Free Motion to Dismiss - District Court of Connecticut - Connecticut

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As filed with the Securities and Exchange Commission on June 4, 2003

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 20-F/A
Amendment No. 1
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 2002 OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to Commission File Number 000-16977

STOLT-NIELSEN S.A.
(Exact name of Registrant as specified in its charter) LUXEMBOURG (Jurisdiction of incorporation or organization) c/o STOLT-NIELSEN LIMITED Aldwych House 71-91 Aldwych London WC2B 4HN, England (Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act: None Securities registered or to be registered pursuant to Section 12(g) of the Act: Common Shares, no par value Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: Common Shares, no par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Founder's Shares, no par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * ** 54,949,387* 13,737,346**

The number of outstanding Common Shares excludes 7,688,810 Common Shares owned by a subsidiary. The number of outstanding Founder's Shares excludes 1,922,203 Founder's Shares held by Stolt-Nielsen S.A.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes Item 17 No Item 18 Indicate by check mark which financial statement item the registrant has elected to follow.

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EXPLANATORY NOTE Stolt-Nielsen S.A. hereby amends and restates in its entirety our Annual Report on Form 20-F filed on June 2, 2003 for our fiscal year ended November 30, 2002 as set forth in this Amendment No. 1 to Form 20-F/A. This amended Annual Report on Form 20-F/A corrects certain inadvertent errors. It also includes the following schedule and exhibit, which were available for inclusion in the Annual Report on Form 20-F and were intended to be included as part of the original filing, but were inadvertently omitted from our Annual Report on Form 20-F as filed on June 2, 2003 because of technical problems that were beyond our control: · Schedule II--Valuation and Qualifying Accounts; and · Exhibit 10.6. Certification by the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated June 2, 2003.

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TABLE OF CONTENTS
Page

PART I Item 1. Item 2. Item 3. Identity of Directors, Senior Management and Advisers . . . . . . . . . . . . . . . . . . . . . . Offer Statistics and Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Key Information . . . . . . . . . . . Selected Consolidated Financial Risk Factors . . . . . . . . . . . . . . Other Matters . . . . . . . . . . . . . .... Data .... .... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 4 4 4 4 18 19 19 22 35 36 41 42 43 44 51 52 52 52 54 55 55 58 58 59 59 60 60 62 63 63 63 67 67 68 68 69 69 69 69 74 74

Item 4.

Information on the Company . . . . . . . . . . History and Development of Stolt-Nielsen Business Overview . . . . . . . . . . . . . . . . . . Strategy and Competitive Strengths . . . . . Regulation . . . . . . . . . . . . . . . . . . . . . . . Competition . . . . . . . . . . . . . . . . . . . . . . Insurance . . . . . . . . . . . . . . . . . . . . . . . . Significant Subsidiaries . . . . . . . . . . . . . . Property, Plant, and Equipment . . . . . . . .

Item 5.

Operating and Financial Review and Prospects . . Operating Results . . . . . . . . . . . . . . . . . . . . . . . Liquidity and Capital Resources . . . . . . . . . . . . . Research and Development; Patents and Licenses Recent Developments . . . . . . . . . . . . . . . . . . . . Directors, Senior Management, and Employees . Directors and Senior Management . . . . . . . . . . Compensation . . . . . . . . . . . . . . . . . . . . . . . . . Board Practices . . . . . . . . . . . . . . . . . . . . . . . . Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . Share Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 6.

Item 7.

Major Shareholders and Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . Major Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Related Party Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Information . . . . . . . . . . . . . . . . . Consolidated Statements and Other Financial Legal Proceedings . . . . . . . . . . . . . . . . . . . . Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . Significant Changes . . . . . . . . . . . . . . . . . . . .......... Information . .......... .......... .......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 8.

Item 9.

The Offer and Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Stock Trading History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Additional Information . . Organization and Register Articles of Incorporation . Material Contracts . . . . . Exchange Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Item 10.

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Page

Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Documents on Display . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Item 11. Item 12. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . Description of Securities Other than Equity Securities . . . . . . . . . . . . . . . . . . . . . . . PART II Item 13. Item 14. Item 15. Item 16. Defaults, Dividend Arrearages and Delinquencies . . . . . . . . . . . . . . . . . . . . . . . . . . Material Modifications to the Rights of Security Holders and Use of Proceeds . . . . . Controls and Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . [Reserved] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PART III Item 17. Item 18. Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Supplementary Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . INTRODUCTION

74 77 78 78

79 79 79 79

80 80 80 80 81

Item 19.

Stolt-Nielsen S.A. is a Luxembourg registered company. In this Report, the terms ``we'', ``us'', ``our'' and ``Stolt-Nielsen'', refer to Stolt-Nielsen S.A. and, unless the context otherwise requires, our consolidated subsidiaries. References in this Report to ``SNTG'' refer to Stolt-Nielsen Transportation Group Ltd., references to ``SOSA'' or ``Stolt Offshore'' refer to Stolt Offshore S.A., and references to ``SSF'' or ``Stolt Sea Farm'' refer to Stolt Sea Farm Holdings plc, each subsidiaries of Stolt-Nielsen. References to our activities by years refer to the fiscal year ended November 30. Our Common Shares are listed in Norway on the Oslo Stock Exchange under the ticker symbol ``SNI'' and trade in the form of American Depositary Shares (each ADS representing one Common Share) in the U.S. on the Nasdaq National Market (``Nasdaq'') under the ticker symbol ``SNSA''. On March 7, 2001, we reclassified our non-voting Class B Shares as Common Shares on a one-for-one basis; on that date, trading in the Class B Shares on Nasdaq and the Oslo Stock Exchange ceased. As a result, the Common Shares are our only publicly-traded security. References to Class B Shares means Class B Shares up until March 7, 2001, and thereafter means Common Shares. The reclassification did not change the underlying economic interests of existing shareholders nor the number of shares used for earnings per share purposes. As of April 30, 2003 we had 54.9 million Common Shares (which excludes 7.7 million Treasury Common Shares) and 13.7 million Founder's Shares (which excludes 1.9 million Treasury Founder's Shares) issued and outstanding. The Consolidated Financial Statements, including the notes thereto, included or incorporated in this Report (the ``Consolidated Financial Statements'') have been prepared in accordance with accounting principles generally accepted in the United States of America.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS Certain statements made in this Report may include ``forward-looking statements'' within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements relate to our expectations, beliefs, intentions or strategies regarding the future. These statements may be identified by the use of words like ``anticipate,'' ``believe,'' ``estimate,'' ``expect,'' ``intend,'' ``may,'' ``plan,'' ``project,'' ``will,'' ``should,'' ``seek,'' and similar expressions. In this Report, they include statements contained under ``Item 3. Key Information--Risk Factors,'' ``Item 4. Information on the Company,'' ``Item 5. Operating and Financial Review and Prospects,'' ``Item 8. Legal Proceedings'' and ``Item 11. Quantitative and Qualitative Disclosures about Market Risk.'' The forward-looking statements that we make reflect our current views and assumptions with respect to future events and are subject to risks and uncertainties. Actual and future results and trends could differ materially from those set forth in such statements due to various factors, including those discussed in this Report under ``Item 3. Key Information--Risk Factors,'' ``Item 5. Operating and Financial Review and Prospects'' and ``Item 11. Quantitative and Qualitative Disclosures about Market Risk.'' The following factors, and others which are discussed in our public filings and submissions with the U.S. Securities and Exchange Commission, including this Report on Form 20-F, are among those that may cause actual and future results and trends to differ materially from our forward-looking statements: (i) the level of our indebtedness, operating restrictions contained in our financing arrangements, our ability to comply with financial and other covenants in our financing agreements, our ability to refinance our indebtedness on acceptable terms as it comes due and the impact of floating interest rates on our debt service costs; (ii) our ability to deliver fixed-price projects in accordance with customer expectations and the parameters of our bids and avoid cost overruns; (iii) the outcome of pending and future legal proceedings involving governmental authorities and third parties, including antitrust proceedings, securities lawsuits, investigations regarding trading with embargoed countries and pending patent litigation; (iv) the impact of negative publicity; (v) environmental challenges facing our aquaculture business; (vi) changes in, or our failure to comply with, applicable laws and regulations, including our ability to receive or renew applicable permits or licenses; (vii) prevailing prices for our products and services; (viii) cost and availability of raw materials, including ship fuel and feed costs for fish; (ix) uncertainties inherent in operating internationally, including economic and political instability, boycotts or embargoes, labor unrest, changes in foreign governmental regulations, corruption and currency fluctuations; (x) general economic conditions and competition in the industries and markets in which we operate; (xi) the loss of, or deterioration of our relationship with, any significant customers; (xii) our ability to keep pace with technological changes; (xiii) operating hazards, including marine disasters, oil spills or leaks, environmental damage, death or property damage and business interruptions caused by weather, mechanical failures, war or other hostilities, piracy or hijackings, explosions, fires or human error; (xiv) adverse weather conditions and other natural conditions such as pollution and disease in the marine environment that may impact our aquaculture business; (xv) capital expenditures by oil and gas companies; (xvi) delays or cancellations of projects in our backlog; (xvii) oil and gas prices; (xviii) the effect of changes in accounting policies; and (xix) other factors which are described from time to time in our public filings with the U.S. Securities and Exchange Commission. Many of these factors are beyond our ability to control or predict. Given these uncertainties, you should not place undue reliance on the forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART I Item 1. Identity of Directors, Senior Management, and Advisers. Not applicable. Item 2. Offer Statistics and Expected Timetable. Not applicable. Item 3. Key Information. Selected Consolidated Financial Data The information under the caption ``Selected Consolidated Financial Data'' on page 31 of our 2002 Annual Report filed with the Securities and Exchange Commission on Form 6-K on April 18, 2003 is incorporated herein by reference. Risk Factors You should carefully consider the following factors and the information contained in this Report, including the information incorporated by reference into this Report. The following is a summary of the risks applicable to our business operations that we consider to be material. Our level of debt and bank credit and financing agreements may constrain our operations. As of April 30, 2003, we had an aggregate of $1,747 million of debt outstanding on a consolidated basis, including an aggregate of $453.5 million of debt outstanding at our subsidiary, Stolt Offshore. We are party to material bank credit and other financing agreements which impose restrictions on our operations including the maintenance of defined financial ratios and restrictions on, dividend payments, purchases and redemptions of capital and investments and advances to non-consolidated joint ventures and other entities, if any. The degree to which we are leveraged may affect our ability to obtain additional financing in the future for working capital, capital expenditures, product and service development and general corporate purposes. It also constrains our ability to utilize cash flow from operations for these and other purposes other than debt service, and to overcome seasonal or other cyclical variations in our business. For example, we have invested $64 million and $200 million in each of 2002 and 2000, respectively into Stolt Offshore in the form of equity. These funds were necessary to maintain adequate funding for Stolt Offshore but could have been used for other corporate purposes. As our existing indebtedness becomes due, we may be required to refinance all or part of it or repay it by selling assets or through other means. We may not be able to refinance such debt on terms acceptable to us, if at all. If we were unable to refinance our debt, it is doubtful that we could repay it. Stolt Offshore is at risk of failing to satisfy the financial covenants contained in its primary credit facilities. Stolt Offshore's principal credit facilities are a $385 million secured multi-currency, five-year revolving credit facility and a $100 million secured multi-currency, four-year revolving credit facility. These facilities contain various financial covenants, including but not limited to, minimum consolidated tangible net worth, maximum consolidated debt to net worth and maximum consolidated debt to earnings before interest, taxation, depreciation and amortization (EBITDA). In early 2003 Stolt Offshore amended the financial covenants contained in its primary credit facilities to more appropriately reflect Stolt Offshore's financial prospects at that time. Based on those amendments, we expected that there would be a narrow margin of compliance with the financial covenants throughout the 2003 fiscal year. Since that time Stolt Offshore's new senior management team began a review of its major projects and identified substantially poorer than anticipated performance and cost overruns on three major projects and several smaller projects. As a result of these factors, Stolt Offshore expects to

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incur significant losses. In light of this revised forecast, we are working closely with Stolt Offshore's main banks in seeking to amend Stolt Offshore's primary credit facilities to reflect Stolt Offshore's current financial position, including obtaining a waiver of certain financial covenant tests until November 30, 2003. As an interim step, Stolt Offshore's banks have agreed to a 30-day ``standstill'' through June 30, 2003 whereby they will take no actions on any potential noncompliance with the financial covenants while internal bank approvals are sought and documentation is completed. Without a waiver of certain financial covenants, Stolt Offshore would be out of compliance with its primary credit facilities. If we cannot reach final agreement with Stolt Offshore's bank lenders on the terms of amendments and/or waivers to Stolt Offshore's primary credit facilities, Stolt Offshore's noncompliance with its primary credit facilities could potentially lead to the credit facilities being repayable on demand. Stolt Offshore would not be able to repay these facilities on demand, unless an alternative financing source could be arranged. Even if Stolt Offshore is able to amend its primary credit facilities to incorporate terms and conditions with which we believe Stolt Offshore can comply or obtain appropriate waivers, Stolt Offshore's ability to maintain compliance with such facilities will be subject to adverse changes in its financial condition, results of operations or cash flows, including many of the risk factors identified in this Report on Form 20-F. Any agreement that we reach with Stolt Offshore's lenders may provide only temporary relief from the current requirements of Stolt Offshore's primary credit facilities. Therefore, we are likely to require further amendments or waivers in the future, which may or may not be possible depending on Stolt Offshore's financial condition at such time. Additionally, a default under Stolt Offshore's credit facilities could, in turn, result in a default under one of our bank credit or other financing agreements, as the majority of our credit facilities contain cross-default provisions. If a default were to extend beyond the applicable remedy or cure period under either Stolt Offshore's or our credit facilities, the financing agreement could become repayable on demand. It is unlikely that we could repay any such facility on demand without selling the assets securing such facility, unless an alternative financing source could be arranged. Our floating interest rate debt exposes us to the risk of fluctuations in interest rates. Approximately 41% of our consolidated long-term indebtedness at April 30, 2003 incurs interest at rates that fluctuate with the prevailing interest rates and, accordingly, increases in such rates will increase our interest cost if we do not hedge the impact of such interest rate movements. Unexpected costs may adversely affect the profitability of our fixed-price contracts. A significant proportion of our offshore services business is performed on a fixed-price or turnkey basis. In 2002, 2001 and 2000, approximately 88%, 72% and 74%, respectively, of Stolt Offshore's revenue was derived from fixed-price contracts. This, in turn, constituted approximately 44%, 34% and 32% of our consolidated revenues in each of those years, respectively. Long-term fixed-priced contracts are inherently risky because of the possibility that we might incur costs that we did not expect at the time of bidding, including the cost of satisfying post-completion warranty obligations. The net effect of significant revisions to contract estimates contributed $58.8 million to our net loss in 2002, decreased our net income by $2.4 million in 2001 and contributed $10.7 million to our net loss in 2000. In 2002, the net loss of $58.8 million included a $35.2 million of unanticipated costs for one of our accounts recorded on an engineering, procurement, installation and commission (referred to as ``EPIC'') project for the Burullus Gas Company in the Scarab/Saffron field off the coast of Egypt. The cost and gross profit realized on such contracts can vary from those expected because of changes beyond our control, including but not limited to: · unanticipated technical problems with the equipment we are supplying or developing which may require that we spend our own money to remedy the problem;

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· unanticipated changes in the costs of components, materials or labor; · unanticipated difficulties in obtaining required governmental permits or approvals; · project modifications creating unanticipated costs and vessel scheduling difficulties; · delays caused by local weather and soil conditions; and · suppliers' or subcontractors' failure to perform as expected. These risks are exacerbated if the duration of the project is long-term, because there is more time for and, therefore, an increased risk that the circumstances upon which we originally bid and developed a price will change in a manner that increases our costs. Our long-term projects often subject us to penalties if we cannot complete portions of the projects in accordance with agreed-upon time limits. We have experienced significant losses on several offshore services projects in Stolt Offshore's Southern Europe, Africa and Middle East (SEAME) region. Execution of offshore EPIC and pipelay projects in West Africa and Egypt has and will continue to put a strain on our consolidated financial condition and results of operations. These projects generally relate to the operations that we acquired in the ETPM acquisition. Certain projects within this region are making losses due to, among other things, costs that exceeded our estimates during the tendering process, project execution problems that have caused cost overruns and requirements that we use local subcontractors who, in some cases, have not performed as we expected. Additionally, in early 2003, Stolt Offshore's new senior management team began a review of its major projects and identified substantially poorer than anticipated performance and cost overruns on three major projects and several smaller projects. This has resulted in a significant decrease to the results of operations that we anticipated for Stolt Offshore for the 2003 fiscal year. We believe that we have identified the weaknesses that resulted in these problems and are taking action to remedy those that we can control or anticipate. If, however, we cannot successfully integrate the former ETPM operations and improve our ability to recover our costs with respect to projects in this region, we will continue to suffer losses on our projects. Stolt Offshore's SEAME region accounted for 49% of Stolt Offshore's revenues in 2002. Therefore, problems in West Africa and Egypt can have a significant negative impact on our consolidated financial condition and results of operations. Additionally, we have been unsuccessful collecting significant amounts owed to us by customers on projects in this region and many of the delays and cost overruns with respect to West African projects are the subject of variation orders being negotiated with the customers. If we are unable to resolve these negotiations on terms favorable to us, there will be an ongoing material negative impact on our financial condition, cash flows and results of operations. The financial impact of our inability to resolve these issues has contributed to Stolt Offshore's inability to maintain compliance with the financial covenants of its credit facilities. Even if Stolt Offshore is able to obtain waivers for, or renegotiate, its credit facilities, our inability to collect amounts owed to us or successfully negotiate change orders in our favor could make it more difficult for Stolt Offshore to comply with any revised financial covenants or present an obstacle to renegotiating Stolt Offshore's credit agreements. As discussed above, a default under a Stolt Offshore credit facility could, in turn, result in a default under a Stolt-Nielsen bank credit or financing agreement. The prices and volume for our bulk liquid transportation services and salmon and salmon trout products are sensitive to imbalances in the supply and demand for such services and products. Price is a primary factor in determining which supplier of transportation services is awarded a contract. Consequently, we may, from time to time, bid our ships at prices that do not reflect the relatively high fixed costs of our ships, depending on prevailing contractual rates, the contribution to fixed costs, and whether our revenue exceeds variable costs. Such competitive pricing conditions can

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occur when the supply of transportation services ships is greater than the demand for such ships. Demand for our bulk liquid transportation services is affected by overall economic conditions and demand in the industries for the products we transport and store, including the chemical, lube oil, acid and food industries. The conditions in these industries often reflect the overall health of the markets in which we operate, location of the production of the products carried and stored in relation to location of demand, currency fluctuations, import/export tariffs and other trade restrictions and a general economic slowdown. Supply and demand imbalances are reflected in the ``spot'' prices for bulk liquid transportation services, which is the prevailing market rate for short-term transportation services at any given time in any particular region. In 2002, 8% of our consolidated revenues were derived from short-term parcel tanker services at prevailing ``spot'' prices. Therefore, supply and demand imbalances that affect spot prices can cause our revenues to fluctuate significantly from quarter to quarter. Additionally, our fish farming business is still dependent predominantly on salmon and salmon trout products. Therefore, imbalances in the supply and demand for salmon and salmon trout products can lead to wide fluctuations in the prices for such products and therefore material variations in the results of our fish farming operations. Supply to the main markets can vary sharply, depending on the availability of capital to farmers, varying growing conditions, disease epidemics, and restrictions on farming capacity. Salmon prices generally have fallen significantly in most of SSF's major markets between 2000 and 2002. Consequently, SSF gross margins, which were 16% in 2000 fell to 6% in 2001 and 2% in 2002. We continue to face competition in our businesses which could have an adverse effect upon our operating results and financial condition. The parcel tanker, offshore oil and gas services and fish farming businesses are highly competitive. Contracts for our offshore oil and gas services and seafood products are generally awarded on a competitive bid basis. In the parcel tanker business contracts are often extended based on negotiated rates. Although customers normally consider, among other things, the availability and capability of equipment, quality of the products or services and the reputation and experience of the contractor, price is a primary factor in determining which contractor or supplier is awarded a contract. Several of our competitors and potential competitors are larger than we are and have greater financial and other resources than we have. This intense competition could result in pricing pressures, lower sales and reduced margins which would have an adverse effect upon our operating results, cash flows and financial condition. We are the subject of investigations by U.S. and European antitrust authorities for which we have been granted conditional immunity. We may suffer fines and other penalties if we cannot satisfy the conditions of our immunity or if other regulators bring legal proceedings against us. In 2002, we became aware of information that caused us to undertake an internal investigation regarding potential improper collusive behavior in our parcel tanker and intra-Europe inland barge operations. Consequently, we determined to voluntarily report conduct to the Antitrust Division of the U.S. Department of Justice and the Competition Directorate of the European Commission. On February 25, 2003, we announced that SNTG had been conditionally accepted into the Department of Justice's Corporate Leniency Program in connection with possible collusion in the parcel tanker industry. Pursuant to this program, SNTG and its directors and employees received amnesty from criminal antitrust prosecution and fines in the United States for anti-competitive conduct in the parcel tanker business, provided the stated conditions, including continued cooperation are met. We also announced that the European Commission had admitted SNTG into its Immunity Program with respect to deep-sea parcel tanker and intra-Europe inland barge operations. This program affords SNTG immunity from European Commission fines with respect to anti-competitive behavior, subject to SNTG fulfilling the conditions of the program, including continuing cooperation. Our ability to enforce the

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agreements pursuant to which SNTG has been granted conditional amnesty and immunity has not been legally established. Consequently, SNTG's immunity and amnesty depends in large part on the Department of Justice's and European Commission's satisfaction with SNTG's efforts to cooperate and otherwise satisfy the conditions of the immunity and amnesty programs. It is possible that they could determine, because of new information or for other reasons, that SNTG has not fully complied with those conditions. If this were to happen, SNTG could be partly or fully removed from the immunity or amnesty programs, subject to criminal prosecution and, if SNTG were found guilty, incur significant fines and penalties. If any such proceedings were brought by the Department of Justice or European Commission, SNTG could incur significant additional defense costs and significant distraction of senior management from the operation of its business. Consequently, if SNTG cannot continue to avail itself of the immunity and amnesty programs, we could face a material adverse effect on our financial condition, cash flows and results of operations. The activities that are the subject of the investigations involve jurisdictions other than the United States and Europe. Therefore, it is possible that regulatory authorities in other jurisdictions could commence investigations or legal proceedings with respect to the activities that are the subject of the investigations. We cannot determine whether or not any such proceedings may be brought or, if they are brought, the potential consequences of such proceedings. It is possible that the consequences of such proceedings, if brought, could have a material adverse effect on our financial condition, cash flows or results of operations. We may be subject to civil liabilities relating to the activities that are the subject of the antitrust investigations. We are named defendants in two civil antitrust lawsuits filed as putative class actions which appear to be based on media reports about the U.S. Department of Justice and European Commission investigations. Both actions are by former customers. The actions allege, among other things, violations of the Sherman Antitrust Act and state antitrust and unfair trade practices acts. The lawsuits seek to recover treble damages and costs, among other things, in unspecified amounts. Additionally, we are in ongoing discussions with several customers regarding the activities that are the subject of the Department of Justice and European Commission investigations. Some of these customers have requested mediation of their disputes with us or have threatened to commence litigation. It is possible that other legal proceedings, including arbitration or mediation, will be requested or commenced by our customers or former customers. We have also been named as a defendant, together with certain of our directors and senior executives (Jacob Stolt-Nielsen, Niels G. Stolt-Nielsen, Samuel Cooperman and Reginald J.R. Lee), in a putative civil class action for violations of U.S. securities laws. The securities litigation also appears to be based on media reports about the Department of Justice and European Commission investigations and alleges, among other things, that our failure to disclose such alleged antitrust violations, and other allegedly false and misleading statements, caused plaintiffs to pay inflated prices for our shares. The securities litigation seeks unspecified monetary damages, among other things. See ``Item 8. Financial Information--Legal Proceedings.'' We may be required to make payments in settlement or as a result of a final judgment to entities that have commenced or may commence proceedings against us in amounts that are not determinable. Additionally, we are incurring costs in connection with the pending proceedings, including the distraction of senior management from the operation of our businesses. Therefore, the pending civil claims against us and any future claims could have a material adverse impact on our financial condition, cash flows or results of operations. As of November 30, 2002 and February 28, 2003, we had not made any provision in our financial statements for any civil damages or penalties with respect to the claims against us.

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SNTG is the subject of a pending investigation by the U.S. Department of the Treasury's Office of Foreign Assets Control (``OFAC'') and may be subject to fines or other penalties as a result. OFAC is investigating past transactions of SNTG relating to Iran as possible violations of the International Emergency Economic Powers Act and the Iranian Transactions Regulations. SNTG is cooperating fully with OFAC's investigation. On April 3, 2002, OFAC issued a Cease and Desist Order covering payments by SNTG for incidental port expenses involving unlicensed shipments to, from or involving Iran. SNTG has fully complied with that Order. OFAC has not made any determination of whether or not a violation has occurred. If OFAC determines that a violation has occurred, it could impose a civil monetary or other penalties on SNTG. OFAC also could refer the matter to other federal law enforcement agencies for criminal investigation. We do not know whether or not the subject of OFAC's investigation of SNTG is included as part of the U.S. Attorney's investigation in Connecticut. Even if OFAC has referred this matter to the U.S. Department of Justice for criminal investigation, OFAC might also continue to pursue the matter as a civil penalty matter. Continuing negative publicity may adversely affect our business. We have been the subject of substantial negative publicity relating to the OFAC investigation, the U.S. Attorney investigation, the antitrust investigations and related civil litigation, including the employment litigation commenced by a former internal counsel. We may experience reluctance on the part of certain customers and suppliers to continue working with us on customary terms. The negative publicity, legal proceedings and resulting impact on our businesses could also have a negative impact on our ability to refinance our existing indebtedness when necessary. As a result of the antitrust investigations, the related litigation and negative publicity, members of senior management need to spend significant management time and effort dealing with investigations, litigation and customer relations issues rather than the operation of our businesses. Moreover, the negative publicity could encourage increased scrutiny from governmental regulatory authorities relevant to our various businesses or make us a more attractive subject for party claims and disputes. Whether or not warranted, such negative attention could require us to incur additional costs to respond to or settle such matters or have a negative impact on our share price. Therefore, continuing negative publicity could have a material adverse effect on our results of operations and liquidity and the market price of our publicly traded securities. Our business could suffer as a result of further adverse developments in our patent litigation with Coflexip S.A. We are subject to legal claims and investigations by customers, sub-contractors, employees, joint venture partners, government agencies and competitors. In particular, our competitor, Coflexip S.A. (``CSO'') commenced legal proceedings through the UK High Court against three subsidiaries of Stolt Offshore S.A. claiming infringement of a certain patent held by CSO relating to flexible flowline laying technology in the UK. Judgement was given on January 22, 1999 and January 29, 1999. The disputed patent was held valid. We appealed and the Appeal Court maintained in July 2000 the validity of the patent and potentially broadened its application compared to the High Court decision. We applied for leave to appeal the Appeal Court decision to the House of Lords, which was denied. During 2001 after the Appeal Court decision became final, CSO submitted an amended claim to damages claiming lost profit on a total of 15 projects. In addition, there is a claim for alleged price depreciation on certain other projects. The total claim for lost profits was for approximately $89.0 million, up from approximately $14.0 million claimed after the High Court decision confirming the patent's validity, plus interest, legal costs and a royalty for each time that the flexible lay system tower on the Seaway Falcon was brought into UK waters. The increase came because several more projects potentially became relevant. The amount of the claim has not yet been considered by the Court and has thus so far not been upheld. We estimate that the total claim as submitted is in the order of $130.0 million at

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November 2002, increasing at 8% simple interest per annum. In the alternative, CSO claims a reasonable royalty for each act of infringement, interest and legal costs. CSO has not quantified this claim, but it will be considerably less than the claim to lost profits. We, in consultation with our advisers, have assessed that the range of possible outcomes for the resolution of damages is $1.5 million to $130.0 million and have determined that there is no amount within the range that is a better estimate than any other amount. Consequently, in accordance with SFAS No. 5,''Accounting for Contingencies'', as interpreted by FASB Interpretation No. 14 ``Reasonable Estimation of the Amounts of a Loss'', we have provided $1.5 million in the financial statements, being the lower amount of the range. The amount of damages is nevertheless uncertain and no assurance can be given that the provided amount is sufficient. If the amount we are ultimately determined to owe, if any, is substantially more than we have currently reserved or if we increase the amount of the reserve for this claim, it could have a material adverse effect on our results of operations. Environmental and consumer challenges facing the aquaculture industry may have an adverse effect on our fish farming business. The aquaculture industry has increasingly faced environmental and consumer challenges, drawing criticism regarding such issues as the effects of escaping fish on native fish populations, spread of disease and parasites such as sea lice, the impact of antibiotics given to farmed fish and synthetic pigments used in farmed salmon. These increasing environmental and consumer challenges could lead to potential litigation against us and more stringent government regulation of the aquaculture industry, each of which could require us to change our fish farming practices and incur additional costs. The additional costs could include the costs of compliance with governmental regulations, fines and penalties for non-compliance and the costs associated with challenging new governmental regulations or responding to litigation or other claims against our aquaculture business. Additionally, increasing environmental challenges could increase the costs of, or make it more difficult to obtain, insurance against the risks of environmental damage. It is possible that we will also be required to consent to injunctions against future conduct, lose the ability to conduct business with government agencies or suffer other penalties, which could have a material adverse effect on our fish farming business. Changes in the laws and regulations of the aquaculture industry, or our inability to renew necessary permits or licenses, can have a significant adverse effect on the production costs of fish as well as our ability to compete effectively in affected markets.

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Political or social instability in the developing countries in which we operate could increase our costs and reduce our future growth opportunities. A significant portion of our offshore services business involves projects in developing or less developed countries that are experiencing or may experience political or social instability. For the year ended November 30, 2002, approximately 28% of our consolidated net sales came from projects located in Angola, Nigeria, Egypt, Brazil and Indonesia. Even though it is one of the world's largest oil exporters, Nigeria, for example, has had a history of political instability and disorganized society with an internal infrastructure that is neither fully functional nor well maintained and parts of Nigeria regularly experience localized civil unrest and violence. Unanticipated political events or social disturbances in developing or less developed countries, including labor unrest, could cause cost overruns on projects for which we are not reimbursed or delays in execution of projects which lead to delayed revenues or potential contractual penalties. For example, in 2003 our Offshore Gas Gathering System (``OGGS'') project in Nigeria has suffered disruption due to a labor strike at a subcontractor's yard and the hijacking of a chartered survey vessel. The extent to which the impact of these events will be borne by us is subject to negotiation with our customer. Additionally, to the extent a project is delayed or becomes more costly, there would be a negative impact on our financial condition, results of operations and cash flows. This, in turn, could have a negative impact on our compliance with the financial covenants contained in our credit facilities. Political or social instability could also inhibit offshore exploration or capital expenditures by our clients. It could also result in fewer new project tenders meeting our criteria thereby reducing growth opportunities for our business. Our method of accounting for our offshore services projects may result in the reduction or elimination of previously reported profit. Substantially all of our offshore services projects are accounted for on the ``percentage-ofcompletion method,'' which is standard for our industry and in compliance with U.S. generally accepted accounting principles. In our offshore services projects, estimated contract revenues are accrued based on the ratio of costs incurred to the total estimated costs, taking into account the level of physical completion. Estimated contract losses are recognized in full when determined. Contract revenues and total cost estimates are reviewed and revised periodically as work progresses and as change orders are approved, and adjustments based on the percentage of completion are reflected in contract revenues in the reporting period when these estimates are revised. To the extent that adjustments result in a reduction or elimination of previously reported profits or contract revenues, we would recognize a charge against current earnings that may be significant depending on the size of the project or the adjustment. Our offshore services business is affected by expenditures by participants in the oil and gas industry. Demand for our offshore services depends on expenditures by participants in the oil and gas industry and particularly on capital expenditure budgets of the companies engaged in the exploration, development and production of offshore oil and gas. In particular, the oil and gas industry has been consolidating. There are fewer and larger oil and gas companies that control expenditures for the types of services and products that we and our competitors provide. Offshore oil and gas field capital expenditures are also influenced by many other factors beyond our control, including: · prices of oil and gas and anticipated growth in world oil and gas demand; · the discovery rate of new offshore oil and gas reserves; · the economic feasibility of developing particular offshore oil and gas fields; · the production from existing producing oil and gas fields; · political and economic conditions in areas where offshore oil and gas exploration and development may occur;

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· policies of governments regarding the exploration for, pricing and production and development of their oil and gas reserves; and · the ability of oil and gas companies to access or generate capital and the cost of such capital. There might be delays or cancellation of projects included in our backlog. The dollar amount of our backlog does not necessarily indicate future earnings related to the performance of that work. Backlog refers to expected future revenues under signed contracts and letters of intent which management has determined are likely to be performed. During the course of a project, the backlog is adjusted to take account of alterations to the scope of work under approved variation orders and contract extensions. Although backlog represents only business that we consider to be firm, cancellations, delays or scope adjustments have occurred in the past and are likely to occur in the future. For example, one offshore construction project was recently cancelled due to an exploration and appraisal well was found to be dry. In this case, the customer paid our costs as incurred and a cancellation fee was negotiated but we lost our expected revenue stream. In another case, a construction project has been delayed for 12 months as the customer is awaiting planning permission for a gas treatment plant. In this instance, the backlog relating to the project reflects the expected delay in revenue from 2003 to 2004 and has been adjusted to include additional costs as negotiated with the customer. Due to factors outside our control, such as changes in project scope and schedule, we cannot predict with certainty when or if backlog will be performed. Price fluctuations in ship fuel and feed cost may impact our profitability. Ship fuel constitutes one of the major operating costs of our parcel tanker fleet and feed to fish accounts for approximately 50% of the total product cost of our fish farming products. Fluctuations in the price of ship fuel and fish feed can have a material impact on our results. Since 1987, the average annual cost of bunker fuel purchased by us has varied between approximately $76 and $144 per ton. In 2002, with an average cost of approximately $144 per ton, ship fuel constituted approximately 20% of total fleet operating costs. The cost in 2002 represented a $5 per ton, or 3.5% increase over the 2001 average. With respect to fish feed, prices can vary substantially because feed producers depend on the price and availability of raw materials such as fish meal and fish oil, which are scarce resources. Although we seek to pass price fluctuations through to our customers, a significant portion is incurred solely by us and a rise in costs can negatively impact our results. For example, approximately 67% of our total parcel tanker revenues in 2002 were derived from long-term contracts of affreightment. About 42% of this revenue related to contracts of affreightment that were exposed to bunker fuel price fluctuations. The significance of these supply costs to our overall costs and the limitations on our ability to pass these costs on to our customers can cause fluctuations in the price of these materials to affect our profitability. We may be liable to third parties for the failure of our joint venture partners to fulfill their obligations. Under some of the joint venture agreements in our offshore service business, we and our partners are jointly and severally liable to the customer for the performance of the contract. If our joint venture partner in such arrangement fails to fulfill its obligations, we could have to carry the resultant liability toward the customer and would have to rely on our ability to obtain reimbursement from our joint venture partner. If our joint venture partner became insolvent or ceased operations, this might not be possible. Adverse weather and other natural conditions may impact our results. A substantial portion of our revenue from our offshore services business has been generated from work performed in the North Sea and North America. Adverse weather conditions during the winter months in these regions usually result in low levels of activity. Additionally, during other periods of the

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year, we may encounter adverse weather conditions such as hurricanes or tropical storms in the Gulf of Mexico. During periods of curtailed activity due to adverse weather conditions, we continue to incur operating expenses, but our revenues from operations are delayed or reduced. As a result, full-year results are not likely to be a direct multiple of any particular quarter or combination of quarters. Our fish farming operations may be adversely affected from time to time by climactic conditions, such as severe storms, flooding, dry spells and changes in water temperature or salinity, and may be adversely affected by natural or man-made calamities, such as oil spills. Because the growth rates of fish are dependent on weather conditions, unexpectedly hot or cold temperatures may adversely impact growth rates, harm the fish and lead to losses of fish. Bad weather may also delay harvest or result in the loss of equipment or fish. Storms and floods can also cause damage to facilities involving an interruption in the water supply or seaweed blockages, which may lead to a loss of fish. Our fish farming operations also may be adversely affected by other natural conditions such as algae blooms (intensive and sudden blooms of algae that occur naturally in the marine environment), pollution, disease, parasites and natural predators, such as sea lions, seals and predatory birds. Although we use antibiotics and other chemical substances to control diseases and parasites and use farm management to control the impact of natural predators, if these precautions are not successful we could suffer losses to our fish stock, thereby reducing our revenues and resulting in possible losses. In certain instances, healthy fish may need to be culled, for example, under mandate from government authorities or voluntarily as part of an effort to control disease outbreak in the local farming area. Additionally, new diseases or parasites could emerge in a farming environment for which we do not currently have adequate countermeasures. Our international operations expose us to changes in foreign regulations and other risks inherent to international business, any of which could affect our operating results. Our operations in the emerging markets in South America, Asia-Pacific and Southern Europe/ Africa/Middle East regions present risks including: · economic instability, which could make it difficult for us to anticipate future business conditions in these markets; · political instability, which could discourage investment and complicate our dealings with governments; · boycotts and embargoes that may be imposed by the international community on countries in which we operate; · requirements imposed by local governments that we use local suppliers or subcontractors which may not be able to perform as required; · labor unrest; · disruptions due to civil war, election outcomes, shortages of commodities, power interruptions or inflation; · the imposition of unexpected taxes or other payments on revenues; and · the introduction of exchange controls and other restrictions by foreign governments. Our international operations expose us to the risk of fluctuations in currency exchange rates. Substantial portions of our revenue and expenses are denominated in currencies other than U.S. dollars. Consequently, exchange rate movements between the U.S. dollar and the Euro, the Norwegian kroner, the Canadian dollar, the Singapore dollar, the Japanese yen and other currencies can have a significant impact on our financial results. We do not attempt to hedge foreign earnings that are translated into dollars for reporting purposes. Foreign currency fluctuations have had and will continue to have an impact on reported financial results.

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We depend on certain significant customers and long-term contracts and the loss of one or more significant customers or the failure to replace or enter into new long-term contracts could adversely affect our operating results. In 2002, Shell accounted for 10% of our consolidated net operating revenue with TotalFinaElf and British Gas each accounting for 5% of our consolidated net operating revenue. In 2001, TotalFinaElf accounted for 11% of our consolidated net operating revenue, while Shell and British Gas accounted for 4% and 2%, respectively, of our consolidated net operating revenue. During 2002 and 2001, Stolt Offshore's ten largest customers accounted for 34% and 32%, respectively, of our consolidated net operating revenue, and over that period seven customers, including Shell, TotalFinaElf, British Gas, BP, Statoil, Petrobras and Norsk Hydro consistently numbered among Stolt Offshore's ten largest customers. Revenues from our largest customers are often related to specific long-term contracts that upon completion may not be replaced by contracts of equivalent size. In 2002 and 2001, approximately 44% and 34%, respectively, of our consolidated net operating revenue was derived from long-term contracts. Our inability to replace significant long-term projects on similar terms or the loss of any one or more of our significant customers or a substantial decrease in demand by our significant customers could result in a substantial loss of revenues which could have a material adverse effect on us. We could be adversely affected if we fail to keep pace with technological changes, and changes in technology could result in write-downs of assets. Our offshore services customers are constantly seeking to develop oil and gas fields in deeper waters. To meet our customers' needs, we must continuously develop new, and update existing, technology for the installation, repair and maintenance of offshore structures. In addition, rapid and frequent technology and market demand changes can often render existing technologies obsolete requiring substantial new capital expenditures and/or write-downs of assets. Our failure to anticipate or to respond adequately and timely to changing technology, market demands and/or customer requirements could adversely affect our business, particularly our offshore services business, and financial results. We are exposed to substantial hazards and risks that are inherent to the industries in which we operate, which may result in the loss of revenues, increased expenses, or for which the liabilities may potentially exceed our insurance coverage and contractual indemnity provisions. The operation of ocean-going ships and offshore services carry an inherent risk of personal injury or death, damage to or loss of property or business interruptions. These risks can arise from, for example: marine disasters, such as collisions or other problems involving our ships or other offshore equipment; oil spills or leaks involving offshore projects in which we participate; pollution caused by leaks or spills of chemicals or other products transported by our bulk liquid transportation business; injuries, death or property damage caused by mechanical failures involving our equipment or human error involving our employees; war or other hostilities affecting our operations; piracy or hijackings involving our ships or offshore oil and gas projects in which we participate; explosions and fires involving the chemical or other liquid products that we transport or our equipment; and other circumstances or events. We insure for liability arising from our operations, including loss of or damage to third-party property, death or injury to employees or third parties and statutory workers compensation protection. There can be no assurance, however, that the amount of insurance we carry is sufficient to protect us fully in all events, that any particular claim will be paid or that we will be able to procure adequate insurance coverage at commercially reasonable rates in the future. A successful liability claim for which we are underinsured or uninsured could have a material adverse effect on us. Litigation arising from any such event may result in our being named a defendant in lawsuits asserting large claims. Any such event may result in loss of revenues, increased costs or future increased insurance costs.

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While we currently insure our ships against property loss due to a catastrophic marine disaster, mechanical failure, or collision, the loss of any ship as a result of such an event could result in a substantial loss of revenues, increased costs, and other liabilities in excess of available insurance and could have a material adverse effect on our operating performance. Stolt Offshore generally seeks to obtain indemnity agreements whenever possible from its customers requiring those customers to hold Stolt Offshore harmless in the event of structural damage, loss of production or liability for pollution that originates below the water surface. Such contractual indemnification, however, does not generally cover liability resulting from the gross negligence or willful misconduct of, or violation of law by Stolt Offshore's employees or subcontractors. Additionally, if Stolt Offshore suffers a loss for which it is entitled to indemnity, Stolt Offshore is dependent on its customer's ability to satisfy its indemnity obligation. If the customer cannot satisfy its obligation, Stolt Offshore could suffer losses. Our failure to comply with environmental and other regulations may result in significant fines, penalties, or the loss of revenue. We operate in a number of different jurisdictions and are subject to and affected by various types of governmental regulation and rules of industry associations related to the protection of the environment, including but not limited to national laws and regulations and international conventions relating to ship safety and design requirements, disposal of hazardous materials, discharge of oil or hazardous substances, food safety, marketing restrictions and various import and export requirements. Any changes in government regulation can have a significant impact on our production costs and on our ability to compete effectively in the regulated markets. While we maintain environmental damage and pollution insurance, more stringent environmental regulations may result in significant fines and penalties for non-compliance, increased costs for, or the lack of availability of, insurance against the risks of environmental damage or pollution. The U.S. Oil Pollution Act of 1990 (``OPA `90''), by imposing virtually unlimited liability upon ship owners, operators, and certain charterers for certain oil pollution accidents in the U.S., has made liability insurance more expensive and has also prompted insurers to consider reducing available liability coverage. While we maintain insurance, there can be no assurance that all risks are adequately insured against particularly in light of the virtually unlimited liability imposed by OPA `90, that any particular claim will be paid, or that we will be able to procure adequate insurance coverage at commercially reasonable rates in the future. Because we maintain mutual insurance, we are subject to funding requirements and coverage shortfalls in the event claims exceed available funds and reinsurance and to premium increases based on prior loss experience. Any such shortfalls could have a material adverse impact on us. Our operations involve the use, storage and disposal of chemicals and other hazardous materials and wastes. We are subject to applicable federal, state, local and foreign health, safety and environmental laws relating to the protection of the environment, including those governing discharges of pollutants to air and water, the generation, management and disposal of hazardous materials and wastes and the cleanup of contaminated sites. In addition, some environmental laws, such as the U.S. Superfund law, similar state statutes and common laws, can impose liabili