taking into account newbuilding orderbook slippage and scrapping, the world tanker fleet is forecasted to grow by approximately 1.2% in 2014, the lowest level of tanker fleet growth since 2001, and by approximately 1.6% in 2015. The mid-size tanker fleet is forecasted to further reduce in size during the second half of 2014 and into 2015 as scrapping of older vessels is expected to outweigh new deliveries into the fleet.

In its July 2014 “World Economic Outlook Update,” the International Monetary Fund revised its outlook for global GDP growth in 2014 downward from 3.7% to 3.4%, with global GDP growth in 2015 unchanged at 4.0%. The downward revision is mainly due to a weaker than expected GDP growth in the United States for the first quarter of 2014 as a result of extreme weather events, softening domestic demand in China, geopolitical instability between Russia and the Ukraine, and a less optimistic growth outlook for several emerging markets.

Global oil demand is projected to grow by 1.2 million barrels per day (mb/d) in 2014 and 1.4 mb/d in 2015 based on the average of forecasts by the International Energy Agency, the Energy Information Administration, and OPEC. Accelerating global oil demand growth coupled with very low tanker fleet growth, particularly in the crude sectors, is expected to drive an increase in tanker fleet utilization and spot tanker rates during the remainder of 2014 and 2015.

Page 35 of 51


	Three Months Ended
	June 30, 2014							June 30, 2013
	Net					TCE		Net					TCE
	Revenues			Revenue		Rate		Revenues			Revenue		Rate
Vessel Type	($000’s)			Days		$		($000’s)			Days		$
Spot Fleet⁽¹⁾
Suezmax Tankers		11,697			727		16,089		13,143			1,092		12,041
Aframax Tankers		8,587			563		15,260		8,929			792		11,272
Large/Medium Product Tankers/VLCC		8,669			622		13,941		5,096			432		11,810
Other⁽²⁾		(126	)		—		—		(367	)		—		—

Totals		28,827			1,912		15,081		26,801			2,316		11,571
Service revenues⁽³⁾		4,046							—

Total net revenues		32,873							26,801


	Six Months Ended
	June 30, 2014							June 30, 2013
	Net					TCE		Net					TCE
	Revenues			Revenue		Rate		Revenues			Revenue		Rate
Vessel Type	($000’s)			Days		$		($000’s)			Days		$
Spot Fleet⁽¹⁾
Suezmax Tankers		38,215			1,648		23,193		27,132			2,115		12,830
Aframax Tankers		21,432			1,137		18,853		18,985			1,792		10,595
Large/Medium Product Tankers/VLCC		15,757			1,102		14,301		9,512			734		12,963
Other⁽²⁾		(1,559	)		—		—		(2,167	)		—		—

Totals		73,845			3,887		18,992		53,462			4,641		11,521
Service revenues⁽³⁾		4,046							—

Total net revenues		77,891							53,462

(1)	Spot fleet includes short-term time-charters and fixed-rate contracts of affreightment of less than one year.

(2)	Includes the cost of spot in-charter vessels servicing fixed-rate contract of affreightment cargoes, the write-off of doubtful accounts and the cost of fuel while offhire.

(3)	Service revenues represent revenues earned from TIL based on the fees charged by us for managing the sales and purchases of vessels in TIL.

Average spot tanker TCE rates increased for the three and six months ended June 30, 2014 compared to the same periods last year. The increase in TCE rates was primarily due to improved demand relative to supply of vessels and seasonal factors. During the three and six months ended June 30, 2014 compared to the same periods last year, we realized a slight reduction in our revenue day exposure to the spot tanker market through the re-delivery of in-chartered vessels and vessel sales. We continue to maintain a mix of both spot and fixed-rate employment for our vessels in order to balance our exposure to the volatile spot tanker market with the cash flow stability from the fixed segment. Recently, we have been actively increasing our spot rate exposure through new in-charter contracts with favorable rates and optional periods, as some of our owned vessels currently operating under fixed-rate employment contracts redeliver, we plan to trade more of these vessels in the spot tanker market rather than pursue replacement fixed-rate contracts.

Net Revenues. Net revenues increased for the three and six months ended June 30, 2014 compared to the same periods last year primarily due to:

•

increases of $8.5 million and $37.7 million for the three and six months ended June 30, 2014 due to the increase in the average spot tanker TCE rates we earned; and

•

an increase of $4.0 million for the three and six months ended June 30, 2014 due to service revenue earned from TIL based on the fees charged by us for managing the sales and purchases of vessels in TIL;

partially offset by

•

net decreases of $6.7 million and $17.9 million for the three and six months ended June 30, 2014, mainly due to the Net Spot Fleet Reductions.

Vessel Operating Expenses. Vessel operating expenses decreased for the three and six months ended June 30, 2014 compared to the same periods last year, primarily due to the Net Spot Fleet Reductions and the timing of repairs and maintenance.

Time-Charter Hire Expense. Time-charter hire expense decreased for the three and six months ended June 30, 2014 compared to the same periods last year, primarily due to the Net Spot Fleet Reductions.

Page 36 of 51

Depreciation and Amortization. Depreciation and amortization expense decreased for the three and six months ended June 30, 2014 compared to the same periods last year, primarily due to the Net Spot Fleet Reductions.

(Gain) Loss on Sale of Vessels. Gain on sale of vessels for the three and six months ended June 30, 2014 relates primarily to a gain on sale during May of two single-ship wholly-owned subsidiaries, each of which owns one VLCC, to TIL for gross proceeds of $154.0 million plus related working capital on closing of $1.7 million.

Restructuring Charges. Restructuring charges for the three and six months ended June 30, 2014 and 2013, primarily relate to reorganization of our marine operations and certain of our commercial and administrative functions. Please read Item 1 – Financial Statements: Note 12 – Restructuring Charges.

Other Operating Results

The following table compares our other operating results for the three and six months ended June 30, 2014 and 2013:


(in thousands of U.S. dollars, except percentages)	Three Months Ended									Six Months Ended
	June 30,									June 30,
	2014			2013			% Change			2014			2013			% Change
General and administrative		(36,945	)		(35,395	)		4.4			(74,823	)		(74,666	)		0.2
Interest expense		(49,656	)		(44,687	)		11.1			(98,989	)		(87,197	)		13.5
Interest income		793			2,018			(60.7	)		2,576			3,036			(15.2	)
Realized and unrealized (loss) gain on non-designated derivative instruments		(75,331	)		56,035			(234.4	)		(122,579	)		42,246			(390.2	)
Equity income		35,271			47,372			(25.5	)		62,765			74,687			(16.0	)
Foreign exchange (loss) gain		(2,046	)		678			(401.8	)		(2,940	)		2,867			(202.5	)
Other (loss) income		(734	)		(1,386	)		(47.0	)		7,517			3,856			94.9
Income tax expense		(3,193	)		(1,873	)		70.5			(5,991	)		(4,373	)		37.0

General and Administrative. General and administrative expenses increased to $36.9 million and $74.8 million, respectively, for the three and six months ended June 30, 2014, from $35.4 million and $74.7 million, respectively, for the same periods last year due to the growth in our offshore businesses, partially offset by the various cost saving initiatives that we have undertaken.

Interest Expense. Interest expense increased to $49.7 million and $99.0 million, respectively, for the three and six months ended June 30, 2014, from $44.7 million and $87.2 million, respectively, for the same periods last year, primarily due to:

•

increases of $3.8 million and $11.0 million for the three and six months ended June 30, 2014, respectively, due to the borrowings under new debt facilities relating to the Voyageur Spirit FPSO unit and the four BG Shuttle Tankers that delivered during the last three quarters of 2013 and $300 million of senior unsecured bonds issued during the second quarter of 2014;

•

increases of $2.2 million and $4.2 million for the three and six months ended June 30, 2014, respectively, as a result of the Teekay LNG NOK 900 million bond issuance in September 2013;

•

increases of $2.2 million and $3.4 million for the three and six months ended June 30, 2014, respectively, relating to two new debt facilities used to fund the deliveries of the two Awilco LNG Carriers in late-2013;

•

increases of $1.6 million and $3.2 million for the three and six months ended June 30, 2014, respectively, primarily from Teekay Offshore’s issuance of NOK 1,000 million senior unsecured bonds in January 2014, partially offset by the repurchase by Teekay Offshore of NOK 388.5 million of outstanding NOK 600 million senior unsecured bond issue during the first quarter of 2013 and of the remaining NOK 211.5 million that matured in November 2013; and

•

increases of $1.2 million and $3.0 million for the three and six months ended June 30, 2014, respectively, as a result of further borrowing under a revolving credit facility we entered into in December 2012;

partially offset by

•

decreases of $1.7 million and $3.4 million for the three and six months ended June 30, 2014, due to net increases in capitalized interest on our newbuildings compared to the same periods last year;

•

decreases of $1.7 million and $2.4 million for the three and six months ended June 30, 2014, mainly due to the sale of four Suezmax crude oil tankers along with its related debt facilities from us to TIL during February 2014; and

•

decreases of $1.4 million and $5.3 million for the three and six months ended June 30, 2014, respectively, due to a decrease in LIBOR and due to debt repayments during 2013 and the first six months of 2014.

Page 37 of 51

Realized and unrealized (losses) gains on non-designated derivative instruments. Realized and unrealized (losses) gains 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) gains on non-designated derivatives were ($75.3) million and ($122.6) million, respectively, for the three and six months ended June 30, 2014, compared to $56.0 million and $42.2 million, respectively, for the three and six months ended June 30, 2013, as detailed in the table below:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
(in thousands of U.S. Dollars)	2014			2013			2014			2013
Realized (losses) gains relating to:
Interest rate swap agreements		(30,755	)		(30,899	)		(60,245	)		(61,251	)
Interest rate swap agreement terminations		—			(4,187	)		1,000			(4,187	)
Foreign currency forward contracts		110			(1,873	)		(1,175	)		(1,452	)

		(30,645	)		(36,959	)		(60,420	)		(66,890	)

Unrealized (losses) gains relating to:
Interest rate swap agreements		(39,096	)		96,911			(64,494	)		116,115
Foreign currency forward contracts		(1,926	)		(3,917	)		1,125			(6,979	)
Stock purchase warrants		(3,664	)		—			1,210			—

		(44,686	)		92,994			(62,159	)		109,136

Total realized and unrealized (losses) gains on derivative instruments		(75,331	)		56,035			(122,579	)		42,246

The realized (losses) and gains relate to amounts we actually realized or paid to settle such derivative instruments. The unrealized (losses) gains on interest rate swaps for the three months and six months ended June 30, 2014 and 2013 were primarily due to changes in the forward interest swap rates.

As at June 30, 2014 and 2013, we had interest rate swap agreements with aggregate average net outstanding notional amounts of approximately $4.2 billion and $3.8 billion, respectively, with average fixed rates of approximately 3.5% and 3.6%, respectively. Short-term variable benchmark interest rates during these periods were generally less than 1.0% and, as such, we incurred realized losses of $30.8 million and $60.2 million during the three and six months ended June 30, 2014, compared to realized losses of $30.9 million and $61.3 million for the respective periods in the prior year under the interest rate swap agreements. We also incurred realized gains of $1.0 million during the six months ended June 30, 2014, from the early termination of one interest rate swap, compared to a realized loss of $4.2 million during the three and six months ended June 30, 2013 from the termination of an interest rate swap prior to our acquisition of the Voyageur Spirit FPSO unit and while we accounted for the unit as a VIE.

Primarily as a result of significant changes in long-term benchmark interest rates during the three and six months ended June 30, 2014, we recognized unrealized losses of $44.7 million and $62.2 million, respectively, compared with unrealized gains of $93.0 million and $109.1 million for the same periods last year. In January 2014, we and Teekay Tankers formed TIL. We and Teekay Tankers purchased 5.0 million shares of common stock, representing an initial aggregate 20% interest in TIL, as part of a $250 million private placement by TIL, which represents a total investment by us and Teekay Tankers of $50.0 million. In addition, we and Teekay Tankers received 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. During the three and six months ended June 30, 2014, we recognized a $3.7 million unrealized loss and a $1.2 million unrealized gain, respectively, on the stock purchase warrants which are included in the total unrealized derivative (losses) gains. Please read “Financial Statements: Note 15 - Derivative Instruments and Hedging Activities.”

Please see “Item 5 - Operating and Financial Review and Prospects: Valuation of Derivative Financial Instruments” in our Annual Report on Form 20-F for the year ending December 31, 2013, which explains how our derivative instruments are valued, including the significant factors and uncertainties in determining the estimated fair value and why changes in these factors result in material variances in realized and unrealized (losses) gains on derivative instruments.

Equity Income. Our equity income decreased to $35.3 million and $62.8 million, respectively, for the three and six months ended June 30, 2014, compared to equity income of $47.4 million and $74.7 million, respectively, for the same periods last year, primarily due to:

•

decreases of $14.8 million and $20.9 million for the three and six months ended June 30, 2014, respectively, from Teekay LNG’s 33% investment in the four Angola LNG Carriers, primarily due to unrealized losses on derivative instruments in the first half of 2014 as a result of long-term LIBOR benchmark interest rates decreasing for interest rate swaps maturing after two years, compared to unrealized gains on derivative instruments in the same periods last year. In addition, operating expenses were higher during 2014 compared to 2013, due to main engine overhauls performed in 2014;

•

decreases of $4.8 million and $7.4 million for the three and six months ended June 30, 2014, relating to Teekay LNG’s 52% ownership interest in the Malt LNG Carriers, primarily due to higher interest margins upon completion of debt refinancing within the Teekay LNG-Marubeni Joint Venture in June and July 2013, the off-hire of the Woodside Donaldson and Magellan for 34 days and 23 days, respectively, during 2014 for scheduled dry dockings, and an increase in operating expenses as a result of main engine overhauls and related off-hire relating to the Woodside Donaldson in the first quarter of 2014. These decreases were partially offset by the Methane Spirit being off-hire for 28 days in the first quarter of 2013;

•

decreases of $3.7 million and increases $1.8 million for the three and six months ended June 30, 2014, respectively, mainly due to unrealized losses and gains on derivative instruments relating to the Cidade de Itajai FPSO unit which commenced operations in February 2013 and is owned through a joint venture of Teekay Offshore with Brazilian-based Odebrecht Oil & Gas S.A. (a member of the Odebrecht group) (or Odebrecht);

Page 38 of 51

•

decreases of $1.0 million and $5.9 million for the three and six months ended June 30, 2014, respectively, relating to our 43% investment in Sevan Marine ASA, mainly due to lower license fee revenues, higher consulting costs and a one-time office lease settlement payment;

•

decreases of $0.9 million and $1.9 million for the three and six months ended June 30, 2014, respectively, from Teekay LNG’s 40% investment in the RasGas 3 LNG Carriers, primarily due to lower unrealized gains on derivative instruments in the second quarter of 2014 compared to the same periods last year as the increase in the long-term benchmark interest rates for interest rate swaps maturing within two years did not increase as much as compared to 2013 and due to a performance claim incurred in the first quarter of 2014; and

•

decreases of $0.8 million and increases of $3.3 million for the three and six months ended June 30, 2014, respectively, from our investment in TIL, primarily due to operating losses during the three months ended June 30, 2014. The increase in equity income during the six months ended June 30, 2014 resulted from a dilution gain as a result of our reduced ownership interest in TIL from the share issuance completed as part of TIL’s initial public offering in March 2014 partially offset by the equity loss described above;

partially offset by

•

increases of $14.4 million and $17.7 million for the three and six months ended June 30, 2014, respectively, from Teekay LNG’s 50% interest in Exmar LPG BVBA due to its 50% acquisition of this joint venture in February 2013, the gain on the sale of Flanders Tenacity and Eeklo, which were sold during the second quarter of 2014, the delivery of two newbuildings, the Waasmunster and Warinsart, during the second quarter of 2014, and higher revenues as a result of higher Very Large Gas Carrier spot rates earned in the second quarter of 2014; partially offset by a loss on the sale of the Temse in the first quarter of 2014 and less income generated as a result of the disposals of the Donau (March 2013), Temse and Eeklo.

For the three and six months ended June 30, 2014, equity income includes losses of $2.0 million and $2.9 million, respectively, relating to our share of unrealized losses on interest rate swaps, compared to unrealized gains on interest rate swaps of $17.2 million and $22.5 million, respectively, included in equity income for the same periods last year.

Foreign Exchange (Loss) Gain. Foreign currency exchange losses were $2.0 million and $2.9 million, respectively, for the three and six months ended June 30, 2014, compared to foreign currency exchange gains of $0.7 million and $2.9 million, respectively, for the same periods last year. Our foreign currency exchange (losses) gains, 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 (losses) gains on our cross currency swaps. 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. 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. During the six months ended June 30, 2013, Teekay Offshore repurchased NOK 388.5 million of its existing NOK 600 million senior unsecured bond issue that matured in November 2013. Associated with this repurchase, we recorded $6.6 million of realized losses on the repurchased bonds, and recorded $6.8 million of realized gains on the settlements of the associated cross currency swap. For the three and six months ended June 30, 2014, foreign currency exchange (losses) gains include realized (losses) gains of $(0.1) million (2013 - $0.5 million) and $(0.3) million (2013 - $1.6 million) and unrealized losses of $24.8 million (2013 – $16.4 million) and $11.5 million (2013 - $54.4 million) on our cross currency swap and unrealized gains of $20.5 million (2013 - $22.0 million) and $6.1 million (2013 - $51.6 million) on the revaluation of our NOK-denominated debt. For the three and six months ended June 30, 2014, foreign currency exchange gains (losses) include the revaluation of our Euro-denominated restricted cash, debt and capital leases of $1.7 million and $1.0 million as compared to $(4.5) million and $3.6 million for the same periods of 2013.

Income Tax Expense. Income tax expense increased to $3.2 million and $6.0 million for the three and six months ended June 30, 2014, compared to $1.9 million and $4.4 million, for the same periods last year. The increase in income tax expense for the three and six months ended June 30, 2014 was primarily due to freight tax accrued, loss carry-forwards in Australia which were fully utilized during 2014, and the non-deductibility of certain intercompany interest expense in our Norwegian entities commencing in 2014 due to a change in tax laws.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity and Cash Needs

Our primary sources of liquidity are cash and cash equivalents, cash flows provided by our operations, our undrawn credit facilities, proceeds from the sale of vessels, and capital raised through financing transactions by us or our subsidiaries. Our short-term liquidity requirements are for the payment of operating expenses, debt servicing costs, dividends, scheduled repayments of long-term debt, as well as funding our working capital requirements. As at June 30, 2014, our consolidated cash and cash equivalents totaled $748.9 million, compared to $614.7 million as at December 31, 2013. As at June 30, 2014 and December 31, 2013, our total consolidated liquidity, including cash and undrawn credit facilities, was $1.6 billion and $1.2 billion, respectively.

Our spot tanker market operations contribute to the volatility of our net operating cash flow. 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, spot tanker markets historically have exhibited seasonal variations in charter rates. Spot tanker 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. In addition, the revenue we receive from certain of our FPSOs may vary based on oil production and performance metrics, and has recently been affected by storm damage to one unit, operational issues, and the lay-up of one older unit, pending its redeployment or sale.

Page 39 of 51

As at June 30, 2014, we had $655.6 million of scheduled debt repayments coming due within the next twelve months. In addition, as at June 30, 2014, we had $65.7 million current capital lease obligations for two Suezmax tankers, under which the owner has the option to require us to purchase the vessels. The owner also has cancellation rights, as the charterer, under the charter contracts for these Suezmax tankers.

Our 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 securities and publicly traded debt instruments and cash generated from operations. In addition, we may use sale and lease-back arrangements as a source of long-term liquidity. Occasionally, 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 $266.8 million, which mostly relates to our 2014 capital expenditure commitments. During July and August 2014, Teekay Offshore received commitments to refinance $330.0 million of revolving credit facilities coming due during the remainder of 2014. Teekay Offshore expects the refinancing to be completed in September 2014, and the amount available under the new revolving credit facility will reduce quarterly by $16.5 million per quarter over five years. We are currently in the process of obtaining additional debt financing for our remaining capital commitments relating to our portion of newbuildings on order and vessels undergoing conversions as at June 30, 2014.

Our pre-arranged newbuilding debt facilities are in addition to our undrawn credit facilities. We continue to consider strategic opportunities, including the acquisition of additional vessels and expansion into new markets. We may choose to pursue such opportunities through internal growth, joint ventures or business acquisitions. We intend to finance any future acquisitions through various sources of capital, including internally generated cash flow, existing credit facilities, additional debt borrowings, or the issuance of additional debt or equity securities or any combination thereof.

As at June 30, 2014, our revolving credit facilities provided for borrowings of up to $2.5 billion, of which $0.9 billion was undrawn. The amount available under these revolving credit facilities reduces by $612.6 million (remainder of 2014), $316.2 million (2015), $740.2 million (2016), $463.7 million (2017) and $355.7 million (2018). The revolving credit facilities are collateralized by first-priority mortgages granted on 55 of our vessels, together with other related security, and are guaranteed by us or our subsidiaries.

Our outstanding term loans reduce in monthly, quarterly or semi-annual payments with varying maturities through 2023. Some of the term loans also have bullet or balloon repayments at maturity and are collateralized by first-priority mortgages granted on 35 of our vessels, together with other related security, and are generally guaranteed by us or our subsidiaries.

Among other matters, our long-term debt agreements generally provide for maintenance of minimum consolidated financial covenants and five loan agreements that require the maintenance of vessel market value to loan ratios. As at June 30, 2014, these ratios ranged from 141.0% to 481.5% compared to their minimum required ratios of 105% to 120%, respectively. The vessel values used in these ratios are the appraised values prepared by us based on second hand sale and purchase market data. A further delay in the recovery of the conventional tanker market and a weakening of the LNG/LPG carrier market could negatively affect the ratios. Certain loan agreements require that a minimum level of free cash be maintained and as at June 30, 2014 this amount was $100.0 million. 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 from 5% to 7.5% of total debt. As at June 30, 2014, this aggregate amount was $377.1 million. We were in compliance with all of our loan covenants at June 30, 2014.

We conduct our funding and treasury activities within 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 and, at times, 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.”

Cash Flows

The following table summarizes our cash and cash equivalents provided by (used for) operating, financing and investing activities for the periods presented:


	Six Months Ended June 30,
(in thousands of U.S. Dollars)	2014			2013
Net operating cash flows		201,529			66,824
Net financing cash flows		458,658			286,036
Net investing cash flows		(525,947	)		(452,145	)

Operating Cash Flows

Our 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 drydocking 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 and more recently as a result of an increase in tanker supply and the reduction in global oil demand that was caused by a slow-down in global economic activity that began in late-2008. In addition, the production performance of our FPSO units has contributed to fluctuations in operating cash flows.

Page 40 of 51

Net cash flow from operating activities increased to $201.5 million for the six months ended June 30, 2014, from $66.8 million for the six months ended June 30, 2013. This increase was primarily due to an increase in changes to non-cash working capital items of $53.1 million, primarily due to the timing of collections of receivables and deferred revenue received mainly relating to our FPSO unit which was under construction, and a $86.1 million net increase in income from vessel operations before depreciation, amortization, asset impairments, loan loss (recoveries) provisions, net gain on sale of vessels and equipment and the amortization of in-process revenue contracts of our four reportable segments, primarily as a result of increased operating cash flows from our shuttle and FSO and conventional tanker segments. The increases in cash flow were partially offset by an increase of $9.4 million on expenditures for dry docking in the six months ended June 30, 2014, compared to 2013, due to more vessels dry-docked in 2014 compared to 2013. In addition, there was a $6.1 million increase in interest expense (net of interest income and including realized losses on interest rate swaps and interest rate swaps terminations) in the six months ended June 30, 2014 compared to 2013.

For further discussion of our four reportable segments, please read “—Results of Operations.”

Financing Cash Flows

We have three publicly-traded subsidiaries, Teekay LNG, Teekay Offshore and Teekay Tankers (collectively, the Daughter Companies), in which we have less than 100% ownership interests. It is our intention that the Daughter Companies hold most of our liquefied gas transportation assets (Teekay LNG), our offshore assets, including shuttle tankers, FPSO units and FSO units (Teekay Offshore), 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 lines of 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 typically finance acquisitions, including acquisitions of assets from Teekay, with a combination of debt and new equity from public or private investors (or equity issuances to Teekay) or the assumption of debt related to acquired vessels. As the sizes of the Daughter Companies have grown through acquisitions, the amounts of the operating cash flows at the Daughter Companies generally have increased, which has resulted in larger aggregate distributions. Consequently, aggregate distributions from the Daughter Companies to non-controlling interests have increased to $155.6 million in the six months ended June 30, 2014 from $125.7 million in the same period last year.

We use our revolving credit facilities to finance capital expenditures. Occasionally, we will do this 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. Our proceeds from the issuance of long-term debt, net of debt issuance costs and prepayments of long-term debt, was $1.2 billion in the six months ended June 30, 2014, and $460.1 million in the same period last year. We primarily used the net proceeds from drawing on undrawn revolvers to fund our newbuilding installments and capital expenditures.

We actively manage the maturity profile of our outstanding financing arrangements. Our scheduled repayments of long-term debt were $613.5 million in the six months ended June 30, 2014, compared to $229.0 million in the same period last year.

In October 2010, Teekay announced a $200 million share repurchase program. We repurchased no shares of common stock during the six months ended June 30, 2014 and 2013. As at June 30, 2014, the total remaining amount under the share repurchase authorization was $37.7 million.

Dividends we paid on our common stock during the six months ended June 30, 2014 were $45.2 million, compared to $45.3 million for the six months ended June 30, 2013, or $0.6325 per share for each period. Subject to financial results and declaration by our Board of Directors, we currently intend to continue to declare and pay a regular quarterly dividend on our common stock. We have paid a quarterly dividend since 1995.

Investing Cash Flows

During the six months ended June 30, 2014, we incurred capital expenditures for vessels and equipment of $602.3 million, primarily for capitalized vessel modifications and shipyard construction installment payments on our five LNG carriers, four newbuilding ALP towage vessels, two FSO conversions and the installment payments of one FPSO unit which was under construction. In addition, we invested $50.6 million in our equity accounted investees, primarily related to TIL, $54.8 million in the Hi-Load dynamic positioning unit as a direct finance lease and we were repaid $6.2 million of advances from our equity-accounted investees. We received proceeds of $165.1 million from the sale of four 2009-built Suezmax tankers and two single-ship wholly-owned subsidiaries, each of which owns one VLCC.

During the six months ended June 30, 2013, we incurred capital expenditures for vessels and equipment of $320.0 million, primarily for capitalized vessel modifications and shipyard construction installment payments on our newbuilding shuttle tankers, two LNG carriers and the installment payments and conversion costs of our FPSO units under construction or conversion. We received aggregate net proceeds of $39.6 million from the sales of a 1992-built shuttle tanker, a 1992-built conventional tanker, a 1995-built conventional tanker, a 1998-built conventional tanker and sub-sea equipment from the Petrojarl I FPSO unit. In addition, we invested $136.4 million in our equity accounted investees, primarily related to the Exmar LPG BVBA Joint Venture (including working capital contribution and acquisition costs), and advanced $41.5 million to our equity-accounted investees.

CONTRACTUAL OBLIGATIONS AND CONTINGENCIES

The following table summarizes our long-term contractual obligations as at June 30, 2014:


			Remainder		2015		2017
			of		and		and		Beyond
	Total		2014		2016		2018		2018
	In millions of U.S. Dollars
U.S. Dollar-Denominated Obligations:
Long-term debt ⁽¹⁾		5,553.7		655.8		1,146.0		1,675.8		2,076.1
Chartered-in vessels (operating leases)		85.0		34.5		41.0		9.5		—
Commitments under capital leases ⁽²⁾		104.1		30.4		15.5		58.2		—
Commitments under capital leases⁽³⁾		941.1		12.0		48.0		48.0		833.1
Commitments under operating leases⁽⁴⁾		355.8		12.1		48.2		48.2		247.3
Newbuilding installments/conversion/shipbuilding supervision⁽⁵⁾⁽⁶⁾		1,318.9		137.5		735.6		436.7		9.1
Asset retirement obligation		29.2		—		—		—		29.2

Total U.S. Dollar-Denominated Obligations		8,387.8		882.3		2,034.3		2,276.4		3,194.8

Euro-Denominated Obligations: ⁽⁷⁾
Long-term debt ⁽⁸⁾		330.8		8.4		36.5		182.7		103.2

Total Euro-Denominated Obligations		330.8		8.4		36.5		182.7		103.2

Norwegian Kroner-Denominated Obligations: ⁽⁷⁾
Long-term debt ⁽⁹⁾		847.9		—		195.7		489.1		163.1

Total Norwegian Kroner-Denominated Obligations		847.9		—		195.7		489.1		163.1

Total		9,566.5		890.7		2,266.5		2,948.2		3,461.1

(1)

Excludes expected interest payments of $93.9 million (remainder of 2014), $262.7 million (2015 and 2016), $197.4 million (2017 and 2018) and $154.7 million (beyond 2018). Expected interest payments are based on the existing interest rates (fixed-rate loans) and LIBOR at June 30, 2014, plus margins on debt that has been drawn that range up to 4.5% (variable-rate loans). The expected interest payments do not reflect the effect of related interest rate swaps that we have used as an economic hedge on certain of our floating-rate debt. The above does not include received commitments to refinance $330.0 million of revolving credit facilities coming due during the remainder of 2014. Teekay Offshore expects the refinancing to be completed in September 2014, and the amount available under the new revolving credit facility will reduce quarterly by $16.5 million per quarter over five years.

Page 41 of 51

(2)

Includes, in addition to lease payments, amounts we may be required to pay to purchase three leased vessels from 2014 to the end of the period when cancellation options are first exercisable. The owner of the Huelva Spirit sold the vessel to a third party in August 2014. The purchase price for any vessels we are 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 to satisfy any such purchase price by assuming the existing vessel financing, although we may be required to obtain separate debt or equity financing to complete any purchases if the lenders do not consent to our assuming the financing obligations. Please read “Item 1 – Financial Statements: Note 5 – Vessel Charters.”

(3)	Existing restricted cash deposits of $475.8 million, together with the interest earned on these deposits, are expected to be sufficient to repay the remaining amounts we currently owe under the lease arrangements.

(4)	We have corresponding leases whereby we are the lessor. We expect to receive approximately $318.1 million under these leases from 2014 to 2029.

(5)

Represents remaining construction costs (excluding capitalized interest and miscellaneous construction costs) for five LNG carriers, four ALP towage vessels and two FSO conversions as of June 30, 2014. Please read “Item 1 – Financial Statements: Note 10 (a) – Commitments and Contingencies – Vessels Under Construction.” As part of the acquisition of an ownership interest in the BG Joint Venture, Teekay LNG agreed to assume BG’s obligation to provide shipbuilding supervision and crew training services for the four LNG carrier newbuildings and to fund its proportionate share of newbuilding installments. The estimated costs for the shipbuilding supervision and crew training services and our proportionate share of newbuilding installments, net of the secured financing within the joint venture for the LNG carrier newbuildings, totaled $91.9 million. However, as part of this agreement with BG, Teekay LNG expects to recover approximately $20.3 million of the shipbuilding supervision and crew training costs from BG between 2015 and 2019.

(6)

The table above excludes 10 LPG newbuilding carriers scheduled for delivery between late-2014 and 2018 in the Exmar LPG BVBA joint venture between Exmar and Teekay LNG. As at June 30, 2014, Teekay LNG’s 50% share of the remaining cost for these 10 newbuildings totaled $195.7 million, excluding estimated interest and construction supervision fees. Two of the newbuilding LPG carriers delivered during the second quarter of 2014.

(7)	Euro-denominated and Norwegian-denominated obligations are presented in U.S. Dollars and have been converted using the prevailing exchange rate as of June 30, 2014.

(8)

Excludes expected interest payments of $2.7 million (remainder of 2014), $10.1 million (2015 and 2016), $7.2 million (2017 and 2018) and $2.7 million (beyond 2018). Expected interest payments are based on EURIBOR at June 30, 2014, plus margins that range up to 2.25%, as well as the prevailing U.S. Dollar/Euro exchange rate as of June 30, 2014. The expected interest payments do not reflect the effect of related interest rate swaps that we have used as an economic hedge of certain of our variable-rate debt.

(9)

Excludes expected interest payments of $27.4 million (remainder of 2014), $94.2 million (2015 and 2016), $47.2 million (2017 and 2018) and $0.8 million (beyond 2018). Expected interest payments are based on NIBOR at June 30, 2014, plus a margin between 4.00% to 5.75%, as well as the prevailing U.S. Dollar/Norwegian Kroner exchange rate as of June 30, 2014. The expected interest payments and principal repayments do not reflect the effect of the related cross currency swap that we have used as an economic hedge of our foreign exchange and interest rate exposure associated with our Norwegian Kroner-denominated long-term debt.

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 23 – Equity Accounted Investments” of our Annual Report on Form 20-F for the year ended December 31, 2013.

Page 42 of 51

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 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, 2013. There have been no significant changes in accounting estimates and assumptions from those discussed in the Form 20-F.

Goodwill

At June 30, 2014, the shuttle tanker segment and liquefied gas segment had goodwill attributable to them. Based on conditions that existed at June 30, 2014, we do not believe that there is a reasonable possibility that the goodwill attributable to these reporting units might be impaired for the remainder of the year. 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 are discussed in more detail in the following section entitled “Forward-Looking Statements.”

Valuation of Derivative Financial Instruments

Description. Our risk management policies permit the use of derivative financial instruments to manage foreign currency fluctuation, interest rate, bunker fuel price and spot tanker market rate risk. In addition, we have stock purchase warrants, a type of option agreement, to acquire up to an additional 1.5 million shares of TIL’s common stock at a fixed price. See “Item 1 – Financial Statements: Note 15 – Derivative Instruments and Hedging Activities”. Changes in fair value of derivative financial instruments that are not designated as cash flow hedges for accounting purposes are recognized in earnings in the consolidated statement of (loss) income. Changes in fair value of derivative financial instruments that are designated as cash flow hedges for accounting purposes are recorded in other comprehensive (loss) income and are reclassified to earnings in the consolidated statement of (loss) income when the hedged transaction is reflected in earnings. Ineffective portions of the hedges are recognized in earnings as they occur. During the life of the hedge, we formally assess whether each derivative designated as a hedging instrument continues to be highly effective in offsetting changes in the fair value or cash flows of hedged items. If we determine that a hedge has ceased to be highly effective, we will discontinue hedge accounting prospectively.

Judgments and Uncertainties. A substantial majority of the fair value of our derivative instruments and the change in fair value of our derivative instruments from period to period result from our use of interest rate swap agreements and our holding of stock purchase warrants. The fair value of our derivative instruments is the estimated amount that we would receive or pay to terminate the agreements in an arm’s length transaction under normal business conditions at the reporting date, taking into account current interest rates, foreign exchange rates and the current credit worthiness of us and the swap counterparties. The estimated amount is the present value of estimated future cash flows, being equal to the difference between the benchmark interest rate and the fixed rate in the interest rate swap agreement, multiplied by the notional principal amount of the interest rate swap agreement at each interest reset date. For the stock purchase warrants, we take into account the stock price of TIL, the expected volatility of the TIL stock price and an estimate of the risk-free rate over the term of the warrants.

The fair value of our interest rate swap agreements at the end of each period is most significantly impacted by the interest rate implied by the benchmark interest rate yield curve, including its relative steepness. Interest rates have experienced significant volatility in recent years in both the short and long term. While the fair value of our interest rate swap agreements is typically more sensitive to changes in short-term rates, significant changes in the long-term benchmark interest rate also materially impact our interest rate swap agreements.

The fair value of our interest rate swap agreements is also impacted by changes in our specific credit risk included in the discount factor. We discount our interest rate swap agreements with reference to the credit default swap spreads of similarly rated global industrial companies and by considering any underlying collateral. The process of determining credit worthiness requires significant judgment in determining which source of credit risk information most closely matches our risk profile.

The benchmark interest rate yield curve and our specific credit risk are expected to vary over the life of the interest rate swap agreements. The larger the notional amount of the interest rate swap agreements outstanding and the longer the remaining duration of the interest rate swap agreements, the larger the impact of any variability in these factors will be on the fair value of our interest rate swaps. We economically hedge the interest rate exposure on a significant amount of our long-term debt and for long durations. As such, we have historically experienced, and we expect to continue to experience, material variations in the period-to-period fair value of our derivative instruments.

The fair value of our stock purchase warrants at the end of each period is most significantly impacted by the stock price of TIL and the expected future volatility of the TIL stock price. TIL seeks to opportunistically acquire, operate and sell modern second hand tankers to benefit from an expected recovery in the current cyclical low of the tanker market. Pending such transactions, TIL is employing its oil tankers on the spot market. Historically, the tanker industry has been cyclical, experiencing volatility in profitability due to changes in the supply of and demand for tanker capacity and changes in the supply of and demand for oil and oil products. The cyclical nature of the tanker industry may cause significant increases or decreases in the value of TIL’s vessels, TIL’s stock price and the value of the stock purchase warrants we hold.

Effect if Actual Results Differ from Assumptions. Although we measure the fair value of our derivative instruments utilizing the inputs and assumptions described above, if we were to terminate the agreements or sell the stock purchase warrants at the reporting date, the amount we would pay or receive to terminate the derivative instruments and the amount we would receive upon sale of the stock purchase warrants may differ from our estimate of fair value. If the estimated fair value differs from the actual termination amount, an adjustment to the carrying amount of the applicable derivative asset or liability would be recognized in earnings for the current period. Such adjustments could be material. See “Item 1 – Financial Statements: Note 15 – Derivative Instruments and Hedging Activities” for the effects on the change in fair value of our derivative instruments on our consolidated statements of income.

Page 43 of 51

FORWARD-LOOKING STATEMENTS

This Report on Form 6-K for the three and six months ended June 30, 2014 contains certain forward-looking statements (as such term is defined in Section 21E of the Securities Exchange Act of 1934, as amended) concerning future events and our operations, performance and financial condition, including, in particular, statements regarding:

•

our future financial condition or results of operations and future revenues and expenses;

•

tanker market conditions and fundamentals, including the balance of supply and demand in these markets and spot tanker charter rates and oil production;

•

the relative size of the newbuilding orderbook and the pace of future newbuilding orders in the tanker industry generally;

•

offshore, LNG and LPG market conditions and fundamentals, including the balance of supply and demand in these markets;

•

our future growth prospects;

•

future capital expenditure commitments and the financing requirements for such commitments;

•

expected costs and delivery dates of and financing for newbuildings, acquisitions and conversions including the FAUs and towage vessels, and the commencement of service of newbuildings under long-term time-charter contracts;

•

the expected repair and insurance coverage and the cost and recovery from the charterer of certain capital upgrade costs of the Petrojarl Banff FPSO unit and the Apollo Spirit storage tanker related to storm damage to the vessels which occurred in December 2011;

•

the ability of TIL to benefit from the cyclical tanker market, and its expected use of proceeds from recent equity issuances;

•

our ability to obtain charter contracts for newbuildings;

•

the cost of supervision contract and crew training in relation to the BG Joint Venture;

•

our expectation that we will not record a gain or loss on future sales of vessels under capital lease;

•

the exercise of any counterparty’s rights to terminate a lease, or to obligate us to purchase a leased vessel, or failure to exercise such rights, including the rights under the leases and charters for three of Teekay LNG’s Suezmax tankers;

•

the future valuation or impairment of goodwill;

•

our expectations as to any impairment of our vessels;

•

the adequacy of restricted cash deposits to fund capital lease obligations;

•

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;

•

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;

•

the effectiveness of our risk management policies and procedures and the ability of the counterparties to our derivative contracts to fulfill their contractual obligations;

•

the impact of future regulatory changes or environmental liabilities;

•

the expected resolution of legal claims against us;

•

the impact on us of our acquisition of ALP;

•

expected uses of proceeds from vessel or securities transactions;

•

features and performance of next generation of HiLoad dynamic positioning units;

•

the impact of our restructuring activities;

•

anticipated funds for liquidity needs and the sufficiency of cash flows;

•

our expectations regarding whether the UK taxing authority can successfully challenge the tax benefits available under certain of our leasing arrangements, and the potential financial exposure to us if such a challenge is successful;

Page 44 of 51

•

our hedging activities relating to foreign exchange, interest rate and spot market risks;

•

our business strategy and other plans and objectives for future operations; and

•

our ability to pay dividends on our common stock.

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: 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; 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; changes in the typical seasonal variations in tanker charter rates; changes in the offshore production of oil or demand for shuttle tankers, FSOs and FPSOs; 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 obtain, renew or replace long-term contracts; shipyard production or vessel conversion delays and cost overruns; changes in our expenses; our future capital expenditure requirements and the inability to secure financing for such requirements; 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 Russia and Russian entities and individuals, which may affect partners in the project; potential delays or cancellation of the Yamal LNG project; potential inability to obtain charters or financing related to two FAUs or financing related to FAUs and towage vessels; inherent uncertainties involving litigation and claims; conditions in the capital markets and lending markets; 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, 2013. 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.

Page 45 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

JUNE 30, 2014

PART I – FINANCIAL INFORMATION

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. Please read “Item 1 – Financial Statements: Note 15 – 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, drydocking and overhead costs in foreign currencies, the most significant of which are the Australian Dollar, 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 by entering into foreign currency forward contracts. In most cases, we hedge our net foreign currency exposure for the following 9 to 12 months. We generally do not hedge our net foreign currency exposure beyond three years forward.

As at June 30, 2014, we had the following foreign currency forward contracts:


	Contract Amount in Foreign Currency ⁽¹⁾		Average Forward Rate ⁽²⁾		Fair Value / Carrying Amount of Asset (Liability)⁽³⁾$			Expected Maturity
	Contract Amount in Foreign Currency ⁽¹⁾		Average Forward Rate ⁽²⁾		Fair Value / Carrying Amount of Asset (Liability)⁽³⁾$			2014⁽³⁾ $		2015⁽³⁾ $
Norwegian Kroner		667,700		6.15		(400	)		54,930		53,599
Singapore Dollar		6,000		1.26		46			4,767		—

						(354	)		59,697		53,599

(1)	Foreign currency contract amounts in thousands.

(2)	Average contractual exchange rate represents the contractual 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 June 30, 2014, we had Euro-denominated term loans of 241.7 million Euros ($330.8 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, 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 2015 through 2019. In addition, the cross currency swaps economically hedge the interest rate exposure on the NOK bonds due in 2015 through 2019. We have not designated, for accounting purposes, these cross currency swaps as cash flow hedges of its NOK-denominated bonds due in 2015 through 2019. As at June 30, 2014, we were committed to the following cross currency swaps:


Notional	Notional	Floating Rate Receivable				Fixed
Amount	Amount	Reference				Rate						Remaining
NOK⁽¹⁾	USD⁽¹⁾	Rate	Margin			Payable			Fair Value			Term (years)
700,000	122,800	NIBOR		4.75	%		5.52	%		(9,537	)	1.3
500,000	89,700	NIBOR		4.00	%		4.80	%		(8,943	)	1.6
600,000	101,400	NIBOR		5.75	%		7.49	%		(6,337	)	2.6
700,000	125,000	NIBOR		5.25	%		6.88	%		(14,513	)	2.8
800,000	143,500	NIBOR		4.75	%		5.93	%		(14,285	)	3.6
900,000	150,000	NIBOR		4.35	%		6.43	%		(7,505	)	4.2
1,000,000	162,200	NIBOR		4.25	%		6.28	%		(2,621	)	4.6

										(63,741	)

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

Page 46 of 51

Interest Rate Risk

We are exposed to the impact of interest rate changes primarily through our borrowings that require us to make interest payments based on LIBOR 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 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 debt based on our outlook for interest rates and other factors. We have not designated any of our interest rate swap agreements in our consolidated entities as cash flow hedges for accounting purposes.

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 June 30, 2014, 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
	Balance of																					Asset /
	2014			2015			2016			2017			2018			Thereafter			Total			(Liability)			Rate⁽¹⁾
	(in millions of U.S. dollars)
Long-Term Debt:
Variable Rate ($U.S.)⁽²⁾⁽³⁾		633.6			405.4			649.2			783.7			807.0			1,183.9			4,462.8			(4,513.8	)		1.9	%
Variable Rate (Euro)⁽⁴⁾⁽⁵⁾		8.4			17.6			18.9			20.3			162.4			103.2			330.8			(313.4	)		1.7	%
Variable Rate (NOK)⁽⁵⁾⁽⁶⁾		—			114.1			81.6			212.0			277.1			163.1			847.9			(1,185.6	)		6.5	%

Fixed-Rate Debt ($U.S.)		22.2			45.1			46.3			38.7			46.4			892.2			1,090.9			(691.3	)		6.7	%
Average Interest Rate		5.2	%		5.1	%		5.1	%		5.2	%		5.2	%		7.1	%		6.7	%

Capital Lease Obligations⁽⁷⁾
Fixed-Rate ($U.S.)⁽⁸⁾		28.4			4.4			4.5			28.3			26.3			—			91.9			(91.9	)		6.2	%
Average Interest Rate⁽⁹⁾		7.9	%		5.4	%		5.4	%		4.6	%		6.4	%		—			6.2	%

Interest Rate Swaps:
Contract Amount ($U.S.)^(7)(10)		487.2			415.4			806.5			489.3			348.8			1,606.4			4,153.6			(369.6	)		3.6	%
Average Fixed Pay Rate⁽³⁾		3.4	%		3.6	%		2.7	%		3.8	%		3.1	%		4.1	%		3.6	%
Contract Amount (Euro)^(5)(11)		8.4			17.6			18.9			20.3			162.4			103.2			330.8			(44.0	)		3.1	%
Average Fixed Pay Rate⁽⁴⁾		3.1	%		3.1	%		3.1	%		3.1	%		2.6	%		3.8	%		3.1	%

(1)

Rate refers to the weighted-average effective interest rate for our long-term debt and capital lease obligations, including the margin we pay on our floating-rate, which, as of June 30, 2014, ranged from 0.3% to 4.5%. 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. Please read “Item 1 – Financial Statements: Note 8 – Long-Term Debt”.

(2)	Interest payments on U.S. Dollar-denominated debt and interest rate swaps are based on LIBOR. The average fixed pay rate for our interest rate swaps excludes the margin we pay on our floating-rate debt.

(3)

Does not include commitments received to refinance $330.0 million of revolving credit facilities coming due during the remainder of 2014. Teekay Offshore expects the refinancing to be completed in September 2014, and the amount available under the new revolving credit facility will reduce quarterly by $16.5 million per quarter over five years.

(4)	Interest payments on Euro-denominated debt and interest rate swaps are based on EURIBOR.

(5)	Euro-denominated and NOK-denominated amounts have been converted to U.S. Dollars using the prevailing exchange rate as of June 30, 2014.

(6)

Interest payments on our NOK-denominated debt and on our cross currency swaps are based on NIBOR. Our NOK-denominated debt have been economically hedged with 15 cross currency swaps, to swap all interest and principal payments at maturity into U.S. Dollars, with the interest payments fixed at a rate between 4.80% to 7.49% and interest rate payments swapped from NIBOR plus a margin between 4.00% to 5.75% and the transfer of principal fixed between $89.7 million to $162.2 million upon maturity in exchange for NOK 500 million to NOK 1 billion.

Page 47 of 51

(7)

Under the terms of the capital leases for three LNG carriers (or the RasGas II LNG Carriers), (see “Item 1 – Financial Statements: Note 5 – Vessel Charters”), we are required to have on deposit, subject to a variable rate of interest, an amount of cash that, together with interest earned on the deposit, will equal the remaining amounts owing under the variable-rate leases. The deposits, which as at June 30, 2014 totaled $475.8 million, and the lease obligations, which as at June 30, 2014 totaled $473.2 million, have been swapped for fixed-rate deposits and fixed-rate obligations. Consequently, we are not subject to interest rate risk from these obligations and deposits and, therefore, the lease obligations, cash deposits and related interest rate swaps have been excluded from the table above. As at June 30, 2014, the contract amount, fair value and fixed interest rates of these interest rate swaps related to the RasGas II LNG Carriers capital lease obligations and restricted cash deposits were $400.8 million and $469.1 million, ($91.5) million and $121.3 million, and 4.9% and 4.8%, respectively.

(8)	The amount of capital lease obligations represents the present value of minimum lease payments together with our purchase obligations, as applicable.

(9)

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.

(10)	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.

(11)	The average variable receive rate for our Euro-denominated interest rate swaps is set at the 1-month EURIBOR.

Equity Price Risk

We and Teekay Tankers are exposed to the changes in the stock price of TIL. We and Teekay Tankers have stock purchase warrants entitling us and Teekay Tankers to purchase an aggregate of up to 1.5 million shares of common stock of TIL at a fixed price of $10 per share. The stock purchase warrants vest in four equally sized tranches. Each tranche will vest and become exercisable when and if the fair market value of a share of the Common Stock equals or exceeds $12.50, $15.00, $17.50 and $20.00 (or the NOK equivalent), respectively, for such tranche for any ten consecutive trading days. The stock purchase warrants expire on January 23, 2019.

Page 48 of 51

TEEKAY CORPORATION AND SUBSIDIARIES

JUNE 30, 2014

PART II – OTHER INFORMATION

Item 1 – Legal Proceedings

See Item 1 – Financial Statements: Note 10(c) to the unaudited consolidated financial statements included in this Report.

Item 1A – Risk Factors

In addition to the other information set forth in this Report on Form 6-K and the risk factors described below, 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, 2013, which could materially affect our business, financial condition or results of operations.

The LNG carrier newbuildings for the Yamal LNG Project are customized vessels and our financial condition and results of operations could be substantially affected if the Yamal LNG Project is not completed.

The LNG carrier newbuildings ordered by the Yamal LNG Joint Venture will be specifically built for the Arctic requirements of the Yamal LNG Project and will have limited redeployment opportunities to operate as conventional trading LNG carriers if the project is abandoned or cancelled. If the project is abandoned or cancelled for any reason, either before or after commencement of operations, the Yamal LNG Joint Venture may be unable to reach a settlement agreement with the shipyard allowing for the termination of the shipbuilding contracts (given that no such optional termination right exists thereunder), change the vessel specifications to reflect those applicable to more conventional LNG carriers and which do not incorporate ice-breaking capabilities, or find suitable alternative employment for the newbuilding vessels on a long-term basis with other LNG projects or otherwise.

The Yamal LNG Project may be abandoned or not completed for various reasons, including, among others:

•

failure of the project to obtain debt financing;

•

failure to achieve expected operating results;

•

changes in demand for LNG;

•

adverse changes in Russian regulations or governmental policy relating to the project or the export of LNG;

•

technical challenges of completing and operating the complex project, particularly in extreme Arctic conditions;

•

labor disputes; and

•

environmental regulations or potential claims.

If the project is not completed or is abandoned, proceeds from limited Yamal LNG project sponsor guarantees and potential alternative employment, if any, of the vessels and from potential sales of components and scrapping of the vessels likely would fall substantially short of the cost to the Yamal LNG Joint Venture of the vessels. Any such shortfall could have a material adverse effect on our financial condition and results of operations.

Sanctions against key participants in the Yamal LNG Project could impede completion or performance of the Yamal LNG Project, which could have a material adverse effect on us.

The U.S. Treasury Department’s Office of Foreign Assets Control (or OFAC) recently placed Russia-based Novatek OAO (or Novatek), a 60% owner of the Yamal LNG Project, on the Sectoral Sanctions Identifications List. OFAC also previously imposed sanctions on an investor in Novatek, which sanctions remain in effect. The restrictions on Novatek prohibit U.S. persons from participating in debt financing transactions of greater than 90 day maturity by Novatek and, by virtue of Novatek’s 60% ownership interest, the Yamal LNG Project. To the extent the Yamal LNG Project or Novatek are dependent on financing involving participation by U.S. persons, these OFAC actions could have a material adverse effect on the ability of the Yamal LNG Project to be completed or perform as expected. Effective August 1, 2014, the European Union also imposed certain sanctions on Russia. These sanctions require an European Union license or authorization before a party can provide certain technologies or technical assistance, financing, financial assistance, or brokering with regards to these technologies. These technologies appear to focus on oil exploration projects, not gas projects. Furthermore, OFAC and other governments or organizations may impose additional sanctions on Novatek, the Yamal LNG Project or other project participants, which may further hinder the ability of the Yamal LNG Project to receive necessary financing. Although Teekay LNG believes that it is in compliance with all applicable sanctions laws and regulations, and intends to maintain such compliance, these sanctions have recently been imposed and the scope of these laws may be subject to changing interpretation. Future sanctions may prohibit the Yamal LNG Joint Venture from performing under its contracts with the Yamal LNG Project, which could have a material adverse effect on our financial condition and results of operations and on Teekay LNG’s ability to make distributions to us.

Failure of the Yamal LNG Project to achieve expected results could lead to a default under the time-charter contracts by the charter party.

The charter party under the Yamal LNG Joint Venture’s time-charter contracts for the Yamal LNG Project is Yamal Trade Pte. Ltd., a wholly-owned subsidiary of Yamal LNG, the project’s sponsor. If the Yamal LNG Project does not achieve expected results, the risk of charter party default may increase. Any such default could adversely affect Teekay LNG’s results of operations and its ability to make distributions to us. If the charter party defaults on the time-charter contracts, Teekay LNG may be unable to redeploy the vessels under other time-charter contracts or may be forced to scrap the vessels.

Page 49 of 51

Neither the Yamal LNG Joint Venture nor Teekay LNG’s joint venture partner may be able to obtain financing for the six LNG carrier newbuildings for the Yamal LNG Project.

The Yamal LNG Joint Venture does not have in place financing for the six LNG carrier newbuildings that will service the Yamal LNG Project. The estimated total fully built-up cost for the vessels is approximately $2.1 billion. If the Yamal LNG Joint Venture is unable to obtain debt financing for the vessels on acceptable terms, if at all, or if Teekay LNG’s joint venture partner fails to fund its portion of the newbuilding financing, Teekay LNG may be unable to purchase the vessels and participate in the Yamal LNG Project.

Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds

None

Item 3 – Defaults Upon Senior Securities

None

Item 4 – Mine Safety Disclosures

None

Item 5 – Other Information

The Company’s 2014 Annual Meeting of Shareholders was held on June 11, 2014. The following persons were elected directors for a term of three years by the votes set forth opposite their names:

Terms Expiring in 2016

Votes For

Votes Against
or Withheld

Shares which
Abstained

Broker
Non-Votes

Thomas Kuo-Yuen Hsu

61,910,923

246,360

N/A

Axel Karlshoej

62,084,622

72,661

N/A

Bjorn Moller

62,115,723

41,560

N/A

Peter Evensen

61,522,850

634,433

N/A

The terms of Directors William B. Berry, Dr. Ian D. Blackburne, C. Sean Day, Peter S. Janson, Eileen A. Mercier and Tore I. Sandvold continued after the meeting.

Item 6 – Exhibits

4.1	Agreement, dated February 24, 2014 for a U.S. $815,000,000 Secure Term Loan Facility Agreement among Knarr L.L.C., Citibank, N.A. and others.

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. 33-97746) FILED WITH THE SEC ON OCTOBER 4, 1995;

•

REGISTRATION STATEMENT ON FORM F-3 (FILE NO. 333-192753) FILED WITH THE SEC ON DECEMBER 10, 2013;

•

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; AND

•

REGISTRATION STATEMENT ON FORM S-8 (FILE NO. 333-187142) FILED WITH THE SEC ON MARCH 8, 2013.

Page 50 of 51

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: September 2, 2014	By:	/s/ Vincent Lok
		Vincent Lok
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

Page 51 of 51

Exhibit 4.1


Private & Confidential		Execution version

Dated 24 February 2014

KNARR L.L.C.

(as Borrower)

and

THE EXPORT-IMPORT BANK OF KOREA,

CITIBANK N.A., LONDON BRANCH

and others

(as Facility Lenders)

and

CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK

(as Facility Agent)

and

CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK

(as Facility Security Trustee)

and

CITIBANK N.A., LONDON BRANCH

and others

(as Mandated Lead Arrangers)

and

CITIBANK N.A., LONDON BRANCH

(as sole Bookrunner)

and

CITIBANK N.A., LONDON BRANCH

and others

(as Hedging Providers)

and

CITIBANK N.A., LONDON BRANCH

(as K-Sure Agent)

and

CITIBANK N.A., LONDON BRANCH

(as GIEK Agent)

and

KOREA EXCHANGE BANK, INVESTMENT BANKING DIVISION

(as KEXIM Guarantee Agent)

SECURED TERM LOAN FACILITY

of up to $815,000,000 in respect

of the FPSO with hull number HN1951 to be known as

“Petrojarl Knarr”

LOGO

Contents


Clause		Page

1	Definitions and Interpretation		2

2	The Loan and its Purposes		3

3	Conditions of Utilisation		3

4	Advance		6

5	Repayment		7

6	Prepayment		8

7	Interest		13

8	Indemnities		16

9	Fees		20

10	Security and Application of Moneys		21

11	Representations and Warranties		23

12	Undertakings and Covenants		27

13	Events of Default		34

14	Assignment and Sub-Participation		38

15	The Facility Agent, the K-Sure Agent, the GIEK Agent, the KEXIM Guarantee Agent, the Facility Security Trustee and the Facility Lenders		42

16	Set-Off		56

17	Payments		56

18	Notices		59

19	Partial Invalidity		61

20	Remedies and Waivers		61

21	Miscellaneous		62

22	Law and Jurisdiction		63

Schedule 1 Part 1: The Facility Lenders and the Commitments			65

Part 2: The Hedging Providers			73

Part 3: The MLAs			74

Schedule 2			76


Part 1: conditions precedent to first Advance			76

Part 2: Conditions precedent to second Advance			80

Part 3: Conditions precedent to final Advance			81

Part 4: Conditions subsequent			84

Part 5: Conditions precedent to a Dropdown Date and/or Additional Sponsor Date			85

Schedule 3 Calculation of Mandatory Cost			87

Schedule 4 Form of Drawdown Notice			88

Schedule 5 Form of Transfer Certificate			89

Schedule 6 Schedule of Repayment Amounts			92

Schedule 7 Definitions			95

Schedule 8 Budget			122

Schedule 9 Form of Accession Deed			123

LOAN AGREEMENT (this Agreement) dated 24 February 2014

BETWEEN:

(1)	KNARR L.L.C., a limited liability company formed in the Marshall Islands whose registered office is at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, MH 96960, Marshall Islands (the Borrower);

(2)	The financial institutions listed in Schedule 1, Part 1 as KEXIM facility lenders, each acting through its office at the address indicated against its name in Schedule 1, Part 1 (together the KEXIM Facility Lender);

(3)	The financial institutions listed in Schedule 1, Part 1 as KEXIM guarantee facility lenders, each acting through its office at the address indicated against its name in Schedule 1, Part 1 (together the KEXIM Guarantee Facility Lenders and each a KEXIM Guarantee Facility Lender);

(4)	The banks listed in Schedule 1, Part 1 as K-Sure facility lenders, each acting through its office at the address indicated against its name in Schedule 1, Part 1 (together the K-Sure Facility Lenders and each a K-Sure Facility Lender);

(5)	The banks listed in Schedule 1, Part 1 as commercial facility lenders, each acting through its office at the address indicated against its name in Schedule 1, Part 1 (together the Commercial Facility Lenders and each a Commercial Facility Lender);

(6)	The banks listed in Schedule 1, Part 1 as GIEK facility lenders, each acting through its office at the address indicated against its name in Schedule 1, Part 1 (together the GIEK Facility Lender);

(7)	CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK acting as Facility Agent (in that capacity the Facility Agent);

(8)	The banks listed in Schedule 1, Part 3 acting as mandated lead arrangers (in that capacity the MLAs);

(9)	CREDIT AGRICOLE CORPORATE AND INVESTMENT BANK acting as Facility Security Trustee (in that capacity the Facility Security Trustee);

(10)	CITIBANK N.A., LONDON BRANCH acting as sole bookrunner (in that capacity the Bookrunner);

(11)	CITIBANK N.A., LONDON BRANCH and the banks listed in Schedule 1, Part 2 and/or referred to herein acting as hedging providers (the Hedging Providers and each a Hedging Provider);

(12)	CITIBANK N.A., LONDON BRANCH acting as K-Sure Agent (in that capacity the K-Sure Agent);

(13)	CITIBANK N.A., LONDON BRANCH acting as GIEK Agent (in that capacity the GIEK Agent); and

(14)	KOREA EXCHANGE BANK, INVESTMENT BANKING DIVISION acting as KEXIM Guarantee Agent (in that capacity the KEXIM Guarantee Agent).

WHEREAS:

Each of the Facility Lenders has agreed to advance to the Borrower its Commitment (aggregating, with all the other Commitments, a term loan facility of up to eight hundred and fifteen million Dollars ($815,000,000)) for the (i) repayment in full of the Bridge Facility, and (ii) payment of up to eighty per cent. (80%) of the Eligible Delivered Costs.

IT IS AGREED as follows:


1		Definitions and Interpretation

1.1		In this Agreement unless the context otherwise requires, words and expressions defined in Schedule 7 have the same meanings in this Agreement.

1.2		In this Agreement:

1.2.1		words denoting the plural number include the singular and vice versa;

1.2.2		words denoting persons include corporations, partnerships, associations of persons (whether incorporated or not) or governmental or quasi-governmental bodies or authorities and vice versa;

1.2.3		references to Recitals, clauses and Schedules are references to recitals, clauses and schedules to or of this Agreement;

1.2.4		references to this Agreement include the Recitals and the Schedules;

1.2.5		the headings and contents page(s) are for the purpose of reference only, have no legal or other significance, and shall be ignored in the interpretation of this Agreement;

1.2.6		references to any document (including, without limitation, to all or any of the Transaction Documents) are, unless the context otherwise requires, references to that document as amended, supplemented, novated or replaced from time to time;

1.2.7		references to statutes or provisions of statutes are references to those statutes, or those provisions, as from time to time amended, replaced or re-enacted;

1.2.8		references to any Facility Beneficiary include its successors, transferees and assignees;

1.2.9		a time of day (unless otherwise specified) is a reference to London time;

1.2.10		references to a regulation include any regulation, rule, official directive, requirement, request or guideline (whether or not having the force of law but if not having the force of law being one with which persons to whom it is addressed or applicable generally comply) of any governmental, intergovernmental or supranational body, agency, authority, department or central bank or any regulatory, self-regulatory or other authority or organisation;

1.2.11		references to assets include all or part of any present and future business, undertaking, real property, personal property, uncalled capital, revenue and any rights of any description (whether actual or contingent, present or future) to receive, or require delivery of, any of the foregoing;

1.2.12		guarantee means any guarantee, letter of credit, bond, indemnity or similar assurance against loss, or any obligation, direct or indirect, actual or contingent, to purchase or assume any Indebtedness of any person or to make an investment in or loan to any person or to purchase assets of any person where, in each case, such obligation is assumed in order to maintain or assist the ability of such person to meet its Indebtedness and guaranteed shall be construed accordingly;

1.2.13		a law (1) includes any common law, statue, decree, constitution, regulation, order, judgment or directive of any governmental entity; (2) includes any treaty, pact, compact or other agreement to which any Government Entity is a signatory or party; (3) includes any judicial or administrative interpretation or application thereof and (4) is a reference to that provision as amended, substituted or re-enacted; and

1.2.14		references to any enactment shall be deemed to include references to such enactment as re-enacted, modified, amended or extended.


1.3		Offer letter

		This Agreement supersedes the terms and conditions contained in any correspondence relating to the subject matter of this Agreement exchanged between any Facility Beneficiary and the Borrower or their representatives prior to the date of this Agreement.

2		The Loan and its Purposes

2.1		Amounts

		Subject to the terms of this Agreement:

2.1.1		The KEXIM Facility Lenders agree to make available to the Borrower its Commitment of a term loan facility in an aggregate amount not exceeding the Total KEXIM Facility Commitments.

2.1.2		The KEXIM Guarantee Facility Lenders agree to make available to the Borrower its Commitment of a term loan facility in an aggregate amount not exceeding the Total KEXIM Guarantee Facility Commitments.

2.1.3		Each of the K-Sure Facility Lenders agrees to make available to the Borrower its Commitment of a term loan facility in an aggregate amount not exceeding the Total K-Sure Facility Commitments.

2.1.4		Each of the Commercial Facility Lenders agrees to make available to the Borrower its Commitment of a term loan facility in an aggregate amount not exceeding the Total Commercial Facility Commitments.

2.1.5		The GIEK Facility Lenders agree to make available to the Borrower its Commitment of a term loan facility in an aggregate amount not exceeding the Total GIEK Facility Commitments.

2.2		Facility Beneficiaries’ obligations

2.2.1		The obligations of each Facility Beneficiary under the Facility Documents are several. Failure by a Facility Beneficiary to perform its obligations under the Facility Documents does not affect the obligations of any other party to the Facility Documents. No Facility Beneficiary is responsible for the obligations of any other Facility Beneficiary under the Facility Documents.

2.2.2		The rights of each Facility Beneficiary under or in connection with the Facility Documents are separate and independent rights and any debt arising under the Facility Documents to a Facility Beneficiary from a Security Party shall be a separate and independent debt.

2.2.3		A Facility Beneficiary may, except as otherwise stated in the Facility Documents, separately enforce its rights under the Facility Documents, provided that no Facility Beneficiary acting alone in its capacity as a Facility Lender shall be entitled to declare an Event of Default.

2.3		Purposes

		The Borrower shall apply the Loan for the purposes referred to in the Recital.

2.4		Monitoring

		No Facility Beneficiary is bound to monitor or verify the application of any amount borrowed under this Agreement.

3		Conditions of Utilisation

3.1		Conditions precedent to first Advance

		The Facility Lenders will only be obliged to make the first Advance if:

3.1.1		the Facility Agent (or its duly authorised representative) has received the documents and other evidence listed in Schedule 2, Part 1 of this Agreement;



3.1.2		on the date of the Drawdown Notice and on the proposed Drawdown Date no Default is continuing or would result from the making of the first Advance;

3.1.3		on the date of the Drawdown Notice and on the proposed Drawdown Date the representations made by the Borrower under clause 11 (other than that in clauses 11.2, 11.6 and 11.18) are true in all material respects;

3.1.4		the amount of the first Advance shall be three hundred and fourteen million nine hundred and forty four thousand and one hundred and sixty two Dollars and forty three cents ($314,944,162.43).

3.2		Conditions precedent to second Advance

		The Facility Lenders will only be obliged to make the second Advance if:

3.2.1		the Facility Agent (or its duly authorised representative) has received the documents and other evidence listed in Schedule 2, Part 2 of this Agreement;

3.2.2		on the date of the Drawdown Notice and on the proposed Drawdown Date, no Default is continuing or would result from the making of the second Advance;

3.2.3		on the date of the Drawdown Notice and on the proposed Drawdown Date, the representations made by the Borrower under clause 11 (other than that in clauses 11.2, 11.6 and 11.18) are true in all material respects;

3.2.4		the first Advance referred to in clause 3.1 has been made; and

3.2.5		the amount of the second Advance shall be one hundred and eighty million Dollars ($180,000,000).

3.3		Conditions precedent to final Advance

		The Facility Lenders will only be obliged to make the final Advance if:

3.3.1		the Facility Agent (or its duly authorised representative) has received the documents and other evidence listed in Schedule 2, Part 3 of this Agreement;

3.3.2		on the date of the Drawdown Notice and on the proposed Drawdown Date, no Default is continuing or would result from the making of the final Advance;

3.3.3		on the date of the Drawdown Notice and on the proposed Drawdown Date, the representations made by the Borrower under clause 11 (other than that in clauses 11.2, 11.6 and 11.18) are true in all material respects;

3.3.4		the second Advance referred to in clause 3.2 has been made; and

3.3.5		the amount of the final Advance when aggregated with all other Advances made under and pursuant to this Agreement does not exceed the lesser of (i) eight hundred and fifteen million Dollars ($815,000,000) and (ii) the Facility Limit (by reference to the most recently delivered Budget).

3.4		Drawing limit

		The Facility Lenders will only be obliged to make an Advance if:

3.4.1		the proposed Drawdown Date is a Banking Day within the Availability Period;



3.4.2		there is no outstanding notice relating to the Facility from K-Sure requiring the K-Sure Facility Lenders to suspend the making of that Advance and/or the K-Sure Facility Lenders are not required by the terms of the K-Sure Insurance Policy to suspend the making of that or any other Advance;

3.4.3		the K-Sure Agent (acting on the instructions of the K-Sure Facility Lenders) is satisfied that the K-Sure Insurance Policy is in full force and effect and shall apply to that Advance;

3.4.4		there is no outstanding notice relating to the KEXIM Guarantee Facility requiring the KEXIM Guarantee Facility Lenders to suspend the making of that Advance;

3.4.5		the KEXIM Guarantee Agent (acting on the instructions of the KEXIM Guarantee Facility Lenders) is satisfied that the KEXIM Guarantee is in full force and effect and shall apply to that Advance;

3.4.6		there is no outstanding notice relating to the Facility from GIEK requiring the GIEK Facility Lenders to suspend the making of that Advance; and

3.4.7		the GIEK Agent (acting on the instructions of the GIEK Facility Lenders) is satisfied that the GIEK Guarantee is in full force and effect and shall apply to that Advance.

		For the avoidance of doubt, only three (3) Advances shall be permitted to be made under the terms of this Agreement and each such Advance shall be in accordance with this clause 3.

3.5		Termination Date

		No Facility Lender shall or shall be under any obligation to advance all or any part of its Commitment after the end of the Availability Period and any such undrawn Commitments shall be reduced to zero on the last day of the Availability Period.

3.6		Conditions subsequent

		The Borrower undertakes to deliver or to cause to be delivered to the Facility Agent on, or as soon as reasonably practicable after, the relevant Drawdown Date (or within any time period specified in Schedule 2, Part 4 of this Agreement) the additional documents and other evidence listed in Schedule 2, Part 4 of this Agreement.

3.7		No Waiver

		If the Facility Lenders in their sole discretion agree to make an Advance to the Borrower before all of the documents and evidence required by clause 3.1, 3.2 and/or 3.3 have been delivered to or to the order of the Facility Agent, the Borrower undertakes to deliver all outstanding documents and evidence to or to the order of the Facility Agent no later than the date specified by the Facility Agent, except to the extent expressly waived by the Facility Agent in writing.

		The making of an Advance under this clause 3.7 shall not be taken as a waiver of the Facility Lenders’ right to require production of all the documents and evidence required by clause 3.1, 3.2 and/or 3.3.

3.8		Form and content

		All documents and evidence delivered to the Facility Agent under this clause 3 shall:

3.8.1		be in form and substance reasonably acceptable to the Facility Agent; and

3.8.2		if reasonably required by the Facility Agent, be certified, notarised, legalised or attested in a manner acceptable to the Facility Agent.


3.9	Notification

3.9.1	The Facility Agent shall as soon as practicable following satisfaction of the conditions precedent in this clause 3, notify all the Facility Lenders accordingly and provide to them a copy of any written confirmation received from the legal advisers to the Facility Agent.

3.9.2	For the avoidance of doubt, the Borrower shall not be prohibited from requesting an Advance in accordance with clause 4.1 solely as a result of any of the conditions precedent in this clause 3 being incomplete or unsatisfied as of the date such Drawdown Notice is delivered in accordance with clause 4.1.

4	Advance

4.1	Drawdown Request

	Subject to clause 3, the Borrower may request an Advance to be advanced in one amount on any Banking Day prior to the end of the Availability Period by delivering to the Facility Agent a duly completed Drawdown Notice not more than ten (10) and not fewer than seven (7) Banking Days before the proposed Drawdown Date or such shorter period as the Facility Agent may agree.

4.2	Facility Lenders’ participation

	Subject to clauses 2 and 3, the Facility Agent shall notify each Facility Lender of the receipt of a Drawdown Notice (attaching a copy thereof) not fewer than four (4) Banking Days (or such shorter period as may be agreed by all Facility Lenders) before the proposed Drawdown Date, following which each Facility Lender shall advance:

4.2.1	in the case of the first Advance:

	(a)	from the KEXIM Facility Lenders, seventy two million seven hundred and ninety nine thousand and two hundred twenty seven Dollars and sixty eight cents ($72,799,227.68) (on a pro rata and pari passu basis);

	(b)	from the KEXIM Guarantee Facility Lenders, forty seven million eight hundred and fifty two thousand and seven hundred and sixty Dollars and seventy four cents ($47,852,760.74) (on a pro rata and pari passu basis);

	(c)	from the K-Sure Facility Lenders, one hundred and twenty million six hundred and fifty one thousand and nine hundred and eighty eight Dollars and forty one cents ($120,651,988.41) (on a pro rata and pari passu basis);

	(d)	from the GIEK Facility Lenders, forty four million and one hundred seventy one thousand and seven hundred and seventy nine Dollars and fourteen cents ($44,171,779.14) (on a pro rata and pari passu basis); and

	(e)	from the Commercial Facility Lenders, twenty nine million and four hundred and sixty eight thousand and four hundred and six Dollars and forty six cents ($29,468,406.46) (on a pro rata and pari passu basis);

4.2.2	in the case of the second Advance:

	(a)	from the KEXIM Facility Lenders, thirty nine million one hundred and ninety six thousand and two hundred and eighty seven Dollars and eighty eight cents ($39,196,287.88) (on a pro rata and pari passu basis);

	(b)	from the KEXIM Guarantee Facility Lenders, twenty eight million seven hundred and eleven thousand and six hundred and fifty six Dollars and forty four cents ($28,711,656.44) (on a pro rata and pari passu basis);



	(c)	from the K-Sure Facility Lenders, sixty seven million nine hundred and seven thousand and nine hundred and forty four Dollars and thirty two cents ($67,907,944.32) (on a pro rata and pari passu basis);

	(d)	from the GIEK Facility Lenders, twenty six million five hundred and three thousand and sixty seven Dollars and forty eight cents ($26,503,067.48) (on a pro rata and pari passu basis); and

	(e)	from the Commercial Facility Lenders, seventeen million six hundred and eighty one thousand and forty three Dollars and eighty eight cents ($17,681,043.88) (on a pro rata and pari passu basis);

4.2.3	in the case of the final Advance, the proportion which each Facility Lender’s remaining undrawn Commitment bears to the Total Commitments,

	in each case, to the Borrower through the Facility Agent on the relevant Drawdown Date.

4.3	Notwithstanding any other provision of a Facility Document to the contrary, if any KEXIM Facility Lender, KEXIM Guarantee Facility Lender, K-Sure Facility Lender, GIEK Facility Lender or Commercial Facility Lender fails to make available its participation in an Advance to the Facility Agent, no amount of that Advance shall be made available to the Borrower.

5	Repayment

5.1	Repayment of the Loan

	The Borrower will, on each Application Date, repay the Loan in an amount equal to the Repayment Amounts relating to that Application Date, with the amount specified in column (2) of the Schedule of Repayment Amounts being payable for the account of the KEXIM Facility Lenders, the amount specified in column (3) of the Schedule of Repayment Amounts being payable for the account of the KEXIM Guarantee Facility Lenders, the amount specified in column (4) of the Schedule of Repayment Amounts being payable for the account of the K-Sure Facility Lenders, the amount specified in column (5) of the Schedule of Repayment Amounts being payable for the account of the GIEK Facility Lenders and the amount specified in column (6) of the Schedule of Repayment Amounts being for the account of the Commercial Facility Lenders. The Borrower shall on the Commercial Final Maturity Date repay to the Facility Agent as agent for the Commercial Facility Lenders, the Commercial Final Payment, together with all interest and all other amounts payable under this Agreement and the Facility Documents due to the Commercial Facility Lenders. The Borrower shall on the KEXIM Final Maturity Date, KEXIM Guarantee Final Maturity Date and the K-Sure Final Maturity Date repay to the Facility Agent the KEXIM Final Payment, the KEXIM Guarantee Final Payment and the K-Sure Final Payment together with all interest and all other amounts payable under this Agreement, the Facility Documents, the KEXIM Guarantee and the K-Sure Insurance Policy due to the KEXIM Facility Lenders, the KEXIM Guarantee Facility Lenders and the K-Sure Facility Lenders. The Borrower shall on the GIEK Final Maturity Date repay to the Facility Agent the GIEK Final Payment, together with all interest and other amounts payable under this Agreement, the Facility Documents and the GIEK Guarantee due to the GIEK Facility Lenders.

5.2	Reborrowing

	No amounts repaid or prepaid under this Agreement may be reborrowed.

5.3	Replacement Schedule Repayment Amounts

5.3.1	The Original Schedule of Repayment Amounts has been prepared on the basis of the assumptions that:

	(a)	The first Application Date shall occur six (6) months after the earlier of (i) the Delivery Date, and (ii) the Drawdown Date for the final Advance;



	(b)	There will be 24 Application Dates between the date hereof and the KEXIM Final Maturity Date, there will be 24 Application Dates between the date hereof and the KEXIM Guarantee Final Maturity Date, there will be 24 Application Dates between the date hereof and the K-Sure Final Maturity Date, there will be 20 Application Dates between the date hereof and the GIEK Final Maturity Date and there will be 12 Application Dates between the date hereof and the Commercial Final Maturity Date;

	(c)	The Drawdown Date for the final Advance will be three (3) Banking Days before the proposed Delivery Date;

	(d)	The total amount advanced will be eight hundred and fifteen million Dollars ($815,000,000); and

	(e)	The KEXIM Facility, the KEXIM Guarantee Facility, the K-Sure Facility and the Commercial Facility shall have a twelve (12) year repayment profile. The GIEK Facility shall have a ten (10) year repayment profile.

5.3.2	If any or all of the assumptions made in clause 5.3.1 above proves to be incorrect, the Facility Agent shall prepare a Replacement Schedule of Repayment Amounts as soon as possible, however no later than ten (10) Banking Days following the last day of the Availability Period reflecting the actual facts and circumstances contemplated by those assumptions and such Replacement Schedule of Repayment Amounts shall (in the absence of manifest error) replace the Original Schedule of Repayment Amounts and shall be the Schedule of Repayment Amounts for all purposes of this Agreement. The Facility Agent shall notify all other parties to this Agreement (other than the Hedging Providers) of such recalculation and provide to them a copy of the Replacement Schedule of Repayment Amounts but for the avoidance of doubt, the Facility Agent shall not be entitled to amend the Schedule of Repayment Amounts in such a way which would otherwise require the consent of all the Facility Lenders pursuant to clause 15.4.1 of this Agreement.

5.3.3	If at any time a prepayment of part of the Loan is made pursuant to the terms of this Agreement, the Facility Agent shall, following such prepayment, re-calculate the Original Schedule of Repayment Amounts or, as the case may be, any Replacement Schedule of Repayment Amounts and prepare a Replacement Schedule of Repayment Amounts (which, in the absence of manifest error, shall replace the existing Schedule of Repayment Amounts and shall be the Schedule of Repayment Amounts for all purposes of this Agreement) on the basis that the amount of such prepayment shall be applied in accordance with clause 6.13.5 of this Agreement. The Facility Agent shall notify all other parties to this Agreement (other than the Hedging Providers) of such recalculation and provide to them a copy of the Replacement Schedule of Repayment Amounts.

6	Prepayment

6.1	Mandatory prepayment of Loan caused by Illegality

	If it becomes unlawful in any applicable jurisdiction for a Facility Lender to fund or maintain its Commitment as contemplated by this Agreement or to fund or maintain the Loan:

	(a)	that Facility Lender shall promptly notify the Facility Agent of that event;

	(b)	upon the Facility Agent notifying the Borrower, the Commitment of that Facility Lender (to the extent not already advanced) will be immediately cancelled; or

	(c)	if advanced, the Borrower shall repay that Facility Lender’s Proportionate Share of the Loan on the last day of its current Interest Period or, if earlier, the date specified by that Facility Lender in the notice delivered to the Facility Agent and notified by the Facility Agent to the Borrower (being no earlier than the last day of any applicable grace period permitted by law) and the Loan shall be reduced by the amount of that Facility Lender’s Proportionate Share of the Loan. Prior to the date on which repayment is required to be made under this sub-clause (c) the affected Facility Lender shall negotiate in good faith with the Borrower to find an alternative method or lending base in order to maintain its Commitment in the Facility.



6.2	Sale or Disposal

	In the event of a sale or disposal of the Vessel whether pursuant to the Purchase Option Agreement or otherwise, or any sale of (i) the membership interests of the Borrower and/or (ii) shares in the Bareboat Charterer or any interest in such shares (other than on a Dropdown Date and/or the Additional Sponsor Date), the Total Commitments shall be reduced to zero on the date of such sale or disposal. If any part of the Loan is outstanding the Borrower shall, on the date of the sale or disposal, prepay the Loan in full together with any other outstanding amounts in relation to the Facility Documents. Any such prepayment shall oblige the Borrower to make payment of all interest and Commitment Fee accrued on the amount so reduced up to and including the date of reduction together with any Break Costs in respect of such reduced amount if the date of such reduction is not the final day of an Interest Period. Any such reduction of the Total Commitments shall not be reversed.

6.3	Total Loss

	In the event that the Vessel becomes a Total Loss, on the earlier to occur of (a) the date of receipt of the Total Loss Proceeds and (b) the date falling one hundred and eighty (180) days after the occurrence of the Total Loss, the Total Commitments shall be reduced to zero. Any such reductions in the Total Commitments shall not be reversed. If any part of the Loan is outstanding the Borrower shall, on the earlier to occur of (i) the date on which the Borrower receives such Total Loss Proceeds and (ii) the one hundred and eightieth day after the date of such Total Loss occurring, prepay the Loan in full PROVIDED ALWAYS that if such date is not the final day of an Interest Period, the Borrower may instead place the relevant sum in an account with the Facility Agent, charged to the Facility Agent in a manner reasonably acceptable to the Facility Lenders, with an irrevocable instruction to the Facility Agent to apply such sum in prepayment of the Loan on the final day of such Interest Period. Any such prepayment shall not be reborrowed and clause 8.3 shall apply to any such prepayment.

6.4	Change of Control

6.4.1	If:

	(a)	at a time when all management powers over the business and affairs of TOO are vested in a general partner:

		(i)	Teekay ceases to own a minimum of fifty per cent. (50%) of the voting rights in the General Partner; or

		(ii)	the General Partner ceases to be the general partner of TOO; or

	(b)	at a time when all management powers over the business and affairs of TOO become vested in a board of directors of TOO, Teekay ceases to own or does not own, directly or indirectly, a minimum of fifty per cent. (50%) of the voting rights to elect the members of the board of directors of TOO or the voting rights to elect a minimum of fifty per cent. (50%) of the board of directors of TOO,

	then unless such change of control has been remedied within thirty (30) days of such event occurring, the Total Commitments shall immediately be reduced to zero and the Borrower shall prepay the Loan in full. Any such reductions in the Total Commitments shall not be reversed.

6.4.2	If there is any change in the legal or beneficial ownership of the Borrower from that advised to the Facility Agent at the date of this Agreement without the Facility Agent’s prior written consent (provided that the Facility Agent’s consent shall not be required (i) to any change of ownership within the Teekay Group, (ii) (if a Dropdown Date has occurred) to any change of ownership within the TOO Group, (iii) (if the Additional Sponsor Date has occurred) to any change of ownership within the Additional Sponsor Group, or (iv) if change of ownership arises from the occurrence of a Dropdown Date or the Additional Sponsor Date (a Dropdown Date and the Additional Sponsor Date, for the avoidance of doubt, being subject to the conditions precedent set out in Schedule 2, Part 5 of this Agreement being satisfied)) then the Total Commitments shall immediately be reduced to zero and the Borrower shall prepay the Loan in full. Any such reductions in the Total Commitments shall not be reversed.



6.4.3	If, at any time when Teekay is a Sponsor, any person or any two or more persons acting together (excluding Resolute Investments, Inc. or any successor thereto), acquire (a) legally or beneficially and either directly or indirectly more than fifty per cent. (50%) of the entire issued share capital of Teekay, or (b) the right or ability to control, either directly or indirectly the affairs of the composition of the majority of the board of directors of Teekay, then the Total Commitments shall immediately be reduced to zero and the Borrower shall prepay the Loan in full. Any such reductions in the Total Commitments shall not be reversed.

6.5	Project Documents

6.5.1	In the event that:

	(a)	any of the Project Documents is terminated by the Borrower, the Bareboat Charterer, the Operator or any of their respective Affiliates by reason of breach by the Charterer, Builder, Framo and/or Refund Guarantor; or

	(b)	any of the Project Documents is breached by the Charterer, Builder, Framo and/or Refund Guarantor, in a manner that gives rise to a right to terminate such Project Document or treat it as repudiated, by the Borrower and/or the Bareboat Charterer and such breach has a Material Adverse Effect of the type referred to in sub-paragraph (b) of that definition; or

	(c)	any of the Project Documents is terminated by the Charterer, Builder, Framo and/or Refund Guarantor by reason of a force majeure event or termination or cancellation (howsoever described) in the Charter, Construction Contract, the Framo Contract and/or Refund Guarantee (as the case may be) or non-extension in the case of the Charter,

	then, unless:

		(i)	in the case of the Refund Guarantee and/or Operations Agreement, a replacement Refund Guarantee and/or Operations Agreement (as applicable) is entered into within sixty (60) days;

		(ii)	in the case of the Construction Contract and/or Framo Contract, a replacement Construction Contract and/or Framo Contract (as applicable) is entered into within ninety (90) days; or

		(iii)	in the case of any other Project Document (excluding the Refund Guarantee, Operations Agreement, Construction Contract and Framo Contract), a replacement Project Document is entered into within one hundred and eighty (180) days,

		by (as the case may be) the Borrower, Bareboat Charterer and/or the Operator and/or another Subsidiary of the relevant Sponsor acceptable to the Facility Lenders (acting reasonably), on terms reasonably acceptable to the Facility Lenders, then the Total Commitments shall be immediately reduced to zero and the Borrower shall prepay the Loan in full.

6.6	Unlawfulness

	In the event that any Transaction Document or any material provision thereof becomes unlawful, unenforceable or ineffective for any reason or any of the Facility Security Documents comprising a Security Interest ceases to constitute a valid first priority Security Interest over the asset or property to which it relates, and such unlawfulness, unenforceability, ineffectiveness or, as the case may be, lack of valid first priority Security Interest is not remedied, if remediable, to the satisfaction of the Facility Agent within thirty (30) days after written notice from the Facility Agent, the Total Commitments shall be reduced to zero and the Borrower shall prepay the Loan in full.



6.7	Abandonment

	In the event that the Vessel is abandoned, the Total Commitments shall be reduced to zero and the Borrower shall prepay the Loan in full.

6.8	Termination of a K-Sure Insurance Policy, KEXIM Guarantee or GIEK Guarantee

6.8.1	If at any time during the Facility Security Period any of the obligations of K-Sure under the K-Sure Insurance Policy is terminated, cancelled, becomes invalid, unenforceable or otherwise ceases to be in full force and effect, then:

	(a)	no Facility Lender shall be obliged to fund an Advance;

	(b)	the Total Commitments shall be reduced to zero; and

	(c)	as of the time falling fifteen (15) Banking Days after such event occurs the Loans together with accrued interest and all other sums payable under this Agreement and any other Facility Document shall be immediately due and payable.

6.8.2	If at any time during the Facility Security Period any of the obligations of KEXIM under the KEXIM Guarantee is terminated, cancelled, becomes invalid, unenforceable or otherwise ceases to be in full force and effect, then:

	(a)	no Facility Lender shall be obliged to fund an Advance;

	(b)	the Total Commitments shall be reduced to zero; and

	(c)	as of the time falling fifteen (15) Banking Days after such event occurs the Loans together with accrued interest and all other sums payable under this Agreement and any other Facility Document shall be immediately due and payable.

6.8.3	If at any time during the Facility Security Period any of the obligations of GIEK under the GIEK Guarantee is terminated, cancelled, becomes invalid, unenforceable or otherwise ceases to be in full force and effect, then:

	(a)	no Facility Lender shall be obliged to fund an Advance;

	(b)	the Total Commitments shall be reduced to zero; and

	(c)	as of the time falling fifteen (15) Banking Days after such event occurs the Loans together with accrued interest and all other sums payable under this Agreement and any other Facility Document shall be immediately due and payable.

6.9	Insolvency of Project Counterparties

	In the event that an Insolvency Event occurs in relation to the Charterer, Builder, Framo and/or Refund Guarantor (in each case only at any time at which that Project Counterparty has any actual or contingent obligations under a Project Document), then unless (a) in the case of an Insolvency Event in respect of the Charterer, a replacement charter is entered into within one hundred and eighty (180) days by the Bareboat Charterer with a replacement charterer, (b) in the case of an Insolvency Event in respect of the Builder, a replacement construction contract is entered into within ninety (90) days by the Borrower with a replacement builder, (c) in the case of an Insolvency Event in respect of Framo, a replacement contract with Norwegian content is entered into within ninety (90) days by the Borrower with a replacement supplier and/or (d) in the case of an Insolvency Event in respect of the Refund Guarantor, a replacement refund guarantee is entered into within sixty (60) days by a replacement refund guarantor in favour of the Borrower, in each case acceptable to the Facility Agent (acting on the instructions of all the Facility Lenders (acting reasonably)), KEXIM, K-Sure and GIEK, then the Total Commitments shall be immediately reduced to zero and the Borrower shall prepay the Loan in full.



6.10	Charter Date of Acceptance and Delivery Date

	If, the Charter Date of Acceptance has not occurred by 30 April 2015 and/or the Delivery Date has not occurred by the date falling on the first (1) anniversary of the signing date of this Agreement, then the Total Commitments shall be immediately reduced to zero and the Borrower shall, on such date, prepay the Loan in full.

6.11	Commercial Final Maturity Date

	If the Commercial Final Payment has not been refinanced on terms and conditions satisfactory to all the Facility Lenders (other than the Commercial Facility Lenders), KEXIM, K-Sure and GIEK on the date falling two (2) months prior to the Commercial Final Maturity Date, the Borrower shall, if so requested by the Facility Agent, acting on the instructions of:

	(a)	(i) the K-Sure Majority Facility Lenders and K-Sure or, in the event of any inconsistency between the instructions of the K-Sure Majority Facility Lenders and K-Sure, (ii) K-Sure only and in each case, in respect of the K-Sure Loan only;

	(b)	all of the KEXIM Facility Lenders in respect of the KEXIM Loan only;

	(c)	(i) the KEXIM Guarantee Majority Facility Lenders and KEXIM or, in the event of any inconsistency between the instructions of the KEXIM Guarantee Majority Facility Lenders and KEXIM, (ii) KEXIM only and in each case, in respect of the KEXIM Guarantee Loan only; and

	(d)	(i) the GIEK Majority Facility Lenders and GIEK or, in the event of any inconsistency between the instructions of the GIEK Majority Facility Lenders and GIEK, (ii) GIEK only and in each case, in respect of the GIEK Loan only,

	on the Commercial Final Maturity Date, prepay the K-Sure Loan (on a pro rata basis between the K-Sure Facility Lenders), the KEXIM Loan (on a pro rata basis between the KEXIM Facility Lenders), the KEXIM Guarantee Loan (on a pro rata basis between the KEXIM Guarantee Facility Lenders) and/or as the case may be, the GIEK Loan (on a pro rata basis between the GIEK Facility Lenders) outstanding and owing and whereupon the Total Commitments shall be reduced by the amount of the K-Sure Loan, the KEXIM Loan, the KEXIM Guarantee Loan and/or, as the case may be, the GIEK Loan.

6.12	Voluntary prepayment of Loan

6.12.1	The Borrower may prepay the whole or any part of the Loan (but, if in part, being in a minimum amount of five million Dollars ($5,000,000) such amount to be in integral multiples of five million Dollars ($5,000,000) or such other amount as may be agreed by the Facility Agent) provided that it gives the Facility Agent not less than thirty (30) days’ prior written notice.

6.12.2	If any Facility Lender is a Notified Lender:

	(a)	the Borrower may require that the Commitment of that Facility Lender (to the extent not already advanced) may be immediately cancelled; or

	(b)	if advanced, the Borrower may repay that Facility Lender’s Proportionate Share of the Loan and the Loan shall be reduced by the amount of that Facility Lender’s Proportionate Share of the Loan.



6.12.3	If any Facility Lender is a Defaulting Facility Lender:

	(a)	the Borrower may require that the Commitment of that Facility Lender (to the extent not already advanced) may be immediately cancelled; or

	(b)	if advanced, the Borrower may repay that Facility Lender’s Proportionate Share of the Loan and the Loan shall be reduced by the amount of that Facility Lender’s Proportionate Share of the Loan.

6.12.4	At any time on or after the date which is six (6) months before the earliest FATCA Application Date for any payment by a Party to a Facility Lender (or to the Facility Agent for the account of that Facility Lender), that Facility Lender is not, or has ceased to be, a FATCA Exempt Party and, as a consequence, a Party will be required to make a FATCA Deduction from a payment to that Facility Lender (or to the Facility Agent for the account of that Facility Lender) on or after that FATCA Application Date (a Defaulting FATCA Facility Lender), the Borrower may, whilst the circumstance giving rise to the requirement for that increase or indemnification or FATCA Deduction continues or whilst the relevant Facility Lender continues to be a Defaulting FATCA Facility Lender, give the Facility Agent notice of cancellation of the Commitments of that Facility Lender and its intention to procure the repayment of that Facility Lender’s participation in the Loan.

6.12.5	Hull Cover Ratio

	If at any time after the Delivery Date, there is a breach of the Hull Cover Ratio financial covenant calculated in accordance with clause 12.1.33 then the Borrower may within ten (10) days of such testing date prepay an amount of the Loan such that there is no longer a breach of the Hull Cover Ratio, and the Total Commitments shall be reduced accordingly.

6.13	Restrictions and order of application

6.13.1	Any notice of prepayment given under this clause 6 shall be irrevocable and, unless a contrary indication appears in this Agreement, shall specify the date or dates upon which the relevant prepayment is to be made and the amount of that prepayment.

6.13.2	Any prepayment under this Agreement shall be made together with accrued interest on the amount prepaid and, subject to any Break Costs which shall be payable pursuant to clause 8.3 and clause 6.13.4, without premium or penalty. No amount prepaid shall be reborrowed.

6.13.3	If the Facility Agent receives a notice under this clause 6 it shall promptly forward a copy of that notice to the Borrower and/or the Facility Lenders, as appropriate.

6.13.4	If a prepayment or cancellation is made to a KEXIM Facility Lender in respect of the KEXIM Facility or a KEXIM Guarantee Facility Lender in respect of the KEXIM Guarantee Facility, under or pursuant to clause 6.12.1, (in respect of a sale or disposal of the Vessel only other than pursuant to the Purchase Option Agreement) 6.2 or 6.4, such prepayment shall be made together with a fee of zero point five zero per cent. (0.50%) of, in the case of the KEXIM Facility, the amount of the KEXIM Loan which is prepaid and/or the amount of the KEXIM Facility Commitments which are cancelled and/or in the case of the KEXIM Guarantee Facility, the amount of the KEXIM Guarantee Loan which is prepaid and/or the amount of the KEXIM Guarantee Facility Commitments which are cancelled.

6.13.5	The amount of any prepayment (other than a prepayment made in accordance with clauses 6.1, 6.12.2, 6.12.3 and 6.12.4 and/or 6.8 and/or 6.11) shall be applied towards prepayment of the Loans in inverse order of maturity of each Loan and on a pro rata basis across each Loan.

7	Interest

7.1	Interest Periods

	Subject to clause 7.2, each Interest Period shall be for a duration of six (6) months or such other duration as may be agreed by the Facility Agent (acting on the instructions of all the Facility Lenders) and provided that the Facility Lenders have received two (2) Banking Days prior notice of such alternative duration.



7.2		Beginning and end of Interest Periods

7.2.1		The initial Interest Period in respect of the first Advance shall commence on the Drawdown Date for the first Advance and shall end on the next following Semi-Annual Date and each subsequent Interest Period in respect of the first Advance shall commence on the expiry of the previous Interest Period and end on the next following Semi-Annual Date;

7.2.2		The initial Interest Period for any other Advance shall commence on the Drawdown Date for that Advance and shall end on the last day of the then current Interest Period in respect of the Loan and, on the last day of such Interest Period, the amount of that Advance shall be consolidated with the Loan and shall thereafter together constitute the Loan;

7.2.3		The Interest Period commencing either on the Semi-Annual Date falling on or, as the case may be, the first Semi-Annual Date falling after, the Drawdown Date for the final Advance shall commence on that Semi-Annual Date and end on the first Application Date; and

7.2.4		Any other Interest Period in respect of the Loan shall commence on the day following the previous Application Date and shall end on the last day of its current Interest Period selected in accordance with clause 7.1.

7.3		Interest Periods to meet KEXIM Final Maturity Date, KEXIM Guarantee Final Maturity Date, K-Sure Final Maturity Date, GIEK Final Maturity Date, Commercial Final Maturity Date or Application Date

		If an Interest Period would otherwise expire after the Commercial Final Maturity Date, KEXIM Final Maturity Date, the KEXIM Guarantee Final Maturity Date, the K-Sure Final Maturity Date, the GIEK Final Maturity Date or any Application Date, that Interest Period shall expire on the Commercial Final Maturity Date, KEXIM Final Maturity Date, the KEXIM Guarantee Final Maturity Date, the K-Sure Final Maturity Date, the GIEK Final Maturity Date or Application Date.

7.4		Non-Banking Days

		If an Interest Period would otherwise end on a day which is not a Banking Day, that Interest Period will instead end on the next Banking Day in that calendar month (if there is one) or the preceding Banking Day (if there is not).

7.5		Interest rate

		During each Interest Period interest shall accrue on the Loans at the rate determined by the Facility Agent to be the aggregate of (a) the applicable Margin, (b) LIBOR and (c) the Mandatory Cost, if applicable.

7.6		Accrual and payment of interest

		Interest shall accrue from day to day, shall be calculated on the basis of a 360 day year and the actual number of days elapsed (or, in any circumstance where market practice differs, in accordance with the prevailing market practice) and shall be paid by the Borrower to the Facility Agent for the account of the Facility Lenders on the last day of each Interest Period.

7.7		Default interest

		If the Borrower fails to pay any amount payable by it under a Facility Document on its due date, interest shall accrue on the overdue amount from the due date, subject to any applicable grace period, up to the date of actual payment (both before and after judgment) at a rate which is two per cent (2%) higher than the rate which would have been payable if the overdue amount had, during the period of non-payment, constituted the Loan for successive Interest Periods, each selected by the Facility Agent (acting reasonably). Any interest accruing under this clause 7.7 shall be immediately payable by the Borrower on demand by the Facility Agent. If unpaid, any such interest will be compounded with the overdue amount at the end of each Interest Period applicable to that overdue amount but will remain immediately due and payable.



7.8	Market disruption

7.8.1

	(a)	If a Market Disruption Event specified in clause 7.8.2(a) occurs in relation to the Loan for any Interest Period, then the rate of interest on each Facility Lender’s share of the Loan for the Interest Period shall be the percentage rate per annum which is the sum of:

		(i)	the applicable Margin;

		(ii)	the rate notified to the Facility Agent by that Facility Lender as soon as practicable and in any event before interest is due to be paid in respect of that Interest Period, to be that which expresses as a percentage rate per annum the cost to that Facility Lender of funding its participation in the Loan from whatever source it may reasonably select; and

		(iii)	the Mandatory Cost, if any, applicable to that Facility Lender’s participation in the Loan.

	(b)	If a Market Disruption Event specified in clause 7.8.2(b) occurs in relation to the Loan for any Interest Period, then the rate of interest on each Notified Lender’s share of the Loan for the Interest Period shall be the percentage rate per annum which is the sum of:

		(i)	the applicable Margin;

		(ii)	the rate notified to the Facility Agent by that Notified Lender as soon as practicable and in any event before interest is due to be paid in respect of that Interest Period, to be that which expresses as a percentage rate per annum the cost to that Notified Lender of funding its participation in the Loan from whatever source it may reasonably select; and

		(iii)	the Mandatory Cost, if any, applicable to that Notified Lender’s participation in the Loan.

7.8.2	In this Agreement Market Disruption Event means:

	(a)	at or about 11.00 am London time two (2) Banking Days before the first day of the relevant Interest Period neither the Screen Rate nor the Interpolated Screen Rate is available and none or only one of the Reference Banks supplies a rate to the Facility Agent to determine LIBOR for the relevant currency and Interest Period; or

	(b)	before close of business in London two (2) Banking Days before the first day of the relevant Interest Period, the Facility Agent receives notifications from a Facility Lender or Facility Lenders (whose participations in the Loan exceed fifty per cent. of the Loan or more) (each a Notified Lender) that the cost to it of obtaining matching deposits in the London interbank market would be in excess of LIBOR.

7.9	Alternative basis of interest or funding

7.9.1	If a Market Disruption Event occurs and the Facility Agent or the Borrower so requires, the Facility Agent and the Borrower shall enter into negotiations (for a period of not more than thirty days) with a view to agreeing a substitute basis for determining the rate of interest.



7.9.2	Any alternative basis agreed pursuant to clause 7.9.1 above shall:

	(a)	In the case of a Market Disruption Event specified in clause 7.8.2(a), with the prior consent of all the Facility Lenders and the Borrower, be binding on all parties; and

	(b)	In the case of a Market Disruption Event specified in clause 7.8.2(b), with the prior consent of all the Notified Lenders and the Borrower be binding on all parties (but such alternative basis shall not be applicable to the Facility Lenders which are not Notified Lenders).

7.10	Determinations conclusive

	The Facility Agent shall promptly notify the Borrower of the determination of a rate of interest under this clause 7 and each such determination shall (save in the case of manifest error) be final and conclusive.

8	Indemnities

8.1	Transaction expenses

	The Borrower will, within fourteen (14) days of the Facility Agent’s written demand, pay the Facility Agent (for the account of the Facility Beneficiaries, KEXIM, K-Sure and/or GIEK) the amount of all out of pocket costs and expenses (including legal fees, the cost of obtaining an initial insurance report (and of obtaining further insurance reports only if there is a material change in the terms of the Insurances or material change in the marine insurance market), and Value Added Tax or any similar or replacement tax if applicable) incurred by the Facility Beneficiaries, KEXIM, K-Sure and/or GIEK or any of them in connection with:

8.1.1	the negotiation, preparation, printing, execution, syndication administration and registration of the Facility Documents, the KEXIM Guarantee, the K-Sure Insurance Policy, the GIEK Guarantee and the Hedging Agreements (whether or not any Facility Document, the KEXIM Guarantee, the K-Sure Insurance Policy, the GIEK Guarantee or Hedging Agreement is actually executed or registered and whether or not an Advance is made);

8.1.2	any amendment, addendum or supplement to any Facility Document, the KEXIM Guarantee, the K-Sure Insurance Policy, the GIEK Guarantee or Hedging Agreement (whether or not completed); and

8.1.3	any other document which may at any time be reasonably required by a Facility Beneficiary, KEXIM, K-Sure and/or GIEK to give effect to any Facility Document, the KEXIM Guarantee, the K-Sure Insurance Policy, the GIEK Guarantee or Hedging Agreement or which a Facility Beneficiary, KEXIM, K-Sure and/or GIEK is entitled to call for or obtain under any Facility Document, the KEXIM Guarantee, the K-Sure Insurance Policy, the GIEK Guarantee or Hedging Agreement.

8.2	Funding costs

	The Borrower shall indemnify each Facility Beneficiary, by payment to the Facility Agent (for the account of that Facility Beneficiary) on the Facility Agent’s written demand, against all losses and costs incurred or sustained by that Facility Beneficiary if, for any reason due to a default or other action by the Borrower, an Advance is not made to the Borrower after the relevant Drawdown Notice has been given to the Facility Agent, or is advanced on a date other than that requested in the Drawdown Notice.

8.3	Break Costs

	As a result of a Facility Beneficiary receiving any prepayment of all or any part of the Loan (whether pursuant to clause 6 or otherwise) on a day other than the last day of an Interest Period, or any other payment under or in relation to the Facility Documents on a day other than the due date for payment of the sum in question, the Borrower shall indemnify each Facility Beneficiary, by payment to the Facility Agent (for the account of that Facility Beneficiary) within three (3) Banking Days of the Facility Agent’s written demand, against all documented costs, losses, premiums or penalties incurred by that Facility Beneficiary, including (without limitation) the Break Costs, any losses or costs incurred in liquidating or re-employing deposits from third parties acquired to effect or maintain all or any part of the Loan.



8.4		Currency indemnity

		In the event of a Facility Beneficiary receiving or recovering any amount payable under a Facility Document in a currency other than the Currency of Account, and if the amount received or recovered is insufficient when converted into the Currency of Account at the date of receipt to satisfy in full the amount due, the Borrower shall, on the Facility Agent’s written demand, pay to the Facility Agent for the account of the relevant Facility Beneficiary such further amount in the Currency of Account as is sufficient to satisfy in full the amount due and that further amount shall be due to the Facility Agent on behalf of the relevant Facility Beneficiary as a separate debt under this Agreement.

8.5		Increased costs (subject to clause 8.6)

		If, by reason of any Change in Law:

8.5.1		a Facility Beneficiary (or the holding company of a Facility Beneficiary) shall be subject to any Tax with respect to payment of all or any part of the Indebtedness (other than Tax on overall net income); or

8.5.2		the basis of Taxation of payments to a Facility Beneficiary in respect of all or any part of the Indebtedness shall be changed; or

8.5.3		any reserve requirements shall be imposed, modified or deemed applicable against assets held by or deposits in or for the account of or loans by any branch of a Facility Beneficiary; or

8.5.4		the manner in which a Facility Beneficiary allocates capital resources to its obligations under this Agreement or any ratio (whether cash, capital adequacy, liquidity or otherwise) which a Facility Beneficiary is required or requested to maintain shall be affected; or

8.5.5		there is imposed on a Facility Beneficiary (or on the holding company of a Facility Beneficiary) by an unconnected third party any other condition in relation to the Indebtedness or the Facility Documents;

		and the result of any of the above shall be to increase the cost to a Facility Beneficiary (or to the holding company of a Facility Beneficiary) of that Facility Beneficiary making or maintaining its Commitment, or to cause a Facility Beneficiary (or to the holding company of a Facility Beneficiary) to suffer (in its opinion) a material reduction in the rate of return on its overall capital below the level which it reasonably anticipated at the date of this Agreement and which it would have been able to achieve but for its entering into this Agreement and/or performing its obligations under this Agreement, then, subject to clause 8.6, the Facility Beneficiary affected shall notify the Facility Agent and the Borrower shall from time to time pay to the Facility Agent on demand for the account of that Facility Beneficiary the amount which shall compensate that Facility Beneficiary (or the relevant holding company) for such additional cost or reduced return. A certificate signed by an authorised signatory of that Facility Beneficiary setting out the amount of that payment and the basis of its calculation shall be submitted to the Borrower and shall be conclusive evidence of such amount save for manifest error or on any question of law.

8.6		Exceptions to increased costs

		Clause 8.5 does not apply to the extent any additional cost or reduced return referred to in that clause is:

8.6.1		compensated for by a payment made under clause 8.12; or

8.6.2		compensated for by a payment made under clause 17.3; or



8.6.3	compensated for by the payment of the Mandatory Cost; or

8.6.4	attributable to the wilful breach by the relevant Facility Beneficiary (or the holding company of that Facility Beneficiary) of any law or regulation; or

8.6.5	compensated by a payment under clause 17.9; or

8.6.6	compensated by a payment under clause 17.10.2; or

8.6.7	compensated for by a payment made under clause 17.10.4.

8.7	Events of Default

	The Borrower shall indemnify each Facility Beneficiary, KEXIM, K-Sure and/or GIEK from time to time, by payment to the Facility Agent (for the account of that Facility Beneficiary, KEXIM, K-Sure and/or GIEK) on the Facility Agent’s written demand, against all losses and costs incurred or sustained by that Facility Beneficiary, KEXIM, K-Sure and/or GIEK as a consequence of any Event of Default.

8.8	Enforcement costs

	The Borrower shall pay to the Facility Agent (for the account of each Facility Beneficiary, KEXIM, K-Sure and/or GIEK) on the Facility Agent’s written demand the amount of all costs and expenses (including legal fees) incurred by a Facility Beneficiary, KEXIM, K-Sure and/or GIEK in connection with the enforcement of, or the preservation of any rights under, any Facility Document, the KEXIM Guarantee, the K-Sure Insurance Policy and/or the GIEK Guarantee including (without limitation) any losses, costs and expenses which that Facility Beneficiary, KEXIM, K-Sure and/or GIEK may from time to time sustain, incur or become liable for by reason of that Facility Beneficiary, KEXIM, K-Sure and/or GIEK being mortgagee of the Vessel and/or a lender to the Borrower, or by reason of that Facility Beneficiary, KEXIM, K-Sure and/or GIEK being deemed by any court or authority to be an operator or controller, or in any way concerned in the operation or control, of the Vessel. No such indemnity will be given where any such loss or cost has occurred due to gross negligence or wilful misconduct on the part of that Facility Beneficiary, KEXIM, K-Sure and/or GIEK; however, this shall not affect the right of any other Facility Beneficiary, KEXIM, K-Sure and/or GIEK to receive such indemnity.

8.9	Other costs

	The Borrower shall pay to the Facility Agent (for the account of each Facility Beneficiary) on the Facility Agent’s written demand the amount of all sums which a Facility Beneficiary may pay or become actually or contingently liable for on account of the Borrower in connection with the Vessel (whether alone or jointly or jointly and severally with any other person) including (without limitation) all sums which that Facility Beneficiary may pay or guarantees which it may give in respect of the Insurances, any expenses incurred by that Facility Beneficiary in connection with the maintenance or repair of the Vessel or in discharging any lien, bond or other claim relating in any way to the Vessel, and any sums which that Facility Beneficiary may pay or guarantees which it may give to procure the release of the Vessel from arrest or detention.

8.10	General indemnity

8.10.1	The Borrower hereby agrees at all times to pay promptly or, as the case may be, indemnify and hold the Facility Beneficiaries, KEXIM, K-Sure, GIEK and the Related Companies of any Facility Beneficiary, KEXIM, K-Sure, GIEK and each of them and their respective officers, directors, representatives, agents and employees (together the Indemnified Parties) harmless on a full indemnity basis from and against each and every Loss suffered or incurred by or imposed on any Indemnified Party related to or arising out of:

	(a)	the use of proceeds of the Facility;


	(b)	the execution and delivery of any commitment letter, engagement letter, fee letter, the Facility Documents or any other document connected therewith or the performance of the respective obligations thereunder, including without limitation environmental liabilities; or

	(c)	any claim, action, suit, investigation or proceeding relating to the foregoing or the Security Parties, whether or not any Indemnified Party is a party thereto or target thereof, or the Indemnified Parties’ roles in connection therewith, and will reimburse the Indemnified Parties, on demand, for all reasonable expenses (including reasonable counsel fees and expenses) as they are incurred by the Indemnified Parties in connection with investigating, preparing for or defending any such claim, action, suit or proceeding (including any security holder actions or proceeding, inquiry or investigation), whether or not in connection with pending or threatened litigation in which the Security Parties are a party.

8.10.2	The Borrower will not, however, be responsible for any claims, liabilities, losses, damages or expenses of an Indemnified Party that are finally judicially determined by a court of competent jurisdiction to have resulted principally from the wilful misconduct or gross negligence by such Indemnified Party.

8.10.3	The foregoing shall be in addition to any rights that the Indemnified Parties may have at common law or otherwise and shall extend upon the same terms to and inure to the benefit of any affiliate, director, officer, employee, agent or controlling person of an Indemnified Party.

8.11	Environmental indemnity

	The Borrower shall indemnify on demand and hold harmless each of the Indemnified Parties in respect of each and every Loss, of whatever nature (including, without limitation, those arising under Environmental Laws) which may be incurred or made against the Indemnified Parties at any time relating to, or arising directly or indirectly in any manner or for any cause or reason whatsoever out of an Environmental Claim relating to the Vessel, the Borrower, the Bareboat Charterer and/or the Operator made or asserted against the Indemnified Parties which would or could not have been brought if the Indemnified Parties had not entered into any of the Facility Documents or been involved in any of the transactions contemplated by the Facility Documents. To the extent that an Indemnified Party would be entitled to recover an Loss under clause 8.10 and/or this clause 8.11, that Indemnified Party shall not be entitled to recover for that Loss or payment twice.

8.12	Taxes

	The Borrower shall pay all Taxes to which all or any part of the Facility Secured Obligations, any Facility Document, the KEXIM Guarantee, the K-Sure Insurance Policy and/or the GIEK Guarantee may be at any time subject (other than Tax on a Facility Beneficiary’s, KEXIM’s, K-Sure’s and/or GIEK’s overall net income) and shall indemnify the Facility Beneficiaries, KEXIM, K-Sure and GIEK, by payment to the Facility Agent (for the account of the Facility Beneficiaries, KEXIM, K-Sure and GIEK) on the Facility Agent’s written demand, against all liabilities, costs, claims and expenses resulting from any omission to pay or delay in paying any such Taxes.

8.13	K-Sure

	The Borrower agrees, and shall procure that the other Security Parties agree, that if K-Sure makes a payment to the K-Sure Facility Lenders (whether through the K-Sure Agent or otherwise) pursuant to the K-Sure Insurance Policy, the K-Sure Facility Lenders (whether through the K-Sure Agent or otherwise) may act on the instructions of K-Sure and the Security Parties shall have no claims whatsoever in respect of any loss, damage or expense suffered or incurred by them as a result thereof.

8.14	KEXIM

	The Borrower agrees, and shall procure that the other Security Parties agree, that if KEXIM makes a payment to the KEXIM Guarantee Facility Lenders (whether through the KEXIM Guarantee Agent or otherwise) pursuant to the KEXIM Guarantee, the KEXIM Guarantee Facility Lenders (whether through the KEXIM Guarantee Agent or otherwise) may act on the instructions of KEXIM and the Security Parties shall have no claims whatsoever in respect of any loss, damage or expense suffered or incurred by them as a result thereof.



8.15		GIEK

		The Borrower agrees, and shall procure that the other Security Parties agree, that if GIEK makes a payment to the GIEK Facility Lenders (whether through the GIEK Agent or otherwise) pursuant to the GIEK Guarantee, the GIEK Facility Lenders (whether through the GIEK Agent or otherwise) may act on the instructions of GIEK and the Security Parties shall have no claims whatsoever in respect of any loss, damage or expense suffered or incurred by them as a result thereof.

9		Fees

9.1		Commitment fee

9.1.1		The Borrower shall pay to the Facility Agent (for the account of the Facility Lenders in proportion to their undrawn Commitments) a commitment fee at a per annum rate of thirty per cent. (30%) of the applicable Margin on the daily undrawn and uncancelled amount of the Total Commitments accruing from the date of this Agreement until the end of the Availability Period.

9.1.2		The Borrower shall pay to the Facility Agent (for the account of GIEK) a commitment fee at a per annum rate of thirty per cent. (30%) of the GIEK Premium on the daily undrawn and uncancelled amount of the Total GIEK Facility Commitments accruing from the date of this Agreement until the end of the Availability Period.

9.1.3		The accrued Commitment Fee is payable in arrears on the last day of each successive period of three (3) months commencing from the date of this Agreement and ending on the last day of the Availability Period.

9.2		Upfront fee

		The Borrower shall pay any other fees set out in the Fee Letter in the amount and at the times agreed in the applicable Fee Letter.

9.3		Agency fee

		The Borrower shall pay to the Facility Agent an agency fee in the amount and at the times agreed in a Fee Letter.

9.4		K-Sure Premium

9.4.1		The Borrower acknowledges that the K-Sure Facility Lenders shall procure the placement of the K-Sure Insurance Policy either through the K-Sure Agent or directly with K-Sure and shall benefit from it throughout the duration of the Facility Security Period. The Borrower agrees to pay to the Facility Agent (for the account of K-Sure) the K-Sure Premium applicable to each K-Sure Facility Advance on or prior to the Drawdown Date of the first Advance.

9.4.2		The Borrower agrees that its obligation to make the payments set out in clause 9.4.1 to the Facility Agent in respect of the K-Sure Premium (or any part thereof) shall be an absolute obligation and shall not be affected by any matter whatsoever. The K-Sure Premium (or any part thereof) shall not be refundable except in accordance with the terms of the relevant K-Sure Insurance Policy and K-Sure’s internal regulations.

9.4.3		The Borrower acknowledges that the amount of the K-Sure Premium will be solely determined by K-Sure and no Facility Beneficiary is in any way involved in the determination of the amount of the K-Sure Premium and agrees that the Borrower shall have no claim or defence against any Facility Beneficiary in connection with the amount of the K-Sure Premium.



9.5		KEXIM Guarantee Premium

9.5.1		The Borrower acknowledges that the KEXIM Guarantee Facility Lenders shall procure the placement of the KEXIM Guarantee either through the KEXIM Guarantee Agent or directly with KEXIM and shall benefit from it throughout the duration of the Facility Security Period. The Borrower agrees to pay to the Facility Agent (for the account of KEXIM) the KEXIM Guarantee Premium applicable to each KEXIM Facility Advance on or prior to the Drawdown Date of the first Advance.

9.5.2		The Borrower agrees that its obligation to make the payments set out in clause 9.5.1 to the Facility Agent in respect of the KEXIM Guarantee Premium (or any part thereof) shall be an absolute obligation and shall not be affected by any matter whatsoever. The KEXIM Guarantee Premium (or any part thereof) shall not be refundable except in accordance with the terms of the relevant KEXIM Guarantee and KEXIM’s internal regulations.

9.5.3		The Borrower acknowledges that the amount of the KEXIM Guarantee Premium will be solely determined by KEXIM and no Facility Beneficiary is in any way involved in the determination of the amount of the KEXIM Guarantee Premium and agrees that the Borrower shall have no claim or defence against any Facility Beneficiary in connection with the amount of the KEXIM Guarantee Premium.

9.6		GIEK Premium

9.6.1		The Borrower acknowledges that the GIEK Facility Lenders shall procure the issue of the GIEK Guarantee either through the GIEK Agent or directly with GIEK and shall benefit from it throughout the duration of the Facility Security Period. The Borrower agrees to pay to the Facility Agent (for the account of GIEK) the GIEK Premium on each Interest Payment Date.

9.6.2		The Borrower agrees that its obligation to make the payments set out in clause 9.6.1 to the Facility Agent in respect of the GIEK Premium (or any part thereof) shall be an absolute obligation and shall not be affected by any matter whatsoever. The GIEK Premium (or any part thereof) shall not be refundable except in accordance with the terms of the GIEK Guarantee and GIEK’s internal regulations.

9.6.3		The Borrower acknowledges that the amount of the GIEK Premium will be solely determined by GIEK and no Facility Beneficiary is in any way involved in the determination of the amount of the GIEK Premium and agrees that the Borrower shall have no claim or defence against any Facility Beneficiary in connection with the amount of the GIEK Premium.

10		Security and Application of Moneys

10.1		Facility Security Documents

		As security for the payment of the Facility Secured Obligations, the Borrower shall execute and deliver to the Facility Security Trustee or cause to be executed and delivered to the Facility Security Trustee at the relevant time, the following documents in such forms and containing such terms and conditions as the Facility Security Trustee shall require:

10.1.1		a first priority statutory mortgage over the Vessel together with a collateral deed of covenants;

10.1.2		a first priority deed of assignment and charge over the Construction Contract, Framo Contract, Refund Guarantee and Insurance Proceeds and Total Loss Proceeds payable to the Borrower under the Construction Contract;

10.1.3		a first priority deed of assignment of the Insurances, Earnings, Bareboat Charter, Purchase Option Agreement and Requisition Compensation of the Vessel, and of the benefit of the Bareboat Charterer Assignment (which includes an assignment of earnings under the Charter);



10.1.4	an irrevocable, unconditional, first priority on demand guarantee and indemnity from TOO, Teekay and/or, as the case may be, the Additional Sponsor;

10.1.5	a first priority charge from the Shareholder over all the membership interests in the Borrower and all the shares in the Bareboat Charterer;

10.1.6	a first priority deed of charge over the Hedging Agreements;

10.1.7	a first priority account charge in respect of the Earnings Account;

10.1.8	a first priority account charge in respect of the Bareboat Charterer Earnings Account; and

10.1.9	a quiet enjoyment undertaking from the Charterer.

10.2	Remittance of Revenue

	At all times during the Facility Security Period, the Borrower shall procure that each Advance, all Revenue, Insurance Proceeds, Total Loss Proceeds, any amounts of cancellation fee or option fee payable under or pursuant to the Charter, amounts payable under or pursuant to the Purchase Option Agreement, amounts payable under or pursuant to the Construction Contract, amounts payable under or pursuant to the Framo Contract and amounts payable under or pursuant to the Refund Guarantee are paid to the Earnings Account or the Bareboat Charterer Earnings Account or such other account as the Facility Agent shall from time to time specify by notice in writing to the Borrower.

10.3	General application of moneys

	Without prejudice to the order of priority as set forth in the K-Sure Insurance Policy that should be applicable as between K-Sure and the K-Sure Facility Lenders in respect of, amongst others, the application order of the collected sums, whilst an Event of Default is continuing unremedied or unwaived the Borrower irrevocably authorises the Facility Agent and the Facility Security Trustee to apply all sums which either of them may receive:

10.3.1	pursuant to a sale or other disposition of the Vessel or any right, title or interest in the Vessel; or

10.3.2	by way of payment of any sum in respect of the Insurances, Earnings, Revenue or Requisition Compensation; or

10.3.3	otherwise arising under or in connection with any Facility Document,

	in or towards satisfaction, or by way of retention on account, of the Facility Secured Obligations, as follows:

		(i)	first in payment of all outstanding fees and expenses of the Facility Agent, the K-Sure Agent, the GIEK Agent, the KEXIM Guarantee Agent and the Facility Security Trustee;

		(ii)	secondly in or towards payment on a pari passu and pro rata basis to the Facility Beneficiaries (other than the Hedging Providers) of an amount equal to the Facility Secured Obligations (but excluding any Hedging Secured Obligations);

		(iii)	thirdly in or towards payment on a pari passu and pro rata basis to the Hedging Providers, of an amount equal to the Hedging Secured Obligations; and

		(iv)	the balance, if any, shall be remitted to the Borrower.


11		Representations and Warranties

		The Borrower represents and warrants to each of the Facility Beneficiaries at the date of this Agreement and (by reference to the facts and circumstances then pertaining) at the date of each Drawdown Notice, at each Drawdown Date and at each Interest Payment Date as follows (except that the representation and warranty contained at clause 11.2 shall only be made on the date of this Agreement and the representations and warranties contained at clauses 11.6 and 11.18 shall only be repeated on each Drawdown Date):

11.1		Status and Due Authorisation

		Each of the Security Parties is a corporation, limited liability company or limited partnership duly incorporated or formed under the laws of its jurisdiction of incorporation, organisation or formation (as the case may be) with power to enter into the Facility Documents and to exercise its rights and perform its obligations under the Facility Documents and all corporate and other action required to authorise its execution of the Facility Documents and its performance of its obligations thereunder has been duly taken.

11.2		No Deductions or Withholding

		Under the laws of the Security Parties’ respective jurisdictions of incorporation or formation in force at the date hereof, none of the Security Parties will be required to make any deduction or withholding from any payment it may make under any of the Facility Documents.

11.3		Claims Pari Passu

		Under the laws of the Security Parties’ respective jurisdictions of incorporation or formation in force at the date hereof, the Facility Secured Obligations will, to the extent that it exceeds the realised value of any security granted in respect of the Facility Secured Obligations, rank at least pari passu with all the Security Parties’ other unsecured indebtedness save that which is preferred solely by any bankruptcy, insolvency or other similar laws of general application.

11.4		No Immunity

		In any proceedings taken in any of the Security Parties’ respective jurisdictions of incorporation or formation in relation to any of the Facility Documents, none of the Security Parties will be entitled to claim for itself or any of its assets immunity from suit, execution, attachment or other legal process.

11.5		Governing Law and Judgments

		In any proceedings taken in any of the Security Parties’ jurisdiction of incorporation or formation in relation to any of the Facility Documents in which there is an express choice of the law of a particular country as the governing law thereof, that choice of law and any judgment or (if applicable) arbitral award obtained in that country will be recognised and enforced.

11.6		Validity and Admissibility in Evidence

		As at each Drawdown Date, all acts, conditions and things required to be done, fulfilled and performed in order (a) to enable each of the Security Parties lawfully to enter into, exercise its rights under and perform and comply with the obligations expressed to be assumed by it in the Facility Documents, (b) to ensure that the obligations expressed to be assumed by each of the Security Parties in the Facility Documents are legal, valid and binding and (c) to make the Facility Documents admissible in evidence in the jurisdictions of incorporation or formation of each of the Security Parties, have been done, fulfilled and performed.



11.7		No Filing or Stamp Taxes

		Under the laws of the Security Parties’ respective jurisdictions of incorporation or formation in force at the date hereof, it is not necessary that any of the Facility Documents be filed, recorded or enrolled with any court or other authority in its jurisdiction of incorporation or formation (other than the relevant maritime registry, to the extent applicable) or that any stamp, registration or similar tax be paid on or in relation to any of the Facility Documents.

11.8		Binding Obligations

		The obligations expressed to be assumed by each of the Security Parties in the Facility Documents are legal and valid obligations, binding on each of them in accordance with the terms of the Facility Documents and no limit on any of their powers will be exceeded as a result of the borrowings, granting of security or giving of guarantees contemplated by the Facility Documents or the performance by any of them of any of their obligations thereunder.

11.9		No Winding-up

		The Borrower has not taken any corporate or limited partnership action nor have any other steps been taken or legal proceedings been started or (to the best of the Borrower’s knowledge and belief) threatened against the Borrower for its winding-up, dissolution, administration or reorganisation or for the appointment of a receiver, administrator, administrative receiver, trustee or similar officer of it or of any or all of its assets or revenues which might have a material adverse effect on the business or financial condition of any Group taken as a whole.

11.10		Solvency

11.10.1		Neither the Borrower nor any Group taken as a whole is unable, or admits or has admitted its inability, to pay its debts or has suspended making payments in respect of any of its debts.

11.10.2		Neither the Borrower nor any Group taken as a whole has by reason of actual or anticipated financial difficulties, commenced, or intends to commence, negotiations with one or more of its creditors with a view to rescheduling any of its indebtedness.

11.10.3		The value of the assets of each of the Borrower and any Group taken as a whole is not less than the liabilities of such entity or any Group taken as a whole (as the case may be) (taking into account contingent and prospective liabilities).

11.10.4		No moratorium has been, or may, in the reasonably foreseeable future be, declared in respect of any indebtedness of the Borrower or of any Group taken as a whole.

11.11		No Material Defaults

11.11.1		Without prejudice to clause 11.11.2, the Borrower is not in breach of or in default under any agreement to which it is a party or which is binding on it or any of its assets or any Applicable Law to an extent or in a manner which might have a material adverse effect on the business or financial condition of any Group taken as a whole.

11.11.2		No Default is continuing or might reasonably be expected to result from the making of any Advance.

11.12		No Material Proceedings

		No action or administrative proceeding of or before any court, arbitral body or agency which is not covered by adequate insurance or which might have a material adverse effect on the business or financial condition of any Group taken as a whole has been started or is reasonably likely to be started.



11.13		No Obligation to Create Security



	The execution of the Facility Documents by the Security Parties and their exercise of their rights and performance of their obligations thereunder will not result in the existence of nor oblige the Borrower to create any Security Interest (other than a Permitted Security Interest) over all or any of their present or future revenues or assets, other than pursuant to the Facility Security Documents.

11.14	No Breach

	The execution of the Facility Documents by each of the Security Parties and their exercise of their rights and performance of their obligations under any of the Facility Documents do not constitute and will not result in any breach of any agreement or treaty to which any of them is a party.

11.15	Security

	Each of the Security Parties is the legal and beneficial owner of all assets and other property which it purports to charge, mortgage, pledge, assign or otherwise secure pursuant to each Facility Security Document and those Facility Security Documents to which it is a party create and give rise to valid and effective security having the ranking expressed in those Facility Security Documents.

11.16	Necessary Authorisations

	The Necessary Authorisations required by each Security Party are in full force and effect, and each Security Party is in compliance with the material provisions of each such Necessary Authorisation relating to it and, to the best of its knowledge, none of the Necessary Authorisations relating to it are the subject of any pending or threatened proceedings or revocation.

11.17	Money Laundering

	Any amount borrowed hereunder, and the performance of the obligations of the Security Parties under the Facility Documents, will be for the account of members of each Group and will not involve any breach by any of them of any law or regulatory measure relating to “money laundering” as defined in Article 1 of the Directive (2005/60/EEC) of the Council of the European Communities.

11.18	Disclosure of material facts

	(a)	The Borrower is not aware of any material facts or circumstances which:

		(i)	have not been disclosed to the Facility Agent; and

		(ii)	if disclosed, might have reasonably been expected to adversely affect the decision of a person considering whether or not to make loan facilities of the nature contemplated by this Agreement available to the Borrower and/or issue the K-Sure Insurance Policy, the KEXIM Guarantee and/or issue the GIEK Guarantee.

	(b)	All information provided by any Security Party or member of any Group to any of the Facility Beneficiaries in connection with the Transaction Documents or the transactions referred to therein is accurate and correct in all material respects at the time it was given or made.

11.19	Use of Facility

	The Facility will be used for the purposes specified in the Recital.



11.20	FATCA

	Neither it nor any Security Party is a FATCA FFI or a US Tax Obligor provided that, in the absence of dishonesty, wilful misconduct or gross negligence and without prejudice to any other remedies available to the Facility Beneficiaries, a misrepresentation under or breach of this clause 11.20 shall be disregarded for the purpose of determining whether an Event of Default or Default has occurred.

11.21	Taxation

11.21.1	Each of the Security Parties is not materially overdue in the filing of any Tax returns and each Security Party is not overdue in the payment of any amount in respect of Tax of five million Dollars ($5,000,000) (or its equivalent in any other currency) or more, save in the case of Taxes which are being contested on bona fide grounds.

11.21.2	No claims or investigations are being made or conducted against any Security Party with respect to Taxes such that a liability of, or claim against, any Security Party is reasonably likely to arise.

11.22	Antisocial Forces

11.22.1	None of the directors, managers or other employees or consultants who control or have the ability to control each of the Security Parties (a) belong to, or have a direct or indirect relationship with, any Antisocial Forces, (b) have received any commission from or have delegated any responsibilities to any Antisocial Forces, or (c) have provided, offered to fund, support or otherwise provide benefits to any Antisocial Forces.

11.22.2	no member of any Antisocial Forces and no person under the control of any Antisocial Forces:

	(a)	has any relationship with;

	(b)	owns any shares in; or

	(c)	is in a position to affect the business of, each of the Security Parties.

11.23	Representations Limited

	The representation and warranties of the Borrower in this clause 11 are subject to:

11.23.1	the principle that equitable remedies are remedies which may be granted or refused at the discretion of the court;

11.23.2	the limitation of enforcement by laws relating to bankruptcy, insolvency, liquidation, reorganisation, court schemes, moratoria, administration and other laws generally affecting or limiting the rights of creditors;

11.23.3	the time barring of claims under any applicable limitation acts;

11.23.4	the possibility that a court may strike out provisions for a contract as being invalid for reasons of oppression, undue influence or similar; and

11.23.5	any other reservations or qualifications of law expressed in any legal opinions obtained by the Facility Agent in connection with the Facility.



12	Undertakings and Covenants

	The undertakings and covenants in this clause 12 remain in force for the duration of the Facility Security Period.

12.1	General Undertakings

12.1.1	Financial statements

	The Borrower shall supply to the Facility Agent as soon as the same become available, but in any event within one hundred and eighty (180) days after the end of each of its financial years, its audited consolidated financial statements for that financial year, prepared in accordance with GAAP, and cashflows.

12.1.2	Interim financial statements

	The Borrower shall supply to the Facility Agent as soon as the same become available, but in any event within one hundred and twenty (120) days after the end of each fiscal quarter year during each of its financial years, its unaudited quarterly consolidated financial statements for that fiscal quarter, signed by a duly authorised representative of the Borrower, and cashflows.

12.1.3	Maintenance of Legal Validity

	The Borrower shall obtain, comply with the terms of and do all that is necessary to maintain in full force and effect:

	(a)	all authorisations, approvals, licences and consents required in or by the laws and regulations of its jurisdiction of formation and all other applicable jurisdictions, to enable it lawfully to enter into and perform its obligations under the Facility Documents and to ensure the legality, validity, enforceability or admissibility in evidence of the Facility Documents in its jurisdiction of incorporation or organisation and all other applicable jurisdictions; and

	(b)	the Earnings Account.

12.1.4	Notification of Default

	The Borrower shall promptly, upon becoming aware of the same, inform the Facility Agent in writing (who shall in turn notify all the Facility Lenders, the K-Sure Agent (who shall in turn notify K-Sure), the GIEK Agent (who shall in turn notify GIEK) and the KEXIM Guarantee Agent (who shall in turn notify KEXIM) of the occurrence of any Event of Default and, upon receipt of a written request to that effect from the Facility Agent, confirm to the Facility Agent that, save as previously notified to the Facility Agent or as notified in such confirmation, no Event of Default has occurred.

12.1.5	Other notifications

	The Borrower shall promptly, upon becoming aware of the same, inform the Facility Agent in writing of any Environmental Claim pending or made against it or any of its Environmental Affiliates or in connection with the Vessel.

12.1.6	Claims Pari Passu

	The Borrower shall ensure that at all times the claims of the Facility Beneficiaries against it under the Facility Documents rank at least pari passu with the claims of all its other unsecured creditors save those whose claims are preferred by any bankruptcy, insolvency, liquidation, winding-up or other similar laws of general application.

12.1.7	Management of Vessel

	With effect from the Delivery Date, the Borrower shall ensure that the Vessel is at all times technically and commercially managed by the Operator in accordance with good industry standards.

12.1.8	Classification

	With effect from the Delivery Date, the Borrower shall ensure that the Vessel maintains the highest classification required for the purpose of the relevant trade of the Vessel which shall be with a Classification Society free from any overdue recommendations and conditions affecting the Vessel’s class.



	12.1.9			Operator

				The Borrower shall ensure that the only entity operating the Vessel shall be (i) the Operator, (ii) another company in the Teekay Group or TOO Group, or (iii) another person acceptable to the Facility Agent (acting on the instructions of all the Facility Lenders, acting reasonably), KEXIM, K-Sure and GIEK which has become party to an Operations Agreement.

	12.1.10			Sanctions

				The Borrower understands that the Facility Lenders – be it due to applicable laws or internal rules and regulations, are prohibited from conducting transactions, including finance transactions, with the government of or any person or entity owned or controlled by the government of Restricted Countries or Restricted Persons.

				The Borrower shall procure that each Security Party shall not transfer, make use of or provide the benefits of any money, proceeds or services provided by or received from the Facility Lenders to any Restricted Persons or conduct any business activity (such as entering into any ship acquisition agreement, any ship refinancing agreement and/or any charter agreement) related to a vessel, project asset or otherwise for which money, proceeds or services have been received from the Facility Lenders with any Restricted Persons.

				In this clause 12.1.10, Restricted Countries means Cuba, Iran, Myanmar, North Korea, Sudan and Syria and any additional countries notified by any Facility Lender to the Borrower based on respective sanctions being imposed by the United States Treasury Department’s Office of Foreign Assets Control (“OFAC”) or any of the regulatory bodies referred to in the definition of Restricted Persons. Restricted Persons means persons, entities or any other parties: (i) located, domiciled, resident or incorporated in Restricted Countries; (ii) subject to any sanction administrated by the United Nations, the European Union, the State Secretariat for Economic Affairs of Switzerland (“SECO”) or the Swiss Directorate of International Law, OFAC, HM Treasury of the United Kingdom, the Monetary Authority of Singapore (“MAS”) and the Hong Kong Monetary Authority (“HKMA”) and/or any other applicable country; and/or (iii) owned or controlled by or affiliated with persons, entities or any other parties as referred to in (i) and (ii).

	12.1.11			Negative Pledge

				With effect from the Drawdown Date of the first Advance, the Borrower shall not create, or permit to subsist, any Security Interest over all or any part of its assets (including but not limited to the Vessel and the Insurances) other than a Permitted Security Interest.

	12.1.12			Registration

				The Borrower shall not for the duration of the Facility Security Period (with effect from the Delivery Date) change or permit a change to the flag of the Vessel other than to a Flag State and/or bring its centre of main interests into the European Union or any country with which a Facility Lender is prohibited from doing business and which has been notified to the Facility Agent.

	12.1.13			ISM and ISPS Compliance

				With effect from seven (7) days after the Delivery Date, the Borrower shall comply in all material respects with the ISM Code and the ISPS Code or any replacements thereof and in particular (without prejudice to the generality of the foregoing) shall procure that the Operator holds (i) a valid and current DOC issued pursuant to the ISM Code, (ii) a valid and current SMC issued in respect of the Vessel pursuant to the ISM Code, and (iii) an ISSC in respect of the Vessel, and the Borrower shall promptly, upon request, supply the Facility Agent with copies of the same.



	12.1.14			Necessary Authorisations

				Without prejudice to any specific provision of the Facility Documents relating to an Authorisation, the Borrower shall (i) obtain, comply with and do all that is necessary to maintain in full force and effect all Necessary Authorisations if a failure to do the same may cause a Material Adverse Effect; and (ii) promptly upon request, supply certified copies to the Facility Agent of all Necessary Authorisations.

	12.1.15			Compliance with Applicable Laws

				The Borrower, and parties acting on its behalf, shall comply with (i) all material provisions of all applicable laws to which it may be subject (including, but not limited to, Environmental Laws, anti-bribery and corruption laws and anti-money laundering laws), (ii) Sections 276a to 276c of the Norwegian Criminal Code and (iii) the Equator Principles.

	12.1.16			Performance of Obligations

				The Borrower shall comply with the material provisions of all Project Documents in relation to the Vessel and in determining “material” the Facility Lenders will consider whether such non-compliance has a Material Adverse Effect.

	12.1.17			Further Assurance

				The Borrower shall, at its own expense, promptly take all such action as the Facility Agent may reasonably require for the purpose of perfecting or protecting any Facility Beneficiary’s rights with respect to the security created or evidenced (or intended to be created or evidenced) by the Facility Security Documents.

	12.1.18			Other information

				The Borrower will promptly supply to the Facility Agent each quarter commercial uptime figures relating to operations of the Vessel under the Charter and, at any time such other information and explanations as the Majority Facility Lenders may from time to time reasonably require in connection with the operation of the Vessel and any reasonable financial information in connection with the Borrower, and will procure that the Facility Agent be given the like information and explanations relating to all other Security Parties.

	12.1.19			Inspection of records

				The Borrower will permit the inspection of its financial records and accounts following an Event of Default which is continuing unremedied or unwaived from time to time during business hours by the Facility Agent or its nominee.

	12.1.20			Insurance

				With effect from the Delivery Date, the Borrower shall ensure at its own expense throughout the Facility Security Period that the Vessel is insured and operated in accordance with the provisions set out in the relevant Facility Security Documents.

	12.1.21			Change of Business

				Except as expressly permitted in the Facility Documents the Borrower shall not carry on any business, other than that of owning, chartering and operating the Vessel.

	12.1.22			No disposal of assets

				The Borrower shall not dispose of any of its material assets other than a sale of the Vessel which complies with clause 6.2.



	12.1.23			“Know your customer” checks



	If:

	(a)	the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made after the date of this Agreement;

	(b)	any change in the status of the Borrower after the date of this Agreement; or

	(c)	a proposed assignment or transfer by a Facility Lender of any of its rights and obligations under this Agreement to a party that is not a Facility Lender prior to such assignment or transfer,

	obliges the Facility Agent or any Facility Lender (or, in the case of (c) above, any prospective new Facility Lender) to comply with “know your customer” or similar identification procedures in circumstances where the necessary information is not already available to it, the Borrower shall promptly upon the request of the Facility Agent or any Facility Lender supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Facility Agent (for itself or on behalf of any Facility Lender) or any Facility Lender for itself (or, in the case of (c) above, on behalf of any prospective new Facility Lender) in order for the Facility Agent or that Facility Lender (or, in the case of (c) above, any prospective new Facility Lender) to carry out and be satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Facility Documents.

12.1.24	Borrowings

	With the exception of the Bridge Facility (but only until the Drawdown Date of the first Advance), the Borrower may only borrow:

	(a)	from members of the Teekay Group, TOO Group or the Additional Sponsor on a subordinated and unsecured basis;

	(b)	(subject to the prior written consent of the Facility Agent (acting on the instructions of the Majority Facility Lenders, KEXIM, K-Sure and GIEK)) from other parties for trade credit in the ordinary course of its business; and

	(c)	(subject to the prior written consent of the Facility Agent (acting on the instructions of the Majority Facility Lenders, KEXIM, K-Sure and GIEK)) from other parties in the ordinary course of its business and in an aggregate amount of no more than ten million Dollars ($10,000,000),

	provided always that no Event of Default has occurred and is continuing unremedied and unwaived and that no payments under or in connection with such borrowing shall be made by the Borrower:

		(i)	whilst an Event of Default has occurred and is continuing unremedied or unwaived; or

		(ii)	following breach of any of the covenants contained in this clause 12 or in clause 8 of a Financial Guarantee.

12.1.25	Enforcement of Obligations

	The Borrower shall take all reasonable steps to enforce its rights under the Bareboat Charter and any other agreements relating to the Vessel.



12.1.26	No dividends

	The Borrower shall not pay dividends or make other distributions to shareholders:

	(a)	whilst an Event of Default has occurred and is continuing unremedied or unwaived; or

	(b)	following breach of any of the covenants contained in this clause 12 or in clause 8 of a Financial Guarantee.

12.1.27	No Merger

	The Borrower shall not merge or consolidate with any other entity, split up or materially divest without the prior written consent of the Facility Agent (acting on the instructions of the Facility Lenders, KEXIM, K-Sure and GIEK).

12.1.28	No Material Amendment to Project Documents

	With the exception of:

	(a)	any Non-Material amendments or variations; and

	(b)	Addendum No.5,

	the Borrower shall not agree to any amendment, variation or termination of any of the Project Documents or Hedging Agreements to which it is a party without the prior written consent of the Majority Facility Lenders (such consent not to be unreasonably withheld) provided however, that in the case of the Charter, the prior written consent of each of KEXIM, K-Sure and GIEK (such consent not to be unreasonably withheld) shall also be required and, in the case of the Construction Contract prior to the Delivery Date only, the prior written consent of all the Facility Lenders (such consent not to be unreasonably withheld or delayed) shall be required.

12.1.29	Hedging

	Within thirty (30) days of the Drawdown Date for the final Advance, the Borrower shall enter into an interest rate hedging programme under one or more of the Hedging Agreements to hedge part of the floating rate interest exposure under the Facility.

12.1.30	Ownership

	The Borrower shall procure that its legal and beneficial ownership remains the same as advised to the Facility Agent on or about the date of this Agreement, other than permitted in accordance with the Facility Documents and if the ownership of any Security Party changes (other than pursuant to a Dropdown Date or Additional Sponsor Date), the Borrower shall supply a group structure chart detailing those changes to the Facility Agent.

12.1.31	No Material Proceedings

	The Borrower shall ensure that no litigation, arbitration or administrative proceeding on or before any court, arbitral body or agency against any member of the Group has been started or is reasonably likely to be started which have or, if adversely determined, are reasonably likely to have a Material Adverse Effect or which is not covered by adequate insurance.

12.1.32	Application of FATCA

	The Borrower shall promptly notify the Facility Agent if any Security Party becomes or ceases to be a FATCA FFI or a US Tax Obligor, provided that, in the absence of dishonesty, wilful misconduct or gross negligence and without prejudice to any other remedies available to the Facility Beneficiaries, a breach of this clause 12.1.32 shall be disregarded for the purpose of determining whether an Event of Default or Default has occurred.



12.1.33	Valuation

	From the Delivery Date, the Borrower shall supply to the Facility Agent as soon as the same become available but in any event within one hundred and eight (180) days after the end of each of its fiscal years, a Valuation in respect of the Vessel prepared at or around the end of its financial year, together with evidence that the Hull Cover Ratio is at least one hundred and twenty per cent. (120%) or, if at that time the Charter has been terminated (for any reason) and has not been replaced with a replacement charter and charterer acceptable to the Facility Agent (acting on the instructions of all the Facility Lenders) for a period of six (6) months, one hundred and forty five per cent. (145%).

12.1.34	K-Sure requirements

	(a)	The Borrower shall procure that no Security Party shall act (or omit to act) in a manner that is inconsistent with any requirement of K-Sure under or in connection with the K-Sure Insurance Policy and, in particular:

		(i)	each Security Party shall do all that is reasonably necessary to ensure that all requirements of K-Sure under or in connection with the K-Sure Insurance Policy are complied with; and

		(ii)	each Security Party will refrain from acting in any manner which could result in a breach of any requirements of K-Sure under or in connection with the K-Sure Insurance Policy or affect its validity.

	(b)	The Borrower shall promptly:

		(i)	notify the Facility Agent forthwith by facsimile (and thereafter confirmed by letter) of the occurrence of any event involving political or commercial risk covered by the K-Sure Insurance Policy; and

		(ii)	provide the Facility Agent and/or K-Sure Agent with copies of all financial or other information required by the Facility Agent and/or K-Sure Agent to satisfy any request for information by K-Sure pursuant to the K-Sure Insurance Policy.

12.1.35	K-Sure Policy protection

	If at any time in the opinion of the K-Sure Agent, any provision of a Facility Document contradicts or conflicts with any provision of the K-Sure Insurance Policy, the Borrower will:

	(a)	take all steps as the Facility Agent, the K-Sure Agent and/or K-Sure shall reasonably require to remove such contradiction or conflict; and

	(b)	take all steps as the Facility Agent, the K-Sure Agent and/or K-Sure shall reasonably require to ensure that the K-Sure Insurance Policy remains in full force and effect.

12.1.36	KEXIM requirements

	The Borrower shall procure that no Security Party shall act (or omit to act) in a manner that is inconsistent with any requirement of KEXIM under or in connection with the KEXIM Guarantee and, in particular:

	(a)	each Security Party shall do all that is reasonably necessary to ensure that all requirements of KEXIM under or in connection with the KEXIM Guarantee are complied with; and

	(b)	each Security Party will refrain from acting in any manner which could result in a breach of any requirements of KEXIM under or in connection with the KEXIM Guarantee or affect its validity.


12.1.37		KEXIM Guarantee protection

		If at any time in the opinion of the KEXIM Guarantee Agent, any provision of a Facility Document contradicts or conflicts with any provision of the KEXIM Guarantee, the Borrower will:

		(a)	take all steps as the Facility Agent, the KEXIM Guarantee Agent and/or KEXIM shall reasonably require to remove such contradiction or conflict; and

		(b)	take all steps as the Facility Agent, the KEXIM Guarantee Agent and/or KEXIM shall reasonably require to ensure that the KEXIM Guarantee remains in full force and effect.

	12.1.38	GIEK requirements

		The Borrower shall procure that no Security Party shall act (or omit to act) in a manner that is inconsistent with any requirement of GIEK under or in connection with the GIEK Guarantee and, in particular:

		(a)	each Security Party shall do all that is reasonably necessary to ensure that all requirements of GIEK under or in connection with the GIEK Guarantee are complied with; and

		(b)	each Security Party will refrain from acting in any manner which could result in a breach of any requirements of GIEK under or in connection with the GIEK Guarantee or affect its validity.

	12.1.39	GIEK Guarantee protection

		If at any time in the opinion of the GIEK Agent, any provision of a Facility Document contradicts or conflicts with any provision of the GIEK Guarantee, the Borrower will:

		(a)	take all steps as the Facility Agent, the GIEK Agent and/or GIEK shall reasonably require to remove such contradiction or conflict; and

		(b)	take all steps as the Facility Agent, the GIEK Agent and/or GIEK shall reasonably require to ensure that the GIEK Guarantee remains in full force and effect.

	12.1.40	Antisocial Forces

		The Borrower shall, and shall procure that each Security Party shall, not engage, directly or indirectly, in any of the following activities:

		(a)	any demand or claim under the threat of or with violence;

		(b)	any unreasonable demand or claim under the threat of actions that are not legally permissible; or

		(c)	any blackmail or assault, physical or oral; or

		(d)	any obstructive activities, including but not limited to disseminating false information or fraudulent activities for the purpose of harming the creditworthiness of the Security Parties or impeding business of the Security Parties; or

		(e)	any activities that are similar to those described above.

		Upon receiving information which provides reasonable certainty that any violation of this covenant has occurred, the Borrower shall immediately: (i) advise the Facility Agent of the occurrence; and (ii) take all actions reasonably necessary to mitigate, correct and report such occurrence, under law or otherwise (such steps may include termination of employment).


	13			Events of Default

	13.1			Events of Default

				Each of the events or circumstances set out in this clause 13.1 is an Event of Default.

	13.1.1			Failure to Pay

				Any Security Party fails to pay any amount due from it under a Facility Document at the time, in the currency and otherwise in the manner specified herein provided that, if the relevant Security Party can demonstrate to the reasonable satisfaction of the Facility Agent that all necessary instructions were given to effect such payment and the non-receipt thereof is attributable solely to an error in the banking system, such payment shall instead be deemed to be due, solely for the purposes of this paragraph, within three (3) Banking Days of the date on which it actually fell due under the relevant Facility Document (if a payment of principal), five (5) Banking Days (if a payment of interest) or ten (10) Banking Days (if a sum payable on demand); or

	13.1.2			Misrepresentation

				Any representation or statement made by any Security Party in any Facility Document to which it is a party or in any notice or other document, certificate or statement delivered by it pursuant thereto or in connection therewith is or proves to have been incorrect or misleading in any material respect, where the circumstances causing the same give rise to a Material Adverse Effect; or

	13.1.3			Specific Covenants

				A Security Party fails duly to perform or comply with any of the obligations expressed to be assumed by or procured by the Borrower under clauses 12.1.3, 12.1.6, 12.1.9, 12.1.15 (but only insofar as such failure relates to anti-bribery and corruption laws); or

	13.1.4			Financial Covenants

				There is any breach of the financial covenants set out in clause 8.1 of a Financial Guarantee remaining issued and unreleased and/or clause 12.1.33 of this Agreement unless in the case of clause 12.1.33, (i) the Facility has been prepaid in accordance with clause 6.12.5 such that there is no breach of clause 12.1.33, (ii) an amount in freely available cash (equal to the amount by which the Loan would need to be prepaid in order for there to be no breach of clause 12.1.33) has been deposited within ten (10) days of the breach having occurred in an account of the Facility Security Trustee or the Earnings Account (which in respect of this amount, will be blocked), or (iii) additional security in form and substance satisfactory to all the Facility Lenders, KEXIM, K-Sure and GIEK (acting reasonably) has been provided within ten (10) days of the breach having occurred; or

	13.1.5			Other Obligations

				A Security Party fails duly to perform or comply with any of the obligations expressed to be assumed by it in any Facility Document (other than those referred to in clause 12.1.30, clause 13.1.3, clause 13.1.4 or clause 13.1.11) and such failure is not remedied within 30 days of the earlier of (a) the Borrower becoming aware of such failure to perform or comply and (b) the Facility Agent informing the Borrower in writing of such failure to perform or comply; or

	13.1.6			Cross Default

				Any indebtedness of any Security Party is not paid when due (or within any applicable grace period) or any indebtedness of any Security Party is declared to be or otherwise becomes due and payable prior to its specified maturity where (in either case) the aggregate of all such unpaid or accelerated indebtedness (i) of the Borrower, the Bareboat Charterer or the Operator is equal to or greater than ten million Dollars ($10,000,000) or its equivalent in any other currency; or (ii) of TOO, Teekay or any of its Subsidiaries (other than the Borrower, the Bareboat Charterer or the Operator) or the Additional Sponsor, is equal to or greater than one hundred million Dollars ($100,000,000) or its equivalent in any other currency; or



13.1.7	Insolvency and Rescheduling

	A Security Party is unable to pay its debts as they fall due, commences negotiations with any one or more of its creditors with a view to the general readjustment or rescheduling of its indebtedness or makes a general assignment for the benefit of its creditors or a composition with its creditors unless in respect of the Operator, if it has been replaced by another company in the Teekay Group or the TOO Group or another person acceptable to the Facility Agent (acting on the instructions of all Facility Lenders, acting reasonably) which has become party to an Operations Agreement, in each case within six (6) months of insolvency; or

13.1.8	Winding-up

	A Security Party takes any corporate action or other steps are taken or legal proceedings are started for its winding-up, dissolution, administration or re-organisation or for the appointment of a liquidator, receiver, administrator, administrative receiver, conservator, custodian, trustee or similar officer of it or of any or all of its revenues or assets or any moratorium is declared or sought in respect of any of its indebtedness unless the Facility Agent is satisfied, acting reasonably, that such actions, steps or proceedings are frivolous or vexatious and are being contested appropriately by the relevant Security Party; or

13.1.9	Execution or Distress

	(a)	Any Security Party fails to comply with or pay any sum due from it (within 30 days of such amount falling due) under any final judgment or any final order made or given by any court or other official body of a competent jurisdiction, subject to the amount due being in an aggregate amount (i) for the Borrower or the Bareboat Charterer of equal to or greater than ten million Dollars ($10,000,000) or its equivalent in any other currency; or (ii) for TOO, Teekay or any of its Subsidiaries (other than the Borrower and the Bareboat Charterer) or the Operator or the Additional Sponsor, of equal to or greater than one hundred million Dollars ($100,000,000) or its equivalent in any other currency, being a judgment or order against which there is no right of appeal or if a right of appeal exists, where the time limit for making such appeal has expired.

	(b)	Any execution or distress is levied against, or an encumbrancer takes possession of, the whole or any part of, the property, undertaking or assets of a Security Party, subject to the amount in question being in an aggregate amount (i) for the Borrower or the Bareboat Charterer, of equal to or greater than ten million Dollars ($10,000,000) or its equivalent in any other currency; or (ii) for TOO, Teekay or any of its Subsidiaries (other than the Borrower and the Bareboat Charterer) or the Operator or the Additional Sponsor, of equal to or greater than one hundred million Dollars ($100,000,000) or its equivalent in any other currency, other than any execution or distress which is being contested in good faith and which is either discharged within 30 days or in respect of which adequate security has been provided within 30 days to the relevant court or other authority to enable the relevant execution or distress to be lifted or released.

	(c)	Notwithstanding the foregoing paragraphs of this clause 13.1.9, any levy of any distress on or any arrest, condemnation, confiscation, requisition for title or use, compulsory acquisition, seizure, detention or forfeiture of the Vessel (or any part thereof) or any exercise or purported exercise of any lien or claim on or against the Vessel where the release of or discharge of the lien or claim on or against the Vessel has not been procured within 30 days; or

13.1.10	Similar Event

	Any event occurs which, under the laws of any jurisdiction, has a similar or analogous effect to any of those events mentioned in clauses 13.1.7, 13.1.8 and 13.1.9; or


13.1.11	Insurances

	Insurance is not maintained in respect of the Vessel in accordance with the terms of the Facility Security Documents; or

13.1.12	Class

	The Vessel has its classification withdrawn by the relevant Classification Society PROVIDED THAT if such withdrawal is (in the opinion of the Facility Agent in its absolute discretion) capable of remedy such Event of Default shall only occur if the Vessel’s classification is not reinstated to the satisfaction of the Facility Agent within twenty one (21) days; or

13.1.13	Environmental Matters

	(a)	Any Environmental Claim is pending or made against the Borrower or the Bareboat Charterer or the Operator or any of their Environmental Affiliates or in connection with the Vessel, where such Environmental Claim has a Material Adverse Effect; or

	(b)	Any actual Environmental Incident occurs in connection with the Vessel, where such Environmental Incident has a Material Adverse Effect; or

13.1.14	Repudiation

	Any Security Party repudiates any Facility Document or Project Document to which it is a party or does or causes to be done any act or thing evidencing an intention to repudiate any such Facility Document or Project Document other than any repudiation to which clause 6.5 applies; or

13.1.15	Validity and Admissibility

	At any time any act, condition or thing required to be done, fulfilled or performed in order:

	(a)	to enable any Security Party lawfully to enter into, exercise its rights under and perform the respective obligations expressed to be assumed by it in the Facility Documents;

	(b)	to ensure that the obligations expressed to be assumed by each of the Security Parties in the Facility Documents are legal, valid and binding; or

	(c)	to make the Facility Documents admissible in evidence in any applicable jurisdiction

	is not done, fulfilled or performed within 30 days after notification from the Facility Agent to the relevant Security Party requiring the same to be done, fulfilled or performed; or

13.1.16	Material Adverse Change

	At any time there shall occur a change in the business or operations of a Security Party or a change in the financial condition of any Security Party which, in the reasonable opinion of the Majority Facility Lenders, materially impairs such Security Party’s ability to discharge its obligations under the Facility Documents in the manner provided therein and such change, if capable of remedy, is not so remedied within 30 days of written notification from the Facility Agent; or

13.1.17	Qualifications of Financial Statements

	The auditors of any Group qualify their report on any audited consolidated financial statements of that Group in any regard which, in the reasonable opinion of the Facility Agent, has a Material Adverse Effect; or



13.1.18	Conditions Subsequent

	If any of the conditions set out in clause 3.6 is not satisfied within thirty (30) days (or such shorter time as may be specified in Schedule 2) of a Drawdown Date, or such other time period specified by the Facility Agent acting on the instructions of the Majority Facility Lenders; or

13.1.19	Revocation or Modification of consents etc.

	If any Necessary Authorisation which is now or which at any time during the Facility Security Period becomes necessary to enable any of the Security Parties to comply with any of their obligations in or pursuant to any of the Facility Security Documents is revoked, withdrawn or withheld, or modified in a manner which the Facility Agent reasonably considers is, or may be, prejudicial to the interests of a Facility Beneficiary in a material manner, or if such Necessary Authorisation ceases to remain in full force and effect; or

13.1.20	Curtailment of Business

	If the business of any of the Security Parties is wholly or materially curtailed by any intervention by or under authority of any government, or if all or a substantial part of the undertaking, property or assets of any of the Security Parties is seized, nationalised, expropriated or compulsorily acquired by or under authority of any government or any Security Party disposes or threatens to dispose of a substantial part of its business or assets; or

13.1.21	Reduction of Capital

	If the Borrower reduces its committed or subscribed capital; or

13.1.22	Challenge to Registration

	If the registration of the Vessel or the Mortgage becomes void or voidable or liable to cancellation or termination; or

13.1.23	War

	If the country of registration of the Vessel becomes involved in war (whether or not declared) or civil war or is occupied by any other power and the Facility Agent reasonably considers that, as a result, the security conferred by the Facility Security Documents is materially prejudiced; or

13.1.24	Notice of Termination

	If a Sponsor gives notice to the Facility Agent to determine or terminate its obligations under the relevant Financial Guarantee; or

13.1.25	Termination or material breach

	If:

	(a)	any of the Project Documents is terminated by the Charterer, the Builder, the Refund Guarantor and/or Framo or any of its Affiliates by reason of breach by a Security Party; or

	(b)	any of the Project Documents is breached by a Security Party in a manner that gives rise to a right to terminate such Project Document or treat it as repudiated by the Charterer the Builder, the Refund Guarantor and/or Framo or any of its Affiliates.



13.2	Acceleration

	If an Event of Default is continuing unremedied or unwaived the Facility Agent may, and shall (at the request of the Majority Facility Lenders), by notice to the Borrower cancel any part of the Commitments not then advanced and:

13.2.1	declare that the Loan, together with accrued interest, and all other amounts accrued or outstanding under the Facility Documents are immediately due and payable, whereupon they shall become immediately due and payable; and/or

13.2.2	declare that the Loan, together with accrued interest, and all other amounts accrued or outstanding under the Facility Documents is payable on demand, whereupon they shall immediately become payable on demand by the Facility Agent; and/ or

13.2.3	declare the Commitments terminated and reduced to zero; and/or

13.2.4	exercise all of its rights under the Facility Documents.

14	Assignment and Sub-Participation

14.1	Facility Lenders’ rights

14.1.1	A Facility Lender may assign any of its rights under this Agreement or transfer by novation any of its rights and obligations under this Agreement:

		(i)	to any other branch or Affiliate of that Facility Lender, to a Facility Lender, in the case of a KEXIM Guarantee Facility Lender, to KEXIM, in the case of any K-Sure Facility Lender, to K-Sure and/or, in the case of a GIEK Facility Lender, to GIEK; or

		(ii)	(subject to the prior written consent of the Borrower, such consent not to be unreasonably withheld and to be deemed to be given unless notice to the contrary is received within five (5) Banking Days of the request being given, but not to be required at any time after an Event of Default which is continuing unremedied or unwaived or if the assignment is in favour of a central bank or federal reserve) to any other bank, financial institution or other entity, provided that at the date of and as a consequence of such assignment or transfer, no FATCA Deduction would be payable,

	PROVIDED ALWAYS that any assignment or transfer under this clause 14 shall not result in any increased costs to the Borrower at the date of and as a consequence of such assignment or transfer (other than in respect of assignments or transfers to KEXIM, K-Sure and/or GIEK to which this proviso shall not apply).

14.1.2	A Facility Lender may grant sub-participations in all or any part of its Commitment without the requirement for consent or to disclose any sub-participation to any Security Party, provided that in the case of any such sub-participation that Facility Lender shall at all times remain liable for the performance of its obligations under this Agreement.

14.2	Borrower’s co-operation

	The Borrower will co-operate fully with a Facility Lender in connection with any assignment, transfer or sub-participation by that Facility Lender; will execute and procure the execution of such documents as that Facility Lender may reasonably require in that connection; and irrevocably authorises any Facility Beneficiary to disclose to any proposed assignee, transferee or sub-participant, their Affiliates and professional advisers (whether before or after any assignment, transfer or sub-participation and whether or not any assignment, transfer or sub-participation shall take place) all information relating to the Security Parties, the Loan, the Transaction Documents and the Vessel which any Facility Beneficiary may in its discretion consider necessary or desirable (subject to any duties of confidentiality applicable to the Facility Lenders generally). Additionally, (but subject to the same duties of confidentiality), any Facility Lender may disclose the size and term of the Facility and the names of each Security Party to any investor or potential investor in a securitisation (or similar transaction of broadly equivalent economic effect) of that Facility Lender’s rights and obligations under the Facility Documents.



14.3	Rights of assignee

	Any assignee of a Facility Lender shall (unless limited by the express terms of the assignment) take the full benefit of every provision of the Facility Documents benefiting that Facility Lender PROVIDED THAT an assignment will only be effective on notification by the Facility Agent to that Facility Lender and the assignee that the Facility Agent is satisfied it has complied with all necessary “Know your customer” or other similar checks under all applicable laws and regulations in relation to the assignment to the assignee.

14.4	In addition to the other rights provided to the Facility Lenders under this clause 14, each Facility Lender may without consulting with or obtaining consent from the Borrower, at any time charge, assign or otherwise create security in or over (whether by way of collateral or otherwise) all or any of its rights under any Facility Document to secure obligations of that Facility Lender including, without limitation, any charge, assignment or other security to secure obligations to a federal reserve or central bank except that no such charge, assignment or security shall:

		(i)	release a Facility Lender from any of its obligations under the Facility Documents or (other than upon enforcement by the beneficiary of such charge, assignment or security) substitute the beneficiary of the relevant charge, assignment or other security for the Facility Lender as a party to any of the Facility Documents; or

		(ii)	require any payments to be made by the Borrower or grant to any person any more extensive rights than those required to be made or granted to the relevant Facility Lender under the Facility Documents.

14.5	Transfer Certificates

	If a Facility Lender wishes to transfer any of its rights and obligations under or pursuant to this Agreement, it may do so by delivering to the Facility Agent and, if the Facility Lender is a K-Sure Facility Lender, the K-Sure Agent, if the Facility Lender is a GIEK Facility Lender, the GIEK Agent and, if the Facility Lender is a KEXIM Guarantee Facility Lender, the KEXIM Guarantee Agent a duly completed Transfer Certificate, in which event on the Transfer Date:

14.5.1	to the extent that that Facility Lender seeks to transfer its rights and obligations, the Borrower (on the one hand) and that Facility Lender (on the other) shall be released from all further obligations towards the other;

14.5.2	the Borrower (on the one hand) and the transferee (on the other) shall assume obligations towards the other identical to those released pursuant to clause 14.5.1; and

14.5.3	the Facility Agent, the K-Sure Agent, the GIEK Agent, the KEXIM Guarantee Agent, each of the Facility Lenders, the other Facility Beneficiaries and the transferee shall have the same rights and obligations between themselves as they would have had if the transferee had been an original Party as a Facility Lender,

	PROVIDED THAT the Facility Agent shall only be obliged to execute a Transfer Certificate once:

	(a)	it is satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations in relation to the transfer to the transferee; and

	(b)	if that Facility Lender which is a transferor is also (or an Affiliate of that Facility Lender is) a Hedging Provider and it wishes (at its option) to novate its Hedging Agreement (or a portion thereof) to the transferee it is satisfied that the Hedging Provider which is (or is an Affiliate of) the Facility Lender wishing to transfer any of its rights and obligations under or pursuant to this Agreement, has novated or will novate simultaneously all of its rights and obligations under and pursuant to the Hedging Agreement to which it is a party in favour of the transferee; and

	(c)	the transferee has paid to the Facility Agent for its own account a transfer fee of three thousand Dollars.



	The Facility Agent is hereby authorised to sign any Transfer Certificate on behalf of each Facility Beneficiary and the Borrower and shall, as soon as reasonably practicable after it has executed a Transfer Certificate, send to the Borrower a copy of that Transfer Certificate.

	The Facility Agent is hereby authorised to sign any Accession Deed on behalf of each Facility Beneficiary and the Borrower and shall, as soon as reasonably practicable after it has executed an Accession Deed, send to the Borrower a copy of that Accession Deed.

14.6	Facility Documents

	Unless otherwise expressly provided in any Facility Document or otherwise expressly agreed between a Facility Lender and any proposed transferee and notified by that Facility Lender to the Facility Agent on or before the relevant Transfer Date, there shall automatically be assigned to the transferee with any transfer of a Facility Lender’s rights and obligations under or pursuant to this Agreement the rights of that Facility Lender under or pursuant to the Facility Documents (other than this Agreement) which relate to the portion of that Facility Lender’s rights and obligations transferred by the relevant Transfer Certificate.

14.7	No assignment or transfer by the Borrower

	The Borrower may not assign any of its rights or transfer any of its rights or obligations under the Facility Documents.

14.8	Transfer to K-Sure

14.8.1	If a K-Sure Facility Lender receives a payment from K-Sure under any K-Sure Insurance Policy in respect of its participation in the K-Sure Loan, then, to the extent that it is required to do so by K-Sure pursuant to the terms of the relevant K-Sure Insurance Policy, that K-Sure Facility Lender shall, at the reasonable and documented cost of the Borrower and without the Borrower’s consent, transfer to K-Sure a part of its participation in the K-Sure Loan equal to the amount paid to it by K-Sure (but the transfer shall not limit the rights of that K-Sure Facility Lender to recover any remaining part of its participation in the K-Sure Loan or of any other moneys owing to it), Provided however that if K-Sure makes any payment to the K-Sure Facility Lenders under the K-Sure Insurance Policy:

	(a)	the obligations of the Security Parties and the Facility Beneficiaries (and of any of them) under this Agreement and each of the Facility Documents shall not be discharged nor affected in any way;

	(b)	K-Sure shall be subrogated to the respective rights of the K-Sure Facility Lenders against the Security Parties and the Facility Beneficiaries; and

	(c)	K-Sure shall be entitled to the extent of such payment to exercise the respective rights of the K-Sure Facility Lenders (whether present or future) against the Security Parties and the Facility Beneficiaries (and against any of them) pursuant to this Agreement and the Facility Documents or any relevant laws and/or regulations unless and until such payment and the interest accrued thereon are fully reimbursed to K-Sure; and

	(d)	with respect to the obligations of the Security Parties owed to the Facility Beneficiaries under the Facility Documents (or any of them), such obligations shall additionally be owed to K-Sure by way of subrogation of the rights of the Facility Beneficiaries.

14.8.2	Each of the K-Sure Facility Lenders agrees that as soon as K-Sure irrevocably and unconditionally pays in full all moneys due under a K-Sure Insurance Policy then each of the relevant K-Sure Facility Lenders shall promptly transfer to K-Sure ninety-five per cent. (95%) of their respective K-Sure Facility Commitments and/or K-Sure Loan in proportion to and in accordance with the schedule of payments made by K-Sure under the K-Sure Insurance Policy whereupon K-Sure shall, upon receipt by the Facility Agent of a duly completed Transfer Certificate, and modified to the extent agreed between the Facility Beneficiaries and K-Sure for consistency with the terms and conditions of the K-Sure Insurance Policy, be a transferee and as such shall be entitled to the rights and benefits of the K-Sure Facility Lenders under the Facility Documents to the extent of its participation (but the transfer shall not limit the rights of that K-Sure Facility Lender to recover any remaining part of its participation in the K-Sure Loan or of any other moneys owing to it). Notwithstanding any provisions to the contrary in any Facility Document, the Borrower consents to such assignment and transfer.



14.8.3	The Borrower shall indemnify K-Sure in respect of any reasonable and documented costs or expenses (including legal fees) suffered or incurred by K-Sure in connection with the transfer referred to hereinabove or in connection with any review by K-Sure of any Default or dispute between the Borrower and any of the Facility Beneficiaries occurring prior to the transfer referred to hereinabove.

14.9	Transfer to KEXIM

14.9.1	If a KEXIM Guarantee Facility Lender receives a payment from KEXIM under the KEXIM Guarantee in respect of its participation in the KEXIM Guarantee Loan, then, to the extent that it is required to do so by KEXIM pursuant to the terms of the KEXIM Guarantee, that KEXIM Guarantee Facility Lender shall, at the reasonable and documented cost of the Borrower and without the Borrower’s consent, transfer to KEXIM a part of its participation in the KEXIM Guarantee Loan equal to the amount paid to it by KEXIM (but the transfer shall not limit the rights of that KEXIM Guarantee Facility Lender to recover any remaining part of its participation in the KEXIM Guarantee Loan or of any other moneys owing to it), Provided however that if KEXIM makes any payment to the KEXIM Guarantee Facility Lenders under the KEXIM Guarantee:

	(a)	the obligations of the Security Parties and the Facility Beneficiaries (and of any of them) under this Agreement and each of the Facility Documents shall not be discharged nor affected in any way;

	(b)	KEXIM shall be subrogated to the respective rights of the KEXIM Guarantee Facility Lenders against the Security Parties and the Facility Beneficiaries; and

	(c)	KEXIM shall be entitled to the extent of such payment to exercise the respective rights of the KEXIM Guarantee Facility Lenders (whether present or future) against the Security Parties and the Facility Beneficiaries (and against any of them) pursuant to this Agreement and the Facility Documents or any relevant laws and/or regulations unless and until such payment and the interest accrued thereon are fully reimbursed to KEXIM; and

	(d)	with respect to the obligations of the Security Parties owed to the Facility Beneficiaries under the Facility Documents (or any of them), such obligations shall additionally be owed to KEXIM by way of subrogation of the rights of the Facility Beneficiaries.

14.9.2	Each of the KEXIM Guarantee Facility Lenders agrees that as soon as KEXIM irrevocably and unconditionally pays in full all moneys due under the KEXIM Guarantee then each of the relevant KEXIM Guarantee Facility Lenders shall promptly transfer to KEXIM one hundred per cent. (100%) of their respective KEXIM Guarantee Facility Commitments and/or KEXIM Guarantee Loan in proportion to and in accordance with the schedule of payments made by KEXIM under the KEXIM Guarantee whereupon KEXIM shall, upon receipt by the Facility Agent of a duly completed Transfer Certificate, and modified to the extent agreed between the Facility Beneficiaries and KEXIM for consistency with the terms and conditions of the KEXIM Guarantee, be a transferee and as such shall be entitled to the rights and benefits of the KEXIM Guarantee Facility Lenders under the Facility Documents to the extent of its participation. Notwithstanding any provisions to the contrary in any Facility Document, the Borrower consents to such assignment and transfer.

14.9.3	The Borrower shall indemnify KEXIM in respect of any reasonable and documented costs or expenses (including legal fees) suffered or incurred by KEXIM in connection with the transfer referred to hereinabove or in connection with any review by KEXIM of any Default or dispute between the Borrower and any of the Facility Beneficiaries occurring prior to the transfer referred to hereinabove.


14.10	Transfer to GIEK

14.10.1	If a GIEK Facility Lender receives a payment from GIEK under the GIEK Guarantee in respect of its participation in the GIEK Loan, then, to the extent that it is required to do so by GIEK pursuant to the terms of the GIEK Guarantee (or otherwise), that GIEK Facility Lender shall, at the reasonable and documented cost of the Borrower and without the Borrower’s consent, transfer to GIEK a part of its participation in the GIEK Loan equal to the amount paid to it by GIEK (but the transfer shall not limit the rights of that GIEK Facility Lender to recover any remaining part of its participation in the GIEK Loan or of any other moneys owing to it), Provided however that if GIEK makes any payment to the GIEK Facility Lenders under the GIEK Guarantee:

	(a)	the obligations of the Security Parties and the Facility Beneficiaries (and of any of them) under this Agreement and each of the Facility Documents shall not be discharged nor affected in any way;

	(b)	GIEK shall be subrogated to the respective rights of the GIEK Facility Lenders against the Security Parties and the Facility Beneficiaries; and

	(c)	GIEK shall be entitled to the extent of such payment to exercise the respective rights of the GIEK Facility Lenders (whether present or future) against the Security Parties and the Facility Beneficiaries (and against any of them) pursuant to this Agreement and the Facility Documents or any relevant laws and/or regulations unless and until such payment and the interest accrued thereon are fully reimbursed to GIEK; and

	(d)	with respect to the obligations of the Security Parties owed to the Facility Beneficiaries under the Facility Documents (or any of them), such obligations shall additionally be owed to GIEK by way of subrogation of the rights of the Facility Beneficiaries.

14.10.2	Each of the GIEK Facility Lenders agrees that as soon as GIEK irrevocably and unconditionally pays in full all moneys due under the GIEK Guarantee then each of the relevant GIEK Facility Lenders shall promptly transfer to GIEK one hundred per cent. (100%) of their respective GIEK Facility Commitments and/or GIEK Loan whereupon GIEK shall, upon receipt by the Facility Agent of a duly completed Transfer Certificate, and modified to the extent agreed between the Facility Beneficiaries and GIEK for consistency with the terms and conditions of the GIEK Guarantee, be a transferee and as such shall be entitled to the rights and benefits of the GIEK Facility Lenders under the Facility Documents to the extent of its participation. Notwithstanding any provisions to the contrary in any Facility Document, the Borrower consents to such assignment and transfer.

14.10.3	The Borrower shall indemnify GIEK in respect of any reasonable and documented costs or expenses (including legal fees) suffered or incurred by GIEK in connection with the transfer referred to hereinabove or in connection with any review by GIEK of any Default or dispute between the Borrower and any of the Facility Beneficiaries occurring prior to the transfer referred to hereinabove.

15	The Facility Agent, the K-Sure Agent, the GIEK Agent, the KEXIM Guarantee Agent, the Facility Security Trustee and the Facility Lenders

15.1	Appointment

15.1.1	(a) Each Facility Lender appoints the Facility Agent to act as its agent under and in connection with the Facility Documents, (b) each K-Sure Facility Lender appoints the K-Sure Agent to act as its agent in relation to the K-Sure Insurance Policy, (c) each GIEK Facility Lender appoints the GIEK Agent to act as its agent in relation to the GIEK Guarantee, (d) each KEXIM Guarantee Facility Lender appoints the KEXIM Guarantee Agent to act as its agent in relation to the KEXIM Guarantee and (e) each Facility Lender, Hedging Provider, Mandated Lead Arranger, the Bookrunner, the K-Sure Agent, the GIEK Agent, the KEXIM Guarantee Agent and the Facility Agent appoints the Facility Security Trustee (i) to act as its facility security trustee for the purpose of the Facility Documents and (ii) to act as security agent (mandataire) for the purpose of managing the Account Charge and the Bareboat Charterer Account Charge and distribute the sums relating to the enforcement thereof, and generally for the purpose of taking in its name and on its behalf such steps and exercising such powers that are granted to or delegated to the Facility Security Trustee (or its successors and assigns in such capacity) thereunder or under this Agreement and those which would be the reasonable consequence thereof.



15.1.2		(a) Each Facility Lender authorises the Facility Agent, (b) each K-Sure Facility Lender authorises the K-Sure Agent, (c) each GIEK Facility Lender authorises the GIEK Agent, (d) each KEXIM Guarantee Facility Lender authorises the KEXIM Guarantee Agent and (e) each Facility Lender, Hedging Provider, Mandated Lead Arranger, the Bookrunner, the K-Sure Agent, the GIEK Agent, the KEXIM Guarantee Agent and the Facility Agent authorises the Facility Security Trustee, to perform the duties and exercise the rights, powers, authorities and discretions specifically given to the Facility Agent, the K-Sure Agent, the GIEK Agent, the KEXIM Guarantee Agent or the Facility Security Trustee (as the case may be) under or in connection with the Facility Documents and in the case of the K-Sure Agent, the K-Sure Insurance Policy, and in the case of the KEXIM Guarantee Agent, the KEXIM Guarantee, and in the case of the GIEK Agent, the GIEK Guarantee, together with any other incidental rights, powers, authorities and discretions.

15.1.3		Except where the context otherwise requires, references in this clause 15 to the Facility Agent shall mean the Facility Agent and the Facility Security Trustee individually and collectively.

15.2		Authority

		(a) Each Facility Lender and Hedging Provider irrevocably authorises the Facility Security Trustee (in the case of clause 15.2.1) and the Facility Agent (in the case of clauses 15.2.2, 15.2.3 and 15.2.4), (b) each K-Sure Facility Lender irrevocably authorises the K-Sure Agent (in the case of clauses 15.2.2, 15.2.5 and 15.2.6), (c) each GIEK Facility Lender irrevocably authorises the GIEK Agent (in the case of clauses 15.2.2, 15.2.7 and 15.2.8), and (d) each KEXIM Guarantee Facility Lender irrevocably authorises the KEXIM Guarantee Agent (in the case of clauses 15.2.2, 15.2.9 and 15.2.10) (in each case subject to clauses 15.4 and 15.18):

15.2.1		to execute any Facility Document (other than this Agreement and the Hedging Agreements) on its behalf and to represent the other Facility Beneficiaries before any competent court for any proceedings relating to the enforcement of any Security created under the Account Charge and the Bareboat Charterer Account Charge;

15.2.2		to collect, receive, release or pay any money on its behalf (in respect of the K-Sure Agent only, in respect of administering payments from K-Sure for the benefit of the K-Sure Facility Lenders under the terms of the K-Sure Insurance Policy, in respect of the GIEK Agent only, in respect of administering payments from GIEK for the benefit of the GIEK Facility Lenders under the terms of the GIEK Guarantee and in respect of the KEXIM Guarantee Agent only, in respect of administering payments from KEXIM for the benefit of the KEXIM Guarantee Facility Lenders under the terms of the KEXIM Guarantee);

15.2.3		acting on the instructions from time to time of the Majority Facility Lenders (save where the terms of any Facility Document expressly provide otherwise) to give or withhold any waivers, consents or approvals under or pursuant to any Facility Document;

15.2.4		acting on the instructions from time to time of the Majority Facility Lenders (save where the terms of any Facility Document expressly provide otherwise) to exercise, or refrain from exercising, any rights, powers, authorities or discretions under or pursuant to any Facility Document;

15.2.5		to consult with K-Sure (where necessary) in relation to waivers, consents or approvals under or pursuant to the Facility Documents and to inform the K-Sure Facility Lenders of the result of such consultation and if such waiver, consent or approval is within the scope of the K-Sure Insurance Policy (at the discretion of the K-Sure Agent after consulting with K-Sure) (K-Sure Decisions), such K-Sure Decision will be taken by the K-Sure Agent (acting on the sole direction of K-Sure and the K-Sure Facility Lenders);


15.2.6		to provide all information required by K-Sure to K-Sure in a timely manner provided that the K-Sure Agent has received it in its capacity as K-Sure Agent;

15.2.7		to consult with GIEK (where necessary) in relation to waivers, consents or approvals under or pursuant to the Facility Documents and to inform the GIEK Facility Lenders of the result of such consultation and if such waiver, consent or approval is within the scope of the GIEK Guarantee (at the discretion of the GIEK Agent after consulting with GIEK) (GIEK Decisions), such GIEK Decision will be taken by the GIEK Agent (acting on the sole direction of GIEK and the GIEK Facility Lenders);

15.2.8		to provide all information required by GIEK to GIEK in a timely manner provided that the GIEK Agent has received it in its capacity as GIEK Agent;

15.2.9		to consult with KEXIM (where necessary) in relation to waivers, consents or approvals under or pursuant to the Facility Documents and to inform the KEXIM Guarantee Facility Lenders of the result of such consultation and if such waiver, consent or approval is within the scope of the KEXIM Guarantee (at the discretion of the KEXIM Guarantee Agent after consulting with KEXIM) (KEXIM Decisions), such KEXIM Decision will be taken by the KEXIM Guarantee Agent (acting on the sole direction of KEXIM and the KEXIM Guarantee Facility Lenders); and

15.2.10		to provide all information required by KEXIM to KEXIM in a timely manner provided that the KEXIM Guarantee Agent has received it in its capacity as KEXIM Guarantee Agent.

		The Facility Agent shall have no duties or responsibilities as agent or as Facility Security Trustee, the K-Sure Agent shall have no duties or responsibility as agent, the GIEK Agent shall have no duties or responsibility as agent and the KEXIM Guarantee Agent shall have no duties or responsibility as agent, in each case other than those expressly conferred on it by the Facility Documents and shall not be obliged to act on any instructions from the Facility Lenders or the Majority Facility Lenders or the KEXIM Guarantee Facility Lenders or the K-Sure Facility Lenders or the GIEK Facility Lenders if to do so would, in the opinion of the Facility Agent, the K-Sure Agent, the GIEK Agent or the KEXIM Guarantee Agent, be contrary to any provision of the Facility Documents, or to any law or in respect of the K-Sure Agent only, any provision of the K-Sure Insurance Policy, or in respect of the GIEK Agent only, any provision of the GIEK Guarantee, or in respect of the KEXIM Guarantee Agent only, any provision of the KEXIM Guarantee, or would expose the Facility Agent, the K-Sure Agent, the GIEK Agent or the KEXIM Guarantee Agent to any actual or potential liability to any third party.

15.3		Trust

		The Facility Security Trustee agrees and declares, and each of the other Facility Beneficiaries acknowledges, that, subject to the terms and conditions of this clause 15.3, the Facility Security Trustee holds the Secured Property on trust for the Facility Beneficiaries absolutely. Each of the other Facility Beneficiaries agrees that the obligations, rights and benefits vested in the Facility Security Trustee shall be performed and exercised in accordance with this clause 15.3. The Facility Security Trustee shall have the benefit of all of the provisions of this Agreement benefiting it in its capacity as Facility Security Trustee for the Facility Beneficiaries, and all the powers and discretions conferred on trustees by the Trustees Act 1925 and the Trustee Act 2000 (to the extent not inconsistent with this Agreement). In addition:

15.3.1		the Facility Security Trustee and any attorney, agent or delegate of the Facility Security Trustee may indemnify itself or himself out of the Secured Property against all liabilities, costs, fees, damages, charges, losses and expenses sustained or incurred by it or him in relation to the taking or holding of any of the Secured Property or in connection with the exercise or purported exercise of the rights, trusts, powers and discretions vested in the Facility Security Trustee or any other such person by or pursuant to the Facility Documents or in respect of anything else done or omitted to be done in any way relating to the Facility Documents other than as a result of its gross negligence or wilful misconduct;

15.3.2		the other Facility Beneficiaries acknowledge that the Facility Security Trustee shall be under no obligation to insure any property nor to require any other person to insure any property and shall not be responsible for any loss which may be suffered by any person as a result of the lack or insufficiency of any insurance; and



15.3.3	the Facility Beneficiaries agree that the perpetuity period applicable to the trusts declared by this Agreement shall be the period of one hundred and twenty five years from the date of this Agreement.

15.4	Limitations on authority

15.4.1	Except with the prior written consent of all the Facility Lenders and (i) in the case of the KEXIM Guarantee Facility Lenders, acting through the KEXIM Guarantee Agent in respect of KEXIM Decisions and in the case of clause 15.4.1(h), KEXIM, and (ii) in the case of the K-Sure Facility Lenders, acting through the K-Sure Agent in respect of K-Sure Decisions and in the case of clause 15.4.1(h), K-Sure, and (iii) in the case of the GIEK Facility Lenders, acting through the GIEK Agent in respect of GIEK Decisions and in the case of clause 15.4.1(h), GIEK, the Facility Agent shall not be entitled to:

	(a)	release or vary any security or guarantee given for the Borrower’s obligations under this Agreement unless expressly contemplated by the Facility Documents; nor

	(b)	waive the payment of any sum of money payable by any Security Party under the Facility Documents and/or waive the payment or reduce any sum of money payable to any Facility Beneficiaries under the Facility Documents; nor

	(c)	change the meaning of the expressions Majority Facility Lenders, KEXIM Guarantee Facility Lenders, K-Sure Facility Lenders, GIEK Facility Lenders, Facility Lenders, Margin, Default Rate, Sponsor or Charterer; nor

	(d)	exercise, or refrain from exercising, any right, power, authority or discretion, or give or withhold any consent, the exercise or giving of which is, by the terms of this Agreement, expressly reserved to the Facility Lenders; nor

	(e)	extend the due date for the payment of any sum of money payable by any Security Party under any Facility Document; nor

	(f)	take or refrain from taking any step if the effect of such action or inaction may lead to the increase of the obligations of a Facility Lender under any Facility Document; nor

	(g)	agree to change the currency in which any sum is payable under any Facility Document (other than in accordance with the terms of the relevant Facility Document); nor

	(h)	agree to amend this clause 15.4, clause 10.3 or any clause that refers to a unanimous approval of all Facility Lenders and/or KEXIM and/or K-Sure and/or GIEK; nor

	(i)	increase any Commitment.

15.4.2	Except with K-Sure’s prior consent, the Facility Agent shall not be entitled to exercise or refrain from exercising any right, power, authority or discretion, or give or withhold any consent, the exercise or giving of which, by the terms of this Agreement, would require K-Sure’s prior consent and any amendment or waiver which relates to any matter which, by the terms of any Facility Document, requires the prior consent of K-Sure shall not be entered into or provided by the Facility Agent until K-Sure has agreed to its terms.

15.4.3	An amendment or waiver which relates to the rights or obligations of the Facility Agent, the K-Sure Agent, the GIEK Agent or the KEXIM Guarantee Agent (each in their capacity as such) may not be effected without the consent of the Facility Agent, the K-Sure Agent, the GIEK Agent or, as the case may be, the KEXIM Guarantee Agent.



15.4.4	Without limiting in any manner the rights of the Facility Lenders under the Facilities (other than the K-Sure Facility), and subject and without prejudice to any amendments, consents or waivers as may be given, consented or agreed to by the Facility Agent which is contrary to or inconsistent with any vote exercised by the K-Sure Facility Lenders (acting on the instructions of K-Sure):

	(a)	in case of any conflict between the Facility Documents and the K-Sure Insurance Policy, the K-Sure Insurance Policy shall, as between the K-Sure Facility Lenders and K-Sure, prevail, and to the extent of such conflict or inconsistency, none of the K-Sure Facility Lenders or the K-Sure Agent shall assert to K-Sure, the terms of the relevant Facility Documents; and

	(b)	nothing in this Agreement or any Facility Document shall permit or oblige any K-Sure Facility Lender or the K-Sure Agent to act (or omit to act) in a manner that is inconsistent with any requirement of K-Sure under or in connection with the K-Sure Insurance Policy.

15.4.5	Except with KEXIM’s prior consent, the Facility Agent shall not be entitled to exercise or refrain from exercising any right, power, authority or discretion, or give or withhold any consent, the exercise or giving of which, by the terms of this Agreement, would require KEXIM’s prior consent and any amendment or waiver which relates to any matter which, by the terms of any Facility Document, requires the prior consent of KEXIM shall not be entered into or provided by the Facility Agent until KEXIM has agreed to its terms.

15.4.6	Without limiting in any manner the rights of the Facility Lenders under the Facilities (other than the KEXIM Guarantee Facility), and subject and without prejudice to any amendments, consents or waivers as may be given, consented or agreed to by the Facility Agent which is contrary to or inconsistent with any vote exercised by the KEXIM Guarantee Facility Lenders (acting on the instructions of KEXIM);

	(a)	in case of any conflict between the Facility Documents and the KEXIM Guarantee, the KEXIM Guarantee shall, as between the KEXIM Guarantee Facility Lenders and KEXIM, prevail, and to the extent of such conflict or inconsistency, none of the KEXIM Guarantee Facility Lenders or the KEXIM Guarantee Agent shall assert to KEXIM, the terms of the relevant Facility Documents; and

	(b)	nothing in this Agreement or any Facility Document shall permit or oblige any KEXIM Guarantee Facility Lender or the KEXIM Guarantee Agent to act (or omit to act) in a manner that is inconsistent with any requirement of KEXIM under or in connection with the KEXIM Guarantee.

15.4.7	Except with GIEK’s prior consent, the Facility Agent shall not be entitled to exercise or refrain from exercising any right, power, authority or discretion, or give or withhold any consent, the exercise or giving of which, by the terms of this Agreement, would require GIEK’s prior consent and any amendment or waiver which relates to any matter which, by the terms of any Facility Document, requires the prior consent of GIEK shall not be entered into or provided by the Facility Agent until GIEK has agreed to its terms.

15.4.8	Without limiting in any manner the rights of the Facility Lenders under the Facilities (other than the GIEK Facility), and subject and without prejudice to any amendments, consents or waivers as may be given, consented or agreed to by the Facility Agent which is contrary to or inconsistent with any vote exercised by the GIEK Facility Lenders (acting on the instructions of GIEK);

	(a)	in case of any conflict between the Facility Documents and the GIEK Guarantee, the GIEK Guarantee shall, as between the GIEK Facility Lenders and GIEK, prevail, and to the extent of such conflict or inconsistency, none of the GIEK Facility Lenders or the GIEK Agent shall assert to GIEK, the terms of the relevant Facility Documents; and

	(b)	nothing in this Agreement or any Facility Document shall permit or oblige any GIEK Facility Lender or the GIEK Agent to act (or omit to act) in a manner that is inconsistent with any requirement of GIEK under or in connection with the GIEK Guarantee.



15.5		Liability

		None of the Facility Agent, the K-Sure Agent, the GIEK Agent, the KEXIM Guarantee Agent nor any of their directors, officers, employees or agents shall be liable to the Facility Lenders, KEXIM, K-Sure or GIEK for anything done or omitted to be done by the Facility Agent, the K-Sure Agent, the GIEK Agent or, as the case may be, the KEXIM Guarantee Agent under or in connection with any of the Transaction Documents or, in the case of K-Sure Agent, the K-Sure Insurance Policy, or in the case of GIEK, the GIEK Guarantee or, in the case of the KEXIM Guarantee Agent, the KEXIM Guarantee unless as a result of the Facility Agent’s, the K-Sure Agent’s, the GIEK Agent’s or, as the case may be, the KEXIM Guarantee Agent’s gross negligence or wilful misconduct.

15.6		Acknowledgement

		Each Facility Lender acknowledges that:

15.6.1		it has not relied on any representation made by the Facility Agent, the K-Sure Agent, the GIEK Agent, the KEXIM Guarantee Agent or any of the Facility Agent’s, K-Sure Agent’s, the GIEK Agent’s or the KEXIM Guarantee Agent’s directors, officers, employees or agents or by any other person acting or purporting to act on behalf of the Facility Agent, the K-Sure Agent, the GIEK Agent or the KEXIM Guarantee Agent to induce it to enter into any Facility Document;

15.6.2		it has made and will continue to make without reliance on the Facility Agent, the K-Sure Agent, the GIEK Agent or the KEXIM Guarantee Agent, and based on such documents and other evidence as it considers appropriate, its own independent investigation of the financial condition and affairs of the Security Parties in connection with the making and continuation of the Loan;

15.6.3		it has made its own appraisal of the creditworthiness of the Security Parties; and

15.6.4		neither the Facility Agent, the K-Sure Agent, the GIEK Agent nor the KEXIM Guarantee Agent shall have any duty or responsibility at any time to provide it with any credit or other information relating to any Security Party unless that information is received by the Facility Agent, the K-Sure Agent, the GIEK Agent or the KEXIM Guarantee Agent pursuant to the express terms of a Facility Document.

		Each Facility Lender agrees that it will not assert nor seek to assert against any director, officer, employee or agent of the Facility Agent, the K-Sure Agent, the GIEK Agent, KEXIM Guarantee Agent or against any other person acting or purporting to act on behalf of the Facility Agent, the K-Sure Agent, the GIEK Agent or the KEXIM Guarantee Agent any claim which it might have against them in respect of any of the matters referred to in this clause 15.6.



15.7		Limitations on responsibility

		Neither the Facility Agent, the K-Sure Agent, the GIEK Agent nor the KEXIM Guarantee Agent shall have any responsibility to any Security Party, KEXIM, K-Sure, GIEK or to any Facility Lender on account of:

15.7.1		the failure of a Facility Lender, KEXIM, K-Sure, GIEK or of any Security Party to perform any of its obligations under a Facility Document, the KEXIM Guarantee, the K-Sure Insurance Policy or the GIEK Guarantee; nor

15.7.2		the financial condition of any Security Party; nor

15.7.3		the completeness or accuracy of any statements, representations or warranties made in or pursuant to any Facility Document, the KEXIM Guarantee, the K-Sure Insurance Policy, the GIEK Guarantee or in or pursuant to any document delivered pursuant to or in connection with any Facility Document, the KEXIM Guarantee, the K-Sure Insurance Policy or the GIEK Guarantee; nor

15.7.4		the negotiation, execution, effectiveness, genuineness, validity, enforceability, admissibility in evidence or sufficiency of any Facility Document, the KEXIM Guarantee, the K-Sure Insurance Policy or the GIEK Guarantee or of any document executed or delivered pursuant to or in connection with any Facility Document, the KEXIM Guarantee, the K-Sure Insurance Policy or the GIEK Guarantee.

15.8		The Facility Agent’s, the K-Sure Agent’s rights, the GIEK Agent’s and the KEXIM Guarantee Agent’s rights

		Each of the Facility Agent, the K-Sure Agent, the GIEK Agent and the KEXIM Guarantee Agent may:

15.8.1		assume that all representations or warranties made or deemed repeated by any Security Party in or pursuant to any Facility Document are true and complete, unless, in its capacity as the Facility Agent, the K-Sure Agent, the GIEK Agent or the KEXIM Guarantee Agent, it has acquired actual knowledge to the contrary;

15.8.2		assume that no Default has occurred unless, in its capacity as the Facility Agent, the K-Sure Agent, the GIEK Agent or the KEXIM Guarantee Agent, it has acquired actual knowledge to the contrary;

15.8.3		rely on any document or notice believed by it to be genuine;

15.8.4		rely as to legal or other professional matters on opinions and statements of any legal or other professional advisers selected or approved by it;

15.8.5		rely as to any factual matters which might reasonably be expected to be within the knowledge of any Security Party on a certificate signed by or on behalf of that Security Party; and

15.8.6		refrain from exercising any right, power, discretion or remedy unless and until instructed to exercise that right, power, discretion or remedy and as to the manner of its exercise by the Facility Lenders (or, where applicable, by the Majority Facility Lenders) and unless and until the Facility Agent has received from the Facility Lenders, the K-Sure Agent has received from the K-Sure Facility Lenders, the GIEK Agent has received from the GIEK Facility Lenders or the KEXIM Guarantee Agent has received from the KEXIM Guarantee Facility Lenders any payment which the Facility Agent, the K-Sure Agent, the GIEK Agent or, as the case may be, the KEXIM Guarantee Agent may require on account of, or any security which the Facility Agent, the K-Sure Agent, the GIEK Agent or as the case may be, the KEXIM Guarantee Agent may require for, any costs, claims, expenses (including legal and other professional fees) and liabilities which it considers it may incur or sustain in complying with those instructions.



15.9		The Facility Agent’s duties

		The Facility Agent shall:

15.9.1		if requested in writing to do so by a Facility Lender, make enquiry and advise the Facility Lenders as to the performance or observance of any of the provisions of any Facility Document by any Security Party or as to the existence of an Event of Default; and

15.9.2		inform the Facility Lenders promptly of any Event of Default of which the Facility Agent has actual knowledge.

		The duties of the Facility Agent, the K-Sure Agent, the GIEK Agent and the KEXIM Guarantee Agent are of a mechanical and administrative nature.

15.10		No deemed knowledge

		Neither the Facility Agent, the K-Sure Agent, the GIEK Agent nor the KEXIM Guarantee Agent shall be deemed to have actual knowledge of the falsehood or incompleteness of any representation or warranty made or deemed repeated by any Security Party or actual knowledge of the occurrence of any Default unless a Facility Lender or a Security Party shall have given written notice thereof to the Facility Agent in its capacity as the Facility Agent, the K-Sure Agent in its capacity as K-Sure Agent, the GIEK Agent in its capacity as GIEK Agent or the KEXIM Guarantee Agent in its capacity as KEXIM Guarantee Agent. Any information acquired by the Facility Agent, the K-Sure Agent, the GIEK Agent or the KEXIM Guarantee Agent other than specifically in its capacity as the Facility Agent, the K-Sure Agent, the GIEK Agent or the KEXIM Guarantee Agent shall not be deemed to be information acquired by the Facility Agent in its capacity as the Facility Agent, the K-Sure Agent in its capacity as K-Sure Agent, the GIEK Agent in its capacity as GIEK Agent or the KEXIM Guarantee Agent in its capacity as KEXIM Guarantee Agent.

15.11		Other business

		The Facility Agent, the K-Sure Agent, the GIEK Agent and/or the KEXIM Guarantee Agent may, without any liability to account to the Facility Lenders, generally engage in any kind of banking or trust business with a Security Party or with a Security Party’s subsidiaries or associated companies or with a Facility Lender as if it were not the Facility Agent, K-Sure Agent, the GIEK Agent or, as the case may be, the KEXIM Guarantee Agent.

15.12		Indemnity

		The Facility Lenders shall, promptly on the Facility Agent’s request, reimburse the Facility Agent in their respective Proportionate Shares, for, and keep the Facility Agent fully indemnified in respect of all liabilities, damages, costs and claims sustained or incurred by the Facility Agent in connection with the Facility Documents, or the performance of its duties and obligations, or the exercise of its rights, powers, discretions or remedies under or pursuant to any Facility Document, to the extent not paid by the Security Parties and not arising solely from the Facility Agent’s gross negligence or wilful misconduct.

		The K-Sure Facility Lenders shall, promptly on the K-Sure Agent’s request, reimburse the K-Sure Agent in their respective K-Sure Proportionate Shares, for, and keep the K-Sure Agent fully indemnified in respect of all liabilities, damages, costs and claims sustained or incurred by the K-Sure Agent in connection with the K-Sure Insurance Policy, or the performance of its duties and obligations, or the exercise of its rights, powers, discretions or remedies under or pursuant to any Facility Document or the K-Sure Insurance Policy, to the extent not paid by the Security Parties and not arising solely from the K-Sure Agent’s gross negligence or wilful misconduct.

		The GIEK Facility Lenders shall, promptly on the GIEK Agent’s request, reimburse the GIEK Agent in their respective GIEK Proportionate Shares, for, and keep the GIEK Agent fully indemnified in respect of all liabilities, damages, costs and claims sustained or incurred by the GIEK Agent in connection with the GIEK Guarantee, or the performance of its duties and obligations, or the exercise of its rights, powers, discretions or remedies under or pursuant to any Facility Document or the GIEK Guarantee, to the extent not paid by the Security Parties and not arising solely from the GIEK Agent’s gross negligence or wilful misconduct.



		The KEXIM Guarantee Facility Lenders shall, promptly on the KEXIM Guarantee Agent’s request, reimburse the KEXIM Guarantee Agent in their respective KEXIM Guarantee Proportionate Shares, for, and keep the KEXIM Guarantee Agent fully indemnified in respect of all liabilities, damages, costs and claims sustained or incurred by the KEXIM Guarantee Agent in connection with the KEXIM Guarantee, or the performance of its duties and obligations, or the exercise of its rights, powers, discretions or remedies under or pursuant to any Facility Document or the KEXIM Guarantee, to the extent not paid by the Security Parties and not arising solely from the KEXIM Guarantee Agent’s gross negligence or wilful misconduct.

		This clause 15.12 may not be amended without the consent of the Facility Agent, the K-Sure Agent, the GIEK Agent or, as the case may be, the KEXIM Guarantee Agent.

15.13		Employment of agents

		In performing its duties and exercising its rights, powers, discretions and remedies under or pursuant to the Facility Documents, the Facility Agent shall be entitled to employ and pay agents to do anything which the Facility Agent is empowered to do under or pursuant to the Facility Documents (including the receipt of money and documents and the payment of money) and to act or refrain from taking action in reliance on the opinion of, or advice or information obtained from, any lawyer, banker, broker, accountant, valuer or any other person believed by the Facility Agent in good faith to be competent to give such opinion, advice or information.

15.14		Distribution of payments

		The Facility Agent shall pay promptly to the order of each Facility Lender that Facility Lender’s Proportionate Share of every sum of money received by the Facility Agent pursuant to the Facility Documents (with the exception of any amounts payable pursuant to clause 9 and/or any Fee Letter and any amounts which, by the terms of the Facility Documents, are paid to the Facility Agent for the account of the Facility Agent alone or specifically for the account of one or more Facility Lenders) and until so paid such amount shall be held by the Facility Agent on trust absolutely for that Facility Lender.

		Upon receipt of any amount from K-Sure by the K-Sure Agent, the K-Sure Agent shall promptly pay to the order of each K-Sure Facility Lender that K-Sure Facility Lender’s K-Sure Proportionate Share of such amount and until so paid such amount shall be held by the K-Sure Agent on trust absolutely for that K-Sure Facility Lender.

		Upon receipt of any amount from GIEK by the GIEK Agent, the GIEK Agent shall promptly pay to the order of each GIEK Facility Lender that GIEK Facility Lender’s GIEK Proportionate Share of such amount and until so paid such amount shall be held by the GIEK Agent on trust absolutely for that GIEK Facility Lender.

		Upon receipt of any amount from KEXIM by the KEXIM Guarantee Agent, the KEXIM Guarantee Agent shall promptly pay to the order of each KEXIM Guarantee Facility Lender that KEXIM Guarantee Facility Lender’s KEXIM Guarantee Proportionate Share of such amount and until so paid such amount shall be held by the KEXIM Guarantee Agent on trust absolutely for that KEXIM Guarantee Facility Lender.

15.15		Reimbursement

		Neither the Facility Agent, the K-Sure Agent, the GIEK Agent nor the KEXIM Guarantee Agent shall have any liability to pay any sum to a Facility Lender, K-Sure Facility Lender, GIEK Facility Lender or, as the case may be, KEXIM Guarantee Facility Lender until it has itself received payment of that sum. If, however, the Facility Agent does pay any sum to a Facility Lender on account of any amount prospectively due to that Facility Lender pursuant to clause 15.14 before it has itself received payment of that amount, and the Facility Agent does not in fact receive payment within five (5) Banking Days after the date on which that payment was required to be made by the terms of the Facility Documents, that Facility Lender will, on demand by the Facility Agent, refund to the Facility Agent an amount equal to the amount received by it, together with an amount sufficient to reimburse the Facility Agent for any amount which the Facility Agent may certify that it has been required to pay by way of interest on money borrowed to fund the amount in question during the period beginning on the date on which that amount was required to be paid by the terms of the Facility Documents and ending on the date on which the Facility Agent receives reimbursement.



15.16		Redistribution of payments

		Unless otherwise agreed between the Facility Lenders and the Facility Agent, if at any time a Facility Lender receives or recovers by way of set-off, the exercise of any lien or otherwise from any Security Party, an amount greater than that Facility Lender’s Proportionate Share of any sum due from that Security Party to the Facility Lenders under the Facility Documents (the amount of the excess being referred to in this clause 15.16 and in clause 15.17 as the Excess Amount) then:

15.16.1		that Facility Lender shall within three (3) Banking Days notify the Facility Agent (which shall promptly notify each other Facility Lender);

15.16.2		that Facility Lender shall pay to the Facility Agent an amount equal to the Excess Amount within ten (10) days of its receipt or recovery of the Excess Amount; and

15.16.3		the Facility Agent shall treat that payment as if it were a payment by the Security Party in question on account of the sum due from that Security Party to the Facility Lenders and shall account to the Facility Lenders in respect of the Excess Amount in accordance with the provisions of this clause 15.16.

		However, if a Facility Lender has commenced any legal proceedings to recover sums owing to it under the Facility Documents and, as a result of, or in connection with, those proceedings has received an Excess Amount, the Facility Agent shall not distribute any of that Excess Amount to any other Facility Lender which had been notified of the proceedings and had the legal right to, but did not, join those proceedings or commence and diligently prosecute separate proceedings to enforce its rights in the same or another court.

15.17		Rescission of Excess Amount

		If all or any part of any Excess Amount is rescinded or must otherwise be restored to any Security Party or to any other third party, the Facility Lenders which have received any part of that Excess Amount by way of distribution from the Facility Agent pursuant to clause 15.16 shall repay to the Facility Agent for the account of the Facility Lender which originally received or recovered the Excess Amount, the amount which shall be necessary to ensure that the Facility Lenders share rateably in accordance with their Proportionate Shares in the amount of the receipt or payment retained, together with interest on that amount at a rate equivalent to that (if any) paid by the Facility Lender receiving or recovering the Excess Amount to the person to whom that Facility Lender is liable to make payment in respect of such amount, and clause 15.16.3 shall apply only to the retained amount.

15.18		Instructions

		Where the Facility Agent is authorised or directed to act or refrain from acting in accordance with the instructions of the Facility Lenders, KEXIM, K-Sure, GIEK or of the Majority Facility Lenders each of the Facility Lenders and KEXIM and K-Sure and GIEK (if applicable) shall provide the Facility Agent with instructions within seven (7) Banking Days of the Facility Agent’s request (which request may be made orally or in writing). If a Facility Lender and KEXIM and K-Sure and GIEK (if applicable) does not provide the Facility Agent with instructions within that period, that Facility Lender and KEXIM and K-Sure and GIEK (if applicable) shall be bound by the decision of the Facility Agent. Nothing in this clause 15.18 shall limit the right of the Facility Agent to take, or refrain from taking, any action without obtaining the instructions of the Facility Lenders, KEXIM, K-Sure, GIEK or the Majority Facility Lenders if the Facility Agent in its discretion considers it necessary or appropriate to take, or refrain from taking, such action in order to preserve the rights of the Facility Lenders and KEXIM and K-Sure and GIEK (if applicable) under or in connection with the Facility Documents. In that event, the Facility Agent will notify the Facility Lenders and KEXIM and K-Sure and GIEK (if applicable) of the action taken by it as soon as reasonably practicable, and the Facility Lenders and KEXIM and K-Sure and GIEK (if applicable) agree to ratify any action taken by the Facility Agent pursuant to this clause 15.18.



15.19		Payments

		All amounts payable to a Facility Lender and/or KEXIM and/or K-Sure and/or GIEK under this clause 15, clause 9.4, clause 9.5, clause 9.6 and clause 9.1.2 shall be paid to such account at such bank as that Facility Lender, in the case of KEXIM, the KEXIM Guarantee Agent or KEXIM, in the case of K-Sure, the K-Sure Agent or K-Sure or in the case of GIEK, the GIEK Agent or GIEK may from time to time direct in writing to the Facility Agent, the K-Sure Agent, the GIEK Agent or, as the case may be, the KEXIM Guarantee Agent.

15.20		“Know your customer” checks

		Each Facility Lender shall promptly upon the request of the Facility Agent, the K-Sure Agent, the GIEK Agent or, as the case may be, the KEXIM Guarantee Agent supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Facility Agent, the K-Sure Agent (for itself), the GIEK Agent (for itself) or, as the case may be, the KEXIM Guarantee Agent (for itself), in order for the Facility Agent, the K-Sure Agent, the GIEK Agent or, as the case may be, the KEXIM Guarantee Agent to carry out and be satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Facility Documents.

15.21		Resignation

		Subject to a successor being appointed in accordance with this clause 15.21, the Facility Agent, the K-Sure Agent, the GIEK Agent or the KEXIM Guarantee Agent may (and in the case of the Facility Agent if requested by the Majority Facility Lenders and in the case of the K-Sure Agent, if requested by all the K-Sure Facility Lenders will and in the case of the GIEK Agent if requested by all of the GIEK Facility Lenders and in the case of the KEXIM Guarantee Agent if requested by all of the KEXIM Guarantee Facility Lenders), resign as agent and/or the Facility Security Trustee may (and if requested by the Majority Facility Lenders will), resign as Facility Security Trustee at any time without assigning any reason by giving to the Borrower and the Facility Lenders notice of its intention to do so, in which event the following shall apply:

15.21.1		with the consent of the Borrower not to be unreasonably withheld (but such consent not to be required at any time after an Event of Default which is continuing unremedied or unwaived) the Facility Lenders may within thirty (30) days after the date of the notice from the Facility Agent, the K-Sure Agent, the GIEK Agent, the KEXIM Guarantee Agent or the Facility Security Trustee (as the case may be) appoint a successor to act as agent and/or Facility Security Trustee or, if they fail to do so with the consent of the Borrower, not to be unreasonably withheld (but such consent not to be required at any time after an Event of Default which is continuing unremedied or unwaived), the Facility Agent, the K-Sure Agent, the GIEK Agent, the KEXIM Guarantee Agent or the Facility Security Trustee (as the case may be) may appoint any other bank or financial institution as its successor;

15.21.2		the resignation of the Facility Agent, the K-Sure Agent, the GIEK Agent, the KEXIM Guarantee Agent or the Facility Security Trustee (as the case may be) shall take effect simultaneously with the appointment of its successor on written notice of that appointment being given to the Borrower and the Facility Lenders;

15.21.3		the Facility Agent, the K-Sure Agent, the GIEK Agent, the KEXIM Guarantee Agent or the Facility Security Trustee (as the case may be) shall thereupon be discharged from all further obligations as agent and/or Facility Security Trustee but shall remain entitled to the benefit of the provisions of this clause 15; and



15.21.4	the successor of the Facility Agent, the K-Sure Agent, the GIEK Agent, the KEXIM Guarantee Agent or the Facility Security Trustee (as the case may be) and each of the other parties to this Agreement shall have the same rights and obligations amongst themselves as they would have had if that successor had been a Party.

15.22	Replacement of the Facility Agent for FATCA withholding

15.22.1	The Facility Agent shall resign in accordance with clause 15.21 above (and, to the extent applicable, shall use reasonable endeavours to appoint a successor facility agent pursuant to clause 15.21 above) if on or after the date which is three (3) months before the earliest FATCA Application Date relating to any payment to the Facility Agent under the Facility Documents, either:

	(a)	the Facility Agent fails to respond to a request under clause 15.24 and a Facility Lender reasonably believes that the Facility Agent will not be (or will have ceased to be) a FATCA Exempt Party on or after that FATCA Application Date;

	(b)	the information supplied by the Facility Agent pursuant to clause 15.24 indicates that the Facility Agent will not be (or will have ceased to be) a FATCA Exempt Party on or after that FATCA Application Date; or

	(c)	the Facility Agent notifies the Borrower and the Facility Lenders that the Facility Agent will not be (or will have ceased to be) a FATCA Exempt Party on or after that FATCA Application Date;

	and (in each case) a Facility Lender reasonably believes that a Party will be required to make a FATCA Deduction that would not be required if the Facility Agent were a FATCA Exempt Party, and that Facility Lender, by notice to the Facility Agent, requires it to resign.

15.23	No fiduciary relationship

	Except as provided in clauses 15.3 and 15.14, neither the Facility Agent, the K-Sure Agent, the GIEK Agent nor the KEXIM Guarantee Agent shall not have any fiduciary relationship with or be deemed to be a trustee of or for any other person and nothing contained in any Facility Document, the K-Sure Insurance Policy, the GIEK Guarantee or, as the case may be, the KEXIM Guarantee shall constitute a partnership between any two or more Facility Lenders or between the Facility Agent, the K-Sure Agent, the GIEK Agent, the KEXIM Guarantee Agent and any other person.

15.24	FATCA Information

	(a)	Subject to clause 15.24(c) below, each Party shall, within ten (10) Banking Days of a reasonable request by another Party:

		(i)	confirm to that other Party whether it is:

			(A) a FATCA Exempt Party; or

			(B) not a FATCA Exempt Party; and

		(ii)	supply to that other Party such forms, documentation and other information relating to its status under FATCA (including its applicable “passthru payment percentage” or other information required under the US Treasury Regulations or other official guidance including intergovernmental agreements) as that other Party reasonably requests for the purposes of that other Party’s compliance with FATCA, provided however that such forms, documentation and other information may be given in accordance with law and other relevant obligations.



	(b)	If a Party confirms to another Party pursuant to clause 15.24(a)(i) above that it is a FATCA Exempt Party and it subsequently becomes aware that it is not, or has ceased to be a FATCA Exempt Party, that Party shall notify that other Party reasonably promptly.

	(c)	Clause 15.24(a) above shall not oblige any Facility Beneficiary to do anything which would or might in its reasonable opinion constitute a breach of:

		(i)	any law or regulation;

		(ii)	any fiduciary duty; or

		(iii)	any policy of that Facility Beneficiary;

		(iv)	any duty of confidentiality.

	(d)	If a Party fails to confirm its status or to supply forms, documentation or other information requested in accordance with clause 15.24(a) above (including, for the avoidance of doubt, where clause 15.24(c) above applies), then:

		(i)	if that Party failed to confirm whether it is (and/or remains) a FATCA Exempt Party then such Party shall be treated for the purposes of the Facility Documents as if it is not a FATCA Exempt Party; and

		(ii)	if that Party failed to confirm its applicable “passthru payment percentage” then such Party shall be treated for the purposes of the Facility Documents (and payments made thereunder) as if its applicable “passthru payment percentage” is 100%,

	until (in each case) such time as the Party in question provides the requested confirmation, forms, documentation or other information.

15.25	K-Sure Insurance Policy

	Each K-Sure Facility Lender represents and warrants to the K-Sure Agent that, with effect from the date it receives the K-Sure Insurance Policy, (i) it has reviewed the K-Sure Insurance Policy and is aware of the provisions thereof, (ii) any representations and warranties made by the K-Sure Agent on behalf of each K-Sure Facility Lender under the K-Sure Insurance Policy are true and correct with respect to such K-Sure Facility Lender in all respects, and (iii) no information provided by such K-Sure Facility Lender in writing to the K-Sure Agent or to K-Sure prior to the date hereof was incomplete, untrue or incorrect in any respect except to the extent that such K-Sure Facility Lender, in the exercise of reasonable care and due diligence prior to the giving of the information, could not have discovered the error or omission. Each K-Sure Facility Lender represents and warrants to the K-Sure Agent and each other K-Sure Facility Lender that it has not taken (or failed to take), and agrees with the K-Sure Agent and each other K-Sure Facility Lender that it shall not take (or fail to take), any action that would result in the K-Sure Agent being in breach of any of its obligations in its capacity as K-Sure Agent under the K-Sure Insurance Policy or the Facility Documents, or result in any of K-Sure Facility Lenders being in breach of any of their respective obligations as insured parties, under the K-Sure Insurance Policy, or which would otherwise prejudice the K-Sure Agent’s ability to make a claim on behalf of the K-Sure Facility Lenders under the K-Sure Insurance Policy.

15.26	K-Sure Agent actions

	The K-Sure Agent agrees to take such actions under the K-Sure Insurance Policy (including with respect to any amendment, modification or supplement to the K-Sure Insurance Policy) as may be directed on the unanimous instructions of the K-Sure Facility Lenders from time to time; provided that, anything herein or in the K-Sure Insurance Policy to the contrary notwithstanding, the K-Sure Agent shall not be obliged to take any such action or to expend or risk its own funds or otherwise incur any liability in the performance of any of its duties or the exercise of any of its rights or powers hereunder or thereunder if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it or if such action would be contrary to applicable law.



15.27		Claims under the K-Sure Insurance Policy

		Each K-Sure Facility Lender acknowledges and agrees with the K-Sure Agent that it shall have no entitlement to make any claim or to take any action whatsoever under or in connection with the K-Sure Insurance Policy except through the K-Sure Agent or otherwise in accordance with the K-Sure Insurance Policy and that all the rights of such K-Sure Facility Lenders under the K-Sure Insurance Policy shall only be exercised by the K-Sure Agent pursuant to and in accordance with the K-Sure Insurance Policy.

15.28		KEXIM Guarantee

		Each KEXIM Guarantee Facility Lender represents and warrants to the KEXIM Guarantee Agent that, with effect from the date it receives the KEXIM Guarantee, (i) it has reviewed the KEXIM Guarantee and is aware of the provisions thereof, (ii) any representations and warranties made by the KEXIM Guarantee Agent on behalf of each KEXIM Guarantee Facility Lender under the KEXIM Guarantee are true and correct with respect to such KEXIM Guarantee Facility Lender in all respects, and (iii) no information provided by such KEXIM Guarantee Facility Lender in writing to the KEXIM Guarantee Agent or to KEXIM prior to the date hereof was incomplete, untrue or incorrect in any respect except to the extent that such KEXIM Guarantee Facility Lender, in the exercise of reasonable care and due diligence prior to the giving of the information, could not have discovered the error or omission. Each KEXIM Guarantee Facility Lender represents and warrants to the KEXIM Guarantee Agent that it has not taken (or failed to take) any action that would result in any of KEXIM Guarantee Facility Lenders being in breach of any of their respective obligations as guaranteed parties, under the KEXIM Guarantee, or which would otherwise prejudice the KEXIM Guarantee Facility Lenders’ ability to make a claim under the KEXIM Guarantee.

15.29		KEXIM Guarantee Agent actions

		The KEXIM Guarantee Agent agrees to take such actions under the KEXIM Guarantee (including with respect to any amendment, modification or supplement to the KEXIM Guarantee) as may be directed on the unanimous instructions of the KEXIM Guarantee Facility Lenders from time to time; provided that, anything herein or in the KEXIM Guarantee to the contrary notwithstanding, the KEXIM Guarantee Agent shall not be obliged to take any such action or to expend or risk its own funds or otherwise incur any liability in the performance of any of its duties or the exercise of any of its rights or powers hereunder or thereunder if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it or if such action would be contrary to applicable law.

15.30		GIEK Guarantee

		Each GIEK Facility Lender represents and warrants to the GIEK Agent that, with effect from the date it receives the GIEK Guarantee, (i) it has reviewed the GIEK Guarantee and is aware of the provisions thereof, (ii) any representations and warranties made by the GIEK Agent on behalf of each GIEK Facility Lender under the GIEK Guarantee are true and correct with respect to such GIEK Facility Lender in all respects, and (iii) no information provided by such GIEK Facility Lender in writing to the GIEK Agent or to GIEK prior to the date hereof was incomplete, untrue or incorrect in any respect except to the extent that such GIEK Facility Lender, in the exercise of reasonable care and due diligence prior to the giving of the information, could not have discovered the error or omission. Each GIEK Facility Lender represents and warrants to the GIEK Agent that it has not taken (or failed to take), and agrees with the GIEK Agent that it shall not take (or fail to take), any action that would result in the GIEK Agent being in breach of any of its obligations in its capacity as GIEK Agent under the GIEK Guarantee or the Facility Documents, or result in any of GIEK Facility Lenders being in breach of any of their respective obligations as insured parties, under the GIEK Guarantee, or which would otherwise prejudice the GIEK Agent’s ability to make a claim on behalf of the GIEK Facility Lenders under the GIEK Guarantee.



15.31		GIEK Agent actions

		The GIEK Agent agrees to take such actions under the GIEK Guarantee (including with respect to any amendment, modification or supplement to the GIEK Guarantee) as may be directed on the unanimous instructions of the GIEK Facility Lenders from time to time; provided that, anything herein or in the GIEK Guarantee to the contrary notwithstanding, the GIEK Agent shall not be obliged to take any such action or to expend or risk its own funds or otherwise incur any liability in the performance of any of its duties or the exercise of any of its rights or powers hereunder or thereunder if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it or if such action would be contrary to applicable law.

16		Set-Off

		Only a Facility Beneficiary (not the Borrower) may set off any matured obligation due from the Borrower under any Facility Document (to the extent beneficially owned by that Facility Beneficiary) against any matured obligation owed by that Facility Beneficiary to the Borrower, regardless of the place of payment, booking branch or currency of either obligation. If the obligations are in different currencies, that Facility Beneficiary may convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off.

17		Payments

17.1		Payments

		Each amount payable by the Borrower under a Facility Document shall be paid to such account at such bank as the Facility Agent may from time to time direct to the Borrower in the Currency of Account and in such funds as are customary at the time for settlement of transactions in the relevant currency in the place of payment. Payment shall be deemed to have been received by the Facility Agent on the date on which the Facility Agent receives authenticated advice of receipt, unless that advice is received by the Facility Agent on a day other than a Banking Day or at a time of day (whether on a Banking Day or not) when the Facility Agent in its reasonable discretion considers that it is impossible or impracticable for the Facility Agent to utilise the amount received for value that same day, in which event the payment in question shall be deemed to have been received by the Facility Agent on the Banking Day next following the date of receipt of advice by the Facility Agent.

17.2		No deductions or withholdings

		Each payment (whether of principal or interest or otherwise) to be made by the Borrower under a Facility Document shall, subject only to clause 17.3, be made free and clear of and without deduction for or on account of any Taxes or other deductions, withholdings, restrictions, conditions or counterclaims of any nature other than FATCA Deductions.

17.3		Grossing-up

		If at any time any law requires (or is interpreted to require) the Borrower to make any deduction or withholding from any payment, or to change the rate or manner in which any required deduction or withholding is made, the Borrower will promptly notify the Facility Agent and, simultaneously with making that payment, will pay to the Facility Agent whatever additional amount (after taking into account any additional Taxes on, or deductions or withholdings from, or restrictions or conditions on, that additional amount) is necessary to ensure that, after making the deduction or withholding, the relevant Facility Beneficiaries receive a net sum equal to the sum which they would have received had no deduction or withholding been made.



17.4	Evidence of deductions

	If at any time the Borrower is required by law to make any deduction or withholding from any payment to be made by it under a Facility Document, the Borrower will pay the amount required to be deducted or withheld to the relevant authority within the time allowed under the applicable law and will, no later than thirty (30) days after making that payment, deliver to the Facility Agent an original receipt issued by the relevant authority, or other evidence reasonably acceptable to the Facility Agent, evidencing the payment to that authority of all amounts required to be deducted or withheld.

17.5	Rebate

	If the Borrower pays any additional amount under clause 17.3 and a Facility Beneficiary subsequently receives a refund or allowance from any tax authority which that Facility Beneficiary identifies as being referable to that increased amount so paid by the Borrower, that Facility Beneficiary shall, as soon as reasonably practicable, pay to the Borrower an amount equal to the amount of the refund or allowance received, if and to the extent that it may do so without prejudicing its right to retain that refund or allowance and without putting itself in any worse financial position than that in which it would have been had the relevant deduction or withholding not been required to have been made. Nothing in this clause 17.5 shall be interpreted as imposing any obligation on any Facility Beneficiary to apply for any refund or allowance nor as restricting in any way the manner in which any Facility Beneficiary organises its tax affairs, nor as imposing on any Facility Beneficiary any obligation to disclose to the Borrower any information regarding its tax affairs or tax computations.

17.6	Adjustment of due dates

	If any payment or transfer of funds to be made under a Facility Document, other than a payment of interest on the Loan, shall be due on a day which is not a Banking Day, that payment shall be made on the next succeeding Banking Day (unless the next succeeding Banking Day falls in the next calendar month in which event the payment shall be made on the next preceding Banking Day). Any such variation of time shall be taken into account in computing any interest in respect of that payment.

17.7	Control Account

	The Facility Agent shall (without further input required from the Borrower) open and maintain on its books a control account in the name of the Borrower showing the advance of the Loan and the computation and payment of interest and all other sums due under this Agreement. The Borrower’s obligations to repay the Loan and to pay interest and all other sums due under this Agreement shall be evidenced by the entries from time to time made in the control account opened and maintained under this clause 17.7 by the Facility Agent and those entries will, in the absence of manifest error, be conclusive and binding.

17.8	Hedging Providers

	Each Hedging Provider agrees with and covenants to each of the other Facility Beneficiaries that until the end of the Facility Security Period and without prejudice to any rights which that Hedging Provider may otherwise have against the Borrower (including, for the avoidance of doubt, any right to terminate transactions under its Hedging Agreement or close-out its Hedging Agreement pursuant to a permitted termination event set out therein but subject to any other agreements or covenants of the Hedging Providers set out in any other provision of this Agreement):

17.8.1	it will not, without the prior written consent of the Facility Agent:

	(a)	at any time when an Event of Default has occurred and is continuing unremedied and unwaived, accept or demand from the Borrower the payment or repayment in whole or in part of any Indebtedness whatsoever now or hereafter due to it from the Borrower;

	(b)	at any time when an Event of Default has occurred and is continuing unremedied and unwaived, otherwise accept, have the benefit of, or share in any payment from, or composition with, the Borrower (other than pursuant to any contractual set-off and/or netting provisions contained in the Hedging Agreement to which it is a party and without prejudice to its rights as a Facility Beneficiary in respect of the Facility Secured Property);



	(c)	exercise any other right of whatsoever nature or claim or exercise any right of set-off or counterclaim which it may have against the Borrower (other than pursuant to any contractual set-off and/or netting provisions contained in the Hedging Agreement to which it is a party and without prejudice to its rights as a Facility Beneficiary in respect of the Facility Secured Property);

	(d)	accept or demand any Collateral Instrument from the Borrower in respect of any right referred to in paragraphs (a), (b) and (c) above or dispose of any such right (but without prejudice to its rights as a Facility Beneficiary in respect of the Facility Secured Property);

	(e)	take any step to enforce any right against the Borrower (by proceedings or otherwise) (but without prejudice to its rights as a Facility Beneficiary in respect of the Facility Secured Property);

	(f)	initiate or take any action which would result in any Insolvency Event in relation to the Borrower; or

	(g)	claim or prove in any Insolvency Event in relation to the Borrower;

17.8.2	it will, if so directed by the Facility Agent, prove in any Insolvency Event in relation to the Borrower for the whole or any part of any claim which it may have against the Borrower and on terms that the benefit of such proof and of all moneys received by it in respect thereof shall be held on trust for the Facility Beneficiaries and shall be applied in accordance with clause 10.3.

17.9	FATCA Deduction and gross-up by Security Parties

17.9.1	If a Security Party is required to make a FATCA Deduction, the Borrower shall procure that that Security Party shall make that FATCA Deduction and any payment required in connection with that FATCA Deduction within the time allowed and in the minimum amount required by FATCA.

17.9.2	If a FATCA Deduction is required to be made by a Security Party, the Borrower shall procure that the amount of the payment due from that Security Party shall be increased to an amount which (after making any FATCA Deduction) leaves an amount equal to the payment which would have been due if no FATCA Deduction had been required.

17.9.3	The Borrower shall promptly upon becoming aware that a Security Party must make a FATCA Deduction (or that there is any change in the rate or the basis of a FATCA Deduction) notify the Facility Agent accordingly. Similarly, a Facility Beneficiary shall notify the Facility Agent on becoming so aware in respect of a payment payable to that Facility Beneficiary. If the Facility Agent receives such notification from a Facility Beneficiary it shall notify the Borrower and that Security Party.

17.9.4	Within thirty (30) days of making either a FATCA Deduction or any payment required in connection with that FATCA Deduction, the Borrower shall procure that the Security Party making that FATCA Deduction or payment shall deliver to the Facility Agent for the Facility Beneficiary entitled to the payment evidence reasonably satisfactory to that Facility Beneficiary that the FATCA Deduction has been made or (as applicable) any appropriate payment paid to the relevant governmental or taxation authority.

17.10	FATCA Deduction by a Facility Beneficiary

17.10.1	Each Facility Beneficiary may make any FATCA Deduction it is required by FATCA to make, and any payment required in connection with that FATCA Deduction, and no Facility Beneficiary shall be required to increase any payment in respect of which it makes such a FATCA Deduction or otherwise compensate the recipient of the payment for that FATCA Deduction. A Facility Beneficiary which becomes aware that it must make a FATCA Deduction in respect of a payment to another Party (or that there is any change in the rate or the basis of such FATCA Deduction) shall notify that Party and the Facility Agent.



17.10.2	If the Facility Agent is required to make a FATCA Deduction in respect of a payment to a Facility Beneficiary under clause 15.14 which relates to a payment by a Security Party, the amount of the payment due from that Security Party shall be increased to an amount which (after the Facility Agent has made such FATCA Deduction), leaves the Facility Agent with an amount equal to the payment which would have been made by the Facility Agent if no FATCA Deduction had been required.

17.10.3	The Facility Agent shall promptly upon becoming aware that it must make a FATCA Deduction in respect of a payment to a Facility Beneficiary under clause 15.14 which relates to a payment by a Security Party (or that there is any change in the rate or the basis of such a FATCA Deduction) notify the Borrower, the relevant Security Party and the relevant Facility Beneficiary.

17.10.4	The Borrower shall (within three (3) Banking Days of demand by the Facility Agent) pay to a Facility Beneficiary an amount equal to the loss, liability or cost which that Facility Beneficiary determines will be or has been (directly or indirectly) suffered by that Facility Beneficiary as a result of another Facility Beneficiary making a FATCA Deduction in respect of a payment due to it under a Facility Document. This paragraph shall not apply to the extent a loss, liability or cost is compensated for by an increased payment under clause 17.10.2 above.

17.10.5	A Facility Beneficiary making, or intending to make, a claim under clause 17.10.4 above shall promptly notify the Facility Agent of the FATCA Deduction which will give, or has given, rise to the claim, following which the Facility Agent shall notify the Borrower.

18	Notices

18.1	Communications in writing

	Any communication to be made under or in connection with this Agreement shall be made in writing and, unless otherwise stated, may be made by fax or letter or (subject to clause 18.6) electronic mail.

18.2	Addresses

	The address and fax number (and the department or officer, if any, for whose attention the communication is to be made) of each Party for any communication or document to be made or delivered under or in connection with this Agreement are:

18.2.1	in the case of the Borrower, c/o Teekay Shipping (Canada) Ltd, Suite 2000, Bentall 5, 550 Burrard Street, Vancouver, B.C., Canada V6C 2K2 (fax no: +1 604 681 3011) marked for the attention of Renee Eng, Treasury Manager;

18.2.2	in the case of each Facility Lender, those appearing opposite its name in Schedule 1, Part 1;

18.2.3	in the case of each Hedging Provider, those appearing opposite its name in Schedule 1, Part 2;

18.2.4	in the case of the Facility Agent and the Facility Security Trustee:

	(a)	for all credit related communications, 1301 Avenue of the Americas, New York, NY 10019, for the attention of Jerome Duval/Michael Choina (email: jerome.duval@ca-cib.com, michael.choina@ca-cib.com); and

	(b)	for all other communications, 9 quai du Président Paul Doumer, 92920 Paris la Défense Cedex, France, for the attention of Sylvie Godet-Couery/Jerome Duval/Michael Choina (email: Sylvie.godetcouery@ca-cib.com, jerome.duval@ca-cib.com, michael.choina@ca-cib.com);

18.2.5	in the case of the K-Sure Agent, 25 Canada Square, London E14 5LB, for the attention of Guido Musso/Davide Alessandrini (Export Agency Finance - CTS), (email: guido.musso@citi.com, davide.alessandrini@citi.com, manuel.mazzoni@citi.com, yunsun.jeong@citi.com and minsuk.oh@citi.com);



18.2.6	in the case of the GIEK Agent, 25 Canada Square, London E14 5LB, for the attention of Guido Musso/Davide Alessandrini (Export Agency Finance - CTS), (email: guido.musso@citi.com, davide.alessandrini@citi.com, manuel.mazzoni@citi.com, yunsun.jeong@citi.com and minsuk.oh@citi.com);

18.2.7	in the case of the KEXIM Guarantee Agent, 181, Euljiro 2-ga,Jung-gu, Seoul 100-796, Korea, for the attention of Seongsoo Park/Seungho Kim/Jaehyen Lee (International Finance Team), (email: mwhuh@keb.co.kr, sspark@keb.co.kr, wonny@keb.co.kr, kimseungho@keb.co.kr, first@keb.co.kr, jaehyen.lee@keb.co.kr); and

	or any substitute address, fax number, department or officer as any party may notify to the Facility Agent (and in the case of a K-Sure Facility Lender, the K-Sure Agent and in the case of a GIEK Facility Lender, the GIEK Agent and in the case of a KEXIM Guarantee Facility Lender, the KEXIM Guarantee Agent) (or the Facility Agent, the K-Sure Agent, the GIEK Agent or, as the case may be, the KEXIM Guarantee Agent may notify to the other parties, if a change is made by the Facility Agent, the K-Sure Agent, the GIEK Agent or the KEXIM Guarantee Agent) by not less than three (3) Banking Days’ notice.

18.3	Delivery

	Any communication or document made or delivered by one Party to another under or in connection this Agreement will only be effective:

18.3.1	if by way of fax, when received in legible form; or

18.3.2	if by way of letter, when it has been left at the relevant address or five (5) days after being deposited in the post postage prepaid in an envelope addressed to it at that address; or

18.3.3	if by way of electronic mail, in accordance with clause 18.6;

	and, if a particular department or officer is specified as part of its address details provided under clause 18.2, if addressed to that department or officer.

	Any communication or document to be made or delivered to the Facility Agent, the K-Sure Agent, the GIEK Agent or the KEXIM Guarantee Agent will be effective only when actually received by the Facility Agent, the K-Sure Agent, the GIEK Agent or the KEXIM Guarantee Agent.

	All notices from or to the Borrower shall be sent through the Facility Agent.

	The Facility Agent shall promptly forward a copy of any document which is delivered to it for another party and where such document is addressed to:

	(a)	the K-Sure Facility Lenders, the Facility Agent shall forward it to the K-Sure Agent as well;

	(b)	the GIEK Facility Lenders, the Facility Agent shall forward it to the GIEK Agent as well; and

	(c)	the KEXIM Guarantee Facility Lenders, the Facility Agent shall forward it to the KEXIM Guarantee Agent as well.

18.4	Notification of address and fax number

	Promptly upon receipt of notification of an address, fax number or change of address, pursuant to clause 18.2 or changing its own address or fax number, the Facility Agent shall notify the other parties to this Agreement.



18.5	English language

	Any notice given under or in connection with this Agreement must be in English. All other documents provided under or in connection with this Agreement must be:

18.5.1	in English; or

18.5.2	if not in English, and if so required by the Facility Agent, accompanied by a certified English translation and, in this case, the English translation will prevail unless the document is a constitutional, statutory or other official document.

18.6	Electronic communication

	(a)	Any communication to be made in connection with this Agreement may be made by electronic mail or other electronic means, if the Borrower and the relevant Facility Beneficiary and/or K-Sure and/or KEXIM and/or GIEK:

		(i)	agree that, unless and until notified to the contrary, this is to be an accepted form of communication;

		(ii)	notify each other in writing of their electronic mail address and/or any other information required to enable the sending and receipt of information by that means; and

		(iii)	notify each other of any change to their address or any other such information supplied by them.

	(b)	Any electronic communication made between the Borrower and the relevant Facility Beneficiary will be effective only when actually received in readable form and acknowledged by the recipient (it being understood that any system generated responses do not constitute an acknowledgement) and in the case of any electronic communication made by the Borrower to a Facility Beneficiary only if it is addressed in such a manner as the Facility Beneficiary shall specify for this purpose.

	For the purpose of the Facility Documents, an electronic communication will be treated as being in writing. Each party may rely without further inquiry on the senders’ due authorisation in connection with any e-mail messages it receives on behalf of the other Party. Each party shall also, subject to the terms and conditions of this Agreement (including but not limited to the requirements to communicate via the Facility Agent, the K-Sure Agent, the KEXIM Guarantee Agent, the GIEK Agent and/or the Facility Security Trustee), be authorised to communicate by e-mail with any third parties who may be involved in this transaction or affected by the Facility Documents. Each Party confirms that it is aware of the fact that information by way of electronic exchange is transmitted unencrypted over a publicly accessible network, and that it acknowledges all the risk connected therewith (including but not limited to the fact that a bank relation (as such terms is used in the context of Swiss banking secrecy legislation could be identified).

19	Partial Invalidity

	If, at any time, any provision of a Facility Document is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of any other jurisdiction will in any way be affected or impaired.

20	Remedies and Waivers

	No failure to exercise, nor any delay in exercising, on the part of any Facility Beneficiary, any right or remedy under a Facility Document shall operate as a waiver, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise or the exercise of any other right or remedy. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law.



21	Miscellaneous

21.1	No oral variations

	No variation or amendment of a Facility Document shall be valid unless in writing and signed on behalf of all the Facility Beneficiaries and the relevant Security Party.

21.2	Further Assurance

	If any provision of a Facility Document shall be invalid or unenforceable in whole or in part by reason of any present or future law or any decision of any court, or if the documents at any time held by or on behalf of the Facility Beneficiaries or any of them are considered by the Facility Lenders for any reason insufficient to carry out the terms of this Agreement, then from time to time the Borrower will promptly, on demand by the Facility Agent, execute or procure the execution of such further documents as in the opinion of the Facility Lenders are necessary to provide adequate security for the repayment of the Facility Secured Obligations.

21.3	Rescission of payments etc.

	Any discharge, release or reassignment by a Facility Beneficiary of any of the security constituted by, or any of the obligations of a Security Party contained in, a Facility Document shall be (and be deemed always to have been) void if any act (including, without limitation, any payment) as a result of which such discharge, release or reassignment was given or made is subsequently wholly or partially rescinded or avoided by operation of any law.

21.4	Certificates

	Any certificate or statement signed by an authorised signatory of the Facility Agent purporting to show the amount of the Facility Secured Obligations (or any part of the Facility Secured Obligations) or any other amount referred to in any Facility Document shall, save for manifest error or on any question of law, be conclusive evidence as against the Borrower of that amount.

21.5	Counterparts

	This Agreement may be executed in any number of counterparts each of which shall be original but which shall together constitute the same instrument.

21.6	Contracts (Rights of Third Parties) Act 1999

	(a)	Unless expressly provided to the contrary in this agreement and subject to the following sentence, a person who is not a Party has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce or to enjoy the benefit of any term of this Agreement. KEXIM, K-Sure, GIEK and each Indemnified Party shall have the right to enforce and enjoy the benefit of any term of this Agreement which is expressed to be for its benefit or expressly purports to confer a benefit on it. Notwithstanding any term of this Agreement, the consent of a person who is not a Party (unless otherwise expressly provided by this Agreement in respect of KEXIM, K-Sure, GIEK and without prejudice to the provisions of the KEXIM Guarantee, the K-Sure Insurance Policy or the GIEK Guarantee) is not at any time required to rescind or amend this Agreement.

	(b)	Each party agrees that (i) KEXIM shall not have any obligations or liabilities (other than as a KEXIM Facility Lender) under this Agreement unless and until it becomes a KEXIM Guarantee Facility Lender in accordance with the terms of this Agreement, (ii) this Agreement may not be amended to limit, modify or eliminate any rights of KEXIM without its prior written consent, (iii) K-Sure shall not have any obligations or liabilities under this Agreement unless and until it becomes a Facility Lender in accordance with the terms of this Agreement, (iv) this Agreement may not be amended to limit, modify or eliminate any rights of K-Sure without its prior written consent, (v) GIEK shall not have any obligations or liabilities under this Agreement unless and until it becomes a Facility Lender in accordance with the terms of this Agreement, and (vi) this Agreement may not be amended to limit, modify or eliminate any rights of GIEK without its prior written consent.



21.7		Disclosure of Information

		The Borrower authorises each Facility Lender to disclose any information and/or document(s) concerning its relationship with such Facility Lender or otherwise delivered pursuant to this Agreement (i) as may be compelled by judicial or legal process or to authorities in any other countries where such Facility Lender or any Affiliate is represented and/or where any Facility Lender or any Affiliate may be requested information by any governmental, banking, taxation or other regulatory authority or similar body, the rules of any relevant stock exchange or pursuant to any applicable law, (ii) to parties to whom that Facility Lender charges, assigns or otherwise creates security (or may do so) pursuant to clause 14.4, (iii) to any Affiliate of that Facility Lender including, without limitation, for the purposes of making it possible to consolidate the member of a Group’s total commitments and offer the member of any Group any other products offered by that Facility Lender or any Affiliate, subject always to the duties of confidentiality on the Facility Lenders, (iv) in the case of the KEXIM Guarantee Facility Lender, to KEXIM and the Borrower consents to KEXIM publishing key information concerning the KEXIM Guarantee, in the case of the K-Sure Facility Lender, to K-Sure and the Borrower consents to K-Sure publishing key information concerning the K-Sure Insurance Policy, and in the case of the GIEK Facility Lender, to GIEK and the Borrower consents to GIEK publishing key information concerning the GIEK Guarantee, (v) to any rating agency (including its professional advisers), (vi) to any monoline insurers, verification agents and their professional advisers, (vii) to any person which invests in or otherwise finances or may potentially invest in or otherwise finance directly or indirectly in any transaction relating to this Loan, (viii) to the professional advisers of any Facility Lender or its Affiliates, (ix) to any related fund of a Facility Lender and (x) to any person that provides administration or settlement or numbering services in respect of the Facility Documents.

21.8		USA Patriot Act

		Each Facility Beneficiary that is subject to the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the Act) hereby notifies the Borrower and the other Security Parties that pursuant to the requirements of the Act, it is required to obtain, verify and record information that identifies the Borrower and the other Security Parties, which information includes the name and address of the Borrower and the other Security Parties and other information that will allow such Facility Beneficiary, as applicable, to identify the Borrower and the other Security Parties in accordance with the Act.

21.9		Banking secrecy and any data protection legislation

		The Borrower will procure that each Security Party (and its successors) hereby releases each Facility Lender and its Affiliates and each Facility Lender hereby releases the other Facility Lenders and their Affiliates from any confidentiality obligations and any further restrictions based on applicable banking secrecy and any data protection legislation among each other with regard to any data and/or information relating to this Agreement and/or the Facility Documents, and/or due exercise of the respective rights or fulfilment of the respective obligations by each Facility Lender.

22		Law and Jurisdiction

22.1		Governing law

		This Agreement and any non-contractual obligations arising from or in connection with it shall in all respects be governed by and interpreted in accordance with English law.

22.2		Jurisdiction

		For the exclusive benefit of the Facility Beneficiaries, the parties to this Agreement irrevocably agree that the courts of England are to have jurisdiction to settle any dispute;



	(a)	which may arise out of or in connection with this Agreement; or

	(b)	relating to any non-contractual obligations arising from or in connection with this Agreement,

	and that any proceedings may be brought in those courts.

22.3	Alternative jurisdictions

	Nothing contained in this clause 22 shall limit the right of the Facility Beneficiaries to commence any proceedings against the Borrower in any other court of competent jurisdiction nor shall the commencement of any proceedings against the Borrower in one or more jurisdictions preclude the commencement of any proceedings in any other jurisdiction, whether concurrently or not.

22.4	Waiver of objections

	The Borrower irrevocably waives any objection which it may now or in the future have to the laying of the venue of any proceedings in any court referred to in this clause 22, and any claim that those proceedings have been brought in an inconvenient or inappropriate forum, and irrevocably agrees that a judgment in any proceedings commenced in any such court shall be conclusive and binding on it and may be enforced in the courts of any other jurisdiction.

22.5	Service of process

	Without prejudice to any other mode of service allowed under any relevant law, the Borrower:

22.5.1	irrevocably appoints Teekay Shipping (UK) Limited of 2nd Floor, 86 Jermyn Street, London SW1Y 6JD England, United Kingdom as its agent for service of process in relation to any proceedings before the English courts in connection with this Agreement; and

22.5.2	agrees that failure by a process agent to notify the Borrower of the process will not invalidate the proceedings concerned.

Schedule 1

Part 1: The Facility Lenders and the Commitments

KEXIM FACILITY LENDERS


The KEXIM Facility Lenders	The KEXIM Facility Commitments ($)	The Proportionate Share (%)

The Export-Import Bank of Korea 38 Eunhaeng-ro 16-1 Yeouido-dong Yeongdeungpo-gu Seoul, 150-996, Korea Fax: +82 2 3779 6778 Attention: [ ]	177,472,081.22	21.78

KEXIM GUARANTEE FACILITY LENDERS


The KEXIM Guarantee Facility Lenders	The KEXIM Guarantee Facility Commitments ($)	The Proportionate Share (%)

Korea Exchange Bank of Canada, Main Br. 4950 Yonge Street, Suite 103 Toronto, Ontario M2N 6K1 Tel: Fax: Email: : [ ] Attention: [ ] For credit matters: 4950 Yonge Street, Suite 103 Toronto, Ontario M2N 6K1 Tel: Fax: Email: [ ] Attention: [ ] For operational matters: 4950 Yonge Street, Suite 103 Toronto, Ontario M2N 6K1 Tel: Fax: Email: [ ] Attention: [ ]	50,000,000.00	6.13

Korea Exchange Bank, London Br. 30 Old Jewry, London EC2R 8EB, UK Tel: Fax: Email: [ ] Attention: [ ]	50,000,000.00	6.13


For credit matters: 30 Old Jewry, London EC2R 8EB, UK Tel: Fax: Email: [ ] Attention: [ ] For operational matters: 30 Old Jewry, London EC2R 8EB, UK Tel: Fax: Email: [ ]settlement@kebldn.co.uk Attention: Loan Department / Settlement Department

Korea Exchange Bank, Panama Br. Calle 50, Edificio PH Torre Global Bank, Piso 19, Oficina #1902, Panama City, Republic of Panama Tel: Fax: Email: [ ] Attention: [ ] For credit matters: Calle 50, Edificio PH Torre Global Bank, Piso 19, Oficina #1902, Panama City, Republic of Panama Tel: Fax: Email: [ ] Attention: [ ] For operational matters: Calle 50, Edificio PH Torre Global Bank, Piso 19, Oficina #1902, Panama City, Republic of Panama Tel: Fax: Email: [ ] Attention: Loan & Marketing	30,000,000.00	3.68

K-SURE FACILITY LENDERS


The K-Sure Facility Lenders	The K-Sure Facility Commitments ($)	The Proportionate Share (%)

The Bank of Tokyo-Mitsubishi UFJ, Ltd. Ropemaker Place 25 Ropemaker Street London EC2Y 9AN Tel:	17,500,000.00	2.15


Fax: Email: loanparticipation@uk.mufg.jp Attention: Dept: Loan Participation Structured Loans For operational matters: Tel: Fax: Email: Attention: Dept: Loan Participation Structured Loans For credit matters: Tel: Fax: Email: Attention:

Development Bank of Japan Inc. 9-6, Otemachi 1-chome, Chiyoda-ku Tokyo 100-8178, Japan Tel: Fax: Email: For credit matters: Attention: Associate of Corporate Finance Department, Division 4 For operational matters: Attention: International Strategy & Cooperation Department Tel: Fax: Email:	20,000,000.00	2.45

Credit Suisse AG Paradeplatz 8 8001 Zurich Switzerland For credit matters (documentation stage to first Drawdown): Export Finance SGTE 1 Giesshuebelstr. 30 CH-8070 Zurich Switzerland Tel: Fax: Email: Attention: For credit matters (after first Drawdown): Export Finance SGTE 4	30,000,000.00	3.68


Giesshuebelstr. 30 CH-8070 Zurich Switzerland Tel: Fax: Email: Attention: Export Finance: Portfolio Management, For operational matters: SGTE 3 Giesshuebelstrasse 30 CH-8070 Zurich Switzerland Tel: Fax: Email: Attention: Export Finance: Client Services
ABN AMRO Capital USA LLC For business/credit matters and legal/documentation: 100 Park Avenue New York, New York 10017 Tel: Fax: Email: Attention: (Vice President), (Head of Shipping & Offshore North America) For loans/letters of credit: Tel: Fax: Email: Copy to: Attention: (Director Trade Finance Operations) For intralinks/debt domain/Syndtrak: Tel: Fax: Email: Attention: (Assistant Vice President)	82,500,000.00	10.12
DBS Bank Ltd DBS Asia Central @ MBFC Tower 3, Level 46 12 Marina Boulevard Singapore 018982 Tel: Fax: Email: Attention: For operational matters: Dept: IBG1 – Shipping, Aviation &	45,000,000.00	5.52


Transportation Tel: Fax: Email: Attention:
Credit Agricole Corporate and Investment Bank 9 quai du Président Paul Doumer 92920 Paris la Défense Cedex, France Tel: Fax: Email: For credit matters: 1301 Avenue of the Americas New York, NY 10019 Tel: Fax: Email: Attention: For operational matters: Dept: Agency and Middle-Office for Shipping 9 quai du Président Paul Doumer 92920 Paris la Défense Cedex, France Tel: Fax: Email:	82,500,000.00	10.12
Citibank N.A., London Branch 25 Canada Square London E14 5LB, England Tel: Fax: Email: Attention: For operational matters: Dept: Loans Processing Unit Citibank, N.A. London C/- Citibank International plc, Poland Branch 8 Chalubinskiego Str., 8^th Floor Warsaw 00613 Poland Tel: Fax: Email: Attention: CC: EAF Middle Office	29,972,081.22	3.68
Fax No:

COMMERCIAL FACILITY LENDERS


The Commercial Facility Lenders	The Commercial Facility Commitments ($)		The Proportionate Share (%)
ABN AMRO Capital USA LLC For business/credit matters and legal/documentation: 100 Park Avenue New York, New York 10017 Tel: Fax: Email: Attention: (Vice President), (Head of Shipping & Offshore North America) For loans/letters of credit: Tel: Fax: Email: Copy to: Attention: (Director Trade Finance Operations) For intralinks/debt domain/Syndtrak: Tel: Fax: Email: Attention: (Assistant Vice President)		27,500,000.00		3.37
DBS Bank Ltd DBS Asia Central @ MBFC Tower 3, Level 46 12 Marina Boulevard Singapore 018982 Tel: Fax: Email: Attention: For operational matters: Dept: IBG1 – Shipping, Aviation & Transportation Tel: Fax: Email: Attention:		15,000,000.00		1.84



Credit Agricole Corporate and Investment Bank	27,500,000.00	3.37
9 quai du Président Paul Doumer 92920 Paris la Défense Cedex, France Tel: Fax: Email: For credit matters: 1301 Avenue of the Americas New York, NY 10019 Tel: Fax: Email: Attention: For operational matters: Dept: Agency and Middle-Office for Shipping 9 quai du Président Paul Doumer 92920 Paris la Défense Cedex, France Tel: Fax: Email:

Citibank N.A., London Branch 25 Canada Square London E14 5LB, England Tel: Fax: Email: Attention: For operational matters: Dept: Loans Processing Unit Citibank, N.A. London C/- Citibank International plc, Poland Branch 8 Chalubinskiego Str., 8^th Floor Warsaw 00613 Poland Tel: Fax: Email: Attention: CC: EAF Middle Office Fax No:	10,055,837.56	1.23

GIEK FACILITY LENDERS

The GIEK Facility Lenders

The GIEK Facility
Commitments

($)

The Proportionate
Share

(%)

Citibank N.A., London Branch

25 Canada Square

London E14 5LB, England

Tel:

Fax:

Email:

Attention:

For operational matters:

Dept: Loans Processing Unit

Citibank, N.A. London

C/- Citibank International plc, Poland Branch

8 Chalubinskiego Str., 8^th Floor

Warsaw 00613

Poland

Tel:

Fax:

Email:

Attention:

CC: EAF Middle Office

Fax No:

120,000,000.00

14.72

Part 2: The Hedging Providers

Citibank N.A., London Branch

25 Canada Square

London E14 5LB, England

Tel:

Fax

Email:

Attention:

With a copy to:

Citigroup Centre

25 Canada Square

London E14 5LB, England

Fax:

Attention: Company Secretary

Capital Markets Documentation Unit

388 Greenwich Street

17^th Floor, New York

New York 10013

Fax:

Attention: Director of Derivative Operations

ABN AMRO Bank N.V.

c/o Markets Documentation Unit

PAC code HQ 7000

Gustav Mahlerlaan 10

1082 PP Amsterdam

The Netherlands

Tel:

Fax:

Email:

Credit Suisse AG

Fixed Income Derivatives SPCI 2

1211 Geneva 70 GE

Switzerland

Tel:

Fax:

Email:

Attention:

Credit Agricole Corporate and Investment Bank

1301 Avenue of the Americas

New York, NY 10019

Tel:

Email:

Attention:

With a copy to:

Credit Agricole Corporate and Investment Bank

1301 Avenue of the Americas

New York, NY 10019

Tel:

Email:

Attention:

Part 3: The MLAs

The MLAS

The Export-Import Bank of Korea

16-1, Yoido-dong, Youngdeungpo-gu

Seoul, 150-996, Republic of Korea

Fax:

Attention: Ship Finance Department

Korea Exchange Bank, Investment Banking Division

181, Euljiro 2-ga,Jung-gu

Seoul 100-796, Korea

for the attention of (International Finance Team), (email:

ABN AMRO Capital USA LLC

100 Park Avenue

New York, New York 10017

Tel:

Fax:

Email:

Attention:

Credit Agricole Corporate and Investment Bank

9 quai du Président Paul Doumer

92920 Paris la Défense Cedex, France

Email:

Attention:

Development Bank of Japan Inc.

9-6, Otemachi 1-chome, Chiyoda-ku

Tokyo 100-8178, Japan

Tel:

Fax:

Email:

Credit Suisse AG

Export and Structured Trade Finance

SGAZ 1

Giesshuebelstr. 30

CH-8070 Zurich

Switzerland

Tel:

Fax:

Email:

Attention:

Citibank N.A, London Branch

25 Canada Square

London E14 5LB, England

Tel:

Fax:

Email:

Attention:

DBS Bank Ltd

DBS Asia Central @ MBFC Tower 3, Level 46

12 Marina Boulevard

Singapore 018982

Tel:

Fax:

Email:

Attention:

For operational matters:

Dept: IBG1 – Shipping, Aviation & Transportation

Tel:

Fax:

Email:

Attention:

Schedule 2

Part 1: conditions precedent to first Advance

1	Security Parties

(a)

Constitutional Documents: Copies of the constitutional documents of each Security Party (excluding the Operator) and TOO together with such other evidence as the Facility Agent may reasonably require that each such Security Party and TOO is duly formed or incorporated in its country of formation or incorporation and remains in existence with power to enter into, and perform its obligations under, the Transaction Documents to which it is or is to become a party.

(b)

Certificates of good standing: A certificate of good standing in respect of each Security Party (excluding the Operator) and TOO (if such a certificate can be obtained).

(c)

Board resolutions: A copy of a resolution of the board of directors of each Security Party (excluding the Operator) and TOO (or its sole member or general partner):

(i)

approving the terms of, and the transactions contemplated by, the Transaction Documents to which it is a party and ratifying or resolving that it execute those Transaction Documents; and

(ii)

if required authorising a specified person or persons to execute those Transaction Documents (and all documents and notices to be signed and/or despatched under those documents) on its behalf.

(d)

Officer’s certificates: A certificate of a duly authorised officer or representative of each Security Party (excluding the Operator) and TOO certifying that:

(i)

each copy document (excluding the certificates of good standing referred to at paragraph 1(b) of this Part 1 of Schedule 2) relating to it specified in this Part 1 of Schedule 2 is correct, complete and in full force and effect as at a date no earlier than the date of this Agreement; and

(ii)

setting out the names of the directors and officers of that Security Party and TOO (or its sole member or general partner) and the proportion of shares held by each shareholder (notwithstanding the foregoing paragraphs in this Part 1 of Schedule 2, Teekay shall not be obliged to set out the proportion of shares held by each shareholder);

(e)

Powers of attorney: The notarially attested and legalised (where necessary for registration purposes) power of attorney of each Security Party (excluding the Operator) and TOO under which any documents are to be executed or transactions undertaken by that Security Party.

2	Security and related documents

(a)

Project Documents: A photocopy, certified as true, accurate, complete and in full force and effect by a duly authorised representative of the Borrower, of the Project Documents (excluding, for the avoidance of doubt, Addendum No. 5 only to the extent that Addendum No. 5 has not been entered into prior to the Drawdown Date for the first Advance), together with all addenda, amendments or supplements.

(b)

Facility Documents: An original of this Agreement, each Financial Guarantee (including the Financial Guarantee duly executed by TOO and delivered to the Facility Agent in the Agreed Form, effective upon the First Dropdown Date or, if earlier, the Second Dropdown Date) and each Fee Letter, in each case duly executed by each party thereto together with all other documents required by any of them, including, without limitation, all notices of assignment and/or charge, filing, registration and evidence that those notices will be duly acknowledged by the recipients, in each case duly executed by each party thereto for the purpose of the effectiveness of the aforementioned Facility Documents.

(c)

Pre Delivery Date Facility Security Documents: An original of the Account Charge, the Bareboat Charterer Account Charge, the Pre-Delivery Assignment (which among other things, assigns the benefit of the Refund Guarantee), the Master Agreement Charge, the Borrower Share Pledge, the Bareboat Charterer Share Pledge, in each case duly executed by each party thereto together with all other documents required by any of them, including, without limitation, all notices of assignment and/or charge, filing, registration and evidence that those notices will be duly acknowledged by the recipients, in each case duly executed by each party thereto for the purpose of the effectiveness of the aforementioned Facility Security Documents.

(d)

Refund Guarantee: Evidence satisfactory to the Facility Agent that the amount payable under the Refund Guarantee is at least equal to the amount of the first Advance.

3	Notices

(a)

Written consent from the Charterer to enter into the Borrower Share Pledge and the Bareboat Charterer Share Pledge.

(b)

Evidence acceptable to the Facility Agent that notices of assignment (as required) have been served by the Borrower (and consent and/or acknowledgement relating thereto where relevant) in respect of the Pre-Delivery Assignment.

4	Legal opinions

Legal opinions of the legal advisers to the Facility Agent in each relevant jurisdiction, substantially in the form provided to the Facility Agent or confirmation satisfactory to the Facility Agent that such an opinion will be given, namely:

(a)

an opinion on matters of English law from Norton Rose Fulbright LLP;

(b)

an opinion on matters of Marshall Island law from Watson, Farley & Williams LLP;

(c)

an opinion on matters of Norwegian law from Advokatfirmaet BA-HR DA;

(d)

an opinion on matters of Bermudan law from Conyers Dill & Pearman Limited;

(e)

an opinion on matters of French law from Norton Rose Fulbright LLP, Paris; and

(f)

an opinion on matters of Korean law from Kim & Chang.

5	Other documents and evidence

(a)

Process agent: Evidence that any process agent referred to in clause 22.5.1 and any process agent appointed under each Financial Guarantee (including the Financial Guarantee duly executed by TOO), the Account Charge, the Bareboat Charterer Account Charge, the Pre-Delivery Assignment, the Master Agreement Charge and the Borrower Share Pledge has accepted its appointment.

(b)

Other authorisations: A copy of any other consent, licence, approval, authorisation or other document, opinion or assurance which the Facility Agent considers to be necessary or desirable (if it has notified the Borrower accordingly) in connection with the entry into and performance of the transactions contemplated by any of the Transaction Documents or for the validity and enforceability of any of the Transaction Documents.

(c)

Fees: Evidence that the fees, costs and expenses then due from the Borrower under clause 8 and clause 9 have been paid or will be paid on the date upon which they fall due.

(d)

“Know your customer” documents: Such documentation and other evidence as is reasonably requested by the Facility Agent in order for the Facility Lenders to comply with all necessary “know your customer” or similar identification procedures in relation to the transactions contemplated in the Facility Documents.

(e)

Equity: Evidence in form and substance acceptable to the Facility Agent that the Builder has received from the Borrower, from equity or Indebtedness which is fully and effectively subordinated to the Facility Secured Obligations to the satisfaction of the Facility Agent (acting on the instructions of the Majority Facility Lenders and KEXIM), at least twenty per cent. (20%) of the Eligible Delivered Costs.

6	Certificate of ownership

(a)

A certificate from Teekay that it owns a minimum of fifty one per cent (51%) of the voting rights in the General Partner, which is the general partner in TOO.

(b)

Evidence satisfactory to the Facility Agent of the direct or indirect ownership (i) by a Sponsor of the shares in the Shareholder, and (ii) by the Shareholder of the membership interests or shares in the Borrower and the Bareboat Charterer.

7	K-Sure

(a)

Confirmation from K-Sure that K-Sure accepts the terms of this Agreement.

(b)

A legal opinion or confirmation letter from the legal advisers to the Facility Agent in Korea on matters of Korean law, which shall include confirmation that the terms of the Facility Documents comply with the requirements of K-Sure, that the provisions of the Facility Documents do not violate any provision of the K-Sure Insurance Policy, that the K-Sure Insurance Policy has been duly issued for the benefit of the K-Sure Facility Lenders by K-Sure and that it is in full force and effect.

8	K-Sure Insurance Policy

(a)

An original counterpart of the K-Sure Insurance Policy for the K-Sure Facility, duly executed by K-Sure, including an English translation in form and substance acceptable to the K-Sure Facility Lenders.

(b)

Evidence that the K-Sure Premium in relation to the K-Sure Insurance Policy and any costs and expenses which are then due and payable to K-Sure has been paid or will be paid by the Borrower and received by K-Sure in full.

(c)

Confirmation from the Facility Agent (as indicated by the K-Sure Agent) that:

(i)

it has not been informed that K-Sure intends to, and K-Sure has not stipulated its intention to, repudiate or suspend the application of the K-Sure Insurance Policy for the K-Sure Facility;

(ii)

it is satisfied that the K-Sure Insurance Policy is in full force and effect; and

(iii)

it has received no instruction from K-Sure that the K-Sure Facility should not be permitted or made available by the K-Sure Facility Lenders or, as the case may be, the Facility Agent.

(d)

Evidence satisfactory to the K-Sure Facility Lenders that each of the documents specified under the K-Sure Insurance Policy for the K-Sure Facility have been duly delivered in accordance with the terms of the K-Sure Insurance Policy for the K-Sure Facility.

9	KEXIM Guarantee

(a)

The KEXIM Guarantee has been issued and is in full force and effect to the satisfaction of KEXIM Guarantee Facility Lenders.

(b)

Evidence that the KEXIM Guarantee Premium in relation to the KEXIM Guarantee and any costs and expenses which are then due and payable to KEXIM has been paid or will be paid by the Borrower and received by KEXIM in full.

(c)

A legal opinion or confirmation letter from the legal advisers to the Facility Agent in Korea on matters of Korean law, which shall include confirmation that the terms of the Facility Documents comply with the requirements of KEXIM, that the provisions of the Facility Documents do not violate any provision of the KEXIM Guarantee, that the KEXIM Guarantee has been duly issued for the benefit of the KEXIM Guarantee Facility Lenders by KEXIM and that it is in full force and effect.

10	GIEK Guarantee

(a)

The GIEK Guarantee has been issued and is in full force and effect.

(b)

A legal opinion from the legal advisers to the Facility Agent in Norway on matters of Norwegian law, which shall include confirmation that the terms of the Facility Documents comply with the requirements of GIEK Guarantee, that the GIEK Guarantee has been duly issued for the benefit of the GIEK Facility Lenders by GIEK and that it is in full force and effect.

11	Earnings Account

The Earnings Account shall have been opened with the Account Bank.

12	Bareboat Charterer Earnings Account

The Bareboat Charterer Earnings Account shall have been opened with the Account Bank.

13	Repayment of the Bridge Facility

(a)

Evidence in form and substance satisfactory to the Facility Agent that the amount of the first Advance is sufficient to repay in full all amounts owing and/or due under and pursuant to the Bridge Facility.

(b)

Evidence satisfactory to the Facility Agent that any Security Interests securing the Bridge Facility have been released or will, immediately after the first Advance is made, be released in full.

14	Insurance Proceeds under the Construction Contract

Evidence satisfactory to the Facility Agent that the Loss Payable Clause has been or will be endorsed on the Builder’s insurance policy.

15	First Drawdown Notice

A duly completed Drawdown Notice in respect of the first Advance, specifying the first Advance to be made within thirty (30) days of the date of this Agreement.

Part 2: Conditions precedent to second Advance

1	Legal opinions

If requested by the Facility Agent, confirmation from such of the counsel to the Facility Beneficiaries referred to in Part 1 of this Schedule 2 as may be nominated by the Facility Agent in that request that the terms and provisions of the legal opinions provided by them pursuant to Part 1 of this Schedule 2 need not be altered or modified in any way.

2	Other documents and evidence

(a)

Evidence that the fees, costs and expenses then due from the Borrower under clause 8 and clause 9 have been paid or will be paid on the date upon which they fall due.

(b)

A copy of any other consent, licence, approval, authorisation or other document, opinion or assurance which the Facility Agent considers to be necessary or desirable (if it has notified the Borrower accordingly) in connection with the entry into and performance of the transactions contemplated by any of the Transaction Documents or for the validity and enforceability of any of the Transaction Documents.

(c)

An invoice from the Builder in form and substance satisfactory to the Facility Agent evidencing that the amount due and payable to the Builder under the Construction Contract is at least equal to the amount of the second Advance and evidence satisfactory to the Facility Agent that the second Advance will be used to settle that invoice.

(d)

A certificate from a duly authorised officer of the Borrower confirming that the Project Documents are complete and in full force and effect as at a date no earlier than the date of the Drawdown Date of the second Advance.

(e)

A photocopy, certified as true, accurate, complete and in full force and effect by a duly authorised representative of the Borrower as at a date no earlier than the date of the Drawdown Date of the second Advance, of Addendum No. 5.

(f)

Evidence satisfactory to the Facility Agent that the amount payable under the Refund Guarantee is at least equal to the amount of the first Advance and the amount of the second Advance (in aggregate).

3	Earnings Account

The Earnings Account remains opened and is being maintained with the Account Bank.

4	Bareboat Charterer Earnings Account

The Bareboat Charterer Earnings Account remains opened and is being maintained with the Account Bank.

Part 3: Conditions precedent to final Advance

1	Security and related documents

(a)

Evidence of Borrower’s title: Evidence satisfactory to the Facility Agent that the certificate of ownership and encumbrance (or equivalent) issued by the Registrar of Ships (or equivalent official) of the Vessel’s Flag State confirming that (a) the Vessel is permanently registered under that flag in the ownership of the Borrower, (b) the Mortgage has been registered with first priority against the Vessel and (c) there are no further or other Security Interests registered against the Vessel will, in each case, be available on the Drawdown Date for the final Advance.

(b)

Certificate of no Security Interests: A certificate from the Borrower that upon Delivery the Vessel is free of Security Interests other than Permitted Security Interests.

(c)

Evidence of insurance: Evidence that the Vessel is insured in the manner required by the Facility Security Documents and that letters of undertaking will be issued in the manner required by the Facility Security Documents, together with the written approval of the Insurances by an insurance adviser appointed by the Facility Agent.

(d)

Delivery Date Facility Security Documents: An original of each of the Facility Security Documents, including but not limited to:

(i)

the Mortgage;

(ii)

the Assignment;

(iii)

the Deed of Covenants;

(iv)

the Bareboat Charterer Assignment;

(v)

the Notices of Assignment;

(vi)

the Quiet Enjoyment Undertaking; and

(vii)

each other document which the Borrower and the Facility Security Trustee agree shall be a Facility Security Document for the purposes of the Facility Documents,

together with all other documents required by any of them, including, without limitation, all notices of assignment and/or charge, filing, registration and evidence that those notices will be duly acknowledged by the recipients (including, for the avoidance of doubt, the Quiet Enjoyment Undertaking), in each case duly executed by each party thereto for the purpose of the effectiveness of the Facility Security Documents.

2	Legal opinions

(a)

an opinion on matters of English law from Norton Rose Fulbright LLP;

(b)

an opinion on matters of Marshall Island law from Watson, Farley & Williams LLP;

(c)

an opinion on matters of Norwegian law from Advokatfirmaet BA-HR DA;

(d)

an opinion on matters of Korean law from Kim & Chang; and

(e)

an opinion on matters of law relating to the Flag State.

3	Other documents and evidence

(a)

Process agent: Evidence that any process agent referred to in clause 22.5.1 and any process agent appointed under any other Facility Document has accepted its appointment.

(b)

(c)

Fees: Evidence that the fees, costs and expenses then due from the Borrower under clause 8 and clause 9 have been paid or will be paid on the date upon which they fall due.

(d)

Confirmation of class: Certificate of Confirmation of Class confirming that the Vessel is classed with the highest class applicable to Vessel of her type with a Classification Society.

(e)

Valuation: A Valuation.

(f)

Operator: The conditions precedent set out in Part 1 of Schedule 2, paragraph 1 in respect of the Operator only.

4	Notices

(a)

Written consent from the Charterer for the Bareboat Charterer and the Borrower to enter into the Bareboat Charterer Assignment and the Borrower to enter into the Assignment.

(b)

Evidence acceptable to the Facility Agent that a notice of assignment has been served on the Charterer by the Bareboat Charterer and Borrower in respect of the Bareboat Charterer Assignment and Assignment.

5	Additional conditions

(a)

Evidence in form and substance satisfactory to the Facility Agent that the amount of the final Advance (when aggregated with each of the other Advances) is sufficient to (together with the equity referred to in Schedule 2, Part 1, paragraph 5(e) and any other equity or Indebtedness which is fully and effectively subordinated to the Facility Secured Obligations) pay all Eligible Delivered Costs.

(b)

A copy, certified as a true copy by a duly authorised officer of the Borrower of the agreed drafts of the protocol of delivery and acceptance under the Construction Contract, with executed copies to be provided as soon as practicable after Delivery.

(c)

A copy of the Budget updated as at the Drawdown Date of the final Advance (to be provided to the Facility Lenders as soon as practicable after receipt by the Facility Agent).

(d)

Evidence satisfactory to the Facility Agent that the Charter Date of Acceptance will occur no later than the date falling fifteen (15) months after the date of the signing of this Agreement, and that no direct agreement under or pursuant to the Purchase Option Agreement has been exercised.

(e)

6	Earnings Account

The Earnings Account remains opened and is being maintained with the Account Bank.

7	Bareboat Charterer Earnings Account

The Bareboat Charterer Earnings Account remains opened and is being maintained with the Account Bank.

8	Financial covenants

(a)

Evidence in the form of a certificate attaching supporting evidence satisfactory to the Facility Agent that the DSCR is not less than 1.2:1 for each Relevant Period during the period from the Drawdown Date of the final Advance to the twelfth anniversary of the Drawdown Date of the final Advance.

(b)

Evidence in the form of a certificate attaching supporting evidence satisfactory to the Facility Agent that the LLCR is not less than 1.2:1 for each Relevant Period during the period from the Drawdown Date of the final Advance to the twelfth anniversary of the Drawdown Date of the final Advance.

9	Third Drawdown Notice

A duly completed Drawdown Notice for the final Advance with the Drawdown Date being on or one (1) Banking Day prior to the Delivery Date.

Part 4: Conditions subsequent

1	Letters of undertaking

Within five (5) Banking Days after the Drawdown Date for the final Advance, letters of undertaking in respect of the Insurances as required by the Facility Documents together with copies of the relevant policies or cover notes or entry certificates duly endorsed with the interest of the Facility Beneficiaries.

2	Acknowledgements of notices

As soon as practicable after the execution of each Facility Document but no later than ten (10) days after the execution of each Facility Document, acknowledgements of all notices of assignment and/or charge given pursuant to that Facility Document.

3	Legal opinions

Such of the legal opinions specified in this Schedule 2 as have not already been provided to the Facility Agent.

4	Budget

Within 30 days of the Drawdown Date for the final Advance a budget for operation of the Vessel for the immediately following period of twelve (12) months showing amongst other things proposed capital expenditure.

5	Interest hedging

Within thirty (30) days of the Drawdown Date for the final Advance, evidence that hedging arrangements covering part of the floating rate interest exposure under the Facility have been entered into by the Borrower.

6	ISS Certificate

Within seven (7) days of the Delivery Date, the ISS Certificate, where applicable, in relation to the Vessel, a valid and current DOC issued pursuant to the ISM Code, a valid and current SMC issued in respect of the Vessel pursuant to the ISM Code and any other certificates issued under any applicable code required to be observed by the Vessel or in relation to its operation under Applicable Law.

Part 5: Conditions precedent to a Dropdown Date and/or Additional Sponsor Date

1	Sponsors

A certificate signed by a duly authorised officer, authorised signatory (including an attorney-in-fact) or representative of each of Teekay, TOO and/or as the case may be, an Additional Sponsor dated no later than five (5) Banking Days before the Dropdown Date and/or Additional Sponsor Date confirming that none of the documents and evidence delivered to the Facility Agent pursuant to clauses 3.1, 3.1.4, 3.3 and 3.6 has been amended, modified or revoked in any way since its delivery to the Facility Agent or, if so amended, new certified copies.

2	Financial Guarantee

(a)

in respect of a Dropdown Date, the Financial Guarantee duly executed by the new Sponsor and delivered to the Facility Agent in the Agreed Form.

(b)

in respect of an Additional Sponsor Date, either (i) if requested by a Sponsor, the Financial Guarantee duly executed by the Additional Sponsor and delivered to the Facility Agent in the Agreed Form (such Additional Sponsor to be approved by all the Facility Lenders, K-Sure, KEXIM and GIEK) (for the avoidance of doubt, the Financial Guarantee shall include undertakings from the new Sponsor (i) subordinating its rights against the Borrower and the Bareboat Charterer in favour of the Facility Beneficiaries, (ii) not to set off any amounts due to it under any other arrangements, documents, agreements, deeds or contracts with the Borrower and the Bareboat Charterer, (iii) in relation to such financial covenants as may be required by the Facility Lenders, and (iv) an acknowledgement of the terms of each of the Transaction Documents); or (ii) a subordination undertaking in form and substance satisfactory to all the Facility Lenders from the Additional Sponsor.

3	Shares Charge

A replacement Borrower Share Pledge and/or, as the case may be, the Bareboat Charterer Share Pledge, to be given by the shareholders of the Borrower and/or, as the case may be, the Bareboat Charterer, in substantially identical form to the initial Borrower Share Pledge and/or, as the case may be, the Bareboat Charterer Share Pledge, and all ancillary documents to be delivered pursuant thereto.

4	Evidence of Transfer

Evidence acceptable to the Facility Agent that (if a new Financial Guarantee is being issued) each Financial Guarantee reflects the pro rata split between the Sponsors of the entire legal and beneficial ownership of the Borrower.

5	Legal opinions

A legal opinion of the English, Marshall Islands, if the shares in the Bareboat Charterer are transferred, Norwegian, and in the case of an Additional Sponsor, its jurisdiction of incorporation’s legal advisers to the Facility Lenders, (and of legal advisers in any other relevant legal jurisdiction).

6	No Event of Default

No Event of Default has occurred or would occur as a result of the occurrence of the Dropdown Date and/or, as the case may be, Additional Sponsor Date.

7	Additional Sponsor or new Sponsor

In respect of the Additional Sponsor or new Sponsor only:

(a)

the conditions precedent set out in Schedule 2, Part 1, paragraphs 1, 5(a), 5(d) and 6(b) in respect of the Additional Sponsor and/or new Sponsor.

(b)

No other Additional Sponsor Date shall have occurred.

8	Charter

The occurrence of a Dropdown Date and/or the Additional Sponsor Date does not cause a breach or default of any term of the Charter and/or the Purchase Option Agreement.

Schedule 3

Calculation of Mandatory Cost

The Mandatory Cost is an addition to the interest rate to compensate the Facility Lenders for the cost of compliance with (a) the requirements of the Bank of England and/or the Financial Conduct Authority and/or the Prudential Regulation Authority (or, in either case, any other authority which replaces all or any of its functions) or (b) the requirements of the European Central Bank.

On the first day of each Interest Period (or as soon as possible thereafter) the Facility Agent shall calculate, as a percentage rate, a rate (the Additional Cost Rate) for each Facility Lender, in accordance with the paragraphs set out below. The Mandatory Cost will be calculated by the Facility Agent as a weighted average of the Facility Lenders’ Additional Cost Rates (weighted in proportion to the percentage participation of each Facility Lender in the Loan) and will be expressed as a percentage rate per annum.

The Additional Cost Rate for any Facility Lender lending from an office in a Participating Member State will be the percentage notified by that Facility Lender to the Facility Agent. This percentage will be certified by that Facility Lender in its notice to the Facility Agent to be its reasonable determination of the cost of complying with the minimum reserve requirements of the European Central Bank in respect of loans made from that office.

4	Each Facility Lender shall supply any information required by the Facility Agent for the purpose of calculating its Additional Cost Rate. In particular, but without limitation, each Facility Lender shall supply the following information on or prior to the date on which it becomes a Facility Lender:

(a)

the jurisdiction of its lending office; and

(b)

any other information that the Facility Agent may reasonably require for such purpose.

Each Facility Lender shall promptly notify the Facility Agent of any change to the information provided by it pursuant to this paragraph.

5	The Facility Agent shall have no liability to any person if such determination results in an Additional Cost Rate which over or under compensates any Facility Lender and shall be entitled to assume that the information provided by any Facility Lender is true and correct in all respects.

6	The Facility Agent shall distribute the additional amounts received as a result of the Mandatory Cost to the Facility Lender on the basis of the Additional Cost Rate for each Facility Lender based on the information provided by each Facility Lender.

7	Any determination by the Facility Agent pursuant to this Schedule 3 in relation to a formula, the Mandatory Cost, an Additional Cost Rate or any amount payable to a Facility Lender shall, in the absence of manifest error, be conclusive and binding on all parties to this Agreement.

The Facility Agent may from time to time, after consultation with the Borrower and the Facility Lenders, determine and notify to all parties to this Agreement any amendments which are required to be made to this Schedule 3 in order to comply with any change in law, regulation or any requirements from time to time imposed by the Bank of England, the Financial Conduct Authority, the Prudential Regulation Authority or the European Central Bank (or, in any case, any other authority which replaces all or any of its functions) and any such determination shall, in the absence of manifest error, be conclusive and binding on all parties to this Agreement.

Schedule 4

Form of Drawdown Notice

To:

[—]

Attention: [—]

Fax No: [—]

Email: [—]


From: KNARR L.L.C.		[Date]

Dear Sirs,

Drawdown Notice

We refer to the Loan Agreement dated [—] 2014 made between, amongst others, ourselves and yourselves (the Agreement).

Words and phrases defined in the Agreement have the same meaning when used in this Drawdown Notice.

Pursuant to clause 4.1 of the Agreement, we irrevocably request that you make the [first/second/final] Advance in the sum of [•], being:

[—] in respect of the KEXIM Facility Advance;

[—] in respect of the KEXIM Guarantee Facility Advance;

[—] in respect of the K-Sure Facility Advance;

[—] in respect of the GIEK Facility Advance;

[—] in respect of the Commercial Facility Advance,

to us on [—], which is a Banking Day, by paying the amount of the [first/second/final] Advance to the Earnings Account.

We warrant that the representations and warranties contained in clause 11 (except for clauses 11.2, 11.6 and 11.18) of the Agreement are true and correct at the date of this Drawdown Notice and will be true and correct on [—], that no Default has occurred and is continuing, and that no Default will result from the advance of the sum requested in this Drawdown Notice.


		Yours faithfully



		For and on behalf of

		KNARR L.L.C.

Schedule 5

Form of Transfer Certificate

To:

[—]

Attention: [—]

Fax No: [—]

Email: [—]

TRANSFER CERTIFICATE

This transfer certificate relates to a secured loan facility agreement (as from time to time amended, varied, supplemented or novated the Loan Agreement) dated [—] 2014, on the terms and subject to the conditions of which a secured term loan facility was made available to Knarr L.L.C., by a syndicate of banks on whose behalf you act as facility agent and facility security trustee.

1	Terms defined in the Loan Agreement shall, unless otherwise expressly indicated, have the same meaning when used in this certificate. The terms Transferor and Transferee are defined in the schedule to this certificate.

2	The Transferor:

(a)

confirms that the details in the Schedule under the heading Transferor’s Commitment accurately summarise its Commitment; and

(b)

requests the Transferee to accept by way of novation the transfer to the Transferee of the amount of the Transferor’s Commitment specified in the Schedule by counter-signing and delivering this certificate to the Facility Agent at its address for communications specified in the Loan Agreement.

[The Transferee agrees to be bound by each of the provisions of the Loan Agreement as if it had been an original party to the Loan Agreement as a Hedging Provider, and it is hereby agreed and acknowledged that the Transferee is also a Hedging Provider for all purposes of the Loan Agreement and the other Facility Documents in place of the Transferor or [•]. The notice details of [—] as Hedging Provider for the purposes of Schedule 1, Part 3 of the Loan Agreement are set out in the Schedule.]

4	The Transferee requests the Facility Agent to accept this certificate as being delivered to the Facility Agent pursuant to and for the purposes of clause 14.5 of the Loan Agreement so as to take effect in accordance with the terms of that clause on the Transfer Date specified in the Schedule.

5	The Facility Agent confirms its acceptance of this certificate for the purposes of clause 14.4 of the Loan Agreement.

6	The Transferee confirms that:

(a)

it has received a copy of the Loan Agreement together with all other information which it has required in connection with this transaction;

(b)

it has not relied and will not in the future rely on the Transferor or any other party to the Loan Agreement to check or enquire on its behalf into the legality, validity, effectiveness, adequacy, accuracy or completeness of any such information; and

(c)

it has not relied and will not in the future rely on the Transferor or any other party to the Loan Agreement to keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of any Security Party.

Execution of this certificate by the Transferee constitutes its representation and warranty to the Transferor and to all other parties to the Loan Agreement that it has the power to become a party to the Loan Agreement as a Facility Lender on the terms of the Loan Agreement and has taken all steps to authorise execution and delivery of this certificate.

The Transferee undertakes with the Transferor and each of the other parties to the Loan Agreement that it will perform in accordance with their terms all those obligations which by the terms of the Loan Agreement will be assumed by it after delivery of this certificate to the Facility Agent and the satisfaction of any conditions subject to which this certificate is expressed to take effect.

The Transferor makes no representation or warranty and assumes no responsibility with respect to the legality, validity, effectiveness, adequacy or enforceability of any Facility Document or any document relating to any Facility Document, and assumes no responsibility for the financial condition of any Facility Beneficiary or for the performance and observance by any Security Party of any of its obligations under any Facility Document or any document relating to any Facility Document and any conditions and warranties implied by law are expressly excluded.

10	The Transferee acknowledges that nothing in this certificate or in the Loan Agreement shall oblige the Transferor to:

(a)

accept a re-transfer from the Transferee of the whole or any part of the rights, benefits and/or obligations transferred pursuant to this certificate; or

(b)

support any losses directly or indirectly sustained or incurred by the Transferee for any reason including, without limitation, the non-performance by any party to any Facility Document of any obligations under any Facility Document.

11	The address and fax number of the Transferee for the purposes of clause 18 of the Loan Agreement are set out in the Schedule.

12	This certificate may be executed in any number of counterparts each of which shall be original but which shall together constitute the same instrument.

13	This certificate and all non-contractual obligations in connection with it shall be governed by and interpreted in accordance with English law.

THE SCHEDULE

Transferor:

Transferee:

Transfer Date

Transferor’s Commitment:

Amount transferred:

Transferee’s address and fax number for the purposes of clause 18 of the Loan Agreement:


[*name of Transferor*]		[*name of Transferee*]

By:		By:

Date:		Date:

[—] as Facility Agent and on behalf of each of the Facility Beneficiaries and the Borrower

By:

Date:

Schedule 6

Schedule of Repayment Amounts


(1) Application Dates	(2) Repayment Amount ($) (KEXIM)		(3) Repayment Amount ($) (KEXIM Guarantee)		(4) Repayment Amount ($) (K-SURE)		(5) Repayment Amount ($) (GIEK)		(6) Repayment Amount ($) (Commercial)

Drawdown Date for final Advance/Delivery Date to First Application Date	$	7,394,670.05	$	5,416,666.67	$	12,811,336.72	$	6,000,000.00	$	3,335,659.90

First Application Date to Second Application Date	$	7,394,670.05	$	5,416,666.67	$	12,811,336.72	$	6,000,000.00	$	3,335,659.90

Second Application Date to Third Application Date	$	7,394,670.05	$	5,416,666.67	$	12,811,336.72	$	6,000,000.00	$	3,335,659.90

Third Application Date to Fourth Application Date	$	7,394,670.05	$	5,416,666.67	$	12,811,336.72	$	6,000,000.00	$	3,335,659.90

Fourth Application Date to Fifth Application Date	$	7,394,670.05	$	5,416,666.67	$	12,811,336.72	$	6,000,000.00	$	3,335,659.90

Fifth Application Date to Sixth Application Date	$	7,394,670.05	$	5,416,666.67	$	12,811,336.72	$	6,000,000.00	$	3,335,659.90

Sixth Application Date to Seventh Application Date	$	7,394,670.05	$	5,416,666.67	$	12,811,336.72	$	6,000,000.00	$	3,335,659.90

Seventh Application Date to Eighth Application Date	$	7,394,670.05	$	5,416,666.67	$	12,811,336.72	$	6,000,000.00	$	3,335,659.90

Eighth Application Date to Ninth Application Date	$	7,394,670.05	$	5,416,666.67	$	12,811,336.72	$	6,000,000.00	$	3,335,659.90

Ninth Application Date to Tenth Application Date	$	7,394,670.05	$	5,416,666.67	$	12,811,336.72	$	6,000,000.00	$	3,335,659.90

Tenth Application Date to Eleventh Application Date	$	7,394,670.05	$	5,416,666.67	$	12,811,336.72	$	6,000,000.00	$	3,335,659.90


(1) Application Dates	(2) Repayment Amount ($) (KEXIM)	(3) Repayment Amount ($) (KEXIM Guarantee)	(4) Repayment Amount ($) (K-SURE)	(5) Repayment Amount ($) (GIEK)	(6) Repayment Amount ($) (Commercial)

Eleventh Application Date to Twelfth Application Date	$7,394,670.05	$5,416,666.67	$12,811,336.72	$6,000,000.00	$43,363,578.67

Twelfth Application Date to Thirteenth Application Date	$7,394,670.05	$5,416,666.67	$12,811,336.72	$6,000,000.00

Thirteenth Application Date to Fourteenth Application Date	$7,394,670.05	$5,416,666.67	$12,811,336.72	$6,000,000.00

Fourteenth Application Date to Fifteenth Application Date	$7,394,670.05	$5,416,666.67	$12,811,336.72	$6,000,000.00

Fifteenth Application Date to Sixteenth Application Date	$7,394,670.05	$5,416,666.67	$12,811,336.72	$6,000,000.00

Sixteenth Application Date to Seventeenth Application Date	$7,394,670.05	$5,416,666.67	$12,811,336.72	$6,000,000.00

Seventeenth Application Date to Eighteenth Application Date	$7,394,670.05	$5,416,666.67	$12,811,336.72	$6,000,000.00

Eighteenth Application Date to Nineteenth Application Date	$7,394,670.05	$5,416,666.67	$12,811,336.72	$6,000,000.00

Nineteenth Application Date to Twentieth Application Date	$7,394,670.05	$5,416,666.67	$12,811,336.72	$6,000,000.00

Twentieth Application Date to Twenty-First Application Date	$7,394,670.05	$5,416,666.67	$12,811,336.72


(1) Application Dates	(2) Repayment Amount ($) (KEXIM)	(3) Repayment Amount ($) (KEXIM Guarantee)	(4) Repayment Amount ($) (K-SURE)	(5) Repayment Amount ($) (GIEK)	(6) Repayment Amount ($) (Commercial)

Twenty-First Application Date to Twenty-Second Application Date	$7,394,670.05	$5,416,666.67	$12,811,336.72

Twenty-Second Application Date to Twenty-Third Application Date	$7,394,670.05	$5,416,666.67	$12,811,336.72

Twenty-Third Application Date to Twenty-Fourth Application Date	$7,394,670.05	$5,416,666.67	$12,811,336.72

	$177,472,081.22	$130,000,000.00	$307,472,081.22	$120,000,000.00	$80,055,837.56

TOTAL:	$815,000,000.00

Schedule 7

Definitions

Accession Deed means an accession deed substantially in the terms of Schedule 9.

Account Bank means Credit Agricole Corporate and Investment Bank acting through its head office at 9 quai du President Paul Doumer, 92920 Paris La Defense, Paris, France.

Account Charge means the account charge relating to the Earnings Account executed or, as the context may require, to be executed by the Borrower in favour of the Facility Security Trustee and the Account Bank, in the Agreed Form.

Accounting Reference Date means 31 December.

Addendum No. 5 means the Addendum No. 5 to the Construction Contract to be entered into between the Builder and the Borrower prior to the Drawdown Date for the second Advance.

Additional Cost Rate has the meaning given to that term in Schedule 3 (Mandatory Costs Formula) to this Agreement.

Additional Sponsor means any one of (a) a member of the Charterer Group (as at the date of this Agreement), (b) an Affiliate of any member of the Charterer Group which is approved by all the Facility Lenders (acting reasonably) or (c) any other person which is approved by all the Facility Lenders.

Additional Sponsor Date means the date upon which Additional Sponsor acquires up to a maximum of fifty per cent. (50%) of the membership interests in the Borrower and at its option, a maximum of up to fifty per cent. (50%) of the shares in the Bareboat Charterer, upon, and subject to, the satisfaction of each of the conditions precedent set out in Schedule 2, Part 5 of this Agreement.

Additional Sponsor Group means the Additional Sponsor and each of its Subsidiaries.

Advance means the amount advanced or to be advanced by the Facility Lenders to the Borrower under clause 4 of this Agreement.

Affiliate means, in relation to any entity, a Subsidiary of that entity, a Holding Company of that entity or any other Subsidiary of that Holding Company.

Agreed Form in relation to any document, means that document in form, substance and terms approved in writing by the Facility Agent (acting on the instructions of all of the Facility Lenders) and a Security Party or otherwise in accordance with any such other approval procedure detailed in any relevant provision of this Agreement and any other Facility Document.

Antisocial Forces means:

(a)

an organized crime group (boryokudan) (as defined under Article 2, item 1 of the Japanese Act on Prevention of Unjust Acts by Organized Crime Group Members);

(b)

a member of an organized crime group (boryokudan in);

(c)

an individual who was a member of an organized crime group within the preceding five years;

(d)

a quasi-member of an organized crime group (boryokudan junkoseiin) including individuals who are not members of an organized crime group but who maintain relationships with an organized crime group and who may (i) imply its influence to engage in violent and unlawful activity, or (ii) cooperate in the maintenance and operation of an organized crime group;

(e)

a company (boryokudan kankei kigyo) or association (boryokudan kanren gaisha) that is (i) related to an organized crime group, (ii) managed by present or former members or quasi-members of an organized crime group, or (iii) which actively cooperates with or provides benefits to an organized crime group;

(f)

a corporate extortionist and any other advocator of social activism (shakaiundoutou hyoubou goro) or a racketeer or blackmailer (sokaiya) adopting social special intellectual violence group (tokushu chinou boryoku shudan); or

(g)

any persons similar to those listed in the foregoing.

Applicable Law means, in relation to any jurisdiction or the European Union, any law, regulation, treaty, directive, decision, rule, regulatory requirement, judgment, order, ordinance request, guideline or direction or any other act of any Government Entity of such jurisdiction or of any EU Institution whether or not having the force of law and with which any relevant person is required to comply.

Application Date means (a) the date falling six (6) months after the earlier of (i) the Delivery Date, and (ii) the Drawdown Date for the final Advance, (b) each date falling six (6) months subsequently to the previous Application Date within the Facility Security Period, (c) the KEXIM Final Maturity Date, (d) the KEXIM Guarantee Final Maturity Date, (e) the K-Sure Final Maturity Date, (f) the GIEK Final Maturity Date, and (g) the Commercial Final Maturity Date.

Approved Brokers means H Clarkson & Co. Ltd, Simpson Spence & Young Shipbrokers Ltd, Fearnley AS, R.S. Platou AS and Kennedy Marr or such other firm or firms of reputable and independent insurance brokers as may from time to time be approved in writing by the Facility Agent (acting on the instructions of the Majority Facility Lenders, acting reasonably).

Assignment means the first priority security assignment executed or to be executed by the Borrower in favour of the Facility Security Trustee, in the Agreed Form.

Authorisation means an authorisation, consent, approval, resolution, licence, exemption, filing, notarisation or registration.

Availability Period means the period commencing at the date of this Agreement and ending on the earlier of (i) the Drawdown Date for the final Advance, (ii) the Delivery Date, (iii) the date falling on the first (1) anniversary of the signing date of this Agreement, or such later date as may be approved by all the Facility Lenders, KEXIM, K-Sure and GIEK.

Banking Day means a day (other than Saturday or Sunday) on which banks are open for normal banking business in London, Seoul, Oslo, New York, Tokyo, Paris, Zurich and Singapore.

Bareboat Charter means the bareboat charter agreement dated 30 June 2011, between the Bareboat Charterer and the Borrower in relation to the Vessel.

Bareboat Charter Proceeds means all hires, freights, pool income and other sums payable to or for the account of the Bareboat Charterer in respect of the Vessel including (without limitation) the account of all remuneration for salvage and towage services, demurrage and detention moneys, contributions in general average, compensation in respect of a requisition for hire and damages and other payments (whether awarded by any court or arbitral tribunal or by agreement or otherwise) for breach, termination or variation of any contract for the operation, employment or use of the Vessel.

Bareboat Charterer means Teekay Knarr AS, a company incorporated in Norway with registered company number 996508234 and its registered office at Beddingen, 16, 7014 Trondheim, Norway.

Bareboat Charterer Account Charge means the account charge relating to the Bareboat Charterer Earnings Account executed or, as the context may require, to be executed by the Bareboat Charterer in favour of the Facility Security Trustee and the Account Bank, in the Agreed Form.

Bareboat Charterer Assignment means the deed of assignment executed or, as the context may require, to be executed by the Bareboat Charterer in favour of the Borrower, in the Agreed Form.

Bareboat Charterer Earnings Account means each of (i) account number 00.257.376.211 and (ii) account number 00.257.376.114 held by the Bareboat Charterer with the Account Bank and includes any redesignation and sub-accounts thereof.

Bareboat Charterer Share Pledge means the first priority pledge agreement in respect of the whole of the shares in the Bareboat Charterer executed or to be executed by the Shareholder in favour of the Facility Security Trustee, in the Agreed Form.

Basel III means, together:

(a)

the agreements on capital requirements, a leverage ratio and liquidity standards contained in “Basel III: A global regulatory framework for more resilient banks and banking systems”, “Basel III: International framework for liquidity risk measurement, standards and monitoring” and “Guidance for national authorities operating the countercyclical capital buffer” published by the Basel Committee on Banking Supervision in December 2010, each as amended, supplemented or restated;

(b)

the rules for global systemically important banks contained in “Global systemically important banks: assessment methodology and the additional loss absorbency requirement - Rules text” published by the Basel Committee on Banking Supervision in November 2011, as amended, supplemented or restated; and

(c)

any further guidance or standards published by the Basel Committee on Banking Supervision relating to “Basel III”.

Bookrunner means Citibank N.A., London Branch.

Borrowed Money means Indebtedness (without double counting) in respect of (i) money borrowed or raised and debit balances at banks, (ii) any bond, note, loan stock, debenture or similar debt instrument, (iii) acceptance or documentary credit facilities, (iv) receivables sold or discounted (otherwise than on a non-recourse basis), (v) deferred payments for assets or services acquired having the commercial effect of a borrowing or raising of money (but not ordinary trade credit), (vi) finance leases and hire purchase contracts which, in accordance with Accounting Principles, are at the relevant time treated as a finance or capital lease (but only to the extent of such treatment), (vii) the marked to market value of Derivatives Contracts, (viii) any other transaction (including without limitation forward sale or purchase agreements) having the commercial effect of a borrowing or raising of money or of any of (ii) to (vii) above and (ix) guarantees in respect of Indebtedness of any other person falling within any of (i) to (viii) above.

Borrower means Knarr LLC, a limited liability company formed according to the laws of the Marshall Islands whose registered office is at Trust Company Complex, Ajeltake Road, Ajeltake Islands, Majuro, The Marshall Islands MH-96960.

Borrower Share Pledge means the first priority pledge agreement in respect of the whole of the membership interests in the Borrower executed or to be executed by the Shareholder in favour of the Facility Security Trustee, in the Agreed Form.

Break Costs means the amount (if any) by which:

(a)

the interest (excluding the Margin and the Mandatory Costs (if any)) which a Facility Lender should have received for the period from the date of receipt of all or any part of its participation in an Advance or the Loan or an Unpaid Sum to the last day of the current Interest Period in respect of that Advance or the Loan or that Unpaid Sum, had that Advance or the Loan or that Unpaid Sum been paid on the last day of that Interest Period,

exceeds:

(b)

the amount which that Facility Lender would be able to obtain by placing an amount equal to the principal amount equal to its participation in that Advance or the Loan or that Unpaid Sum received by it on deposit with a leading bank in the London Interbank Market for a period starting on the Banking Day following receipt or recovery and ending on the last day of the current Interest Period.

Bridge Facility means all amounts due or owing under and pursuant to a facility agreement dated 19 June 2012 between (amongst others) the Borrower and Credit Agricole Corporate and Investment Bank as agent.

Budget means:

(a)

a budget of the projected costs of the construction of the Vessel, which, as at the date of this Agreement, is set out in Schedule 8; and

(b)

any further and updated budget following the form set out in Schedule 8 and delivered by the Borrower to the Facility Agent pursuant to clause 3 of this Agreement.

Builder means Samsung Heavy Industries Co., Ltd., a company incorporated in the Republic of Korea whose registered office is at 34^th Floor, Samsung Life Insurance Seocho Tower 1321-15, Seocho-Dong, Seochu-Gu, Seoul, Korea 137-857.

Cash Flow means, in respect of any Relevant Period, the Bareboat Charter Proceeds scheduled to be receivable under the Charter (assuming where relevant that the term of the Charter has been extended in accordance with the terms of the Charter) during that Relevant Period minus the operating costs payable in respect of the Vessel for operations pursuant to the Charter during that Relevant Period.

Casualty Amount means twenty five million Dollars ($25,000,000) or the equivalent in any other currency.

Change in Law means the occurrence, after the date of this Agreement, of any of the following:

(a)

the adoption or taking effect of any law, rule, regulation or treaty;

(b)

any change in law, rule, regulation or treaty or in the administration, interpretation implementation or application thereof by any Government Entity; or

(c)

the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Government Entity,

provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act of the United States of America, passed in 2010 and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law” regardless of the date enacted, adopted or issued.

Charter means the lease and operating agreement dated 30 June 2011 between the Bareboat Charterer and the Charterer pursuant to which (inter alia) the Bareboat Charterer agreed to charter the Vessel and the Charterer agreed to take the Vessel on charter, as amended from time to time by a Permitted Amendment.

Charter Date of Acceptance means the date upon which the Interim Performance Test Certificate (as defined in the Charter) is issued.

Charter Period means the Term (as defined in the Charter).

Charter Rate means the full amount of that part of the daily rate payable under the Charter in Dollars (being initially four hundred and seventy eight thousand nine hundred and seventy seven Dollars ($478,977)) for the first year.

Charterer means, BG Norge Limited (Norwegian Branch), a registered branch under the laws of Norway with Organisation No. 986592288 (of a company incorporated in England with Company No. 05028627) whose registered office is at Løkkevein 103B, 4007 Stavanger, Norway.

Charterer Group means the licensees of production license no 373 S on the Norwegian Continental Shelf being, as at the date of the Charter:

(a)

BG Norge AS;

(b)

RWE Dea Norge AS;

(c)

Wintershall Norge ASA; and

(d)

Idemitsu Petroleum Norge AS.

Classification means the class notation +O1 Ship Shaped Oil Production and Storage Unit(N) with the Classification Society and such other additional class notations (e.g. relating to self-propelled or operating environment or fatigue analysis) in relation to the Vessel as the Facility Security Trustee shall, at the request of the Borrower, have agreed in writing which shall be treated as the Classification of the Vessel, for the purposes of this Agreement and the other Facility Documents.

Classification Society means any of DNV GL, Lloyds Register American Bureau of Shipping (ABS) or Bureau Veritas or such other classification society acceptable to the Majority Facility Lenders.

Collateral means any and all assets over or in respect of which any Security Interest is created or expressed to be created by any Security Party in favour of the Facility Beneficiaries or any of them pursuant to or in accordance with any of the Facility Security Documents.

Collateral Instruments means notes, bills of exchange, certificates of deposit and other negotiable and non-negotiable instruments, guarantees, indemnities and other assurances against financial loss and any other documents or instruments which contain or evidence an obligation (with or without security) to pay, discharge or be responsible directly or indirectly for any indebtedness or liabilities of any person and includes any documents or instruments creating or evidencing an Security Interest.

Commercial Facility means the term loan facility made available by the Commercial Facility Lenders under this Agreement as described in clause 2 of this Agreement.

Commercial Facility Advance means an advance of the Commercial Facility Commitments in accordance with clause 4 of this Agreement.

Commercial Facility Commitment means:

(a)

in relation to a Commercial Facility Lender at the date of this Agreement, the amount set opposite its name under the heading “Commercial Facility Commitment” in Schedule 1, Part 1 and the amount of any other Commercial Facility Commitment transferred to it under this Agreement; and

(b)

in relation to any other Commercial Facility Lender, the amount of any Commercial Facility Commitment transferred to it under this Agreement,

to the extent not cancelled, reduced or transferred by it under this Agreement.

Commercial Facility Lenders means:

(a)

the Commercial Facility Lenders set out in Schedule 1, Part 1 of this Agreement; and

(b)

any bank, financial institution or other regulated investment company which has become a party as a Commercial facility lender in accordance with clause 14,

which in each case has not ceased to be a party in accordance with the terms of this Agreement.

Commercial Final Maturity Date means the date falling on the sixth (6) anniversary of the last day of the Availability Period.

Commercial Final Payment means the amount of the Commercial Loan outstanding and owing to the Commercial Facility Lenders as of the Commercial Final Maturity Date.

Commercial Loan means a loan made or to be made under the Commercial Facility or the principal amount outstanding for the time being of that loan.

Commitment means, in relation to a Facility Lender, its KEXIM Facility Commitment, KEXIM Guarantee Facility Commitment, K-Sure Facility Commitment, GIEK Facility Commitment and/or Commercial Facility Commitment.

Commitment Fee means the commitment commission payable by the Borrower pursuant to clause 9.1 of this Agreement.

Compulsory Acquisition means requisition for use or title or other compulsory acquisition, nationalisation, requisition, appropriation, expropriation, deprivation, forfeiture or confiscation for any reason of the Vessel by any Government Entity or other competent authority, whether de jure or de facto, but shall exclude requisition for hire not involving requisition for title.

Construction Contract means the contract entered into between the Builder and the Borrower in relation to the construction of the Vessel as is to be amended pursuant to Addendum No. 5 or as further amended from time to time by a Permitted Amendment.

Contribution means, in relation to a Facility Lender, the part of the Loan which is owing to that Facility Lender.

Currency of Account means, in relation to any payment to be made to a Facility Beneficiary under a Facility Document, the currency in which that payment is required to be made by the terms of that Facility Document.

Debt Service Amount means, in respect of a Relevant Period, all amounts of interest and principal scheduled to be or become payable during that Relevant Period by reference to the Schedule of Repayment Amounts with the following alterations:

(a)

the Commercial Loan and the GIEK Loan is repayable on the same repayment profile as the KEXIM Loan, the KEXIM Guarantee Loan and the K-Sure Loan; and

(b)

interest shall be calculated by (i) the estimated weighted average cost of interest on the Facility by reference to the applicable Margin of each Facility; and (ii) an estimate of the six year LIBOR swap rate commencing on the Drawdown Date (the Interest Cost).

Deed of Covenants means the first priority deed of covenant collateral to the Mortgage executed or, as the context may require, to be executed by the Borrower in favour of the Facility Security Trustee, in the Agreed Form.

Default means any Event of Default or any event or circumstance specified in clause 13.1 of this Agreement which would, with the giving of a notice and/or the expiry of the relevant period and/or the fulfilment of any other condition, become an Event of Default.

Defaulting Facility Lender means any Facility Lender which has failed to make its participation in an Advance available (or has notified the Facility Agent or the Borrower (which has notified the Facility Agent) that it will not make its participation in an Advance available) by the Drawdown Date of that Advance in accordance with clause 4 unless:

(i)

its failure to pay is caused by:

(A)

administrative or technical error; or

100

(B)

a Disruption Event; and

payment is made within ten Banking Days of its due date; or

(ii)

the Facility Lender is disputing in good faith whether it is contractually obliged to make the payment in question.

Default Rate means the interest rate specified in clause 7.7 of this Agreement.

Delivery Date means the date upon which the Vessel is delivered to, and accepted by, the Borrower under the Construction Contract.

Derivatives Contract means a contract, agreement or transaction which is:

(a)

a rate swap, basis swap, commodity swap, forward rate transaction, commodity option, equity (or equity or other index) swap or option, bond option, interest rate option, foreign exchange transaction, cap, collar or floor, currency swap, currency option or any other similar transaction; and/or

(b)

any combination of such transactions,

in each case, whether on-exchange or otherwise.

Disruption Event means either or both of:

(a)

a material disruption to those payment or communications systems or to those financial markets which are, in each case, required to operate in order for payments to be made in connection with the Facility (or otherwise in order for the transactions contemplated by the Facility Documents to be carried out) which disruption is not caused by, and is beyond the control of, any of the Parties; or

(b)

the occurrence of any other event which results in a disruption (of a technical or systems- related nature) to the treasury or payments operations of a Party preventing that, or any other Party:

(i)

from performing its payment obligations under the Facility Documents; or

(ii)

from communicating with other Parties in accordance with the terms of the Facility Documents,

and which (in either such case) is not caused by, and is beyond the control of, the Party whose operations are disrupted.

Distribution means, in relation to a person, any payment by or distribution of assets by that person, whether in cash, property, securities or otherwise.

DOC means, in relation to the ISM Company, a valid Document of Compliance issued for the ISM Company by the Administration under paragraph 13.2 of the ISM Code.

Dollars and $ mean the lawful currency of the United States of America and in respect of all payments to be made under this Agreement and the other Transaction Documents in Dollars mean funds which are for same day settlement in the New York Clearing House Interbank Payments System (or such other US dollar funds as may at the relevant time be customary for the settlement of international banking transactions denominated in US dollars).

101

Drawdown Date means, in relation to an Advance, the date, being a Banking Day within the Availability Period relating to an Advance, on which that Advance is, or is to be, drawn down or made pursuant to clause 4 of this Agreement.

Drawdown Notice means a notice in the form or substantially in the form of Schedule 4 to this Agreement.

Dropdown Date means the First Dropdown Date and/or the Second Dropdown Date.

DSCR means, in relation to any Relevant Period, the ratio of (i) Cash Flow for such Relevant Period to (ii) the Debt Service Amount for such Relevant Period.

Earnings means the Revenue and the Bareboat Charter Proceeds.

Earnings Account means account number 00.255.636.710 held by the Borrower with the Account Bank and includes any redesignation and sub-accounts thereof.

Eligible Delivered Costs means the costs, expressed in Dollars, incurred by the Borrower for the construction of the Vessel, being the costs identified in the Budget which will include, for the avoidance of doubt, the amounts due under the Construction Contract, the other upgrade contracts (including the Framo Contract), interest payable under the Bridge Facility, the K-Sure Premium, the KEXIM Guarantee Premium and project management costs.

Environmental Affiliate means an agent or employee of the Borrower or the Bareboat Charterer or the Operator or a person in a contractual relationship with the Borrower or the Bareboat Charterer or the Operator (other than the Charterer) in respect of the Vessel (including without limitation, the operation of or the carriage of cargo of the Vessel).

Environmental Approvals means any present or future permit, licence, approval, ruling, variance, exemption or other authorisation required under applicable Environmental Laws.

Environmental Claim means any and all enforcement, clean-up, removal, administrative, governmental, regulatory or judicial actions, orders demands or investigations instituted or completed pursuant to any Environmental Laws or Environmental Approvals together with any claims made by any third person relating to damage, contribution, loss or injury resulting from any Environmental Incident.

Environmental Incident means:

(a)

any release of Environmentally Sensitive Material from the Vessel; or

(b)

any incident in which Environmentally Sensitive Material is released from a vessel other than the Vessel which involves a collision between the Vessel and such other vessel or some other incident of navigation or operation, in either case, in connection with which the Vessel is actually or potentially liable to be arrested, attached, detained or injuncted and/or where any guarantor, any manager (or any sub-manager) of the Vessel or any of its officers, employees, or other persons retained or instructed by it (or such sub-manager) are at fault or are allegedly at fault or otherwise liable to any legal or administrative action; or

(c)

any other incident in which Environmentally Sensitive Material is released otherwise than from the Vessel and in connection with which the Vessel is actually or potentially liable to be arrested and/or where any guarantor, any manager (or any sub-manager) of the Vessel or any of its officers, employees or other persons retained or instructed by it (or such sub-manager) are at fault or allegedly at fault or otherwise liable to any legal or administrative action.

102

Environmental Law includes all present and future laws, regulations, treaties and contentions of any applicable jurisdiction which:

(a)

have as a purpose or effect the protection of, and/or prevention of, harm or damage to, the Environment;

(b)

relate to the carriage of Environmentally Sensitive Material or to actual or threatened releases of Environmentally Sensitive Material;

(c)

provide remedies or compensation for harm or damage to the environment; or

(d)

relate to Environmentally Sensitive Material or health, social or safety matters.

Environmentally Sensitive Material means (i) oil and oil products and (ii) any other waste, pollutant, contaminant or other substance (including any liquid, solid, gas, ion, living organism or noise) that may be harmful to human health or other life or the environment or a nuisance to any person or that may make the enjoyment, ownership or other territorial control of any affected land, property or waters more costly for such person to a material degree.

Equator Principles means the set of environmental guidelines developed by commercial banks and the International Finance Corporation for the purpose of assessing and managing environmental and social issues related to private sector project financings, as adopted on 4 June 2003 and revised in June 2006 and as revised from time to time.

Event of Default means any of the events or circumstances described in clause 13.1 of this Agreement.

Expenses means:

(a)

all Losses suffered, incurred or paid by any Facility Beneficiary, KEXIM, K-Sure, GIEK or any Insolvency Official in connection with the exercise of the rights, remedies and powers granted by, referred to in, or otherwise contemplated by the Facility Documents; and

(b)

interest on those Losses at the Default Rate, from the date of demand by the relevant Facility Beneficiary, KEXIM, K-Sure, GIEK or Insolvency Official to the date of payment (after as well as before judgment).

Facility means each of the KEXIM Facility, the KEXIM Guarantee Facility, K-Sure Facility, the GIEK Facility and the Commercial Facility, and Facilities means all of them.

Facility Agent means Credit Agricole Corporate and Investment Bank acting through its head office at 9 quai du President Paul Doumer, 92920 Paris La Defense, Paris, France or such other person as may be appointed agent for the Facility Lenders pursuant to clause 15.21 of this Agreement.

Facility Beneficiaries means together the Facility Agent, the Facility Security Trustee, the K-Sure Agent, the GIEK Agent, the KEXIM Guarantee Agent, the Mandated Lead Arrangers, the Bookrunner, the Facility Lenders and the Hedging Providers (each a Facility Beneficiary).

Facility Documents means:

(a)

this Agreement;

(b)

the Fee Letters;

(c)

each Financial Guarantee;

(d)

the Facility Security Documents;

(e)

the Hedging Agreements; and

(f)

each other document which the Borrower and the Facility Agent agree shall be a Facility Document for the purposes of the Facility Documents,

(each a Facility Document).

103

Facility Lenders means together the KEXIM Facility Lenders, the KEXIM Guarantee Facility Lenders, the K-Sure Facility Lenders, the GIEK Facility Lenders and the Commercial Facility Lenders (each a Facility Lender).

Facility Limit means the lesser of (i) eight hundred and fifteen million Dollars ($815,000,000) and (ii) eighty per cent (80%) of the Eligible Delivered Cost.

Facility Secured Obligations means all monies, obligations and liabilities, present or future, actual or contingent, from time to time owing or payable, undertaken, incurred or assumed by the Borrower or any other Security Party to the Facility Beneficiaries (or any of them) under or pursuant to this Agreement and the other Facility Documents and includes (without limitation) the Hedging Secured Obligations.

Facility Secured Obligations Discharge Date means the last day of the Facility Security Period.

Facility Secured Property means (i) the security, powers, rights, titles, benefits and interests (both present and future, actual or contingent) constituted by and conferred upon the Facility Beneficiaries or any of them under or pursuant to the Facility Security Documents and any notices or acknowledgements or undertakings given in respect of or in connection with any of the Facility Security Documents (including, without limitation, the benefit of all covenants, undertakings, representations, warranties and obligations given, made or undertaken to any Facility Beneficiary in the Facility Security Documents and any notices or acknowledgements or undertakings given in respect of or in connection with any of the Facility Security Documents), (ii) all moneys and other assets paid or transferred to or vested in any Facility Beneficiary or any agent of any Facility Beneficiary or any Insolvency Official or received or recovered by any Facility Beneficiary or any agent of any Facility Beneficiary or any Insolvency Official pursuant to, or in connection with, any of the Facility Security Documents and any notices or acknowledgements or undertakings given in respect of or in connection with any of the Facility Security Documents, whether from any Security Party, any Project Counterparty or any other person, and (iii) all moneys, investments, and other assets at any time representing or deriving from any of the foregoing, including all interest, income and other sums at any time received or receivable by any Facility Beneficiary or any agent of any Facility Beneficiary or any Insolvency Official in respect of the same (or any part thereof).

Facility Security Documents means together:

(a)

the Mortgage;

(b)

the Borrower Share Pledge;

(c)

the Account Charge;

(d)

the Assignment;

(e)

the Deed of Covenants;

(f)

the Master Agreement Charge;

(g)

the Bareboat Charterer Assignment;

(h)

the Notices of Assignment;

(i)

the Quiet Enjoyment Undertaking;

(j)

the Pre-Delivery Assignment;

(k)

the Bareboat Charterer Account Charge;

104

(l)

the Bareboat Charterer Share Pledge; and

(m)

each other document which the Borrower and the Facility Security Trustee agree shall be a Facility Security Document for the purposes of the Facility Documents,

(each a Facility Security Document).

Facility Security Period means the period commencing on the date of this Agreement and terminating on the date on which all of the Facility Secured Obligations have been paid, repaid, satisfied, performed and discharged irrevocably and unconditionally in full.

Facility Security Rights means any rights to enforce the Security Interest constituted by any Facility Document.

Facility Security Trustee means Credit Agricole Corporate and Investment Bank acting through its head office at 9 quai du President Paul Doumer, 92920 Paris La Defense, Paris, France in its capacity as security trustee on behalf of the Facility Beneficiaries for the purposes of the Facility Documents or such other person as may be appointed facility security trustee pursuant to clause 15.21 of this Agreement.

FATCA means:

(a)

sections 1471 to 1474 of the US Internal Revenue Code of 1986 (the Code) or any associated regulations or other official guidance;

(b)

any treaty, law, regulation or other official guidance enacted in any other jurisdiction, or relating to an intergovernmental agreement between the US and any other jurisdiction, which (in either case) facilitates the implementation of paragraph (a) above; or

(c)

any agreement pursuant to the implementation of paragraphs (a) or (b) above with the US Internal Revenue Service, the US government or any governmental or taxation authority in any other jurisdiction.

FATCA Application Date means:

(a)

in relation to a “withholdable payment” described in section 1473(1)(A)(i) of the Code (which relates to payments of interest and certain other payments from sources within the US), 1 July 2014;

(b)

in relation to a “withholdable payment” described in section 1473(1)(A)(ii) of the Code (which relates to “gross proceeds” from the disposition of property of a type that can produce interest from sources within the US), 1 January 2017; or

(c)

in relation to a “passthru payment” described in section 1471(d)(7) of the Code not falling within paragraphs (a) or (b) above, 1 January 2017,

or, in each case, such other date from which such payment may become subject to a deduction or withholding required by FATCA as a result of any change in FATCA after the date of this Agreement.

FATCA Deduction means a deduction or withholding from a payment under a Facility Document required by FATCA.

FATCA Exempt Party means a Party that is entitled to receive payments free from any FATCA Deduction.

FATCA FFI means a foreign financial institution as defined in section 1471(d)(4) of the Code which, if any Facility Beneficiary is not a FATCA Exempt Party, could be required to make a FATCA Deduction.

105

Fee Letters means any letters entered into by reference to this Agreement in relation to any fees and Fee Letter means any one of them.

Final Disposition means the completion of the sale of the Vessel (or any part thereof) against payment in cash, whether through an agent on its behalf or otherwise, or of all the Borrower’s rights, title and interest in and to the Vessel (or the relevant part), on terms that such right, title and interest will only pass to the purchaser on payment in full of that cash.

Final Disposition Proceeds means the aggregate amount of:

(a)

all cash consideration received upon, or as a result of, the Final Disposition of the Vessel; and

(b)

(any non-refundable deposit paid by a person acquiring or proposing to acquire the Vessel under a contract or offer to purchase, or otherwise acquire the Vessel which has been withdrawn, terminated or cancelled or has lapsed.

Financial Guarantee means the guarantee(s) entered into or to be entered into by the Sponsor(s) (whose liability is proportionate to the direct or indirect membership interests it holds in the Borrower provided that after an Additional Sponsor Date, the Additional Sponsor has entered into a guarantee) in favour of the Facility Security Trustee referring to the Facility Secured Obligations, in the Agreed Form.

First Dropdown Date means the date upon which TOO acquires up to fifty per cent (50%) of the direct or indirect legal or beneficial interest in any of the membership interests of the Borrower and each of the conditions precedent set out in Schedule 2, Part 5 of this Agreement have been satisfied.

Fixed Rate means, in relation to a Hedging Agreement, the fixed rate of interest by reference to which periodic payments and receipts to be made or received under that Hedging Agreement are calculated.

Flag State means the Bahamas or any other state or country in which the Vessel, with the prior written consent of the Facility Security Trustee (acting after consultation with, and on the instructions of, the Facility Lenders, KEXIM, K-Sure and GIEK (but provided that Marshall Islands, Norwegian International Ship Register, Liberia, Panama, Isle of Man, Cayman Islands, Bermuda and Singapore are pre-approved)), is from time to time registered in accordance with the provisions of this Agreement, the Assignment and the other Transaction Documents.

Framo means OneSubsea Processing AS (formerly known as Framo Engineering AS).

Framo Contract means the contract for the design, engineering, construction and supply of the turret for integration into the Vessel entered into on 20 June 2011 between the Borrower and Framo.

GAAP means generally accepted accounting principles in the United States of America.

General Partner means Teekay Offshore GP L.L.C., a limited liability company formed and existing according to the law of the Marshall Islands whose registered office is at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, The Marshall Islands MH-96960.

GIEK means Garanti-Instituttet for Eksportkreditt acting through its office at Dronning Maudsgate 15, Vika N-0122, Oslo, Norway.

GIEK Agent means Citibank N.A., London Branch or such other person as may be appointed agent for the GIEK Facility Lenders pursuant to clause 15.21 of this Agreement.

GIEK Facility means the term loan facility made available by the GIEK Facility Lenders under this Agreement as described in clause 2.

GIEK Facility Advance means an advance of the GIEK Facility Commitments in accordance with clause 4.

106

GIEK Facility Commitment means:

(a)

in relation to a GIEK Facility Lender at the date of this Agreement, the amount set opposite its name under the heading “GIEK Facility Commitment” in Schedule 1, Part 1 and the amount of any other GIEK Facility Commitment transferred to it under this Agreement; and

(b)

in relation to any other GIEK Facility Lender, the amount of any GIEK Facility Commitment transferred to it under this Agreement,

to the extent not cancelled, reduced or transferred by it under this Agreement.

GIEK Facility Contribution means, in relation to a GIEK Facility Lender, the part of the GIEK Loan which is owing to that GIEK Facility Lender.

GIEK Facility Lenders means:

(a)

the GIEK Facility Lenders set out in Schedule 1, Part 1 of this Agreement; and

(b)

any bank, financial institution or other regulated investment company which has become a party as a GIEK facility lender in accordance with clause 14,

which in each case has not ceased to be a party in accordance with the terms of this Agreement.

GIEK Final Maturity Date means the date falling on the tenth (10) anniversary of the last day of the Availability Period.

GIEK Final Payment means the amount of the GIEK Loan outstanding and owing to the GIEK Facility Lenders as at the GIEK Final Maturity Date.

GIEK Guarantee means the guarantee issued or to be issued in favour of the GIEK Agent and/or the GIEK Facility Lenders pursuant to which GIEK has guaranteed or will guarantee the GIEK Facility Commitment of each GIEK Lender, together with, as the context may require, the “Offer for Guarantee Policy Buyer Credit Guarantee No 300381”, in each case on terms agreed between the GIEK Facility Lenders, the GIEK Agent and GIEK.

GIEK Loan means a loan made or to be made under the GIEK Facility or the principal amount outstanding for the time being of that loan.

GIEK Premium means one point two zero per cent. (1.20%) per annum of a GIEK Facility Advance or GIEK Facility Loan being payable or (as the context may require) paid to GIEK under the terms of the GIEK Guarantee at the end of each Interest Period.

GIEK Proportionate Share means, at any time prior to an Advance being made, the proportion which a GIEK Facility Lender’s GIEK Facility Commitment then bears to the aggregate GIEK Facility Commitments of all GIEK Facility Lenders and at any time after an Advance has been made, the proportion which a GIEK Facility Lender’s Contribution then bears to the GIEK Loan.

Government Entity means and includes (whether having a distinct legal personality or not) (i) any national or local government authority, (ii) any board, commission, department, division, organ, instrumentality, court or agency of any entity referred to in paragraph (i), however constituted, and (iii) any international association, organisation or institution of which any entity mentioned in paragraph (i) or (ii) above is a member or to whose jurisdiction any such entity is subject or in whose activities any such entity is a participant.

Group means at any time at which TOO is a Sponsor, the TOO Group, and/or at any time Teekay is a Sponsor, the Teekay Group and/or at any time an Additional Sponsor is a Sponsor, the Additional Sponsor Group.

107

Hedging Agreements means (i) the confirmation or confirmations (if any) for the purposes of managing the interest rate risk under the Facility (including, but not limited to, swaptions, options and interest caps), and/or (ii) the International Swaps and Derivatives Association Master Agreement (the Master Agreement) entered into or, as the context may require, to be entered into, in each case, between the Hedging Providers (or any of them) as interest hedging provider or, as the case may be, swap provider and the Borrower as counterparty and includes any schedule to that Master Agreement and any confirmation issued under that Master Agreement, and includes any replacement or amendment thereof approved by the Facility Lenders in accordance with clause 12.1.29 of this Agreement.

Hedging Providers means:

(a)

the banks listed in Schedule 1, Part 2 of this Agreement;

(b)

each bank or financial institution that becomes a party to this Agreement in its capacity as a Hedging Provider by way of Transfer Certificate or Accession Deed; and which in each case

(c)

is party to a Hedging Agreement,

(each a Hedging Provider).

Hedging Secured Obligations means all monies, obligations and liabilities, present or future, actual or contingent, from time to time owing or payable, undertaken, incurred or assumed by the Borrower or any other Security Party to any Hedging Provider under or pursuant to the Hedging Agreements and the other Facility Documents (for the avoidance of doubt, without prejudice to and after giving effect to any contractual set off and/or netting provisions contained in that Hedging Agreement and including, without limitation, any Swap Payments and/or termination sums).

Holding Company means, in relation to an entity, any other entity in respect of which the first is a Subsidiary.

Hull Cover Ratio means at any time:

(a)

the amount of the latest Valuation delivered in accordance with clause 12.1.33;

(b)

divided by the Loan outstanding at that time;

(c)

multiplied by one hundred; and

(d)

then expressed as a percentage.

Indebtedness means any obligation for the payment or repayment of money, whether as principal or as surety and whether present or future, actual or contingent.

Indemnified Parties shall have the meaning given to that term in clause 8.10 of this Agreement (each an Indemnified Party).

Insolvency Event means, in relation to any person, the occurrence of any of the following events:

(a)

Insolvency: that person is unable to pay its debts as they fall due or admits its inability to pay its debts as they mature or suspends or threatens to suspend making payment of all or a substantial part of its Indebtedness or makes a general assignment or assignation for the benefit of creditors or is subject to or applies for winding-up or liquidation proceedings or is successfully put into forced or voluntary liquidation (except for the purposes of a voluntary reorganisation not involving the insolvency of that person and previously agreed in writing by the Facility Agent acting in accordance with the instructions of the Majority Facility Lenders);

108

(b)

Winding up: any order is made, petition is presented, resolution is passed or other act or action is taken for the winding-up, liquidation, administration or other formal insolvency of that person under any Applicable Law, whether now or hereafter in effect (save where the petition presented is frivolous or vexatious and is dismissed within a period of thirty (30) days);

(c)

Appointment of receivers and managers: any administrative or other receiver is appointed of that person or any substantial part of its assets or any other steps (except for any frivolous or vexatious step or steps which are dismissed within a period of thirty (30) days) are taken to enforce any Security Interest over all or any material part of the assets of that person;

(d)

Seizure: all or a substantial part of the assets of that person are seized, nationalised, expropriated or compulsorily acquired by or under the authority of any Government Entity;

(e)

Analogous proceedings: there occurs, in relation to that person in any jurisdiction, any event which corresponds with, or has an effect equivalent or similar to, any of the events mentioned in the foregoing paragraphs.

Insolvency Official in respect of any person, means any liquidator, receiver, administrator and/or manager or administrative receiver, judicial manager, trustee or similar officer appointed in respect of that person, whether appointed by a creditor, pursuant to any statute, by a court or other tribunal or otherwise, for the purpose of recovering, realising, distributing or disposing of any of the assets or undertaking of that person.

Insurance Proceeds means the proceeds of any Insurances other than Total Loss Proceeds and Liability Insurance Proceeds.

Insurances means all policies and contracts of insurance which expression includes all entries of the Vessel in a protection and indemnity or war risks association which are from time to time taken out or entered into in respect of or in connection with the Vessel or her increased value and all benefits under such contracts and policies including all claims of any nature and returns of a premium.

Interest Cost has the meaning given to it in the definition of “Debt Service Amount”.

Interest Payment Date means the last day of an Interest Period.

Interest Period in relation to any Advance or the Loan, means each period for the calculation of interest in respect of that Advance or the Loan ascertained in accordance with clause 7 of this Agreement.

Interpolated Screen Rate means, in relation to LIBOR for a particular period, the rate which results from interpolating on a linear basis between:

(a)

the applicable Screen Rate for the longest period (for which that Screen Rate is available) which is less than the Interest Period; and

(b)

the applicable Screen Rate for the shortest period (for which that Screen Rate is available) which exceeds the Interest Period,

each as of 11:00a.m. London time two (2) Banking Days before the first day of the relevant Interest Period for the offering of the deposits in Dollars in an amount comparable to the Loan (or any other relevant part of the Loan) and, if that rate is less than zero, it shall be deemed to be zero.

ISM Code means the International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention constituted pursuant to Resolution A.741(18) of the International Maritime Organisation and incorporated into the Safety of Life at Sea Convention, and includes any amendment of the foregoing and any regulation issued pursuant to the foregoing.

109

ISPS Code means the International Ship and Port Facility Security Code of the International Maritime Organisation and includes any amendments or extensions thereto and any regulation issued pursuant thereto.

ISS means, if and whenever the same is required by Applicable Law and/or pursuant to or for the purposes of the Insurances, the International Ship Security Certificate for the Vessel issued in accordance with the ISPS Code.

KEXIM means the Export-Import Bank of Korea of 16-1, Yoido-dong, Youngdeungpo-gu, Seoul, 150-996, Republic of Korea.

KEXIM Facility means the term loan facility made available by the KEXIM Facility Lenders under this Agreement as described in clause 2.

KEXIM Facility Advance means an advance of the KEXIM Facility Commitments, in accordance with clause 4.

KEXIM Facility Commitment means:

(a)

in relation to the KEXIM Facility Lender at the date of this Agreement, the amount set opposite its name under the heading “KEXIM Facility Commitment” in Schedule 1, Part 1 and the amount of any other KEXIM Facility Commitment transferred to it under this Agreement; and

(b)

in relation to any other KEXIM Facility Lender, the amount of any KEXIM Facility Commitment transferred to it under this Agreement,

to the extent not cancelled, reduced or transferred by it under this Agreement.

KEXIM Facility Lenders means:

(a)

the KEXIM Facility Lender set out in Schedule 1, Part 1 of this Agreement; and

(b)

any bank, financial institution or other regulated investment company which has become a party as a KEXIM facility lender in accordance with clause 14,

which in each case has not ceased to be a Party in accordance with the terms of this Agreement.

KEXIM Final Maturity Date means the date falling on the twelfth (12) anniversary of the last day of the Availability Period.

KEXIM Final Payment means the amount of the KEXIM Loan outstanding and owing to the KEXIM Facility Lenders as of the KEXIM Final Maturity Date.

KEXIM Guarantee means the guarantee agreement provided by KEXIM to the KEXIM Guarantee Facility Lenders and/or the KEXIM Guarantee Agent relating to the KEXIM Guarantee Facility.

KEXIM Guarantee Agent means Korea Exchange Bank, Investment Banking Division or such other person as may be appointed agent for the KEXIM Guarantee Facility Lenders pursuant to clause 15.21 of this Agreement.

KEXIM Guarantee Facility means the term loan facility made available by the KEXIM Guarantee Facility Lenders under this Agreement as described in clause 2.

KEXIM Guarantee Facility Advance means an advance of the KEXIM Guarantee Facility Commitments in accordance with clause 4.

110

KEXIM Guarantee Facility Commitment means:

(a)

in relation to a KEXIM Guarantee Facility Lender at the date of this Agreement, the amount set opposite its name under the heading “KEXIM Guarantee Facility Commitment” in Schedule 1, Part 1 and the amount of any other KEXIM Guarantee Facility Commitment transferred to it under this Agreement; and

(b)

in relation to any other KEXIM Guarantee Facility Lender, the amount of any KEXIM Guarantee Facility Commitment transferred to it under this Agreement,

to the extent not cancelled, reduced or transferred by it under this Agreement.

KEXIM Guarantee Facility Contribution means, in relation to a KEXIM Guarantee Facility Lender, the part of the KEXIM Guarantee Loan which is owing to that KEXIM Guarantee Facility Lender.

KEXIM Guarantee Facility Lenders means:

(a)

the KEXIM Guarantee Facility Lenders set out in Schedule 1, Part 1 of this Agreement; and

(b)

any bank, financial institution or other regulated investment company which has become a party as a KEXIM Guarantee facility lender in accordance with clause 14,

which in each case has not ceased to be a Party in accordance with the terms of this Agreement.

KEXIM Guarantee Final Maturity Date means the date falling on the twelfth (12) anniversary of the last day of the Availability Period.

KEXIM Guarantee Final Payment means the amount of the KEXIM Guarantee Loan outstanding and owing to the KEXIM Guarantee Facility Lenders as of the KEXIM Guarantee Final Maturity Date.

KEXIM Guarantee Loan means a loan made or to be made under the KEXIM Guarantee Facility or the principal amount outstanding for the time being of that loan.

KEXIM Guarantee Premium means the upfront amount of premium in respect of a KEXIM Guarantee Facility Advance being payable or (as the context may require) paid to KEXIM under the terms of the KEXIM Guarantee on or prior to the Drawdown Date for such KEXIM Guarantee Facility Advance.

KEXIM Guarantee Proportionate Share means, at any time prior to an Advance being made, the proportion which a KEXIM Guarantee Facility Lender’s KEXIM Guarantee Facility Commitment then bears to the aggregate KEXIM Guarantee Facility Commitments of all KEXIM Guarantee Facility Lenders and at any time after an Advance has been made, the proportion which a KEXIM Guarantee Facility Lender’s Contribution then bears to the KEXIM Guarantee Loan.

KEXIM Loan means a loan made or to be made under the KEXIM Facility or the principal amount outstanding for the time being of that loan.

K-Sure means Korea Trade Insurance Corporation of 136, Seorin-dong, Jongno-gu, Seoul, 110-729, Korea.

K-Sure Agent means Citibank N.A., London Branch or such other person as may be appointed agent for the K-Sure Facility Lenders pursuant to clause 15.21 of this Agreement.

K-Sure Facility means the term loan facility made available by the K-Sure Facility Lenders under this Agreement as described in clause 2.

K-Sure Facility Advance means an advance of the K-Sure Facility Commitments in accordance with clause 4.

111

K-Sure Facility Commitment means:

(a)

in relation to a K-Sure Facility Lender at the date of this Agreement, the amount set opposite its name under the heading “K-Sure Facility Commitment” in Schedule 1, Part 1 and the amount of any other K-Sure Facility Commitment transferred to it under this Agreement; and

(b)

in relation to any other K-Sure Facility Lender, the amount of any K-Sure Facility Commitment transferred to it under this Agreement,

to the extent not cancelled, reduced or transferred by it under this Agreement.

K-Sure Facility Contribution means, in relation to a K-Sure Facility Lender, the part of the K-Sure Loan which is owing to that K-Sure Facility Lender.

K-Sure Facility Lenders means:

(a)

the K-Sure Facility Lenders set out in Schedule 1, Part 1 of this Agreement; and

(b)

any bank, financial institution or other regulated investment company which has become a party as a K-Sure facility lender in accordance with clause 14,

which in each case has not ceased to be a Party in accordance with the terms of this Agreement.

K-Sure Final Maturity Date means the date falling on the twelfth (12) anniversary of the last day of the Availability Period.

K-Sure Final Payment means the amount of the K-Sure Loan outstanding and owing to the K-Sure Facility Lenders as of the K-Sure Final Maturity Date.

K-Sure Insurance Policy means an insurance policy certificate(s) by and between, amongst others, the K-Sure Facility Lenders, the K-Sure Agent and K-Sure, the General Terms and Conditions (Buyer Credit, Standard) for Medium and Long Term Export Insurance and the special terms and conditions attached thereto, issued or, as the context may require, to be issued by K-Sure in favour of the K-Sure Agent and/or the K-Sure Facility Lenders, providing political and commercial risks cover and otherwise setting out the terms and conditions of its insurance of an amount up to ninety five per cent (95%) of the aggregate of the K-Sure Facility Advances plus interest accruing thereon under the terms of this Agreement and the K-Sure Premium.

K-Sure Loan means a loan made or to be made under the K-Sure Facility or the principal amount outstanding for the time being of that loan.

K-Sure Premium means the upfront amount of premium in respect of a K-Sure Facility Advance being payable or (as the context may require) paid to K-Sure under the terms of the K-Sure Insurance Policy on or prior to the Drawdown Date for such K-Sure Facility Advance.

K-Sure Proportionate Share means, at any time prior to an Advance being made, the proportion which a K-Sure Facility Lender’s K-Sure Facility Commitment then bears to the aggregate K-Sure Facility Commitments of all K-Sure Facility Lenders and at any time after an Advance has been made, the proportion which a K-Sure Facility Lender’s Contribution then bears to the K-Sure Loan

Liability Insurance Proceeds means:

(a)

the proceeds of the Insurances received in respect of protection and indemnity risks or collision liability;

(b)

any amounts paid by the Charterer to the Bareboat Charterer or any other person under or pursuant to the Charter as an indemnity for third party operational or liability claims of any nature; and

112

(c)

any amounts paid by the Operator to the Bareboat Charterer or any other person under or pursuant to the Operations Agreement as an indemnity for third party operational or liability claims of any nature.

LIBOR means, in relation to a particular period:

(a)

the applicable Screen Rate; or

(b)

if no Screen Rate is available for any Interest Period, the Interpolated Screen Rate; or

(c)

if no Screen Rate is available for any Interest Period and it is not possible to calculate an Interpolated Screen Rate for that Interest Period, the Reference Bank Rate,

at, in the case of paragraphs (a) and (c) above, 11.00 a.m. London time two (2) Banking Days before the first day of the relevant Interest Period for the offering of deposits in Dollars in an amount comparable to the Loan (or any other relevant part of the Loan) and for a period comparable to the relevant Interest Period provided always that if that rate is less than zero, LIBOR shall be deemed to be zero.

LLCR means for each Relevant Period:

(a)

the net present value of the Cash Flow (discounted using the Interest Cost for that Relevant Period) for that Relevant Period,

divided by

(b)

the average expected principal outstanding under the Facility for that Relevant Period (by reference to the Schedule of Repayment Amounts but on the basis that the Commercial Loan and the GIEK Loan is repayable on the same profile as the KEXIM Loan, the KEXIM Guarantee Loan and the K-Sure Loan).

Loan means the KEXIM Loan, the KEXIM Guarantee Loan, the K-Sure Loan, the GIEK Loan and the Commercial Loan and Loans means all of them.

Loss Payable Clause means the provisions regulating the manner of payment of sums receivable under the Insurances which are to be incorporated in the relevant insurance documents, such Loss Payable Clause to be in the form set out in Appendix C to the Pre-Delivery Assignment, Appendix C to the Assignment or in such other form as may from time to time be reasonably required by the Facility Security Trustee acting on the instructions of the Majority Facility Lenders.

Losses means all losses, liabilities, costs, charges, expenses, damages and outgoings of whatsoever nature (including without limitation, Taxes (but excluding taxes levied on the overall income or profits of any Facility Beneficiary in the jurisdiction in which its principal or Facility Office under the Facility Documents is located), stamp duties and other duties or charges, registration fees, repair costs, insurance premiums, fees of insurance advisers reasonably incurred, fees of technical consultants, printing costs, out-of-pocket expenses and fees and disbursements of legal counsel reasonably incurred, together with any value added or similar tax payable in respect thereof) but excluding, for the avoidance of doubt, any loss of profits.

Majority Facility Lenders means, together, at any relevant time, (i) the Facility Lenders the aggregate of whose Contributions equal or exceed sixty-six and two-thirds per cent. (66.66%) of the Loan at that time, or (ii) if no Advance has been made, the Facility Lenders the aggregate of whose Commitments at that time equal or exceed sixty-six and two-thirds per cent. (66.66%) of the Total Commitments at that time or, if all of the Commitments have been reduced to zero at or prior to that time, the Facility Lenders the aggregate of whose Contributions immediately prior to that reduction equalled or exceeded sixty-six and two-thirds per cent. (66.66%) of the Loan at that time.

113

Majority GIEK Facility Lenders means, together, at any relevant time, (i) the GIEK Facility Lenders the aggregate of whose GIEK Facility Contributions equal or exceed sixty-six and two-thirds per cent. (66.66%) of the GIEK Loan at that time, or (ii) if no Advance has been made, the GIEK Facility Lenders the aggregate of whose GIEK Facility Commitments at that time equal or exceed sixty-six and two-thirds per cent. (66.66%) of the Total GIEK Facility Commitments at that time or, if all of the GIEK Facility Commitments have been reduced to zero at or prior to that time, the GIEK Facility Lenders the aggregate of whose GIEK Facility Contributions immediately prior to that reduction equalled or exceeded sixty-six and two-thirds per cent. (66.66%) of the GIEK Loan at that time.

Majority KEXIM Guarantee Facility Lenders means, together, at any relevant time, (i) the KEXIM Guarantee Facility Lenders the aggregate of whose KEXIM Guarantee Facility Contributions equal or exceed sixty-six and two-thirds per cent. (66.66%) of the KEXIM Guarantee Loan at that time, or (ii) if no Advance has been made, the KEXIM Guarantee Facility Lenders the aggregate of whose KEXIM Guarantee Facility Commitments at that time equal or exceed sixty-six and two-thirds per cent. (66.66%) of the Total KEXIM Guarantee Facility Commitments at that time or, if all of the KEXIM Guarantee Facility Commitments have been reduced to zero at or prior to that time, the KEXIM Guarantee Facility Lenders the aggregate of whose KEXIM Guarantee Facility Contributions immediately prior to that reduction equalled or exceeded sixty-six and two-thirds per cent. (66.66%) of the KEXIM Guarantee Loan at that time.

Majority K-Sure Facility Lenders means, together, at any relevant time, (i) the K-Sure Facility Lenders the aggregate of whose K-Sure Facility Contributions equal or exceed sixty-six and two-thirds per cent. (66.66%) of the K-Sure Loan at that time, or (ii) if no Advance has been made, the K-Sure Facility Lenders the aggregate of whose K-Sure Facility Commitments at that time equal or exceed sixty-six and two-thirds per cent. (66.66%) of the Total K-Sure Facility Commitments at that time or, if all of the K-Sure Facility Commitments have been reduced to zero at or prior to that time, the K-Sure Facility Lenders the aggregate of whose K-Sure Facility Contributions immediately prior to that reduction equalled or exceeded sixty-six and two-thirds per cent. (66.66%) of the K-Sure Loan at that time.

Mandated Lead Arrangers means the banks listed in Schedule 1, Part 3 of this Agreement.

Mandatory Cost means, in relation to a Facility Lender and for any relevant period, the percentage rate per annum calculated by the Facility Agent in accordance with Schedule 3 to this Agreement.

Margin means:

(a)

in relation to the KEXIM Facility, two point seven five per cent (2.75 %) per annum;

(b)

in relation to the KEXIM Guarantee Facility, one point nine zero per cent. (1.90%) per annum;

(c)

in relation to the K-Sure Facility, two point one per cent (2.10 %) per annum;

(d)

in relation to the GIEK Facility, one point two per cent (1.20%) per annum; and

(e)

in relation to the Commercial Facility, two point seven five per cent (2.75 %) per annum.

Master Agreement Charge means the first priority charge in respect of the Hedging Agreements executed or, as the context may require, to be executed, by the Borrower in favour of the Facility Security Trustee, in the Agreed Form.

Material Adverse Effect means a material adverse change in, or a material adverse effect on:

(a)

the financial conditions, assets, prospects or business of any Security Party or on the consolidated financial condition, assets, prospects or business of any of the Groups;

(b)

the ability of any Security Party to perform and comply with its obligations under the Facility Document or Project Document or to avoid any Event of Default;

(c)

the validity, legality or enforceability of any Facility Document or Project Document; or

114

(d)

the validity, legality or enforceability of any security expressed to be created pursuant to any Facility Document or Project Document or the priority and ranking of any such security,

provided that, in determining whether any of the foregoing circumstances shall constitute such a material adverse change or material adverse effect for the purposes of this definition, the Facility Beneficiaries shall consider such circumstance in the context of (x) each Group taken as a whole and (y) the ability of the Security Parties to perform each of their obligations under the Facility Documents and Project Documents.

month means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month, except that (i) if there is no numerically corresponding day in the calendar month in which that period is to end, that period shall end on the last Banking Day in that calendar month and (ii) if the numerically corresponding day is not a Banking Day, that period shall end on the next Banking Day in that calendar month in which that period is to end if there is one, or if there is not, on the immediately preceding Banking Day, and months and monthly shall be construed accordingly.

Mortgage means the first priority mortgage over the Vessel executed or to be executed by the Borrower in favour of the Facility Security Trustee and registered or to be registered against the Vessel in accordance with all Applicable Laws in the Flag State, in the Agreed Form.

Necessary Authorisations means all Authorisations of any person including any government or other regulatory authority required by Applicable Law to enable it to:

(a)

lawfully enter into and perform its obligations under the Facility Documents to which it is party;

(b)

ensure the legality, validity, enforceability or admissibility in evidence in England, the governing law of such document and, if different, its jurisdiction of incorporation, of such Facility Documents to which it is party; and

(c)

carry on its business from time to time.

Non-Material means:

(a)

in respect of any Project Document (but excluding the Charter Rate, the Termination Fee and/or the Option Fee payable under the Charter and/or the Purchase Option Agreement) or Hedging Agreement, an amendment or variation which does not affect the value by more than fifteen million Dollars ($15,000,000); and

(b)

in respect of the Charter Rate, the Termination Fee and/or the Option Fee payable, an amendment or variation which affects any or all such amounts by less than or equal to fifteen million Dollars ($15,000,000) in aggregate when taken together with all other amendments or variations made thereto from the date of this Agreement until the end of the Facility Security Period.

Notices of Assignment means each notice and (where applicable) corresponding acknowledgment of assignment in the form set out in the relevant Appendix (Notices of Assignment) to the Pre-Delivery Assignment, the relevant Appendix (Notices of Assignment) to the Assignment, each other notice and (where applicable) corresponding acknowledgment of assignment issued pursuant to the Assignment and/or the Bareboat Charterer Assignment and/or the Master Agreement Charge and each notice of assignment and (where applicable) corresponding acknowledgement of assignment issued pursuant to each other Facility Security Document.

Notified Lender has the meaning given to it in clause 7.8.2(b) of this Agreement.

Operations Agreement means the operations agreement dated 1 January 2012 between, amongst others, the Bareboat Charterer and the Operator in relation to the Vessel or at a time when Teekay Petrojarl Production AS is no longer the operator, such other operations agreement between the Operator and the Bareboat Charterer, in the Agreed Form.

115

Operator means (a) Teekay Petrojarl Production AS, a company incorporated under the laws of Norway with its registered office at Beddingen 16, 7014 Trondheim, Norway, (b) another company in the Teekay Group or TOO Group, or (c) another person acceptable to the Facility Agent (acting on the instructions of all the Facility Lenders, acting reasonably) which has become a party to an Operations Agreement.

Option Fee means the option fee as set out in Exhibit B(2), Appendix 4, Schedule 7 of the Charter (as at the date of this Agreement).

Original Schedule of Repayment Amounts means Schedule 6 to this Agreement.

Party means a party to this Agreement.

Permitted Amendment means any amendment permitted pursuant to the terms of the Facility Documents.

Permitted Liens means:

(a)

any repairer’s or outfitter’s possessory lien for a sum in aggregate at any time not (except with the prior written consent of the Facility Agent) exceeding twenty five million Dollars ($25,000,000);

(b)

any lien on the Vessel for master’s, officer’s or crew’s wages arising in accordance with usual maritime practice which are not overdue; and

(c)

any lien for salvage,

(each a Permitted Lien).

Permitted Security Interest means:

(a)

any Security Interest created by the Facility Security Documents and any set-off rights granted under the Hedging Agreements;

(b)

any lien arising in the ordinary course of business or operation of the Vessel by statute or by operation of law in respect of obligations which are not more than thirty (30) days overdue or which are being contested in good faith by appropriate proceedings (and for the payment of which adequate reserves have been provided) so long as any such proceedings or the continued existence of such lien do not in the opinion of the Facility Agent involve any likelihood of the sale, forfeiture or loss of, or of any interest in, the Vessel or any Total Loss Proceeds;

(c)

any Security Interest arising out of any claims, judgments, or awards against a Security Party which are being contested in good faith by that Security Party or which are the subject of a pending appeal (and for the payment of which adequate reserves have been provided) so long as any such claims, judgments or awards or the continued existence of such Security Interest do not in the reasonable opinion of the Facility Agent involve any likelihood of the sale, forfeiture or loss of, or of any interest in, the Vessel or any Total Loss Proceeds; and

(d)

any Permitted Lien.

Pre-Delivery Assignment means the first priority assignment and charge executed or to be executed by the Borrower in favour of the Facility Security Trustee, in the Agreed Form.

Proceeds means:

(a)

all Final Disposition Proceeds of the type referred in paragraph (a) of that definition;

116

(b)

all Total Loss Proceeds and all Restricted Proceeds;

(c)

all Requisition Compensation; and

(d)

all and any other monies, property and other assets representing or deriving from all or any of the Facility Secured Property and the Collateral.

Project Counterparties means together:

(a)

the Charterer;

(b)

the Operator;

(c)

the Builder;

(d)

the Refund Guarantor;

(e)

Framo; and

(f)

each other person who may from time to time replace any of the parties referred to above as party to any of the Project Documents,

(each a Project Counterparty).

Project Documents means:

(a)

the Operations Agreement;

(b)

the Construction Contract;

(c)

the Charter;

(d)

the Purchase Option Agreement;

(e)

the Bareboat Charter;

(f)

the Refund Guarantee;

(g)

the Framo Contract; and

(h)

any change orders or other deed, document, agreement or instrument amending, varying, supplementing, ratifying, confirming, extending or renewing any of the foregoing documents or any of the terms and conditions thereof or consenting to the amendment or variation of the terms and conditions thereof,

(each a Project Document).

Proportionate Share means, at any time prior to an Advance being made, the proportion which a Facility Lender’s Commitment then bears to the aggregate Commitments of all the Facility Lenders being on the date of this Agreement the percentage indicated against the name of that Facility Lender in Schedule 1 of this Agreement, and at any time after an Advance has been made, the proportion which a Facility Lender’s Contribution then bears to the Loan.

Purchase Option Agreement means the purchase option agreement dated 30 June 2011 between the Borrower, the Bareboat Charterer and the Charterer, as amended from time to time by a Permitted Amendment or with the prior written consent of the Facility Agent acting on the instructions of all the Facility Lenders.

117

Quiet Enjoyment Undertaking means the agreement executed or, as the context may require, to be executed by the Charterer, the Borrower, the Bareboat Charterer and the Facility Security Trustee in relation to the Vessel, in the Agreed Form.

Receiver means and includes any receiver and/or manager of the Facility Secured Property or any part thereof appointed under or pursuant to any Facility Document (and whether acting as agent for any Facility Beneficiary or otherwise).

Reference Banks means in relation to LIBOR, any three (3) banks or financial institutions acceptable to the Facility Agent and the Borrower.

Reference Bank Rate means the arithmetic mean of the rates (rounded upwards to four decimal places) as supplied to the Facility Agent at its request by the Reference Banks as the rate at which the relevant Reference Bank could borrow funds in the London interbank market, in the relevant currency and for the relevant period, were it to do so by asking for and then accepting interbank offers for deposits in reasonable market size in that currency and for that period.

Refund Guarantee means each guarantee issued or to be issued in favour of the Borrower by the Refund Guarantor pursuant to the Construction Contract, including (without limitation) the refund guarantee entered into on 23 May 2011.

Refund Guarantor means KEXIM.

Related Company in relation to any person means (i) any Subsidiary for the time being of such person, (ii) any company or other entity of which such person is for the time being a Subsidiary, and (iii) any Subsidiary for the time being of any such person referred to in (ii) above.

Relevant Period means (i) the period commencing on the Drawdown Date for the final Advance and ending on the first anniversary of that Drawdown Date, and (ii) each subsequent period commencing on the last day of the previous Relevant Period and ending on the first anniversary thereafter and (iii) the last Relevant Period shall end on the twelfth anniversary of the Drawdown Date for the final Advance.

Repayment Amount means, in relation to any Application Date, the amount set out in the Schedule of Repayment Amounts in relation to that Application Date.

Replacement Schedule of Repayment Amounts means any replacement Schedule of Repayment Amounts calculated by the Facility Agent in accordance with clause 5.3 of this Agreement.

Requisition Compensation means all sums of money or other compensation from time to time payable during the Facility Security Period by reason of the Compulsory Acquisition of the Vessel.

Restricted Proceeds means any Insurance Proceeds if the full amount of the same exceeds the Casualty Amount.

Revenue means all moneys whatsoever from time to time due or payable to the Borrower arising out of the use or operation of the Vessel including (but without limiting the generality of the foregoing) all Bareboat Charter Rate, freight, hire and passage moneys, moneys arising under any charter contract, bareboat charter or other agreement between it and any operator, income, income arising under pooling arrangements, compensation payable to the Borrower in the event of requisition of the Vessel for hire, all payments under and pursuant to the Purchase Option Agreement, remuneration for salvage and towage services, demurrage and detention moneys, and damages for breach of any such charterparty or other contract for the employment of the Vessel.

Schedule of Repayment Amounts means at any time the Original Schedule of Repayment Amounts or, if at such time a Replacement Schedule of Repayment Amounts has been substituted therefor pursuant to and in accordance with clause 5.3 of this Agreement, the latest Replacement Schedule of Repayment Amounts.

Screen Rate means in relation to LIBOR, the ICE Benchmark Administration Limited Interest Settlement Rate for the relevant currency and period displayed on the appropriate page of the Reuters page LIBOR 01 (or such other page or pages or service which replace(s) such page or service for the purposes of displaying offered rates of leading banks) for deposits in Dollars.

118

Second Dropdown Date means the date upon which TOO acquires one hundred per cent (100%) of the direct or indirect legal or beneficial interest in all of membership interests of the Borrower and each of the conditions precedent set out in Schedule 2, Part 5 of this Agreement have been satisfied (whether or not the First Dropdown Date has occurred).

Secured Property means (i) the security, powers, rights, titles, benefits and interests (both present and future, actual or contingent) constituted by and conferred upon the Facility Beneficiaries or any of them under or pursuant to the Facility Documents and any notices or acknowledgements or undertakings given in respect of or in connection with any of the Facility Documents (including, without limitation, the benefit of all covenants, undertakings, representations, warranties and obligations given, made or undertaken to any Facility Beneficiary in the Facility Documents and any notices or acknowledgements or undertakings given in respect of or in connection with any of the Facility Documents), (ii) all moneys and other assets paid or transferred to or vested in any Facility Beneficiary or any agent of any Facility Beneficiary or any Insolvency Official or received or recovered by any Facility Beneficiary or any agent of any Facility Beneficiary or any Insolvency Official pursuant to, or in connection with, any of the Facility Documents and any notices or acknowledgements or undertakings given in respect of or in connection with any of the Facility Documents, whether from any Security Party, any Project Counterparty or any other person, and (iii) all moneys, investments, and other assets at any time representing or deriving from any of the foregoing, including all interest, income and other sums at any time received or receivable by any Facility Beneficiary or any agent of any Facility Beneficiary or any Insolvency Official in respect of the same (or any part thereof).

Security means any Security Interest created or purported to be created by any of the Facility Security Documents.

Security Interest means any mortgage, charge (whether fixed or floating), pledge, lien, hypothecation, assignment by way of security, trust arrangement for the purpose of providing security or other security interest of any kind securing any obligation of any person or any other arrangement having the effect of conferring rights of retention or set-off (but excluding any right of set-off arising in favour of a banker prior to such right becoming exercisable) or other disposal rights over an asset (including without limitation title transfer and/or retention arrangements having a similar effect) and includes any agreement to create any of the foregoing but does not include liens arising in the ordinary course of trading by operation of law and not by way of contract.

Security Parties means the Borrower, the Bareboat Charterer, the Operator, the Sponsors, the Shareholder and any other party which the Borrower and the Facility Security Trustee agree (after the date of this Agreement) shall be a Security Party (each a Security Party).

Semi-Annual Date means (i) the date falling six (6) months subsequently to the Drawdown Date for the first Advance or the previous Semi-Annual Date within the Facility Security Period, (ii) and the last Semi-Annual Date shall be the first Application Date.

Shareholder means:

(a)

as at the date hereof, Teekay Holdings Limited, and

(b)

thereafter, each person which from time to time holds legal ownership of the membership interests in the Borrower and/or the Bareboat Charterer in accordance with the terms of this Agreement.

SMC means a valid safety management certificate issued for the Vessel by or on behalf of the Administration under paragraph 13.7 of the ISM Code.

Sponsor means:

(a)

as at the date hereof, Teekay;

119

(b)

if any person within the Teekay Group is a Shareholder, Teekay;

(c)

if any person within the TOO Group is a Shareholder, TOO; and/or

(d)

if any person within the Additional Sponsor Group is a Shareholder, the Additional Sponsor,

in each case in accordance with the terms of this Agreement.

Subsidiary means any company or entity directly or indirectly controlled by another person, for which purpose control means either ownership of more than fifty per cent. (50%) of the voting share capital (or equivalent right of ownership) of such company or entity or power to direct its policies and management whether by contract or otherwise.

Swap Payment means, in relation to a Hedging Agreement and an Interest Payment Date, the amount (if any) payable by the Borrower under and pursuant to that Hedging Agreement on that Interest Payment Date in respect of the difference between interest calculated at the Fixed Rate applicable under that Hedging Agreement and interest calculated at the floating rate then applicable under that Hedging Agreement in respect of the Interest Period ending on that Interest Payment Date (after giving effect to any contractual set-off and/or netting provisions contained in that Hedging Agreement), but shall exclude, for the avoidance of doubt, any amount payable by the Borrower under that Hedging Agreement as a result or consequence of any termination of, or default under, that Hedging Agreement.

Taxes includes all present and future taxes, levies, imposts, duties, fees or charges of a similar nature together with interest thereon and penalties in respect thereof, and Tax and Taxation shall be construed accordingly.

Teekay means Teekay Corporation, a corporation domesticated according to the law of the Marshall Islands whose registered office is at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, The Marshall Islands MH-96960.

Teekay Group means Teekay and each of its Subsidiaries.

Termination Fee means the Termination Fee, the Cancellation Fee and the Purchase Price, each as defined in the Charter and/or the Purchase Option Agreement (as at the date of this Agreement).

TOO means Teekay Offshore Partners L.P., a master limited partnership formed and existing according to the law of the Marshall Islands whose registered office is at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, The Marshall Islands, MH-96960.

TOO Group means TOO and each of its Subsidiaries.

Total Commercial Facility Commitments means the aggregate of the Commercial Facility Commitments, being eight million and fifty five thousand eight hundred and thirty seven Dollars and fifty six cents ($80,055,837.56) as at the date of this Agreement.

Total Commitments means the Total KEXIM Facility Commitments, the Total KEXIM Guarantee Facility Commitments, the Total K-Sure Facility Commitments, the Total GIEK Facility Commitments and the Total Commercial Facility Commitments.

Total GIEK Facility Commitments means the aggregate GIEK Facility Commitments, being one hundred and twenty million Dollars ($120,000,000) as at the date of this Agreement.

Total KEXIM Facility Commitments means the aggregate of the KEXIM Facility Commitments, being one hundred and seventy seven million four hundred and seventy two thousand and eighty one Dollars and twenty two cents ($177,472,081.22) as at the date of this Agreement.

120

Total KEXIM Guarantee Facility Commitments means the aggregate of the KEXIM Guarantee Facility Commitments, being one hundred and thirty million Dollars ($130,000,000) as at the date of this Agreement.

Total K-Sure Facility Commitments means the aggregate of the K-Sure Facility Commitments, being three hundred and seven million four hundred and seventy two thousand and eighty one Dollars and twenty two cents ($307,472,081.22) as at the date of this Agreement.

Total Loss means:

(a)

the actual, constructive, arranged, agreed or compromised total loss of the Vessel; or

(b)

the requisition for title or compulsory acquisition, nationalisation or expropriation of the Vessel by or on behalf of any government or other authority (other than by way of requisition for hire);

(c)

the capture, seizure, arrest, detention, hijacking, theft or confiscation of the Vessel unless the Vessel is released and returned to the possession of the Borrower or the Bareboat Charterer within ninety (90) days after the capture, seizure, arrest, detention or confiscation in question.

Total Loss Proceeds means any proceeds of the Insurances arising in respect of a Total Loss and any Requisition Compensation received in respect of a Compulsory Acquisition.

Transaction Documents means the Facility Documents and the Project Documents (each a Transaction Document).

Transfer Certificate means a certificate substantially in the terms of Schedule 5 to this Agreement.

Transfer Date means, in relation to any Transfer Certificate, the date of the making of the transfer specified in the schedule to such Transfer Certificate.

Unpaid Sum means any sum due and payable but unpaid by a Security Party under the Facility Documents.

Unrestricted Proceeds means all Insurance Proceeds other than Restricted Proceeds.

US Tax Obligor means:

(a)

the Borrower if it is resident for tax purposes in the United States of America; or

(b)

a Security Party some or all of whose payments under the Facility Documents are from sources within the United States for US federal income tax purposes.

Valuation means one written valuation of the Vessel expressed in Dollars prepared by one of the Approved Brokers (or such other firm of reputable independent shipbrokers as may be acceptable to the Majority Facility Lenders (acting reasonably)). Such valuation shall be prepared at the Borrower’s expense (unless no Default has occurred and such valuation is requested by the Facility Agent more frequently than once per financial year, in which case it shall be prepared at the Facility Lenders’ expense), without a physical inspection, on the basis of a sale for prompt delivery for cash at arm’s length between a willing buyer and a willing seller without the benefit of any charterparty or other engagement.

Vessel means the floating production, storage and offloading system with hull number HN1951 as more particularly described in the Charter and any and all appliances, spare parts, accessories, fittings, instruments, machinery, components, equipment and other facilities or materials allocated to, appropriated for, installed in, attached to or otherwise relating thereto.

121

Schedule 8

Budget


	Dollars ($)

Contract Price		748,133,651

Framo Turret		90,295,941

PMT		91,500,000

Mooring Lines, Offshore Commissioning, Transport		34,545,857

Preparation for Operation		20,600,000

Capitalised Interest to SHI		5,816,481

Capitalised Interest on Bridge Loan Facility		13,923,326

K-Sure Premium		9,224,162

KEXIM Premium		5,720,000

TOTAL:		1,019,759,418

122

Schedule 9

Form of Accession Deed



To:		[ ] as Facility Agent for and on behalf of the Facility Beneficiaries

From:		[New Hedging Provider]

Dated:

Dear Sirs

ACCESSION DEED

We refer to the secured loan facility agreement (as from time to time amended, varied, supplemented or novated the Loan Agreement) dated [—] 2014. This deed (the Accession Deed) shall take effect as an Accession Deed for the purposes of the Loan Agreement. Terms defined in the Loan Agreement have the same meaning in this Accession Deed unless given a different meaning in this Accession Deed.

2	[New Hedging Provider] agrees to become a Hedging Provider and to be bound by the terms of the Loan Agreement and the other Facility Documents as a Hedging Provider.

3	New Hedging Provider agrees to provide a copy of the Hedging Agreement to which it is a party to the Facility Agent.

4	[New Hedging Provider] administrative details for the purposes of the Loan Agreement are as follows:

Address:

Fax No.:

Attention:

IT IS AGREED as follows:

(a)

The [New Hedging Provider] and each of the Facility Beneficiaries agree that the Facility Security Trustee shall hold:

(i)

any Security in respect of Facility Secured Obligations created or expressed to be created pursuant to the Facility Documents; and

(ii)

all proceeds of that Security;

on trust for the Facility Beneficiaries (including the [New Hedging Provider]) on the terms and conditions contained in the Agreement.

(b)

The [New Hedging Provider] appoints the Facility Agent as its agent and the Facility Security Trustee as its trustee on the terms of, and in accordance with, clause 15 of the Loan Agreement.

[New Hedging Provider] acknowledges that pursuant to the Master Agreement Charge, it has received notice that the Borrower has assigned and charged its rights, title and interest in and to the Hedging Agreements in favour of the Facility Security Trustee acting on behalf of the Facility Beneficiaries and agrees to comply with the instructions contained in the notice attached to the Master Agreement Charge.

123

6	This Accession Deed is a Facility Document.

7	This Accession Deed and any non-contractual obligations arising out of or in connection with it are governed by, and shall be construed in accordance with, English law.

THIS ACCESSION DEED has been signed on behalf of the Facility Agent and executed as a deed by [New Hedging Provider] and is delivered on the date stated above.



New Hedging Provider

[EXECUTED as a DEED				)

By: [New Hedging Provider]				)

Witnessed by:

Facility Agent

[EXECUTED as a DEED				)

By: [Facility Agent]				)

Witnessed by:

124

IN WITNESS of which the parties to this Agreement have executed this Agreement the day and year first before written.


Borrower

SIGNED by		)
duly authorised for and on behalf		)
of KNARR L.L.C.		)

KEXIM Facility Lenders

SIGNED by		)
duly authorised for and on behalf		)
of THE EXPORT-IMPORT BANK		)
OF KOREA		)

KEXIM Guarantee Facility Lenders

SIGNED by		)
duly authorised for and on behalf		)
of KOREA EXCHANGE BANK OF		)
CANADA, MAIN BR.		)

SIGNED by		)
duly authorised for and on behalf		)
of KOREA EXCHANGE BANK,		)
LONDON BR.		)

SIGNED by		)
duly authorised for and on behalf		)
of KOREA EXCHANGE BANK,		)
PANAMA BR.		)

K-SURE Facility Lenders

SIGNED by		)
duly authorised for and on behalf		)
of THE BANK OF TOKYO-		)
MITSUBISHI UFJ, LTD.		)

SIGNED by		)
duly authorised for and on behalf		)
of DEVELOPMENT BANK		)
OF JAPAN INC.		)

SIGNED by		)
duly authorised for and on behalf		)
of CREDIT SUISSE AG		)

SIGNED by		)
duly authorised for and on behalf		)
of ABN AMRO CAPITAL USA LLC		)

125


SIGNED by		)
duly authorised for and on behalf		)
of DBS BANK LTD		)

SIGNED by		)
duly authorised for and on behalf		)
of CREDIT AGRICOLE CORPORATE		)
AND INVESTMENT BANK		)

SIGNED by		)
duly authorised for and on behalf		)
of CITIBANK N.A., LONDON BRANCH		)

Commercial Facility Lenders

SIGNED by		)
duly authorised for and on behalf		)
of ABN AMRO CAPITAL USA LLC		)

SIGNED by		)
duly authorised for and on behalf		)
of DBS BANK LTD		)

SIGNED by		)
duly authorised for and on behalf		)
of CREDIT AGRICOLE CORPORATE		)
AND INVESTMENT BANK		)

SIGNED by		)
duly authorised for and on behalf		)
of CITIBANK N.A., LONDON BRANCH		)

GIEK Facility Lenders

SIGNED by		)
duly authorised for and on behalf		)
of CITIBANK N.A., LONDON BRANCH		)

Facility Agent

SIGNED by		)
duly authorised for and on behalf		)
of CREDIT AGRICOLE CORPORATE		)
AND INVESTMENT BANK		)

126


Facility Security Trustee

SIGNED by		)
duly authorised for and on behalf		)
of CREDIT AGRICOLE CORPORATE		)
AND INVESTMENT BANK		)

K-Sure Agent

SIGNED by		)
duly authorised for and on behalf		)
of CITIBANK N.A., LONDON BRANCH		)

GIEK Agent

SIGNED by		)
duly authorised for and on behalf		)
of CITIBANK N.A., LONDON BRANCH		)

KEXIM Guarantee Agent

SIGNED by		)
duly authorised for and on behalf		)
of KOREA EXCHANGE BANK,		)
INVESTMENT BANKING DIVISION		)

Mandated Lead Arrangers

SIGNED by		)
duly authorised for and on behalf		)
of THE EXPORT-IMPORT BANK		)
OF KOREA		)

SIGNED by		)
duly authorised for and on behalf		)
of KOREA EXCHANGE BANK,		)
INVESTMENT BANKING DIVISION		)

SIGNED by		)
duly authorised for and on behalf		)
of ABN AMRO CAPITAL USA LLC		)

SIGNED by		)
duly authorised for and on behalf		)
of CREDIT AGRICOLE CORPORATE		)
AND INVESTMENT BANK		)

SIGNED by		)
duly authorised for and on behalf		)
of DEVELOPMENT BANK		)
OF JAPAN INC.		)

127


SIGNED by		)
duly authorised for and on behalf		)
of CREDIT SUISSE AG		)

SIGNED by		)
duly authorised for and on behalf		)
of CITIBANK N.A., LONDON BRANCH		)

SIGNED by		)
duly authorised for and on behalf		)
of DBS BANK LTD		)

Bookrunner

SIGNED by		)
duly authorised for and on behalf		)
of CITIBANK N.A., LONDON BRANCH		)

Hedging Providers

SIGNED by		)
duly authorised for and on behalf		)
of CITIBANK N.A., LONDON BRANCH		)

SIGNED by		)
duly authorised for and on behalf		)
of ABN AMRO BANK N.V.		)

SIGNED by		)
duly authorised for and on behalf		)
of CREDIT SUISSE AG		)

SIGNED by		)
duly authorised for and on behalf		)
of CREDIT AGRICOLE CORPORATE		)
AND INVESTMENT BANK		)