Teekay Corp – ‘424B1’ on 1/22/96

As of:  Monday, 1/22/96   ·   Accession #:  950150-96-23   ·   File #:  33-65139

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Prospectus   —   Rule 424(b)(1)
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Document/Exhibit                   Description                      Pages   Size 

 1: 424B1       Prospectus                                           172    960K 

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                                     Filed pursuant to Rule 424(b)(1) of the
                                          Securities Act of 1933, as amended
                                                 (Registration No. 33-65139)

$225,000,000

TEEKAY SHIPPING CORPORATION 
8.32% FIRST PREFERRED SHIP MORTGAGE NOTES DUE FEBRUARY 1, 2008
--------------------- 

     Interest on the Notes will be payable semiannually on February 1 and August
1 of each year, commencing August 1, 1996. The Notes will be senior obligations 
of Teekay Shipping Corporation, a Liberian corporation ("Teekay"), are          
guaranteed by certain subsidiaries of Teekay (the "Guarantors") and are secured 
by first preferred ship mortgages on seven double-hull Aframax tankers (the     
"Mortgaged Vessels") owned by the Guarantors and by certain other property and  
contract rights (collectively, the "Collateral"). The Notes will rank pari passu
with all existing and future senior indebtedness of Teekay and the guarantees of
the Guarantors will rank pari passu with all existing and future senior         
indebtedness of each Guarantor. Notes may be redeemed, at 100% of their         
principal amount, plus accrued interest to the redemption date, upon the        
occurrence of an Event of Loss with respect to a Mortgaged Vessel. Notes will   
also be redeemed, at 100% of their principal amount plus accrued interest to the
redemption date, pursuant to a sinking fund, which will retire up to $45 million
principal amount of Notes on each February 1, commencing February 1, 2004.      

     Upon the occurrence of a Change of Control Triggering Event, holders of the
Notes may require Teekay to repurchase the Notes at a price equal to 101% of    
their principal amount, plus accrued interest to the date of purchase. See      
"Description of the Notes."                                                     

 Upon the Notes achieving Investment Grade Status and subject to certain
other conditions, the guarantees of the Guarantors will terminate, all of the   
Collateral securing the obligations of Teekay and the Guarantors under the      
Indenture and the Security Documents will be released (whereupon the Notes will 
become general unsecured obligations of Teekay) and certain covenants under the 
Indenture will no longer be applicable to Teekay and the Restricted             
Subsidiaries. See "Description of the Notes--Fall-away Event," "--Certain       
Restrictive Covenants" and "--Covenants After Fall-away Event."                 

The Notes will settle initially in immediately available funds, and   
settlement of any secondary market trading in the Notes will be made in         
immediately available funds. See "Description of the Notes--Same-Day Settlement 
and Payment."                                                                   

SEE "RISK FACTORS" BEGINNING AT PAGE 14 OF THIS PROSPECTUS FOR CERTAIN
CONSIDERATIONS RELEVANT TO AN INVESTMENT IN THE NOTES.                          
--------------------- 
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND    
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE        
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES            
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS           
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL      
OFFENSE.                                                        
--------------------- 

                                                        [Enlarge/Download Table]

                                                INITIAL PUBLIC     UNDERWRITING      PROCEEDS TO    
                                              OFFERING PRICE(1)    DISCOUNT(2)       TEEKAY(1)(3)   
                                              ------------------------------------------------------
                                                                                                    
Per Note.....................................        100%             1.875%           98.125%      
Total........................................    $225,000,000       $4,218,750       $220,781,250   

---------------                                                                 

(1) Plus accrued interest, if any, from January 29, 1996.                       

(2) Teekay has agreed to indemnify the Underwriters against certain liabilities,
   including liabilities under the Securities Act of 1933. See "Underwriting."

(3) Before deducting estimated expenses of $625,000 payable by Teekay.          
--------------------- 

The Notes offered hereby are offered severally by the Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that the Notes    
will be ready for delivery in New York, New York on or about January 29, 1996,  
against payment therefore in immediately available funds.                       

GOLDMAN, SACHS & CO.                                                            
MORGAN STANLEY & CO.    
          INCORPORATED

                                                               SMITH BARNEY INC.
--------------------- 
The date of this Prospectus is January 19, 1996.

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[WORLDWIDE OFFICES] 

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[HIGH QUALITY TANKER OPERATIONS FOR THE NEW ERA]

[PHOTOS]

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[TEEKAY SHIPPING CORPORATION] 

[PHOTOS]

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IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT     
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICES OF THE NOTES OFFERED 
HEREBY AND TEEKAY'S 9 5/8% FIRST PREFERRED SHIP MORTGAGE NOTES DUE 2003 AT      
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH       
TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE (WITH RESPECT TO THE
NOTES OFFERED HEREBY) OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE      
DISCONTINUED AT ANY TIME.                                                       

AVAILABLE INFORMATION 

Teekay and the Guarantors have filed with the Securities and Exchange 
Commission (the "Commission") a registration statement on Form F-3 (the         
"Registration Statement", which term shall encompass all amendments and exhibits
thereto) under the Securities Act of 1933, as amended (the "Securities Act"),   
with respect to the securities offered hereby. This Prospectus, which           
constitutes a part of the Registration Statement, does not contain all the      
information set forth or incorporated by reference in the Registration          
Statement, as permitted by the rules and regulations of the Commission.         
Statements made in this Prospectus as to the contents of any contract, agreement
or other document referred to are not necessarily complete; with respect to each
such contract, agreement or other document filed as an exhibit to the           
Registration Statement, reference is made to the exhibit for a more complete    
description of the matter involved, and each such statement shall be deemed     
qualified in its entirety by such reference. Items of information omitted from  
this Prospectus but contained in the Registration Statement may be inspected and
copied at the public reference facilities maintained by the Commission at 450   
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at the following
regional offices of the Commission: 500 West Madison Street, 14th Floor,        
Chicago, Illinois 60661; and 7 World Trade Center, 13th Floor, New York, New    
York 10048. Copies of such material can be obtained from the Public Reference   
Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,           
Washington, D.C. 20549 at prescribed rates.                                     

Teekay is subject to the informational requirements of the Securities 
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance       
therewith, files reports and other information with the Commission. All such    
reports and other information may be inspected and copied at the public         
reference facilities maintained by the Commission at the locations referred to  
above. Such reports and other information may also be inspected at the offices  
of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005,
on which exchange Teekay's common stock is listed.                              

    The indenture pursuant to which the Notes will be issued (the "Indenture")
contains a covenant which requires Teekay to provide to each holder of record of
the Notes, upon request, and to the Trustee under the Indenture, annual reports 
containing audited financial statements and a report thereon expressed by       
independent chartered accountants, and quarterly reports for the first three    
quarters of each fiscal year containing unaudited financial information.        

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INCORPORATION OF DOCUMENTS BY REFERENCE 

The following documents filed by Teekay with the Commission are hereby
incorporated by reference in this Prospectus: (a) Annual Report of Teekay on    
Form 20-F for the fiscal year ended March 31, 1995, as amended, and (b) Reports 
of Teekay on Form 6-K, dated August 11, 1995 and November 9, 1995, relating to  
the fiscal quarters ended June 30, 1995 and September 30, 1995, respectively.   

    In addition, all documents filed by Teekay with the Commission pursuant to
Sections 13(a), 13(c) or 15(d) of the Exchange Act, including any Report on Form
6-K which so provides, after the date hereof and prior to the termination of the
offering of the Notes, shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof commencing on the respective dates on which  
such documents are filed with the Commission. Any statement contained in a      
document incorporated or deemed to be incorporated by reference herein shall be 
deemed to be modified or superseded for purposes of this Prospectus to the      
extent that a statement contained herein or in any other subsequently filed     
document which also is or is deemed to be incorporated by reference herein      
modifies or supersedes such statement. Any statement so modified or superseded  
shall not be deemed, except as so modified or superseded, to constitute a part  
of this Prospectus.                                                             

     Teekay will provide without charge to each person, including any beneficial
owner, to whom a copy of this Prospectus is delivered, upon the written or oral 
request of such person, a copy of any or all of the documents that have been    
incorporated by reference herein, other than exhibits to such documents (unless 
such exhibits are specifically incorporated by reference in such documents).    
Written requests for such copies may be directed to Teekay Shipping Corporation,
200 Burrard Street, Suite 2100, Vancouver, B.C., Canada V6C 3L6. Telephone      
requests may be directed to (604) 683-3529.                                     

ENFORCEABILITY OF CIVIL LIABILITIES UNDER THE FEDERAL SECURITIES LAWS 

Teekay and most of its subsidiaries are incorporated in Liberia, and  
certain other of its subsidiaries are incorporated in The Bahamas (where four of
the seven Guarantors are incorporated), Japan, Singapore, Australia and Panama. 
Most of the directors and executive officers of Teekay and its subsidiaries are 
residents of countries other than the United States. Substantially all of the   
assets of Teekay and its subsidiaries and a substantial portion of the assets of
such directors and officers are located outside the United States. As a result, 
it may be difficult or impossible for United States investors to effect service 
of process within the United States upon Teekay, its subsidiaries or such       
directors and officers or to realize against them in the United States upon     
judgments of courts of the United States predicated upon civil liabilities of   
Teekay, its subsidiaries or such directors and officers under the federal       
securities laws of the United States or the securities or blue sky laws of any  
state within the United States. In addition, because of a lack of precedent,    
investors should not assume that courts of Liberia, The Bahamas or Panama, or in
the countries where directors or officers reside or in which the assets of      
Teekay, its subsidiaries or such directors and officers are located (i) would   
enforce judgments of United States courts obtained in actions against Teekay,   
its subsidiaries or such persons predicated upon the civil liability provisions 
of the United States federal securities laws or the securities or blue sky laws 
of any state within the United States or (ii) would enforce, in original        
actions, liabilities against Teekay, its subsidiaries or such persons predicated
upon the United States federal securities laws or any such state securities or  
blue sky laws.                                                                  

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PROSPECTUS SUMMARY

 The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.    
Unless the context otherwise requires, "Teekay" refers to Teekay Shipping       
Corporation (formerly named Viking Star Shipping Inc.), a Liberian corporation, 
and "Company" refers to Teekay and its consolidated subsidiaries. Certain       
shipping industry terms used in this Prospectus are defined in Exhibit A to this
Prospectus, "Definitions of Shipping Terms." Unless otherwise specifically noted
or the context otherwise requires, the term "tankers" refers to tankers and     
oil/bulk/ore carriers.                                                          

    Certain statistical and graphical information contained in this Prospectus
is drawn or calculated from the Clarkson Research Studies Ltd. ("Clarkson")     
database, the Drewry Shipping Consultants Ltd. ("Drewry") database and other    
sources. While the Company has no reason to believe that such information is    
inaccurate in any material respect, readers of this Prospectus are advised that 
some information in such databases is based on estimates or subjective          
judgments.                                                                      

THE COMPANY 

    The Company is a leading provider of international crude oil and petroleum
product transportation services through the world's largest fleet of medium size
oil tankers. The Company's modern fleet provides such transportation services to
major oil companies, major oil traders and government agencies, principally in  
the region spanning from the Red Sea to the U.S. West Coast (the "Indo-Pacific  
Basin"). The Company believes that in each of the last four years it has        
transported more crude oil and petroleum products via Aframax tankers in the    
Indo-Pacific Basin than any other shipping company and estimates it has         
approximately a one quarter share of the Indo-Pacific Basin Aframax market.     

The Company pursues an intensively customer- and operations-oriented  
business strategy, emphasizing market concentration and service quality to      
achieve superior operating results. The Company believes that it has four key   
competitive advantages: (i) geographic market concentration in the Indo-Pacific 
Basin, which facilitates comprehensive coverage of charterer requirements, (ii) 
a uniform-size fleet of Aframax tankers containing many sister ships, which     
affords scheduling flexibility and permits greater capacity utilization, (iii) a
modern, well-maintained fleet that operates with high fuel efficiency and low   
maintenance costs and affords greater acceptance among charterers with high     
quality standards, and (iv) a full-service ship management and chartering       
capability which affords a focused marketing effort, tight cost controls, and   
effective operational and safety monitoring. As a result of its business        
strategy, the Company has achieved consistently higher operating cash flow per  
ship per day than other public bulk shipping companies. Although the Company's  
business strategy has been, and in the foreseeable future will be, primarily    
focused on providing services via Aframax tankers in the Indo-Pacific Basin,    
management intends to closely monitor the evolution of the shipping industry and
to adapt its strategy according to changing market dynamics. The Company intends
to continue to consider strategic opportunities that may arise from time to     
time, including joint ventures and business acquisitions.                       

     The Company's fleet consists of 41 tankers: 36 Aframax (75,000-115,000 dwt)
oil tankers and oil/bulk/ore carriers ("O/B/Os"), two smaller oil tankers, one  
Very Large Crude Carrier ("VLCC") and, through a joint venture, a 50% interest  
in two additional Aframax oil tankers. The Company's vessels are all of Liberian
or Bahamian registry. The Company's fleet has a total cargo capacity of         
approximately 4.1 million tons and its Aframax vessels represent approximately  
7.0% of the total tonnage of the world Aframax fleet. While its fleet           
modernization program is effectively complete, the Company intends to continue  
selective purchases of modern, predominantly second-hand, high-quality tankers  
should such vessels become available.                                           

   The Company's fleet is one of the most modern fleets in the world, having
an average age of approximately 6.9 years, compared to an average age for the   
world oil tanker fleet of approximately 14.1 years and for the world Aframax    
tanker fleet of approximately 12.3 years. A substantial portion of the world    
tanker fleet will reach 20 years of age in the next three years, including      
approximately 31% of Aframax tankers; none of the Company's Aframax tankers is  
more than 16 years of age. In addition, the                                     

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Company has been recognized by customers and rating services for safety, quality
and service. In each of the last five years, Tanker Advisory Center, Inc. (New  
York) has rated the Company's fleet a "meritorious tanker fleet," a designation 
which, in the latest publication (March 1995), placed it in the top quarter of  
fleets containing 10 or more tankers. Given the age profile of the world tanker 
fleet, the increasing emphasis among customers on quality as a result of        
stringent environmental regulations, and heightened concerns about liability for
oil pollution, the Company believes that its modern fleet and its emphasis on   
quality and safety provide it with a favorable competitive profile. See "Risk   
Factors--Competition" and "--Environmental and Other Regulation" and            
"Business--The International Tanker Market--Supply and Demand."                 

    The Company's operating results in fiscal 1995 (year ended March 31, 1995)
were adversely affected by a weakened charter market caused by low tanker       
demand, which resulted from a shift in crude oil distribution patterns.         
Historically, incremental oil demand growth has been satisfied principally from 
oil produced in the Arabian Gulf; however, in calendar 1994, incremental global 
oil demand was primarily met by oil production in the North Sea and Caribbean   
regions. Because of the relative proximity of the North Sea and Caribbean to    
discharge points, increased production in these regions resulted in a reduction 
in the average length of tanker voyages, thus adversely affecting tanker demand.
In spite of adverse charter market conditions, in fiscal 1995 the Company       
generated income from vessel operations of $50.8 million and EBITDA of $146.8   
million, and reduced debt by $102.6 million from internally generated cash.     

    Management believes that the Company's operating performance is exhibiting
near-term improvement. During the first half of fiscal 1996, despite a smaller  
fleet size, the Company's income from vessel operations rose to $34.2 million   
and EBITDA rose to $79.0 million, improvements of 34.6% and 7.0%, respectively, 
over the first half of fiscal 1995. Based on current estimates, income from     
vessel operations and EBITDA for the third quarter fiscal 1996 are anticipated  
to show continued improvement in the Company's operating performance, stemming  
from stronger Aframax charter rates in the Indo-Pacific Basin and, in           
particular, better market conditions in the Company's core Aframax trade routes 
to Australia, Japan, and the United States West Coast.                          

     In addition, management believes that tanker supply/demand fundamentals are
improving through a combination of tanker scrapping in excess of deliveries, and
an anticipated resumption of tanker demand growth. According to Clarkson, the   
worldwide tanker fleet declined by 2.5% from December 31, 1993 to November 30,  
1995, with calendar 1994 marking the first annual decline in tanker fleet size  
since 1986. The International Energy Agency forecasts that global oil           
consumption will grow 2.3% in 1996. Management believes that longer term, due to
the expected deceleration of North Sea oil production growth, a larger          
percentage of future oil demand growth will be met by Arabian Gulf oil          
producers, thereby increasing tanker demand. Maritime Strategies Inc. forecasts 
that tanker demand will grow 2.4% in 1996 and 3.3% in 1997. A continuation of   
these trends should result in an increase in tanker charter rates which would   
have a positive impact on the Company's operating results.                      

     During the first half of fiscal 1996, the Company took steps to improve its
financial condition and flexibility. In May 1995, the Company entered into a    
$243 million eight-year secured reducing revolving credit agreement (the        
"Revolver") which increased liquidity, extended its debt repayment schedule, and
reduced its cost of borrowing. In July 1995, the Company completed an initial   
public offering of 6.9 million shares of common stock, resulting in net cash    
proceeds of $137.6 million, of which $135.0 million was used to reduce amounts  
outstanding under the Revolver. As a result of these transactions, as well as   
improved operating performance, as of September 30, 1995, the Company's total   
liquidity, as measured by the aggregate of its cash, marketable securities and  
availability under the Revolver, increased to $244.3 million from $85.7 at      
fiscal 1995 year-end; and the Company's ratio of net debt to capitalization had 
declined to 52% from 63% over the same period.                                  

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THE OFFERING

SECURITIES OFFERED..................     $225,000,000 principal amount of 8.32% 
                                         First Preferred Ship Mortgage Notes due
       2008.

MATURITY............................     February 1, 2008.                      

INTEREST PAYMENT DATES..............     February 1 and August 1 of each year,  
                            commencing August 1, 1996.

INTEREST RATE.......................     8.32% per annum.                       

SECURITY AND GUARANTEES.............     The Notes will be (i) secured by first 
                               preferred ship mortgages (the
                                   "Mortgages") on seven double-hull
                                        Aframax tankers with an average age of
                                    31 months owned by subsidiaries of
                                      Teekay (the "Mortgaged Vessels") and
                                      certain other related collateral and
                                        (ii) guaranteed by the subsidiaries of
                                       Teekay that own the Mortgaged Vessels
                                         (each referred to as a "Guarantor" and,
                                         collectively, as the "Guarantors"). See
                                      "The Subsidiary Guarantees" and "The
                                         Mortgaged Vessels." Upon the occurrence
                                    of the Fall-away Event (as defined
                                herein), the guarantees of the
                             Guarantors (the "Subsidiary
                                        Guarantees") will terminate and all of
                                         the Collateral securing the obligations
                                        of Teekay and the Guarantors under the
                                      Indenture and the Security Documents
                                       (as defined herein) will be released,
                                         whereupon the Notes will become general
                                         senior unsecured obligations of Teekay.
                         See "Description of the
                          Notes--Fall-away Event."

LOAN TO VALUE RATIO.................     At the closing of the Offering, Teekay 
                                will deliver appraisals by two
                                       independent shipbrokers of the values
                                        of the Mortgaged Vessels, which values
                                        will show that such brokers' aggregate
                                         appraised values of such vessels, as of
                                        December 13, 1995, were $308.5 million
                                   and $305.5 million, respectively,
                                    resulting in ratios of the initial
                                     aggregate principal amount of Notes
                                        outstanding to the aggregate appraised
                                   value of the Mortgaged Vessels of
                                        approximately 0.73 to 1 and 0.74 to 1,
                                  respectively. See "The Mortgaged
                                 Vessels." In order to release a
                                      Mortgaged Vessel from the Collateral
                                securing the Notes following a
                                   redemption or other retirement of
                                    Notes, the Loan to Value Ratio (as
                                         defined herein) must not exceed 0.75 to
                            1. See "Description of the
                                       Notes--Release of Mortgaged Vessels."

RANKING.............................     The Notes will be senior secured       
                                     indebtedness of Teekay ranking pari
                                   passu with all other existing and
                                       future senior indebtedness of Teekay,
                                and senior to any subordinated
                                      indebtedness of Teekay. Prior to the
                                        occurrence of the Fall-away Event, the
                                      Subsidiary Guarantees will be senior
                                         secured indebtedness of each Guarantor,
                    ranking pari passu

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                                    with all other existing and future
                                        senior indebtedness of such Guarantor.

SINKING FUND........................     The Notes will be subject to a sinking 
                                     fund, which will retire $45 million
                                        principal amount of the Notes, subject
                                       to adjustment upon certain redemption
                                      events or cancellations of Notes, on
                                         each February 1, commencing February 1,
                                      2004, at a redemption price equal to
                                      100% of their principal amount, plus
                                    accrued interest to the redemption
                               date. See "Description of the
                                    Notes--Redemptions--Sinking Fund."

SALES OF MORTGAGED VESSELS..........     A Guarantor may sell a Mortgaged Vessel
                                       or Teekay may sell all of the capital
                                  stock of a Guarantor at any time
                                       provided that (i) no Event of Default
                                         (as defined herein) shall have occurred
                                        and be continuing, (ii) the sale is to
                                         a person that is not an "affiliate" (as
                               defined in Rule 405 under the
                                      Securities Act) of Teekay, (iii) the
                                    sale is effected in a commercially
                                      reasonable manner, (iv) the Net Cash
                                        Proceeds (as defined herein) from such
                                      sale are not less than the Appraised
                                  Value (as defined herein) of the
                                     relevant Mortgaged Vessel as of the
                                         date of such sale (the "Sale Date") and
                                   (v) Teekay shall deposit with the
                                       Trustee funds in an amount (the "Sale
                                         Redemption Amount") equal to the Vessel
                                Percentage (as defined herein)
                                         applicable to the Mortgaged Vessel sold
                                       multiplied by the principal amount of
                                         Notes outstanding on the Sale Date. See
                                    "Description of the Notes--Certain
                                      Restrictive Covenants--Limitation on
               Asset Sales."

MANDATORY REDEMPTION UPON SALE OF A                                             
MORTGAGED VESSEL..................     If a Mortgaged Vessel or the capital 
                                 stock of a Guarantor is sold in
                                  accordance with the terms of the
                                        Indenture, Teekay must: (a) (i) redeem
                                        Notes in an aggregate principal amount
                                        equal to the Sale Redemption Amount at
                                         a redemption price equal to the greater
                                        of (1) 100% of the principal amount of
                                   such Notes and (2) the sum of the
                                 present values of the remaining
                                     scheduled payments of principal and
                                    interest thereon discounted to the
                                       redemption date on a semiannual basis
                                        (assuming a 360-day year consisting of
                                       twelve 30-day months) at the Treasury
                                        Rate (as defined herein) plus 50 basis
                                       points, plus accrued interest thereon
                                    to the date of redemption and (ii)
                                       treat any net proceeds from such sale
                                      in excess of the aggregate principal
                                      amount of the Notes redeemed as Sale
                                         Excess Proceeds (as defined herein); or
                                (b) (i) substitute a Qualified
                                       Substitute Vessel (as defined herein)
                                      for the Mortgaged Vessel sold within
                                     180 days of the Sale Date, provided
                                     that no Event of Default shall have

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                                     occurred and be continuing and (ii)
                                      apply the proceeds from such sale to
                                       repay certain indebtedness, to invest
                                      in certain assets or to fund working
                                         capital and treat such proceeds, to the
                                       extent not so applied, as Sale Excess
                                   Proceeds. See "Description of the
                                Notes--Redemptions-- Mandatory
                                     Redemption Upon Sale of a Mortgaged
                                       Vessel." If the amount of Sale Excess
                                     Proceeds exceeds $10 million in any
                                         period of 12 consecutive months, Teekay
                                         must make an offer to purchase Notes at
                                         a purchase price at least equal to 101%
                                         of their principal amount, plus accrued
                                   interest. See "Description of the
                            Notes--Certain Restrictive
                                     Covenants--Excess Proceeds Offers."

                               The requirement for mandatory
                                     redemption or the substitution of a
                                      Qualified Substitute Vessel upon the
                                     sale of a Mortgaged Vessel will not
                                   apply after the occurrence of the
                                      Fall-away Event. See "Description of
                              the Notes--Fall-away Event."

MANDATORY REDEMPTION UPON LOSS OF A                                             
  MORTGAGED VESSEL..................     If an Event of Loss (as defined herein)
                                    occurs with respect to a Mortgaged
                                         Vessel, Teekay must: (a) (i) redeem the
                                  Notes at 100% of their principal
                                       amount, plus accrued interest thereon
                                  to the date of redemption, in an
                                       aggregate principal amount (the "Loss
                                         Redemption Amount") equal to the Vessel
                                        Percentage applicable to the Mortgaged
                                         Vessel lost multiplied by the principal
                                         amount of Notes outstanding on the date
                                       such Event of Loss was deemed to have
                                     occurred (the "Loss Date") and (ii)
                                        treat any net proceeds from such Event
                               of Loss in excess of the Loss
                                  Redemption Amount as Loss Excess
                                      Proceeds (as defined herein); or (b)
                                       (i) substitute a Qualified Substitute
                                      Vessel for the Mortgaged Vessel lost
                                   within 180 days of the Loss Date,
                                         provided that no Event of Default shall
                                     have occurred and be continuing and
                                         (ii) apply the proceeds from such Event
                                        of Loss to repay certain indebtedness,
                                        to invest in certain assets or to fund
                                working capital and treat such
                                         proceeds, to the extent not so applied,
                              as Loss Excess Proceeds. See
                     "Description of the
                                Notes--Redemptions-- Mandatory
                                     Redemption Upon Loss of a Mortgaged
                                       Vessel." If the amount of Loss Excess
                                     Proceeds exceeds $10 million in any
                                         period of 12 consecutive months, Teekay
                                    must make an offer to purchase the
                                    Notes at a purchase price at least
                                  equal to 100% of their principal
                                    amount, plus accrued interest. See
                                    "Description of the Notes--Certain
                                        Restrictive Covenants--Excess Proceeds
          Offers."

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                               The requirement for mandatory
                                     redemption or the substitution of a
                                      Qualified Substitute Vessel upon the
                                     loss of a Mortgaged Vessel will not
                                   apply after the occurrence of the
                                      Fall-away Event. See "Description of
                              the Notes--Fall-away Event."

COVENANTS...........................     The Indenture limits, among other      
                               things, (i) the incurrence of
                                   additional indebtedness, (ii) the
                                      making of restricted payments, (iii)
                                       the incurrence of liens, (iv) the use
                                       of proceeds from certain asset sales,
                                       (v) the issuance of subsidiary stock,
                                       (vi) transactions with affiliates and
                                         (vii) mergers, consolidations and sales
                                  of substantially all assets. See
                                    "Description of the Notes--Certain
                                  Restrictive Covenants." Upon the
                                        occurrence of the Fall-away Event, the
                                   Company will be released from its
                                   obligation to comply with certain
                                       restrictive covenants and will become
                               subject to certain other less
                                         restrictive covenants. See "Description
                                 of the Notes--Fall-away Event,"
                                       "--Certain Restrictive Covenants" and
                                      "--Covenants After Fall-away Event."

RELEASE OF MORTGAGED VESSELS........     To the extent that Teekay acquires or  
                                      cancels Notes in accordance with the
                                        terms of the Indenture in an aggregate
                                   principal amount in excess of $10
                                         million, Teekay may request the Trustee
                                        to release a Mortgaged Vessel from the
                                 Lien (as defined herein) of the
                                Indenture and related Security
                                       Documents, provided that (i) no Event
                                       of Default shall have occurred and be
                              continuing, (ii) appropriate
                                   documentation is delivered to the
                                       Trustee, (iii) the Appraised Value of
                                      such Mortgaged Vessel at the time of
                                        such release does not exceed 133% (the
                                         reciprocal of the Maximum Loan To Value
                                   Ratio) of the aggregate principal
                                    amount of the Notes so acquired or
                                      cancelled and (iv) the Loan To Value
                                   Ratio after giving effect to such
                                      release shall not exceed the Maximum
                                Loan To Value Ratio, using the
                                   appraised values of the remaining
                                       Mortgaged Vessels at the time of, and
                                         after giving effect to, such release to
                                         calculate such Loan To Value Ratio. See
                                    "Description of the Notes--Certain
                                   Restrictive Covenants--Release of
                     Mortgaged Vessels."

CHANGE OF CONTROL...................     Upon the occurrence of a Change of     
                                      Control Triggering Event (as defined
                                        herein), each holder of the Notes will
                                         have the right (unless Teekay elects to
                                        redeem the Notes) to require Teekay to
                                         purchase such Holder's Notes at 101% of
                                      their principal amount, plus accrued
                                       interest to the date of purchase. See
                                    "Description of the Notes--Certain
                                      Restrictive Covenants--Repurchase of
                                Notes upon a Change of Control
                    Triggering Event."

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TERMINATION OF GUARANTEES, RELEASE                                              
OF                                                                              
ALL COLLATERAL AND COVENANTS                                                
AFTER FALL-AWAY EVENT.............     Upon the occurrence of the Fall-away 
                                       Event, the Subsidiary Guarantees will
                                      terminate and Teekay may request the
                               Trustee to release all of the
                                 Collateral and the Liens of the
                                       Indenture and the Security Documents,
                                         whereupon the Notes will become general
                                         senior unsecured obligations of Teekay.
                                         In addition, the Company will no longer
                                     be obligated to comply with certain
                                     covenants as described in the first
                                     paragraph under "Description of the
                                        Notes--Certain Restrictive Covenants."
                                       While Teekay will remain obligated to
                                      comply with the provisions described
                           under "Description of the
                                  Notes--Covenants After Fall-away
                                         Event," the effect of the modifications
                                     described above will be to make the
                                Notes general senior unsecured
                                     obligations of Teekay and to reduce
                                     substantially the level of covenant
                                       protection benefitting Holders of the
                                Notes. See "Description of the
                          Notes--Fall-away Event."

SAME-DAY SETTLEMENT AND PAYMENT.....     The Notes will settle initially in     
                                  immediately available funds, and
                                    settlement of any secondary market
                                      trading in the Notes will be made in
                                  immediately available funds. See
                                     "Description of the Notes--Same-Day
                          Settlement and Payment."

RISK FACTORS........................     Holders of Notes should carefully      
                                        consider the matters set forth in this
                                    Prospectus under the caption "Risk
           Factors."

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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA 

  The following summary consolidated financial and other data were derived
from more detailed information and financial statements appearing elsewhere in  
this Prospectus and should be read in conjunction therewith. For a discussion of
the Company's recent operating results, see "Management's Discussion and        
Analysis of Results of Operations and Financial Condition." The Company changed 
its fiscal year end from April 30 to March 31, effective March 31, 1994, in     
order to facilitate comparison of the Company's operating results to those of   
other companies within the transportation industry on a calendar quarter basis. 

                                                        [Enlarge/Download Table]

                                  SIX MONTHS ENDED        FISCAL YEAR       11 MONTH                                              
                                    SEPTEMBER 30,            ENDED        PERIOD ENDED          FISCAL YEAR ENDED APRIL 30,       
                               -----------------------     MARCH 31,       MARCH 31,      --------------------------------------- 
                                 1995          1994          1995           1994(1)          1993           1992          1991    
                               ---------     ---------    -----------     ------------    -----------     ---------     --------- 
                               (UNAUDITED)                                                                                        
                                                                                                                                  
                                                (U.S. DOLLARS IN THOUSANDS, EXCEPT PER DAY DATA AND RATIOS)                       
STATEMENT OF INCOME DATA:                                                                                                         
Voyage revenues..............  $ 160,944     $ 162,771    $  319,966      $   317,742     $   336,994     $ 414,104     $ 396,542 
Voyage expenses..............     43,452        42,515        84,957           81,052         108,805       118,678       138,954 
Net voyage revenues..........    117,492       120,256       235,009          236,690         228,189       295,426       257,588 
Income from vessel                                                                                                                
 operations..................     34,228        25,426        50,833           59,128          36,915       123,354       115,992 
Interest expense.............    (31,230)      (31,364)      (64,321 )        (48,064 )       (47,374)      (39,015)      (41,021)
Interest income..............      3,182         2,903         5,904            2,904           1,156         2,369         3,982 
Other income (loss)..........      4,364           979        11,848           11,777          37,862         9,981          (564)
Income (loss) from continuing                                                                                                     
 operations before foreign                                                                                                        
 exchange gain (loss)........     10,544        (2,056)        4,264           25,745          28,559        96,689        78,389 
Foreign exchange gain                                                                                                             
 (loss)(2)...................       (513)           39           991           (1,532 )       (77,917)       (7,026)      (28,581)
Net income (loss) from                                                                                                            
 continuing operations.......     10,031        (2,017)        5,255           24,213         (49,358)       89,663        49,808 
Net income from discontinued                                                                                                      
 operations..................         --            --            --            5,945           1,890         1,323         1,014 
Net income (loss)............     10,031        (2,017)        6,368           30,158         (47,468)       90,986        50,822 
BALANCE SHEET DATA (AT END OF                                                                                                     
 PERIOD):                                                                                                                         
Cash and marketable                                                                                                               
 securities..................  $ 109,267     $  96,079    $   85,739      $   107,246     $    48,770     $  26,239     $  41,864 
Total assets.................  1,365,916     1,356,054     1,306,474        1,405,147       1,368,966     1,237,942     1,073,530 
Total debt...................    755,784       894,797       842,874          945,611         884,813       756,454       679,032 
Total stockholders' equity...    587,048       431,163       439,066          433,180         403,022       442,990       345,004 
OTHER FINANCIAL DATA:                                                                                                             
EBITDA(3)....................  $  79,002     $  73,848    $  146,756      $   151,364     $   136,123     $ 214,196     $ 189,968 
Cash earnings(4).............     51,500        46,182       100,699          115,647         126,170       183,164       149,934 
Cash earnings to net                                                                                                              
 debt(1)(4)(5)...............       15.9%         11.6%         13.3 %           14.7 %          15.1%         25.1%         23.5%
EBITDA to interest                                                                                                                
 expense(3)(6)...............       2.52x         2.35x         2.28 x           3.04 x          2.59x         4.70x         4.04x
Pro forma EBITDA to interest                                                                                                      
 expense(3)(6)(7)............       2.65            --          2.47               --              --            --            -- 
Total debt to EBITDA(1)(3)...       4.78          6.06          5.74             5.83            6.50          3.53          3.57 
Net debt to                                                                                                                       
 EBITDA(1)(3)(5).............       4.09          5.41          5.16             5.17            6.14          3.41          3.35 
Ratio of earnings to fixed                                                                                                        
 charges(8)..................       1.33            --          1.09             1.45              --          2.81          1.94 
Total debt to                                                                                                                     
 capitalization..............       56.3%         67.5%         65.7 %           68.6 %          68.7%         63.1%         66.3%
Net debt to                                                                                                                       
 capitalization(5)...........       52.4          64.9          63.3             65.9            67.5          62.2          64.9 
Capital expenditures:                                                                                                             
 Vessel purchases, gross.....  $  92,077     $   4,273    $    7,465      $   163,509     $   334,733     $ 373,501     $ 303,262 
 Drydocking..................      4,193         7,121        11,917           13,296          16,440         6,240        33,934 
FLEET DATA:                                                                                                                       
Average number of ships(9)...         39            43            42               45              50            46            41 
Average age of Company's                                                                                                          
 Aframax fleet (in                                                                                                                
 years)(10)..................        6.9           7.8           6.7              7.4             8.0           7.7           7.5 
TCE per ship per                                                                                                                  
 day(9)(11)..................  $  17,828     $  16,575    $   16,552      $    17,431     $    13,722     $  19,270     $  19,083 
Vessel operating expenses per                                                                                                     
 ship per day(9)(12).........      4,731         4,886         4,748            4,879           4,276         4,245         3,859 
Operating cash flow per ship                                                                                                      
 per day(13).................     10,030         8,732         8,944            9,133           6,511        10,999        11,159 

(Footnotes on following page)                                                   

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(Footnotes for previous page)                                                   

(1)  For the 12 months ended March 31, 1994, voyage revenues were $345.0        
  million; income from vessel operations was $62.7 million; net income was
 $32.0 million; EBITDA was $162.3 million; and cash earnings were $123.2
 million. For periods presented that are less than 12 months, EBITDA and
cash earnings were annualized for purposes of computing total debt to 
EBITDA, net debt to EBITDA, and cash earnings to net debt, in order to
     facilitate comparisons to other periods. See "Change in fiscal year end" in
Note 1 to the Consolidated Financial Statements.                      

(2)  Prior to fiscal 1993, a significant portion of the Company's debt was      
denominated in Japanese Yen. In fiscal 1993, the Company experienced a
foreign exchange translation loss of $77.9 million. Because all of the
Company's Yen-denominated debt has been converted to U.S. Dollar-     
     denominated debt, and because a large portion of the Company's revenues and
    costs are denominated in U.S. Dollars, the Company's foreign exchange rate
  risk has been substantially eliminated. See "Management's Discussion and
     Analysis of Results of Operations and Financial Condition--Foreign Exchange
Rate Fluctuation."                                                    

(3)  EBITDA represents net income from continuing operations before interest    
  expense, income tax expense, depreciation expense, amortization expense,
minority interest, and gains or losses arising from foreign exchange  
     translation and disposal of assets. EBITDA is included because such data is
 used by certain investors to measure a company's financial performance.
EBITDA is not required by generally accepted accounting principles and
should not be considered as an alternative to net income or any other 
indicator of the Company's performance required by generally accepted 
accounting principles.                                                

(4)  Cash earnings represents income from continuing operations before foreign  
     exchange gain (loss) and before depreciation and amortization expense. Cash
   earnings is included because it is used by certain investors to measure a
company's financial performance as compared to other companies in the 
shipping industry. Cash earnings is not required by generally accepted
     accounting principles and should not be considered as an alternative to net
income or any other indicator of the Company's performance required by
generally accepted accounting principles.                             

(5)  Net debt represents total debt less cash and marketable securities.        

(6)  For purposes of computing EBITDA to interest expense and pro forma EBITDA  
to interest expense, interest expense includes capitalized interest.  

(7)  Pro forma EBITDA to interest expense reflects the incremental net interest 
expense resulting from the Offering (using an assumed interest rate of
    8.5%) and the interest savings resulting from the Company's initial public
     offering of common stock in July 1995, as if both transactions had occurred
on April 1, 1994. Pro forma interest expense is calculated as follows:

                                                        [Enlarge/Download Table]

                                                  SIX MONTHS ENDED   FISCAL YEAR ENDED
                                                 SEPTEMBER 30, 1995   MARCH 31, 1995  
                                                 ------------------  -----------------
                                                                                      
Interest expense................................      $ 31,230           $  64,321    
Interest expense for the period on the Notes....         9,563              19,125    
Interest savings from loan repayments resulting                                       
  from:                                                                               
  Notes offered hereby..........................        (7,921)            (14,565)   
  Initial public offering of common stock.......        (3,135)             (9,526)   
                                                 ------------------  -----------------
Pro forma interest expense......................      $ 29,737           $  59,355    
                                                 ================    ==============   

(8)  For purposes of computing the ratio of earnings to fixed charges, earnings 
consist of income from continuing operations before interest expense, 
     amortization of capitalized interest and amortization of deferred financing
    costs. Fixed charges consist of interest expense, capitalized interest and
     amortization of deferred financing costs. Earnings for the six months ended
September 30, 1994 and for the fiscal year ended April 30, 1993 were  
insufficient to cover fixed charges. The amounts of the coverage      
deficiencies were $1.5 million and $53.9 million, respectively. The   
deficiency in fiscal 1993 resulted from a foreign exchange translation
loss. (See footnote 2). The ratio of earnings to fixed charges before 
taking into account such loss for fiscal 1993 would have been 1.45 x. 

(Footnotes continue on following page)                                          

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(Footnotes continued from previous page)                                        

(9)  Excludes vessels of discontinued operations and the joint venture.         

(10) Average age of Company's Aframax fleet is the average age, at the end of   
   the relevant period, of the Aframax tankers and O/B/Os owned or leased by
the Company (including joint venture vessels).                        

(11) TCE (or "time charter equivalent") is a measure of the revenue performance 
of a vessel, which, on a per voyage basis, is generally determined by 
 Clarkson and other industry data sources by subtracting voyage expenses
     (except commissions) incurred in transporting cargo (primarily bunker fuel,
   canal tolls and port fees) from gross revenue per voyage and dividing the
   remaining revenue by the total number of days required for the round-trip
     voyage. For purposes of calculating the Company's average TCE for the year,
 TCE has been calculated consistent with Clarkson's method, by deducting
   total voyage expenses (except commissions) from total voyage revenues and
    dividing the remaining sum by the Company's total voyage days in the year.
See "Exhibit A--Definitions of Shipping Terms."                       

(12) Vessel operating expenses consist of all expenses relating to the operation
 of vessels (other than voyage expenses), including crewing, repairs and
maintenance, insurance, stores and lubes, and miscellaneous expenses, 
including communications. Ship days are calculated on the basis of a  
   365-day year multiplied by the average number of vessels in the Company's
fleet for the respective year.                                        

(13) Operating cash flow represents income from vessel operations, plus         
    depreciation and amortization expense, less drydock expense. Ship days are
    calculated on the basis of a 365-day year multiplied by the average number
   of vessels in the Company's fleet for the respective year. Operating cash
     flow is not required by generally accepted accounting principles and should
     not be considered as an alternative to net income or any other indicator of
the Company's performance required by generally accepted accounting   
principles.                                                           

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RISK FACTORS

In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment in 
the Notes.                                                                      

INDEBTEDNESS OF THE COMPANY AND RESTRICTIONS IN DEBT AGREEMENTS                 

 To finance its fleet expansion program during the period 1988-1993, the
Company incurred substantial indebtedness. As a result, a substantial portion of
cash flow from operations must be dedicated to the payment of principal of and  
interest on such indebtedness, thereby limiting the amount of funds available   
for working capital, capital expenditures and other purposes. The Company's     
existing financing agreements impose operating and financial restrictions on the
Company that affect, and in many respects significantly limit or prohibit, the  
ability of the Company to, among other things, incur additional indebtedness,   
create liens, sell capital stock of subsidiaries or other assets, make certain  
investments, engage in mergers and acquisitions, make certain capital           
expenditures or pay dividends. Several of the Company's existing financing      
agreements impose restrictions on changes of control of Teekay and/or its       
ship-owning subsidiaries, including a requirement for prior consent, and a      
requirement that the Company make an offer to redeem certain indebtedness.      
Additionally, certain of the financing arrangements between subsidiaries of     
Teekay that are not Guarantors and their respective lenders contain restrictions
on dividends by and distributions from such subsidiaries to Teekay. See         
"Management's Discussion and Analysis of Results of Operations and Financial    
Condition--Liquidity and Capital Resources" and "Description of Certain         
Indebtedness."                                                                  

 A failure to comply with any of the covenants in the Company's existing
financing agreements could result in a default thereunder or under other        
agreements containing cross-default provisions, which would permit lenders to   
accelerate the maturity of the indebtedness under such agreements and to        
foreclose upon any collateral securing such indebtedness. Under any of these    
circumstances, there can be no assurance that the Company would have sufficient 
funds or other resources to satisfy all of its obligations, including its       
obligations under the Notes. In addition, the secured nature of the Notes and   
certain other indebtedness of the Company, together with the limitations imposed
by the Indenture and the Company's other financing agreements on its ability to 
incur additional indebtedness and to take certain other actions, might          
significantly impair the Company's ability to obtain other financing. See       
"Description of Certain Indebtedness" and "Description of the Notes."           

POTENTIAL INSUFFICIENCY OF COLLATERAL                                           

     In the event that Teekay and the Guarantors default on their obligations to
make payments in respect of the Notes, Holders of the Notes should be entitled  
to payment out of the proceeds from the sale of the Collateral, prior in right  
to any general unsecured creditors of the Guarantors or Teekay. In the event    
that the assets and cash flow of the Guarantors are insufficient to satisfy the 
Obligations under the Notes, the Holders' claims against Teekay will be         
effectively against the shares of stock of subsidiaries other than the          
Guarantors and any other assets owned by Teekay, and not direct claims against  
the assets of such subsidiaries. Therefore, such claims would have value only to
the extent that the shares of stock of such subsidiaries have value after the   
payment of the claims of the creditors of such subsidiaries or to the extent    
that Teekay has other assets.                                                   

MARKET VALUE OF VESSELS                                                         

  The market value of tankers can be expected to fluctuate, depending upon
general economic and market conditions affecting the tanker industry and        
competition from other shipping companies, types and sizes of vessels, and other
modes of transportation. See "Business--The International Tanker Market."       
Furthermore, as vessels become older, they can be expected to decline           
significantly in value. Declining vessel values could affect the collateral     
value of the Mortgaged Vessels as well as the Company's ability to raise cash by
refinancing vessels and, thereby, adversely impact the Company's liquidity. See 
"Management's Discussion and Analysis of Results of Operations and Financial    

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Condition--Liquidity and Capital Resources." In addition, declining vessel      
values could result in a breach of certain loan covenants, which could give rise
to events of default under the relevant financing agreements. There can be no   
assurance that the market value of the Mortgaged Vessels or the remainder of the
Company's fleet will not decline. See "Business--The International Tanker       
Market--Supply and Demand."                                                     

CYCLICAL NATURE OF THE TANKER INDUSTRY; DEPENDENCE ON OIL MARKETS               

Historically, the tanker industry has been cyclical, experiencing     
volatility in profitability and asset values resulting from changes in the      
supply of, and demand for, tanker capacity. The supply of tanker capacity is a  
function of the number of new vessels built and older vessels scrapped,         
converted and lost. The demand for tanker capacity is influenced by global and  
regional economic conditions, increases and decreases in industrial production  
and demand for crude oil and petroleum products, developments in international  
trade and changes in seaborne and other transportation patterns. In particular, 
because the Company is primarily engaged in transporting crude oil and petroleum
products, demand for the Company's vessels and its services in transporting     
crude oil and petroleum products has been dependent upon world and regional oil 
markets. Any decrease in shipments of crude oil in those markets could have a   
material adverse effect on the Company. Historically, those markets have been   
volatile as a result of the many conditions and events that affect the price,   
production and transport of oil, as well as competition from alternative energy 
sources. Because many of the factors influencing the supply of, and demand for, 
vessel capacity are unpredictable, the nature, timing and degree of changes in  
tanker industry conditions are also unpredictable.                              

RISK OF LOSS AND INSURANCE                                                      

The operation of any ocean-going vessel carries an inherent risk of   
catastrophic marine disasters and property losses, caused by adverse weather    
conditions, mechanical failures, human error, war, terrorism, piracy, labor     
stoppages and other circumstances or events. In addition, the transportation of 
crude oil is subject to the risk of crude oil spills, and business interruptions
due to political action. Any such event may result in loss of revenues or       
increased costs.                                                                

The Company carries insurance to protect against most of the          
accident-related risks involved in the conduct of its business and it maintains 
environmental damage and pollution insurance coverage. There can be no          
assurance, however, that all risks are adequately insured against, that any     
particular claim will be paid or that the Company will be able to procure       
adequate insurance coverage at commercially reasonable rates in the future. In  
particular, more stringent environmental regulations may result in increased    
costs for, or the lack of availability of, insurance against the risks of       
environmental damage or pollution. See "Business--Risk of Loss and Insurance"   
and "--Regulation."                                                             

ENVIRONMENTAL AND OTHER REGULATION                                              

The operations of the Company are affected by changing environmental  
protection laws and other regulations, compliance with which has entailed       
significant expenses, including expenses for ship modifications and changes in  
operating procedures. In particular, the United States Oil Pollution Act of     
1990, as amended ("OPA 90"), provides for the phase-in of the exclusive use of  
certain double-hull tankers at United States ports, as well as potentially      
unlimited liability for owners, operators and demise or bareboat charterers for 
certain oil pollution accidents in the United States and in U.S. waters. In     
complying with OPA 90, tanker owners generally will incur additional costs in   
meeting additional maintenance and inspection requirements, in developing       
contingency arrangements for potential spills and in obtaining insurance        
coverage as required by OPA 90. OPA 90 expands the pre-existing financial       
responsibility requirements for vessels operating in United States waters and   
requires owners and operators of vessels to establish and maintain with the     
United States Coast Guard evidence of insurance or of qualification as a        
self-insurer or other evidence of financial responsibility sufficient to meet   
their potential liabilities under OPA 90.                                       

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  Following the example of OPA 90, the International Maritime Organization
(the United Nations' agency for maritime safety, referred to herein as the      
"IMO") has adopted new regulations for tanker design and inspection which will  
be phased in on a schedule depending upon vessel age. In addition, certain U.S. 
states, the European Community (the "EC") and other countries are considering   
stricter technical and operational requirements for tankers and legislation that
will affect the liability of tanker owners and operators for oil pollution.     
Additional laws and regulations may be adopted which could limit the ability of 
the Company to do business or increase the cost of its doing business and which 
may have a material adverse affect on the operations of the Company. See        
"Business--Regulation." The Company currently maintains $700 million in         
insurance coverage for liability for pollution, spillage or leakage of oil for  
each of its vessels. See "Business--Risk of Loss and Insurance."                

DEPENDENCE ON SPOT OIL VOYAGES                                                  

     During the first half of fiscal 1996, the Company derived approximately 75%
of its net voyage revenue (voyage revenues minus voyage expenses) from spot     
voyages. Although dependence on the spot charter market is typical in the       
Aframax segment of the tanker industry, the spot charter market is highly       
competitive and spot charter rates are subject to significant fluctuations based
upon tanker and oil supply and demand. In addition, an oversupply of tankers    
relative to demand has heightened price competition and adversely affected      
charter rates and profitability for the tanker industry in general. Although the
Company's focus on the spot charter market may enable it to benefit from        
strengthened tanker industry conditions should they occur, to do so the Company 
must consistently procure spot voyage business. There can be no assurance that  
future spot charters will be available at rates that will be sufficient to      
enable the Company's vessels to be operated profitably. See "Management's       
Discussion and Analysis of Results of Operations and Financial                  
Condition--General" and "Business--The International Tanker Market."            

COMPETITION                                                                     

The Company obtains employment for its vessels in a highly competitive
market. Competition arises primarily from other Aframax tanker owners (including
major oil companies as well as independent companies) and, to a lesser extent,  
owners of other size tankers. The Company's market share is insufficient to     
enforce any degree of pricing discipline in the markets in which the Company    
competes. There can be no assurance that the Company's competitive position will
not erode in the future. See "Business--Competition" and "--Business Strategy." 

OPERATION OF SECOND-HAND AND AGING VESSELS                                      

  The Company's fleet, as at November 30, 1995, included 9 tankers over 10
years of age, all of which were acquired second-hand. The economic lives of     
properly maintained tankers are estimated by the Company to be approximately 20 
years. In general, expenditures necessary for maintaining a vessel in good      
operating condition increase as the age of the vessel increases. Due to         
improvements in engine technology, older vessels are typically less fuel        
efficient than more recently constructed vessels. In addition, changes in       
governmental regulations, safety or other equipment standards may require       
expenditures for alterations, or the addition of new equipment, to the Company's
vessels and may restrict the trades in which the vessels may engage. Cargo      
insurance rates may increase with the age of a vessel, making older vessels less
desirable to charterers. There is no assurance that market conditions will      
justify such expenditures or enable the Company to operate its vessels          
profitably during the remainder of their economic lives. The Company's current  
fleet replacement plan includes newbuildings and the opportunistic acquisition  
of quality second-hand vessels. Second-hand vessels typically carry very limited
warranties with respect to the condition of the vessels in comparison to        
warranties available for a newbuilding.                                         

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EXPOSURE TO CURRENCY EXCHANGE RATE AND INTEREST RATE FLUCTUATIONS               

     While virtually all of the Company's revenues are earned in U.S. dollars, a
portion of the Company's operating costs are incurred in currencies other than  
U.S. dollars. This partial mismatch in operating revenues and expenses could    
lead to fluctuations in net income due to changes in the value of the U.S.      
dollar relative to other currencies, in particular the Japanese Yen and the     
Singapore dollar. See "Management's Discussion and Analysis of Operations and   
Financial Condition--Foreign Exchange Rate Fluctuation."                        

     With respect to interest rate exposure, at September 30, 1995, and on a pro
forma basis after giving effect to the Offering, approximately $384.3 million   
(50.5%) of the Company's then outstanding indebtedness bore interest at floating
interest rates. Therefore, increases in prevailing interest rates could         
adversely affect the amounts that would be required for the payment of interest 
on such indebtedness. In order to partially mitigate this exposure, the Company 
has subsequently entered into $250.0 million of long-term interest rate swaps   
with an average term of 36.0 months and an average fixed rate of 5.85 %. See    
"Management's Discussion and Analysis of Results of Operations and Financial    
Condition--Liquidity and Capital Resources" and Notes 7, 11 and 16 to the       
Consolidated Financial Statements.                                              

OPERATIONS OUTSIDE THE UNITED STATES                                            

     The operations of the Company are primarily conducted outside of the United
States and, therefore, may be affected by currency fluctuations and by changing 
economic, political and governmental conditions in the countries where the      
Company is engaged in business or where its vessels are registered. During the  
first half of fiscal 1996, the Company derived 90% of its total revenues from   
its operations in the Indo-Pacific Basin. In the past, political conflicts in   
such regions, particularly in the Arabian Gulf, have included attacks on        
tankers, mining of waterways and other efforts to disrupt shipping in the area. 
Vessels trading in such regions have also been subject to, in limited instances,
acts of terrorism and piracy. Future hostilities or other political instability 
in the region could affect the Company's trade patterns and adversely affect the
Company's operations and performance.                                           

ENFORCEMENT OF MORTGAGES                                                        

     Each of the Mortgaged Vessels is, and during the term of the Notes will be,
registered under either Bahamian flag or Liberian flag. The Mortgages on the    
Liberian flag Mortgaged Vessels are preferred mortgage liens under Liberian     
maritime law; the Mortgages on the Bahamian flag Mortgaged Vessels have similar 
status under Bahamian law. Bahamian law and Liberian law provide that such      
mortgages may be enforced by the mortgagee by a suit in admiralty in a          
proceeding against the Mortgaged Vessel. Historically, Bahamian and Liberian    
ship mortgages have been enforced in major commercial ports throughout the      
world, including U.S. ports. However, the Company has been advised by Graham,   
Thompson & Co., Bahamian counsel to the Company, with respect to matters of     
Bahamian law, and Haight, Gardner, Poor & Havens, special counsel to the        
Company, with respect to matters of United States maritime law and Liberian law,
that the priority that any of the Mortgages would have against the claims of    
other lien creditors in an enforcement proceeding is generally determined by,   
and will vary in accordance with, the laws of the country where the proceeding  
is brought. Both Bahamian ship mortgages and Liberian ship mortgages may be     
enforced against a vessel physically present in the United States, but the claim
under any such mortgage would rank behind preferred maritime liens, including   
those for supplies and other necessaries provided in the United States. Since   
the Mortgaged Vessels trade primarily in the Indo-Pacific Basin, there is no    
assurance that, if enforcement proceedings are commenced against a Mortgaged    
Vessel, the Mortgaged Vessel will be located in a jurisdiction having the same  
mortgage enforcement procedures and lien priorities as the Bahamas, Liberia or  
the United States, although, upon the occurrence of an Event of Default, the    
Trustee may be able to effect control over the Mortgaged Vessels to direct them 
to a desirable jurisdiction to arrest such vessels pursuant to judicial         
foreclosure proceedings. See "The Mortgaged Vessels--The Mortgages."            

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    Although each of the Mortgaged Vessels is separately owned by a subsidiary
of Teekay, under certain circumstances a parent company and all of the          
shipowning affiliates in a group under common control engaged in a joint venture
could be held liable for damages or debts owed by one of the affiliates,        
including liabilities for oil spills under OPA 90 or other environmental laws.  
Therefore, it is possible that all of the assets of the Company could be subject
to execution upon a judgment against Teekay or any one of its subsidiaries. The 
Company currently maintains $700 million in insurance coverage for liability for
pollution, spillage or leakage of oil for each of its vessels. See              
"Business--Risk of Loss and Insurance" and "--Regulation."                      

FRAUDULENT CONVEYANCE STATUTES                                                  

   The granting of the Mortgages by the Guarantors and any payment under the
Subsidiary Guarantees could be subject to review under relevant fraudulent      
conveyance statutes in the event of a bankruptcy or other similar filing by     
Teekay or the Guarantors, or could be attacked in certain other circumstances by
a creditor of a Guarantor. In the event of such a filing or attack, the relevant
court could make a determination detrimental to the holders of the Notes. See   
"Description of the Notes--Fraudulent Conveyance Statutes."                     

CONCENTRATION OF VOTING POWER                                                   

    The Cirrus Trust, a trust organized under the laws of the Turks and Caicos
Islands, and the JTK Trust, a trust owned under the laws of the Bahamas (the    
"Trusts"), own, as of the date of this Prospectus, approximately 75% of the     
outstanding common stock of Teekay. As a result, the Trusts have the power to   
elect all of the directors of Teekay and to control the vote on substantially   
all other matters, including significant corporate actions, without the approval
of other stockholders. See "Ownership of Teekay."                               

POSSIBLE TAXATION OF THE COMPANY'S UNITED STATES SOURCE INCOME                  

Under the United States Internal Revenue Code of 1986, as amended (the
"Code"), the Company's shipping income and gains from United States sources may 
be taxable by the United States, if not entitled to the benefits of certain     
equivalent exemption provisions of the Code. Due to the absence of interpretive 
regulations or other applicable authority under the relevant Code sections,     
Perkins Coie, United States special tax counsel to the Company, is unable to    
render an opinion in this regard and the Company, therefore, cannot provide any 
assurances as to the actual effective United States tax rate (if any) which will
be imposed on the Company's U.S. source income. See "Business--Taxation of the  
Company--United States Taxation."                                               

LITIGATION                                                                      

   In May 1993, a lawsuit was filed in the Supreme Court of British Columbia
(the "B.C. Court") against the original representative of the estate (the       
"Estate") of the Company's founder, J. Torben Karlshoej, by Mr. Karlshoej's     
first wife claiming certain rights in the assets of the Estate based upon       
expressed and implied contract theories, unjust enrichment and specific         
performance. In April 1995, the plaintiff filed a notice of motion to amend her 
claim to add the Trusts, Teekay and certain of its directors, officers and other
affiliates as defendants in the lawsuit. The B.C. Court has not yet made a      
determination as to whether to grant the plaintiff's motion to amend her        
statement of claim. While Teekay believes that it has meritorious defenses      
against the plaintiff's claims and intends, if added as a defendant, to defend  
vigorously against the claims, there can be no assurance that Teekay and its    
affiliates will not be added as defendants or, if added, that they will be      
successful in defending against the claims. If plaintiff were successful on her 
claims, a change in control of the Company could result. See "Business--Legal   
Proceedings--Litigation against the Estate of the Company's Founder."           

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ABSENCE OF PUBLIC MARKET FOR THE NOTES                                          

     There is currently no trading market for the Notes. Although Teekay intends
to cause the Notes to be authorized for listing on the New York Stock Exchange, 
there can be no assurance, even if such authorization is obtained, that an      
active market for the Notes will develop or, if any such market develops, that  
it will continue to exist or as to the liquidity of such market. In addition, no
assurance can be given that a Holder of the Notes will be able to sell them in  
the future or that such sale will be at a price equal to or higher than the     
initial public offering price. Furthermore, the Notes may trade at a discount   
from the initial public offering price depending upon many factors, including   
prevailing interest rates, the Company's operating results and the market for   
similar securities. The Underwriters have informed the Company that, subject to 
applicable laws and regulations, they currently intend to make a market in the  
Notes. However, the Underwriters are not obligated to do so, and any such market
making may be discontinued at any time without notice. Therefore, no assurance  
can be given as to whether an active trading market will develop for the Notes. 
See "Underwriting."                                                             

USE OF PROCEEDS 

    The aggregate net proceeds to be received by Teekay from the Note Offering
(after deducting Underwriters fees and commissions and estimated expenses       
attributable to the offering) are estimated to be approximately $220.2 million. 
Teekay intends to apply the net proceeds to prepay all outstanding indebtedness 
on the Mortgaged Vessels, which indebtedness (i) bears interest at rates of     
between 1.0 to 1.5 percentage points over LIBOR and (ii) is scheduled to mature 
over the next twelve years. See "Management's Discussion and Analysis of Results
of Operations and Financial Condition--Liquidity and Capital Resources" and     
"Description of Certain Indebtedness."                                          

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CAPITALIZATION

The following table sets forth the capitalization of the Company at   
September 30, 1995, and as adjusted to give effect to the sale of the Notes and 
the application of the net proceeds therefrom to prepay certain indebtedness of 
the Guarantors. This table should be read in conjunction with the consolidated  
financial statements of the Company and the related notes thereto set forth     
elsewhere in this Prospectus. See also "Use of Proceeds" and "Management's      
Discussion and Analysis of Results of Operations and Financial Condition."      

                                                        [Enlarge/Download Table]

                                                            SEPTEMBER 30, 1995       
                                                      -------------------------------
                                                        ACTUAL         AS ADJUSTED(1)
                                                      -----------      --------------
                                                                                     
                                                                (UNAUDITED)          
                                                        (U.S. DOLLARS IN THOUSANDS)  
Cash and marketable securities....................... $   109,267       $    109,267 
                                                       ==========       ============ 
Current obligations(2):                                                              
  Current portion of long-term debt..................      58,906             37,358 
  Current portion of capital lease obligation........       2,709           --       
                                                      -----------      --------------
     Total current obligations.......................      61,615             37,358 
                                                      -----------      --------------
Long-term obligations(2):                                                            
  Long-term debt.....................................     652,969            498,226 
  Capital lease obligation...........................      41,200           --       
  Notes offered hereby...............................     --                 225,000 
                                                      -----------      --------------
     Total long-term obligations.....................     694,169            723,226 
                                                      -----------      --------------
Stockholders' equity:                                                                
  Capital stock......................................     230,613            230,613 
  Retained earnings..................................     356,578            356,578 
  Less net unrealized loss on marketable                                             
     securities......................................         143                143 
                                                      -----------      --------------
     Total stockholders' equity......................     587,048            587,048 
                                                      -----------      --------------
       Total capitalization.......................... $ 1,342,832       $  1,347,632 
                                                       ==========       ============ 

------------                                                                    

(1) Reflects the net proceeds from the Offering estimated to be approximately   
$220.2 million.                                                       

(2) For information concerning the Company's borrowing arrangements and lease   
commitments, see "Description of Certain Indebtedness."               

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THE COMPANY 

    The Company is a leading provider of international crude oil and petroleum
product transportation services through the world's largest fleet of medium size
oil tankers. The Company's modern fleet provides such transportation services to
major oil companies, major oil traders and government agencies, principally in  
the Indo-Pacific Basin. The Company believes that in each of the last four years
it has transported more crude oil and petroleum products via Aframax tankers in 
the Indo-Pacific Basin than any other shipping company and estimates it has     
approximately a one quarter share of the Indo-Pacific Basin Aframax market.     

The Company pursues an intensively customer- and operations-oriented  
business strategy, emphasizing market concentration and service quality to      
achieve superior operating results. The Company believes that it has four key   
competitive advantages: (i) geographic market concentration in the Indo-Pacific 
Basin, which facilitates comprehensive coverage of charterer requirements, (ii) 
a uniform-size fleet of Aframax tankers containing many sister ships, which     
affords scheduling flexibility and permits greater capacity utilization, (iii) a
modern well-maintained fleet that operates with high fuel efficiency and low    
maintenance costs and affords greater acceptance among charterers with high     
quality standards, and (iv) a full-service ship management and chartering       
capability which affords a focused marketing effort, tight cost controls, and   
effective operational and safety monitoring. As a result of its business        
strategy, the Company has achieved consistently higher operating cash flow per  
ship per day than other public bulk shipping companies. Although the Company's  
business strategy has been, and in the foreseeable future will be, primarily    
focused on providing services via Aframax tankers in the Indo-Pacific Basin,    
management intends to closely monitor the evolution of the shipping industry and
to adapt its strategy according to changing market dynamics. The Company intends
to continue to consider strategic opportunities that may arise from time to     
time, including joint ventures and business acquisitions.                       

The Company's fleet consists of 41 tankers: 36 Aframax oil tankers and
O/B/Os, two smaller oil tankers, one VLCC, and through a joint venture, a 50%   
interest in two additional Aframax oil tankers. The Company's vessels are all of
Liberian or Bahamian registry. The Company's fleet has a total cargo capacity of
approximately 4.1 million tons and its Aframax vessels represent approximately  
7.0% of the total tonnage of the world Aframax fleet. While its fleet           
modernization program is effectively complete, the Company intends to continue  
selective purchases of modern, predominantly second-hand, high-quality tankers  
should such vessels become available.                                           

   The Company's fleet is one of the most modern fleets in the world, having
an average age of approximately 6.9 years, compared to an average age for the   
world oil tanker fleet of approximately 14.1 years and for the world Aframax    
tanker fleet of approximately 12.3 years. A substantial portion of the world    
tanker fleet will reach 20 years of age in the next three years, including      
approximately 31% of Aframax tankers; none of the Company's Aframax tankers is  
more than 16 years of age. In addition, the Company has been recognized by      
customers and rating services for safety, quality and service. In each of the   
last five years, Tanker Advisory Center, Inc. (New York) has rated the Company's
fleet a "meritorious tanker fleet," a designation which, in the latest          
publication (March 1995) placed it in the top quarter of fleets containing 10 or
more tankers. Given the age profile of the world tanker fleet, increasing       
emphasis among customers on quality as a result of stringent environmental      
regulations, and heightened concerns about liability for oil pollution, the     
Company believes that its modern fleet and its emphasis on quality and safety   
provide it with a favorable competitive profile. See "Risk Factors--Competition"
and "--Environmental and Other Regulation" and "Business--The International     
Tanker Market--Supply and Demand."                                              

    Teekay has in the past occasionally entered into joint ventures with other
shipping companies, an activity that is common among large shipping companies.  
Currently, Teekay is actively engaged in one such joint venture: it owns 50% of 
Viking Consolidated Shipping Corporation ("VCSC"), which in turn owns two       
Aframax tankers. One of the VCSC tankers is on long-term charter to a major oil 
company; the other is currently trading on the spot market. Teekay is           
negotiating the purchase of the latter vessel from VCSC.                        

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The Teekay organization was founded in 1973 by J. Torben Karlshoej to 
manage and operate oil tankers. Mr. Karlshoej died in October 1992 and was      
succeeded as Chief Executive Officer by Captain James Hood, who has been with   
the Company since 1977. Prior to 1985, the Company chartered-in most of the     
tonnage that it subsequently provided to its transportation customers. As the   
availability of acceptable chartered-in tonnage declined, management began an   
expansion of its owned fleet. Since 1985, the Company has significantly expanded
and modernized its owned fleet by taking delivery of 38 new vessels and         
acquiring 24 vessels in the second-hand market, as well as disposing of 13 older
(mid-1970's built) tankers over the past two and one half years.                

    The Company's operating results in fiscal 1995 (year ended March 31, 1995)
were adversely affected by a weakened charter market caused by low tanker       
demand, which resulted from a shift in crude oil distribution patterns.         
Historically, incremental oil demand growth has been satisfied principally from 
oil produced in the Arabian Gulf; however, in calendar 1994, incremental global 
oil demand was primarily met by oil production in the North Sea and Caribbean   
regions. Because of the proximity of the North Sea and Caribbean to discharge   
points, increased production in these regions resulted in a reduction in the    
average length of tanker voyages, thus adversely affecting tanker demand. In    
spite of adverse charter market conditions, in fiscal 1995 the Company generated
income from vessel operations of $50.8 million and EBITDA of $146.8 million, and
reduced debt by $102.6 million from internally generated cash.                  

    Management believes that the Company's operating performance is exhibiting
near-term improvement. During the first half of fiscal 1996, the Company's      
income from vessel operations rose to $34.2 million and EBITDA rose to $79.0    
million, improvements of 34.6% and 7.0% respectively, over the first half of    
fiscal 1995. Based on current estimates, income from vessel operations and      
EBITDA for the third quarter fiscal 1996 are anticipated to show continued      
improvement in the Company's operating performance, stemming from stronger      
Aframax charter rates in the Indo-Pacific Basin and, in particular, better      
market conditions in the Company's core Aframax trade routes to Australia,      
Japan, and the United States West Coast.                                        

     In addition, management believes that tanker supply/demand fundamentals are
improving through a combination of tanker scrapping in excess of deliveries, and
an anticipated resumption of tanker demand growth. According to Clarkson, the   
worldwide tanker fleet declined by 2.5% from December 31, 1993 to November 30,  
1995, with calendar 1994 marking the first annual decline in tanker fleet size  
since 1986. The International Energy Agency forecasts that global oil           
consumption will grow 2.3% in 1996. Management believes that due to the expected
topping out of North Sea oil production a large percentage of future oil demand 
growth will be met by Arabian Gulf oil producers, thereby increasing tanker     
demand. Maritime Strategies Inc. forecasts that tanker demand will grow 2.4% in 
1996 and 3.3% in 1997. A continuation of these trends should result in an       
increase in tanker charter rates which would have a positive impact on the      
Company's operating results.                                                    

     During the first half of fiscal 1996, the Company took steps to improve its
financial condition and flexibility. In May 1995, the Company entered into a    
$243 million eight-year secured reducing revolving credit agreement (the        
"Revolver") which increased liquidity, extended its debt repayment schedule, and
reduce its cost of borrowing. In July 1995, the Company completed an initial    
public offering of 6.9 million shares of common stock, resulting in net cash    
proceeds of $137.6 million, of which $135.0 million was used to reduce amounts  
outstanding under the Revolver. As a result of these transactions, as well as   
improved operating performance, as of September 30, 1995, the Company's total   
liquidity, as measured by the aggregate of its cash, marketable securities and  
availability under the Revolver, increased to $244.3 million from $85.7 at      
fiscal 1995 year-end; and the Company's ratio of net debt to capitalization had 
declined to 52 percent from 63 percent over the same period.                    

Teekay is incorporated under the laws of the Republic of Liberia and  
maintains its principal executive headquarters at the Tradewinds Building, Sixth
Floor, Bay Street, P.O. Box SS-6293, Nassau, Commonwealth of The Bahamas. Its   
telephone number at such address is (809) 322-8020. The Company's principal     
operating offices are located at 200 Burrard Street, Suite 2100, Vancouver,     
British Columbia, Canada, V6C 3L6. Its telephone number at such address is (604)
683-3529.                                                                       

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SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA

   Set forth below are selected consolidated financial and other data of the
Company for the six-month periods ended September 30, 1995 and 1994 and five    
fiscal periods ended March 31, 1995. The selected financial and other data set  
forth below with respect to the Company's statements of income for each of the  
three fiscal periods ended March 31, 1995 and the Company's balance sheets as of
March 31, 1995 and 1994 are derived from consolidated financial statements of   
the Company, which are included elsewhere in this Prospectus, that have been    
audited by Ernst & Young, independent chartered accountants. The statement of   
income data for each of the two fiscal years in the period ended April 30, 1992 
and the balance sheet data as of April 30, 1993, 1992 and 1991 are derived from 
consolidated financial statements audited by Ernst & Young but not included in  
this Prospectus. The selected financial and other data set forth below with     
respect to the Company's statements of income for each of the six-month periods 
ended September 30, 1995 and 1994 and the Company's balance sheets as of        
September 30, 1995 and 1994 have been derived from the unaudited consolidated   
financial statements of the Company included elsewhere in this Prospectus,      
which, in management's opinion, reflect all adjustments necessary (consisting   
only of normal recurring adjustments) for a fair presentation of such financial 
data. The Company's results for the six months ended September 30, 1995 are not 
necessarily indicative of the eventual results for the fiscal year ending March 
31, 1996.                                                                       

The data below should be read in conjunction with the consolidated    
financial statements and the notes thereto, the other financial information and 
"Management's Discussion and Analysis of Results of Operations and Financial    
Condition" that appear elsewhere in this Prospectus. The Company changed its    
fiscal year end from April 30 to March 31, effective March 31, 1994, in order to
facilitate comparison of the Company's operating results to those of other      
companies within the transportation industry on a calendar quarter basis.       

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                                                        [Enlarge/Download Table]

                                  SIX MONTHS ENDED        FISCAL YEAR      11 MONTH                                             
                                    SEPTEMBER 30,            ENDED       PERIOD ENDED         FISCAL YEAR ENDED APRIL 30,       
                              -------------------------    MARCH 31,      MARCH 31,     --------------------------------------- 
                                 1995          1994          1995          1994(1)         1993          1992          1991     
                              -----------   -----------   -----------    ------------   -----------   -----------   ----------- 
                                                 (U.S. DOLLARS IN THOUSANDS, EXCEPT PER DAY DATA AND RATIOS)                    
                                                                                                                                
STATEMENT OF INCOME DATA:                                                                                                       
Voyage revenues.............  $   160,944   $   162,771   $  319,966     $   317,742    $  336,994    $   414,104   $   396,542 
Voyage expenses.............       43,452        42,515       84,957          81,052       108,805        118,678       138,954 
                              -----------   -----------   -----------    ------------   -----------   -----------   ----------- 
Net voyage revenues.........      117,492       120,256      235,009         236,690       228,189        295,426       257,588 
Operating expenses:                                                                                                             
  Vessel operating                                                                                                              
    expenses(2).............       33,496        38,446       72,723          73,597        79,649         71,227        57,064 
  Depreciation and                                                                                                              
    amortization............       40,956        48,238       96,435          89,902        97,611         86,475        71,545 
  General and                                                                                                                   
    administrative..........        8,812         8,146       15,018          14,063        14,014         14,370        12,987 
                              -----------   -----------   -----------    ------------   -----------   -----------   ----------- 
Total operating expenses....       83,264        94,830      184,176         177,562       191,274        172,072       141,596 
                              -----------   -----------   -----------    ------------   -----------   -----------   ----------- 
Income from vessel                                                                                                              
  operations................       34,228        25,426       50,833          59,128        36,915        123,354       115,992 
Interest expense............      (31,230)      (31,364)     (64,321 )       (48,064 )     (47,374 )      (39,015)      (41,021)
Interest income.............        3,182         2,903        5,904           2,904         1,156          2,369         3,982 
Other income (loss).........        4,364           979       11,848          11,777        37,862          9,981          (564)
                              -----------   -----------   -----------    ------------   -----------   -----------   ----------- 
Income (loss) from                                                                                                              
  continuing operations                                                                                                         
  before foreign exchange                                                                                                       
  gain (loss)...............       10,544        (2,056)       4,264          25,745        28,559         96,689        78,389 
Foreign exchange gain                                                                                                           
  (loss)(3).................         (513)           39          991          (1,532 )     (77,917 )       (7,026)      (28,581)
                              -----------   -----------   -----------    ------------   -----------   -----------   ----------- 
Net income (loss) from                                                                                                          
  continuing operations.....       10,031        (2,017)       5,255          24,213       (49,358 )       89,663        49,808 
Net income from discontinued                                                                                                    
  operations................           --            --           --           5,945         1,890          1,323         1,014 
Cumulative effect of change                                                                                                     
  in accounting for                                                                                                             
  marketable securities.....           --            --        1,113              --            --             --            -- 
                              -----------   -----------   -----------    ------------   -----------   -----------   ----------- 
Net income (loss)...........  $    10,031   $    (2,017)  $    6,368     $    30,158    $  (47,468 )  $    90,986   $    50,822 
                               ==========    ==========   ===========    =============  ===========    ==========    ========== 
BALANCE SHEET DATA (AT END OF PERIOD):                                                                                          
Cash and marketable                                                                                                             
  securities................  $   109,267   $    96,079   $   85,739     $   107,246    $   48,770    $    26,239   $    41,864 
Total assets................    1,365,916     1,356,054    1,306,474       1,405,147     1,368,966      1,237,942     1,073,530 
Total debt..................      755,784       894,797      842,874         945,611       884,813        756,454       679,032 
Total stockholders'                                                                                                             
  equity....................      587,048       431,163      439,066         433,180       403,022        442,990       345,004 
OTHER FINANCIAL DATA:                                                                                                           
EBITDA(4)...................  $    79,002   $    73,848   $  146,756     $   151,364    $  136,123    $   214,196   $   189,968 
Cash earnings(5)............       51,500        46,182      100,699         115,647       126,170        183,164       149,934 
Cash earnings to net                                                                                                            
  debt(1)(5)(6).............         15.9%         11.6%        13.3 %          14.7 %        15.1 %         25.1%         23.5%
EBITDA to interest                                                                                                              
  expense(4)(7).............         2.52x         2.35x        2.28 x          3.04 x        2.59 x         4.70x         4.04x
Pro forma EBITDA to interest                                                                                                    
  expense(4)(7)(8)..........         2.65            --         2.47              --            --             --            -- 
Total debt to EBITDA(1)(4)..         4.78          6.06         5.74            5.83          6.50           3.53          3.57 
Net debt to                                                                                                                     
  EBITDA(1)(4)(6)...........         4.09          5.41         5.16            5.17          6.14           3.41          3.35 
Ratio of earnings to fixed                                                                                                      
  charges(9)................         1.33            --         1.09            1.45            --           2.81          1.94 
Total debt to                                                                                                                   
  capitalization............         56.3%         67.5%        65.7 %          68.6 %        68.7 %         63.1%         66.3%
Net debt to                                                                                                                     
  capitalization(6).........         52.4          64.9         63.3            65.9          67.5           62.2          64.9 
Capital expenditures:                                                                                                           
  Vessel purchases, gross...  $    92,077   $     4,273   $    7,465     $   163,509    $  334,733    $   373,501   $   303,262 
  Drydocking................        4,193         7,121       11,917          13,296        16,440          6,240        33,934 
FLEET DATA:                                                                                                                     
Average number of                                                                                                               
  ships(10).................           39            43           42              45            50             46            41 
Average age of Company's                                                                                                        
  Aframax fleet                                                                                                                 
  (in years)(11)............          6.9           7.8          6.7             7.4           8.0            7.7           7.5 
TCE per ship per                                                                                                                
  day(10)(12)...............  $    17,828   $    16,575   $   16,552     $    17,431    $   13,722    $    19,270   $    19,083 
Vessel operating expenses                                                                                                       
  per ship per day(2)(10)...        4,731         4,886        4,748           4,879         4,276          4,245         3,859 
Operating cash flow per ship                                                                                                    
  per day(13)...............       10,030         8,732        8,944           9,133         6,511         10,999        11,159 

(Footnotes on following page)                                                   

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(Footnotes for previous page)                                                   

(1)  For the 12 months ended March 31, 1994, voyage revenues were $345.0        
  million; income from vessel operations was $62.7 million; net income was
 $32.0 million; EBITDA was $162.3 million; and cash earnings were $123.2
 million. For periods presented that are less than 12 months, EBITDA and
cash earnings were annualized for purposes of computing total debt to 
EBITDA, net debt to EBITDA, and cash earnings to net debt, in order to
     facilitate comparisons to other periods. See "Change in fiscal year end" in
Note 1 to the Consolidated Financial Statements.                      

(2)  Vessel operating expenses consist of all expenses relating to the operation
 of vessels (other than voyage expenses), including crewing, repairs and
maintenance, insurance, stores and lubes, and miscellaneous expenses, 
     including communications. Voyage expenses comprise all expenses relating to
 particular voyages, including bunker fuel expenses, port fees and canal
tolls.                                                                

(3)  Prior to fiscal 1993, a significant portion of the Company's debt was      
denominated in Japanese Yen. In fiscal 1993, the Company experienced a
foreign exchange translation loss of $77.9 million. Because all of the
Company's Yen-denominated debt has been converted to U.S. Dollar-     
     denominated debt, and because a large portion of the Company's revenues and
    costs are denominated in U.S. Dollars, the Company's foreign exchange rate
  risk has been substantially eliminated. See "Management's Discussion and
     Analysis of Results of Operations and Financial Condition--Foreign Exchange
Rate Fluctuation."                                                    

(4)  EBITDA represents net income from continuing operations before interest    
  expense, income tax expense, depreciation expense, amortization expense,
minority interest, and gains or losses arising from foreign exchange  
     translation and disposal of assets. EBITDA is included because such data is
 used by certain investors to measure a Company's financial performance.
EBITDA is not required by generally accepted accounting principles and
should not be considered as an alternative to net income or any other 
indicator of the Company's performance required by generally accepted 
accounting principles.                                                

(5)  Cash earnings represents income from continuing operations before foreign  
     exchange gain (loss) and before depreciation and amortization expense. Cash
   earnings is included because it is used by certain investors to measure a
company's financial performance as compared to other companies in the 
shipping industry. Cash earnings is not required by generally accepted
     accounting principles and should not be considered as an alternative to net
income or any other indicator of the Company's performance required by
generally accepted accounting principles.                             

(6)  Net debt represents total debt less cash and marketable securities.        

(7)  For purposes of computing EBITDA to interest expense and pro forma EBITDA  
to interest expense, interest expense includes capitalized interest.  

(8)  Pro forma EBITDA to interest expense reflects the incremental net interest 
expense resulting from the Offering (using an assumed interest rate of
    8.5%) and the interest savings resulting from the Company's initial public
     offering of common stock in July 1995, as if both transactions had occurred
on April 1, 1994. Pro forma interest expense is calculated as follows:

                                                        [Enlarge/Download Table]

                                                  SIX MONTHS ENDED   FISCAL YEAR ENDED
                                                 SEPTEMBER 30, 1995   MARCH 31, 1995  
                                                 ------------------  -----------------
                                                                                      
Interest expense................................      $ 31,230           $  64,321    
Interest expense for the period on the Notes....         9,563              19,125    
Interest savings from loan repayments resulting                                       
  from:                                                                               
  Notes offered hereby..........................        (7,921)            (14,565)   
  Initial public offering of common stock.......        (3,135)             (9,526)   
                                                 ------------------  -----------------
Pro forma interest expense......................      $ 29,737           $  59,355    
                                                 ================    ==============   

(Footnotes continue on following page)                                          

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(Footnotes continued from previous page)                                        

(9)  For purposes of computing the ratio of earnings to fixed charges, earnings 
consist of income from continuing operations before interest expense, 
     amortization of capitalized interest and amortization of deferred financing
    costs. Fixed charges consist of interest expense, capitalized interest and
     amortization of deferred financing costs. Earnings for the six months ended
September 30, 1994 and for the fiscal year ended April 30, 1993 were  
insufficient to cover fixed charges. The amounts of the coverage      
deficiencies were $1.5 million and $53.9 million, respectively. The   
deficiency in fiscal 1993 resulted from a foreign exchange translation
loss. (See footnote 3.) The ratio of earnings to fixed charges before 
taking into account such loss for fiscal 1993 would have been 1.45x.  

(10) Excludes vessels of discontinued operations and the joint venture.         

(11) Average age of Company's Aframax fleet is the average age, at the end of   
the relevant fiscal period, of the Aframax tankers and O/B/Os owned or
leased by the Company (including joint venture vessels).              

(12) TCE (or "time charter equivalent") is a measure of the revenue performance 
of a vessel, which, on a per voyage basis, is generally determined by 
 Clarkson and other industry data sources by subtracting voyage expenses
   (except commissions), which are incurred in transporting cargo (primarily
   bunker fuel, canal tolls and port fees) from gross revenue per voyage and
     dividing the remaining revenue by the total number of days required for the
  round-trip voyage. For the purposes of calculating the Company's average
     TCE for the year, TCE has been calculated consistent with Clarkson's method
   by deducting total voyage expenses (except commissions) from total voyage
    revenues and dividing the remaining sum by the Company's total voyage days
in the year. See "Exhibit A--Definitions of Shipping Terms."          

(13) Operating cash flow represents income from vessel operations, plus         
    depreciation and amortization expense, less drydock expense. Ship days are
    calculated on the basis of a 365-day year multiplied by the average number
   of vessels in the Company's fleet for the respective year. Operating cash
     flow is not required by generally accepted accounting principles and should
     not be considered as an alternative to net income or any other indicator of
the Company's performance required by generally accepted accounting   
principles.                                                           

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS 
AND FINANCIAL CONDITION 

GENERAL                                                                         

    The Company is a leading provider of international crude oil and petroleum
product transportation services through its fleet of predominantly Aframax      
tankers. The charter rates that the Company is able to obtain for these services
are determined in a highly competitive global tanker charter market.            
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. The Company's future operating results will be      
subject to a number of uncertainties, many of which reflect the cyclical nature 
of the tanker industry.                                                         

  During the first half of fiscal 1996, approximately 75% of the Company's
net revenue was derived from spot voyages. This high dependence on spot voyages 
contributes to the volatility of the Company's revenue, cash flow from          
operations and net income. However, the Company's dependence on spot voyages is 
within industry norms: the most recent comprehensive study on Aframax tankers by
Drewry, dated August 1993, shows that 90% of Aframax tankers traded on the spot 
market in 1992.                                                                 

    Tanker charter markets have been affected by changes in the supply of, and
demand for, tanker capacity. Significant over-capacity developed in the         
mid-1970s as large numbers of new vessels, ordered based on pre-1973 oil crisis 
tanker demand growth expectations, were delivered into a depressed market.      
Tankers built in the mid-1970s, many of which are still in service today, have  
been the most significant factor in tanker supply from the time of their        
delivery to this day. Management believes that many of these tankers will reach 
the ends of their useful lives during the latter half of the 1990s. With the    
exception of a strong tanker charter market in 1979-80 due to geo-political     
events, conditions remained adverse for tanker owners from 1974 to 1986. In     
particular, a persistent over-supply of tankers in a then-young world fleet (its
average age was only approximately 10 years in 1985) adversely affected the     
charter market.                                                                 

Charter market conditions began to improve in 1986 as a result of the 
cumulative effect of several years of significant scrapping as well as increased
tanker demand. By 1988, charter rates and newbuilding orders had begun to       
increase. During the period 1988-1991, significant new tonnage was delivered    
into a strong charter market. Scrapping of older tonnage, which had been        
expected to continue through this period as the fleet aged, slowed considerably 
because it was economically feasible to operate older vessels in the prevailing 
strong charter market conditions. In addition, the tanker industry had not yet  
entered the current stringent regulatory environment, which management believes 
has a generally adverse effect on older, substandard tonnage.                   

   The tanker charter market experienced a decline in early 1992 as a result
of the expansion in tanker supply during the previous four years, as well as the
impact of the global recession on demand and pricing. Tanker charter rates      
increased temporarily in calendar 1993 as a result of a short-term increase in  
tanker demand, but declined again in calendar 1994, due to lower demand         
resulting from shorter average tanker voyage distances, and in spite of a       
decline in tanker supply for the first time since 1986. During the first eleven 
months of calendar 1995, scrapping continued to exceed deliveries, resulting in 
a further decline in tanker supply. Currently, newbuilding ordering activity has
declined and scrapping has now returned to levels which, if sustained, should   
lead to a tanker market recovery.                                               

The Company operates its tankers in markets that have historically    
exhibited seasonal variations in demand and, therefore, charter rates. Tanker   
markets are typically stronger in the winter months as a result of increased oil
consumption in the northern hemisphere. In addition, unpredictable weather      
patterns in the winter months tend to disrupt vessel scheduling. The oil price  
volatility resulting from these factors has historically led to increased oil   
trading activities. As a result, revenues have historically been strongest for  
the Company in its third and fourth fiscal quarters.                            

    Throughout the periods discussed in this Prospectus, the Company's average
TCE rate was higher than the industry average as calculated by the Company      
(based upon data reported by Clarkson) as a consequence of higher capacity      
utilization and the fuel efficiency of its modern fleet. Management             

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believes that average TCE is an appropriate measure of a bulk shipping company's
net revenues for the purpose of comparisons to published industry data and      
companies with similar ships. TCE, as generally calculated by industry sources, 
deducts from gross revenue all direct voyage costs except for commissions. It   
does not account for the opportunity cost of off-hire and idle days.            

  Over the past five years, certain countries have developed environmental
protection laws and regulations affecting the tanker industry. The new          
requirements, in particular OPA 90 in the United States, have imposed higher    
operating standards, greater liability, and a variety of higher costs upon      
tanker owners and operators. One costly requirement of OPA 90 is that all       
tankers ordered after June 1990 calling at U.S. ports be constructed with double
hulls. As a result, the Company's new vessels are of double hull construction   
and the Company has plans to replace the older single hull vessels with double  
hull vessels.                                                                   

RESULTS OF OPERATIONS                                                           

   SIX MONTHS ENDED SEPTEMBER 30, 1995 VERSUS SIX MONTHS ENDED SEPTEMBER 30,
1994                                                                            

Operating results for the second quarter of fiscal 1996 reflected the 
improvement in average TCE rates experienced by the Company's fleet during the  
past 12 months. Despite a 9.3% decrease in the average size of the Company's    
fleet of 100%-owned vessels from 43 vessels in the first half of fiscal 1995 to 
39 in the first half of fiscal 1996, voyage revenues decreased by only 1.1% to  
$160.9 million in the first half of fiscal 1996 from $162.8 million for the     
first half of fiscal 1995. Net voyage revenue was down only 2.3%, to $117.5     
million in the first half of fiscal 1996, from $120.3 million in the first half 
of fiscal 1995. This reflects an improvement in TCE rates, as well as the       
increased capacity and fuel efficiency associated with the Company's newer      
fleet. In November 1995 the Company completed the sale of its last mid-1970s    
built tanker. The disposal of these older and less efficient vessels over the   
past two years has reduced the Company's fleet size, and has reduced voyage     
expenses without reducing voyage revenues to the same extent.                   

 Vessel operating expenses decreased 12.9% to $33.5 million in the first
half of fiscal 1996 from $38.4 million in the first half of fiscal 1995, a      
result of the decline in fleet size, as well as the result of a stable operating
cost environment.                                                               

     Depreciation and amortization decreased 15.1% to $41.0 million in the first
half of fiscal 1996 from $48.2 million in the first half of fiscal 1995, again a
function of the reduction in fleet size, and as a result of a revision to       
estimates of residual values of the Company's vessels. This change in estimate  
had the effect of reducing depreciation expense by approximately $4.8 million in
the first half of fiscal 1996. Depreciation and amortization expense included   
amortization of drydocking costs of $4.2 million in the first half of fiscal    
1996 and $5.0 million in the first half of fiscal 1995.                         

   General and administrative expenses increased 8.2% to $8.8 million in the
first half of fiscal 1996 from $8.1 million in the first half of fiscal 1995,   
primarily as a result of increased administrative costs subsequent to the       
acquisition of Teekay Shipping Limited in March, 1995.                          

   The combination of improved TCE rates, a more modern and efficient fleet,
and stable costs, resulted in a 34.6% increase in income from vessel operations 
to $34.2 million in the first half of fiscal 1996 from $25.4 million in the     
first half of fiscal 1995.                                                      

     Interest expense remained virtually unchanged at $31.2 million in the first
half of fiscal 1996, compared to $31.4 million in the first half of fiscal 1995.
A continued decline in the Company's total debt and a reduction in the Company's
average credit spread on commercial bank borrowings were offset by the increase 
in short-term interest rates which occurred during 1994. Changes in market      
interest rates have had a delayed effect on interest expense, as rates on the   
Company's floating rate debt are set in advance, for three to six month periods.
Interest income increased 9.6% to $3.2 million in the first half of fiscal 1996 
from $2.9 million in the first half of fiscal 1995 as a result of higher cash   
and marketable securities balances.                                             

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Other income during the first half of fiscal 1996 was $4.4 million,   
consisting primarily of a $3.7 million gain on sale of a vessel. Other income   
during the first half of fiscal 1995 was $1.0 million, consisting primarily of a
$3.7 million gain on the sale of a vessel, offset by a $2.7 million loss on     
marketable securities.                                                          

FISCAL 1995 VERSUS FISCAL 1994                                        

The Company changed its fiscal year end from April 30 to March 31,    
effective March 31, 1994, in order to facilitate comparison of the Company's    
operating results with those of other companies within the transportation       
industry on a calendar quarter basis. As a result, while the fiscal 1995 results
are for the twelve-month period ending March 31, 1995, the comparable fiscal    
1994 results are for the eleven-month period ending March 31, 1994. Where       
indicated in the following discussions, percentage change figures have been     
annualized by adjusting fiscal 1994 results to include the unaudited results for
the month of April 1993.                                                        

  Voyage revenues were $320.0 million in fiscal 1995 as compared to $317.7
million in fiscal 1994, representing an 7.2% decrease on an annualized basis    
from fiscal 1994, primarily as a result of a decline in average fleet size from 
45 to 42 vessels and continuing weak charter markets.                           

Voyage expenses were $85.0 million in fiscal 1995 as compared to $81.1
million in fiscal 1994, a decrease of 4.5% on an annualized basis, primarily as 
a result of a decline in fleet size, partially offset by an increase in fuel    
costs.                                                                          

    Vessel operating expenses were $72.7 million in fiscal 1995 as compared to
$73.6 million in fiscal 1994, representing a 9.9% decrease on an annualized     
basis from fiscal 1994, primarily as a result of the decline in fleet size.     

    Depreciation and amortization was $96.4 million in fiscal 1995 as compared
to $89.9 million in fiscal 1994, representing a 1.0% decrease on an annualized  
basis from fiscal 1994, primarily due to the decline in fleet size, partially   
offset by a higher average cost base during fiscal 1995 resulting from the sale 
of some of the Company's older vessels, whose annual depreciation charges were  
lower than the fleet average.                                                   

  General and administrative expenses were $15.0 million in fiscal 1995 as
compared to $14.1 million in fiscal 1994. On an annualized basis, this is       
virtually unchanged from fiscal 1994.                                           

As a result of the decrease in fleet size and continuing weak charter 
markets, income from vessel operations decreased to $50.8 million in fiscal 1995
from $59.1 million in fiscal 1994. On an annualized basis, this represents a    
19.0% decline from fiscal 1994.                                                 

Interest expense increased to $64.3 million in fiscal 1995 from $48.1 
million in fiscal 1994, representing a 22.0% increase on an annualized basis    
from fiscal 1994, as a result of an increase in interest rates mitigated in part
by the repayment and prepayment of long-term debt totalling $102.6 million.     
Interest income was $5.9 million in fiscal 1995 as compared to $2.9 million in  
fiscal 1994, representing an increase of 93.8% on an annualized basis from      
fiscal 1994, as a result of increased interest rates and higher cash and        
marketable securities balances; however, there were related losses of $4.3      
million and $1.6 million on marketable securities included in other income      
during fiscal years 1995 and 1994, respectively.                                

    Other income during fiscal 1995 was $11.8 million, consisting primarily of
an $18.2 million gain on the sale of six vessels, partially offset by a $4.3    
million loss on available-for-sale securities and a $2.1 million equity loss    
from the Company's 50% investment in VCSC during the period. Other income during
fiscal 1994 was $11.8 million, consisting primarily of a $12.3 million gain on  
the sale of six vessels and $1 million in equity income from VCSC, partially    
offset by a $1.6 million loss on marketable securities.                         

  There was no income from discontinued operations during fiscal 1995. Net
income from discontinued operations was $5.9 million during fiscal 1994,        
primarily as a result of a $5.7 million gain arising on the                     

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sale of nine multipurpose dry cargo vessels obtained in connection with the     
divestiture of the Company's investment in Baltimar Overseas Limited.           

     As a result of the foregoing factors, the Company's net income decreased to
$6.4 million in fiscal 1995 from $30.2 million in fiscal 1994, representing an  
80.1% decrease on an annualized basis.                                          

FISCAL 1994 VERSUS FISCAL 1993                                        

   As the Company has changed its fiscal year end from April 30 to March 31,
the fiscal 1994 results are for the eleven-month period ending March 31, 1994,  
while the comparable fiscal 1993 results are for the twelve-month period ending 
April 30, 1993. Where indicated in the following discussion, percentage change  
figures have been annualized by adjusting fiscal 1994 results by a factor of    
12/11. No assurance can be given that the fiscal 1994 annualized figures used to
calculate percentage changes herein accurately approximate actual results for   
the month of April 1994.                                                        

  Voyage revenues were $317.7 million in fiscal 1994 as compared to $337.0
million in fiscal 1993, representing a 2.8% increase on an annualized basis from
fiscal 1993, primarily as a result of higher charter rates caused by improved   
spot market conditions, partially offset by a decline in average fleet size from
50 to 45 vessels.                                                               

 Voyage expenses were $81.1 million in fiscal 1994 as compared to $108.8
million in fiscal 1993, a decrease of 18.7% on an annualized basis, as a result 
of a reduction in fleet size and lower fuel costs.                              

    Vessel operating expenses were $73.6 million in fiscal 1994 as compared to
$79.6 million in fiscal 1993, representing a 1.0% increase on an annualized     
basis from fiscal 1993, which was primarily a result of increased insurance     
costs, partially offset by a reduction in fleet size.                           

    Depreciation and amortization was $89.9 million in fiscal 1994 as compared
to $97.6 million in fiscal 1993. On an annualized basis, depreciation and       
amortization was virtually unchanged between the two periods despite a reduction
in the size of the fleet as a result of a higher average cost base in fiscal    
1994 as compared to fiscal 1993 arising from six newbuildings delivered during  
fiscal 1993 and three newbuildings delivered during fiscal 1994.                

  General and administrative expenses were $14.1 million in fiscal 1994 as
compared to $14.0 million in fiscal 1993, representing a 9.9% increase on an    
annualized basis from fiscal 1993, reflecting additional administrative expenses
associated with new environmental legislation and with increased financing      
activity.                                                                       

    Income from vessel operations was $59.1 million in fiscal 1994 as compared
to $36.9 million in fiscal 1993, representing a 74.7% increase on an annualized 
basis from fiscal 1993, primarily the result of improved charter market         
conditions.                                                                     

Interest expense was $48.1 million in fiscal 1994 as compared to $47.4
million in fiscal 1993, representing a 10.7% increase on an annualized basis    
from fiscal 1993, reflecting higher average outstanding debt during the 1994    
period. The issuance of $175.0 million of 9 5/8% First Preferred Ship Mortgage  
Notes in July 1993, together with borrowings associated with the delivery of    
newbuildings during fiscal 1993, contributed to the higher average outstanding  
debt during fiscal 1994.                                                        

     During fiscal 1994, other income was $11.8 million, consisting primarily of
gains of $12.3 million from the sale of six vessels during the period. Other    
income during fiscal 1993 was $37.9 million, consisting primarily of gains of   
$12.2 million from the sale of six vessels and a gain of $25.0 million arising  
from insurance proceeds receivable on the loss of one of the Company's vessels. 

   Foreign currency exchange loss decreased from $77.9 million in the fiscal
1993 to $1.5 million in fiscal 1994 reflecting the conversion into U.S. dollars 
of substantially all of the Company's Japanese Yen-denominated debt by June     
1993. The Company has now substantially eliminated its remaining foreign        
currency exposure (other than exposure relating to its 50% interest in VCSC) and
as a result, has not incurred any material foreign exchange gains or losses     
subsequent to June 1993.                                                        

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Net income from discontinued operations increased from $1.9 million in
fiscal 1993 to $5.9 million in fiscal 1994, primarily as a result of a $5.7     
million gain arising on the sale of the nine multipurpose dry cargo vessels     
obtained in connection with the divestiture of the Company's investment in      
Baltimar Overseas Limited.                                                      

  Net income improved to $30.2 million in fiscal 1994 from a loss of $47.5
million in fiscal 1993, primarily as a result of the decreased foreign exchange 
loss, as well as improved charter market conditions.                            

LIQUIDITY AND CAPITAL RESOURCES                                                 

 The liquidity requirements of the Company relate to servicing its debt,
funding the equity portion of investments in vessels, funding working capital   
and maintaining cash reserves against fluctuations in operating cash flow. Net  
cash flow generated by continuing operations is the main source of liquidity for
the Company. Additional sources of liquidity include proceeds from asset sales  
and refinancings.                                                               

  The Company operates in a capital-intensive industry requiring extensive
investment in revenue-producing assets. Funds invested are raised mainly from   
borrowings and the Company's internally generated liquidity. The equity portion 
of an investment in a newbuilding is usually paid in installments, commencing   
one to three years in advance of delivery, for 10% to 80% of the vessel purchase
price. The equity portion of an investment in a second-hand vessel is usually   
paid in two portions: 10% on signing a purchase agreement, and an additional 20%
to 50% (depending on financing) upon delivery to buyers. Repayment of the debt  
incurred to purchase the vessel is made from vessel operating cash flow,        
typically over 8 to 10 years, compared to the vessel's asset life of            
approximately 20 years.                                                         

  During the first half of fiscal 1996, the Company has undertaken further
steps to improve its financial position and liquidity. During the first quarter 
of fiscal 1996, the Company refinanced certain of its existing term debt as well
as $23.8 million of 9 5/8% First Preferred Ship Mortgage Notes (the "1993       
Notes") with funds available under the $243 million Revolver at improved rates  
and credit terms. The Revolver also provided an additional $20 million of       
liquidity to the Company. In July 1995, the Company received $137.6 million net 
proceeds from its initial public offering of common stock, thereby further      
boosting liquidity and reducing debt through a $135 million reduction in the    
amount outstanding under the revolving credit facility.                         

    Net cash flow from continuing operations decreased to $41.9 million in the
first half of fiscal 1996 from $51.2 million during the first half of fiscal    
1995. The decrease was mainly caused by an increase in non-cash working capital 
balances, partially offset by higher income from operations. Net cash flow from 
continuing operations decreased 30.1% on an annualized basis (adjusting fiscal  
1994 results to include April 1993 results) to $87.5 million in fiscal 1995 from
$117.4 million in the eleven months ended March 31, 1994, due to declining fleet
size, declining TCE rates and rising interest expense. Net cash flow from       
continuing operations increased 52.5% on an annualized basis (adjusting fiscal  
1994 results by a factor of 12/11) in fiscal 1994 from $84.0 million during     
fiscal 1993, primarily as a result of a temporary improvement in charter market 
conditions.                                                                     

 No additional debt was incurred during fiscal 1995, consistent with the
Company's decision not to take delivery of any vessels during that period.      
Long-term debt increased $220.0 million in the eleven months ended March 31,    
1994 as a result of the issuance of $175.0 million of the 1993 Notes and        
borrowings associated with the delivery of one newbuilding. Proceeds from       
long-term debt and capital leases provided $292.5 million toward the financing  
of newbuildings during fiscal 1993.                                             

During fiscal 1995, in addition to scheduled debt repayment of $87.6  
million, the Company prepaid, from internally generated funds, $15.0 million of 
long-term debt secured by vessels sold during the year. The Company prepaid     
long-term debt and capital lease obligations of $243.3 million in the           
eleven-month fiscal period ended March 31, 1994, primarily representing         
prepayments out of the proceeds of the Company's issue of the 1993 Notes and the
prepayment of debts associated with vessels which were                          

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sold during the period. Total prepayments of long-term debt and capital lease   
obligations were $131.9 million in fiscal 1993, primarily reflecting the level  
of vessel sales during that period.                                             

 Capitalized loan costs were approximately $866,000 in the first half of
fiscal 1996 and $1.6 million in fiscal 1995, compared to $10.0 million in fiscal
1994. The high level of capitalized loan costs in fiscal 1994 resulted primarily
from capitalization of costs incurred on the issuance of the 1993 Notes.        

    The Company had outstanding a number of interest rate swap agreements with
commercial banks covering a total notional principal amount of $175 million as  
at September 30, 1995. The agreements expire between October 1995 and April 1996
and have an average remaining life of 4.5 months. These agreements effectively  
change the Company's interest rate exposure on $175 million of debt from a      
floating LIBOR rate to an average fixed rate of 5.68%. Subsequent to September  
30, 1995, the Company entered into an additional $250 million in interest rate  
swap agreements with three commercial banks. These new swap agreements have an  
average life of 3 years, expiring between October 1998 and December 1998, and   
effectively change the Company's interest rate exposure on $250 million of debt 
from a floating LIBOR rate to an average fixed rate of 5.85%. The Company also  
has outstanding $200 million of interest rate caps with a strike price of 8.00% 
vs. 3 month LIBOR. These caps expire in April 1997.                             

    One vessel was sold during the second quarter of fiscal 1996, resulting in
net proceeds of $5.6 million. In addition, the Company received $17.2 million in
the first quarter of fiscal 1996 as a result of a vessel sale and the receipt of
proceeds from vessel sales receivable at the end of fiscal 1995. Subsequent to  
September 30, 1995, the Company sold a vessel for $6.0 million. The Company     
received cash proceeds from the disposition of assets totalling $16.8 million in
fiscal 1995 as a result of the sale of six older vessels. Proceeds from the     
disposition of assets totalled $86.4 million and $156.9 million in fiscal 1994  
and 1993, respectively. Proceeds from the disposition of vessels in fiscal 1994 
and 1993 resulted from vessel sales which were intended to enhance the Company's
liquidity, the disposition of older vessels, and the receipt of insurance       
proceeds relating to the loss of one of the Company's vessels during the fiscal 
1993 period.                                                                    

    While its fleet modernization program is effectively complete, the Company
intends to continue selective purchases of modern, predominantly second-hand,   
high quality tankers should such vessels become available. Actual acquisition of
additional tankers will be subject to a number of factors, including the        
Company's expectations for future market rates, supply and demand within the    
tanker industry generally, and the Company's ability to obtain financing upon   
favorable terms. The Company took delivery of two modern second-hand Aframax    
tankers and one newbuilding during the first half of fiscal 1996, as            
replacements for older tankers recently sold, resulting in expenditures of $46.9
million net of capital lease financing of $44.6 million. Subsequent to September
30, 1995, the Company acquired a 1987-built Aframax tanker, which the Company   
will time-charter for a period of one year and then purchase for $26.5 million. 
In addition, the Company is negotiating the purchase of a 1989-built Aframax    
tanker from VCSC and the potential purchase of one Aframax newbuilding from a   
shipyard. The Company intends to finance these purchases by using existing cash 
balances or credit lines. Capital expenditures for vessels and equipment, net of
capital lease financing, decreased to $7.5 million in fiscal 1995 from $65.7    
million during the eleven months ended March 31, 1994 and $190.0 million in     
fiscal 1993, reflecting a slowing of the Company's fleet expansion program.     
Capital expenditures for drydocking decreased to $11.9 million in fiscal 1995   
from $13.3 million during the eleven months ended March 31, 1994 and $16.4      
million in fiscal 1993, reflecting the reduction in fleet size during these     
periods.                                                                        

  Teekay declared its first quarterly cash dividend of $0.215 per share on
its common stock in October 1995 and currently intends to continue paying       
quarterly dividends in that amount, subject to the Company's financial results  
and condition and declaration by the Board of Directors. Teekay has implemented 
a dividend reinvestment plan pursuant to which holders of its common stock are  
permitted to choose, in lieu of receiving cash dividends, to reinvest any       
dividends in additional shares of common stock. The Trusts informed Teekay, at  
the time of Teekay's initial public offering, that it was their intention to    
reinvest through the dividend reinvestment plan, or apply to open market        
purchases, at least 50% of                                                      

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any dividends to which they are entitled through the first quarter of fiscal    
1998. Since the initial public offering, the Trusts have reinvested through the 
dividend reinvestment plan at least 50% of the dividends declared by Teekay to  
which they were entitled.                                                       

  As at September 30, 1995, the Company's total liquidity, including cash,
marketable securities and undrawn lines of credit, totalled $244.3 million, as  
compared to $85.7 million as at March 31, 1995 and $107.2 million as at March   
31, 1994. The Company believes that, assuming a continuation of current market  
conditions, its financial resources are sufficient to meet its liquidity needs. 

INFLATION                                                                       

Although inflation has had a moderate impact on operating expenses,   
drydocking expenses and corporate overhead, management does not consider        
inflation to be a significant risk to direct costs in the current and           
foreseeable economic environment. However, in the event that inflation becomes a
significant factor in the world economy, inflationary pressures could result in 
increased operating and financing costs.                                        

FOREIGN EXCHANGE RATE FLUCTUATION                                               

     The international tanker industry's functional currency is the U.S. dollar.
Virtually all of the Company's revenues are in U.S. dollars and most of its     
operating costs are incurred in U.S. dollars. The Company incurs certain        
operating expenses in foreign currencies, the most significant of which are in  
Japanese Yen and Singapore dollars. During the first half of fiscal 1996,       
approximately 13% of vessel and voyage costs, overhead and drydock expenditures 
were denominated in these currencies. However, the Company has the ability to   
shift its purchase of goods and services from one country to another and, thus, 
from one currency to another, on relatively short notice.                       

     From 1986 to 1991, a period of high growth and strong operating performance
for the Company, management borrowed funds denominated in Japanese Yen. This led
to fluctuations in net income and retained earnings, recorded as gains or losses
from foreign exchange translations in the Company's financial statements, with  
corresponding increases or decreases in long-term debt. In fiscal 1993, the     
Company commenced an aggressive foreign exchange hedging policy in order to     
reduce its exposure to fluctuating Yen/U.S. dollar exchange rates. The Company  
completed this program in July 1994 and does not intend to undertake any        
unnecessary material exposure to foreign exchange fluctuations henceforth. While
the Company no longer has any Yen-denominated debt, the Company's net income may
be affected by fluctuations in equity income caused by foreign exchange gains or
losses from approximately $17.5 million (at current exchange rates) of          
Yen-denominated debt held by VCSC, a joint venture in which the Company owns a  
50% interest. However, the Company's 50% portion of this Yen-denominated debt is
presently hedged through a foreign exchange contract. See Note 11 to the        
Consolidated Financial Statements.                                              

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BUSINESS

    The Company is a leading provider of international crude oil and petroleum
product transportation services through the world's largest fleet of medium-size
oil tankers. The Company's modern fleet consists of 41 tankers: 36 Aframax oil  
tankers and oil/bulk/ore carriers, two smaller oil tankers, one VLCC, and,      
through a joint venture, a 50% interest in two additional Aframax oil tankers.  
The Company's fleet has a total cargo capacity of approximately 4.1 million tons
and its Aframax vessels represent approximately 7.0% of the total tonnage of the
world Aframax fleet. The Company owns a very modern fleet, with an average age  
of approximately 6.9 years, compared to an average age for the world oil tanker 
fleet, including Aframax tankers, of approximately 14.1 years and for the world 
Aframax tanker fleet of approximately 12.3 years.                               

THE INTERNATIONAL TANKER MARKET                                                 

OVERVIEW                                                              

   International seaborne oil and petroleum products transportation services
are provided by two main types of operators: major oil company captive fleets   
(both private and state-owned) and independent ship owner fleets. Both types of 
operators transport oil under short-term contracts (including single-voyage     
"spot charters") and long-term time charters with oil companies, oil traders,   
large oil consumers, petroleum product producers and government agencies. The   
oil companies own, or control through long-term time charters, approximately    
one-third of the current world tanker capacity, while independent companies own 
or control the balance of the fleet. The oil companies use their fleets not only
to transport their own oil, but also to transport oil for third party charterers
in direct competition with independent owners and operators in the tanker       
charter market. Management believes that the seaborne oil transportation        
business is decentralized. According to Lloyd's World Shipowning Groups (April  
1995), the largest owner by tonnage, Bergesen d.y. A/S, controls 2.7% of the    
total world tanker fleet and the top 10 participants control approximately 19%  
of the world tanker fleet, in each case measured by deadweight tonnage.         

  A significant and ongoing shift toward quality in vessels and operations
has been taking place in the tanker industry over the past several years as     
charterers and regulators increasingly focus on safety and protection of the    
environment. The oil transportation industry has historically been subject to   
regulation by national authorities and through international conventions;       
however, since 1990 there has been an ever-increasing emphasis on environmental 
protection through legislation and regulations such as OPA 90, IMO protocols,   
and Classification Society procedures, demanding higher quality tanker          
construction, maintenance, repair, and operations. In addition, oil companies   
acting as charterers, terminal operators, shippers and receivers are becoming   
increasingly selective in their acceptance of tankers, inspecting and vetting   
both vessels and companies on a periodic basis, and often excluding tankers on  
the basis of age alone. In calendar 1994, the Company's vessels were inspected  
237 times by oil companies and port states, as compared to 134 and 87 times in  
1993 and 1992, respectively. Management believes that the increasingly stringent
regulatory environment and emphasis on quality relating to environmental        
protection will accelerate the obsolescence of older, poor-quality tankers, and 
provide a competitive advantage to modern tankers with high quality management. 
See "--Regulation," "--Crewing and Staff ," "--The Company's Fleet."            

   Pricing of oil transportation services is set in a highly competitive and
efficient global tanker charter market with tanker brokers acting as            
intermediaries between ship owners and charterers. While some business is       
conducted directly between ship owners and charterers, at least one broker, and 
sometimes as many as three, act as intermediaries in most transactions. Tanker  
chartering is executed around the clock in several shipping centers, including  
London, New York, Tokyo, Singapore and Oslo. Business is transacted regionally  
according to the location of the charterer or ship owner, rather than the       
cargo's origin or destination. Time charters, as well as vessel sale and        
purchase transactions, are negotiated through brokers in the same centers in a  
similar pattern.                                                                

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In order to benefit from economies of scale, tanker charterers will   
typically charter the largest possible vessel to transport oil or products,     
consistent with port and canal dimensional restrictions and optimal cargo lot   
sizes. The oil tanker fleet is generally divided into the following six major   
types of vessels, based on vessel carrying capacity: (i) Ultra Large Crude      
Carriers ("ULCCs") of approximately 320,000 dwt or more; (ii) Very Large Crude  
Carriers ("VLCCs") of approximately 200,000 to 320,000 dwt; (iii) Suezmax size  
range of approximately 115,000 to 200,000 dwt; (iv) Aframax size range of       
approximately 75,000 to 115,000 dwt; (v) Panamax size range of approximately    
50,000 to 75,000 dwt; and (vi) small tankers of less than approximately 50,000  
dwt. ULCCs and VLCCs typically transport crude oil in long-haul trades, such as 
from the Arabian Gulf to Rotterdam via the Cape of Good Hope. Suezmax size      
tankers also engage in long-haul crude oil trades as well as in medium-haul     
crude oil trades, such as from West Africa to the U.S. East Coast. Aframax size 
vessels engage in both medium-and short-haul trades of less than 1,500 miles and
carry crude oil or petroleum products. Panamax size tankers and smaller tankers 
mostly transport petroleum products in short-haul to medium-haul trades.        

     In addition to the six foregoing types of tankers, oil/bulk/ore carriers or
"O/B/Os" are typically considered part of the world tanker fleet in industry    
statistics. O/B/Os represent approximately 7.6% of the world tanker fleet based 
on total cargo capacity. O/B/Os are of various sizes and are capable of carrying
oil or dry bulk cargoes. According to Drewry, as of October 1995, 29% of all    
existing O/B/Os were trading as tankers.                                        

Because of the size of VLCCs and ULCCs and their predominance in the  
long-haul trades, more than half of the world's seaborne oil transportation (by 
ton-miles) is conducted by these vessels. While the ULCC/VLCC market differs in 
several respects from smaller size tanker markets, VLCCs and ULCCs have a       
significant influence on the tanker charter market in general. The current      
average age of the VLCC and ULCC fleet is 14.2 years compared to an average age 
for the world Aframax fleet of 12.3 years.                                      

The graphs set forth below indicate the size composition of the world 
tanker fleet as of November 30, 1995.                                           

WORLD TANKER FLEET

FIGURE    

                                                                [Download Table]

                         NUMBER OF  PERCENTAGE   DEADWEIGHT   PERCENTAGE
VESSEL TYPE              TANKERS    OF TANKERS   METRIC TONS  OF TONNAGE
-----------              ---------  ----------   -----------  ----------
                                                                        
Smaller Tanker            1,649       49.5%      47,053        15.9%    
 (10,000-50,000 dwt.)                                                   
Panamax                     300        9.1%      18,000         6.4%    
 (50,000-75,000 dwt.)                                                   
Aframax                     586       17.5%      53,015        17.9%    
 (75,000-115,000 dwt.)                                                  
Suezmax                     354       10.6%      49,862        16.9%    
 (115,000-200,000 dwt.)                                                 
VLCC/ULCC                   443       13.3%     126,643        42.9%    
 (200,000 + dwt.)                                                       
                          -----      -----      -------       -----     
Totals:                   3,332      100.0%     295,233       100.0%    
                          =====      =====      =======       =====     


According to industry data, at November 30, 1995, the world fleet of  
Aframax tankers and O/B/Os (excluding an estimated 67 O/B/Os trading dry)       
consisted of 519 vessels, constituting approximately                            

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16% of the vessels in the world tanker and O/B/O fleet. By virtue of their size,
Aframax vessels are large enough to benefit from economies of scale yet have    
access to a wide range of ports, and are particularly well-suited for trading in
regional markets, including the Mediterranean, the Caribbean, the Northwestern  
European area and the Indo-Pacific Basin. The Company owns, or controls through 
joint ventures, 38 Aframax tankers and O/B/Os, which comprise roughly 7.3% of   
the tankers and O/B/Os trading in oil in the current world Aframax tanker fleet.

     Management estimates that approximately 30% of the ship days of the world's
Aframax tankers are spent trading in the Company's main trading region, the     
Indo-Pacific Basin. The Company estimates that it has a one quarter share of the
Indo-Pacific Basin Aframax market based on ship days spent in the region. This  
area contains a large number of loading and discharging points capable of       
receiving Aframax size vessels. Aframax tankers in the Indo-Pacific Basin (i)   
transport crude oil from three primary production locations--the Arabian Gulf,  
Australia and Indonesia--to refineries and storage points located short to      
medium distances away, (ii) transport petroleum products in medium-and long-haul
trades, and (iii) engage in some inter-regional trades.                         

SUPPLY AND DEMAND                                                     

   Tanker charter rates are strongly influenced by the supply of, and demand
for, tanker capacity because of the highly competitive nature of the tanker     
charter market, in large part attributable to the limited differentiation       
between the transportation services provided by tanker companies of comparable  
quality. Small changes in tanker utilization have historically led to relatively
large changes in tanker charter rates. Using the most recent peak and trough as 
an example, according to Drewry's Shipping Statistics and Economics (May 1993), 
there was an excess supply of capacity in the Aframax tanker market equal to    
6.6% of the existing Aframax fleet as of April 30, 1993, compared to 3.1% as of 
April 30, 1990; yet, according to information based on Drewry data, industry    
average Aframax TCE rates during the Company's fiscal 1993 were approximately   
40% lower than TCE rates during the Company's fiscal 1990.                      

   SUPPLY.  The supply of tankers is a function of new vessel deliveries and
the scrapping, conversion and loss of tonnage. According to Clarkson, from the  
end of 1988 through the end of 1993, the world supply of tankers increased by   
31.4 million dwt, which represents an average annual increase of approximately  
3%. New vessels were ordered during this period largely in anticipation of the  
scrapping of older and substandard tonnage as well as increased tanker demand,  
which, according to Maritime Strategies International Ltd., also grew by        
approximately 3% per annum during this time period. Scrapping levels remained   
low due to the strong charter rates that prevailed in the industry from 1988    
until 1992. Since the decline in charter rates in 1992 and the emergence of a   
more stringent environmental regime, the scrapping of older tonnage has         
substantially accelerated. According to Clarkson, in calendar 1994 scrapping    
exceeded deliveries by 4.9 million tonnes, resulting in the first annual        
decrease in tanker supply since 1986. In the first eleven months of calendar    
1995, scrapping has exceeded deliveries by an additional 2.7 million tonnes,    
resulting in a cumulative 2.5% decrease in tanker supply since December 31,     
1993. The following graph illustrates the development of tanker supply since    
1988:                                                                           

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WORLD TANKER FLEET DEVELOPMENT
DEADWEIGHT-METRIC TONS (MILLIONS) 

FIGURE      

                                                                [Download Table]


CALENDAR YEAR           DELIVERIES      SCRAPPINGS      FLEET SIZE
-------------           ----------      ----------      ----------
                                                                  
1988                        7.3              2.6           271.9  
1989                        8.6              1.1           275.5  
1990                        8.6              3.1           283.4  
1991                       12.3              2.2           288.6  
1992                       17.0             11.3           298.2  
1993                       17.5             12.5           304.9  
1994                       10.3             15.2           308.7  
Nov 1995                    9.0             11.7           295.2  


------------                                                                    
Information based upon Clarkson data.                                           

* Delivery and scrapping data reflects activity for the first eleven months of  
calendar 1995.                                                              

  Management anticipates a continued decrease in tanker supply relative to
demand due to (i) the aging of the significant portion of the fleet that was    
built prior to or in the mid-1970s and the significant costs associated with the
drydocking of these vessels to achieve a rated classification during their      
fourth or fifth special surveys (described below), (ii) increased customer      
emphasis on safety and quality as a result of stringent environmental           
regulations and heightened concern about liability for oil spills and (iii) a   
low charter rate environment which has discouraged newbuilding ordering. In     
addition, a number of developments have combined to effectively increase        
operating costs for the industry in general and to raise barriers to entry for  
smaller, undercapitalized ship owners, operators and speculators while providing
a potential competitive advantage for well-managed companies that can operate   
quality tonnage in large scale operations and have the financial strength to    
weather the current weakness in charter rates. See "Management's Discussion and 
Analysis of Results of Operations and Financial Condition--General."            

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    The Company owns a very modern fleet, with an average age of approximately
6.9 years, compared to an average age for the world oil tanker fleet, including 
Aframax tankers, of approximately 14.1 years and for the world Aframax tanker   
fleet of approximately 12.3 years. The following chart compares, at November 30,
1995, the age profiles of the Company's Aframax fleet, the world Aframax tanker 
fleet (excluding Teekay vessels) and the world tanker fleet.                    

COMPARISON OF FLEET AGE PROFILES

FIGURE  

                                                                [Download Table]


                                         Percentage of Fleet                   
                                         -------------------                   
                     0-4 Years  5-9 Years  10-14 Years  15-19 Years  20 + Years
                     ---------  ---------  -----------  -----------  ----------
                                                                               
Teekay Aframax                                                                 
  Tanker Fleet          38 %       40 %         8 %          14 %        0 %   
World Aframax                                                                  
  Tanker Fleet          22 %       17 %        19 %          21 %       21 %   
  (excluding Teekay                                                            
  vessels)                                                                     
World Tanker Fleet      23 %       14 %        11 %          25 %       27 %   

------------                                                                    

Information based upon Clarkson data.                                           

Vessels built during the peak building period of the mid-1970s, and   
earlier, shown above in the 15-19 Years and 20+ Years age ranges, are now       
approaching their fourth or fifth "Special Survey." Special Surveys involve     
thorough inspections and typically necessitate improvements to maintain a vessel
to industry standards which would allow continued operation. Special Surveys,   
required every four to five years, are conducted by independent classification  
societies, the five largest of which are Lloyds Register, Nippon Kaiji Kyokai,  
the American Bureau of Shipping, Det Norske Veritas and Bureau Veritas.         
Insurance companies and charterers rely to some degree on the survey and        
classification regime to provide reasonable assurance of a vessel's             
seaworthiness and vessels must be certified as "in-class" in order to continue  
to trade. Because the costs of maintaining a vessel in-class rise substantially 
as the age of the vessel increases, vessel owners often conclude that it is more
economical to scrap a vessel that has exhausted its anticipated useful life,    
which averages approximately 20 years, than to upgrade it to maintain it in     
class, particularly at a time when charter rates are at relatively low levels   
and when the market has become increasingly biased against older vessels.       
Approximately 35% to 45% of the vessels in the current world Aframax fleet will 
face their fourth or fifth Special Survey between 1995 and 1999 and, therefore, 
these ships are potential candidates for scrapping in the near future.          

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   As an illustration of the aging Aframax fleet and the substantial decline
in vessels on order that are available to replace the aging tankers, the        
following chart shows, on a calendar year-end basis, the historical development 
of the proportion of the Aframax tanker fleet that is 18 years or older, and the
Aframax tanker orderbook:                                                       

HISTORICAL DEVELOPMENT OF AFRAMAX FLEET 

FIGURE

                                                                [Download Table]

                                                        VESSELS 18 YEARS
                                                            AND OLDER   
         YEAR                   AFRAMAX ORDERBOOK        (PERCENTAGE OF 
(AS AT DECEMBER 31)               (# OF SHIPS)            AFRAMAX FLEET)
-------------------             -----------------       ----------------
                                                                        
1985                                    42                      10 %    
1986                                    33                      13 %    
1987                                    40                      15 %    
1988                                    45                      15 %    
1989                                    81                      17 %    
1990                                    83                      20 %    
1991                                    99                      25 %    
1992                                    73                      29 %    
1993                                    47                      32 %    
1994                                    42                      31 %    
Nov 30, 1996                            43                      31 %    

------------                                                                    
Information based upon Clarkson data.                                           

At any point in time, the level of scrapping activity is a function   
primarily of current and prospective charter market conditions, as well as      
factors which are heavily influenced by the age of the relevant vessel such as  
second-hand vessel values in relation to scrap prices, current and anticipated  
operating costs, and expected repair and survey costs. According to Clarkson,   
scrapping of Aframax tankers and O/B/Os occurred at an average annual rate of   
approximately six vessels per year for the period 1988 to 1991; 26 scrappings   
occurred during 1992, 22 in 1993, 24 in 1994, and 11 as at November 1995.       

  At December 31, 1991, the Aframax newbuilding orderbook contained orders
for 99 vessels, equivalent to 17% of the existing fleet; at November 30, 1995,  
the orderbook contained orders for 41 vessels, equivalent to approximately 7% of
the existing fleet. Orders placed for Aframax tankers occurred at an annual     
average rate of 35 vessels per year for the period 1988 through 1991. Twelve    
orders were placed in 1992, 15 in 1993, 20 in 1994, and 13 as at November 1995. 
Typically, delivery of a vessel occurs within 18 to 36 months after ordering.   

  Newbuilding deliveries of Aframax tankers, which were limited during the
depressed market conditions of the early to mid-1980s, increased after 1987 with
improved market conditions and in anticipation of the replacement of an aging   
fleet. Newbuilding deliveries of Aframax tankers occurred at an annual average  
rate of 22 vessels for the period 1988 through 1991. Forty deliveries occurred  
in 1992, 34 deliveries occurred in 1993, 23 deliveries occurred in 1994, and 9  
deliveries to November 1995. Management does not anticipate newbuilding rates   
will return to the levels of the late 1980s unless a substantial recovery in    
charter rates justifies such increase.                                          

   DEMAND.  Tanker demand is expressed in "ton-miles" and is measured as the
product of (a) the amount of oil transported in tankers, times (b) the distance 
over which this oil is transported. Tonnage of oil shipped is primarily a       
function of global oil consumption, which is driven by economic activity as well
as the long-term impact of oil prices on the location and related volume of oil 
production. Tonnage of oil shipped is also influenced by transportation         
alternatives such as pipelines.                                                 

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    The distance over which oil is transported is the more variable element of
the ton-mile demand equation. It is determined by seaborne trading and          
distribution patterns, which are principally influenced by the locations of     
production and the optimal economic distribution of such production to          
destinations for refining and consumption. Seaborne trading patterns are also   
periodically influenced by geo-political events which divert tankers from normal
trading patterns, as well as by inter-regional oil trading activity created by  
oil supply/demand imbalances. Tankers are also sometimes used as "floating      
storage" by oil companies and oil traders, particularly during times of supply  
uncertainty such as during the 1991 Persian Gulf War.                           

Two different trends in the oil market over the last few years have   
strongly affected the development of the tanker market. First, the rapid        
economic expansion in the Indo-Pacific Basin, the Company's primary area of     
focus, has resulted in a steady and strong growth in oil consumption in that    
region. According to the International Energy Agency ("IEA"), oil consumption in
the Indo-Pacific Basin increased by 5.3% in 1994 as compared to an increase of  
0.2% in oil consumption in the rest of the world. In addition, between 1990 and 
1994, oil consumption in the Indo-Pacific Basin increased by a compounded annual
growth rate of 4.4% as compared to a decrease of 0.7% in oil consumption in the 
rest of the world.                                                              

     The second trend affecting the tanker market relates to the location of oil
production relative to major discharge points, which affects the average length 
of voyages. Total world oil production increased by 1.5% in 1994. Most of this  
increase, however, was provided by non-Arabian Gulf production, primarily from  
the North Sea and the Caribbean regions. Production in the North Sea increased  
by 19.1% in 1994 as compared to an increase of 0.6% in Arabian Gulf OPEC        
production during the same time period.                                         

   The tables set forth below indicate the geographic breakdown of world oil
demand and supply.                                                              

WORLD OIL DEMAND (MILLIONS OF BARRELS PER DAY)(1)                               

                                                        [Enlarge/Download Table]

                                                       1990  1991  1992  1993  1994  CAGR* 
                                                       ----  ----  ----  ----  ----  ----- 
                                                                                           
United States West Coast(2)...........................  2.7   2.7   2.6   2.6   2.7    --  
Pacific(3)............................................  6.1   6.2   6.3   6.3   6.6   2.0 %
Asia..................................................  7.8   8.3   9.1   9.8  10.4   7.5  
                                                       ----  ----  ----  ----  ----  ----- 
  Total Indo-Pacific Basin............................ 16.6  17.2  18.0  18.7  19.7   4.4  
Other World........................................... 49.8  49.7  49.2  48.4  48.5  (0.7 )
                                                       ----  ----  ----  ----  ----  ----- 
  Total Demand........................................ 66.4  66.9  67.2  67.1  68.2   0.7  
                                                       ====  ====  ====  ====  ====  ======

------------                                                                    

(1) Information based on International Energy Agency -- Monthly Oil Market      
Report.                                                                 

(2) Information based on U.S. Department of Energy data.                        

(3) Includes Australia, New Zealand, and Japan.                                 

* Compounded annual growth rate.                                                

WORLD OIL SUPPLY (MILLIONS OF BARRELS PER DAY)                                  

                                                        [Enlarge/Download Table]

                                                       1990  1991  1992  1993  1994  CAGR* 
                                                       ----  ----  ----  ----  ----  ----- 
                                                                                           
North Sea.............................................  3.8   4.0   4.3   4.7   5.6  10.2 %
Other non-OPEC........................................ 38.4  37.8  36.7  35.8  35.6  (1.9 )
                                                       ----  ----  ----  ----  ----  ----- 
  Total non-OPEC...................................... 42.2  41.8  41.0  40.5  41.2  (0.6 )
Arabian Gulf OPEC..................................... 15.3  14.9  16.0  16.8  16.9   2.5  
Other OPEC............................................  9.5  10.2  10.2  10.1  10.4   2.3  
                                                       ----  ----  ----  ----  ----  ----- 
  Total OPEC.......................................... 24.8  25.1  26.2  26.9  27.3   2.4  
                                                       ----  ----  ----  ----  ----  ----- 
  Total Supply........................................ 67.0  66.9  67.2  67.4  68.5   0.6  
                                                       ====  ====  ====  ====  ====  ======

------------                                                                    

Information based on International Energy Agency -- Monthly Oil Market Report.  

* Compounded annual growth rate.                                                

  Incremental production from the North Sea and the Caribbean results in a
less significant increase in demand for tanker services than incremental        
production from the Arabian Gulf, because of the closer proximity of the North  
Sea and the Caribbean to discharge points and the associated shorter average    
length of voyage for oil tankers. For example, the tanker tonnage required to   
ship the incremental production of one million barrels per day from the North   
Sea to the United States is approximately 5 million dwt as compared to          
approximately 13 million dwt of tanker tonnage required to ship the             

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incremental production of one million barrels per day from the Middle East to   
the United States, as illustrated in the graph below.                           

TANKER TONNAGE REQUIREMENTS TO SHIP ONE MILLION BARRELS PER DAY 

FIGURE

                                                                [Download Table]

                                 MILLION OF DEAD WEIGHT
                                         TONNES        
                                 ----------------------
                                                       
Total oil trade                            6.4         
M. East Exports                            8.8         
M. East -- US                             13.0         
M. East -- WE                             10.0         
M. East -- JPN                             8.0         
M. East -- Asia                            6.0         
Non-M. East Exp                            3.8         
FSU Exp                                    2.4         
N. Sea -- US                               5.2         
N. Sea -- NWE                              1.3         
OPEC Exp                                   7.5         
Non-OPEC                                   4.3         


------------                                                                    

Information based on rough estimates from R.S. Platou Economic Research a.s.,   
1995.                                                                           

The recent shift in the origin of oil production, which resulted in a 
reduction in the average voyage length for oil tankers, adversely affected total
tanker demand. According to industry sources, total tanker demand remained flat 
during 1994, in spite of overall higher global oil consumption. For 1996, the   
IEA forecasts a global oil consumption growth of 2.3% and a continued higher    
growth rate in the Indo-Pacific Basin as compared to the rest of the world.     
Management believes that, over the longer term, a larger percentage of future   
oil demand growth will be met by Arabian Gulf oil producers, thereby increasing 
tanker demand. Maritime Strategies Inc. forecasts that tanker demand will grow  
2.4% in 1996 and 3.3% in 1997.                                                  

BUSINESS STRATEGY                                                               

 The Company has always maintained a service-oriented business strategy,
seeking first to define a trading strategy and develop business relationships,  
and only then to secure tanker tonnage to meet its needs. This approach to the  
business was evidenced by the Company's initial reliance on high-quality        
chartered-in tonnage during the period of 1976-1986 as the most cost-effective  
source of tonnage. When the availability of acceptable third party vessels for  
chartering-in declined, the Company decided to acquire its own high-quality     
in-house fleet to service its tonnage needs.                                    

  The Company's business strategy is customer- and operations-oriented and
focuses on the transportation of crude oil and petroleum products via its       
Aframax tankers for clients with transport requirements in the Indo-Pacific     
Basin. With the largest concentration of Aframax tankers and O/B/Os in this     
region, management believes that it provides the most comprehensive service via 
Aframax tankers in the Indo-Pacific Basin.                                      

  The Company believes that its business strategy, executed with a modern,
homogenous fleet and a skilled staff, yields strong operating returns, relative 
to competitors, in all charter market conditions. Specifically, the Company     
believes that it has the following competitive advantages:                      

   -  GEOGRAPHICAL CONCENTRATION: By focusing on the Indo-Pacific Basin, the
 Company has been able, with a relatively small share (7.0% of total
       tonnage) of the world Aframax fleet, to develop a significant presence in
this region with charterers of medium-size tankers, facilitating  
     comprehensive coverage of charterers' requirements and providing a base
    for efficient operation and a high degree of capacity utilization. The
Company estimates that it has a market share of                   

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approximately one quarter based upon ship days in this region. The
     Company's principal discharge ports are in Japan, Korea, China, Taiwan,
Malaysia, Thailand, Singapore, Australia and the United States.   

-  LARGE FLEET OF UNIFORM-SIZE VESSELS: The Company's large fleet of  
       Aframax tankers, many of which are in sister vessel series (substantially
      identical vessels), affords greater scheduling flexibility due to vessel
substitution opportunities.                                       

   -  HIGH-QUALITY, MODERN TONNAGE: The Company's modern fleet operates with
      high fuel efficiency and low maintenance and operating costs, and, in an
   environment of increasingly stringent operating and safety standards,
enjoys a high level of acceptance by charterers.                  

  -  OPERATIONAL SCALE AND CONTROL: By virtue of the size of the Company's
       operations which are concentrated in one geographical region, the Company
 is able to service substantially all of its needs in-house, without
      having to rely on outside ship managers or crewing agencies. The Company
 has an experienced staff at sea and ashore, which affords a focused
 marketing effort, tight cost controls, and effective operations and
safety monitoring.                                                

 The Company's business strategy has resulted in TCE rates and operating
costs that are superior to averages indicated by industry data. As a result, the
Company has achieved consistently higher operating cash flow per vessel as      
compared to an average of certain other publicly traded bulk shipping companies,
which is illustrated in the graph below.                                        

OPERATING CASH FLOW PER SHIP PER DAY
(Calendar Year Basis) 

FIGURE  

                                                                [Download Table]

                                            DOLLARS PER DAY                 
                         ---------------------------------------------------
                                                        *AVERAGE OF OTHER   
     YEARS               TEEKAY FLEET AVERAGE        BULK SHIPPING COMPANIES
---------------          --------------------        -----------------------
                                                                            
1990                           11,014                         8,190         
1991                           11,048                         9,389         
1992                            7,393                         4,947         
1993                            8,426                         5,034         
1994                            9,033                         4,020         
First half of 1995              9,835                         3,437         

---------------                                                                 

Information based upon respective company financial data.                       

* Vessel weighted average of the following companies: Bergesen d.y. A/S, Bona   
Shipholding Ltd., London & Overseas Freighters Limited, OMI Corp., Overseas 
Shipholding Group, and Smedvig Tankships Limited.                           

     Due to its adherence to stringent maintenance standards for its vessels and
operational standards for its personnel, the Company is recognized by           
high-quality charterers for transportation excellence. The Company believes that
acceptance of a vessel and its operators by charterers will be as important in  
the future as regulatory constraints, since charterers are increasingly         
inspecting and monitoring the quality of vessels and operators.                 

  The Company's marketing strategy has been, and in the foreseeable future
will be, focused on Aframax-size tankers in the Indo-Pacific Basin. However,    
management intends to closely monitor the long-term evolution of the tanker     
industry and to adapt its strategy according to changing market dynamics or     
fundamentals.                                                                   

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THE COMPANY'S FLEET                                                             

     The following fleet list provides information with respect to the Company's
vessels.                                                                        

                                                        [Enlarge/Download Table]

                                             YEAR                                  %    
                                SERIES/YARD  BUILT  TYPE   DWT-MT      FLAG    OWNERSHIP
                                -----------  ----   ----  ---------  --------  ---------
                                                                                        
AFRAMAX TANKERS (38)                                                                    
POUL SPIRIT.................... Onomichi     1995   DH       98,600  Liberian      100% 
TORBEN SPIRIT.................. Onomichi     1994   DH       98,500  Bahamian      100% 
SAMAR SPIRIT................... Onomichi     1992   DH       98,640  Bahamian      100% 
LEYTE SPIRIT................... Onomichi     1992   DH       98,744  Bahamian      100% 
LUZON SPIRIT................... Onomichi     1992   DH       98,629  Bahamian      100% 
MAYON SPIRIT................... Onomichi     1992   DH       98,507  Bahamian      100% 
TEEKAY SPIRIT.................. Onomichi     1991   SH      100,336  Bahamian      100% 
PALMSTAR LOTUS................. Onomichi     1991   SH      100,314  Bahamian      100% 
PALMSTAR THISTLE............... Onomichi     1991   SH      100,289  Bahamian      100% 
PALMSTAR ROSE.................. Onomichi     1990   SH      100,202  Bahamian      100% 
PALMSTAR POPPY................. Onomichi     1990   SH      100,031  Bahamian      100% 
ONOZO SPIRIT................... Onomichi     1990   SH      100,020  Bahamian      100% 
PALMSTAR CHERRY................ Onomichi     1990   SH      100,024  Bahamian      100% 
PALMSTAR ORCHID................ Onomichi     1989   SH      100,047  Bahamian      100% 
VICTORIA SPIRIT (OBO).......... Hyundai      1993   DH      103,153  Bahamian      100% 
VANCOUVER SPIRIT (OBO)......... Hyundai      1992   DH      103,203  Bahamian      100% 
SHILLA SPIRIT.................. Hyundai      1990   SH      106,677  Liberian      100% 
ULSAN SPIRIT................... Hyundai      1990   SH      106,679  Liberian      100% 
NAMSAN SPIRIT.................. Hyundai      1988   SH      106,670  Liberian      100% 
PACIFIC SPIRIT................. Hyundai      1988   SH      106,665  Liberian      100% 
PIONEER SPIRIT................. Hyundai      1988   SH      106,671  Liberian      100% 
FRONTIER SPIRIT................ Hyundai      1988   SH      106,668  Liberian      100% 
SENANG SPIRIT.................. Imabari      1994   DH       95,649  Bahamian      100% 
SEBAROK SPIRIT................. Imabari      1993   DH       95,700  Liberian      100% 
SERAYA SPIRIT.................. Imabari      1992   DS       97,119  Bahamian      100% 
SENTOSA SPIRIT................. Imabari      1989   DS       97,163  Liberian      100% 
ALLIANCE SPIRIT................ Imabari      1989   DS       97,088  Bahamian       50% 
SUDONG SPIRIT.................. Imabari      1987   DS       98,215  Liberian      100% 
GALAXY RIVER*.................. Imabari      1987   DS       96,960  Liberian        0% 
KYUSHU SPIRIT.................. Mitsubishi   1991   DS       95,562  Bahamian      100% 
KOYAGI SPIRIT.................. Mitsubishi   1989   SH       95,987  Liberian      100% 
AMERSHAM....................... Sumitomo     1981   SH       88,360  Liberian       50% 
OPPAMA SPIRIT.................. Sumitomo     1980   SH       90,333  Bahamian      100% 
MAGELLAN SPIRIT................ Hitachi      1985   SH       95,000  Liberian      100% 
PALM MONARCH................... Mitsui       1981   SH       89,922  Liberian      100% 
MENDANA SPIRIT................. Namura       1980   SH       81,657  Bahamian      100% 
HONSHU SPIRIT.................. Tsuneishi    1979   SH       88,250  Bahamian      100% 
TASMAN SPIRIT**................ Onomichi     1979   SH       87,588  Liberian      100% 
OTHER TANKERS (3)                                                                       
MUSASHI SPIRIT................. Sasebo       1993   SH      280,654  Bahamian      100% 
SCOTLAND....................... Mitsubishi   1982   DS       40,794  Bahamian      100% 
CHIBA SPIRIT................... Mitsui       1980   DB       60,874  Bahamian      100% 
                                                          ---------                     
                                                          4,112,144                     
                                                          =========                     

------------                                                                    

DH  Double-hull tanker                                                          

DB  Double-bottom tanker                                                        

DS  Double-sided tanker                                                         

SH  Single-hull tanker                                                          

OBO Oil/Bulk/Ore carrier                                                        

* Vessel time-chartered for one year ending November 1996 at which time the     
Company is committed to purchase.                                           

**Pre-MARPOL vessel, i.e., non-segregated ballast tanks.                        

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Many of the Company's vessels have been designed and constructed as   
substantially identical sister ships. Such vessels can, in many situations, be  
interchanged, providing scheduling flexibility and greater capacity utilization.
In addition, spare parts and technical knowledge can be applied to all the      
vessels in the particular series, thereby generating operating efficiencies.    

The Company has disposed of several vessels as part of its fleet      
modernization program. During fiscal 1994 and fiscal 1995, the Company disposed 
of 13 older Aframax tankers: two 1976-built Aframax tankers that were on        
bareboat charter to the Company were redelivered to their owners, and 11 1975-to
1977-built Aframax tankers owned by the Company were sold. The total gain on    
disposition of these vessels was $26.4 million. During fiscal 1994, the Company 
took delivery of three Aframax double-hull newbuildings and during the first    
half of fiscal 1996, the Company acquired one second-hand double-sided Aframax  
tanker (SUDONG SPIRIT) and one second-hand single-hull Aframax tanker (MAGELLAN 
SPIRIT). In addition, the Company has entered into an agreement to time-charter 
a second-hand double-sided Aframax tanker (GALAXY RIVER) for a period of one    
year and, at the end of which time, to purchase the vessel for $26.5 million and
is negotiating the purchase of a 1989-built Aframax tanker owned by VCSC and the
potential purchase of a newbuilding Aframax tanker from a shipyard.             

Teekay participates in a joint venture, VCSC, which owns two Aframax  
tankers. One joint venture vessel is completing a long-term time charter to a   
major oil company; the other vessel currently trades on the spot market and, as 
discussed above, may be sold to Teekay. Both of these vessels are included in   
the above fleet list. VCSC is 50% directly owned by Teekay and 50% owned by a   
company associated with Mr. Thomas Kuo-Yuen Hsu, a director of Teekay.          

CLASSIFICATION AND INSPECTION                                                   

 All of the Company's vessels have been certified as being "in class" by
their respective classification societies: Nippon Kaiji Kyokai, Lloyds Register,
Det Norske Veritas or American Bureau of Shipping. Every commercial vessel's    
hull and machinery is "classed" by a classification society authorized by its   
country of registry. The classification society certifies that the vessel has   
been built and maintained in accordance with the rules of such classification   
society and complies with applicable rules and regulations of the country of    
registry of the vessel and the international conventions of which that country  
is a member. Each vessel is inspected by a surveyor of the classification       
society every year ("Annual Survey"), every two to three years ("Intermediate   
Survey") and every four to five years ("Special Survey"). Most vessels are also 
required, as part of the Intermediate Survey process, to be dry-docked every 24 
to 30 months for inspection of the underwater parts of the vessel and for       
necessary repair related to such inspection. A number of the Company's vessels  
have qualified with their respective classification societies for drydocking    
only every five years in connection with the Special Survey and are no longer   
subject to the Intermediate Survey drydocking process. To so qualify, the       
Company was required to enhance the resiliency of the underwater coatings of    
each such vessel as well as to install apparatus on each vessel to accommodate  
thorough underwater inspection by divers.                                       

In addition to the classification inspections, many of the Company's  
customers, including the major oil companies, regularly inspect the Company's   
vessels as a precondition to chartering voyages on such vessels. In each of the 
last four years, Tanker Advisory Center, Inc. (New York) has rated the Company's
fleet a "meritorious tanker fleet," a designation which, in the latest          
publication (March 1995), placed it in the top quarter of fleets containing 10  
or more tankers. Management believes that the Company's well-maintained, high   
quality tonnage should provide it with a competitive advantage in the current   
environment of increasing regulation and customer emphasis on quality of        
service.                                                                        

     Company employees perform much of the necessary ordinary course maintenance
and regularly inspect all of the Company's vessels, both at sea and while the   
vessels are in port. Vessels are inspected two to four times per year using     
predetermined and rigorous criteria. Each vessel is examined and specific       
notations are made, and recommendations are given for improvements to the       
overall condition of the vessel, maintenance, safety and crew welfare.          

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OPERATIONS AND SHIP MANAGEMENT                                                  

   Through wholly owned subsidiaries located worldwide, the Company provides
substantially all of the operations, ship maintenance, crewing, technical       
support, shipyard supervision, insurance and financial management services      
necessary to support its fleet. While certain ship management and commercial    
operations services are contracted out, the Company believes that it could      
obtain a replacement provider of these services, or could provide these services
internally, without any negative impact on its operations.                      

    Each of the Company's vessels is owned, or controlled through a capital or
operating lease, by a separate wholly owned subsidiary of Teekay. Substantially 
all of the Company's vessels have been chartered to Palm under long-term        
time-charters (the "Palm Charters"). Each of the Palm Charters is based upon an 
industry standard form and conforms generally to industry standards for time    
charters. To the extent that the freight that Palm is paid by charterers in the 
employment of the Company's vessels exceeds the amounts that Palm is obligated  
to pay to the Company's subsidiaries under their respective Palm Charter, Palm  
retains such excess earnings. However, if such freight is less than the charter 
hire under the Palm Charters, Palm is obligated to make the charter hire payment
without any adjustment. Palm is required to make fixed monthly charter hire     
payments in advance to the owner or lessee of the vessel, except for periods    
when the vessel is off-hire.                                                    

   Under the Palm Charters, the owner or lessee, as the case may be, equips,
insures and mans its vessel so that it is fit to trade through such party's     
management agreement with Teekay Shipping Limited. Each of the owners or lessees
has a lien on all of its vessel's cargoes as security for any amounts due to    
Palm under the Palm Charters and Palm has a lien on the vessel for certain      
amounts due and not otherwise paid by the owner or lessee. Each of the Palm     
Charters terminates if the vessel is lost or title is otherwise requisitioned by
a government authority. Absent such termination, the Palm Charters' termination 
dates range from February 2002 to February 2006. Certain aspects of the Palm    
Charters with respect to the Mortgaged Vessels are described under "The         
Mortgaged Vessels--Charters."                                                   

   The Company has a worldwide chartering staff located in Vancouver, Tokyo,
London and Singapore. Each office serves the Company's clients headquartered in 
such office's region. Fleet operations, vessel positions and charter market     
rates are monitored around the clock. Management believes that monitoring such  
information is critical to making informed bids on competitive brokered         
business. Approximately 75% of the Company's net revenues were derived from spot
voyages during first half of fiscal 1996.                                       

CREWING AND STAFF                                                               

The Company employs approximately 260 captains, chief engineers, chief
officers and first engineers, approximately 1,200 additional personnel at sea   
and approximately 125 personnel ashore.                                         

 The Company places great emphasis on attracting, through its recruiting
offices in Manila and Glasgow, qualified crew members for employment on the     
Company's tankers. Recruiting has become an increasingly difficult task for     
operators in the tanker industry. The Company pays competitive salaries to its  
personnel and tries to promote, when possible, from within their ranks.         
Management believes that the well maintained quarters and equipment on the      
Company's vessels help to attract and retain motivated and qualified seamen and 
officers. Although the Company's employees have not historically been           
represented by a union, the Company is currently negotiating a collective       
bargaining agreement with a union that would, if completed, cover substantially 
all of its junior officers and seamen. The Company believes that, if completed, 
the collective bargaining agreement will contain wage and other terms           
substantially similar to those applying to the covered personnel under the      
Company's existing policies.                                                    

The Company has a cadet training program, the purpose of which is to  
develop a cadre of future senior officers for the Company, with two specially   
equipped vessels that are staffed with instructors and trainees. In addition to 
the basic training that all seamen are required to undergo to achieve           
certification, the Company provides additional training of as much as one month 
for all newly hired seamen and junior officers at training facilities in the    
Philippines. Safety procedures are a critical element of this training and      

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continue to be emphasized through the Company's onboard training program.       
Management believes that high quality manning and training policies will play an
increasingly important role in distinguishing larger independent tanker         
companies which have in-house (or affiliate) capabilities, from smaller         
companies that must rely on outside ship managers and crewing agents.           

   The Company has retained Det Norske Veritas, the Norwegian classification
society, to audit the Company's commercial and technical operations and         
management procedures worldwide with a view to obtaining accreditation to ISO   
9000/9002 standards of total quality management. The first stage of the process 
was completed in November 1994 when the Company was found to be in compliance   
with the ISO 9002 standards and was presented with its Safety and Environmental 
Protection certificate. ISO 9000 is a series of international standards for     
quality systems; ISO 9002 is the standard most commonly used in the shipping    
industry.                                                                       

CUSTOMERS                                                                       

  Customers of the Company include major oil companies, major oil traders,
large oil consumers and petroleum product producers, government agencies, and   
various other entities dependent upon the Aframax trade. No single customer has 
accounted for more than 10% of the Company's consolidated revenues or net income
in any of the last three fiscal years.                                          

COMPETITION                                                                     

 International seaborne oil and petroleum products tanker transportation
services are provided by two main types of operators: major oil company captive 
fleets (both private and state-owned) and independent ship owner fleets. Many   
major oil companies and other oil trading companies, the primary charterers of  
the vessels owned or controlled by the Company, also operate their own vessels  
and use such vessels not only to transport their own oil, but also to transport 
oil for third party charterers in direct competition with independent owners and
operators in the tanker charter market. Competition for charters is intense and 
is based upon price, location, size, age, condition and acceptability of the    
vessel and its manager to charterers. In addition, an oversupply of tankers     
relative to demand and depressed charter market rates have heightened price     
competition and have adversely affected the Company's charter rate performance. 
Competition in the Aframax segment is also affected by the availability of other
size vessels to compete in the trades in which the Company engages. Suezmax size
vessels as well as Panamax size vessels can compete for many of the same        
charters for which the Company competes. ULCCs and VLCCs rarely compete directly
with Aframax tankers for specific charters. However, because ULCCs and VLCCs    
comprise a substantial portion of the total capacity of the market, movements by
such vessels into Suezmax trades and of Suezmax vessels into Aframax trades     
would heighten the already intense competition. See "--The International Tanker 
Market--Supply and Demand--Demand" and "Risk Factors--Competition."             

The Company competes principally with other Aframax owners through the
global tanker charter                                                           
market, comprised of tanker broker companies which represent both charterers and
ship owners in chartering transactions. Within this market, some transactions,  
referred to as "market cargoes," are offered by charterers through two or more  
brokers simultaneously and shown to the widest possible range of owners; other  
transactions, referred to as "private cargoes," are given by the charterer to   
only one broker and shown selectively to a limited number of owners whose       
tankers are most likely to be acceptable to the charterer and are in position to
undertake the voyage. Management estimates that the Company transacts           
approximately one-third of its spot voyages from market cargoes, the remainder  
being either private cargoes or direct cargoes transacted directly with         
charterers outside this market.                                                 

Other large operators of Aframax tonnage include Shell International  
Marine, a subsidiary of Royal Dutch/Shell Petroleum Corporation, with           
approximately 24 vessels trading globally (6 of which are on charter from Sanko 
Steamship Co. Ltd., an independent Japanese shipping company), Neptune Orient   
Lines Ltd. (owned partially by the Singapore government), with approximately 14 
vessels (10 of which are currently trading in the Caribbean), and Bona          
Shipholding Limited, which controls approximately                               

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25 vessels. The Company believes that it has significant competitive advantages 
in the Aframax tanker market as a result of the age, quality, type and          
dimensions of its vessels and its large market share in the Indo-Pacific Basin. 
Some competitors of the Company, however, may have greater financial strength   
and capital resources than the Company. See "Business--Business Strategy."      

RISK OF LOSS AND INSURANCE                                                      

 The business of the Company is affected by a number of risks, including
mechanical failure of the vessels, collisions, property loss to the vessels,    
cargo loss or damage and business interruption due to political circumstances in
foreign countries, hostilities and labor strikes. In addition, the operation of 
any ocean-going vessel is subject to the inherent possibility of catastrophic   
marine disaster, including oil spills and other environmental mishaps, and the  
liabilities arising from owning and operating vessels in international trade.   
OPA 90, by imposing potentially unlimited liability upon owners, operators and  
demise (bareboat) charterers for certain oil pollution accidents in the United  
States, has made liability insurance more expensive for ship owners and         
operators and has also caused insurers to consider reducing available liability 
coverage.                                                                       

  The Company maintains marine hull and machinery and war risks insurance,
which includes the risk of actual or constructive total loss, and protection and
indemnity insurance with mutual assurance associations. The Company does not    
carry insurance covering the loss of revenue resulting from vessel off-hire     
time. The Company believes that its current insurance coverage is adequate to   
protect against most of the accident-related risks involved in the conduct of   
its business and that it maintains appropriate levels of environmental damage   
and pollution insurance coverage. Currently, the available amount of coverage   
for pollution is $700 million per vessel per incident. However, there can be no 
assurance that all risks are adequately insured against, that any particular    
claim will be paid or that the Company will be able to procure adequate         
insurance coverage at commercially reasonable rates in the future.              

LEGAL PROCEEDINGS                                                               

GENERAL                                                               

   The Company is party, as plaintiff or defendant, to a variety of lawsuits
for damages arising principally from personal injury and property casualty      
claims. Such claims are covered by insurance, subject to customary deductibles. 
Management believes that such claims will not have a material adverse effect on 
the financial position, results of operations or liquidity of the Company.      

NAGASAKI SPIRIT                                                       

    On September 20, 1992, the Nagasaki Spirit, a vessel capital leased by one
of the wholly owned shipowning subsidiaries of Teekay, was struck by another    
ship, the Ocean Blessing, in the Strait of Malacca, between Malaysia and        
Indonesia. The Nagasaki Spirit was towed to Singapore where after inspection it 
was declared a constructive total loss. The Company received approximately $53  
million in insurance proceeds from the hull underwriters of the Nagasaki Spirit,
a portion of which was used to repay indebtedness on the vessel.                

A number of claims have arisen as a result of the collision, and      
proceedings are presently pending in the High Court of Singapore in order to    
determine liability for the collision and the amount of damages recoverable.    
Claims by the dependents of the crew of the Nagasaki Spirit have been settled. A
claim of approximately $1.4 million for the cost of clean up of the oil         
pollution caused by the Nagasaki Spirit and associated costs has been made by   
the Department of Environment for the Government of Malaysia. Another           
pollution-based claim, for approximately $2.5 million plus unspecified damages, 
has been filed by the Government of Indonesia in an Indonesian District Court.  
Any payment made in settlement of these claims will be covered by insurance.    
While it is possible that pollution damage claims may be asserted by others, the
Company believes that any liability it may have for such claims will be well    
within the applicable limit of $700 million of insurance coverage per vessel per
incident. There is no deductible applicable to the pollution liability coverage.
There are also claims pending by some of the owners of                          

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cargo aboard the Ocean Blessing against the Company in excess of $27 million.   
The liability, if any, of the Company in respect of these claims is covered by  
insurance. The owners of the cargo aboard the Nagasaki Spirit have agreed not to
pursue any claims they may have against the Company.                            

    A claim by a salvor for salvage and special compensation was arbitrated in
London. The award for salvage will be a priority claim against the proceeds of  
the sale of the Nagasaki Spirit, which are currently lodged with the Singapore  
Court. The proceeds of the sale were approximately $9.0 million; the salvage    
award was approximately $4.9 million against the owners. The award for special  
compensation in the amount of approximately $2.25 million was appealed and      
overturned by the appeal arbitrator. On successive appeals, both the High Court 
of Justice and the Court of Appeals in London upheld the appeal arbitrator's    
findings that no special compensation was payable. The salvor is entitled to    
make a final appeal to the House of Lords. The liability for salvage is covered 
by the sale proceeds presently lodged with the Singapore Court and any special  
compensation is covered by insurance.                                           

Management does not believe that the result of the pending litigation 
involving the Nagasaki Spirit will have a material adverse effect upon the      
Company. However, no assurance can be given that additional litigation will not 
be commenced as a result of such collision. The Company believes that any claims
established by additional litigation arising out of such collision would be     
fully covered by insurance.                                                     

LITIGATION AGAINST THE ESTATE OF THE COMPANY'S FOUNDER                

  In May 1993, a lawsuit against the original representative of the estate
(the "Estate") of the Company's founder, J. Torben Karlshoej, was filed in the  
Supreme Court of British Columbia (the "B.C. Court") by Mr. Karlshoej's first   
wife. The plaintiff, who was divorced from Mr. Karlshoej in 1971, two years     
prior to the founding of the Teekay organization, alleges that she is entitled  
to, among other things, an accounting of the Estate, a share of the Estate or   
support from the Estate, specific performance of an express or an implied       
agreement to compensate her or, alternatively, damages for breach of that       
agreement, quantum meruit and/or restitution for unjust enrichment. In April    
1995, the plaintiff filed with the B.C. Court a notice of motion to amend her   
statement of claim to add a number of additional parties as defendants,         
including Teekay, certain of Teekay's subsidiaries, the Trusts, and certain of  
Teekay's officers and directors, including Mr. James Hood and Mr. Arthur Coady, 
and to amend her claim to include an interim order preventing transfers or other
dispositions of Estate property, declaring that all or a portion of certain     
assets are held by the Estate or other proposed additional defendants in trust  
for her and conveying such interest in the property to her. The B.C. Court has  
not yet made a determination as to whether to grant the plaintiff's motion to   
amend her statement of claim.                                                   

    In materials filed in support of her motion, plaintiff alleges the need to
add the proposed additional defendants as parties based upon their control of   
property in which she is claiming an interest and their ability to provide      
plaintiff with information required to inform her of the size and nature of the 
assets to which she claims entitlement. The proposed amended statement of claim,
which has not yet been filed or served upon Teekay or the other proposed        
additional defendants, sets forth certain factual allegations and legal theories
not contained in the original statement of claim, including allegations as to   
the existence of an express or constructive trust that would give plaintiff an  
undivided interest in up to one-half of the assets directly or indirectly held  
by Mr. Karlshoej at any time following the divorce, including the capital stock 
of Teekay. In the statement of claim, as proposed to be amended, plaintiff      
alleges various facts to support her claims, including, among other things,     
that: (i) a separation agreement executed by plaintiff and Torben Karlshoej in  
connection with their divorce in 1971 should be declared null and void because  
plaintiff lacked the capacity to enter into such an agreement (or, in the       
alternative, that plaintiff executed such agreement under duress, undue         
influence, unconscionability, fraud, mistake and unfairness); and (ii)          
notwithstanding their divorce and the plaintiff's and Torben Karlshoej's        
subsequent marriages, they "re-commenced" their "spousal relationship" and,     
based on Mr. Karlshoej's promise to provide financial support to the plaintiff, 
plaintiff provided certain services to Mr. Karlshoej. The amended statement of  
claim also seeks certain additional relief, including a declaration that the    
Estate and the proposed additional defendants hold a portion of any interest in 
Teekay and its                                                                  

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assets in trust for the plaintiff, and an order to prevent Teekay and the other 
proposed additional defendants from disposing of any assets in which plaintiff  
claims an interest.                                                             

     The Company believes that plaintiff's proposed claims are without merit and
that there are several meritorious defenses to such claims. First, the Company  
believes that the plaintiff faces many obstacles to any successful claim against
the Estate or the proposed additional defendants, including establishing the    
invalidity of the separation agreement and of the property transfers made by Mr.
Karlshoej during his lifetime, including the transfers of the capital stock of  
the Company into the Trusts. The Company also believes that there may be        
insufficient jurisdictional grounds for the plaintiff to add Teekay or its      
subsidiaries as defendants in the lawsuit and that, even if Teekay and its      
subsidiaries do become named defendants, the plaintiff has not stated a         
sustainable basis for a claim against Teekay or its assets. The Company believes
that, in the unlikely event that the plaintiff were successful at all phases of 
the lawsuit, the result would be an award of money damages against the Estate or
of specific property held by the Estate or brought into the Estate through      
invalidation of the transfers of property made by Mr. Karlshoej to the Trusts.  
If plaintiff were awarded shares of Teekay's capital stock currently held by the
Trusts, or if such shares were otherwise required to be sold in order to satisfy
a judgment in the plaintiff's favor, a change in control of Teekay could result.
The Company believes that the possibility of invalidations of the property      
transfers, including transfers of the capital stock of the Company to the       
Trusts, and the possible change of control that could occur, are remote. Teekay 
intends, if added as a defendant, to vigorously defend against the plaintiff's  
claims. Based upon the advice of its counsel, including an assessment of the    
defenses available to the Company and the defects in plaintiff's claims, the    
Company does not anticipate that the outcome of the lawsuit will have a material
adverse effect upon it or its assets.                                           

REGULATION                                                                      

     The business of the Company and the operation of its vessels are materially
affected by government regulation in the form of international conventions,     
national, state and local laws and regulations in force in the jurisdictions in 
which the vessels operate, as well as in the country or countries of their      
registration. Because such conventions, laws, and regulations are often revised,
the Company cannot predict the ultimate cost of complying with such conventions,
laws and regulations or the impact thereof on the resale price or useful life of
its vessels. The Company is required by various governmental and quasi-         
governmental agencies to obtain certain permits, licenses and certificates with 
respect to its operations. Subject to the discussion below and to the fact that 
the kinds of permits, licenses and certificates required for the operations of  
the vessels owned by the Company will depend upon a number of factors, the      
Company believes that it has been and will be able to obtain all permits,       
licenses and certificates material to the conduct of its operations.            

     The Company believes that the heightened environmental and quality concerns
of insurance underwriters, regulators and charterers will impose greater        
inspection and safety requirements on all vessels in the tanker market and will 
accelerate the scrapping of older vessels throughout the industry.              

   ENVIRONMENTAL REGULATION--IMO.  With respect to the following discussions
of the IMO regulations and OPA 90, the Company believes that, because all of the
Mortgaged Vessels are double hulled, the Company is in compliance with such     
regulations and statutes. Moreover, under the current regulations, the vessels  
of the Company's current fleet will be able to operate for substantially all of 
their respective economic lives before being required to have double-hulls.     

On March 6, 1992, the IMO adopted regulations which set forth new and 
upgraded requirements for pollution prevention for tankers. These regulations,  
which went into effect on July 6, 1995 in many jurisdictions in which the tanker
fleet owned by the Company may be anticipated to be operating on and after such 
date, provide that (i) 25 year-old tankers must be of double-hull construction  
or of a mid-deck design with double side construction, unless they have wing    
tanks or double-bottom spaces, not used for the carriage of oil, which cover at 
least 30% of the length of the cargo tank section of the hull or bottom or are  
capable of hydrostatically balanced loading which ensures at least the same     
level of protection against oil spills in the event of collision or stranding,  
(ii) 30 year-old tankers must be of double-hull                                 

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construction or mid-deck design with double-side construction, and (iii) all    
tankers will be subject to enhanced inspections. Some classification societies  
may implement these requirements prior to the effective date of such            
regulations. Also, under IMO regulations, a tanker must be of double-hull       
construction or a mid-deck design with double side construction or be of another
approved design ensuring the same level of protection against oil pollution in  
the event that such tanker (i) is the subject of a contract for a major         
conversion or original construction on or after July 6, 1993, (ii) commences a  
major conversion or has its keel laid on or after January 6, 1994, or (iii)     
completes a major conversion or is a newbuilding delivered on or after July 6,  
1996.                                                                           

  Although 4 of the Company's vessels are 15 years or older, the oldest of
such vessels are only 16 years old and, therefore, the requirements currently in
effect regarding 25 and 30 year-old tankers will not affect the Company's fleet 
in the near future. However, compliance with the new regulations regarding      
inspections of all vessels may adversely affect the Company's operations. The   
Company cannot at the present time evaluate the likelihood or magnitude of any  
such adverse effect on the Company's operations due to uncertainty of           
interpretation of the IMO regulations.                                          

ENVIRONMENTAL REGULATIONS--OPA 90.  OPA 90 established an extensive   
regulatory and liability regime for the protection and cleanup of the           
environment from oil spills. OPA 90 affects all owners and operators whose      
vessels trade to the United States or its territories or possessions or whose   
vessels operate in United States waters, which include the United States        
territorial sea and the two hundred nautical mile exclusive economic zone of the
United States.                                                                  

Under OPA 90, vessel owners, operators and bareboat (or "demise")     
charterers are "responsible parties" and are jointly, severally and strictly    
liable (unless the spill results solely from the act or omission of a third     
party, an act of God or an act of war) for all oil spill containment and        
clean-up costs and other damages arising from oil spills pertaining to their    
vessels. These other damages are defined broadly to include (i) natural         
resources damages and the costs of assessment thereof, (ii) real and personal   
property damages, (iii) net loss of taxes, royalties, rents, fees and other lost
revenues, (iv) lost profits or impairment of earning capacity due to property or
natural resources damage, (v) net cost of public services necessitated by a     
spill response, such as protection from fire, safety or health hazards, and (vi)
loss of subsistence use of natural resources. OPA 90 limits the liability of    
responsible parties to the greater of $1,200 per gross ton or $10 million per   
tanker that is over 3,000 gross tons (subject to possible adjustment for        
inflation). These limits of liability would not apply if the incident were      
proximately caused by violation of applicable United States federal safety,     
construction or operating regulations or by the responsible party's gross       
negligence or willful misconduct, or if the responsible party fails or refuses  
to report the incident or to cooperate and assist in connection with the oil    
removal activities. The Company currently insures and plans to insure each of   
its vessels with pollution liability insurance in the amount of $700 million. A 
catastrophic spill could exceed the insurance coverage available, in which event
there could be a material adverse effect on the Company.                        

    OPA 90 does not by its terms impose liability on lenders or the holders of
mortgages on vessels. The Company believes, therefore, that neither the Holders 
of the Notes nor the Trustee are exposed to liability under OPA 90 unless such  
Holders or the Trustee participates so substantially in the overall operation or
management of the Company's vessels as to be considered the "operator" of a     
vessel prior to or following an Event of Default.                               

     Under OPA 90, with certain limited exceptions, all newly built or converted
tankers operating in United States waters must be built with double-hulls, and  
existing vessels which do not comply with the double-hull requirement must be   
phased out over a 25-year period (1990-2015) based on size, age and place of    
discharge, unless retrofitted with double-hulls. Notwithstanding the phase-in   
period, OPA 90 currently permits existing single-hull tankers to operate until  
the year 2015 if their operations within United States waters are limited to    
discharging at the Louisiana Off-Shore Oil Platform, or off-loading by means of 
lightering activities within authorized lightering zones more than 60 miles     
off-shore.                                                                      

   OPA 90 expands the pre-existing financial responsibility requirements for
vessels operating in United States waters and requires owners and operators of  
vessels to establish and maintain with the United                               

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States Coast Guard (the "Coast Guard") evidence of insurance or of qualification
as a self-insurer or other evidence of financial responsibility sufficient to   
meet their potential liabilities under OPA 90. In December 1994, the Coast Guard
enacted regulations requiring evidence of financial responsibility in the amount
of $1,500 per gross ton for tankers, coupling the OPA limitation on liability of
$1,200 per gross ton with the Comprehensive Environmental Response Compensation 
and Liability Act liability limit of $300 per gross ton. Under the regulations, 
such evidence of financial responsibility may be demonstrated by insurance,     
surety bond, self-insurance, or guaranty. Under OPA 90, an owner or operator of 
more than one tanker will be required only to demonstrate evidence of financial 
responsibility for the tanker having the greatest maximum liability under OPA   
90.                                                                             

The Coast Guard's regulations concerning certificates of financial    
responsibility provide, in accordance with OPA 90, that claimants may bring suit
directly against an insurer or guarantor that furnishes certificates of         
financial responsibility; and, in the event that such insurer or guarantor is   
sued directly, it is prohibited from asserting any defense that it may have had 
against the responsible party and is limited to asserting those defenses        
available to the responsible party and the defense that the incident was caused 
by the willful misconduct of the responsible party. Certain insurance           
organizations, which typically provide certificates of financial responsibility,
including the major protection and indemnity organizations which the Company    
would normally expect to provide a certificate of financial responsibility on   
its behalf, declined to furnish evidence of insurance for vessel owners and     
operators if they are subject to direct actions or required to waive insurance  
policy defenses.                                                                

   The Coast Guard's regulations may also be satisfied by evidence of surety
bond, guaranty or by self-insurance. Under the self-insurance provisions, the   
ship owner or operator must have a net worth and working capital, measured in   
assets located in the United States against liabilities located anywhere in the 
world, that exceeds the applicable amount of financial responsibility. The      
Company has complied with the Coast Guard regulations by providing evidence of  
sufficient self-insurance.                                                      

     OPA 90 specifically permits individual states to impose their own liability
regimes with regard to oil pollution incidents occurring within their           
boundaries, and some states have enacted legislation providing for unlimited    
liability for oil spills. In some cases, states which have enacted such         
legislation have not yet issued implementing regulations defining tanker owners'
responsibilities under these laws. The Company intends to comply with all       
applicable state regulations in the ports where the Company's vessels call.     
Also, under OPA 90 the liability of responsible parties, United States or       
foreign, with regard to oil pollution damage in the United States is not subject
to any international convention.                                                

Owners or operators of tankers operating in United States waters were 
required to file vessel response plans with the Coast Guard, and their tankers  
were required to be operating in compliance with their Coast Guard approved     
plans by August 18, 1993. Such response plans must, among other things, (i)     
address a "worst case" scenario and identify and ensure, through contract or    
other approved means, the availability of necessary private response resources  
to respond to a "worst case discharge," (ii) describe crew training and drills, 
and (iii) identify a qualified individual with full authority to implement      
removal actions. The Company filed vessel response plans with the Coast Guard   
for the tankers owned by the Company and has received approval for all vessels  
in its fleet to operate in United States waters.                                

Outside the United States, many countries have ratified and follow the
liability scheme set out in the International Convention on Civil Liability for 
Oil Pollution Damage 1969 ("CLC"). Under the CLC, a vessel's registered owner is
strictly liable for pollution damage caused on the territorial waters of a      
contracting state by a discharge of persistent oil, subject to certain complete 
defenses. Liability currently is limited to approximately $188 per gross        
registered ton, with the exact amount tied to a unit of account which varies    
according to a basket of currencies. The right to limit liability is forfeited  
only where the spill is caused by the owner's actual fault or the fault of a    
third party with whom the owner has a direct contractual relationship. Vessels  
trading to contracting states must establish evidence of insurance covering the 
limited liability of the owner.                                                 

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  In jurisdictions where the CLC has not been adopted, various legislative
schemes or common law govern, and liability is imposed either on the basis of   
fault or in a manner similar to the CLC.                                        

ENVIRONMENTAL REGULATION--OTHER ENVIRONMENTAL INITIATIVES.  The EC is 
considering legislation that will affect the operation of oil tankers and the   
liability of owners for oil pollution. It is impossible to predict what         
legislation, if any, may be promulgated by the EC or any other country or       
authority.                                                                      

TAXATION OF THE COMPANY                                                         

   The following discussion is a summary of the principal Liberian tax laws,
Bahamian tax laws and U.S. federal income tax laws applicable to the Company.   
The following discussion of tax matters, as well as the conclusions regarding   
certain issues of tax law that are reflected in that discussion are based on    
current law and upon the advice received by the Company from its counsel. Such  
advice is based, in part, on representations made by officers of the Company,   
some of which relate to anticipated future factual matters and circumstances. No
assurance can be given that changes in existing laws or their interpretation    
will not occur or that such changes will not be retroactive or that anticipated 
factual matters and circumstances will in fact occur. The Company's and its     
counsels' views have no binding effect or official status of any kind, and no   
assurance can be given that the conclusions discussed below would be sustained  
if challenged by taxing authorities.                                            

UNITED STATES TAXATION                                                

  The following discussion is based on the advice of Perkins Coie, special
United States tax counsel to the Company. The following discussion is based upon
the currently existing provisions of the U.S. Internal Revenue Code of 1986, as 
amended (the "Code"), existing and proposed U.S. Treasury Department            
regulations, current administrative rulings and court decisions.                

It is anticipated that substantially all of the gross income of the   
Company's subsidiaries will be derived from the ownership, use and operation of 
vessels in international commerce and that such income will principally consist 
of freights from the transportation of cargoes and hire or lease from time      
charters and from the performance of services directly related to the use and   
operation of such vessels, including services related to the chartering of such 
vessels ("Shipping Income"). In general, unless exempt from U.S. taxation under 
Section 883 of the Code as discussed below, Teekay's subsidiaries' Shipping     
Income will be subject to U.S. federal income taxation (in the manner discussed 
below) to the extent that such Shipping Income is derived from sources within   
the United States. For these purposes, Shipping Income that is attributable to  
transportation that begins or ends (but that does not both begin and end) in the
United States will be considered to be 50% derived from sources within the      
United States. Shipping Income attributable to transportation that begins and   
ends in the United States is considered to be 100% derived from sources within  
the United States. Based upon the Company's anticipated shipping operations, the
vessels of Teekay's subsidiaries will be operated in various parts of the world 
and, although they may transport cargoes to or from what might be viewed to be  
U.S. ports for U.S. tax purposes, they will not be permitted by law to transport
cargoes between U.S. ports. On average, in fiscal years 1993, 1994 and 1995, the
Company derived approximately 37% of its gross revenues from voyages originating
or terminating in U.S. ports. Therefore, based on past experience the Company   
currently expects that approximately 19% of Teekay's subsidiaries' Shipping     
Income would be treated as derived from U.S. sources.                           

All Shipping Income attributable to transportation exclusively between
non-U.S. ports will be considered to be 100% derived from sources outside the   
United States. Shipping Income derived by Teekay's subsidiaries from sources    
outside the United States will not be subject to U.S. federal income tax.       

Management estimates that, should it not qualify for the Section 883  
exemption described below, the Company's U.S. tax liability for fiscal 1995     
would not be material.                                                          

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THE CODE SECTION 883 EXEMPTION                                        

     The Company believes that, under Code Section 883, Teekay's ship owning and
operating subsidiaries are exempt from United States taxation on their Shipping 
Income derived from sources within the United States.                           

A corporation will qualify for the benefits of Code Section 883 if, in
relevant part, (i) it is organized in a foreign country that grants an          
equivalent exemption from tax to corporations organized in the United States    
("the country of organization requirement"), and (ii) more than 50% of the value
of its shares is treated as owned, directly or indirectly, by individuals who   
are "residents" of such country or of another foreign country that grants an    
equivalent exemption to corporations organized in the United States (the        
"ownership requirement"). The ownership requirement is not applicable if the    
stock of the corporation (or the direct or indirect corporate parent thereof,   
provided the parent is organized in a country that satisfies the country of     
organization requirement) is "primarily and regularly traded on an established  
securities market" in such country, in another country that grants the          
equivalent exemption from tax to U.S. corporations, or in the United States (the
"publicly traded exception"), or if the subsidiary is a "controlled foreign     
corporation" (the "CFC exception").                                             

  The U.S. Treasury Department has recognized the Republic of Liberia, The
Bahamas, and Panama as jurisdictions that grant an equivalent exemption to U.S. 
corporations. Teekay and each of its ship owning and operating subsidiaries are 
incorporated or organized in either Liberia, The Bahamas, or Panama. Therefore, 
the subsidiaries' Shipping Income will be exempt from U.S. federal income       
taxation if the ownership requirement is met or the Company qualifies for the   
publicly traded exception. It is not anticipated that the Company will qualify  
for the CFC exception.                                                          

    The Company believes that the ultimate indirect owners of more than 50% of
the value of the capital stock of the Company and its subsidiaries are          
individuals who would satisfy the ownership requirements on the date hereof. The
Company does not anticipate that it will have to rely on the publicly traded    
exception for purposes of the Code Section 883 exemption. Compliance with the   
ownership requirement and qualification for the publicly traded exception depend
upon the resolution of certain factual issues and the interpretation of the     
Code. No Treasury regulations have been promulgated for purposes of the         
ownership requirement and the publicly traded exception under Section 883. In   
the absence of statutory and regulatory guidance under Code Section 883, special
U.S. tax counsel to the Company is unable to render an opinion in this regard.  

The Company does not know of any plan regarding (i) disposition of the
interests held by the current ultimate individual holders of Teekay's common    
stock or (ii) any changes in the residency of the current ultimate individual   
holders of Teekay's common stock that would cause the loss of the availability  
of Section 883 of the Code (or, in either case, any agreements with respect to  
any of the foregoing). However, there is no agreement that would preclude the   
current direct or indirect holders of Teekay's common stock from disposing of   
their interests in the Company, or from changing their residence, and there can 
be no assurance that such holders of such common stock will not do so, nor is   
there any assurance that a person or persons who are not qualifying holders of  
Teekay's common stock for purposes of Section 883 will not acquire sufficient   
beneficial ownership of the outstanding shares of such common stock through     
purchase on the New York Stock Exchange or otherwise to preclude the            
availability of an exemption under Section 883. Any change in the holdings of   
the current direct or indirect holders of Teekay's common stock or the residence
of such holders of common stock (both as determined for United States tax       
purposes), or the issuance of shares of stock or any other change in the        
capitalization of the Company (other than as a result of this Offering) could   
affect the continued availability of Section 883 of the Code. Accordingly, no   
assurance can be given that the subsidiaries' Shipping Income derived from      
sources in the United States will be treated as exempt from taxation by the     
United States.                                                                  

TAXATION IN THE ABSENCE OF A CODE SECTION 883 EXEMPTION               

     NET BASIS AND BRANCH TAX REGIME.  To the extent the benefits of the Section
883 exemption are unavailable, the U.S. source Shipping Income (and any U.S.    
source chartering income not treated as                                         

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Shipping Income) of each subsidiary that was "effectively connected" with the   
conduct of a U.S. trade or business would be subject to U.S. federal corporate  
income tax, which currently is imposed at rates of up to 35% on taxable income. 
Taxable income would be determined after allowance for allocable deductions,    
provided the subsidiary files true and accurate U.S. federal income tax returns 
as required by the Code. In addition, under certain circumstances, the 30%      
branch profits tax imposed under Section 884 of the Code would apply to the     
earnings effectively connected with the conduct of such trade or business, as   
determined after allowance for certain adjustments, and a branch interest tax on
certain interest paid or deemed paid by a subsidiary's U.S. trade or business.  

    A subsidiary's U.S. source Shipping Income (and any U.S. source chartering
income not treated as Shipping Income) would be considered "effectively         
connected" with the conduct of a U.S. trade or business only if the subsidiary  
has (or is considered to have) a fixed place of business in the United States   
involved in the earning of such income and certain other requirements are met.  
Neither Teekay nor any of its subsidiaries maintains an office or other fixed   
place of business in the United States. Accordingly, based on the expected mode 
of the Company's shipping operations, the Company anticipates that the          
subsidiaries' U.S. source Shipping Income will not be "effectively connected"   
with the conduct of a U.S. trade or business and thus will not be subject to the
net-basis U.S. federal corporate income tax.                                    

    THE 4% GROSS BASIS TAX REGIME.  To the extent the benefits of Code Section
883 are unavailable, the U.S. source Shipping Income derived by Teekay's        
subsidiaries that is not "effectively connected" with the conduct of a U.S.     
trade or business (as described above) will be subject to a special 4% tax on a 
gross basis (without benefit of deduction). As discussed above, the Company     
expects that substantially less than half of the subsidiaries' gross Shipping   
Income will be considered U.S. source income. Therefore, the Company believes   
that the maximum effective rate of U.S. federal income tax on the subsidiaries' 
gross Shipping Income would not exceed 2%. The Company does not expect that any 
potential liability it may have with respect to its U.S. source Shipping Income 
for prior years would be material in amount.                                    

GAIN ON SALE OF VESSELS                                               

 To the extent the vessel of any subsidiary of Teekay makes more than an
occasional voyage to U.S. ports, that subsidiary may be considered to be engaged
in the conduct of a U.S. trade or business. As a result, unless that subsidiary 
is entitled to the benefits of Code Section 883, any U.S. source gain on the    
sale of such subsidiary's vessel may be partly or wholly subject to U.S. federal
income tax as "effectively connected" income (determined under rules different  
from those discussed above) under the above-described net basis and branch tax  
regime. The U.S. Treasury Department has recognized the Republic of Liberia, but
neither Panama nor The Bahamas, as a jurisdiction that provides an exemption    
from tax for gains realized by a U.S. corporation from the sale of a vessel, to 
the extent, as the Company expects, that such gains are incidental to shipping  
operations. Accordingly, if Teekay's subsidiaries incorporated in Liberia       
otherwise qualify for the benefits of Section 883, gain on the sale of their    
vessels (to the extent such gain is incidental to Shipping Income) should be    
exempt from U.S. federal income taxation under Section 883. U.S. source gain    
from the sale of vessels owned by Teekay's subsidiaries incorporated in The     
Bahamas or Panama, however, may not be exempt from U.S. taxation under Section  
883.                                                                            

However, in general, gain from the sale by a non-U.S. corporation of a
vessel used in shipping operations will not be U.S. source gain except for the  
following: (1) the aggregate of depreciation adjustments attributable to        
depreciation deductions allowable for the vessel in computing U.S. source       
taxable income; (2) gain in excess of such depreciation adjustments if the      
vessel is sold within the U.S. and (3) the entire gain if attributable to an    
office or fixed place of business maintained by the corporation in the United   
States.                                                                         

  As the Company (1) does not expect to be earning Shipping Income that is
"effectively connected" with the conduct of a U.S. trade or business subject to 
tax under the net basis and branch tax regime (described above under "--Taxation
in the Absence of a Code Section 883 Exemption"), (2) does not                  

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intend to permit any of its vessels to be sold in the United States and (3) does
not now and does not expect in the future to maintain an office or fixed place  
of business in the United States, the Company does not expect that any gain from
the sale of the vessel by it would be subject to U.S. federal income tax.       

LIBERIAN TAXATION                                                     

     Based on the advice of Haight, Gardner, Poor & Havens, Liberian tax counsel
to the Company, because Teekay does not expect that it and its subsidiaries will
conduct business or operations in the Republic of Liberia, Teekay and its       
subsidiaries will not be subject to taxation under the laws of the Republic of  
Liberia, and distributions by its subsidiaries to Teekay will not be subject to 
Liberian tax.                                                                   

BAHAMIAN TAXATION                                                     

Based on the advice of Graham, Thompson & Co., Bahamian counsel to the
Company, Teekay and its subsidiaries will not be subject to taxation under the  
laws of The Bahamas, and distributions by its subsidiaries to Teekay also will  
not be subject to any Bahamian tax.                                             

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MANAGEMENT

    The directors, executive officers and senior management of the Company are
listed below:                                                                   

                                                        [Enlarge/Download Table]

                         AGE                          POSITION                         
                         ---  ---------------------------------------------------------
                                                                                       
Karlshoej, Axel          55   Director and Chairman of the Board                       
Hood, James N.           60   Director, President and Chief Executive Officer          
Coady, Arthur F.         62   Director, EVP and General Counsel                        
Dingman, Michael D.      64   Director                                                 
Feder, Morris L.         78   Director                                                 
Hsu, Steve G. K.         62   Director                                                 
Hsu, Thomas Kuo-Yuen     49   Director                                                 
Alsleben, Veronica A. E. 44   Managing Director (London)                               
Antturi, Peter S.        36   Controller (Vancouver)                                   
Chad, Greg               44   VP, Corporate Services (Vancouver)                       
Gibson, Esther E.        40   Secretary (Nassau)                                       
Glendinning, David       41   VP, Marine and Commercial Operations (Vancouver)         
Gurnee, Anthony          35   VP, Treasurer and Chief Financial Officer (Vancouver)    
Meldgaard, Mads T.       31   Managing Director (Singapore)                            
Moller, Bjorn            38   VP, Group Chartering and Business Development (Vancouver)
Nagao, Yoshio            49   Managing Director (Tokyo)                                
Patwardhan, Vinay S.     54   SVP, Marine Operations (Vancouver)                       

 Certain biographical information about each of these individuals is set
forth below:                                                                    

  VERONICA A. E. ALSLEBEN has been employed in ship chartering since 1973.
She joined the Company in 1989 as Chartering Manager and was subsequently       
promoted to her current position as Managing Director (London). Prior to joining
the Company, Ms. Alsleben served as Vice President of a chartering office of an 
international tanker company in New York City for five years.                   

PETER S. ANTTURI joined the Company in September 1991 as Manager,     
Accounting and was promoted to his current position of Controller in March 1992.
Prior to joining the Company, Mr. Antturi held senior accounting and finance    
roles in the shipping industry since 1985.                                      

   ARTHUR F. COADY is an Executive Vice President and the General Counsel of
the Company. He has served as a Director of Teekay since 1989. He joined the    
Company after 30 years in private law practice in Canada, having specialized in 
corporate and commercial law. In July 1995, Mr. Coady was appointed as a        
director of the Bahamas Maritime Authority.                                     

   GREG CHAD joined the Company in August 1991 as Manager, Personnel. He was
promoted in June 1993 to Director, Personnel and in March 1995 to his current   
position of Vice President, Corporate Services. Mr. Chad has held a number of   
senior human resources and administration roles in the transportation and       
communication industries since 1976.                                            

    MICHAEL D. DINGMAN is a private investor, industrial company executive and
corporate director. He was elected as a Director of Teekay in May 1995. He is   
Chairman and Chief Executive Officer of The Shipston Group Limited, a           
diversified international holding company, Chairman of Fisher Scientific        
International Inc., and a Director of Ford Motor Company. Mr. Dingman also      
serves as Director/Executive to a number of other industrial concerns.          

    MORRIS L. FEDER is currently President of Worldwide Cargo Inc., a recently
formed New York based chartering firm. Mr. Feder has been employed in the       
shipping industry in excess of 45 years, of which 43 were spent with Maritime   
Overseas Corporation, from which he retired as Executive Vice President and     
Director in December 1991. He has also served as Senior Vice President and      
Director of Overseas                                                            

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Shipholding Group Inc. and was a member of the Finance and Development Committee
of the Board of such company. He has served as a Director of Teekay since June  
1993. Mr. Feder is a member of the American Bureau of Shipping, the Connecticut 
Maritime Association and the Association of Shipbrokers and Agents USA Inc.     

ESTHER E. GIBSON joined the Company in June 1988. In 1991, she was    
appointed to the position of Secretary.                                         

     CAPTAIN DAVID GLENDINNING joined the Chartering Department of the Company's
London office in January 1987. Since then, he has worked in a number of senior  
positions within the organization including Vice President, Commercial          
Operations, a position he held for two years prior to his January 1995 promotion
to the position of Vice President, Marine and Commercial Operations. Captain    
Glendinning has 18 years' sea service on oil tankers of various types and sizes 
and is a Master Mariner with British Class 1 Foreign Going Certificate of       
Competency.                                                                     

    ANTHONY GURNEE joined the Company in May 1992, as General Manager, Finance
and served in that capacity until October 1992, at which time he was promoted to
the position of Vice President, Finance & Accounting. In January 1995, his title
was changed to Vice President and Chief Financial Officer. Mr. Gurnee is a      
graduate of the United States Naval Academy and served six years with the United
States Navy. Prior to joining the Company, he was a shipping banker with        
Citibank, N.A. for four years. He is a Member of the Institute of Chartered     
Shipbrokers (MICS).                                                             

CAPTAIN JAMES N. HOOD has held a number of senior positions with the  
Company since joining the organization in 1977. He was appointed President and  
Chief Executive Officer of the Company in October 1992. He has served as a      
Director of Teekay since June 1993. Captain Hood's qualifications include an    
Extra Master's Certificate of Competency. He is a Fellow of the Institute of    
Chartered Shipbrokers (FICS), a Fellow of the Nautical Institute (FNI) and a    
director of Britannia Steam Ship Insurance Association Limited. In addition to  
his 23 years of shore service in various senior management positions, Captain   
Hood has served at sea for 19 years, including four years of command experience.

    STEVE G. K. HSU is Chairman and Managing Director of Oak Steamship Company
Limited, a ship management company based in Hong Kong. Mr. Hsu is a member of   
the Executive Committee of Hong Kong Shipowners Association and of the Executive
Committee of the International Association of Dry Cargo Shipowners (Intercargo),
and a council member of the International General Committee of Bureau Veritas.  
He has served as a Director of Teekay since June 1993.                          

  THOMAS KUO-YUEN HSU has served 23 years with, and is presently Executive
Director of, Expedo & Company (London) Ltd, which is part of the Expedo Group of
Companies that manages a fleet of eight vessels, ranging in size from 80,000 dwt
to 280,000 dwt. He has been a Committee Director of the Brittania Steam Ship    
Insurance Association Limited since 1988, and a Lloyd's Underwriting Member     
since 1983. He has served as a Director of Teekay since June 1993.              

AXEL KARLSHOEJ is President of Nordic Industries, a California general
construction firm with whom he has served for the past 22 years. He is the older
brother of the late J. Torben Karlshoej, the founder of the Company. He has     
served as a Director and Chairman of the Board of Teekay since June 1993.       

 MADS T. MELDGAARD joined the Company's Chartering Department in January
1986 and served in the European and Singapore offices until December 1991, when 
he was appointed Chartering Manager in the Vancouver office. Mr. Meldgaard was  
promoted in January 1994 to General Manager, Chartering and again in September  
1995 to his current position as Managing Director (Singapore).                  

BJORN MOLLER spent three years in the Company's European office before
being promoted to the position of Vice President, Chartering in 1988. Mr. Moller
served in this capacity for six years until his January 1994 appointment to the 
position of Vice President, Planning and Development, later being promoted in   
January 1995 to his current position as Vice President, Group Chartering and    
Business Development. Prior to joining the Company, Mr. Moller spent 10 years   
with East Asiatic Company, including four years in tanker chartering and        
operations.                                                                     

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 YOSHIO NAGAO has been employed in the shipping industry for the past 28
years and is qualified as a Chief Engineer. He joined the Company from Sanko    
Steamship Co. Ltd., a Japanese ship owning company, where he served as Manager  
of their Technical Department. Mr. Nagao has served as Managing Director (Tokyo)
since joining the Company in 1985.                                              

CAPTAIN VINAY S. PATWARDHAN has held senior positions with the Company
since joining the organization in 1981 including Vice President, Ship           
Management, a position he held from January 1986 through January 1995, when he  
was promoted to his current position: Senior Vice President, Marine Operations. 
Captain Patwardhan has been employed in the shipping industry for the past 34   
years, having experience in crude tanker, product carrier, O/B/O, ore oiler,    
container, general cargo and bulk carrier operations, with 11 years of command  
experience. Captain Patwardhan is a Master Mariner with Foreign Going           
Certificate of Competency.                                                      

MANAGEMENT SUCCESSION                                                           

The Resource Committee of Teekay's Board of Directors is conducting a 
search to identify a potential candidate for the position of Chief Operating    
Officer of the Company. The creation of the Chief Operating Officer position is 
intended to facilitate an orderly leadership succession upon the eventual       
retirement of Captain James N. Hood as Chief Executive Officer.                 

EXECUTIVE COMPENSATION                                                          

 The aggregate annual compensation paid to the 12 executive officers and
senior managers listed above was $1,650,000 for fiscal 1995, a portion of which 
was attributable to payments made pursuant to bonus plans of the Company, which 
consider both Company and individual performance for a given period. Currently, 
the non-employee directors of Teekay receive, in the aggregate, approximately   
$100,000 for their services and reimbursement of their out-of-pocket expenses in
each fiscal year during which they are directors of Teekay. In fiscal 1995, the 
Company contributed an aggregate amount of $77,000 to provide pension and       
similar benefits for the 12 executive officers and senior managers listed above.

Teekay's 1995 Stock Option Plan (the "Plan") entitles certain eligible
officers, key employees (including senior sea staff), and directors of the      
Company to receive options to acquire common stock of Teekay. A total of        
2,148,571 shares of common stock have been reserved for issuance under the Plan,
and options to purchase up to 796,750 shares of Teekay's common stock have been 
granted by Teekay. Such outstanding options are exercisable at a price of $21.50
per share and expire July 19, 2005, ten years after the date of grant.          

OWNERSHIP OF TEEKAY 

    The following table sets forth certain information regarding (i) ownership
of Teekay's common stock as of November 30, 1995 by all persons known to Teekay 
to own more than 10 percent of the common stock and (ii) the total amount of    
capital stock owned by all officers and directors of Teekay as a group as of    
such date:                                                                      

                                                        [Enlarge/Download Table]

                                  IDENTITY OF PERSON                                          
       TITLE OF CLASS                  OR GROUP              AMOUNT OWNED     PERCENT OF CLASS
-----------------------------  -------------------------  ------------------  ----------------
                                                                                              
Common Stock, no par value     Cirrus Trust                18,082,781 shares        65.1%     
                               JTK Trust                    2,803,575 shares        10.4%     
                               All officers and                            *            *     
                                 directors as a group                                         
                                 (17 persons)                                                 

---------------                                                                 

* Less than one percent of outstanding shares.                                  

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The activities of Cirrus Trust and JTK Trust are under the common     
supervision of Messrs. Coady, Karlshoej and Thomas Hsu, directors of Teekay, and
Mr. Shigeru Matsui, President of Matsui & Company, a Tokyo based ship brokerage 
firm. The beneficiaries of such trusts include charitable institutions and      
affiliated trusts.                                                              

DESCRIPTION OF CERTAIN INDEBTEDNESS 

 The following is a summary of certain indebtedness of the Company. Such
summary is qualified in its entirety by reference to the full text of the       
documents which govern the transactions so summarized.                          

  As of September 30, 1995, the subsidiaries of Teekay had obligations for
outstanding indebtedness for borrowed money under existing credit agreements in 
the aggregate principal amount of $604.6 million, all of which is guaranteed by 
Teekay. In addition, Teekay had indebtedness of $151.2 million of its 9 5/8%    
First Preferred Ship Mortgage Notes (the "1993 Notes"). After giving effect to  
the Offering and the application of the proceeds therefrom, the Company's       
indebtedness, on a consolidated basis, would be approximately $760.6 million.   
The following chart indicates, on a consolidated basis after giving effect to   
the Offering and the application of the proceeds therefrom, the aggregate       
principal amount of indebtedness that will be due and payable in each of the    
next 10 fiscal years of the Company.                                            

                                                                [Download Table]

     FISCAL YEAR           AMOUNT         FISCAL YEAR         AMOUNT    
---------------------   -------------     -----------     --------------
                                                                        
  1997                  $37.4 million        2002         $ 72.0 million
  1998                  $38.6 million        2003         $ 46.5 million
  1999                  $62.4 million        2004         $154.4 million
  2000                  $62.4 million        2005         $ 47.3 million
  2001                  $78.3 million        2006         $ 45.8 million

Credit agreements, and guarantees executed by Teekay in connection    
therewith, contain various covenants which restrict the operations of the       
obligors and Teekay. Such credit agreements and guarantees contain covenants    
which require the obligors thereunder or Teekay, as the case may be, to conduct 
their operations, including, for such obligors, the operations of their         
respective vessels, in accordance with certain standards set forth in such      
credit agreements or guarantees, as the case may be. The Company's Revolver     
(discussed below) contains a "hull covenant" which requires the obligors to     
deliver additional collateral to the lenders under such credit agreement, or    
prepay a certain amount of the indebtedness under such credit agreement, in the 
event that the value of the subject vessels falls below a fixed percentage of   
the amount of the indebtedness under such credit agreement then outstanding. The
percentage at which the combined value of the subject vessels must remain is    
120% of the outstanding indebtedness under the Revolver, with the percentage    
increasing to 140% over the term of the Revolver. The Company believes that as  
of September 30, 1995 it was in compliance with all of the covenants in effect  
at that time.                                                                   

In addition to the hull covenants, certain of the credit agreements   
prohibit the payment of dividends by, or the making of distributions from, the  
respective obligors during the time in which any of the indebtedness thereunder 
remains outstanding. As of September 30, 1995, the amount of retained earnings  
in subsidiaries of Teekay that was prohibited from being distributed as a       
dividend to Teekay was $65,184.                                                 

On July 15, 1993, Teekay issued $175.0 million of its 1993 Notes in a 
private placement. On December 30, 1993, Teekay completed, pursuant to a        
registration rights agreement, an exchange offer whereby such privately-placed  
Notes were, at the option of each holder, exchanged for Notes registered under  
the Securities Act. The 1993 Notes are not listed for trading on any foreign or 
United States exchange and there is currently no regular trading market for such
Notes.                                                                          

    The Company has a reducing revolving credit facility (the "Revolver") with
three commercial banks providing for borrowings of up to $243.0 million to      
refinance certain indebtedness of the Company, to                               

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finance certain vessel acquisitions and to provide working capital. The Revolver
is secured by first priority mortgages granted on 14 of the Company's Aframax   
tankers, together with certain other related collateral, and a guarantee from   
Teekay for all amounts outstanding under the Revolver. The commitment amount    
will be reduced by $9.5 million in semiannual instalments which commenced on    
December 6, 1995, together with a final balloon payment coincident with the     
final semiannual reduction. Interest payments are based on LIBOR plus a margin  
ranging from 0.80% to 1.25% which is dependent on the financial leverage of the 
Company, as calculated on a quarterly basis. Principal repayments are required  
when borrowings under the Revolver exceed the commitment amount, which was      
$223.0 million as of September 30, 1995.                                        

CERTAIN TRANSACTIONS WITH RELATED PARTIES 

 Approximately 75% of the issued and outstanding shares of Teekay voting
common stock are owned by affiliated trusts, the activities of which are        
supervised by Messrs. Coady, Karlshoej, and Thomas Hsu, directors of Teekay, and
Mr. Shigeru Matsui, President of Matsui & Company, a Tokyo based ship brokerage 
firm.                                                                           

   Mr. Thomas Hsu, a director of Teekay, is associated with the company that
owns the other 50% of VCSC. Teekay and its partner in VCSC have guaranteed      
certain loans of VCSC. See Note 11 to the Consolidated Financial Statements     
included elsewhere in this Prospectus. Certain directors of Teekay are also     
officers and directors of VCSC.                                                 

    In April 1993, Teekay acquired all of the issued and outstanding shares of
common stock of Palm Shipping Inc. from an affiliate of Teekay for a nominal    
purchase price, plus an amount to be paid at a later date (up to a maximum of   
$5.0 million plus accrued interest), contingent upon certain future events. The 
payment of such purchase price by Teekay shall not occur until after the 1993   
Notes have been paid in full.                                                   

    On March 31, 1995, Teekay acquired 100% of the outstanding stock of Teekay
Shipping Limited ("TSL"), an affiliated company, for cash consideration of $1.27
million representing the net book value of TSL at March 31, 1995. The impact of 
this transaction on the financial position and results of operations of Teekay  
is not considered significant. The assets and liabilities of TSL have been      
combined with those of Teekay effective March 31, 1995. Teekay's results of     
operations include those of TSL subsequent to that date.                        

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DESCRIPTION OF THE NOTES

    The Notes will be issued under an Indenture, to be dated as of January 29,
1996 (the "Indenture"), among Teekay, the Guarantors and United States Trust    
Company of New York, as Trustee (the "Trustee"). The following summaries of     
certain provisions of the Indenture do not purport to be complete and are       
subject to, and are qualified in their entirety by reference to, all the        
provisions of the Indenture, including the definitions of certain terms therein.
The definitions of certain of the capitalized terms used in this "Description of
the Notes" section are summarized below under "--Certain Definitions." Wherever 
particular provisions or defined terms of the Indenture not otherwise defined   
herein are referred to, such provisions or defined terms are incorporated herein
by reference. Unless otherwise indicated, all references under this caption to  
sections, "sec." or articles are references to the Indenture, a copy of which   
will be filed with the Commission as an exhibit to the Registration Statement of
which this Prospectus is a part.                                                

GENERAL                                                                         

 The Notes will represent general secured obligations of Teekay, will be
limited to $225 million in aggregate principal amount and will mature on        
February 1, 2008.                                                               

 Payment of the principal of, premium, if any, and interest on the Notes
will be irrevocably and unconditionally guaranteed on a senior secured basis by 
each of the Guarantors. See "The Subsidiary Guarantees." The Notes will bear    
interest at the rate per annum shown on the front cover of this Prospectus from 
January 29, 1996 or from the most recent Interest Payment Date to which interest
has been paid or provided for, payable semi-annually on February 1 and August 1 
of each year, commencing February 1, 1996 to the Person in whose name the Note  
(or any predecessor Note) is registered at the close of business on the         
preceding January 15 or July 15, as the case may be. Interest on the Notes will 
be computed on the basis of a 360-day year of twelve 30-day months. (Sections   
2.01, 2.07 and 2.11)                                                            

Initial settlement of the Notes will be made in immediately available 
funds. The Notes will be issued only in registered form, without coupons, in    
denominations of $1,000 and any integral multiple thereof. (Section 2.02)       
Principal of, premium, if any, and interest on the Notes will be payable, and,  
except as described below, the Notes are transferable, at the office or agency  
of Teekay in The City of New York maintained for such purpose (which initially  
shall be the corporate trust office of the Trustee, at 114 West 47th Street, New
York, New York 10036-1552); provided that, at the option of Teekay, payment of  
interest may be made by check mailed to the address of the person entitled      
thereto as such address appears in the Security Register. (Sections 2.03, 2.04  
and 2.05) No service charge will be made for any registration of transfer or    
exchange of Notes, except in certain circumstances to cover any transfer tax or 
other similar governmental charge that may be payable in connection therewith.  
(Section 2.06)                                                                  

BOOK ENTRY SYSTEM                                                               

 Notes may be held (1) in definitive certificated form registered in the
name of the Holder or (2) through the facilities of the Depository Trust Company
(the "Depository"). Notes held through the Depository will be issued as fully   
registered securities registered in the name of Cede & Co. (the Depository's    
partnership nominee). One fully registered Global Note (the "Global Note") will 
be issued for such Notes, in the aggregate principal amount of such issue, and  
will be deposited with the Depository. If, however, the aggregate principal     
amount of the issue exceeds $200 million, one Global Note will be issued with   
respect to each $200 million of principal amount and an additional Global Note  
will be issued with respect to any principal amount of such issue in excess     
thereof.                                                                        

   The Depository is a limited-purpose trust company organized under the New
York Banking Law, a "banking organization" within the meaning of the New York   
Banking Law, a member of the Federal Reserve System, a "clearing corporation"   
within the meaning of the New York Uniform Commercial Code, and a "clearing     
agency" registered pursuant to the provisions of Section 17A of the U.S.        
Securities Exchange Act of 1934, as amended. The Depository holds securities    
that its participants                                                           

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("Participants") deposit with the Depository. The Depository also facilitates   
the settlement among Participants of securities transactions, such as transfers 
and pledges, in deposited securities through electronic computerized book-entry 
changes in Participants' accounts, thereby eliminating the need for physical    
movement of securities certificates. Direct Participants ("Direct Participants")
include securities brokers and dealers, banks, trust companies, clearing        
corporations and certain other organizations. The Depository is owned by a      
number of its Direct Participants and by the New York Stock Exchange, Inc., the 
American Stock Exchange, Inc., and the National Association of Securities       
Dealers, Inc. Access to the Depository's system is also available to others such
as securities brokers and dealers, banks and trust companies that clear through 
or maintain a custodial relationship with a Direct Participant, either directly 
or indirectly ("Indirect Participant"). The rules applicable to the Depository  
and its Participant are on file with the Securities and Exchange Commission.    

    Purchases of Notes held through the Depository's system must be made by or
through Direct Participants, which will receive a credit for such Notes on the  
Depository's records. The ownership interest of each actual purchaser of each   
Note represented by a Global Note ("Beneficial Owner") is, in turn, to be       
recorded on the Direct and Indirect Participants' records. Beneficial Owners    
will not receive written confirmation from the Depository of their purchase, but
Beneficial Owners are expected to receive written confirmations providing       
details of the transaction, as well as periodic statements of their holdings,   
from the Direct or Indirect Participants through which such Beneficial Owner    
entered into the transaction. Transfers of ownership interests in a Global Note 
representing Notes are to be accomplished by entries made on the books of       
Participants acting on behalf of Beneficial Owners.                             

 To facilitate subsequent transfers, all Global Notes representing Notes
which are deposited with the Depository are registered in the name of the       
Depository's nominee, Cede & Co. The deposit of Global Notes with the Depository
and their registration in the name of Cede & Co. effect no change in beneficial 
ownership. The Depository has no knowledge of the actual Beneficial Owners of   
the Global Notes representing the Notes; the Depository's records reflect only  
the identity of the Direct Participants to whose accounts such Notes are        
credited, which may or may not be the Beneficial Owners. The Participants will  
remain responsible for keeping account of their holdings on behalf of their     
customers.                                                                      

    Conveyance of notices and other communications by the Depository to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct    
Participants and Indirect Participants to Beneficial Owners will be governed by 
arrangements among them, subject to any statutory or regulatory requirements as 
may be in effect from time to time.                                             

Redemption notices shall be sent to Cede & Co. If less than all of the
Notes are being redeemed, the Depository's practice is to determine by lot the  
amount of the interest of each Direct Participant in such issue to be redeemed. 

    Neither the Depository nor Cede & Co. will consent or vote with respect to
the Global Notes representing the book-entry Notes. Under its usual procedures, 
the Depository mails an omnibus proxy (an "Omnibus Proxy") to the issuer of the 
applicable securities as soon as possible after the applicable record date. The 
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct  
Participants to whose accounts the Notes are credited on the applicable record  
date (identified in a listing attached to the Omnibus Proxy).                   

 Payment of principal, premium, if any, and interest on the Global Notes
representing the Notes will be made to the Depository. The Depository's practice
is to credit Direct Participants' accounts on the applicable payment date in    
accordance with their respective holdings shown on the Depository's records     
unless the Depository has reason to believe that it will not receive payment on 
such date. Payments by Participants to Beneficial Owners will be governed by    
standing instructions and customary practices, as is the case with securities   
held for the account of customers in bearer form or registered in "street name",
and will be the responsibility of such Participant and not of the Depository,   
the Trustee or Teekay, subject to any statutory or regulatory requirements as   
may be in effect from time to time. Payment of principal, premium, if any, and  
interest to the Depository is the responsibility of Teekay or the Trustee;      
disbursement of such payments to Direct Participants shall be the responsibility
of the Depository, and                                                          

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disbursement of such payments to the Beneficial Owners shall be the             
responsibility of Direct and Indirect Participants. Neither Teekay nor the      
Trustee will have any responsibility or liability for the disbursements of      
payments in respect of ownership interests in the Notes by the Depository or the
Direct or Indirect Participants or for maintaining or reviewing any records of  
the Depository or the Direct or Indirect Participants relating to ownership     
interests in the Notes or the disbursement of payments in respect thereof.      

The Depository may discontinue providing its services as securities   
depository with respect to the Notes at any time by giving reasonable notice to 
Teekay or the Trustee. Under such circumstances, and in the event that a        
successor securities depository is not obtained, Notes in definitive form are   
required to be printed and delivered.                                           

    Teekay may decide to discontinue use of the system of book-entry transfers
through the Depository (or a successor securities depository). In that event,   
Notes in definitive form will be printed and delivered to replace any Global    
Notes.                                                                          

The information concerning the Depository has been furnished by the   
Depository, but is subject to any changes to the arrangements between Teekay and
the Depository and any changes to such procedures that may be instituted        
unilaterally by the Depository.                                                 

SAME-DAY SETTLEMENT AND PAYMENT                                                 

  Settlement for the Notes will be made by the Underwriters in immediately
available funds. All payments of principal of, premium, if any, and interest on 
the Notes will be made in immediately available funds.                          

     Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing-house or next-day funds. In contrast, the Notes   
will trade in the Depository's Same-Day Funds Settlement System, and secondary  
market trading activity in the Notes will, therefore, be required by the        
Depository to settle in immediately available funds. No assurance can be given  
as to the effect, if any, of settlement in immediately available funds on       
trading activity in the Notes.                                                  

FALL-AWAY EVENT                                                                 

  In the event that (i) the Notes achieve Investment Grade Status on a pro
forma basis after giving effect to the release of the Collateral, (ii) no Event 
of Default shall have occurred and be continuing and (iii) on a pro forma basis,
after giving effect to the release of the Collateral, the aggregate amount of   
all Indebtedness of Teekay that is secured by a Lien plus all Indebtedness of   
Restricted Subsidiaries is not greater than 15% of the Company's Consolidated   
Tangible Assets (the occurrence of the events described in the foregoing clauses
(i), (ii) and (iii) being collectively referred to as the "Fall-away Event"),   
upon the request of Teekay and the Guarantors and subject to the delivery of    
appropriate documentation to the Trustee, the Subsidiary Guarantees will be     
terminated, the Collateral securing the Obligations of Teekay and the Guarantors
under the Indenture and the Security Documents will be released and certain     
covenants under the Indenture will no longer be applicable to Teekay and the    
Restricted Subsidiaries. See "--Certain Restrictive Covenants." In addition,    
Teekay's mandatory redemption obligations upon a loss or sale of a Mortgaged    
Vessel shall no longer be applicable. As a result of such modifications, upon   
the occurrence of the Fall-away Event the Notes will become general senior      
unsecured obligations of Teekay and will be entitled to a substantially reduced 
level of covenant protection. See "--Covenants After Fall-away Event." (Section 
5.01)                                                                           

RANKING                                                                         

  The Indebtedness evidenced by the Notes will rank pari passu in right of
payment with all other existing and future senior indebtedness of Teekay. The   
Indenture virtually prohibits the Guarantors from incurring additional          
indebtedness for money borrowed. However, the Indenture permits Teekay and its  
subsidiaries that are not Guarantors to incur substantial indebtedness and to   
secure such indebtedness                                                        

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with mortgages on their assets. Certain additional indebtedness, including      
indebtedness incurred upon the satisfaction of certain financial tests, may be  
incurred by Teekay. As of September 30, 1995 and after giving effect to the     
consummation of the Offering, the Guarantors have virtually no other            
indebtedness, the other subsidiaries of Teekay have outstanding approximately   
$535.6 million of indebtedness all of which is secured by mortgages on other    
vessels and guaranteed by Teekay, and Teekay has no other outstanding           
indebtedness except for approximately $17.8 million of other guarantees issued  
by Teekay for the benefit of VCSC.                                              

  With respect to each Guarantor, claims of Holders of the Notes will rank
pari passu with claims of the creditors of such Guarantor, but will rank ahead  
of such claims to the extent of the value, priority and validity of such        
Guarantor's Mortgage of its respective Mortgaged Vessel. Although the Holders of
the Notes should be entitled to payment of their indebtedness out of the        
proceeds of their collateral prior to the holders of any general unsecured      
obligations of the Guarantors or Teekay, in the event that the assets and cash  
flow of the Guarantors are insufficient to meet the obligations under the Notes,
creditors' claims against Teekay will be effectively against the shares of stock
of subsidiaries other than the Guarantors and any other assets owned by Teekay  
and not direct claims against the assets of such subsidiaries. Therefore, such  
claims would have value only to the extent that the shares of stock of such     
subsidiaries have value after the payment of the claims of the creditors of such
subsidiaries or that Teekay has other assets.                                   

   Certain of the financing arrangements between subsidiaries of Teekay that
are not Guarantors and their respective lenders contain restrictions on         
dividends by and distributions from such subsidiaries to Teekay as well as      
prohibitions on other financial dealings between Teekay and such subsidiaries.  
However, Palm is not restricted in such fashion and any amounts that Palm       
receives as charter payments for the chartering of the Company's Vessels that   
are in excess of the amount that Palm is obligated to pay to the Company's      
vessel-owning subsidiaries under their respective Palm Charters would be        
available to Teekay as a dividend, distribution or advance from Palm.           

  Upon the occurrence of the Fall-away Event, at the request of Teekay and
the Guarantors and subject to delivery of appropriate documentation to the      
Trustee, the Subsidiary Guarantees will be terminated, certain covenants        
described above, together with certain other covenants under the Indenture, will
no longer be applicable to Teekay and the Guarantors and the Collateral securing
the Obligations of Teekay and the Guarantors under the Indenture and the        
Security Documents will be released, whereupon the Notes will become general    
senior unsecured obligations of Teekay. See "--Fall-away Event," "--Certain     
Restrictive Covenants" and "--Covenants After Fall-away Event."                 

GUARANTEES                                                                      

    Teekay's obligations for payment of the principal of, and premium, if any,
and interest on the Notes, the Guarantors' obligations for payment of all sums  
of money payable under the Security Documents and performance of all other      
provisions contained in the Indenture and the Security Documents (collectively, 
the "Obligations") will be irrevocably and unconditionally guaranteed on a      
senior secured basis by each of the Guarantors in the Subsidiary Guarantees. See
"The Subsidiary Guarantees."                                                    

    Upon the occurrence of the Fall-away Event, the Subsidiary Guarantees will
be terminated. See "--Fall-away Event," "--Certain Restrictive Covenants" and   
"--Covenants After Fall-away Event."                                            

SECURITY                                                                        

Teekay will pledge in favor of the Trustee all of the issued and      
outstanding capital stock of each Guarantor and its interest in the Investment  
Account to secure the Obligations.                                              

    Each Guarantor will pledge and assign certain of its assets to the Trustee
to secure, among other things, the Notes, its Subsidiary Guarantee of the Notes 
and the other Obligations. The assets to be so pledged and assigned by each     
Guarantor shall include all of its right, title and interest in and to (i) its  
Mortgaged Vessel, pursuant to a Mortgage issued by such Guarantor in favor of   
the Trustee, which                                                              

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Mortgage contains covenants pursuant to which such Guarantor, among other       
things, will be prohibited from selling, mortgaging or transferring any of its  
interest in such vessel (other than as permitted under the Indenture); (ii) the 
Charter with Palm relating to its Mortgaged Vessel, including the right to      
receive all monies due and to become due under such Charter or in respect of    
such Mortgaged Vessel and all claims for damages arising under such Charter or  
relating to such Mortgaged Vessel; (iii) the freights and hires relating to its 
Mortgaged Vessel; and (iv) all of its policies and contracts of insurance taken 
out from time to time in respect of its Mortgaged Vessel. See "The Mortgaged    
Vessels."                                                                       

   In addition, each Guarantor will grant the Trustee a security interest in
an account into which charter hire under the Palm Charters are required to be   
paid following the occurrence of an Event of Default (a "Cash Collateral        
Account"). See "The Mortgaged Vessels."                                         

Upon performance and payment in full of all the Obligations, all such 
pledges and assignments in favor of the Trustee shall terminate.                

    Upon the occurrence of the Fall-away Event, all of the Collateral securing
the obligations of Teekay and the Guarantors under the Indenture and the        
Security Documents will be released. See "--Fall-away Event," "--Certain        
Restrictive Covenants" and "--Covenants After Fall-away Event."                 

REDEMPTIONS                                                                     

SINKING FUND                                                          

   The Indenture will provide for the redemption on February 1 in each year,
commencing February 1, 2004, of $45 million principal amount of Notes, subject  
to adjustment as provided below, at a redemption price equal to 100% of their   
principal amount, plus accrued interest to the redemption date. (Section 3.01)  
Upon a redemption of Notes in connection with a reduction in the number of      
Mortgaged Vessels securing the Notes, whether as a result of the sale of a      
Mortgaged Vessel, or an Event of Loss with respect to a Mortgaged Vessel, each  
sinking fund payment payable after the occurrence of such event will be         
proportionately reduced (the amount of such reduction being equal to the product
of the sinking fund payment otherwise due multiplied by the Vessel Percentage of
the Mortgaged Vessel so released). Teekay may, at its option, receive a credit  
against sinking fund obligations equal to the aggregate principal amount of     
Notes acquired by Teekay and surrendered to the Trustee for cancellation.       
(Section 3.02)                                                                  

MANDATORY REDEMPTION UPON LOSS OF A MORTGAGED VESSEL                  

   If an Event of Loss occurs at any time with respect to a Mortgaged Vessel
(the Mortgaged Vessel suffering such Event of Loss being the "Lost Mortgaged    
Vessel"), Teekay shall deposit funds in an amount equal to the Vessel Percentage
applicable to the Lost Mortgaged Vessel multiplied by the principal amount of   
Notes outstanding on the date (the "Loss Date") such Event of Loss was deemed to
have occurred ("the Loss Redemption Amount") (or, if an Event of Default shall  
have occurred and be continuing at the time of receipt of such Event of Loss    
Proceeds, such funds shall be in an amount equal to the greater of (x) the Loss 
Redemption Amount and (y) the Event of Loss Proceeds) with the Trustee upon the 
earlier to occur of (A) the receipt of Event of Loss Proceeds with respect to   
such Event of Loss and (B) 90 days after the Loss Date, to be held in the       
Investment Account until applied in accordance with subsections (a) or (b)      
below, and:                                                                     

          (a) (i) redeem Notes, in whole or in part, at a redemption price equal
    to 100% of their principal amount, plus accrued interest to the Redemption
    Date, in an aggregate principal amount equal to the Loss Redemption Amount
and (ii) treat the amount equal to the excess of the Net Event of Loss
   Proceeds from such Event of Loss over the Loss Redemption Amount, if any,
as Loss Excess Proceeds; or                                           

        (b) if no Event of Default shall have occurred and be continuing (i)
notify the Trustee within 30 days of the Loss Date of its intention to
 substitute a Qualified Substitute Vessel for the Lost Mortgaged Vessel,
     (ii) substitute a Qualified Substitute Vessel for the Lost Mortgaged Vessel
within                                                                

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180 days of the Loss Date and (iii) within 12 months after the Vessel 
    Tender Date (A)(1) apply an amount equal to the Net Event of Loss Proceeds
     from such Event of Loss to repay unsubordinated Indebtedness of Teekay or a
  Guarantor or Indebtedness of any Restricted Subsidiary or (2) invest the
  amount not so applied pursuant to clause (1) (or enter into a definitive
   agreement committing to so invest within 12 months after the date of such
agreement), in, generally, property or assets which will be used in a 
     business similar to the business of Teekay and its Restricted Subsidiaries,
   or allocate such amount to working capital for general corporate purposes
   and (B) treat any remaining Net Event of Loss Proceeds, to the extent not
 applied pursuant to clause (A), as Loss Excess Proceeds. (Section 3.03)

 The requirement for mandatory redemption upon an Event of Loss will not
apply after the occurrence of the Fall-away Event. See "--Fall-away Event,"     
"--Certain Restrictive Covenants" and "--Covenants After Fall-away Event."      

MANDATORY REDEMPTION UPON SALE OF A MORTGAGED VESSEL                  

If a Mortgaged Vessel or the Capital Stock of a Guarantor is sold in  
accordance with the terms of the Indenture (the Mortgaged Vessel so sold or     
owned by the Guarantor whose Capital Stock is so sold being the "Sold Mortgaged 
Vessel"), Teekay shall deposit funds in an amount (the "Sale Redemption Amount")
equal to the Vessel Percentage applicable to the Sold Mortgaged Vessel          
multiplied by the principal amount of Notes outstanding on the date of such sale
(the "Sale Date") with the Trustee upon the earlier to occur of (A) the receipt 
of Net Cash Proceeds with respect to such sale and (B) 30 days after the Sale   
Date, to be held in the Investment Account until applied in accordance with     
subsections (a) or (b) below, and:                                              

        (a) (i) redeem Notes, in whole or in part, in an aggregate principal
    amount equal to the Sale Redemption Amount, at a Redemption Price equal to
   the greater of (A) 100% of the principal amount of such Notes and (B) the
    sum of the present values of the remaining scheduled payments of principal
and interest thereon discounted to the redemption date on a semiannual
   basis (assuming a 360-day year consisting of twelve 30-day months) at the
   Treasury Rate plus 50 basis points, in each case plus accrued interest on
     the Notes to the date of redemption; and (ii) treat the amount equal to the
     excess of the Net Cash Proceeds from such sale over the aggregate principal
    amount of the Notes redeemed pursuant to clause (i) above, if any, as Sale
Excess Proceeds; or                                                   

     (b) (i) notify the Trustee within 30 days of the Sale Date of its
intention to substitute a Qualified Substitute Vessel for the Sold    
 Mortgaged Vessel, (ii) substitute a Qualified Substitute Vessel for the
    Sold Mortgaged Vessel within 180 days of the Sale Date and (iii) within 12
  months after the Vessel Tender Date, (A)(1) apply an amount equal to the
  Net Cash Proceeds from such sale to repay unsubordinated Indebtedness of
   Teekay or a Guarantor or Indebtedness of any Restricted Subsidiary or (2)
  invest the amount not so applied pursuant to clause (1) (or enter into a
    definite agreement committing to so invest within 12 months after the date
     of such agreement), in, generally, property or assets which will be used in
a business similar to the business of Teekay and its Restricted       
Subsidiaries, or allocate such amount to working capital for general  
  corporate purposes and (B) treat any remaining Net Cash Proceeds, to the
    extent not applied pursuant to clause (A), as Sale Excess Proceeds. Teekay
    shall not be permitted to substitute a Qualified Substitute Vessel for the
    Sold Mortgaged Vessel, and shall be obligated to redeem Notes as set forth
   in subparagraph (a) above, if (A) an Event of Default shall have occurred
   and be continuing, (B) Teekay does not deposit the Sale Redemption Amount
with the Trustee as required above, (C) the Appraised Value of the    
Qualified Substitute Vessel at the Vessel Tender Date is less than the
  product of the Vessel Percentage applicable to the Sold Mortgaged Vessel
   multiplied by the principal amount of the Notes outstanding at the Vessel
Tender Date or (D) other requirements for the tender of the Qualified 
 Substitute Vessel to the Trust Estate are not satisfied for any reason.
(Section 3.04)                                                        

For purposes of subsection (a) above, the following definitions shall 
apply:                                                                          

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  "Treasury Rate" is defined to mean, with respect to any redemption date,
the rate per annum equal to the semiannual equivalent yield to maturity of the  
Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue   
(expressed as a percentage of its principal amount) equal to the Comparable     
Treasury Price for such redemption date.                                        

   "Comparable Treasury Issue" is defined to mean the United States Treasury
security elected by an Independent Investment Banker as having a maturity       
comparable to the weighted average maturity of the remaining term of the Notes  
outstanding that would be utilized, at the time of selection and in accordance  
with customary financial practice, in pricing new issues of corporate debt      
securities of comparable maturity to such weighted average maturity of such     
Notes. "Independent Investment Banker" means one of the Reference Treasury      
Dealers appointed by the Trustee after consultation with the Company.           

"Comparable Treasury Price" is defined to mean, with respect to any   
redemption date, (i) the average of the bid and asked prices for the Comparable 
Treasury Issue (expressed in each case as a percentage of its principal amount) 
on the third business day preceding such redemption date, as set forth in the   
daily statistical release (or any successor release) published by the Federal   
Reserve Bank of New York and designated "Composite 3:30 p.m., Quotations for    
U.S. Government Securities" or (ii) if such release (or any successor release)  
is not published or does not contain such prices on such business day, (A) the  
average of the Reference Treasury Dealer Quotations for such redemption date,   
after excluding the highest and lowest such Reference Treasury Dealer           
Quotations, or (B) if the Trustee obtains fewer than four such Reference        
Treasury Dealer Quotations, the average of all such Quotations. "Reference      
Treasury Dealer Quotations" means, with respect to each Reference Treasury      
Dealer and any redemption date, the average, as determined by the Trustee, of   
the bid and asked prices for the Comparable Treasury Issue (expressed in each   
case as a percentage of its principal amount) quoted in writing to the Trustee  
by such Treasury Reference Dealer at 5:00 p.m. (New York City time) on the third
business day preceding such redemption date.                                    

 "Reference Treasury Dealer" is defined to mean each of Goldman, Sachs &
Co., Morgan Stanley & Co. Incorporated and Smith Barney Inc. and their          
respective successors; provided, however, that if any of the foregoing shall    
cease to be a primary U.S. Government securities dealer in New York City (a     
"Primary Treasury Dealer"), Teekay shall substitute therefor another Primary    
Treasury Dealer.                                                                

  The requirement for mandatory redemption upon sale of a Mortgaged Vessel
will not apply after the occurrence of the Fall-away Event. See "-- Fall-away   
Event," "-- Certain Restrictive Covenants" and "-- Covenants After Fall-away    
Event."                                                                         

SELECTION OF NOTES TO BE REDEEMED                                     

   In the case of any partial redemption pursuant to the provisions referred
to under this caption "--Redemption", selection of the Notes for redemption will
be made on a pro rata basis among all the Holders; provided that no Note of     
$1,000 in original principal amount or less shall be redeemed in part. If any   
Note is to be redeemed in part only, the notice of redemption relating to such  
Note shall state the portion of the principal amount thereof to be redeemed. A  
new Note in principal amount equal to the unredeemed portion thereof will be    
issued in the name of the Holder thereof upon cancellation of the original Note.
(Sections 3.05, 3.06, 3.10) Unless the Company defaults in payment of the       
redemption price, on and after the redemption date interest will cease to accrue
on the Notes or portions thereof called for redemption. (Section 3.09)          

CERTAIN RESTRICTIVE COVENANTS                                                   

    The Indenture will provide that all of the following restrictive covenants
will be applicable to the Company unless and until the Fall-away Event occurs.  
In such event, the Company will be released from its obligations to comply with 
certain of the restrictive covenants described below as well as certain other   
obligations. The covenants that will be released upon the Fall-away Event are   
"--Limitation of Indebtedness," "--Limitation on Restricted Payments,"          
"--Limitation on Dividend and Other Restrictions Affecting Restricted           
Subsidiaries," "--Limitation on the Issuance of Capital Stock of                

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Restricted Subsidiaries," "--Limitation on Transactions with Shareholders and   
Affiliates," "--Limitation of Liens," "--Limitation on Asset Sales," the second 
paragraph under "--Excess Proceeds Offer," "--Maintenance of Properties,"       
subsection (a) of "--Insurance," "--Performance of Agreements," "--Modification 
of Material Contracts," "--Management of Mortgaged Vessels, "--Change of Flag," 
"--Release of Mortgaged Vessels," "--Tender of a Qualified Substitute Vessel"   
and clauses (4) and (5) under the "Consolidation, Merger and Sale of Assets"    
covenant. (Section 5.01)                                                        

    Upon the release of the covenants listed above after the occurrence of the
Fall-away Event, certain other less restrictive covenants under the Indenture   
will become applicable to Teekay and the Restricted Subsidiaries. See           
"--Covenants After Fall-away Event."                                            

LIMITATION ON INDEBTEDNESS                                            

    Under the terms of the Indenture, Teekay will not, and will not permit any
Restricted Subsidiary to, Incur any Indebtedness (other than the Notes and      
Indebtedness existing (or for which a written commitment has been made on or    
prior to the Closing Date) on the Closing Date); provided that Teekay or any    
Restricted Subsidiary (other than a Guarantor and Palm) may Incur Indebtedness  
if, after giving effect to the Incurrence of such Indebtedness and the receipt  
and application of the proceeds therefrom, the Interest Coverage Ratio of Teekay
would be greater than 2:1.                                                      

 Notwithstanding the foregoing, under the Indenture (except as expressly
provided otherwise below), Teekay or any Restricted Subsidiary (other than a    
Guarantor or Palm, except as provided in clause (vii) below) also may Incur     
certain types of Indebtedness, including, in general, the following: (i)        
Indebtedness in an aggregate principal amount such that the aggregate principal 
amount of the Indebtedness of Teekay and its Restricted Subsidiaries outstanding
immediately after such Incurrence does not exceed the aggregate principal amount
of Indebtedness existing (or for which a written commitment has been made on or 
prior to the Closing Date) on the Closing Date, after giving effect to the Note 
Offering and the application of proceeds therefrom, plus $50 million; (ii)      
Indebtedness of Teekay to any of its Wholly Owned Restricted Subsidiaries, or of
a Restricted Subsidiary to Teekay or to any other Wholly Owned Restricted       
Subsidiary; (iii) Indebtedness issued in exchange for, or the net proceeds of   
which are used to refinance or refund, certain outstanding Indebtedness of      
Teekay or any of its Restricted Subsidiaries, subject to certain conditions,    
including that such new Indebtedness, determined as of the date of Incurrence of
such new Indebtedness, does not mature prior to the Stated Maturity of the      
Indebtedness so exchanged, refinanced or refunded and the Average Life of such  
new Indebtedness is at least equal to the remaining Average Life of the         
Indebtedness so exchanged, refinanced or refunded; (iv) Indebtedness (A) in     
respect of performance, surety or appeal bonds provided in the ordinary course  
of business, (B) under certain Currency Agreements and Interest Rate Agreements,
and (C) arising from agreements providing for indemnification, adjustment of    
purchase price or similar obligations, or from Guarantees or letters of credit, 
surety bonds or performance bonds securing any obligations of Teekay or any of  
its Restricted Subsidiaries pursuant to such agreements, in any case Incurred in
connection with the disposition of any business, assets or Restricted Subsidiary
of Teekay or any of its Restricted Subsidiaries and not exceeding the gross     
proceeds therefrom, other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such business, assets or Restricted Subsidiary  
of Teekay or any of its Restricted Subsidiaries for the purpose of financing    
such acquisition; (v) Indebtedness under Guarantees in respect of obligations of
Unrestricted Subsidiaries in an aggregate amount not to exceed $5 million at any
one time outstanding; (vi) Acquired Indebtedness; provided that, after giving   
effect to the Incurrence thereof, Teekay could Incur at least $1.00 of          
Indebtedness under the first paragraph of this covenant; and (vii) Indebtedness 
of Palm (A) Incurred in the ordinary course of business in connection with the  
operation of any Vessel in an aggregate principal amount not to exceed $25      
million outstanding at any one time or (B) to Teekay resulting from advances to 
Palm by Teekay. The covenant defines certain terms relating to how certain      
amounts of Indebtedness are calculated for purposes of this covenant.           

     Teekay may not Incur any Indebtedness that is expressly subordinated to any
other Indebtedness of Teekay unless such Indebtedness, by its terms or the terms
of any agreement or instrument pursuant to                                      

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which such Indebtedness is issued or remains outstanding, is also expressly made
subordinate to the Notes at least to the extent that it is subordinated to such 
other Indebtedness.                                                             

     No Guarantor may Incur any Indebtedness other than pursuant to its Security
Documents. (Section 4.03)                                                       

LIMITATION ON RESTRICTED PAYMENTS                                     

    Under the terms of the Indenture, Teekay will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, (i) declare or pay any        
dividend or make any distribution on its Capital Stock (other than dividends or 
distributions payable solely in shares of its or such Restricted Subsidiary's   
Capital Stock (other than Redeemable Stock or Capital Stock of a Guarantor or   
Palm) of the same class held by such holders or in options, warrants or other   
rights to acquire such shares of Capital Stock) held by Persons other than      
Teekay or any of its Wholly Owned Restricted Subsidiaries, (ii) purchase,       
redeem, retire or otherwise acquire for value any shares of Capital Stock of    
Teekay or any of its Subsidiaries held by Persons other than Teekay or any of   
its Wholly Owned Restricted Subsidiaries, (iii) make any voluntary or optional  
principal payment, or voluntary or optional redemption, repurchase, defeasance, 
or other voluntary acquisition or retirement for value, of Indebtedness of      
Teekay that is subordinated in right of payment to the Notes, or (iv) make any  
Investment in any Affiliate of Teekay (other than a Restricted Subsidiary) or   
any Unrestricted Subsidiary (such payments or any other actions described in    
clauses (i) through (iv) being collectively "Restricted Payments") if, at the   
time of, and after giving effect to, the proposed Restricted Payment: (A) a     
Default or Event of Default shall have occurred and be continuing or (B) the    
aggregate amount expended for all Restricted Payments after the date of the     
Indenture shall exceed the sum of (1) 50% of the aggregate amount of the        
Adjusted Consolidated Net Income (or, if the Adjusted Consolidated Net Income is
a loss, minus 100% of such amount) of Teekay accrued on a cumulative basis      
during the period beginning on the first day of the month immediately following 
the Closing Date and ending on the last day of the last fiscal quarter preceding
the Transaction Date plus (2) the aggregate net proceeds received by Teekay     
(including the amount of any dividends reinvested in the capital stock of       
Teekay) from the issuance and sale permitted by the Indenture of the Capital    
Stock of Teekay (other than Redeemable Stock) to a Person who is not a          
Restricted Subsidiary or an Unrestricted Subsidiary of Teekay, plus (3) an      
amount equal to the net reduction in Investments in Unrestricted Subsidiaries   
resulting from payments of interest on Indebtedness, dividends, repayments of   
loans or advances, or other transfers of assets, in each case to Teekay or any  
Restricted Subsidiary from Unrestricted Subsidiaries, or from redesignations of 
Unrestricted Subsidiaries as Restricted Subsidiaries (valued in each case as    
provided in the definition of "Investments"), not to exceed, in the case of any 
Unrestricted Subsidiary, the amount of Investments previously made by Teekay or 
any Restricted Subsidiary in such Unrestricted Subsidiary plus (4) $50 million. 

    In general, the foregoing paragraph shall not take into account, and shall
not be violated by reason of: (i) the payment of any dividend within 60 days    
after the date of declaration thereof if, at said date of declaration, such     
payment would comply with the foregoing paragraph; (ii) the redemption,         
repurchase, defeasance or other acquisition or retirement for value (other than 
by a Guarantor) of Indebtedness of Teekay that is subordinated in right of      
payment to the Notes, with the proceeds of, or in exchange for, Indebtedness    
Incurred under clause (iii) of the second paragraph of "--Certain Restrictive   
Covenants--Limitation on Indebtedness"; (iii) the repurchase, redemption or     
other acquisition by Teekay of Capital Stock of Teekay in exchange for, or out  
of the proceeds of a substantially concurrent offering of, shares of Capital    
Stock (other than Redeemable Stock) of Teekay; (iv) the acquisition by Teekay of
Indebtedness of Teekay that is subordinated in right of payment to the Notes in 
exchange for, or out of the proceeds of, a substantially concurrent offering of,
shares of Capital Stock of Teekay (other than Redeemable Stock); (vi) payments  
or distributions pursuant to or in connection with a consolidation, merger or   
transfer of assets that complies with the applicable provisions of the          
Indenture; or (vii) certain purchases, redemptions, acquisitions, cancellations 
or other retirements for a nominal value per right of any rights granted        
pursuant to any shareholders' rights plan (i.e., a "poison pill"); provided     
that, in the case of foregoing clauses (i) and (ii), no Default or Event of     
Default shall have                                                              

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occurred and be continuing or occur as a consequence of the actions or payments 
set forth therein. (Section 4.04)                                               

LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS                 
AFFECTING RESTRICTED SUBSIDIARIES                                     

    Under the terms of the Indenture, Teekay will not, and will not permit any
Restricted Subsidiary to, create or otherwise cause or suffer to exist or become
effective any consensual encumbrance or restriction of any kind on the ability  
of any Restricted Subsidiary to (i) pay dividends or make any other             
distributions permitted by applicable law on any Capital Stock of such          
Restricted Subsidiary owned by Teekay or any other Restricted Subsidiary, (ii)  
pay any Indebtedness owed to Teekay or any other Restricted Subsidiary, (iii)   
make loans or advances to Teekay or any other Restricted Subsidiary or (iv)     
transfer any of its property or assets to Teekay or any other Restricted        
Subsidiary.                                                                     

In general, the foregoing provision shall not restrict or prohibit any
encumbrances or restrictions: (i) existing pursuant to: (A) the Indenture, the  
Notes, the Security Documents or any agreements in effect on the Closing Date or
in any Indebtedness containing any such encumbrance or restriction that is      
permitted pursuant to clause (iv) below or, subject to certain conditions, in   
any such extensions, refinancings, renewals or replacements of the foregoing or 
(B) any agreement which imposes such encumbrances or restrictions on Persons    
other than a Guarantor, Palm or any Subsidiary of a Guarantor or Palm; (ii)     
existing under certain other agreements providing for the Incurrence of         
Indebtedness of any Restricted Subsidiary (other than a Guarantor or Palm) that 
is permitted to be Incurred under "--Certain Restrictive Covenants--Limitation  
on Indebtedness"; (iii) existing under and by reason of applicable law; (iv)    
existing with respect to any Person or the property or assets of such Person    
(other than a Guarantor or Palm) acquired by Teekay or any Restricted Subsidiary
and existing at the time of such acquisition, which encumbrances or restrictions
are not applicable to any Person or the property or assets of any Person other  
than such Person or the property or assets of such Person so acquired; (v) in   
the case of clause (iv) of the first paragraph of this covenant, certain        
encumbrances and restrictions that arise in the ordinary course of business; or 
(vi) with respect to a Restricted Subsidiary (other than a Guarantor or Palm)   
imposed pursuant to an agreement that has been entered into for the sale or     
disposition of all or substantially all of the Capital Stock of, or all, or     
substantially all, of the property and assets of, such Restricted Subsidiary.   
Nothing contained in this covenant shall prevent Teekay or any Restricted       
Subsidiary from (1) entering into any agreement permitting the incurrence of    
Liens otherwise permitted by "--Certain Restrictive Covenants--Limitation on    
Liens", (2) restricting the sale or other disposition of property or assets of  
Teekay or any of its Restricted Subsidiaries that secure Indebtedness (other    
than the Notes and the Subsidiary Guarantees) of Teekay or any of its Restricted
Subsidiaries or (3) amending, modifying or supplementing any charter or similar 
arrangement between Palm and a vessel-owning Subsidiary of Teekay(other than the
Palm Charters) solely (A) to lower the rates paid by Palm to such vessel-owning 
Subsidiary under such charter or similar arrangement or (B) to increase the     
rates paid by Palm to such vessel-owning Subsidiary under such charter or       
similar arrangement to the extent required to service (x) Indebtedness for money
borrowed, Incurred in good faith (as determined by the Board of Directors) and  
not with the purpose of evading the requirements of this covenant, in connection
with the financing or the refinancing of Indebtedness of such Subsidiary and (y)
expenses incurred by such Subsidiary in the ordinary course of business.        
(Section 4.05)                                                                  

LIMITATION ON THE ISSUANCE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES

    Under the terms of the Indenture, Teekay will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, issue or sell any shares of   
the Capital Stock of a Restricted Subsidiary except (i) to Teekay or, except    
shares of Capital Stock of a Guarantor or Palm, to another Wholly Owned         
Restricted Subsidiary, (ii) other than with respect to shares of Capital Stock  
of a Guarantor or Palm, to management employees of Teekay or a Restricted       
Subsidiary pursuant to the exercise of stock options or stock appreciation      
rights, (iii) if, immediately after giving effect to such issuance or sale, such
Restricted Subsidiary would no longer constitute a Restricted Subsidiary for    
purposes of the Indenture or (iv) other                                         

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than with respect to shares of Capital Stock of a Guarantor or Palm, to Persons 
who are entering into joint ventures or other similar business relationships    
with Teekay or any Subsidiary other than a Guarantor or Palm, provided that     
transactions pursuant to this clause (iv) are approved in the manner set forth  
in clause (i) of the second paragraph under "--Certain Restrictive              
Covenants--Limitation on Transactions with Shareholders and Affiliates."        
(Section 4.06)                                                                  

LIMITATION ON TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES           

    Under the terms of the Indenture, Teekay will not, and will not permit any
Restricted Subsidiary of Teekay to, directly or indirectly, enter into, renew or
extend any transaction or series of related transactions with any holder (or any
Affiliate of such holder) of 5% or more of any class of Capital Stock of Teekay 
or with any Affiliate of Teekay, except upon fair and reasonable terms no less  
favorable to Teekay or such Restricted Subsidiary than could be obtained in a   
comparable arm's-length transaction with a Person that is not such a holder or  
Affiliate.                                                                      

     In general, the foregoing limitation does not limit, and shall not apply to
(i) transactions or series of related transactions (A) approved by a majority of
the disinterested members of the Board of Directors as fair to Teekay or such   
Restricted Subsidiary or (B) for which Teekay delivers to the Trustee a written 
opinion of a nationally recognized United States investment banking firm stating
that the transaction is fair to Teekay or such Restricted Subsidiary from a     
financial point of view; (ii) any transaction or series of related transactions 
among Teekay and any Wholly Owned Restricted Subsidiaries (other than a         
Guarantor or Palm) or among Wholly Owned Restricted Subsidiaries (other than a  
Guarantor or Palm); (iii) the payment of reasonable and customary regular fees  
to directors of Teekay or any Restricted Subsidiary who are not employees of    
Teekay or any Restricted Subsidiary; or (iv) any Restricted Payments not        
prohibited by "--Certain Restrictive Covenants--Limitation on Restricted        
Payments." Notwithstanding the foregoing, any transaction or series of related  
transactions that are permitted by clause (iii) or (iv) of this paragraph, the  
aggregate amount of which exceeds $5 million in value, must be approved or      
determined to be fair in the manner set forth in clause (i) of this paragraph.  

   Nothing contained in this covenant shall prevent Teekay or any Restricted
Subsidiary from amending, modifying or supplementing any charter or similar     
arrangement between Palm and a vessel-owning Subsidiary of Teekay (other than   
the Palm Charters) solely (A) to lower the rates paid by Palm to such           
vessel-owning Subsidiary under such charter or similar arrangement or (B) to    
increase the rates paid by Palm to such vessel-owning Subsidiary under such     
charter or similar arrangement to the extent required to service (x)            
Indebtedness for money borrowed, Incurred in good faith (as determined by the   
Board of Directors) and not with the purpose of evading the requirements of this
covenant, in connection with the financing or refinancing of Indebtedness of    
such Subsidiary and (y) expenses incurred by such Subsidiary in the ordinary    
course of business. (Section 4.07)                                              

LIMITATION ON LIENS                                                   

    Under the terms of the Indenture, Teekay will not, and will not permit any
Restricted Subsidiary to, create, incur, assume or suffer to exist any Lien on  
any of its assets or properties without making effective provision for all of   
the Notes and all other amounts due under the Indenture to be directly secured  
equally and ratably with (or prior to) the obligation or liability secured by   
such Lien for so long as such Lien affects such assets or properties.           

     In general, under the terms of the Indenture, the foregoing limitation does
not apply to (i) Liens securing obligations under the Indenture, the Notes and  
the Security Documents; (ii) other Liens existing or securing Indebtedness      
existing (or for which a written commitment has been made on or prior to the    
Closing Date) on the Closing Date; (iii) Liens granted after the Closing Date in
favor of the Holders; (iv) Liens on assets or properties or Capital Stock of    
Teekay or a Restricted Subsidiary (other than a Guarantor and Palm) securing    
Indebtedness permitted to be Incurred pursuant to "--Certain Restrictive        
Covenants--Limitation on Indebtedness;" (v) Liens with respect to Acquired      
Indebtedness, provided that such Liens do not extend to or cover any assets or  
properties of Teekay or any Subsidiary of Teekay                                

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other than the assets or properties acquired; (vi) Liens with respect to the    
assets of a Restricted Subsidiary (other than a Guarantor and Palm) granted by  
such Restricted Subsidiary to Teekay to secure Indebtedness owing to Teekay by  
such Restricted Subsidiary; (vii) certain Liens securing permitted Indebtedness 
which is Incurred to refinance secured Indebtedness; (viii) Liens on any        
accounts receivable accrued in the ordinary course of business; and (ix)        
Permitted Liens.                                                                

   Notwithstanding the foregoing, (a) Teekay will not, and will not permit a
Guarantor or Palm to, create, incur, assume or suffer to exist any Lien upon    
Capital Stock pledged pursuant to the Pledge Agreements and (b) no Guarantor    
will, and Teekay will not permit a Guarantor or Palm to, create, incur, assume  
or suffer to exist any Lien upon any of its assets or properties, except for    
Liens securing obligations under the Indenture, the Notes and the Security      
Documents and Permitted Liens. (Section 4.08)                                   

LIMITATION ON ASSET SALES                                             

Under the terms of the Indenture, neither Teekay nor any Guarantor may
sell, assign, convey, transfer or otherwise dispose of a Mortgaged Vessel or any
other portion of the Trust Estate (other than an Incidental Asset), provided    
that a Guarantor may sell a Mortgaged Vessel (together with the applicable      
charters, freights and hires and other related agreements) or Teekay may sell   
all of the Capital Stock of a Guarantor (any such asset proposed to be sold is  
referred to herein as a "Mortgaged Vessel Asset") if such sale of a Mortgaged   
Vessel Asset shall be made in compliance with each of the following conditions: 

  (i) no Event of Default shall have occurred and be continuing;

        (ii) the sale shall be effected in a commercially reasonable manner;

          (iii) the entire consideration for such sale shall be cash and the Net
  Cash Proceeds of such sale shall be not less than the Appraised Value of
such Mortgaged Vessel Asset as of the date of such sale;              

         (iv) the sale shall be to a Person who is not an Affiliate of Teekay,
  and the Board of Directors of Teekay shall have determined that the sale
was effected in a commercially reasonable fashion, which determination
shall be evidenced by a board resolution;                             

       (v) funds in an amount equal to the Sale Redemption Amount shall be
   paid in full directly to the Trustee to be held in the Investment Account
    and shall be received by the Trustee free of any Lien (other than the Lien
of the Indenture); and                                                

    (vi) Teekay shall have complied with the other provisions of the
Indenture applicable to such sale.                                    

Teekay must apply the proceeds from such sale as described above under
"--Redemptions--Mandatory Redemption upon Sale of a Mortgaged Vessel."          

   Teekay shall not, and shall not permit any of its Restricted Subsidiaries
to, engage in any Asset Sales (other than Asset Sales permitted by the first    
paragraph of this covenant) unless (x) (A) such Asset Sale is by Teekay or by a 
Restricted Subsidiary that is not a Guarantor or (B) such Asset Sale is an      
Incidental Asset Sale and (y) in the event and to the extent that the Net Cash  
Proceeds received by Teekay or any of its Restricted Subsidiaries from one or   
more of such Asset Sales occurring on or after the Closing Date in any period of
12 consecutive months exceed $10 million, then Teekay shall or shall cause a    
Restricted Subsidiary to (i) within 12 months after the date Net Cash Proceeds  
so received exceed $10 million in any period of 12 consecutive months, in       
general, apply an amount equal to such excess Net Cash Proceeds to repay certain
unsubordinated Indebtedness, to invest in the business or as working capital for
general corporate purposes and (ii) treat (no later than the end of such        
12-month period referred to in clause (i) above) such excess Net Cash Proceeds  
(to the extent not applied pursuant to clause (i) above) as Sale Excess         
Proceeds. (Section 4.09)                                                        

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EXCESS PROCEEDS OFFERS                                                

     If, as of the first day of any calendar month, the aggregate amount of Sale
Excess Proceeds not theretofore subject to a Sale Excess Proceeds Offer (as     
defined below) totals at least $10 million, Teekay must, not later than the     
fifteenth Business Day of such month, make an offer (a "Sale Excess Proceeds    
Offer") to purchase from the holders on a pro rata basis an aggregate principal 
amount of Notes equal to the Sale Excess Proceeds on such date, at a purchase   
price at least equal to 101% of their principal amount, plus, in each case,     
accrued interest (if any) to the date of purchase (the "Sale Excess Proceeds    
Payment").                                                                      

     If, as of the first day of any calendar month, the aggregate amount of Loss
Excess Proceeds not theretofore subject to a Loss Excess Proceeds Offer (as     
defined below) totals at least $10 million, Teekay must, not later than the     
fifteenth Business Day of such month, make an offer (a "Loss Excess Proceeds    
Offer," and together with a Sale Excess Proceeds Offer, an "Excess Proceeds     
Offer") to purchase from the holders on a pro rata basis an aggregate principal 
amount of Notes equal to the Loss Excess Proceeds on such date, at a purchase   
price at least equal to 100% of their principal amount, plus, in each case,     
accrued interest (if any) to the date of purchase (the "Loss Excess Proceeds    
Payment," and together with a Sale Excess Proceeds Payment, an "Excess Proceeds 
Payment").                                                                      

     The Indenture prescribes detailed procedures for making any required Excess
Proceeds Offer. (Section 4.10)                                                  

MAINTENANCE OF PROPERTIES                                             

  The Indenture will provide that Teekay will (a) at all times and without
cost or expense to the Trustee maintain and preserve, or cause to be maintained 
and preserved, the Mortgaged Vessels in accordance with the provisions of the   
Mortgages, (b) at all times and without cost or expense to the Trustee cause all
other properties used or useful in the conduct of its business or the business  
of any of its Subsidiaries, to be maintained and kept in good condition, repair 
and working order and supplied with and (c) cause to be made all necessary      
repairs, renewals, replacements, betterments and improvements thereof, all as in
the judgment of Teekay may be necessary. (Section 4.13)                         

INSURANCE                                                             

   The Indenture will provide that (a) Teekay and the Guarantors will at all
times maintain all insurance relating to the Mortgaged Vessels in accordance    
with the provisions of the Mortgages and (b) each of Teekay and its Restricted  
Subsidiaries will at all times keep all of its assets and properties (other than
the Mortgaged Vessels) which are of an insurable nature insured with insurers,  
believed by Teekay and each Restricted Subsidiary to be responsible, against    
loss or damage to the extent that property of similar character is usually so   
insured by corporations similarly situated and owning like properties. (Section 
4.14)                                                                           

PERFORMANCE OF AGREEMENTS                                             

     The Indenture will provide that each of Teekay and the Guarantors will, and
Teekay will cause Palm to, perform in accordance with their terms their         
respective obligations under the Palm Charters, the Security Documents, and the 
insurance policies assigned to the Trustee from time to time pursuant to the    
Assignments of Insurance and any other agreements assigned to the Trustee to    
secure obligations under the Indenture, the Notes and the Security Documents.   
(Section 4.15)                                                                  

MODIFICATION OF MATERIAL CONTRACTS                                    

The Indenture will provide that, subject to the exceptions summarized 
below, neither Teekay nor any of the Guarantors may amend or otherwise modify,  
agree to any variation of, waive any breach of, release any other party from any
obligations under or consent to any act or omission by any other party which    
would constitute a breach under the material provisions of any charter, freights
and hires or other                                                              

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agreement assigned as security for the Notes, in each case in a manner adverse  
to the Holders unless the Holders of a majority of the aggregate principal      
amount of Notes Outstanding consent to such amendment, modification, variation, 
waiver, release or consent.                                                     

    In the Indenture, Teekay and each Guarantor ratifies and confirms the Palm
Charters and agrees that they will not, and Teekay will cause Palm not to,      
except as permitted in the Indenture, take or omit to take any action, the      
taking or omission of which might result in an impairment of the Palm Charters, 
the Indenture or the Security Documents. (Section 4.16)                         

MANAGEMENT OF MORTGAGED VESSELS                                       

The Indenture will provide that, at all times while any Notes are     
outstanding, the Mortgaged Vessels shall be managed and operated by Teekay or an
operator acceptable to the Trustee pursuant to management agreements on fair and
reasonable terms no less favorable to Teekay or the Guarantors than could be    
obtained in a comparable arm's-length transaction with a Person that is not an  
Affiliate of Teekay or a Guarantor. (Section 4.22)                              

CHANGE OF FLAG                                                        

So long as no Event of Default shall have occurred and be continuing, 
Teekay and the Guarantors, at any time and from time to time, may cause one or  
more Mortgaged Vessels to be transferred from Liberian flag to Bahamian flag or 
from Bahamian flag to Liberian flag upon delivery of appropriate security       
agreements and other documentation to the Trustee. After an Event of Default    
shall have occurred and be continuing, the Trustee may cause one or more        
Mortgaged Vessels to be transferred from Liberian flag to Bahamian flag or from 
Bahamian flag to Liberian flag upon the delivery of appropriate documentation to
Teekay. (Section 9.07)                                                          

RELEASE OF MORTGAGED VESSELS                                          

  In the event that Teekay redeems Notes or acquires and delivers Notes to
the Trustee for cancellation, in each case in an aggregate principal amount not 
theretofore applied pursuant to this provision in excess of $10 million, Teekay 
may request the Trustee to release a Mortgaged Vessel Asset from the Trust      
Estate and from the Liens of the Indenture and the Security Documents; provided 
that (i) no Event of Default shall have occurred and be continuing, (ii)        
appropriate documentation is delivered to the Trustee, (iii) the Appraised Value
of the Mortgaged Vessel to be released at the time of such release does not     
exceed 133% (the reciprocal of the Maximum Loan To Value Ratio) of the aggregate
principal amount of the Notes so redeemed, acquired or retired and (iv) the Loan
to Value Ratio after giving effect to such release shall not exceed the Maximum 
Loan To Value Ratio, using the Appraised Value of the remaining Mortgaged       
Vessels at the time of, and after giving effect to, such release to calculate   
such Loan To Value Ratio. (Section 9.04)                                        

TENDER OF A QUALIFIED SUBSTITUTE VESSEL                               

     On the date on which a Qualified Substitute Vessel is tendered to the Trust
Estate (a "Vessel Tender Date"), Teekay shall deliver to the Trustee, or shall  
cause the owner of such vessel, which shall be a Wholly Owned Subsidiary of     
Teekay (the "Tendered Vessel Owner"), to deliver to the Trustee, as the case may
be, the documents and certificates required by the Indenture, including, among  
other things: (i) a Subsidiary Guarantee substantially in the form required by  
the Indenture; and (ii) a Mortgage with respect to such vessel dated the Vessel 
Tender Date and substantially in the form required by the Indenture (such       
Mortgage having been duly received for recording in the appropriate registry    
office). (Section 9.08)                                                         

REPURCHASE OF NOTES UPON A CHANGE OF CONTROL TRIGGERING EVENT         

    The Indenture will provide that upon the occurrence of a Change of Control
Triggering Event, each Holder of Notes will have the right to require Teekay to 
repurchase such Holder's Notes, in whole or in                                  

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part, in integral multiples of $1,000, at a purchase price in cash equal to 101%
of the principal amount thereof plus accrued and unpaid interest, if any, to the
date of purchase, in accordance with the procedures set forth in the Indenture. 
A "Change of Control" also constitutes an event of default under several of the 
Company's other debt agreements. There can be no assurance that the Company will
have sufficient funds to pay the purchase price referred to above at the time of
the Change of Control Triggering Event. The existence of a Holder's right to    
require Teekay to repurchase Notes upon the occurrence of a Change of Control   
Triggering Event may deter a third party from acquiring Teekay in a transaction 
which would constitute a Change of Control. (Section 4.23)                      

CONSOLIDATION, MERGER AND SALE OF ASSETS                                        

Teekay may not, in a single transaction or a series of related        
transactions, (i) consolidate with or merge with or into any other Person or    
permit any other Person to consolidate with or merge with or into Teekay, or    
(ii) directly or indirectly, transfer, sell, lease or otherwise dispose of all  
or substantially all of its assets, unless: (1) in a transaction in which Teekay
does not survive or in which Teekay sells, leases or otherwise disposes of all  
or substantially all of its assets, the successor entity to Teekay is organized 
under (a) the laws of the United States or any State thereof or the District of 
Columbia, (b) the laws of the Republic of Liberia, (c) the laws of the          
Commonwealth of the Bahamas or (d) the laws of any other country recognized by  
the United States of America and which, in the case of any of (a), (b), (c) or  
(d), shall expressly assume, by a supplemental indenture executed and delivered 
to the Trustee in the form satisfactory to the Trustee, all of the Company's    
obligations under the Indenture and, if applicable, the Security Documents; (2) 
immediately before and after giving effect to such transaction and treating any 
Indebtedness which becomes an obligation of Teekay or a Restricted Subsidiary as
a result of such transaction as having been incurred by Teekay or such          
Restricted Subsidiary at the time of the transaction, no Default or Event of    
Default shall have occurred and be continuing; (3) immediately after giving     
effect to such transaction, the Consolidated Net Worth of Teekay (or other      
successor entity to Teekay) and its Restricted Subsidiaries is equal to or      
greater than that of Teekay and its Restricted Subsidiaries immediately prior to
the transaction; (4) immediately after giving effect to such transaction and    
treating any Indebtedness which becomes an obligation of Teekay or a Restricted 
Subsidiary as a result of such transaction as having been incurred by Teekay or 
such Restricted Subsidiary at the time of the transaction, Teekay (including any
successor entity to Teekay) could incur at least $1.00 of additional            
Indebtedness pursuant to the provisions of the Indenture described in the first 
paragraph under "--Certain Restrictive Covenants--Limitation on Indebtedness";  
(5) if, as a result of any such transaction, property or assets of Teekay would 
become subject to a Lien prohibited by the provisions of the Indenture described
under "--Certain Restrictive Covenants--Limitation on Liens", Teekay or the     
successor entity to Teekay shall have secured the Notes as required by said     
covenant; and (6) certain other conditions are met. (Article Six)               

COVENANTS AFTER FALL-AWAY EVENT                                                 

 Upon the occurrence of the Fall-away Event and subject to certain other
conditions, the Company will no longer be obligated to comply with certain      
covenants as described in the first paragraph under "--Certain Restrictive      
Covenants." Under such circumstances, Teekay will remain obligated to comply    
with the provisions described under "--Certain Restrictive Covenants--Excess    
Proceeds Offer" (except for the second paragraph thereof), "--Repurchase of     
Notes Upon a Change of Control Triggering Event," subsection (b) under          
"--Insurance" and "Consolidation, Merger and Sale of Assets" (except for clauses
(4) and (5) thereof), and will be obligated to comply with the following        
restrictive covenants:                                                          

LIMITATION ON LIENS                                                   

    Following the occurrence of the Fall-away Event, Teekay will not, and will
not permit any Restricted Subsidiary to, Incur any Lien on any of its assets or 
properties without making effective provision for all of the Notes and all other
amounts due under the Indenture to be directly secured equally and ratably with 
(or prior to) the obligation or liability secured by such Lien for so long as   
such Lien affects such assets or properties unless, at the time of the          
Incurrence of such Lien, the aggregate amount of all Indebtedness of            

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the Restricted Subsidiaries plus the aggregate amount of all Indebtedness of    
Teekay secured by a Lien on Teekay's assets shall not be greater than 15% of    
Teekay's Consolidated Tangible Assets.                                          

The foregoing limitation does not apply to (i) Liens on assets or     
properties or Capital Stock of Teekay or a Restricted Subsidiary (other than    
Palm) securing Indebtedness permitted to be incurred pursuant to "--Covenants   
After Fall-away Event--Limitation on Indebtedness of Restricted Subsidiaries";  
(ii) Liens on certain assets and properties securing Indebtedness which are     
incurred to refinance Indebtedness secured by Liens on the same assets or       
properties; (iii) Liens with respect to Acquired Indebtedness, provided that    
such Liens do not extend to or cover any assets or properties of Teekay or any  
Subsidiary of Teekay other than the assets or properties acquired; (iv) Liens   
with respect to the assets of a Restricted Subsidiary (other than Palm) granted 
by such Restricted Subsidiary to Teekay to secure Indebtedness owing to Teekay  
by such Restricted Subsidiary; (v) Liens on any accounts receivable accrued in  
the ordinary course of business; and (vi) Permitted Liens.                      

  Notwithstanding the foregoing, Teekay will not, and will not permit Palm
to, create, incur, assume or suffer to exist any Lien upon any of Palm's assets 
or properties, except for Permitted Liens. (Section 5.02)                       

LIMITATION ON INDEBTEDNESS OF RESTRICTED SUBSIDIARIES                 

   Following the occurrence of a Fall-away Event, Teekay will not permit any
Restricted Subsidiary to Incur any Indebtedness unless, after giving effect to  
the Incurrence of such Indebtedness and the application of the net proceeds     
therefrom, the aggregate amount of Indebtedness of all Restricted Subsidiaries  
plus the aggregate amount of all Indebtedness of Teekay secured by a Lien on    
Teekay's assets is not greater than 15% of Teekay's Consolidated Tangible       
Assets.                                                                         

 Notwithstanding the foregoing, under the Indenture (except as expressly
provided otherwise below), any Restricted Subsidiary (other than Palm, except as
provided in clause (v) below) also may Incur certain types of Indebtedness,     
including, in general, the following: (i) Indebtedness of a Restricted          
Subsidiary to Teekay or to any other Wholly Owned Restricted Subsidiary; (ii)   
Indebtedness issued in exchange for, or the net proceeds of which are used to   
refinance or refund, certain outstanding Indebtedness of any Restricted         
Subsidiary, subject to certain conditions, including that such new Indebtedness,
determined as of the date of Incurrence of such new Indebtedness, does not      
mature prior to the Stated Maturity of the Indebtedness so exchanged, refinanced
or refunded and the Average Life of such new Indebtedness is at least equal to  
the remaining Average Life of the Indebtedness so exchanged, refinanced or      
refunded; (iii) Indebtedness (A) in respect of performance, surety or appeal    
bonds provided in the ordinary course of business, (B) under certain Currency   
Agreements and Interest Rate Agreements, and (C) arising from agreements        
providing for indemnification, adjustment of purchase price or similar          
obligations, or from guarantees or letters of credit, surety bonds or           
performance bonds securing any obligations of any Restricted Subsidiary pursuant
to such agreements, in any case incurred in connection with the disposition of  
any business, assets or Restricted Subsidiary of Teekay or any of its Restricted
Subsidiaries and not exceeding the gross proceeds therefrom, other than         
guarantees of Indebtedness incurred by any Person acquiring all or any portion  
of such business, assets or Restricted Subsidiary of Teekay or any of its       
Restricted Subsidiaries for the purpose of financing such acquisition; (iv)     
Acquired Indebtedness; provided that, after giving effect to the Incurrence     
thereof, the Restricted Subsidiaries could Incur at least $1.00 of Indebtedness 
under the first paragraph of this covenant; and (v) Indebtedness of Palm (A)    
Incurred in the ordinary course of business in connection with the operation of 
any Vessel in an aggregate principal amount not to exceed $25 million           
outstanding at any one time or (B) to Teekay resulting from advances to Palm by 
Teekay.                                                                         

In addition, Teekay may not incur any Indebtedness that is expressly  
subordinated to any other Indebtedness of Teekay unless such Indebtedness, by   
its terms or the terms of any agreement or instrument pursuant to which such    
Indebtedness is issued or remains outstanding, is also expressly made           
subordinate to the Notes at least to the extent that it is subordinated to such 
other Indebtedness. (Section 5.03)                                              

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LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS                   
AFFECTING RESTRICTED SUBSIDIARIES                                       

    Following the occurrence of the Fall-away Event, Teekay will not, and will
not permit any Restricted Subsidiary to, create or otherwise cause or suffer to 
exist or become effective any consensual encumbrance or restriction of any kind 
on the ability of any Restricted Subsidiary to (i) pay dividends or make any    
other distributions permitted by applicable law on any Capital Stock of such    
Restricted Subsidiary owned by Teekay or any other Restricted Subsidiary, (ii)  
pay any Indebtedness owed to Teekay or any other Restricted Subsidiary, (iii)   
make loans or advances to Teekay or any other Restricted Subsidiary or (iv)     
transfer any of its property or assets to Teekay or any other Restricted        
Subsidiary.                                                                     

In general, the foregoing provision shall not restrict or prohibit any
encumbrances or restrictions: (i) existing pursuant to the Indenture, the Notes,
or agreements in effect on the date of the Fall-away Event or in any            
Indebtedness containing any such encumbrance or restriction that is permitted   
pursuant to clause (iii) below or, subject to certain conditions, in any        
extensions, refinancings, renewals or replacements of the foregoing; (ii)       
existing under and by reason of applicable law; (iii) existing with respect to  
any Person or the property or assets of such Person (other than Palm) acquired  
by Teekay or any Restricted Subsidiary and existing at the time of such         
acquisition, which encumbrances or restrictions are not applicable to any Person
or the property or assets of any Person other than such Person or the property  
or assets of such Person so acquired and, subject to certain conditions, any    
extensions, refinancings, renewals or replacements of the foregoing; (iv) in the
case of clause (iv) of the first paragraph of this covenant, certain            
encumbrances and restrictions that arise in the ordinary course of business; (v)
existing pursuant to any agreement governing Indebtedness permitted to be       
incurred by "--Covenants After Fall-away Event--Limitations on Indebtedness of  
Restricted Subsidiaries" and, subject to certain conditions, any extensions,    
refinancings, renewals or replacements of the foregoing; or (vi) with respect to
a Restricted Subsidiary (other than Palm) and imposed pursuant to an agreement  
that has been entered into for the sale or disposition of all or substantially  
all of the Capital Stock of, or all, or substantially all, of the property and  
assets of, such Restricted Subsidiary. Nothing contained in this covenant shall 
prevent Teekay or any Restricted Subsidiary from (1) entering into any agreement
permitting the incurrence of Liens otherwise permitted by "--Covenants After    
Fall-away Event--Limitation on Liens", (2) restricting the sale or other        
disposition of property or assets of Teekay or any of its Restricted            
Subsidiaries that secure Indebtedness (other than the Notes) of Teekay or any of
its Restricted Subsidiaries or (3) amending, modifying or supplementing any     
charter or similar arrangement between Palm and a vessel-owning Subsidiary of   
Teekay (other than the Palm Charters) solely (A) to lower the rates paid by Palm
to such vessel-owning Subsidiary under such charter or similar arrangement or   
(B) to increase the rates paid by Palm to such vessel-owning Subsidiary under   
such charter or similar arrangement to the extent required to service (x)       
Indebtedness for money borrowed, Incurred in good faith (as determined by the   
Board of Directors) and not with the purpose of evading the requirements of this
covenant, in connection with the financing or the refinancing of Indebtedness of
such Subsidiary and (y) expenses incurred by such Subsidiary in the ordinary    
course of business. (Section 5.04)                                              

LIMITATION ON THE ISSUANCE OF CAPITAL STOCK OF RESTRICTED SUBSIDIARIES

    Following the occurrence of the Fall-away Event, Teekay will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, issue or sell  
any shares of the Capital Stock of a Restricted Subsidiary except (i) to Teekay 
or, except shares of Capital Stock of Palm, to another Wholly Owned Restricted  
Subsidiary, (ii) other than with respect to shares of Capital Stock of Palm, to 
management employees of Teekay or a Restricted Subsidiary pursuant to the       
exercise of stock options or stock appreciation rights, (iii) if, immediately   
after giving effect to such issuance or sale, such Restricted Subsidiary would  
no longer constitute a Restricted Subsidiary for purposes of the Indenture or   
(iv) other than with respect to shares of Capital Stock of Palm, to Persons who 
are entering into joint ventures or other similar business relationships with   
Teekay or any Subsidiary other than Palm. (Section 5.05)                        

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LIMITATION ON SALES AND LEASEBACKS                                    

 Following the occurrence of the Fall-away Event, neither Teekay nor any
Restricted Subsidiary may enter into any sale and leaseback transaction         
involving any property or assets owned or leased by Teekay or any Restricted    
Subsidiary, the acquisition of which, or completion of construction and         
commencement of full operation of which, has occurred more than 120 days prior  
to such sale and leaseback transaction, unless Teekay or such Restricted        
Subsidiary, within 360 days after the sale or transfer of such property, (1)    
applies the Net Cash Proceeds from such sale, first, to the purchase,           
acquisition or construction of property or assets to be used in the business of 
Teekay and its Restricted Subsidiaries (which includes the entering into, within
such 360 day period, of an agreement for such purchases, acquisition or         
construction of property or assets) and, second, to the repayment or reduction  
of certain unsubordinated Indebtedness or as working capital for general        
corporate purposes and (2) treats (no later than the end of such 12-month period
referred to in clause (1) above) such excess Net Cash Proceeds (to the extent   
not applied pursuant to clause (1) above) as Sale Excess Proceeds. (Section     
5.06)                                                                           

EVENTS OF DEFAULT                                                               

The following events will be defined as "Events of Default" in the    
Indenture: (a) Teekay defaults in the payment of principal of (or premium, if   
any, on) any Notes when the same become due and payable at maturity, upon       
acceleration, redemption or otherwise; (b) Teekay defaults in the payment of    
interest on any Notes when the same become due and payable, and such default    
continues for a period of 30 days; (c) Teekay defaults in the deposit of any    
Sinking Fund or other mandatory redemption payment, when and as due by the terms
of the Indenture; (d) Teekay or, if prior to the occurrence of the Fall-away    
Event, any Guarantor, defaults in the performance of or breaches any other      
covenant or agreement of Teekay or such Guarantor in the Indenture or under the 
Notes or in the Security Documents, if applicable, and such default or breach   
continues for a period of 30 consecutive days after the date on which written   
notice of such default or breach requiring Teekay or a Guarantor to remedy the  
same, shall have been given to Teekay or such Guarantor by the Trustee, or to   
Teekay, such Guarantor and the Trustee by the Holders of at least 25% in        
aggregate principal amount of the Notes; (e) there occurs with respect to any   
issue or issues of Indebtedness of Teekay or any of its Restricted Subsidiaries 
having an outstanding aggregate principal amount of $10 million or more         
individually or $20 million or more in the aggregate for all such issues of all 
such Persons, whether such Indebtedness now exists or shall hereafter be        
created, an event of default that has caused the holder thereof to declare such 
Indebtedness to be due and payable prior to its Stated Maturity and such        
Indebtedness has not been discharged in full or such acceleration has not been  
rescinded or annulled (by cure, waiver or otherwise) within 30 days of such     
acceleration; provided, however, that any secured Indebtedness in excess of the 
limits set forth above shall be deemed to have been declared due and payable if 
the lender in respect thereof takes any action to enforce a security interest   
against, or an assignment of, or to collect on, seize, dispose of or apply any  
assets of Teekay or its Subsidiaries (including lock-box and other similar      
arrangements) securing such Indebtedness, or to set off against any bank account
of Teekay or its Subsidiaries (in excess of $10 million); (f) any final judgment
or order (not covered by insurance) for the payment of money in excess of $10   
million individually or $20 million in the aggregate for all such final         
judgments or orders against all such Persons (treating any deductibles,         
self-insurance or retention as not so covered) shall be rendered against Teekay 
or any Restricted Subsidiary and shall not be paid or discharged, and there     
shall be any period of 30 consecutive days following entry of the final judgment
or order in excess of $10 million individually or that causes the aggregate     
amount for all such final judgments or orders outstanding and not paid or       
discharged against all such Persons to exceed $20 million during which a stay of
enforcement of such final judgment or order, by reason of a pending appeal or   
otherwise, shall not be in effect; (g) Teekay or any Restricted Subsidiary shall
generally not pay its debts as such debts become due, or shall admit in writing 
its inability to pay its debts generally, or shall make a general assignment for
the benefit of creditors; or any proceeding shall be instituted by or against   
Teekay or any Restricted Subsidiary seeking to adjudicate it a bankrupt or      
insolvent, or seeking liquidation, winding up, reorganization, arrangement,     
adjustment, protection, relief or composition of it or its debts under any law  
relating to bankruptcy, insolvency or reorganization or relief of debtors, or   
seeking the entry of an order for                                               

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relief or the appointment of a receiver, trustee, custodian or other similar    
official for it or for any substantial part of its property and, in the case of 
any such proceeding instituted against it (but not instituted by it), either    
such proceeding shall remain undismissed or unstayed for a period of 60 days, or
any of the actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part of its  
property) shall occur; or Teekay or any Restricted Subsidiary shall take any    
corporate action to authorize any of the actions set forth above in this        
subsection (g); (h) Teekay and/or one or more Restricted Subsidiaries fails to  
make (1) at the final (but not any interim) fixed maturity of any issue of      
Indebtedness a principal payment of $10 million or more or (2) at the final (but
not any interim) fixed maturity of more than one issue of such Indebtedness     
principal payments aggregating $20 million or more and, in the case of clause   
(1), such defaulted payment shall not have been made, waived or extended within 
30 days of the payment default and, in the case of clause (2), all such         
defaulted payments shall not have been made, waived or extended within 30 days  
of the payment default that causes the amount described in clause (2) to exceed 
$20 million; (i) if prior to the occurrence of the Fall-away Event, any Security
Document ceases to be in full force and effect for a period of 30 days; or (j)  
if prior to the occurrence of the Fall-away Event, any Charter ceases to be in  
full force and effect or is repudiated prior to the expiration of the term of   
such Charter. (Section 7.01)                                                    

    If an Event of Default (other than an Event of Default specified in clause
(g) above occurs) and is continuing under the Indenture, the Trustee or the     
Holders of at least 25% in aggregate principal amount of the Notes then         
outstanding, by written notice to Teekay (and to the Trustee if such notice is  
given by the Holders (the "Acceleration Notice")), may, and the Trustee at the  
request of the Holders shall, declare the entire unpaid principal of, premium,  
if any, and accrued interest on the Notes to be immediately due and payable.    
Upon a declaration of acceleration, such principal of, premium, if any, and     
accrued interest shall be immediately due and payable. In the event of a        
declaration of acceleration because an Event of Default set forth in clause (d) 
or (h) above has occurred and is continuing, such declaration of acceleration   
shall be automatically rescinded and annulled if the event triggering such Event
of Default pursuant to clause (d) or (h) shall be remedied or cured by Teekay   
and/or the relevant Restricted Subsidiaries or waived by the holders of the     
relevant Indebtedness within 60 days after the declaration of acceleration with 
respect thereto. If an Event of Default specified in clause (g) above occurs,   
all unpaid principal of, premium, if any, and accrued interest on the Notes then
outstanding shall ipso facto become and be immediately due and payable without  
any declaration or other act on the part of the Trustee or any Holder. The      
Holders of at least a majority in principal amount of the outstanding Notes by  
written notice to Teekay and to the Trustee, may waive all past defaults and    
rescind and annul a declaration of acceleration and its consequences if (a)     
Teekay has paid or deposited with the Trustee a sum sufficient to pay (i) all   
sums paid or advanced by the Trustee under the Indenture and the reasonable     
compensation, expenses, disbursements and advances of the Trustee, its agents   
and counsel, (ii) all overdue interest on all Notes, (iii) the principal of and 
premium, if any, on any Notes that have become due otherwise than by such       
declaration or occurrence of acceleration and interest thereon at the rate      
prescribed therefor by such Notes, and (iv) to the extent that payment of such  
interest is lawful, interest upon overdue interest at the rate prescribed       
therefor by such Notes, (b) all existing Events of Default, other than the      
non-payment of the principal of the Notes that have become due solely by such   
declaration of acceleration, have been cured or waived and (c) the rescission   
would not conflict with any judgment or decree of a court of competent          
jurisdiction. (Section 7.02) For information as to the waiver of defaults, see  
"--Modification and Waiver."                                                    

 The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any       
proceeding for any remedy available to the Trustee or exercising any trust or   
power conferred on the Trustee. However, the Trustee may refuse to follow any   
direction that conflicts with law or the Indenture or that may expose the       
Trustee to personal liability. (Section 7.05) A Holder may not pursue any remedy
with respect to the Indenture or the Notes unless (i) the Holder gives to the   
Trustee written notice of a continuing Event of Default; (ii) the Holders of at 
least 25% in aggregate principal amount of outstanding Notes make a written     
request to the Trustee to pursue the remedy; (iii) such Holder or Holders offer 
to the Trustee indemnity reasonably satisfactory to                             

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the Trustee against any costs, liabilities or expenses to be incurred in        
compliance with such request; (iv) the Trustee does not comply with the request 
within 60 days after receipt of the request and the offer of indemnity; and (v) 
during such 60-day period, the Holders of a majority in aggregate principal     
amount of the outstanding Notes do not give the Trustee a direction that is     
inconsistent with the request. (Section 7.06) However, such limitations do not  
apply to the right of any Holder of a Note to receive payment of the principal  
of, premium, if any, or interest on, such Note or to bring suit for the         
enforcement of any such payment on or after the due dates expressed in the      
Notes, which right shall not be impaired or affected without the consent of the 
Holder. (Section 7.07)                                                          

 The Indenture will require certain officers of Teekay to certify, on or
before a date not more than 120 days after the end of each fiscal year, that a  
review has been conducted of the activities of Teekay and its Restricted        
Subsidiaries and Teekay's and its Restricted Subsidiaries' performance under the
Indenture and that Teekay has fulfilled all obligations thereunder, or, if there
has been a default in the fulfillment of any such obligation, specifying each   
such default and the nature and status thereof. (Section 4.19) Teekay is also   
obligated to notify the Trustee of any default or defaults in the performance of
any covenants or agreements under the Indenture. (Section 4.18)                 

DEFEASANCE                                                                      

DEFEASANCE AND DISCHARGE                                              

     The Indenture will provide that Teekay will be deemed to have paid and will
be discharged from any and all obligations in respect of the Notes and the      
provisions of the Indenture will no longer be in effect with respect to the     
Notes (except for, among other matters, certain obligations to register the     
transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes,  
to maintain paying agencies and to hold monies for payment in trust) and assets 
and property held in the Trust Estate will be released, on the 123rd day after  
the date referred to below if, among other things, (A) Teekay has deposited with
the Trustee, in trust, money and/or U.S. Government Obligations that, through   
the payment of interest and principal in respect thereof in accordance with     
their terms, will provide money in an amount sufficient to pay the principal of,
premium, if any, and accrued interest on the Notes on the Stated Maturity of    
such payments in accordance with the terms of the Indentures and the Notes, (B) 
Teekay has delivered to the Trustee (i) either (x) an Opinion of Counsel to the 
effect that Holders will not recognize income, gain or loss for federal income  
tax purposes as a result of Teekay's exercise of its option under this          
"Defeasance" provision and will be subject to federal income tax on the same    
amount and in the same manner and at the same times as would have been the case 
if such deposit, defeasance and discharge had not occurred, which Opinion of    
Counsel must be based upon (and accompanied by copy of) a ruling of the Internal
Revenue Service to the same effect or based upon a change in applicable federal 
income tax law after the date of the Indenture or (y) a ruling directed to the  
Trustee received from the Internal Revenue Service to the same effect as the    
aforementioned Opinion of Counsel and (ii) an Opinion of Counsel to the effect  
that the creation of the defeasance trust does not violate the Investment       
Company Act of 1940, as amended, and, after the passage of 123 days following   
the deposit, the trust fund will not be subject to the effect of Section 547 of 
the United States Bankruptcy Code or Section 15 of the New York Debtor and      
Creditor Law, (C) immediately after giving effect to such deposit on a pro forma
basis, no Event of Default, or event that after the giving of notice or lapse of
time or both would become an Event of Default, shall have occurred and be       
continuing on the date of such deposit or during the period ending on the 123rd 
day after the date of such deposit, and such deposit shall not result in a      
breach or violation of, or constitute a default under, any other agreement or   
instrument to which Teekay is a party or by which Teekay is bound and (D) if at 
such time the Notes are listed on a national securities exchange, Teekay has    
delivered to the Trustee an Opinion of Counsel to the effect that the Notes will
not be delisted as a result of such deposit, defeasance and discharge. (Section 
11.02)                                                                          

DEFEASANCE OF CERTAIN COVENANTS AND CERTAIN EVENTS OF DEFAULT         

     The Indenture will provide that certain provisions of the Indenture will no
longer be in effect, and assets and property held in the Trust Estate will be   
released upon, among other things, the deposit with                             

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the Trustee, in trust, of money and/or U.S. Government Obligations that through 
the payment of interest and principal in respect thereof in accordance with     
their terms will provide money in an amount sufficient to pay the principal of, 
premium, if any, and accrued interest on the Notes on the Stated Maturity of    
such payments in accordance with the terms of the Indenture and the Notes, the  
satisfaction of the provisions described in clauses (B)(ii), (C) and (D) of the 
preceding paragraph and the delivery by Teekay or the Trustee of an Opinion of  
Counsel to the effect that, among other things, the Holders will not recognize  
income, gain or loss for federal income tax purposes as a result of such deposit
and defeasance of certain covenants and Events of Default and will be subject to
federal income tax on the same amount and in the same manner and at the same    
times as would have been the case if such deposit and defeasance had not        
occurred. (Section 11.03)                                                       

DEFEASANCE AND CERTAIN OTHER EVENTS OF DEFAULT                        

  In the event Teekay exercises its option to omit compliance with certain
covenants and provisions of the Indenture with respect to the Notes as described
in the immediately preceding paragraph and the Notes are declared due and       
payable because of the occurrence of an Event of Default that remains           
applicable, the amount of money and/or U.S. Government Obligations on deposit   
with the Trustee will be sufficient to pay amounts due on the Notes at the time 
of their Stated Maturity but may not be sufficient to pay amounts due on the    
Notes at the time of the acceleration resulting from such Event of Default.     
However, Teekay will remain liable for such payments.                           

MODIFICATION AND WAIVER                                                         

     Modifications and amendments of the Indenture may be made by Teekay and the
Trustee with the consent of the Holders of not less than a majority in aggregate
principal amount of the outstanding Notes; provided, however, that no such      
modification or amendment may, without the consent of each Holder affected      
thereby, (i) change the Stated Maturity of the principal of, or any installment 
of interest on, any Note, (ii) reduce the principal amount of, or premium, if   
any, or interest on, any Note, (iii) adversely affect any right of repayment at 
the option of any Holder, (iv) change the place or currency of payment of       
principal of, or premium, if any, or interest on, any Note, (v) impair the right
to institute suit for the enforcement of any payment on or after the Stated     
Maturity (or, in the case of a redemption, on or after the Redemption Date) of  
any Note, (vi) reduce the percentage of outstanding Notes the consent of whose  
Holders is necessary to modify or amend the Indenture, (vii) waive a default in 
the payment of principal of, premium, if any, or interest on the Notes, (viii)  
reduce the percentage of aggregate principal amount of outstanding Notes, the   
consent of whose Holders is necessary for waiver of compliance with certain     
provisions of such Indenture or for waiver of certain defaults or (ix) prior to 
the Fall-away Event, except as permitted by the Indenture, permit the creation  
of any Lien ranking prior to or on a parity with the Lien of the Indenture or   
any Security Document, or terminate the Lien of the Indenture or any Security   
Document on any property at any time subject hereto or thereto or deprive the   
Holders of the security afforded by the Lien of the Indenture or the Security   
Document. (Article Twelve)                                                      

NO PERSONAL LIABILITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS, DIRECTORS OR    
EMPLOYEES                                                                       

The Indenture will provide that no recourse for the payment of the    
principal of, premium, if any, or interest on, any of the Notes, or for any     
claim based thereon or otherwise in respect thereof, and no recourse under or   
upon any obligation, covenant or agreement of Teekay in the Indenture, or in any
of the Notes, or because of the creation of any Indebtedness represented        
thereby, shall be had against any incorporator, shareholder, officer, director, 
employee, Affiliate or controlling person of Teekay or of any successor Person  
thereof. Each Holder, by accepting such Notes, waives and releases all such     
liability. (Section 13.09)                                                      

CONCERNING THE TRUSTEE                                                          

The Indenture will provide that, except during the continuance of a   
Default, the Trustee will not be liable, except for the performance of such     
duties as are specifically set forth in such Indenture. If an Event             

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of Default has occurred and is continuing, the Trustee will use the same degree 
of care and skill in its exercise as a prudent person would exercise under the  
circumstances in the conduct of such person's own affairs.                      

The Indenture and provisions of the Trust Indenture Act of 1939, as   
amended, incorporated by reference therein contain limitations on the rights of 
the Trustee, should it become a creditor of Teekay, to obtain payment of claims 
in certain cases or to realize on certain property received by it in respect of 
any such claims, as security or otherwise. The Trustee is permitted to engage in
other transactions; provided, however, that if it acquires any conflicting      
interest, it must eliminate such conflict or resign.                            

GOVERNING LAW                                                                   

     The Indenture, the Notes and each of the Security Documents, other than the
Mortgages, shall be governed by the laws of the State of New York.              

CONSENT TO JURISDICTION AND SERVICE                                             

     Teekay and each Guarantor has irrevocably appointed Haight, Gardner, Poor &
Havens, New York, New York, as its respective agent for service of process in   
any suit, action or proceeding with respect to the Indenture or the Notes       
brought in any federal or state court located in New York City and have         
submitted to such jurisdiction.                                                 

CERTAIN DEFINITIONS                                                             

  Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture. Reference is made to the       
Indenture for the full definition of all terms as well as any other capitalized 
term used herein for which no definition is provided.                           

"Acquired Indebtedness" is defined to mean Indebtedness of a Person   
existing at the time such Person became a Subsidiary and not Incurred in        
connection with, or in contemplation of, such Person becoming a Subsidiary.     

    "Adjusted Consolidated Net Income" is defined to mean, with respect to any
Person for any period, the aggregate net income (or loss) of such Person and its
consolidated Subsidiaries for such period determined in conformity with GAAP;   
provided that the following items shall be excluded in computing Adjusted       
Consolidated Net Income (without duplication): (i) the net income (or loss) of  
such Person (other than net income (or loss) attributable to a Subsidiary of    
such Person) in which any other Person (other than such Person or any of its    
Subsidiaries) has a joint interest, except to the extent of the amount of       
dividends or other distributions actually paid to such Person or any of its     
Subsidiaries on account of such joint interest during such period; (ii) solely  
for the purposes of calculating the amount of Restricted Payments that may be   
made pursuant to clause (B) of the first paragraph of "--Certain Restrictive    
Covenants--Limitation on Restricted Payments" (and in such case, except to the  
extent includable pursuant to clause (i) above), the net income (or loss) of any
Person accrued prior to the date it becomes a Subsidiary of any other Person or 
is merged into or consolidated with such other Person or any of its Subsidiaries
or all or substantially all of the property and assets of such Person are       
acquired by such other Person or any of its Subsidiaries; (iii) the effects of  
foreign currency exchange adjustments under GAAP; (iv) any gains or losses (on  
an after-tax basis) attributable to Asset Sales or to prepayment of             
Indebtedness; (v) except for purposes of calculating the amount of Restricted   
Payments that may be made pursuant to clause (B) of the first paragraph of      
"--Certain Restrictive Covenants--Limitation on Restricted Payments," any amount
paid or accrued as dividends on Preferred Stock of such Person or Preferred     
Stock of any Subsidiary of such Person owned by Persons other than such Person  
and any of its Subsidiaries; and (vi) all extraordinary gains and extraordinary 
losses; provided that, solely for the purposes of calculating the Interest      
Coverage Ratio (and in such case, except to the extent includable pursuant to   
clause (i) above), "Adjusted Consolidated Net Income" of Teekay shall include   
the amount of all cash dividends received by Teekay or any Restricted Subsidiary
of Teekay from an Unrestricted Subsidiary.                                      

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 "Appraised Value" is defined to mean the fair market sale value as of a
specified date of a specified asset that would be obtained in an arm's-length   
transaction between an informed and willing seller under no compulsion to sell  
and an informed and willing buyer under no compulsion to buy, as determined by  
an Appraiser mutually acceptable to the Trustee and Teekay. The Appraised Value 
of any tanker or oil/bulk/ore carrier shall be determined free of any charters  
with respect to such vessel. If the Trustee and Teekay shall not agree on an    
Appraiser within 20 days of the first giving of notice by Teekay to the Trustee 
requesting a determination of an Appraised Value (the "Appraisal Request Date"),
such Appraised Value shall be determined by a panel of three Appraisers, one of 
whom shall be selected by Teekay, another of whom shall be selected by the      
Trustee and the third of whom shall be selected by such other two Appraisers or,
if such Appraisers shall be unable to agree upon a third Appraiser within 10    
days of the selection date of the second of such two Appraisers, by the American
Arbitration Association; provided that, if either party shall not select its    
Appraiser within 35 days after the Appraisal Request Date, such Appraised Value 
shall be determined solely by the Appraiser selected by the other party. The    
Appraiser or Appraisers appointed pursuant to the foregoing procedure shall be  
instructed to determine such Appraised Value within 45 days after the final     
appointment of any Appraiser pursuant hereto (but in no event may such          
determination be made more than 75 days following the Appraisal Request Date),  
and such determination shall be final and binding upon the parties. If three    
Appraisers shall be appointed, (a) if the median of the determinations of the   
Appraisers shall equal the average of such determinations, such average shall   
constitute the determination of the Appraisers, otherwise (b) the determination 
of the Appraiser that shall differ most from the other two Appraisers shall be  
excluded, the remaining two determinations shall be averaged and such average   
shall constitute the determination of the Appraisers. Fees and expenses relating
to the determination of an Appraised Value shall be payable by Teekay. If any   
provision of this Indenture requires a determination of Appraised Value by an   
Independent Appraiser, then all Appraisers shall be Independent.                

"Appraiser" means a Person engaged in the business of appraising      
ocean-going vessels, including tankers, including Simpson, Spence & Young       
Shipbrokers Ltd., H. Clarkson & Company Limited, E.A. Gibson Shipbrokers Ltd. or
P.F. Bassoe, who, except as otherwise required by this Indenture, need not be   
independent and may be employed by or affiliated with Teekay.                   

"Asset Sale" is defined to mean with respect to any Person, any sale, 
transfer or other disposition (including by way of merger, consolidation or     
sale-leaseback transactions) in one transaction or a series of related          
transactions by such Person or any of its Subsidiaries to any Person other than 
Teekay or any of its Restricted Subsidiaries of (A) all or any of the Capital   
Stock of any Subsidiary of such Person, (B) any Vessel, or all or substantially 
all of the property and assets of an operating unit or business of such Person  
or any of its Subsidiaries or (C) any other property and assets of such Person  
or any of its Subsidiaries outside the ordinary course of business of such      
Person or such Subsidiary and, in each case, that is not governed by            
"--Consolidation, Merger and Sale of Assets;" provided that sales or other      
dispositions of inventory, receivables and other current assets shall not be    
included within the meaning of "Asset Sale".                                    

     "Capitalized Lease" is defined to mean, as applied to any Person, any lease
of any property (whether real, personal or mixed) of which the discounted       
present value of the rental obligations of such Person, as lessee, in conformity
with GAAP, is required to be capitalized on the balance sheet of such Person;   
and "Capitalized Lease Obligation" is defined to mean the rental obligations, as
aforesaid, under such lease.                                                    

     "Capital Stock" is defined to mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,     
whether voting or non-voting) of such Person's capital stock, whether           
outstanding prior to or issued after the date of the Indenture, including,      
without limitation, all Common Stock and Preferred Stock.                       

     "Cash Collateral Account" is defined to mean each account so designated and
maintained with the Trustee pursuant to a Cash Collateral Account Agreement.    

"Change of Control" is defined to mean such time as (i) a "person" or 
"group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act),
other than the Trusts or any holding                                            

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company, more than 50% of the total voting power of the Voting Stock of which is
"beneficially owned" by the Trusts, becomes the ultimate "beneficial owner" (as 
defined in Rule 13d-3 under the Exchange Act and including by reason of any     
change in the ultimate "beneficial ownership" of the Capital Stock of Teekay) of
more than 50% of the total voting power of the Voting Stock of Teekay           
(calculated on a fully diluted basis), or (ii) individuals who at the beginning 
of any period of two consecutive calendar years constituted the board of        
directors of Teekay (together with any new directors whose election by such     
board of directors or whose nomination for election was approved by a vote of at
least two-thirds of the members of such board of directors then still in office 
who either were members of such board of directors at the beginning of such     
period or whose election or nomination for election was previously so approved) 
cease for any reason to constitute at least 50% of the members of such board of 
directors then in office.                                                       

     "Change of Control Triggering Event" is defined to mean the occurrence of a
Change of Control and a Rating Decline.                                         

   "Charters" is defined to mean each time charter party between a Guarantor
and Palm with respect to such Guarantor's Mortgaged Vessel, as amended through  
the date of the Indenture or a Vessel Tender Date, as the case may be, and as   
the same may be further amended from time to time hereafter in accordance with  
the terms of the Indenture, or as the same may be extended or renewed in        
accordance with the terms of the Indenture.                                     

  "Collateral" is defined to mean, in each case as pledged and assigned to
the Trustee pursuant to the Security Documents, (1) all of the issued and       
outstanding capital stock of each Guarantor, pledged in favor of the Trustee    
pursuant to the Pledge Agreement; (2) Teekay's interest in the Investment       
Account to secure the Obligations, pledged in favor of the Trustee pursuant to  
the Investment Account Agreement; and (3) all of each Guarantor's right, title  
and interest in and to (i) its respective Mortgaged Vessel, pursuant to a       
Mortgage issued by such Guarantor in favor of the Trustee, which Mortgage       
contains covenants pursuant to which such Guarantor, among other things, will be
prohibited from selling, mortgaging or transferring any of its interest in such 
vessel (other than as permitted under the Indenture); (ii) the Charter with Palm
relating to its Mortgaged Vessel, including the right to receive all monies due 
and to become due under such Charter or in respect of such Mortgaged Vessel and 
all claims for damages arising under such Charter or relating to such Mortgaged 
Vessel; (iii) the freights and hires relating to its Mortgaged Vessel; (iv) all 
of its policies and contracts of insurance taken out from time to time in       
respect of its Mortgaged Vessel; and (v) the Cash Collateral Accounts.          

  "Consolidated EBITDA" is defined to mean, with respect to any Person for
any period, the sum of the amounts for such period of (i) Adjusted Consolidated 
Net Income, (ii) Consolidated Interest Expense, (iii) income taxes (other than  
income taxes (either positive or negative) attributable to extraordinary and    
non-recurring gains or losses or sales of assets), (iv) depreciation expense,   
(v) amortization expense and (vi) all other non-cash items reducing Adjusted    
Consolidated Net Income (including last-in-first-out adjustment for inventory), 
less all non-cash items increasing Adjusted Consolidated Net Income (including  
last-in-first-out adjustment for inventory), all as determined on a consolidated
basis for such Person and its Subsidiaries in conformity with GAAP; provided    
that, if a Person has any Subsidiary that is not a Wholly Owned Subsidiary of   
such Person, Consolidated EBITDA of such Person shall be reduced (to the extent 
not otherwise reduced in accordance with GAAP) by an amount equal to (A) the    
Adjusted Consolidated Net Income of such Subsidiary multiplied by (B) the       
quotient of (1) the number of shares of outstanding Common Stock of such        
Subsidiary not owned on the last day of such period by such Person or any       
Subsidiary of such Person divided by (2) the total number of shares of          
outstanding Common Stock of such Subsidiary on the last day of such period.     

 "Consolidated Interest Expense" is defined to mean, with respect to any
Person for any period, the aggregate amount of interest in respect of           
Indebtedness (including amortization of original issue discount on any          
Indebtedness and the interest portion of any deferred payment obligation,       
calculated in accordance with the effective interest method of accounting; all  
commissions, discounts and other fees and charges owed with respect to letters  
of credit and bankers' acceptance financing; the net costs associated with      
Interest Rate Agreements; and Indebtedness that is guaranteed by such Person)   
and all                                                                         

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but the principal component of rentals in respect of Capitalized Lease          
Obligations paid, accrued or scheduled to be paid or to be accrued by such      
Person and its consolidated Subsidiaries during such period, all as determined  
on a consolidated basis in conformity with GAAP.                                

    "Consolidated Net Worth" is defined to mean, at any date of determination,
shareholders' equity as set forth on the most recently available consolidated   
balance sheet of Teekay and its Restricted Subsidiaries (which shall be as of a 
date not more than 60 days prior to the date of such computation), less any     
amounts attributable to Redeemable Stock or any equity security convertible into
or exchangeable for Indebtedness, the cost of treasury stock and the principal  
amount of any promissory notes receivable from the sale of the Capital Stock of 
Teekay or any Restricted Subsidiary of Teekay, each item to be determined in    
accordance with GAAP (excluding the effects of foreign currency exchange        
adjustments under GAAP).                                                        

    "Consolidated Tangible Assets" of any Person means the sum of the Tangible
Assets of such Person after eliminating inter-company items, determined on a    
consolidated basis in accordance with generally accepted accounting principles, 
including appropriate deductions for any minority interest in Tangible Assets of
such Person's Restricted Subsidiaries, provided, however, that, with respect to 
the Company, adjustments following the date of the Indenture to the accounting  
books and records of the Company in accordance with Accounting Principles Board 
Opinions Nos. 16 and 17 (or successor opinions thereto), or otherwise resulting 
from the acquisition of control of the Company by another Person shall not be   
given effect.                                                                   

    "Default" is defined to mean any event that is, or after notice or passage
of time or both would be, an Event of Default.                                  

    "Event of Default" has the meaning set forth under "-- Events of Default."

 "Event of Loss" is defined to mean any of the following events: (a) the
actual or constructive total loss of a Vessel or the agreed or compromised total
loss of a Vessel, (b) the destruction of a Vessel, (c) damage to a Vessel to an 
extent, determined in good faith by Teekay within 90 days after the occurrence  
of such damage (and evidenced by an Officers' Certificate to such effect        
delivered to the Trustee, within such 90-day period), as shall make repair      
thereof uneconomical or shall render such Vessel permanently unfit for normal   
use (other than obsolescence) or (d) the condemnation, confiscation,            
requisition, seizure, forfeiture or other taking of title to or use of a Vessel 
that shall not be revoked within six months. An Event of Loss shall be deemed to
have occurred: (i) in the event of the destruction or other actual total loss of
a Vessel, on the date of such loss; (ii) in the event of a constructive, agreed 
or compromised total loss of a Vessel, on the date of the determination of such 
total loss pursuant to the relevant insurance policy; (iii) in the case of any  
event referred to in clause (c) above, upon the delivery of Teekay's Officers'  
Certificate to the Trustee; or (iv) in the case of any event referred to in     
clause (d) above, on the date six months after the occurrence of such event.    

   "Event of Loss Proceeds" is defined to mean all compensation, damages and
other payments (including insurance proceeds other than certain liability       
insurance proceeds) received by Teekay, any Guarantor or the Trustee, jointly or
severally, from any Person, including any governmental authority, with respect  
to or in connection with an Event of Loss.                                      

"Fall-away Event" has the meaning set forth under "--Fall-away Event."

   "GAAP" is defined to mean generally accepted accounting principles in the
United States of America as in effect as of the date of the Indenture,          
including, without limitation, those set forth in the opinions and              
pronouncements of the Accounting Principles Board of the American Institute of  
Certified Public Accountants and statements and pronouncements of the Financial 
Accounting Standards Board or in such other statements by such other entity as  
approved by a significant segment of the accounting profession. All ratios and  
computations based on GAAP contained in the Indenture shall be computed in      
conformity with GAAP, except that calculations made for purposes of determining 
compliance with the terms of the covenants and with other provisions of the     
Indenture shall be made without giving effect to (i) except as otherwise        
provided, the amortization of any amounts required or permitted by Accounting   
Principles Board Opinion Nos. 16 and 17 and (ii) any non-recurring charges      
associated with the adoption, after the Closing Date, of Financial Accounting   
Standard Nos. 106 and 109.                                                      

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  "Gradation" is defined to mean a gradation within a Rating Category or a
change to another Rating Category, which shall include: (i) "+" and "-" in the  
case of S&P's current Rating Categories (e.g., a decline from BB+ to BB would   
constitute a decrease of one gradation), (ii) 1 and 2 in the case of Moody's    
current Rating Categories (e.g., a decline from B1 to B2 would constitute a     
decrease of one gradation), or (iii) the equivalent in respect of successor     
Rating Categories of S&P or Moody's or Rating Categories used by Rating Agencies
other than S&P and Moody's.                                                     

    "Guarantors" is defined to mean the following Wholly Owned Subsidiaries of
Teekay: VSSI Oceans Inc., VSSI Atlantic Inc., and VSSI Appian Inc. (each of     
which is a Liberian corporation) and Exuma Spirit Inc., Nassau Spirit Inc.,     
Senang Spirit Inc. and Andros Spirit Inc. (each of which is a Bahamian          
corporation), each the owner of a Mortgaged Vessel, and their respective        
successors and assigns. If all of the capital stock of one of such Wholly Owned 
Subsidiaries, or the Mortgaged Vessel owned by such Subsidiary, shall be sold as
permitted by the Indenture, such Subsidiary will cease to be a Guarantor upon   
compliance with the requirements of the Indenture relating to the release of its
Mortgaged Vessel in connection with such sale. Owners of Qualified Substitute   
Vessels that are tendered to become part of the Trust Estate pursuant to, and in
accordance with, the terms of the Indenture shall become Guarantors upon such   
tender in accordance with the terms of the Indenture.                           

 "Incidental Asset" is defined to mean any equipment, outfit, furniture,
furnishings, appliances, spare or replacement parts or stores owned by Teekay or
a Guarantor that have become obsolete or unfit for use or no longer useful,     
necessary or profitable in the conduct of the business of Teekay or such        
Guarantor, as the case may be. In no event shall the term "Incidental Asset"    
include a Vessel or a Mortgaged Vessel.                                         

   "Indebtedness" is defined to mean, with respect to any Person at any date
of determination (without duplication), (i) all indebtedness of such Person for 
borrowed money, (ii) all obligations of such Person evidenced by bonds,         
debentures, notes or other similar instruments, (iii) all obligations of such   
Person in respect of letters of credit or other similar instruments (including  
reimbursement obligations with respect thereto), (iv) all obligations of such   
Person to pay the deferred purchase price of property or services, which        
purchase price is due more than six months after the date of placing such       
property in service or taking delivery thereto or the completion of such        
services, except Trade Payables, (v) all obligations of such Person as lessee   
under Capitalized Leases, (vi) all Indebtedness of other Persons secured by a   
Lien on any asset of such Person, whether or not such Indebtedness is assumed by
such Person; provided that the amount of such Indebtedness shall be the lesser  
of (A) the fair market value of such asset at such date of determination and (B)
the amount of such Indebtedness, (vii) all Indebtedness of other Persons        
guaranteed by such Person to the extent such Indebtedness is guaranteed by such 
Person, and (viii) to the extent not otherwise included in this definition,     
obligations under Currency Agreements and Interest Rate Agreements. The amount  
of Indebtedness of any Person at any date shall be the outstanding balance at   
such date of all unconditional obligations as described above and, with respect 
to contingent obligations, the maximum liability upon the occurrence of the     
contingency giving rise to the obligation, provided that the amount outstanding 
at any time of any Indebtedness issued with original issue discount is the face 
amount of such Indebtedness less the remaining unamortized portion of the       
original issue discount of such Indebtedness at such time as determined in      
conformity with GAAP; and provided further that Indebtedness shall not include  
any liability for federal, state, local or other taxes.                         

"Interest Coverage Ratio" means, with respect to any Person on any    
Transaction Date, the ratio of (i) the aggregate amount of Consolidated EBITDA  
of such Person for the four fiscal quarters for which financial information in  
respect thereof is available immediately prior to such Transaction Date to (ii) 
the aggregate Consolidated Interest Expense of such Person during such four     
fiscal quarters. In making the foregoing calculation, (A) pro forma effect shall
be given to (1) any Indebtedness Incurred subsequent to the end of the          
four-fiscal-quarter period referred to in clause (i) and prior to the           
Transaction Date (other than Indebtedness Incurred under a revolving credit or  
similar arrangement to the extent of the commitment thereunder (or under any    
predecessor revolving credit or similar arrangement) in effect on the last day  
of such period), (2) any Indebtedness Incurred during such period to the extent 
such                                                                            

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Indebtedness is outstanding at the Transaction Date and (3) any Indebtedness to 
be Incurred on the Transaction Date, in each case as if such Indebtedness had   
been Incurred on the first day of such four-fiscal-quarter period and after     
giving pro forma effect to the application of the proceeds thereof as if such   
application had occurred on such first day; (B) Consolidated Interest Expense   
attributable to interest on any Indebtedness (whether existing or being         
Incurred) computed on a pro forma basis and bearing a floating interest rate    
shall be computed as if the rate in effect on the date of computation (taking   
into account any Interest Rate Agreement applicable to such Indebtedness if such
Interest Rate Agreement has a remaining term in excess of 12 months) had been   
the applicable rate for the entire period; (C) there shall be excluded from     
Consolidated Interest Expense any Consolidated Interest Expense related to any  
amount of Indebtedness that was outstanding during such four-fiscal-quarter     
period or thereafter but that is not outstanding or is to be repaid on the      
Transaction Date, except for Consolidated Interest Expense accrued (as adjusted 
pursuant to clause (B)) during such four-fiscal-quarter period under a revolving
credit or similar arrangement to the extent of the commitment thereunder (or    
under any successor revolving credit or similar arrangement) in effect on the   
Transaction Date; (D) pro forma effect shall be given to Asset Dispositions and 
Asset Acquisitions (including giving pro forma effect to the application of     
proceeds of any Asset Disposition) that occur during such four-fiscal-quarter   
period or thereafter and prior to the Transaction Date as if they had occurred  
and such proceeds had been applied on the first day of such four-fiscal-quarter 
period; and (E) pro forma effect shall be given to asset dispositions and asset 
acquisitions (including giving pro forma effect to the application of proceeds  
of any asset disposition) that have been made by any Person that has become a   
Restricted Subsidiary or has been merged with or into Teekay or any Restricted  
Subsidiary during the four-fiscal-quarter period referred to above or subsequent
to such period and prior to the Transaction Date and that would have constituted
Asset Dispositions or Asset Acquisitions had such transactions occurred when    
such Person was a Restricted Subsidiary as if such asset dispositions or asset  
acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the 
first day of such period; provided that to the extent that clause (D) or (E) of 
this sentence requires that pro forma effect be given to an asset acquisition or
asset disposition, such pro forma calculation shall be based upon the four full 
fiscal quarters immediately preceding the Transaction Date of the Person, or    
division or line of business of the Person, that is acquired or disposed for    
which financial information is available; and provided further that for purposes
of determining the Interest Coverage Ratio with respect to the acquisition of a 
Vessel or the financing thereof, the Company may apply Consolidated EBITDA for  
such Vessel based upon historical earnings of such Vessel or, if none, of its   
most comparable Vessel (in the good faith determination of the Board of         
Directors) during the applicable four-fiscal quarter period, or if the Company  
does not have a comparable Vessel, based upon industry average earnings for     
comparable vessels (as determined in good faith by the Board of Directors).     

    "Investment Grade" is defined to mean (i) BBB- or above in the case of S&P
(or its equivalent under any successor Rating Categories of S&P), (ii) Baa3 or  
above, in the case of Moody's (or its equivalent under any successor Rating     
Categories of Moody's), and (iii) the equivalent in respect of the Rating       
Categories of any Rating Agencies substituted for S&P or Moody's.               

     "Investment Grade Status" is defined to mean the existence as of a date and
thereafter if at such date the Notes are rated Investment Grade by both Rating  
Agencies.                                                                       

  "Lien" is defined to mean any mortgage, lien, pledge, security interest,
encumbrance or charge of any kind (including, without limitation, any           
conditional sale or other title retention agreement or lease in the nature      
thereof, any sale with recourse against the seller or any Affiliate of the      
seller, or any agreement to give any security interest).                        

 "Loan To Value Ratio" is defined to mean, at any time, the ratio of the
aggregate principal amount of the Notes Outstanding at such time to the         
aggregate Appraised Value of all Mortgaged Vessels at such time. If the Loan To 
Value Ratio is required to be calculated or adjusted at a time when cash is on  
deposit with the Trustee in the Investment Account as part of the Trust Estate  
in connection with the sale of a Mortgaged Vessel, the occurrence of an Event of
Loss with respect to a Mortgaged Vessel, the amount of such cash on deposit     
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on deposit and such Vessel shall be deemed to be a Mortgaged Vessel for purposes
of such computation or adjustment of Loan To Value Ratio.                       

    "Loss Excess Proceeds" is defined to mean the total of (i) amounts treated
as Loss Excess Proceeds under "--Redemptions--Mandatory Redemption Upon Loss of 
a Mortgaged Vessel" and (ii) the amount by which the Net Event of Loss Proceeds 
received by Teekay or any of its Restricted Subsidiaries from one or more Events
of Loss with respect to Vessels other than Mortgaged Vessels occurring on or    
after the Closing Date in the most recent period of 12 consecutive months exceed
$10 million, less (in the case of clause (ii)) the amount of such excess Net    
Event of Loss Proceeds (A) used to repay unsubordinated Indebtedness of Teekay  
or a Guarantor or Indebtedness of any Restricted Subsidiary, in each case owing 
to a Person other than Teekay or any of its Subsidiaries or (B) invested in     
property or assets of a nature or type of which will be used in a business (or  
in a company having property or assets of a nature or type, or engaged in a     
business) similar or related to the nature or type of the property and assets   
of, or the business of, Teekay and its Restricted Subsidiaries existing on the  
date of such investment or allocated to working capital for general corporate   
purposes (in each case, as determined in good faith by the Board of Directors,  
whose determination shall be conclusive and evidenced by a Board resolution).   

   "Maximum Loan To Value Ratio" is defined to mean, during any period, 0.75
to 1.                                                                           

"Moody's" is defined to mean Moody's Investor Service, Inc. and its   
successors.                                                                     

 "Mortgaged Vessels" is defined to mean the Aframax tankers owned by the
Guarantors and being, on the Closing Date, (i) the Poul Spirit, Official Number 
10328, of approximately 57,463 gross and 31,958 net tons, having its home port  
at the Port of Monrovia, Republic of Liberia, which vessel was built by Onomichi
Dockyard, Japan, in the year 1995, and is documented under the laws and flag of 
the Republic of Liberia and is owned by VSSI Oceans Inc., (ii) the Torben       
Spirit, Official Number 723526, of approximately 57,486 gross and 28,742 net    
tons, having its home port at the Port of Nassau, Commonwealth of The Bahamas,  
which vessel was built by Onomichi Dockyard, Japan, in the year 1994, and is    
documented under the laws and flag of the Commonwealth of The Bahamas and is    
owned by VSSI Atlantic Inc., (iii) the Senang Spirit, Official Number 723521, of
approximately 52,508 gross and 28,208 net tons, having its home port at the Port
of Nassau, Commonwealth of The Bahamas, which vessel was built by Imabari       
Shipbuilding, Japan, in the year 1994, and is documented under the laws and flag
of the Commonwealth of The Bahamas and is owned by Senang Spirit Inc., (iv) the 
Mayon Spirit, Official Number 720752, of approximately 57,448 gross and 28,742  
net tons, having its home port at the Port of Nassau, Commonwealth of The       
Bahamas, which vessel was built by Onomichi Dockyard, Japan, in the year 1991,  
and is documented under the laws and flag of the Commonwealth of The Bahamas and
is owned by VSSI Appian Inc., (v) the Leyte Spirit, Official Number 720790, of  
approximately 57,448 gross and 28,742 net tons, having its home port at the Port
of Nassau, Commonwealth of The Bahamas, which vessel was built by Onomichi      
Dockyard, Japan, in the year 1992, and is documented under the laws and flag of 
the Commonwealth of The Bahamas and is owned by Exuma Spirit Inc., (vi) the     
Luzon Spirit, Official Number 720776, of approximately 57,448 gross and 28,742  
net tons, having its home port at the Port of Nassau, Commonwealth of The       
Bahamas, which vessel was built by Onomichi Dockyard, Japan, in the year 1992,  
and is documented under the laws and flag of the Commonwealth of The Bahamas and
is owned by Nassau Spirit Inc., (vii) the Samar Spirit, Official Number 723134, 
of approximately 57,448 gross and 28,742 net tons, having its home port at the  
Port of Nassau, Commonwealth of The Bahamas, which vessel was built by Onomichi 
Dockyard, Japan, in the year 1992, and is documented under the laws and flag of 
the Commonwealth of The Bahamas and is owned by Andros Spirit Inc. If an Event  
of Loss occurs with respect to one of such vessels, such vessel shall cease to  
be a Mortgaged Vessel from and after the Loss Date. If one of such vessels shall
be sold pursuant to the terms of the Indenture, such vessel shall cease to be a 
Mortgaged Vessel from and after the Sale Date. A Qualified Substitute Vessel may
be substituted for a Mortgaged Vessel in certain circumstances and such         
substituted vessel shall become a Mortgaged Vessel upon substitution in         
accordance with the terms of the Indenture.                                     

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     "Net Cash Proceeds" is defined to mean, with respect to any Asset Sale, the
proceeds of such Asset Sale in the form of cash or cash equivalents, including  
payments in respect of deferred payment obligations (to the extent corresponding
to the principal, but not interest, component thereof) when received in the form
of cash or cash equivalents and proceeds from the conversion of other property  
received when converted to cash or cash equivalents, net of (i) brokerage       
commissions and other fees and expenses (including fees and expenses of counsel 
and investment bankers) related to such Asset Sale, (ii) provisions for all     
taxes (whether or not such taxes will actually be paid or are payable) as a     
result of such Asset Sale without regard to the consolidated results of         
operations of Teekay and its Restricted Subsidiaries, taken as a whole, (iii)   
payments made to repay Indebtedness or any other obligation outstanding at the  
time of such Asset Sale that either (A) is secured by a Lien on the property or 
assets sold or (B) is required to be paid as a result of such sale and (iv)     
appropriate amounts to be provided by Teekay or any Restricted Subsidiary as a  
reserve against any liabilities associated with such Asset Sale, including,     
without limitation, pension and other post-employment benefit liabilities,      
liabilities related to environmental matters and liabilities under any          
indemnification obligations associated with such Asset Sale, all as determined  
in conformity with GAAP.                                                        

    "Net Event of Loss Proceeds" is defined to mean, with respect to any Event
of Loss, the Event of Loss Proceeds from such Event of Loss net of related fees 
and expenses and payments made to repay Indebtedness or any other obligation    
outstanding at the time of such Event of Loss, provided that such Indebtedness  
or other obligation is either (A) secured by a Lien on the property or assets   
that suffered the Event of Loss or (B) required to be paid as a result of such  
Event of Loss.                                                                  

    "Permitted Liens" means with respect to Teekay and Restricted Subsidiaries
(i) Liens for taxes, assessments, governmental charges or claims that are being 
contested in good faith by appropriate legal proceedings promptly instituted and
diligently conducted and for which a reserve or other appropriate provision, if 
any, as shall be required in conformity with GAAP shall have been made; (ii)    
statutory Liens or Liens otherwise arising by operation of law of landlords and 
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other   
similar Liens arising in the ordinary course of business and with respect to    
amounts not yet delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with 
GAAP shall have been made; (iii) Liens for crews' wages and Liens incurred or   
deposits made in the ordinary course of business in connection with workers'    
compensation, unemployment insurance and other types of social security; (iv)   
Liens incurred or deposits made to secure the performance of tenders, bids,     
leases, statutory or regulatory obligations, bankers' acceptances, surety and   
appeal bonds, government contracts, performance and return-of-money bonds and   
other obligations of a similar nature incurred in the ordinary course of        
business (exclusive of obligations for the payment of borrowed money); (v) prior
to the Fall-away Event, charters, leases or subleases granted to others in the  
ordinary course of business that are subject to the relevant Mortgage and that  
do not materially interfere with the ordinary course of business of Teekay and  
its Restricted Subsidiaries, taken as a whole; (vi) any interest or title of a  
lessor in the property subject to any Capitalized Lease or operating lease;     
(vii) Liens on property of, or on shares of stock or Indebtedness of, any       
corporation (other than a Guarantor, if prior to the Fall-away Event, or Palm)  
existing at the time such corporation becomes, or becomes a part of, any        
Restricted Subsidiary; (viii) except in the case of a Guarantor, if prior to the
Fall-away Event, or Palm, Liens in favor of Teekay or any Restricted Subsidiary;
(ix) except in the case of a Guarantor, if prior to the Fall-away Event, or     
Palm, Liens arising from the rendering of a final judgment or order against     
Teekay or any Restricted Subsidiary that does not give rise to an Event of      
Default; (x) except in the case of a Guarantor, if prior to the Fall-away Event,
or Palm, Liens securing reimbursement obligations with respect to letters of    
credit that encumber documents and other property relating to such letters of   
credit and products and proceeds thereof; (xi) Liens in favor of customs and    
revenue authorities arising as a matter of law to secure payment of customs     
duties in connection with the importation of goods and (xii) Liens for salvage. 

    "Qualified Substitute Vessel" is defined to mean, as of any date, a tanker
or oil/bulk/ore carrier of at least 80,000 dwt, which (i) was completed no      
earlier than 1991 and is no older than one year older than                      

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the Vessel for which it is being substituted, (ii) is not a Mortgaged Vessel as 
of such date, (iii) is Wholly Owned by a Wholly Owned Subsidiary of Teekay, (iv)
is registered under the laws of the Republic of Liberia or the Commonwealth of  
the Bahamas and (v) has an Appraised Value at the Vessel Tender Date at least   
equal to (and being in as good operating condition as) the vessel for which it  
is being substituted, assuming compliance by the applicable Guarantor with all  
the terms of the applicable Mortgage.                                           

    "Rating Agencies" is defined to mean (i) S&P and Moody's or (ii) if S&P or
Moody's or both of them are not making ratings of the Notes publicly available, 
a nationally recognized U.S. rating agency or agencies, as the case may be,     
selected by Teekay, which will be substituted for S&P or Moody's or both, as the
case may be.                                                                    

  "Rating Category" is defined to mean (i) with respect to S&P, any of the
following categories (any of which may include a "+" or "-"): AAA, AA, A, BBB,  
BB, B, CCC, CC, C and D (or equivalent successor categories); (ii) with respect 
to Moody's, any of the following categories: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C 
and D (or equivalent successor categories), and (iii) the equivalent of any such
categories of S&P or Moody's used by another Rating Agency, if applicable.      

    "Rating Decline" is defined to mean that at any time within 90 days (which
period shall be extended so long as the rating of the Notes is under publicly   
announced consideration for possible downgrade by any Rating Agency) after the  
date of public notice of a Change of Control, or of the intention of the Company
or of any Person to effect a Change of Control, the rating of the Notes is      
decreased by both Rating Agencies by one or more Gradations and the rating by   
such Rating Agencies on the Notes following such downgrade is below Investment  
Grade.                                                                          

  "Redemption Date", when used with respect to any Note to be redeemed, is
defined to mean the date fixed for such redemption by or pursuant to the        
Indenture.                                                                      

    "Restricted Subsidiary" is defined to mean the Guarantors, if prior to the
Fall-away Event, Palm and any Subsidiary of Teekay that is not designated an    
Unrestricted Subsidiary.                                                        

   "Sale Excess Proceeds" is defined to mean (i) all amounts treated as Sale
Excess Proceeds under "--Redemptions--Mandatory Redemption Upon Sale of a       
Mortgaged Vessel" and under the second paragraph of "--Certain Restrictive      
Covenants--Limitation on Asset Sales" and (ii) the amount of excess Net Cash    
Proceeds from Asset Sales not applied (or committed to be applied) as set forth 
in subclause (i) of the third paragraph of "--Certain Restrictive               
Covenants--Limitation on Asset Sales."                                          

"Security Documents" has the meaning specified in the Indenture and   
includes the Mortgages, Subsidiary Guarantees, Assignments of Time Charter,     
Assignments of Freights and Hires, Assignments of Insurance, Pledge Agreements  
and Cash Collateral Account Agreements.                                         

 "S&P" is defined to mean Standard & Poor's Ratings Group, a division of
McGraw Hill Inc., a New York Corporation and its successors.                    

   "Subsidiary" is defined to mean, with respect to any Person, any business
entity of which more than 50% of the outstanding Voting Stock is owned directly 
or indirectly by such Person and one or more other Subsidiaries of such Person; 
provided that, except as the term "Subsidiary" is used in the definition of     
"Unrestricted Subsidiary" set forth below, an Unrestricted Subsidiary shall not 
be deemed to be a Subsidiary of the Company for purposes of the Indenture.      

     "Tangible Assets" of any Person means, at any date, the gross book value as
shown by the accounting books and records of such Person of all its property    
both real and personal, less (i) the net book value of all its licenses,        
patents, patent applications, copyrights, trademarks, trade names, goodwill,    
non-compete agreements or organizational expenses and other like intangibles,   
(ii) unamortized Indebtedness discount and expenses, (iii) all reserves for     
depreciation, obsolescence, depletion and amortization of its properties and    
(iv) all other proper reserves which in accordance with generally accepted      
accounting principles should be provided in connection with the business        
conducted by such Person, provided, however, that, with respect to Teekay and   
its Restricted Subsidiaries, adjustments                                        

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following the date of the Indenture to the accounting books and records of the  
Company and its Restricted Subsidiaries in accordance with Accounting Principles
Board Opinions Nos. 16 and 17 (or successor opinions there), or otherwise       
resulting from the acquisition of control of Teekay by another Person shall not 
be given effect.                                                                

"Trusts" is defined to mean, collectively, the Cirrus Trust, a trust  
organized under the laws of the Turks and Caicos Islands, the JTK Trust, a trust
organized under the laws of the Bahamas, which as of December 31, 1995 owned    
approximately 65.1% and 10.4% of the outstanding Common Stock of Teekay,        
respectively.                                                                   

   "Unrestricted Subsidiary" is defined to mean (i) any Subsidiary of Teekay
(other than a Guarantor, if prior to the Fall-away Event, and Palm) that at the 
time of determination shall be designated an Unrestricted Subsidiary by the     
Board of Directors in the manner provided below and (ii) any Subsidiary of an   
Unrestricted Subsidiary. The Board of Directors may designate any Restricted    
Subsidiary of Teekay (including any newly acquired or newly formed Subsidiary   
(other than a Guarantor, if prior to the Fall-away Event, and Palm)) to be an   
Unrestricted Subsidiary unless such Subsidiary owns any Capital Stock of, or    
owns or holds any Lien on any property of, Teekay or any other Subsidiary of    
Teekay that is not a Subsidiary of the Subsidiary to be so designated; provided 
that either (A) the Subsidiary so designated has total assets of $1,000 or less 
or (B) if such Subsidiary has assets greater than $1,000, that such designation 
would be permitted under "--Certain Restrictive Covenants--Limitation on        
Restricted Payments." The Board of Directors may designate any Unrestricted     
Subsidiary to be a Restricted Subsidiary; provided that immediately after giving
effect to such designation (x) Teekay could incur $1.00 of additional           
Indebtedness under the first paragraph of either "--Certain Restrictive         
Covenants-- Limitation on Indebtedness" or, if after the Fall-away Event,       
"--Covenants After Fall-away Event-- Limitation on Indebtedness" and (y) no     
Default or Event of Default shall have occurred and be continuing or shall      
result as a consequence thereof. Any such designation by the Board of Directors 
shall be evidenced to the Trustee by promptly filing with the Trustee a copy of 
the resolution giving effect to such designation and an Officers' Certificate   
certifying that such designation complied with the foregoing provisions.        

     "Vessel Percentage" is defined to mean as of and after the Closing Date and
prior to any subsequent adjustment as provided below, for each of the initial   
seven Mortgaged Vessels, the percentage set forth below opposite such Mortgaged 
Vessel:                                                                         

                                                                [Download Table]

           VESSEL              PERCENTAGE
----------------------------   ----------
                                         
Poul Spirit.................        15.5%
Torben Spirit...............        15.1 
Senang Spirit...............        15.0 
Mayon Spirit................        13.6 
Leyte Spirit................        13.6 
Luzon Spirit................        13.6 
Samar Spirit................        13.6 
                                   ----- 
                                   100.0%
                                   ===== 

provided, however, that each Vessel Percentage shall be adjusted in each case   
upon the occurrence of, and after giving effect to, the delivery of any         
Qualified Substitute Vessel as part of the Trust Estate pursuant to the terms of
the Indenture, an Event of Loss with respect to any Mortgaged Vessel, the sale  
of any Mortgaged Vessel Asset or the release of any Mortgaged Vessel from the   
Lien of this Indenture and the Security Documents, in each case effected in     
accordance with the terms of the Indenture, to be, for each Mortgaged Vessel    
remaining after such an occurrence, the percentage that the Appraised Value of  
such Mortgaged Vessel at the time of and after giving effect to such occurrence 
bears to the aggregate Appraised Value of the remaining Mortgaged Vessels at the
time of and after giving effect to such occurrence. Notwithstanding the         
foregoing, if any Vessel Percentage is required to be calculated or             

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adjusted at a time when cash is on deposit with the Trustee in the Investment   
Account as part of the Trust Estate as a result of the sale of a Mortgaged      
Vessel or the occurrence of an Event of Loss with respect to a Mortgaged Vessel,
the amount of such cash on deposit shall be deemed to be the Appraised Value of 
such Vessel giving rise to such cash on deposit and such Vessel shall be deemed 
to remain a Mortgaged Vessel for purposes of such computation or adjustment of  
Vessel Percentage.                                                              

FRAUDULENT CONVEYANCE STATUTES                                                  

   The making of the Subsidiary Guarantees and the granting of the Mortgages
might be subject to review under relevant fraudulent conveyance statutes (the   
"Fraudulent Conveyance Statutes") in a bankruptcy proceeding or proceedings     
involving one or more of the Guarantors. Due to the nature of the business of   
Teekay and the Guarantors and uncertainty as to where a Mortgaged Vessel        
foreclosure proceeding might be commenced, it is not possible to predict where  
any such proceeding or attack might be brought or made or the law that the court
might apply, although applicable law would be likely to be the law of Liberia,  
The Bahamas, the State of New York in the United States or the U.S. Bankruptcy  
Code.                                                                           

    The following discussion is based, as to U.S. Bankruptcy and New York law,
on the advice of Perkins Coie, special counsel to the Company, as to Liberian   
law, on the advice of Haight, Gardner, Poor & Havens, special Liberian counsel  
to the Company, and, as to Bahamian law, on the advice of Graham, Thompson &    
Co., Bahamian counsel to the Company.                                           

     Under U.S. Bankruptcy, New York or Liberian fraudulent conveyance law, if a
court were to find that, with respect to any particular Guarantor, at the time  
the Subsidiary Guarantee was made or the security was granted (collectively, the
"Transfer") by such Guarantor, it (a) made such Transfer with actual intent to  
hinder, delay, or defraud any present or future creditor or (b) received less   
than a reasonably equivalent value or fair consideration for the Transfer and   
(i) was insolvent at the time such Transfer was made or was rendered insolvent  
by virtue of such Transfer, (ii) was engaged in a business or transaction, or   
was about to engage in a business or transaction for which any property         
remaining with such subsidiary was an unreasonably small capital or (iii)       
intended to incur, or believed that it would incur, debts beyond its ability to 
pay as they matured (as the foregoing terms are defined in or interpreted under 
the relevant Fraudulent Conveyance Statutes), such court could avoid the        
Transfer in whole or in part. Generally, for the purposes of the Fraudulent     
Conveyance Statutes, a company is considered insolvent at a particular time if  
the sum of its debts (including probable liabilities or contingent obligations) 
is greater than all of its property at a fair valuation, or if the present fair 
salable value of its assets was then less than the amount that would be required
to pay its probable liabilities on its existing debts as they became absolute   
and matured.                                                                    

    Under Bahamian fraudulent conveyance law, if a court were to find that, at
the time of a particular Transfer, the Guarantor made such Transfer with intent 
to defraud any existing creditor and at an undervalue, such court could void the
Transfer to the extent necessary to satisfy the obligation of the Guarantor to  
the creditor at whose instance the Transfer was challenged. The laws of the     
Bahamas also provide that a Transfer would be deemed fraudulent and void, except
as against a good faith purchaser, payee or encumbrancer who gave valuable      
consideration, if (a) made (i) when a Guarantor were unable to pay its debts as 
they became due from its own money and (ii) with a view to giving a particular  
creditor of the Guarantor a preference over other creditors and (b) the         
Guarantor were to enter into a winding up within three months after the date of 
the Transfer.                                                                   

     The proceeds of the sale of the Notes will be distributed to the Guarantors
and used to pay off debt. See "Use of Proceeds." To the extent of the funds     
advanced by Teekay to any particular Guarantor (and since it is the view of     
Teekay that the instant transaction can in no circumstances be considered an    
attempt to hinder, defraud or delay creditors), the Transfer by any Guarantor   
should not be considered a fraudulent transfer under the tests set forth above, 
because such Guarantor has received fair or reasonably equivalent consideration 
for such Transfer.                                                              

  To the extent that the Subsidiary Guarantee by any Guarantor exceeds the
value of the funds distributed to it, the determination of whether the Transfer 
in question is a fraudulent transfer depends on                                 

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(1) whether the Transfer--a prerequisite for the funds received by such         
Guarantor then used to pay off its mortgage or the other debt--so exceeds the   
value and benefit received by such Guarantor that, at least to the extent of    
such excess, the Guarantor did not receive reasonably equivalent value or fair  
consideration for the Transfer; and, if the answer to the foregoing question is 
"yes," then, under all but Bahamian law, (2) whether following the valuation of 
the assets of such Guarantor, including its rights of indemnity and contribution
created in connection with the Subsidiary Guarantee, and also of its            
liabilities, including an estimation of the value of the contingent liability   
created by the Subsidiary Guarantee, it is determined that such Guarantor is or 
has been rendered insolvent. The Subsidiary Guarantees and the other Security   
Documents contain provisions limiting each Guarantor's maximum liability under  
such agreements to a percentage of its Adjusted Net Assets (as defined in the   
Subsidiary Guarantee) or the total amount of proceeds received by such Guarantor
from Teekay from the sale of the Notes. See "The Subsidiary Guarantees." While  
there can be no assurance that a court, viewing the transaction with hindsight, 
would determine that a particular Guarantor received reasonably equivalent value
or fair consideration for its transfer, or was not rendered insolvent by the    
pertinent Transfer, to the extent it exceeded the value of the funds advanced to
that Guarantor, Teekay believes that each of the Guarantors will receive proper 
consideration for its respective Transfer and that no such Guarantor will be    
rendered insolvent by the contemplated Transfers. However, no assurance can be  
given that a court would concur with such belief.                               

THE SUBSIDIARY GUARANTEES 

  Each Subsidiary Guarantee provides for the irrevocable and unconditional
guarantee by a Guarantor of the punctual payment when due, whether at stated    
maturity, by acceleration or otherwise, of the principal of (and premium, if    
any) and interest on the Notes and the payment of all fees, expenses and other  
sums of money from time to time payable by Teekay under the Indenture and all   
other Obligations. Each Subsidiary Guarantee also guarantees performance and    
observance of all agreements, covenants and provisions contained in the         
Indenture and the Security Documents. Each Subsidiary Guarantee provides that   
the liability of each Guarantor under its Subsidiary Guarantee is absolute and  
unconditional and extends to all amounts which constitute part of the           
Obligations and would be owed by Teekay under the Indenture but for the fact    
that they are unenforceable or not allowable due to the existence of a          
bankruptcy, reorganization or similar proceeding involving Teekay. The          
obligations of each Guarantor are independent of the Obligations, and a separate
action or actions may be brought and prosecuted against each Guarantor to       
enforce its Subsidiary Guarantee, irrespective of whether any action is brought 
against the Company or whether the Company is joined in any such action or      
actions. The liability of each Guarantor will not exceed the greater of (a) 95% 
of such Guarantor's adjusted net assets on the date the Subsidiary Guarantee is 
delivered, (b) 95% of its adjusted net assets on the date any payment is made   
under the Subsidiary Guarantee and (c) the total amount of proceeds received by 
such Guarantor from Teekay from the sale of the Notes.                          

Each Guarantor will irrevocably waive any claim or right that it may  
acquire against the Company arising from the existence, payment, performance or 
enforcement of the Guarantor's obligations under the Subsidiary Guarantee or the
Indenture by way of subrogation, reimbursement, exoneration, contribution or    
indemnification under its Subsidiary Guarantee.                                 

  In the event that a Guarantor is required by any applicable law to make,
with respect to any payment to be made pursuant to its Subsidiary Guarantee, any
deduction or withholding for or on account of any taxes, assessments or other   
governmental charges imposed on such payment by any governmental or taxing      
authority (other than the United States or any political subdivision or taxing  
authority thereof) the Guarantor will agree to pay such additional amount as may
be necessary in order that the net amount received by the Trustee in respect of 
such payment will not be less than the amount of the payment the Trustee would  
have received had no deduction or withholding been required; provided, however, 
that the Guarantor shall not be required to pay any additional amount on account
of a tax, assessment or other governmental charge imposed by reason of any      
present or former connection between a Holder of Notes (or between a fiduciary, 
settlor, beneficiary, member or shareholder of, or possessor of a power over,   

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such Holder, if such Holder is an estate, trust, partnership or corporation) and
the governmental or taxing authority, including, without limitation, such Holder
(or a fiduciary, settlor, beneficiary, member or shareholder of, or possessor of
a power over, such Holder) having been a citizen or resident of the jurisdiction
of such governmental or taxing authority or treated as a resident thereof or    
being or having been engaged in a trade or business therein or having or having 
had a permanent establishment therein.                                          

The Subsidiary Guarantees will terminate upon the occurrence of the   
Fall-away Event. See "Description of the Notes -- Fall-away Event."             

THE MORTGAGED VESSELS 

    The following vessels shall be mortgaged in favor of the Trustee to secure
the Notes and the obligations of each Guarantor under the Indenture and the     
Security Documents:                                                             

                                                        [Enlarge/Download Table]

                                                                     APPRAISED VALUE AS OF       
                                  COUNTRY                              DECEMBER 13, 1995         
                        YEAR OF    WHERE                      -----------------------------------
        VESSEL          DELIVERY   BUILT     FLAG      DWT    APPRAISAL NO. 1     APPRAISAL NO. 2
----------------------  --------  -------  --------  -------  ---------------     ---------------
                                                                                                 
                                                                                    (IN MILLIONS)
Poul Spirit...........     1995   Japan    Liberian   98,600      $  48.0             $  47.5    
Torben Spirit.........     1994   Japan    Bahamian   98,500         46.5                46.0    
Senang Spirit.........     1994   Japan    Bahamian   95,649         46.0                46.0    
Mayon Spirit..........     1992   Japan    Bahamian   98,507         42.0                41.5    
Leyte Spirit..........     1992   Japan    Bahamian   98,744         42.0                41.5    
Luzon Spirit..........     1992   Japan    Bahamian   98,629         42.0                41.5    
Samar Spirit..........     1992   Japan    Bahamian   98,640         42.0                41.5    
                                                                   ------              ------    
  Total...............                                            $ 308.5             $ 305.5    
                                                                   ======              ======    

Each of the Mortgaged Vessels is constructed with a double hull. The  
appraised values of the Mortgaged Vessels set forth above have been determined, 
at the Company's expense, by E.A. Gibson Shipbrokers Limited (Appraisal No. 1)  
and Simpson, Spence & Young Shipbrokers Ltd. (Appraisal No. 2), each independent
ship brokers (the "Appraisers"). Each of the Appraisers is an internationally   
recognized appraisal firm with respect to the appraisal of tankers and is one of
the firms that has traditionally been used by the Company and its creditors for 
appraisal matters relating to the Company's debt agreements. No limitations were
imposed by the Company on either of the Appraisers on the scope of their        
investigation or the procedures followed in rendering their appraisals. The     
valuations were generally based upon the prevailing market for each Mortgaged   
Vessel, assuming the presence of a willing buyer and a willing seller, and      
assumptions by the Appraisers that each Mortgaged Vessel is in good condition   
and charter-free. In performing their appraisals of the mortgaged vessels, the  
Appraisers conducted procedures which, in their opinion, are standard among     
London shipbrokers. From their internal databases (compiled from various sources
of publicly available information), each of the Appraisers reviewed the vessels'
main details and characteristics. They did not perform physical inspections of  
the vessels. Each of the Appraisers then reviewed the available information     
regarding market trends, charter rates and recent sales of comparable vessels in
order to arrive at their appraisal estimates. The valuation calculations        
attempted to account for any pertinent differences in vessel characteristics    
such as deadweight tonnage, and allowed 7% per year for age differences between 
the Mortgaged Vessels and recently sold comparable vessels. The Company believes
that the Mortgaged Vessels are in better condition than the Appraisers'         
assumptions as to the condition of such Mortgaged Vessels.                      

    The Mortgages, together with all other Collateral securing the Obligations
of Teekay and the Guarantors under the Indenture and the Security Documents will
be released upon the occurrence of the Fall-away Event. See "Description of the 
Notes--Fall-away Event."                                                        

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CHARTERS                                                                        

Each of the Mortgaged Vessels has been time chartered to Palm under a 
charter. The Palm Charters are based on an industry standard form and are       
similar in all material respects except as set forth below.                     

General.  The term and the charter hire clauses under each of the Palm
Charters provide for full amortization of the financings for the building of the
Mortgaged Vessel to which such Palm Charter relates. The Palm Charters for the  
Poul Spirit, Torben Spirit, Senang Spirit, Mayon Spirit, Leyte Spirit, Luzon    
Spirit, and the Samar Spirit began on 1995, 1994, 1994, 1992, 1992, 1992 and    
1992, respectively. Upon issuance of the Notes, Teekay intends to cause Palm and
each of the Guarantors to amend each of the Palm Charters in order to provide   
for a charter hire and a term such that the aggregate hire payable under the    
Palm Charters will fully amortize the principal amount of the Notes. Each       
Guarantor has a lien upon all of its Mortgaged Vessel's cargoes and sub-freights
as security for any amounts due under the Palm Charters, and Palm has a lien on 
the Mortgaged Vessel as security for any amounts paid in advance and not earned,
the cost of fuel used, all amounts due Palm under the Palm Charters and for     
claims for damages arising from any breach of the Palm Charters by the          
Guarantor.                                                                      

Off-hire.  The revenue from the Mortgaged Vessels would be adversely  
affected if any of the Mortgaged Vessels were out of service for a significant  
period of time. The Palm Charters provide that in certain events a Mortgaged    
Vessel will be considered off-hire, in which event it is likely that the        
Mortgaged Vessel would not be available to Palm for chartering in the spot      
charter market. The Company does not carry insurance covering the loss of       
revenue resulting from a Mortgaged Vessel being out of service. Prolonged out of
service periods with respect to the Mortgaged Vessels would therefore adversely 
affect the Company's cash flow from such Mortgaged Vessels, although the Company
believes that it could continue to meet its obligations to make principal and   
interest payments on the Notes even if the amount of time the Mortgaged Vessels 
were out of service rose significantly. The Mortgaged Vessels have never        
incurred any significant off-hire since being delivered to the Company.         

    Termination.  Each of the Palm Charters terminates if the Mortgaged Vessel
is lost, and also automatically terminates if the Mortgaged Vessel is           
requisitioned or seized by any government authority, and such requisition or    
seizure is the equivalent to requisition of title of the Mortgaged Vessel.      

As of the date of this Prospectus, each of the Mortgaged Vessels was  
operating on a spot voyage basis, the terms of which are set forth in a         
recapitulation telex between Palm, as owner, and either a broker or charterer.  
The recapitulation telex recites in detail the fundamental aspects of the       
transaction: vessel, charterer, cargo, rate of hire, demurrage or overage fees, 
port of loading, and port of unloading. The telex usually makes reference to a  
standard form of charter-party and also recites any special provisions to be    
included in such form. The parties' obligations are based on the recapitulation 
telexes. The spot charter-party document is usually executed at a later date.   

DRYDOCKING AND SURVEYS                                                          

    Each of the Mortgaged Vessels is drydocked once every five years, the main
purpose of which is to inspect and maintain those areas of such Mortgaged Vessel
below the waterline. Drydocking usually takes one to two weeks. In addition, the
Company expects to purchase spare parts and perform repairs on its vessels from 
time to time.                                                                   

     Since the average age of the Mortgaged Vessels is less than five years, and
because of the extensive and regular inspections carried out by Teekay, the     
Company does not believe that it will incur in the foreseeable future any       
material expenses on account of the results of inspections and drydocking.      

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The following table sets forth the next periodic survey and drydocking
dates for the Mortgaged Vessels:                                                

                                                        [Enlarge/Download Table]

                                            ANNUAL  INTERMEDIATE  SPECIAL  CLASSIFICATION
            VESSEL              DRYDOCKING  SURVEY     SURVEY     SURVEY      SOCIETY    
------------------------------  ----------  ------  ------------  -------  --------------
                                                                                         
Poul Spirit...................     08/00     08/96      08/98      08/00         NKK     
Torben Spirit.................     01/97     11/96      07/99      01/98         NKK     
Senang Spirit.................     01/97     01/96      07/99      01/98         NKK     
Mayon Spirit..................     02/97     02/96      02/00      02/97         NKK     
Leyte Spirit..................     08/97     08/96      02/00      08/97         NKK     
Luzon Spirit..................     06/97     06/96      12/99      06/97         NKK     
Samar Spirit..................     11/97     11/96      05/00      11/97         NKK     

THE MORTGAGES                                                                   

GENERAL                                                               

     Each Guarantor will grant to the Trustee a Mortgage on its Mortgaged Vessel
to secure the payment of all sums of money (whether for principal, premium, if  
any, interest, fees, expenses or otherwise) from time to time payable by such   
subsidiary under its Subsidiary Guarantee, the payment of the principal of (and 
premium, if any) and interest on the Notes, the payment of all other sums       
payable by Teekay under the Indenture and the payment of all other sums payable 
under the Security Documents. The Mortgages will be recorded in accordance with 
the provisions of Liberian or Bahamian law, as applicable. The maximum liability
of each Guarantor under its Mortgage is limited to the same extent as such      
Guarantor's maximum liability under its Subsidiary Guarantee. See "The          
Subsidiary Guarantees."                                                         

CERTAIN COVENANTS                                                     

Each Mortgage contains, among other things, the following covenants:  

     Registration and Documentation of the Mortgaged Vessel.  The Guarantor will
not permit its Mortgaged Vessel to be operated in any manner contrary to law,   
will not engage in unlawful trade, carry any cargo that would expose the        
Mortgaged Vessel to penalty, forfeiture or capture, and will not permit to be   
done anything which can or may injuriously affect the registration of its       
Mortgaged Vessel under the laws and regulations of the Republic of Liberia or   
the Commonwealth of the Bahamas, as applicable, and will at all times keep its  
Mortgaged Vessel duly documented thereunder.                                    

 Restrictions on Liens.  Except for its time charter and the lien of the
Mortgage and certain other permitted liens, the Guarantor will not suffer to be 
continued any lien, encumbrance or charge on its Mortgaged Vessel for longer    
than 30 days after the same becomes due and payable and will pay or cause to be 
discharged or make adequate provision for the satisfaction or discharge of all  
claims or demands, or will cause its Mortgaged Vessel to be released or         
discharged from any lien, encumbrance or charge therefor.                       

   Maintenance of the Mortgaged Vessel.  The Guarantor will at all times and
without cost or expense to the Trustee maintain and preserve, or cause to be    
maintained and preserved, its Mortgaged Vessel (i) in good running order and    
repair, so that the Mortgaged Vessel shall be, in every respect, seaworthy and  
(ii) in at least as good condition as when originally delivered by her builder, 
ordinary wear and tear excepted; and will keep the Mortgaged Vessel, or cause   
her to be kept, in such condition as will entitle her to the highest            
classification rating for vessels of the same type, size, age and flag in the   
classification society, and annually will furnish the Trustee a certificate by  
such classification society that such classification is maintained.             

   Transfer of Flag or Sale of the Mortgaged Vessel.  The Guarantor will not
transfer or change the flag or port of documentation of its Mortgaged Vessel,   
except to the Commonwealth of the Bahamas or the                                

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Republic of Liberia as permitted by the terms of the Indenture. Except as       
permitted by the terms of the Indenture, no Guarantor will sell, mortgage,      
demise charter or transfer its Mortgaged Vessel.                                

     Insurance.  The Guarantor will at all times and at its own cost and expense
cause to be carried and maintained in respect of its Mortgaged Vessel insurance 
payable in United States Dollars in amounts, against risks (including, without  
limitation, marine hull and machinery (including excess value) insurance, marine
protection and indemnity insurance, war risks insurance and liability arising   
out of pollution and the spillage or leakage of cargo and cargo liability       
insurance) and in a form which is substantially equivalent to the coverage      
carried by other responsible and experienced companies engaged in the operation 
of vessels similar to its Mortgaged Vessel and with insurance companies,        
underwriters, funds, mutual insurance associations or clubs of recognized       
standing. No insurance will provide for a deductible amount in excess of        
$1,000,000 per occurrence.                                                      

 In the case of all marine and war risk hull and machinery policies, the
Guarantor will cause the Trustee to be named an additional insured and will use 
its best efforts (and cause its insurance broker to use its best efforts) to    
cause the insurers under such policies to waive any liability of the Trustee for
premiums or calls payable under such policies. No policy is to be cancelable or 
subject to lapse without at least seven business days' prior notice to the      
Trustee.                                                                        

   For purposes of insurance against total loss, each Mortgaged Vessel is to
be insured for an amount not less than its fair value and not less, when        
aggregated with the insurance on the other Mortgaged Vessels, than an amount    
equal to the aggregate outstanding principal amount of the Notes, premium, if   
any, and accrued interest thereon. Unless the Trustee shall have otherwise      
directed, any loss involving damage to a Mortgaged Vessel which is not in excess
of $1,000,000 may be paid directly for repair or salvage or to reimburse the    
Guarantor for the same.                                                         

  In the event of an actual, constructive or compromised total loss of its
Mortgaged Vessel, any adjustment or compromise of such loss by the Guarantor    
will be at the highest amount reasonably obtainable, and all insurance or other 
payments for such loss will be applied as set forth above under "Description of 
the Notes -- Redemptions -- Mandatory Redemption Upon Loss of a Mortgaged       
Vessel."                                                                        

EVENTS OF DEFAULT AND REMEDIES                                                  

     An Event of Default under the Indenture will constitute an Event of Default
under the Mortgages and, in case any one or more Events of Default under the    
Mortgages shall have occurred and be continuing, then, in each and every such   
case the Trustee will have the right to:                                        

      (1) declare immediately due and payable all of the Obligations (in
 which case all of the same shall be immediately due), and bring suit at
   law, in equity or in admiralty, as it may be advised, to recover judgment
     for the Obligations and collect the same out of any and all property of the
Guarantor whether covered by the Mortgage or otherwise;               

  (2) exercise all of the rights and remedies in foreclosure and
otherwise given to mortgagees by the provisions of applicable law;    

      (3) take and enter into possession of the Mortgaged Vessel, at any
 time, wherever the same may be, without legal process and without being
responsible for loss or damage, and the Guarantors or other person in 
possession forthwith upon demand of the Trustee will surrender to the 
 Trustee possession of the Mortgaged Vessel and the Trustee may, without
     being responsible for loss or damage, hold, lay-up, lease, charter, operate
     or otherwise use such Mortgaged Vessel for such time and upon such terms as
  it may deem to be for its best advantage, and demand, collect and retain
 all hire, freights, earnings, issues, revenues, income, profits, return
    premiums, salvage awards or recoveries, recoveries in general average, and
    all other sums due or to become due in respect of such Mortgaged Vessel or
in respect of any insurance thereon from any person whomsoever, in    
accordance with the terms of the Mortgage; and                        

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      (4) take and enter into possession of the Mortgaged Vessel, at any
time, wherever the same may be, without legal process, and if it seems
    desirable to the Trustee and without being responsible for loss or damage,
  sell such Mortgaged Vessel, at any place and at such time as the Trustee
     may specify and in such manner and such place (whether by public or private
  sale) as the Trustee may deem advisable, in accordance with the terms of
the Mortgage.                                                         

 Any sale of a Mortgaged Vessel made in pursuance of the Trustee's right
under the Mortgage will operate to divest all right, title and interest of any  
nature whatsoever of the Guarantor therein and thereto and shall bar any claim  
from the Guarantor, its successors and assigns, and all persons claiming by,    
through or under them.                                                          

     All of the Mortgaged Vessels are registered under Liberian flag or Bahamian
flag. The Mortgage on the Liberian flag Mortgaged Vessel will be a preferred    
mortgage lien under Liberian maritime law. The Mortgages on Bahamian flag       
Mortgaged Vessels will have similar status under Bahamian law. Liberian law and 
Bahamian law provide that such mortgages may be enforced by the mortgagee by    
suit in admiralty in a proceeding against the vessel covered by the mortgage.   

  The priority that such a mortgage would have against the claims of other
lien creditors in an enforcement proceeding is generally determined by, and will
vary in accordance with, the law of the country where the proceeding is brought.
Liberian maritime law provides that a "preferred mortgage" is prior to all      
claims except (1) costs imposed by the enforcing court, (2) liens against the   
vessel arising prior in time to recording or filing of the mortgage, (3) liens  
for damages arising out of tort, (4) wages of a stevedore when employed directly
by the owner, operator or master of the vessel, (5) wages of the crew of the    
vessel and (6) general average and salvage, including contract salvage. Liberian
law also provides that unpaid vessel tonnage taxes, annual fees and penalties   
imposed by the Liberian government are liens prior to the liens of the mortgage.
Bahamian law provides that a first priority ship mortgage has priority over all 
other claims except (i) costs allowed by the court arising out of the arrest and
sale proceedings, (ii) wages and other sums due to the master, officers and     
other members of the ship's complement in respect of their employment on the    
ship, (iii) port, canal, and other waterway dues and pilotage dues and any other
outstanding fees payable under the Merchant Shipping Act of the Bahamas in      
respect of the ship, (iv) claims against the owner in respect of loss of life or
personal injury occurring, whether on land or on water, in direct connection    
with the operation of the ship, (v) claims against the owner, based on tort and 
not capable of being based on contract, in respect of loss of or damage to      
property occurring, whether on land or on water, in direct connection with the  
operation of the ship, and (vi) claims for salvage, wreck removal and           
contribution in general average.                                                

  Both Liberian ship mortgages and Bahamian ship mortgages may be enforced
against a vessel physically present in the United States, but the claim under   
the mortgage would rank behind preferred maritime liens, including those for    
supplies and other necessaries provided in the United States. Since the         
Mortgaged Vessels will be trading primarily between the Arabian Gulf and the    
West Coast of the United States, there is no assurance that, if enforcement     
proceedings must be commenced against a Mortgaged Vessel, the Mortgaged Vessel  
will be located in a jurisdiction having the same procedures and lien priorities
as Liberia, the Bahamas or the United States. Other jurisdictions may provide no
legal remedy at all for the enforcement of the Mortgages, or a remedy dependent 
on court proceedings so expensive and time consuming as to be impractical.      
Furthermore, certain jurisdictions, unlike Liberia, the Bahamas or the United   
States, may not permit the Mortgaged Vessel to be sold prior to entry of a      
judgment, entailing a long waiting time that could result in increased custodial
costs, deterioration in the condition of the Mortgaged Vessel and substantial   
reduction in her value.                                                         

     Since the Notes will also be secured by a pledge by Teekay of all the stock
of each of the Guarantors, enforcement of this pledge, including foreclosure,   
may provide in effect an alternative method to transfer control over a Mortgaged
Vessel and to realize value from such collateral.                               

   As additional security for the Obligations, each Guarantor will assign to
the Trustee, among other things, all of its rights under the Charter, the       
earnings of its Mortgaged Vessel and the insurance carried                      

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thereon. Each Guarantor's maximum liability under such security agreements is   
limited to the same extent as such Guarantor's maximum liability under its      
Subsidiary Guarantee. See "The Subsidiary Guarantees."                          

   All of the Collateral, including the Mortgages, will be released from the
Lien of the Indenture and the Security Documents upon the occurrence of the     
Fall-away Event. See "Description of the Notes-- Fall-away Event."              

TAX CONSIDERATIONS

UNITED STATES FEDERAL INCOME TAX CONSEQUENCES                                   

  The following summary describes certain United States federal income tax
consequences of the ownership of Notes by an initial purchaser thereof in the   
Offering. Except where noted, it deals only with Notes held as capital assets by
United States Holders and does not deal with special situations, such as those  
of dealers in securities or currencies, financial institutions, life insurance  
companies, persons holding Notes as a part of a hedging or conversion           
transaction or a straddle or United States Holders whose "functional currency"  
is not the U.S. dollar. Furthermore, the following discussion, as well as the   
conclusions regarding certain issues of United States federal income tax law    
that are reflected in that discussion, are based upon the provisions of the     
Internal Revenue Code of 1986, as amended (the "Code"), and regulations, rulings
and judicial decisions thereunder existing as of the date hereof, and upon the  
advice received by the Company from special U.S. tax counsel. No assurance can  
be given that changes in existing laws or regulations or their interpretation   
will not occur, or that such changes will not be retroactive. Such authorities  
may be repealed, revoked or modified so as to result in federal income tax      
consequences different from those discussed below. The Company's and special    
U.S. tax counsel's views have no binding effect or official status of any kind, 
and no assurance can be given that the conclusions discussed below would be     
sustained by a court if challenged by the Internal Revenue Service.             

     THE DISCUSSION BELOW IS A SUMMARY FOR GENERAL INFORMATION ONLY AND DOES NOT
ADDRESS ALL POTENTIAL TAX CONSIDERATIONS THAT DEPEND UPON CIRCUMSTANCES SPECIFIC
TO EACH INVESTOR. IN ADDITION THIS DISCUSSION DOES NOT ADDRESS THE TAX          
CONSEQUENCES THAT MAY BE RELEVANT TO PARTICULAR CATEGORIES OF INVESTORS SUBJECT 
TO SPECIAL TREATMENT UNDER CERTAIN UNITED STATES FEDERAL INCOME TAX LAWS, SUCH  
AS DEALERS IN SECURITIES, TAX-EXEMPT ENTITIES, FINANCIAL INSTITUTIONS, INSURANCE
COMPANIES AND NON-UNITED STATES HOLDERS. PERSONS CONSIDERING THE PURCHASE,      
OWNERSHIP OR DISPOSITION OF NOTES SHOULD THEREFORE SATISFY THEMSELVES AS TO THE 
OVERALL TAX CONSEQUENCES OF THEIR OWNERSHIP OF THE NOTES, INCLUDING THE NON-    
UNITED STATES, STATE, AND LOCAL TAX CONSEQUENCES THEREOF (WHICH ARE NOT REVIEWED
HEREIN) AND CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR     
CIRCUMSTANCES.                                                                  

   As used herein, a "United States Holder" of a Note means a Holder that is
an individual citizen or resident of the United States, a corporation,          
partnership or other entity created or organized in or under the laws of the    
United States or any political subdivision thereof, or an estate or trust the   
income of which is subject to United States federal income taxation regardless  
of its source. A "Non-United States Holder" of a Note is a Holder that is not a 
United States Holder.                                                           

PAYMENTS OF INTEREST                                                  

     The Company believes that the Notes will not be issued with "original issue
discount" ("OID") within the meaning of Section 1273 of the Code and the        
Treasury Department Regulations issued under that section and other related     
sections of the Code relating to OID ("OID Regulations"), and the Company will  
report payments to Holders accordingly. Thus, any payment of interest on a Note 
will                                                                            

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generally be taxable to a United States Holder as ordinary income at the time it
is paid or accrued in accordance with the United States Holder's method of      
accounting for tax purposes.                                                    

MARKET DISCOUNT                                                       

    If a United States Holder purchases a Note for an amount that is less than
its stated redemption price at maturity, the amount of the difference will be   
treated as "market discount" for federal income tax purposes, unless such       
difference is less than a specified de minimis amount. Under the market discount
rules, a United States Holder will be required to treat any principal payment   
on, or any gain on the sale, exchange, retirement or other disposition of, a    
Note as ordinary income to the extent of the market discount which has not      
previously been included in income and is treated as having accrued on such Note
at the time of such payment or disposition. In addition, the United States      
Holder may be required to defer, until the maturity of the Note or its earlier  
disposition in a taxable transaction, the deduction of all or a portion of the  
interest expense on any indebtedness incurred or continued to purchase or carry 
such Note.                                                                      

    Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Note, unless the United
States Holder elects to accrue on a constant interest method. A United States   
Holder of a Note may elect to include market discount in income currently as it 
accrues (on either a ratable or constant interest method), in which case the    
rule described above regarding deferral of interest deductions will not apply.  
This election to include market discount in income currently, once made, applies
to all market discount obligations acquired on or after the first taxable year  
to which the election applies and may not be revoked without the consent of the 
Internal Revenue Service.                                                       

AMORTIZABLE BOND PREMIUM                                              

     A United States Holder that purchases a Note for an amount in excess of the
sum of all amounts payable on the Note after the purchase date other than       
qualified stated interest (as defined in the OID Regulations) will generally be 
considered to have purchased the Note at a "premium." A United States Holder    
generally may elect to amortize the premium over the remaining term of the Note 
on a constant yield method. The amount amortized in any year will be treated as 
a reduction of the United States Holder's interest income from the Note. Bond   
premium on a Note held by a United States Holder that does not make such an     
election will decrease the gain or increase the loss otherwise recognized on    
disposition of the Note. The election to amortize premium on a constant yield   
method once made applies to all debt obligations held or subsequently acquired  
by the electing United States Holder on or after the first day of the first     
taxable year to which the election applies and may not be revoked without the   
consent of the Internal Revenue Service.                                        

SALE, EXCHANGE AND RETIREMENT OF NOTES                                

A United States Holder's tax basis in a Note will, in general, be the 
United States Holder's cost therefor, increased by any market discount          
previously included in income by the United States Holder and reduced by any    
amortized premium. Upon the sale, exchange or retirement of a Note, a United    
States Holder will recognize gain or loss equal to the difference between the   
amount realized upon the sale, exchange or retirement (less any accrued         
interest, which will be taxable as such) and the adjusted tax basis of the Note.
In general, subject to the market discount rules discussed above, such gain or  
loss will be capital gain or loss and will be long-term capital gain or loss if 
at the time of sale, exchange or retirement the Note has been held for the      
period specified for capital gain treatment (currently a holding period of more 
than one year). Under current law, net capital gains of individuals are, under  
certain circumstances, taxed at lower rates than items of ordinary income. The  
deductibility of capital losses is subject to limitations.                      

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BACKUP WITHHOLDING AND INFORMATION REPORTING                          

In general, information reporting requirements will apply to certain  
payments of principal and interest paid on the Notes and to the proceeds of sale
of a Note made to United States Holders other than certain exempt recipients. A 
31 percent backup withholding tax will apply to such payments if the United     
States Holder fails to provide a correct taxpayer identification number or      
certification of exempt status or fails to report in full dividend and interest 
income or otherwise fails to comply with applicable requirements of the backup  
withholding rules.                                                              

     PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF ANY INVESTMENT IN THE NOTES, INCLUDING   
THE APPLICATION OF UNITED STATES FEDERAL, STATE, LOCAL AND NON-UNITED STATES TAX
LAWS.                                                                           

LIBERIAN TAXATION                                                               

 Based on the advice of Haight, Gardner, Poor & Havens, special Liberian
counsel to the Company, since (i) the Company is and intends to maintain its    
status as a "nonresident Liberian entity" under the Liberian Internal Revenue   
Code, (ii) the Company is not now carrying on, and in the future does not expect
to carry on, any operations within the Republic of Liberia, and (iii) the Notes 
and all related documentation will be executed outside the Republic of Liberia, 
and assuming that the holders of the Notes will neither reside in, maintain     
offices in, nor engage in business in, the Republic of Liberia, under current   
Liberian law no taxes or withholding will be imposed by the Republic of Liberia 
on payments to be made in respect of the Notes and the Subsidiary Guarantees.   

BAHAMIAN TAXATION                                                               

Based on the advice of Graham, Thompson & Co., Bahamian counsel to the
Company, under current Bahamian law no taxes or withholding will be imposed by  
The Bahamas on payments to be made in respect of the Notes and the Subsidiary   
Guarantees.                                                                     

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UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting     
Agreement, Teekay has agreed to sell to each of the Underwriters named below,   
and each of the Underwriters, has severally agreed to purchase from Teekay, the 
principal amount of Notes set forth opposite its name below:                    

                                                                [Download Table]

                                                                    PRINCIPAL  
                                                                     AMOUNT    
                                       UNDERWRITER                  OF NOTES   
                                                                  -------------
                                                                               
Goldman, Sachs & Co............................................   $ 112,500,000
Morgan Stanley & Co. Incorporated..............................      56,250,000
Smith Barney Inc...............................................      56,250,000
                                                                  -------------
      Total....................................................   $ 225,000,000
                                                                  =============

Under the terms and conditions of the Underwriting Agreement, the     
Underwriters are committed to take and pay for all of the Notes offered hereby, 
if any are taken.                                                               

The Underwriters propose to offer the Notes in part directly to retail
purchasers at the initial public offering price set forth on the cover page of  
this Prospectus, and in part to certain securities dealers at such price less a 
concession of 0.80% of the principal amount of the Notes. The Underwriters may  
allow, and such dealers may reallow, a concession of not in excess of 0.25% of  
the principal amount of the Notes to certain brokers and dealers. After the     
Notes are released for sale to the public, the offering price and other selling 
terms may from time to time be varied by the Underwriters.                      

     The Notes are a new issue of securities with no established trading market.
The Company has been advised by the Underwriters that they intend to make a     
market in the Notes but are not obligated to do so and may discontinue market   
making at any time without notice. No assurance can be given as to the liquidity
of the trading market for the Notes.                                            

The Company has agreed to indemnify the several Underwriters against  
certain liabilities, including liabilities under the Securities Act.            

LEGAL MATTERS 

 The validity of the Notes and the Guarantees offered hereby and certain
legal matters will be passed upon for Teekay and the Guarantors by Perkins Coie,
Portland, Oregon, with respect to matters of United States law, and certain     
legal matters will be passed upon for Teekay and the Guarantors by Haight,      
Gardner, Poor & Havens, New York, New York, with respect to matters of Liberian 
law and U.S. Maritime law, and by Graham, Thompson & Co., Nassau, The Bahamas,  
with respect to matters of Bahamian law. Certain legal matters will be passed   
upon for the Underwriters by Shearman & Sterling, New York, New York, with      
respect to matters of United States law.                                        

EXPERTS 

    The consolidated financial statements of Teekay and its subsidiaries as of
March 31, 1995 and 1994, and for the year ended March 31, 1995, the eleven-month
period ended March 31, 1994 and the year ended April 30, 1993, included herein  
and elsewhere in the Registration Statement have been audited by Ernst & Young, 
independent chartered accountants, as set forth in their report appearing       
elsewhere herein and in the Registration Statement and are included in reliance 
upon such report given upon the authority of such firm as experts in accounting 
and auditing. The consolidated financial statements and schedule of Teekay and  
its subsidiaries incorporated in this Prospectus by reference to the Annual     
Report of Teekay on Form 20-F, as amended, for the fiscal year ended March 31,  
1995, have been audited by Ernst & Young, independent chartered accountants, as 
indicated in their report with respect thereto, and                             

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have been so incorporated in reliance upon such report given upon the authority 
of such firm as experts in accounting and auditing.                             

With respect to the unaudited interim financial information for the   
six-month periods ended September 30, 1995 and 1994, included herein, the       
independent chartered accountants have reported that they applied limited       
procedures in accordance with professional standards for a review of such       
information. However, their report with respect thereto, included herein, states
that they did not audit and they do not express an opinion on that interim      
financial information. Accordingly, the degree of reliance on their report on   
such information should be restricted in light of the limited nature of the     
review procedures applied. The independent chartered accountants are not subject
to the liability provisions of section 11 of the Securities Act for their report
on the unaudited interim financial information because that report is not a     
"report" or a "part" of the registration statement prepared or certified by the 
auditors within the meaning of section 7 or 11 of the Securities Act.           

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TEEKAY SHIPPING CORPORATION 

INDEX TO FINANCIAL STATEMENTS 

                                                        [Enlarge/Download Table]

                                                                                        PAGE  
                                                                                       ------ 
                                                                                              
Auditors' Report.......................................................................    F-3
Accountants' Review Engagement Report..................................................    F-4
Consolidated Statements of Income and Retained Earnings for the six-month periods ended       
  September 30, 1995 and 1994 and for the fiscal periods ended March 31, 1995 and 1994        
  and April 30, 1993...................................................................    F-5
Consolidated Balance Sheets as at September 30, 1995 and 1994 and March 31, 1995 and          
  1994.................................................................................    F-6
Consolidated Statements of Cash Flows for the six-month periods ended September 30,           
  1995 and 1994 and for the fiscal periods ended March 31, 1995 and 1994 and April 30,        
  1993.................................................................................    F-7
Notes to the Consolidated Financial Statements.........................................    F-8
Schedule A to the Consolidated Financial Statements....................................   F-22
Auditors' Report.......................................................................   F-27
ANDROS SPIRIT INC.                                                                            
  Statements of Income and Retained Earnings for the six-month periods ended September        
     30, 1995 and 1994 and for the fiscal periods ended March 31, 1995 and 1994 and           
     April 30, 1993....................................................................   F-28
  Balance Sheets as at September 30, 1995 and 1994 and March 31, 1995 and 1994.........   F-29
  Statements of Cash Flows for the six-month periods ended September 30, 1995 and 1994        
     and for the fiscal periods ended March 31, 1995 and 1994 and April 30, 1993.......   F-30
EXUMA SPIRIT INC.                                                                             
  Statements of Income and Retained Earnings for the six-month periods ended September        
     30, 1995 and 1994 and for the fiscal periods ended March 31, 1995 and 1994 and           
     April 30, 1993....................................................................   F-31
  Balance Sheets as at September 30, 1995 and 1994 and March 31, 1995 and 1994.........   F-32
  Statements of Cash Flows for the six-month periods ended September 30, 1995 and 1994        
     and for the fiscal periods ended March 31, 1995 and 1994 and April 30, 1993.......   F-33
NASSAU SPIRIT INC.                                                                            
  Statements of Income and Retained Earnings for the six-month periods ended September        
     30, 1995 and 1994 and for the fiscal periods ended March 31, 1995 and 1994 and           
     April 30, 1993....................................................................   F-34
  Balance Sheets as at September 30, 1995 and 1994 and March 31, 1995 and 1994.........   F-35
  Statements of Cash Flows for the six-month periods ended September 30, 1995 and 1994        
     and for the fiscal periods ended March 31, 1995 and 1994 and April 30, 1993.......   F-36
SENANG SPIRIT INC.                                                                            
  Statements of Income and Retained Earnings for the six-month periods ended September        
     30, 1995 and 1994 and for the fiscal periods ended March 31, 1995 and 1994........   F-37
  Balance Sheets as at September 30, 1995 and 1994 and March 31, 1995 and 1994.........   F-38
  Statements of Cash Flows for the six-month periods ended September 30, 1995 and 1994        
     and for the fiscal periods ended March 31, 1995 and 1994..........................   F-39
VSSI APPIAN INC.                                                                              
  Statements of Income and Retained Earnings for the six-month periods ended September        
     30, 1995 and 1994 and for the fiscal periods ended March 31, 1995 and 1994 and           
     April 30, 1993....................................................................   F-40
  Balance Sheets as at September 30, 1995 and 1994 and March 31, 1995 and 1994.........   F-41
  Statements of Cash Flows for the six-month periods ended September 30, 1995 and 1994        
     and for the fiscal periods ended March 31, 1995 and 1994 and April 30, 1993.......   F-42

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                                                        [Enlarge/Download Table]

                                                                                        PAGE  
                                                                                       ------ 
                                                                                              
VSSI ATLANTIC INC.                                                                            
  Statement of Income and Retained Earnings for the six-months ended September 30, 1995       
     and 1994 and for the fiscal periods ended March 31, 1995 and 1994.................   F-43
  Balance Sheets as at September 30, 1995 and 1994 and March 31, 1995 and 1994.........   F-44
  Statements of Cash Flows for the six-month periods ended September 30, 1995 and 1994        
     and for the fiscal periods ended March 31, 1995 and 1994 and April 30, 1993.......   F-45
VSSI OCEANS INC.                                                                              
  Statements of Income and Retained Earnings for the six-month period ended                   
     September 30, 1995................................................................   F-46
  Balance Sheets as at September 30, 1995 and 1994 and March 31, 1995..................   F-47
  Statements of Cash Flows for the six-month periods ended September 30, 1995 and 1994        
     and for the fiscal year ended March 31, 1995......................................   F-48
Notes to the Financial Statements (for ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU          
  SPIRIT INC., SENANG SPIRIT INC., VSSI APPIAN INC., VSSI ATLANTIC INC., AND VSSI             
  OCEANS INC.).........................................................................   F-49

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AUDITORS' REPORT

To the Board of Directors                                                       
TEEKAY SHIPPING CORPORATION                                                     

We have audited the accompanying consolidated balance sheets of Teekay
Shipping Corporation and subsidiaries as of March 31, 1995 and 1994, and the    
related consolidated statements of income and retained earnings and cash flows  
for the year ended March 31, 1995 and the eleven month period ended March 31,   
1994 and the year ended April 30, 1993. These financial statements are the      
responsibility of the Company's management. Our responsibility is to express an 
opinion on these financial statements based on our audits.                      

 We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform 
the audit to obtain reasonable assurance about whether the financial statements 
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An 
audit also includes assessing the accounting principles used and significant    
estimates made by management, as well as evaluating the overall financial       
statement presentation. We believe that our audits provide a reasonable basis   
for our opinion.                                                                

 In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Teekay Shipping Corporation and subsidiaries at March 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the year ended
March 31, 1995 and the eleven month period ended March 31, 1994 and the year    
ended April 30, 1993 in conformity with accounting principles generally accepted
in the United States.                                                           

Nassau, Bahamas,                                                                
May 15, 1995 (except for Note 16,                                  ERNST & YOUNG
which is as of December 15, 1995).                         Chartered Accountants

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REVIEW ENGAGEMENT REPORT

To the Board of Directors                                                       
TEEKAY SHIPPING CORPORATION                                                     

 We have reviewed the accompanying consolidated balance sheets of Teekay
Shipping Corporation and subsidiaries as of September 30, 1995 and 1994, and the
related consolidated statements of income and retained earnings and cash flows  
for the six-month periods ended September 30, 1995 and 1994. These consolidated 
financial statements are the responsibility of the Company's management.        

     We conducted our reviews in accordance with standards generally accepted in
the United States. A review of interim financial information consists           
principally of applying analytical procedures to financial data and making      
inquiries of persons responsible for financial and accounting matters. It is    
substantially less in scope than an audit conducted in accordance with generally
accepted auditing standards, which will be performed for the full year with the 
objective of expressing an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.                          

   Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements referred to
above for them to be in conformity with accounting principles generally accepted
in the United States.                                                           

Nassau, Bahamas                                                    ERNST & YOUNG
December 15, 1995                                          Chartered Accountants

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TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS 

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                           SIX MONTHS ENDED                        ELEVEN MONTHS                
                                             SEPTEMBER 30,           YEAR ENDED     ENDED MARCH     YEAR ENDED  
                                      ---------------------------    MARCH 31,          31,        APRIL 30,    
                                          1995           1994           1995           1994            1993     
                                      ------------   ------------   ------------   -------------   ------------ 
                                                                                                                
                                              (UNAUDITED)                                                       
NET VOYAGE REVENUES                                                                                             
Voyage revenues.....................  $    160,944   $    162,771   $    319,966   $    317,742    $    336,994 
Voyage expenses.....................        43,452         42,515         84,957         81,052         108,805 
                                      ------------   ------------   ------------   -------------   ------------ 
Net voyage revenues.................       117,492        120,256        235,009        236,690         228,189 
                                      ------------   ------------   ------------   -------------   ------------ 
OPERATING EXPENSES                                                                                              
Vessel operating expenses (note                                                                                 
  3)................................        33,496         38,446         72,723         73,597          79,649 
Depreciation and amortization.......        40,956         48,238         96,435         89,902          97,611 
General and administrative (note                                                                                
  3)................................         8,812          8,146         15,018         14,063          14,014 
                                      ------------   ------------   ------------   -------------   ------------ 
                                            83,264         94,830        184,176        177,562         191,274 
                                      ------------   ------------   ------------   -------------   ------------ 
Income from vessel operations.......        34,228         25,426         50,833         59,128          36,915 
                                      ------------   ------------   ------------   -------------   ------------ 
Other items                                                                                                     
Interest expense....................       (31,230)       (31,364)       (64,321)       (48,064 )       (47,374)
Interest income.....................         3,182          2,903          5,904          2,904           1,156 
Other income (notes 3 and 12).......         4,364            979         11,848         11,777          37,862 
                                      ------------   ------------   ------------   -------------   ------------ 
                                           (23,684)       (27,482)       (46,569)       (33,383 )        (8,356)
                                      ------------   ------------   ------------   -------------   ------------ 
Income (loss) before foreign                                                                                    
  currency exchange gain (loss).....        10,544         (2,056)         4,264         25,745          28,559 
Foreign currency exchange gain                                                                                  
  (loss)............................          (513)            39            991         (1,532 )       (77,917)
                                      ------------   ------------   ------------   -------------   ------------ 
Net income (loss) from continuing                                                                               
  operations........................        10,031         (2,017)         5,255         24,213         (49,358)
Net income from discontinued                                                                                    
  operations (note 4)...............                                                      5,945           1,890 
                                      ------------   ------------   ------------   -------------   ------------ 
Net income (loss) before cumulative                                                                             
  effect of accounting change.......        10,031         (2,017)         5,255         30,158         (47,468)
Cumulative effect of change in                                                                                  
  accounting for marketable                                                                                     
  securities (notes 1 and 5)........                                       1,113                                
                                      ------------   ------------   ------------   -------------   ------------ 
Net income (loss)...................        10,031         (2,017)         6,368         30,158         (47,468)
Retained earnings, beginning of                                                                                 
  period............................       406,547        400,179        400,179        370,021         409,989 
Exchange of redeemable preferred                                                                                
  stock (note 10)...................       (60,000)                                                             
Contribution arising on continuity                                                                              
  of interest combination (note                                                                                 
  1)................................                                                                      7,500 
                                      ------------   ------------   ------------   -------------   ------------ 
Retained earnings, end of the                                                                                   
  period............................  $    356,578   $    398,162   $    406,547   $    400,179    $    370,021 
                                        ==========     ==========     ==========   ============      ========== 
Earnings (loss) per share amounts (note 1)                                                                      
  Continuing operations.............  $       0.46   $      (0.11)  $       0.29   $       1.35    $      (2.74)
  Cumulative effect of change in                                                                                
    accounting for marketable                                                                                   
    securities......................                                $       0.06                                
  Net income (loss) per common                                                                                  
    share...........................  $       0.46   $      (0.11)  $       0.35   $       1.68    $      (2.64)
Weighted average number of common                                                                               
  shares outstanding................    21,865,688     18,000,000     18,000,000     18,000,000      18,000,000 

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

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TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)

CONSOLIDATED BALANCE SHEETS 

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                 AS AT SEPTEMBER 30,          AS AT MARCH 31,     
                                              -------------------------  -------------------------
                                                 1995          1994         1995          1994    
                                              -----------   -----------  -----------   -----------
                                                                                                  
                                                     (UNAUDITED)                                  
ASSETS                                                                                            
CURRENT                                                                                           
Cash......................................... $    60,465   $    28,093  $    16,500   $    38,614
Marketable securities (notes 5 and 12).......      48,802        67,986       69,239        68,632
Restricted cash (note 7).....................       3,623         6,828        7,634         6,338
Accounts receivable                                                                               
-- trade.....................................      20,948        16,516       16,875        18,061
-- vessel sales (note 12)....................                                 17,283         4,877
-- other.....................................       2,812         6,534        3,271         5,776
Prepaid expenses and other assets............      13,574        14,196       13,273        10,893
                                               ----------    ----------   ----------    ----------
       Total current assets..................     150,224       140,153      144,075       153,191
                                               ----------    ----------   ----------    ----------
Vessels and equipment (notes 1, 7, 8,                                                             
  14 and 16)                                                                                      
At cost, less accumulated depreciation                                                            
  (September 30, 1995--$343,838;                                                                  
  1994--$311,245;                                                                                 
  March 31, 1995 -- $312,281;                                                                     
  1994--$270,833)............................   1,152,171     1,193,580    1,142,972     1,232,754
Acquired under capital lease, less                                                                
  accumulated amortization of $398...........      49,813                                         
Advances on vessels..........................                     2,481        5,066              
                                               ----------    ----------   ----------    ----------
       Total vessels and equipment...........   1,201,984     1,196,061    1,148,038     1,232,754
                                               ----------    ----------   ----------    ----------
Investment...................................       4,468         8,807        3,758         8,407
Other assets.................................       9,240        11,033       10,603        10,795
                                               ----------    ----------   ----------    ----------
                                              $ 1,365,916   $ 1,356,054  $ 1,306,474   $ 1,405,147
                                               ==========    ==========   ==========    ==========
LIABILITIES AND STOCKHOLDERS' EQUITY                                                              
CURRENT                                                                                           
Accounts payable (note 3).................... $    10,542   $    13,738  $    11,480   $    11,306
Accrued liabilities (note 6).................      12,542        16,356       13,054        15,050
Current portion of long-term debt                                                                 
  (note 7 and 11)............................      58,906        86,474       74,479        89,482
Current portion of capital lease obligation                                                       
  (note 8 and 11)............................       2,709                                         
                                               ----------    ----------   ----------    ----------
       Total current liabilities.............      84,699       116,568       99,013       115,838
                                               ----------    ----------   ----------    ----------
Long-term debt (note 7 and 11)...............     652,969       808,323      768,395       856,129
Capital lease obligation (note 8 and 11).....      41,200                                         
                                               ----------    ----------   ----------    ----------
       Total liabilities.....................     778,868       924,891      867,408       971,967
                                               ----------    ----------   ----------    ----------
STOCKHOLDERS' EQUITY                                                                              
Capital stock (note 10)......................     230,613        33,001       33,001        33,001
Retained earnings............................     356,578       398,162      406,547       400,179
Less net unrealized loss on marketable                                                            
  securities (notes 1 and 5).................         143                        482              
                                               ----------    ----------   ----------    ----------
       Total stockholders' equity............     587,048       431,163      439,066       433,180
                                               ----------    ----------   ----------    ----------
                                              $ 1,365,916   $ 1,356,054  $ 1,306,474   $ 1,405,147
                                               ==========    ==========   ==========    ==========

Commitments and contingencies (note 11)                                         

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

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TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)

CONSOLIDATED STATEMENTS OF CASH FLOWS 

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                  SIX MONTHS ENDED                    ELEVEN MONTHS             
                                                    SEPTEMBER 30,        YEAR ENDED       ENDED      YEAR ENDED 
                                               -----------------------   MARCH 31,      MARCH 31,    APRIL 30,  
                                                  1995         1994         1995          1994          1993    
                                               ----------   ----------   ----------   -------------  ---------- 
                                                                                                                
                                                     (UNAUDITED)                                                
Cash provided by (used for)                                                                                     
OPERATING ACTIVITIES                                                                                            
Net income (loss) from continuing                                                                               
  operations.................................  $   10,031   $   (2,017)  $    5,255    $    24,213   $  (49,358)
Add (deduct) charges to operations not                                                                          
  requiring a payment of cash:                                                                                  
  Depreciation and amortization..............      40,956       48,238       96,435         89,902       97,611 
  Foreign currency exchange loss (gain)......         (84)        (305)      (1,050)         2,583       76,728 
  Gain on disposition of assets..............      (3,728)      (3,698)     (18,245)       (12,347)     (37,213)
  Loss on marketable securities..............                    2,719                       1,553              
  Loss on available-for-sale securities......         110                     4,303                             
  Equity loss (income) (net of dividend                                                                         
    received: March 31, 1994--$500)..........        (704)                    2,089           (483)        (441)
  Minority interest..........................                                   (19)                       (208)
  Other......................................         709                                                       
  Change in non-cash working capital items                                                                      
    related to continuing operations (note                                                                      
    13)......................................      (5,402)       6,301       (1,263)        11,966       (3,085)
                                               ----------   ----------   ----------   -------------  ---------- 
Net cash flow from continuing operations.....      41,888       51,238       87,505        117,387       84,034 
Net cash flow from discontinued operations...                                                  347        4,492 
                                               ----------   ----------   ----------   -------------  ---------- 
Net cash flow from operating activities......      41,888       51,238       87,505        117,734       88,526 
                                               ----------   ----------   ----------   -------------  ---------- 
FINANCING ACTIVITIES                                                                                            
Proceeds from long-term debt.................     223,000                                  220,000      147,782 
Scheduled repayments of long-term debt.......     (34,880)     (44,147)     (87,570)       (37,067)     (20,750)
Prepayments of long-term debt................    (317,901)      (6,533)     (15,033)      (132,416)     (92,100)
Scheduled payments on capital lease                                                                             
  obligations................................        (640)                                 (18,472)     (13,139)
Prepayments of capital lease obligations.....                                             (110,839)     (39,827)
Decrease (increase) in restricted cash.......       4,011         (490)      (1,296)         8,143       (1,653)
Net proceeds from stock issuance.............     137,613                                                       
Net capital contribution.....................                                                             7,500 
Payment received on direct financing                                                                            
  leases.....................................                                                             2,241 
Capitalized loan costs.......................        (866)        (942)      (1,565)        (9,955)             
Financing activities associated with                                                                            
  discontinued operations....................                                              (20,077)      (9,894)
                                               ----------   ----------   ----------   -------------  ---------- 
Net cash flow from financing activities......      10,337      (52,112)    (105,464)      (100,683)     (19,840)
                                               ----------   ----------   ----------   -------------  ---------- 
INVESTING ACTIVITIES                                                                                            
Expenditures for vessels and equipment (net                                                                     
  of                                                                                                            
  capital lease financing of: September 30,                                                                     
  1995--$44,550; 1994--$Nil; March 31,                                                                          
  1995--$Nil; 1994--$97,776; April 30, 1993--                                                                   
  $144,696)..................................     (47,527)      (4,273)      (7,465)       (65,733)    (190,037)
Expenditures for drydocking..................      (4,193)      (7,121)     (11,917)       (13,296)     (16,440)
Proceeds from disposition of assets..........      22,794        4,220       16,817         86,351      156,909 
Repayments of advances to investee...........                                 2,650                       1,479 
Increase in marketable securities............                   (2,073)                    (70,185)             
Proceeds on sale of available-for-sale                                                                          
  securities.................................      53,332                   110,806                             
Purchases of available-for-sale securities...     (32,666)                 (115,085)                            
Other........................................                     (400)          39            (50)      (3,563)
Investing activities associated with                                                                            
  discontinued operations....................                                               35,706        5,497 
                                               ----------   ----------   ----------   -------------  ---------- 
Net cash flow from investing activities......      (8,260)      (9,647)      (4,155)       (27,207)     (46,155)
                                               ----------   ----------   ----------   -------------  ---------- 
(Decrease) increase in cash..................      43,965      (10,521)     (22,114)       (10,156)      22,531 
Cash, beginning of the period................      16,500       38,614       38,614         48,770       26,239 
                                               ----------   ----------   ----------   -------------  ---------- 
Cash, end of the period......................  $   60,465   $   28,093   $   16,500    $    38,614   $   48,770 
                                                =========    =========    =========     ==========    ========= 

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

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TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR 
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                  

Basis of presentation                                                 

    On April 30, 1993, Teekay Shipping Corporation ("Teekay") acquired 100% of
the outstanding stock of Palm Shipping Inc. ("Palm"), an affiliated company, for
nominal consideration. This transaction has been presented using the continuity 
of interest method of accounting under which it is assumed the companies have   
been combined from their inception. Accordingly, the consolidated balance sheets
include the assets and liabilities of Teekay and Palm at their carrying values, 
after adjustments to conform the accounting policies of the two companies, and  
the consolidated statements of income and retained earnings and cash flows      
include the results of their operations for all years presented.                

    On March 31, 1995, Teekay acquired 100% of the outstanding stock of Teekay
Shipping Limited ("TSL"), an affiliated company, for cash consideration of $1.27
million representing the net book value of TSL at March 31, 1995. The impact of 
this transaction on the financial position and results of operations of Teekay  
is not considered significant. The assets and liabilities of TSL have been      
combined with those of Teekay effective March 31, 1995. Teekay's results of     
operations include those of TSL subsequent to that date.                        

    In the opinion of management, the unaudited interim consolidated financial
statements contain all adjustments (consisting only of normal recurring         
accruals), necessary to present fairly, in all material respects, the Company's 
consolidated financial position as at September 30, 1995 and 1994 and the       
related consolidated results of operations and cash flows for the six-month     
periods ended September 30, 1995 and 1994. The results of operations for the    
six-month period ended September 30, 1995 are not necessarily indicative of     
those for a full fiscal year.                                                   

Reporting currency                                                    

  The consolidated financial statements are stated in U.S. dollars because
the Company operates in international shipping markets which utilize the U.S.   
dollar as the functional currency.                                              

Consolidation                                                         

The consolidated financial statements are prepared in accordance with 
accounting principles generally accepted in the United States. They include the 
accounts of Teekay Shipping Corporation (which is incorporated under the laws of
Liberia) and its wholly owned or controlled subsidiaries (the "Company").       
Significant intercompany items and transactions have been eliminated upon       
consolidation.                                                                  

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TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)

(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR 
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

Change in fiscal year end                                             

The Company changed its fiscal year end from April 30 to March 31,    
effective March 31, 1994. The following is a summary of selected financial      
information for the comparative twelve month periods ended March 31, 1995 and   
1994, and the comparative eleven-month periods ended March 31, 1994 and 1993,   
respectively:                                                                   

                                                        [Enlarge/Download Table]

                                                                    TWELVE MONTHS ENDED    
                                                                         MARCH 31,         
                                                                ---------------------------
                                                                  1995             1994    
                                                                ---------       -----------
                                                                                           
                                                                                (UNAUDITED)
RESULTS OF OPERATIONS                                                                      
Voyage revenues................................................ $ 319,966        $ 344,960 
Voyage expenses................................................    84,957           88,974 
Vessel operating expenses......................................    72,723           80,738 
Depreciation and amortization..................................    96,435           97,300 
General and administrative expenses............................    15,018           15,208 
Income from vessel operations..................................    50,833           62,740 
Interest expense...............................................   (64,321)         (52,709)
Interest income................................................     5,904            3,046 
Other income...................................................    11,848           12,857 
Income before foreign currency exchange gain (loss)............     4,264           25,934 
Foreign currency exchange gain (loss)..........................       991              (43)
Net income from continuing operations..........................     5,255           25,891 
Net income from discontinued operations........................                      6,103 
Cumulative effect of change in accounting for marketable                                   
  securities...................................................     1,113                  
Net income.....................................................     6,368           31,994 
CASH FLOWS                                                                                 
Net cash flow from continuing operations.......................    87,505          125,189 
Net cash flow from discontinued operations.....................                        505 
Net cash flow used for financing activities....................  (105,464)        (144,592)
Net cash flow provided by (used for) investing activities......    (4,155)           7,990 

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TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)

(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR 
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

                                                        [Enlarge/Download Table]

                                                                    ELEVEN MONTHS ENDED    
                                                                         MARCH 31,         
                                                                ---------------------------
                                                                  1994             1993    
                                                                ---------       -----------
                                                                                           
                                                                                (UNAUDITED)
RESULTS OF OPERATIONS                                                                      
Net voyage revenues............................................ $ 236,690        $ 205,021 
Income from vessel operations..................................    59,128           33,303 
Income before foreign currency exchange loss...................    25,745           28,370 
Foreign currency exchange loss.................................     1,532           79,406 
Net income (loss) from continuing operations...................    24,213          (51,036)
Net income from discontinued operations........................     5,945            1,732 
Net income (loss)..............................................    30,158          (49,304)
CASH FLOWS                                                                                 
Net cash flow from continuing operations.......................   117,387           76,232 
Net cash flow from discontinued operations.....................       347            4,334 
Net cash flow provided by (used for) financing activities......  (100,683)          24,069 
Net cash flow used for investing activities....................   (27,207)         (81,352)

Investment                                                            

     The Company's 50% interest in Viking Consolidated Shipping Corp. is carried
at the Company's original cost plus its proportionate share of the undistributed
net income.                                                                     

Operating revenues and expenses                                       

     Voyage revenues and expenses are recognized on the percentage of completion
method of accounting. Estimated losses on voyages are provided for in full at   
the time such losses become evident. The consolidated balance sheets reflect the
deferred portion of revenues and expenses applicable to subsequent periods.     

     Vessel expenses comprise all expenses relating to the operation of vessels,
including crewing, repairs and maintenance, insurance, stores and lubes, and    
miscellaneous expenses including communications. Voyage expenses comprise all   
expenses relating to particular voyages, including bunker fuel expenses, port   
fees, canal tolls, and brokerage commissions.                                   

Marketable securities                                                 

   The Company adopted the Statement of Financial Accounting Standards Board
Statement No. 115, "Accounting for Certain Investments in Debt and Equity       
Securities" ("FAS 115") for the year ended March 31, 1995. In applying FAS 115, 
investments in marketable securities have been classified by management as      
available-for-sale securities and are carried at fair value. Net unrealized     
gains or losses on available-for-sale securities are reported as a separate     
component of stockholders' equity. The cumulative effect on opening retained    
earnings from application of this Statement has been reflected separately as an 
adjustment to net income for the year (see Note 5).                             

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TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)

(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR 
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

Vessels and equipment                                                 

   All pre-delivery costs incurred during the construction of new buildings,
including interest costs, and supervision and technical costs are capitalized.  
The acquisition cost and all costs incurred to restore used vessel purchases to 
the standard required to properly service the Company's customers are           
capitalized. Depreciation is calculated on a straight-line basis over a vessel's
useful life, estimated by the Company to be twenty years from the date a vessel 
is initially placed in service.                                                 

Interest costs capitalized to vessels and equipment for the six-month 
periods ended September 30, 1995 and 1994 aggregated $79,000 and $63,000,       
respectively, and for the year ended March 31, 1995, the eleven-month period    
ended March 31, 1994, and the year ended April 30, 1993 aggregated $151,000,    
$1,653,000, and $5,276,000, respectively.                                       

    Expenditures incurred during drydocking are capitalized and amortized on a
straight-line basis over the period until the next anticipated drydocking. When 
significant drydocking expenditures recur prior to the expiry of this period,   
the remaining balance of the original drydocking is expensed in the month of the
subsequent drydocking. Drydocking amortization for the six-month periods ended  
September 30, 1995 and 1994 aggregated $4,180,000 and $4,966,000, respectively, 
and for the year ended March 31, 1995, the eleven month period ended March 31,  
1994, and the year ended April 30, 1993 aggregated $10,281,000, $11,831,000 and 
$16,808,000, respectively.                                                      

Vessels acquired pursuant to bareboat hire purchase agreements are    
capitalized as capital leases and are amortized over the estimated useful life  
of the acquired vessel.                                                         

    Effective April 1, 1995, the Company revised its estimates of the residual
values of its vessels. The effect of this change in estimated residual values   
was to reduce depreciation expense for the six-month period ended September 30, 
1995 by $4.8 million (or $0.22 per common share).                               

Other assets                                                          

     Loan costs, including fees, commissions and legal expenses, are capitalized
and amortized over the term of the relevant loan.                               

Interest rate swap agreements                                         

     The differential to be paid or received is accrued as interest rates change
and is recognized as an adjustment to interest expense.                         

Interest rate cap agreements                                          

 Premiums paid for interest rate cap agreements are recorded at cost and
amortized over the lives of the individual contracts.                           

Forward contracts                                                     

 The Company enters into forward contracts as a hedge against changes in
foreign exchange rates. Market value gains and losses are recognized and the    
resulting credit or debit offsets the effect of increases or decreases in       
foreign exchange gains or losses.                                               

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TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)

(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR 
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

Cash flows                                                            

  Cash interest paid during the six-month periods ended September 30, 1995
and 1994 aggregated $31,895,000 and $32,421,000, respectively, and for the year 
ended March 31, 1995, the eleven-month period ended March 31, 1994, and for the 
year ended April 30, 1993 totalled $65,358,000, $49,456,000, and $50,893,000,   
respectively.                                                                   

   The Company classifies all highly liquid investments with a maturity date
of three months or less when purchased to be included in cash.                  

Income taxes                                                          

The legal jurisdictions of the countries in which the Company and its 
subsidiaries are incorporated do not impose income taxes upon shipping-related  
activities.                                                                     

Earnings (loss) per share                                             

Earnings (loss) per share is based upon the weighted average number of
common shares outstanding during each period, after giving effect to the 1 for 2
reverse stock split (See Note 10 -- Capital Stock). Stock options have not been 
included in the computation of earnings (loss) per share since their effect     
thereon would not be material.                                                  

2.  BUSINESS OPERATIONS                                                         

 The Company is engaged in the ocean transportation of petroleum cargoes
worldwide through the ownership and operation of a fleet of tankers. All of the 
Company's revenues are earned in international markets.                         

3.  CONTRACTUAL RELATIONSHIPS                                                   

  Prior to the acquisition of TSL (see Note 1--Basis of presentation), TSL
and its affiliated companies rendered administrative, operating and ship        
management services to the Company in return for a monthly fee and commissions  
at rates considered usual and customary to the industry. Amounts payable to TSL 
and its affiliated companies related to these services at September 30, 1995 and
1994 amounted to $NIL and $1,825,000, respectively, and at March 31, 1995, March
31, 1994 amounted to $NIL and $1,604,000, respectively.                         

 Fees incurred, included in general and administrative expenses, for the
six-month periods ended September 30, 1995 and 1994 aggregated $NIL and         
$4,386,000, respectively, and for the year ended March 31, 1995, the            
eleven-month period ended March 31, 1994, and the year ended April 30, 1993     
aggregated $7,845,000, $8,074,000 and $9,174,000, respectively. Commissions     
incurred, included in general and administrative expenses, for the six-month    
periods ended September 30, 1995 and 1994 aggregated $NIL and $2,072,000,       
respectively, and the year ended March 31, 1995, the eleven-month period ended  
March 31, 1994, and the year ended April 30, 1993 aggregated $3,981,000,        
$3,956,000 and $4,109,000, respectively. Commissions incurred, related to vessel
dispositions, for the six-month periods ended September 30, 1995 and 1994       
aggregated $NIL and $43,500, respectively, and the year ended March 31, 1995,   
the eleven-month period ended March 31, 1994, and the year ended April 30, 1993 
aggregated $295,000, $579,000 and $NIL, respectively.                           

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TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)

(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR 
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

4.  DISCONTINUED OPERATIONS                                                     

     In October 1992, the Company adopted a plan to divest its 50% investment in
Baltimar Overseas Limited ("Baltimar"), previously accounted for as a controlled
subsidiary, in order to focus its resources on the tanker shipping industry.    
Baltimar operated a fleet of multipurpose dry cargo vessels through eighteen    
single purpose shipping companies. On April 30, 1993, the Company entered into  
an agreement to exchange its entire interest in Baltimar in return for the      
shares of nine of Baltimar's single purpose shipping companies. No gain or loss 
was recognized on this transaction. The vessels were sold in December 1993 for a
total sales price of $37.3 million resulting in a net gain of $5.7 million.     

The amounts shown as discontinued operations in the accompanying      
consolidated statements of income and retained earnings for 1993 represent the  
results of operations prior to the plan of discontinuance.                      

 Revenues from discontinued operations for the eleven-month period ended
March 31, 1994 and for the year ended April 30, 1993 amounted to $8,653,000, and
$27,195,000, respectively.                                                      

5.  INVESTMENTS IN MARKETABLE SECURITIES                                        

                                                        [Enlarge/Download Table]

                                                                                APPROXIMATE
                                                          GROSS       GROSS     MARKET AND 
                                                        UNREALIZED  UNREALIZED   CARRYING  
                                                COST      GAINS       LOSSES      AMOUNT   
                                              --------  ----------  ----------  -----------
                                                                                           
September 30, 1995                                                                         
Available-For-Sale Securities................ $ 48,945    $  127     $    270    $  48,802 
                                              ========  ========     ========   ========== 
September 30, 1994                                                                         
Available-For-Sale Securities................ $ 68,986    $  322     $  1,322    $  67,986 
                                              ========  ========     ========   ========== 
March 31, 1995                                                                             
Available-For-Sale Securities................ $ 69,721    $  450     $    932    $  69,239 
                                              ========  ========     ========   ========== 
March 31, 1994                                                                             
Available-For-Sale Securities................ $ 69,745    $   20     $  1,133    $  68,632 
                                              ========  ========     ========   ========== 

     The cost and approximate market value of available-for-sale debt securities
by contractual maturity, as at September 30, 1995 and March 31, 1995 are shown  
as follows:                                                                     

                                                        [Enlarge/Download Table]

                                                SEPTEMBER 30, 1995          MARCH 31, 1995     
                                             ------------------------  ------------------------
                                                          APPROXIMATE               APPROXIMATE
                                                          MARKET AND                MARKET AND 
                                                           CARRYING                  CARRYING  
                                               COST         AMOUNT       COST         AMOUNT   
                                             --------     -----------  --------     -----------
                                                                                               
Less than one year.......................... $ 34,167      $  34,052   $ 44,767      $  44,424 
Due after one year through five years.......   12,820         12,792     24,954         24,815 
Due after 5 years...........................    1,958          1,958                           
                                             --------     -----------  --------     -----------
                                             $ 48,945      $  48,802   $ 69,721      $  69,239 
                                             ========     ==========   ========     ========== 

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TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)

(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR 
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

The unrealized loss on marketable securities included as a separate   
component of stockholders' equity decreased by $339,000 for the six-month period
ended September 30, 1995, and increased by $482,000 for the year ended March 31,
1995.                                                                           

6.  ACCRUED LIABILITIES                                                         

                                                        [Enlarge/Download Table]

                                                      SEPTEMBER 30,            MARCH 31,      
                                                  ---------------------  ---------------------
                                                    1995         1994      1995         1994  
                                                  --------     --------  --------     --------
                                                                                              
Voyage and vessel................................ $  5,814     $ 10,091  $  5,776     $  7,683
Interest.........................................    4,841        5,321     5,415        6,332
Payroll and benefits.............................    1,887          944     1,863        1,016
Other............................................                                           19
                                                  --------     --------  --------     --------
                                                  $ 12,542     $ 16,356  $ 13,054     $ 15,050
                                                  ========     ========  ========     ========

7.  LONG-TERM DEBT                                                              

                                                        [Enlarge/Download Table]

                                                   SEPTEMBER 30,              MARCH 31,       
                                              -----------------------  -----------------------
                                                1995          1994       1995          1994   
                                              ---------     ---------  ---------     ---------
                                                                                              
Revolving Credit Facility.................... $  88,000                                       
First Preferred Ship Mortgage Notes (9 5/8%)                                                  
  U.S. dollar debt due through 2004..........   151,200     $ 175,000  $ 175,000     $ 175,000
Floating rate (LIBOR + 1% to 1 3/4%)                                                          
  U.S. dollar debt due through 2006..........   472,675       719,797    667,874       735,499
Floating rate (Japanese long-term prime +                                                     
  0.7% to 1.2%)                                                                               
  Japanese Yen debt due through 2002.........                                           35,112
                                              ---------     ---------  ---------     ---------
                                                711,875       894,797    842,874       945,611
Less current portion.........................    58,906        86,474     74,479        89,482
                                              ---------     ---------  ---------     ---------
                                              $ 652,969     $ 808,323  $ 768,395     $ 856,129
                                              =========     =========  =========     =========

  In July 1994, the Company converted its remaining Japanese Yen long-term
debt of Yen 3.45 billion to U.S. denominated long-term debt of $33.5 million.   

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TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)

(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR 
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

     The 9 5/8% First Preferred Ship Mortgage Notes due July 15, 2003 (the "1993
Notes") are collateralized by first preferred mortgages on six of the Company's 
Aframax tankers, together with certain other related collateral, and are        
guaranteed by the subsidiaries of Teekay that own the six mortgaged vessels. The
1993 Notes are also subject to a sinking fund, which will retire $25,000,000    
principal amount of the 1993 Notes, on each July 15, commencing July 15, 1997.  
The 1993 Notes are redeemable at the option of the Company, in whole or in part,
on or after July 15, 1998 at the following redemption prices expressed as a     
percentage of principal.                                                        

                                                                [Download Table]

                      JULY 15                          REDEMPTION PRICE
----------------------------------------------------   ----------------
                                                                       
1998................................................       104.813%    
1999................................................       102.406%    
2000................................................       100.000%    

     In addition, the Company may, at any time prior to July 15, 1996, redeem up
to $61.25 million of the 1993 Notes at 109.625% of their principal amount from  
the proceeds of a public equity offering.                                       

     Upon a Change of Control each Note holder has the right, unless the Company
elects to redeem the 1993 Notes, to require the Company to purchase the Notes at
101% of their principal amount plus accrued interest.                           

In May 1995, the Company negotiated a revolving credit facility (the  
"Revolver") with three commercial banks providing for borrowings of up to $243  
million in order to refinance certain of the existing debt obligations of the   
Company and to finance vessel acquisitions. The Revolver is collateralized      
initially by first priority mortgages granted on fourteen of the Company's      
Aframax tankers, together with certain other related collateral, and a guarantee
from the Company for all amounts outstanding under the Revolver. The commitment 
amount will be reduced by $9.5 million semi-annually commencing six months after
the initial drawdown date, together with a final balloon payment coincident with
the final semi-annual reduction. Interest payments are based on LIBOR plus a    
margin ranging from 0.80% to 1.25% which is dependent on the financial leverage 
of the Company. Principal repayments under the Revolver are required when the   
Revolver borrowings exceed the commitment amount, which was $223 million as of  
September 30, 1995.                                                             

   In June, 1995, the Company made an initial drawdown under the Revolver in
the amount of $223 million and simultaneously prepaid approximately $204 million
in other floating rate debt.                                                    

    In July, 1995, using part of the proceeds from the initial public offering
(see Note 10), the Company reduced the amount outstanding under the Revolver by 
$135 million.                                                                   

    During the first quarter of fiscal 1996, the Company retired $23.8 million
of the 1993 Notes, utilizing approximately $18.5 million of funds available     
under the Revolver.                                                             

All other floating rate loans are collateralized by first preferred   
mortgages on the vessels to which the loans relate, together with certain other 
collateral, and guarantees from the parent Company. In certain instances the    
shares of the ship-owning subsidiary have been pledged as collateral or second  
and third preferred mortgages have been recorded against specific vessels.      

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TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)

(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR 
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

    Amongst other matters, the long-term debt agreements generally provide for
such items as maintenance of various hull and fleet value to loan ratios,       
prepayment privileges (in some cases with penalties), restrictions on the       
payment of dividends and advances to shareholders by the individual subsidiaries
(at September 30, 1995, approximately $65,000 of subsidiary retained earnings   
may not be distributed to Teekay without prior lender consent), and restrictions
against the incurrence of additional debt and new investments by the individual 
subsidiaries without prior lender consent. Certain bank loans require retention 
deposits. Retention deposits as at September 30, 1995 were $2,717,000,          
(September 30, 1994--$3,838,000, March 31, 1995--$4,443,000, March 31,          
1994--$3,098,000).                                                              

     As at September 30, 1995, the Company was committed to a series of interest
rate swap agreements whereby $175 million of the Company's floating rate debt   
was swapped with fixed rate obligations having an average remaining term of 4.5 
months. The swap agreements expire between October 1995 and April 1996. These   
arrangements effectively change the Company's interest rate exposure on $175    
million of debt from a floating LIBOR rate to an average fixed rate of 5.68%.   
Payments and receipts under the swap agreements are being reflected as          
adjustments to interest expense since the agreements are designated as hedges in
connection with long-term debt obligations. The Company is exposed to credit    
loss in the event of non-performance by the counter parties to the interest rate
swap agreements; however, the Company does not anticipate non-performance by any
of the counter parties.                                                         

As at September 30, 1995, the Company was a party to interest rate cap
contracts which effectively limit the interest rate exposure on $200 million of 
the Company's floating rate debt to a maximum of 8%. $100 million of the        
contracts became effective on February 24, 1995; the remaining $100 million of  
contracts became effective in October 1995. All of the contracts expire on April
1, 1997. The premiums paid by the Company have been recorded at cost and are    
being amortized over the lives of the individual contracts. Receipts, if any,   
under the interest rate cap contracts will be reflected as adjustments to       
interest expense since the agreements are designated as hedges in connection    
with long-term debt obligations.                                                

 Scheduled long-term principal debt repayments reflect the new revolving
credit facility repayment provisions.                                           

     Long-term debt principal repayments required to be made in the fiscal years
subsequent to September 30, 1995 are as follows:                                

                                                                [Download Table]
                                                                     
1996 (six months from October 1, 1995 to March 31,                   
  1996).................................................    $  29,268
1997....................................................       59,276
1998....................................................       60,476
1999....................................................       84,276
2000....................................................       84,276
Thereafter..............................................      394,303
                                                            ---------
                                                            $ 711,875
                                                            =========

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TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)

(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR 
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

8.  LEASES                                                                      

Charters-in                                                           

   On August 7, 1995, the Company took delivery of a bareboat hire purchased
vessel which is accounted for as a capital lease.                               

                                                                [Download Table]

                                                     SEPTEMBER 30, 1995
                                                     ------------------
                                                                       
Floating rate (LIBOR + 1.25%)                                          
  U.S. dollar capital lease due through 2008......        $ 43,909     
Less current portion of capital lease                                  
  obligation......................................           2,709     
                                                          --------     
                                                          $ 41,200     
                                                          ========     

  The Company's commitment with respect to the capital lease in the fiscal
years subsequent to September 30, 1995 is as follows:                           

                                                                [Download Table]
                                                                      
1996 (six months from October 1, 1995 to March 31,                    
  1996).................................................    $   2,528 
1997....................................................        5,056 
1998....................................................        5,056 
1999....................................................        5,056 
2000....................................................        5,056 
Thereafter..............................................       37,082 
                                                            --------- 
Minimum lease payments..................................       59,834 
Less amount representing interest.......................      (15,925)
                                                            --------- 
Net minimum lease payments..............................    $  43,909 
                                                            ========= 

     The Company holds a purchase option on this vessel which is exercisable, at
the Company's discretion, on any monthly lease payment date at a price equal to 
the unpaid principal balance of the capital lease obligation outstanding as at  
the date the purchase option is exercised.                                      

Charters-out                                                          

   Time charters to third parties of the Company's vessels are accounted for
as operating leases. The minimum future revenues to be received on time charters
currently in place are as follows:                                              

                                                                [Download Table]
                                                                     
1996 (six months from October 1, 1995 to March 31,                   
  1996)..................................................    $ 14,135
1997.....................................................      12,367
1998.....................................................         855
                                                             --------
                                                             $ 27,357
                                                             ========

The minimum future revenues should not be construed to reflect total  
charter hire revenues for any of the years.                                     

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TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)

(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR 
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

9.  FAIR VALUE OF FINANCIAL INSTRUMENTS                                         

    The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:                                         

Cash, restricted cash, and marketable securities--The carrying amounts
approximate fair value.                                                         

     Long-term debt--The carrying amounts of floating rate debt approximate fair
value.                                                                          

   The fair values of the Company's other long-term debt are based on either
quoted market prices or estimated using discounted cash flow analyses, based on 
rates currently available for debt with similar terms and remaining maturities. 

    Interest rate swap agreements--The fair value of interest rate swaps, used
for hedging purposes, is the estimated amount that the Company would receive or 
pay to terminate the swap agreements at the reporting date, taking into account 
current interest rates and the current credit worthiness of the swap counter    
parties.                                                                        

     The fair value of interest rate cap agreements is the estimated amount that
the Company would receive from selling the contracts as at the reporting date.  

   The fair value of foreign currency contracts used for hedging purposes is
the estimated amount that the Company would receive or pay to terminate the     
contract at the reporting date, taking into account current currency exchange   
rates.                                                                          

The estimated fair value of the Company's financial instruments is as 
follows:                                                                        

                                                        [Enlarge/Download Table]

                                               SEPTEMBER 30, 1995           MARCH 31, 1995            MARCH 31, 1994     
                                            ------------------------   ------------------------  ------------------------
                                            CARRYING                   CARRYING                  CARRYING                
                                             AMOUNT       FAIR VALUE    AMOUNT       FAIR VALUE   AMOUNT       FAIR VALUE
                                            ---------     ----------   ---------     ----------  ---------     ----------
                                                                                                                         
Cash, restricted cash, and marketable                                                                                    
  securities..............................  $ 112,890     $ 112,890    $  93,373     $  93,373   $ 113,584     $ 113,584 
Long-term debt............................    711,875       714,143      842,874       834,562     945,611       942,111 
Interest rate swap agreements--net                                                                                       
  receivable position.....................                       90                      3,047                     1,679 
Foreign currency contracts--net receivable                                                                               
  (payable) position......................          2          (287 )         78           144       3,270         3,270 
Interest rate cap agreements..............        856            59          975           820                           

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TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)

(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR 
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

10. CAPITAL STOCK                                                               

Authorized                                                                      
25,000,000  Preferred Stock with a par value of $1 per share                  
125,000,000  Common Stock with no par value                                     

                                                        [Enlarge/Download Table]

                                                  COMMON    THOUSANDS  PREFERRED  THOUSANDS
                                                   STOCK    OF SHARES    STOCK    OF SHARES
                                                 ---------  ---------  ---------  ---------
                                                                                           
Issued and outstanding                                                                     
Balance April 30, 1992 and 1993................  $  33,000    18,000     $   1        600  
February 22, 1994 2-for-1 Common Stock Split...               18,000                       
                                                  --------  --------    ------     ------  
Balance March 31, 1994 and 1995................  $  33,000    36,000     $   1        600  
May 15, 1995 1-for-2 Reverse Common Stock                                                  
  Split........................................             (18,000)                       
July 19, 1995 Initial Public Offering 6,900,000                                            
  shares at $21.50 per share of Common Stock                                               
  (net of share issue costs)...................    137,613     6,900                       
July 19, 1995 Exchange of Redeemable Preferred                                             
  Stock for 2,790,698 shares of Common Stock...     60,000     2,791       (1)      (600)  
                                                  --------  --------    ------     ------  
Balance September 30, 1995.....................  $ 230,613    27,691     $   0          0  
                                                  ========  ========    ======     ======  

On July 19, 1995, the Company completed its initial public offering of
6,900,000 shares of its Common Stock. The Company's Common Stock was initially  
offered at a price of $21.50 per share, resulting in aggregate net proceeds to  
the Company of approximately $137.6 million. $135 million of the net proceeds   
from the offering was used to reduce the amounts outstanding under the Company's
revolving credit facility. In conjunction with the completion of the initial    
public offering, the Company exchanged all of its outstanding Redeemable        
Preferred Stock for 2,790,698 shares of Common Stock.                           

     The Company has reserved 2,148,571 shares of Common Stock for issuance upon
exercise of options granted pursuant to the Company's 1995 Stock Option Plan, of
which options to purchase up to 796,750 shares of Common Stock, at an exercise  
price of $21.50 per share, were granted concurrent with the consummation of the 
offering.                                                                       

11. COMMITMENTS AND CONTINGENCIES                                               

As at September 30, 1995, the Company was committed to $175 million of
interest rate swap agreements and $200 million of interest rate cap contracts   
(see Note 7).                                                                   

 As at September 30, 1995, the Company was committed to foreign exchange
contracts for the forward purchase of approximately Japanese Yen 1 billion and  
Singapore dollars 472,000 for U.S. dollars, at an average rate of Japanese Yen  
per 95.18 U.S. dollar and Singapore dollar 1.40 per U.S. dollar, respectively.  
Of these, contracts for Japanese Yen 850 million are attributable to a hedge in 
connection with the Company's 50% portion of a Japanese Yen-denominated         
long-term debt obligation held in Viking Consolidated Shipping Corp., a joint   
venture in which the Company has a 50% interest. Foreign exchange gains and     
losses, if any, arising from these contracts are reflected as adjustments to the
Company's equity in the results of Viking Consolidated Shipping Corp. The       
remaining foreign exchange contracts are for the purpose of hedging accounts    
payable and accrued liabilities.                                                

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TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)

(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR 
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

 The Company has guaranteed vessel loans of Viking Consolidated Shipping
Corp. At September 30, 1995, the guaranteed portions of these loans amounted to 
$17.8 million.                                                                  

  A lawsuit has been commenced against the representative of the estate of
the Company's founder, the late Mr. Torben Karlshoej, by Mr. Karlshoej's first  
wife, claiming an interest in certain assets, including the Company, at one time
directly or indirectly held by Mr. Karlshoej. The Company, based upon advice of 
its legal counsel, believes that the suit is without merit and does not         
anticipate that the outcome of the lawsuit will have a material adverse effect  
upon it or its assets.                                                          

12. OTHER INCOME                                                                

                                                        [Enlarge/Download Table]

                                SIX MONTHS ENDED                  ELEVEN MONTHS            
                                  SEPTEMBER 30,       YEAR ENDED      ENDED      YEAR ENDED
                              ---------------------   MARCH 31,     MARCH 31,    APRIL 30, 
                                1995         1994        1995         1994          1993   
                              --------     --------   ----------  -------------  ----------
                                                                                           
Gain on disposition of                                                                     
  assets..................... $  3,728     $  3,698    $ 18,245     $  12,347     $ 37,213 
Loss on marketable                                                                         
  securities.................                (2,719)                   (1,553)             
Loss on available-for-sale                                                                 
  securities.................     (110)                  (4,303)                           
Minority interest............                                19                        208 
Equity in results of 50%                                                                   
  owned company..............      704                   (2,089)          983          441 
Miscellaneous--net...........       42                      (24)                           
                              --------     --------    --------      --------     -------- 
                              $  4,364     $    979    $ 11,848     $  11,777     $ 37,862 
                              ========     ========    ========      ========     ======== 

13. CHANGE IN NON-CASH WORKING CAPITAL ITEMS RELATED TO CONTINUING OPERATIONS   

                                                        [Enlarge/Download Table]

                                SIX MONTHS ENDED                  ELEVEN MONTHS            
                                  SEPTEMBER 30,       YEAR ENDED      ENDED      YEAR ENDED
                              ---------------------   MARCH 31,     MARCH 31,    APRIL 30, 
                                1995         1994        1995         1994          1993   
                              --------     --------   ----------  -------------  ----------
                                                                                           
Accounts receivable.......... $ (3,614)    $  5,835    $  3,585     $   4,492     $    316 
Prepaid expenses and other                                                                 
  assets.....................     (338)      (3,303)     (1,597)        6,054         (778)
Accounts payable.............     (938)       2,432        (310)           22        1,427 
Accrued liabilities..........     (512)       1,337      (2,941)        1,398       (4,050)
                              --------     --------    --------      --------     -------- 
                              $ (5,402)    $  6,301    $ (1,263)    $  11,966     $ (3,085)
                              ========     ========    ========      ========     ======== 

14. THE 1993 NOTES GUARANTOR SUBSIDIARIES                                       

Six of the Company's subsidiaries, Diamond Spirit Inc., Sebarok Spirit
Inc., VSSI Bulkers Inc., VSSI Deepsea Inc., VSSI Star Inc., and VSSI Ulsan Inc. 
(the "1993 Notes Guarantor Subsidiaries") have guaranteed the 9 5/8% First      
Preferred Ship Mortgage Notes due July 2003 issued by Teekay Shipping           
Corporation to a maximum of 95% of the fair value of their net assets. As of    
September 30, 1995 the fair value of the net assets of the 1993 Notes Guarantor 
Subsidiaries approximated $201 million.                                         

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TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES
(FORMERLY VIKING STAR SHIPPING INC.)

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONT'D)

(INFORMATION AS AT SEPTEMBER 30,1995 AND 1994 AND FOR 
THE SIX-MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994 IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

Condensed financial information regarding the Company, the 1993 Notes 
Guarantor Subsidiaries and non-1993 Notes guarantor subsidiaries of the Company 
is set out on Schedule A of these financial statements.                         

15. COMPARATIVE FIGURES                                                         

   Certain of the comparative figures have been reclassified to conform with
the presentation adopted in the current period.                                 

16. SUBSEQUENT EVENTS                                                           

Subsequent to September 30, 1995, the Company sold a vessel for $6.0  
million resulting in a net gain of approximately $5.4 million.                  

  Subsequent to September 30, 1995, the Company entered into an additional
$250 million in interest rate swap agreements with three commercial banks. These
swap agreements have an average life of 3 years, expiring between October 1998  
and December 1998, and effectively change the Company's interest rate exposure  
on $250 million of debt from a floating LIBOR rate to an average fixed rate of  
5.85%.                                                                          

     Subsequent to September 30, 1995, the Company acquired a 1987-built Aframax
tanker, whereby the Company will time-charter the vessel for a period of one    
year and then purchase the vessel for $26.5 million.                            

In December 1995, the Company commenced a preliminary offering of $225
million First Preferred Ship Mortgage Notes due 2008.                           

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                  TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES        SCHEDULE A
(FORMERLY VIKING STAR SHIPPING INC.)

CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                                    SIX MONTHS ENDED SEPTEMBER 30, 1995                     
                                                --------------------------------------------------------------------------- 
                                                 TEEKAY       1993 NOTES         NON-                            TEEKAY     
                                                SHIPPING      GUARANTOR       GUARANTOR                      SHIPPING CORP. 
                                                  CORP.      SUBSIDIARIES    SUBSIDIARIES    ELIMINATIONS    & SUBSIDIARIES 
                                                ---------    ------------    ------------    ------------    -------------- 
                                                                                                                            
Net voyage revenues............................ $              $  14,592       $ 223,457       $(120,557)       $ 117,492   
Operating expenses.............................       697         10,435         193,773        (121,641)          83,264   
                                                ---------      ---------       ---------       ---------        ---------   
 Income (loss) from vessel operations..........      (697)         4,157          29,684           1,084           34,228   
Net interest income (expense)..................    (7,314)           (60)        (20,674)                         (28,048)  
Equity in net loss (gain) income of                                                                                         
 subsidiaries..................................    16,879                                        (16,175)             704   
Other income...................................     1,163            147           2,350                            3,660   
                                                ---------      ---------       ---------       ---------        ---------   
Income (loss) before foreign currency exchange                                                                              
 loss (gain)...................................    10,031          4,244          11,360         (15,091)          10,544   
Foreign currency exchange loss (gain)..........                                      513                              513   
                                                ---------      ---------       ---------       ---------        ---------   
Net income (loss)..............................    10,031          4,244          10,847         (15,091)          10,031   
Retained earnings, beginning of the period.....   406,547         22,309          84,274        (106,583)         406,547   
                                                ---------      ---------       ---------       ---------        ---------   
                                                  416,578         26,553          95,121        (121,674)         416,578   
Exchange of redeemable preferred stock.........   (60,000)                                                        (60,000)  
Dividends paid.................................                   (7,200)        (35,200)         42,400                    
                                                ---------      ---------       ---------       ---------        ---------   
Retained earnings, end of the period........... $ 356,578      $  19,353       $  59,921       $ (79,274)       $ 356,578   
                                                =========      =========       =========       =========        =========   


                                                                     SIX MONTHS ENDED SEPTEMBER 30, 1994                    
                                                 ---------------------------------------------------------------------------
                                                  TEEKAY       1993 NOTES         NON-                            TEEKAY    
                                                 SHIPPING      GUARANTOR       GUARANTOR                      SHIPPING CORP.
                                                   CORP.      SUBSIDIARIES    SUBSIDIARIES    ELIMINATIONS    & SUBSIDIARIES
                                                 ---------    ------------    ------------    ------------    --------------
                                                                                                                            
Net voyage revenues............................  $              $  16,223       $ 225,819       $(121,786)       $ 120,256  
Operating expenses.............................        801         12,442         203,494        (121,907)          94,830  
                                                 ---------      ---------       ---------       ---------        ---------  
 Income (loss) from vessel operations..........       (801)         3,781          22,325             121           25,426  
Net interest income (expense)..................     (8,659)           285         (20,087)                         (28,461) 
Equity in net loss (gain) income of                                                                                         
 subsidiaries..................................      7,443                                         (7,443)                  
Other income...................................                                       979                              979  
                                                 ---------      ---------       ---------       ---------        ---------  
Income (loss) before foreign currency exchange                                                                              
 loss (gain)...................................     (2,017)         4,066           3,217          (7,322)          (2,056) 
Foreign currency exchange loss (gain)..........                                       (39)                             (39) 
                                                 ---------      ---------       ---------       ---------        ---------  
Net income (loss)..............................     (2,017)         4,066           3,256          (7,322)          (2,017) 
Retained earnings, beginning of the period.....    400,179         46,735          80,946        (127,681)         400,179  
                                                 ---------      ---------       ---------       ---------        ---------  
                                                   398,162         50,801          84,202        (135,003)         398,162  
Exchange of redeemable preferred stock.........                                                                             
Dividends paid.................................                                                                             
                                                 ---------      ---------       ---------       ---------        ---------  
Retained earnings, end of the period...........  $ 398,162      $  50,801       $  84,202       $(135,003)       $ 398,162  
                                                 =========      =========       =========       =========        =========  

                                                        [Enlarge/Download Table]

                                                                           YEAR ENDED MARCH 31, 1995                         
                                                  ---------------------------------------------------------------------------
                                                   TEEKAY       1993 NOTES         NON-                            TEEKAY    
                                                  SHIPPING      GUARANTOR       GUARANTOR                      SHIPPING CORP.
                                                    CORP.      SUBSIDIARIES    SUBSIDIARIES    ELIMINATIONS    & SUBSIDIARIES
                                                  ---------    ------------    ------------    ------------    --------------
                                                                                                                             
Net voyage revenues.............................. $              $  32,687       $ 448,437       $(246,115)       $ 235,009  
Operating expenses...............................     1,999         24,410         403,975        (246,208)         184,176  
                                                  ---------      ---------       ---------       ---------        ---------  
 Income (loss) from vessel operations............    (1,999)         8,277          44,462              93           50,833  
Net interest income (expense)....................   (16,963)           491         (41,945)                         (58,417) 
Equity in net income (loss) of subsidiaries......    24,161                                        (26,250)          (2,089) 
Other income.....................................        56              1          13,880                           13,937  
                                                  ---------      ---------       ---------       ---------        ---------  
Income before foreign currency exchange gain.....     5,255          8,769          16,397         (26,157)           4,264  
Foreign currency exchange gain...................                                     (991)                            (991) 
                                                  ---------      ---------       ---------       ---------        ---------  
Net income from continuing operations............     5,255          8,769          17,388         (26,157)           5,255  
Cumulative effect of change in accounting for                                                                                
 marketable securities...........................     1,113                                                           1,113  
                                                  ---------      ---------       ---------       ---------        ---------  
Net income.......................................     6,368          8,769          17,388         (26,157)           6,368  
Retained earnings, beginning of the period.......   400,179         46,735          80,946        (127,681)         400,179  
                                                  ---------      ---------       ---------       ---------        ---------  
                                                    406,547         55,504          98,334        (153,838)         406,547  
Dividends paid...................................                  (25,266)        (21,989)         47,255                   
                                                  ---------      ---------       ---------       ---------        ---------  
Retained earnings, end of the period............. $ 406,547      $  30,238       $  76,345       $(106,583)       $ 406,547  
                                                  =========      =========       =========       =========        =========  

------------                                                                    

NOTE: THE 1993 NOTES GUARANTOR SUBSIDIARIES HAVE GUARANTEED THE 9 5/8% FIRST    
PREFERRED SHIP MORTGAGE NOTES DUE JULY 2003.                        
(SEE NOTE 14)                                                       

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                  TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES        SCHEDULE A
(FORMERLY VIKING STAR SHIPPING INC.)

CONDENSED STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                                    ELEVEN MONTHS ENDED MARCH 31, 1994                      
                                                --------------------------------------------------------------------------- 
                                                 TEEKAY       1993 NOTES         NON-                            TEEKAY     
                                                SHIPPING      GUARANTOR       GUARANTOR                      SHIPPING CORP. 
                                                  CORP.      SUBSIDIARIES    SUBSIDIARIES    ELIMINATIONS    & SUBSIDIARIES 
                                                ---------    ------------    ------------    ------------    -------------- 
                                                                                                                            
Net voyage revenues............................ $              $  30,932       $ 447,155       $(241,397)       $ 236,690   
Operating expenses.............................       921         22,666         395,484        (241,509)         177,562   
                                                ---------      ---------       ---------       ---------        ---------   
 Income (loss) from vessel operations..........      (921)         8,266          51,671             112           59,128   
Net interest income (expense)..................   (11,794)          (545)        (32,821)                         (45,160)  
Equity in net income (loss) of subsidiaries....    42,873                                        (41,890)             983   
Other income...................................                                   10,794                           10,794   
                                                ---------      ---------       ---------       ---------        ---------   
Income (loss) before foreign currency exchange                                                                              
 loss..........................................    30,158          7,721          29,644         (41,778)          25,745   
Foreign currency exchange loss.................                                    1,532                            1,532   
                                                ---------      ---------       ---------       ---------        ---------   
Net income (loss) from continuing operations...    30,158          7,721          28,112         (41,778)          24,213   
Net income from discontinued operations........                                    5,945                            5,945   
                                                ---------      ---------       ---------       ---------        ---------   
Net income (loss)..............................    30,158          7,721          34,057         (41,778)          30,158   
Retained earnings, beginning of the period.....   370,021         39,014          70,673        (109,687)         370,021   
                                                ---------      ---------       ---------       ---------        ---------   
                                                  400,179         46,735         104,730        (151,465)         400,179   
Dividends paid.................................                                  (23,784)         23,784                    
Contribution arising on continuity of interest                                                                              
 combination...................................                                                                             
Net capital contribution (distribution)........                                                                             
                                                ---------      ---------       ---------       ---------        ---------   
Retained earnings, end of the period........... $ 400,179      $  46,735       $  80,946       $(127,681)       $ 400,179   
                                                =========      =========       =========       =========        =========   


                                                                          YEAR ENDED APRIL 30, 1993                         
                                                 ---------------------------------------------------------------------------

                                                  TEEKAY       1993 NOTES         NON-                            TEEKAY    
                                                 SHIPPING      GUARANTOR       GUARANTOR                      SHIPPING CORP.
                                                   CORP.      SUBSIDIARIES    SUBSIDIARIES    ELIMINATIONS    & SUBSIDIARIES
                                                 ---------    ------------    ------------    ------------    --------------
                                                                                                                            
Net voyage revenues............................  $              $  33,956       $ 474,253       $(280,020)       $ 228,189  
Operating expenses.............................        111         18,806         453,154        (280,797)         191,274  
                                                 ---------      ---------       ---------       ---------        ---------  
 Income (loss) from vessel operations..........       (111)        15,150          21,099             777           36,915  
Net interest income (expense)..................      1,225         (4,678)        (42,765)                         (46,218) 
Equity in net income (loss) of subsidiaries....    (48,582)                                        49,023              441  
Other income...................................                                    37,214             207           37,421  
                                                 ---------      ---------       ---------       ---------        ---------  
Income (loss) before foreign currency exchange                                                                              
 loss..........................................    (47,468)        10,472          15,548          50,007           28,559  
Foreign currency exchange loss.................                                    77,917                           77,917  
                                                 ---------      ---------       ---------       ---------        ---------  
Net income (loss) from continuing operations...    (47,468)        10,472         (62,369)         50,007          (49,358) 
Net income from discontinued operations........                                     1,890                            1,890  
                                                 ---------      ---------       ---------       ---------        ---------  
Net income (loss)..............................    (47,468)        10,472         (60,479)         50,007          (47,468) 
Retained earnings, beginning of the period.....    409,989         28,542         126,452        (154,994)         409,989  
                                                 ---------      ---------       ---------       ---------        ---------  
                                                   362,521         39,014          65,973        (104,987)         362,521  
Dividends paid.................................                                    (2,800)          2,800                   
Contribution arising on continuity of interest                                                                              
 combination...................................      7,500                                                           7,500  
Net capital contribution (distribution)........                                     7,500          (7,500)                  
                                                 ---------      ---------       ---------       ---------        ---------  
Retained earnings, end of the period...........  $ 370,021      $  39,014       $  70,673       $(109,687)       $ 370,021  
                                                 =========      =========       =========       =========        =========  


------------                                                                    

NOTE: THE 1993 NOTES GUARANTOR SUBSIDIARIES HAVE GUARANTEED THE 9 5/8% FIRST    
PREFERRED SHIP MORTGAGE NOTES DUE JULY 2003.                        
(SEE NOTE 14)                                                       

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                  TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES        SCHEDULE A
(FORMERLY VIKING STAR SHIPPING INC.)

CONDENSED BALANCE SHEETS
(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                          AT SEPTEMBER 30, 1995                          
                                 ----------------------------------------------------------------------- 
                                                                                               TEEKAY    
                                   TEEKAY       1993 NOTES                                    SHIPPING   
                                  SHIPPING       GUARANTOR     NON-GUARANTOR                   CORP. &   
                                    CORP.       SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   SUBSIDIARIES
                                 -----------    -----------    -----------    -----------    ----------- 
                                                                                                         
ASSETS                                                                                                   
Cash..........................   $     131       $   6,607     $   53,727                    $   60,465  
Restricted cash...............                                      3,623                         3,623  
Other current assets..........          82           1,165         84,979            (90)        86,136  
                                 ---------       ---------      ---------      ---------      ---------  
 Total current assets.........         213           7,772        142,329            (90)       150,224  
Vessels and equipment (net)...                     144,439      1,057,545                     1,201,984  
Advances due from                                                                                        
 subsidiaries.................     509,850                                      (509,850)                
Other assets (principally                                                                                
 investments in                                                                                          
 subsidiaries)................     231,281                          4,665       (222,238)        13,708  
                                 ---------       ---------      ---------      ---------      ---------  
                                   741,344         152,211      1,204,539       (732,178)     1,365,916  
                                 =========       =========      =========      =========      =========  
LIABILITIES & STOCKHOLDERS'                                                                              
 EQUITY                                                                                                  
Current liabilities...........       3,096           1,099         80,597            (93)        84,699  
Long-term debt................     151,200                        501,769                       652,969  
Capital lease obligation......                                     41,200                        41,200  
Due to parent.................                                    515,335       (515,335)                
                                 ---------       ---------      ---------      ---------      ---------  
 Total liabilities............     154,296           1,099      1,138,901       (515,428)       778,868  
                                 ---------       ---------      ---------      ---------      ---------  
Stockholders' Equity                                                                                     
Capital stock.................     230,613               6          5,723         (5,729)       230,613  
Contributed capital...........                     131,753                      (131,753)                
Retained earnings.............     356,578          19,353         59,921        (79,274)       356,578  
Less net unrealized loss on                                                                              
 marketable securities........         143                                                          143  
                                 ---------       ---------      ---------      ---------      ---------  
 Total stockholders' equity...     587,048         151,112         65,644       (216,756)       587,048  
                                 ---------       ---------      ---------      ---------      ---------  
                                 $ 741,344       $ 152,211     $1,204,545     $ (732,184)    $1,365,916  
                                 =========       =========      =========      =========      =========  


                                                       AT SEPTEMBER 30, 1994                             
                              -----------------------------------------------------------------------    
                                                                                            TEEKAY       
                                TEEKAY       1993 NOTES                                    SHIPPING      
                               SHIPPING       GUARANTOR     NON-GUARANTOR                   CORP. &      
                                 CORP.       SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   SUBSIDIARIES   
                              -----------    -----------    -----------    -----------    -----------    
                                                                                                         
ASSETS                                                                                                   
Cash..........................                $  22,421     $    6,459     $     (787)    $   28,093     
Restricted cash...............                                   6,828                         6,828     
Other current assets..........      110           1,471        103,651                       105,232     
                              ---------       ---------      ---------      ---------      ---------     
 Total current assets.........      110          23,892        116,938           (787)       140,153     
Vessels and equipment (net)...                  166,781      1,029,280                     1,196,061     
Advances due from                                                                                        
 subsidiaries.................  313,934                                      (313,934)                   
Other assets (principally                                                                                
 investments in                                                                                          
 subsidiaries)................  297,009                          4,215       (281,384)        19,840     
                              ---------       ---------      ---------      ---------      ---------     
                                611,053         190,673      1,150,433       (596,105)     1,356,054     
                              =========       =========      =========      =========      =========     
LIABILITIES & STOCKHOLDERS'                                                                              
 EQUITY                                                                                                  
Current liabilities...........                                                                           
Long-term debt................    4,890           1,326        111,139           (787)       116,568     
Capital lease obligation......  175,000                        633,323                       808,323     
Due to parent.................                                 315,847       (315,847)                   
                              ---------       ---------      ---------      ---------      ---------     
 Total liabilities............  179,890           1,326      1,060,309       (316,634)       924,891     
                              ---------       ---------      ---------      ---------      ---------     
Stockholders' Equity                                                                                     
Capital stock.................   33,001              11          5,922         (5,933)        33,001     
Contributed capital...........                  138,535                      (138,535)                   
Retained earnings.............  398,162          50,801         84,202       (135,003)       398,162     
Less net unrealized loss on                                                                              
 marketable securities........                                                                           
                              ---------       ---------      ---------      ---------      ---------     
 Total stockholders' equity...  431,163         189,347         90,124       (279,471)       431,163     
                              ---------       ---------      ---------      ---------      ---------     
                              $ 611,053      $  190,673     $1,150,433     $ (596,105)    $1,356,054     
                              =========       =========      =========      =========      =========     
                                                        [Enlarge/Download Table]

                                                            AT MARCH 31, 1995                            
                                 ----------------------------------------------------------------------- 
                                                                                               TEEKAY    
                                   TEEKAY       1993 NOTES                                    SHIPPING   
                                  SHIPPING       GUARANTOR     NON-GUARANTOR                   CORP. &   
                                    CORP.       SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   SUBSIDIARIES
                                 -----------    -----------    -----------    -----------    ----------- 
                                                                                                         
ASSETS                                                                                                   
Cash..........................   $      97       $   6,856     $    9,547      $             $   16,500  
Restricted cash...............                                      7,634                         7,634  
Other current assets..........         180           1,287        118,685           (211)       119,941  
                                 ---------       ---------      ---------      ---------      ---------  
 Total current assets.........         277           8,143        135,866           (211)       144,075  
Vessels and equipment (net)...                     162,812        985,226                     1,148,038  
Advances due from                                                                                        
 subsidiaries.................     354,330                                      (354,330)             0  
Other assets (principally                                                                                
 investments in                                                                                          
 subsidiaries)................     264,302                          4,935       (254,876)        14,361  
                                 ---------       ---------      ---------      ---------      ---------  
                                 $ 618,909       $ 170,955     $1,126,027      $(609,417)    $1,306,474  
                                 =========       =========      =========      =========      =========  
LIABILITIES & STOCKHOLDERS'                                                                              
 EQUITY                                                                                                  
Current liabilities...........   $   4,843       $   2,214     $   92,142      $    (186)    $   99,013  
Long-term debt................     175,000                        593,395                       768,395  
Due to parent.................                                    358,223       (358,223)                
                                 ---------       ---------      ---------      ---------      ---------  
 Total liabilities............     179,843           2,214      1,043,760       (358,409)       867,408  
                                 ---------       ---------      ---------      ---------      ---------  
Stockholders' Equity                                                                                     
Capital stock.................      33,001              11          5,922         (5,933)        33,001  
Contributed capital...........                     138,492                      (138,492)             0  
Retained earnings.............     406,547          30,238         76,345       (106,583)       406,547  
Less net unrealized loss on                                                                              
 marketable securities........         482                                                          482  
                                 ---------       ---------      ---------      ---------      ---------  
 Total stockholders' equity...     439,066         168,741         82,267       (251,008)       439,066  
                                 ---------       ---------      ---------      ---------      ---------  
                                 $ 618,909       $ 170,955     $1,126,027      $(609,417)    $1,306,474  
                                 =========       =========      =========      =========      =========  


                                                         AT MARCH 31, 1994                               
                              -----------------------------------------------------------------------    
                                                                                            TEEKAY       
                                TEEKAY       1993 NOTES                                    SHIPPING      
                               SHIPPING       GUARANTOR     NON-GUARANTOR                   CORP. &      
                                 CORP.       SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   SUBSIDIARIES   
                              -----------    -----------    -----------    -----------    -----------    
                                                                                                         
ASSETS                                                                                                   
Cash..........................$               $  13,736     $   25,120      $    (242)    $   38,614     
Restricted cash...............                                   6,338                         6,338     
Other current assets..........       67             813        107,502           (143)       108,239     
                              ---------       ---------      ---------      ---------      ---------     
 Total current assets.........       67          14,549        138,960           (385)       153,191     
Vessels and equipment (net)...                  171,756      1,060,998                     1,232,754     
Advances due from                                                                                        
 subsidiaries.................  323,362                                      (323,362)                   
Other assets (principally                                                                                
 investments in                                                                                          
 subsidiaries)................  288,914                          4,243       (273,955)        19,202     
                              ---------       ---------      ---------      ---------      ---------     
                              $ 612,343       $ 186,305     $1,204,201      $(597,702)    $1,405,147     
                              =========       =========      =========      =========      =========     
LIABILITIES & STOCKHOLDERS'                                                                              
 EQUITY                                                                                                  
Current liabilities...........$   4,163       $   1,086     $  110,837      $    (248)    $  115,838     
Long-term debt................  175,000                        681,129                       856,129     
Due to parent.................                                 325,367       (325,367)                   
                              ---------       ---------      ---------      ---------      ---------     
 Total liabilities............  179,163           1,086      1,117,333       (325,615)       971,967     
                              ---------       ---------      ---------      ---------      ---------     
Stockholders' Equity                                                                                     
Capital stock.................   33,001              11          5,922         (5,933)        33,001     
Contributed capital...........                  138,473                      (138,473)                   
Retained earnings.............  400,179          46,735         80,946       (127,681)       400,179     
Less net unrealized loss on                                                                              
 marketable securities........                                                                           
                              ---------       ---------      ---------      ---------      ---------     
 Total stockholders' equity...  433,180         185,219         86,868       (272,087)       433,180     
                              ---------       ---------      ---------      ---------      ---------     
                              $ 612,343       $ 186,305     $1,204,201      $(597,702)    $1,405,147     
                              =========       =========      =========      =========      =========     

------------                                                                    

NOTE: THE 1993 NOTES GUARANTOR SUBSIDIARIES HAVE GUARANTEED THE 9 5/8% FIRST    
PREFERRED SHIP MORTGAGE NOTES DUE JULY 2003.                        
(SEE NOTE 14)                                                       

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                  TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES        SCHEDULE A
(FORMERLY VIKING STAR SHIPPING INC.)

CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                                   SIX MONTHS ENDED SEPTEMBER 30, 1995                     
                                               ----------------------------------------------------------------------------
                                                 TEEKAY       1993 NOTES         NON-                            TEEKAY    
                                                SHIPPING      GUARANTOR       GUARANTOR                      SHIPPING CORP.
                                                 CORP.       SUBSIDIARIES    SUBSIDIARIES    ELIMINATIONS    & SUBSIDIARIES
                                               ----------    ------------    ------------    ------------    --------------
                                                                                                                           
Cash provided by (used for)                                                                                                
OPERATING ACTIVITIES                                                                                                       
                                                ---------      ---------       ---------       ---------        ---------  
 Net cash flow from operating activities......  $  (8,625)     $   7,658       $  42,855       $                $  41,888  
                                                ---------      ---------       ---------       ---------        ---------  
FINANCING ACTIVITIES                                                                                                       
Proceeds from long-term debt..................                                   223,000                          223,000  
Repayments of long-term debt..................    (22,580)                      (330,201)                        (352,781) 
Repayments of capital lease obligations.......                                      (640)                            (640) 
Net proceeds from stock issuance..............    137,613                                                         137,613  
Other.........................................   (155,520)        (7,200)        165,865                            3,145  
Financing activities of discontinued                                                                                       
 operations...................................                                                                             
                                                ---------      ---------       ---------       ---------        ---------  
 Net cash flow from financing activities......    (40,487)        (7,200)         58,024                           10,337  
                                                ---------      ---------       ---------       ---------        ---------  
INVESTING ACTIVITIES                                                                                                       
Expenditures for vessels and equipment........                      (168)        (51,552)                         (51,720) 
Proceeds from disposition of assets...........                                    22,794                           22,794  
Other.........................................     49,146            431         (28,911)                          20,666  
Investing activities of discontinued                                                                                       
 operations...................................                                                                             
                                                ---------      ---------       ---------       ---------        ---------  
 Net cash flow from financing activities......     49,146            263         (57,669)                          (8,260) 
                                                ---------      ---------       ---------       ---------        ---------  
Increase (decrease) in cash...................         34            721          43,210                           43,965  
Cash (deficiency), beginning of the period....         97          5,886          16,500                           16,500  
                                                ---------      ---------       ---------       ---------        ---------  
Cash (deficiency), end of the period..........  $     131      $   6,607       $  59,710       $                $  60,465  
                                                =========      =========       =========       =========        =========  


                                                                    SIX MONTHS ENDED SEPTEMBER 30, 1994                    
                                                ---------------------------------------------------------------------------

                                                 TEEKAY       1993 NOTES         NON-                            TEEKAY    
                                                SHIPPING      GUARANTOR       GUARANTOR                      SHIPPING CORP.
                                                  CORP.      SUBSIDIARIES    SUBSIDIARIES    ELIMINATIONS    & SUBSIDIARIES
                                                ---------    ------------    ------------    ------------    --------------
                                                                                                                           
Cash provided by (used for)                                                                                                
OPERATING ACTIVITIES                                                                                                       
                                                ---------      ---------       ---------       ---------        ---------  
 Net cash flow from operating activities......  $  (8,961)    $    9,095      $   51,104      $                $   51,238  
                                                ---------      ---------       ---------       ---------        ---------  
FINANCING ACTIVITIES                                                                                                       
Proceeds from long-term debt..................                                                                             
Repayments of long-term debt..................                                   (50,680)                         (50,680) 
Repayments of capital lease obligations.......                                                                             
Net proceeds from stock issuance..............                                                                             
Other.........................................      8,878                        (10,310)                          (1,432) 
Financing activities of discontinued                                                                                       
 operations...................................                                                                             
                                                ---------      ---------       ---------       ---------        ---------  
 Net cash flow from financing activities......      8,878              0         (60,990)                         (52,112) 
                                                ---------      ---------       ---------       ---------        ---------  
INVESTING ACTIVITIES                                                                                                       
Expenditures for vessels and equipment........                      (472)        (10,922)                         (11,394) 
Proceeds from disposition of assets...........                                     4,220                            4,220  
Other.........................................       (462)            62          (2,073)                          (2,473) 
Investing activities of discontinued                                                                                       
 operations...................................                                                                             
                                                ---------      ---------       ---------       ---------        ---------  
 Net cash flow from financing activities......       (462)          (410)         (8,775)                          (9,647) 
                                                ---------      ---------       ---------       ---------        ---------  
Increase (decrease) in cash...................       (545)         8,685         (18,661)                         (10,521) 
Cash (deficiency), beginning of the period....       (242)        13,736          25,120                           38,614  
                                                ---------      ---------       ---------       ---------        ---------  
Cash (deficiency), end of the period..........  $    (787)     $  22,421       $   6,459       $                $  28,093  
                                                =========      =========       =========       =========        =========  

                                                        [Enlarge/Download Table]

                                                                                   YEAR ENDED MARCH 31, 1995                   
                                                                ---------------------------------------------------------------
                                                                                   1993 NOTES                                  
                                                                    TEEKAY         GUARANTOR      NON-GUARANTOR                
                                                                SHIPPING CORP.    SUBSIDIARIES    SUBSIDIARIES     ELIMINATIONS
                                                                --------------    ------------    -------------    ------------
                                                                                                                               
Cash provided by (used for)                                                                                                    
OPERATING ACTIVITIES                                                                                                           
Net cash flows from continuing operations......................    $ (40,919)       $  20,403        $108,021       $          
Net cash flows from discontinued operations....................                                                                
                                                                   ---------        ---------       ---------        --------- 
 Net cash flows from operating activities......................      (40,919)          20,403         108,021                  
                                                                   ---------        ---------       ---------        --------- 
FINANCING ACTIVITIES                                                                                                           
Proceeds from long-term debt...................................                                                                
Repayments of long-term debts..................................                                      (102,603)                 
Payments on capital lease obligations..........................                                                                
Other..........................................................      (31,518)         (25,263)         53,920                  
Financing activities of discontinued operations................                                                                
                                                                   ---------        ---------       ---------        --------- 
 Net cash flow from financing activities.......................      (31,518)         (25,263)        (48,683)                 
                                                                   ---------        ---------       ---------        --------- 
INVESTING ACTIVITIES                                                                                                           
Expenditures for vessels and equipment.........................                        (2,039)        (17,343)                 
Proceeds from disposition of assets............................                                        16,817                  
Other..........................................................       72,776               19         (74,385)                 
Investing activities of discontinued operations                                                                                
                                                                   ---------        ---------       ---------        --------- 
 Net cash flow from investing activities.......................       72,776           (2,020)        (74,911)                 
                                                                   ---------        ---------       ---------        --------- 
Increase (decrease) in cash....................................          339           (6,880)        (15,573)                 
Cash (deficiency), beginning of the period.....................         (242)          13,736          25,120                  
                                                                   ---------        ---------       ---------        --------- 
Cash, end of the period........................................    $      97        $   6,856       $   9,547        $         
                                                                   =========        =========       =========        ========= 



                                                                     TEEKAY                                                    
                                                                 SHIPPING CORP.                                                
                                                                 & SUBSIDIARIES                                                
                                                                 --------------                                                
                                                                                                                               
Cash provided by (used for)                                                                                                    
OPERATING ACTIVITIES                                                                                                           
Net cash flows from continuing operations......................     $  87,505                                                  
Net cash flows from discontinued operations....................                                                                
                                                                    ---------                                                  
 Net cash flows from operating activities......................        87,505                                                  
                                                                    ---------                                                  
FINANCING ACTIVITIES                                                                                                           
Proceeds from long-term debt...................................                                                                
Repayments of long-term debts..................................      (102,603)                                                 
Payments on capital lease obligations..........................                                                                
Other..........................................................        (2,861)                                                 
Financing activities of discontinued operations................                                                                
                                                                    ---------                                                  
 Net cash flow from financing activities.......................      (105,464)                                                 
                                                                    ---------                                                  
INVESTING ACTIVITIES                                                                                                           
Expenditures for vessels and equipment.........................       (19,382)                                                 
Proceeds from disposition of assets............................        16,817                                                  
Other..........................................................        (1,590)                                                 
Investing activities of discontinued operations                                                                                
                                                                    ---------                                                  
 Net cash flow from investing activities.......................        (4,155)                                                 
                                                                    ---------                                                  
Increase (decrease) in cash....................................       (22,114)                                                 
Cash (deficiency), beginning of the period.....................        38,614                                                  
                                                                    ---------                                                  
Cash, end of the period........................................     $  16,500                                                  
                                                                    =========                                                  
                                                                              

------------                                                                    

NOTE: THE 1993 NOTES GUARANTOR SUBSIDIARIES HAVE GUARANTEED THE 9 5/8% FIRST    
PREFERRED SHIP MORTGAGE NOTES DUE JULY 2003.                        
(SEE NOTE 14)                                                       

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                  TEEKAY SHIPPING CORPORATION AND SUBSIDIARIES        SCHEDULE A
(FORMERLY VIKING STAR SHIPPING INC.)

CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                             ELEVEN MONTHS ENDED MARCH 31, 1994                    
                                           ----------------------------------------------------------------------- 
                                                                                                         TEEKAY    
                                             TEEKAY       1993 NOTES                                    SHIPPING   
                                            SHIPPING       GUARANTOR     NON-GUARANTOR                   CORP. &   
                                              CORP.       SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   SUBSIDIARIES
                                           -----------    -----------    -----------    -----------    ----------- 
                                                                                                                   
Cash provided by (used for)                                                                                        
OPERATING ACTIVITIES                                                                                               
Net cash flows from continuing                                                                                     
 operations.............................   $  (8,310)      $  16,849     $ 108,848       $             $ 117,387   
Net cash flows from discontinued                                                                                   
 operations.............................                                       347                           347   
                                           ---------       ---------     ---------       ---------     ---------   
 Net cash flow from operating                                                                                      
   activities...........................      (8,310)         16,849       109,195                       117,734   
                                           ---------       ---------     ---------       ---------     ---------   
FINANCING ACTIVITIES                                                                                               
Proceeds from long-term debt............     175,000                        45,000                       220,000   
Repayments of long-term debt............                     (75,452)      (94,031)                     (169,483)  
Payments on capital lease obligations...                     (47,129)      (82,182)                     (129,311)  
Other...................................     (51,652)        (52,367)      102,207                        (1,812)  
Financing activities of discontinued                                                                               
 operations.............................                                   (20,077)                      (20,077)  
                                           ---------       ---------     ---------       ---------     ---------   
 Net cash flow from financing                                                                                      
   activities...........................     123,348        (174,948)      (49,083)                     (100,683)  
                                           ---------       ---------     ---------       ---------     ---------   
INVESTING ACTIVITIES                                                                                               
Expenditures for vessels and                                                                                       
 equipment..............................                      (1,882)      (77,147)                      (79,029)  
Proceeds from disposition of assets.....                                    86,351                        86,351   
Other...................................    (114,739)        138,473       (93,969)                      (70,235)  
Investing activities of discontinued                                                                               
 operations.............................                                    35,706                        35,706   
                                           ---------       ---------     ---------       ---------     ---------   
 Net cash flow from investing                                                                                      
   activities...........................    (114,739)        136,591       (49,059)                      (27,207)  
                                           ---------       ---------     ---------       ---------     ---------   
Increase (decrease) in cash.............         299         (21,508)       11,053                       (10,156)  
Cash (deficiency), beginning of the                                                                                
 period.................................        (541)         35,244        14,067                        48,770   
                                           ---------       ---------     ---------       ---------     ---------   
Cash (deficiency), end of the period....   $    (242)      $  13,736     $  25,120       $             $  38,614   
                                           =========       =========     =========       =========     =========   


                                                               YEAR ENDED APRIL 30, 1993                           
                                        -----------------------------------------------------------------------    
                                                                                                      TEEKAY       
                                          TEEKAY       1993 NOTES                                    SHIPPING      
                                         SHIPPING       GUARANTOR     NON-GUARANTOR                   CORP. &      
                                           CORP.       SUBSIDIARIES   SUBSIDIARIES   ELIMINATIONS   SUBSIDIARIES   
                                        -----------    -----------    -----------    -----------    -----------    
                                                                                                                   
Cash provided by (used for)                                                                                        
OPERATING ACTIVITIES                                                                                               
Net cash flows from continuing                                                                                     
 operations.............................$   3,668       $  19,149     $  61,909       $    (692)    $  84,034      
Net cash flows from discontinued                                                                                   
 operations.............................                                  4,492                         4,492      
                                        ---------       ---------     ---------       ---------     ---------      
 Net cash flow from operating                                                                                      
   activities...........................    3,668          19,149        66,401            (692)       88,526      
                                        ---------       ---------     ---------       ---------     ---------      
FINANCING ACTIVITIES                                                                                               
Proceeds from long-term debt............                                147,782                       147,782      
Repayments of long-term debt............                   (7,477)     (105,373)                     (112,850)     
Payments on capital lease obligations...                                (52,966)                      (52,966)     
Other...................................      546          11,424        (3,882)                        8,088      
Financing activities of discontinued                                                                               
 operations.............................                                (10,586)            692        (9,894)     
                                        ---------       ---------     ---------       ---------     ---------      
 Net cash flow from financing                                                                                      
   activities...........................      546           3,947       (25,025)            692       (19,840)     
                                        ---------       ---------     ---------       ---------     ---------      
INVESTING ACTIVITIES                                                                                               
Expenditures for vessels and                                                                                       
 equipment..............................                   (9,880)     (196,597)                     (206,477)     
Proceeds from disposition of assets.....                                156,909                       156,909      
Other...................................   (4,620)             (9)        2,545                        (2,084)     
Investing activities of discontinued                                                                               
 operations.............................                                  5,497                         5,497      
                                        ---------       ---------     ---------       ---------     ---------      
 Net cash flow from investing                                                                                      
   activities...........................   (4,620)         (9,889)      (31,646)                      (46,155)     
                                        ---------       ---------     ---------       ---------     ---------      
Increase (decrease) in cash.............     (406)         13,207         9,730                        22,531      
Cash (deficiency), beginning of the                                                                                
 period.................................     (135)         22,037         4,337                        26,239      
                                        ---------       ---------     ---------       ---------     ---------      
Cash (deficiency), end of the period....$    (541)      $  35,244     $  14,067       $             $  48,770      
                                        =========       =========     =========       =========     =========      

------------                                                                    

NOTE: THE 1993 NOTES GUARANTOR SUBSIDIARIES HAVE GUARANTEED THE 9 5/8% FIRST    
PREFERRED SHIP MORTGAGE NOTES DUE JULY 2003.                        
(SEE NOTE 14)                                                       

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AUDITORS' REPORT

To the Board of Directors                                                       
ANDROS SPIRIT INC., EXUMA SPIRIT INC.,                                          
NASSAU SPIRIT INC., SENANG SPIRIT INC.,                                         
VSSI APPIAN INC., VSSI ATLANTIC INC.,                                           
VSSI OCEANS INC. ("The Companies")                                              

We have audited the accompanying balance sheets of the Companies as of
March 31, 1995 and 1994, and the related statements of income and retained      
earnings and cash flows for the year ended March 31, 1995 and the eleven month  
period ended March 31, 1994 and the year ended April 30, 1993. These financial  
statements are the responsibility of the Companies' management. Our             
responsibility is to express an opinion on these financial statements based on  
our audits.                                                                     

 We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform 
the audit to obtain reasonable assurance about whether the financial statements 
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An 
audit also includes assessing the accounting principles used and significant    
estimates made by management, as well as evaluating the overall financial       
statement presentation. We believe that our audits provide a reasonable basis   
for our opinion.                                                                

    In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Companies at March 31,  
1995 and 1994, and the results of their operations and their cash flows for the 
year ended March 31, 1995 and the eleven month period ended March 31, 1994 and  
the year ended April 30, 1993, in conformity with accounting principles         
generally accepted in the United States.                                        

Nassau, Bahamas,                                                   ERNST & YOUNG
December 15, 1995                                          Chartered Accountants

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ANDROS SPIRIT INC.

STATEMENTS OF INCOME AND RETAINED EARNINGS

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                           SIX-MONTHS ENDED                  ELEVEN MONTHS            
                                            SEPTEMBER 30,        YEAR ENDED      ENDED      YEAR ENDED
                                        ----------------------   MARCH 31,     MARCH 31,    APRIL 30, 
                                          1995          1994        1995         1994          1993   
                                        --------      --------   ----------  -------------  ----------
                                                                                                      
                                             (UNAUDITED)                                              
REVENUES                                                                                              
Voyage revenues........................    3,981         3,608       7,613         8,922        3,856 
OPERATING EXPENSES                                                                                    
Vessel operating expenses..............      811           769       1,499         1,419          533 
Depreciation and amortization..........    1,458         1,543       3,084         2,851        1,287 
General and administrative                                                                            
  (note 3).............................      109            95         205           193           86 
                                        --------      --------   ----------  -------------  ----------
                                           2,378         2,407       4,788         4,463        1,906 
                                        --------      --------   ----------  -------------  ----------
Income from vessel operations..........    1,603         1,201       2,825         4,459        1,950 
                                        --------      --------   ----------  -------------  ----------
Other items                                                                                           
Interest expense.......................   (1,165)         (995)     (2,176)       (2,050)        (615)
Interest income........................        3            10          32            12              
                                        --------      --------   ----------  -------------  ----------
                                          (1,162)         (985)     (2,144)       (2,038)        (615)
                                        --------      --------   ----------  -------------  ----------
Income before foreign exchange loss....      441           216         681         2,421        1,335 
Foreign exchange loss..................                     (2)         (3)                    (4,709)
                                        --------      --------   ----------  -------------  ----------
Net Income (loss)......................      441           214         678         2,421       (3,374)
Retained earnings (deficit), beginning                                                                
  of the period........................     (275)         (953)       (953)       (3,374)             
                                        --------      --------   ----------  -------------  ----------
Retained earnings (deficit),                                                                          
  end of the period....................      166          (739)       (275)         (953)      (3,374)
                                         =======       =======    ========    ==========     ======== 

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

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ANDROS SPIRIT INC.

BALANCE SHEETS

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                               AT SEPTEMBER 30,           AT MARCH 31,      
                                                            ----------------------   ---------------------- 
                                                              1995          1994       1995          1994   
                                                            --------      --------   --------      -------- 
                                                                                                            
                                                                 (UNAUDITED)                                
ASSETS                                                                                                      
CURRENT                                                                                                     
Cash equivalents.......................................          131           537        845           629 
Accounts receivable....................................                         12         28               
Prepaid expenses.......................................          171           176        142           102 
                                                            --------      --------   --------      -------- 
      Total current assets.............................          302           725      1,015           731 
                                                            --------      --------   --------      -------- 
Vessel and equipment (note 5)                                                                               
At cost, less accumulated depreciation (September 30,                                                       
  1995--$8,654, 1994--$5,654; March 31, 1995--$7,196,                                                       
  1994--$4,112)........................................       53,045        56,034     54,494        57,547 
                                                            --------      --------   --------      -------- 
                                                              53,347        56,759     55,509        58,278 
                                                             =======       =======    =======       ======= 
                                     LIABILITIES AND STOCKHOLDER'S EQUITY                                   
CURRENT                                                                                                     
Accounts payable.......................................          108           101        111            63 
Accrued liabilities (note 4)...........................           53            29         69            48 
Current portion of long-term debt (note 5).............        3,509         3,510      3,509         3,509 
                                                            --------      --------   --------      -------- 
      Total current liabilities........................        3,670         3,640      3,689         3,620 
                                                            --------      --------   --------      -------- 
Long-term debt (note 5)................................       25,034        31,876     30,122        33,631 
Due to parent--without interest or stated terms of                                                          
  repayment (note 10)..................................                     21,977     21,968        21,975 
                                                            --------      --------   --------      -------- 
      Total liabilities................................       28,704        57,493     55,779        59,226 
                                                            --------      --------   --------      -------- 
STOCKHOLDER'S EQUITY                                                                                        
Capital stock (note 8).................................            5             5          5             5 
Contributed surplus (note 10)..........................       24,472                                        
Retained earnings (deficit)............................          166          (739)      (275)         (953)
                                                            --------      --------   --------      -------- 
      Total stockholder's equity.......................       24,643          (734)      (270)         (948)
                                                            --------      --------   --------      -------- 
                                                              53,347        56,759     55,509        58,278 
                                                             =======       =======    =======       ======= 

Contingencies (note 11)                                                         

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

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ANDROS SPIRIT INC.

STATEMENTS OF CASH FLOWS

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                   SIX-MONTHS ENDED                  ELEVEN MONTHS            
                                                    SEPTEMBER 30,        YEAR ENDED      ENDED      YEAR ENDED
                                                ----------------------   MARCH 31,     MARCH 31,    APRIL 30, 
                                                  1995         1994         1995         1994          1993   
                                                ---------    ---------   ----------  -------------  ----------
                                                                                                              
                                                     (UNAUDITED)                                              
Cash provided by (used for)                                                                                   
OPERATING ACTIVITIES                                                                                          
Net Income (loss).............................        441          214         678         2,421       (3,374)
Add (deduct) charges to operations not                                                                        
  requiring a payment of cash:                                                                                
  Depreciation and amortization...............      1,458        1,543       3,084         2,851        1,287 
  Foreign currency exchange loss..............                                                          4,636 
Change in non-cash working capital items (note                                                                
  9)..........................................        (20)         (67)          1          (505)         514 
                                                ---------    ---------   ----------  -------------  ----------
  Net cash flow from operating activities.....      1,879        1,690       3,763         4,767        3,063 
                                                ---------    ---------   ----------  -------------  ----------
FINANCING ACTIVITIES                                                                                          
Scheduled repayments of long-term debt........     (1,755)      (1,754)     (3,509)                           
Prepayment of long-term debt..................     (3,333)                                                    
Scheduled repayments of capital lease                                                                         
  obligation..................................                                            (3,175)             
Prepayments of capital lease obligation.......                                           (11,612)      (1,227)
Increase (decrease) in amount due to parent...    (21,968)           2          (7)       10,549        5,469 
Capital contribution from parent (note 10)....     24,472                                                   5 
                                                ---------    ---------   ----------  -------------  ----------
  Net cash flow from financing activities.....     (2,584)      (1,752)     (3,516)       (4,238)       4,247 
                                                ---------    ---------   ----------  -------------  ----------
INVESTING ACTIVITIES                                                                                          
Expenditures for vessels and equipment (net of                                                                
  capital lease financing of: April 30,                                                                       
  1993--$48,518)..............................         (9)         (30)        (31)                    (7,186)
Increase (decrease) in other assets...........                                                 1          (25)
                                                ---------    ---------   ----------  -------------  ----------
  Net cash flow from investing activities.....         (9)         (30)        (31)            1       (7,211)
                                                ---------    ---------   ----------  -------------  ----------
(Decrease) increase in cash equivalents.......       (714)         (92)        216           530           99 
Cash equivalents, beginning of the period.....        845          629         629            99              
                                                ---------    ---------   ----------  -------------  ----------
Cash equivalents, end of the period...........        131          537         845           629           99 
                                                 ========     ========    ========    ==========     ======== 

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

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EXUMA SPIRIT INC. 

STATEMENTS OF INCOME AND RETAINED EARNINGS

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                        SIX-MONTHS ENDED                  ELEVEN MONTHS            
                                         SEPTEMBER 30,        YEAR ENDED      ENDED      YEAR ENDED
                                     ----------------------   MARCH 31,     MARCH 31,    APRIL 30, 
                                       1995          1994        1995         1994          1993   
                                     --------      --------   ----------  -------------  ----------
                                     (UNAUDITED)                                                   
                                                                                                   
REVENUES                                                                                           
Voyage revenues.....................    4,010         3,642       7,676         8,933        6,094 
OPERATING EXPENSES                                                                                 
Vessel operating expenses...........      819           769       1,563         1,433          844 
Depreciation and amortization.......    1,455         1,541       3,082         2,850        2,055 
General and administrative (note                                                                   
  3)................................      110           114         223           200          132 
                                       ------         -----      ------        ------       ------ 
                                        2,384         2,424       4,868         4,483        3,031 
                                       ------         -----      ------        ------       ------ 
Income from vessel operations.......    1,626         1,218       2,808         4,450        3,063 
                                       ------         -----      ------        ------       ------ 
Other items                                                                                        
Interest expense....................   (1,158)         (990)     (2,165)       (2,016)      (1,269)
Interest income.....................        4             9          29            14            2 
                                       ------         -----      ------        ------       ------ 
                                       (1,154)         (981)     (2,136)       (2,002)      (1,267)
                                       ------         -----      ------        ------       ------ 
Income before foreign exchange                                                                     
  loss..............................      472           237         672         2,448        1,796 
Foreign exchange loss...............                     (2)         (2)           (1)      (4,682)
                                       ------         -----      ------        ------       ------ 
Net Income (loss)...................      472           235         670         2,447       (2,886)
Retained earnings (deficit),                                                                       
  beginning of the period...........      231          (439)       (439)       (2,886)             
                                       ------         -----      ------        ------       ------ 
Retained earnings (deficit), end of                                                                
  the period........................      703          (204)        231          (439)      (2,886)
                                       ======         =====      ======        ======       ====== 

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

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EXUMA SPIRIT INC. 

BALANCE SHEETS

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                        AT SEPTEMBER 30,             AT MARCH 31,       
                                                    ------------------------   ------------------------ 
                                                      1995           1994        1995           1994    
                                                    ---------      ---------   ---------      --------- 
                                                                                                        
                                                          (UNAUDITED)                                   
ASSETS                                                                                                  
CURRENT                                                                                                 
Cash equivalents..................................        153            532         755            596 
Accounts receivable...............................                                    15                
Prepaid expenses..................................        183            182         176            111 
                                                    ---------      ---------   ---------      --------- 
      Total current assets........................        336            714         946            707 
                                                    ---------      ---------   ---------      --------- 
Vessel and equipment (note 5)                                                                           
At cost, less accumulated depreciation (September                                                       
  30, 1995--$9,415, 1994--$6,418; March 31,                                                             
  1995--$7,960, 1994--$4,877).....................     52,245         55,217      53,679         56,731 
                                                    ---------      ---------   ---------      --------- 
                                                       52,581         55,931      54,625         57,438 
                                                     ========       ========    ========       ======== 
LIABILITIES AND STOCKHOLDER'S EQUITY                                                                    
CURRENT                                                                                                 
Accounts payable..................................         67            110         147             50 
Accrued liabilities (note 4)......................         38             35          56             52 
Current portion of long-term debt (note 5)........      3,582          3,582       3,582          3,582 
                                                    ---------      ---------   ---------      --------- 
      Total current liabilities...................      3,687          3,727       3,785          3,684 
                                                    ---------      ---------   ---------      --------- 
Long-term debt (note 5)...........................     24,729         31,644      29,853         33,436 
Due to parent--without interest or stated terms of                                                      
  repayment (note 10).............................                    20,759      20,751         20,752 
                                                    ---------      ---------   ---------      --------- 
      Total liabilities...........................     28,416         56,130      54,389         57,872 
                                                    ---------      ---------   ---------      --------- 
STOCKHOLDER'S EQUITY                                                                                    
Capital stock (note 8)............................          5              5           5              5 
Contributed surplus (note 10).....................     23,457                                           
Retained earnings (deficit).......................        703           (204)        231           (439)
                                                    ---------      ---------   ---------      --------- 
      Total stockholder's equity..................     24,165           (199)        236           (434)
                                                    ---------      ---------   ---------      --------- 
                                                       52,581         55,931      54,625         57,438 
                                                     ========       ========    ========       ======== 

Contingencies (note 11)                                                         

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

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EXUMA SPIRIT INC. 

STATEMENTS OF CASH FLOWS

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                   SIX-MONTHS ENDED                  ELEVEN MONTHS            
                                                    SEPTEMBER 30,        YEAR ENDED      ENDED      YEAR ENDED
                                                ----------------------   MARCH 31,     MARCH 31,    APRIL 30, 
                                                  1995         1994         1995         1994          1993   
                                                ---------    ---------   ----------  -------------  ----------
                                                (UNAUDITED)                                                   
                                                                                                              
Cash provided by (used for)                                                                                   
OPERATING ACTIVITIES                                                                                          
Net Income (loss).............................        472          235         670         2,447       (2,886)
Add (deduct) charges to operations not                                                                        
  requiring a payment of cash:                                                                                
  Depreciation and amortization...............      1,455        1,541       3,082         2,850        2,055 
  Foreign currency exchange loss..............                                                          4,583 
Change in non-cash working capital items (note                                                                
  9)..........................................        (90)         (28)         21          (591)         581 
                                                  -------       ------      ------       -------       ------ 
  Net cash flow from operating activities.....      1,837        1,748       3,773         4,706        4,333 
                                                  -------       ------      ------       -------       ------ 
FINANCING ACTIVITIES                                                                                          
Scheduled repayments of long-term debt........     (1,791)      (1,791)     (3,583)                           
Prepayments of long-term debt.................     (3,333)                                                    
Scheduled repayments of capital lease                                                                         
  obligation..................................                                            (3,187)        (674)
Prepayments of capital lease obligation.......                                           (10,859)      (1,339)
Increase (decrease) in amount due to parent...    (20,751)           7          (1)        9,926       (1,270)
Capital contribution from parent (note 10)....     23,457                                                     
                                                  -------       ------      ------       -------       ------ 
  Net cash flow from financing activities.....     (2,418)      (1,784)     (3,584)       (4,120)      (3,283)
                                                  -------       ------      ------       -------       ------ 
INVESTING ACTIVITIES                                                                                          
Expenditures for vessels and equipment (net of                                                                
  capital lease financing of: April 30,                                                                       
  1993--$48,493)..............................        (21)         (28)        (30)                    (1,013)
Increase in other assets......................                                                            (27)
                                                  -------       ------      ------       -------       ------ 
  Net cash flow from investing activities.....        (21)         (28)        (30)                    (1,040)
                                                  -------       ------      ------       -------       ------ 
(Decrease) increase in cash equivalents.......       (602)         (64)        159           586           10 
Cash equivalents, beginning of the period.....        755          596         596            10              
                                                  -------       ------      ------       -------       ------ 
Cash equivalents, end of the period...........        153          532         755           596           10 
                                                  =======       ======      ======       =======       ====== 

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

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NASSAU SPIRIT INC.

STATEMENTS OF INCOME AND RETAINED EARNINGS

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                        SIX-MONTHS ENDED                  ELEVEN MONTHS            
                                         SEPTEMBER 30,        YEAR ENDED      ENDED      YEAR ENDED
                                     ----------------------   MARCH 31,     MARCH 31,    APRIL 30, 
                                       1995          1994        1995         1994          1993   
                                     --------      --------   ----------  -------------  ----------
                                                                                                   
                                          (UNAUDITED)                                              
REVENUES                                                                                           
Voyage revenues.....................    4,054         3,790       7,827         8,259        8,265 
OPERATING EXPENSES                                                                                 
Vessel operating expenses...........      889           763       1,522         1,472        1,171 
Depreciation and amortization.......    1,418         1,505       3,011         2,786        2,760 
General and administrative (note                                                                   
  3)................................      111           111         220           200          178 
                                       ------        ------      ------        ------       ------ 
                                        2,418         2,379       4,753         4,458        4,109 
                                       ------        ------      ------        ------       ------ 
Income from vessel operations.......    1,636         1,411       3,074         3,801        4,156 
                                       ------        ------      ------        ------       ------ 
Other items                                                                                        
Interest expense....................   (1,144)         (989)     (2,161)       (1,963)      (2,038)
Interest income.....................        2             6          13            14           10 
                                       ------        ------      ------        ------       ------ 
                                       (1,142)         (983)     (2,148)       (1,949)      (2,028)
                                       ------        ------      ------        ------       ------ 
Income before foreign exchange                                                                     
  loss..............................      494           428         926         1,852        2,128 
Foreign exchange loss...............       (2)           (3)         (3)                    (5,400)
                                       ------        ------      ------        ------       ------ 
Net income (loss)...................      492           425         923         1,852       (3,272)
Retained earnings (deficit),                                                                       
  beginning of the period...........     (497)       (1,420)     (1,420)       (3,272)             
                                       ------        ------      ------        ------       ------ 
Retained earnings (deficit), end of                                                                
  the period........................       (5)         (995)       (497)       (1,420)      (3,272)
                                       ======        ======      ======        ======       ====== 

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

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NASSAU SPIRIT INC.

BALANCE SHEETS

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                           AT SEPTEMBER 30,           AT MARCH 31,      
                                                        ----------------------   ---------------------- 
                                                          1995          1994       1995          1994   
                                                        --------      --------   --------      -------- 
                                                                                                        
                                                             (UNAUDITED)                                
ASSETS                                                                                                  
CURRENT                                                                                                 
Cash equivalents.......................................       80           102        252            71 
Accounts receivable....................................                                               1 
Prepaid expenses.......................................      194           187        186           105 
                                                        --------      --------   --------      -------- 
      Total current assets.............................      274           289        438           177 
                                                        --------      --------   --------      -------- 
Vessel and equipment (note 5)                                                                           
At cost, less accumulated depreciation (September 30,                                                   
  1995--$9,949, 1994--$7,025; March 31, 1995--$8,531,                                                   
  1994--$5,520)........................................   50,281        53,186     51,684        54,691 
                                                        --------      --------   --------      -------- 
                                                          50,555        53,475     52,122        54,868 
                                                         =======       =======    =======       ======= 
LIABILITIES AND STOCKHOLDER'S EQUITY                                                                    
CURRENT                                                                                                 
Accounts payable.......................................       56            89         51            99 
Accrued liabilities (note 4)...........................       47            28         56            10 
Current portion of long-term debt (note 5).............    3,355         3,355      3,355         3,355 
                                                        --------      --------   --------      -------- 
      Total current liabilities........................    3,458         3,472      3,462         3,464 
                                                        --------      --------   --------      -------- 
Long-term debt (note 5)................................   24,731        31,725     29,895        33,556 
Due to parent--without interest or stated terms of                                                      
  repayment (note 10)..................................                 19,268     19,257        19,263 
                                                        --------      --------   --------      -------- 
      Total liabilities................................   28,189        54,465     52,614        56,283 
                                                        --------      --------   --------      -------- 
STOCKHOLDER'S EQUITY                                                                                    
Capital stock (note 8).................................        5             5          5             5 
Contributed surplus (note 10)..........................   22,366                                        
Retained earnings (deficit)............................       (5)         (995)      (497)       (1,420)
                                                        --------      --------   --------      -------- 
      Total stockholder's equity.......................   22,366          (990)      (492)       (1,415)
                                                        --------      --------   --------      -------- 
                                                          50,555        53,475     52,122        54,868 
                                                         =======       =======    =======       ======= 

Contingencies (note 11)                                                         

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

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NASSAU SPIRIT INC.

STATEMENTS OF CASH FLOWS

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                   SIX-MONTHS ENDED                  ELEVEN MONTHS            
                                                    SEPTEMBER 30,        YEAR ENDED      ENDED      YEAR ENDED
                                                ----------------------   MARCH 31,     MARCH, 31    APRIL 30, 
                                                  1995         1994         1995         1994          1993   
                                                ---------    ---------   ----------  -------------  ----------
                                                (UNAUDITED)                                                   
                                                                                                              
Cash provided by (used for)                                                                                   
OPERATING ACTIVITIES                                                                                          
Net Income (loss).............................        492          425         923         1,852       (3,272)
Add (deduct) charges to operations not                                                                        
  requiring a payment of cash:                                                                                
  Depreciation and amortization...............      1,418        1,505       3,011         2,786        2,760 
  Foreign currency exchange loss..............                                                          5,322 
Change in non-cash working capital items (note                                                                
  9)..........................................        (12)         (73)        (82)          136         (176)
                                                  -------       ------      ------       -------       ------ 
  Net cash flow from operating activities.....      1,898        1,857       3,852         4,774        4,634 
                                                  -------       ------      ------       -------       ------ 
FINANCING ACTIVITIES                                                                                          
Scheduled repayments of long-term debt........     (1,831)      (1,831)     (3,661)                           
Prepayments of long-term debt.................     (3,333)                                                    
Scheduled repayments of capital lease                                                                         
  obligation..................................                                            (3,201)      (1,325)
Prepayments of capital lease obligation.......                                           (10,230)      (1,339)
Increase (decrease) in amount due to parent...    (19,257)           5          (6)        8,698       (6,115)
Capital contribution from parent (note 10)....     22,366                                                   5 
                                                  -------       ------      ------       -------       ------ 
  Net cash flow from financing activities.....     (2,055)      (1,826)     (3,667)       (4,733)      (8,774)
                                                  -------       ------      ------       -------       ------ 
INVESTING ACTIVITIES                                                                                          
Expenditures for vessels and equipment                                                                        
  (net of capital lease financing of:                                                                         
  April 30, 1993--$47,684)....................        (15)                      (4)                     4,196 
Increase in other assets......................                                                            (26)
                                                  -------       ------      ------       -------       ------ 
  Net cash flow from investing activities.....        (15)                      (4)                     4,170 
                                                  -------       ------      ------       -------       ------ 
(Decrease) increase in cash equivalents.......       (172)          31         181            41           30 
Cash equivalents, beginning of the period.....        252           71          71            30              
                                                  -------       ------      ------       -------       ------ 
Cash equivalents, end of the period...........         80          102         252            71           30 
                                                  =======       ======      ======       =======       ====== 

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

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SENANG SPIRIT INC.

STATEMENTS OF INCOME AND RETAINED EARNINGS

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                     SIX-MONTHS ENDED                  ELEVEN MONTHS
                                                      SEPTEMBER 30,        YEAR ENDED      ENDED    
                                                  ----------------------   MARCH 31,     MARCH, 31  
                                                    1995          1994        1995         1994     
                                                  --------      --------   ----------  -------------
                                                  (UNAUDITED)                                       
                                                                                                    
REVENUES                                                                                            
Voyage revenues..................................    4,178         3,678       7,678         2,166  
OPERATING EXPENSES                                                                                  
Vessel operating expenses........................      793           693       1,484           344  
Depreciation and amortization....................    1,635         1,714       3,429           865  
General and administrative (note 3)..............      112           118         233            56  
                                                    ------        ------      ------         -----  
                                                     2,540         2,525       5,146         1,265  
                                                    ------        ------      ------         -----  
Income from vessel operations....................    1,638         1,153       2,532           901  
                                                    ------        ------      ------         -----  
Other items                                                                                         
Interest expense.................................   (1,365)       (1,093)     (2,393)         (499) 
Interest income..................................       11             1           6                
                                                    ------        ------      ------         -----  
                                                    (1,354)       (1,092)     (2,387)         (499) 
                                                    ------        ------      ------         -----  
Income before foreign exchange loss..............      284            61         145           402  
Foreign exchange loss............................                     (3)         (2)               
                                                    ------        ------      ------         -----  
Net Income.......................................      284            58         143           402  
Retained earnings, beginning of the period.......      545           402         402                
                                                    ------        ------      ------         -----  
Retained earnings, end of the period.............      829           460         545           402  
                                                    ======        ======      ======         =====  

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

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SENANG SPIRIT INC.

BALANCE SHEETS

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                               AT SEPTEMBER 30,          AT MARCH 31,     
                                                            ----------------------  ----------------------
                                                              1995          1994      1995          1994  
                                                            --------      --------  --------      --------
                                                                                                          
                                                                 (UNAUDITED)                              
                                                     ASSETS                                               
CURRENT                                                                                                   
Cash equivalents.......................................          479             9       217            44
Accounts receivable....................................                                    2              
Prepaid expenses.......................................          191           216       175           135
                                                              ------        ------    ------         -----
      Total current assets.............................          670           225       394           179
                                                              ------        ------    ------         -----
Vessel and equipment (note 5)                                                                             
At cost, less accumulated depreciation (September 30,                                                     
  1995--$5,920, 1994--$2,570; March 31, 1995--$4,286,                                                     
  1994--$856)..........................................       62,661        66,004    64,291        67,603
                                                              ------        ------    ------         -----
                                                              63,331        66,229    64,685        67,782
                                                              ======        ======    ======         =====
                                     LIABILITIES AND STOCKHOLDER'S EQUITY                                 
CURRENT                                                                                                   
Accounts payable.......................................          137            72        82            28
Accrued liabilities (note 4)...........................           61            58        91           128
Current portion of long-term debt (note 5).............        3,333         3,333     3,333         3,333
                                                              ------        ------    ------         -----
      Total current liabilities........................        3,531         3,463     3,506         3,489
                                                              ------        ------    ------         -----
Long-term debt (note 5)................................       30,833        34,166    32,499        35,833
Due to parent--without interest or stated terms of                                                        
  repayment (note 10)..................................                     28,135    28,130        28,053
                                                              ------        ------    ------         -----
      Total liabilities................................       34,364        65,764    64,135        67,375
                                                              ------        ------    ------         -----
STOCKHOLDER'S EQUITY                                                                                      
Capital stock (note 8).................................            5             5         5             5
Contributed surplus (note 10)..........................       28,133                                      
Retained earnings......................................          829           460       545           402
                                                              ------        ------    ------         -----
      Total stockholder's equity.......................       28,967           465       550           407
                                                              ------        ------    ------         -----
                                                              63,331        66,229    64,685        67,782
                                                              ======        ======    ======         =====

Contingencies (note 11)                                                         

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

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SENANG SPIRIT INC.

STATEMENTS OF CASH FLOWS

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                    SIX-MONTHS ENDED                    ELEVEN MONTHS
                                                     SEPTEMBER 30,         YEAR ENDED       ENDED    
                                                ------------------------   MARCH 31,      MARCH 31,  
                                                  1995           1994         1995          1994     
                                                ---------      ---------   ----------   -------------
                                                      (UNAUDITED)                                    
                                                                                                     
Cash provided by (used for)                                                                          
OPERATING ACTIVITIES                                                                                 
Net Income.....................................       284             58         143            402  
Add (deduct) charges to operations not                                                               
  requiring a payment of cash:                                                                       
  Depreciation and amortization................     1,635          1,714       3,429            865  
Change in non-cash working capital items (note                                                       
  9)...........................................        11           (107)        (25 )           21  
                                                ---------      ---------   ----------   -------------
  Net cash flow from operating activities......     1,930          1,665       3,547          1,288  
                                                ---------      ---------   ----------   -------------
FINANCING ACTIVITIES                                                                                 
Scheduled repayments of long-term debt.........    (1,666)        (1,667)     (3,334 )               
Scheduled repayments of capital lease                                                                
  obligation...................................                                                (981) 
Prepayments of capital lease obligation........                                             (10,500) 
Increase (decrease) in amount due to parent....   (28,130)            82          77         16,013  
Capital contribution from parent (note 10).....    28,133                                            
                                                ---------      ---------   ----------   -------------
  Net cash flow from financing activities......    (1,663)        (1,585)     (3,257 )        4,532  
                                                ---------      ---------   ----------   -------------
INVESTING ACTIVITIES                                                                                 
Expenditures for vessels and equipment                                                               
  (net of capital lease financing of:                                                                
  March 31, 1994--$50,647).....................        (5)          (115)       (117 )       (5,776) 
                                                ---------      ---------   ----------   -------------
  Net cash flow from investing activities......        (5)          (115)       (117 )       (5,776) 
                                                ---------      ---------   ----------   -------------
(Decrease) increase in cash equivalents........       262            (35)        173             44  
Cash equivalents, beginning of the period......       217             44          44                 
                                                ---------      ---------   ----------   -------------
Cash equivalents, end of the period............       479              9         217             44  
                                                 ========       ========    ========     ==========  

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

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VSSI APPIAN INC.

STATEMENTS OF INCOME AND RETAINED EARNINGS

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                        SIX-MONTHS ENDED                  ELEVEN MONTHS            
                                         SEPTEMBER 30,        YEAR ENDED      ENDED      YEAR ENDED
                                     ----------------------   MARCH 31,     MARCH 31,    APRIL 30, 
                                       1995          1994        1995         1994          1993   
                                     --------      --------   ----------  -------------  ----------
                                          (UNAUDITED)                                              
                                                                                                   
REVENUES                                                                                           
Voyage revenues.....................    4,677         4,346       8,967         8,704        9,057 
OPERATING EXPENSES                                                                                 
Vessel operating expenses...........      827           880       1,633         1,410        1,414 
Depreciation and amortization.......    1,322         1,408       2,819         2,619        2,802 
General and administrative (note                                                                   
  3)................................      115           121         234           200          207 
                                     --------      --------   ----------  -------------  ----------
                                        2,264         2,409       4,686         4,229        4,423 
                                     --------      --------   ----------  -------------  ----------
Income from vessel operations.......    2,413         1,937       4,281         4,475        4,634 
                                     --------      --------   ----------  -------------  ----------
Other items                                                                                        
Interest expense....................   (1,398)       (1,206)     (2,595)       (2,071)      (2,665)
Interest income.....................       20             7          21            11              
                                     --------      --------   ----------  -------------  ----------
                                       (1,378)       (1,199)     (2,574)       (2,060)      (2,665)
                                     --------      --------   ----------  -------------  ----------
Income before foreign exchange                                                                     
  loss..............................    1,035           738       1,707         2,415        1,969 
Foreign exchange loss...............                     (3)         (3)       (1,715)      (7,634)
                                     --------      --------   ----------  -------------  ----------
Net Income (loss)...................    1,035           735       1,704           700       (5,665)
Retained earnings (deficit),                                                                       
  beginning of the period...........     (971)       (2,675)     (2,675)       (3,375)       2,290 
                                     --------      --------   ----------  -------------  ----------
Retained earnings (deficit), end of                                                                
  the period........................       64        (1,940)       (971)       (2,675)      (3,375)
                                      =======       =======    ========    ==========     ======== 

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

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VSSI APPIAN INC.

BALANCE SHEETS

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                           AT SEPTEMBER 30,           AT MARCH 31,      
                                                        ----------------------   ---------------------- 
                                                          1995          1994       1995          1994   
                                                        --------      --------   --------      -------- 
                                                                                                        
                                                             (UNAUDITED)                                
ASSETS                                                                                                  
CURRENT                                                                                                 
Cash equivalents.......................................      811           372        571           303 
Accounts receivable....................................                     12         12           156 
Prepaid expenses.......................................      150           216        218           132 
                                                        --------      --------   --------      -------- 
      Total current assets.............................      961           600        801           591 
                                                        --------      --------   --------      -------- 
Vessel and equipment (note 5)                                                                           
At cost, less accumulated depreciation (September 30,                                                   
  1995--$9,910, 1994--$7,204; March 31, 1995--$8,601,                                                   
  1994--$5,741)........................................   45,927        48,594     47,234        49,961 
                                                        --------      --------   --------      -------- 
Other assets...........................................      173           200        186           213 
                                                        --------      --------   --------      -------- 
                                                          47,061        49,394     48,221        50,765 
                                                         =======       =======    =======       ======= 
LIABILITIES AND STOCKHOLDER'S EQUITY                                                                    
CURRENT                                                                                                 
Accounts payable.......................................       69           122        122           101 
Accrued liabilities (note 4)...........................       43            56         48            44 
Current portion of long-term debt (note 5).............    4,292         4,292      4,292         4,292 
                                                        --------      --------   --------      -------- 
      Total current liabilities........................    4,404         4,470      4,462         4,437 
                                                        --------      --------   --------      -------- 
Long-term debt (note 5)................................   30,468        34,761     32,615        36,907 
Due to parent--without interest or stated terms of                                                      
  repayment (note 10)..................................                 12,102     12,114        12,095 
                                                        --------      --------   --------      -------- 
      Total liabilities................................   34,872        51,333     49,191        53,439 
                                                        --------      --------   --------      -------- 
STOCKHOLDER'S EQUITY                                                                                    
Capital stock (note 8).................................        1             1          1             1 
Contributed surplus (note 10)..........................   12,124                                        
Retained earnings (deficit)............................       64        (1,940)      (971)       (2,675)
                                                        --------      --------   --------      -------- 
      Total stockholder's equity.......................   12,189        (1,939)      (970)       (2,674)
                                                        --------      --------   --------      -------- 
                                                          47,061        49,394     48,221        50,765 
                                                         =======       =======    =======       ======= 

Contingencies (note 11)                                                         

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

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VSSI APPIAN INC.

STATEMENTS OF CASH FLOWS

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                   SIX-MONTHS ENDED                  ELEVEN MONTHS            
                                                    SEPTEMBER 30,        YEAR ENDED      ENDED      YEAR ENDED
                                                ----------------------   MARCH 31,     MARCH 31,    APRIL 30, 
                                                  1995         1994         1995         1994          1993   
                                                ---------    ---------   ----------  -------------  ----------
                                                                                                              
                                                     (UNAUDITED)                                              
Cash provided by (used for)                                                                                   
OPERATING ACTIVITIES                                                                                          
Net Income (loss).............................      1,035          735       1,704           700       (5,665)
Add (deduct) charges to operations not                                                                        
  requiring a payment of cash:                                                                                
  Depreciation and amortization...............      1,322        1,408       2,819         2,619        2,802 
  Foreign currency exchange loss..............                                             1,715        7,536 
Change in non-cash working capital items (note                                                                
  9)..........................................         22           93          83          (565)        (239)
                                                ---------    ---------   ----------  -------------  ----------
  Net cash flow from operating activities.....      2,379        2,236       4,606         4,469        4,434 
                                                ---------    ---------   ----------  -------------  ----------
FINANCING ACTIVITIES                                                                                          
Scheduled repayments of long-term debt........     (2,147)      (2,146)     (4,292)       (3,219)      (1,479)
Prepayments of long-term debt.................                                            (1,798)      (1,219)
Increase (decrease) in amount due to parent...    (12,114)           7          19           961       (1,459)
Capital contribution from parent (note 10)....     12,124                                                     
                                                ---------    ---------   ----------  -------------  ----------
  Net cash flow from financing activities.....     (2,137)      (2,139)     (4,273)       (4,056)      (4,157)
                                                ---------    ---------   ----------  -------------  ----------
INVESTING ACTIVITIES                                                                                          
Expenditures for vessels and equipment........         (2)         (27)        (65)           14         (110)
Increase in other assets......................                      (1)                     (232)         (59)
                                                ---------    ---------   ----------  -------------  ----------
  Net cash flow from investing activities.....         (2)         (28)        (65)         (218)        (169)
                                                ---------    ---------   ----------  -------------  ----------
Increase in cash equivalents..................        240           69         268           195          108 
Cash equivalents, beginning of the period.....        571          303         303           108              
                                                ---------    ---------   ----------  -------------  ----------
Cash equivalents, end of the period...........        811          372         571           303          108 
                                                 ========     ========    ========    ==========     ======== 

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

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VSSI ATLANTIC INC.

STATEMENTS OF INCOME AND RETAINED EARNINGS

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                       SIX-MONTHS ENDED                  ELEVEN MONTHS
                                                        SEPTEMBER 30,        YEAR ENDED      ENDED    
                                                    ----------------------   MARCH 31,   MARCH 31,    
                                                      1995          1994        1995         1994     
                                                    --------      --------   ----------  -------------
                                                                                                      
                                                         (UNAUDITED)                                  
REVENUES                                                                                              
Voyage revenues....................................    4,262         3,740       7,832         2,019  
OPERATING EXPENSES                                                                                    
Vessel operating expenses..........................      773           830       1,545           235  
Depreciation and amortization......................    1,645         1,724       3,447           573  
General and administrative (note 3)................      224           265         460            75  
                                                    --------      --------   ----------  -------------
                                                       2,642         2,819       5,452           883  
                                                    --------      --------   ----------  -------------
Income from vessel operations......................    1,620           921       2,380         1,136  
                                                    --------      --------   ----------  -------------
Other items                                                                                           
Interest expense...................................   (1,367)       (1,085)     (2,390)         (328) 
Interest income....................................       14            32          43            11  
                                                    --------      --------   ----------  -------------
                                                      (1,353)       (1,053)     (2,347)         (317) 
                                                    --------      --------   ----------  -------------
Income (loss) before foreign exchange loss.........      267          (132)         33           819  
Foreign exchange loss..............................                     (2)         (2)               
                                                    --------      --------   ----------  -------------
Net Income (loss)..................................      267          (134)         31           819  
Retained earnings, beginning of the period.........      850           819         819                
                                                    --------      --------   ----------  -------------
Retained earnings, end of the period...............    1,117           685         850           819  
                                                     =======       =======    ========    ==========  

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

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VSSI ATLANTIC INC.

BALANCE SHEETS

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                           AT SEPTEMBER 30,          AT MARCH 31,     
                                                        ----------------------  ----------------------
                                                          1995          1994      1995          1994  
                                                        --------      --------  --------      --------
                                                                                                      
                                                             (UNAUDITED)                              
ASSETS                                                                                                
CURRENT                                                                                               
Cash equivalents.......................................      562           268       434         3,561
Accounts receivable....................................       13                      10              
Prepaid expenses.......................................      155           186       167           179
                                                        --------      --------  --------      --------
      Total current assets.............................      730           454       611         3,740
                                                        --------      --------  --------      --------
Vessel and equipment (note 5)                                                                         
At cost, less accumulated depreciation (September 30,                                                 
  1995--$5,665, 1994--$2,297; March 31, 1995--$4,020,                                                 
  1994--$572)..........................................   63,317        66,642    64,926        68,065
                                                        --------      --------  --------      --------
                                                          64,047        67,096    65,537        71,805
                                                         =======       =======   =======       =======
LIABILITIES AND STOCKHOLDER'S EQUITY                                                                  
CURRENT                                                                                               
Accounts payable.......................................      113           115        97            43
Accrued liabilities (note 4)...........................       33            37        79            48
Current portion of long-term debt (note 5).............    3,475         3,475     3,475         3,475
                                                        --------      --------  --------      --------
      Total current liabilities........................    3,621         3,627     3,651         3,566
                                                        --------      --------  --------      --------
Long-term debt (note 5)................................   30,697        34,172    32,434        35,909
Due to parent--without interest or stated terms of                                                    
  repayment (note 10)..................................                 28,611    28,601        31,510
                                                        --------      --------  --------      --------
      Total liabilities................................   34,318        66,410    64,686        70,985
                                                        --------      --------  --------      --------
STOCKHOLDER'S EQUITY                                                                                  
Capital stock (note 8).................................        1             1         1             1
Contributed surplus (note 10)..........................   28,611                                      
Retained earnings......................................    1,117           685       850           819
                                                        --------      --------  --------      --------
      Total stockholder's equity.......................   29,729           686       851           820
                                                        --------      --------  --------      --------
                                                          64,047        67,096    65,537        71,805
                                                         =======       =======   =======       =======
Contingencies (note 11)                                                                               

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

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VSSI ATLANTIC INC.

STATEMENTS OF CASH FLOWS

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                  SIX-MONTHS ENDED                   ELEVEN MONTHS             
                                                   SEPTEMBER 30,        YEAR ENDED       ENDED      YEAR ENDED 
                                               ----------------------   MARCH 31,      MARCH 31,    APRIL 30,  
                                                 1995         1994         1995          1994          1993    
                                               ---------    ---------   ----------   -------------  ---------- 
                                                                                                               
                                                    (UNAUDITED)                                                
Cash provided by (used for)                                                                                    
OPERATING ACTIVITIES                                                                                           
Net Income (loss).............................       267         (134)         31            819               
Add (deduct) charges to operations not                                                                         
  requiring a payment of cash:                                                                                 
  Depreciation and amortization...............     1,645        1,724       3,447            573               
Change in non-cash working capital items                                                                       
  (note 9)....................................       (21)          54          87            (88)              
                                               ---------    ---------   ----------   -------------  ---------- 
  Net cash flow from operating activities.....     1,891        1,644       3,565          1,304               
                                               ---------    ---------   ----------   -------------  ---------- 
FINANCING ACTIVITIES                                                                                           
Proceeds from long-term debt..................                                            45,000               
Scheduled repayments of long-term debt........    (1,737)      (1,737)     (3,475 )         (616)              
Prepayments of long-term debt.................                                            (5,000)              
Increase (decrease) in amount due to parent...   (28,601)      (2,899)     (2,909 )       19,346       12,164  
Capital contribution from parent (note 10)....    28,611                                       1               
                                               ---------    ---------   ----------   -------------  ---------- 
  Net cash flow from financing activities.....    (1,727)      (4,636)     (6,384 )       58,731       12,164  
                                               ---------    ---------   ----------   -------------  ---------- 
INVESTING ACTIVITIES                                                                                           
Expenditures for vessels and equipment........       (36)        (301)       (308 )      (56,474)     (12,164 )
                                               ---------    ---------   ----------   -------------  ---------- 
  Net cash flow from investing activities.....       (36)        (301)       (308 )      (56,474)     (12,164 )
                                               ---------    ---------   ----------   -------------  ---------- 
(Decrease) increase in cash equivalents.......       128       (3,293)     (3,127 )        3,561               
Cash equivalents, beginning of the period.....       434        3,561       3,561                              
                                               ---------    ---------   ----------   -------------  ---------- 
Cash equivalents, end of the period...........       562          268         434          3,561               
                                                ========     ========    ========     ==========     ========  

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

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VSSI OCEANS INC.

STATEMENTS OF INCOME AND RETAINED EARNINGS

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                                                    SIX-MONTHS ENDED
                                                                                     SEPTEMBER 30,  
                                                                                          1995      
                                                                                    ----------------
                                                                                                    
                                                                                      (UNAUDITED)   
REVENUES                                                                                            
Voyage revenues....................................................................        1,265    
OPERATING EXPENSES                                                                                  
Vessel operating expenses..........................................................          202    
Depreciation and amortization......................................................          385    
General and administrative (note 3)................................................           51    
                                                                                         -------    
                                                                                             638    
                                                                                         -------    
Income from vessel operations......................................................          627    
                                                                                         -------    
Other items                                                                                         
Interest expense...................................................................         (462)   
Interest income....................................................................            1    
                                                                                         -------    
                                                                                            (461)   
                                                                                         -------    
Net income.........................................................................          166    
Retained earnings, beginning of the period.........................................                 
                                                                                         -------    
Retained earnings, end of the period...............................................          166    
                                                                                         =======    

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

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VSSI OCEANS INC.

BALANCE SHEETS

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                                   AT SEPTEMBER 30,                 
                                                                ----------------------  AT MARCH 31,
                                                                  1995          1994        1995    
                                                                --------      --------  ------------
                                                                                                    
                                                                     (UNAUDITED)                    
ASSETS                                                                                              
CURRENT                                                                                             
Cash equivalents...............................................       74            23           2  
Accounts receivable............................................                                     
Prepaid expenses...............................................      183                            
                                                                  ------        ------      ------  
      Total current assets.....................................      257            23           2  
                                                                  ------        ------      ------  
Vessel and equipment (note 5)                                                                       
At cost, less accumulated depreciation (September 30,                                               
  1995--$399)..................................................   49,813                            
Advances on vessel.............................................                  2,545       2,642  
                                                                  ------        ------      ------  
                                                                  50,070         2,568       2,644  
                                                                  ======        ======      ======  
LIABILITIES AND STOCKHOLDER'S EQUITY                                                                
CURRENT                                                                                             
Accounts payable...............................................      178                         4  
Accrued liabilities (note 4)...................................      179             5              
Current portion of capital lease obligation (note 6)...........    2,709                            
                                                                  ------        ------      ------  
      Total current liabilities................................    3,066             5           4  
                                                                  ------        ------      ------  
Capital lease obligation (note 6)..............................   41,200                            
Due to parent--without interest or stated terms of repayment                                        
  (note 10)....................................................                  2,562       2,639  
                                                                  ------        ------      ------  
      Total liabilities........................................   44,266         2,567       2,643  
                                                                  ------        ------      ------  
STOCKHOLDER'S EQUITY                                                                                
Capital stock (note 8).........................................        1             1           1  
Contributed surplus (note 10)..................................    5,637                            
Retained earnings..............................................      166                            
                                                                  ------        ------      ------  
      Total stockholder's equity...............................    5,804             1           1  
                                                                  ------        ------      ------  
                                                                  50,070         2,568       2,644  
                                                                  ======        ======      ======  

Contingencies (note 11)                                                         

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

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VSSI OCEANS INC.

STATEMENTS OF CASH FLOWS

(IN THOUSANDS OF U.S. DOLLARS)

                                                        [Enlarge/Download Table]

                                                                    SIX-MONTHS ENDED                
                                                                     SEPTEMBER 30,        YEAR ENDED
                                                                 ----------------------   MARCH 31, 
                                                                   1995          1994        1995   
                                                                 --------      --------   ----------
                                                                 (UNAUDITED)                        
                                                                                                    
Cash provided by (used for)                                                                         
OPERATING ACTIVITIES                                                                                
Net Income (loss)...............................................      166                           
Add (deduct) charges to operations not requiring a payment of                                       
  cash:                                                                                             
  Depreciation and amortization.................................      385                           
Change in non-cash working capital items (note 9)...............      170             5           4 
                                                                 --------      --------   ----------
  Net cash flow from operating activities.......................      721             5           4 
                                                                 --------      --------   ----------
FINANCING ACTIVITIES                                                                                
Scheduled repayments of capital lease obligation................     (641)                          
Increase (decrease) in amount due to parent.....................   (2,639)        2,562       2,639 
Capital contribution from parent (note 10)......................    5,637             1           1 
                                                                 --------      --------   ----------
  Net cash flow from financing activities.......................    2,357         2,563       2,640 
                                                                 --------      --------   ----------
INVESTING ACTIVITIES                                                                                
Expenditures for vessels acquired under capital lease (net of                                       
  capital lease financing of: September 30, 1995--$44,550)......   (3,006)       (2,545)     (2,642)
                                                                 --------      --------   ----------
  Net cash flow from investing activities.......................   (3,006)       (2,545)     (2,642)
                                                                 --------      --------   ----------
Increase in cash equivalents....................................       72            23           2 
Cash equivalents, beginning of the period.......................        2                           
                                                                 --------      --------   ----------
Cash equivalents, end of the period.............................       74            23           2 
                                                                  =======       =======   ========= 

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

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ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")

NOTES TO THE FINANCIAL STATEMENTS 

(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR 
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES                                  

Basis of presentation                                                 

  In the opinion of management, the unaudited interim financial statements
contain all adjustments (consisting only of normal recurring accruals),         
necessary to present fairly, in all material respects, the Companies' financial 
position as at September 30, 1995 and 1994 and their related results of         
operations and cash flows for the six-month periods ended September 30, 1995 and
1994. The results of operations for the six-month period ended September 30,    
1995 are not necessarily indicative of those for a full fiscal year.            

Reporting currency                                                    

    The Companies' financial statements are stated in U.S. dollars because the
Companies operate in international shipping markets which utilize the U.S.      
dollar as the functional currency.                                              

Change in fiscal year end                                             

  The Companies changed their fiscal year ends, from April 30 to March 31,
effective March 31, 1994 and accordingly, the results of operations and cash    
flows presented for fiscal 1994 are for the eleven months ended March 31, 1994. 

Operating revenues and expenses                                       

     Voyage revenues and expenses are recognized on the percentage of completion
method of accounting. Estimated losses on voyages are provided for in full at   
the time such losses become evident. The balance sheets reflect the deferred    
portion of revenues and expenses applicable to subsequent periods.              

     Vessel expenses comprise all expenses relating to the operation of vessels,
including crewing, repairs and maintenance, insurance, stores and lubes, and    
miscellaneous expenses including communications.                                

Vessels and equipment                                                 

   All pre-delivery costs incurred during the construction of new buildings,
including interest costs, and supervision and technical costs are capitalized.  
The acquisition cost and all costs incurred to restore used vessel purchases to 
the standard required to properly service the Companies' customers are          
capitalized. Depreciation is calculated on a straight-line basis over a vessel's
useful life, estimated by the Companies to be twenty years from the date a      
vessel is initially placed in service.                                          

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ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")

NOTES TO THE FINANCIAL STATEMENTS -- (CONT'D) 

(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR 
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

    Interest costs capitalized to vessels and equipment totalled approximately
the following:                                                                  

                                                        [Enlarge/Download Table]

                                   SIX MONTHS ENDED                ELEVEN MONTHS            
                                     SEPTEMBER 30,     YEAR ENDED      ENDED      YEAR ENDED
                                  -------------------  MARCH 31,     MARCH 31,    APRIL 30, 
                                   1995        1994       1995         1994          1993   
                                     $           $         $             $            $     
                                  -------     -------  ----------  -------------  ----------
                                                                                            
Andros Spirit Inc................                                                       403 
Exuma Spirit Inc.................                                                       317 
Nassau Spirit Inc................                                                       181 
Senang Spirit Inc................                                         584           537 
VSSI Appian Inc..................                                                           
VSSI Atlantic Inc................                                         887               
VSSI Oceans Inc..................      79          63        151                            

    Expenditures incurred during drydocking are capitalized and amortized on a
straight-line basis over the period until the next anticipated drydocking. When 
significant drydocking expenditures recur prior to the expiry of this period,   
the remaining balance of the original drydocking is expensed in the month of the
subsequent drydocking.                                                          

Vessels acquired pursuant to bareboat hire purchase agreements are    
capitalized as capital leases and are amortized over the estimated useful life  
of the acquired vessel.                                                         

Effective April 1, 1995, the Companies revised their estimates of the 
residual values of their vessels. The effect of this change in estimated        
residual values was to reduce depreciation expense for the six-month period     
ended September 30, 1995 for each of the Companies by approximately $85,000     
(except for VSSI Oceans Inc.--$25,000).                                         

Other assets                                                          

     Loan costs, including fees, commissions and legal expenses, are capitalized
and amortized over the term of the relevant loan.                               

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ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")

NOTES TO THE FINANCIAL STATEMENTS -- (CONT'D) 

(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR 
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

Cash flows                                                            

Cash interest paid totalled approximately as follows:                 

                                                        [Enlarge/Download Table]

                                   SIX MONTHS ENDED                ELEVEN MONTHS            
                                     SEPTEMBER 30,     YEAR ENDED      ENDED      YEAR ENDED
                                  -------------------  MARCH 31,     MARCH 31,    APRIL 30, 
                                   1995        1994       1995         1994          1993   
                                     $           $         $             $            $     
                                  -------     -------  ----------  -------------  ----------
                                                                                            
Andros Spirit Inc. ..............   1,192       1,000      2,156        2,046           999 
Exuma Spirit Inc. ...............   1,185         995      2,144        2,324         1,252 
Nassau Spirit Inc. ..............   1,139         989      2,161        1,963         2,219 
Senang Spirit Inc. ..............   1,392       1,176      2,448          974               
VSSI Appian Inc. ................   1,401       1,196      2,589        2,062         2,642 
VSSI Atlantic Inc. ..............   1,394       1,074      2,351          313               
VSSI Oceans Inc. ................     350                    151                            

   The Companies consider all highly liquid investments with a maturity date
of three months or less when purchased to be included in cash equivalents.      

Income taxes                                                          

The legal jurisdictions of the countries in which the Companies are   
incorporated do not impose income taxes upon shipping-related activities.       

2.  BUSINESS OPERATIONS                                                         

    The Companies are engaged in the ocean transportation of petroleum cargoes
worldwide through the ownership and operation of a fleet of tankers. All of the 
Companies' vessels operate in international markets.                            

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ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")

NOTES TO THE FINANCIAL STATEMENTS -- (CONT'D) 

(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR 
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

3.  CONTRACTUAL RELATIONSHIPS                                                   

 The Companies have entered into agreements with Teekay Shipping Limited
("TSL") an affiliated company, whereby TSL and its affiliated companies render  
administrative, operating and ship management services in return for a monthly  
fee and commissions at rates considered usual and customary to the industry. All
of the Companies' revenues are earned through long-term charter agreements with 
Palm Shipping Inc. ("Palm"), an affiliated company, which markets the vessels on
the spot tanker market. Fees and commissions incurred, included in general and  
administrative expenses, are as follows:                                        

                                                        [Enlarge/Download Table]

                                   SIX MONTHS ENDED                ELEVEN MONTHS            
                                     SEPTEMBER 30,     YEAR ENDED      ENDED      YEAR ENDED
                                  -------------------  MARCH 31,     MARCH 31,    APRIL 30, 
                                   1995        1994       1995         1994          1993   
                                     $           $         $             $            $     
                                  -------     -------  ----------  -------------  ----------
                                                                                            
Andros Spirit Inc................     102          85        187          178            77 
Exuma Spirit Inc.................     102         105        204          178               
Nassau Spirit Inc................     102         102        204          178           169 
Senang Spirit Inc................     102         102        204           51               
VSSI Appian Inc..................     102         102        204          178           185 
VSSI Atlantic Inc................     102         102        204           34               
VSSI Oceans Inc..................      34                                                   

4.  ACCRUED LIABILITIES                                                         

                                                        [Enlarge/Download Table]

                                                  SEPTEMBER 30,                          
                                               --------------------  MARCH 31,  MARCH 31,
                                                1995         1994      1995       1994   
                                                  $            $         $          $    
                                               -------      -------  ---------  ---------
                                                                                         
Vessel                                                                                   
Andros Spirit Inc.............................       9                                   
Exuma Spirit Inc..............................       7                                   
Nassau Spirit Inc.............................       9                                   
Senang Spirit Inc.............................      17                                   
VSSI Appian Inc...............................       8            1         1            
VSSI Atlantic Inc.............................                              1            
VSSI Oceans Inc...............................                    5                      
Interest                                                                                 
Andros Spirit Inc.............................      22           24        49         29 
Exuma Spirit Inc..............................      22           23        49         28 
Nassau Spirit Inc.............................       5                                   
Senang Spirit Inc.............................      27           26        54        109 
VSSI Appian Inc...............................      28           28        31         18 
VSSI Atlantic Inc.............................      27           26        54         15 
VSSI Oceans Inc...............................     191                                   

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ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")

NOTES TO THE FINANCIAL STATEMENTS -- (CONT'D) 

(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR 
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

                                                        [Enlarge/Download Table]

                                                  SEPTEMBER 30,                          
                                               --------------------  MARCH 31,  MARCH 31,
                                                1995         1994      1995       1994   
                                                  $            $         $          $    
                                               -------      -------  ---------  ---------
                                                                                         
Payroll and benefits                                                                     
Andros Spirit Inc.............................      22            5        20         19 
Exuma Spirit Inc..............................       9           12         7         24 
Nassau Spirit Inc.............................      33           28        56         10 
Senang Spirit Inc.............................      17           32        37         19 
VSSI Appian Inc...............................       7           27        16         26 
VSSI Atlantic Inc.............................       6           11        24         33 
VSSI Oceans Inc...............................     (12)                                  
Total accrued liabilities                                                                
Andros Spirit Inc.............................      53           29        69         48 
Exuma Spirit Inc..............................      38           35        56         52 
Nassau Spirit Inc.............................      47           28        56         10 
Senang Spirit Inc.............................      61           58        91        128 
VSSI Appian Inc...............................      43           56        48         44 
VSSI Atlantic Inc.............................      33           37        79         48 
VSSI Oceans Inc...............................     179            5                      

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ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")

NOTES TO THE FINANCIAL STATEMENTS -- (CONT'D) 

(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR 
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

5.  LONG-TERM DEBT                                                              

                                                        [Enlarge/Download Table]

                                                 SEPTEMBER 30,                           
                                             ----------------------  MARCH 31,  MARCH 31,
                                               1995          1994      1995       1994   
                                                $             $          $          $    
                                             --------      --------  ---------  ---------
                                                                                         
Floating rate (LIBOR + 1 to 1.5%) U.S.                                                   
  dollar debt through 2006                                                               
  Andros Spirit Inc.........................   28,543        35,386    33,631     37,140 
  Exuma Spirit Inc..........................   28,311        35,226    33,435     37,018 
  Nassau Spirit Inc.........................   28,086        35,080    33,250     36,911 
  Senang Spirit Inc.........................   34,166        37,499    35,832     39,166 
  VSSI Appian Inc...........................   34,760        39,053    36,907     41,199 
  VSSI Atlantic Inc.........................   34,172        37,647    35,909     39,384 
Current portion of long-term debt incurred                                               
  above:                                                                                 
  Andros Spirit Inc.........................    3,509         3,510     3,509      3,509 
  Exuma Spirit Inc..........................    3,582         3,582     3,582      3,582 
  Nassau Spirit Inc.........................    3,355         3,355     3,355      3,355 
  Senang Spirit Inc.........................    3,333         3,333     3,333      3,333 
  VSSI Appian Inc...........................    4,292         4,292     4,292      4,292 
  VSSI Atlantic Inc.........................    3,475         3,475     3,475      3,475 

    Each loan is collateralized by a first preferred mortgage on the vessel to
which the loan relates together with assignments of earnings and insurance, as  
well as guarantees from the parent company, Teekay Shipping Corporation         
(formerly Viking Star Shipping Inc.) ("Teekay").                                

     Amongst other matters, the long-term debt agreements generally provided for
such items as prepayment privileges (in some cases with penalties), and         
restrictions against the incurrence of additional debt and new investments by   
the individual subsidiaries without prior lender consent.                       

Teekay intends to refinance each of the Companies' long-term debt and 
capital lease obligations with the net proceeds from the proposed offering of   
$225,000,000 First Preferred Ship Mortgage Notes (the "Notes"). The Notes will  
be subject to a sinking fund, which will retire $45 million principal amount of 
the Notes each year commencing 2004. As a result, there will be no required     
principal repayments on the Companies' existing long-term debt and capital lease
obligation subsequent to the completion of the Note Offering.                   

6.  LEASES                                                                      

Charters-in                                                           

During February and March 1994, Andros Spirit Inc., Exuma Spirit Inc.,
Nassau Spirit Inc. and Senang Spirit Inc. converted each of its remaining       
capital lease obligations into long-term indebtedness.                          

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ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")

NOTES TO THE FINANCIAL STATEMENTS -- (CONT'D) 

(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR 
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

In August 1995, VSSI Oceans Inc. entered into a bareboat hire purchase
agreement which is accounted for as a capital lease. The capital lease bears an 
interest rate of LIBOR + 1.25% and is due through 2008.                         

Charters-out                                                          

Time charters of the Companies' vessels to Palm are accounted for as  
operating leases. The minimum future revenues to be received on time charters   
currently in place are as follows:                                              

ANDROS SPIRIT INC.

                                                        [Enlarge/Download Table]

                                                                                    $    
                                                                                 --------
                                                                                         
1996 (Six months from October 1, 1995 to March 31, 1996)........................    3,881
1997............................................................................    7,742
1998............................................................................    7,742
1999............................................................................    7,742
2000............................................................................    7,763
                                                                                 --------
                                                                                   34,870
                                                                                 ========

EXUMA SPIRIT INC. 

                                                        [Enlarge/Download Table]

                                                                                    $    
                                                                                 --------
                                                                                         
1996 (Six months from October 1, 1995 to March 31, 1996)........................    3,911
1997............................................................................    7,800
1998............................................................................    7,800
1999............................................................................    7,800
2000............................................................................    7,821
                                                                                 --------
                                                                                   35,132
                                                                                 ========

NASSAU SPIRIT INC.

                                                        [Enlarge/Download Table]

                                                                                    $    
                                                                                 --------
                                                                                         
1996 (Six months from October 1, 1995 to March 31, 1996)........................    3,956
1997............................................................................    7,891
1998............................................................................    7,891
1999............................................................................    7,891
2000............................................................................    7,913
                                                                                 --------
                                                                                   35,542
                                                                                 ========

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ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")

NOTES TO THE FINANCIAL STATEMENTS -- (CONT'D) 

(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR 
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

SENANG SPIRIT INC.

                                                        [Enlarge/Download Table]

                                                                                    $    
                                                                                 --------
                                                                                         
1996 (Six months from October 1, 1995 to March 31, 1996)........................    4,180
1997............................................................................    8,337
1998............................................................................    8,337
1999............................................................................    8,337
2000............................................................................    8,359
                                                                                 --------
                                                                                   37,550
                                                                                 ========

VSSI APPIAN INC.

                                                        [Enlarge/Download Table]

                                                                                    $    
                                                                                 --------
                                                                                         
1996 (Six months from October 1, 1995 to March 31, 1996)........................    4,659
1997............................................................................    9,293
1998............................................................................    9,293
1999............................................................................    9,293
2000............................................................................    9,318
                                                                                 --------
                                                                                   41,856
                                                                                 ========

VSSI ATLANTIC INC.

                                                        [Enlarge/Download Table]

                                                                                    $    
                                                                                 --------
                                                                                         
1996 (Six months from October 1, 1995 to March 31, 1996)........................    4,268
1997............................................................................    8,512
1998............................................................................    8,512
1999............................................................................    8,512
2000............................................................................    8,535
                                                                                 --------
                                                                                   38,339
                                                                                 ========

VSSI OCEANS INC.

                                                        [Enlarge/Download Table]

                                                                                    $    
                                                                                 --------
                                                                                         
1996 (Six months from October 1, 1995 to March 31, 1996)........................    3,891
1997............................................................................    7,760
1998............................................................................    7,760
1999............................................................................    7,760
2000............................................................................    7,781
                                                                                 --------
                                                                                   34,952
                                                                                 ========

     The minimum future revenues should not be construed to reflect total voyage
revenues for any of the periods.                                                

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ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")

NOTES TO THE FINANCIAL STATEMENTS -- (CONT'D) 

(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR 
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

7.  FAIR VALUE OF FINANCIAL INSTRUMENTS                                         

    The following methods and assumptions were used to estimate the fair value
of each class of financial instruments.                                         

   Cash equivalents and restricted cash--The carrying amounts represent fair
value.                                                                          

     Long-term debt--The carrying amounts of floating rate debt approximate fair
value.                                                                          

The fair values of the Companies' long-term debt and other financial  
instruments approximate their carrying values at September 30, 1995, March 31,  
1995, and March 31, 1994.                                                       

8.  CAPITAL STOCK                                                               

Capital stock for each of the Companies is as follows:                

AUTHORIZED                                                              
500  Common Stock with no par value--VSSI Appian Inc., VSSI         
Atlantic Inc., and VSSI Oceans Inc..........................  
5,000 Common Stock with a par value of $1 per share--Andros         
Spirit Inc., Exuma Spirit Inc., Nassau Spirit Inc., and       
Senang Spirit Inc.                                            

                                                                [Download Table]

                                                                COMMON        
                                                                STOCK         
                                                                  $       #   
                                                                ------  ------
                                                                              
ISSUED AND OUTSTANDING                                                        
  VSSI Appian Inc., VSSI Atlantic Inc., and VSSI Oceans Inc....     1      500
  All other Companies..........................................     5    5,000

9.  CHANGE IN NON-CASH WORKING CAPITAL ITEMS                                    

                                                        [Enlarge/Download Table]

                                  SIX-MONTHS ENDED                  ELEVEN MONTHS            
                                    SEPTEMBER 30,       YEAR ENDED      ENDED      YEAR ENDED
                                ---------------------   MARCH 31,     MARCH 31,    APRIL 30, 
                                  1995         1994        1995         1994          1993   
                                   $            $           $             $            $     
                                --------     --------   ----------  -------------  ----------
                                                                                             
Accounts receivable                                                                          
Andros Spirit Inc..............       28          (12)        (28)                           
Exuma Spirit Inc...............       15                      (15)                           
Nassau Spirit Inc..............                     1           1            (1)             
Senang Spirit Inc..............        2                       (2)                           
VSSI Appian Inc................       12          144         144           (66)         (90)
VSSI Atlantic Inc..............       (3)                     (10)                           
VSSI Oceans Inc................                                                              

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ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")

NOTES TO THE FINANCIAL STATEMENTS -- (CONT'D) 

(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR 
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

                                                        [Enlarge/Download Table]

                                  SIX-MONTHS ENDED                  ELEVEN MONTHS            
                                    SEPTEMBER 30,       YEAR ENDED      ENDED      YEAR ENDED
                                ---------------------   MARCH 31,     MARCH 31,    APRIL 30, 
                                  1995         1994        1995         1994          1993   
                                   $            $           $             $            $     
                                --------     --------   ----------  -------------  ----------
                                                                                             
Prepaid expenses                                                                             
Andros Spirit Inc..............      (29)         (74)        (40)           81         (183)
Exuma Spirit Inc...............       (7)         (71)        (65)           66         (177)
Nassau Spirit Inc..............       (8)         (82)        (81)           79         (180)
Senang Spirit Inc..............      (16)         (81)        (40)         (135)             
VSSI Appian Inc................       68          (84)        (86)           22           (1)
VSSI Atlantic Inc..............       12           (7)         12          (179)             
VSSI Oceans Inc................     (183)                                                    
Accounts payable                                                                             
Andros Spirit Inc..............       (3)          38          48            27           36 
Exuma Spirit Inc...............      (80)          60          97            (3)          52 
Nassau Spirit Inc..............        5          (10)        (48)           82          (30)
Senang Spirit Inc..............       55           44          54            28              
VSSI Appian Inc................      (53)          21          21           101         (103)
VSSI Atlantic Inc..............       16           72          54            43              
VSSI Oceans Inc................      174                        4                            
Accrued liabilities                                                                          
Andros Spirit Inc..............      (16)         (19)         21            11           37 
Exuma Spirit Inc...............      (18)         (17)          4             9           43 
Nassau Spirit Inc..............       (9)          18          46           (23)          33 
Senang Spirit Inc..............      (30)         (70)        (37)          128              
VSSI Appian Inc................       (5)          12           4            (1)         (22)
VSSI Atlantic Inc..............      (46)         (11)         31            48              
VSSI Oceans Inc................      179            5                                        
Deferred time charter revenue                                                                
Andros Spirit Inc..............                                            (624)         624 
Exuma Spirit Inc...............                                            (663)         663 
Nassau Spirit Inc..............                                              (1)           1 
Senang Spirit Inc..............                                                              
VSSI Appian Inc................                                            (621)         (23)
VSSI Atlantic Inc..............                                                              
VSSI Oceans Inc................                                                              

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ANDROS SPIRIT INC., EXUMA SPIRIT INC., NASSAU SPIRIT INC., SENANG SPIRIT INC.,
VSSI APPIAN INC., VSSI ATLANTIC INC., VSSI OCEANS INC. (THE "COMPANIES")

NOTES TO THE FINANCIAL STATEMENTS -- (CONT'D) 

(INFORMATION AS AT SEPTEMBER 30, 1995 AND SEPTEMBER 30, 1994, AND FOR 
THE SIX-MONTH PERIODS THEN ENDED, IS UNAUDITED) 

(ALL TABULAR AMOUNTS STATED IN THOUSANDS OF U.S. DOLLARS) 

                                                        [Enlarge/Download Table]

                                  SIX-MONTHS ENDED                  ELEVEN MONTHS            
                                    SEPTEMBER 30,       YEAR ENDED      ENDED      YEAR ENDED
                                ---------------------   MARCH 31,     MARCH 31,    APRIL 30, 
                                  1995         1994        1995         1994          1993   
                                   $            $           $             $            $     
                                --------     --------   ----------  -------------  ----------
                                                                                             
Total change in non-cash                                                                     
  working capital items                                                                      
Andros Spirit Inc..............      (20)         (67)          1          (505)         514 
Exuma Spirit Inc...............      (90)         (28)         21          (591)         581 
Nassau Spirit Inc..............      (12)         (73)        (82)          136         (176)
Senang Spirit Inc..............       11         (107)        (25)           21              
VSSI Appian Inc................       22           93          83          (565)        (239)
VSSI Atlantic Inc..............      (21)          54          87           (88)             
VSSI Oceans Inc................      170            5           4                            

10. CONTRIBUTED SURPLUS                                                         

   During the period ended September 30, 1995, the Companies' parent, Teekay
contributed approximately $144.8 million to the Companies by way of a capital   
contribution consisting of forgiveness of inter-company debt.                   

11. CONTINGENCIES                                                               

Subsequent to September 30, 1995, all of the Companies will guarantee 
certain of the indebtedness of their parent company, Teekay, in conjunction with
its proposed offering of $225 million First Preferred Ship Mortgage Notes due   
2008.                                                                           

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                                                                       EXHIBIT A

DEFINITIONS OF SHIPPING TERMS 

The following is a set of definitions for shipping terms that are used
throughout this Prospectus:                                                     

   "AFRAMAX TANKER"  An oil tanker of 75,000 - 115,000 dwt. Certain external
statistical compilations define an "Aframax Tanker" slightly differently, some  
going as high as 125,000 dwt and others as low as 70,000 dwt. External data used
in this prospectus has been adjusted so that the definition of "Aframax Tanker" 
is consistent throughout.                                                       

"ANNUAL SURVEY"  An annual inspection of a vessel by a classification 
society surveyor to ensure that the vessel meets the standards of that society. 

     "BALLAST"  A vessel is in ballast when it is steaming without cargo, and is
instead loaded down with sea water for stability. Given that oil production is  
concentrated in certain parts of the world, a vessel will generally spend a     
significant amount of time "ballasting" as it returns from discharge port to    
load port.                                                                      

    "BAREBOAT CHARTER"  The leasing of an empty ship for a specified period of
time for a specific fee. In this arrangement, the shipowner virtually           
relinquishes all rights and responsibilities in respect of the vessel and the   
charterer becomes the de facto ("disponent") owner for this period. The         
charterer is generally responsible for all operating expenses including crewing 
and insurance                                                                   

"BUNKER"  Fuel oil used to operate a vessel's engines and generators. 

    "CHARTER"  The hiring of a vessel for either 1) a specified period of time
or 2) a specific voyage or set of voyages.                                      

"CHARTERER"  The entity hiring the vessel from the shipowner.         

"CHARTER-PARTY"  The contract between the owner and the charterer,    
stipulating in detail each party's responsibilities in the transaction.         

"CLASSIFICATION"  In order for a vessel to obtain both insurance and  
employment with most oil majors, the vessel must belong to a classification     
society, an independent body run under the direction of various shipping        
professionals. In order to maintain classification, a vessel must meet the      
standards of that society and be inspected on a regular basis.                  

     "CRUDE CARRIER"  A tanker vessel designed to carry crude oil or other dirty
products.                                                                       

"DEMURRAGE"  Compensation paid by the charterer to the ship owner when
loading and discharging time exceed the stipulated time in the voyage           
charter-party. This rate of compensation is generally explicitly stated in the  
charter-party.                                                                  

     "DOUBLE BOTTOM OR DOUBLE HULL"  Hull construction technique by which a ship
has an inner and outer bottom or hull separated by void space, usually several  
feet in width.                                                                  

    "DWT"  Deadweight ton. A unit of a vessel's capacity, for cargo, fuel oil,
stores and crew, measured in metric tons of 1,000 kg. A vessel's dwt or total   
deadweight is the total weight the vessel can carry when loaded to a particular 
load line.                                                                      

  "HEAVY PETROLEUM PRODUCTS"  Certain products derived from crude oil that
crude carriers are capable of carrying.                                         

   "IDLE-TIME" or "WAITING DAYS"  Period during which a vessel is able to be
employed but is not earning revenue.                                            

  "IMO"  International Maritime Organization, a United Nations agency that
issues international trade standards for shipping.                              

"INTERMEDIATE SURVEY"  The inspection of a vessel by a classification 
society surveyor which takes place approximately two and a half years before and
after each Special Survey. This survey is more                                  

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rigorous than the "Annual Survey" and is meant to ensure that the vessel meets  
the standards of the classification society.                                    

"LADEN"  A vessel is laden when it is carrying cargo.                 

"LAY-UP"  Mooring a ship at a protected anchorage, shutting down      
substantially all of its operating systems and taking measures to protect       
against corrosion and other deterioration. Generally, a ship enters lay-up for a
period when its owner does not consider it profitable to continue trading that  
vessel for that period.                                                         

    "LIGHT PETROLEUM PRODUCTS"  Products of crude oil that have passed through
an extensive refining process. It is generally not possible for crude carriers  
to carry these products.                                                        

"M/T"  Motor Tanker. A tanker propelled by diesel engines.            

"NEWBUILDING"  A new vessel under construction.                       

"OFF-HIRE"  Period during which a vessel is temporarily incapable of  
trading due to drydocking, maintenance, repair or breakdown.                    

    "OIL/BULK/ORE CARRIER"  An ocean-going vessel designed to carry either oil
or dry bulk cargoes.                                                            

"OPA 90"  The United States Oil Pollution Act of 1990.                

"PANAMAX TANKER"  A vessel of approximately 50,000 to 75,000 dwt, of  
maximum length and breadth and draught capable of passing through the Panama    
Canal.                                                                          

   "PROTECTION AND INDEMNITY INSURANCE"  Insurance obtained through a mutual
association formed by ship owners to provide protection from large financial    
loss to one member by contribution towards that loss by all members.            

"SCRAP"  At the end of its life, a vessel is sold to a shipbreaker who
strips the ship and sells the steel. When charter rates are low, the scrap value
of the vessel may exceed the present trading value of that vessel, especially if
the vessel must incur significant costs to pass special surveys.                

"SMALL TANKER"  A tanker generally of less than 50,000 dwt.           

  "SPECIAL SURVEY"  The inspection of a vessel by a classification society
surveyor which takes place every four to five years. A shipowner often must     
incur a great deal of repair expense in order to pass his fourth and fifth      
special survey and as a result may choose to simply scrap the vessel beforehand.

"SPOT MARKET"  The market for chartering a vessel for single voyages. 

"STORAGE"  The use of a vessel for the storage rather than the        
transportation of cargo. When spot market rates are low, a vessel can earn      
comparable net cash flow from storage.                                          

"SUEZMAX TANKER"  A vessel of approximately 115,000 to 200,000dwt of  
maximum length and breadth and draught capable of passing through the Suez      
Canal.                                                                          

    "TCE" or "TIME CHARTER EQUIVALENT"  A measure of revenue performance based
on a spot market rate, measured in $/ton, adjusted to equate to a time charter  
rate, measured in dollars per ship per day. TCE is calculated as gross revenue  
less the voyage specific expenses that the owner would not have incurred had the
vessel been time-chartered, divided by the number of voyage days. Consistent    
with industry data, such as that produced by Clarkson, the TCE rates used in    
this Prospectus do not account for brokerage commissions or off-hire and idle   
time.                                                                           

 "TANKER"  Ship designed for the carriage of liquid cargoes in bulk, her
cargo space consisting of many tanks. Tankers carry a variety of products       
including crude oil, refined products, liquid chemicals, liquid gas and wine.   
Tankers load their cargo by gravity from the shore or by shore pumps and        
discharge using their own pumps.                                                

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"TIME CHARTER"  The hire of a ship for a specified period of time. The
owner provides the ship with crew, stores and provisions, ready in all aspects  
to load cargo and proceed on a voyage. The charterer pays for bunkering and all 
voyage related expenses including canal tolls and port charges.                 

"TON-MILES"  A measure of tanker demand. Tons carried by a vessel     
multiplied by the distance traveled.                                            

 "ULCC"  Ultra Large Crude Carrier. An ocean-going tanker vessel of more
than 320,000 dwt, designed to carry crude oil cargoes.                          

   "VLCC"  Very Large Crude Carrier. An ocean-going tanker vessel of between
200,000 and 320,000 dwt, designed to carry crude oil cargoes.                   

    "VOYAGE CHARTER"  Contract of carriage in which the charterer pays for the
use of a ship's cargo capacity for one, or sometimes more than one, voyage.     
Under this type of charter, the ship owner pays all the operating costs of the  
ship (including bunkers, canal and port charges, pilotage, towage and ship's    
agency) while payment for cargo handling charges are subject of agreement       
between the parties. Freight is generally paid per unit of cargo, such as a ton,
based on an agreed quantity, or as a lump sum irrespective of the quantity      
loaded.                                                                         

Shipping terms supplied by Dictionary of Shipping Terms, published by 
Lloyds of London Press Limited (1985), and other sources.                       

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[AFRAMAX FLEET] 

[PHOTOS]

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[LEFT SIDE CAPACITY CHART]

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[RIGHT SIDE CAPACITY CHART] 

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=========================================================================-      
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY  
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR  
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN 
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE         
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO     
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE  
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED  
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.                        

---------------------                                           
TABLE OF CONTENTS                                           
---------------------                                           

                                                                [Download Table]

                                                    PAGE 
                                                 ------- 
                                                         
Available Information............................       2
Incorporation of Documents By Reference..........       3
Enforceability of Civil Liabilities Under the            
  Federal Securities Laws........................       3
Prospectus Summary...............................       4
Risk Factors.....................................      14
Use of Proceeds..................................      19
Capitalization...................................      20
The Company......................................      21
Selected Consolidated Financial and Other Data...      23
Management's Discussion and Analysis of Results          
  of Operations and Financial Condition..........      27
Business.........................................      34
Management.......................................      56
Ownership of Teekay..............................      58
Description of Certain Indebtedness..............      59
Certain Transactions With Related Parties........      60
Description of the Notes.........................      61
The Subsidiary Guarantees........................      93
The Mortgaged Vessels............................      94
Tax Considerations...............................      99
Underwriting.....................................     102
Legal Matters....................................     102
Experts..........................................     102
Index to Financial Statements....................     F-1
Definitions of Shipping Terms....................     A-1

$225,000,000
 TEEKAY SHIPPING
 CORPORATION
8.32% FIRST PREFERRED SHIP MORTGAGE NOTES 

  DUE FEBRUARY 1, 2008

[TEEKAY LOGO]   

  GOLDMAN, SACHS & CO.

  MORGAN STANLEY & CO.
  INCORPORATED

   SMITH BARNEY INC.
=========================================================================       

Dates Referenced Herein   and   Documents Incorporated by Reference

				Referenced-On Page
This ‘424B1’ Filing		Date		First		Last			Other Filings
		2/1/08		1		172
		7/19/05		61
		2/1/04		1		68
		7/15/03		121
		7/15/98		121
		7/15/97		121
		4/1/97		122
		8/1/96		1		9
		7/15/96		121
		7/6/96		53
		3/31/96		26		162			20-F
		2/1/96		64
		1/29/96		1		64
Filed on:		1/22/96
		1/19/96		1					F-3/A
		12/31/95		94					6-K
		12/15/95		109		133
		12/13/95		9		97
		12/6/95		63
		11/30/95		8		61
		11/9/95		6					6-K
		10/1/95		122		162
		9/30/95		6		165			6-K
		8/11/95		6
		8/7/95		123
		7/19/95		125
		7/6/95		52
		6/30/95		6
		5/15/95		109
		4/1/95		117		156
		3/31/95		6		163			20-F/A
		2/24/95		122
		9/30/94		15		165
		4/1/94		15		28
		3/31/94		14		163
		1/6/94		53
		12/31/93		8		39
		12/30/93		62
		8/18/93		54
		7/15/93		62
		7/6/93		53
		4/30/93		15		142
		3/31/93		115
		9/20/92		50
		4/30/92		26		125
		3/6/92		52
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