•	We may not have sufficient cash from operations to enable us to pay the minimum quarterly distribution on our common units following the establishment of cash reserves and payment of fees and expenses.
•	We must make substantial capital expenditures to maintain and expand the operating capacity of our fleet, which will reduce our cash available for distribution.
•	Our substantial debt levels may limit our ability to obtain additional financing, pursue other business opportunities and pay distributions to you.
•	We derive a substantial majority of our revenues from three customers, and the loss of any customer, time charter or vessel could result in a significant loss of revenues and cash flow.
•	We depend on Teekay Shipping Corporation to assist us in operating our business, competing in our markets, and providing interim financing for three new LNG carriers.
•	Our growth depends on continued growth in demand for LNG and LNG shipping.
•	Teekay Shipping Corporation and its affiliates may engage in competition with us.
•	Our general partner and its affiliates have conflicts of interest and limited fiduciary duties, which may permit them to favor their own interests to your detriment.
•	Even if unitholders are dissatisfied, they cannot remove our general partner without its consent.
•	You will experience immediate and substantial dilution of $6.38 per common unit.
•	You may be required to pay taxes on your share of our income even if you do not receive any cash distributions from us.

		Per Common Unit				Total
Public Offering Price		$	22.00			$	132,000,000
Underwriting Discount(1)		$	1.4575			$	8,745,000
Proceeds to Teekay LNG Partners L.P. (before expenses)		$	20.5425			$	123,255,000

(1)	Excludes structuring fees payable to Citigroup Global Markets Inc. of $500,000.

A.G. Edwards Raymond James		Jefferies & Company, Inc.		Wachovia Securities Deutsche Bank Securities

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Summary					1
	Teekay LNG Partners L.P.				1
	Business Opportunities				2
	Business Strategies				2
	Competitive Strengths				3
	Summary of Risk Factors				3
	The Transactions				6
	Management of Teekay LNG Partners L.P.				9
	Principal Executive Offices and Internet Address; SEC Filing Requirements				9
	Summary of Conflicts of Interest and Fiduciary Duties				9
	The Offering				11
	Summary Historical and Pro Forma Financial and Operating Data				14
Risk Factors					20
	Risks Inherent in Our Business				20
		We may not have sufficient cash from operations to enable us to pay the minimum quarterly distribution on our common units following the establishment of cash reserves and payment of fees and expenses.			20
		The assumptions underlying the forecast of cash available for distribution we include in “Cash Available for Distribution — Forecasted Available Cash From Operating Surplus” are inherently uncertain and are subject to significant business, economic, financial, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those forecasted.			21
		We must make substantial capital expenditures to maintain the operating capacity of our fleet, which will reduce our cash available for distribution. In addition, each quarter our general partner is required to deduct estimated maintenance capital expenditures from operating surplus, which may result in less cash available to unitholders than if actual maintenance capital expenditures were deducted.			21
		We will be required to make substantial capital expenditures to expand the size of our fleet. We generally will be required to make significant installment payments for acquisitions of newbuilding vessels prior to their delivery and generation of revenue. Depending on whether we finance our expenditures through cash from operations or by issuing debt or equity securities, our ability to make cash distributions may be diminished or our financial leverage could increase or our unitholders could be diluted.			22
		Our substantial debt levels may limit our flexibility in obtaining additional financing and in pursuing other business opportunities.			23
		We derive a substantial majority of our revenues from three customers, and the loss of any customer, time charter or vessel could result in a significant loss of revenues and cash flow.			23
		We depend on Teekay Shipping Corporation to assist us in operating our business, competing in our markets, and providing interim financing for three new LNG carriers.			24
		Our growth depends on continued growth in demand for LNG and LNG shipping.			25
		Growth of the LNG market may be limited by infrastructure constraints and community and environmental group resistance to new LNG infrastructure over concerns about the environment, safety and terrorism.			26
		Our growth depends on our ability to expand relationships with existing customers and obtain new customers, for which we will face substantial competition.			26
		Delays in deliveries of newbuildings could harm our operating results and lead to the termination of related time charters.			27
		We may have more difficulty entering into long-term, fixed-rate time charters if an active short-term or spot LNG shipping market develops.			28
		Over time, vessel values may fluctuate substantially and, if these values are lower at a time when we are attempting to dispose of a vessel, we may incur a loss.			28

i

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	We may be unable to make or realize expected benefits from acquisitions, and implementing our growth strategy through acquisitions may harm our business, financial condition and operating results.			28
	Terrorist attacks, increased hostilities or war could lead to further economic instability, increased costs and disruption of our business.			29
	Our substantial operations outside the United States expose us to political, governmental and economic instability, which could harm our operations.			29
	Marine transportation is inherently risky, and an incident involving significant loss of or environmental contamination by any of our vessels could harm our reputation and business.			30
	Our insurance may be insufficient to cover losses that may occur to our property or result from our operations.			30
	The marine energy transportation industry is subject to substantial environmental and other regulations, which may significantly limit our operations or increase our expenses.			31
	Exposure to currency exchange rate fluctuations will result in fluctuations in our cash flows and operating results.			32
	Our limited experience in LNG shipping could affect our ability to operate profitably and grow			32
	We have no history operating as a separate publicly traded entity and will incur increased costs as a result of being a publicly traded limited partnership			32
	Many of our seafaring employees are covered by collective bargaining agreements and the failure to renew those agreements or any future labor agreements may disrupt our operations and adversely affect our cash flows.			33
	Due to our lack of diversification, adverse developments in our LNG or oil marine transportation business could reduce our ability to make distributions to our unitholders.			33
Risks Inherent in an Investment in Us				33
	Teekay Shipping Corporation and its affiliates may engage in competition with us.			33
	Our general partner and its other affiliates have conflicts of interest and limited fiduciary duties, which may permit them to favor their own interests to your detriment.			34
	Our partnership agreement limits our general partner’s fiduciary duties to our unitholders and restricts the remedies available to unitholders for actions taken by our general partner.			35
	Fees and cost reimbursements, which our general partner will determine for services provided to us and certain of our subsidiaries, will be substantial and will reduce our cash available for distribution to you.			35
	Even if unitholders are dissatisfied, they cannot remove our general partner without its consent.			36
	The control of our general partner may be transferred to a third party without unitholder consent.			36
	You will experience immediate and substantial dilution of $6.38 per common unit.			37
	We may issue additional common units without your approval, which would dilute your ownership interests.			37
	In establishing cash reserves, our general partner may reduce the amount of cash available for distribution to you.			37
	Our general partner has a limited call right that may require you to sell your common units at an undesirable time or price.			37
	Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units.			38
	You may not have limited liability if a court finds that unitholder action constitutes control of our business.			38
	Our financing agreements will contain operating and financial restrictions which may restrict our business and financing activities.			38
	Restrictions in our debt agreements may prevent us from paying distributions.			39
	We can borrow money to pay distributions, which would reduce the amount of credit available to operate our business.			40
	Unitholders may have limited liquidity for their common units.			40
	Unitholders may have liability to repay distributions.			40

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		We have been organized as a limited partnership under the laws of the Republic of the Marshall Islands, which does not have a well-developed body of partnership law.			40
		Because we are organized under the laws of the Marshall Islands, it may be difficult to serve us with legal process or enforce judgments against us, our directors or our management.			41
	Tax Risks				41
		You may be required to pay U.S. taxes on your share of our income even if you do not receive any cash distributions from us.			41
		Because distributions may reduce your tax basis in our common units, you may realize greater gain on the disposition of your units than you may otherwise expect, and you may have a tax gain even if the price you receive is less than your original cost.			41
		The after-tax benefit of an investment in the common units may be reduced if we are not treated as a partnership for U.S. federal income tax purposes.			41
		If the IRS were to treat us as a corporation, we may also be considered a passive foreign investment company, which may result in adverse U.S. tax consequences to you.			42
		U.S. tax-exempt entities, regulated investment companies and non-U.S. persons face unique U.S. tax issues from owning common units that may result in adverse U.S. tax consequences to them.			43
		You may be subject to income tax in one or more non-U.S. countries, including Canada, as a result of owning our common units if, under the laws of any such country, we are considered to be carrying on business there. Such laws may require you to file a tax return with and pay taxes to those countries. Any foreign taxes imposed on us or any of our subsidiaries will reduce our cash available for distribution to you.			43
Use of Proceeds					44
Capitalization					45
Dilution					47
Cash Distribution Policy					48
	Distributions of Available Cash				48
	Operating Surplus and Capital Surplus				48
	Subordination Period				51
	Distributions of Available Cash From Operating Surplus During the Subordination Period				52
	Distributions of Available Cash From Operating Surplus After the Subordination Period				53
	Incentive Distribution Rights				53
	Percentage Allocations of Available Cash From Operating Surplus				53
	Distributions From Capital Surplus				54
	Adjustment to the Minimum Quarterly Distribution and Target Distribution Levels				54
	Distributions of Cash Upon Liquidation				55
Cash Available for Distribution					58
	General				58
	Pro Forma, As Adjusted Available Cash From Operating Surplus				58
	Forecasted Available Cash From Operating Surplus				59
	Financial Forecast				61
Selected Historical and Pro Forma Financial and Operating Data					72
Management’s Discussion and Analysis of Financial Condition and Results of Operations					78
	Overview				78
	Results of Operations				85
	Liquidity and Capital Resources				89
	Contractual Obligations and Contingencies				95
	Critical Accounting Policies				96
	Quantitative and Qualitative Disclosures About Market Risk				98
Industry					100

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	Liquefied Natural Gas			100
	Crude Oil Shipping — Suezmax Tankers			112
Business				117
	Overview			117
	Business Opportunities			118
	Business Strategies			119
	Competitive Strengths			120
	Our Fleet			121
	Our Customers			123
	Time Charters — General Provisions			124
	LNG Time Charters			126
	Crude Oil Time Charters			128
	Classification, Inspection and Maintenance			128
	Safety, Management of Ship Operations and Administration			129
	Crewing and Staff			130
	Risk of Loss, Insurance and Risk Management			130
	Regulation			131
	Properties			135
	Legal Proceedings			135
	Taxation of the Partnership			135
Management				140
	Management of Teekay LNG Partners L.P.			140
	Directors, Executive Officers and Key Employees			141
	Officers of Teekay LNG Projects Ltd.			143
	Reimbursement of Expenses of Our General Partner			143
	Executive Compensation			144
	Compensation of Directors			144
	2005 Long-Term Incentive Plan			144
Security Ownership of Certain Beneficial Owners and Management				147
Certain Relationships and Related Party Transactions				148
	Distributions and Payments to the General Partner and Its Affiliates			148
	Agreements Governing the Transactions			149
	Omnibus Agreement			149
	Advisory and Administrative Services Agreements			152
	Joint Venture with an Entity Controlled by Mr. Fernando Tapias			153
	Granada Spirit Charter and Purchase Agreement			154
	Agreement to Purchase RasGas II Interest			154
	Agreement Relating to Toledo Spirit			156
	Sale of Suezmax Newbuilding			156
	Directors and Officers of Our General Partner and Key Employees			156
Conflicts of Interest and Fiduciary Duties				157
	Conflicts of Interest			157
	Fiduciary Duties			160
Description of the Common Units				163
	The Units			163
	Transfer Agent and Registrar			163
	Transfer of Common Units			163

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The Partnership Agreement				165
	Organization and Duration			165
	Purpose			165
	Power of Attorney			165
	Capital Contributions			165
	Voting Rights			166
	Limited Liability			167
	Issuance of Additional Securities			168
	Amendment of the Partnership Agreement			169
	Action Relating to the Operating Company			171
	Merger, Sale or Other Disposition of Assets			171
	Termination and Dissolution			171
	Liquidation and Distribution of Proceeds			172
	Withdrawal or Removal of the General Partner			172
	Transfer of General Partner Interest			173
	Transfer of Ownership Interests in General Partner			173
	Transfer of Incentive Distribution Rights			174
	Change of Management Provisions			174
	Limited Call Right			174
	Meetings; Voting			175
	Status as Limited Partner or Assignee			175
	Indemnification			176
	Books and Reports			176
	Right to Inspect Our Books and Records			176
	Registration Rights			177
Units Eligible for Future Sale				178
Material U.S. Federal Income Tax Consequences				179
	Classification as a Partnership			179
	Status as a Partner			180
	Consequences of Unit Ownership			181
	Tax Treatment of Operations			185
	Disposition of Common Units			186
	Foreign Tax Credit Considerations			188
	Tax-Exempt Organizations, Regulated Investment Companies and Non-U.S. Investors			188
	Functional Currency			189
	Administrative Matters			190
	Possible Classification as a Corporation			192
Non-United States Tax Consequences				197
	Marshall Islands Tax Consequences			197
	Canadian Federal Income Tax Consequences			197
Investment in Teekay LNG Partners L.P. by Employee Benefit Plans				199
Underwriting				200
Service of Process and Enforcement of Civil Liabilities				203
Legal Matters				203
Experts				203
Expenses Related to This Offering				204
Where You Can Find More Information				204

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Industry and Market Data			205
Forward-Looking Statements			206
INDEX TO FINANCIAL STATEMENTS			F-1
APPENDIX A  Form of First Amended and Restated Agreement of Limited Partnership of Teekay LNG Partners L.P.			A-1
APPENDIX B  Application for Transfer of Common Units			B-1
APPENDIX C  Glossary of Terms			C-1
APPENDIX D  Pro Forma, As Adjusted Available Cash From Operating Surplus			D-1

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2

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3

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4

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5

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6

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7

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8

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9

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10

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11

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12

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13

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14

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15

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16

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17

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18

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19

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	We may not have sufficient cash from operations to enable us to pay the minimum quarterly distribution on our common units following the establishment of cash reserves and payment of fees and expenses.

	•	the rates we obtain from our charters;
	•	the level of our operating costs, such as the cost of crews and insurance;
	•	the continued availability of LNG production, liquefaction and regasification facilities;
	•	the number of unscheduled off-hire days for our fleet and the timing of, and number of days required for, scheduled drydocking of our vessels;
	•	delays in the delivery of newbuildings and the beginning of payments under charters relating to those vessels;
	•	prevailing global and regional economic and political conditions;
	•	currency exchange rate fluctuations; and
	•	the effect of governmental regulations and maritime self-regulatory organization standards on the conduct of our business.

	•	the level of capital expenditures we make, including for maintaining vessels, building new vessels, acquiring existing vessels and complying with regulations;
	•	our debt service requirements and restrictions on distributions contained in our debt instruments;
	•	fluctuations in our working capital needs;
	•	our ability to make working capital borrowings, including to pay distributions to unitholders; and
	•	the amount of any cash reserves, including reserves for future capital expenditures and other matters, established by our general partner in its discretion.

20

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	The assumptions underlying the forecast of cash available for distribution we include in “Cash Available for Distribution — Forecasted Available Cash From Operating Surplus” are inherently uncertain and are subject to significant business, economic, financial, regulatory and competitive risks and uncertainties that could cause actual results to differ materially from those forecasted.

We must make substantial capital expenditures to maintain the operating capacity of our fleet, which will reduce our cash available for distribution. In addition, each quarter our general partner is required to deduct estimated maintenance capital expenditures from operating surplus, which may result in less cash available to unitholders than if actual maintenance capital expenditures were deducted.

	•	the cost of labor and materials;
	•	customer requirements;
	•	increases in the size of our fleet;
	•	governmental regulations and maritime self-regulatory organization standards relating to safety, security or the environment; and
	•	competitive standards.

21

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We will be required to make substantial capital expenditures to expand the size of our fleet. We generally will be required to make significant installment payments for acquisitions of newbuilding vessels prior to their delivery and generation of revenue. Depending on whether we finance our expenditures through cash from operations or by issuing debt or equity securities, our ability to make cash distributions may be diminished or our financial leverage could increase or our unitholders could be diluted.

22

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	Our substantial debt levels may limit our flexibility in obtaining additional financing and in pursuing other business opportunities.

	•	our ability to obtain additional financing, if necessary, for working capital, capital expenditures, acquisitions or other purposes may be impaired or such financing may not be available on favorable terms;
	•	we will need a substantial portion of our cash flow to make principal and interest payments on our debt, reducing the funds that would otherwise be available for operations, future business opportunities and distributions to unitholders;
	•	our debt level will make us more vulnerable than our competitors with less debt to competitive pressures or a downturn in our business or the economy generally; and
	•	our debt level may limit our flexibility in responding to changing business and economic conditions.

	We derive a substantial majority of our revenues from three customers, and the loss of any customer, time charter or vessel could result in a significant loss of revenues and cash flow.

23

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	•	the customer fails to make charter payments because of its financial inability, disagreements with us or otherwise;
	•	the customer exercises certain rights to terminate the charter, purchase or cause the sale of the vessel or, under some of our charters, convert the time charter to a bareboat charter (some of which rights are exercisable at any time);
	•	the customer terminates the charter because we fail to deliver the vessel within a fixed period of time, the vessel is lost or damaged beyond repair, there are serious deficiencies in the vessel or prolonged periods of off-hire, or we default under the charter; or
	•	under some of our time charters, the customer terminates the charter because of the termination of the charterer’s LNG sales agreement supplying the LNG designated for our services, or a prolonged force majeure event affecting the customer, including damage to or destruction of relevant LNG production or regasification facilities, war or political unrest preventing us from performing services for that customer.

	We depend on Teekay Shipping Corporation to assist us in operating our business, competing in our markets, and providing interim financing for three new LNG carriers.

24

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	•	renew existing charters upon their expiration;
	•	obtain new charters;
	•	successfully interact with shipyards during periods of shipyard construction constraints;
	•	obtain financing on commercially acceptable terms; or
	•	maintain satisfactory relationships with our employees and suppliers.

	Our growth depends on continued growth in demand for LNG and LNG shipping.

	•	increases in the cost of natural gas derived from LNG relative to the cost of natural gas generally;
	•	increases in the production of natural gas in areas linked by pipelines to consuming areas, the extension of existing, or the development of new, pipeline systems in markets we may serve, or the conversion of existing non-natural gas pipelines to natural gas pipelines in those markets;
	•	decreases in the consumption of natural gas due to increases in its price relative to other energy sources or other factors making consumption of natural gas less attractive;
	•	availability of new, alternative energy sources, including compressed natural gas; and
	•	negative global or regional economic or political conditions, particularly in LNG consuming regions, which could reduce energy consumption or its growth.

25

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	Growth of the LNG market may be limited by infrastructure constraints and community and environmental group resistance to new LNG infrastructure over concerns about the environment, safety and terrorism.

	•	increases in interest rates or other events that may affect the availability of sufficient financing for LNG projects on commercially reasonable terms;
	•	decreases in the price of LNG, which might decrease the expected returns relating to investments in LNG projects;
	•	the inability of project owners or operators to obtain governmental approvals to construct or operate LNG facilities;
	•	local community resistance to proposed or existing LNG facilities based on safety, environmental or security concerns;
	•	any significant explosion, spill or similar incident involving an LNG facility or LNG carrier;
	•	labor or political unrest affecting existing or proposed areas of LNG production; and
	•	capacity constraints at existing shipyards, which are expected to continue until at least the end of 2007.

	Our growth depends on our ability to expand relationships with existing customers and obtain new customers, for which we will face substantial competition.

	•	shipping industry relationships and reputation for customer service and safety;
	•	LNG shipping experience and quality of ship operations (including cost effectiveness);
	•	quality and experience of seafaring crew;
	•	the ability to finance LNG carriers at competitive rates and financial stability generally;
	•	relationships with shipyards and the ability to get suitable berths;

26

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	•	construction management experience, including the ability to obtain on-time delivery of new vessels according to customer specifications;
	•	willingness to accept operational risks pursuant to the charter, such as allowing termination of the charter for force majeure events; and
	•	competitiveness of the bid in terms of overall price.

	Delays in deliveries of newbuildings could harm our operating results and lead to the termination of related time charters.

	•	quality or engineering problems;
	•	changes in governmental regulations or maritime self-regulatory organization standards;
	•	work stoppages or other labor disturbances at the shipyard;
	•	bankruptcy or other financial crisis of the shipbuilder;
	•	a backlog of orders at the shipyard;
	•	political or economic disturbances in South Korea or Spain, where the vessels are being built;
	•	weather interference or catastrophic event, such as a major earthquake or fire;
	•	our requests for changes to the original vessel specifications;
	•	shortages of or delays in the receipt of necessary construction materials, such as steel;
	•	our inability to finance the purchase of the vessels; or
	•	our inability to obtain requisite permits or approvals.

27

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	We may have more difficulty entering into long-term, fixed-rate time charters if an active short-term or spot LNG shipping market develops.

	Over time, vessel values may fluctuate substantially and, if these values are lower at a time when we are attempting to dispose of a vessel, we may incur a loss.

	•	prevailing economic conditions in natural gas, oil and energy markets;
	•	a substantial or extended decline in demand for natural gas, LNG or oil;
	•	increases in the supply of vessel capacity; and
	•	the cost of retrofitting or modifying existing vessels, as a result of technological advances in vessel design or equipment, changes in applicable environmental or other regulations or standards, or otherwise.

	We may be unable to make or realize expected benefits from acquisitions, and implementing our growth strategy through acquisitions may harm our business, financial condition and operating results.

	•	fail to realize anticipated benefits, such as new customer relationships, cost-savings or cash flow enhancements;

28

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	•	be unable to hire, train or retain qualified shore and seafaring personnel to manage and operate our growing business and fleet;
	•	decrease our liquidity by using a significant portion of our available cash or borrowing capacity to finance acquisitions;
	•	significantly increase our interest expense or financial leverage if we incur additional debt to finance acquisitions;
	•	incur or assume unanticipated liabilities, losses or costs associated with the business or vessels acquired; or
	•	incur other significant charges, such as impairment of goodwill or other intangible assets, asset devaluation or restructuring charges.

	Terrorist attacks, increased hostilities or war could lead to further economic instability, increased costs and disruption of our business.

	Our substantial operations outside the United States expose us to political, governmental and economic instability, which could harm our operations.

29

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	Marine transportation is inherently risky, and an incident involving significant loss of or environmental contamination by any of our vessels could harm our reputation and business.

	•	marine disasters;
	•	bad weather;
	•	mechanical failures;
	•	grounding, fire, explosions and collisions;
	•	piracy;
	•	human error; and
	•	war and terrorism.

	•	death or injury to persons, loss of property or environmental damage;
	•	delays in the delivery of cargo;
	•	loss of revenues from or termination of charter contracts;
	•	governmental fines, penalties or restrictions on conducting business;
	•	higher insurance rates; and
	•	damage to our reputation and customer relationships generally.

	Our insurance may be insufficient to cover losses that may occur to our property or result from our operations.

30

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	The marine energy transportation industry is subject to substantial environmental and other regulations, which may significantly limit our operations or increase our expenses.

31

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	Exposure to currency exchange rate fluctuations will result in fluctuations in our cash flows and operating results.

	Our limited experience in LNG shipping could affect our ability to operate profitably and grow.

	We have no history operating as a separate publicly traded entity and will incur increased costs as a result of being a publicly traded limited partnership.

32

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	Many of our seafaring employees are covered by collective bargaining agreements and the failure to renew those agreements or any future labor agreements may disrupt our operations and adversely affect our cash flows.

	Due to our lack of diversification, adverse developments in our LNG or oil marine transportation business could reduce our ability to make distributions to our unitholders.

	•	acquire LNG carriers and related time charters as part of a business if a majority of the value of the total assets or business acquired is not attributable to the LNG carriers and time charters, as determined in good faith by the board of directors of Teekay Shipping Corporation; however, if at any time Teekay Shipping Corporation completes such an acquisition, it must offer to sell the LNG carriers and related time charters to us for their fair market value plus any additional tax or other similar costs to Teekay Shipping Corporation that would be required to transfer the LNG carriers and time charters to us separately from the acquired business; or
	•	own, operate and charter LNG carriers that relate to a bid or award for a proposed LNG project that Teekay Shipping Corporation or any of its subsidiaries has submitted or hereafter submits or receives; however, at least 180 days prior to the scheduled delivery date of any such LNG carrier, Teekay Shipping Corporation must offer to sell the LNG carrier and related time charter to us, with the vessel valued at its “fully-built-up cost,” which represents the aggregate expenditures incurred (or to be incurred prior to delivery to us) by Teekay Shipping Corporation to acquire or construct and bring such LNG carrier to the condition and location necessary for our intended use.

33

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	•	acquire, operate or charter LNG carriers if our general partner has previously advised Teekay Shipping Corporation that the board of directors of our general partner has elected, with the approval of its conflicts committee, not to cause us or our subsidiaries to acquire or operate the carriers;
	•	own and operate the three RasGas II LNG newbuilding carriers and related time charters if we fail to perform our obligation to purchase such vessels under our agreement with Teekay Shipping Corporation (please see “Certain Relationships and Related Party Transactions — Agreement to Purchase RasGas II Interest”);
	•	acquire up to a 9.9% equity ownership, voting or profit participation interest in any publicly traded company that owns or operates LNG carriers; and
	•	provide ship management services relating to LNG carriers.

	Our general partner and its other affiliates have conflicts of interest and limited fiduciary duties, which may permit them to favor their own interests to your detriment.

	•	neither our partnership agreement nor any other agreement requires our general partner or Teekay Shipping Corporation to pursue a business strategy that favors us or utilizes our assets, and Teekay Shipping Corporation’s officers and directors have a fiduciary duty to make decisions in the best interests of the stockholders of Teekay Shipping Corporation, which may be contrary to our interests;
	•	the executive officers and three of the directors of our general partner also serve as executive officers or directors of Teekay Shipping Corporation and another director of our general partner is employed by an affiliate of Teekay Shipping Corporation;
	•	our general partner is allowed to take into account the interests of parties other than us, such as Teekay Shipping Corporation, in resolving conflicts of interest, which has the effect of limiting its fiduciary duty to our unitholders;
	•	our general partner has limited its liability and reduced its fiduciary duties under the laws of the Marshall Islands, while also restricting the remedies available to our unitholders, and as a result of purchasing common units, unitholders are treated as having agreed to the modified standard of fiduciary duties and to certain actions that may be taken by our general partner, all as set forth in the partnership agreement;
	•	our general partner determines the amount and timing of asset purchases and sales, capital expenditures, borrowings, issuances of additional partnership securities and reserves, each of which can affect the amount of cash that is available for distribution to our unitholders;
	•	in some instances, our general partner may cause us to borrow funds in order to permit the payment of cash distributions, even if the purpose or effect of the borrowing is to make a

34

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		distribution on the subordinated units or to make incentive distributions or to accelerate the expiration of the subordination period;
	•	our general partner determines which costs incurred by it and its affiliates are reimbursable by us;
	•	our partnership agreement does not restrict our general partner from causing us to pay it or its affiliates for any services rendered to us on terms that are fair and reasonable or entering into additional contractual arrangements with any of these entities on our behalf;
	•	our general partner controls the enforcement of obligations owed to us by it and its affiliates; and
	•	our general partner decides whether to retain separate counsel, accountants or others to perform services for us.

	Our partnership agreement limits our general partner’s fiduciary duties to our unitholders and restricts the remedies available to unitholders for actions taken by our general partner.

	•	permits our general partner to make a number of decisions in its individual capacity, as opposed to in its capacity as our general partner. Where our partnership agreement permits, our general partner may consider only the interests and factors that it desires, and in such cases it has no duty or obligation to give any consideration to any interest of, or factors affecting us, our affiliates or any limited partner;
	•	provides that our general partner is entitled to make other decisions in “good faith” if it reasonably believes that the decision is in our best interests;
	•	generally provides that affiliated transactions and resolutions of conflicts of interest not approved by the conflicts committee of the board of directors of our general partner and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided to or available from unrelated third parties or be “fair and reasonable” to us and that, in determining whether a transaction or resolution is “fair and reasonable,” our general partner may consider the totality of the relationships between the parties involved, including other transactions that may be particularly advantageous or beneficial to us; and
	•	provides that our general partner and its officers and directors will not be liable for monetary damages to us, our limited partners or assignees for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that the general partner or those other persons acted in bad faith or engaged in fraud, willful misconduct or gross negligence.

	Fees and cost reimbursements, which our general partner will determine for services provided to us and certain of our subsidiaries, will be substantial and will reduce our cash available for distribution to you.

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	Even if unitholders are dissatisfied, they cannot remove our general partner without its consent.

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	You will experience immediate and substantial dilution of $6.38 per common unit.

	We may issue additional common units without your approval, which would dilute your ownership interests.

	•	our unitholders’ proportionate ownership interest in us will decrease;
	•	the amount of cash available for distribution on each unit may decrease;
	•	because a lower percentage of total outstanding units will be subordinated units, the risk that a shortfall in the payment of the minimum quarterly distribution will be borne by our common unitholders will increase;
	•	the relative voting strength of each previously outstanding unit may be diminished; and
	•	the market price of the common units may decline.

	In establishing cash reserves, our general partner may reduce the amount of cash available for distribution to you.

	Our general partner has a limited call right that may require you to sell your common units at an undesirable time or price.

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	Our partnership agreement restricts the voting rights of unitholders owning 20% or more of our common units.

	You may not have limited liability if a court finds that unitholder action constitutes control of our business.

	Our financing agreements will contain operating and financial restrictions which may restrict our business and financing activities.

	•	incur or guarantee indebtedness;
	•	change ownership or structure, including mergers, consolidations, liquidations and dissolutions;
	•	make dividends or distributions;
	•	make capital expenditures in excess of specified levels;
	•	make certain negative pledges and grant certain liens;
	•	sell, transfer, assign or convey assets;

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	•	make certain loans and investments; and
	•	enter into a new line of business.

	Restrictions in our debt agreements may prevent us from paying distributions.

	•	failure to pay any principal, interest, fees, expenses or other amounts when due;
	•	default under any vessel mortgage;
	•	failure to notify the lenders of any material oil spill or discharge of hazardous material, or of any action or claim related thereto;
	•	breach or lapse of any insurance with respect to the vessels;
	•	breach of certain financial covenants;
	•	failure to observe any other agreement, security instrument, obligation or covenant beyond specified cure periods in certain cases;
	•	default under other indebtedness of our operating company, our general partner or any of our subsidiaries;
	•	bankruptcy or insolvency events involving us, our general partner or any of our subsidiaries;
	•	failure of any representation or warranty to be materially correct;
	•	a change of control, as defined in the applicable agreement; and
	•	a material adverse effect, as defined in the applicable agreement, occurs relating to us or our business.

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	We can borrow money to pay distributions, which would reduce the amount of credit available to operate our business.

	Unitholders may have limited liquidity for their common units.

	Unitholders may have liability to repay distributions.

	We have been organized as a limited partnership under the laws of the Republic of the Marshall Islands, which does not have a well-developed body of partnership law.

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	Because we are organized under the laws of the Marshall Islands, it may be difficult to serve us with legal process or enforce judgments against us, our directors or our management.

	You may be required to pay U.S. taxes on your share of our income even if you do not receive any cash distributions from us.

	Because distributions may reduce your tax basis in our common units, you may realize greater gain on the disposition of your units than you may otherwise expect, and you may have a tax gain even if the price you receive is less than your original cost.

	The after-tax benefit of an investment in the common units may be reduced if we are not treated as a partnership for U.S. federal income tax purposes.

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	•	We would not be permitted to adjust the tax basis of a secondary market purchaser in our assets under Section 743(b) of the U.S. Internal Revenue Code of 1986, as described below under “Material U.S. Federal Income Tax Consequences — Consequences of Unit Ownership — Section 754 Election.” As a result, a person who purchases common units from you in the market may realize materially more taxable income each year with respect to the units if we are treated as a corporation than if we are treated as a partnership for U.S. tax purposes. This could reduce the value of your common units.
	•	You would not be entitled to claim any credit against your U.S. federal income tax liability for non-U.S. income tax liabilities incurred by us if we are treated as a corporation for U.S. tax purposes. Please read “Material U.S. Federal Income Tax Consequences — Possible Classification as a Corporation.”
	•	If we are treated as a corporation for U.S. tax purposes and we fail to qualify for an exemption from U.S. tax on the U.S. source portion of our income attributable to transportation that begins or ends (but not both) in the United States, we will be subject to U.S. tax on such income on a gross basis (that is, without any allowance for deductions) at a rate of 4%. The imposition of this tax would have a negative effect on our business and would result in decreased cash available for distribution to you. Please read “Material U.S. Federal Income Tax Consequences — Possible Classification as a Corporation — Taxation of Operating Income.”

	If the IRS were to treat us as a corporation, we may also be considered a passive foreign investment company, which may result in adverse U.S. tax consequences to you.

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	U.S. tax-exempt entities, regulated investment companies and non-U.S. persons face unique U.S. tax issues from owning common units that may result in adverse U.S. tax consequences to them.

You may be subject to income tax in one or more non-U.S. countries, including Canada, as a result of owning our common units if, under the laws of any such country, we are considered to be carrying on business there. Such laws may require you to file a tax return with and pay taxes to those countries. Any foreign taxes imposed on us or any of our subsidiaries will reduce our cash available for distribution to you.

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	•	repay a $119.4 million non-interest bearing demand note due to Teekay Shipping Corporation; and
	•	pay $3.4 million of estimated expenses associated with this offering and the related transactions.

	•	the $119.4 million non-interest bearing note described above, and
	•	a $10.0 million 7.6% fixed-rate note payable in 2016.

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	•	our historical capitalization as of December 31, 2004; and
	•	our pro forma capitalization as of December 31, 2004, adjusted to reflect the offering of the common units, the application of the net proceeds we receive in this offering and the repayment of debt and settlement of interest rate swaps in connection with this offering in the manner described under “Use of Proceeds” on the preceding page and the related formation and contribution transactions. See “Summary — The Transactions.”

					As of December 31, 2004
					Actual				Pro Forma
					(in thousands)
Cash and cash equivalents(1)					$	156,410			$	21,562
Restricted cash(2)						435,112				435,112
	Total cash and restricted cash				$	591,522			$	456,674
Long-term debt, including current portion:
	Advances from affiliate (including accrued interest)(1)(3)					465,695				10,030
	Long-term debt(1)					787,126				448,584
	Long-term obligation under capital leases(2)					601,048				601,048
		Total long-term debt				1,853,869				1,059,662
Equity:
	Stockholders’/Partners’ deficit					(123,002	)			—
	Held by public:
		Common units				—				119,355
	Held by the general partner and its affiliates:
		Common units				—				206,147
		Subordinated units				—				347,755
		General partner interest				—				14,194
			Total equity (deficit)			(123,002	)			687,451
			Total capitalization		$	1,730,867			$	1,747,113

(1)	In 2005, we repaid $337.3 million of Teekay Spain term loans and paid $143.3 million to settle interest rate swaps associated with $769.3 million of Teekay Spain debt. We used a combination of our existing cash and contributions and loans to us from Teekay Shipping Corporation to fund these payments. As of December 31, 2004, the amount of the Teekay Spain term loans was $338.5 million and the swap settlement costs would have been $134.8 million. The differences between the December 31, 2004 amounts and the actual amounts primarily reflect amortization of the debt and the effect of interest rate changes since year end. If we had paid these amounts on December 31, 2004, we would have used $134.8 million of existing cash and contributions and loans to us from Teekay Shipping Corporation of $209.1 million and $129.4 million, respectively.
(2)	Under certain capital lease arrangements, we maintain restricted cash deposits that, together with interest earned on the deposits, will equal the remaining amounts we owe under the capital leases. The interest we receive from those deposits is used solely to pay interest associated with the capital

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	leases, and the amount of interest we receive approximates the amount of interest we pay on the capital leases.
(3)	Prior to or at the closing of this offering, Teekay Shipping Corporation will contribute to us a note receivable from Luxco in the amount of $465.7 million. This note receivable is eliminated in our pro forma capitalization as an intercompany amount.

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Initial public offering price per common unit							$	22.00
	Pro forma net tangible book value per common unit before this offering(1)		$	14.56
	Increase in net tangible book value per common unit attributable to purchasers in this offering			1.06
Less: Pro forma net tangible book value per common unit after this offering(2)								15.62
Immediate dilution in net tangible book value per common unit to purchasers in this offering							$	6.38

(1)	Determined by dividing the total number of units (8,734,572 common units, 14,734,572 subordinated units and the 2% general partner interest, which has a dilutive effect equivalent to 601,411 units) to be issued to our general partner and its affiliates for their contribution of assets and liabilities to us into the net tangible book value of the contributed assets and liabilities. The dilutive effect of the general partner’s interest was determined by multiplying the total number of units deemed to be outstanding after this offering (i.e., the total number of common and subordinated units outstanding divided by 98%) by the general partner’s 2% general partner interest.
(2)	Determined by dividing the total number of units (14,734,572 common units, 14,734,572 subordinated units and the 2% general partner interest, which has a dilutive effect equivalent to 601,411 units) to be outstanding after this offering into our pro forma net tangible book value, after giving effect to the application of the net proceeds of this offering.

			Units Acquired								Total Consideration
			Number				Percent				Amount				Percent
General partner and its affiliates(1)(2)				24,070,555				80.0	%		$	568,095,845				81.1	%
New investors				6,000,000				20.0				132,000,000				18.9
	Total			30,070,555				100.0	%		$	700,095,845				100.0	%

(1)	Upon the consummation of the transactions contemplated by this prospectus, our general partner and its affiliates will own an aggregate of 8,734,572 common units and 14,734,572 subordinated units and the 2% general partner interest, which has a dilutive effect equivalent to 601,411 units.
(2)	The assets contributed by our general partner and its affiliates were recorded at book value in accordance with accounting principles generally accepted in the United States. Book value of the consideration provided by our general partner and its affiliates, as of December 31, 2004, was $568.1 million.

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	General

	Definition of Available Cash

	•	less the amount of cash reserves established by our general partner to:

	•	provide for the proper conduct of our business (including reserves for future capital expenditures and for our anticipated credit needs);
	•	comply with applicable law, any of our debt instruments, or other agreements; or
	•	provide funds for distributions to our unitholders and to our general partner for any one or more of the next four quarters;

	•	plus all cash on hand on the date of determination of available cash for the quarter resulting from working capital borrowings made after the end of the quarter. Working capital borrowings are generally borrowings that are made under our credit agreement and in all cases are used solely for working capital purposes or to pay distributions to partners.

	Intent to Distribute the Minimum Quarterly Distribution

	General

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	Definition of Operating Surplus

	•	our cash balance on the closing date of this offering, other than cash reserved to terminate interest rate swap agreements; plus
	•	$10 million (as described below); plus
	•	all of our cash receipts after the closing of this offering, excluding cash from (1) borrowings, other than working capital borrowings, (2) sales of equity and debt securities, (3) sales or other dispositions of assets outside the ordinary course of business, (4) termination of interest rate swap agreements, (5) capital contributions or (6) corporate reorganizations or restructurings; plus
	•	working capital borrowings made after the end of a quarter but before the date of determination of operating surplus for the quarter; plus
	•	interest paid on debt incurred (including periodic net payments under related interest rate swap agreements) and cash distributions paid on equity securities issued, in each case, to finance all or any portion of the construction, replacement or improvement of a capital asset such as vessels during the period from such financing until the earlier to occur of the date the capital asset is put into service or the date that it is abandoned or disposed of; plus
	•	interest paid on debt incurred (including periodic net payments under related interest rate swap agreements) and cash distributions paid on equity securities issued, in each case, to pay the construction period interest on debt incurred, or to pay construction period distributions on equity issued, to finance the construction projects described in the immediately preceding bullet; less
	•	all of our cash operating expenditures after the closing of this offering and the repayment of working capital borrowings, but not (1) the repayment of other borrowings, (2) actual maintenance capital expenditures or expansion capital expenditures, (3) transaction expenses (including taxes) related to interim capital transactions or (4) distributions; less
	•	estimated maintenance capital expenditures and the amount of cash reserves established by our general partner to provide funds for future operating expenditures.

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	•	it will reduce the risk that actual maintenance capital expenditures in any one quarter will be large enough to make operating surplus less than the minimum quarterly distribution to be paid on all the units for that quarter and subsequent quarters;
	•	it will reduce the need for us to borrow under our working capital facility to pay distributions;
	•	it will be more difficult for us to raise our distribution above the minimum quarterly distribution and pay incentive distributions to our general partner; and
	•	it will reduce the likelihood that a large maintenance capital expenditure in a period will prevent the general partner’s affiliates from being able to convert some or all of their subordinated units into common units since the effect of an estimate is to spread the expected expense over several periods, mitigating the effect of the actual payment of the expenditure on any single period.

	Definition of Capital Surplus

	•	borrowings other than working capital borrowings;
	•	sales of debt and equity securities; and
	•	sales or other dispositions of assets for cash, other than inventory, accounts receivable and other current assets sold in the ordinary course of business or non-current assets sold as part of normal retirements or replacements of assets.

	Characterization of Cash Distributions

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	General

	Definition of Subordination Period

	•	distributions of available cash from operating surplus on each of the outstanding common units and subordinated units equaled or exceeded the minimum quarterly distribution for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date;
	•	the “adjusted operating surplus” (as defined below) generated during each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum of the minimum quarterly distributions on all of the outstanding common units and subordinated units during those periods on a fully diluted basis and the related distribution on the 2% general partner interest during those periods; and
	•	there are no arrearages in payment of the minimum quarterly distribution on the common units.

	Early Conversion of Subordinated Units

	•	March 31, 2008 with respect to 25% of the subordinated units outstanding immediately after this offering; and
	•	March 31, 2009 with respect to a further 25% of the subordinated units outstanding immediately after this offering.

	•	distributions of available cash from operating surplus on each of the outstanding common units and subordinated units equaled or exceeded the minimum quarterly distribution for each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date;
	•	the adjusted operating surplus generated during each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum of the minimum quarterly distributions on all of the outstanding common units and subordinated units during those periods on a fully diluted basis and the related distribution on the 2% general partner interest during those periods; and
	•	there are no arrearages in payment of the minimum quarterly distribution on the common units.

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	Definition of Adjusted Operating Surplus

	•	operating surplus generated with respect to that period; less
	•	any net increase in working capital borrowings with respect to that period; less
	•	any net reduction in cash reserves for operating expenditures with respect to that period not relating to an operating expenditure made with respect to that period; plus
	•	any net decrease in working capital borrowings with respect to that period; plus
	•	any net increase in cash reserves for operating expenditures with respect to that period required by any debt instrument for the repayment of principal, interest or premium.

	Effect of Expiration of the Subordination Period

	•	the subordination period will end and each subordinated unit will immediately convert into one common unit;
	•	any existing arrearages in payment of the minimum quarterly distribution on the common units will be extinguished; and
	•	our general partner will have the right to convert its general partner interest and, if any, its incentive distribution rights into common units or to receive cash in exchange for those interests.

	•	first, 98% to the common unitholders, pro rata, and 2% to our general partner, until we distribute for each outstanding common unit an amount equal to the minimum quarterly distribution for that quarter;
	•	second, 98% to the common unitholders, pro rata, and 2% to our general partner, until we distribute for each outstanding common unit an amount equal to any arrearages in payment of the minimum quarterly distribution on the common units for any prior quarters during the subordination period;
	•	third, 98% to the subordinated unitholders, pro rata, and 2% to our general partner, until we distribute for each subordinated unit an amount equal to the minimum quarterly distribution for that quarter; and

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	•	thereafter, in the manner described in “— Incentive Distribution Rights” below.

	•	first, 98% to all unitholders, pro rata, and 2% to our general partner, until we distribute for each outstanding unit an amount equal to the minimum quarterly distribution for that quarter; and
	•	thereafter, in the manner described in “— Incentive Distribution Rights” below.

	•	we have distributed available cash from operating surplus to the common and subordinated unitholders in an amount equal to the minimum quarterly distribution; and
	•	we have distributed available cash from operating surplus on outstanding common units in an amount necessary to eliminate any cumulative arrearages in payment of the minimum quarterly distribution;

	•	first, 98% to all unitholders, pro rata, and 2% to our general partner, until each unitholder receives a total of $0.4625 per unit for that quarter (the “first target distribution”);
	•	second, 85% to all unitholders, pro rata, and 15% to our general partner, until each unitholder receives a total of $0.5375 per unit for that quarter (the “second target distribution”);
	•	third, 75% to all unitholders, pro rata, and 25% to our general partner, until each unitholder receives a total of $0.6500 per unit for that quarter (the “third target distribution”); and
	•	thereafter, 50% to all unitholders, pro rata, and 50% to our general partner.

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				Marginal Percentage Interest
				in Distributions
		Total Quarterly
		Distribution Target Amount		Unitholders				General Partner
Minimum Quarterly Distribution		$0.4125			98	%			2	%
First Target Distribution		up to $0.4625			98				2
Second Target Distribution		above $0.4625 up to $0.5375			85				15
Third Target Distribution		above $0.5375 up to $0.6500			75				25
Thereafter		above $0.6500			50				50

	How Distributions From Capital Surplus Will Be Made

	•	first, 98% to all unitholders, pro rata, and 2% to our general partner, until we distribute for each common unit that was issued in this offering, an amount of available cash from capital surplus equal to the initial public offering price;
	•	second, 98% to the common unitholders, pro rata, and 2% to our general partner, until we distribute for each common unit, an amount of available cash from capital surplus equal to any unpaid arrearages in payment of the minimum quarterly distribution on the common units; and
	•	thereafter, we will make all distributions of available cash from capital surplus as if they were from operating surplus.

	Effect of a Distribution From Capital Surplus

	•	the minimum quarterly distribution;
	•	the target distribution levels;

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	•	the unrecovered initial unit price; and
	•	the number of common units issuable during the subordination period without a unitholder vote.

	General

	Manner of Adjustments for Gain

	•	first, to our general partner and the holders of units who have negative balances in their capital accounts to the extent of and in proportion to those negative balances;
	•	second, 98% to the common unitholders, pro rata, and 2% to our general partner, until the capital account for each common unit is equal to the sum of:

	(1) the unrecovered initial unit price;
	(2) the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs; and
	(3) any unpaid arrearages in payment of the minimum quarterly distribution;

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	•	third, 98% to the subordinated unitholders, pro rata, and 2% to our general partner until the capital account for each subordinated unit is equal to the sum of:

	(1) the unrecovered initial unit price; and
	(2) the amount of the minimum quarterly distribution for the quarter during which our liquidation occurs;

	•	fourth, 98% to all unitholders, pro rata, and 2% to our general partner, until we allocate under this paragraph an amount per unit equal to:

	(1) the sum of the excess of the first target distribution per unit over the minimum quarterly distribution per unit for each quarter of our existence; less
	(2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the minimum quarterly distribution per unit that we distributed 98% to the unitholders, pro rata, and 2% to our general partner, for each quarter of our existence;

	•	fifth, 85% to all unitholders, pro rata, and 15% to our general partner, until we allocate under this paragraph an amount per unit equal to:

	(1) the sum of the excess of the second target distribution per unit over the first target distribution per unit for each quarter of our existence; less
	(2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the first target distribution per unit that we distributed 85% to the unitholders, pro rata, and 15% to our general partner for each quarter of our existence;

	•	sixth, 75% to all unitholders, pro rata, and 25% to our general partner, until we allocate under this paragraph an amount per unit equal to:

	(1) the sum of the excess of the third target distribution per unit over the second target distribution per unit for each quarter of our existence; less
	(2) the cumulative amount per unit of any distributions of available cash from operating surplus in excess of the second target distribution per unit that we distributed 75% to the unitholders, pro rata, and 25% to our general partner for each quarter of our existence; and

	•	thereafter, 50% to all unitholders, pro rata, and 50% to our general partner.

	Manner of Adjustments for Losses

	•	first, 98% to holders of subordinated units in proportion to the positive balances in their capital accounts and 2% to our general partner, until the capital accounts of the subordinated unitholders have been reduced to zero;
	•	second, 98% to the holders of common units in proportion to the positive balances in their capital accounts and 2% to our general partner, until the capital accounts of the common unitholders have been reduced to zero; and
	•	thereafter, 100% to our general partner.

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	Adjustments to Capital Accounts

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			One Quarter				Four Quarters
			(in thousands)
Common units			$	6,078			$	24,312
Subordinated units				6,078				24,312
2% general partner interest				248				992
	Total		$	12,404			$	49,616

	Pro forma, as adjusted available cash from operating surplus generated during 2004 would have been sufficient to pay the minimum quarterly distribution on all units.

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	•	an estimated useful life of 40 years for our LNG carriers and 25 years for our Suezmax tankers;
	•	an estimated replacement cost of $185 million per LNG carrier and $55 million per Suezmax tanker; and
	•	a market-based rate of return and financing costs.

	We believe we will have sufficient available cash from operating surplus to pay the minimum quarterly distribution on all units for each quarter through March 31, 2006.

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			Twelve Months
			Ending
			March 31, 2006
			(in thousands)
Voyage revenues			$	142,581
Operating expenses
Voyage expenses				668
Vessel operating expenses				31,267
Depreciation and amortization				43,923
General and administrative expenses				8,693
Total operating expenses				84,551
Income from vessel operations				58,030
Interest expense				(55,284	)
Interest income				21,591
Other loss				(1,619	)
	Net income			22,718
Adjustments to reconcile net income to net operating cash flows:
	Depreciation and amortization			43,923
	Income taxes			(5,139	)
	Expenditures for drydocking			(5,649	)
	Net operating cash flows			55,853
Expenditures for vessels and equipment				(40,485	)
Proceeds from disposition of vessels and equipment				69,500
Decrease in restricted cash				76,889
	Net investing cash flows			105,904
Net proceeds from temporary financing facility				40,485
Prepayment of temporary financing				(50,000	)
Scheduled repayments of long-term debt				(8,321	)
Scheduled repayments of capital lease obligations				(84,609	)
Payments of distributions on common units, subordinated units, and on the 2% general partner interest (please read Note 3)				(31,699	)
	Net financing cash flows			(134,144	)
	Net increase in cash from forecasted operating, investing and financing activities		$	27,613

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	•	twelve months’ operation of the LNG carriers delivered in July 2004 (Galicia Spirit) and December 2004 (Madrid Spirit) (collectively, the LNG Deliveries);
	•	twelve months’ operation of the Suezmax tanker delivered in November 2004 (Teide Spirit) and eight months’ operation of a newbuilding scheduled for delivery in July 2005 (Toledo Spirit) (collectively, the Suezmax Deliveries);
	•	the sale of a Suezmax tanker (Granada Spirit) and the concurrent sale and leaseback of a Suezmax newbuilding (Toledo Spirit) in July 2005; and
	•	the sale of two Suezmax tankers (Sevilla Spirit and Leon Spirit) in the fourth quarter of 2004 (collectively, the Suezmax Dispositions).

	•	we will realize increases of $39.6 million and $11.6 million in voyage revenues from 2004 due to the LNG deliveries and the Suezmax deliveries, respectively;
	•	we will realize an increase of $1.3 million in voyage revenues from 2004 due to the effect on our Euro-denominated revenue of a change in the average exchange rate of 1 Euro to 1.24 U.S. Dollars in 2004 to 1 Euro to 1.30 U.S. Dollars used by us in the forecast for the twelve months ending March 31, 2006;
	•	we will incur a decrease of $19.2 million in voyage revenues from 2004 due to the Suezmax Dispositions; and
	•	we will incur a decrease of $14.6 million in voyage revenues from 2004 due to the Granada Spirit operating for four months on a fixed-rate time charter in the twelve months ending March 31, 2006 compared to operating for a full year on the spot market in 2004.

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	•	increases of $5.6 million and $4.3 million from the LNG Deliveries and Suezmax Deliveries, based on detailed budgets prepared for each vessel;
	•	an increase of $1.1 million due to the effect on our Euro-denominated vessel operating expenses of a change in the average exchange rate of 1 Euro to 1.24 U.S. Dollars in 2004 to 1 Euro to 1.30 U.S. Dollars used by us in the forecast for the twelve months ending March 31, 2006;
	•	a decrease of $9.8 million from the Suezmax Dispositions and the sale of the Granada Spirit, based on historical expenses for the vessels; and
	•	a decrease of $0.6 million primarily from forecasted changes in crew composition and lower insurance rates for vessels in our fleet during both 2004 and the twelve months ending March 31, 2006.

	•	we will realize total increases of $9.2 million and $2.7 million in depreciation and amortization from 2004 due to the LNG Deliveries and the Suezmax Deliveries, respectively;
	•	we will realize a total increase of $5.0 million in depreciation and amortization from 2004 due to (a) increased depreciation resulting from recording the Teekay Spain vessels at their acquisition

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		costs on April 30, 2004 compared to their depreciated value prior to Teekay Shipping Corporation’s acquisition of Teekay Spain on that date, and (b) amortization, as an intangible asset, of the value of the time charters recognized in connection with Teekay Shipping Corporation’s acquisition of Teekay Spain; and
	•	we will realize total decreases of $5.8 million and $2.0 million in depreciation and amortization from 2004 due to the Suezmax Dispositions and the disposition of the Granada Spirit, respectively.

	•	we will incur approximately $1.6 million of additional costs associated with services agreements we and certain of our subsidiaries will enter into with subsidiaries of Teekay Shipping Corporation and with fees and cost reimbursements of our general partner. Please read “Certain Relationships and Related Party Transactions — Advisory and Administrative Services Agreements”;
	•	we will incur approximately $1.0 million of additional expenses as a result of being a publicly traded limited partnership. These expenses will include costs associated with annual reports to unitholders, tax return and Schedule K-1 preparation and distribution, investor relations, registrar and transfer agent’s fees, incremental director and officer liability insurance costs and director compensation;
	•	we will realize an increase of $0.2 million of expenses due primarily to the change in the exchange rate of 1 Euro to 1.24 U.S. Dollars during 2004 to 1 Euro to 1.30 U.S. Dollars used by us in the forecast for the twelve months ending March 31, 2006; and
	•	we will realize a decrease of $0.6 million of expenses due to the sale of a yacht prior to Teekay Shipping Corporation’s acquisition of Teekay Spain in 2004.

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	•	we will realize a decrease of $14.7 million in interest expense from 2004 due primarily to the absence of interest on certain debt and interest rate swaps as a result of the prepayments that will occur in connection with this offering and repayments of debt from the proceeds of the Suezmax Dispositions, partially offset by interest on the debt used to finance the LNG Deliveries and Suezmax Deliveries. The amounts of debt associated with the LNG Deliveries, Suezmax Deliveries, Suezmax Dispositions and debt prepayments are $398.3 million, $100.0 million, $39.8 million and $338.5 million, respectively. In 2004, our average debt balance (excluding debt on vessels under construction and the capital leases for two LNG carriers) was approximately $805.7 million, with interest rates between 1.6% and 8.2% on various financing facilities. Interest on debt on vessels under construction is capitalized and, therefore, excluded. Interest expense in 2004 included approximately $0.6 million for the amortization of capitalized financing fees. Our forecast is based on capitalized loan costs of approximately $4.9 million, which are being amortized over a weighted-average amortization period of 20 years. Our forecast is based on the assumption that we will have an average debt balance (excluding debt on vessels under construction and the capital leases for two LNG carriers) of $651.3 million during the twelve months ending March 31, 2006, with an estimated weighted average interest rate of 5.3% per annum. This rate is based upon the weighted-average effective interest rate of our term loans and the interest rate implicit in our capital leases (excluding the two LNG carriers mentioned below) after giving effect to our interest rate hedges. We expect to have an average debt balance of $4.4 million for vessels under construction during the twelve months ending March 31, 2006 and expect to capitalize $0.1 million of interest on this debt based on an interest rate of 2.7%; and
	•	we will realize an increase of $7.9 million in interest expense from 2004 due to the delivery of one LNG carrier in December 2004, partially offset by lower interest expense resulting from scheduled debt repayments on a second LNG carrier which delivered in August 2003. These vessels have been financed pursuant to Spanish tax lease arrangements. This increase is directly offset by a corresponding increase in interest income from restricted cash (discussed below). Under these lease arrangements, we borrow under term loans and deposit the proceeds into restricted cash accounts and enter into capital leases for the vessels. Our forecast is based on an average capital lease balance of $380.5 million during the twelve months ending March 31, 2006 and a weighted-average interest rate implicit in the capital leases of 5.7%.

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	•	The repayment of $338.5 million of term loans relating to two LNG carriers with the proceeds of the contribution and loans from Teekay Shipping Corporation, which term loans had aggregate scheduled repayments of $6.5 million during the twelve months ending March 31, 2006;
	•	An estimated $10.0 million interest bearing loan from Teekay Shipping Corporation made subsequent to December 31, 2004 and prior to the closing of this offering, the proceeds of which will be used to partially repay term loans relating to two LNG carriers. This loan is forecasted to have scheduled repayments of $0.2 million during the twelve months ending March 31, 2006; and
	•	The change in the exchange rate of 1 Euro to 1.3621 U.S. dollars at December 31, 2004 to 1 Euro to 1.30 U.S. dollars used by us in the forecast for the twelve months ending March 31, 2006, which decreased the forecasted scheduled repayments of long-term debt on Euro-denominated term loans by $0.2 million in the twelve months ending March 31, 2006.

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	•	The delivery of the Toledo Spirit, which increased scheduled repayments by $0.8 million; and
	•	The change in the exchange rate of 1 Euro to 1.3621 U.S. dollars at December 31, 2004 to 1 Euro to 1.30 U.S. dollars used by us in the forecast for the twelve months ending March 31, 2006, which decreased the forecasted scheduled repayments of capital lease obligations on Euro-denominated LNG carrier capital lease obligations by $3.7 million for this twelve-month period.

	•	cash provided by operating activities of $55.8 million; plus
	•	cash provided by investing activities of $105.9 million, which is primarily attributable to the construction and sale and leaseback of the Toledo Spirit and the sale of the Granada Spirit; less
	•	cash used in financing activities of $134.1 million, which results from debt repayments and prepayments and distributions made to unitholders offset by net proceeds from long-term debt.

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			Forecasted
			Twelve Months
			Ending
			March 31,
			2006
			(in thousands)
Net income			$	22,718
Add:
	Depreciation and amortization			43,923
	Interest expense			55,284
	Interest income			(21,591	)
	Income tax expense(1)			1,619
Less:
	Estimated maintenance capital expenditures(2)			16,412
	Unrestricted cash interest paid(3)			34,081
	Unrestricted interest received(3)			(388	)
	Income taxes paid(4)			1,619
Forecast of available cash from operating surplus(5)			$	50,229

(1)	Income tax expense is categorized as “other loss” on our forecast and historical financial statements.
(2)	Our partnership agreement requires our general partner to deduct from operating surplus each quarter estimated maintenance capital expenditures as opposed to actual maintenance capital expenditures in order to reduce disparities in operating surplus caused by fluctuating maintenance capital expenditures, such as drydocking and vessel replacement. Because of the substantial capital expenditures we are required to make to maintain our fleet, our initial annual estimated maintenance capital expenditures for purposes of calculating operating surplus will be $16.4 million per year, which is comprised of $4.4 million for drydocking costs for all of our vessels and $12.0 million, including financing costs, for replacing our vessels in our fleet at the end of their useful lives. The actual cost of replacing our LNG carriers and Suezmax tankers will depend a number of factors, including prevailing market conditions, charter rates and the availability and cost of financing at the time of replacement. The board of directors of our general partner with the approval of its conflicts committee may determine to increase the annual amount of our estimated maintenance capital expenditures. In years when estimated maintenance capital expenditures are higher than actual maintenance capital expenditures, the amount of cash available for distribution to unitholders will be lower than if actual maintenance capital expenditures were deducted from operating surplus.
(3)	Under certain capital lease arrangements, we maintain restricted cash deposits that, together with interest, will equal the remaining amounts we owe under the capital leases. The interest we receive from those deposits is used solely to pay interest associated with the capital leases, and the amount of interest we receive approximates the amount of interest we pay on the capital leases. Since these amounts essentially offset each other, we exclude both the restricted interest received and the related interest paid from our calculation of our forecasted available cash for operating surplus.
(4)	Excludes the payment by us of taxes associated with asset dispositions and our restructuring for this offering, both of which are excluded from the definition of available cash from operating surplus in our partnership agreement.

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(5)	The amount of available cash from operating surplus needed to distribute the minimum quarterly distributions for four quarters on the common units and subordinated units to be outstanding immediately after this offering and on the 2% general partner interest is as follows:

			Four Quarters
			Ending
			March 31,
			2006
			(in thousands)
Common units			$	24,312
Subordinated units				24,312
General partner interest				992
	Total		$	49,616

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	•	historical financial and operating data of Teekay Shipping Spain S.L. (or Teekay Spain), which was named Naviera F. Tapias S.A. (or Tapias) prior to its acquisition by Teekay Shipping Corporation through its subsidiary, Teekay Luxembourg S.a.r.l. (or Luxco), on April 30, 2004; and
	•	pro forma financial and operating data of Teekay LNG Partners L.P.

	•	the historical financial and operating data of Teekay Spain excludes financial information related to three businesses previously held in separate subsidiaries and unrelated to the marine transportation of LNG and crude oil, which were disposed of prior to Teekay Shipping Corporation’s acquisition of Teekay Spain;
	•	the historical financial and operating data of Teekay Spain as at and for the years ended December 31, 2002 and 2003 and the four months ended April 30, 2004 are derived from the audited consolidated financial statements of Teekay Spain included elsewhere in this prospectus;
	•	the historical financial and operating data of Teekay Spain as at and for the years ended December 31, 2000 and 2001 are derived from the unaudited consolidated financial statements of Teekay Spain, which are not included in this prospectus; and
	•	the historical financial and operating data of Teekay Spain as at December 31, 2004 and for the eight months ended December 31, 2004 reflect the acquisition of Teekay Spain by Teekay Shipping Corporation and are derived from the audited consolidated financial statements of Teekay Spain included elsewhere in this prospectus.

	•	The acquisition of Teekay Spain;
	•	the contribution by Teekay Shipping Corporation to us of the capital stock and notes receivable of Luxco;
	•	Teekay Shipping Corporation’s loans and contributions to us, which we used, together with existing cash, to repay indebtedness and settle interest rate swaps as described in “Use of Proceeds”;
	•	the completion of this offering; and
	•	the use of the net proceeds of this offering, as described in “Use of Proceeds.”

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	•	$465.7 million of advances (including accrued interest) from Teekay Shipping Corporation that were used by Luxco to purchase Teekay Spain and will be used by Luxco to prepay certain debt of Teekay Spain;
	•	$9.8 million of net interest expense related to the advances;
	•	$44.7 million of unrealized foreign exchange losses related to the advances, which are Euro-denominated;
	•	$1.1 million in other expenses;
	•	$2.2 million in cash and cash equivalents; and
	•	its ownership interest in Teekay Spain and certain purchase rights and obligations for Suezmax tankers operated by Teekay Spain under capital lease arrangements, which it acquired from Teekay Spain on December 30, 2004.

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			Historical																								Pro Forma
																			Four				Eight
																			Months				Months				Year
			Years Ended December 31,																Ended				Ended				Ended
																			April 30,				December 31,				December 31,
			2000				2001				2002				2003				2004				2004				2004
			(unaudited)								(audited)								(audited)								(unaudited)
			(in thousands, except per unit and fleet data)
Income Statement Data:
Voyage revenues			$	52,217			$	60,326			$	59,866			$	86,709			$	40,718			$	83,115			$	123,833
Operating expenses:
	Voyage expenses(1)			4,304				5,092				5,334				4,911				1,842				3,090				4,932
	Vessel operating expenses(2)			10,883				12,403				16,104				26,440				10,302				20,315				30,617
	Depreciation and amortization			14,803				16,094				17,689				23,390				8,585				26,275				37,808
	General and administrative			3,967				5,061				6,501				8,799				2,103				4,300				7,478
Total operating expenses				33,957				38,650				45,628				63,540				22,832				53,980				80,835
Income from vessel operations				18,260				21,676				14,238				23,169				17,886				29,135				42,998
Interest expense				(15,625	)			(20,104	)			(18,109	)			(34,862	)			(21,475	)			(40,560	)			(33,343	)
Interest income				1,278				3,752				5,248				8,431				8,692				13,426				22,211
Foreign currency exchange gain (loss)(3)				(179	)			3,462				(44,310	)			(71,502	)			18,010				(34,149	)			(16,139	)
Interest rate swaps gain (loss)(4)				—				(7,618	)			(71,400	)			14,715				3,985				—				(905	)
Other income (loss)(5)				3,615				5,327				563				617				(10,934	)			3,361				(17,156	)
Net income (loss) before change in accounting principle				7,349				6,495				(113,770	)			(59,432	)			16,164				(28,787	)			(2,334	)
Change in accounting principle(6)				—				(4,366	)			—				—				—				—				—
Net income (loss)			$	7,349			$	2,129			$	(113,770	)		$	(59,432	)		$	16,164			$	(28,787	)		$	(2,334	)
Pro forma net loss per unit (basic and diluted)(7)																											$	(0.08	)
Balance Sheet Data (at end of period):
Cash and marketable securities			$	24,185			$	24,625			$	20,141			$	22,533			$	11,289			$	154,203			$	21,562
Restricted cash deposits(8)				29,243				70,051				106,399				398,038				385,564				435,112				435,112
Vessels and equipment(9)				277,076				368,951				705,010				602,550				602,055				813,431				1,068,916
Total assets(8)				357,247				491,058				882,604				1,069,081				1,021,695				1,651,522				1,766,764
Total debt and capital lease obligations(8)(10)				317,710				444,865				882,027				1,129,426				1,072,379				1,200,499				1,059,662
Total stockholders’/partners’ equity (deficit)				34,673				29,849				(106,105	)			(164,809	)			(144,186	)			184,650				687,451
Cash Flow Data:
Net cash provided by (used in):
	Operating activities		$	19,695			$	24,770			$	20,418			$	18,318			$	14,808			$	7,381
	Financing activities			11,623				31,852				176,316				(277,616	)			(25,846	)			95,645
	Investing activities			(23,304	)			(55,695	)			(199,218	)			262,766				901				39,986
Other Financial Data:
Net voyage revenues			$	47,913			$	55,234			$	54,532			$	81,798			$	38,876			$	80,025			$	118,901
EBITDA(11)				36,556				33,912				(81,056	)			(6,578	)			36,887				24,571				47,476
Capital expenditures:
	Expenditures for vessels and equipment			173,186				110,097				186,755				133,628				5,522				83,703				89,225
	Expenditures for drydocking			784				—				984				4,711				—				4,085				4,085
LNG Fleet Data:
Calendar-ship-days(12)				—				—				93				518				242				660				902
Average age of our fleet (in years at end of period)				—				—				0.3				0.8				1.2				1.1				1.1
Vessels at end of period				—				—				1.0				2.0				2.0				4.0				4.0
Suezmax Fleet Data:
Calendar-ship-days(12)				1,737				2,085				2,190				2,190				726				1,134				1,860
Average age of our fleet (in years at end of period)				4.0				4.3				5.3				6.3				6.6				3.2				5.1
Vessels at end of period				7.0				6.0				6.0				6.0				6.0				4.0				5.0

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	(1)	Voyage expenses are all expenses unique to a particular voyage, including any bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls, agency fees and commissions.
	(2)	Vessel operating expenses include crewing, repairs and maintenance, insurance, stores, lube oils and communication expenses.
	(3)	Substantially all of these foreign currency exchange gains and losses were unrealized and not settled in cash. Under U.S. accounting guidelines, all foreign currency-denominated monetary assets and liabilities, such as cash and cash equivalents, accounts receivable, restricted cash, accounts payable, long-term debt and capital lease obligations, are revalued and reported based on the prevailing exchange rate at the end of the period. Our primary source for the foreign currency gains and losses is our Euro-denominated term loans, which totaled 294.8 million Euros ($372.4 million) as at December 31, 2003 and 325.8 million Euros ($443.7 million) at December 31, 2004.
	(4)	We have entered into interest rate swaps to hedge our interest rate risk from our floating-rate debt used to purchase our LNG carriers. These interest rate swaps were not designated as hedges under U.S. accounting guidelines until April 30, 2004. Consequently, the changes in the fair values of these swaps that occurred during periods prior to April 30, 2004 have been recorded in earnings as “interest rate swaps gain (loss)” for those periods. Had these interest rate swaps been designated as hedges prior to 2003, any subsequent changes in fair value would have been recognized in “accumulated other comprehensive income (loss)” to the extent the hedge was effective and until the hedged item was recognized as income.
	(5)	The $10.9 million other loss in the four months ended April 30, 2004 primarily resulted from a $11.9 million loss on the sale of non-shipping assets by Teekay Spain prior to its April 30, 2004 acquisition by Teekay Shipping Corporation. The $17.2 million other loss in the pro forma year ended December 31, 2004 primarily resulted from the $11.9 million loss on sale of non-shipping assets and from a write-down of capitalized loan costs on a pro forma basis.
	(6)	In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133 (or SFAS 133), “Accounting for Derivative Instruments and Hedging Activities,” which establishes new standards for recording derivatives in interim and annual financial statements. We adopted SFAS 133 on January 1, 2001. We recognized the fair value of our derivatives as liabilities of $4.4 million on our consolidated balance sheet as of January 1, 2001. This amount was recorded as a change in accounting principle in our consolidated statement of income for the year ended December 31, 2001.
	(7)	Please read Note 5 of our unaudited pro forma consolidated financial statements included in this prospectus for a calculation of our pro forma net loss per unit.
	(8)	We operate two of our LNG carriers under “Spanish tax lease” arrangements. Under these arrangements, we borrow under term loans and deposit the proceeds into restricted cash accounts. Concurrently, we enter into capital leases for the vessels, and the vessels are recorded as assets on our balance sheet. The restricted cash deposits, plus the interest earned on the deposits, will equal the remaining amounts we owe under the capital lease arrangements, including our obligations to purchase the vessels at the end of the lease term. Therefore, the payments under our capital leases are fully funded through our restricted cash deposits, and our continuing obligation is the repayment of the term loans. However, under GAAP we record both the obligations under the capital leases and the term loans as liabilities, and both the restricted cash deposits and our vessels under capital leases as assets. This accounting treatment has the effect of overstating our assets and liabilities by the amount of restricted cash deposits relating to the corresponding capital lease obligations. As at December 31, 2004, historically and on a pro forma basis, our total assets and total debt each included $413.3 million of such amount.
	(9)	Vessels and equipment consist of (a) our vessels, at cost less accumulated depreciation, (b) vessels under capital leases, at cost less accumulated depreciation, and (c) advances on our newbuildings.

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(10)	Total debt for Teekay Spain as at December 31, 2004 excludes a loan made to it in December 2004 of 82.1 million Euros ($111.8 million) by Teekay Spain’s direct parent company, Teekay Spain, S.L., a subsidiary of Luxco. Teekay Spain will use these funds to repay debt associated with two of its LNG carriers.
(11)	EBITDA is calculated as net income(loss) before interest, taxes, depreciation and amortization, as set forth under “— Non-GAAP Financial Measures” below. EBITDA includes our foreign currency exchange and interest rate swap gains and losses, substantially all of which were unrealized, as follows:

		Historical																								Pro Forma
																		Four				Eight
																		Months				Months				Year
		Years Ended December 31,																Ended				Ended				Ended
																		April 30,				December 31,				December 31,
		2000				2001				2002				2003				2004				2004				2004
		(unaudited)								(audited)								(audited)								(unaudited)
		(in thousands)
Foreign currency exchange gain (loss)		$	(179	)		$	3,462			$	(44,310	)		$	(71,502	)		$	18,010			$	(34,149	)		$	(16,139	)
Interest rate swaps gain (loss)			—				(7,618	)			(71,400	)			14,715				3,985				—				(905	)
		$	(179	)		$	(4,156	)		$	(115,710	)		$	(56,787	)		$	21,995			$	(34,149	)		$	(17,044	)

(12)	Calendar-ship-days are equal to the aggregate number of calendar days in a period that our vessels operate during that period.

		Historical																								Pro Forma
																		Four				Eight
																		Months				Months				Year
		Years Ended December 31,																Ended				Ended				Ended
																		April 30,				December 31,				December 31,
		2000				2001				2002				2003				2004				2004				2004
		(unaudited)								(audited)								(audited)								(unaudited)
		(in thousands)
Voyage revenues		$	52,217			$	60,326			$	59,866			$	86,709			$	40,718			$	83,115			$	123,833
Voyage expenses			4,304				5,092				5,334				4,911				1,842				3,090				4,932
Net voyage revenues		$	47,913			$	55,234			$	54,532			$	81,798			$	38,876			$	80,025			$	118,901

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	•	Financial and operating performance. EBITDA allows us to measure the financial and operating performance of our assets without regard to financing methods, capital structure or historical cost basis. For instance, our net income is affected by whether we finance assets or operations with debt or equity and by changing interest rates. Likewise, our net income is affected by how much we pay for an asset and that asset’s depreciation or amortization schedule. By reviewing our earnings before the impact of interest, taxes, depreciation and amortization, we, our investors and others can understand the performance of our assets and operations on a more comparable basis from period to period and against the performance of other companies in our industry.
	•	Liquidity. EBITDA allows us to assess the ability of our assets to generate cash sufficient to service debt, make distributions to our unitholders and undertake capital expenditures. For example, reviewing our earnings before the impact of non-cash depreciation and amortization charges, and before the payment of interest on debt we incur, provides us an understanding of how much cash is available to pay interest.

		Historical																								Pro Forma
																		Four				Eight
																		Months				Months				Year
		Years Ended December 31,																Ended				Ended				Ended
																		April 30,				December 31,				December 31,
		2000				2001				2002				2003				2004				2004				2004
		(unaudited)								(audited)								(audited)								(unaudited)
		(in thousands)
Reconciliation of “EBITDA” to “Net income”:
Net income (loss)		$	7,349			$	2,129			$	(113,770	)		$	(59,432	)		$	16,164			$	(28,787	)		$	(2,334	)
Depreciation and amortization			14,803				16,094				17,689				23,390				8,585				26,275				37,808
Interest expense, net			14,347				16,352				12,861				26,431				12,783				27,134				11,132
Provision (benefit) for income taxes			57				(663	)			2,164				3,033				(645	)			(51	)			870
EBITDA		$	36,556			$	33,912			$	(81,056	)		$	(6,578	)		$	36,887			$	24,571			$	47,476
Reconciliation of “EBITDA” to “Net operating cash flow”:
Net operating cash flow		$	19,695			$	24,470			$	20,418			$	18,318			$	14,808			$	7,381
Expenditures for drydocking			784				—				984				4,711				—				4,085
Interest expense, net			14,347				16,352				12,861				26,431				12,783				27,134
Gain(loss) on sale of assets			2,109				2,661				490				1,576				(11,837	)			3,428
Change in working capital			2,817				(846	)			(253	)			(237	)			(911	)			(5,935	)
Interest rate swaps gain(loss) and change in accounting principle			—				(11,984	)			(71,400	)			14,715				3,985				—
Foreign currency exchange gain (loss) and other, net			(3,196	)			3,259				(44,156	)			(72,093	)			18,059				(11,522	)
EBITDA		$	36,556			$	33,912			$	(81,056	)		$	(6,578	)		$	36,887			$	24,571

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	LNG Carrier Segment. We have four LNG carriers, including one vessel delivered in July 2004 and one vessel delivered in December 2004. We have contracted to acquire from Teekay Shipping Corporation all of its interest (which will not be less than 70%) in three LNG newbuilding carriers upon the delivery of the first carrier, which is scheduled for the fourth quarter of 2006. The remaining two carriers are scheduled for delivery in the first half of 2007. The three LNG carriers to be acquired from Teekay Shipping Corporation will commence service under existing charters with Ras Laffan Natural Gas Co. Limited (II) (or RasGas II), a joint venture between Qatar Petroleum and ExxonMobil RasGas Inc., a subsidiary of ExxonMobil Corporation, established for the purpose of expanding LNG production in Qatar. In 2003 and 2004, this segment generated 39.7% and 49.7%, respectively, of our total net voyage revenues.
	Suezmax Tanker Segment. We have five Suezmax tankers. In the third quarter of 2005, we expect to take delivery of a new Suezmax tanker (the Toledo Spirit) and, if not sold earlier, concurrently sell to Teekay Shipping Corporation our only single-hulled Suezmax tanker (the Granada Spirit). Upon delivery of the Toledo Spirit, all of our Suezmax tankers will operate under long-term, fixed-rate time charters. In 2003 and through most of 2004, we had six Suezmax tankers. This segment generated 60.3% and 50.3%, respectively, of our total net voyage revenues in 2003 and 2004.

	Our Charters

	•	Time charters, where vessels are chartered to customers for a fixed period of time at rates that are generally fixed but may contain a variable component, such as an inflation adjustment or a current market rate component; and

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	•	Voyage charters, which are charters for shorter intervals, usually a single round trip, that are priced on a current, or “spot,” market rate.

	•	Capital Component. The capital component typically approximates the amounts we are required to pay under vessel financing obligations, including under bareboat charters included in capital lease arrangements. The capital component of our long-term Suezmax time charters fluctuates with the floating interest rates for the debt used to finance the related vessels. If interest rates increase, the amount we pay under the capital leases relating to the chartered vessels increases by the amount of the additional interest payments, and the capital component we receive from the related time charters correspondingly increases. Consequently, the fluctuating portion of the capital component has no net effect on our cash flows or net income, but does affect our recorded voyage revenues and interest expense. The capital component of our LNG time charters is fixed.
	•	Operating Component. The operating component is intended to compensate us for voyage and vessel operating expenses and adjusts for inflation. This component is established at the beginning of the charter and then typically fluctuates annually based on changes in a specified cost-of-living index.

	•	operational deficiencies; drydocking for repairs, maintenance or inspection; equipment breakdowns; or delays due to accidents, crewing strikes, certain vessel detentions or similar problems; or
	•	our failure to maintain the vessel in compliance with its specifications and contractual standards or to provide the required crew.

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	Important Financial and Operational Terms and Concepts

	•	Crews. Crews represented approximately 53% of our vessel operating expenses for 2003 and 2004. A substantial majority of our crewing expenses are denominated in Euros, which is primarily a function of the nationality of our crew. Fluctuations in the Euro relative to the U.S. Dollar have caused, and will continue to cause, fluctuations in our operating results.
	•	Repairs and Maintenance. Repairs and maintenance represented approximately 30% of vessel operating expenses for 2003 and 2004. Expenses for repairs and maintenance tend to fluctuate from period to period because most repairs and maintenance typically occur during periodic drydockings. Please read “— Drydocking” below. Because vessel operating expenses such as repairs and maintenance are lower for newer vessels, and our fleet is relatively new, we expect these expenses to increase as our fleet matures.

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	•	charges related to the depreciation of the historical cost of our fleet (less an estimated residual value) over the estimated useful lives of our vessels;
	•	charges related to the amortization of drydocking expenditures over the estimated number of years to the next scheduled drydocking; and
	•	charges related to the amortization of the fair value of the time charters acquired in the Teekay Spain acquisition (over the remaining terms of the charters), which was initially determined at approximately $183 million in April 2004 when Teekay Shipping Corporation acquired Teekay Spain.

	•	Unrealized end of period revaluations. Under U.S. accounting guidelines, all foreign currency-denominated monetary assets and liabilities, such as cash and cash equivalents, accounts receivable, restricted cash, accounts payable, long-term debt and capital lease obligations, are revalued and reported based on the prevailing exchange rate at the end of the period. As long as our foreign currency-denominated monetary liabilities continue to be in excess of our foreign currency-denominated monetary assets, we will record gains if the U.S. Dollar has strengthened against the applicable foreign currencies during the period, and we record losses if the U.S. Dollar has weakened against the applicable foreign currencies during the period. Most of our foreign currency gains and losses are attributable to this revaluation in respect of our Euro-denominated term loans, which totaled 294.8 million Euros ($372.4 million) and 325.8 million Euros ($443.7 million) as at December 31, 2003 and 2004, respectively. We recorded foreign currency exchange rate losses of $71.5 million for 2003 and $16.1 million for 2004, substantially all of which losses were unrealized.
	•	Foreign currency revenues and expenses:

	•	A portion of our voyage revenues are denominated in Euros. As a result, fluctuations in the Euro relative to the U.S. Dollar have caused, and are likely to continue to cause, fluctuations in our reported voyage revenues. In 2003 and 2004, approximately 11% and 23%, respectively, of our voyage revenues were Euro-denominated.
	•	A substantial majority of our vessel operating expenses and general and administrative expenses are denominated in Euros, which is primarily a function of the nationality of our crew and administrative staff. We also have Euro-denominated interest expense related to our Euro-denominated loans. As a result, fluctuations in the Euro relative to the U.S. Dollar have caused, and are likely to continue to cause, fluctuations in our reported expenses. In 2003 and

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		2004, approximately 85% of our vessel operating expenses and substantially all of our general and administrative expenses were Euro-denominated.

	Items You Should Consider When Evaluating Our Historical Financial Performance and Assessing Our Future Prospects

	•	We have disposed of certain assets included in our historical results of operations. Immediately prior to its acquisition by Teekay Shipping Corporation in April 2004, Tapias disposed of certain assets unrelated to the marine transportation operations purchased by Teekay Shipping Corporation. These unrelated assets included certain investments in marketable securities and other non-shipping assets, including real estate and a yacht. Since these unrelated assets were held in Tapias ship owning subsidiaries acquired by Teekay Shipping Corporation, the financial impact of the assets is included in our historical operating results discussed below through the date of their disposition (as opposed to three unrelated businesses previously held in separate subsidiaries not acquired in the Tapias acquisition, which are not included in our historical operating results). Excluding expenses associated with the yacht, none of the unrelated assets had a significant impact on our operating results.
	•	We have increased, and expect to continue to increase, the size of our LNG carrier fleet. Our historical results of operations include only one LNG carrier operating in the last part of 2002 and only two LNG carriers operating during parts of 2003 and the first six months of 2004. In July and December 2004, we took delivery of our third and fourth LNG carriers. We expect to operate the three additional RasGas II LNG newbuildings upon their deliveries in the fourth quarter of 2006 and the first half of 2007. In addition, our growth strategy focuses on expanding our fleet of LNG carriers under long-term, fixed-rate time charters.
	•	We will operate five, not six, Suezmax tankers. Our historical results of operations reflect the operation of six Suezmax tankers. In the fourth quarter of 2004, we disposed of two Suezmax tankers under charter to CEPSA (the Leon Spirit and Sevilla Spirit) for a total of $46.4 million, resulting in a gain of $3.4 million relative to the carrying amounts of the vessels. The Leon Spirit was replaced in the fourth quarter of 2004 by the delivery of another Suezmax tanker (the Teide Spirit) chartered to CEPSA. As a result, the disposition will have an immaterial effect on our operations and cash flows. The Sevilla Spirit will be replaced in the third quarter of 2005 with another Suezmax tanker (the Toledo Spirit) that will be chartered to CEPSA. Pending delivery of the Toledo Spirit, we will operate the Granada Spirit pursuant to a fixed-rate time charter. We have an agreement to sell the Granada Spirit to Teekay Shipping Corporation no later than the delivery of the Toledo Spirit. Please read “Certain Relationships and Related Party Transactions — Granada Spirit Charter and Purchase Agreement.” Upon the closing of this offering, we will operate five Suezmax tankers as a result of these vessel dispositions and deliveries.
	•	Our results from December 2004 until the closing of this offering will not include results from the Granada Spirit. In December 2004, we transferred the Granada Spirit to another Teekay Shipping Corporation subsidiary not organized in Spain in connection with a significant drydocking and re-flagging the vessel. We did not recognize a gain or loss on that transfer. Upon the closing of this offering, Teekay Shipping Corporation will contribute the Granada Spirit back to us. Please read “Certain Relationships and Related Party Transactions — Granada Spirit Charter and

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		Purchase Agreement.” Our results from the time we transferred the vessel to the closing of this offering will not reflect the results of the Granada Spirit.
	•	We do not anticipate earning revenues from voyage charters in the foreseeable future. Upon the closing of this offering, all of our vessels will operate under fixed-rate time charters, and we do not anticipate earning any revenues from voyage charters in the foreseeable future. Our recent results reflect relatively high voyage charter rates earned by the Granada Spirit, which has operated under voyage charters based on spot market rates and which was part of our fleet until December 2004 when we sold it to Teekay Shipping Corporation. When Teekay Shipping Corporation contributes the Granada Spirit back to us upon the closing of this offering, we will concurrently charter it to Teekay Shipping Corporation under a short-term, fixed-rate time charter. The charter rate will be less than rates recently earned by the Granada Spirit in the spot market, but the fixed rate will meet our strategy of earning stable revenues from fixed-rate time charters. The average quarterly net voyage revenues we expect to receive under the fixed-rate time charter to Teekay Shipping Corporation during 2005 are approximately $1.9 million less than the average quarterly revenues we earned on the Granada Spirit in 2004.

The time charters for two of our Suezmax tankers, the Sevilla Spirit, prior to being sold in the fourth quarter of 2004, and the Teide Spirit, which began operating in the fourth quarter of 2004, contain a component providing for additional revenues to us beyond the fixed hire rate when current market rates exceed certain amounts. Accordingly, even though declining spot market rates will not result in our receiving less than the fixed hire rate, our results will continue to be influenced, in part, by the variable component of the Teide Spirit charter. During 2004, we earned $4.2 million in additional revenue from this variable component.

	•	We have designated our interest rate swaps as hedges. We have entered into interest rate swaps to hedge our interest rate risk from our floating-rate debt used to purchase our LNG carriers. These interest rate swaps were not designated as hedges under U.S. accounting guidelines until April 30, 2004. Consequently, the changes in the fair values of these swaps that occurred during 2002, 2003 and the four months ended April 30, 2004 have been recorded in earnings as “interest rate swaps gain (loss)” for those periods. Had these interest rate swaps been designated as hedges prior to 2003, any subsequent changes in fair value would have been recognized in “accumulated other comprehensive income (loss)” to the extent the hedge was effective and until the hedged item was recognized as income. Because the swaps have been highly effective, the change in fair value after April 30, 2004 has been reflected in accumulated other comprehensive income (loss) and, because we expect the swaps, or replacement swaps, to continue to be highly effective, we expect that most of the change in value will continue to be reflected in accumulated other comprehensive income (loss). For further information on our interest rate swaps, please read Note 13 to the consolidated audited financial statements of Teekay Spain included elsewhere in this prospectus. In addition, in April 2005 we settled our existing interest rate swaps in connection with prepayment of debt associated with two of our LNG carriers, and we have settled and replaced our existing interest rate swaps associated with our other two LNG carriers. Please read “Use of Proceeds.”
	•	We will incur additional general and administrative expenses. Upon the closing of this offering, we and certain of our subsidiaries will enter into services agreements with certain subsidiaries of Teekay Shipping Corporation pursuant to which those subsidiaries will provide us and our subsidiaries certain services, including strategic consulting, advisory, ship management, technical and administrative services. Our cost for these services will depend on the amount and type of services provided during each period. The services will be valued at a reasonable, arms’-length rate that will include reimbursement of reasonable direct or indirect expenses incurred to provide the services. We will also reimburse our general partner for all expenses it incurs on our behalf. For 2005, we estimate these services and general partner reimbursements will increase our expenses by an additional $1.6 million, primarily depending on the particular amount and type of services actually provided during the year. We may also pay “incentive fees” to Teekay Shipping Corporation to reward and motivate it for pursuing LNG projects that we may elect to undertake,

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		and we may grant equity compensation that would result in an expense to us. Either of these may result in an increase in expenses, although we currently do not have an estimate of the possible expenses. Please read “Certain Relationships and Related Party Transactions — Omnibus Agreement” and “Management — 2005 Long-Term Incentive plan.”

	We Have Derived, and We Expect to Continue to Derive, a Substantial Majority of Our Revenues From a Limited Number of Customers.

	•	the customer exercises certain rights to terminate the charter, purchase or cause the sale of the vessel or, under some of our charters, convert the time charter to a bareboat charter (some of which rights are exerciseable at any time);
	•	the customer terminates the charter because we fail to deliver the vessel within a fixed period of time, the vessel is lost or damaged beyond repair, there are serious deficiencies in the vessel or prolonged periods of off-hire, or we default under the charter; or
	•	under some of our time charters, the customer terminates the charter because of the termination of the charter’s LNG sales agreement supplying the LNG designated for our services, or a prolonged force majeure event affecting the customer, including damage to or destruction of relevant LNG production or regasification facilities, war or political unrest preventing us from performing services for that customer.

	Teekay Luxembourg S.a.r.l.

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	•	$465.7 million of advances (including accrued interest) from Teekay Shipping Corporation that were used by Luxco to purchase Teekay Spain and will be used by Luxco to prepay certain debt of Teekay Spain;
	•	$9.8 million of net interest expense related to the advances;
	•	$44.7 million of unrealized foreign exchange losses related to the advances, which are Euro-denominated;
	•	$1.1 million in other expenses;
	•	$2.2 million in cash and cash equivalents; and
	•	its interest in Teekay Spain and certain purchase rights and obligations for Suezmax tankers operated by Teekay Spain under capital lease arrangements, which it acquired from Teekay Spain on December 30, 2004.

		Year Ended December 31,
		2002												2003												2004
		Suezmax				LNG								Suezmax				LNG								Suezmax				LNG
		Tanker				Carrier								Tanker				Carrier								Tanker				Carrier
		Segment				Segment				Total				Segment				Segment				Total				Segment				Segment				Total
		(in thousands)
Voyage revenues		$	54,418			$	5,448			$	59,866			$	54,102			$	32,607			$	86,709			$	64,438			$	59,395			$	123,833
Voyage expenses			5,319				15				5,334				4,788				123				4,911				4,678				254				4,932
Net voyage revenues		$	49,099			$	5,433			$	54,532			$	49,314			$	32,484			$	81,798			$	59,760			$	59,141			$	118,901
Vessel operating expenses			15,789				315				16,104				20,584				5,856				26,440				20,002				10,615				30, 617
Depreciation and amortization			16,579				1,110				17,689				17,760				5,630				23,390				19,469				15,391				34,860
General and administrative(1)			6,237				264				6,501				7,116				1,683				8,799				4,466				1,937				6,403
Income from vessel operations		$	10,494			$	3,744			$	14,238			$	3,854			$	19,315			$	23,169			$	15,823			$	31,198			$	47,021

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

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	LNG Carrier Segment

	•	the addition of our three LNG carriers in August 2003 and July and December 2004;
	•	the amortization, as an intangible asset, of the value of the Tapias time charters acquired on April 30, 2004; and
	•	increased depreciation resulting from recording the Tapias vessels at their acquisition cost as compared to their depreciated value prior to the acquisition.

	Suezmax Tanker Segment

	•	a $5.1 million increase in net voyage revenues for 2004 compared to 2003 due to increases in average spot market rates earned by the Granada Spirit;
	•	a $4.2 million increase in net voyage revenues for 2004 compared to 2003 due to an increase in the voyage revenues earned from a charter with a variable component based on spot market rates; and
	•	a $2.9 million increase in net voyage revenues due to fewer off-hire days from drydocking in 2004 compared to 2003.

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	•	the amortization, as an intangible asset, of the value of the Tapias time charters acquired on April 30, 2004; and
	•	increased depreciation resulting from recording the Tapias vessels at their acquisition cost as compared to their depreciated value prior to the acquisition.

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	•	a $4.5 million increase in voyage revenues from the Granada Spirit from the prior period, due primarily to an increase in average spot market rates,
	•	substantially offset by a $3.7 million decrease in voyage revenues due to a greater number of off-hire days from drydocking in 2003 compared to 2002 and, to a lesser extent, from $0.6 million in decreased voyage revenues from three time charters that fluctuate based on changes in interest rates.

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		Year Ended
		December 31,
		2002				2003				2004
		(in thousands)
Net cash flow from operating activities		$	20,418			$	18,318			$	22,189
Net cash flow from financing activities			176,316				(277,616	)			69,799
Net cash flow from investing activities			(199,218	)			262,766				40,887

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	Historical Capital Expenditures

		Year Ended
		December 31,
		2002				2003				2004
		(in thousands)
Expenditures for drydocking		$	984			$	4,711			$	4,085
Expenditures for vessels and equipment			186,755				133,628				89,225
Total capital expenditures		$	187,739			$	138,339			$	93,310

	Ship Financing Arrangements

	•	Term Loans. Two of our LNG carriers have been financed with term loans that are collateralized by first preferred mortgages. We repaid these term loans in April 2005. See “Use of Proceeds.”
	•	Capital Lease Arrangements. Under the capital lease arrangements for our Suezmax tankers, we leased the vessels from third parties pursuant to bareboat charters and make lease payments based on the lessee’s repayment schedule for the vessel construction financing costs. At the end of the lease terms, we are obligated to purchase the vessels for a fixed price based on the remaining unamortized portion of the vessel construction financing costs.
	•	Spanish Tax Lease Arrangements. Under capital lease arrangements for two of our LNG carriers, we have borrowed under term loans and deposited the proceeds into restricted cash accounts. Concurrently, we entered into capital leases for the vessels pursuant to bareboat charters and recorded the vessels as assets when the vessels began operations. The restricted cash deposits, together with interest earned on the deposits, will equal the remaining amounts we owe under the lease arrangements, including our obligations to purchase the vessels at the end of the lease terms. At the end of the lease terms, the amounts remaining in the restricted cash deposit accounts will be used to purchase the vessels, and we will obtain title to the vessels.
	•	Warehousing. A subsidiary of Teekay Shipping Corporation has contracted to have built the three RasGas II vessels. Upon delivery of the first vessel, we will acquire all of Teekay Shipping Corporation’s interest in the subsidiary for a price that will reimburse Teekay Shipping Corporation for (1) its costs related to the construction of the three vessels and (2) a reasonable cost of capital on vessel construction payments. Please read “Certain Relationships and Related Party Transactions — Agreement to Purchase RasGas II Interest.”

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Vessel			Type of Financing Arrangement		Financial Commitment
Operating LNG Vessels:
Hispania Spirit			Term loans			$165.7 million	(1)
Galicia Spirit			Term loan			172.8 million	(1)
Catalunya Spirit			Spanish tax lease			200.2 million	(2)
Madrid Spirit			Spanish tax lease			240.8 million	(2)
LNG Newbuildings:
Hull No. 2238			Warehousing			197.5 million	(3)
Hull No. 2239			Warehousing			197.5 million	(3)
Hull No. 2240			Warehousing			197.5 million	(3)
Operating Suezmax Tankers:
Granada Spirit			None			None
Tenerife Spirit			Capital lease(4)			46.4 million	(4)
Algeciras Spirit			Capital lease(4)			46.5 million	(4)
Huelva Spirit			Capital lease(4)			44.2 million	(4)
Teide Spirit			Capital lease(4)			50.6 million	(4)
Suezmax Newbuilding:
Toledo Spirit			Capital lease(5)			50.0 million	(5)
	Total					$1,609.7 million

(1)	We repaid the term loans for these vessels in April 2005. We have also entered into a $100 million revolving credit facility in connection with this offering, which facility will be secured by a mortgage on the Hispania Spirit and a pledge of certain shares of our subsidiary operating the carrier.
(2)	Represents the principal amount on the term loan(s) used to make the restricted cash deposit that will fully pay the capital lease obligations and pay capitalized interest and other miscellaneous construction costs.
(3)	We estimate that the total cost to purchase the three RasGas II vessels from Teekay Shipping Corporation will equal approximately $592.5 million (which may be proportionately reduced if Qatar Gas Transport Company Ltd. (or Qatar Gas Transport) exercises its option to purchase up to a 30% interest in each vessel). However, actual costs will vary depending on the amount of miscellaneous construction costs and when the vessels are actually delivered (which affects the amount of capitalized interest). For purposes of this table, we have provided our estimate and divided the amounts evenly over the three vessels. Until we acquire Teekay Shipping Corporation’s interest in the subsidiary contracting to build the vessels, the accumulated construction costs and corresponding financing will not be reflected on our balance sheet.
(4)	Under the terms of the capital leases, the vessel owner enters into a seven-year capital lease with financial institutions and then leases the vessel to us for seven years pursuant to a bareboat charter. At the end of the term, we are obligated to purchase the vessel at a fixed price based on the unamortized portion of the vessel construction financing costs. The purchase obligations will be at various times from 2007 to 2011 and range from $39.4 million to $43.5 million per vessel. We expect that we will complete the purchase by assuming the outstanding financing obligations; however, we may be required to obtain separate debt or equity financing to complete the purchases if the requisite lenders do not consent to our assuming the financing obligations. The amount in the table represents our remaining capital lease obligations, including the amount of the vessel purchase price.
(5)	As at December 31, 2004, we had made $4.8 million of progress payments on this newbuilding. We expect to make additional construction installment payments prior to its delivery, scheduled for July 2005, with temporary debt financing. We anticipate permanently financing the Suezmax newbuilding upon its delivery pursuant to financing arrangements substantially similar to those for our other Suezmax tankers subject to capital lease arrangements.

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	•	incurring or guaranteeing indebtedness;
	•	changing ownership or structure, including mergers, consolidations, liquidations and dissolutions;
	•	making dividends or distributions;
	•	making capital expenditures in excess of specified levels;
	•	making certain negative pledges and granting certain liens;
	•	selling, transferring, assigning or conveying assets;
	•	making certain loans and investments; and
	•	entering into a new line of business.

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				2005				2006				2007				2008				2009				Thereafter				Total
				(in millions of U.S. Dollars)
U.S. Dollar-Denominated Obligations:
	Long-term debt(1)			$	11.3			$	7.0			$	7.6			$	8.2			$	140.5			$	168.8			$	343.4
	Commitments under capital leases(2)(3)				21.0				145.8				3.9				3.9				3.8				42.8				221.2
	Newbuilding installments				42.8				—				—				—				—				—				42.8
		Total U.S. Dollar-denominated obligations			75.1				152.8				11.5				12.1				144.3				211.6				607.4
Euro-Denominated Obligations:(4)
	Long-term debt(5)				11.1				9.4				10.0				10.8				11.5				389.9				442.7
	Commitments under capital leases(2)				105.0				167.8				31.7				33.3				34.9				124.9				497.6
		Total Euro-denominated obligations			116.1				177.2				41.7				44.1				46.4				514.8				940.3
		Total long-term obligations		$	191.2			$	330.0			$	53.2			$	56.2			$	190.7			$	726.4			$	1,547.7

(1)	Interest payments are based on LIBOR plus a margin, depending on our financial leverage.
(2)	Includes purchase obligations.
(3)	Excludes payments for a Suezmax newbuilding on capital lease that is scheduled to deliver in the third quarter of 2005.
(4)	Euro-denominated amounts are based on the prevailing exchange rate as of December 31, 2004.
(5)	Interest payments are based on EURIBOR plus a margin, depending on our financial leverage.

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				2005				2006				2007				2008				2009				Thereafter				Total
				(in millions of U.S. Dollars)
U.S. Dollar-Denominated Obligations:
	Long-term debt(1)			$	5.0			$	0.2			$	0.2			$	0.2			$	0.2			$	9.2			$	15.0
	RasGas II purchase commitment(2)				—				124.5				—				—								—				124.5
	Other U.S. Dollar-denominated obligations				63.8				145.8				3.9				3.9				3.8				42.8				264.0
		Total U.S. Dollar-denominated obligations			68.8				270.5				4.1				4.1				4.0				52.0				403.5
Euro-Denominated Obligations:(3)
		Total Euro-denominated obligations			116.1				177.2				41.7				44.1				46.4				514.8				940.3
		Total long-term obligations		$	184.9			$	447.7			$	45.8			$	48.2			$	50.4			$	566.8			$	1,343.8

(1)	Interest payments are based on LIBOR plus a margin, depending on our financial leverage. Please read “Use of Proceeds” and the unaudited pro forma consolidated financial statements included elsewhere in this prospectus.
(2)	Represents our estimate of the purchase price for Teekay Shipping Corporation’s interest in the three RasGas II LNG carrier newbuildings, excluding the assumption of approximately $468.0 million of debt. Assumes Qatar Gas Transport does not exercise its options to purchase up to 30% of the interest in the RasGas II vessels. In connection with this purchase, we will assume the $68.6 million of construction installment payments due in 2007 for the last two vessels to be delivered.
(3)	Euro-denominated amounts are based on the prevailing exchange rate as of December 31, 2004.

	Revenue Recognition

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	Vessel Lives and Impairment

	Derivative Instruments

	Goodwill

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			2005				2006				2007				2008				2009				Thereafter
			(in millions, except percentages)
Long-Term Debt:
Floating-rate debt — please read “Contractual Obligations and Contingencies” above
Interest Rate Swaps:(1)(2)
	Contract amount (U.S. Dollar- denominated)		$	6.	5		$	7.	0			7.	6		$	8.	2		$	140.	5		$	158.	5
	Average fixed pay rate			6.	76%			6.	76%			6.	76%			6.	76%			6.	96%			6.	41%
	Contract amount (Euro-denominated)		$	8.	3		$	9.	3			10.	0		$	10.	7		$	11.	5		$	391.	0
	Average fixed pay rate			5.	90%			5.	90%			5.	90%			5.	90%			5.	90%			5.	89%

(1)	The average variable receive rate for our interest rate swaps is set monthly at one-month LIBOR or EURIBOR or semi-annually at six-month LIBOR or EURIBOR.
(2)	The average fixed pay rate excludes the margin we pay on our floating-rate debt.

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							Fair
			Contract				Value/Carrying
			Amount				Amount				Rate(1)
			(in millions)
December 31, 2004
Interest Rate Swap Agreements:
	U.S. Dollar-denominated		$	328.5			$	44.3				6.67%
	Euro-denominated		$	441.0			$	90.6				5.89%
Long-Term Debt:(2)
	U.S. Dollar-denominated		$	343.4			$	343.4				3.69%
	Euro-denominated		$	443.7			$	443.7				3.37%
December 31, 2003
Interest Rate Swap Agreements:
	U.S. Dollar-denominated		$	295.6			$	47.8				6.71%
	Euro-denominated		$	349.0			$	48.3				5.94%
Long-Term Debt:(2)
	U.S. Dollar-denominated		$	371.3			$	371.3				2.21%
	Euro-denominated		$	372.4			$	372.4				3.27%

(1)	Rate refers to the weighted-average effective interest rate for our debt and average fixed pay rate for our swap agreements. The average fixed pay rate excludes the margin we pay on our floating-rate debt.
(2)	Excludes fixed-rate capital lease obligations.

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	•	global economic growth and increasing energy demand;
	•	natural gas being a cleaner burning fuel than coal and oil, contributing to an increase in the development of power plants that run on natural gas;
	•	the wide applicability of natural gas as a fuel source, along with consumer desires to diversify fuel sources; and
	•	market deregulation.

100

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101

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								Percentage
		2003 Percentage						Change in Country				Change in
		of Worldwide						Exports From				Exports From
Country		Market		2003 Exports				2000 to 2003				2000 to 20003
				(billion cubic feet)								(billion cubic feet)
Indonesia		21%			1,245				(4	)%			(55	)
Algeria		16			968				2				18
Malaysia		14			822				11				82
Qatar		11			669				30				153
Other Middle East		10			582				70				239
Trinidad & Tobago		7			419				198				278
Nigeria		7			405				151				243
Australia		6			371				1				3
Brunei		6			341				7				21
United States		1			65				(2	)			(1	)
Libya		Less than 1%			25				(8	)			(2	)

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										Percentage
		2003 Percentage								Change in Country				Change in
		of Worldwide				2003				Imports From				Imports From
Country		Market				Imports				2000 to 2003				2000 to 2003
						(billion cubic feet)								(billion cubic feet)
Japan			48	%			2,824				6	%			167
South Korea			15				896				34				227
Spain			9				519				91				247
United States			9				507				124				280
France			5				319				(15	)			(58	)
Taiwan			4				258				18				40
Italy			4				234				31				55
Turkey			3				161				13				19
Belgium			2				119				(27	)			(44	)
Other Western Europe			1				39				117				21
Other Americas		Less than 1%					37				191				24

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	•	The Moss Rosenberg spherical system, which was designed in the 1970s and is used by nearly half of the current LNG fleet. In this system, multiple self-supporting, spherical tanks are built independent of the carrier and arranged inside its hull.
	•	The Gaz Transport membrane system, which is built inside the carrier and consists of insulation between thin primary and secondary barriers. The membrane is designed to accommodate thermal expansion and contraction without overstressing the membrane.

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Moss Rosenberg System		Gaz Transport System

Delivery Year		Number of Vessels				Total Vessel Capacity
						(cubic meters)
2005			18				2,418,100
2006			22				3,142,100
2007			36				5,399,300
2008 and after			32				5,171,000
Total			108				16,130,500

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*	Through March 2005.

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	•	shipping industry relationships and reputation for customer service and safety;
	•	LNG shipping experience and quality of ship operations (including cost effectiveness);
	•	quality and experience of seafaring crew;
	•	the ability to finance LNG carriers at competitive rates and financial stability generally;
	•	relationships with shipyards and the ability to get suitable berths;
	•	construction management experience, including the ability to obtain on-time delivery of new vessels according to customer specifications;
	•	willingness to accept operational risk pursuant to the charter contract, such as allowing termination of the charter for force majeure events; and
	•	competitiveness of bids in terms of overall price.

	•	LNG projects are expensive and typically involve an integrated chain of dedicated facilities and cooperative activities; accordingly, the overall success of an LNG project depends heavily on long-range planning and coordination of project activities, including marine transportation;
	•	LNG carriers are expensive to build, so the cash-flow from long-term, fixed-rate charters supports the vessel financing;

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	•	most end users of LNG are utility companies, power stations and petrochemical producers that depend on reliable and uninterrupted delivery of LNG; and
	•	the limited size of the world LNG fleet and number of independent operators historically has not been conducive to development of a spot market for LNG transportation services.

	•	increases in new LNG production capacity that is not fully committed to a particular importer;
	•	increases in seasonal demand for LNG due to, for example, reliance on natural gas as a commercial and residential heating source or for power generation during times of peak electricity usage;
	•	the increasing availability of LNG carriers not committed to a particular project, either as a result of the termination of existing time charters without a replacement charter or the building of new carriers on a speculative basis;
	•	increased emphasis on delivery flexibility by importers and related increased charter contract flexibility; and
	•	unforeseen disruptions to production capacity in some exporting countries.

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			1999				2000				2001				2002				2003				2004				2005E
			(millions of barrels per day)
OECD* North America				23.8				24.1				24.0				24.1				24.6				25.2				25.6
OECD Europe				15.3				15.2				15.3				15.3				15.5				15.7				15.8
OECD Pacific				8.8				8.7				8.7				8.6				8.8				8.6				8.6
	Total OECD			47.9				48.0				48.0				48.1				48.9				49.5				50.0
	Total Non-OECD			28.1				28.7				29.3				29.9				30.9				33.0				34.3
	Total World Demand			76.0				76.6				77.3				77.9				79.8				82.5				84.3

*	OECD indicates countries that are members of the international Organization for Economic Cooperation and Development.

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	•	Ultra Large Crude Carriers (or ULCCs), of 320,000 dwt or more;
	•	Very Large Crude Carriers (or VLCCs), of 200,000 to 320,000 dwt;
	•	Suezmax tankers of 120,000 to 200,000 dwt;
	•	Aframax tankers of 80,000 to 120,000 dwt; and
	•	Smaller tankers (such as Panamax and Handysize) of less than 80,000 dwt.

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	Competition

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	(1)	Conventional oil tankers exclude those vessels that can carry dry bulk and ore, tankers that currently are used for storage purposes and shuttle tankers that are designed to transport oil from offshore production platforms to onshore storage and refinery facilities.
	(2)	Alliance Chartering operates a pool of tankers owned by OMI Corporation, Frontline Ltd., Sonangol Group, and Ernst Jacob.
	(3)	Data for Teekay Shipping Corporation includes our Suezmax tankers.

	•	price;
	•	location (for single-voyage or short-term charters);
	•	the size, age, condition and acceptability of the vessel;
	•	oil tanker shipping experience and quality of ship operations; and
	•	the size of an operating fleet, with larger fleets allowing for greater vessel substitution, availability and customer service.

	Nature of Charters

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	•	Strong increase in demand for LNG vessels. Natural gas represented approximately 23% of world energy consumption in 2001 and is the fastest growing primary energy source according to the U.S. Department of Energy. Between 1993 and 2003, the annual amount of LNG shipped internationally increased from 3.0 trillion cubic feet (or Tcf) to 5.9 Tcf, as a result of improvements in liquefaction and regasification technologies, decreases in LNG shipping costs and increases in demand from consuming regions located far from natural gas reserves. Due to the vast distances between many areas of natural gas production and consumption and the related cost, regulatory and geological challenges of pipeline construction, seaborne transportation of LNG provides either the only or the most cost-effective means of transporting natural gas to many consuming regions. As of April 1, 2005, the world LNG carrier fleet consisted of 180 existing vessels and 108 vessels under order or construction. To meet projected LNG shipping demand, LNG Shipping Solutions Ltd. estimates that the worldwide LNG fleet must expand to approximately 364 vessels by 2010.
	•	Globalization of LNG trade routes. We believe more opportunities to transport LNG are developing outside traditional trade routes. Historically, LNG trade primarily centered around the major LNG exporters of Indonesia, Malaysia and Algeria and the major LNG importers of Japan, South Korea and Taiwan. However, we expect the Middle East and Africa to continue to be increasingly important LNG exporting areas and Russia, with its vast natural gas reserves, to become an LNG exporter. We also expect Europe and North America to be among the major LNG importers. We believe that the increase in the number and scope of LNG trade routes will result in greater accessibility to LNG and lead to increased LNG demand.
	•	Increasing ownership of world LNG carrier fleet by independent owners. Until recently, major private and state-owned energy companies owned most of the world LNG carrier fleet. However, companies such as us that are independent of major energy companies now own about 45% of the existing LNG fleet, and independent owners have placed approximately 60% of existing LNG newbuilding orders. We believe that the increasing ownership of the world LNG fleet by independent owners is attributable in part to the desire of some major energy companies to limit their commitment to:

	•	the marine transportation business, which is non-core to their operations; and
	•	the cost of financing of new LNG carriers in addition to the high construction costs of LNG facilities.

	•	Stringent customer standards favor high-quality operators. Major energy companies are highly selective in their choice of LNG transportation partners due to:

	•	their need for reliable, uninterrupted access to LNG transportation;
	•	the heightened reliance on the LNG transportation partner once selected, resulting from the lack of commercially viable transportation alternatives; and
	•	public perception of LNG projects, which magnifies customer sensitivity to hiring energy transportation providers with strong reputations for maintaining high safety, environmental and quality standards.

	These factors have contributed to increasingly stringent pre-qualification operational and financial standards that LNG vessel operators must meet prior to bidding on nearly all significant LNG transportation contracts. We believe that these rigorous and comprehensive standards will increase

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	our ability relative to less qualified or experienced operators to compete effectively for new LNG contracts.

	•	Acquire new LNG carriers built to project specifications after long-term, fixed-rate time charters have been awarded for an LNG project. Our LNG carriers (including the three RasGas II vessels) were built or will be built to customer specifications included in the related long-term, fixed-rate time charters for the vessels. We intend to continue our practice of acquiring LNG carriers as needed for approved projects only after the long-term, fixed-rate time charters for the projects have been awarded, rather than ordering vessels on a speculative basis. We believe this approach is preferable to speculative newbuilding because it:

	•	eliminates the risk of incremental or duplicative expenditures to alter our LNG carriers to meet customer specifications;
	•	facilitates the financing of new LNG carriers based on their anticipated future revenues; and
	•	ensures that new vessels will be employed upon acquisition, which should generate more stable cash flow.

	•	Expand our LNG operations globally. We seek to capitalize on opportunities emerging from the global expansion of the LNG sector by selectively targeting:

	•	long-term, fixed-rate time charters wherever significant LNG liquefaction and regasification facilities are being built or expanded;
	•	joint ventures and partnerships with companies that may provide increased access to opportunities in attractive LNG importing and exporting geographic regions; and
	•	strategic vessel and business acquisitions.

	•	Provide superior customer service by maintaining high reliability, safety, environmental and quality standards. LNG project operators seek LNG transportation partners that have a reputation for high reliability, safety, environmental and quality standards. We will seek to leverage our own and Teekay Shipping Corporation’s operational expertise to create a sustainable competitive advantage with consistent delivery of superior customer service by our:

	•	responsiveness, reliability, professionalism and integrity;
	•	adoption of responsible environmental practices and strict adherence to environmental regulations;
	•	dedication to safe operations, commencing with our care in selecting and training our sea and office personnel; and
	•	use of customer feedback and industry and internal performance measures to drive continuous improvements.

	•	Manage our Suezmax tanker fleet to provide stable cash flows. The remaining terms for our existing long-term Suezmax tanker charters are 15 to 19 years, and the term of our Suezmax newbuilding tanker will be 20 years from delivery. We believe the fixed-rate time charters for our oil tanker fleet will provide us stable cash flows during their terms and a source of funding for expanding our LNG operations. Depending on prevailing market conditions during and at the end of each existing charter, we may seek to extend the charter, enter into a new charter, operate the vessel on the spot market or sell the vessel, in order to maximize returns on our Suezmax fleet while managing residual risk.

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	•	We have a strategic platform from which to expand our presence in the rapidly growing LNG marine transportation sector. We currently operate four LNG carriers and will receive deliveries of three LNG newbuildings beginning in the fourth quarter of 2006 through the first half of 2007. Our LNG fleet, combined with our existing relationships with leading energy and utility companies in Spain, a significant importer of LNG, and our new relationship, through RasGas II, to the important LNG exporting nation of Qatar, give us a significant presence in the rapidly growing LNG marine transportation sector. We believe this platform provides a strategic base from which we will seek to expand existing relationships and attract new customers.
	•	Our management and the personnel of Teekay Shipping Corporation’s subsidiaries who will provide services to us have extensive experience in fleet expansion. The Chief Executive Officer and Chief Financial Officer of our general partner, key employees of our subsidiary Teekay Spain and personnel of other subsidiaries of Teekay Shipping Corporation who will provide services to us pursuant to advisory and administrative services agreements have successfully identified and acquired over $3.7 billion in vessels since 1999, expanding Teekay’s fleet from 50 to 145 vessels through a combination of newbuildings, vessel and business acquisitions and, in some cases, joint ventures. These individuals have overseen all aspects of the construction of over 50 newbuildings (including those currently under order) during that period, including:

	•	identifying and pre-qualifying shipyards with reputations for quality workmanship and timely vessel completion;
	•	advising customers about technical vessel specifications and suggested improvements, and conducting related negotiations with the shipyard; and
	•	supervising construction quality and shipyard progress toward identified budgetary constraints and completion milestones.

	•	We believe our relationship with Teekay Shipping Corporation and its prominence and customer relationships in the shipping industry will significantly enhance our growth opportunities. Established in 1973, Teekay Shipping Corporation has achieved a global brand name in the shipping industry, developed an extensive network of long-standing relationships with major energy companies and earned a reputation for reliability, safety and excellence. We believe that our relationship with Teekay Shipping Corporation will significantly enhance our growth opportunities and that we will be able to leverage this relationship to our advantage in competing for the transportation requirements of LNG projects and in attracting and retaining long-term charter contracts throughout the world. We also believe that Teekay Shipping Corporation’s established relationships with leading shipyards and the high number of newbuilding orders it places with these shipyards will facilitate our interactions with these shipyards during periods of shipyard production constraints, which is anticipated over the next few years.
	•	We will supplement our operational experience through continued access to Teekay Shipping Corporation’s expertise in various functions critical to our vessel operations. The key employees of our primary operating subsidiary, Teekay Spain, bring to us significant technical, financial and commercial capabilities relating to vessel operations and other business matters. Through Teekay Shipping Corporation’s extensive experience operating its large fleet and its commitment to exceptional customer service, it has developed specialized core competencies addressing various functions critical to its and our operations, has adopted best practices in the shipping industry and has developed an infrastructure to efficiently coordinate and implement these skills and practices.

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		Subsidiaries of Teekay Shipping Corporation have agreed to provide ship management services to us, including:

	•	vessel maintenance;
	•	crewing;
	•	purchasing;
	•	shipyard supervision;
	•	insurance; and
	•	financial services.

Please read “Certain Relationships and Related Party Transactions — Advisory and Administrative Services Agreements — Advisory, Technical and Administrative Services Agreements Between Certain of Our Operating Subsidiaries and Teekay Shipping Limited.” We believe these services will complement our existing operational experience and provide strict quality and cost controls and effective safety monitoring.

	•	We have financial flexibility to pursue acquisitions and other expansion opportunities through additional debt borrowings and the issuance of additional partnership units. In connection with this offering, we entered into a revolving credit facility which will provide us access to approximately $100 million for working capital and acquisition purposes. We believe that borrowings available under our revolving credit facility, access to other bank financing facilities and the debt capital markets, and our ability to issue additional partnership units will provide us with financial flexibility to pursue acquisition and expansion opportunities.

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	LNG Carriers

Remaining

Vessel

Capacity

Delivery

Our Ownership

Charterer

Charter Term*

(cubic meters)

Operating LNG carriers:

Hispania Spirit

140,500

Sept. 2002

100%

Repsol YPF

17 years(1)

Catalunya Spirit

138,000

Aug. 2003

Capital lease(2)

Gas Natural SDG

18 years(1)

Galicia Spirit

140,500

July 2004

100%

Uniòn Fenosa Gas

24 years(3)

Madrid Spirit

138,000

Dec. 2004

Capital lease(2)

Repsol YPF

20 years(1)

Newbuildings:

Hull No. 2238

151,700

Oct. 2006

Teekay-owned(4)

RasGas II

20 years(5)

Hull No. 2239

151,700

Jan. 2007

Teekay-owned(4)

RasGas II

20 years(5)

Hull No. 2240

151,700

Apr. 2007

Teekay-owned(4)

RasGas II

20 years(5)

Total Capacity:

1,012,100

*	Each of our time charters are subject to certain termination and purchase obligations. Please read “— LNG Time Charters — Purchase Options, Termination Rights and Bareboat Conversion Options.”
(1)	The charterer has two options to extend the term for an additional five years each.
(2)	We lease the vessel under a Spanish tax lease arrangement and will purchase the vessel when the lease terminates in 2006 for the Catalunya Spirit and 2011 for the Madrid Spirit. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Ship Financing Arrangements.”
(3)	The charterer has one option to extend the term for an additional five years.
(4)	These vessels are currently owned by subsidiaries of Teekay Shipping Corporation. Upon the delivery of the first vessel, we will purchase Teekay Shipping Corporation’s entire interest in the vessels, which will be no less than 70% in each vessel. Please read “Certain Relationships and Related Party Transactions — Agreement to Purchase RasGas II Interest.”
(5)	The charterer has three options to extend the term for an additional five years each.

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	Suezmax Tankers

Remaining

Tanker

Capacity

Delivery

Our Ownership

Charterer

Charter Term

(dwt)

Operating Suezmax tankers:

Granada Spirit

147,500

Jan. 1990

100%(1)

Teekay

(1)

Tenerife Spirit

159,500

July 2000

Capital lease(2)

CEPSA

15 years(3)

Algeciras Spirit

159,500

Oct. 2000

Capital lease(2)

CEPSA

15 years(3)

Huelva Spirit

159,500

Mar. 2001

Capital lease(2)

CEPSA

16 years(3)

Teide Spirit

159,500

Oct. 2004

Capital lease(2)

CEPSA

19 years(3)

Newbuilding:

Toledo Spirit

159,500

July 2005

Capital lease(4)

CEPSA

20 years(3)

Total Capacity:

945,000

(1)	We sold the Granada Spirit to Teekay Shipping Corporation in December 2004. Teekay Shipping Corporation will contribute the Granada Spirit back to us at the closing of this offering, and we will enter into a short-term fixed rate charter with Teekay Shipping Corporation. Upon termination of the charter, Teekay Shipping Corporation will purchase the vessel. The charter will terminate upon the earliest of delivery to us of the Toledo Spirit, December 31, 2005 or the purchase of the Granada Spirit by Teekay Shipping Corporation. Please read “Certain Relationships and Related Party Transactions — Granada Spirit Charter and Purchase Agreement.”
(2)	We are the lessee under a capital lease arrangement and are required to purchase the vessel seven years after the commencement of the capital lease, which we expect to accomplish by assuming the existing vessel financing. Please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Ship Financing Arrangements.”
(3)	CEPSA has the right to terminate the time charter 13 years after the original delivery date, in which case we are generally expected to sell the vessel, subject to our right of first refusal to purchase the vessel. Please read “— Crude Oil Time Charters — CEPSA’s Right to Terminate.”
(4)	We will be the lessee under a capital lease arrangement similar to those in place for our existing tankers.

	LNG Customers

	•	Repsol YPF, S.A., Spain’s largest oil company and largest seller of liquefied petroleum gas. As of December 31, 2003, Repsol reported having proven reserves of 5.4 billion barrels of crude oil equivalent, mostly in Latin America, the Middle East and North Africa. Repsol owns Argentina’s

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		largest oil company and, as of July 1, 2004, had operations in 29 countries and owned five refineries in Spain.
	•	Gas Natural SDG, S.A., Spain’s largest natural gas distributor. Gas Natural operates a group of companies that supply, store, transport and distribute natural gas in Spain and Latin America. As of September 30, 2004, Gas Natural reported having 4.7 million Spanish customers and 4.4 million Latin American customers. As of October 2004, Repsol owned approximately 30% of Gas Natural.
	•	Uniòn Fenosa Gas, S.A., a jointly held subsidiary of Uniòn Fenosa, S.A., a diversified Spanish energy and telecommunication company, and ENI S.p.a., an Italian oil and gas company. Uniòn Fenosa’s primary business is the generation, distribution and commercialization of electricity and natural gas in Spain.
	•	RasGas II, a joint venture between Qatar Petroleum and ExxonMobil RasGas Inc., a subsidiary of ExxonMobil Corporation, established for the purpose of expanding LNG production in Qatar. RasGas II will become one of our customers following our acquisition from Teekay Shipping Corporation of all of its interest in the three RasGas II LNG newbuildings and related time charters. We expect to take delivery of the three vessels between the fourth quarter of 2006 and the first half of 2007.

	Oil Tanker Customers

	Initial Term; Extensions

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	Hire Rate

	Expenses

	Off-hire

	•	operational deficiencies; drydocking for repairs, maintenance or inspection; equipment breakdowns; or delays due to accidents, crewing strikes, certain vessel detentions or similar problems; or
	•	our failure to maintain the vessel in compliance with its specifications and contractual standards or to provide the required crew.

	Ship Management and Maintenance

	Termination

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	Hire

	Prolonged Off-hire

	•	request that we provide a substitute vessel, which the customer must accept on the hire terms of the original time charter;
	•	require us to pay the difference between the hire rate in the time charter and the cost of chartering a substitute vessel, up to 30% of the original hire rate;
	•	take over management of the vessel and set off management expenses from the hire payments under the time charter (but not against the fixed hire rate component); or
	•	terminate the time charter contract.

	Ship Delivery and Modifications

	Purchase Options, Termination Rights and Bareboat Conversion Options

	•	the customer may purchase the vessel

	(a) at the end of the initial or any extended charter period, at a price designated in the charter; or

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(b) if the customer’s LNG sales agreement supplying the LNG designated for our services is terminated, at a price that covers all of our outstanding indebtedness on the vessel and any prepayment fees (or, if applicable, an amount that approximates the amount of debt that would have been outstanding had we not prepaid the indebtedness in connection with this offering) plus an additional amount designated in the charter; and

	•	the customer may terminate the charter

	(a) if the customer’s LNG sales agreement supplying the LNG designated for our services is terminated, in which case the customer would be obligated to pay all outstanding indebtedness on the vessel and any prepayment fees (or, if applicable, an amount that approximates the amount of debt that would have been outstanding had we not prepaid the indebtedness in connection with this offering); or
	(b) if the free trade of the vessel is disrupted due to war, without any payment or penalty.

	•	the customer may purchase the vessel at any time at a price that equals the amount of indebtedness that would had been outstanding had we not prepaid the indebtedness on the vessel in connection with this offering, plus an additional amount designated in the charter; and
	•	the customer may terminate the time charter if the supply of LNG is generally unavailable, in which case the customer would be obligated to pay an amount equal to the indebtedness that would have been outstanding on the vessel had we not prepaid the indebtedness in connection with this offering.

	•	the customer may purchase the vessel

	(a) when it is otherwise entitled to terminate the charter or under certain circumstances if we are in default under the charter, at a price designated in the charter that is designed to cover all of our remaining financing costs plus certain lost profits; or
	(b) at any time at a price designated in the charter that is designed to cover all of our remaining financing costs, certain lost profits and an additional amount;

	•	the customer may terminate the charter

	(a) at any time, in which case the customer would be obligated to pay a substantial cancellation fee; or
	(b) in the event of a prolonged continuation of certain specified “force majeure” events that are beyond the parties’ control and that would prevent the customer’s performance under the charter (including damage to or destruction of relevant LNG production facilities or LNG customer regasification facilities), upon our bankruptcy or if we are in breach of a specified provision of the charter, in each case without any payment or penalty; and

	•	the customer may convert the time charter to a bareboat charter

	(a) if we breach our obligations to deliver a vessel built to the customer’s specifications or to remedy warranty deficiencies and we fail to cure this breach;
	(b) due to our negligence, the vessel is involved in a significant marine incident or is off-hire for a prolonged period; or
	(c) the customer could otherwise then terminate the time charter.

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	•	maintain the structural integrity of the vessel;
	•	ensure reliability;
	•	optimize performance in terms of speed and fuel consumption; and
	•	ensure the vessel’s appearance will support our brand and meet customer expectations.

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	•	vessel maintenance;
	•	crewing;
	•	purchasing;
	•	shipyard supervision;
	•	insurance; and
	•	financial services.

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	General

	Regulation — International Maritime Organization (or IMO)

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	•	is the subject of a contract for a major conversion or original construction on or after July 6, 1993;
	•	commences a major conversion or has its keel laid on or after January 6, 1994; or
	•	completes a major conversion or is a newbuilding delivered on or after July 6, 1996.

	Environmental Regulations — The United States Oil Pollution Act of 1990 (or OPA 90)

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	•	natural resources damages and the related assessment costs;
	•	real and personal property damages;
	•	net loss of taxes, royalties, rents, fees and other lost revenues;
	•	lost profits or impairment of earning capacity due to property or natural resources damage;
	•	net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards; and
	•	loss of subsistence use of natural resources.

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	•	address a “worst case” scenario and identify and ensure, through contract or other approved means, the availability of necessary private response resources to respond to a “worst case discharge”;
	•	describe crew training and drills; and
	•	identify a qualified individual with full authority to implement removal actions.

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	Spanish Taxation

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		Tonnage Tax Base
Net Tonnage of Vessel		Daily Rate per 100 Tonnes
0 to 1,000			0.90 Euros
1,001 to 10,000			0.70 Euros
10,001 to 25,000			0.40 Euros
Over 25,000			0.20 Euros

	•	a Spanish company must be enrolled in any Spanish registry for shipping companies specified under the regime;
	•	the company must own or charter out vessels;
	•	the vessels must be managed strategically and commercially from Spain or another country belonging to the European Union; and
	•	the vessels must engage in certain maritime-related activities, including the transportation of goods or merchandise.

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	•	in relation to expenses that are incurred wholly, necessarily and exclusively in relation to the periods for which individual vessels operate in Qatari waters, the QPRTD should accept these expenses as a deduction in arriving at taxable income;
	•	in relation to expenses that accrue over the period of the time-charter contract for each vessel, it is more likely than not that the QPRTD will accept an apportionment of these expenses as a deduction in arriving at taxable income based on the time the vessel operates in Qatari waters as a proportion of the total period of the charter; and
	•	in relation to depreciation of each of the vessels in a tax year, the QPRTD should accept as a deduction in arriving at taxable income an apportionment of the annual depreciation allowance permitted under the tax law based on the time the vessel operates in Qatari waters.

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Name		Age				Position
C. Sean Day			55			Chairman
Bjorn Moller			47			Vice Chairman and Director
Peter Evensen			46			Chief Executive Officer, Chief Financial Officer and Director
Robert E. Boyd			65			Director
Ida Jane Hinkley			54			Director
Ihab J.M. Massoud			36			Director
George Watson			57			Director
Bruce C. Bell			57			Secretary
Andres Luna			48			Managing Director, Teekay Spain
Pedro Solana			48			Director, Finance and Accounting, Teekay Spain

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Name		Age				Position
David Glendinning			51			President
Kenneth Hvid			36			Senior Vice President
Roy Spires			58			Vice President, Finance

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145

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Percentage of

Percentage of

Percentage of

Total Common

Common

Common

Subordinated

Subordinated

and Subordinated

Units to be

Units to be

Units to be

Units to be

Units to be

Beneficially

Beneficially

Beneficially

Beneficially

Beneficially

Name of Beneficial Owner

Owned

Owned

Owned

Owned

Owned

Teekay Shipping Corporation(1)(2)

8,734,572

59.3

%

14,734,572

100

%

79.6

%

All executive officers, key employees and directors as a group (10 persons)(3)

252,836

1.7

%

—

—

0.9

%

(1)	Excludes the 2% general partner interest held by our general partner, a wholly owned subsidiary of Teekay Shipping Corporation.
(2)	If the underwriters exercise the over-allotment option in full, (a) Teekay Shipping Corporation’s percentage of common units to be beneficially owned will decrease to 55.9% and its percentage of total common and subordinated units to be beneficially owned will decrease to 77.3% and (b) the percentages of (i) common units and (ii) common units and subordinated units beneficially owned by the executive officers, key employees and directors as a group will decrease to 1.6% and 0.8%, respectively.
(3)	Excludes units owned by Teekay Shipping Corporation, on the board of which serve the directors of our general partner, C. Sean Day and Bjorn Moller. In addition, Mr. Moller is Teekay Shipping Corporation’s chief executive officer, and Peter Evensen, our general partner’s chief executive officer, chief financial officer and director, is Teekay Shipping Corporation’s chief financial officer. Mr. Day and our Secretary, Bruce C. Bell, also serve as directors and as the Chairman and Vice President, respectively, of Teekay Shipping Corporation’s largest stockholder.

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	Formation Stage

The consideration received by our general partner and its affiliates for the contribution to us of the assets and liabilities		• 8,734,572 common units; • 14,734,572 subordinated units; • 2% general partner interest in us; and • the incentive distribution rights.
		The common units and subordinated units owned by Teekay Shipping Corporation represent a 78.0% limited partner interest in us, which gives it the ability to control the outcome of unitholder votes on certain matters. For more information, please read “The Partnership Agreement — Voting Rights” and “— Amendment of the Partnership Agreement.”

	Operational Stage

Distributions of available cash to our general partner and its affiliates		We will generally make cash distributions 98% to unitholders (including Teekay Shipping Corporation, the owner of our general partner and the holder of 8,734,572 common units and 14,734,572 subordinated units) and the remaining 2% to our general partner.
		In addition, if distributions exceed the minimum quarterly distribution and other higher target levels, our general partner, as the holder of the incentive distribution rights, will be entitled to increasing percentages of the distributions, up to 50% of the distributions above the highest target level. We refer to the rights to the increasing distributions as “incentive distribution rights.” Please read “Cash Distribution Policy — Incentive Distribution Rights” for more information regarding the incentive distribution rights.
		Assuming we have sufficient available cash to pay the full minimum quarterly distribution on all of our outstanding units for four quarters, our general partner would receive an annual distribution of approximately $1.0 million on its 2% general partner interest and Teekay Shipping Corporation would receive an annual distribution of approximately $38.7 million on its common units and subordinated units.
Payments to our general partner and its affiliates		Our general partner will not receive a management fee or other compensation for the management of our partnership. Our general partner and its other affiliates will be entitled to reimbursement for all direct and indirect expenses they incur on

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		our behalf. In addition, we and certain of our operating subsidiaries will pay fees to certain subsidiaries of Teekay Shipping Corporation for strategic consulting, advisory, ship management, technical and administrative services. We may also pay Teekay Shipping Corporation “incentive fees” to reward and motivate it for pursuing LNG projects that we may have the right to engage in pursuant to the omnibus agreement with Teekay Shipping Corporation. Our general partner will determine the amount of these reimbursable expenses and will negotiate these fees.
Withdrawal or removal of our general partner		If our general partner withdraws or is removed, its general partner interest and its incentive distribution rights will either be sold to the new general partner for cash or converted into common units, in each case for an amount equal to the fair market value of those interests. Please read “The Partnership Agreement — Withdrawal or Removal of the General Partner.”

	Liquidation Stage

Liquidation		Upon our liquidation, the partners, including our general partner, will be entitled to receive liquidating distributions according to their particular capital account balances.

	Noncompetition

	•	acquiring LNG carriers and related time charters as part of a business and operating or chartering those vessels if a majority of the value of the total assets or business acquired is not attributable to the LNG carriers and related time charters, as determined in good faith by the board of directors of Teekay Shipping Corporation; however, if at any time Teekay Shipping Corporation completes such an acquisition, it must offer to sell the LNG carriers and related time charters to us for their fair market value plus any additional tax or other similar costs to Teekay Shipping Corporation that would be required to transfer the LNG carriers and time charters to us separately from the acquired business;

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	•	owning, operating or chartering LNG carriers that relate to a bid or award for a proposed LNG project that Teekay or any of its subsidiaries has submitted or hereafter submits or receives; however, at least 180 days prior to the scheduled delivery date of any such LNG carrier, Teekay Shipping Corporation must offer to sell the LNG carrier and related time charter to us, with the vessel valued at its “fully-built-up cost,” which represents the aggregate expenditures incurred (or to be incurred prior to delivery to us) by Teekay Shipping Corporation to acquire or construct and bring such LNG carrier to the condition and location necessary for our intended use;
	•	owning, operating or chartering LNG carriers subject to the offers to us described in the preceding two paragraphs pending our determination whether to accept such offers and pending the closing of any offers we accept;
	•	acquiring, operating or chartering LNG carriers if our general partner has previously advised Teekay Shipping Corporation that the board of directors of our general partner has elected, with the approval of its conflicts committee, not to cause us or our subsidiaries to acquire or operate the carriers;
	•	owning or operating any of the three RasGas II LNG newbuilding carriers and related time charters if we fail to perform our obligation to purchase such vessels under our agreement with Teekay Shipping Corporation (please read “ — Agreement to Purchase RasGas II Interest”);
	•	acquiring up to a 9.9% equity ownership, voting or profit participation interest in any publicly traded company that owns or operates LNG carriers; or
	•	providing ship management services relating to LNG carriers.

	(1)	apply to any oil tankers owned, operated or chartered by us or any of our subsidiaries as of the closing of this offering, and the ownership, operation or chartering of any oil tankers that replace any of those oil tankers (or Replacement Oil Tankers) in connection with:

	•	the destruction or total loss of the original tanker; the tanker being damaged to an extent that makes repairing it uneconomical or renders it permanently unfit for normal use, as determined in good faith by our general partner within 90 days after the occurrence of the damage; or the tanker’s condemnation, confiscation, requisition or a similar taking of title to or use of it that continues for at least six months; or
	•	the replacement of a time charter existing on the closing of this offering, where the tanker that was subject to the charter has been sold or transferred due to the exercise by the customer of its right under the charter to cause the sale or transfer;

	(2) prevent us or any of our subsidiaries from:

	•	acquiring oil tankers and any related time charters as part of a business and operating or chartering those vessels, if a majority of the value of the total assets or business acquired is not attributable to the oil tankers and any related charters, as determined by the

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		conflicts committee of our general partner’s board of directors; however, if at any time we complete such an acquisition, we are required to promptly offer to sell the oil tankers and time charters to Teekay Shipping Corporation for fair market value plus any additional tax or other similar costs to us that would be required to transfer the oil tankers and time charters to Teekay Shipping Corporation separately from the acquired business;
	•	owning, operating or chartering crude oil tankers subject to the offer to Teekay Shipping Corporation described in the preceding paragraph pending its determination whether to accept such offer and pending the closing of any offer it accepts;
	•	acquiring up to a 9.9% equity ownership, voting or profit participation interest in any publicly traded company that owns or operates crude oil tankers; or
	•	acquiring, operating or chartering oil tankers if Teekay Shipping Corporation has previously advised our general partner that it has elected not to acquire or operate those tankers.

	Rights of First Offer on Suezmax Tankers and LNG Carriers

	Indemnification

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	•	certain defects in title to the assets contributed to us and any failure to obtain, prior to the closing of this offering, certain consents and permits necessary to conduct our business, which liabilities arise within three years after the closing of this offering; and
	•	certain income tax liabilities attributable to the operation of the assets contributed to us prior to the time they were contributed.

	Amendments

	Administrative Services Agreement Between Us and Teekay Shipping Limited

	•	legal, investor relations and financial compliance services;
	•	bookkeeping and accounting services; and
	•	banking and finance services.

	Advisory, Technical and Administrative Services Agreements Between Certain of Our Operating Subsidiaries and Teekay Shipping Limited

	•	vessel maintenance;
	•	crewing;
	•	purchasing;

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	•	shipyard supervision;
	•	insurance; and
	•	financial services.

	LNG Strategic Consulting and Advisory Services Agreement Between Certain of Our Operating Subsidiaries and Teekay LNG Projects Ltd.

	•	strategic planning;
	•	business development opportunities;
	•	integration of any acquired businesses;
	•	client relations; and
	•	any other matters relating to the business of Teekay Spain’s LNG business that Teekay Spain may request assistance with, to the extent Teekay LNG Projects Ltd. has knowledge or experience related to such matters.

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	•	Depot Spares. Teekay Nakilat will purchase spare parts for the LNG carriers during their construction periods. These “depot spares” are critical replacement parts that are purchased in advance of being required due to long order lead times to procure these parts at a later stage. Purchasing the spares in advance avoids or minimizes any vessel downtime if these parts are required with little notice. Depot spare costs are estimated to be $2.2 million per vessel.
	•	Provisions for Modifications. These costs relate to potential vessel modifications that the customer may request during the vessel construction period, which Teekay Nakilat initially will fund. The estimated cost is $2.5 million per vessel.
	•	Supervision and Management. These costs cover Teekay Nakilat’s expense in supervising construction of the vessels at the shipyard. Estimated costs are approximately $1.3 million per vessel.
	•	Other Costs. These costs represent other significant costs incurred by Teekay Nakilat such as vessel start-up costs, crew training, crew supplies and flag registration. The total of these other costs is estimated to be $2.6 million per vessel.
	•	Financing Costs. Teekay Shipping Corporation Nakilat has arranged for long-term financing for the three RasGas II vessels, which are obligations of the ship owning subsidiaries of Teekay Nakilat, and are guaranteed by Teekay Shipping Corporation. To the extent Teekay Shipping Corporation or Teekay Nakilat pays the closing costs relating to this financing, we will reimburse it. Closing costs for this financing are estimated to be $2.0 million per vessel.

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	•	approved by the conflicts committee, although our general partner is not obligated to seek such approval;
	•	approved by the vote of a majority of the outstanding common units, excluding any common units owned by our general partner or any of its affiliates;
	•	on terms no less favorable to us than those generally being provided to or available from unrelated third parties, but the general partner is not required to obtain confirmation to such effect from an independent third party; or
	•	fair and reasonable to us, taking into account the totality of the relationships between the parties involved, including other transactions that may be particularly favorable or advantageous to us.

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	Actions taken by our general partner may affect the amount of cash available for distribution to unitholders or accelerate the right to convert subordinated units.

	•	the amount and timing of asset purchases and sales;
	•	cash expenditures;
	•	borrowings;
	•	the issuance of additional units; and
	•	the creation, reduction or increase of reserves in any quarter.

	•	enabling our general partner or its affiliates to receive distributions on any subordinated units held by them or the incentive distribution rights; or
	•	hastening the expiration of the subordination period.

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	Common unitholders will have no right to enforce obligations of our general partner and its affiliates under agreements with us.

	Contracts between us, on the one hand, and our general partner and its affiliates, on the other, will not be the result of arms’-length negotiations.

	•	on terms no less favorable to us then those generally being provided to or available from unrelated third parties; or
	•	“fair and reasonable” to us, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to us).

	Common units are subject to our general partner’s limited call right.

	We may not choose to retain separate counsel for ourselves or for the holders of common units.

	Our general partner’s affiliates may compete with us.

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	•	the fiduciary duties imposed on our general partner by the Marshall Islands Act;
	•	material modifications of these duties contained in our partnership agreement; and
	•	certain rights and remedies of unitholders contained in the Marshall Islands Act.

Marshall Islands law fiduciary duty standards		Fiduciary duties are generally considered to include an obligation to act in good faith and with due care and loyalty. The duty of care, in the absence of a provision in a partnership agreement providing otherwise, would generally require a general partner to act for the partnership in the same manner as a prudent person would act on his own behalf. The duty of loyalty, in the absence of a provision in a partnership agreement providing otherwise, would generally prohibit a general partner of a Marshall Islands limited partnership from taking any action or engaging in any transaction where a conflict of interest is present.
Partnership agreement modified standards		Our partnership agreement contains provisions that waive or consent to conduct by our general partner and its affiliates that might otherwise raise issues as to compliance with fiduciary duties under the laws of the Marshall Islands. For example, Section 7.9 of our partnership agreement provides that when our general partner is acting in its capacity as our general partner, as opposed to in its individual capacity, it must act in “good faith” and will not be subject to any other standard under the laws of the Marshall Islands. In addition, when our general partner is acting in its individual capacity, as opposed to in its capacity as our general partner, it may act without any fiduciary obligation to us or the unitholders whatsoever. These standards reduce the obligations to which our general partner would otherwise be held.

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		Our partnership agreement generally provides that affiliated transactions and resolutions of conflicts of interest not involving a vote of unitholders and that are not approved by the conflicts committee of the board of directors of our general partner must be:
		• on terms no less favorable to us than those generally being provided to or available from unrelated third parties; or
		• “fair and reasonable” to us, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to us).
		If our general partner does not seek approval from the conflicts committee, and the board of directors of our general partner determines that the resolution or course of action taken with respect to the conflict of interest satisfies either of the standards set forth in the bullet points above, then it will be presumed that, in making its decision, the board of directors acted in good faith, and in any proceeding brought by or on behalf of any limited partner or the partnership, the person bringing or prosecuting such proceeding will have the burden of overcoming such presumption. These standards reduce the obligations to which our general partner would otherwise be held.
		In addition to the other more specific provisions limiting the obligations of our general partner, our partnership agreement further provides that our general partner and its officers and directors will not be liable for monetary damages to us, our limited partners or assignees for errors of judgment or for any acts or omissions unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that the general partner or its officers and directors acted in bad faith or engaged in fraud, willful misconduct or gross negligence.
Rights and remedies of unitholders		The provisions of the Marshall Islands Act resemble the provisions of the limited partnership act of Delaware. For example, like Delaware, the Marshall Islands Act favors the principles of freedom of contract and enforceability of partnership agreements and allows the partnership agreement to contain terms governing the rights of the unitholders. The rights of our unitholders, including voting and approval rights and the ability of the partnership to issue additional units, are governed by the terms of our partnership agreement. Please read “The Partnership Agreement.”
		As to remedies of unitholders, the Marshall Islands Act permits a limited partner to institute legal action on behalf of the partnership to recover damages from a third party where a general partner has refused to institute the action or where an effort to cause a general partner to do so is not likely to succeed. These actions include actions against a general partner for breach of its fiduciary duties or of the partnership agreement.

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	Duties

	•	surety bond premiums to replace lost or stolen certificates, taxes and other governmental charges;
	•	special charges for services requested by a holder of a common unit; and
	•	other similar fees or charges.

	Resignation or Removal

	•	becomes the record holder of the common units and is an assignee until admitted into our partnership as a substituted limited partner;
	•	automatically requests admission as a substituted limited partner in our partnership;
	•	agrees to be bound by the terms and conditions of, and executes, our partnership agreement;
	•	represents that the transferee has the capacity, power and authority to enter into the partnership agreement;
	•	grants powers of attorney to officers of our general partner and any liquidator of us as specified in the partnership agreement; and
	•	gives the consents and approvals contained in our partnership agreement, such as the approval of all transactions and agreements we are entering into in connection with our formation and this offering.

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	•	the right to assign the common unit to a purchaser or other transferee; and
	•	the right to transfer the right to seek admission as a substituted limited partner in our partnership for the transferred common units.

	•	will not receive cash distributions or federal income tax allocations, unless the common units are held in a nominee or “street name” account and the nominee or broker has executed and delivered a transfer application; and
	•	may not receive some U.S. federal income tax information or reports furnished to record holders of common units.

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	•	with regard to distributions of available cash, please read “Cash Distribution Policy”;
	•	with regard to the transfer of common units, please read “Description of the Common Units — Transfer of Common Units”; and
	•	with regard to allocations of U.S. federal taxable income and loss, please read “Material U.S. Federal Income Tax Consequences.”

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	•	during the subordination period, the approval of a majority of the common units, excluding those common units held by our general partner and its affiliates, and a majority of the subordinated units, voting as separate classes; and
	•	after the subordination period, the approval of a majority of the common units.

Action		Unitholder Approval Required
Issuance of additional units		No approval rights.
Amendment of the partnership agreement		Certain amendments may be made by the general partner without the approval of the unitholders. Other amendments generally require the approval of a unit majority. Please read “— Amendment of the Partnership Agreement.”
Amendment of the operating agreement of the operating company and other action taken by us as a member of the operating company		Unit majority if such amendment or other action would adversely affect our limited partners (or any particular class of limited partners) in any material respect. Please read “— Action Relating to the Operating Company.”
Merger of our partnership or the sale of all or substantially all of our assets		Unit majority. Please read “— Merger, Sale or Other Disposition of Assets.”
Dissolution of our partnership		Unit majority. Please read “— Termination and Dissolution.”
Reconstitution of our partnership upon dissolution		Unit majority. Please read “— Termination and Dissolution.”
Withdrawal of the general partner		Under most circumstances, the approval of a majority of the common units, excluding common units held by the general partner and its affiliates, is required for the withdrawal of the general partner prior to March 31, 2015 in a manner which would cause a dissolution of our partnership. Please read “— Withdrawal or Removal of the General Partner.”
Removal of the general partner		Not less than 662/3% of the outstanding units, voting as a single class, including units held by our general partner and its affiliates. Please read “— Withdrawal or Removal of the General Partner.”

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Action		Unitholder Approval Required
Transfer of the general partner interest in us		Our general partner may transfer all, but not less than all, of its general partner interest in us without a vote of our unitholders to an affiliate or another person in connection with its merger or consolidation with or into, or sale of all or substantially all of its assets to such person. The approval of a majority of the common units, excluding common units held by the general partner and its affiliates, is required in other circumstances for a transfer of the general partner interest to a third party prior to March 31, 2015. Please read “— Transfer of General Partner Interest.”
Transfer of incentive distribution rights		Except for transfers to an affiliate or another person as part of the general partner’s merger or consolidation with or into, or sale of all or substantially all of its assets to such person, the approval of a majority of the common units, excluding common units held by our general partner and its affiliates, voting separately as a class, is required in most circumstances for a transfer of the incentive distribution rights to a third party prior to March 31, 2015. Please read “— Transfer of Incentive Distribution Rights.”
Transfer of ownership interests in the general partner		No approval required at any time. Please read “— Transfer of Ownership Interests in General Partner.”

	•	to remove or replace our general partner;
	•	to approve some amendments to our partnership agreement, or
	•	to take other action under our partnership agreement;

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	General

	Prohibited Amendments

	(1) increase the obligations of any limited partner without its consent, unless approved by at least a majority of the type or class of limited partner interests so affected;
	(2) increase the obligations of, restrict in any way any action by or rights of, or reduce in any way the amounts distributable, reimbursable or otherwise payable by us to the general partner or any of its affiliates without the consent of the general partner, which may be given or withheld at its option;
	(3) change the term of our partnership;
	(4) provide that our partnership is not dissolved upon an election to dissolve our partnership by our general partner that is approved by the holders of a unit majority; or
	(5) give any person the right to dissolve our partnership other than our general partner’s right to dissolve our partnership with the approval of the holders of a unit majority.

	No Unitholder Approval

	Our general partner may generally make amendments to our partnership agreement without the approval of any limited partner or assignee to reflect:
	(1) a change in our name, the location of our principal place of business, our registered agent or our registered office;
	(2) the admission, substitution, withdrawal or removal of partners in accordance with our partnership agreement;
	(3) a change that our general partner determines to be necessary or appropriate for us to qualify or to continue our qualification as a limited partnership or a partnership in which the limited partners have limited liability under the laws of any jurisdiction or to ensure that neither we, the operating company, nor its subsidiaries will be treated as an association taxable as a corporation or otherwise taxed as an entity for federal income tax purposes;

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	(4) an amendment that is necessary, upon the advice of our counsel, to prevent us or our general partner or its directors, officers, agents, or trustees from in any manner being subjected to the provisions of the Investment Company Act of 1940, the Investment Advisors Act of 1940, or plan asset regulations adopted under the Employee Retirement Income Security Act of 1974, or ERISA, whether or not substantially similar to plan asset regulations currently applied or proposed;
	(5) an amendment that the general partner determines to be necessary or appropriate for the authorization of additional partnership securities or rights to acquire partnership securities;
	(6) any amendment expressly permitted in the partnership agreement to be made by the general partner acting alone;
	(7) an amendment effected, necessitated, or contemplated by a merger agreement that has been approved under the terms of the partnership agreement;
	(8) any amendment that the general partner determines to be necessary or appropriate for the formation by us of, or our investment in, any corporation, partnership or other entity, as otherwise permitted by the partnership agreement;
	(9) a change in our fiscal year or taxable year and related changes;
	(10) certain mergers or conveyances as set forth in our partnership agreement; or
	(11) any other amendments substantially similar to any of the matters described in (1) through (10) above.

	(1) do not adversely affect the limited partners (or any particular class of limited partners) in any material respect;
	(2) are necessary or appropriate to satisfy any requirements, conditions, or guidelines contained in any opinion, directive, order, ruling or regulation of any federal or state agency or judicial authority or contained in any federal or state statute;
	(3) are necessary or appropriate to facilitate the trading of limited partner interests or to comply with any rule, regulation, guideline or requirement of any securities exchange on which the limited partner interests are or will be listed for trading;
	(4) are necessary or appropriate for any action taken by the general partner relating to splits or combinations of units under the provisions of the partnership agreement; or
	(5) are required to effect the intent expressed in this prospectus or the intent of the provisions of the partnership agreement or are otherwise contemplated by the partnership agreement.

	Opinion of Counsel and Unitholder Approval

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	(1) the election of our general partner to dissolve us, if approved by the holders of units representing a unit majority;
	(2) the sale, exchange, or other disposition of all or substantially all of our assets and properties and our subsidiaries;
	(3) the entry of a decree of judicial dissolution of us; or
	(4) the withdrawal or removal of our general partner or any other event that results in its ceasing to be the general partner other than by reason of a transfer of its general partner interest in accordance with the partnership agreement or withdrawal or removal following approval and admission of a successor.

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	(1) the action would not result in the loss of limited liability of any limited partner; and
	(2) none of our partnership or the operating company nor any of our other subsidiaries would be treated as an association taxable as a corporation or otherwise be taxable as an entity for federal income tax purposes upon the exercise of that right to continue.

	•	the subordination period will end and all outstanding subordinated units will immediately convert into common units on a one-for-one basis;

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	•	any existing arrearages in payment of the minimum quarterly distribution on the common units will be extinguished; and
	•	the general partner will have the right to convert its general partner interest and its incentive distribution rights into common units or to receive cash in exchange for those interests based on the fair market value of the interests at the time.

	•	an affiliate of the general partner (other than an individual), or
	•	another entity as part of the merger or consolidation of our general partner with or into another entity or the transfer by the general partner of all or substantially all of its assets to another entity,

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	•	the subordination period will end and all outstanding subordinated units will immediately convert into common units on a one-for-one basis;
	•	any existing arrearages in payment of the minimum quarterly distribution on the common units will be extinguished; and
	•	the general partner will have the right to convert its general partner interest and its incentive distribution rights into common units or to receive cash in exchange for those interests.

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	(1) our general partner;
	(2) any departing general partner;
	(3) any person who is or was an affiliate of our general partner or any departing general partner;
	(4) any person who is or was an officer, director, member or partner of any entity described in (1), (2) or (3) above;
	(5) any person who is or was serving as a director, officer, member, partner, fiduciary or trustee of another person at the request of our general partner or any departing general partner; or
	(6) any person designated by our general partner.

	(1) a current list of the name and last known address of each partner;
	(2) a copy of our tax returns;

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	(3) information as to the amount of cash, and a description and statement of the agreed value of any other property or services, contributed or to be contributed by each partner and the date on which each became a partner;
	(4) copies of the partnership agreement, the certificate of limited partnership of the partnership, related amendments and powers of attorney under which they have been executed;
	(5) information regarding the status of our business and financial condition; and
	(6) any other information regarding our affairs as is just and reasonable.

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	•	1% of the total number of the class of securities outstanding; or
	•	the average weekly reported trading volume of the common units for the four calendar weeks prior to the sale.

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	•	We have not elected and will not elect to be treated as a corporation, and each of our direct or indirect wholly-owned subsidiaries has properly elected to be disregarded as an entity separate from us, for U.S. federal income tax purposes; and
	•	For each taxable year, at least 90% of our gross income is of a type that Vinson & Elkins L.L.P. has opined or will opine is more likely than not “qualifying income” within the meaning of Section 7704(d) of the Internal Revenue Code.

	•	assignees of common units who have executed and delivered transfer applications, and are awaiting admission as limited partners and
	•	unitholders whose common units are held in street name or by a nominee and who have the right to direct the nominee in the exercise of all substantive rights attendant to the ownership of their common units

180

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181

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182

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	A unitholder’s share of our net income may be offset by any suspended passive losses, but it may not be offset by any other current or carryover losses from other passive activities, including those attributable to other publicly traded partnerships

	•	interest on indebtedness properly allocable to property held for investment;
	•	our interest expense attributed to portfolio income; and
	•	the portion of interest expense incurred to purchase or carry an interest in a passive activity to the extent attributable to portfolio income.

183

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	•	his relative contributions to us;
	•	the interests of all the partners in profits and losses;
	•	the interest of all the partners in cash flow; and
	•	the rights of all the partners to distributions of capital upon liquidation.

	•	any of our income, gain, loss, deduction or credit with respect to the units may not be reportable by the unitholder who loaned them; and
	•	any cash distributions received by such unitholder with respect to those units may be fully taxable as ordinary income.

184

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185

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186

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	•	a short sale;
	•	an offsetting notional principal contract; or
	•	a futures or forward contract with respect to the partnership interest or substantially identical property.

187

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188

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189

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190

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191

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	(1) for which there is, or was, “substantial authority”; or
	(2) as to which there is a reasonable basis and the pertinent facts of that position are disclosed on the return.

192

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	Taxation of Operating Income

	The 4% Gross Basis Tax

	Net Basis Tax and Branch Tax Regime

	The Section 883 Exemption

193

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194

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	Consequences of Possible PFIC Classification

	•	the excess distribution or gain will be allocated ratably over the unitholder’s holding period;
	•	the amount allocated to the current taxable year and any year prior to the first year in which we were a PFIC will be taxed as ordinary income in the current year;
	•	the amount allocated to each of the other taxable years in the unitholder’s holding period will be subject to U.S. federal income tax at the highest rate in effect for the applicable class of taxpayer for that year; and
	•	an interest charge for the deemed deferral benefit will be imposed with respect to the resulting tax attributable to each such other taxable year.

195

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	Consequences of Possible Controlled Foreign Corporation Classification

196

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197

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	•	Teekay Shipping Limited for the provision of advisory, technical, ship management and administrative services; and
	•	Teekay LNG Projects Ltd., a Canadian subsidiary of Teekay Shipping Corporation, for the provision of strategic advisory and consulting services.

198

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	•	whether the investment is prudent under Section 404(a)(1)(B) of ERISA;
	•	whether in making the investment, that plan will satisfy the diversification requirements of Section 404(a)(l)(C) of ERISA; and
	•	whether the investment will result in recognition of unrelated business taxable income by the plan and, if so, the potential after-tax investment return.

	•	the equity interests acquired by employee benefit plans are publicly offered securities; i.e., the equity interests are widely held by 100 or more investors independent of the issuer and each other, freely transferable and registered under specified provisions of the federal securities laws;
	•	the entity is an “operating company,” — i.e., it is primarily engaged in the production or sale of a product or service other than the investment of capital either directly or through a majority owned subsidiary or subsidiaries; or
	•	there is no significant investment by benefit plan investors, which means that less than 25% of the value of each class of equity interest, disregarding some interests held by our general partner, its affiliates and any other persons who have the ability to control our assets or who provide investment advice with respect to such assets, is held by the employee benefit plans referred to above, IRAs and other employee benefit plans not subject to ERISA, including governmental plans.

199

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			Number of
Underwriter			Common Units
Citigroup Global Markets Inc.				2,250,000
UBS Securities LLC				1,200,000
A.G. Edwards & Sons, Inc.				900,000
Wachovia Capital Markets, LLC				900,000
Raymond James & Associates, Inc.				390,000
Jefferies & Company, Inc.				180,000
Deutsche Bank Securities Inc.				180,000
	Total			6,000,000

200

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		Paid by Teekay LNG
		Partners L.P.
		No Exercise				Full Exercise
Per common unit		$	1.4575			$	1.4575
Total		$	8,745,000			$	10,056,750

201

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202

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	•	The balance sheets of Teekay Shipping Spain S.L. as at December 31, 2003 and 2004 and the related financial statements for the years ended December 31, 2002 and 2003, the four months ended April 30, 2004 and the eight months ended December 31, 2004;
	•	the financial statements of Teekay Luxembourg S.a.r.l. as at and for the nine months ended December 31, 2004; and
	•	the balance sheets for Teekay GP L.L.C. and Teekay LNG Partners L.P. as at November 9, 2004.

203

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U.S. Securities and Exchange Commission registration fee		$	19,234
National Association of Securities Dealers, Inc. filing fee			15,680
New York Stock Exchange listing fee			150,000
Legal fees and expenses			2,550,000
Accounting fees and expenses			350,000
Printing and engraving costs			300,000
Transfer agent fees and other			15,086
Total		$	3,400,000

204

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205

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	•	forecasts of our ability to make cash distributions on the units;
	•	our future financial condition or results of operations and our future revenues and expenses;
	•	the repayment of debt;
	•	future LNG and crude oil prices and production;
	•	planned capital expenditures and availability of capital resources to fund capital expenditures;
	•	future supply of, and demand for, LNG and crude oil;
	•	increases in domestic oil and natural gas consumption;
	•	forecasts of likely future LNG exporters and importers and of the accompanying expansion in the LNG global trade routes;
	•	forecasts of global LNG liquefaction and regasification capacity;
	•	our ability to maintain long-term relationships with major LNG importers and exporters, and major crude oil companies;
	•	our ability to leverage to our advantage Teekay Shipping Corporation’s relationships and reputation in the shipping industry;
	•	our continued ability to enter into long-term, fixed-rate time charters with our LNG customers;
	•	obtaining LNG projects that we or Teekay Shipping Corporation bid on;
	•	our ability to maximize the use of our vessels, including the re-deployment or disposition of vessels no longer under long-term time charter;
	•	expected purchases and deliveries of newbuilding vessels;
	•	expected financial flexibility to pursue acquisitions and other expansion opportunities;
	•	our ability to compete successfully for future chartering and newbuilding opportunities;
	•	the expected cost of, and our ability to comply with, governmental regulations and maritime self-regulatory organization standards applicable to our business;
	•	our anticipated incremental general and administrative expenses as a public company and our expenses under service agreements with other affiliates of Teekay Shipping Corporation and for reimbursements of fees and costs of our general partner;
	•	the anticipated taxation of our partnership and distributions to our unitholders;
	•	estimated future maintenance capital expenditures;

206

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	•	expected demand in the LNG and crude oil shipping sectors in general and the demand for our vessels in particular;
	•	customers’ increasing emphasis on environmental and safety concerns;
	•	continued outsourcing of non-core functions, such as seaborne transportation, by companies in the oil and energy industry; and
	•	our business strategy and other plans and objectives for future operations.

207

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ORGANIZATIONAL STRUCTURE			F-2
TEEKAY LNG PARTNERS L.P.
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS			F-3
Introduction			F-4
Unaudited Pro Forma Consolidated Statement of Loss for the year ended December 31, 2004			F-5
Unaudited Pro Forma Consolidated Balance Sheet as at December 31, 2004			F-6
Notes to Unaudited Pro Forma Consolidated Financial Statements			F-7
TEEKAY SHIPPING SPAIN S.L.
CONSOLIDATED AUDITED FINANCIAL STATEMENTS			F-11
Report of Independent Registered Public Accounting Firm			F-12
Consolidated Statements of Income (Loss) for the years ended December 31, 2002 and 2003, the four months ended April 30, 2004 and the eight months ended December 31, 2004			F-13
Consolidated Balance Sheets as at December 31, 2003 and 2004			F-14
Consolidated Statements of Cash Flows for the years ended December 31, 2002 and 2003, the four months ended April 30, 2004 and the eight months ended December 31, 2004			F-15
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2002 and 2003, the four months ended April 30, 2004 and the eight months ended December 31, 2004			F-16
Notes to Consolidated Audited Financial Statements			F-17
TEEKAY LUXEMBOURG S.A.R.L.
CONSOLIDATED AUDITED FINANCIAL STATEMENTS			F-30
Report of Independent Registered Public Accounting Firm			F-31
Consolidated Statement of Loss for the nine months ended December 31, 2004			F-32
Consolidated Balance Sheet as at December 31, 2004			F-33
Consolidated Statement of Cash Flows for the nine months ended December 31, 2004			F-34
Consolidated Statement of Changes in Stockholder Deficit for the nine months ended December 31, 2004			F-35
Notes to Consolidated Audited Financial Statements			F-36
TEEKAY LNG PARTNERS L.P.
AUDITED BALANCE SHEET			F-47
Report of Independent Registered Public Accounting Firm			F-48
Balance Sheet as at November 9, 2004			F-49
Notes to Balance Sheet			F-50
TEEKAY GP L.L.C.
AUDITED BALANCE SHEET			F-51
Report of Independent Registered Public Accounting Firm			F-52
Balance Sheet as at November 9, 2004			F-53
Notes to Balance Sheet			F-54

F-1

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F-2

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F-3

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	•	Teekay Spain’s historical audited consolidated financial statements and related notes for the four months ended April 30, 2004 and the eight months ended December 31, 2004; and
	•	Luxco’s historical audited consolidated financial statements as at and for the nine months ended December 31, 2004.

	•	for the year ended December 31, 2004, by adjusting (1) the audited historical consolidated statement of income of Teekay Spain for the period from January 1, 2004 to April 30, 2004, and (2) the audited historical consolidated statement of loss of Luxco for the period from April 7, 2004 (the date of its incorporation) to December 31, 2004, which includes the results of Teekay Spain from May 1, 2004 to December 31, 2004; and
	•	at December 31, 2004, by adjusting the audited historical consolidated balance sheet of Luxco as of December 31, 2004.

F-4

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			Year Ended December 31, 2004
			Teekay				Teekay				Offering and
			Luxembourg				Shipping				Other				Teekay LNG
			S.a.r.l.				Spain, S.L.				Transaction				Partners L.P.
			Historical(1)				Historical(2)				Adjustments				Pro Forma
			(in thousands of U.S. dollars, except for per unit data)
VOYAGE REVENUES			$	83,115			$	40,718				—			$	123,833
OPERATING EXPENSES
Voyage expenses				3,090				1,842				—				4,932
Vessel operating expenses				20,315				10,302				—				30,617
Depreciation and amortization				26,275				8,585			$	970	(3a)			37,808
												1,978	(3b)
General and administrative				4,375				2,103				1,000	(3c)			7,478
Total operating expenses				54,055				22,832				3,948				80,835
Income from vessel operations				29,060				17,886				(3,948	)			42,998
OTHER ITEMS
Interest expense				(50,485	)			(21,475	)			24,807	(3d)			(33,343	)
												10,065	(3e)
												4,143	(3f)
												(764	)(3g)
												366	(3h)
Interest income				13,519				8,692				—				22,211
Foreign currency exchange gain (loss)				(78,831	)			18,010				44,682	(3e)			(16,139	)
Interest rate swap gain (loss)				—				3,985				(4,890	)(3f)			(905	)
Other income (loss)				2,342				(10,934	)			(8,016	)(3h)			(17,156	)
												(548	)(3i)
Total other items				(113,455	)			(1,722	)			69,845				(45,332	)
Net income (loss)			$	(84,395	)		$	16,164			$	65,897			$	(2,334	)
General partner’s interest in net loss															$	(47	)
Limited partners’ interest
	Net loss															(2,287	)
	Net loss per common unit (basic and diluted) (note 5)														$	(0.08	)
	Net loss per subordinated unit (basic and diluted) (note 5)															(0.08	)
	Net loss per unit (basic and diluted) (note 5)															(0.08	)
	Weighted average number of common units outstanding (basic and diluted)															14,735
	Weighted average number of subordinated units outstanding (basic and diluted)															14,735
	Weighted average number of units outstanding (basic and diluted)															29,469

(1)	Reflects consolidated results of Teekay Luxembourg S.a.r.l. from April 7, 2004 (date of incorporation) to December 31, 2004, which include the results of Teekay Shipping Spain, S.L. from May 1, 2004 to December 31, 2004.
(2)	Reflects results of Teekay Shipping Spain, S.L. from January 1, 2004 to April 30, 2004.

F-5

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		As at December 31, 2004
		Teekay
		Luxembourg				Offering and				Teekay LNG
		S.a.r.l.				Other Transaction				Partners L.P.
		Historical				Adjustments				Pro Forma
		(in thousands of U.S. dollars)
ASSETS
Current
Cash and cash equivalents		$	156,410			$	209,157	(3j)		$	21,562
							10,030	(3g)
							119,355	(3k)
							(134,848	)(3f)
							(338,542	)(3d)
							132,000	(3l)
							(119,355	)(3k)
							(12,645	)(3m)
Restricted cash — current			82,387				—				82,387
Marketable securities							—
Accounts receivable			7,197				—				7,197
Prepaid expenses and other assets			3,449				—				3,449
Total current assets			249,443				(134,848	)			114,595
Restricted cash — long term			352,725				—				352,725
Vessels and equipment
At cost less accumulated depreciation of $5,829			366,334				23,848	(3n)			390,182
Vessels under capital leases, at cost, less accumulated depreciation of $9,597			629,569				—				629,569
Advances on newbuilding contracts			49,165				—				49,165
Total vessels and equipment			1,045,068				23,848				1,068,916
Other assets			20,394				(7,602	)(3h)			12,792
Intangible assets — net			178,457				—				178,457
Goodwill			39,279				—				39,279
Total assets		$	1,885,366			$	(118,602	)		$	1,766,764
LIABILITIES AND STOCKHOLDERS’/ PARTNERS’ EQUITY
Current
Accounts payable		$	11,411				—			$	11,411
Accrued liabilities			19,222			$	(10,982	)(3e)			8,240
Current portion of long-term debt			22,368				(6,485	)(3d)			15,883
Current obligation under capital leases			87,687				—				87,687
Advances from affiliate			454,713				(454,713	)(3e)			147
							147	(3g)
							119,355	(3k)
							(119,355	)(3k)
Total current liabilities			595,401				(472,033	)			123,368
Long-term debt			764,758				(332,057	)(3d)			432,701
Long-term obligation under capital leases			513,361				—				513,361
Advances from affiliate			—				9,883	(3g)			9,883
Other long-term liabilities			134,848				(134,848	)(3f)			—
Total liabilities			2,008,368				(929,055	)			1,079,313
Commitments and contingencies (note 4)
Stockholders’/partners’ equity (deficit)			(123,002	)			209,157	(3j)
							(7,602	)(3h)
							132,000	(3l)
							(12,645	)(3m)
							465,695	(3e)
General partner							23,848	(3n)			14,194
Limited partners											673,257
Total stockholders’/partners’ equity (deficit)			(123,002	)			810,453				687,451
Total liabilities and stockholders’/partners’ equity (deficit)		$	1,885,366			$	(118,602	)		$	1,766,764

F-6

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1.	Basis of Presentation

	•	The purchase of Teekay Spain by Teekay Shipping Corporation through Luxco. On April 30, 2004, Luxco purchased all the outstanding shares of Tapias from an unrelated party for $298.2 million in cash plus the assumption of debt and remaining newbuilding commitments.
	•	The contribution by Teekay Shipping Corporation to Teekay LNG Partners L.P. (or the Partnership) of (a) the shares of, and an aggregate of $465.7 million in notes receivable (including accrued interest) from, Luxco, and (b) the shares of the subsidiary that owns the Suezmax tanker the Granada Spirit, in exchange for:

	•	the issuance to Teekay Shipping Corporation of 8,734,572 common units and 14,734,572 subordinated units of the Partnership; and
	•	the issuance to Teekay GP L.L.C., a wholly owned subsidiary of Teekay Shipping Corporation, of the 2% general partner interest in the Partnership and all of the Partnership’s incentive distribution rights.
	•	An interest bearing loan of $10.0 million and a non-interest bearing loan of $119.4 million to Teekay Spain from Teekay Shipping Corporation.

	•	The issuance by the Partnership of 6,000,000 common units to the public at an initial public offering price of $22.00 per common unit, resulting in aggregate gross proceeds to the Partnership of $132.0 million.
	•	Teekay Shipping Corporation’s contribution to us prior to the closing of this offering of an amount that we used, together with the loans and existing cash, to repay $338.5 million of Teekay Spain term loans and to pay $134.8 million to settle interest rate swaps associated with $769.3 million of debt of Teekay Spain. As at December 31, 2004, the amounts of the contribution and loans would have been $209.1 million and $129.4 million, respectively, and the amount of existing cash used would have been $134.8 million. The actual amounts of the Teekay Spain term loans we repaid and the cost to settle the interest rate swaps prior to the closing of this offering were $337.3 million and $143.3 million, respectively. The differences between the December 31, 2004 amounts and the actual amounts primarily reflect amortization of the debt and the effect of interest rate changes since year end.
	•	The use of the net proceeds of the initial public offering to repay the $119.4 million loan from Teekay Shipping Corporation.
	•	The payment by the Partnership of estimated underwriting commissions, structuring fees and offering expenses of $12.6 million.

	(a) The unaudited pro forma consolidated statement of loss includes revenues and expenses relating to marketable securities, real estate, a yacht and other assets that were sold by Teekay Spain prior to its acquisition by Teekay Shipping Corporation on April 30, 2004. The disposition of these assets resulted in other loss of $11.8 million during the year ended December 31, 2004.

F-7

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	(b) The unaudited pro forma consolidated statement of loss also includes revenues and expenses associated with one Suezmax tanker (the Granada Spirit) that was operating in the spot tanker market prior to its transfer to Teekay Shipping Corporation in the fourth quarter of 2004. Teekay Shipping Corporation will contribute this vessel back to the Partnership at the closing of the offering. The revenue earned by this vessel will not be representative of the revenue the Partnership expects to earn from it during 2005, as the vessel will be absent from our fleet for part of the year and it will be chartered to Teekay Shipping Corporation from the Partnership at a fixed, daily time charter rate. If this vessel had been earning the same fixed charter rate in 2004, as it is expected to earn during 2005, income from vessel operations would have been lower by $6.1 million.
	(c) After the closing of the transactions referred to in Note 1 above, subsidiaries of Teekay Shipping Corporation will provide certain services to the Partnership and the Partnership’s subsidiaries. These services will include strategic consulting, advisory, ship management, technical and administrative services. The services will be valued at a reasonable, arms’-length rate and will include reimbursement of the reasonable direct or indirect expenses incurred in providing the services. In addition, the Partnership’s general partner will be reimbursed by the Partnership for expenses it incurs on behalf of the Partnership. No adjustment for these incremental costs has been made to the unaudited pro forma consolidated financial statements because (1) the amounts will depend on the level and types of services provided, (2) the amounts due are not specified or fixed and (3) the Partnership does not have a reasonable basis for determining these expenses.
	(d) The unaudited pro forma consolidated financial statements do not include the expenses associated with the 2005 Long-Term Incentive Plan. The Partnership’s general partner has not yet determined the types or amounts of awards under the Plan (other than the amount of awards for non-management directors) and does not anticipate making any such awards on the closing of this offering. Consequently, the Partnership does not have a reasonable basis for determining these expenses.

	(a) The purchase of Teekay Spain by Teekay Shipping Corporation through its subsidiary Luxco as described above in Note 1. Depreciation expense related to the acquired vessels has been based upon their estimated fair market values on the date of acquisition of April 30, 2004 ($821.9 million), and a 25-year vessel life for Suezmax tankers and a 35-year vessel life for LNG carriers. As a result of the adjusted values of the acquired vessels, depreciation expense increased by $1.0 million for the four months ended April 30, 2004.
	(b) The purchase of Teekay Spain by Teekay Shipping Corporation through its subsidiary Luxco. Amortization expense related to the acquired time charter contracts has been based upon their estimated fair market values on the date of acquisition of April 30, 2004 ($183.1 million), and a

F-8

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	weighted-average amortization period of 19.2 years. As a result, amortization expense increased by $2.0 million for the four months ended April 30, 2004.
	(c) The incurrence by the Partnership of estimated incremental general and administrative expenses of $1.0 million annually, including costs associated with annual reports to unitholders, tax return and Schedule K-1 preparation and distribution, investor relations, registrar and transfer agent’s fees, incremental director and officer liability insurance costs and directors’ compensation. The Partnership has estimated this amount based on the experience of its affiliate, Teekay Shipping Corporation, which is a public company, and discussions with certain advisors.
	(d) The prepayment of $338.5 million of Teekay Spain term loans with existing cash, proceeds of the contribution by, and loans from, Teekay Shipping Corporation, which are described in Notes 3(g), (j) and 3(k). These term loans had a weighted-average interest rate of 7.9% per annum. Had these term loans been repaid on January 1, 2004, interest expense would have decreased by $24.8 million for the year ended December 31, 2004. Although the Partnership has entered into a $100 million credit facility in connection with this offering, it does not anticipate that it will draw on the facility in connection with the transactions referred to in Note 1 above.
	(e) The contribution by Teekay Shipping Corporation to the Partnership of the Luxco shares and the aggregate amount of $465.7 million of notes receivable (including accrued interest of $11.0 million) from Luxco as described above in Note 1. If these Euro-denominated notes receivable from Luxco had been contributed to the Partnership on January 1, 2004, interest expense would have decreased by $10.1 million for the period from April 7, 2004 to December 31, 2004 and foreign exchange loss would have decreased by $44.7 million.
	(f) The payment of the settlement cost of $134.8 million under interest rate swaps relating to the $338.5 million debt repayment described above in Note 3(d) and $430.8 million of debt not being repaid. If these interest rate swaps had been repaid on January 1, 2004, the interest rate swap gain would have decreased by $4.9 million for the year ended 2004, the historical change in fair value of the interest rate swaps. Had the interest rate swaps relating to the $430.8 million of debt been repaid on January 1, 2004, interest expense would have decreased by $4.1 million for the year ended December 31, 2004. If these interest rate swaps had been settled on January 1, 2004, we would have funded the settlement with either a contribution from Teekay Shipping Corporation or a loan from Teekay Shipping Corporation, which would have subsequently been contributed to the Partnership. Consequently, the Partnership would not have recorded interest expense from the funding of these interest rate swap settlements with debt.
	(g) The $10.0 million interest bearing loan from Teekay Shipping Corporation, which was used prior to the closing of this offering to partially prepay certain term loans of Teekay Spain as described in Note 3(d). Assuming this 7.6% fixed interest rate loan had been made on January 1, 2004, interest expense would have increased by $0.8 million for the year ended December 31, 2004.
	(h) The write-downs of capitalized loan costs upon the $338.5 million debt repayment described above in Note 3(d) of $8.0 million and $7.6 million for the year ended and as at December 31, 2004, respectively. The amount of the write-downs is the net book value of the capitalized loan costs on the two term loans repaid. The corresponding decrease in interest expense from these write-downs was $0.4 million for the year ended December 31, 2004.
	(i) The effect on provision for income taxes from the incremental general and administrative expenses, prepayment of debt, settlement of interest rate swaps, the interest bearing loan and write-off of capitalized loan costs described in Notes 3(c), (d), (f), (g) and (h). These effects on provision

F-9

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	for income taxes are determined by applying a 3.5% effective income tax rate to the previously mentioned pro forma adjustments.
	(j) The contribution of $209.1 million by Teekay Shipping Corporation to Teekay Spain, which would have been used to prepay certain term loans and settle interest rate swaps of Teekay Spain as described in Notes 3(d) and (f). The $209.1 million is determined based on cash existing as at December 31, 2004. The term loans were repaid and the interest rate swaps settled in 2005.
	(k) The $119.4 million non-interest bearing loan from Teekay Shipping Corporation, which was used prior to the closing of this offering to prepay certain term loans of Teekay Spain as described in Note 3(d). This loan will be repaid with the net proceeds of this offering.
	(l) The receipt by the Partnership of gross proceeds of $132.0 million from the issuance and sale of 6,000,000 common units to the public (assuming the underwriters do not exercise their over-allotment option), at an initial public offering price of $22.00 per common unit.
	(m) The payment by the Partnership of underwriting commissions, structuring fees and other offering expenses of $12.6 million in connection with the initial public offering.
	(n) The contribution by Teekay Shipping Corporation to the Partnership of the shares of the subsidiary that owns the Suezmax tanker the Granada Spirit, which had a book value of $23.8 million at December 31, 2004.

4.	Commitments and Contingencies

	(a) Commitments and contingencies of our subsidiary Teekay Luxembourg S.a.r.l. are set out in the audited historical consolidated financial statements for the nine months ended December 31, 2004 contained elsewhere in this prospectus.
	(b) Upon the closing of the transactions referred to in Note 1 above, the Partnership will enter into an agreement with Teekay Shipping Corporation to purchase its 100% ownership interest in Teekay Nakilat Holdings Corporation (or TNHC), which has contracted to have built three LNG newbuildings subject to 20-year, fixed-rate time charters. The Partnership will purchase the interest in TNHC for an estimated $124.5 million in cash plus the assumption of approximately $468.0 million in construction-related debt upon delivery of the first vessel, which is scheduled for the fourth quarter of 2006.

5.	Net Loss per Unit

			Common				Subordinated				All Unit
			Unit Holders				Unit Holders				Holders
			(in thousands, except number of units and per
			unit data)
Year Ended December 31, 2004
	Pro forma Net Loss		$	(1,143.5	)		$	(1,143.5	)		$	(2,287	)
	Pro forma Weighted Average Number of Units Outstanding			14,734,572				14,734,572				29,469,144
	Pro forma Net Loss Per Unit		$	(0.8	)		$	(0.8	)		$	(0.8	)

F-10

---

 

F-11

---

 

	/s/ Ernst & Young LLP
	Chartered Accountants

F-12

---

 

		Years Ended December 31,								Four Months				Eight Months
										Ended				Ended
		2002				2003				April 30, 2004				December 31, 2004
		(in thousands of U.S. Dollars)
VOYAGE REVENUES		$	59,866			$	86,709			$	40,718			$	83,115
OPERATING EXPENSES
Voyage expenses			5,334				4,911				1,842				3,090
Vessel operating expenses			16,104				26,440				10,302				20,315
Depreciation and amortization			17,689				23,390				8,585				26,275
General and administrative			6,501				8,799				2,103				4,300
Total operating expenses			45,628				63,540				22,832				53,980
Income from vessel operations			14,238				23,169				17,886				29,135
OTHER ITEMS
Interest expense			(18,109	)			(34,862	)			(21,475	)			(40,560	)
Interest income			5,248				8,431				8,692				13,426
Foreign currency exchange gain (loss) (note 7)			(44,310	)			(71,502	)			18,010				(34,149	)
Interest rate swaps gain (loss) (note 13)			(71,400	)			14,715				3,985				—
Other income (loss) — net (note 12)			563				617				(10,934	)			3,361
Total other items			(128,008	)			(82,601	)			(1,722	)			(57,922	)
Net income (loss)		$	(113,770	)		$	(59,432	)		$	16,164			$	(28,787	)

F-13

---

 

		As at December 31,
		2003				2004
		(in thousands of
		U.S. Dollars)
ASSETS
Current
Cash and cash equivalents		$	21,328			$	154,203
Restricted cash — current (note 3)			73,894				82,387
Accounts receivable			17,682				7,197
Prepaid expenses and other assets			2,145				3,449
Total current assets			115,049				247,236
Marketable securities — long term (note 5)			1,205				—
Restricted cash — long term (note 3)			324,144				352,725
Vessels and equipment (note 7)
At cost, less accumulated depreciation of $5,829 (December 31, 2003 — $92,171)			220,643				366,334
Vessels under capital leases, at cost, less accumulated depreciation of $4,233 (December 31, 2003 — $18,663) (note 3)			256,504				397,932
Advances on newbuilding contracts (note 14)			125,403				49,165
Total vessels and equipment			602,550				813,431
Other assets			26,133				20,394
Intangible assets — net (note 6)			—				178,457
Goodwill (note 6)			—				39,279
Total assets		$	1,069,081			$	1,651,522
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current
Accounts payable		$	5,881			$	11,410
Accrued liabilities			1,644				8,301
Advance from affiliate (note 8)			—				111,814
Current portion of long-term debt (note 7)			53,242				22,368
Current obligation under capital leases (note 3)			62,684				80,956
Total current liabilities			123,451				234,849
Long-term debt (note 7)			690,447				764,758
Long-term obligation under capital leases (note 3)			323,053				332,417
Other long-term liabilities (note 9)			96,415				134,848
Total liabilities			1,233,366				1,466,872
Commitments and contingencies (note 14)
Minority interest			524				—
Stockholders’ equity (deficit)
Capital stock (note 10)			1,580				1,580
Additional paid in capital (note 1)			—				439,978
Accumulated deficit			(165,584	)			(213,230	)
Accumulated other comprehensive loss			(805	)			(43,678	)
Total stockholders’ equity (deficit)			(164,809	)			184,650
Total liabilities and stockholders’ equity (deficit)		$	1,069,081			$	1,651,522

F-14

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			Years Ended December 31,								Four Months				Eight Months
											Ended				Ended
			2002				2003				April 30, 2004				December 31, 2004
			(in thousands of U.S. Dollars)
Cash and cash equivalents provided by (used for):
OPERATING ACTIVITIES
Net income (loss)			$	(113,770	)		$	(59,432	)		$	16,164			$	(28,787	)
Non-cash items:
	Depreciation and amortization			17,689				23,390				8,585				26,275
	Gain on sale of vessels and equipment			—				—				—				(3,428	)
	Gain on sale of marketable securities			(490	)			(1,576	)			(85	)			—
	Loss on sale of other assets			—				—				11,922				—
	Deferred income tax expense (recovery)			1,818				1,634				(1,131	)			(4,398	)
	Foreign currency exchange loss (gain)			43,314				68,897				(16,525	)			31,144
	Interest rate swap loss (gain)			71,400				(14,715	)			(3,985	)			—
	Other — net			1,188				4,594				(1,048	)			(15,275	)
Change in non-cash working capital items related to operating activities (note 15)				253				237				911				5,935
Expenditures for drydocking				(984	)			(4,711	)			—				(4,085	)
Net operating cash flow				20,418				18,318				14,808				7,381
FINANCING ACTIVITIES
Proceeds from long-term debt				232,829				211,089				2,359				131,368
Long-term debt issuance costs				(4,289	)			—				—				—
Scheduled repayments of long-term debt				(28,946	)			(291,730	)			(9,899	)			(60,644	)
Scheduled repayments of capital lease obligations				(6,425	)			(4,115	)			(1,777	)			(64,950	)
Prepayments of long-term debt				—				—				(20,575	)			(41,316	)
Advance from affiliate				—				—				—				111,817
Proceeds from government grants				—				49,215				—				—
Decrease (increase) in restricted cash				(16,853	)			(242,075	)			—				19,370
Other				—				—				4,046				—
Net financing cash flow				176,316				(277,616	)			(25,846	)			95,645
INVESTING ACTIVITIES
Expenditures for vessels and equipment				(186,755	)			(133,628	)			(5,522	)			(83,703	)
Purchase of Naviera F. Tapias Gas S.A. (net of cash acquired of $5,140) (note 11b)				(11,039	)			(4,515	)			—				—
Proceeds from sale of vessels and equipment				—				399,234				—				123,689
Proceeds from sale of marketable securities				451				3,929				899				—
Proceeds from sale of other assets				—				—				6,251				—
Other				(1,875	)			(2,254	)			(727	)			—
Net investing cash flow				(199,218	)			262,766				901				39,986
Increase (decrease) in cash and cash equivalents				(2,484	)			3,468				(10,137	)			143,012
Cash and cash equivalents, beginning of the year				20,344				17,860				21,328				11,191
Cash and cash equivalents, end of the year			$	17,860			$	21,328			$	11,191			$	154,203

F-15

---

 

															Retained				Accumulated								Total
			Number of								Additional				Earnings				Other								Stockholders’
			Common				Common				Paid in				(Accumulated				Comprehensive				Comprehensive				Equity
			Shares				Stock				Capital				Deficit)				Loss				Income (Loss)				(Deficit)
			(in thousands of U.S. Dollars)
Balance as at December 31, 2001				18,425			$	1,580				—			$	28,370			$	(101	)						$	29,849
Net loss																(113,770	)						$	(113,770	)			(113,770	)
Other comprehensive income (loss):
	Unrealized loss on available-for-sale securities																			(1,750	)			(1,750	)			(1,750	)
	Reclassification adjustment for loss on available-for-sale securities included in net loss																			318				318				318
Comprehensive loss																								(115,202	)
Purchase of Naviera F. Tapias Gas S.A. (note 11b)																(20,752	)											(20,752	)
Balance as at December 31, 2002				18,425				1,580				—				(106,152	)			(1,533	)							(106,105	)
Net loss																(59,432	)							(59,432	)			(59,432	)
Other comprehensive income (loss):
	Unrealized loss on available-for-sale securities																			(296	)			(296	)			(296	)
	Reclassification adjustment for loss on available-for-sale securities included in net loss																			1,024				1,024				1,024
Comprehensive loss																								(58,704	)
Balance as at December 31, 2003				18,425			$	1,580				—			$	(165,584	)		$	(805	)						$	(164,809	)
Net income																16,164								16,164				16,164
Other comprehensive income:
	Unrealized gain on available-for-sale securities																			467				467				467
	Reclassification adjustment for gain on available-for-sale securities included in net income																			(55	)			(55	)			(55	)
Comprehensive income																								16,576
Sale of unrelated businesses (note 1)																4,047												4,047
Balance as at April 30, 2004				18,425				1,580				—				(145,373	)			(393	)							(144,186	)
Net loss																(28,787	)							(28,787	)			(28,787	)
Other comprehensive income:
	Unrealized loss on derivative instruments (note 13)																			(57,444	)			(57,444	)			(57,444	)
	Reclassification adjustment for loss on derivative instruments included in net income (note 13)																			13,766				13,766				13,766
	Reclassification adjustment for loss on available-for-sale securities included in net loss																			393				393				393
Comprehensive loss																							$	(72,072	)
Revaluation of assets and liabilities (note 1)												439,978																439,978
Transfer of Suezmax purchase obligations (note 11d)																(43,961	)											(43,961	)
Sale of Granada Spirit (note 11e)																4,891												4,891
Balance as at December 31, 2004				18,425			$	1,580			$	439,978			$	(213,230	)		$	(43,678	)						$	184,650

F-16

---

 

1.	Summary of Significant Accounting Policies

	Basis of presentation

F-17

---

 

ASSETS
Cash, cash equivalents and short-term restricted cash			$	85,092
Other current assets				7,415
Vessels and equipment				821,939
Restricted cash – long term				311,664
Other assets – long-term				15,355
Intangible assets subject to amortization:
	Time-charter contracts (weighted average remaining useful life of 19.2 years)			183,052
Goodwill – non-tax deductible ($3.6 million Suezmax tanker segment and $35.7 million LNG carrier segment)				39,279
Total assets acquired			$	1,463,796
LIABILITIES
Current liabilities			$	98,428
Long-term debt				668,733
Obligations under capital leases				311,011
Other long-term liabilities				87,439
Total liabilities assumed				1,165,611
Net assets acquired (cash consideration)			$	298,185

	Reporting currency

F-18

---

 

	Operating revenues and expenses

	Cash and cash equivalents

	Marketable securities

	Vessels and equipment

F-19

---

 

	Loan costs

	Goodwill and intangible assets

	Derivative instruments

F-20

---

 

	Income taxes

	Comprehensive income (loss)

2.	Segment Reporting

F-21

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		Year Ended December 31,
																		Four Months								Eight Months
																		Ended								Ended
		2002								2003								April 30, 2004								December 31, 2004
		(dollars in millions)
Customer 1 — Suezmax tanker segment		$	42.9				(72%)			$	41.1				(47%)			$	15.4				(38%)			$	29.7				(36%)
Customer 2 — LNG carrier segment			*								9.8				(11)				8.5				(21)				17.3				(21)
Customer 3 — LNG carrier segment			*								22.8				(26)				7.5				(18)				15.2				(18)
Customer 4 — LNG carrier segment			*								*								*								10.8				(13)

*	Customer accounted for less than 10% of the Company’s consolidated voyage revenues.

		Suezmax
		Tanker				LNG Carrier
Year ended December 31, 2002		Segment				Segment				Total
Voyage revenues		$	54,418			$	5,448			$	59,866
Voyage expenses			5,319				15				5,334
Vessel operating expenses			15,789				315				16,104
Depreciation and amortization			16,579				1,110				17,689
General and administrative(1)			6,237				264				6,501
Income from vessel operations		$	10,494			$	3,744			$	14,238
Total assets at December 31, 2002		$	215,139			$	596,269			$	811,408
Expenditures for vessels and equipment			2,385				184,370				186,755

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

		Suezmax
		Tanker				LNG Carrier
Year ended December 31, 2003		Segment				Segment				Total
Voyage revenues		$	54,102			$	32,607			$	86,709
Voyage expenses			4,788				123				4,911
Vessel operating expenses			20,584				5,856				26,440
Depreciation and amortization			17,760				5,630				23,390
General and administrative(1)			7,116				1,683				8,799
Income from vessel operations		$	3,854			$	19,315			$	23,169
Total assets at December 31, 2003		$	209,329			$	791,259			$	1,000,588
Expenditures for vessels and equipment			7,220				126,408				133,628

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

F-22

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		Suezmax
		Tanker				LNG Carrier
Four months ended April 30, 2004		Segment				Segment				Total
Voyage revenues		$	24,708			$	16,010			$	40,718
Voyage expenses			1,809				33				1,842
Vessel operating expenses			7,196				3,106				10,302
Depreciation and amortization			6,047				2,538				8,585
General and administrative(1)			1,577				526				2,103
Income from vessel operations		$	8,079			$	9,807			$	17,886
Expenditures for vessels and equipment		$	5,039			$	483			$	5,522

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

		Suezmax
		Tanker				LNG Carrier
Eight months ended December 31, 2004		Segment				Segment				Total
Voyage revenues		$	39,730			$	43,385			$	83,115
Voyage expenses			2,869				221				3,090
Vessel operating expenses			12,806				7,509				20,315
Depreciation and amortization			13,422				12,853				26,275
General and administrative(1)			2,889				1,411				4,300
Income from vessel operations		$	7,744			$	21,391			$	29,135
Total assets at December 31, 2004		$	55,421			$	1,423,191			$	1,478,612
Expenditures for vessels and equipment			48,989				34,714				83,703

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

			December 31,
			2003				2004
Total assets of all segments			$	1,000,588			$	1,478,612
Cash, cash equivalents and marketable securities				22,533				154,203
Accounts receivable and other assets				45,960				18,707
	Consolidated total assets		$	1,069,081			$	1,651,522

F-23

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Year		Commitment
2005		77.1 million Euros ($105.0 million)
2006		123.2 million Euros ($167.8 million)
2007		23.3 million Euros ($31.7 million)
2008		24.4 million Euros ($33.3 million)
2009		25.6 million Euros ($34.9 million)
Thereafter		91.7 million Euros ($124.9 million)

Year		Commitment
2005		$	21.0  million
2006			17.9 million
2007			3.9 million
2008			3.9 million
2009			3.8 million
Thereafter			3.5 million

F-24

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						Gross				Approximate
						Unrealized				Market and
		Cost				Losses				Carrying Values
December 31, 2003
Marketable securities — long term		$	1,846			$	641			$	1,205
December 31, 2004
Marketable securities — long term			—				—				—

Weighted-Average

Gross

Net

Amortization

Carrying

Accumulated

Carrying

Period

Amount

Amortization

Amount

(years)

Time-charter contracts

19.2

$

182,552

$

4,095

$

178,457

		Suezmax				LNG
		Tanker				Carrier
		Segment				Segment				Total
Balance as at December 31, 2003			—				—				—
Goodwill acquired (note 1)		$	3,648			$	35,631			$	39,279
Balance as at December 31, 2004			3,648				35,631				39,279

		As at December 31,
		2003				2004
U.S. Dollar-denominated Term Loans due through 2022		$	371,334			$	343,390
Euro-denominated Term Loans due through 2025			372,355				443,736
Total, including current portion			743,689				787,126
Less current portion			53,242				22,368
Total		$	690,447			$	764,758

F-25

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F-26

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		December 31,
		2003								2004
		Carrying				Fair				Carrying				Fair
		Amount				Value				Amount				Value
Cash and cash equivalents and restricted cash		$	420,571			$	420,571			$	589,315			$	589,315
Long-term debt (including capital lease obligations)			1,129,426				1,129,426				1,200,499				1,200,499
Derivative instruments (note 13) — Interest rate swap agreements			96,415				96,415				134,848				134,848

F-27

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		Year Ended
		December 31,								Four Months				Eight Months
										Ended				Ended
		2002				2003				April 30, 2004				December 31, 2004
Gain on sale of vessels and equipment		$	—			$	—			$	—			$	3,428
Gain on sale of marketable securities			490				1,576				85				—
Loss on sale of other assets (note 1)			—				—				(11,922	)			—
Income tax recovery (expense)			(2,164	)			(3,033	)			645				51
Miscellaneous			2,237				2,074				258				(118	)
Total		$	563			$	617			$	(10,934	)		$	3,361

Weighted-

Average

Fixed

Interest Rate

Principal

Remaining

Interest

Index

Amount

Term

Rate(1)

(years)

U.S. Dollar-denominated interest rate swaps(2)

LIBOR

$

328,459

21.4

6.7%

Euro-denominated interest rate swaps(3)

EURIBOR

442,401

19.4

5.9

(1)	Excludes the margin the Company pays on its floating-rate debt (see Note 7).
(2)	Principal amount reduces monthly to zero by the maturity dates of the swap agreements.
(3)	Principal amount reduces monthly to 70.1 million Euros ($95.5 million) by the maturity dates of the swap agreements.

F-28

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14.	Commitments and Contingencies

15.	Change in Non-Cash Working Capital Items Related to Operating Activities

		Year Ended								Four Months				Eight Months
		December 31,								Ended				Ended
										April 30,				December 31,
		2002				2003				2004				2004
Accounts receivable		$	(493	)		$	825			$	2,123			$	(4,125	)
Prepaid expenses and other assets			(646	)			(186	)			(2,156	)			(727	)
Accounts payable			1,285				(770	)			1,151				5,051
Accrued liabilities			107				368				(207	)			5,736
Total		$	253			$	237			$	911			$	5,935

F-29

---

 

F-30

---

 

	/s/ Ernst & Young LLP
	Chartered Accountants

F-31

---

 

		Nine Months
		Ended
		December 31, 2004
		(in thousands of
		U.S. Dollars)
VOYAGE REVENUES		$	83,115
OPERATING EXPENSES
Voyage expenses			3,090
Vessel operating expenses			20,315
Depreciation and amortization			26,275
General and administrative			4,375
Total operating expenses			54,055
Income from vessel operations			29,060
OTHER ITEMS
Interest expense (notes 6 and 7)			(50,485	)
Interest income			13,519
Foreign currency exchange loss (note 6)			(78,831	)
Other income — net (note 11)			2,342
Total other items			(113,455	)
Net loss		$	(84,395	)

F-32

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		As at
		December 31, 2004
		(in thousands of
		U.S. dollars)
ASSETS (note 7)
Current
Cash and cash equivalents		$	156,410
Restricted cash — current (note 4)			82,387
Accounts receivable			7,197
Prepaid expenses and other assets			3,449
Total current assets			249,443
Restricted cash — long term (note 4)			352,725
Vessels and equipment (note 6)
At cost, less accumulated depreciation of $5,829			366,334
Vessels under capital leases, at cost, less accumulated depreciation of $9,597 (note 4)			629,569
Advances on newbuilding contracts (note 13)			49,165
Total vessels and equipment			1,045,068
Other assets			20,394
Intangible assets — net (note 5)			178,457
Goodwill (note 5)			39,279
Total assets		$	1,885,366
LIABILITIES AND STOCKHOLDER DEFICIT
Current
Accounts payable			11,411
Accrued liabilities			19,222
Current portion of long-term debt (note 6)			22,368
Current obligation under capital leases (note 4)			87,687
Advances from affiliate (note 7)			454,713
Total current liabilities			595,401
Long-term debt (note 6)			764,758
Long-term obligation under capital leases (note 4)			513,361
Other long-term liabilities (note 9)			134,848
Total liabilities			2,008,368
Commitments and contingencies (note 13)
Stockholder deficit
Capital stock (note 9)			180
Accumulated deficit			(79,504	)
Accumulated other comprehensive loss			(43,678	)
Total stockholder deficit			(123,002	)
Total liabilities and stockholder deficit		$	1,885,366

F-33

---

 

			Nine Months
			Ended
			December 31, 2004
			(in thousands of
			U.S. dollars)
Cash and cash equivalents provided by (used for)
OPERATING ACTIVITIES
Net loss			$	(84,395	)
Non-cash items:
	Depreciation and amortization			26,275
	Gain on sale of vessels and equipment			(3,428	)
	Deferred income tax			(4,398	)
	Foreign currency exchange loss			77,705
	Other — net			(5,125	)
Change in non-cash working capital items related to operating activities (note 14)				7,719
Expenditures for drydocking				(4,085	)
Net operating cash flow				10,268
FINANCING ACTIVITIES
Proceeds from long-term debt				131,368
Scheduled repayments of long-term debt				(60,644	)
Scheduled repayments of capital lease obligations				(64,950	)
Prepayments of long-term debt				(41,316	)
Proceeds from issuance of Common Stock				180
Advances from affiliate				409,141
Decrease in restricted cash				19,370
Net financing cash flow				393,149
INVESTING ACTIVITIES
Expenditures for vessels and equipment				(83,703	)
Purchase of Teekay Shipping Spain, S.L. net of cash acquired of $11,191 (note 2)				(286,993	)
Proceeds from sale of vessels and equipment				123,689
Net investing cash flow				(247,007	)
Increase in cash and cash equivalents				156,410
Cash and cash equivalents, beginning of the period				—
Cash and cash equivalents, end of the period			$	156,410

F-34

---

 

															Accumulated
			Number of												Other								Total
			Common				Common				Accumulated				Comprehensive				Comprehensive				Stockholder
			Shares				Stock				Deficit				Loss				Loss				Deficit
Balance as at April 7, 2004				—			$	—			$	—			$	—							$	—
Issuance of common stock				1,500				180																180
Net loss												(84,395	)							(84,395	)			(84,395	)
Other comprehensive income:
	Unrealized loss on derivative instruments (note 12)															(57,444	)			(57,444	)			(57,444	)
	Reclassification adjustment for loss on derivative instruments included in net loss (note 12)															13,766				13,766				13,766
Comprehensive loss																			$	(128,073	)
Sale of Granada Spirit (note 10)												4,891												4,891
Balance as at December 31, 2004				1,500			$	180			$	(79,504	)		$	(43,678	)						$	(123,002	)

F-35

---

 

1.	Summary of Significant Accounting Policies

	Basis of presentation

	Reporting currency

	Operating revenues and expenses

F-36

---

 

	Cash and cash equivalents

	Vessels and equipment

F-37

---

 

	Loan costs

	Goodwill and intangible assets

	Derivative instruments

	Income taxes

F-38

---

 

	Comprehensive income (loss)

2.	Acquisition of Teekay Shipping Spain, S.L.

ASSETS
Cash, cash equivalents and short-term restricted cash			$	85,092
Other current assets				7,415
Vessels and equipment				821,939
Restricted cash — long term				311,664
Other assets — long-term				15,355
Intangible assets subject to amortization:
	Time-charter contracts (weighted average remaining useful life of 19.2 years)			183,052
Goodwill — non-tax deductible ($3.6 million fixed-rate tanker segment, and $35.7 million fixed-rate LNG segment)				39,279
Total assets acquired			$	1,463,796
LIABILITIES
Current liabilities			$	98,428
Long-term debt				668,733
Obligations under capital leases				311,011
Other long-term liabilities				87,439
Total liabilities assumed				1,165,611
Net assets acquired (cash consideration)			$	298,185

F-39

---

 

3.	Segment Reporting

		Suezmax
		Tanker				LNG Carrier
Nine months ended December 31, 2004		Segment				Segment				Total
Voyage revenues		$	39,730			$	43,385			$	83,115
Voyage expenses			2,869				221				3,090
Vessel operating expenses			12,806				7,509				20,315
Depreciation and amortization			13,422				12,853				26,275
General and administrative(1)			2,939				1,436				4,375
Income from vessel operations		$	7,694			$	21,366			$	29,060
Total assets at December 31, 2004.		$	287,058			$	1,423,191			$	1,710,249
Expenditures for vessels and equipment			48,989				34,714				83,703

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

			December 31, 2004
Total assets of all segments			$	1,710,249
Cash and cash equivalents				156,410
Accounts receivable and other assets				18,707
	Consolidated total assets		$	1,885,366

F-40

---

 

4.	Capital Lease Obligations and Restricted Cash

	Capital Leases

Year		Commitment
2005		$	21.0 million
2006			145.8 million
2007			3.9 million
2008			3.9 million
2009			3.8 million
Thereafter			42.8 million

Year		Commitment
2005			77.1 million Euros ($105.0 million)
2006			123.2 million Euros ($167.8 million)
2007			23.3 million Euros ($31.7 million)
2008			24.4 million Euros ($33.3 million)
2009			25.6 million Euros ($34.9 million)
Thereafter			91.7 million Euros ($124.9 million)

	Restricted Cash

F-41

---

 

Weighted-

Average

Gross

Net

Amortization

Carrying

Accumulated

Carrying

Period

Amount

Amortization

Amount

(years)

Time-charter contracts

19.2

$

182,552

$

4,095

$

178,457

		Suezmax
		Tanker				LNG Carrier
		Segment				Segment				Total
Balance as of April 7, 2004			—				—				—
Goodwill acquired (note 2)		$	3,648			$	35,631			$	39,279
Balance as of December 31, 2004		$	3,648			$	35,631			$	39,279

		As at
		December 31,
		2004
U.S. Dollar-denominated Term Loans due through 2022		$	343,390
Euro-denominated Term Loans due through 2025			443,736
Total, including current portion			787,126
Less current portion			22,368
Total		$	764,758

F-42

---

 

		As at
		December 31, 2004
Euro-denominated Demand Promissory Notes		$	371,073
Euro-denominated Participating Loan			94,622
Total		$	465,695

F-43

---

 

			December 31, 2004
			Carrying
			Amount				Fair Value
Cash and cash equivalents and restricted cash			$	591,522			$	591,522
Long-term debt (including capital lease obligations)				1,388,174				1,388,174
Derivative instruments (note 12)
	Interest rate swap agreements			134,848				134,848

		Nine Months
		Ended
		December 31, 2004
Gain on sale of vessels and equipment		$	3,428
Income tax expense			(967	)
Miscellaneous			(119	)
Total		$	2,342

F-44

---

 

Weighted-

Interest

Average

Fixed

Rate

Principal

Remaining

Interest

Index

Amount

Term

Rate(1)

(years)

U.S. Dollar-denominated interest rate swaps(2)

LIBOR

$

328,459

21.4

6.7

%

Euro-denominated interest rate swaps(3)

EURIBOR

442,401

19.4

5.9

(1)	Excludes the margin the Company pays on its floating-rate debt (see Note 6).
(2)	Principal amount reduces monthly to zero by the maturity dates of the swap agreements.
(3)	Principal amount reduces monthly to 70.1 million Euros ($95.5 million) by the maturity dates of the swap agreements.

		Nine Months Ended
		December 31, 2004
Accounts receivable		$	(4,125	)
Prepaid expenses and other assets			(806	)
Accounts payable			5,865
Accrued liabilities			6,785
Total		$	7,719

F-45

---

 

F-46

---

 

F-47

---

 

	/s/ Ernst & Young LLP
	Chartered Accountants

F-48

---

 

		As at
		November 9, 2004
		(U.S. dollars)
ASSETS
Cash and cash equivalents		$	1,000
Commitments and contingencies (note 2)
PARTNERS’ EQUITY
Limited Partner		$	980
General Partner			20
Total partners’ equity		$	1,000

F-49

---

 

1.	Nature of Operations.

2.	Subsequent Events

	•	Teekay Shipping Corporation will contribute to the Partnership (a) the capital stock and notes receivable of Teekay Luxembourg S.a.r.l., which owns Teekay Spain S.L., and (b) the capital stock of its subsidiary that owns the Granada Spirit Suezmax tanker;
	•	The Partnership will issue to Teekay Shipping Corporation 8,734,572 common units and 14,734,572 subordinated units, representing a 78.0% limited partner interest in the Partnership;
	•	The Partnership will issue to the General Partner a 2% general partner interest in the Partnership and all of the Partnership’s incentive distribution rights;
	•	The Partnership will issue 6,000,000 common units to the public in an initial public offering and use the net proceeds to repay debt the Partnership owes to Teekay Shipping Corporation and to pay expenses associated with the public offering and related transactions;
	•	The Partnership will enter into an omnibus agreement with Teekay Shipping Corporation, the General Partner and others governing, among other things, when the Partnership and Teekay Shipping Corporation may compete with each other and certain rights of first offer on LNG carriers and Suezmax tankers;
	•	The Partnership and certain of its operating subsidiaries will enter into services agreements with certain subsidiaries of Teekay Shipping Corporation pursuant to which the Teekay Shipping Corporation subsidiaries will agree to provide to the Partnership administrative services and to such operating subsidiaries strategic consulting, advisory, ship management, technical and administrative services. These services will be valued at a reasonable, arms’-length fee and will include reimbursement of reasonable direct or indirect expenses incurred to provide these services;
	•	The Partnership will enter into an agreement with Teekay Shipping Corporation to purchase all of its interest in three LNG newbuildings and the related 20-year time charters upon their scheduled deliveries in the fourth quarter of 2006 and the first half of 2007 for approximately $124.5 million, plus the assumption of approximately $468 million of long-term debt (such purchase to take place upon delivery of the first vessel, which is scheduled for the fourth quarter of 2006); and
	•	The Partnership will enter into a short-term, fixed-rate time charter and vessel sales agreement with a subsidiary of Teekay Shipping Corporation for the Granada Spirit. The charter will terminate and Teekay Shipping Corporation will purchase the vessel upon the earliest of delivery to the Partnership of the Suezmax newbuilding the Toledo Spirit, scheduled for July 2005, December 31, 2004 or the election of Teekay Shipping Corporation. The purchase price is $19.5 million but will increase by $600,000 per month for a sale prior to July 2005 and will decrease by $250,000 per month for a sale after that month.

F-50

---

 

F-51

---

 

	/s/ Ernst & Young LLP
	Chartered Accountants

F-52

---

 

				As at
				November 9, 2004
				(U.S. Dollars)
ASSETS
	Cash and cash equivalents			$	980
	Investment in Teekay LNG Partners L.P.				20
		Total assets		$	1,000
MEMBER’S EQUITY
	Member’s equity			$	1,000

F-53

---

 

F-54

---

 

---

 

ARTICLE I
Definitions
Section 1.1		Definitions			A-1
Section 1.2		Construction			A-16
ARTICLE II
Organization
Section 2.1		Formation			A-16
Section 2.2		Name			A-16
Section 2.3		Registered Office; Registered Agent; Principal Office; Other Offices			A-16
Section 2.4		Purpose and Business			A-17
Section 2.5		Powers			A-17
Section 2.6		Power of Attorney			A-17
Section 2.7		Term			A-18
Section 2.8		Title to Partnership Assets			A-18
ARTICLE III
Rights of Limited Partners
Section 3.1		Limitation of Liability			A-19
Section 3.2		Management of Business			A-19
Section 3.3		Outside Activities of the Limited Partners			A-19
Section 3.4		Rights of Limited Partners			A-19
ARTICLE IV
Certificates; Record Holders; Transfer of Partnership Interests; Redemption of Partnership Interests
Section 4.1		Certificates			A-20
Section 4.2		Mutilated, Destroyed, Lost or Stolen Certificates			A-20
Section 4.3		Record Holders			A-21
Section 4.4		Transfer Generally			A-21
Section 4.5		Registration and Transfer of Limited Partner Interests			A-21
Section 4.6		Transfer of the General Partner’s General Partner Interest			A-22
Section 4.7		Transfer of Incentive Distribution Rights			A-23
Section 4.8		Restrictions on Transfers			A-23
ARTICLE V
Capital Contributions and Issuance of Partnership Interests
Section 5.1		Organizational Contributions			A-24
Section 5.2		Contributions by the General Partner and its Affiliates			A-24
Section 5.3		Contributions by Initial Limited Partners and Distributions to the General Partner and its Affiliates			A-24
Section 5.4		Interest and Withdrawal			A-25
Section 5.5		Capital Accounts			A-25

A-i

---

 

Section 5.6		Issuances of Additional Partnership Securities			A-27
Section 5.7		Limitations on Issuance of Additional Partnership Securities			A-28
Section 5.8		Conversion of Subordinated Units			A-28
Section 5.9		Limited Preemptive Right			A-29
Section 5.10		Splits and Combinations			A-29
Section 5.11		Fully Paid and Non-Assessable Nature of Limited Partner Interests			A-30
ARTICLE VI
Allocations and Distributions
Section 6.1		Allocations for Capital Account Purposes			A-30
Section 6.2		Allocations for Tax Purposes			A-35
Section 6.3		Requirement and Characterization of Distributions; Distributions to Record Holders			A-37
Section 6.4		Distributions of Available Cash from Operating Surplus			A-38
Section 6.5		Distributions of Available Cash from Capital Surplus			A-39
Section 6.6		Adjustment of Minimum Quarterly Distribution and Target Distribution Levels			A-39
Section 6.7		Special Provisions Relating to the Holders of Subordinated Units			A-39
Section 6.8		Special Provisions Relating to the Holders of Incentive Distribution Rights			A-40
Section 6.9		Entity-Level Taxation			A-40
ARTICLE VII
Management and Operation of Business
Section 7.1		Management			A-40
Section 7.2		Certificate of Limited Partnership			A-42
Section 7.3		Restrictions on the General Partner’s Authority			A-42
Section 7.4		Reimbursement of the General Partner			A-43
Section 7.5		Outside Activities			A-43
Section 7.6		Loans from the General Partner; Loans or Contributions from the Partnership or Group Members			A-44
Section 7.7		Indemnification			A-45
Section 7.8		Liability of Indemnitees			A-46
Section 7.9		Resolution of Conflicts of Interest; Standards of Conduct and Modification of Duties			A-47
Section 7.10		Other Matters Concerning the General Partner			A-48
Section 7.11		Purchase or Sale of Partnership Securities			A-48
Section 7.12		Registration Rights of the General Partner and its Affiliates			A-48
Section 7.13		Reliance by Third Parties			A-50
ARTICLE VIII
Books, Records, Accounting and Reports
Section 8.1		Records and Accounting			A-51
Section 8.2		Fiscal Year			A-51
Section 8.3		Reports			A-51

A-ii

---

 

ARTICLE IX
Tax Matters
Section 9.1		Tax Returns and Information			A-51
Section 9.2		Tax Elections			A-51
Section 9.3		Tax Controversies			A-52
Section 9.4		Withholding			A-52
Section 9.5		Conduct of Operations			A-52
ARTICLE X
Admission of Partners
Section 10.1		Admission of Initial Limited Partners			A-52
Section 10.2		Admission of Substituted Limited Partners			A-52
Section 10.3		Admission of Successor General Partner			A-53
Section 10.4		Admission of Additional Limited Partners			A-53
Section 10.5		Amendment of Agreement and Certificate of Limited Partnership			A-53
ARTICLE XI
Withdrawal or Removal of Partners
Section 11.1		Withdrawal of the General Partner			A-54
Section 11.2		Removal of the General Partner			A-55
Section 11.3		Interest of Departing Partner and Successor General Partner			A-55
Section 11.4		Termination of Subordination Period, Conversion of Subordinated Units and Extinguishment of Cumulative Common Unit Arrearages			A-56
Section 11.5		Withdrawal of Limited Partners			A-57
ARTICLE XII
Dissolution and Liquidation
Section 12.1		Dissolution			A-57
Section 12.2		Continuation of the Business of the Partnership After Dissolution			A-57
Section 12.3		Liquidator			A-58
Section 12.4		Liquidation			A-58
Section 12.5		Cancellation of Certificate of Limited Partnership			A-59
Section 12.6		Return of Contributions			A-59
Section 12.7		Waiver of Partition			A-59
Section 12.8		Capital Account Restoration			A-59
ARTICLE XIII
Amendment of Partnership Agreement; Meetings; Record Date
Section 13.1		Amendments to be Adopted Solely by the General Partner			A-59
Section 13.2		Amendment Procedures			A-60
Section 13.3		Amendment Requirements			A-61
Section 13.4		Special Meetings			A-61
Section 13.5		Notice of a Meeting			A-61
Section 13.6		Record Date			A-62
Section 13.7		Adjournment			A-62
Section 13.8		Waiver of Notice; Approval of Meeting; Approval of Minutes			A-62

A-iii

---

 

Section 13.9		Quorum and Voting			A-62
Section 13.10		Conduct of a Meeting			A-63
Section 13.11		Action Without a Meeting			A-63
Section 13.12		Right to Vote and Related Matters			A-63
ARTICLE XIV
Merger
Section 14.1		Authority			A-64
Section 14.2		Procedure for Merger or Consolidation			A-64
Section 14.3		Approval by Limited Partners of Merger or Consolidation			A-65
Section 14.4		Certificate of Merger			A-65
Section 14.5		Amendment of Partnership Agreement			A-66
Section 14.6		Effect of Merger			A-66
ARTICLE XV
Right to Acquire Limited Partner Interests
Section 15.1		Right to Acquire Limited Partner Interests			A-66
ARTICLE XVI
General Provisions
Section 16.1		Addresses and Notices			A-68
Section 16.2		Further Action			A-68
Section 16.3		Binding Effect			A-68
Section 16.4		Integration			A-68
Section 16.5		Creditors			A-68
Section 16.6		Waiver			A-68
Section 16.7		Counterparts			A-69
Section 16.8		Applicable Law			A-69
Section 16.9		Invalidity of Provisions			A-69
Section 16.10		Consent of Partners			A-69

A-iv

---

 

	(i) Any negative adjustment made to the Carrying Value of an Adjusted Property as a result of either a Book-Down Event or a Book-Up Event shall first be deemed to offset or decrease that portion of the Carrying Value of such Adjusted Property that is attributable to any prior positive adjustments made thereto pursuant to a Book-Up Event or Book-Down Event.
	(ii) If Carrying Value that constitutes Additional Book Basis is reduced as a result of a Book-Down Event and the Carrying Value of other property is increased as a result of such Book-Down Event, an allocable portion of any such increase in Carrying Value shall be treated as Additional Book Basis; provided, that the amount treated as Additional Book Basis pursuant hereto as a result of such Book-Down Event shall not exceed the amount by which the Aggregate Remaining Net Positive Adjustments after such Book-Down Event exceeds the remaining Additional Book Basis attributable to all of the Partnership’s Adjusted Property after such Book-Down Event (determined without regard to the application of this clause (ii) to such Book-Down Event).

A-1

---

 

A-2

---

 

	(a) the sum of (i) all cash and cash equivalents of the Partnership Group on hand at the end of such Quarter, and (ii) all additional cash and cash equivalents of the Partnership Group on hand on the date of determination of Available Cash with respect to such Quarter resulting from Working Capital Borrowings made subsequent to the end of such Quarter, less
	(b) the amount of any cash reserves established by the General Partner to (i) provide for the proper conduct of the business of the Partnership Group (including reserves for future capital expenditures and for anticipated future credit needs of the Partnership Group) subsequent to such Quarter, (ii) comply with applicable law or any loan agreement, security agreement, mortgage, debt instrument or other agreement or obligation to which any Group Member is a party or by which it is bound or its assets are subject or (iii) provide funds for distributions under Section 6.4 or 6.5 in respect of any one or more of the next four Quarters; provided, however, that the General Partner may not establish cash reserves pursuant to (iii) above if the effect of such reserves would be that the Partnership is unable to distribute the Minimum Quarterly Distribution on all Common Units, plus any Cumulative Common Unit Arrearage on all Common Units, with respect to such Quarter; and, provided further, that disbursements made by a Group Member or cash reserves established, increased or reduced after the end of such Quarter but on or before the date of determination of Available Cash with respect to such Quarter shall be deemed to have been made, established, increased or reduced, for purposes of determining Available Cash, within such Quarter if the General Partner so determines.

A-3

---

 

A-4

---

 

A-5

---

 

A-6

---

 

A-7

---

 

A-8

---

 

A-9

---

 

	(a) Payments (including prepayments and prepayment penalties) of principal of and premium on indebtedness other than Working Capital Borrowings shall not constitute Operating Expenditures; and
	(b) Operating Expenditures shall not include (i) Expansion Capital Expenditures or actual Maintenance Capital Expenditures, but shall include Estimated Maintenance Capital Expenditures, (ii) payment of transaction expenses (including taxes) relating to Interim Capital Transactions or (iii) distributions to Partners.
	Where capital expenditures consist of both Maintenance Capital Expenditures and Expansion Capital Expenditures, the General Partner, with the concurrence of the Conflicts Committee, shall determine the allocation between the portion consisting of Maintenance Capital Expenditures and the portion consisting of Expansion Capital Expenditures, and the period over which the Maintenance Capital Expenditures will be deducted as an Operating Expenditure in calculating Operating Surplus.

(a) the sum of (i) $10 million, (ii) all cash and cash equivalents of the Partnership Group on hand as of the close of business on the Closing Date, other than cash reserved to terminate interest rate swap agreements, (iii) all cash receipts of the Partnership Group for the period beginning on the Closing Date and ending on the last day of such period, other than cash receipts from Interim Capital Transactions (except to the extent specified in Section 6.5), (iv) all cash receipts of the Partnership Group after the end of such period but on or before the date of determination of Operating Surplus with respect to such period resulting from Working Capital Borrowings and (v) the amount of distributions paid on equity issued in connection with the construction of a Capital Improvement or replacement asset and paid during the period beginning on the date that the Partnership enters into a

A-10

---

 

	binding obligation to commence construction of such Capital Improvement or replacement asset and ending on the earlier to occur of the date that such Capital Improvement or replacement asset Commences Commercial Service or the date that it is abandoned or disposed of (equity issued to fund the construction period interest payments on debt incurred (including periodic net payments under related interest rate swap agreements), or construction period distributions on equity issued, to finance the construction of a Capital Improvement or replacement asset shall also be deemed to be equity issued to finance the construction of a Capital Improvement or replacement asset for purposes of this clause (v)), less
	(b) the sum of (i) Operating Expenditures for the period beginning on the Closing Date and ending on the last day of such period and (ii) the amount of cash reserves established by the General Partner to provide funds for future Operating Expenditures; provided, however, that disbursements made (including contributions to a Group Member or disbursements on behalf of a Group Member) or cash reserves established, increased or reduced after the end of such period but on or before the date of determination of Available Cash with respect to such period shall be deemed to have been made, established, increased or reduced, for purposes of determining Operating Surplus, within such period if the General Partner so determines.

A-11

---

 

A-12

---

 

A-13

---

 

	(a) the first day of any Quarter beginning after March 31, 2010 in respect of which (i) (A) distributions of Available Cash from Operating Surplus on each of the Outstanding Common Units and Subordinated Units and any other Outstanding Units that are senior or equal in right of distribution to the Subordinated Units with respect to each of the three consecutive, non-overlapping four-Quarter periods immediately preceding such date equaled or exceeded the sum of the Minimum Quarterly Distribution on all Outstanding Common Units and Subordinated Units and any other Outstanding Units that are senior or equal in right of distribution to the Subordinated Units during such periods and (B) the Adjusted Operating Surplus generated during each of the three consecutive, non-overlapping four-Quarter periods immediately preceding such date equaled or exceeded the sum of the Minimum Quarterly Distribution on all of the Common Units and Subordinated Units and any other Units that are senior or equal in right of distribution to the Subordinated Units that were Outstanding during such periods on a Fully Diluted Basis, plus the related distribution on the General Partner Interest, during such periods and (ii) there are no Cumulative Common Unit Arrearages; and
	(b) the date on which the General Partner is removed as general partner of the Partnership upon the requisite vote by holders of Outstanding Units under circumstances where Cause does not exist and Units held by the General Partner and its Affiliates are not voted in favor of such removal.

A-14

---

 

A-15

---

 

A-16

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(i) execute, swear to, acknowledge, deliver, file and record in the appropriate public offices (A) all certificates, documents and other instruments (including this Agreement and the Certificate of Limited Partnership and all amendments or restatements hereof or thereof) that the General Partner or the Liquidator determines to be necessary or appropriate to form, qualify or continue the existence or qualification of the Partnership as a limited partnership (or a partnership in which the limited partners have limited liability) in the Marshall Islands and in all other jurisdictions in which the Partnership may conduct business or own property; (B) all certificates, documents and other instruments that the General Partner or the Liquidator determines to be necessary or appropriate to reflect, in accordance with its terms, any amendment, change, modification or restatement of this Agreement; (C) all certificates, documents and other instruments (including conveyances and a certificate of cancellation) that the General Partner or the Liquidator determines to be necessary or appropriate to reflect the dissolution and liquidation of the Partnership pursuant to the terms of this Agreement; (D) all certificates, documents and other instruments relating to the admission, withdrawal, removal or substitution of any Partner pursuant to, or other events described in, Articles IV, X, XI or XII; (E) all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges of any class or series of Partnership Securities issued pursuant to Section 5.6; and (F) all certificates, documents and other instruments (including agreements and a certificate of merger) relating to a merger, consolidation or conversion of the Partnership pursuant to Article XIV; and

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(ii) execute, swear to, acknowledge, deliver, file and record all ballots, consents, approvals, waivers, certificates, documents and other instruments that the General Partner or the Liquidator determines to be necessary or appropriate to (A) make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action that is made or given by the Partners hereunder or is consistent with the terms of this Agreement or (B) effectuate the terms or intent of this Agreement; provided, that when required by Section 13.3 or any other provision of this Agreement that establishes a percentage of the Limited Partners or of the Limited Partners of any class or series required to take any action, the General Partner and the Liquidator may exercise the power of attorney made in this Section 2.6(a)(ii) only after the necessary vote, consent or approval of the Limited Partners or of the Limited Partners of such class or series, as applicable.

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	(i) promptly after becoming available, to obtain a copy of the Partnership’s foreign, federal, state and local income tax returns for each year;
	(ii) to have furnished to him a current list of the name and last known business, residence or mailing address of each Partner;
	(iii) to obtain true and full information regarding the amount of cash and a description and statement of the Net Agreed Value of any other Capital Contribution by each Partner and which each Partner has agreed to contribute in the future, and the date on which each became a Partner;
	(iv) to have furnished to him a copy of this Agreement and the Certificate of Limited Partnership and all amendments thereto, together with a copy of the executed copies of all powers of attorney pursuant to which this Agreement, the Certificate of Limited Partnership and all amendments thereto have been executed;
	(v) to obtain true and full information regarding the status of the business and financial condition of the Partnership Group; and

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	(vi) to obtain such other information regarding the affairs of the Partnership as is just and reasonable.

	(i) makes proof by affidavit, in form and substance satisfactory to the General Partner, that a previously issued Certificate has been lost, destroyed or stolen;
	(ii) requests the issuance of a new Certificate before the General Partner has notice that the Certificate has been acquired by a purchaser for value in good faith and without notice of an adverse claim;
	(iii) if requested by the General Partner, delivers to the General Partner a bond, in form and substance satisfactory to the General Partner, with surety or sureties and with fixed or open penalty as

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	the General Partner may direct to indemnify the Partnership, the Partners, the General Partner and the Transfer Agent against any claim that may be made on account of the alleged loss, destruction or theft of the Certificate; and
	(iv) satisfies any other reasonable requirements imposed by the General Partner.

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	(i) Solely for purposes of this Section 5.5, the Partnership shall be treated as owning directly its proportionate share (as determined by the General Partner based upon the provisions of the applicable Group Member Agreement) of all property owned any other Group Member that is classified as a partnership for United States federal income tax purposes.
	(ii) All fees and other expenses incurred by the Partnership to promote the sale of (or to sell) a Partnership Interest that can neither be deducted nor amortized under Section 709 of the Code, if any, shall, for purposes of Capital Account maintenance, be treated as an item of deduction at the time such fees and other expenses are incurred and shall be allocated among the Partners pursuant to Section 6.1.

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	(iii) Except as otherwise provided in Treasury Regulation Section 1.704-1(b)(2)(iv)(m), the computation of all items of income, gain, loss and deduction shall be made without regard to any election under Section 754 of the Code which may be made by the Partnership and, as to those items described in Section 705(a)(1)(B) or 705(a)(2)(B) of the Code, without regard to the fact that such items are not includable in gross income or are neither currently deductible nor capitalized for United States federal income tax purposes. To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b) of the Code is required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment in the Capital Accounts shall be treated as an item of gain or loss.
	(iv) Any income, gain or loss attributable to the taxable disposition of any Partnership property shall be determined as if the adjusted basis of such property as of such date of disposition were equal in amount to the Partnership’s Carrying Value with respect to such property as of such date.
	(v) In accordance with the requirements of Section 704(b) of the Code, any deductions for depreciation, cost recovery or amortization attributable to any Contributed Property shall be determined as if the adjusted basis of such property on the date it was acquired by the Partnership were equal to the Agreed Value of such property. Upon an adjustment pursuant to Section 5.5(d) to the Carrying Value of any Partnership property subject to depreciation, cost recovery or amortization, any further deductions for such depreciation, cost recovery or amortization attributable to such property shall be determined (A) as if the adjusted basis of such property were equal to the Carrying Value of such property immediately following such adjustment and (B) using a rate of depreciation, cost recovery or amortization derived from the same method and useful life (or, if applicable, the remaining useful life) as is applied for United States federal income tax purposes; provided, however, that, if the asset has a zero adjusted basis for United States federal income tax purposes, depreciation, cost recovery or amortization deductions shall be determined using any method that the General Partner may adopt.

(ii) Immediately prior to the transfer of a Subordinated Unit or of a Subordinated Unit that has converted into a Common Unit pursuant to Section 5.8 by a holder thereof (other than a transfer to an Affiliate unless the General Partner elects to have this subparagraph 5.5(c)(ii) apply), the Capital Account maintained for such Person with respect to its Subordinated Units or converted Subordinated Units will (A) first, be allocated to the Subordinated Units or converted Subordinated Units to be transferred in an amount equal to the product of (x) the number of such Subordinated Units or converted Subordinated Units to be transferred and (y) the Per Unit Capital Amount for a Common Unit, and (B) second, any remaining balance in such Capital Account will be retained by the transferor, regardless of whether it has retained any Subordinated Units or converted Subordinated Units. Following any such allocation, the transferor’s Capital Account, if any, maintained with respect to the retained Subordinated Units or converted Subordinated Units, if any, will have a balance equal to the amount allocated under clause (B) hereinabove, and the transferee’s Capital Account established with respect to the transferred Subordinated Units or converted Subordinated Units will have a balance equal to the amount allocated under clause (A) hereinabove.

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(ii) In accordance with Treasury Regulation Section 1.704-1(b)(2)(iv)(f), immediately prior to any actual or deemed distribution to a Partner of any Partnership property (other than a distribution of cash that is not in redemption or retirement of a Partnership Interest), the Capital Accounts of all Partners and the Carrying Value of all Partnership property shall be adjusted upward or downward to reflect any Unrealized Gain or Unrealized Loss attributable to such Partnership property, as if such Unrealized Gain or Unrealized Loss had been recognized in a sale of such property immediately prior to such distribution for an amount equal to its fair market value, and had been allocated to the Partners, at such time, pursuant to Section 6.1 in the same manner as any item of gain or loss actually recognized during such period would have been allocated. In determining such Unrealized Gain or Unrealized Loss the aggregate cash amount and fair market value of all Partnership assets (including, without limitation, cash or cash equivalents) immediately prior to a distribution shall (A) in the case of an actual distribution that is not made pursuant to Section 12.4 or in the case of a deemed distribution, be determined and allocated in the same manner as that provided in Section 5.5(d)(i) or (B) in the case of a liquidating distribution pursuant to Section 12.4, be determined and allocated by the Liquidator using such method of valuation as it may adopt.

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	(i) distributions under Section 6.4 in respect of all Outstanding Common Units and Subordinated Units and any other Outstanding Units that are senior or equal in right of distribution to the Subordinated Units with respect to each of the three consecutive, non-overlapping four-Quarter periods immediately preceding such date equaled or exceeded the sum of the Minimum Quarterly Distribution on all of the Outstanding Common Units and Subordinated Units and any other Outstanding Units that are senior or equal in right of distribution to the Subordinated Units during such periods;
	(ii) the Adjusted Operating Surplus generated during each of the three consecutive, non-overlapping four-Quarter periods immediately preceding such date equaled or exceeded the sum of the Minimum Quarterly Distribution on all of the Common Units, Subordinated Units and any other Units that are senior or equal in right of distribution to the Subordinated Units that were Outstanding during such periods on a Fully Diluted Basis, plus the related distribution on the General Partner Interest in the Partnership, during such periods; and
	(iii) the Cumulative Common Unit Arrearage on all of the Common Units is zero

	(i) distributions under Section 6.4 in respect of all Outstanding Common Units and Subordinated Units and any other Outstanding Units that are senior or equal in right of distribution to the Subordinated Units with respect to each of the three consecutive, non-overlapping four-Quarter periods immediately preceding such date equaled or exceeded the sum of the Minimum Quarterly Distribution on all of the Outstanding Common Units and Subordinated Units and any other Outstanding Units that are senior or equal in right of distribution to the Subordinated Units during such periods;
	(ii) the Adjusted Operating Surplus generated during each of the three consecutive, non-overlapping four-Quarter periods immediately preceding such date equaled or exceeded the sum of the Minimum Quarterly Distribution on all of the Common Units, Subordinated Units and any other Units that are senior or equal in right of distribution to the Subordinated Units that were Outstanding during such periods on a Fully Diluted Basis, plus the related distribution on the General Partner Interest during such periods; and
	(iii) the Cumulative Common Unit Arrearage on all of the Common Units is zero;

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	(a) Net Income. After giving effect to the special allocations set forth in Section 6.1(d), Net Income for each taxable year and all items of income, gain, loss and deduction taken into account in computing Net Income for such taxable year shall be allocated as follows:

	(i) First, 100% to the General Partner, in an amount equal to the aggregate Net Losses allocated to the General Partner pursuant to Section 6.1(b)(iii) for all previous taxable years until the aggregate Net Income allocated to the General Partner pursuant to this Section 6.1(a)(i) for the current taxable year and all previous taxable years is equal to the aggregate Net Losses allocated to the General Partner pursuant to Section 6.1(b)(iii) for all previous taxable years;
	(ii) Second, 2% to the General Partner and 98% to the Unitholders, Pro Rata, until the aggregate Net Income allocated pursuant to this Section 6.1(a)(ii) for the current taxable year and all previous taxable years is equal to the aggregate Net Losses allocated pursuant to Section 6.1(b)(ii) for all previous taxable years; and
	(iii) Third, 2% to the General Partner, and 98% to the Unitholders, Pro Rata.

	(b) Net Losses. After giving effect to the special allocations set forth in Section 6.1(d), Net Losses for each taxable period and all items of income, gain, loss and deduction taken into account in computing Net Losses for such taxable period shall be allocated as follows:

	(i) First, 2% to the General Partner, and 98% to the Unitholders, Pro Rata, until the aggregate Net Losses allocated pursuant to this Section 6.1(b)(i) for the current taxable year and all previous taxable years is equal to the aggregate Net Income allocated pursuant to Section 6.1(a)(iii) for all previous taxable years, provided that the Net Losses shall not be allocated pursuant to this Section 6.1(b)(i) to the extent that such allocation would cause any Unitholder to have a deficit balance in its Adjusted Capital Account at the end of such taxable year (or increase any existing deficit balance in its Adjusted Capital Account);
	(ii) Second, 2% to the General Partner, and 98% to the Unitholders, Pro Rata; provided, that Net Losses shall not be allocated pursuant to this Section 6.1(b)(ii) to the extent that such allocation would cause any Unitholder to have a deficit balance in its Adjusted Capital Account at the end of such taxable year (or increase any existing deficit balance in its Adjusted Capital Account);
	(iii) Third, the balance, if any, 100% to the General Partner.

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(c) Net Termination Gains and Losses. After giving effect to the special allocations set forth in Section 6.1(d), all items of income, gain, loss and deduction taken into account in computing Net Termination Gain or Net Termination Loss for such taxable period shall be allocated in the same manner as such Net Termination Gain or Net Termination Loss is allocated hereunder. All allocations under this Section 6.1(c) shall be made after Capital Account balances have been adjusted by all other allocations provided under this Section 6.1 and after all distributions of Available Cash provided under Sections 6.4 and 6.5 have been made; provided, however, that solely for purposes of this Section 6.1(c), Capital Accounts shall not be adjusted for distributions made pursuant to Section 12.4.

(i) If a Net Termination Gain is recognized (or deemed recognized pursuant to Section 5.5(d)), such Net Termination Gain shall be allocated among the Partners in the following manner (and the Capital Accounts of the Partners shall be increased by the amount so allocated in each of the following subclauses, in the order listed, before an allocation is made pursuant to the next succeeding subclause):

	(A) First, to each Partner having a deficit balance in its Capital Account, in the proportion that such deficit balance bears to the total deficit balances in the Capital Accounts of all Partners, until each such Partner has been allocated Net Termination Gain equal to any such deficit balance in its Capital Account;
	(B) Second, 98% to all Unitholders holding Common Units, Pro Rata, and 2% to the General Partner, until the Capital Account in respect of each Common Unit then Outstanding is equal to the sum of (1) its Unrecovered Capital plus (2) the Minimum Quarterly Distribution for the Quarter during which the Liquidation Date occurs, reduced by any distribution pursuant to Section 6.4(a)(i) or (b)(i) with respect to such Common Unit for such Quarter (the amount determined pursuant to this clause (2) is hereinafter defined as the “Unpaid MQD”) plus (3) any then existing Cumulative Common Unit Arrearage;
	(C) Third, if such Net Termination Gain is recognized (or is deemed to be recognized) prior to the conversion of the last Outstanding Subordinated Unit, 98% to all Unitholders holding Subordinated Units, Pro Rata, and 2% to the General Partner, until the Capital Account in respect of each Subordinated Unit then Outstanding equals the sum of (1) its Unrecovered Capital, determined for the taxable year (or portion thereof) to which this allocation of gain relates, plus (2) the Minimum Quarterly Distribution for the Quarter during which the Liquidation Date occurs, reduced by any distribution pursuant to Section 6.4(a)(iii) with respect to such Subordinated Unit for such Quarter;
	(D) Fourth, 98% to all Unitholders, Pro Rata, and 2% to the General Partner, until the Capital Account in respect of each Common Unit then Outstanding is equal to the sum of (1) its Unrecovered Capital, plus (2) the Unpaid MQD, plus (3) any then existing Cumulative Common Unit Arrearage, plus (4) the excess of (aa) the First Target Distribution less the Minimum Quarterly Distribution for each Quarter of the Partnership’s existence over (bb) the cumulative per Unit amount of any distributions of Available Cash that is deemed to be Operating Surplus made pursuant to Sections 6.4(a)(iv) and 6.4(b)(ii) (the sum of (1) plus (2) plus (3) plus (4) is hereinafter defined as the “First Liquidation Target Amount”);
	(E) Fifth, 85% to all Unitholders, Pro Rata, 13% to the holders of the Incentive Distribution Rights, Pro Rata, and 2% to the General Partner, until the Capital Account in respect of each Common Unit then Outstanding is equal to the sum of (1) the First Liquidation Target Amount, plus (2) the excess of (aa) the Second Target Distribution less the First Target Distribution for each Quarter of the Partnership’s existence over (bb) the cumulative per Unit amount of any distributions of Available Cash that is deemed to be Operating Surplus made pursuant to Sections 6.4(a)(v) and 6.4(b)(iii) (the sum of (1) plus (2) is hereinafter defined as the “Second Liquidation Target Amount”);

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	(F) Sixth, 75% to all Unitholders, Pro Rata, 23% to the holders of the Incentive Distribution Rights, Pro Rata, and 2% to the General Partner, until the Capital Account in respect of each Common Unit then Outstanding is equal to the sum of (1) the Second Liquidation Target Amount, plus (2) the excess of (aa) the Third Target Distribution less the Second Target Distribution for each Quarter of the Partnership’s existence over (bb) the cumulative per Unit amount of any distributions of Available Cash that is deemed to be Operating Surplus made pursuant to Sections 6.4(a)(vi)and 6.4(b)(iv) (the sum of (1) plus (2) is hereinafter defined as the “Third Liquidation Target Amount”); and
	(G) Finally, any remaining amount 50% to all Unitholders, Pro Rata, 48% to the holders of the Incentive Distribution Rights, Pro Rata, and 2% to the General Partner.

	(ii) If a Net Termination Loss is recognized (or deemed recognized pursuant to Section 5.5(d)), such Net Termination Loss shall be allocated among the Partners in the following manner:

	(A) First, if such Net Termination Loss is recognized (or is deemed to be recognized) prior to the conversion of the last Outstanding Subordinated Unit, 98% to the Unitholders holding Subordinated Units, Pro Rata, and 2% to the General Partner, until the Capital Account in respect of each Subordinated Unit then Outstanding has been reduced to zero;
	(B) Second, 98% to all Unitholders holding Common Units, Pro Rata, and 2% to the General Partner, until the Capital Account in respect of each Common Unit then Outstanding has been reduced to zero; and
	(C) Third, the balance, if any, 100% to the General Partner.

	(d) Special Allocations. Notwithstanding any other provision of this Section 6.1, the following special allocations shall be made for such taxable period:

	(i) Partnership Minimum Gain Chargeback. Notwithstanding any other provision of this Section 6.1, if there is a net decrease in Partnership Minimum Gain during any Partnership taxable period, each Partner shall be allocated items of Partnership income and gain for such period (and, if necessary, subsequent periods) in the manner and amounts provided in Treasury Regulation Sections 1.704-2(f)(6), 1.704-2(g)(2) and 1.704-2(j)(2)(i), or any successor provision. For purposes of this Section 6.1(d), each Partner’s Adjusted Capital Account balance shall be determined, and the allocation of income or gain required hereunder shall be effected, prior to the application of any other allocations pursuant to this Section 6.1(d) with respect to such taxable period (other than an allocation pursuant to Sections 6.1(d)(vi) and 6.1(d)(vii)). This Section 6.1(d)(i) is intended to comply with the Partnership Minimum Gain chargeback requirement in Treasury Regulation Section 1.704-2(f) and shall be interpreted consistently therewith.
	(ii) Chargeback of Partner Nonrecourse Debt Minimum Gain. Notwithstanding the other provisions of this Section 6.1 (other than Section 6.1(d)(i)), except as provided in Treasury Regulation Section 1.704-2(i)(4), if there is a net decrease in Partner Nonrecourse Debt Minimum Gain during any Partnership taxable period, any Partner with a share of Partner Nonrecourse Debt Minimum Gain at the beginning of such taxable period shall be allocated items of Partnership income and gain for such period (and, if necessary, subsequent periods) in the manner and amounts provided in Treasury Regulation Sections 1.704-2(i)(4) and 1.704-2(j)(2)(ii), or any successor provisions. For purposes of this Section 6.1(d), each Partner’s Adjusted Capital Account balance shall be determined, and the allocation of income or gain required hereunder shall be effected, prior to the application of any other allocations pursuant to this Section 6.1(d), other than Section 6.1(d)(i) and other than an allocation pursuant to Sections 6.1(d)(vi) and 6.1(d)(vii), with respect to such taxable period. This Section 6.1(d)(ii) is intended to comply with the chargeback of items of income and gain

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	requirement in Treasury Regulation Section 1.704-2(i)(4) and shall be interpreted consistently therewith.
	(iii) Priority Allocations.

	(A) If the amount of cash or the Net Agreed Value of any property distributed (except cash or property distributed pursuant to Section 12.4) to any Unitholder with respect to its Units for a taxable year is greater (on a per Unit basis) than the amount of cash or the Net Agreed Value of property distributed to the other Unitholders with respect to their Units (on a per Unit basis), then (1) each Unitholder receiving such greater cash or property distribution shall be allocated gross income in an amount equal to the product of (aa) the amount by which the distribution (on a per Unit basis) to such Unitholder exceeds the distribution (on a per Unit basis) to the Unitholders receiving the smallest distribution and (bb) the number of Units owned by the Unitholder receiving the greater distribution; and (2) the General Partner shall be allocated gross income in an aggregate amount equal to 2/98ths of the sum of the amounts allocated in clause (1) above.
	(B) After the application of Section 6.1(d)(iii)(A), all or any portion of the remaining items of Partnership gross income or gain for the taxable period, if any, shall be allocated (1) to the holders of Incentive Distribution Rights, Pro Rata, until the aggregate amount of such items allocated to the holders of Incentive Distribution Rights pursuant to this paragraph 6.1(d)(iii)(B) for the current taxable year and all previous taxable years is equal to the cumulative amount of all Incentive Distributions made to the holders of Incentive Distribution Rights from the Closing Date to a date 45 days after the end of the current taxable year and (2) to the General Partner in an amount equal to 2/98ths of the sum of the amounts allocated in clause (1) above.

	(iv) Qualified Income Offset. In the event any Partner unexpectedly receives any adjustments, allocations or distributions described in Treasury Regulation Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5), or 1.704-1(b)(2)(ii)(d)(6), items of Partnership income and gain shall be specially allocated to such Partner in an amount and manner sufficient to eliminate, to the extent required by the Treasury Regulations promulgated under Section 704(b) of the Code, the deficit balance, if any, in its Adjusted Capital Account created by such adjustments, allocations or distributions as quickly as possible unless such deficit balance is otherwise eliminated pursuant to Section 6.1(d)(i) or (ii).
	(v) Gross Income Allocations. In the event any Partner has a deficit balance in its Capital Account at the end of any Partnership taxable period in excess of the sum of (A) the amount such Partner is required to restore pursuant to the provisions of this Agreement and (B) the amount such Partner is deemed obligated to restore pursuant to Treasury Regulation Sections 1.704-2(g) and 1.704-2(i)(5), such Partner shall be specially allocated items of Partnership gross income and gain in the amount of such excess as quickly as possible; provided, that an allocation pursuant to this Section 6.1(d)(v) shall be made only if and to the extent that such Partner would have a deficit balance in its Capital Account as adjusted after all other allocations provided for in this Section 6.1 have been tentatively made as if this Section 6.1(d)(v) were not in this Agreement.
	(vi) Nonrecourse Deductions. Nonrecourse Deductions for any taxable period shall be allocated to the Partners in accordance with their respective Percentage Interests. If the General Partner determines that the Partnership’s Nonrecourse Deductions should be allocated in a different ratio to satisfy the safe harbor requirements of the Treasury Regulations promulgated under Section 704(b) of the Code, the General Partner is authorized, upon notice to the other Partners, to revise the prescribed ratio to the numerically closest ratio that does satisfy such requirements.

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	(vii) Partner Nonrecourse Deductions. Partner Nonrecourse Deductions for any taxable period shall be allocated 100% to the Partner that bears the Economic Risk of Loss with respect to the Partner Nonrecourse Debt to which such Partner Nonrecourse Deductions are attributable in accordance with Treasury Regulation Section 1.704-2(i). If more than one Partner bears the Economic Risk of Loss with respect to a Partner Nonrecourse Debt, such Partner Nonrecourse Deductions attributable thereto shall be allocated between or among such Partners in accordance with the ratios in which they share such Economic Risk of Loss.
	(viii) Nonrecourse Liabilities. For purposes of Treasury Regulation Section 1.752-3(a)(3), the Partners agree that Nonrecourse Liabilities of the Partnership in excess of the sum of (A) the amount of Partnership Minimum Gain and (B) the total amount of Nonrecourse Built-in Gain shall be allocated among the Partners in accordance with their respective Percentage Interests.
	(ix) Code Section 754 Adjustments. To the extent an adjustment to the adjusted tax basis of any Partnership asset pursuant to Section 734(b) or 743(b) of the Code is required, pursuant to Treasury Regulation Section 1.704-1(b)(2)(iv)(m), to be taken into account in determining Capital Accounts, the amount of such adjustment to the Capital Accounts shall be treated as an item of gain (if the adjustment increases the basis of the asset) or loss (if the adjustment decreases such basis), and such item of gain or loss shall be specially allocated to the Partners in a manner consistent with the manner in which their Capital Accounts are required to be adjusted pursuant to such Section of the Treasury Regulations.
	(x) Economic Uniformity. At the election of the General Partner with respect to any taxable period ending upon, or after, the termination of the Subordination Period with respect to any class of Units, all or a portion of the remaining items of Partnership gross income or gain for such taxable period, after taking into account allocations pursuant to Section 6.1(d)(iii), shall be allocated 100% to each Partner holding Subordinated Units of that class that are Outstanding as of the termination of such Subordination Period (“Final Subordinated Units”) in the proportion of the number of Final Subordinated Units held by such Partner to the total number of Final Subordinated Units then Outstanding, until each such Partner has been allocated an amount of gross income or gain that increases the Capital Account maintained with respect to such Final Subordinated Units to an amount equal to the product of (A) the number of Final Subordinated Units held by such Partner and (B) the Per Unit Capital Amount for a Common Unit. The purpose of this allocation is to establish uniformity between the Capital Accounts underlying Final Subordinated Units and the Capital Accounts underlying Common Units held by Persons other than the General Partner and its Affiliates immediately prior to the conversion of such Final Subordinated Units into Common Units. This allocation method for establishing such economic uniformity will be available to the General Partner only if the method for allocating the Capital Account maintained with respect to the Subordinated Units between the transferred and retained Subordinated Units pursuant to Section 5.5(c)(ii) does not otherwise provide such economic uniformity to the Final Subordinated Units.
	(xi) Curative Allocation.

(A) Notwithstanding any other provision of this Section 6.1, other than the Required Allocations, the Required Allocations shall be taken into account in making the Agreed Allocations so that, to the extent possible, the net amount of items of income, gain, loss and deduction allocated to each Partner pursuant to the Required Allocations and the Agreed Allocations, together, shall be equal to the net amount of such items that would have been allocated to each such Partner under the Agreed Allocations had the Required Allocations and the related Curative Allocation not otherwise been provided in this Section 6.1. Notwithstanding the preceding sentence, Required Allocations relating to (1) Nonrecourse Deductions shall not be taken into account except to the extent that there has been a decrease in Partnership Minimum Gain and (2) Partner Nonrecourse Deductions shall not

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	be taken into account except to the extent that there has been a decrease in Partner Nonrecourse Debt Minimum Gain. Allocations pursuant to this Section 6.1(d)(xi)(A) shall only be made with respect to Required Allocations to the extent the General Partner determines that such allocations will otherwise be inconsistent with the economic agreement among the Partners. Further, allocations pursuant to this Section 6.1(d)(xi)(A) shall be deferred with respect to allocations pursuant to clauses (1) and (2) hereof to the extent the General Partner determines that such allocations are likely to be offset by subsequent Required Allocations.
	(B) The General Partner shall, with respect to each taxable period, (1) apply the provisions of Section 6.1(d)(xi)(A) in whatever order is most likely to minimize the economic distortions that might otherwise result from the Required Allocations, and (2) divide all allocations pursuant to Section 6.1(d)(xi)(A) among the Partners in a manner that is likely to minimize such economic distortions.

	(xii) Corrective Allocations. In the event of any allocation of Additional Book Basis Derivative Items or any Book-Down Event or any recognition of a Net Termination Loss, the following rules shall apply:

	(A) In the case of any allocation of Additional Book Basis Derivative Items (other than an allocation of Unrealized Gain or Unrealized Loss under Section 5.5(d) hereof), the General Partner shall allocate additional items of gross income and gain away from the holders of Incentive Distribution Rights to the Unitholders and the General Partner, or additional items of deduction and loss away from the Unitholders and the General Partner to the holders of Incentive Distribution Rights, to the extent that the Additional Book Basis Derivative Items allocated to the Unitholders or the General Partner exceed their Share of Additional Book Basis Derivative Items. For this purpose, the Unitholders and the General Partner shall be treated as being allocated Additional Book Basis Derivative Items to the extent that such Additional Book Basis Derivative Items have reduced the amount of income that would otherwise have been allocated to the Unitholders or the General Partner under the Partnership Agreement (e.g., Additional Book Basis Derivative Items taken into account in computing cost of goods sold would reduce the amount of book income otherwise available for allocation among the Partners). Any allocation made pursuant to this Section 6.1(d)(xii)(A) shall be made after all of the other Agreed Allocations have been made as if this Section 6.1(d)(xii) were not in this Agreement and, to the extent necessary, shall require the reallocation of items that have been allocated pursuant to such other Agreed Allocations.
	(B) In the case of any negative adjustments to the Capital Accounts of the Partners resulting from a Book-Down Event or from the recognition of a Net Termination Loss, such negative adjustment (1) shall first be allocated, to the extent of the Aggregate Remaining Net Positive Adjustments, in such a manner, as determined by the General Partner, that to the extent possible the aggregate Capital Accounts of the Partners will equal the amount that would have been the Capital Account balance of the Partners if no prior Book-Up Events had occurred, and (2) any negative adjustment in excess of the Aggregate Remaining Net Positive Adjustments shall be allocated pursuant to Section 6.1(c) hereof.
	(C) In making the allocations required under this Section 6.1(d)(xii), the General Partner may apply whatever conventions or other methodology it determines will satisfy the purpose of this Section 6.1(d)(xii).

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	(i) (A) In the case of a Contributed Property, such items attributable thereto shall be allocated among the Partners in the manner provided under Section 704(c) of the Code that takes into account the variation between the Agreed Value of such property and its adjusted basis at the time of contribution; and (B) any item of Residual Gain or Residual Loss attributable to a Contributed Property shall be allocated among the Partners in the same manner as its correlative item of “book” gain or loss is allocated pursuant to Section 6.1.
	(ii) (A) In the case of an Adjusted Property, such items shall (1) first, be allocated among the Partners in a manner consistent with the principles of Section 704(c) of the Code to take into account the Unrealized Gain or Unrealized Loss attributable to such property and the allocations thereof pursuant to Section 5.5(d)(i) or 5.5(d)(ii), and (2) second, in the event such property was originally a Contributed Property, be allocated among the Partners in a manner consistent with Section 6.2(b)(i)(A); and (B) any item of Residual Gain or Residual Loss attributable to an Adjusted Property shall be allocated among the Partners in the same manner as its correlative item of “book” gain or loss is allocated pursuant to Section 6.1.
	(iii) The General Partner shall apply the principles of Treasury Regulation Section 1.704-3(d) to eliminate Book-Tax Disparities.

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	(i) First, 98% to the Unitholders holding Common Units, Pro Rata, and 2% to the General Partner, until there has been distributed in respect of each Common Unit then Outstanding an amount equal to the Minimum Quarterly Distribution for such Quarter;
	(ii) Second, 98% to the Unitholders holding Common Units, Pro Rata, and 2% to the General Partner, until there has been distributed in respect of each Common Unit then Outstanding an amount equal to the Cumulative Common Unit Arrearage existing with respect to such Quarter;
	(iii) Third, 98% to the Unitholders holding Subordinated Units, Pro Rata, and 2% to the General Partner, until there has been distributed in respect of each Subordinated Unit then Outstanding an amount equal to the Minimum Quarterly Distribution for such Quarter;
	(iv) Fourth, 98% to all Unitholders, Pro Rata, and 2% to the General Partner, until there has been distributed in respect of each Unit then Outstanding an amount equal to the excess of the First Target Distribution over the Minimum Quarterly Distribution for such Quarter;
	(v) Fifth, 85% to all Unitholders, Pro Rata, 13% to the holders of the Incentive Distribution Rights and 2% to the General Partner, until there has been distributed in respect of each Unit then Outstanding an amount equal to the excess of the Second Target Distribution over the First Target Distribution for such Quarter;
	(vi) Sixth, 75% to all Unitholders, Pro Rata, 23% to the holders of the Incentive Distribution Rights, Pro Rata, and 2% to the General Partner, until there has been distributed in respect of each Unit then Outstanding an amount equal to the excess of the Third Target Distribution over the Second Target Distribution for such Quarter; and
	(vii) Thereafter, 50% to all Unitholders, Pro Rata, 48% to the holders of the Incentive Distribution Rights, Pro Rata, and 2% to the General Partner;

	(i) First, 98% to all Unitholders, Pro Rata, and 2% to the General Partner, until there has been distributed in respect of each Unit then Outstanding an amount equal to the Minimum Quarterly Distribution for such Quarter;
	(ii) Second, 98% to all Unitholders, Pro Rata, and 2% to the General Partner, until there has been distributed in respect of each Unit then Outstanding an amount equal to the excess of the First Target Distribution over the Minimum Quarterly Distribution for such Quarter;
	(iii) Third, 85% to all Unitholders, Pro Rata, 13% to the holders of the Incentive Distribution Rights, Pro Rata, and 2% to the General Partner, until there has been distributed in respect of each Unit then Outstanding an amount equal to the excess of the Second Target Distribution over the First Target Distribution for such Quarter;

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	(iv) Fourth, 75% to all Unitholders, Pro Rata, 23% to the holders of the Incentive Distribution Rights, Pro Rata, and 2% to the General Partner, until there has been distributed in respect of each Unit then Outstanding an amount equal to the excess of the Third Target Distribution over the Second Target Distribution for such Quarter; and
	(v) Thereafter, 50% to all Unitholders, Pro Rata, 48% to the holders of the Incentive Distribution Rights, Pro Rata, and 2% to the General Partner;

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	(i) the making of any expenditures, the lending or borrowing of money, the assumption or guarantee of, or other contracting for, indebtedness and other liabilities, the issuance of evidences of indebtedness, including indebtedness that is convertible into Partnership Securities, and the incurring of any other obligations;
	(ii) the making of tax, regulatory and other filings, or rendering of periodic or other reports to governmental or other agencies having jurisdiction over the business or assets of the Partnership;
	(iii) the acquisition, disposition, mortgage, pledge, encumbrance, hypothecation or exchange of any or all of the assets of the Partnership or the merger or other combination of the Partnership with or into another Person (the matters described in this clause (iii) being subject, however, to any prior approval that may be required by Section 7.3 and Article XIV);
	(iv) the use of the assets of the Partnership (including cash on hand) for any purpose consistent with the terms of this Agreement, including the financing of the conduct of the operations of the Partnership Group; subject to Section 7.6(a), the lending of funds to other Persons (including other Group Members); the repayment or guarantee of obligations of the Partnership Group; and the making of capital contributions to any member of the Partnership Group;
	(v) the negotiation, execution and performance of any contracts, conveyances or other instruments (including instruments that limit the liability of the Partnership under contractual arrangements to all or particular assets of the Partnership, with the other party to the contract to have no recourse against the General Partner or its assets other than its interest in the Partnership, even if same results in the terms of the transaction being less favorable to the Partnership than would otherwise be the case);
	(vi) the distribution of Partnership cash;
	(vii) the selection and dismissal of employees (including employees having titles such as “president,” “vice president,” “secretary” and “treasurer”) and agents, outside attorneys, accountants, consultants and contractors and the determination of their compensation and other terms of employment or hiring;
	(viii) the maintenance of insurance for the benefit of the Partnership Group, the Partners and Indemnitees;
	(ix) the formation of, or acquisition of an interest in, and the contribution of property and the making of loans to, any further limited or general partnerships, joint ventures, corporations, limited liability companies or other relationships (including the acquisition of interests in, and the contributions of property to, any Group Member from time to time) subject to the restrictions set forth in Section 2.4;
	(x) the control of any matters affecting the rights and obligations of the Partnership, including the bringing and defending of actions at law or in equity and otherwise engaging in the conduct of litigation, arbitration or mediation and the incurring of legal expense and the settlement of claims and litigation;
	(xi) the indemnification of any Person against liabilities and contingencies to the extent permitted by law;
	(xii) the entering into of listing agreements with any National Securities Exchange and the delisting of some or all of the Limited Partner Interests from, or requesting that trading be suspended on, any such exchange (subject to any prior approval that may be required under Section 4.8);
	(xiii) the purchase, sale or other acquisition or disposition of Partnership Securities, or the issuance of options, rights, warrants and appreciation rights relating to Partnership Securities;

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	(xiv) the undertaking of any action in connection with the Partnership’s participation in any Group Member; and
	(xv) the entering into of agreements with any of its Affiliates to render services to a Group Member or to itself in the discharge of its duties as General Partner of the Partnership.

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	(i) evidence of acceptance in form satisfactory to the General Partner of all of the terms and conditions of this Agreement, including the power of attorney granted in Section 2.6, and
	(ii) such other documents or instruments as may be required by the General Partner to effect such Person’s admission as an Additional Limited Partner.

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	(i) The General Partner voluntarily withdraws from the Partnership by giving written notice to the other Partners;
	(ii) The General Partner transfers all of its rights as General Partner pursuant to Section 4.6;
	(iii) The General Partner is removed pursuant to Section 11.2;
	(iv) The General Partner (A) makes a general assignment for the benefit of creditors; (B) files a voluntary petition in bankruptcy; (C) files a petition or answer seeking for itself a liquidation, dissolution or similar relief (but not a reorganization) under any law; (D) files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against the General Partner in a proceeding of the type described in clauses (A)-(B) of this Section 11.1(a)(iv); or (E) seeks, consents to or acquiesces in the appointment of a trustee, receiver or liquidator of the General Partner or of all or any substantial part of its properties;
	(v) The General Partner is adjudged bankrupt or insolvent, or has entered against him or her an order for relief in any bankruptcy or insolvency proceeding;
	(vi) (A) in the case of a general partner that is a corporation, the filing of a certificate of dissolution, or its equivalent, for the corporation or the revocation of its charter and the expiration of ninety (90) days after the date of notice to the corporation of revocation without a reinstatement of its charter; (B) in the event the General Partner is a partnership or a limited liability company, the dissolution and commencement of winding up of the General Partner; (C) in the event the General Partner is acting in such capacity by virtue of being a trustee of a trust, the termination of the trust; (D) in the event the General Partner is a natural person, his death or adjudication of incompetency; and (E) otherwise in the event of the termination of the General Partner.

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	(a) an election to dissolve the Partnership by the General Partner that is approved by the holders of a Unit Majority;
	(b) the sale of all or substantially all of the assets and properties of the Partnership Group;
	(c) the entry of a decree of judicial dissolution of the Partnership pursuant to the provisions of the Marshall Islands Act; or
	(d) an Event of Withdrawal of the General Partner as provided in Section 11.1(a) (other than Section 11.1(a)(ii)), unless a successor is elected and an Opinion of Counsel is received as provided in Sections 11.1(b) or 11.2 and such successor is admitted to the Partnership pursuant to Section 10.3.

	(i) the Partnership shall continue without dissolution unless earlier dissolved in accordance with this Article XII;
	(ii) if the successor General Partner is not the former General Partner, then the interest of the former General Partner shall be treated in the manner provided in Section 11.3; and
	(iii) the successor General Partner shall be admitted to the Partnership as General Partner, effective as of the Event of Withdrawal, by agreeing in writing to be bound by this Agreement; provided, that the right of the holders of a Unit Majority to approve a successor General Partner and

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to reconstitute and to continue the business of the Partnership shall not exist and may not be exercised unless the Partnership has received an Opinion of Counsel that (x) the exercise of the right would not result in the loss of limited liability of any Limited Partner and (y) neither the Partnership, the reconstituted limited partnership nor any Group Member would be treated as an association taxable as a corporation or otherwise be taxable as an entity for United States federal income tax purposes upon the exercise of such right to continue (to the extent not already so treated or taxed).

	(a) The assets may be disposed of by public or private sale or by distribution in kind to one or more Partners on such terms as the Liquidator and such Partner or Partners may agree. If any property is distributed in kind, the Partner receiving the property shall be deemed for purposes of Section 12.4(c) to have received cash equal to its fair market value; and contemporaneously therewith, appropriate cash distributions must be made to the other Partners. The Liquidator may defer liquidation or distribution of the Partnership’s assets for a reasonable time if it determines that an immediate sale or distribution of all or some of the Partnership’s assets would be impractical or would cause undue loss to the Partners. The Liquidator may distribute the Partnership’s assets, in whole or in part, in kind if it determines that a sale would be impractical or would cause undue loss to the Partners.
	(b) Liabilities of the Partnership include amounts owed to the Liquidator as compensation for serving in such capacity (subject to the terms of Section 12.3) and amounts to Partners otherwise than in respect of their distribution rights under Article VI. With respect to any liability that is contingent, conditional or unmatured or is otherwise not yet due and payable, the Liquidator shall either settle such claim for such amount as it thinks appropriate or establish a reserve of cash or other assets to provide for its payment. When paid, any unused portion of the reserve shall be distributed as additional liquidation proceeds.

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(c) All property and all cash in excess of that required to discharge liabilities as provided in Section 12.4(b) shall be distributed to the Partners in accordance with, and to the extent of, the positive balances in their respective Capital Accounts, as determined after taking into account all Capital Account adjustments (other than those made by reason of distributions pursuant to this Section 12.4(c)) for the taxable year of the Partnership during which the liquidation of the Partnership occurs (with such date of occurrence being determined pursuant to Treasury Regulation Section 1.704-1(b)(2)(ii)(g)), and such distribution shall be made by the end of such taxable year (or, if later, within 90 days after said date of such occurrence).

	(a) a change in the name of the Partnership, the location of the principal place of business of the Partnership, the registered agent of the Partnership or the registered office of the Partnership;
	(b) admission, substitution, withdrawal or removal of Partners in accordance with this Agreement;
	(c) a change that the General Partner determines to be necessary or appropriate to qualify or continue the qualification of the Partnership as a limited partnership or a partnership in which the Limited Partners have limited liability under the laws of the Marshall Islands or to ensure that the Group Members will not be treated as associations taxable as corporations or otherwise taxed as entities for Marshall Islands income tax purposes;

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	(d) a change that the General Partner determines, (i) does not adversely affect the Limited Partners (including any particular class of Partnership Interests as compared to other classes of Partnership Interests) in any material respect, (ii) to be necessary or appropriate to (A) satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of any Marshall Islands authority (including the Marshall Islands Act) or (B) facilitate the trading of the Units (including the division of any class or classes of Outstanding Units into different classes to facilitate uniformity of tax consequences within such classes of Units) or comply with any rule, regulation, guideline or requirement of any National Securities Exchange on which the Units are or will be listed, (iii) to be necessary or appropriate in connection with action taken by the General Partner pursuant to Section 5.10 or (iv) is required to effect the intent expressed in the Registration Statement or the intent of the provisions of this Agreement or is otherwise contemplated by this Agreement;
	(e) a change in the fiscal year or taxable year of the Partnership and any other changes that the General Partner determines to be necessary or appropriate as a result of a change in the fiscal year or taxable year of the Partnership including, if the General Partner shall so determine, a change in the definition of “Quarter” and the dates on which distributions are to be made by the Partnership;
	(f) an amendment that is necessary, in the Opinion of Counsel, to prevent the Partnership, or the General Partner or its directors, officers, trustees or agents from in any manner being subjected to the provisions of the Investment Company Act of 1940, as amended, the Investment Advisers Act of 1940, as amended, or “plan asset” regulations adopted under the Employee Retirement Income Security Act of 1974, as amended, regardless of whether such are substantially similar to plan asset regulations currently applied or proposed by the United States Department of Labor;
	(g) An amendment that the General Partner determines to be necessary or appropriate in connection with the authorization of issuance of any class or series of Partnership Securities pursuant to Section 5.6;
	(h) any amendment expressly permitted in this Agreement to be made by the General Partner acting alone;
	(i) an amendment that the General Partner determines to be necessary or appropriate to reflect and account for the formation by the Partnership of, or investment by the Partnership in, any corporation, partnership, joint venture, limited liability company or other entity, in connection with the conduct by the Partnership of activities permitted by the terms of Section 2.4; or
	(j) any other amendments substantially similar to the foregoing.

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	(i) all of the rights, privileges and powers of each of the business entities that has merged or consolidated, and all property, real, personal and mixed, and all debts due to any of those business entities and all other things and causes of action belonging to each of those business entities, shall be vested in the Surviving Business Entity and after the merger or consolidation shall be the property of the Surviving Business Entity to the extent they were of each constituent business entity;
	(ii) the title to any real property vested by deed or otherwise in any of those constituent business entities shall not revert and is not in any way impaired because of the merger or consolidation;
	(iii) all rights of creditors and all liens on or security interests in property of any of those constituent business entities shall be preserved unimpaired; and
	(iv) all debts, liabilities and duties of those constituent business entities shall attach to the Surviving Business Entity and may be enforced against it to the same extent as if the debts, liabilities and duties had been incurred or contracted by it.

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	GENERAL PARTNER:
	Teekay GP L.L.C.

	By:

	Name:

	Title:

	ORGANIZATIONAL LIMITED PARTNER:
	Teekay Shipping Corporation

	By:

	Name:

	Title:

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		LIMITED PARTNERS:

	All Limited Partners now and hereafter admitted as Limited Partners of the Partnership, pursuant to powers of attorney now and hereafter executed in favor of, and granted and delivered to the General Partner.
	Teekay GP L.L.C.

	By:

	Name:

	Title:

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No.  __________________	__________________ Common Units

Dated:		Teekay LNG Partners L.P.
Countersigned and Registered by:		By: Teekay GP L.L.C., its General Partner
as Transfer Agent and Registrar		By:    Name:
By:    Authorized Signature		By:    Secretary

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TEN COM		—		as tenants in common		UNIF GIFT/TRANSFERS MIN ACT
TEN ENT		—		as tenants by the entireties				Custodian
						(Cust)				(Minor)
JT TEN		—		as joint tenants with right of survivorship and not as tenants in common		under Uniform Gifts/Transfers to CD Minors Act (State)

(Please print or typewrite name and address of Assignee)		(Please insert Social Security or other identifying number of Assignee)

Date:		NOTE:		The signature to any endorsement hereon must correspond with the name as written upon the face of this Certificate in every particular, without alteration, enlargement or change.
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17d-15				(Signature)   (Signature)

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Social Security or other identifying number		Signature of Assignee:
Purchase Price including commissions, if any		Name and Address of Assignee

	o Individual		o Partnership		o Corporation
	o Trust		o Other (specify)
Nationality (for taxation purposes) (check one):
	o U.S. Citizen, Resident or Domestic Entity
	o Foreign Corporation		o Non-resident Alien

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Social Security or other identifying number of Assignee		Signature of Assignee
Purchase Price including commissions, if any		Name and Address of Assignee

	o Individual		o Partnership		o Corporation
	o  Trust		o Other (specify)
Nationality (check one):
	o U.S. citizen, Resident or Domestic Entity
	o Foreign Corporation		o Non-resident Alien

	A. Individual Interestholder

	1. I am not a non-resident alien for purposes of U.S. income taxation.

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	2. My U.S. taxpayer identification number (Social Security Number) is                     .
	3. My home address is                    .

	B. Partnership, Corporation or Other Interestholder

	1. is not a foreign corporation, foreign partnership, foreign trust (Name of Interestholder) or foreign estate (as those terms are defined in the Code and Treasury Regulations).
	2. The interestholder’s U.S. employer identification number is                     .
	3. The interestholder’s office address and place of incorporation (if applicable) is                     .

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Adjusted operating surplus:		For any period, operating surplus generated during that period is adjusted to:
		(a) Decrease operating surplus by:
		(1) any net increase in working capital borrowings with respect to that period; and
		(2) any net reduction in cash reserves for operating expenditures with respect to that period not relating to an operating expenditure made with respect to that period; and
		(b) increase operating surplus by:
		(1) any net decrease in working capital borrowings with respect to that period; and
		(2) any net increase in cash reserves for operating expenditures with respect to that period required by any debt instrument for the repayment of principal, interest or premium.
		Adjusted operating surplus does not include that portion of operating surplus included in clauses (a)(1) and (a)(2) of the definition of operating surplus.
Available cash:		For any quarter ending prior to liquidation:
		(a) the sum of:
		(1) all cash and cash equivalents of Teekay LNG Partners and its subsidiaries on hand at the end of that quarter; and
		(2) all additional cash and cash equivalents of Teekay LNG Partners and its subsidiaries on hand on the date of determination of available cash for that quarter resulting from working capital borrowings made after the end of that quarter;
		(b) less the amount of cash reserves established by our general partner to:
		(1) provide for the proper conduct of the business of Teekay LNG Partners and its subsidiaries (including reserves for future capital expenditures and for future credit needs of Teekay LNG Partners and its subsidiaries) after that quarter;
		(2) comply with applicable law or any debt instrument or other agreement or obligation to which Teekay LNG Partners or any of its subsidiaries is a party or its assets are subject; and
		(3) provide funds for minimum quarterly distributions and cumulative common unit arrearages for any one or more of the next four quarters;
		provided, however, that the general partner may not establish cash reserves for distributions to the subordinated units unless our general partner has determined that the establishment of reserves will not

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		prevent Teekay LNG Partners from distributing the minimum quarterly distribution on all common units and any cumulative common unit arrearages thereon for the next four quarters; and
		provided, further, that disbursements made by Teekay LNG Partners or any of its subsidiaries or cash reserves established, increased or reduced after the end of that quarter but on or before the date of determination of available cash for that quarter shall be deemed to have been made, established, increased or reduced, for purposes of determining available cash, within that quarter if our general partner so determines.
Bareboat charter:		A charter in which the customer (the charterer) pays a fixed daily rate for a fixed period of time for the full use of the vessel and becomes responsible for all crewing, management and navigation of the vessel and the expenses therefor.
Boil-off:		LNG that evaporates during its transport voyage and converts into natural gas, which is then used to assist in propelling the LNG carrier.
Bunkers:		Any hydrocarbon mineral oil used or intended to be used for the operation or propulsion of a ship.
Capital account:		The capital account maintained for a partner under the partnership agreement. The capital account in respect of a general partner interest, a common unit, a subordinated unit, an incentive distribution right or other partnership interest will be the amount which that capital account would be if that general partner interest, common unit, subordinated unit, incentive distribution right or other partnership interest were the only interest in Teekay LNG Partners held by a partner.
Capital surplus:		All available cash distributed by us from any source will be treated as distributed from operating surplus until the sum of all available cash distributed since the closing of the initial public offering equals the operating surplus as of the end of the quarter before that distribution. Any excess available cash will be deemed to be capital surplus.
Charter:		The hiring of a vessel, or use of its carrying capacity, for either (1) a specified period of time or (2) a specific voyage or set of voyages.
CLC:		International Convention on Civil Liability for Oil Pollution Damage, 1969, as amended.
Closing price:		The last sale price on a day, regular way, or in case no sale takes place on that day, the average of the closing bid and asked prices on that day, regular way, as reported in the principal consolidated transaction reporting system for securities listed on the principal national securities exchange (other than the Nasdaq Stock Market) on which the units of that class are listed. If the units of that class are not listed on any national securities exchange (other than the Nasdaq Stock Market), the last quoted price on that day. If no quoted price exists, the average of the high bid and low asked prices on that day in the over-the-counter market, as reported by the Nasdaq Stock Market or any other system then in use. If on any day the units of that class are not quoted by any organization of that type, the average of the closing bid and asked prices on that day as furnished by a professional

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		market maker making a market in the units of the class selected by our general partner. If on that day no market maker is making a market in the units of that class, the fair value of the units on that day as determined reasonably and in good faith by our general partner.
COFR:		Certificates of financial responsibility sufficient to meet potential liabilities under OPA 90 and CERCLA, which owners and operators of vessels, including LNG carriers, must establish and maintain with the United States Coast Guard.
Common unit arrearage:		The amount by which the minimum quarterly distribution for a quarter during the subordination period exceeds the distribution of available cash from operating surplus actually made for that quarter on a common unit, cumulative for that quarter and all prior quarters during the subordination period.
Current market price:		For any class of units listed on any national securities exchange as of any date, the average of the daily closing prices for the 20 consecutive trading days immediately prior to that date.
Double hull:		Hull construction technique by which a ship has an inner and outer hull, separated by void space, usually several feet in width.
Dwt:		Deadweight, a measure of oil tanker carrying capacity, usually in tons, based upon weight of cargo and other items necessary to submerge the vessel to its maximum permitted draft.
EBITDA:		Earnings before interest, taxes, depreciation and amortization.
Estimated maintenance capital expenditures:		An estimate made by the board of directors of our general partner, with the concurrence of the conflicts committee, of the average quarterly maintenance capital expenditures that Teekay LNG Partners will incur over the long-term. The estimate will be made annually and whenever an event occurs that is likely to result in a material adjustment to the amount of maintenance capital expenditures on a long-term basis.
Expansion capital expenditures:		Cash capital expenditures for acquisitions or capital improvements. Expansion capital expenditures include the cash cost of equity and debt capital during construction of a capital asset. Expansion capital expenditures do not include maintenance capital expenditures.
GAAP:		Accounting principles generally accepted in the United States.
General and administrative expenses:		General and administrative expenses consist of employment costs of shoreside staff and cost of facilities, as well as legal, audit and other administrative costs.
Hire Rate:		The agreed sum or rate to be paid by the charterer for the use of the vessel.
IGC Code:		International Code for Construction and Equipment of Ships Carrying Liquefied Gases in Bulk, which specifies certain requirements for LNG carriers, including regulations regarding carrier design and construction.
IMO:		International Maritime Organization, a United Nations agency that issues international trade standards for shipping.

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Incentive distribution right:		A non-voting limited partner partnership interest issued to the general partner. The partnership interest will confer upon its holder only the rights and obligations specifically provided in the partnership agreement for incentive distribution rights.
Incentive distributions:		The distributions of available cash from operating surplus initially made to the general partner that are in excess of the general partner’s aggregate 2% general partner interest.
Interim capital transactions:		The following transactions if they occur prior to liquidation:
		(a) Borrowings, refinancings or refundings of indebtedness and sales of debt securities (other than for working capital borrowings and other than for items purchased on open account in the ordinary course of business) by Teekay LNG Partners or any of its subsidiaries;
		(b) sales of equity interests by Teekay LNG Partners or any of its subsidiaries;
		(c) sales or other voluntary or involuntary dispositions of any assets of Teekay LNG Partners or any of its subsidiaries (other than sales or other dispositions of inventory, accounts receivable and other assets in the ordinary course of business, and sales or other dispositions of assets as a part of normal retirements or replacements);
		(d) the termination of interest rate swap agreements;
		(e) capital contributions; or
		(f) corporate reorganizations or restructurings.
ISM Code:		International Safety Management Code for the Safe Operation of Ships and for Pollution Prevention, which, among other things, requires vessel owners to obtain a safety management certification for each vessel they manage.
ISPS:		International Security Code for Ports and Ships, which enacts measures to detect and prevent security threats to ships and ports.
Liquefaction:		The process of liquefying natural gas.
LNG:		Liquefied natural gas.
Long-term charter:		An LNG charter to an entity for a term greater than ten years or an oil tanker charter for a term greater than five years.
Maintenance capital expenditure:		Cash capital expenditures (including expenditures for the addition or improvement to our capital assets or for the acquisition of existing, or the construction of new, capital assets) if such expenditure is made to maintain over the long term the operating capacity of or the revenue generated by Teekay LNG Partners’ capital assets, as such assets existed at the time of such expenditure. Maintenance capital expenditures include the cash cost of equity and debt capital during construction of a capital asset. Maintenance capital expenditures do not include expansion capital expenditures.
Newbuilding:		A new vessel under construction.
Off-hire:		The time during which a vessel is not available for service.

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OPA 90:		The United States Oil Pollution Act of 1990, as amended.
Operating expenditures:		All cash expenditures of Teekay LNG Partners and its subsidiaries, including, but not limited to, taxes, reimbursements of the general partner, repayment of working capital borrowings, debt service payments and capital expenditures, subject to the following:
		(a) Payments (including prepayments and prepayment penalties) of principal of and premium on indebtedness, other than working capital borrowings will not constitute operating expenditures.
		(b) Operating expenditures will not include expansion capital expenditures or actual maintenance capital expenditures but will include estimated maintenance capital expenditures.
		(c) Operating expenditures will not include:
		(1) Payment of transaction expenses (including taxes) relating to interim capital transactions; or
		(2) Distributions to partners.
		Where capital expenditures consist of both maintenance capital expenditures and expansion capital expenditures, the general partner, with the concurrence of the conflicts committee, shall determine the allocation between the portion consisting of maintenance capital expenditures and the portion consisting of expansion capital expenditures, and the period over which the maintenance capital expenditures will be deducted as an operating expenditure in calculating operating surplus.
Operating surplus:		For any period prior to liquidation, on a cumulative basis and without duplication:
		(a) the sum of
		(1) $10 million;
		(2) all the cash of Teekay LNG Partners and its subsidiaries on hand as of the closing date of its initial public offering, other than cash reserved to terminate interest rate swap agreements;
		(3) all cash receipts of Teekay LNG Partners and its subsidiaries for the period beginning on the closing date of the initial public offering and ending with the last day of that period, other than cash receipts from interim capital transactions;
		(4) all cash receipts of Teekay LNG Partners and its subsidiaries after the end of that period but on or before the date of determination of operating surplus for the period resulting from working capital borrowings;
		(5) interest paid on debt incurred (including periodic net interest payments under related interest rate swap agreements) and cash distributions paid on equity securities issued, in each case, to finance all or any portion of the construction of a capital improvement or replacement asset and paid during the period prior to the earlier of the completion of construction or being abandoned or disposed of; and

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		(6) interest paid on debt incurred (including periodic net interest payments under related interest rate swap agreements) and cash distributions on equity securities issued, in each case, to pay the construction period interest, or to pay construction period distributions or equity issued to finance all or any portion of the construction of a capital improvement or replacement asset as described in (5) above, less
		(b) the sum of:
		(1) operating expenditures for the period beginning on the closing date of the initial public offering and ending with the last day of that period, including estimated maintenance capital expenditures and the repayment of working capital borrowers, but not (x) the repayment of other borrowings or (y) expenditures incurred in connection with the expansion or increase in the transportation capacity of our fleet; and
		(2) the amount of cash reserves established by our general partner to provide funds for future operating expenditures; provided however, that disbursements made (including contributions to a member of Teekay LNG Partners and its subsidiaries or disbursements on behalf of a member of Teekay LNG Partners and its subsidiaries) or cash reserves established, increased or reduced after the end of that period but on or before the date of determination of available cash for that period shall be deemed to have been made, established, increased or reduced for purposes of determining operating surplus, within that period if the general partner so determines.
RasGas II:		Ras Laffan Liquefied Natural Gas Co. Limited (II), a joint venture between Qatar Petroleum (formerly Qatar General Petroleum Corporation) and Exxon Mobil RasGas Inc. (formerly Mobil QM Gas Inc.), an indirect wholly-owned subsidiary of ExxonMobil Corporation, established for the purpose of expanding LNG production in Qatar.
Regasification:		The process of returning LNG to its gaseous state.
Short-term charter:		An LNG charter for a term less than ten years or an oil tanker charter for a term less than five years.
SOLAS:		International Convention for Safety of Life at Sea, which provides, among other things, rules for the construction and equipment of commercial vessels.
Spot market:		The market for chartering a vessel for single voyages.
Subordination period:		The subordination period will generally extend from the closing of the initial public offering until the first to occur of:
		(a) the first day of any quarter beginning after March 31, 2010, for which:
		(1) distributions of available cash from operating surplus on each of the outstanding common units and subordinated units equaled or exceeded the sum of the minimum quarterly distributions on all of the outstanding common units and subordinated units for each of the three consecutive,

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		non-overlapping four-quarter periods immediately preceding that date;
		(2) the adjusted operating surplus generated during each of the three consecutive, non-overlapping four-quarter periods immediately preceding that date equaled or exceeded the sum of the minimum quarterly distributions on all of the common units and subordinated units that were outstanding during those periods on a fully diluted basis, and the related distribution on the general partner interest in Teekay LNG Partners; and
		(3) there are no outstanding cumulative common units arrearages.
		(b) the date on which the general partner is removed as general partner of Teekay LNG Partners upon the requisite vote by the limited partners under circumstances where cause does not exist and units held by our general partner and its affiliates are not voted in favor of the removal;
		provided, however, that subordinated units may convert into common units as described in “Cash Distribution Policy — Subordination Period.”
Suezmax tanker:		An oil tanker of a size and capacity that make it capable of transiting the Suez Canal when fully loaded, and usually filling within a range of 120,000 to 200,000 dwt.
Tapias:		Naviera F. Tapias S.A., which Teekay Shipping Corporation renamed as Teekay Shipping Spain S.L. following its acquisition of Tapias on April 30, 2004, and which Teekay Shipping Corporation will contribute to Teekay LNG Partners L.P. on the closing of this offering.
Tcf:		Trillion cubic feet, a measure of natural gas volume.
Teekay Spain:		Teekay Shipping Spain S.L., formerly Naviera F. Tapias S.A. prior to its acquisition by Teekay Shipping Corporation on April 30, 2004, and which Teekay Shipping Corporation will contribute to Teekay LNG Partners L.P. on the closing of this offering.
Time charter:		A charter in which the charterer pays for the use of a ship’s cargo capacity 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 as directed by the charterer. The charterer usually pays for bunkering and all voyage-related expenses, including canal tolls and port charges.
Voyage charter:		A charter in which the charterer pays for the use of a ship’s cargo capacity for one, or sometimes more than one, voyage between specified ports. 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.

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Working capital borrowings:		Borrowings used exclusively for working capital purposes or to pay distributions to partners made pursuant to a credit agreement or other arrangement to the extent such borrowings are required to be reduced to a relatively small amount each year for an economically meaningful period of time.

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			Year Ended
			December 31,
			2004
			(in
			thousands)
Pro forma net loss			$	(2,334	)
Add:
	Pro forma depreciation and amortization			37,808
	Pro forma interest expense			33,343
	Pro forma interest income			(22,211	)
	Pro forma provision for income taxes			870
Pro forma EBITDA(a)				47,476
Add:
	Pro forma foreign currency loss			16,139
	Pro forma interest rate swap loss			905
	Pro forma loss on sale of other assets			11,922
	Pro forma gain on sale of vessels and equipment			(3,428	)
	Pro forma write-down of capitalized loan costs			8,016
	Pro forma unrestricted interest received(b)			1,945
Less:
	Pro forma gain on sale of marketable securities			85
	Pro forma maintenance capital expenditures			4,085
	Pro forma unrestricted cash interest paid(b)			7,693
	Pro forma realized foreign currency gain			(359	)
	Pro forma income taxes paid			1,105
Pro forma available cash from operating surplus				70,366
Less:
	Estimated additional maintenance capital expenditures(c)			12,327
Pro forma, as adjusted available cash from operating surplus(d)(e)			$	58,039

(a)	EBITDA is defined as earnings before interest, taxes, depreciation and amortization.
(b)	Under certain capital lease arrangements, we maintain restricted cash deposits that, together with interest, equal the remaining amounts we owe under the capital leases. The interest we receive from those deposits is used solely to pay interest associated with the capital leases, and the amount of interest we receive approximate the amount of interest we pay on the capital leases. Since these amounts approximately offset each other but may be paid in different periods within a fiscal year, we exclude both the restricted interest received and the related restricted interest paid from our calculation of pro forma as adjusted available cash for operating surplus.
(c)	Our partnership agreement requires our general partner to deduct from operating surplus each quarter estimated maintenance capital expenditures as opposed to actual maintenance capital expenditures in

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order to reduce disparities in operating surplus caused by fluctuating maintenance capital expenditures, such as drydocking and vessel replacement. Because of the substantial capital expenditures we are required to make to maintain our fleet, our initial annual estimated maintenance capital expenditures for purposes of calculating operating surplus will be $16.4 million per year, which is comprised of $4.4 million for drydocking costs for all of our vessels and $12.0 million, including financing costs, for replacing the vessels in our fleet at the end of their useful lives. The actual cost of replacing the vessels in our fleet will depend on a number of factors, including prevailing market conditions, charter rates and the availability and cost of financing at the time of replacement. The board of directors of our general partner with the approval of its conflicts committee may determine to increase the annual amount of our estimated maintenance capital expenditures. In years when estimated maintenance capital expenditures are higher than actual maintenance capital expenditures, the amount of cash available for distribution to unitholders will be lower than if actual maintenance capital expenditures were deducted from operating surplus.

(d)	The pro forma adjustments in the pro forma financial statements are based upon currently available information and certain estimates and assumptions. The pro forma financial statements do not purport to present the financial position or results of operations of Teekay LNG Partners L.P. had the transactions to be effected at the closing of this offering actually been completed as of the date indicated. Furthermore, the pro forma financial statements are based on accrual accounting concepts whereas available cash from operating surplus is defined in the partnership agreement primarily on a cash accounting basis. As a consequence, the amount of pro forma, as adjusted available cash from operating surplus shown above should be viewed as a general indication of the amounts of available cash from operating surplus that may in fact have been generated by Teekay LNG Partners had it been formed in earlier periods.
(e)	The amounts of available cash from operating surplus needed to pay the minimum quarterly distribution for one quarter and for four quarters on the common units, subordinated units, and the 2% general partner interest to be outstanding immediately after this offering are approximately:

			One Quarter				Four Quarters
			(in thousands)
Common units			$	6,078			$	24,312
Subordinated units				6,078				24,312
General partner				248				992
	Total		$	12,404			$	49,616

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