-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MS+Gz5HVp129ihD37xFaLbiTKyWQDMG0bgKwcOzW2qBkItVa7Jgk6lHnYtZhpo2L xct4qSuzCygK5BVhpEUYBA== 0000950110-00-000267.txt : 20000331 0000950110-00-000267.hdr.sgml : 20000331 ACCESSION NUMBER: 0000950110-00-000267 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OMI CORP/M I CENTRAL INDEX KEY: 0001061571 STANDARD INDUSTRIAL CLASSIFICATION: WATER TRANSPORTATION [4400] IRS NUMBER: 522098714 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-14135 FILM NUMBER: 586064 BUSINESS ADDRESS: STREET 1: ONE STATION PLACE STREET 2: 90 PARK AVE CITY: STAMFORD STATE: CT ZIP: 60902-6800 BUSINESS PHONE: 2036026700 MAIL ADDRESS: STREET 1: C/O OMI CORP STREET 2: ONE STATION PLACE CITY: STAMFORD STATE: CT ZIP: 60902-6800 10-K 1 FORM 10-K AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 30, 2000 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999 ---------------- COMMISSION FILE NUMBER 001-14135 OMI CORPORATION ------------------------------------------------------ (Exact name of Registrant as specified in its charter) MARSHALL ISLANDS 52-2098714 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) REGISTRANT'S ADDRESS: ONE STATION PLACE STAMFORD, CONNECTICUT 06902 REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE: (203) 602-6700 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: COMMON STOCK, PAR VALUE $.50 PER SHARE NEW YORK STOCK EXCHANGE - -------------------------------------- ------------------------------------ Title of Class Name of Exchange on which Registered SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE ---------------- 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 X NO ----- ----- INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K. YES X NO ----- ----- AGGREGATE MARKET VALUE OF REGISTRANT'S VOTING STOCK, HELD BY NON-AFFILIATES, BASED ON THE CLOSING PRICE ON THE NEW YORK STOCK EXCHANGE AS OF THE CLOSE OF BUSINESS ON MARCH 24, 2000: $215,728,793 NUMBER OF SHARES OF THE REGISTRANT'S COMMON STOCK OUTSTANDING AS OF MARCH 24, 2000: 57,527,678 THE FOLLOWING DOCUMENT IS HEREBY INCORPORATED BY REFERENCE INTO PART III OF THIS FORM 10-K: (1) PORTIONS OF THE OMI CORPORATION 2000 PROXY STATEMENT TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. ================================================================================ INDEX ------------------ PART I
ITEMS PAGE(S) ------------- 1. and 2. Business and Properties ........................................... 1 3. Legal Proceedings ................................................. 6 4. Submission of Matters to a Vote of Security Holders ............... 6 PART II 5. Market for OMI Corporation's Common Stock and Related Stockholder Matters ............................................. 7 6. Selected Financial Data ........................................... 8 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ........................................... 9 7A. Quantitative and Qualitative Disclosures about Market Risk ........ 22 8. Financial Statements and Supplementary Data ....................... 24 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ............................................ 59 PART III 10. Directors and Executive Officers of OMI Corporation ............... 59 11. Executive Compensation ............................................ 59 12. Security Ownership of Certain Beneficial Owners and Management .... 59 13. Certain Relationships and Related Transactions .................... 59 PART IV 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ... 59 SIGNATURES ........................................................ 61
i PART I ITEMS 1 AND 2. BUSINESS AND PROPERTIES GENERAL OMI Corporation ("OMI" or the "Company"), organized under the laws of the Republic of the Marshall Islands on January 9, 1998, is located at One Station Place, Stamford, Connecticut. The telephone number is (203) 602-6700. Prior to June 17, 1998, the Company was a subsidiary of OMI Corp., a Delaware corporation ("Old OMI") and held the international assets of Old OMI. Old OMI acquired Marine Transport Lines, Inc. ("MTL"), a privately owned company specializing in marine and transportation services, principally to the energy and chemical industries. In connection with the acquisition of MTL, Old OMI spun off to its shareholders the Company. Subject to certain exceptions, the spin off was tax free to Old OMI, its shareholders and the Company. The Company retained the OMI name and Old OMI changed its name to Marine Transport Corporation ("MTC"). The previous management of Old OMI became the management of the Company and the previous management of MTL became the management of MTC. For a more complete description of the transaction, the conditions and certain other items shareholders are referred to the Registration Statement on Form S-1 filed by the Company with the Securities and Exchange Commission on May 15, 1998 (registration statement number 333-52771) which is hereby incorporated by reference. The Company provides seaborne transportation services for crude oil and petroleum products in the international shipping markets. Its customers include major independent and state-owned oil companies, major oil traders, government entities and various other entities. OMI owns directly or indirectly four crude oil tankers of approximately 150,000-160,000 dwt ("Suezmaxes"), twelve tankers of approximately 30,000 dwt ("handysize product carriers") and three tankers of approximately 65,000 dwt ("Panamaxes"). OMI has on order from a shipyard one Suezmax expected to be delivered in May 2000. Through ownership of joint venture companies, OMI owns approximately 50% interests in one 320,000 dwt crude oil carrier. OMI also has one Suezmax on bareboat charter and two Suezmaxes on time charter. The Company sold its joint venture interest in one Panamax dry bulk carrier and its 1980 built aframax crude carrier during the first quarter of 2000 and recently entered into contracts to sell two handysize product carriers. DEVELOPMENT OF OMI'S BUSINESS In recent years, OMI has focused its fleet into Suezmaxes and handysize product carriers, disposing of vessels not fitting into that profile. During 1999 and the first quarter of 2000, OMI disposed of its five older Suezmax crude oil tankers (one of which was jointly owned), its joint venture interest in its last remaining dry bulk carrier and its only aframax tanker. During the same period, the fourth of five newbuilding Suezmax crude oil tankers was delivered and was later sold and leased back. Two newbuilding product carriers were delivered, as was a newbuilding Suezmax which the Company acquired from another owner. The Company's existing fleet as of March 24, 2000 is shown on the following table:
DEAD- WEIGHT CHARTER YEAR METRIC EXPIRA- NAME OF VESSEL TYPE OF VESSEL BUILT(1) TONNAGE TION - -------------- -------------- -------- -------- ------- SETTEBELLO(2) ...................... Crude Oil Tanker 1986 322,466 Spot SACRAMENTO ......................... Crude Oil Tanker 1998 157,411 Spot SABINE ............................. Crude Oil Tanker 1998 157,332 Spot PECOS .............................. Crude Oil Tanker 1998 157,406 Spot COLUMBIA(3) ........................ Crude Oil Tanker 1999 157,327 Spot LOIRE .............................. Crude Oil Tanker 2000 153,074 Spot ELBE(4) ............................ Product Carrier 1984 66,800 Spot NILE(4) ............................ Product Carrier 1981 65,755 Spot VOLGA(4) ........................... Product Carrier 1981 65,689 Spot SEINE .............................. Product Carrier 1999 35,407 7/2001 ISERE .............................. Product Carrier 1999 35,438 9/2001
1
DEAD- WEIGHT CHARTER YEAR METRIC EXPIRA- NAME OF VESSEL TYPE OF VESSEL BUILT(1) TONNAGE TION - -------------- -------------- -------- -------- ------- LIMAR(5) ............................ Product Carrier 1988 29,999 Spot SHANNON(5) .......................... Product Carrier 1991 29,999 Spot DANUBE(5)(6) ........................ Product Carrier 1990 29,998 Spot TRENT(5)(6) ......................... Product Carrier 1991 29,998 Spot TIBER(5) ............................ Product Carrier 1989 29,996 Spot SEVERN(5) ........................... Product Carrier 1988 29,998 Spot PAGODA(5) ........................... Product Carrier 1988 29,996 Spot ALMA(5) ............................. Product Carrier 1988 29,996 Spot PAULINA(5) .......................... Product Carrier 1984 29,992 Spot PATRICIA(5) ......................... Product Carrier 1984 29,974 Spot --------- Total Owned Fleet: 20 Vessels ................................. 1,516,724 3 Chartered-in Crude Tankers (7) .......................... 449,762 --------- Total Foreign Flag Operating Fleet: 23 Vessels ............ 1,966,486 =========
- -------------- (1) Weighted average age (based on carrying capacity) of the Company's then-owned fleet (including jointly-owned) at year-end 1999 is 7.9 years. (2) Joint ownership with Bergesen d.y. A/S, Oslo, Norway. (3) Sold and leased back. The Company has options to reacquire the vessel. Tonnage is included in "Chartered-in Crude Tankers." (4) Time chartered into a pool operated by Heidenreich Marine Inc. While the vessels are committed by time charter, the revenues are dependent on the spot market. (5) Time chartered into International Product Carriers Limited, a pooling company jointly owned by the Company and Osprey Maritime Limited Company. While the vessels are committed by time charter, the revenues are dependent on the spot market. (6) Under contract to be sold. (7) Time chartered-in under charters expiring in 2001 and 2002. A brief description of the functions of the various types and sizes of vessels owned or operated by the Company and others is set forth below: Product carrier--normally carries refined petroleum products such as gasoline, heating oil, aviation fuel, naphtha and kerosene. Crude oil tanker--normally carries crude oil and dirty products. Dry bulk carrier--carries dry bulk products such as coal, ore, grain and fertilizers. Handysize--a ship of approximately 30,000 dwt. Panamax--a ship of approximately 50,000 to 70,000 dwt. Aframax--a tanker (which may be a crude oil tanker or product carrier) of approximately 70,000 to 120,000 dwt. Suezmax--a crude oil tanker of approximately 120,000 to 160,000 dwt. VLCC--a very large crude oil tanker, of approximately 200,000--300,000 dwt. ULCC--an ultra large crude oil tanker, of more than 300,000 dwt. In recent years, OMI has sought to increase the size of, and modernize its fleet. It consistently inspects Suezmaxes which are available for purchase and investigates other opportunities to improve its fleet directly and through ship brokers. While the Company has been successful in modernizing the fleet, due to weak markets the Company has not had the resources to increase the size of its fleet and has reduced the number of vessels and tonnage of its fleet. OMI's Suezmax tankers principally trade from West Africa to the U.S. Atlantic coast and from the North Sea to the U.S. Atlantic coast. The product carrier fleet operates worldwide, with the majority now trading in the 2 Caribbean to the U.S. Atlantic coast and the U.S. Gulf of Mexico. The handysize product carriers are well suited to trade in the U.S. eastern seaboard due to vessel cargo size and dimensions. However, other than the two newbuildings, the product carriers are single hull and do not have segregated ballast, thereby placing them at a competitive disadvantage with numerous vessels built in the last half of the 1990's. OMI's movement toward concentrations in specific vessel categories reflects management's belief that large concentrated fleets create strategic advantages: First, the fleet will be more attractive to large customers by providing better scheduling opportunities through substitution. A large fleet also provides opportunities to obtain contracts for large volume movements. These both create the potential to increase vessel utilization. Second, large and concentrated fleets create economies of scale to spread efficiently the overhead costs associated with environmental regulations and inspections. Third, operating expertise and efficiency are enhanced by concentration in certain vessel classes. Fourth, OMI believes that large customers will prefer to deal with a limited number of large shipping companies with fleets that they have pre-vetted for quality, rather than smaller shipping companies characteristic of the fragmented international tanker market. Management believes that OMI maintains an ability to participate in improvements in the international tanker markets with its Suezmax tankers. OMI also believes that Suezmax tankers provide nearly the upside potential of larger vessels such as VLCCs with less of the downside risk, primarily because Suezmaxes have greater geographic flexibility than VLCCs. Product carriers historically provided OMI with relatively more stable cash flows, even in weak markets. However, weakness in the product carrier markets commencing during the last portion of 1997 and in 1998, due to a mild winter and reduced Asian demand, has resulted in unusually low rates which, due to continued mild winters and substantial additional new tonnage entering into the market, has persisted. Since May of 1998 Alliance Chartering LLC, a limited liability company which is jointly owned with Frontline Ltd., a major international shipping company has handled the chartering of OMI's and Frontline Ltd.'s Suezmaxes. Alliance's current fleet stands at approximately 36 vessels. In March of 1999 the Company agreed with Osprey Maritime Limited, a major international shipping company based in Singapore, to consolidate their product tanker operations, and in May 1999 that consolidation commenced establishing International Product Carriers Limited ("IPC") in Bermuda to commercially operate the product carriers of its parents. IPC is seeking other product carrier owners for its pools in order to enhance its marketing abilities. IPC's current fleet stands at approximately 28 vessels. During March 2000, the Company announced that it had made investments in two business-to-business internet companies. One is MarineProvider ASA, a Norwegian-based company which is to provide services such as electronic acquisition of bunker and other supplies for ships. The Company owns approximately 8% of MarineProvider. The other investment is in SeaLogistics Ltd. which will offer on-line chartering and other services to shipowners and charterers. The Company currently owns 50% of SeaLogistics but expects substantial dilution as other entities invest in the project. The Company's total expenditures to date on the investments total approximately $1,500,000. It is committed to expend an additional $2,000,000. NATURE OF BUSINESS OMI is primarily engaged in the business of owning and operating tankers in international markets. There are two aspects to vessel operation: (i) technical operation, which involves maintaining, crewing and insuring the vessel, and (ii) commercial operation, which involves arranging the business of the vessel. OMI is the commercial operator of all its Suezmaxes and jointly markets those vessels in Alliance Chartering LLC and is the commercial operator of the two time chartered-out handysize product carriers. OMI has entered its Panamax tankers in a pool and all of its other product carriers are commercially managed by IPC. A subsidiary, OMI Marine Services LLC, is the technical operator of all of the Company's vessels except its remaining jointly owned vessel, which is commercially and technically managed by its partner. OMI's vessels are available for charter on a voyage, time or bareboat basis. Under a voyage charter, the operator of a vessel agrees to provide the vessel for the transport of specific goods between specific ports in return for the payment of an agreed upon freight per ton of cargo or, alternatively, for a specified total amount. All operating costs are for the operator's account. A single voyage (generally two to ten weeks) charter is often referred 3 to as a "spot market" charter. Vessels in the spot market may also spend time idle or laid up as they await business. A voyage charter involving more than one voyage with the same charterer is commonly known as a "consecutive voyage" charter. A time charter involves the placing of a vessel at the charterer's disposal for a set period of time during which the charterer may use the vessel in return for the payment by the charterer of a specified daily or monthly hire rate. In time charters, operating costs such as for crews, maintenance and insurance are typically paid by the owner of the vessel and voyage costs such as fuel and port charges are paid by the charterer. Under a bareboat charter, the charterer takes possession of the vessel in return for a specified amount payable to the owner of the vessel. The bareboat charterer must provide its own crew, pay all operating and voyage expenses and is responsible for the operation and management of the vessel. Voyage, time and bareboat charters are available for varying periods, ranging from a single trip to a long-term arrangement approximating the useful life of the ship, to commercial firms (such as oil companies) and governmental agencies (both foreign and domestic) on a worldwide basis. In general, a long-term charter affords the vessel owner greater assurance that it will be able to cover its costs, including depreciation, interest, and operating costs. Operating the vessel in the spot market affords the owner greater speculative opportunity, which may result in high rates when ships are in high demand or low rates (possibly insufficient to cover costs) when ship availability exceeds demand. Ship charter rates are affected by world economics, international events, weather conditions, strikes, governmental policies, supply and demand, and many other factors beyond the control of OMI. Currently all of OMI's fleet except one Suezmax and two product carriers operate in the spot market. CUSTOMERS International Product Carriers Ltd., a company jointly owned by the Company and Osprey Maritime Limtied accounted for $14,237,000 of the Company's revenues in 1999, which is approximately 12%. The revenues are received by IPC from numerous customers into a pool which is divided among the vessels in the pool. REGULATIONS The Company is required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to its vessels. The kinds of permits, licenses and certificates required depend upon such factors as the country of registry, the commodity transported, the waters in which the vessel operates, the nationality of the vessel's crew, the age of the vessel and the status of the Company as owner or charterer. The Company believes that is has or can readily obtain all permits, licenses and certificates necessary to permit its vessels to operate. OMI's operations are also affected by U.S. federal, state and foreign environmental protection laws and regulations, particularly the U.S. Port and Tanker Safety Act, the Act to Prevent Pollution from Ships, various volatile organic compound emission requirements, the BCH Code for chemical carriers, the IMO/USCG pollution regulations and various SOLAS amendments. Compliance with such laws' regulations entails additional expense, including vessel modifications and changes in operating procedures. The Oil Pollution Act of 1990 ("OPA 90") affects all vessel owners shipping oil or hazardous material to, from, or within the U.S. The law phases out the use of tankers having single hulls, effectively imposes on vessel owners and operators unlimited liability in the event of a castastrophic oil spill and establishes the Oil Spill Liability Trust fund. OPA 90 requires that tankers over 5,000 gross tons calling at U.S. ports have double hulls if contracted after June 30, 1990, or delivered after January 1, 1994. Furthermore, it calls for the elimination of all single hull vessels by the year 2010 on a phase-out schedule that is based on size and age, unless the tankers are retrofitted with double hulls. The law permits existing single hull tankers to operate until the year 2015 if they discharge at deep water ports, such as the Louisiana Offshore Oil Port ("LOOP"), or lighter more than 60 miles offshore. The International Maritime Organization ("IMO") has adopted a regulation that requires tankers 5,000 dwt and over, contracted after July 6, 1993, to have double hull, mid-deck or equivalent design. Existing single hull tankers will be phased out unless they are retrofitted with double hull, mid-deck or equivalent design no later than 30 years after delivery. Another IMO regulation mandates that existing single hull crude oil tankers larger than 20,000 dwt and product tankers over 30,000 dwt without segregated ballast tanks ("SBT") must convert to SBT operations using at least 30% of their wing tanks, or cargo tank bottom area, for this purpose by the age of 25 or be 4 hydrostatically-balance loaded in the wing tanks to provide equivalent oil outflow abatement in the event of casualty. The U.S. has not accepted these IMO regulations, as the IMO regulations recognize, in addition to double hull, other designs as well as contain different phase out dates for existing single hull tankers which are in conflict with provisions of OPA 90. As a result, some vessels which are eligible to trade internationally will be unable to carry cargo to or from the United States, except to LOOP or if lightered, and some vessels which may trade in the U.S. will be unable to trade elsewhere. All of the Company's vessels can trade to the U.S. at least until 2010 under current rules. In the U.S., liability for an oil spill is governed not only by OPA 90, but also by the laws, rules and regulations established by every coastal and inland waterway state. Federal law does not preempt such state laws and provides that claims made by state governments and other affected parties are not subject to limitation of liability if the oil spill results from gross negligence, willful misconduct or violation of any federal operating or safety standard. One result of OPA 90 has been a greater prominence for independent owners with a reputation for high quality of technical management and well maintained physical assets. Another effect of the law has been to increase the relative costs for liability insurance for vessel owners trading to the U.S. While OMI maintains insurance at levels it believes prudent, claims from a castastrophic spill could exceed the insurance coverage available, in which event there could be a material adverse effect on OMI. Following the recent breakup of a tanker in Europe, there has been significant publicity and political movement toward the creation of laws in Europe at least as stringent as OPA 90. While nothing has to date gone into effect, the Company expects significant legislation soon. The Company believes that such legislation is likely to benefit owners such as the Company which have modern fleets, by eliminating older vessels as competitors in European markets. OMI believes that compliance with applicable environmental and pollution laws and regulations has not had and is not expected to have a material adverse effect upon its competitive position; however the financial position, value and useful life of its vessels and results of operations may be affected as a result of OPA 90 and other environmental laws and regulations. COMPETITION The Company competes with a large number of international fleets. The international fleets include vessels owned by independent operators and major oil companies; in addition, many international fleets are government owned. Some of the Company's competitors have greater financial resources than the Company. Competition in the ocean shipping industry varies primarily according to the nature of the contractual relationship as well as with respect to the kind of commodity being shipped. Competition in virtually all bulk trades, including crude oil and petroleum products is intense. EMPLOYEES AND LABOR RELATIONS On December 31, 1999, the Company and its subsidiaries had approximately 60 office employees. The Company primarily uses hiring agents to crew its vessels, one of which recruits exclusively for the Company. Although agents sign labor contracts with labor organizations in various foreign countries that represent seagoing personnel from these countries, the Company is not a party to these contracts. Some senior shipboard positions on foreign flag vessels are filled directly by the Company. The Company considers its relationship with its employees, including its seagoing crews, to be satisfactory. VALUE OF ASSETS AND CASH REQUIREMENTS Although the replacement costs of comparable new vessels may be above the book value of OMI's fleet, the market value of OMI's fleet may be below book value when market conditions are weak. In common with other shipowners, OMI continually considers asset redeployment which at times includes the sale of vessels at less than their book value. OMI's results of operations and cash flow may be significantly affected by future charter markets since currently only three vessels are on charter extending beyond year-end 2000. 5 ITEM 3. LEGAL PROCEEDINGS OMI and its subsidiaries are not parties to any material pending legal proceedings or related group of such proceedings, other than ordinary routine litigation incidental to the business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the security holders of the Company during the fourth quarter of 1999. EXECUTIVE OFFICERS OF THE COMPANY Set forth below is certain information with respect to the Company's executive officers as of March 24, 2000.
YEAR APPOINTED NAME AGE POSITION TO OFFICE - ---- --- -------- ------------ Craig H. Stevenson, Jr. ............... 46 Chief Executive Officer 1998 and President Robert Bugbee ......................... 39 Senior Vice President and Chief 1998 Operating Officer Vincent J. de Sostoa .................. 55 Senior Vice President, Chief 1998 Financial Officer and Treasurer Fredric S. London ..................... 52 Senior Vice President, General 1998 Counsel and Secretary Henry Blaustein ....................... 57 Senior Vice President, OMI Marine 1998 Services LLC Kathleen C. Haines .................... 45 Vice President/Controller 1998 Thomas M. Scott ....................... 43 Vice President, OMI Marine 1998 Services LLC Stavros Skopelitis .................... 53 Vice President 1998
There is no family relationship by blood, marriage or adoption (not more remote than first cousin) between any of the above individuals and any other executive officer or any OMI director. The term of office of each officer is until the first meeting of directors after the annual stockholders' meeting next succeeding his election and until his respective successor is chosen and qualified. There are no arrangements or understandings between any of the above officers and any other person pursuant to which any of the above was elected as an officer. The following descriptions of occupations or positions that the executive officers of the Company have held during the last five years: Craig H. Stevenson, Jr. was appointed President and Chief Executive Officer of the Company in 1998. Mr. Stevenson had been Chief Executive Officer of Old OMI since January 1997 and President of Old OMI since November 1995. He was elected Chief Operating Officer of Old OMI in November 1994 and Senior Vice President/Chartering in August 1993. Robert Bugbee was elected Chief Operating Officer in March 2000 and Senior Vice President of the Company in 1998. He had been Senior Vice President of Old OMI since August 1995. Mr. Bugbee joined Old OMI in February 1995. Prior thereto, he was Head of Business Development at Gotaas-Larsen Shipping Corporation for more than three years. Henry Blaustein was elected Senior Vice President of OMI Marine Services LLC in 1998. He had been Senior Vice President/Technical of Old OMI since July 1997. Prior thereto he was an independent consultant. 6 Vincent J. de Sostoa was elected Senior Vice President, Treasurer and Chief Financial Officer of the Company in 1998. He had been Chief Financial Officer of Old OMI since 1994. Fredric S. London was elected Senior Vice President, Secretary and General Counsel of the Company in 1998. He had been Senior Vice President, Secretary and General Counsel of Old OMI since December 1991. Kathleen C. Haines was elected Vice President and Controller of the Company in 1998. She had been Vice President of Old OMI since January 1994. Thomas M. Scott was elected Vice President of OMI Marine Services LLC in 1998. He had been Vice President of Old OMI since February 1995. Stavros Skopelitis was elected Vice President and Economist of the Company in 1998. He had been Vice President and Economist of Old OMI since May 1996. He was elected Assistant Vice President and Economist of Old OMI in January 1994. PART II ITEM 5. MARKET FOR OMI CORPORATION'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS COMMON STOCK Old OMI listed for trading on the New York Stock Exchange all of its common stock on March 13, 1992 (NYSE-OMM) and the Company acceded to that listing on June 18, 1998. As of March 24, 1999 the number of holders of OMI common stock was approximately 3,424. The high and low sale prices of the common stock, as reported by the New York Stock Exchange, were as follows: 1999 QUARTER 1ST 2ND 3RD 4TH ------------ ------- ------- ------- ------- High $3 7/16 $2 3/4 $2 3/4 $2 5/8 Low $1 1/2 $1 1/2 $1 7/8 $1 5/16 1998 QUARTER 1ST 2ND 3RD 4TH ------------ ------- ------- ------- ------- High N/A $8 11/16 $8 5/16 $4 Low N/A $6 7/8 $3 1/8 $2 5/8 PAYMENT OF DIVIDENDS TO STOCKHOLDERS The Board has not declared dividends to this date. OMI's current policy is not to pay dividends, but to retain cash for use in its business. Any determination to pay dividends by OMI in the future will be at the discretion of the Board of Directors and will depend upon OMI's results of operations, financial condition, capital restrictions, covenants and other factors deemed relevant by the Board of Directors. Payment of dividends is limited by the terms of certain agreements to which OMI and its subsidiaries are party. (See Note 5 to Consolidated Financial Statements.) 7 ITEM 6. SELECTED FINANCIAL DATA OMI CORPORATION AND SUBSIDIARIES (DOLLAR AND SHARES OUTSTANDING IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------------------------- 1999 1998 1997 1996 1995 -------- -------- -------- -------- -------- INCOME STATEMENT DATA: Net voyage revenues(1) ........................... $ 33,916 $ 41,331 $ 55,393 $ 39,692 $ 27,301 ======== ======== ======== ======== ======== Revenues ......................................... $115,992 $149,228 $141,985 $111,292 $ 91,819 -------- -------- -------- -------- -------- Operating expenses: Vessel and voyage .............................. 66,842 82,368 77,686 67,008 64,518 Charter hire ................................... 15,234 25,529 8,906 4,592 -- Depreciation and amortization .................. 23,835 24,314 22,675 18,142 17,621 Provision for loss on lease obligations ........ 6,229 -- -- -- -- General and administrative ..................... 10,486 10,773 12,540 6,851 6,451 -------- -------- -------- -------- -------- Total operating expenses ......................... 122,626 142,984 121,807 96,593 88,590 -------- -------- -------- -------- -------- Operating (loss) income .......................... (6,634) 6,244 20,178 14,699 3,229 (Loss) gain on disposal/write down of assets-net ..................................... (48,692) 6,485 885 4,078 (829) Loss on disposal/write down of joint venture investments .................................... (7,771) -- -- -- -- Interest expense ................................. 17,945 11,118 11,756 16,912 18,024 Provision (benefit) for income taxes ............. 475 (37,158) 5,407 876 (4,698) Equity(loss) in operations of joint ventures ..... (510) 3,684 737 2,481 5,464 (Loss) income before extraordinary loss and cumulative effect of change in accounting principles ..................................... (81,781) 42,917 6,859 5,356 (4,493) Extraordinary loss-net of tax benefit ............ (1,253) -- -- (1,663) -- Cumulative effect of change in accounting principles-net of tax provision ................ 2,729 -- 10,063 -- -- Net (loss) income ................................ $(80,305) $ 42,917 $ 16,922 $ 3,693 $ (4,493) ============================================================================================================== BASIC EARNINGS (LOSS) PER COMMON SHARE: (Loss) income before extraordinary loss and cumulative effect of change in accounting principles ................................... $ (1.94) $ 1.01 $ 0.16 $ 0.16 $ (0.15) Net (loss) income .............................. $ (1.90) $ 1.01 $ 0.39 $ 0.11 $ (0.15) DILUTED EARNINGS (LOSS) PER COMMON SHARE: (Loss) income before extraordinary loss and cumulative effect of change in accounting principles ................................... $ (1.94) $ 1.00 $ 0.16 $ 0.16 $ (0.15) Net (loss) income .............................. $ (1.90) $ 1.00 $ 0.39 $ 0.11 $ (0.15) Weighted average shares outstanding ............ 42,250 42,671 42,914 33,440 30,745 ============================================================================================================== BALANCE SHEET DATA: Cash and cash equivalents ...................... $ 7,381 $ 22,698 $ 30,608 $ 16,056 $ 25,963 Assets to be disposed of ....................... 90,996 -- -- -- -- Vessels and other property-net ................. 291,416 393,862 286,996 394,423 241,821 Construction in progress (newbuildings) ........ 25,340 34,733 56,032 10,754 -- Total assets ................................... 472,415 530,127 440,708 439,463 377,049 Total debt ..................................... 267,747 247,147 53,999 125,171 92,842 Total stockholders' equity ..................... 171,766 245,183 283,558 250,402 221,677 ==============================================================================================================
(1) Voyage revenues less vessel and voyage expenses (including charter hire expense) See notes to consolidated financial statements. 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following presentation of management's discussion and analysis of the OMI Corporation ("OMI" or the "Company") financial condition and results of operations should be read in conjunction with the consolidated financial statements, accompanying notes thereto and other financial information appearing elsewhere in this Form 10-K. The information below and elsewhere in this document contains certain forward-looking statements which reflect the current view of the Company with respect to future events and financial performance. Wherever used, the words "believes," "estimates," "expects," "plan," "anticipates" and similar expressions identify forward-looking statements. Any such forward-looking statements are subject to risks and uncertainties that could cause the actual results of the Company's results of operations to differ materially from historical results or current expectations. The Company does not publicly update its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. The information contained in the discussion of the "Year 2000" ("Y2K") constitutes forward-looking information. The identification and redemption of Y2K issues is a technological effort that has never been undertaken before and estimates of the outcome, time and expense of this project are, for that reason, particularly hard to make with any certainty. GENERAL Overview OMI provides seaborne transportation services primarily for crude oil and refined petroleum. The Company is the successor to Universal Bulk Carriers, Inc. ("UBC"), a Liberian corporation, which was a wholly owned subsidiary of OMI Corp. ("Old OMI") until June 17, 1998 at which date the Company was separated from Old OMI (renamed Marine Transport Corporation, "MTC") through a tax-free distribution ("Distribution") of one share of the Company's common stock for each share of Old OMI common stock. The distribution separated Old OMI into two publicly owned companies. OMI Corporation operates what were Old OMI's foreign shipping businesses under the management of certain of the officers formerly of Old OMI who moved to the new company and certain former directors of Old OMI and additional new directors. The Company continues to trade under the symbol "OMM" on the New York Stock Exchange. The Company's net loss was $80.3 million for the year ended December 31, 1999 or $1.90 basic loss per share, after the extraordinary loss of $1.3 million or $0.03 basic loss per share and income from the cumulative effect of change in accounting principle of $2.7 million or $0.07 basic earnings per share. The 1999 net loss includes loss on disposal/write down of assets of $48.7 million, loss on disposal/write down of joint venture investments of $7.8 million and a provision for loss on lease obligations of $6.2 million. Net income for the year ended December 31, 1998 was $42.9 million or $1.01 basic earnings per share. The 1998 net income included a gain from the disposal of a vessel of $6.5 million and net income for the reversal of deferred income taxes in the amount of $38.9 million. In connection with the Distribution described above, OMI became a decontrolled corporation and its shipping income is no longer subject to United States federal income tax. The provision for taxes for the year ended December 31, 1999, reflects adjustments to actual for 1998 taxes. OMI's Fleet OMI's fleet comprises 22 vessels, including three chartered-in vessels and one jointly owned vessel, and excluding a jointly owned bulk carrier and an aframax, both of which were sold in the first quarter of 2000. OMI has concentrated its fleet in two classes of vessels, Suezmax and product tankers. OMI has been implementing its plan for fleet renewal with the delivery of four new Suezmax vessels in the summer of 1998 and January 1999, and two deliveries in 2000 (including the Suezmax tanker described below). During July and September 1999, two 35,000 deadweight tons ("dwt") product carrier newbuildings were delivered. The Company's fleet currently consists of three wholly owned Suezmax tankers, three chartered-in Suezmaxes, one jointly owned Ultra Large Crude Carrier ("ULCC"), three Panamax product tankers (currently carrying crude oil) and twelve handysize product carriers transporting clean products. 9 Recent Activities On February 11, 2000, the Company finalized its refinancing of bank debt with its lenders in the amount of $264.5 million. The effect of the refinancing revises debt covenants, increases interest rate margins and reduces principle amortization (see Financing Activities). During February 2000, OMI agreed to sell in a private placement to four unrelated investors, 9,583,000 shares of OMI common stock for $2.00 per share ($1.92 per share net of commissions). The funds raised will be used to partially finance vessels delivered in 2000. In October 1999, OMI agreed to acquire from Mega Tankers Newbuilding AS, a Suezmax tanker, which was under construction. The purchase price of the vessel is approximately $46.2 million. The Company issued 5,700,000 shares of common stock in November 1999 and an additional 599,998 shares in February 2000 valued at $2.50 per share. On March 15, 2000, OMI entered into an agreement for a $27.0 million credit facility to finance this vessel upon delivery from the yard. The vessel was delivered on March 21, 2000 and the remaining balance of approximately $3.4 million was paid by the Company. During the first quarter 2000, OMI sold its investment in Geraldton Navigation Company Inc. ("Geraldton") for approximately $2.7 million, after receiving a dividend from the joint venture of $1.2 million. A loss of $6.6 million was recorded for the year ended December 31, 1999 relating to the disposal of this venture. On September 29, 1999, OMI sold its 49 percent share in its White Sea Holdings, Inc. ("White Sea") joint venture for approximately $2.4 million. The loss on the disposal of the joint venture of $0.9 million was recorded in 1999. In addition, OMI agreed with its partner to terminate the OMI-Heidmar joint venture in June 1999. This venture operated a pool of product tankers in which OMI time chartered three of its vessels until September 1999. A write down of $0.3 million was recognized in 1999 relating to OMI's portion of non-recoverable investments in joint venture assets. On July 19, 1999 and September 15, 1999, the SEINE and the ISERE, two product tanker newbuildings, were delivered at an approximate cost of $28.5 million each. Both vessels were time chartered for two-year periods. During January 1999, the Company took delivery of a Suezmax newbuilding, the COLUMBIA, and on June 30, 1999, the Company completed a sale/leaseback of this vessel for $54 million. As a result of market conditions, OMI disposed of its older Suezmax vessels and non-core vessels. By doing this, the Company is better able to focus its capital where its resources can provide higher returns. During July, August and November 1999, OMI sold four of its single hull Suezmax vessels built in the mid-1970's. These vessels were held for sale at their net realizable values on June 30, 1999 and adjusted to actual sales prices at their sale dates in 1999. During December 1999, the Company entered into an agreement to sell OMI's 1980s built aframax vessel which was also held for sale at its fair value at June 30, 1999. The aframax vessel was delivered to the new owners in March 2000. Nine vessels (including the aframax vessel) have been classified as assets to be disposed of at December 31, 1999. The disposal of these vessels are expected during the next two years. An additional non-recurring item included in the 1999 operating loss is the provision for losses on the Company's chartered-in vessels. An accounting adjustment was required because current lease obligations exceeded estimated future cash flows. In March 2000, the Company made an investment of $0.5 million to acquire approximately 8 percent of the equity in MarineProvider ASA, a new Internet business-to-business provider of marine services, which is based in Norway. OMI announced on March 23, 2000, the creation of SeaLogistics.com a neutral electronic exchange for the shipping industry. SeaLogistics will offer a broad range of content and services for the entire shipping industry and will initially focus on on-line chartering for the shipment of crude oil and petroleum products. Having received positive responses from major charterers and shipowners, SeaLogistics is in discussions with them to determine levels of participation. It expects to be on-line during the fourth quarter of 2000. Market Alliances OMI has planned to concentrate its fleet in two classes of vessels, Suezmax and product tankers. By concentrating on these two fleets, OMI is implementing its plan to consolidate shipping activities by the formation of 10 alliances and pools with other owners. Rates for both classes of vessels were historically low because of the imbalance of the supply and demand for crude oil and refined products and various factors detailed in the Market Overview. The Company has identified the advantages of owning a large modern Suezmax fleet and has been implementing strategies to maximize earnings. First, the fleet will be more attractive to large customers by providing better scheduling opportunities. A large fleet also provides opportunities to obtain contracts for large volume movements and creates the potential to increase vessel utilization. Second, large and concentrated fleets create economies of scale to spread efficiently the overhead costs associated with environmental regulations and inspections. Third, operating expertise and efficiency are enhanced by concentration in certain vessel classes. Fourth, OMI believes that large customers will prefer to deal with a limited number of large shipping companies with fleets that they have inspected for quality, rather than smaller shipping companies characteristic of the fragmented international tanker market. In 1998, in order to increase the Company's market opportunities in the Suezmax trades in the Atlantic Basin, OMI and Frontline Ltd., a Norwegian owner of the world's largest Suezmax fleet, combined Suezmax tanker fleets for commercial purposes and created Alliance Chartering LLC ("Alliance"). Alliance's control of the largest modern fleet of Suezmaxes has enabled it to strengthen relationships and obtain contracts with customers. These contracts may allow Alliance the opportunity to increase its Suezmax fleet utilization through backhauls, when cargo is available, which can improve vessel earnings. OMI's strategy for its handysize fleet is to increase market share by consolidating commercial operations of vessels through marketing joint ventures and through concentrating trading in selected areas. In March 1999, the Company agreed with Osprey Maritime Limited, a major international shipping company based in Singapore, to consolidate their product tanker operations, establishing International Product Carriers Limited ("IPC") to form a mid-size product tanker venture. The joint venture began operating effective May 1, 1999. IPC is expanding the pool to include other product carrier owners to enhance its marketing capacity. Currently all of OMI product carriers except the two new product carriers (which are on time charter) are operating under adjustable rate time charters with IPC. MARKET OVERVIEW Suezmax Tanker Overview Average time charter equivalents ("TCE") in the Suezmax market fell in 1999 to their lowest level since 1995. This was the result of substantially lower volumes of oil transported due to the adherence by OPEC and some non-OPEC oil producers to their agreed oil production cuts, the fact that a high proportion of these cuts involved long-haul Middle East oil, substantially higher bunker prices and the draw down of oil inventories at the same time the tanker fleet continued to grow. Freight rates for Suezmax tankers have improved in early 2000. The crude tanker market is expected to benefit this year as a result of the need to transport substantially more oil to satisfy considerable oil demand, at a time that oil inventories are at very low levels. However, a sustained improvement of freight rates in the tanker markets will be largely dependent upon the continuous improvement of economic activity in the Pacific region, as well as the increase in the rate of tanker scrapings, in view of the relatively high tanker newbuilding deliveries in the last two years and the substantial deliveries expected in the year 2000. The world tanker fleet grew and totaled approximately 276.7 million dwt at the end of 1999, up by 3.9 million dwt or 1.4 % from the year-end 1998 level, due to substantial newbuilding deliveries, offset in part by increasing scrapping activity. At the same time, the tanker orderbook stood at 39.1 million dwt, or 14.1% of the existing fleet. Approximately 21.5 million dwt is scheduled for delivery in 2000, 12.0 million dwt in the year 2001 and most of the balance in 2002. The tanker orderbook includes 44 Suezmaxes of about 6.7 million dwt, or 20.5% of the existing Suezmax fleet, and 74 VLCCs of 22.0 million dwt, or 18.1% of the existing VLCC fleet. However, approximately 91.8 million dwt, or one third of the total tanker fleet, was 20 or more years old at the end of 1999. In addition, 75 Suezmax tankers of 10.4 million dwt, or about 32% of the existing Suezmax tanker fleet, and 10.0 million dwt, or 20.9% of the existing product tanker fleet, were 20 or more years old. The fall in tanker freight rates has led to increasing scrapping activity as well as restraint in ordering new tonnage as compared to the previous two years. Tanker sales for scrap totaled about 16.7 million dwt in 1999, more than double 11 the amount sold for scrap in 1998, while new orders totaled 14.9 million dwt. The sales for scrap include 36 VLCCs and 22 Suezmaxes. Tanker scrapping activity has been strong in the first two months of 2000 as about 6.0 million dwt of tonnage was sold for scrap, including 8 Suezmaxes and 15 VLCCs. Tanker scrapping activity should continue at high levels given the relatively high orderbook, the tanker fleet age, high bunker prices which penalize fuel inefficient old tonnage, an expensive fifth special survey and stricter environmental regulations. World oil demand increased by about 0.9 million barrels per day (b/d) in 1999, and is expected to grow by about 2.0 million b/d in 2000. The expected increases reflect further oil demand growth in industrialized areas and the Pacific region as economic activity is recovering from the recent financial crisis. World oil inventories increased substantially in 1998, especially in the first half of the year, but fell for most of 1999 and currently are at very low levels. World commercial oil stocks at the end of 1999 are at the low level prevailing at the end of 1996. As a result of the current very low oil inventory levels and the expected considerable world oil demand gains in 2000, a substantial increase of oil production by OPEC and non-OPEC producers will be necessary this year. Most of the oil production gains are expected in West Africa, Latin America and the long-haul Middle East. Product Tanker Overview Freight rates in the product tanker market fell throughout 1999 and in the fourth quarter were at the lowest level since the same period in 1992. This was the result of product tanker fleet expansion, product inventory reductions, and moderate world oil demand growth as the economies of western Europe slowed down and oil demand in southeast Asia, though improving, was still below the level prevailing prior to the recent economic crisis. The world product tanker fleet increased and totaled 48.1 million dwt at the end of 1999, up by 2.9 million dwt or 6.4% from the year-end 1998 level, while tonne-mile demand for product tankers increased by only 2.0%. The product tanker orderbook stood at 4.3 million dwt or 8.9% of the existing product tanker fleet. Approximately 3.0 million dwt are scheduled for delivery in 2000, 1.0 million dwt in 2001 and the balance in the year 2002 and beyond. Following large OPEC and non-OPEC oil production cuts, world commercial oil inventories at year-end 1999 have fallen to the low levels prevailing at the end of 1996. At the same time, oil inventories in the three major markets--United States, Europe and Japan--are at the lowest levels in over ten years. Oil stocks are expected to decrease further in the first quarter of 2000 with the fall expected to be larger than the same period last year. The stock declines are expected to be more concentrated in the Atlantic region and mostly in products (distillate and gasoline). As a result, tight distillate and gasoline markets in the U.S. and Western Europe will create opportunities for more oil product cargoes from the long-haul Middle East as well as more cargoes from Asia to U.S. West Coast. The supply/demand imbalance prevailing in the product tanker trades is expected to persist in the short-term given the relatively high newbuilding deliveries this year. However, prospects for recovery in the product tanker sector may be enhanced given the relatively low total orderbook for delivery in the next few years, and some fundamental changes in the pattern of product trades. Furthermore, oil product import requirements are expected to increase in the three major world oil consuming areas (North America, Western Europe and the Pacific region) in the next few years, as oil demand growth is expected to exceed refinery capacity in these areas. In addition, a substantial amount of new refinery capacity in South and Southeast Asia in the next few years will cover part of the increasing oil demand in this area, lowering product import requirements from the Middle East. This will increase oil product exports from the Middle East to longer haul Western destinations, namely the U.S. and Western Europe, increasing product tanker tonne-mile demand. RESULTS OF OPERATIONS Results of operations of OMI Corporation include operating activities of the Company's vessels. The discussion that follows explains the Company's operating results in terms of net voyage revenues and TCE. Net voyage revenues are voyage revenues minus vessel and voyage expenses (including charter hire expense). TCE are voyage revenues less voyage expenses in a spot charter or voyage revenues in a time charter because fluctuations in voyage revenues and expenses occur based on the nature of a charter. The Company's vessels currently operate, or have operated in 12 prior years, on time, bareboat or voyage ("spot") charters. Each type of charter denotes a method by which revenues are recorded and expenses are allocated. Under a time charter, revenue is measured based on a daily or monthly rate and the charterer assumes certain voyage expenses, such as fuel and port charges. Under a bareboat charter, the charterer assumes all voyage and operating expenses; therefore, the revenue rate is likely to be lower than for a time charter. Under a voyage, or spot charter, revenue is calculated based on the amount of cargo carried, most expenses are for the shipowner's account and the length of the charter is one voyage. Revenue may be higher in the spot market, as the owner is responsible for most of the costs of the voyage. Other factors affecting net voyage revenues for voyage charters are waiting time between cargoes, port costs, and bunker prices. Vessel expenses included in net voyage revenue discussed above include operating expenses such as crew payroll/benefits/travel, stores, maintenance and repairs, drydock, insurance and miscellaneous. These expenses are a function of the fleet size, utilization levels for certain expenses, requirements under laws, by charterers and Company standards. Insurance expense varies with the overall insurance market conditions as well as the insured's loss record, level of insurance and desired coverage. VOYAGE REVENUES LESS VESSEL AND VOYAGE EXPENSES. FOR THE YEARS ENDED DECEMBER 31, 1999 VERSUS DECEMBER 31, 1998 Net voyage revenues of $33.9 million for the year ended December 31, 1999 decreased by a net $7.4 million from $41.3 million for the year ended December 31, 1998. Net voyage revenues of $41.3 million for the year ended December 31, 1998 decreased by a net $14.1 million from $55.4 million for the year ended December 31, 1997. Net voyage revenues for the years ended December 31, 1999, 1998 and 1997 are as follows by market segments in which OMI primarily operates. FOR THE YEARS ENDED DECEMBER 31, ------------------------------- 1999 1998 1997 ------ ------ ------ (IN MILLIONS) VOYAGE REVENUES: Crude Oil Fleet ......................... $ 78.1 $ 98.5 $ 72.7 Product Carrier Fleet ................... 37.5 50.6 67.9 All Other ............................... 0.3 0.1 1.4 ------ ------ ------ Total ............................... $115.9 $149.2 $142.0 ====== ====== ====== VESSEL AND VOYAGE EXPENSES: (1) Crude Oil Fleet (2) ..................... $ 59.1 $ 72.8 $ 51.5 Product Carrier Fleet ................... 22.6 34.6 34.2 All Other ............................... 0.3 0.5 0.9 ------ ------ ------ Total ............................... $ 82.0 $107.9 $ 86.6 ====== ====== ====== NET VOYAGE REVENUES: Crude Oil Fleet ......................... $ 19.0 $ 25.7 $ 21.2 Product Carrier Fleet ................... 14.9 16.0 33.7 All Other ............................... (0.0) (0.4) 0.5 ------ ------ ------ Total ............................... $ 33.9 $ 41.3 $ 55.4 ====== ====== ====== - ---------- (1) Includes charter hire expenses. (2) Excludes provision for loss on lease obligations of $6.2 million. Net changes are discussed as follows according to the two market segments (crude oil and product carrier) in which OMI primarily operates. Crude Oil Tanker Fleet At December 31, 1999, the crude fleet consisted of three wholly owned Suezmaxes, one aframax vessel and three chartered-in Suezmaxes; one vessel is on time charter and the remaining vessels are currently operating in the 13 spot market. During 1999, five wholly owned vessels were classified on the Balance Sheet as held for sale at June 30, 1999, of which four vessels were sold and one (aframax) vessel was contracted to be sold in December 1999. Additionally, one of OMI's three wholly owned Panamax vessels carried crude oil in both 1999 and 1998 and the other two Panamax vessels began carrying crude oil in May 1998 and July 1998. At December 31, 1998, OMI owned seven Suezmaxes, one aframax and chartered-in two Suezmax vessels. During 1998 and January 1999, four new Suezmax vessels were delivered (the first one June 1998), a vessel was sold in August 1998 and two chartered-in vessels were redelivered to their owners in July and December 1998.
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1999 1998 ----- ----- (IN MILLIONS) CRUDE FLEET: NEW SUEZMAXES: TCE revenues .............................. $34.8 $36.6 Operating expenses ........................ 7.0 3.9 Charter hire expense ...................... 15.2 22.2 ----- ----- Net voyage revenues ....................... $12.6 $10.5 ===== ===== AFRAMAX/PANAMAXES: TCE revenues .............................. $15.5 $14.9 Operating expenses ........................ 8.7 6.7 Charter hire expense ...................... 0.0 0.0 ----- ----- Net voyage revenues ....................... $ 6.8 $ 8.2 ===== ===== OLD SUEZMAXES: (1) TCE revenues .............................. $ 6.6 $21.6 Operating expenses ........................ 7.0 11.3 Charter hire expense ...................... 0.0 3.3 ----- ----- Net voyage revenues ....................... $(0.4) $ 7.0 ===== ===== Total Crude Fleet Net Voyage Revenues ..... $19.0 $25.7 ===== =====
- ---------- (1) Four vessels included in this category in 1998 and 1999 were sold during 1999. One vessel chartered-in in 1998 was redelivered December 1998. The COLUMBIA, a newly built Suezmax tanker, was delivered to the Company in January 1999. The vessel operated in the spot market during the six months ended June 30, 1999 and at that date was sold in a sale/leaseback transaction. The COLUMBIA was bareboat chartered back to OMI and continues to operate in the spot market. Net voyage revenues for the crude oil fleet of $19.0 million for the year ended December 31, 1999 decreased a net of $6.7 million from net voyage revenues of $25.7 million for the year ended December 31, 1998. Decreases in net voyage revenues in the crude fleet of approximately $14.9 million were primarily attributable to lower earnings from the four vessels sold in 1999, in addition to lower earnings from a vessel sold in August 1998, lower earnings in 1999 for the aframax vessel operating in the spot market and two Panamax vessels with higher operating expenses in 1999, and lower earnings from chartered-in vessels, particularly one which was drydocked in 1999 and earned a lower TCE compared to 1998. Decreases in the crude oil fleets's net voyage revenue were offset in part by increases aggregating $8.2 million from primarily three items. First, the earnings of four new Suezmax vessels delivered in 1998 and 1999. Second, the increase in time charter revenue from a Panamax vessel operating in a marketing pool in 1999 and 1998. The final item was the redelivery in December 1998 of a chartered-in vessel, which incurred losses last year. Product Carrier Fleet The product carrier fleet consisted of twelve handysize vessels at December 31, 1999 and ten handysize vessels in 1998. In November 1997, May 1998 and July 1998 OMI placed its three Panamax vessels which previously carried 14 clean products, into a marketing pool. Decreases in the product carrier fleet in the first half of 1999 pertain in part to two of the Panamaxes which were carrying clean products in the first half 1998 and thereafter carried crude oil (included in the crude oil fleet's operating results) in 1999.
FOR THE YEARS ENDED DECEMBER 31, 1999 1998 ----- ----- (IN MILLIONS) CLEAN FLEET: PRODUCTS (IPC POOL IN 1999): TCE revenues ..................................... $29.9 $38.5 Operating expenses ............................... 17.5 22.5 Charter hire expense ............................. 0.0 0.0 ----- ----- Net voyage revenues .............................. $12.4 $16.0 ===== ===== PRODUCTS-ON TIME CHARTER (DELIVERED IN 1999): TCE revenues ..................................... $ 3.4 $ 0.0 Operating expenses ............................... 0.9 0.0 Charter hire expense ............................. 0.0 0.0 ----- ----- Net voyage revenues .............................. $ 2.5 $ 0.0 ===== ===== TOTAL CLEAN FLEET NET VOYAGE REVENUE ............. $14.9 $16.0 ===== =====
During the year ended December 31, 1999, seven of the Company's handysize product tankers were employed in the spot market and three were on time charter. However, since May 1, 1999, these vessels have been time chartered (at the conclusion of their previous charters) to a newly formed joint venture, IPC, described in the Market Alliance section above. Time charter rates from this venture reflect spot market charter rates since they are adjusted periodically with pool profits. Net voyage revenues of $14.9 million for the year ended December 31, 1999 decreased a net of $1.1 million from net voyage revenues of $16.0 million for the year ended December 31, 1998. Decreases in net voyage revenues in 1999 resulted primarily from lower TCE's for three vessels previously time chartered from 1998 until August 1999 when they began operating in the IPC pool. This decrease in net voyage revenues was partially offset by increased earnings from the two new product carriers delivered July and September 1999 which began operating on profitable time charters beginning from their delivery dates. OTHER OPERATING EXPENSES. The Company's operating expenses, other than vessel, voyage and charter hire expenses consist of provision for loss on lease obligations, depreciation and amortization and general and administrative ("G & A") expenses. For the year ended December 31, 1999, these expenses increased $5.5 million to $40.6 million, from $35.1 million for the year ended December 31, 1998. The provision for loss on lease obligations of $6.2 million was recorded at June 30, 1999 and relates to OMI's chartered-in vessels. As part of OMI's periodic review, the Company evaluated the forecasted future net cash flows for vessels with lease obligations. The Company determined that its current lease obligations for the vessels exceeded their undiscounted forecasted future net cash flows. The loss was measured by the excess of the future lease payments, as set forth in the lease agreement, over the vessels' estimated forecasted future cash flows over the lease terms. Increases in operating expenses for the year ended 1999 were partially offset by net decreases of $0.5 million in depreciation expense from the sale of four vessels in 1999 and the sale of a Suezmax tanker in August 1998. Increases offsetting decreases in depreciation expense related to depreciation for three Suezmax tankers delivered in 1998 and two product carriers delivered in 1999. G & A expense decreased by $0.2 million during the year ended December 31, 1999 compared to the year ended December 31, 1998. OTHER (EXPENSE) INCOME. Other (expense) income consists of (loss) gain on disposal/write down of assets-net, loss on disposal/write down of joint venture investments, interest expense, interest income and other-net. Net other expense increased by $70.0 million from $4.2 million for the year ended December 31, 1998 to $74.2 million for the year ended December 31, 1999. 15 (Loss) gain on disposal/write down of assets-net was a loss of $48.7 million for the year ended December 31, 1999 compared to a gain on sale of a vessel in August 1998 of $6.5 million during the year ended December 31, 1998. Losses due to the sale of five vessels in 1999 aggregated $17.3 million, which included four older Suezmax vessels (built in 1974 and 1975) that were sold for scrap and the COLUMBIA which was sold in a sale/leaseback transaction on June 30, 1999 at a loss of $2.0 million. Vessels to be disposed of at December 31, 1999, resulted in a loss of $31.4 million. The write down of vessels includes the realization of the cumulative translation adjustment for $7.4 million. The adjustment relates to two vessels whose functional currency until July 1990 was not U.S. dollars. Loss on disposal/write down of joint venture investments was $7.8 million for the year ended December 31, 1999. As mentioned in the Recent Activities section, OMI disposed of its White Sea joint venture effective September 29, 1999 at a loss of approximately $0.9 million and wrote down another joint venture investment, which was terminated in 1999 by $0.3 million also in September 1999. OMI's investment in Geraldton was written down to its net realizable value of $2.7 million and is included in Assets to be disposed of on the Consolidated Balance Sheet. A loss on disposal of OMI's investment in Geraldton of $6.6 million was recorded at December 31, 1999. Interest expense increased $6.8 million for the year ended December 31, 1999 in comparison to the year ended December 31, 1998. The additional interest expense was primarily due to additional borrowings to finance six newbuildings (including one which was delivered and $37.5 million financed during January 1999 and subsequently sold and repaid June 30, 1999 in a sale /leaseback transaction) and correspondingly a decrease in the capitalization of interest on construction in progress. (See Financing Activities). During February 2000, MTC paid OMI $5.1 million in full settlement of a note which was due in November 2003. At December 31, 1999, the note receivable of $5.1 million was included with Other receivables in current assets. A loss of $1.2 million was recorded in the Consolidated Statements of Operations included in Other-net for the year ended December 31, 1999. EQUITY (LOSS) IN OPERATIONS OF JOINT VENTURES. Equity in operations of joint ventures decreased $4.2 million for the year ended December 31, 1999 compared to the year ended December 31, 1998. The decrease in 1999 was primarily attributable to lower earnings from two joint ventures, one which operates one ULCC vessel that was in drydock during the first half of 1999 and earned lower revenues due to declines in TCE rates in 1999 and the other joint venture owning one Suezmax vessel also experienced a decline in spot rates and was sold on September 29, 1999. During 1999, the Company received an aggregate of $2.5 million in dividends from joint ventures, $2.0 million from Amazon Transport, Inc. and $0.5 million from White Sea. During 1999, OMI paid $0.6 million in capital contributions to one of its joint ventures. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE During the second quarter 1999, OMI changed its method of accounting for freight on voyage charters. The accounting change is effective for the period beginning January 1, 1999 and income of $2.7 million was recorded for the year ended December 31, 1999 as a cumulative effect of change in accounting principle. The change in the Company's method of revenue recognition for voyages from the load-to-load basis to the discharge-to-discharge basis is a more reliable method in recognizing voyage revenue as it eliminates the uncertainty associated with estimating location of the next load port under the load-to-load basis. Voyage revenue is recognized evenly over the period from the departure of a vessel from its original discharge port to departure at the next discharge port. BALANCE SHEET In January 1999, the Company took delivery of a newly constructed double-hulled Suezmax tanker, the COLUMBIA. At December 31, 1998, there was a balance in Construction in Progress of $17.7 million relating to the COLUMBIA which was recorded to Vessels upon delivery in 1999. The COLUMBIA was then sold June 30, 1999 for $54.0 million in a sale/leaseback transaction. The $54.0 million proceeds reduced debt incurred in January 1999 of $35.0 million and OMI has a long-term note receivable for $6.0 million from the sale of the vessel. Additionally, the 16 Company maintains $2.0 million in escrow and $5.5 million in cash as collateral for a standby letter of credit as required by the lease agreement (see Commitments). The aggregate $7.5 million is included in Other assets and deferred charges. Decreases in Other assets and deferred charges resulted in part from an extraordinary loss of $1.3 million, which was recorded for the year ended December 31, 1999 and relates to the write-off of the balance of unamortized finance fees on debt that was refinanced in February 2000. The delivery of the two new product tankers during 1999 increased Vessels by an aggregate of approximately $57.0 million, decreased Construction in progress by $11.9 million, increased Long-term debt by $36.4 million and decreased cash by approximately $8.7 million. Assets to be disposed of, aggregating $91.0 million, include nine vessels with an aggregate net realizable value of $88.3 million and an investment in a joint venture of $2.7 million at December 31, 1999. The effects of the write down of the nine vessels in 1999 were as follows: decreases to Vessels of $216.4 million, Accumulated depreciation of $98.6 million, Other assets and deferred charges of $9.2 million related to the write-off of the remaining balances for vessels prepaid drydock and goodwill, cumulative translation adjustment of $7.4 million and decreases in retained earnings for the loss on disposal/write down of assets of $31.4 million. The effects of the adjustment to $2.7 million net realizable value for the Geraldton investment, which was to be disposed of, was a decrease in Investment in, and advances to joint ventures of $10.5 million, an increase in Other receivables of $1.2 million relating to a dividend received from the venture and decreases in retained earnings for the loss on write down of Geraldton of $6.6 million. The effects of the disposal of four older Suezmax vessels in 1999 were as follows: cash proceeds of $11.0 million, decreases to Vessels of $52.3 million, Accumulated depreciation of $32.3 million, Other assets and deferred charges of $6.3 million related to the write-off of the remaining balances for vessels prepaid drydock and goodwill, and decreases in retained earnings for the loss on disposal of assets of $15.3 million. Decreases in Investments in, and advances to joint ventures, other than from the disposal of Geraldton, primarily relate to decreases in Investments in two joint ventures that paid dividends of $2.5 million, as a return on investment in 1999 offset partially by additional investment in joint ventures of $0.6 million. Additionally, the disposal/ write down of two ventures decreased Investment in joint ventures by $3.6 million. Increases in the Current portion of long-term debt at December 31, 1999, includes $46.5 million related to debt associated with assets to be disposed of in accordance with the refinancing agreement with banks completed in February 2000 (see Liquidity and Capital Resources). The cumulative effect of the change in accounting principle for freight on voyage charters as of January 1, 1999 on the Company's Consolidated Balance Sheets was to increase Current assets by $1.5 million, decrease Other liabilities by $1.2 million and increase total Stockholders' equity by $2.7 million. FOR THE YEARS ENDED DECEMBER 31, 1998 VERSUS DECEMBER 31, 1997 VOYAGE REVENUES LESS VESSEL AND VOYAGE EXPENSES Net voyage revenues of $41.3 million for the year ended December 31, 1998 decreased by a net of $14.1 million from $55.4 million for the year ended December 31, 1997. Product Carrier Fleet The product carrier fleet consisted of thirteen vessels (ten handysize and three Panamaxes) at December 31, 1998 and 1997. Rates in the product market began to decline in the second half of 1997, and to minimize decreases due to rate declines in the short-term, OMI placed three Panamaxes which previously carried clean products, into a marketing pool. Decreases in the product carrier fleet in 1998 pertaining to the Panamaxes relate to a part of the year in which two of the vessels were carrying clean products and the remainder of the decrease relates to decreased rates earned for these vessels in 1998 in comparison to 1997. Net voyage revenues decreased by $17.7 million for the year ended December 31, 1998 compared to the year ended December 31, 1997. The decreases were due primarily to the market declines. Other decreases in this fleet 17 relate to the three Panamaxes with decreases in net voyage revenue of approximately $4.4 million which were included in the crude oil fleet's earnings for the entire 1998 year for one vessel and approximately twelve months in aggregate for the other two vessels. Additionally, aggregate net voyage revenues decreased approximately $2.7 million in the first half of 1998 compared to 1997 for the two Panamax vessels when they were operating as "clean" product carriers. Additional decreases in 1998 net voyage revenues were related to six product carriers drydocked for an aggregate of 138 days in 1998 versus four vessels for an aggregate of 89 days in 1997. Crude Oil Tanker Fleet At December 31, 1998, the crude fleet consisted of eight wholly owned vessels (seven Suezmaxes, and one aframax) and two chartered-in Suezmaxes; all but one of the vessels were operating in the spot market. In 1997, OMI owned six Suezmaxes, one aframax and chartered-in four vessels (one beginning in May 1997 as part of a sale/leaseback transaction and the other three beginning in the fourth quarter of 1997). During 1998, three new Suezmax vessels were delivered and operated an aggregate of 511 days, a vessel was sold in August 1998 and two chartered-in vessels were redelivered to their owners in July and December 1998. Net voyage revenues of $25.7 million generated by the crude tanker fleet increased a net of $4.5 million for the year ended December 31, 1998 from $21.2 million for the year ended December 31, 1997. The net increase in net voyage revenues can be attributed to three reasons: three Panamaxes with net voyage revenue of $4.4 million which had been carrying clean products in 1997, net voyage revenues of approximately $6.8 million from three Suezmax vessels delivered in the summer of 1998 and an increase in the net voyage revenues due to higher freight rates in 1998 earned by the aframax vessel (which also incurred 22 days offhire in 1997). Net voyage revenues were reduced by decreases in revenues for the remainder of the fleet as a result of: lower rates in the spot market in 1998 due to the lower demand for oil, decreases of $3.8 million in net voyage revenues earned from three of the four vessels chartered-in during 1998, decreases of $2.0 million from the sale of the Suezmax vessel in August 1998 and decreased revenue due to an aggregate of 77 more offhire days in 1998 compared to 1997 primarily relating to drydocking. The net voyage revenues earned by the vessels chartered-in were substantially less due to lower current market rates than those prevailing when the leases were fixed. OTHER OPERATING EXPENSES For the year ended December 31, 1998, operating expenses decreased $0.1 million to $35.1 million, from $35.2 million for the year ended December 31, 1997. The net decrease was due to a decline in G & A expenses of $1.7 million primarily because of relocation accruals and additional professional fees for the anticipated spin off of the Company included in the 1997 expenses. The decrease in G & A expenses was offset by a net increase of $1.6 million in depreciation expense from the delivery of three Suezmax tankers in 1998, offset by the sale of a Suezmax tanker in August 1998 and a liquid petroleum gas carrier ("LPG") vessel in May 1997. OTHER (EXPENSE) INCOME Net other expense decreased by $4.4 million (51 percent decrease) from $8.6 million to $4.2 million for the year ended December 31, 1998 compared to the year ended December 31, 1997. Gain on sale of assets-net increased $5.6 million due to the gain on the sale of a Suezmax tanker in August 1998 compared to the gain on sale in March 1997 of an LPG vessel. Interest expense decreased by $0.7 million for the year ended December 31, 1998 compared to 1997. The decrease in interest expense was primarily due to increases in the capitalization of interest on construction in progress and less interest expense from repayment of debt for the vessel sold in August 1998 offset by interest expense on additional borrowings upon delivery of three newbuildings. Other-net of $0.9 million expense for the year 1998 represents a litigation settlement for a vessel which was sold in 1996. (BENEFITS) PROVISION FOR INCOME TAXES The income tax benefit of $37.2 million includes a provision for federal income taxes of $1.7 million for the period from January 1, 1998 through June 17, 1998 (the date of the Distribution), net of the benefit of $38.9 million representing the reversal of deferred income taxes at the distribution date, as the Company became a decontrolled corporation. 18 EQUITY IN OPERATIONS OF JOINT VENTURES. Equity in operations of joint ventures increased by $2.9 million to $3.7 million for the year ended December 31, 1998 compared to $0.8 million for the year ended 1997. The net increase was primarily attributed to better operating results for a vessel operating in a 49.0 percent owned venture, in addition to increase earnings in 1998 due to a loss on sale of a vessel in 1997 owned by a 49.9 percent joint venture of approximately $10.5 million (OMI's portion of the loss was approximately $5.1 million) offset in part by the gain on the sale of a vessel in the same venture of $1.9 million (OMI's portion of the gain was approximately $0.9 million). During 1998, the Company received an aggregate of $3.4 million in dividends from joint ventures, $2.0 million from Amazon Transport, Inc. ("Amazon") and $1.4 million from White Sea Holdings, Ltd. ("White Sea"). Additionally, during November 1998, OMI received cash of $3.0 million upon dissolution of a 49 percent owned joint venture and recorded a loss of $0.7 million from the dissolution of a 25 percent equity interest in a joint venture. LIQUIDITY AND CAPITAL RESOURCES Cash Flows Cash and cash equivalents of $7.4 million at December 31, 1999 decreased $15.3 million from cash and cash equivalents of $22.7 million at December 31, 1998. The Company's working capital of $43.9 million at December 31, 1999 increased $42.0 million from working capital of $1.9 million at December 31, 1998. Current assets increased $74.1 million and current liabilities increased $32.1 million. Current assets increased by $91.0 million for Assets to be disposed of at December 31, 1999, and decreased $15.3 million in cash and cash equivalents. Current liabilities increased primarily in current portion of long-term debt associated with assets to be disposed of at December 31, 1999. Net cash provided by operating activities decreased $9.6 million to $8.1 million for the year ended December 31, 1999 compared to net cash provided by operating activities of $17.7 million for the year ended December 31, 1998 (see Results of Operations). The Company operates in a capital-intensive industry and augments cash generated by operating activities with debt and sales of vessels that no longer fit the Company's strategy. Cash used by investing activities was $43.7 million for the year ended December 31, 1999, a decrease of $56.1 million from cash used by investing activities of $99.8 million for the year ended December 31, 1998. Cash used by investing activities decreased in 1999 primarily due to decreases in additions to vessels of $56.4 million resulting from the delivery of the three new Suezmax vessels in 1998 aggregating $138.9 million, compared to the 1999 additions aggregating $90.9 million. The 1999 additions to vessels primarily were due to payments relating to the delivery of the COLUMBIA of $38.3 million, the delivery of two product carriers for $45.2 million and construction in progress for a Suezmax tanker of $5.9 million (other increases of $14.3 million in construction in progress were non monetary, OMI issued stock). Proceeds from disposal of assets increased $20.4 million relating to the sale of a Suezmax vessel in August 1998 compared to the disposal of four 1970's built vessels for scrap in 1999. Decreases in investing activities were partially offset by increases relating to notes receivable of $9.0 million, cash paid to escrow of $7.5 million and other increases in 1999. Financing Activities Cash provided by financing activities was $20.3 million for the year ended December 31, 1999, compared to cash provided by financing activities of $74.2 million for the year ended December 31, 1998. In 1999, there were $113.1 million in principal payments on long-term and short-term debt and $133.7 million in proceeds from borrowings. The payments in 1999 included $69.6 million for short-term financing and working capital borrowings; $37.5 million for the COLUMBIA (delivered in January and sale/leaseback in June 1999) and $6.0 million for required payments on three credit facilities and the 7% Convertible Note. The proceeds in 1999 included $37.5 million for the COLUMBIA, $21.2 million for the SEINE (delivered in July), $16.0 million for ISERE (delivered in September) and $59.0 million for short-term financing and working capital borrowings. As of December 31, 1999, OMI had an aggregate of $260.6 million in floating rate credit facilities and revolving lines of credit. The following paragraphs below describe these facilities and revolving lines of credit that OMI used during 1999, which were refinanced in February 2000. On February 11, 2000, OMI completed its refinancing with its 19 previous lenders for a credit agreement in the amount of $264.5 million. Prior to the refinancing and at December 31, 1999, OMI was not in compliance with certain of its covenants under previous credit agreements. The effect of the refinancing revises debt covenants, interest rate margins and principle amortization. There are two primary facilities under the new agreement. Facility A is in the amount of $218.0 million and matures five years from the drawdown date. It will be repaid in ten semi-annual installments commencing six months from the drawdown date, the first four installments in the amount of $5.0 million and the remaining six installments in the amount of $12.5 million, in addition to a balloon payment in the amount of $123.0 million as the last installment on maturity. The outstanding balance of this Facility bears interest at LIBOR plus a margin of 1.75% and is secured by thirteen vessels. Facility B is in the amount of $46.5 million and is a short-term facility which matures two years after the drawdown date. The principle of this Facility will be repaid with proceeds on the sale of vessels secured by this facility which are vessels to be disposed of on the Consolidated Balance Sheets at December 31, 1999. The outstanding balance of this Facility bears interest at LIBOR plus a margin of 2% and is secured by six vessels and OMI's interest in its 49 percent owned joint venture. A third facility provides for certain lenders to repay a portion of Facility A in the event certain mortgage insurance is not obtained. At December 31, 1999, vessels and shares in a joint venture with a net book value of $385.4 million have been pledged as collateral (under the new credit agreement) on long-term debt issues. An extraordinary loss of $1.3 million was recorded for the year ended December 31, 1999. This loss relates to the write-off of the balance of unamortized finance fees on debt which was refinanced in February 2000. Certain of the loan agreements, including the new credit agreement, of the Company contain restrictive covenants requiring minimum levels of cash or cash equivalents, working capital and net worth, maintenance of specified financial ratios and collateral values, and restrict the ability of the Company to pay dividends. These loan agreements also contain various provisions restricting the right of OMI and/or its subsidiaries to make certain investments, to place additional liens on the property of certain of OMI's subsidiaries, to incur additional long-term debt, to make certain payments, to merge or to undergo a similar corporate reorganization, and to enter into transactions with affiliated companies. On February 28, 1999, the Company obtained a $25.0 million revolving line of credit secured by five vessels, four of which were sold during the year, and shares in a joint venture company. The revolving credit facility was used for working capital and other general corporate purposes, and bore interest at LIBOR plus a margin ranging from 1.375%-1.75%. The facility had a balance of $6.5 million at December 31, 1999. The Company had a credit facility, which was assumed from Old OMI (currently MTC), that provided for a line of credit amounting to $99.1 million at December 31, 1999. The credit facility was secured by eleven vessels. The Notes under the credit facility bore interest at LIBOR plus a margin ranging from 0.60%-0.95%, which was computed based on OMI's funded debt to equity ratio and interest coverage ratio. On June 4, 1998, the Company entered into a secured revolving credit agreement to refinance two Panamax tankers and to finance a new product carrier upon delivery. On June 9, 1998, the Company drew down $16.0 million to refinance the two Panamax tankers. The $16.0 million was to be repaid in quarterly installments of $0.8 million over the next five years and bore interest at LIBOR plus a margin ranging from 0.65%- 0.95%, which was computed based on the Company's funded debt to capitalization ratio. On September 15,1999, $16.0 million was drawn down to finance a new product carrier. The balance of the loan at December 31, 1999 was $26.8 million. On June 4, 1998, the Company entered into a $71.5 million secured revolving credit facility to finance two Suezmax tankers upon their delivery from the yard. On June 9, 1998, $35.8 million was drawn to finance the first vessel, and on August 7, 1998, $35.8 million was drawn to finance the second vessel. Each drawdown was to be repaid by semi-annual payments of $1.3 million beginning 18 months after the initial drawdown and a balloon of $13.8 million ten years after the initial drawdown date. The facility bore interest at LIBOR plus a margin ranging from 0.85%- 0.95%. At December 31, 1999, the outstanding loan balance was $70.2 million. On July 6, 1998, the Company entered into an agreement, as amended, for a $37.8 million secured reducing revolving credit facility to finance a Suezmax tanker upon its delivery from the yard. The Company drew down $37.8 million on July 20, 1998 to finance the newbuilding. The availability under this facility was to be reduced by 14 20 semi-annual reductions of 3.9% of the original facility, and the remaining balance is due at maturity, which is ten years after the initial drawdown. The facility bore interest at LIBOR plus a margin ranging from 0.60%-1.05%. At December 31, 1999 the outstanding loan balance was $36.9 million. During December 1998, the Company entered into an agreement with a lender for a $60.0 million revolving credit facility. The revolving credit facility was to be used to finance, on an interim basis, the acquisition of vessels and would be secured by such vessels. Amounts drawn on the revolving credit facility was to be repaid no later than six months after drawdown. The facility bore interest at LIBOR plus a margin ranging from 1.00%- 1.75% which is computed based on the Company's funded debt to total capitalization ratio and interest coverage ratio. On January 14, 1999, the Company drew down $37.5 million under this facility to finance the acquisition of a Suezmax newbuilding, which was repaid in June 1999. On July 15, 1999, $21.2 million was drawn down to finance a new product carrier, and this balance remained at December 31, 1999. COMMITMENTS At December 31, 1999, the Company had two remaining construction contracts for two Suezmax tankers with capitalized costs at delivery for the first vessel in March 2000 of approximately $46.2 million and expected capitalized costs at delivery in May 2000 of $51.0 million. As of December 31, 1999, total capitalized costs for these vessels aggregated $25.3 million. The sale/leaseback of the COLUMBIA on June 30, 1999 resulted in a three year operating lease with the purchaser. The Company is responsible for operating expenses of the vessel and is required to maintain $2.0 million in escrow over the lease term, and a cash collateral account initially of $4.0 million. The cash collateral account was replaced by a standby letter of credit in September 1999, which will increase by $750,000 per quarter in the first year and by $500,000 per quarter in the second year to a maximum of $9.0 million. The letter of credit will serve as additional collateral for the Company's obligation under the lease. OMI has guaranteed a minimum resale or residual value for this vessel at the end of the lease. At December 31, 1999, the impact of the guarantee is not expected to be material. In May 1997, the Company sold the ALTA (a Suezmax crude oil carrier) for approximately $39.9 million and leased back the vessel for five years. The gain on the sale of approximately $15.7 million has been deferred and is being credited to income as an adjustment to lease expense over the term of the lease. As of December 31, 1999, the deferred gain on sale was $7.5 million. OMI was a guarantor for a portion of the debt incurred by a joint venture with affiliates of its joint venture partner until the sale of OMI's interest in the venture during the first quarter 2000. Such debt was approximately $13.5 million at December 31, 1999; OMI's guaranty of such debt was approximately $6.7 million. The Company and its joint venture partners have committed to fund any working capital deficiencies that may be incurred by their joint venture investments. As of December 31, 1999, no such deficiencies have been funded. EFFECTS OF INFLATION The Company does not consider inflation to be a significant risk to the cost of doing business in the current or foreseeable future. Inflation has a moderate impact on operating expenses, drydocking expenses and corporate overhead. NEWLY ISSUED ACCOUNTING STANDARDS In June 1999, the Financial Accounting Standards Board Statement ("FASB") issued Statement of Financial Accounting Standards No. 137 ("SFAS 137"), "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB No. 133", which defers the effective date of SFAS 133 to fiscal years beginning after June 15, 2000. SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", establishes accounting and reporting standards for derivative instruments and for hedging activities. Generally, it requires that an entity recognizes all derivatives as either assets or liabilities in the statement of financial position and 21 measure those instruments at fair value, as well as identifies the conditions for which a derivative may be specifically designated as a hedge. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. This Statement amends and supercedes Statements previously issued. The Company does not expect that the adoption of SFAS 133 will have a material effect on the Company's financial condition or results of operations. YEAR 2000 OMI successfully transitioned into the Year 2000 without any Y2K-related service disruptions. Although considered unlikely, the Company could be affected by Y2K problems by the Company's customers, suppliers and other third parties. OMI will continue to monitor the situation and take action as necessary to remedy any problems, which might occur and ensure all processes continue to function properly. As of December 31, 1999, the Y2K Project cost approximately $0.2 million related to financial systems. The cost that relates to fixture of ships software and hardware has been minimal. Additionally, the Company paid $0.3 million, not included in the estimated budget for financial systems, towards new financial applications implementation which included the hardware, software and support fees. Based on responses received from vendors, to date, the Company is not aware of any significant investments in assets that are not Y2K compliant. To date, OMI has not identified any material risks of not being year 2000 compliant. However, if a risk should subsequently arise, the Company would remedy it. The Company relies on vendor guarantees that critical systems are Y2K compliant and has not had any noncompliance thus far. OMI has full maintenance contracts with all its vendors in the case of any system problem they are required to resolve such problems within a reasonable amount of time. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS Market Risk The Company is exposed to various market risks, including interest rates. The exposure to interest rate risk relates primarily to the debt and related interest rate swaps. At December 31, 1999, the majority of the $267.7 million debt was floating rate debt, which totaled $260.6 million. A one percent increase in the floating rate would increase interest expense by $2.6 million per year. The fixed rate debt on the balance sheet and the fair market value were $7.1 million as of December 31, 1999. If interest rates were to increase (decrease) by one percent with all other variables remaining constant, the market value of the fixed rate debt would decrease (increase) by approximately $0.1 million. The Company has an interest rate swap agreement to manage its exposure with interest rates by locking in fixed interest rate from floating rates. At December 31, 1999, there was one swap with at notional principal of $10.0 million, which matures in June 2000. The Company would have had to pay $0.1 million to terminate the agreement as of December 31, 1999. Since the agreement matures in 2000 and the terms of the contract are known, the maximum exposure to the interest rate swap is $0.1 million. 22
INDEX TO FINANCIAL STATEMENTS PAGE ---- OMI CORPORATION AND SUBSIDIARIES: Consolidated Statements of Operations and Comprehensive Income for the three years ended December 31, 1999 ........................................................ 24 Consolidated Balance Sheets as of December 31, 1999 and 1998 ......................................... 25 Consolidated Statements of Cash Flows for the three years ended December 31, 1999 .................... 27 Consolidated Statements of Changes in Stockholders' Equity for the three years ended December 31, 1999 ................................................................ 28 Notes to Consolidated Financial Statements ........................................................... 29 Independent Auditors' Report ........................................................................ 46 Quarterly Results of Operations (unaudited) .......................................................... 47 FINANCIAL STATEMENTS OF SIGNIFICANT INVESTEES OF OMI CORPORATION AND SUBSIDIARIES: AMAZON TRANSPORT, INC. Balance Sheets as of December 31, 1999 and 1998 ...................................................... 48 Statements of Income for the three years ended December 31, 1999 ..................................... 49 Statements of Cash Flows for the three years ended December 31, 1999 ................................. 50 Notes to Financial Statements ........................................................................ 51 Independent Auditors' Report ......................................................................... 52 WHITE SEA HOLDINGS LTD. Balance Sheets at September 29, 1999 (unaudited) and December 31, 1998 ............................... 53 Statements of Income and Retained Earnings for the period January 1, 1999 to September 29, 1999 (unaudited) and for the years ended December 31, 1998 and December 31, 1997 ....................... 54 Statements of Cash Flows for the period January 1, 1999 to September 29, 1999 (unaudited) and for the years ended December 31, 1998 and December 31, 1997 ....................... 55 Notes to Financial Statements ........................................................................ 56 Independent Auditors' Report ......................................................................... 58
23 ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OMI CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (IN THOUSANDS, EXCEPT PER SHARE DATA)
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------ 1999 1998 1997 --------- --------- --------- REVENUES (Note 4) .................................................................. $ 115,992 $ 149,228 $ 141,985 --------- --------- --------- OPERATING EXPENSES: Vessel and voyage ................................................................ 66,842 82,368 77,686 Charter hire ..................................................................... 15,234 25,529 8,906 Depreciation and amortization .................................................... 23,835 24,314 22,675 Provision for loss on lease obligations (Note 10) ................................ 6,229 -- -- General and administrative ....................................................... 10,486 10,773 12,540 --------- --------- --------- Total operating expenses ........................................................... 122,626 142,984 121,807 --------- --------- --------- OPERATING (LOSS) INCOME ............................................................ (6,634) 6,244 20,178 --------- --------- --------- OTHER (EXPENSE) INCOME: (Loss) gain on disposal/write down of assets-net (Notes 9, 11, 12) ............... (48,692) 6,485 885 Loss on disposal/write down of joint venture investments (Note 4) ................ (7,771) -- -- Interest expense ................................................................. (17,945) (11,118) (11,756) Interest income .................................................................. 1,455 1,346 2,222 Other-net (Note 2) ............................................................... (1,209) (882) -- --------- --------- -------- Net other expense ................................................................ (74,162) (4,169) (8,649) --------- --------- --------- (Loss) income before income taxes, equity in operations of joint ventures, extraordinary loss and cumulative effect of change in accounting principles ................................................ (80,796) 2,075 11,529 Provision (benefit) for income taxes (Note 13) ................................... 475 (37,158) 5,407 --------- --------- --------- (Loss) income before equity in operations of joint ventures, extraordinary loss and cumulative effect of change in accounting principles .......................................................... (81,271) 39,233 6,122 Equity (loss) in operations of joint ventures (Note 4) ........................... (510) 3,684 737 --------- --------- --------- (Loss) income before extraordinary loss and cumulative effect of change in accounting principles ............................................... (81,781) 42,917 6,859 Extraordinary loss (Note 5) ........................................................ (1,253) -- -- --------- --------- --------- (Loss) income before cumulative effect of change in accounting principles ....................................................................... (83,034) 42,917 6,859 Cumulative effect of change in accounting principles, net of income tax provision (Notes 7, 8) ................................................ 2,729 -- 10,063 --------- --------- --------- NET (LOSS) INCOME .................................................................. (80,305) 42,917 16,922 OTHER COMPREHENSIVE INCOME: Realization of cumulative translation adjustment (Note 12) ....................... (7,442) -- -- Reversal of deferred income taxes on cumulative translation adjustment ..................................................................... -- 2,530 -- --------- --------- --------- COMPREHENSIVE (LOSS) INCOME ...................................................... $ (87,747) $ 45,447 $ 16,922 ========= ========= ========= BASIC (LOSS) EARNINGS PER COMMON SHARE: (Loss) income before extraordinary loss and cumulative effect of change in accounting principles ............................................. $ (1.94) $ 1.01 $ 0.16 Extraordinary loss ............................................................... (0.03) -- -- Cumulative effect of change in accounting principles ............................. 0.07 -- 0.23 --------- --------- --------- NET (LOSS) INCOME .................................................................. $ (1.90) $ 1.01 $ 0.39 ========= ========= ========= DILUTED (LOSS) EARNINGS PER COMMON SHARE: (Loss) income before extraordinary loss and cumulative effect of change in accounting principles ............................................. $ (1.94) $ 1.00 $ 0.16 Extraordinary loss ............................................................... (0.03) -- -- Cumulative effect of change in accounting principles ............................. 0.07 -- 0.23 --------- --------- --------- NET (LOSS) INCOME .................................................................. $ (1.90) $ 1.00 $ 0.39 ========= ========= =========
See notes to consolidated financial statements. 24 OMI CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) ASSETS
DECEMBER 31, -------------------- 1999 1998 -------- -------- CURRENT ASSETS: Cash, including cash equivalents of: 1999-$5,172; 1998-$10,166 ...................................... $ 7,381 $ 22,698 Receivables: Traffic ........................................................ 9,245 12,842 Other (Note 2) ................................................. 9,136 2,733 Assets to be disposed of (Notes 4, 12) ............................. 90,996 -- Prepaid drydock expense (Note 8) ................................... 250 3,550 Other prepaid expenses and other current assets .................... 4,187 5,272 -------- -------- Total current assets ....................................... 121,195 47,095 -------- -------- VESSELS, CONSTRUCTION IN PROGRESS AND OTHER PROPERTY Vessels (Note 5) ................................................... 331,988 543,040 Construction in progress (Note 19) ................................. 25,340 34,733 Other property ..................................................... 2,354 1,407 -------- -------- Total vessels, construction in progress and other property ... 359,682 579,180 Less accumulated depreciation ................................ 42,926 150,585 -------- -------- Vessels, construction in progress and other property-net ..... 316,756 428,595 -------- -------- INVESTMENTS IN, AND ADVANCES TO JOINT VENTURES (Note 4) ............ 11,519 25,507 NOTES RECEIVABLE (Note 9) .......................................... 9,262 6,604 OTHER ASSETS AND DEFERRED CHARGES (Note 8) ......................... 13,683 22,326 -------- -------- TOTAL ............................................................ $472,415 $530,127 ======== ========
See notes to consolidated financial statements. 25 OMI CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARES) LIABILITIES AND STOCKHOLDERS' EQUITY
DECEMBER 31, -------- -------- 1999 1998 -------- -------- CURRENT LIABILITIES: Accounts payable ................................................. $ 7,017 $ 2,520 Accrued liabilities: Voyage and vessel .............................................. 4,285 11,438 Interest ....................................................... 2,762 4,007 Other .......................................................... 5,190 2,571 Deferred gain on sale of vessel (Note 9) ......................... 3,151 3,151 Current portion of long-term debt (Notes 5, 6) ................... 54,834 21,494 -------- -------- Total current liabilities .................................. 77,239 45,181 -------- -------- OTHER LIABILITIES .................................................. 3,034 3,496 LONG-TERM DEBT (Notes 2, 5, 6) ..................................... 212,913 225,653 DEFERRED GAIN ON SALE OF VESSEL (Note 9) ........................... 4,363 7,514 DEFERRED INCOME TAXES (Note 13) .................................... 3,100 3,100 COMMITMENTS AND CONTINGENCIES (Note 19) STOCKHOLDERS' EQUITY: Common stock, $0.50 par value; 150,000,000 shares authorized; shares issued and outstanding: 1999-49,394,000 1998-43,694,000 (Notes 3, 7, 16, 18) ........................... 24,697 21,847 Capital surplus (Note 2) ......................................... 218,869 207,469 Retained (deficit) earnings (Note 2) ............................. (62,966) 17,465 Cumulative translation adjustment (Note 12) ...................... -- 7,442 Treasury stock (Note 18) ......................................... (8,834) (9,040) -------- -------- Total stockholders' equity ................................. 171,766 245,183 -------- -------- TOTAL ............................................................ $472,415 $530,127 ======== ========
See notes to consolidated financial statements. 26 OMI CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 1999 1998 1997 --------- --------- --------- CASH FLOWS PROVIDED BY OPERATING ACTIVITIES: Net (loss) income ............................................ $ (80,305) $ 42,917 $ 16,922 Adjustments to reconcile net (loss) income to net cash (used) provided by operating activities: Extraordinary loss ....................................... 1,253 -- -- Cumulative effect of change in accounting principles, net of tax ................................. (2,729) -- (10,063) Decrease in deferred income taxes ........................ -- (39,850) (2,314) Depreciation and amortization ............................ 23,835 24,314 22,675 Loss (gain) on disposal/write down of assets--net ........ 48,692 (6,485) (885) Loss on disposal/write down of joint venture investments ............................................ 7,771 -- -- Net intercompany transactions ............................ -- 1,337 11,357 Amortization of deferred gain on sale of vessel .......... (3,151) (3,151) (1,940) Provision for loss on lease obligations--net of amortization ........................................... 4,845 -- -- Loss (equity) in operations of joint ventures--net of dividends received .................................. 1,940 (254) (2) Changes in assets and liabilities: Decrease (increase) in receivables and other current assets ......................................... 8,664 (2,460) (4,532) (Decrease) increase in accounts payable and accrued liabilities .................................... (4,087) 8,292 2,508 Advances from joint ventures--net ........................ 2,665 (185) (254) (Increase) decrease in other assets and deferred charges ................................................ (95) (3,347) 4,092 Decrease in other liabilities ............................ (1,299) (240) (1,220) Payable to parent--net ................................... -- (3,217) (16,687) Other .................................................... 80 -- -- --------- --------- --------- Net cash provided by operating activities ............ 8,079 17,671 19,657 --------- --------- --------- CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES: Proceeds from disposition of vessels and other property ............................................... 65,250 44,877 38,977 Additions to vessels and other property .................. (90,999) (147,407) (55,285) Proceeds from dispositions of joint ventures ............. 1,561 2,989 32,301 Issuance of notes receivable ............................. (9,000) -- -- Investments in joint venture ............................. (637) (247) (343) Escrow of funds .......................................... (7,548) -- -- Proceeds from notes receivable ........................... 424 -- -- Other .................................................... (2,769) -- -- --------- --------- --------- Net cash (used) provided by investing activities ..... (43,718) (99,788) 15,650 --------- --------- --------- CASH FLOWS (USED) PROVIDED BY FINANCING ACTIVITIES: Proceeds from issuance of long-term and short-term debt ........................................ 133,698 171,300 -- Payments on long-term and short-term debt ................ (113,098) (87,070) (24,732) Purchase of treasury stock ............................... -- (9,040) -- Capital contribution from Old OMI ........................ -- -- 4,100 Payments for debt issue costs ............................ (278) (983) (123) --------- --------- --------- Net cash provided (used) by financing activities ..... 20,322 74,207 (20,755) --------- --------- --------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ........... (15,317) (7,910) 14,552 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ................. 22,698 30,608 16,056 --------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR ....................... $ 7,381 $ 22,698 $ 30,608 ========= ========= =========
See notes to consolidated financial statements. 27 OMI CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE THREE YEARS ENDED DECEMBER 31, 1999 (IN THOUSANDS)
ACCUMULATED OTHER COMPRE- TOTAL COMMON STOCK RETAINED NET COMPRE- HENSIVE- STOCK- ----------------- CAPITAL EARNING INTERCOMPANY TREASURY HENSIVE INCOME HOLDERS' SHARES AMOUNT SURPLUS (DEFICIT) TRANSLATIONS STOCK INCOME (LOSS) EQUITY ------ -------- -------- -------- -------- ------ ------ -------- -------- BALANCE AT JANUARY 1, 1997 ...... 42,709 $ 21,355 $238,363 $(42,374) $ 28,146 $4,912 $250,402 Comprehensive income: Net income .................... 16,922 $ 16,922 16,922 Net change in valuation -- account ..................... -------- Comprehensive income ............ $ 16,922 ======== Capital contribution of intercompany account balance with parent ................... 4,100 4,100 Retirement of partner's equity interest in joint venture ..... 777 777 Net intercompany transactions ... 11,357 11,357 Issuance of common stock ........ 375 187 (187) -- ------ -------- -------- -------- ------- ------ -------- BALANCE AT DECEMBER 31, 1997 .... 43,084 21,542 243,053 (25,452) 39,503 4,912 283,558 Comprehensive Income: Net Income .................... 42,917 $ 42,917 42,917 Reversal of deferred income taxes on cumulative translation adjustment ...... 2,530 2,530 2,530 -------- Comprehensive income ............ $ 45,447 ======== Capital distribution of net intercompany account balance with parent (Note 2) .......... (76,119) (76,119) Net intercompany transactions ... 1,337 1,337 Capital distribution of net intercompany transactions with parent (Note 2) .......... 40,840 (40,840) -- Exercise of stock options ....... 50 25 (25) -- Issuance of common stock ........ 560 280 (280) -- Purchase of treasury stock (Note 18) ..................... $(9,040) (9,040) ------ ------ ------- ------ ------- ------ ------ ------- BALANCE AT DECEMBER 31, 1998 .... 43,694 21,847 207,469 17,465 -- (9,040) 7,442 245,183 Comprehensive loss: Net loss ...................... (80,305) $(80,305) (80,305) Realization of cumulative translation adjustment (Note 12) ................... (7,442) (7,442) (7,442) -------- Comprehensive loss .............. $(87,747) ======== Issuance of common stock (Note 11) ..................... 5,700 2,850 11,400 14,250 Issuance of treasury stock (Note 18) ..................... (126) 206 80 ------ ------- -------- -------- ------- ------- ------ -------- BALANCE AT DECEMBER 31, 1999 .... 49,394 $24,697 $218,869 $(62,966) $ -- $(8,834) $ -- $171,766 ====== ======= ======== ======== ======= ======= ====== ========
See notes to consolidated financial statements. 28 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1999 (ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business--OMI Corporation ("OMI" or the "Company"), is a bulk shipping company incorporated in the Republic of the Marshall Islands, which provides seaborne transportation services primarily of crude oil and refined petroleum products. The Company is a successor to Universal Bulk Carriers, Inc. ("UBC"), a Liberian corporation, which was a wholly-owned subsidiary of OMI Corp. until June 17, 1998 at which date the Company was separated from OMI Corp. (renamed Marine Transport Corporation "MTC") through a tax-free distribution ("Distribution") to OMI Corp.'s shareholders of one share of UBC common stock for each share of OMI Corp. ("Old OMI") common stock. The Distribution separated Old OMI into two publicly-owned companies. In connection with the Distribution, the Company's common stock was recapitalized with 150,000,0000 shares authorized (par value 50 cents), with 43,084,000 shares outstanding. This recapitalization has been reflected for the earliest year presented. OMI Corporation operates what was OMI Corp.'s foreign shipping businesses under the management of certain officers formerly of Old OMI who moved to the new company and certain former directors of Old OMI and additional new directors. The Company continues to trade under the symbol "OMM" on the New York Stock Exchange. Basis of Presentation--The accompanying consolidated financial statements reflect the results of operations, financial position, changes in stockholders' equity and cash flows of OMI and subsidiaries. The financial statements have been prepared using the historical basis in the assets and liabilities and the historical results of operations directly attributable to OMI and all intercompany accounts and transactions between OMI and its subsidiaries have been eliminated. The financial statements and computations of basic and diluted earnings per share (See Note 3) have been presented giving effect to the Distribution as though it occurred at the beginning of the earliest year presented. Reclassifications--Certain reclassifications have been made to the 1998 and 1997 financial statements to conform to the 1999 presentation. Principles of Consolidation--The consolidated financial statements include all subsidiaries which are more than 50 percent owned by OMI. All significant intercompany accounts and transactions have been eliminated in consolidation. Investments in joint ventures, in which the Company's interest is 50 percent or less and where it is deemed that the Company's ownership gives it significant influence over operating and financial policies, are accounted for by the equity method. Accounting Estimates--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Operating Revenues and Expenses--Voyage revenues and expenses are recognized on the percentage of completion method of accounting based on voyage costs incurred to date as compared to estimated total voyage costs. Estimated losses on voyages are provided for in full at the time such losses become evident. Effective January 1, 1999, OMI changed its accounting policy on recognition of voyage freight for vessels operating on voyage charters from load-to-load to the discharge-to-discharge basis. Under this method, voyage revenue is recognized evenly over the period from the departure of a vessel from its original discharge port to departure from the next discharge port. Management believes that the discharge-to-discharge method is preferable because (a) it is the predominant method for shipowners, and (b) it eliminates the uncertainty associated with the location of the next load port (See Note 7). 29 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Effective January 1, 1997, special survey and drydock expenses are accounted for using the prepaid method. Under the prepaid method, expenses are capitalized and amortized over the survey cycle, which is generally a two to five year period. Prior to 1997, special survey and drydock expenses were accrued and charged to operating expenses over the survey cycle. The accruals of such expenses were based on management's best estimates of future costs and the expected length of the survey cycle. However, the ultimate liability may have been more or less than such estimates (See Note 8). Vessels, Construction in Progress and Other Property--Vessels and other property are recorded at cost. Depreciation for financial reporting purposes is provided principally on the straight-line method based on the estimated useful lives of the assets up to the assets' estimated salvage value. The useful lives of the vessels range from 20 to 25 years. Salvage value is based upon a vessel's lightweight tonnage multiplied by a scrap rate. Interest costs incurred during the construction of vessels (until the vessel is substantially complete and ready for its intended use) are capitalized. The amount of interest capitalized was $1,384,000 in 1999, $3,762,000 in 1998 and $2,207,000 in 1997. Other property and leasehold improvements are amortized on the straight-line method over the terms of the lease or estimated useful lives of the assets. Expenditures for maintenance, repairs and minor renewals are expensed. Major replacements and renewals are capitalized. In the event that facts and circumstances indicate that the carrying amount of a vessel may be impaired, an evaluation of recoverability is performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the vessel are compared to the vessel's carrying value to determine if a write down to fair value is required. Goodwill--Goodwill, included in Other Assets and Deferred Charges, recognized in business combinations accounted for as purchases, was $1,827,000 and $11,079,000 at December 31, 1999 and 1998, respectively, and is being amortized over the remaining lives of assets, which were acquired in such combinations. During 1999, $8,600,000 of goodwill was charged to loss on disposal/write down of assets for vessels sold (See Note 11) and for vessels to be disposed of at December 31, 1999 (See Note 12). The carrying value of goodwill is reviewed periodically based on the estimated future undiscounted cash flows of the entity acquired over the remaining amortization period in order to ensure that the carrying value of goodwill has not been impaired. Earnings (Loss) Per Common Share--Effective January 1, 1997, the Company adopted Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings per Share" which was adopted for interim and annual reports. SFAS 128 specifies the computation, presentation, and disclosure requirements for earnings per share ("EPS"). It replaces the presentation of primary and fully diluted EPS with Basic and Diluted EPS. Basic EPS excludes the dilutive effect of stock options. It is based upon the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock. Federal Income Taxes--Management estimated that the distribution of shares to the shareholders of Old OMI would result in Federal income taxes becoming payable by OMI Corporation of approximately $1,900,000 representing Federal income taxes on previously excluded foreign ("Subpart F") income and on the distribution of shares of non-United States shareholders. As OMI will not be subject to any additional income taxes (other than adjustments to previously reported amounts), $38,887,000 of the balance of deferred income taxes was credited to income in 1998, leaving a balance of $3,100,000 (See Notes 2 and 13). Stock Options--The Company has elected to follow Accounting Principles Board Opinion No. 25 ("APB 25") "Accounting of Stock Issued to Employees" in accounting for its employee stock options, and other stock based awards. Under APB 25, if the exercise price of an employee's stock option equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recognized (See Note 16). 30 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Cash Flows--Cash equivalents represent liquid investments which mature within 90 days. The carrying amount approximates fair value. Newly Issued Accounting Standards--In June 1999, the Financial Accounting Standards Board Statement ("FASB") issued Statement of Financial Accounting Standards No. 137 ("SFAS 137"), Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB No. 133", which defers the effective date of SFAS 133 to fiscal years beginning after June 15, 2000. SFAS 133, "Accounting for Derivative Instruments and Hedging Activities", establishes accounting and reporting standards for derivative instruments and for hedging activities. Generally, it requires that an entity recognizes all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value, as well as identifies the conditions for which a derivative may be specifically designated as a hedge. The accounting for changes in the fair value of a derivative depends on the intended use of the derivative and the resulting designation. This Statement amends and supercedes Statements previously issued. The Company does not expect that the adoption of SFAS 133 will have a material effect on the Company's financial condition of results of operations. NOTE 2--DISTRIBUTION As part of the Distribution, OMI was party to certain agreements with MTC, including the following: Distribution Agreement--The Distribution Agreement provides for, with certain exceptions, assumptions of liabilities and cross-indemnities designed principally to place financial responsibility for the liabilities with the appropriate company. OMI, however, assumed the obligations of Old OMI with respect to Old OMI's 10.25 percent Senior Notes due November 1, 2003 in exchange for a note from MTC in the amount of $6.4 million, which was equivalent in value to the principal amount of the Senior Notes then outstanding. During February 2000, MTC paid $5.1 million in full settlement of the note, which was due in 2003. As a result, a loss of $1,209,000 was recorded in the Consolidated Statements of Operations for the year ended December 31, 1999 in Net other expense. The Distribution Agreement also provides that each of MTC and OMI will indemnify the other in the event of certain liabilities arising under the Federal securities laws. Each of MTC and OMI will have sole responsibility for claims arising out of its respective activities after the Distribution. The Distribution Agreement also provides that, except as otherwise set forth therein or in any other agreement, all costs or expenses incurred on or prior to the Distribution date in connection with the Distribution will be charged to and paid by the party incurring such costs or expenses. Except as set forth in the Distribution Agreement or any related agreement, each party shall bear its own costs and expenses incurred after the Distribution date. Prior to Distribution--Prior to the distribution, debt had been incurred for the consolidated group at the parent company level or at a limited number of subsidiaries, rather than at the operating company level, in order to centrally manage various cash functions. Consequently, the mortgage debt of Old OMI and its related interest expense (net of tax benefit) were allocated to OMI (formerly UBC) and its subsidiaries based upon the value of the vessel collateralizing the debt. The changes in allocated corporate debt, the after-tax allocated interest expense and the after tax allocated general and administrative expenses have been included as Net intercompany transactions in Stockholders' equity. Although management believes that the historical allocation of corporate debt and interest expense is reasonable, it is not necessarily indicative of the Company's debt or results of operations had the Company been on a stand alone basis for the periods up to June 17, 1998. Net intercompany transactions represent an aggregate of allocations for income taxes, interest expense on unsecured corporate debt and general corporate purposes. As of the Distribution date, the cumulative balances of the Net intercompany transactions of $40,840,000 were credited to Capital Surplus and the balance at June 17, 1998 in Receivable from parent-net aggregating $76,119,000 was charged to Capital Surplus. Included in the net receivable from parent was the assumption by OMI (formerly UBC) of the revolving line of credit, the assumption of the 10.25% Senior Notes and the 7% convertible note due 2004 (See Note 5). 31 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 3--EARNINGS (LOSS) PER COMMON SHARE The computation of basic (loss) earnings per share is based on the weighted average number of common shares outstanding during the year. The computation of diluted earnings per share assumes the foregoing and the exercise of all stock options (See Note 16) using the treasury stock method and the conversion of the 7% convertible note due 2004 (See Note 5), to the extent dilutive. The components of the denominator for the calculation of basic earnings per share and diluted earnings per share is as follows:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------- 1999 1998 1997 ------- ------- ------- Basic earnings per share: Weighted average common shares outstanding ........... 42,250 42,671 42,914 ======= ======= ======= Diluted earnings per share: Weighted average common shares outstanding ........... 42,250 42,671 42,914 7% Convertible Note .................................. -- -- 407 Options .............................................. -- 189 336 ------- ------- ------- Weighted average common shares--diluted .............. 42,250 42,860 43,657 ======= ======= ======= Basic (loss) earnings per common share: Net (loss) income before extraordinary loss and cumulative effect of change in accounting principles $ (1.94) $ 1.01 $ 0.16 Extraordinary loss ................................... (0.03) -- -- Cumulative effect of change in accounting principles, net of income tax provision ............ 0.07 -- 0.23 ------- ------- ------- Net (loss) income per common share ..................... $ (1.90) $ 1.01 $ 0.39 ======= ======= ======= Diluted (loss) earnings per common share: Net (loss) income before extraordinary loss and cumulative effect of change in accounting principles ......................................... $ (1.94) $ 1.00 $ 0.16 Extraordinary loss ................................... (0.03) -- -- Cumulative effect of change in accounting principles, net of income tax provision ............ 0.07 -- 0.23 ------- ------- ------- Net (loss) income per common share ..................... $ (1.90) $ 1.00 $ 0.39 ======= ======= =======
The effect of the assumed conversion of the 7% convertible note due 2004 was not included in the computation of diluted earnings per share in 1999 and 1998 because the average price of OMI's stock was less than the stock conversion price of $7.285. The effect of the assumed exercise of options was not included in the computation of diluted earnings per share because the grant prices exceeded the average price of OMI stock in 1999. 32 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 4--INVESTMENTS IN JOINT VENTURES The operating results of the joint ventures have been included in the accompanying consolidated financial statements on the basis of ownership as follows: PERCENT OF OWNERSHIP ----------- Alliance Chartering LLC .............................. 50.0(1) Amazon Transport, Inc. ("Amazon") .................... 49.0 Gainwell Investments Ltd ("Gainwell") ............... 25.0(2) Geraldton Navigation Company Inc. ("Geraldton") ...... 49.9(3) International Product Carriers Limited ("IPC") ....... 50.0(4) Kanejoy Corporation ("Kanejoy") ...................... 49.9(2) Mosaic Alliance Corporation ("Mosaic") ............... 49.9(5) OMI-Heidmar Shipping Ltd. ("OMI-Heidmar") ............ 50.0(6) White Sea Holdings Ltd. ("White Sea") ................ 49.0(7) - ---------- (1) The venture was begun on May 8, 1998. (2) Liquidated January 27, 1999. (3) The Company sold its interest to its partner in March 2000. (4) The venture was formed on April 15, 1999, and began operating effective May 1, 1999. (5) Partner's interest acquired on December 10, 1997. (6) The Company sold its interest to its partner on August 17, 1999. (7) The Company sold its interest to its partner on September 29, 1999. At December 31, 1999, OMI wrote down its investment in Geraldton to its net realizable value of approximately $2,700,000. The investment is to be liquidated in 2000. A dividend of $2,421,000 was paid in 2000 of which OMI's portion was $1,209,000. A loss of $6,605,000 was recorded in the Company's Consolidated Statements of Operations at December 31, 1999 relating to the disposal of this investment in 2000. On September 29, 1999, OMI sold its 49 percent share in its White Sea joint venture for approximately $2,427,000, of which $1,560,000 cash was received in October 1999. A loss of $867,000 was recorded from the sale of the venture. In 1999, the Company chartered ten vessels for an aggregate of $14,237,000 to IPC. This amount is included in the revenue of the Company since the operations of IPC are not consolidated. Voyage revenues from IPC in 1999 in aggregate were 12 percent of OMI's consolidated revenues. The revenues are received by IPC from numerous customers into a pool which is divided among the vessels in the pool. In 1999 and 1998, the Company chartered three vessels for an aggregate of $4,227,000 and $6,720,000, respectively, to OMI-Heidmar. This amount is included in the revenue of the Company since the operations of OMI-Heidmar are not consolidated. During 1999, the Company wrote down its investment in OMI-Heidmar by $299,000, as the partners agreed to dissolve this venture in June 1999. For the years ended December 31, 1999 and 1998, aggregate revenues of $6,333,000 and $17,385,000, respectively, included in the Consolidated Statements of Operations related to vessels chartered to a company partially owned by an individual who was a Director of OMI. On March 14, 2000, OMI announced it was an investor in MarineProvider ASA, which will offer on line services to shipowners, including bunker and supply acquisition. The Company invested approximately $500,000 in the first quarter of 2000. 33 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED) (ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 4--INVESTMENTS In JOINT VENTURES (CONTINUED) In November 1998, Gainwell sold the property it owned at a loss. Gainwell repaid its outstanding obligations with proceeds from the sale, including an outstanding loan with Kanejoy, another joint venture. Gainwell and Kanejoy were both liquidated in January 1999, OMI received $2,989,000 cash from return of capital in its Kanejoy venture, and recorded a loss from Gainwell of $678,000. In September 1997, Mosaic sold a vessel to one of its joint venture partners (the majority shareholder) at a loss, of which OMI's proportionate share was $5,244,000.On December 10, 1997, Mosaic acquired that shareholder's interest in the venture for cash of $32,332,000 and 50.1 percent of the stock in its subsidiary (Kanejoy) with a proportionate book value of $3,501,535, and Mosaic became a 100 percent owned subsidiary of OMI. Summarized combined financial information pertaining to all affiliated companies accounted for by the equity method is as follows:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 -------- ------- -------- Results of operations: Revenues .............................................. $80,263 $55,698 $41,804 Operating (loss) income ............................... (795) 9,637 10,762 Loss on disposal of assets--net ....................... -- (423) (8,765) Cumulative effect of change in accounting principle ... 245 -- 1,196 Net income ............................................ 1,005 7,626 2,502 DECEMBER 31, --------------------- 1999 1998 --------- -------- Net Assets: Current assets ......................................... $19,221 $19,888 Vessels and other property--net ........................ 44,404 51,824 Other assets ........................................... 2,244 2,402 ------- ------- Total assets ........................................... 65,869 74,114 ------- ------- Less: Current liabilities .................................... 10,353 10,880 Long-term debt ......................................... 11,786 13,450 Other liabilities ...................................... 1,232 1,243 ------- ------- Total liabilities ...................................... 23,371 25,573 ------- ------- Shareholders' and partners' equity ....................... $42,498 $48,541 ======= ======= Dividends received from joint ventures were as follows: FOR THE YEARS ENDED DECEMBER 31, --------------------------------- 1999 1998 1997 --------- --------- -------- White Sea .............................................. $ 490 $1,470 $735 Amazon(1) .............................................. 1,960 1,960 -- ------ ------ ---- Total ................................................ $2,450 $3,430 $735 ====== ====== ==== - ------------ (1) OMI contributed $637,000 to Amazon during 1999.
34 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED) (ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 5--LONG-TERM DEBT AND CREDIT ARRANGEMENTS Long-term debt payable to banks consists of the following:
DECEMBER 31, --------------------- 1999 1998 --------- --------- Loans under bank credit agreements at a margin plus variable rates of the London Interbank Offering Rate ("LIBOR")(1) ....... $260,646 $239,790 10.25% Unsecured Senior Notes due 2003 ........................... 4,357 4,357 7.00% Convertible Note due 2004 .................................. 2,744 3,000 -------- -------- Total ........................................................ 267,747 247,147 -------- -------- Less current portion of long-term debt: Scheduled amortization payments of debt ........................ 8,334 21,494 Debt related to Assets to be disposed of ....................... 46,500 -- -------- -------- Total Current Portion ........................................ 54,834 21,494 -------- -------- Long-term debt ................................................... $212,913 $225,653 ======== ========
- ----------- (1) Rates at December 31, 1999 were 6.468 percent to 7.875percent (including margins). Rates at December 31, 1998 were 5.6384 percent to 6.60 percent (including margins). As of December 31, 1999, OMI had an aggregate of $260,646,000 in floating rate credit facilities and revolving lines of credit. The following paragraphs below describe these facilities and revolving lines of credit that OMI used during 1999, which were refinanced in February 2000. On February 11, 2000, OMI completed its refinancing with its previous lenders for a credit agreement in the amount of $264,500,000. Prior to the refinancing and at December 31, 1999, OMI was not in compliance with certain of its covenants under previous credit agreements. The effect of the refinancing revises debt covenants, interest rate margins and principal amortization. There are two primary facilities under the new agreement. Facility A is in the amount of $218,000,000 and matures five years from the drawdown date. It will be repaid in ten semi-annual installments commencing six months from the drawdown date, the first four installments in the amount of $5,000,000 and the remaining six installments in the amount of $12,500,000, in addition to a balloon payment in the amount of $123,000,000 as the last installment on maturity. The outstanding balance of this Facility bears interest at LIBOR plus a margin of 1.75% and is secured by thirteen vessels. Facility B is in the amount of $46,500,000 and is a short-term facility which matures two years after the drawdown date. The principal of this Facility will be repaid with proceeds on the sale of vessels secured by this facility which are classified as vessels to be disposed of on the Consolidated Balance Sheets at December 31, 1999. The outstanding balance of this Facility bears interest at LIBOR plus a margin of 2% and is secured by six vessels and OMI's interest in its 49 percent owned joint venture. A third facility provides for certain lenders to repay a portion of Facility A in the event certain mortgage insurance is not obtained. An extraordinary loss of $1,253,000 was recorded for the year ended December 31, 1999. This loss relates to the write-off of the balance of unamortized finance fees on debt which was refinanced in February 2000. Aggregate maturities during the next five years under the new credit agreement and continued fixed rate debt from December 31, 1999 are $54,834,000, $10,539,000, $28,577,000, $29,896,000 and $25,539,000. During the years ended December 31, 1999, 1998 and 1997 interest paid totaled approximately $19,202,000, $8,070,000 and $6,734,000, respectively. Certain of the loan agreements, including the new credit agreement of the Company contain restrictive covenants requiring minimum levels of cash or cash equivalents, working capital and net worth, maintenance of specified financial ratios and collateral values, and restrict the ability of the Company to pay dividends. These loan 35 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED) (ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 5--LONG-TERM DEBT AND CREDIT ARRANGEMENTS (CONTINUED) agreements also contain various provisions restricting the right of OMI and/or its subsidiaries to make certain investments, to place additional liens on the property of certain of OMI's subsidiaries, to incur additional long-term debt, to make certain payments, to merge or to undergo a similar corporate reorganization, and to enter into transactions with affiliated companies. Each of the following loan facilities terminated with the completion of the refinancing described above. On February 28, 1999, the Company obtained a $25,000,000 revolving line of credit secured by five vessels, four of which were sold during the year, and shares in a joint venture company. The revolving credit facility was used for working capital and other general corporate purposes, and bore interest at LIBOR plus a margin ranging from 1.375%-1.75%. The facility had a balance of $6,450,000 at December 31, 1999. The Company had a credit facility, which was assumed from Old OMI (currently MTC), that provided for a line of credit amounting to $99,090,000 at December 31, 1999. The credit facility was secured by eleven vessels. The Notes under the Credit Facility bore interest at LIBOR plus a margin ranging from 0.60%-0.95%, which was computed based on OMI's funded debt to equity ratio and interest coverage ratio. On June 4, 1998, the Company entered into a secured revolving credit agreement to refinance two Panamax tankers and to finance a new product carrier upon delivery. On June 9, 1998, the Company drew down $16,000,000 to refinance the two Panamax tankers. The $16,000,000 was to be repaid in quarterly installments of $800,000 over the next five years and bore interest at LIBOR plus a margin ranging from 0.65%-0.95%, which was computed based on the Company's funded debt to capitalization ratio. On September 15, 1999, $16,000,000 was drawn down to finance a new product carrier. The balance of the loan at December 31, 1999 was $26,800,000. On June 4, 1998, the Company entered into a $71,500,000 secured revolving credit facility to finance two Suezmax tankers upon their delivery from the yard. On June 9, 1998, $35,750,000 was drawn to finance the first vessel, and on August 7, 1998, $35,750,000 was drawn to finance the second vessel. Each drawdown was to be repaid by semi-annual payments of $1,294,000 beginning 18 months after the initial drawdown and a balloon of $13,750,000 ten years after the initial drawdown date. The facility bore interest at LIBOR plus a margin ranging from 0.85%-0.95%. At December 31, 1999, the outstanding loan balance was $70,206,000. On July 6, 1998, the Company entered into an agreement, as amended, for a $37,800,000 secured reducing revolving credit facility to finance a Suezmax tanker upon its delivery from the yard. The Company drew down $37,800,000 on July 20, 1998 to finance the newbuilding. The availability under this facility was to be reduced by 14 semi-annual reductions of 3.9% of the original facility, and the remaining balance was due at maturity, which was to be ten years after the initial drawdown. The facility bore interest at LIBOR plus a margin ranging from 0.60%-1.05%. At December 31, 1999 the outstanding loan balance was $36,900,000. During December 1998, the Company entered into an agreement with a lender for a $60,000,000 revolving credit facility. The revolving credit facility was to be used to finance, on an interim basis, the acquisition of vessels and would be secured by such vessels. Amounts drawn on the revolving credit facility were to be repaid no later than six months after drawdown. The facility bore interest at LIBOR plus a margin ranging from 1.00%-1.75% which was computed based on the Company's funded debt to total capitalization ratio and interest coverage ratio. On January 14, 1999, the Company drew down $37,498,000 under this facility to finance the acquisition of a Suezmax newbuilding, which was repaid in June 1999.On July 15, 1999, $21,200,000 was drawn down to finance a new product carrier, and this balance remained at December 31, 1999. At December 31, 1999, vessels and shares in a joint venture with a net book value of $385,426,000 have been pledged as collateral on long-term debt issues. 36 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED) (ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 5--LONG-TERM DEBT AND CREDIT ARRANGEMENTS (CONTINUED) OMI has entered into interest rate swap agreements to manage interest costs and the risk associated with changing interest rates. The Company had one interest rate swap agreement with a commercial bank at December 31, 1999 and three at December 31, 1998. These agreements effectively change the Company's interest rate exposure on floating rate loans to fixed rates ranging from 6.98 percent to 8.475 percent. The differential to be paid or received is recognized as an adjustment to interest expense over the lives of the agreements. The remaining swap agreement matures in June 2000. The changes in the notional principal amounts are as follows: DECEMBER 31, ------------------- 1999 1998 -------- ------- Notional principal amount, beginning of the year ....... $32,700 $32,700 Reductions of notional amounts ......................... (22,700) -- ------- ------- Notional principal amount, end of the year ............. $10,000 $32,700 ======= ======= Interest expense pertaining to interest rate swaps for the years ended December 31, 1999, 1998 and 1997 was $296,000, $718,000 and $765,000, respectively. The Company is exposed to credit loss in the event of non-performance by other parties to the interest rate swap agreements. However, OMI does not anticipate non-performance by the counter-parties. NOTE 6--FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values of the Company's financial instruments are as follows:
DECEMBER 31, ---------------------------------------------- 1999 1998 --------------------- --------------------- CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE --------- ------- --------- -------- Cash and cash equivalents ................ $ 7,381 $ 7,381 $ 22,698 $ 22,698 Notes receivable ......................... 14,362 14,362 6,604 6,604 Total debt ............................... 267,747 267,700 247,147 247,156 Unrecognized financial instruments: Interest rate swaps in a net payable position ...................... 88 399
The fair value of long-term debt is estimated based on current rates offered to the Company for similar debt of the same remaining maturities. The fair value of interest rate swaps (used for purposes other than trading) is the estimated amount the Company would pay to terminate swap agreements at the reporting date, taking into account current interest rates and the current credit-worthiness of the swap counter-parties. NOTE 7--CHANGE IN ACCOUNTING FOR VOYAGE REVENUE Prior to 1999, voyage freight for vessels operating on voyage charters was accounted for on a load-to-load basis. Under this method, voyage revenue is recognized evenly over the period from arrival of the vessel at the first load port to arrival at the next load port. Under this method of revenue recognition it is necessary to assume the next load port to complete the revenue recognition cycle. Effective January 1, 1999, OMI changed its accounting policy on recognition of voyage freight for vessels operating on voyage charters from load-to-load to discharge-to-discharge basis. Under this method, voyage revenue is recognized evenly over the period from the departure of a vessel from its original discharge port to departure from the next discharge port. The change in revenue recognition policy is a more reliable method in recognizing voyage 37 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED) (ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 7--CHANGE IN ACCOUNTING FOR VOYAGE REVENUE--(CONTINUED) revenue as it eliminates the uncertainty associated with the location of the next load port. The cumulative effect of this accounting change is shown separately in the Consolidated Statements of Operations and resulted in income of $2,729,000 or $0.07 per basic and diluted earnings per share. The cumulative effect of this change in accounting principle as of January 1, 1999 on the Company's Consolidated Balance Sheets was to increase total assets by $1,490,000, decrease total liabilities by $1,239,000 and increase total stockholders' equity by $2,729,000. The years ended December 31, 1998 and 1997 were previously presented using the load-to-load method of accounting for voyages. Pro forma amounts for these years assuming discharge-to-discharge had been retroactively applied are summarized as follows:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1998 1997 ----------- ----------- Net income ................................................... $42,612 $18,778 ------- ------- Basic earnings per share: Net income before cumulative effect of change in accounting principle ................................... $ 1.00 $ 0.20 Cumulative effect of change in accounting principle--net of tax ..................................... -- 0.23 ------- ------- Net income ................................................. $ 1.00 $ 0.43 ======= ======= Diluted earnings per share: Net income before cumulative effect of change in accounting principle ........................... $ 0.99 $ 0.20 Cumulative effect of change in accounting principle--net of tax .................................... -- 0.23 ------- ------- Net income ................................................. $ 0.99 $ 0.43 ======= =======
NOTE 8--ACCOUNTING CHANGE FOR SPECIAL SURVEY AND DRYDOCK EXPENSES Effective January 1, 1997, the Company changed its method of accounting for special survey and drydock expenses from the accrual method to the prepaid method. Special survey and drydock expenses had been accrued and charged to operating expenses over the vessel's survey cycle. Under the prepaid method, survey and drydock expenses are capitalized and amortized over the two to five year period until the next cycle. Management believes the prepaid method better matches costs with revenues and minimizes any significant changes in estimates associated with the accrual method. The cumulative effect of this accounting change is shown separately in the Consolidated Statements of Operations and resulted in income of $10,063,000 (net of income taxes of $5,419,000). The cumulative effect of this change in accounting principle as of January 1, 1997 on the Company's balance sheet was to increase total assets by $8,272,000, decrease total liabilities by $1,791,000 and increase total stockholder's equity by $10,063,000. NOTE 9--OPERATING LEASES Total rental expense was $16,080,000, $25,820,000 and $8,877,000 for the years ended December 31, 1999, 1998 and 1997, respectively. Leases are for vessels and office space. 38 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED) (ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 9--OPERATING LEASES (CONTINUED) The future minimum rental payments required by year, under operating leases subsequent to December 31, 1999, are as follows: 2000 .......................................... $25,700 2001 .......................................... 23,673 2002 .......................................... 7,723 2003 .......................................... 686 2004 .......................................... 688 Thereafter .................................... 1,353 ------- Total ....................................... $59,823 ======= On January 19, 1999, the COLUMBIA, a new double-hulled Suezmax tanker was delivered. The vessel, which had a book value of $55,992,000, was sold on June 30, 1999 for $54,000,000 in a sale/leaseback transaction. The COLUMBIA was then chartered back from the purchaser over a period of three years. The resulting lease is being accounted for as an operating lease. Under the agreement, the Company is responsible for operating expenses and is required to maintain $2,000,000 in escrow over the lease term, and a standby letter of credit, which commenced September 1999.The standby letter of credit is increased by $750,000 per quarter in the first year and by $500,000 per quarter in the second year to a maximum of $9,000,000. The letter of credit is additional collateral for the Company's obligation under the charter. As of December 31, 1999, the escrow and the standby letter of credit aggregated $7,500,000 and was included in Other Assets and deferred charges on the Consolidated Balance Sheet. In May 1997, the Company sold the ALTA (a Suezmax crude oil carrier) for approximately $39,900,000 and leased back the vessel for five years. The gain on the sale of approximately $15,700,000 has been deferred and is being credited to income as an adjustment to lease expense over the term of the lease. As of December 31, 1999, the deferred gain on sale was $7,514,000. The lessor has the option to cancel the lease after two years with the payment of a $1,000,000 termination fee. Time charters to third parties of the Company's owned vessels are accounted for as operating leases. Minimum future revenues to be received subsequent to December 31, 1999 on these time charters are $16,133,000 in 2000 and $8,230,000 in 2001. NOTE 10--PROVISION FOR LOSS ON LEASE OBLIGATIONS During 1999, as part of OMI's periodic review, the Company evaluated the forecasted future net cash flows for vessels with lease obligations. The Company determined that its current lease obligations for vessels exceeded its undiscounted forecasted future net cash flows. The loss was measured by the excess of the future lease payments, as set forth in the lease agreements, over the vessels estimated forecasted future cash flows over the lease term. It was determined that an impairment loss for its leases should be recognized, and a provision of $6,229,000 was recorded in June 1999.The loss is reported as a separate item in the Consolidated Statements of Operations. The liability for the impairment is being amortized to charter hire expense over the remaining term of the leases. NOTE 11--ACQUISITIONS AND DISPOSALS OF VESSELS The SEINE and the ISERE, two new product tankers, were delivered in July and September 1999, respectively. Both vessels immediately went on time charter for two years. 39 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED) (ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 11--ACQUISITIONS AND DISPOSALS OF VESSELS (CONTINUED) On October 29, 1999, OMI agreed to acquire from Mega Tankers Newbuilding AS, a Suezmax newbuilding. The purchase price of the vessel is approximately $46,180,000.The Company issued 5,700,000 shares on November 24, 1999 to the seller and an additional 599,998 shares in February 2000 of OMI common stock valued at $2.50 per share. On March 15, 2000, OMI entered into a $27,000,000 credit facility to finance this vessel upon delivery from the yard. The remaining balance, which is approximately $3,430,000, was also paid upon delivery. In July, August and November 1999, four Suezmax vessels, three built in 1975 and one built in 1974, were sold for scrap. These vessels were written down to their estimated net realizable values in the period ended June 30, 1999. Adjustments to the loss on disposal of assets were recorded at the sale dates. On August 20, 1998, the Company sold the TANANA for approximately $45,000,000 at a gain of $6,485,000. On March 12, 1997, OMI sold its liquid petroleum gas carrier for gain of approximately $1,000,000. (Loss) gain on disposal/write down of assets-net consists of the following:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 --------- ------- ------ (Loss) gain on sale of vessels ........................ $(17,398) $6,485 $885 Loss on write down of vessels (See Note 12) ........... (31,294) -- -- -------- ------ ---- Total ............................................... $(48,692) $6,485 $885 ======== ====== ====
NOTE 12--VESSELS TO BE DISPOSED OF As of December 31, 1999, the Company planned to dispose of nine vessels, eight vessels with a net realizable value of $84,034,000 and one aframax with a net realizable value of $4,262,000. These vessels were written down in December 1999 (the aframax was written down in June 1999 and adjusted in December 1999) to their estimated market values, and the loss was included in the loss on disposal/write down of assets (see Note 11) at that time. The write down of vessels includes the reversal of the cumulative translation adjustment for $7,442,000. The adjustment relates to two vessels whose functional currency until July 1990 was not U.S. dollars. In December 1999, the Company contracted to sell its aframax vessel with a delivery date scheduled for the end of the first quarter. As a result of the current market condition and estimated losses on the disposal of certain vessels, the Company re-evaluated the carrying value of its remaining vessels under the provisions of SFAS No. 121 and concluded that no further write downs were necessary. NOTE 13--INCOME TAXES A summary of the components of the provision (benefit) for income taxes excluding the cumulative effect of change in accounting principle is as follows:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 ------ -------- --------- Current provision ....................................... $475 $ 1,729 $7,721 Deferred tax benefit .................................... -- (38,887) (2,314) ---- -------- ------ Provision(benefit) for income taxes ..................... $475 $(37,158) $5,407 ==== ======== ======
40 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENT--(CONTINUED) (ALL TABULAR AMOUNT ARE IN THOUSANDS, EXCEPT PER SHARE DATA) The provision (benefit) for income taxes on income (loss) varies from the statutory rates due to the following:
FOR THE YEARS ENDED DECEMBER 31, -------------------------------- 1999 1998 1997 ------- --------- ---------- Provision at statutory rate(1) ............................ $ -- $ 1,204 $4,293 Reversal of deferred income taxes ......................... -- (38,887) -- Equity in earnings of joint ventures (other than Amazon/White Sea) net of dividends declared ............. -- 525 1,114 Other(2) .................................................. 475 -- -- ---- -------- ------ Provision (benefit)for income taxes ....................... $475 $(37,158) $5,407 ==== ======== ======
- ---------- (1) 1998 includes income before income taxes of $3,540,000 through June 17, 1998 after which OMI was no longer a taxable entity. (2) 1999 provision reflects adjustment to actual for 1998 taxes. The Company did not provide deferred income taxes on its equity in the undistributed earnings of foreign corporate joint ventures accounted for under the equity method other than those of Amazon and White Sea because these earnings were considered by management to be invested in the business for an indefinite period. If the earnings were not considered indefinitely invested, approximately $6,502,000 of additional deferred tax liabilities would have been required at December 31, 1997. NOTE 14--FINANCIAL INFORMATION RELATING TO SEGMENTS The Company organizes its business principally into two operating segments. These segments and their respective operations are as follows: Crude Oil Tanker Fleet--includes vessels that normally carry crude oil and "dirty" products. This fleet includes three sizes of vessels, Suezmax, Aframax and Panamax. Product Carrier Fleet--includes vessels that normally carry refined petroleum products such as gasoline, naphtha and kerosene. This fleet includes two sizes of vessels, Panamax and handysize vessels. 41 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 14--FINANCIAL INFORMATION RELATING TO SEGMENTS (CONTINUED) The following is a summary of the operations by major operating segments for the three years ended December 31, 1999:
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 1999 1998 1997 --------- --------- --------- REVENUES: Crude Oil Tanker Fleet ....................................... $ 78,143 $ 98,517 $ 72,678 Product Carrier Fleet ........................................ 37,570 50,649 67,919 Other ........................................................ 279 62 1,388 --------- --------- --------- $ 115,992 $ 149,228 $ 141,985 ========= ========= ========= OPERATING (LOSS) INCOME: Crude Oil Tanker Fleet(1) .................................... $ (515) $ 13,135 $ 12,409 Product Carrier Fleet ........................................ 3,235 3,704 16,447 --------- --------- --------- 2,720 16,839 28,856 General and administrative expense not allocated to vessels .. (8,331) (7,089) (7,931) Other ........................................................ (1,023) (3,506) (747) --------- --------- --------- Total .................................................... $ (6,634) $ 6,244 $ 20,178 ========= ========= ========= IDENTIFIABLE ASSETS: Crude Oil Tanker Fleet ....................................... $ 234,140 $ 252,741 $ 164,344 Product Carrier Fleet ........................................ 192,625 203,537 201,126 --------- --------- --------- 426,765 456,278 365,470 Investments in, and advances to joint ventures ............... 14,218 25,507 27,810 Cash and cash equivalents .................................... 7,381 22,698 30,608 Goodwill ..................................................... 1,827 11,079 11,763 Other ........................................................ 22,224 14,565 5,057 --------- --------- --------- Total .................................................... $ 472,415 $ 530,127 $ 440,708 ========= ========= ========= CAPITAL EXPENDITURES: Crude Oil Tanker Fleet(2) .................................... $ 58,756 $ 133,969 $ 45,620 Product Carrier Fleet(3) ..................................... 45,546 12,714 9,241 Other ........................................................ 947 724 424 --------- --------- --------- Total .................................................... $ 105,249 $ 147,407 $ 55,285 ========= ========= ========= DEPRECIATION AND AMORTIZATION: Crude Oil Tanker Fleet ....................................... $ 11,977 $ 11,976 $ 8,406 Product Carrier Fleet ........................................ 10,950 11,481 13,371 Other ........................................................ 908 857 898 --------- --------- --------- Total .................................................... $ 23,835 $ 24,314 $ 22,675 ========= ========= ========= INTEREST EXPENSE: Crude Oil Tanker Fleet ....................................... $ 9,610 $ 5,631 $ 2,008 Product Carrier Fleet ........................................ 5,884 3,239 7,742 --------- --------- --------- 15,494 8,870 9,750 Intercompany borrowings ...................................... -- 1,382 1,241 Other ........................................................ 2,451 866 765 --------- --------- --------- Total .................................................... $ 17,945 $ 11,118 $ 11,756 ========= ========= =========
(1) Crude oil tanker fleet operating loss includes the provision for loss on lease obligations of $6,229,000 in 1999. (2) Includes progress payments and capitalized interest aggregating $58,539,000 in 1999, $133,645,000 in 1998 and $45,289,000 in 1997 for newbuildings. (3) Includes progress payments and capitalized interest aggregating $45,209,000 in 1999 and $11,940,000 in 1998 for newbuildings. 42 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 14--FINANCIAL INFORMATION RELATING TO SEGMENTS (CONTINUED) Mortgage debt of Old OMI prior to the Distribution and its related interest expense were allocated to OMI Corporation based upon the value of the vessels collateralizing the debt. General and administrative expense includes an allocation of costs of corporate administrative services provided by Old OMI up to the Distribution date. OMI Corporation, or its applicable subsidiary, was charged a fixed amount per month per vessel for vessel management and accounting activities and was charged 1.25 percent of revenues earned by each vessel for commercial management. General corporate activities, such as salaries (other than those included in the aforementioned fees), legal, accounting, communications and other administrative expenses were allocated based on the services provided to the segment. Rent expense was allocated based on the number of employees included in the corporate allocation. Management believes the methods for allocating such expenses were reasonable. NOTE 15--SAVINGS PLAN The Company has a 401(k) Plan (the "Plan") which continued from Old OMI, and is available to full-time employees who meet the Plan's eligibility requirements. This Plan is a defined contribution plan, which permits employees to make contributions up to ten percent of their annual salaries with the Company matching up to the first six percent in 1999. The Company may elect to make additional contributions to the Plan at the discretion of the Company's Board of Directors. The Company also has an Executive Savings Plan for certain key employees. Company contributions were $261,000 and $106,000 for the 401(k) and Executive Savings Plan, respectively, for the year ended December 31, 1999, and were $74,000 and $54,000 for the 401(k) and Executive Savings Plan, respectively, from June 18, 1998 (distribution date) to December 31, 1998. NOTE 16--STOCK OPTION PLAN The shareholders approved the 1998 Stock Option Plan ("1998 Plan") on May 19, 1998. The 1998 Plan provides for the granting of options to officers, employees, consultants and Directors for purchase of the Company's common shares. The total number of shares that may be awarded under the Plan are 2,500,000, not including the replacement options described in the next sentence. Effective June 17, 1998, 855,243 options were granted to officers and employees to replace options they held in Old OMI and have the same vesting provisions and expiration dates as those Old OMI options forfeited. Option prices at the date of grant represent the option prices at which options were originally granted by Old OMI to officers and employees reduced by the estimated fair value per share of Old OMI's domestic business. In addition, 120,000 options were issued to new directors in 1998 and vest ratably over three years. In 1999, the Company issued 10,000 options at $3.25 per share. The following is a summary of the change in the options (in whole numbers, not thousands) from December 31, 1998 to December 31, 1999:
NUMBER OF NUMBER OF OPTIONS AT OPTIONS AT WEIGHTED RANGE OF DECEMBER 31, DECEMBER 31, AVERAGE EXERCISE PRICE 1998 GRANTS EXPIRED FORFEITURES 1999 EXERCISE PRICE EXPIRATION DATE - -------------- ------------ ------ ------- ----------- ------------ -------------- --------------- $3.25 -$3.39 31,006 10,000 4,666 5,000 31,340 $3.35 January 2003 to January 2009 $4.015-$4.58 270,000 10,000 260,000 $4.10 February 2000 to April 2005 $5.14 -$5.43 416,237 22,667 393,570 $5.22 February 2004 to May 2008 $6.42 -$6.67 160,000 160,000 $6.61 June 2001 to June 2008 $8.675-$8.95 98,000 68,000 30,000 $8.95 August 1999 to May 2008 ------- ------ ------ ------ ------- 975,243 10,000 82,666 27,667 874,910 $5.20 ======= ====== ====== ====== =======
Proceeds received from the exercise of the options are credited to the capital accounts. 43 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 16--STOCK OPTION PLAN (CONTINUED) Had compensation cost for the Company's stock option plans been determined based on the fair value at the grant dates for awards under those plans consistent with the methods recommended by SFAS No. 123, the Company's net income and net income per share for the years ended December 31, 1999 and 1998, would have been stated at the pro forma amounts indicated below:
1999 1998 -------- ------- Net (loss) income: As reported .................................... $(80,305) $42,917 Pro forma ...................................... (80,461) 41,409 1999 1999 1998 1998 AS REPORTED PRO FORMA AS REPORTED PRO FORMA ----------- --------- ----------- --------- Basic (loss) earnings per share: Net (loss) income before extraordinary loss and cumulative effect of change in accounting principle .. $(1.94) $(1.94) $1.01 $0.97 Extraordinary loss ..................................... (0.03) (0.03) -- -- Cumulative effect of change in accounting principle .... 0.07 0.07 -- -- ------ ------ ----- ----- Net (loss) income ........................................ $(1.90) $(1.90) $1.01 $0.97 ====== ====== ===== ===== Diluted (loss) earnings per share: Net (loss) income before extraordinary loss and cumulative effect of change in accounting principle .. $(1.94) $(1.94) $1.00 $0.97 Extraordinary loss ..................................... (0.03) (0.03) -- -- Cumulative effect of change in accounting principle .... 0.07 0.07 -- -- ------ ------ ----- ----- Net (loss) income ........................................ $(1.90) $(1.90) $1.00 $0.97 ====== ====== ===== =====
The fair value of options granted under the Company's stock option plans during 1999 and 1998, was estimated on the dates of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used: no dividend yield, expected volatility of 40 percent, risk free average interest rates of 6.13 percent in 1999 and 5.01 percent in 1998, and expected lives ranging from one to five years. See Note 17 regarding "Change in Control". NOTE 17--EMPLOYMENT AGREEMENTS OMI has employment agreements with all of its executive officers which provide for an annual base salary and a performance incentive bonus. The base salary is the amount paid in the previous year plus any raise granted by the OMI Board. Under the contracts, bonuses are paid at the discretion of the OMI Board. Each of these agreements also provide that if the employee (i) is terminated without cause, (ii) voluntarily terminates his employment within 90 days of a relocation following a Change in Control or reduction in compensation or responsibilities, or (iii) is disabled, such employee will continue to receive base salary and other benefits for a period of two years. In addition, in the event of a Change in Control (as defined in the relevant agreement) and if any such employee's employment is terminated without cause (other than for reasons of disability) within two years of such a Change in Control, then OMI will pay such employee an amount equal to the incentive bonus paid during the previous twelve months and an amount equal to three times the sum of his then current base salary and that incentive bonus. NOTE 18--STOCKHOLDERS' EQUITY Preferred Stock--The Company has 5,000,000 shares of preferred stock authorized, none issued. Shareholders' Rights Plan--On November 19, 1998, the Board of Directors approved the adoption of a shareholder rights plan in which it declared a dividend distribution of one Right for each outstanding share of common stock, $0.50 par value (the "Common Stock") of the Company, to stockholders of record at the close of business on December 1, 1998. Each Right entitles the record holder to purchase from the Company one hundred-thousandth of a share of the Company's Series A Participating Preferred Stock, $1.00 par value at a price of $25.00 (the "Purchase Price"), subject to adjustment in certain circumstances. 44 OMI CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (ALL TABULAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE DATA) NOTE 18--STOCKHOLDERS' EQUITY (CONTINUED) Initially, the Rights attach to the certificates representing outstanding shares of Common Stock, and no Rights Certificates will be distributed. In general the Rights will separate from the Common Stock and a "Distribution Date" will occur only if a public announcement that a person or group of affiliated or associated persons (an "Acquiring Person") has acquired, or obtained the right to acquire, beneficial ownership of 15% or more of the outstanding shares of Common Stock, or after the commencement of a tender offer or exchange offer if, upon consummation thereof, the person or group making such offer would be the beneficial owner of 15% or more of the outstanding shares of Common Stock. Thereafter, under certain circumstances, each Right (other than any Rights that are or were beneficially owned by an Acquiring Person, which Rights will be void) could become exercisable to purchase at the Purchase Price a number of shares of Common Stock (or, in certain circumstances, the common stock of a company into which the Company is merged or consolidated or to which the Company sells all or substantially all of its assets) having a market value equal to two times the Purchase Price. Treasury Stock--On August 4, 1998, the Board of Directors approved a plan to repurchase up to 4.4 million shares of the Company's common stock. As of December 31, 1998, the Company purchased 2,076,700 shares at a cost of $9,040,000 or an average price of $4.35 per share. During March 1999, OMI issued 47,408 shares of the Company's treasury stock to Directors in lieu of cash for fees. Dividends--Any determination to pay dividends in the future by OMI will be at the discretion of the Board of Directors and will be dependent upon its results of operations, financial condition, capital restrictions, covenants and other factors deemed relevant by the board of directors. Currently, the payment of dividends by OMI is restricted by its credit agreements. Private Placement--During February 2000, OMI agreed to sell in a private placement to four unrelated investors 9,583,000 shares of OMI common stock for $2.00 per share ($1.92 per share net of commissions). NOTE 19--COMMITMENTS AND CONTINGENCIES At December 31, 1999, the Company had two doubled-hulled Suezmax tankers under construction. One Suezmax with a cost of approximately $51,000,000 is to be delivered in May 2000, and the other Suezmax with a cost of approximately $46,180,000 was delivered in March 2000 (See Note 11). OMI acts as a guarantor for a portion of the debt incurred by a joint venture with affiliates of its joint venture partner. Such debt was approximately $13,450,000 at December 31, 1999 with OMI's guaranty of such debt being approximately $6,725,000. The guarantee ended in the first quarter of 2000 when OMI sold its interest in the joint venture (See Note 4). OMI and certain subsidiaries are defendants in various actions arising from shipping operations. Such actions are covered by insurance or, in the opinion of management, are of such nature that the ultimate liability, if any, would not have a material adverse effect on the consolidated financial statements. The Company has guaranteed a minimum resale or residual value for a vessel that is leased until June 2002. At December 31, 1999, the impact of the guarantee is not expected to be material. The Company was a defendant in an arbitration arising from alleged defects in a vessel sold to a third party. The claims exceeded $7,000,000 which encompassed damages for repairs to the vessel, lost revenues, interest and costs. During 1998, this claim was settled for $900,000. The Company and its joint venture partners have committed to fund any working capital deficiencies which may be incurred by their joint venture investments. At December 31, 1999, no such deficiencies have been funded. 45 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of OMI Corporation: We have audited the accompanying consolidated balance sheets of OMI Corporation and subsidiaries (successor to Universal Bulk Carriers, Inc. and its subsidiaries) as of December 31, 1999 and 1998 and the related consolidated statements of operations, and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of certain corporate joint ventures, which were accounted for by use of the equity method. The Company's equity of $7,637,000 and $9,597,000 in the net assets of those corporate joint ventures as of December 31, 1999 and 1998, respectively, and of ($637,000), $2,995,000, and ($1,284,000) in those companies' net income (loss) for each of the three years in the period ended December 31, 1999 is included in the accompanying financial statements. The financial statements of those corporate joint ventures were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for such companies, is based solely on the reports of such other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, such consolidated financial statements present fairly, in all material respects, the financial position of the companies at December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. As discussed in Note 7 to the consolidated financial statements, effective January 1, 1999, the Company changed its method of accounting for vessels operating on voyage charters from load-to-load to discharge-to-discharge basis. As discussed in Note 8 to the consolidated financial statements, effective January 1, 1997, the Company changed its method of accounting for special and drydock expense from the accrual method to the prepaid method. DELOITTE & TOUCHE LLP New York, New York February 17, 2000 (March 15, 2000 as to Notes 4 and 11) 46 ITEM 8. SUPPLEMENTARY DATA QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1999 QUARTER ENDED 1998 QUARTER ENDED ---------------------------------------- --------------------------------------- MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 ------- -------- ------- -------- ------- ------- ------- ------- Revenues ............................ $34,978 $ 30,535 $25,771 $ 24,708 $40,032 $36,827 $38,124 $34,245 Operating income (loss) ............. 3,934 (5,764) (1,841) (2,963) 5,289 (1,790) 4,189 (1,444) Extraordinary loss .................. -- -- -- (1,253) -- -- -- -- Cumulative effect of change in accounting principle(1) ........... 2,729 -- -- -- -- -- -- -- Net income (loss) ................... $ 2,736 $(33,172) $(7,119) $(42,750) $ 3,089 $36,450 $ 8,043 $(4,665) Basic Earnings (Loss) Per Common Share: Income before extraordinary loss and cumulative effect of change in accounting principle. ...................... $ -- $ (0.80) $ (0.17) $ (0.94) $ 0.07 $ 0.84 $ 0.19 $ (0.11) Extraordinary loss .................. -- -- -- (0.03) -- -- -- -- Cumulative effect of change in accounting principle(1) ........... 0.07 -- -- -- -- -- -- -- ------- -------- ------- -------- ------- ------- ------- ------- Net income (loss)(2) ................ $ 0.07 $ (0.80) $ (0.17) $ (0.97) $ 0.07 $ 0.84 $ 0.19 $ (0.11) ======= ======== ======= ======== ======= ======= ======= ======= Weighted average number of shares of common stock outstanding-basic ................. 41,611 41,647 41,647 44,020 43,072 43,271 42,837 41,609 ======= ======== ======= ======== ======= ======= ======= ======= Diluted Earnings (Loss) Per Common Share: Income before extraordinary loss and cumulative effect of change in accounting principle ....................... $ -- $ (0.80) $ (0.17) $ (0.94) $ 0.07 $ 0.83 $ 0.19 $ (0.11) Extraordinary loss .................. -- -- -- (0.03) -- -- -- -- Cumulative effect of change in accounting principle(1) ............. 0.07 -- -- -- -- -- -- -- ------- -------- ------- -------- ------- ------- ------- ------- Net income (loss)(2) ................ $ 0.07 $ (0.80) $ (0.17) $ (0.97) $ 0.07 $ 0.83 $ 0.19 $ (0.11) ======= ======== ======= ======== ======= ======= ======= ======= Weighted average number of shares of common stock outstanding-diluted ............... 41,611 41,647 41,647 44,020 43,433 43,961 43,113 41,609 ======= ======== ======= ======== ======= ======= ======= =======
- ----------- (1) The March 31, 1999 quarter has been restated to reflect the cumulative effect of the change in the accounting principle effective January 1, 1999. (2) Earnings per share are based on stand-alone quarters. 47 AMAZON TRANSPORT INC. BALANCE SHEETS DECEMBER 31, --------------------------- 1999 1998 ----------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents .............. $ 3,263,011 $ 7,532,673 Accounts receivable .................... 715,810 2,340,063 Bunkers ................................ 617,705 659,933 ----------- ----------- Total current assets ............. 4,596,526 10,532,669 ----------- ----------- Long-term assets Vessel ............................... 12,786,778 13,407,504 ----------- ----------- Total long term assets ........... 12,786,778 13,407,504 ----------- ----------- Total assets ........................... $17,383,304 $23,940,173 =========== =========== LIABILITIES AND EQUITY CURRENT LIABILITIES: Accounts payable ....................... $ 1,796,786 $ 4,354,145 ----------- ----------- Total current liabilities ............ 1,796,786 4,354,145 ----------- ----------- Total liabilities .................... 1,796,786 4,354,145 ----------- ----------- EQUITY: Share capital .......................... 900 900 Accumulated result 1/1 ................. 19,585,128 17,473,325 Cash dividend .......................... (4,000,000) (4,000,000) Capital contributions .................. 1,300,000 -- Net income (loss) ...................... (1,299,510) 6,111,803 ----------- ----------- Total equity ........................... 15,586,518 19,586,028 ----------- ----------- Total liabilities and equity ........... $17,383,304 $23,940,173 =========== =========== See notes to financial statements. 48 AMAZON TRANSPORT INC. STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------------ 1999 1998 1997 ------------ ------------ ------------ OPERATING INCOME AND COSTS Gross freight ........................ $ 7,640,089 $ 15,647,357 $ 15,692,654 Voyage related costs ................. (3,830,509) (4,462,752) (6,584,317) ------------ ------------ ------------ Net voyage revenue ................... 3,809,580 11,184,605 9,108,337 ------------ ------------ ------------ Crew wages and social security ....... (1,477,085) (1,284,936) (1,462,583) Other operating costs ................ (3,193,913) (3,450,102) (3,794,536) ------------ ------------ ------------ Profit before depreciation ........... (861,418) 6,449,567 3,851,218 Depreciation ......................... (620,726) (620,726) (620,726) ------------ ------------ ------------ Operating result ..................... (1,482,144) 5,828,841 3,230,492 ------------ ------------ ------------ FINANCIAL INCOME AND COSTS Interest received .................... 202,156 323,555 200,267 Net gain (loss) on foreign exchange .. (18,652) (39,461) (311) Other financial costs ................ (870) (1,132) (1,896) ------------ ------------ ------------ Net financial items .................. 182,634 282,962 198,060 ------------ ------------ ------------ Net income (loss) .................... $ (1,299,510) $ 6,111,803 $ 3,428,552 ============ ============ ============
See notes to financial statements 49 AMAZON TRANSPORT INC. STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------------- 1999 1998 1997 ----------- ----------- ----------- CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES Net (loss) income ................................... $(1,299,510) $ 6,111,803 $ 3,428,552 Depreciation ........................................ 620,726 620,726 620,726 Change in short-term assets ......................... 1,666,481 (349,306) (1,150,402) Change in short-term liabilities .................... (2,557,359) 1,362,885 1,505,321 ----------- ----------- ----------- Net cash (used) provided by operating activities .... (1,569,662) 7,746,108 4,404,197 ----------- ----------- ----------- CASH FLOW USED BY FINANCING ACTIVITIES Repayment of loan to shareholders ................... -- -- (3,000,000) Cash dividends ...................................... (4,000,000) (4,000,000) -- Capital contributions ............................... 1,300,000 -- -- ----------- ----------- ----------- Net cash (used) by financing activities ............. (2,700,000) (4,000,000) (3,000,000) ----------- ----------- ----------- Net (decrease) increase in cash and cash equivalents .................................. (4,269,662) 3,746,108 1,404,197 Cash and cash equivalents beginning of year ......... 7,532,673 3,786,565 2,382,368 ----------- ----------- ----------- Cash and cash equivalents end of year ............... $ 3,263,011 $ 7,532,673 $ 3,786,565 =========== =========== ===========
See notes to financial statements. 50 AMAZON TRANSPORT, INC. NOTES TO FINANCIAL STATEMENTS FOR THE THREE YEARS ENDED DECEMBER 31, 1999 1. COMPANY Amazon Transport, Inc. (the "Company" or "Amazon") is jointly owned by a wholly-owned subsidiary of OMI Corporation ("OMI") and Bergesen d.y. Shipping AS ("Bergesen d.y. Shipping"), a wholly-owned subsidiary of Bergesen d.y. ASA ("Bergesen") with interests of 49 and 51 percent, respectively. The Company began operating as a joint venture on December 3, 1988 for the purpose of owning and chartering commercial vessels. The Company owns and operates one vessel, the Settebello, for all years presented. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting Estimates--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Operating Revenues and Expenses--Voyage revenues and expenses are recognized on the percentage of completion method of accounting based on voyage costs incurred to date to estimated total voyage costs. Estimated losses are provided in full at the time such losses become evident. Special survey and drydock expenses are accrued and charged to operating expenses over the survey cycle, which is generally a three year period. The accruals of such expenses are based on management's best estimates of future cost and the expected length of the survey cycle. However, the ultimate liability may be more or less than such estimates. Vessel--The vessel is recorded at cost. Depreciation is provided on the straight-line method based on the estimated 25 year useful life of the vessel up to the estimated salvage value. Salvage value is based upon the vessel's light weight tonnage multiplied by a scrap rate. Expenditures for maintenance, repairs and minor renewals are expensed. Major replacements and renewals are capitalized. In the event that facts and circumstances indicate that the carrying amount of the vessel may be impaired, an evaluation of recoverability is performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the vessel are compared to the vessel's carrying value to determine if a writedown to fair value or discounted cash flow is required. Federal Income Taxes--No provision has been made for Federal income taxes. The income of the Company is not generally subject to tax as a result of various provisions of the Internal Revenue Code. Additionally, the country in which the Company is incorporated exempts shipping and maritime operations from taxation. Cash Flows--Cash equivalents represent liquid investments which mature within 90 days. The carrying amount approximates fair value. The Company paid no interest in the three years ended December 31, 1999. 3. RELATED PARTY TRANSACTIONS The Company has entered into management service agreements with Bergesen, who act as technical and commercial managers of the Settebello. The Company paid Bergesen management fees of $267,291 for the year ended December 31, 1999, $261,246 for the year ended December 31, 1998 and $256,204 for the year ended December 31, 1997. During the year 1999, the Company made a cash distribution to the shareholders of $4,000,000. During the year 1999, the Company also called in capital from the shareholders of $1,300,000. During the year 1998, the Company made a cash distribution to the shareholders of $4,000,000. During the year 1997, the Company paid back the loan to the shareholders of $3,000,000. 51 REPORT OF INDEPENDENT PUBLIC ACCOUNTANT To the Stockholders of Amazon Transport Inc. We have audited the accompanying balance sheets of Amazon Transport Inc. as of December 31, 1999 and 1998 and the related statements of income and changes in financial position for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Amazon Transport Inc. as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years ended December 31, 1999 in conformity with the accounting principles disclosed in notes to the financial statements which in all material respects are in agreement with International Accounting Principles. ARTHUR ANDERSEN & CO. Morten Drake State Authorised Public Accountant (Norway) Oslo, Norway March 16, 2000 52 WHITE SEA HOLDINGS LTD. BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARES) SEPTEMBER 29, DECEMBER 31, 1999 1998 ------------ ------------ (UNAUDITED) ASSETS Current assets: Cash and cash equivalents ........................... $1,550 $2,405 Advances to masters ................................. -- 27 Receivables: Traffic ........................................... 230 98 Other ............................................. 105 211 Prepaid expenses and other current assets ........... 230 391 ------ ------ Total current assets .......................... 2,115 3,132 ------ ------ Vessel: Vessel at cost ...................................... 7,430 7,430 Less accumulated depreciation ....................... 2,581 2,220 ------ ------ Vessel--net ......................................... 4,849 5,210 ------ ------ Total assets .................................. $6,964 $8,342 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable .................................... $ 68 $ 121 Accrued expenses .................................... 63 495 Accrued interest .................................... -- 10 Payable to affiliates (Note 3) ...................... 19 54 Current portion of long-term debt (Note 4) .......... -- 500 ------ ------ Total current liabilities ..................... 150 1,180 ------ ------ Advance time charter revenues and other liabilities ... -- 211 Stockholders' equity: Common stock--no par value; 500 shares authorized and outstanding ................................... 1 1 Capital surplus ..................................... 2,499 2,499 Retained earnings (Note 7) .......................... 4,314 4,451 ------ ------ Total stockholders' equity .................... 6,814 6,951 ------ ------ Total liabilities and stockholders' equity ............ $6,964 $8,342 ====== ====== See notes to financial statements. 53 WHITE SEA HOLDINGS LTD. STATEMENTS OF INCOME AND RETAINED EARNINGS (IN THOUSANDS)
FOR THE PERIOD JANUARY 1, FOR THE YEARS ENDED 1999 TO DECEMBER 31, SEPTEMBER 29, -------------------- 1999 1998 1997 ------------ ------- ------- (UNAUDITED) Voyage Revenues ................................. $ 4,583 $ 9,022 $12,552 ------- ------- ------- Operating Expenses: Vessel and voyage ............................. 3,542 6,738 7,375 Depreciation .................................. 361 461 442 General and administrative .................... 116 97 94 ------- ------- ------- Total operating expenses ................ 4,019 7,296 7,911 ------- ------- ------- Operating Income ................................ 564 1,726 4,641 Net Interest Income (Expense): Interest expense .............................. (6) (43) (158) Interest income ............................... 60 167 99 ------- ------- ------- Net interest income (expense) ........... 54 124 (59) ------- ------- ------- Income Before Cumulative Effect of Change in Accounting Principles ......................... 618 1,850 4,582 Cumulative Effect of Change in Accounting Principles (Notes 5, 6) ....................... 245 -- 1,196 ------- ------- ------- Net Income ...................................... 863 1,850 5,778 Retained Earnings, Beginning of Year ............ 4,451 5,601 1,323 Dividends Paid (Note 7) ......................... (1,000) (3,000) (1,500) ------- ------- ------- Retained Earnings, End of Period ................ $ 4,314 $ 4,451 $ 5,601 ======= ======= =======
See notes to financial statements. 54 WHITE SEA HOLDINGS LTD. STATEMENTS OF CASH FLOWS (IN THOUSANDS)
FOR THE PERIOD JANUARY 1, FOR THE YEARS ENDED 1999 TO DECEMBER 31, SEPTEMBER 29, -------------------- 1999 1998 1997 -------------- ------- ------- (UNAUDITED) Cash Flows Provided by Operating Activities: Net income ......................................... $ 863 $ 1,850 $ 5,778 Adjustments to reconcile net income to net cash flows provided by operating activities: Depreciation ..................................... 361 461 442 Cumulative effect of change in accounting principles .......................... (245) -- (1,196) Change in assets and liabilities: Decrease (increase) in receivables and advances to masters ....................................... 43 509 (438) Decrease in prepaid expenses and other current assets ................................... 161 591 827 Decrease in accounts payable and accrued liabilities ...................................... (495) (31) (229) Decrease in payable to affiliates .................. (35) (310) (877) (Decrease) increase in advanced time charter revenues and other liabilities ................... (8) 19 (5) ------- ------- ------- Net cash provided by operating activities ................................. 645 3,089 4,302 ------- ------- ------- Cash Flows Used by Investing Activities: Additions to vessel ................................ -- (40) (7) ------- ------- ------- Net cash used by investing activities ........ -- (40) (7) ------- ------- ------- Cash Flows Used by Financing Activities: Dividends paid ..................................... (1,000) (3,000) (1,500) Payments on long-term debt ......................... (500) (500) (500) ------- ------- ------- Net cash used by financing activities ........ (1,500) (3,500) (2,000) ------- ------- ------- Net (Decrease) Increase in Cash and Cash Equivalents ................................... (855) (451) 2,295 Cash and Cash Equivalents, Beginning of Year ......... 2,405 2,856 561 ------- ------- ------- Cash And Cash Equivalents, End of Period ............. $ 1,550 $ 2,405 $ 2,856 ======= ======= =======
See notes to financial statements. 55 WHITE SEA HOLDINGS LTD. NOTES TO FINANCIAL STATEMENTS FOR THE TWO YEARS ENDED DECEMBER 31, 1998 AND THE PERIOD ENDING SEPTEMBER 29, 1999 1. COMPANY White Sea Holdings Ltd. (the "Company") was jointly owned by a subsidiary of OMI Corporation ("OMI"), ( the successor to Universal Bulk Carriers, Inc.) and an affiliate of Anders Wilhelmsen & Co. A/S ("Wilhelmsen"), Norway, with interests of 49 and 51 percent, respectively. On September 29, 1999, OMI sold its 49 percent share to Wilhelmsen for approximately $2,427,000. The Company owns and operates one crude oil carrier, the White Sea. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting Estimates--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Effective January 1, 1999, White Sea changed its accounting policy on recognition of voyage freight for vessels operating on voyage charters from load-to-load to the discharge-to-discharge basis. Under this method, voyage revenue is recognized evenly over the period from the departure of a vessel from its original discharge port to departure from the next discharge port. Management believes that the discharge-to-discharge method is preferable because (a) it is the predominant method for shipowners, and (b) it eliminates the uncertainty associated with the location of the next load port (See Note 6). Operating Revenues and Expenses--Voyage revenues and expenses are recognized on the percentage of completion method of accounting based on voyage costs incurred to date to estimated total voyage costs. Estimated losses are provided in full at the time such losses become evident. Effective January 1, 1997, special survey and drydock expenses are accounted for using the prepaid method. Under the prepaid method expenses are capitalized and amortized over the survey cycle, which is generally a two to five year period. Prior to 1997, special survey and drydock expenses were accrued and charged to operating expenses over the survey cycle, which was generally a two to three year period. The accruals of such expenses were based on management's best estimates of future costs and the expected length of the survey cycle. However, the ultimate liability may have been more or less than such estimates (See Note 5). Vessel--The vessel is recorded at cost. Depreciation is provided on the straight-line method based on the estimated 25 year useful life of the vessel up to the estimated salvage value. Salvage value is based upon the vessel's lightweight tonnage multiplied by a scrap rate. Expenditures for maintenance, repairs and minor renewals are expensed. Major replacements and renewals are capitalized. In the event that facts and circumstances indicate that the carrying amount of the vessel may be impaired, an evaluation of recoverability is performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the vessel are compared to the vessel's carrying value to determine if a writedown to fair value or discounted cash flow is required. Federal Income Taxes--No provision has been made for Federal income taxes. The income of the Company is not generally subject to tax as a result of various provisions of the Internal Revenue Code. Additionally, the country in which the Company is incorporated exempts shipping and maritime operations from taxation. Cash Flows--Cash equivalents represent liquid investments which mature within 90 days. The carrying amount approximates fair value. The Company paid $16,000, $50,000 and $182,000 in interest during 1999, 1998, and 1997, respectively. 56 WHITE SEA HOLDINGS LTD. NOTES TO FINANCIAL STATEMENTS (CONCLUDED) 3. RELATED PARTY TRANSACTIONS The Company has a management service agreement with OMI to act as both technical and commercial manager of the White Sea. The Company paid management fees to OMI of $113,000 for the period January 1, 1999 to September 29, 1999. The Company paid management fees to OMI or its affiliates of $78,000 for each of the years ended December 31, 1998 and 1997. White Sea Holdings Ltd. owed OMI and its affiliates $19,000 and $54,000 as of September 29, 1999 and December 31, 1998, respectively. 4. LONG-TERM DEBT At December 31, 1998 the Company had $500,000 outstanding on a mortgage note secured by the vessel at a rate of 6.9062 percent. The note was paid on March 5,1999. The fair value of long-term debt at December 31, 1998 approximates its carrying value. 5. ACCOUNTING CHANGE FOR SPECIAL SURVEY AND DRYDOCK EXPENSES Effective January 1, 1997, the Company changed its method of accounting for special survey and drydock expenses from the accrual method to the prepaid method. Special survey and drydock expenses had been accrued and charged to operating expenses over the vessel's survey cycle, which was generally a two to three year period. Under the prepaid method, survey and drydock expenses are capitalized and amortized over the period until the next survey cycle. Management believes the prepaid method better matches costs with revenues, and minimizes any significant changes in estimates associated with the accrual method. The cumulative effect of this accounting change is shown separately in the consolidated statement of operations and resulted in income of $1,196,000. The cumulative effect of this change in accounting principle as of January 1, 1997 on the Company's balance sheet was to increase total assets by $1,166,000, decrease total liabilities by $30,000 and increase total stockholders' equity by $1,196,000. 6. CHANGE IN ACCOUNTING FOR VOYAGE REVENUE Prior to 1999, voyage freight for vessels operating on voyage charters was accounted for on a load-to-load basis. Under this method, voyage revenue is recognized evenly over the period from arrival of the vessel at the first load port to arrival at the next load port. Under this method of revenue recognition it is necessary to assume the next load port to complete the revenue recognition cycle. Effective January 1, 1999, White Sea changed its accounting policy on recognition of voyage freight for vessels operating on voyage charters from load-to-load to discharge-to-discharge basis. Under this method, voyage revenue is recognized evenly over the period from the departure of a vessel from its original discharge port to departure from the next discharge port. The change in revenue recognition policy is a more reliable method in recognizing voyage revenue as it eliminates the uncertainty associated with the location of the next load port. The cumulative effect of this accounting change is shown separately in the Statements of Income and resulted in income of $245,000. The cumulative effect of this change in accounting principle as of January 1, 1999 on the Company's Balance Sheets was to increase total assets by $42,000, decrease total liabilities by $203,000 and increase total stockholders' equity by $245,000. The years ended December 31, 1998 and 1997 were previously presented using the load-to-load method of accounting for voyages. Pro forma amounts for these years assuming discharge-to-discharge had been retroactively applied are net income of $1,910,000 and $5,688,000 for the years ended December 31, 1998 and 1997, respectively. 7. DIVIDENDS During 1999, 1998 and 1997, the Company declared and paid dividends of $1,000,000, $3,000,000 and $1,500,000, respectively. 57 INDEPENDENT AUDITORS' REPORT To the Stockholders of White Sea Holdings Ltd.: We have audited the accompanying balance sheet of White Sea Holdings Ltd. as of December 31, 1998 and the related statements of income and retained earnings and of cash flows for each of the two years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company at December 31, 1998, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1998 in conformity with generally accepted accounting principles. As disclosed in Note 5 to the financial statements, effective January 1, 1997, the Company changed its method of accounting for special surveys and drydock expenses from the accrual method to the prepaid method. DELOITTE & TOUCHE LLP New York, New York February 23, 1999 58 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF OMI CORPORATION Pursuant to General Instruction G(3) the information regarding directors called for by this item is hereby incorporated by reference from OMI's Proxy Statement to be filed with the Securities and Exchange Commission. Certain information relating to Executive Officers of the Company appears at the end of Part I of this Form 10-K Annual Report. ITEM 11. EXECUTIVE COMPENSATION Pursuant to General Instruction G(3) the information called for by this item is hereby incorporated by reference from OMI's Proxy Statement to be filed with the Securities and Exchange Commission. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Pursuant to General Instruction G(3) the information called for by this item is hereby incorporated by reference from OMI's Proxy Statement to be filed with the Securities and Exchange Commission. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Pursuant to General Instruction G(3) the information called for by this item is hereby incorporated by reference from OMI's Proxy Statement to be filed with the Securities and Exchange Commission. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements and Financial Statement Schedules 1. Financial statements as indicated in the index is set forth on page 23. 2. Financial Statement Schedules None. 3. The index to Exhibits is on page 60. (b) Reports on Form 8-K: OMI has not filed any current reports on Form 8-K with the Commission during the last quarter of the fiscal period covered by this report. 59 EXHIBITS
NUMBER INCORPORATED BY REFERENCE TO DESCRIPTION OF EXHIBIT ------ ---------------------------- ---------------------- 3(i) Registration Statement on Form S-1 Articles of Association of OMI (No. 333-52771) Filed May 15, 1998 3(ii) Registration Statement on Form S-1 By-laws (No. 333-52771) Filed May 15, 1998 4.1 Registration Statement on Form S-3 Registration of 6,299,998 shares of common (No. 333-30230) Filed February 11, 2000 stock sold in a private placement 4.2 Registration Statement on Form S-3 Registration of 9,583,000 shares of common (No. 333-33424) Filed March 28, 2000 stock sold in a private placement 4.3 Form 8A Filed December 14, 1998 Registration Statement of Preferred Stock Purchase Rights 10.1 Registration Statement on Form S-1 Form of Common Stock Certificate (No. 333-52771) Filed May 15, 1998 10.2 Registration Statement on Form S-1 Corporation Stock Option Plan (1) (No. 333-52771) Filed May 15, 1998 10.3 Form S-8 Filed June 17, 1998 Employee Benefit Plan Registration Statement 10.4 Form 10-Q Filed November 13, 1998 Form of OMI Employment Agreements for Senior Executives (1) 10.5 Form 10-K Filed March 31, 1999 OMI Corporation 1998 Performance Share Unit Plan (1) 10.6 Loan Agreement dated as of February 4, 2000 providing for a US $218,000,000 Secured Term Loan Facility 10.7 Loan Agreement dated as of February 4, 2000 providing for a US $46,500,000 Secured Term Loan Facility 10.8 Facility Agreement dated as of February 4, 2000 providing for a US $36,000,000 Convertible Letter of Credit Facility 18 Form 10-Q Filed November 12, 1999 Preferability Letter dated August 13, 1999 21 Subsidiaries of the Company 27 Financial Data Schedule dated December 31, 1999
- ---------- (1) Denotes compensation plan and/or agreement 60 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. OMI CORPORATION By /s/ CRAIG H. STEVENSON, JR. -------------------------------------- CRAIG H. STEVENSON, JR., PRESIDENT, CHAIRMAN OF THE BOARD OF DIRECTORS, CHIEF EXECUTIVE OFFICER MARCH 30, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE -------- ----- ---- /s/ CRAIG H. STEVENSON, Jr. President, Chief Executive Officer March 30, 2000 - --------------------------------- and Director CRAIG H. STEVENSON, JR. /s/ MICHAEL KLEBANOFF Director March 30, 2000 - --------------------------------- MICHAEL KLEBANOFF /s/ ROBERT BUGBEE Director March 30, 2000 - --------------------------------- ROBERT BUGBEE /s/ JAMES N. HOOD Director March 30, 2000 - --------------------------------- JAMES N. HOOD /s/ EDWARD SPIEGEL Director March 30, 2000 - --------------------------------- EDWARD SPIEGEL /s/ JAMES D. WOODS Director March 30, 2000 - --------------------------------- JAMES D. WOODS /s/ VINCENT J. de SOSTOA Senior Vice President, Treasurer, March 30, 2000 - --------------------------------- Chief Financial Officer and VINCENT J. de SOSTOA Chief Accounting Officer
61 EX-10.6 2 LOAN AGREEMENT ================================================================================ LOAN AGREEMENT PROVIDING FOR A US$218,000,000 SECURED TERM LOAN FACILITY TO BE MADE AVAILABLE TO OMI CORPORATION BY CHRISTIANIA BANK OG KREDITKASSE ASA, acting through its New York branch, as Arranger and Administrative Agent, DEN NORSKE BANK ASA, acting through its New York branch, as Arranger and Syndication Agent, MEESPIERSON CAPITAL CORP., as Arranger and Security Agent, and the Banks and Financial Institutions identified on Schedule 1, as Lenders ================================================================================ as of February 4, 2000 CONTENTS PAGE ---- 1. DEFINITIONS..........................................................1 1.1 Specific Definitions.................................................1 1.2 Computation of Time Periods; Other Definitional Provisions..........16 1.3 Accounting Terms....................................................16 1.4 Certain Matters Regarding Materiality...............................16 1.5 Forms of Documents..................................................16 2. REPRESENTATIONS AND WARRANTIES......................................16 2.1 Representations and Warranties......................................16 (a) Due Organization and Power....................................17 (b) Authorization and Consents....................................17 (c) Binding Obligations...........................................17 (d) No Violation..................................................17 (e) Litigation....................................................17 (f) No Default....................................................17 (g) Vessels.......................................................17 (h) Insurance.....................................................18 (i) Financial Information.........................................18 (j) Tax Returns...................................................18 (k) ERISA.........................................................18 (l) Chief Executive Office........................................18 (m) Foreign Trade Control Regulations.............................19 (n) Equity Ownership..............................................19 (o) Environmental Matters and Claims..............................19 (p) Compliance with ISM Code......................................20 (q) Threatened Withdrawal of DOC or SMC...........................20 (r) Liens.........................................................20 (s) Indebtedness..................................................20 (t) Survival......................................................20 3. THE LOAN............................................................20 3.1 (a) Purpose.........................................................20 (b) Making of the Loan............................................20 3.2 Drawdown Notice.....................................................20 3.3 Effect of Drawdown Notice...........................................20 4. CONDITIONS..........................................................21 4.1 Conditions Precedent to Drawdown of the Loan........................21 i (a) Corporate Authority.............................................21 (b) The Vessels.....................................................22 (c) The Note .......................................................22 (d) Guarantor Documents.............................................22 (e) Pledge Agreement................................................23 (f) Intercreditor Agreement.........................................23 (g) Vessel Appraisals...............................................23 (h) Guarantor Solvency..............................................23 (i) Environmental Claims............................................23 (j) Fees............................................................23 (k) Accounts........................................................23 (l) Vessel Liens....................................................23 (m) Ship Mortgage Indemnity.........................................23 (n) Facility B......................................................23 (o) Charters; Pooling Agreements....................................23 (p) Legal Opinions..................................................23 4.2 Further Conditions Precedent........................................24 4.3 Breakfunding Costs..................................................24 4.4 Satisfaction after Drawdown.........................................24 4.5 Cancellation of Standby Letter of Credit............................24 5. REPAYMENT AND PREPAYMENT............................................24 5.1 Repayment...........................................................24 5.2 Voluntary Prepayment; no re-borrowing...............................25 5.4 Mandatory Prepayment; Sale or Loss of Vessel........................25 (a) Required Percentage Not Satisfied.............................25 (b) Asset Ratio Preserved.........................................25 (c) Loan-to-Value Reduction. if the Ship Mortgage Indemnity has been obtained and.........................................25 (d) As Excess Cash................................................25 5.5 Interest and Costs with Prepayments/Application of Prepayments......26 6. INTEREST AND RATE...................................................26 6.1 Applicable Rate.....................................................26 6.2 Default Rate........................................................26 6.3 Interest Periods....................................................26 6.4 Interest Payments...................................................26 7. PAYMENTS............................................................26 7.1 Place of Payments, No Set Off.......................................26 ii 7.2 Tax Credits.........................................................27 7.3 Computations; Banking Days..........................................27 8. EVENTS OF DEFAULT...................................................27 8.1 Events of Default. The occurrence of...............................27 (a) Non-Payment of Principal......................................27 (b) Non-Payment of Interest or Other Amounts......................27 (c) Representations...............................................27 (d) Mortgage......................................................28 (e) Covenants.....................................................28 (f) Indebtedness..................................................28 (g) Ownership of Guarantors.......................................28 (h) Bankruptcy....................................................28 (i) Termination of Operations; Sale of Assets.....................28 (j) Judgments.....................................................29 (k) Inability to Pay Debts........................................29 (l) Change in Financial Position..................................29 (m) Change in Control.............................................29 (n) Cross-Default.................................................29 (o) ERISA Debt....................................................29 (p) Standby Letter of Credit/Ship Mortgage Indemnity..............29 8.2 Indemnification.....................................................30 8.3 Application of Moneys...............................................30 (a) first,........................................................30 (b) secondly,.....................................................30 (c) thirdly,......................................................30 (d) fourthly,.....................................................30 (e) fifthly,......................................................30 (g) seventhly,....................................................31 9. COVENANTS...........................................................31 9.1 Affirmative Covenants...............................................31 (a) Performance of Agreements.....................................31 (b) Notice of Default, etc........................................31 (c) Obtain Consents...............................................31 (d) Financial Information.........................................32 (e) Corporate Existence...........................................32 (f) Books and Records.............................................32 (g) Taxes and Assessments.........................................32 (h) Inspection....................................................32 (i) Compliance with Statutes, Agreements, etc.....................32 (j) Environmental Matters.........................................33 (k) ERISA.........................................................33 (l) Vessel Management.............................................33 iii (m) Funded Debt to Total Capitalization Ratio.....................33 (n) Cash..........................................................33 (o) Consolidated Net Worth........................................34 (p) EBITDA to Interest Expense....................................34 (q) Use of Excess Cash............................................34 (r) Brokerage Commissions, etc....................................34 (s) Deposit Accounts; Assignment..................................34 (t) Future Guaranties.............................................35 (u) Future Pledge Agreements......................................35 (v) Insurance.....................................................35 (w) Ship Mortgage Indemnity.......................................35 9.2 Negative Covenants..................................................35 (a) Liens.........................................................35 (b) Change in Business............................................36 (c) Sale or Pledge of Shares......................................36 (d) Sale of Assets................................................36 (e) Changes in Offices or Names...................................36 (f) Consolidation and Merger......................................36 (g) Chartering-in.................................................36 (h) Chartering-out................................................37 (i) Vessel Pooling................................................37 (j) Distributions on Stock........................................37 (k) Indebtedness..................................................37 (l) Investments...................................................38 (m) Capital Expenditures..........................................38 (n) Deposit Accounts..............................................38 (o) Change Fiscal Year............................................38 9.3 Subsidiary Negative Covenants.......................................38 (a) Limitations on Ability to Make Distributions..................39 (b) Use of Corporate Funds........................................39 (c) Issuance of Shares............................................39 9.4 Vessel Valuations...................................................39 9.5 Asset Maintenance...................................................39 9.6 Inspection and Survey Reports.......................................40 9.7 Vessel Substitution Sales...........................................40 9.8 Tender of Qualified Substitute Vessel...............................40 10. ASSIGNMENT..........................................................41 11. ILLEGALITY, INCREASED COST, NON-AVAILABILITY, ETC...................41 11.1 Illegality..........................................................41 iv 11.2 Increased Costs.....................................................41 11.3 Nonavailability of Funds............................................42 11.4 Lender's Certificate Conclusive.....................................42 11.5 Compensation for Losses.............................................42 12. CURRENCY INDEMNITY..................................................43 12.1 Currency Conversion.................................................43 12.2 Change in Exchange Rate.............................................43 12.3 Additional Debt Due.................................................43 12.4 Rate of Exchange....................................................43 13. FEES AND EXPENSES...................................................43 13.1 Fees................................................................43 13.2 Expenses............................................................43 14. APPLICABLE LAW, JURISDICTION AND WAIVER.............................44 14.1 Applicable Law......................................................44 14.2 Jurisdiction........................................................44 14.3 WAIVER OF JURY TRIAL................................................44 15. THE AGENTs..........................................................44 15.1 Appointment of Agents...............................................44 15.2 Security Agent as Trustee...........................................45 15.3 Distribution of Payments............................................45 15.4 Holder of Interest in Note..........................................45 15.5 No Duty to Examine, Etc.............................................45 15.6 Agents as Lenders...................................................45 15.7 Acts of the Agents..................................................45 15.8 Certain Amendments..................................................46 15.9 Assumption re Event of Default......................................46 15.10 Limitations of Liability............................................47 v 15.11 Indemnification of the Agents.......................................47 15.12 Consultation with Counsel...........................................47 15.13 Resignation.........................................................47 15.14 Representations of Lenders..........................................48 15.15 Notification of Event of Default....................................48 16. NOTICES AND DEMANDS.................................................48 16.1 Notices.............................................................48 17. MISCELLANEOUS.......................................................49 17.1 Time of Essence.....................................................49 17.2 Unenforceable, etc., Provisions - Effect............................49 17.3 References..........................................................49 17.4 Further Assurances..................................................49 17.5 Prior Agreements, Merger............................................49 17.6 Entire Agreement; Amendments........................................49 17.7 Indemnification.....................................................49 17.8 Release of Designated Vessel Owner Guaranty.........................50 17.9 Headings............................................................50 vi SCHEDULE 1 The Lenders and the Commitments 2 OMI and Affiliates 3 The Vessels 4 Margin 5 The Facility B Vessels 6 Disclosure EXHIBITS A Form of Note B Form of Guaranty C Form of Pledge Agreement D Form of Mortgage E Form of Earnings Assignment F Form of Insurances Assignment G Form of Assignment and Assumption Agreement H Form of Compliance Certificate I Form of Drawdown Notice J Form of Interest Notice K Form of Intercreditor Agreement L Form of Standby Letter of Credit LOAN AGREEMENT THIS LOAN AGREEMENT is made as of the 4th day of February, 2000, by and among (1) OMI CORPORATION, a corporation incorporated under the laws of the Republic of the Marshall Islands (the "Borrower"), (2) the banks and financial institutions listed on Schedule 1, as lenders (together with any bank or financial institution which becomes a Lender pursuant to Article 10, the "Lenders"), (3) CHRISTIANIA BANK OG KREDITKASSE ASA, acting through its New York branch ("CBK"), as administration agent for the Lenders (in such capacity, the "Administrative Agent") and as arranger, (4) DEN NORSKE BANK ASA, acting through its New York branch ("DnB"), as syndication agent for the Lenders (in such capacity, the "Syndication Agent") and as arranger, and (5) MEESPIERSON CAPITAL CORP. ("MeesPierson"), as arranger (in such capacity, together with CBK and DnB as arrangers, the "Arrangers") and as security agent for the Lenders (in such capacity, the "Security Agent" and, together with the Administrative Agent and the Syndication Agent, the "Agents"). WITNESSETH THAT: WHEREAS, at the request of the Borrower, the Arrangers have arranged for the Agents to serve in their respective capacities under the terms of this Agreement and for the Lenders to provide to the Borrower a secured term loan facility in the amount of up to US$218,000,000; NOW, THEREFORE, in consideration of the premises set forth above, the covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as set forth below: 1. DEFINITIONS 1.1 Specific Definitions. In this Agreement the words and expressions specified below shall, except where the context otherwise requires, have the meanings attributed to them below: "Acceptable Accounting Firm" means Deloitte & Touche LLP, or such other recognized international accounting firm as shall be approved by the Administrative Agent, such approval not to be unreasonably withheld; "Affiliate" means with respect to any Person, any other Person directly or indirectly controlled by or under common control with such Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with") as applied to any Person means the possession directly or indirectly of the power to direct or cause the direction of the management and policies of that Person whether through ownership of voting securities or by contract or otherwise; for purposes of Section 8.1(f), "Affiliate" shall also include each of Alliance Chartering LLC, International Product Carriers Limited, Geraldton Navigation Company Incorporated, Amazon Transport, Inc. and Hayes Navigation Co. Pte. Ltd. unless and until the Borrower's direct or indirect interest in and to such company has ceased; "Agreement" means this Agreement, as the same shall be amended, modified or supplemented from time to time; "Applicable Rate" means any rate of interest applicable to the Loan from time to time pursuant to Section 6.1; "Assigned Moneys" means sums assigned to or received by any Agent pursuant to any Security Document; "Assignment and Assumption means the Assignment and Assumption Agreement(s)" Agreement(s) executed pursuant to Section 10 substantially in the form set out in Exhibit G; "Assignment Notices" means (i) notices with respect to the Earnings Assignments substantially in the form set out in Exhibit 1 thereto; and (ii) notices with respect to the Insurances Assignments substantially in the form set out in Exhibit 3 thereto; "Assignments" means the Earnings Assignments and the Insurances Assignments; "Availability Period" means the period commencing the date hereof and ending February 29, 2000; "Banking Day(s)" means day(s) on which banks are open for the transaction of business in London, England, Hong Kong, Frankfurt, Germany and New York, New York; "Capital Expenditures" means all capital expenditures except for (i) normal maintenance of Vessels and other properties and (ii) Permitted Drydocking Costs; "Cash Equivalents" means (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof), and (ii) time deposits, certificates of deposit or deposits in the interbank market of any commercial bank of recognized standing organized under the laws of the United States of America, any state thereof or any foreign jurisdiction having capital and surplus in excess of $500,000,000, and rated at least A or the equivalent thereof by Standard & Poor's Rating Services, in respect of both (i) and (ii) above, in each case having maturities of not more 2 than ninety (90) days from the date of acquisition; "Change of Control" means (a) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 35% of the total voting power of the Borrower or (b) the Board of Directors of the Borrower ceases to consist of a majority of the directors existing on the date hereof or directors nominated by at least two-thirds (2/3) of the then existing directors; "Classification Society" shall mean a member of the International Association of Classification Societies with whom the Vessels are entered and who conducted periodic physical surveys and/or inspections of the Vessels; "Code" means the Internal Revenue Code of 1986, as amended, and any successor statute and regulation promulgated thereunder; "Collateral" means, all property or other assets, real or personal, tangible or intangible, whether now owned or hereafter acquired in which any Agent or Lender has been granted a security interest pursuant to a Security Document; "Columbia Shipping" means Columbia Shipping LLC, a limited liability company organized under the laws of the Republic of the Marshall Islands; "Commitment(s)" means in relation to a Lender, the portion of the Loan set out opposite its name in Schedule 1 or, as the case may be, in any relevant Assignment and Assumption Agreement; "Compliance Certificate" means a certificate certifying the compliance by the Borrower with all of its covenants contained herein and showing the calculations thereof in reasonable detail, delivered by the chief financial officer of the Borrower to the Agent from time to time pursuant to Section 9.1(d) in the form set out in Exhibit H, or in such other form as the Agent may agree; "Consolidated Net Worth" means, at any time, shareholders equity (excluding treasury stock) of the Borrower on a consolidated basis determined in accordance with GAAP; "Designated Indebtedness" means Indebtedness that is (i) incurred by the Designated Vessel Owner to finance 3 the Designated Vessel Acquisition, (ii) non-recourse to the Borrower and the Borrower's Subsidiaries (other than the Designated Vessel Owner), and (iii) in an amount not exceeding $30.0 million; "Designated Subsidiary" means (i) during the term of the Columbia Lease, Columbia Shipping, (ii) while the Designated Indebtedness is outstanding, the Designated Vessel Owner, and (iii) any Subsidiary of the Borrower (A) which is not a Guarantor, (B) which has total assets of $1,000 or less, (C) which is not engaged in any financing that is recourse to the Borrower or any other Subsidiary of the Borrower, (D) in respect of which the Borrower has requested that the Administrative Agent permit such Subsidiary's designation as a Designated Subsidiary, and (E) in respect of which the Administrative Agent has consented in writing to such designation; "Designated Vessel" means the MEGA I or the SOYANG, whichever thereof is designated by the Borrower by written notice to the Administrative Agent as the vessel to be financed on a non-recourse basis in accordance with the terms and conditions herein provided; "Designated Vessel Acquisition" means the acquisition of the Designated Vessel by the Designated Vessel Owner, occurring not later than June 30, 2000, or such other date as may be agreed by the Administrative Agent; "Designated Vessel Conditions" means, upon or prior to the Designated Vessel Acquisition, (i) the Borrower having received not less than $18.0 million net cash proceeds from the issuance of equity securities of the Borrower after the Drawdown Date; (ii) in the event the Designated Vessel is the SOYANG, the Borrower (and its Subsidiaries on a consolidated basis) not having contributed more than the amount of the SOYANG Investment to the Designated Vessel Acquisition; (iii) the Borrower (and its Subsidiaries on a consolidated basis) not having incurred any Indebtedness other than the Designated Indebtedness to finance the 4 Designated Vessel Acquisition; (iv) the Designated Vessel being accepted for service under a time charter of not less than twelve (12) months duration at a rate of hire sufficient to pay reasonably anticipated operating expenses and to amortize (on a level-debt service basis), on a maximum 15-years profile, all Indebtedness incurred to finance the Designated Vessel Acquisition for the duration of such time charter; (v) true and complete copies of all contracts, agreements or other documents entered into by the Borrower or any Subsidiary in connection with the Designated Vessel Acquisition being delivered to and approved by the Administrative Agent; (vi) not later than ten (10) Banking Days prior to the date of the Designated Vessel Acquisition, the Borrower having delivered to the Administration Agent a Compliance Certificate as of such date and after considering the effect of the Designated Vessel Acquisition; and (vii) immediately prior to the Designated Vessel Acquisition, the Designated Vessel Owner has total assets of less than $500,000 and has no Subsidiaries; "Designated Vessel Owner" means the Subsidiary which is the owner of the Designated Vessel; "DOC" means a document of compliance issued to an Operator in accordance with rule 13 of the ISM Code; "Dollars" and the sign "$" means the legal currency, at any relevant time hereunder, of the United States of America and, in relation to all payments hereunder, in same day funds settled through the New York Clearing House Interbank Payments System (or such other Dollar funds as may be determined by the Administrative Agent to be customary for the settlement in New York City of banking transactions of the type herein involved); "Drawdown Date" means the date, being a Banking Day during the Availability Period, upon which the Borrower has requested that the Loan be made available to the Borrower, and the Loan is made, as provided in Section 3; 5 "Drawdown Notice" shall have the meaning ascribed thereto in Section 3.2; "EBITDA" means, with respect to any Person for any period, operating income, plus depreciation, amortization and other non-cash charges, but excluding any gains or losses on vessel sales, any writedown amounts, or any impairment reserves; "Earnings Assignments" means the assignments in respect of the earnings of each Vessel from any and all sources to be executed by the relevant Guarantor in favor of the Security Agent pursuant to Section 4.1(d) substantially in the form set out in Exhibit E; "Environmental Affiliate" means any person or entity, the liability of which for Environmental Claims any Security Party or Subsidiary of any Security Party may have assumed by contract or operation of law; "Environmental Approvals" shall have the meaning ascribed thereto in Section 2.1(o); "Environmental Claim(s)" shall have the meaning ascribed thereto in Section 2.1(o); "Environmental Laws" shall have the meaning ascribed thereto in Section 2.1(o); "ERISA" means the Employment Retirement Income Security Act of 1974, as amended; "ERISA Affiliate" means a trade or business (whether or not incorporated) which is under common control with the Borrower within the meaning of Sections 414(b), (c), (m) or (o) of the Code; "Event(s) of Default" means any of the events set out in Section 8.1; "Exchange Act" shall mean the Securities and Exchange Act of 1934, as amended; "Facility B Administrative Agent" means CBK, in its capacity as administrative agent for the Facility B Lenders; "Facility B Agent" means the Facility B Administrative Agent, the Facility B Security Agent and the Facility B Syndication Agent; "Facility B Guaranty" means the guaranty, made by each of the guarantors of the obligations of the Borrower under the Facility B Loan Agreement; "Facility B Lenders" means the banks and other financial institutions identified on Schedule 1 to the Facility B Loan Agreement as lenders; 6 "Facility B Loan Agreement" means the loan agreement to be dated on or about the date hereof made by and among, inter alia, the Borrower, as borrower, and the Facility B Lenders, as lenders, pursuant to which the Facility B Lenders will make Facility B available to the Borrower for the purpose of refinancing existing indebtedness secured by the Facility B Vessels; "Facility B Syndication Agent" means DnB, in its capacity as syndication agent for the Facility B Lenders; "Facility C" means the convertible letter of credit facility in the principal amount of $36,000,000 to be made available to the Borrower pursuant to the Facility C Agreement; "Facility C Administrative Agent" means CBK, in its capacity as administrative agent for the Facility C Bank; "Facility C Agents" means the Facility C Administrative Agent, the Facility C Security Agent and the Facility C Syndication Agent; "Facility C Agreement" means the facility agreement to be dated on or about the date hereof made by and among, inter alia, the Borrower and the Facility C Banks, pursuant to which the Facility C Banks will make Facility C available to the Borrower for the purpose of issuing the Standby Letter of Credit; "Facility C Banks" means the banks and other financial institutions identified on Schedule 1 to the Facility C Agreement; "Facility C Issuer" means CBK in its capacity as Issuer for the Facility C Banks pursuant to the Facility C Agreement; "Facility C Security Agent" means MeesPierson, in its capacity as security agent for the Facility C Banks; "Facility C Syndication Agent" means DnB, in its capacity as syndication agent for the Facility C Banks; "Fair Market Value" means, in respect of any vessel, means the average of three charter-free appraisals of such vessel from independent ship brokers approved by the Administrative Agent, no such appraisal to be dated more than thirty (30) days prior to the date on which such appraisal is required pursuant to this Agreement unless the Administrative Agent consents in writing (on each occasion) to the use of an older appraisal; "Fee Letter" means the letter dated November 15, 1999 and entered into by the Borrower, the Arrangers and the Agents in respect of 7 the fees referred to therein; "Final Payment" means the principal amount of One Hundred Twenty-Three Million Dollars ($123,000,000) plus such other amounts as may be necessary to repay the Loan in full together with accrued but unpaid interest and any other amounts owing by the Borrower or any other Security Party to any Arranger, Agent or Lender pursuant to this Agreement, the Note or any Security Document; "Final Payment Date" means the date that is five years after the Drawdown Date; "Funded Debt" shall mean on a consolidated basis for the Borrower (without duplication), the sum of (i) all Indebtedness of the Borrower (on a consolidated basis), (ii) all obligations to pay a specific purchase price for goods or services whether or not delivered or accepted, i.e., take-or-pay and similar obligations which in accordance with GAAP would be shown on the liability side of the balance sheet, (iii) all net obligations under Interest Rate Agreements, and (iv) all guarantees of non-consolidated entity obligations; provided, however, that balance sheet accruals for future drydock expenses shall not be classified as Funded Debt; "GAAP" shall have the meaning ascribed thereto in Section 1.3; "Guarantor(s)" means, as of the date of this Agreement, each of the companies listed in Schedule 2 as Guarantors and thereafter shall also mean such companies as may execute a Guaranty pursuant to Section 9.1(t) or otherwise; "Guaranty(ies)" means the guaranty to be executed by each Guarantor in respect of the obligations of the Borrower under and in connection with this Agreement and the Note in favor of the Security Agent pursuant to Section 4.l(d), and any guaranty executed thereafter pursuant to Section 9.1(t) or otherwise, each substantially in the form of Exhibit B; "Indebtedness" means, with respect to any Person at any date of determination (without duplication), (i) all indebtedness of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery thereof 8 or the completion of such services, except trade payables, (v) all obligations on account of principal of such Person as lessee under capitalized leases, (vi) all indebtedness of other Persons secured by a lien on any asset of such Person, whether or not such indebtedness is assumed by such Person; provided that the amount of such indebtedness shall be the lesser of (a) the fair market value of such asset at such date of determination and (b) the amount of such indebtedness, and (vii) all indebtedness of other Persons guaranteed by such Person to the extent guaranteed; the amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided that the amount outstanding at any time of any indebtedness issued with original issue discount is the face amount of such indebtedness less the remaining unamortized portion of the original issue discount of such indebtedness at such time as determined in conformity with GAAP; and provided further that Indebtedness shall not include any liability for current or deferred federal, state, local or other taxes, or any trade payables; "Initial Payment Date" means the date which is six months after the Drawdown Date; "Insurances Assignments" means the assignments in respect of the insurances over the Vessels to be executed by the respective Guarantor owning same in favor of the Security Agent pursuant to Section 4.1(d) substantially in the form set out in Exhibit F; "Intercreditor Agreement" means the intercreditor agreement dated on or about the date hereof entered into by and among the Agents, the Facility B Agents and the Facility C Agents substantially in the form set out in Exhibit K; "Interest Expense" means for any period, all interest charges, including the interest component of capitalized leases; "Interest Notice" means a notice from the Borrower to the Administrative Agent specifying the duration of any relevant Interest Period and certifying the current ratio of the Borrower's Funded Debt to EBITDA and the corresponding Margin, each substantially in the form of Exhibit J; "Interest Period(s)" means period(s) of one, three or six months selected by the Borrower or, in the Lenders' discretion, such other 9 period(s) as may be agreed; "Interest Rate Agreements" means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement designed to protect the Borrower or any of its Subsidiaries against fluctuations in interest rates to or under which the Borrower or any of its Subsidiaries is a party or a beneficiary on the date of this Agreement or becomes a party or a beneficiary hereafter; "Investment" means any direct or indirect advance, loan or other extension of credit (including by way of guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of capital stock (or other equity interest), Indebtedness or other similar instruments; "ISM Code" means the International Safety Management Code for the Safe Operating of Ships and for Pollution Prevention constituted pursuant to Resolution A.741(18) of the International Maritime Organization and incorporated into the Safety of Life at Sea Convention and includes any amendments or extensions thereto and any regulation issued pursuant thereto; "L/C Drawing Event" means (i) the failure of the Administrative Agent to receive evidence of the satisfactory placing of the Ship Mortgage Indemnity within ninety (90) days after the Drawdown Date, or (ii) the occurrence of an Event of Default prior to the earlier of (a) the expiration of the Standby Letter of Credit or (b) the issuance of the Ship Mortgage Indemnity; "LIBOR" means the rate (rounded upward to the nearest 1/16th of one percent) for deposits of Dollars for a period equivalent to the relevant Interest Period at or about 11:00 a.m. (London time) on the second London Banking Day before the first day of such period as displayed on Telerate page 3750 (British Bankers' Association Interest Settlement Rates) (or such other page as may replace such page 3750 on such system or on any other system of the information vendor for the time being designated by the British Bankers' Association to calculate the BBA Interest Settlement Rate (as defined in the British Bankers' Association's Recommended Terms and Conditions 10 ("BBAIRS" terms) dated August 1985)), provided that if on such date no such rate is so displayed for the relevant Interest Period, LIBOR for such period shall be the arithmetic mean (rounded upward if necessary to four decimal places) of the rates respectively quoted to the Administrative Agent by each of the Reference Banks at the request of the Administrative Agent as the offered rate for deposits of Dollars in an amount approximately equal to the amount in relation to which LIBOR is to be determined for a period equivalent to the relevant Interest Period to prime banks in the London Interbank Market at or about 11:00 a.m. (London time) on the second Banking Day before the first day of such period; "Loan" means the loan facility to be made available by the Lenders to the Borrower pursuant to Section 3 in the original principal amount of up to Two Hundred Eighteen Million Dollars ($218,000,000), or the balance thereof from time to time outstanding; "Majority Lenders" at any time means Lenders holding an aggregate of more then 50% of the Loan then outstanding (which must include at least one Lender which is not an Arranger); "Margin" means a margin which will vary based upon the Borrower's Funded Debt to EBITDA ratio as set forth in Schedule 4; "Material Adverse Effect" shall mean a material adverse effect on (i) the ability of the Borrower to repay the Loan or perform any of its obligations hereunder or under the Note, (ii) the ability of any Security Party to perform its obligations under any Security Documents or (iii) the business, property, assets, liabilities, operations, condition (financial or otherwise) or prospects of the Borrower and other Security Parties taken as a whole; "Materials of shall have the meaning ascribed thereto in Environmental Concern" Section 2.1(o); "MEGA I" means Hyundai Hull No. 1173, currently under construction by Hyundai Heavy Industries, South Korea; "Mortgages" means the first preferred Marshall Islands or Liberian ship mortgages on the Vessels, to be executed by the respective Guarantors as listed in Schedule 3 in favor of the Security Agent (as trustee for the Lenders) pursuant to Section 4.1(d) substantially in the form set out in Exhibit D; 11 "Multiemployer Plan" means, at any time, a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions or has within any of the three preceding plan years made or accrued an obligation to make contributions; "Multiple Employer Plan" means, at any time, an employee benefit plan, other than a Multiemployer Plan, subject to Title IV or ERISA, to which the Borrower or any ERISA Affiliate, and one or more employers other than the Borrower or an ERISA Affiliate, is making or accruing an obligation to make contributions or, in the event that any such plan has been terminated, to which the Borrower or any ERISA Affiliate made or accrued an obligation to make contributions during any of the five plan years preceding the date of termination of such plan; "Note" means the promissory note to be executed by the Borrower to the order of the Security Agent pursuant to Section 4.1(c), to evidence the Loan substantially in the form set out Exhibit A; "Operator" means, in respect of any Vessel, the Person who is concerned with the operation of such Vessel and falls within the definition of "Company" set out in rule 1.1.2 of the ISM Code; "Payment Dates" means the Initial Payment Date and the dates falling at six month intervals thereafter, the last of which is the Final Payment Date; "PBGC" means the Pension Benefit Guaranty Corporation; "Permitted Drydocking Costs" means (i) in respect of any one Vessel, $2.0 million in any calendar year, and (ii) in respect of all Vessels on an aggregated basis, $5.0 million in any calendar year, expended for drydocking costs; "Person" means any individual, sole proprietorship, corporation, partnership (general or limited), limited liability company, business trust, bank, trust company, joint venture, association, joint stock company, trust or other unincorporated organization, whether or not a legal entity, or any government or agency or political subdivision thereof; "Plan" means any employee benefit plan (other than a Muliemployer Plan or a Multiple Employer Plan) covered 12 by Title IV of ERISA; "Pledge Agreement" means the pledge agreement to be executed by the Borrower in favor of the Security Agent pursuant to Section 4.1(e), and any pledge agreement executed thereafter pursuant to Section 9.1(u), each substantially in the form of Exhibit C; "Pledged Shares" means the shares of capital stock, limited liability company interests or other equity interests of any Guarantor owning a Vessel, owned by the Borrower and pledged to the Security Agent pursuant to a Pledge Agreement; "Prime Rate" means, from time to time, the rate of interest publicly announced by the Administrative Agent in New York City, New York, as its prime rate; "Qualified Substitute Vessel" means a vessel or vessels which, as of the date of the acquisition by the Borrower or a Guarantor, (i) have aggregate Fair Market Value at least equal to the Fair Market Value of the Vessel or Vessels for which they are being substituted, (ii) each of which is subject to a Qualified Time Charter and (iii) each of which is no more than thirteen (13) years old; "Qualified Time Charter" means, at any time in respect of a Qualified Substitute Vessel, a time charter having a remaining term of not less than twelve (12) months and providing EBITDA at least equal to the EBITDA for the immediately preceding four fiscal quarters attributable to the Vessel or Vessels for which such Qualified Substitute Vessel is being substituted; "Reference Banks" means Den norske Bank ASA, Christiania Bank og Kreditkasse ASA and MeesPierson N.V.; "Required Percentage" shall have the meaning set forth for such term in Section 9.5; "Restricted Payment" shall have the meaning attributed thereto in Section 9.2(j); "Second Assignments" means the second priority assignments of earnings and insurance over the Vessels, to be executed by the respective Guarantors as listed in Schedule 3 in favor of the Facility C Security Agent pursuant to the Facility C Agreement; "Second Mortgages" means the second preferred Marshall Islands or Liberian ship mortgages on the Vessels, to be executed by the respective Guarantors as listed in Schedule 3 in favor of the 13 Facility C Security Agent (as trustee for the Facility C Banks) pursuant to the Facility C Agreement; "Security Agent" shall have the meaning attributed hereto in the Preamble; "Security Documents" means the Pledge Agreement, all Guaranties, the Mortgages, the Assignments and any other documents that may be executed as security for the Loan and the Borrower's obligations in connection therewith; "Security Party(ies)" the Borrower and each of the Guarantors; "Ship Mortgage Indemnity" means a ship mortgage indemnity policy in favor of the Security Agent for the benefit of the Lenders, issued by underwriters satisfactory to the Agents and in form and substance satisfactory to the Agents, for a term of not less than three (3) years from the Drawdown Date, covering an amount not less than the difference between (I) the amount of the Loan advanced on the Drawdown Date and (ii) 65% of the aggregate of the Fair Market Value of the Vessels as of the Drawdown Date; "SMC" means the safety management certificate issued in respect of a Vessel in accordance with rule 13 of the ISM code; "SOYANG" means Daewoo Hull No. 5152, currently under construction by Daewoo Heavy Industries Ltd. South Korea; "SOYANG Investment" means the contribution by the Borrower (and its Subsidiaries on a consolidated basis) of not more than $10.0 million of cash or Cash Equivalents (in addition to contributions made prior to the date of this Agreement) to the acquisition of the SOYANG, made no earlier than the date of acquisition thereof or three (3) days prior thereto as required by the construction contract for the SOYANG; "SOYANG Subsidiary" means Soyang Shipping LLC, a limited liability company organized under the laws of the Republic of the Marshall Islands; "Standby Letter of Credit" means the letter of credit to be issued by the Facility C Issuer on behalf of the Facility C Banks to the Security Agent for the benefit of the Lenders in the event that the Ship Mortgage Indemnity is not issued on or before the Drawdown Date, such letter of credit to be substantially in the form of Exhibit L; "Subsidiaries" means, with respect to any Person, any business entity of which more than 50% of the outstanding voting stock is 14 owned directly or indirectly by such Person and/or one or more other Subsidiaries of such Person; "Taxes" means any present or future income or other taxes, levies, duties, charges, fees, deductions or withholdings of any nature now or hereafter imposed, levied, collected, withheld or assessed by any taxing authority whatsoever, except for taxes on or measured by the overall net income of each Lender imposed by its jurisdiction of incorporation or applicable lending office, the United States of America, the State or City of New York or any governmental subdivision or taxing authority of any thereof or by any other taxing authority having jurisdiction over such Lender (unless such jurisdiction is asserted by reason of the activities of the Borrower or any of the Subsidiaries); "Termination Event" means (i) a "reportable event," as defined in Section 403 of ERISA (other than a "reportable event" not subject to the provision for 30-day notice to the PBGC), (ii) the withdrawal of the Borrower or any ERISA Affiliate from a Multiemployer Plan during a plan year in which it was a "substantial employer," as defined in Section 4001(a)(2) of ERISA, or the incurrence of liability by the Borrower or any ERISA Affiliate under Section 4064 of ERISA upon the termination of a Multiple Employer Plan, (iii) the filing of a notice of intent to terminate a Plan under Section 4041of ERISA or the treatment of a Multiemployer Plan amendment as a termination under Section 4041A of ERISA, (iv) the institution of proceedings to terminate a Plan or a Multiemployer Plan, or (v) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan or Multiemployer Plan; "Third Assignments" means the third priority assignments of earnings and insurance over the Vessels, to be executed by the respective Guarantors as listed in Schedule 3 in favor of the Facility B Security Agent pursuant to the Facility B Loan Agreement; "Third Mortgages" means the third preferred Marshall Islands or Liberian ship mortgages on the Vessels, to be executed by the respective Guarantors as listed on Schedule 3 in favor of the Facility B Security Agent (as trustee for the Facility B Lenders) pursuant to the Facility B Loan Agreement; "Total Capitalization" shall mean the sum of (i) Funded Debt, plus (ii) Consolidated Net Worth; 15 "Total Loss" shall have the meaning ascribed thereto in the Mortgages; "Vessel(s)" each of the Vessels listed in Schedule 3, registered in the name of the relevant Guarantor as set forth in such Schedule; and "Withdrawal Liabilities" shall have the meaning given to such term under Part 1 of Subtitle E of Title IV of ERISA; 1.2 Computation of Time Periods; Other Definitional Provisions. In this Agreement, the Note and the other Security Documents, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding"; words importing either gender include the other gender; references to "writing" include printing, typing, lithography and other means of reproducing words in a tangible visible form; the words "including," "includes" and "include" shall be deemed to be followed by the words "without limitation"; references to articles, sections (or subdivisions of sections), exhibits, annexes or schedules are to this Agreement, the Note or such Security Document, as applicable; references to agreements and other contractual instruments (including this Agreement, the Note and the Security Documents) shall be deemed to include all subsequent amendments, amendments and restatements, supplements, extensions, replacements and other modifications to such instruments (without, however, limiting any prohibition on any such amendments, extensions and other modifications by the terms of this Agreement, the Note or any Security Document); references to any matter that is "approved" or requires "approval" of a party shall mean approval given in the sole and absolute discretion of such party unless otherwise specified. 1.3 Accounting Terms. Unless otherwise specified herein, all accounting terms used in this Agreement, the Note and in the Security Documents shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Administrative Agent or to the Lenders under this Agreement shall be prepared, in accordance with generally accepted accounting principles for the United States ("GAAP"). 1.4 Certain Matters Regarding Materiality. To the extent that any representation, warranty, covenant or other undertaking of the Borrower in this Agreement is qualified by reference to those which are not reasonably expected to result in a "Material Adverse Effect" or language of similar import, no inference shall be drawn therefrom that any Agent or Lender has knowledge or approves of any noncompliance by the Borrower with any governmental rule. 1.5 Forms of Documents. Except as otherwise expressly provided in this Agreement, references to documents or certificates "substantially in the form" of Exhibits to another document shall mean that such documents or certificates are duly completed in the form of the related Exhibits with substantive changes subject to the provisions of Section 17.6 of this Agreement, as the case may be, or the correlative provisions of the Security Documents. 2. REPRESENTATIONS AND WARRANTIES 2.1 Representations and Warranties. In order to induce the Arrangers, the Agents and the Lenders to enter into this Agreement and to induce the Lenders to make the Loan available, the 16 Borrower hereby represents and warrants to the Arrangers, the Agents and the Lenders (which representations and warranties shall survive the execution and delivery of this Agreement and the Note and the drawdown of the Loan hereunder) that: (a) Due Organization and Power. each Subsidiary is duly formed and is validly existing in good standing under the laws of its jurisdiction of incorporation or formation, has full power to carry on its business as now being conducted and to enter into and perform its obligations under this Agreement, the Note and the Security Documents to which it is a party, and has complied with all statutory, regulatory and other requirements relative to such business and such agreements; (b) Authorization and Consents. all necessary corporate action has been taken to authorize, and all necessary consents and authorities have been obtained and remain in full force and effect to permit, each Security Party to enter into and perform its obligations under this Agreement, the Note and the Security Documents and, in the case of the Borrower, to borrow, service and repay the Loan and, as of the date of this Agreement, no further consents or authorities are necessary for the service and repayment of the Loan or any part thereof; (c) Binding Obligations. this Agreement, the Note and the Security Documents constitute or will, when executed and delivered, constitute the legal, valid and binding obligations of each Security Party as is a party thereto enforceable against such Security Party in accordance with their respective terms, except to the extent that such enforcement may be limited by equitable principles, principles of public policy or applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting generally the enforcement of creditors' rights; (d) No Violation. the execution and delivery of, and the performance of the provisions of, this Agreement, the Note and those of the Security Documents to which it is to be a party by each Security Party do not contravene any applicable law or regulation existing at the date hereof or any contractual restriction binding on such Security Party or the certificate of incorporation or by-laws (or equivalent instruments) thereof; (e) Litigation. no action, suit or proceeding is pending or threatened against the Borrower or any Subsidiary before any court, board of arbitration or administrative agency which could or might result in any Material Adverse Effect; (f) No Default. neither the Borrower nor any Subsidiary is in default under any material agreement by which it is bound, or is in default in respect of any material financial commitment or obligation; (g) Vessels. upon the date of the making of the Loan: (i) each of the Vessels will be in the sole and absolute ownership of the respective Guarantor as set forth in Schedule 3 and duly registered in such Guarantor's name under Marshall Islands or Liberian flag, unencumbered, save and except for the Mortgage, the Second Mortgage and the Third Mortgage recorded against it and as permitted thereby; (ii) each Vessel will be classed in the highest classification and rating for vessels of the same age and type with the respective classification 17 society as set forth in Schedule 3 without any material outstanding recommendations; (iii) each Vessel will be operationally seaworthy and in every way fit for its intended service; and (iv) each Vessel will be insured in accordance with the provisions of the Mortgage recorded against it and the requirements thereof in respect of such insurances will have been complied with; (h) Insurance. the Borrower and each Subsidiary has insured its properties and assets against such risks and in such amounts as are customary for companies engaged in similar businesses; (i) Financial Information. except as otherwise disclosed in writing to the Agents on or prior to the date hereof, all financial statements, information and other data furnished by the Borrower to the Agents are complete and correct, such financial statements have been prepared in accordance with GAAP and accurately and fairly present the financial condition of the parties covered thereby as of the respective dates thereof and the results of the operations thereof for the period or respective periods covered by such financial statements, and since the date of the Borrower's financial statements most recently delivered to the Administrative Agent there has been no Material Adverse Effect as to any of such parties and none thereof has any contingent obligations, liabilities for taxes or other outstanding financial obligations which are material in the aggregate except as disclosed in such statements, information and data; (j) Tax Returns. the Borrower and each Subsidiary has filed all material tax returns required to be filed thereby and has paid all taxes payable thereby which have become due, other than those not yet delinquent or the nonpayment of which would not have a Material Adverse Effect on the Borrower or such Subsidiary and except for those taxes being contested in good faith and by appropriate proceedings or other acts and for which adequate reserves shall have been set aside on its books; (k) ERISA. the execution and delivery of this Agreement and the consummation of the transactions hereunder will not involve any prohibited transaction within the meaning of ERISA or Section 4975 of the Code and no condition exists or event or transaction has occurred in connection with any Plan maintained or contributed to by the Borrower or any Subsidiary or any ERISA Affiliate resulting from the failure of any thereof to comply with ERISA insofar as ERISA applies thereto which is reasonably likely to result in the Borrower or any such Subsidiary or any ERISA Affiliate incurring any liability, fine or penalty which individually or in the aggregate would have a Material Adverse Effect. Prior to the date hereof, the Borrower has delivered to the Administrative Agent a list of all the employee benefit plans to which the Borrower or any Subsidiary or any ERISA Affiliate is a "party in interest" (within the meaning of Section 3(14) of ERISA) or a "disqualified person" (within the meaning of Section 4975(e)(2) of the Code); (l) Chief Executive Office. the Borrower's chief executive office and chief place of business and the office in which the records relating to the earnings and other receivables of each Subsidiary are kept is, and will continue to be, located at One Station Place, Stamford, Fairfield County, Connecticut; 18 (m) Foreign Trade Control Regulations. to the best of the Borrower's knowledge, none of the transactions contemplated herein will violate any of the provisions of the Foreign Assets Control Regulations of the United States of America (Title 31, Code of Federal Regulations, Chapter V, Part 500, as amended), any of the provisions of the Cuban Assets Control Regulations of the United States of America (Title 31, Code of Federal Regulations, Chapter V, Part 515, as amended), any of the provisions of the Libyan Assets Control Regulations of the United States of America (Title 31, Code of Federal Regulations, Chapter V, Part 550, as amended), any of the provisions of the Iranian Transaction Regulations of the United States of America (Title 31, Code of Federal Regulations, Chapter V, Part 560, as amended), any of the provisions of the Iraqi Sanctions Regulations (Title 31, Code of Federal Regulations, Chapter V, Part 575, as amended), any of the provisions of the Federal Republic of Yugoslavia (Serbia and Montenegro) Assets Control Regulations (Title 31, Code of Federal Regulations, Chapter V, Part 585 as amended) or any of the provisions of the Regulations of the United States of America Governing Transactions in Foreign Shipping of Merchandise (Title 31, Code of Federal Regulations, Chapter V, Part 505, as amended); (n) Equity Ownership. each of the Guarantors is a wholly owned direct subsidiary of the Borrower; on the Drawdown Date, the Borrower will not own any shares of capital stock, limited liability company interest, partnership interest or any other direct or indirect equity interest in any corporation, limited liability company, partnership or other entity except the Security Parties and the other companies listed on Schedule 2; (o) Environmental Matters and Claims. (a) except as heretofore disclosed in writing to the Agents (i) the Borrower, each of its Subsidiaries and their Affiliates will, when required to operate their business as then being conducted, be in compliance with all applicable United States federal and state, local, foreign and international laws, regulations, conventions and agreements relating to pollution prevention or protection of human health or the environment (including, without limitation, ambient air, surface water, ground water, navigable waters, waters of the contiguous zone, ocean waters and international waters), including, without limitation, laws, regulations, conventions and agreements relating to (1) emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous materials, oil, hazardous substances, petroleum and petroleum products and by-products ("Materials of Environmental Concern"), or (2) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern ("Environmental Laws"); (ii) the Borrower, each of its Subsidiaries and their Affiliates will, when required, have all permits, licenses, approvals, rulings, variances, exemptions, clearances, consents or other authorizations required under applicable Environmental Laws ("Environmental Approvals") and will, when required, be in compliance with all Environmental Approvals required to operate their business as then being conducted; (iii) none of the Borrower, any Subsidiary nor any Affiliate thereof has received any notice of any claim, action, cause of action, investigation or demand by any person, entity, enterprise or government, or any political subdivision, intergovernmental body or agency, department or instrumentality thereof, alleging potential liability for, or a requirement to incur, material investigator costs, cleanup costs, response and/or remedial costs (whether incurred by a governmental entity or otherwise), natural resources damages, property damages, personal injuries, attorneys' fees and expenses, or fines or penalties, in each case arising out of, based on or resulting from (1) the presence, or release or threat of release into the environment, of any Materials of Environmental Concern at any location, whether or not owned by such person, or (2) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law or Environmental Approval ("Environmental Claim") (other than Environmental Claims that have 19 been fully and finally adjudicated or otherwise determined and all fines, penalties and other costs, if any, payable by the Security Parties in respect thereof have been paid in full or which are fully covered by insurance (including permitted deductibles)); and (iv) there are no circumstances that may prevent or interfere with such full compliance in the future; and (b) except as heretofore disclosed in writing to the Agent there is no Environmental Claim pending or threatened against the Borrower, any Subsidiary or any Affiliate thereof and there are no past or present actions, activities, circumstances, conditions, events or incidents, including, without limitation, the release, emission, discharge or disposal of any Materials of Environmental Concern, that could form the basis of any Environmental Claim against such persons the adverse disposition of which may result in a Material Adverse Effect; (p) Compliance with ISM Code. each Vessel and each Operator complies with the requirements of the ISM Code including (but not limited to) the maintenance and renewal of valid certificates pursuant thereto; (q) Threatened Withdrawal of DOC or SMC. there is no threatened or actual withdrawal of any Operator's DOC or SMC in respect of any Vessel; (r) Liens. other than as disclosed on Schedule 6, there are no liens of any kind on any property owned by the Borrower or any Subsidiary of the Borrower; (s) Indebtedness. other than as disclosed in Schedule 6, the Borrower (and its Subsidiaries on a consolidated basis) has no long-term Indebtedness; and (t) Survival. all representations, covenants and warranties made herein and in any certificate or other document delivered pursuant hereto or in connection herewith shall survive the making of the Loan and the issuance of the Note. 3. THE LOAN 3.1 (a) Purpose. The Lenders shall make the Loan available to the Borrower for the purpose of refinancing the indebtedness currently secured against the Vessels. (b) Making of the Loan. Each of the Lenders, relying upon each of the representations and warranties set out in Section 2, hereby severally and not jointly agrees with the Borrower that, subject to and upon the terms of this Agreement, it will on the Drawdown Date make the Loan available through the Administrative Agent to the Borrower in an aggregate amount not to exceed its Commitment ratably with the other Lenders according to their respective Commitments. 3.2 Drawdown Notice. The Borrower shall, at least three (3) Banking Days before the Drawdown Date, serve a notice (a "Drawdown Notice") substantially in the form of Exhibit I on the Administrative Agent which notice shall (a) be in writing addressed to the Administrative Agent, (b) be effective on receipt by the Administrative Agent, (c) specify the amount of the Loan to be drawn, (d) specify the Banking Day on which the Loan is to be drawn and the initial Interest Period, (e) specify the disbursement instructions and (f) be irrevocable. 3.3 Effect of Drawdown Notice. The Drawdown Notice shall be deemed to constitute a warranty by the Borrower (a) that the representations and warranties stated in Section 2 (updated mutatis mutandis) are true and correct on and as of the date of the Drawdown Notice and will be 20 true and correct on and as of the Drawdown Date as if made on such date, and (b) that no Event of Default nor any event which with the giving of notice or lapse of time or both would constitute an Event of Default has occurred and is continuing. 4. CONDITIONS 4.1 Conditions Precedent to Drawdown of the Loan. The obligation of the Lenders to make the Loan available to the Borrower under this Agreement shall be expressly subject to the following conditions precedent: (a) Corporate Authority. the Administrative Agent shall have received the following documents in form and substance satisfactory to the Administrative Agent: (i) copies, certified as true and complete by an officer of the Borrower, of the resolutions of the board of directors of the Borrower evidencing approval of this Agreement and the Note and authorizing an appropriate officer or officers or attorney-in-fact or attorneys-in-fact to execute the same on its behalf, or other evidence of such approvals and authorizations; (ii) copies, certified as true and complete by an officer of each Security Party (other than the Borrower), of the resolutions of the board of directors and shareholder, or management committee and member, as the case may be, thereof evidencing approval of the Guaranty and those Security Documents to which it is to be a party and authorizing an appropriate officer or officers or attorney-in-fact or attorneys-in-fact to execute the same on its behalf, or other evidence of such approvals and authorizations; (iii) copies, certified as true and complete by an officer of the Borrower, of all documents evidencing any other necessary action (including actions by such parties thereto other than the Borrower as may be required by the Administrative Agent), approvals or consents with respect to this Agreement, the Note and the Security Documents; (iv) copies, certified as true and complete by an officer of the respective Security Party of the certificate of incorporation and by-laws, certificate of formation and operating agreement, or equivalent instruments thereof; (v) certificate of the Secretary of the Borrower certifying that it legally and beneficially owns, directly or indirectly, all of the issued and outstanding capital stock, or limited liability company membership interests, as the case may be, of each of the other Security Parties and that such capital stock or membership interests are free and clear of any liens, claims, pledges or other encumbrances whatsoever other than as disclosed to the Administrative Agent in writing on or before the date hereof; 21 (vi) certificate of the Secretary of each Security Party (other than the Borrower) certifying as to the record ownership of all of its issued and outstanding capital stock, or limited liability company membership interests, as the case may be; and (vii) certificates of the jurisdiction of incorporation or formation, as the case may be, of each Security Party as to the good standing thereof. (b) The Vessels. the Administrative Agent shall have received evidence satisfactory to it that: (i) each of the Vessels is in the sole and absolute ownership of the respective Guarantor as set forth in Schedule 3 and duly registered in such Guarantor's name under Marshall Islands or Liberian flag, unencumbered, save and except for the Mortgage, the Second Mortgage and the Third Mortgage recorded against it and as otherwise permitted thereby; (ii) each Vessel is classed in the highest classification and rating for vessels of the same age and type with the respective classification society as set forth in Schedule 3 without any material outstanding recommendations; (iii) each of the Vessels is operationally seaworthy and in every way fit for its intended service; and (iv) each of the Vessels is insured in accordance with the provisions of the Mortgage recorded against it and the requirements thereof in respect of such insurances have been complied with; (c) The Note. the Borrower shall have duly executed and delivered this Agreement and the Note; (d) Guarantor Documents. each Guarantor shall have duly executed and delivered to the Administrative Agent: (i) the Guaranty; (ii) the Mortgage over its Vessel(s); (iii) an Insurances Assignment with respect to its Vessel(s); (iv) an Earnings Assignment with respect to its Vessel(s); (v) its Assignment Notices; and (vi) Uniform Commercial Code Financing Statements for filing with the State and County of New York, the State of Connecticut, Fairfield County, Connecticut and in such other jurisdictions as the Administrative Agent may reasonably require; 22 (e) Pledge Agreement. the Borrower shall have duly executed and delivered to the Security Agent the Pledge Agreement and the Pledged Shares; (f) Intercreditor Agreement. the Intercreditor Agreement shall have been executed and delivered to the Administrative Agent; (g) Vessel Appraisals. the Administrative Agent shall have received appraisals, in form and substance satisfactory to the Agents, of the Fair Market Value of each Vessel showing the aggregate Fair Market Value of the Vessels to be not less than one hundred fifteen percent (115%) of the Loan; (h) Guarantor Solvency. the Administrative Agent shall have received a certificate of an officer of each Guarantor confirming the representations and warranties with respect to solvency set forth in its Guaranty and containing conclusions as to the solvency of such Guarantor; (i) Environmental Claims. the Administrative Agent shall be satisfied that neither the Borrower nor any of its Subsidiaries is subject to any Environmental Claim which could have a Material Adverse Effect; (j) Fees. the Administrative Agent shall have received payment in full of all fees and expenses due to the Agents, the Arrangers and the Lenders under Section 13 and the Fee Letter; (k) Accounts. each Security Party shall have established an operating account with the Syndication Agent into which Assigned Moneys are to be paid; (l) Vessel Liens. the Administrative Agent shall have received evidence satisfactory to it and to its legal advisor that, save for the liens created by the Mortgages, the Assignments, the Second Mortgages, the Second Assignments, the Third Mortgages and the Third Assignments, there are no liens, charges or encumbrances of any kind whatsoever on any of the Vessels or on their respective earnings except as permitted hereby or by any of the Security Documents; (m) Ship Mortgage Indemnity/Standby Letter of Credit. the Administrative Agent shall have received either (i) evidence of the satisfactory placing of the Ship Mortgage Indemnity or (ii) the Standby Letter of Credit; (n) Facility B. the Facility B Lenders have advanced Facility B; (o) Charters; Pooling Agreements. the Borrower shall have delivered to the Administrative Agent true and complete copies of (i) all charters having a term longer than twelve (12) months from the date of execution and (ii) all vessel pooling agreements, in each case to which the Borrower or any Subsidiary is a party; and (p) Legal Opinions. the Administrative Agent shall have received legal opinions addressed to the Agents from (i) Fredric S. London, Esq., in-house counsel for the Security Parties, and (ii) Seward & Kissel LLP, special counsel to the Agents and Lenders, in each case in such form as the Administrative Agent may require, as well as such other legal opinions as the Administrative Agent shall have required as to all or any matters under the laws of the United States of America, 23 the State of Delaware, the State of New York, the Republic of Liberia and the Republic of the Marshall Islands covering the representations and conditions which are the subjects of Sections 2 and 4.1. 4.2 Further Conditions Precedent. The obligation of the Lenders to make the Loan available to the Borrower under this Agreement shall be expressly and separately subject to the following further conditions precedent on the Drawdown Date: (a) the Administrative Agent having received a Drawdown Notice in accordance with the terms of Section 3.2; (b) the representations stated in Section 2 (updated mutatis mutandis to such date) being true and correct as if made on and as of that date; (c) no Event of Default having occurred and being continuing and no event having occurred and being continuing which, with the giving of notice or lapse of time, or both, would constitute an Event of Default; (d) the Administrative Agent being satisfied that no change in any applicable laws, regulations, rules or in the interpretation thereof shall have occurred which make it unlawful for any Security Party to make any payment as required under the terms of this Agreement, the Note, the Security Documents or any of them; and (e) there having been no Material Adverse Effect since the date hereof. 4.3 Breakfunding Costs. In the event that, on the date specified for the making of the Loan in the Drawdown Notice, the Lenders shall not be obliged under this Agreement to make the Loan available, the Borrower shall indemnify and hold the Lenders fully harmless against any losses which the Lenders (or any thereof) may sustain as a result of borrowing or agreeing to borrow funds to meet the drawdown requirement of the Drawdown Notice and the certificate of the relevant Lender or Lenders shall, absent manifest error, be conclusive and binding on the Borrower as to the extent of any such losses. 4.4 Satisfaction after Drawdown. Without prejudice to any of the other terms and conditions of this Agreement, in the event the Lenders, in their sole discretion, advance the Loan prior to the satisfaction of all or any of the conditions referred to in Sections 4.1 or 4.2, the Borrower hereby covenants and undertakes to satisfy or procure the satisfaction of such condition or conditions within fourteen (14) days after the Drawdown Date (or such longer period as the Lenders, in their sole discretion, may agree). 4.5 Cancellation of Standby Letter of Credit. In the event the Ship Mortgage Indemnity, in form and substance satisfactory to the Administrative Agent, has been delivered thereto, subsequent to the Drawdown Date but prior to an L/C Drawing Event, the Standby Letter of Credit shall be surrendered to the Facility C Issuer for cancellation. 5. REPAYMENT AND PREPAYMENT 5.1 Repayment. Subject to the provisions of Sections 5.3 and 5.5 regarding application of prepayments, the Borrower shall repay the principal of the Loan in ten (10) semi-annual 24 installments on the Payment Dates, the first four (4) such installments each being in the amount of Five Million Dollars ($5,000,000), the next five (5) such installments each being in the amount of Twelve Million Five Hundred Thousand Dollars ($12,500,000) and the last such installment being in the amount of Twelve Million Five Hundred Thousand Dollars ($12,500,000) plus the Final Payment, such last installment to be paid on the Final Payment Date. 5.2 Voluntary Prepayment; no re-borrowing. The Borrower may prepay, upon five (5) Banking Days written notice, the Loan or any portion thereof. Each prepayment shall be in a minimum amount of One Million Dollars ($1,000,000) plus any One Million Dollar ($1,000,000) multiple thereof or the full amount of the Loan. No part of the Loan will be available for re-borrowing. 5.3 Mandatory Prepayment; Occurrence of an L/C Drawing Event. Upon the occurrence of a L/C Drawing Event the Security Agent shall deliver a notice for demand of payment of Thirty-Six Million ($36,000,000) pursuant to the Standby Letter of Credit. Such amount shall, upon receipt, be applied to the prepayment of the Loan by reducing the amount of the installments due on the first four (4) Payment Dates to One Million Dollars ($1,000,000) and the installments due on the subsequent two Payment Dates to Two Million Five Hundred Thousand Dollars ($2,500,000), the amounts due thereafter being unchanged. 5.4 Mandatory Prepayment; Sale or Loss of Vessel.On (i) any sale of a Vessel (other than sales made pursuant to Section 9.7, Vessel Substitution Sales), or (ii) the earlier of (x) ninety (90) days after the Total Loss of a Vessel or (y) the date on which the insurance proceeds in respect of such loss are received by the Borrower (or a Guarantor) or the Security Agent as assignee thereof, such proceeds shall be applied as follows: (a) Required Percentage Not Satisfied. if the aggregate Fair Market Value of the Vessels remaining immediately after such loss or sale is less than the then Required Percentage of the Loan and any amounts due and owing by the Borrower in respect of Facility C (determined pursuant to Section 9.5, Asset Maintenance), entirely and immediately in prepayment of the Loan and Facility C, pro rata in accordance with amounts then outstanding thereunder; (b) Asset Ratio Preserved. to prepayment of the Loan and Facility C, pro rata in accordance with amounts then outstanding thereunder, in the amount necessary to provide that the ratio, immediately after such sale or loss (and application of proceeds), of the aggregate Fair Market Value of the remaining Vessels to the balance of the Loan and the Borrower's obligations in respect of Facility C is at least equal to the ratio, immediately prior to such sale, of the aggregate Fair Market Value of the Vessels to the balance of the Loan and the Borrower's obligations in respect of Facility C; (c) Loan-to-Value Reduction. if the Ship Mortgage Indemnity has been obtained and if the Borrower (on a consolidated basis) has cash or Cash Equivalents of $30.0 million or greater, to prepayment of the Loan in the amount necessary to provide that the ratio, immediately after such sale or loss (and application of proceeds), of the balance of the Loan to the aggregate Fair Market Value of the remaining Vessels does not exceed 0.65; and (d) As Excess Cash. Otherwise, in accordance with Section 9.1(q) Use of Excess Cash. 25 5.5 Interest and Costs with Prepayments/Application of Prepayments. Any prepayment of the Loan made hereunder (including, without limitation, those made pursuant to Sections 5 and 9) shall be subject to the condition that on the date of prepayment all accrued interest to the date of such prepayment shall be paid in full with respect to the Loan or portions thereof being prepaid, together with any and all actual costs or expenses incurred by any Lender in connection with any breaking of funding (as certified by such Lender, which certification shall, absent any manifest error, be conclusive and binding on the Borrower). All prepayments of the Loan under Section 5.2 or 5.4 shall be applied towards the installments of the Loan in the inverse order of their due dates for payment. 6. INTEREST AND RATE 6.1 Applicable Rate. The Loan shall bear interest at the Applicable Rate which shall be the rate per annum which is equal to the aggregate of (a) LIBOR for the relevant Interest Period plus (b) the Margin. The Applicable Rate shall be determined by the Administrative Agent two Banking Days prior to the first day of the relevant Interest Period, provided, however, that the Margin shall be determined concurrently with the delivery of each Compliance Certificate to the Administrative Agent, and as necessary during any Interest Period the Applicable Rate shall be re-calculated to reflect the current Margin. The Administrative Agent shall promptly notify the Borrower in writing of the Applicable Rate as and when determined. Each such determination, absent manifest error, shall be conclusive and binding upon the Borrower. 6.2 Default Rate. Any amounts due under this Agreement, not paid when due, whether by acceleration or otherwise, shall bear interest thereafter from the due date thereof until the date of payment at a rate per annum equal to (i) the Prime Rate (as notified to the Borrower by the Administrative Agent), plus (ii) the Margin, plus (iii) two percent (2%) (the "Default Rate"). Following the occurrence of any Event of Default, the Administrative Agent, upon instruction of the Majority Lenders, may deliver a notice to the Borrower advising the Borrower that an Event of Default has occurred. From the date of any such notice until each such Event of Default is cured to the satisfaction of the Majority Lenders, the Loan shall bear interest at the Default Rate. 6.3 Interest Periods. The Borrower shall give the Administrative Agent an Interest Notice specifying the Interest Period selected at least three (3) Banking Days prior to the end of any then existing Interest Period. If at the end of any then existing Interest Period the Borrower fails to give an Interest Notice the relevant Interest Period shall be three (3) months. The Borrower's right to select an Interest Period shall be subject to the restriction that no selection of an Interest Period shall be effective unless each Lender is satisfied that the necessary funds will be available to such Lender for such period and that no Event of Default or event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default shall have occurred and be continuing. 6.4 Interest Payments. Accrued interest on the Loan shall be payable in arrears on the last day of each Interest Period, except that if the Borrower shall select an Interest Period in excess of three (3) months, accrued interest shall be payable during such Interest Period on each three (3) month anniversary of the commencement of such Interest Period and upon the end of such Interest Period. 7. PAYMENTS 7.1 Place of Payments, No Set Off. All payments to be made hereunder by the Borrower shall be made to the Administrative Agent, not later than 11 a.m. New York time (any payment received 26 after 11 a.m. New York time shall be deemed to have been paid on the next Banking Day) on the due date of such payment, at its office located at 11 West 42nd Street, 7th Floor, New York, New York 10036 or to such other office of the Administrative Agent as the Administrative Agent may direct, without set-off or counterclaim and free from, clear of, and without deduction for, any Taxes, provided, however, that if the Borrower shall at any time be compelled by law to withhold or deduct any Taxes from any amounts payable to the Lenders hereunder, then the Borrower shall pay such additional amounts in Dollars as may be necessary in order that the net amounts received after withholding or deduction shall equal the amounts which would have been received if such withholding or deduction were not required and, in the event any withholding or deduction is made, whether for Taxes or otherwise, the Borrower shall promptly send to the Administrative Agent such documentary evidence with respect to such withholding or deduction as may be required from time to time by the Lenders. 7.2 Tax Credits. If any Lender obtains the benefit of a credit against the liability thereof for federal income taxes imposed by any taxing authority for all or part of the Taxes as to which the Borrower has paid additional amounts as aforesaid (and each Lender agrees to use its best efforts to obtain the benefit of any such credit which may be available to it, provided it has knowledge that such credit is in fact available to it), then such Lender shall reimburse the Borrower for the amount of the credit so obtained. Each Lender agrees that in the event that Taxes are imposed on account of the situs of its loans hereunder, such Lender, upon acquiring knowledge of such event, shall, if commercially reasonable, shift such loans on its books to another office of such Lender so as to avoid the imposition of such Taxes. 7.3 Computations; Banking Days. All computations of interest and fees shall be made by the Agents or the Lenders, as the case may be, on the basis of a 360-day year, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which interest or fees are payable. Each determination by the Agents or the Lenders of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error. (b) Whenever any payment hereunder or under the Note shall be stated to be due on a day other than a Banking Day, such payment shall be due and payable on the next succeeding Banking Day unless the next succeeding Banking Day falls in the following calendar month, in which case it shall be payable on the immediately preceding Banking Day, 8. EVENTS OF DEFAULT 8.1 Events of Default. The occurrence of any of the following events shall be an Event of Default: (a) Non-Payment of Principal. any payment of principal is not paid when due; or (b) Non-Payment of Interest or Other Amounts. any interest or any other amount becoming payable to the Agents, the Arrangers or any Lender under this Agreement, under the Note or under any of the Security Documents is not paid on the due date or date of demand (as the case may be), and such default continues unremedied for a period of five (5) Banking Days; or (c) Representations. any representation, warranty or other statement made by the Borrower in this Agreement or by any Security Party or in any of the Security Documents or in any other instrument, document or other agreement delivered in connection herewith or therewith proves 27 to have been untrue or misleading in any material respect as at the date as of which made or confirmed; or (d) Mortgage. there is an event of default under any Mortgage; or (e) Covenants. any Security Party defaults in the due and punctual observance or performance of any other term, covenant or agreement contained in this Agreement, in the Note, in any of the Security Documents or in any other instrument, document or other agreement delivered in connection herewith or therewith, or it becomes impossible or unlawful for any Security Party to fulfill any such term, covenant or agreement or there occurs any other event which constitutes a default under this Agreement, under the Note or under any of the Security Documents, in each case other than an Event of Default referred to elsewhere in this Section 8.1, and such default, impossibility and/or unlawfulness, in the reasonable opinion of the Majority Lenders, could have a material adverse effect on the Lenders' rights hereunder, under the Note and/or under the Security Documents or on the Lenders' right to enforce this Agreement, the Note and/or the Security Documents, and continues unremedied or unchanged, as the case may be, for a period of thirty (30) days; or (f) Indebtedness. any Security Party, any Subsidiary or any Affiliate shall default in the payment when due (subject to any applicable grace period) of any Indebtedness or of any other indebtedness, in either case, in the outstanding principal amount equal to or exceeding Five Hundred Thousand Dollars ($500,000) or such Indebtedness or indebtedness is, or by reason of such default is subject to being, accelerated or any party becomes entitled to enforce the security for any such Indebtedness or indebtedness and such party shall take steps to enforce the same, unless such default or enforcement is being contested in good faith and by appropriate proceedings or other acts and the Security Party, Subsidiary or Affiliate, as the case may be, shall set aside on its books adequate reserves with respect thereto; or (g) Ownership of Guarantors. the Borrower shall cease to own (except as otherwise expressly permitted by this Agreement), directly or indirectly, one hundred percent (100%) of any of the Guarantors; or (h) Bankruptcy. the Borrower or any Affiliate commences any proceeding under any reorganization, arrangement or readjustment of debt, dissolution, winding up, adjustment, composition, bankruptcy or liquidation law or statute of any jurisdiction, whether now or hereafter in effect (a "Proceeding"), or there is commenced against any thereof any Proceeding and such Proceeding remains undismissed or unstayed for a period of thirty (30) days or any receiver, trustee, liquidator or sequestrator of, or for, any thereof or any substantial portion of the property of any thereof is appointed and is not discharged within a period of thirty (30) days or any thereof by any act indicates consent to or approval of or acquiescence in any Proceeding or the appointment of any receiver, trustee, liquidator or sequestrator of, or for, itself or of, or for, any substantial portion of its property; or (i) Termination of Operations; Sale of Assets. except as expressly permitted under this Agreement, any Security Party ceases its operations or sells or otherwise disposes of all or substantially all of its assets (other than such a sale by one Guarantor to another) or all or substantially all of the assets of any Security Party are seized or otherwise appropriated; or 28 (j) Judgments. any judgment or order is made the effect whereof would be to render ineffective or invalid this Agreement, the Note or any of the Security Documents or any material provision thereof, or the Borrower or any Security Party asserts that any such agreement or provision thereof is invalid; or (k) Inability to Pay Debts. any Security Party is unable to pay or admits its inability to pay its debts as they fall due or a moratorium shall be declared in respect of any material indebtedness of any Security Party; or (l) Change in Financial Position. any change in the financial position of any Security Party which, in the reasonable opinion of the Majority Lenders, shall have a Material Adverse Effect; or (m) Change in Control. a Change of Control shall occur with respect to the Borrower; or (n) Cross-Default. any Event of Default (as defined in the Facility B Loan Agreement or the Facility C Agreement) or event which, with the giving of notice or passage of time on both, would constitute such an Event of Default, occurs or the Borrower or any Guarantor defaults under any material contract or agreement to which it is a party or by which it is bound (including, but not limited to, the construction contracts in respect of each of the MEGA I and the SOYANG); or (o) ERISA Debt. (i) the Borrower or any ERISA Affiliate fails to pay when due an amount or amounts aggregating in excess of $1,000,000 which it or they have become liable to pay under Title IV of ERISA or (ii) the Borrower or any ERISA Affiliate, individually or collectively, incurs, or should reasonably expect to incur, any Withdrawal Liability or liability upon the happening of a Termination Event and the aggregate of all such Withdrawal Liabilities and such other liabilities exceeds $10,000,000; or (p) Standby Letter of Credit/Ship Mortgage Indemnity. the Standby Letter of Credit, if provided, shall be cancelled (other than cancellation after either a drawing has been made thereunder or the Ship Mortgage Indemnity has been issued) or, at any time prior to the third anniversary of the Drawdown Date, the Ship Mortgage Indemnity, if issued, is cancelled or is not in full force and effect or any underwriter of the Ship Mortgage Indemnity asserts that the Ship Mortgage Indemnity is not in full force and effect. Upon and during the continuance of any Event of Default, the Lenders' obligation to make the Loan available shall cease and the Agent on the instructions of the Majority Lenders may, by notice to the Borrower, declare the entire unpaid balance of the then outstanding Loan, accrued interest and any other sums payable by the Borrower hereunder or under the Note due and payable, whereupon the same shall forthwith be due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived; provided that upon the happening of an event specified in subsections (h) or (k) of this Section 8.1 with respect to the Borrower, the Note shall be immediately due and payable without declaration or other notice to the Borrower. In such event, the Lenders may proceed to protect and enforce their rights by action at law, suit in equity or in admiralty or other appropriate proceeding, whether for specific performance of any covenant contained in this Agreement, in the Note or in any Security Document, or in aid of the exercise of any power granted herein or therein, or the Lenders may proceed to enforce the payment of the Note 29 or to enforce any other legal or equitable right of the Lenders, or proceed to take any action authorized or permitted under the terms of any Security Document or by applicable law for the collection of all sums due, or so declared due, on the Note, including, without limitation, the right to appropriate and hold or apply (directly, by way of set-off or otherwise) to the payment of the obligations of the Borrower to the Lenders hereunder and/or under the Note (whether or not then due) all moneys and other amounts of the Borrower then or thereafter in possession of any Lender, the balance of any deposit account (demand or time, mature or unmatured) of the Borrower then or thereafter with any Lender and every other claim of the Borrower then or thereafter against any of the Lenders. 8.2 Indemnification. The Borrower agrees to, and shall, indemnify and hold the Agents, the Arrangers and the Lenders harmless against any loss, as well as against any reasonable costs or expenses (including reasonable legal fees and expenses), which any of the Agents, the Arrangers or the Lenders sustains or incurs as a consequence of any default in payment of the principal amount of the Loan, interest accrued thereon or any other amount payable hereunder, under the Note or under any Security Documents including, but not limited to, all actual losses incurred in liquidating or re-employing fixed deposits made by third parties or funds acquired to effect or maintain the Loan or any portion thereof. Any Lenders' certification of such costs and expenses shall, absent any manifest error, be conclusive and binding on the Borrower. 8.3 Application of Moneys. Except as otherwise provided in any Security Document, all moneys received by the Agents, the Arrangers or the Lenders under or pursuant to this Agreement, the Note or any of the Security Documents after the happening of any Event of Default (unless cured to the satisfaction of the Majority Lenders) shall be applied by the Agents in the following manner: (a) first, in or towards the payment or reimbursement of any expenses or liabilities incurred by the Agents, the Arrangers or the Lenders in connection with the ascertainment, protection or enforcement of its rights and remedies hereunder, under the Note and under any of the Security Documents, (b) secondly, in or towards payment of any interest owing in respect of the Loan, (c) thirdly, in or towards repayment of principal of the Loan, (d) fourthly, in or towards payment of all other sums which may be owing to the Agents, the Arrangers or the Lenders under this Agreement, under the Note, under the Fee Letter or under any of the Security Documents, (e) fifthly, to the Facility C Security Agent in or towards payment of any sums which may be owing by the Borrower under or in connection with Facility C, the Facility C Agreement, or the documents executed in connection therewith; (f) sixthly, to the Facility B Security Agent in or towards payment of any sums which may be owing by the Borrower under or in connection with Facility B, the Facility B Loan Agreement, or the documents executed in connection therewith; and 30 (g) seventhly, the surplus (if any) shall be paid to the Borrower or to whosoever else may be entitled thereto. 9. COVENANTS 9.1 Affirmative Covenants. The Borrower hereby covenants and undertakes with the Lenders that, from the date hereof and so long as any principal, interest or other moneys are owing in respect of this Agreement, under the Note or under any of the Security Documents, the Borrower will: (a) Performance of Agreements. duly perform and observe, and procure the observance and performance by all other parties thereto (other than the Lenders) of, the terms of this Agreement, the Note and the Security Documents; (b) Notice of Default, etc. promptly upon obtaining knowledge thereof, inform the Administrative Agent of the occurrence of (a) any Event of Default or of any event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default, (b) any litigation or governmental proceeding pending or threatened against it or against any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect, (c) the withdrawal of any Vessel's rating by its Classification Society or the issuance by the Classification Society of any material recommendation or notation affecting class and (d) any other event or condition which is reasonably likely to have a Material Adverse Effect; (c) Obtain Consents. without prejudice to Section 2.1 and this Section 9.1, obtain every consent and do all other acts and things which may from time to time be necessary or advisable for the continued due performance of all its and the other Security Parties' respective obligations under this Agreement, under the Note and under the Security Documents; (d) Financial Information. deliver to each Lender and the underwriters of the Ship Mortgage Indemnity as identified by the Administrative Agent: (i) as soon as available but not later than ninety (90) days after the end of each fiscal year of the Borrower, complete copies of the consolidated financial reports of the Borrower and its Subsidiaries (together with a Compliance Certificate), all in reasonable detail, which shall include at least the consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such year and the related consolidated statements of income and sources and uses of funds for such year, which shall be audited reports prepared by an Acceptable Accounting Firm; (ii) as soon as available but not less than forty-five (45) days after the end of each of the first three quarters of each fiscal year of the Borrower, a quarterly interim consolidated balance sheet of the Borrower and its Subsidiaries and the related consolidated profit and loss statements and sources and uses of funds (together with a Compliance Certificate), all in reasonable detail, unaudited, but certified to be true and complete by the chief financial officer of the Borrower; 31 (iii) within ten (10) days of the filing thereof, copies of all registration statements and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) and other material filings which the Borrower shall have filed with the Securities and Exchange Commission or any similar governmental authority; (iv) promptly upon the mailing thereof to the shareholders of the Borrower, copies of all financial statements, reports, proxy statements and other communications provided to the Borrower's shareholders; (v) within ten (10) days of the Borrower's receipt thereof, copies of all audit letters or other correspondence from any external auditors including material financial information in respect of the Borrower; (vi) at any time upon the request of any Agent, a Compliance Certificate; and (vii) such other statements (including, without limitation, monthly consolidated statements of operating revenues and expenses), lists of assets and accounts, budgets, forecasts, reports and other financial information with respect to its business as the Administrative Agent may from time to time reasonably request, certified to be true and complete by the chief financial officer of the Borrower; (e) Corporate Existence. do or cause to be done, and procure that each Subsidiary shall do or cause to be done, all things necessary to preserve and keep in full force and effect its corporate existence, or limited liability company existence, as the case may be, and all licenses, franchises, permits and assets necessary to the conduct of its business; (f) Books and Records. at all times keep, and cause each Subsidiary to keep, proper books of record and account into which full and correct entries shall be made in accordance with GAAP; (g) Taxes and Assessments. pay and discharge, and cause each Subsidiary to pay and discharge, all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or property prior to the date upon which penalties attach thereto; provided, however, that it shall not be required to pay and discharge, or cause to be paid and discharged, any such tax, assessment, charge or levy so long as the legality thereof shall be contested in good faith and by appropriate proceedings or other acts and it shall set aside on its books adequate reserves with respect thereto; (h) Inspection. allow, and cause each Subsidiary to allow, any representative or representatives designated by any Agent, subject to applicable laws and regulations, to visit and inspect any of its properties, and, on request, to examine its books of account, records, reports and other papers and to discuss its affairs, finances and accounts with its officers, all at such reasonable times and as often as any Agent reasonably requests; (i) Compliance with Statutes, Agreements, etc. do or cause to be done, and cause each Subsidiary to do and cause to be done, all things necessary to comply with all material 32 contracts or agreements to which it, or any Subsidiary is a party, and all material laws, and the rules and regulations thereunder, applicable to the Borrower or such Subsidiary, including, without limitation, those laws, rules and regulations relating to employee benefit plans and environmental matters; (j) Environmental Matters. promptly upon the occurrence of any of the following conditions, provide to the Administrative Agent a certificate of a chief executive officer thereof, specifying in detail the nature of such condition and its proposed response or the response of its Environmental Affiliates: (a) its receipt or the receipt by any other Security Party or any Environmental Affiliates of the Borrower or any other Security Party of any written communication whatsoever that alleges that such person is not in compliance with any applicable Environmental Law or Environmental Approval, if such noncompliance could reasonably be expected to have a Material Adverse Effect, (b) knowledge by it, or by any other Security Party or any Environmental Affiliates of the Borrower or any other Security Party that there exists any Environmental Claim pending or threatened against any such person, which could reasonably be expected to have a Material Adverse Effect, or (c) any release, emission, discharge or disposal of any material that could form the basis of any Environmental Claim against it, any other Security Party or against any Environmental Affiliates of the Borrower or any other Security Party, if such Environmental Claim could reasonably be expected to have a Material Adverse Effect. Upon the written request by the Administrative Agent, it will submit to the Administrative Agent at reasonable intervals, a report providing an update of the status of any issue or claim identified in any notice or certificate required pursuant to this subsection; (k) ERISA. forthwith upon learning of the occurrence of any material liability of the Borrower, any Subsidiary or any ERISA Affiliate pursuant to ERISA in connection with the termination of any Plan or withdrawal or partial withdrawal of any multi-employer plan (as defined in ERISA) or of a failure to satisfy the minimum funding standards of Section 412 of the Code or Part 3 of Title I of ERISA by any Plan for which the Borrower, any Subsidiary or any ERISA Affiliate is plan administrator (as defined in ERISA), furnish or cause to be furnished to the Lenders written notice thereof; (l) Vessel Management. cause each of the Vessels to be managed both commercially and technically by the Borrower, a wholly-owned subsidiary thereof or its existing manager; (m) Funded Debt to Total Capitalization Ratio. maintain at all times on a consolidated basis a ratio of Funded Debt to Total Capitalization of not more than 0.6 to 1 provided, that for purposes of compliance with this covenant only, Funded Debt shall (i) exclude unsecured, subordinated debt, and (ii) include the present value of the Borrower's (or any of the Borrower's Subsidiaries') liability for all payments under synthetic leases other than the Columbia Lease; (n) Cash. maintain at all times on a consolidated basis readily available cash and/or Cash Equivalents as follows: (i) through December 31, 2000, not less than Ten Million Dollars ($10,000,000); (ii) thereafter, through June 30, 2001, not less than Fifteen Million Dollars ($15,000,000); 33 (iii) thereafter, not less than Twenty Million Dollars ($20,000,000); (o) Consolidated Net Worth. maintain at all times a Consolidated Net Worth of not less than One Hundred Sixty Million Dollars ($160,000,000) plus 50% of the Borrower's positive net income (on a consolidated basis) earned after December 31, 1999 plus 100% of the net proceeds received by the Borrower (or any of the Borrower's Subsidiaries) from the issuance of new equity securities after the Drawdown Date; (p) EBITDA to Interest Expense. maintain a ratio of EBITDA to Interest Expense as follows: (i) through December 31, 2000, not less than 1.1 to 1.0; (ii) thereafter, through December 31, 2002, not less than 1.75 to 1.0; (iii) thereafter, not less than 2.5 to 1.0; measured not less than quarterly, in each instance based on the four most recent fiscal quarters for which financial information is available; (q) Use of Excess Cash. apply all cash and Cash Equivalents of the Borrower (on a consolidated basis), proceeds from the issuance of securities by the Borrower or any Guarantor, and proceeds from the sale of any vessels by the Borrower or any Guarantor (net of indebtedness secured by a mortgage on such vessel) as follows: (A) to the extent the Borrower chooses to do so, to retention by the Borrower as cash or Cash Equivalents up to $20.0 million until Facility C has been repaid or cancelled, and thereafter up to $30.0 million; and then (B) to prepayment of Facility C until Facility C is fully repaid; and then; (C) to prepayment of Facility B until Facility B is fully repaid; and then (D) to prepayment of the Loan until the ratio of the balance of the Loan to the aggregate Fair Market Value of the Vessels is no greater than 0.65; and then (E) to the Borrower. (r) Brokerage Commissions, etc. indemnify and hold the Arrangers, the Agents and the Lenders harmless from any claim for any brokerage commission, fee, or compensation from any broker or third party resulting from the transactions contemplated hereby; (s) Deposit Accounts; Assignment. maintain, and procure that each other Security Party shall maintain, its operating accounts with the Syndication Agent and shall procure, and shall cause each other Security Party to procure, that all earnings of any Vessels shall be paid into such operating accounts and the Borrower, and by its execution of the Consent and Agreement 34 hereto, each other Security Party, hereby pledges, assigns and grants to the Syndication Agent, for the benefit of the Lenders, a security interest in all funds from time to time in such accounts; (t) Future Guaranties. procure that each of the owners of the Facility B Vessels identified on Schedule 5 executes a Guaranty (and other relevant Security Documents in respect of its Facility B Vessel) within five (5) Banking Days following full repayment of Facility B, and further procure that all other Subsidiaries of the Borrower (other than Designated Subsidiaries, but only for so long as they remain Designated Subsidiaries), shall execute a Guaranty and other relevant Security Documents in respect of any vessel owned thereby within thirty (30) days of formation, acquisition or otherwise becoming a Subsidiary, or ceasing to be a Designated Subsidiary, of the Borrower; (u) Future Pledge Agreements. concurrent with the execution of any Guaranty pursuant to Section 9.1(t), execute and deliver to the Security Agent a Pledge Agreement and the Pledged Shares in respect of the relevant Guarantor; (v) Insurance. maintain, and cause each other Security Party to maintain, with financially sound and reputable insurance companies insurance on all their respective properties and against all such risks and in at least such amounts as are usually insured against by companies of established reputation engaged in the same or similar business from time to time; and (w) Ship Mortgage Indemnity. until the third anniversary of the Drawdown Date, from time to time as requested by the Administrative Agent provide such information and take such action as necessary to maintain the Ship Mortgage Indemnity in full force and effect. 9.2 Negative Covenants. The Borrower hereby covenants and undertakes with the Lenders that, from the date hereof and so long as any principal, interest or other moneys are owing in respect of this Agreement, under the Note or under any of the Security Documents, the Borrower will not, and will procure that no Subsidiary, to the extent applicable, will, without the prior written consent of the Administrative Agent (or the Majority Lenders or all of the Lenders if required by Section 15.8): (a) Liens. create, assume or permit to exist, any mortgage, pledge, lien, charge, encumbrance or any security interest whatsoever upon any Collateral or other property except: (i) liens disclosed in Schedule 6; (ii) liens on the Designated Vessel securing the Designated Vessel Indebtedness; (iii) liens for taxes not yet payable for which adequate reserves have been maintained; (iv) the Mortgages, the Assignments, the Second Mortgages, the Second Assignments, the Third Mortgages, the Third Assignments and other liens in favor of the Security Agent; (v) liens, charges and encumbrances against their respective Vessels permitted to exist under the terms of the Mortgages; 35 (vi) pledges of certificates of deposit or other cash collateral securing any Security Party's reimbursement obligations in connection with letters of credit now or hereafter issued for the account of such Security Party in connection with the establishment of the financial responsibility of the Security Parties under 33 C.F.R. Part 130 or 46 C.F.R. Part 540, as the case may be, as the same may be amended or replaced; (vii) pledges or deposits to secure obligations under workmen's compensation laws or similar legislation, deposits to secure public or statutory obligations, warehousemen's or other like liens, or deposits to obtain the release of such liens and deposits to secure surety, appeal or customs bonds on which the Borrower or any of the Guarantors is the principal, as to all of the foregoing, only to the extent arising and continuing in the ordinary course of business; and (viii) other liens, charges and encumbrances incidental to the conduct of the business of each such party, the ownership of any such party's property and assets and which do not in the aggregate materially detract from the value of each such party's property or assets or materially impair the use thereof in the operation of its business; (b) Change in Business. materially change the nature of its business or commence any business materially different from its current business; (c) Sale or Pledge of Shares. sell, assign, transfer, pledge or otherwise convey or dispose of any of the shares (including by way of spin-off, installment sale or otherwise) of the capital stock, or limited liability company interests, as the case may be, of any Guarantor other than as may be allowed in accordance with the Pledge Agreement; (d) Sale of Assets. sell, or otherwise dispose of, any Vessel (other than the Designated Vessel) or any other asset (including by way of spin-off, installment sale or otherwise) which is substantial in relation to its assets taken as a whole including without limitation, any material foreign Subsidiary or foreign assets or interest in an Affiliate, other than such sales by one Guarantor to another; (e) Changes in Offices or Names. change the location of the chief executive office of any Security Party, the office of the chief place of business any such parties, the office of the Security Parties in which the records relating to the earnings or insurances of the Vessels are kept unless the Lenders shall have received sixty (60) days prior written notice of such change; (f) Consolidation and Merger. consolidate with, or merge into, any corporation or other entity, or merge any corporation or other entity into it provided, however that any Guarantor shall be permitted to merge into or consolidate with any other Guarantor, so long as no Event of Default would result therefrom; (g) Chartering-in. other than pursuant to charters disclosed in Schedule 6, charter, as charterer, any vessel for a charter period exceeding twelve (12) months, or permit any vessel to 36 be chartered into any vessel pool (in which the Borrower or any Subsidiary is a member) for a term exceeding three (3) months; (h) Chartering-out. and will procure that each Subsidiary will not, other than pursuant to charters disclosed in Schedule 6, charter, as owner, any vessel (other than the Designated Vessel) on demise or bareboat charter, or on time charter for a period in excess of twelve (12) months; (i) Vessel Pooling. and will procure that each Subsidiary will not, enter any vessel into any vessel pooling arrangement other than as disclosed in Schedule 6, or at any time amend any existing vessel pooling agreement; (j) Distributions on Stock. in the case of the Borrower only, directly or indirectly declare or pay any dividend or make any distribution on its capital stock (a "Restricted Payment"), provided, however, that the Borrower may make a Restricted Payment so long as, at the time of and after giving effect to the proposed Restricted Payment, no Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment, and (i) the ratio of the Borrower's Funded Debt to EBITDA is less than 5.0 to 1.0 but greater than 3.5 to 1.0 and the aggregate amount of all Restricted Payments (to the extent made other than in cash, the amount thereof to be determined in good faith by the Board of Directors of the Borrower) would not exceed twenty-five percent (25%) of the Borrower's consolidated net income for the Borrower's most recently completed fiscal year, or (ii) the ratio of the Borrower's Funded Debt to EBITDA is less than 3.5 to 1.0 and the aggregate amount of all Restricted Payments (to the extent made other than in cash, the amount thereof to be determined in good faith by the Board of Directors of the Borrower) would not exceed fifty percent (50%) of the Borrower's consolidated net income for the Borrower's most recently completed fiscal year; (k) Indebtedness. incur any Indebtedness, provided, however, that so long as, at the time of and after giving effect to the incurrence of any proposed Indebtedness, no Event of Default has occurred and is continuing or would occur as a consequence of the incurrence of such Indebtedness, (i) if the ratio of the Borrower's Funded Debt to EBITDA is less than 5.0 to 1.0 but greater than 3.5 to 1.0, the Borrower and its Subsidiaries on a consolidated basis may incur up to $50.0 million of Indebtedness at any time outstanding (excluding the Loan, Facility B and Facility C); (ii) if the ratio of the Borrower's Funded Debt to EBITDA is less than 3.5 to 1.0, the Borrower and its Subsidiaries may incur such proposed Indebtedness; and 37 (iii) provided that the other Designated Vessel Conditions are met, the Designated Vessel Owner may incur the Designated Vessel Indebtedness at the time of the Designated Vessel Acquisition; (l) Investments. make any Investment, provided, however, that so long as, at the time of and after giving effect to the making of any proposed Investment, no Event of Default has occurred and is continuing or would occur as a consequence of the making of such Investment, (i) if the ratio of the Borrower's Funded Debt to EBITDA is less than 5.0 to 1.0 but greater than 3.5 to 1.0, the Borrower (and its Subsidiaries on a consolidated basis) may make such proposed Investment provided that the aggregate of the Borrower's (and its Subsidiaries' on a consolidated basis) Investments since the Drawdown Date does not exceed $10.0 million; (ii) if the ratio of the Borrower's Funded Debt to EBITDA is less than 3.5 to 1.0, the Borrower (and its Subsidiaries on a consolidated basis) may make such proposed Investment; and (iii) the Borrower may make the SOYANG Investment at the time the SOYANG is acquired; (m) Capital Expenditures. make any Capital Expenditure (other than as provided in Section 9.2(1)(iii) above), provided, however, that so long as, at the time of and after giving effect to the making of any proposed Capital Expenditure, no Event of Default has occurred and is continuing or would occur as a consequence of the making of such Capital Expenditure, (i) if the ratio of the Borrower's Funded Debt to EBITDA is less than 5.0 to 1.0 but greater than 3.5 to 1.0, the Borrower (and its Subsidiaries on a consolidated basis) may make such proposed Capital Expenditure provided that the aggregate of the Borrower's (and its Subsidiaries' on a consolidated basis) Capital Expenditures since the Drawdown Date does not exceed $30.0 million; (ii) if the ratio of the Borrower's Funded Debt to EBITDA is less than 3.5 to 1.0, the Borrower (and its Subsidiaries on a consolidated basis) may make such proposed Capital Expenditure; (n) Deposit Accounts. other than as disclosed in Schedule 6, maintain any deposit account other than with the Syndication Agent, provided, that this covenant shall not apply to the Designated Vessel Owner; and (o) Change Fiscal Year. change its fiscal year. 9.3 Subsidiary Negative Covenants. The Borrower hereby covenants and undertakes with the Lenders that, from the date hereof and so long as any principal, interest or other moneys are owing in respect of this Agreement, under the Note or under any of the Security Documents, the Borrower will procure that no Subsidiary will: 38 (a) Limitations on Ability to Make Distributions. create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary (other than a Designated Subsidiary) to (i) pay dividends or make any other distributions on its capital stock or limited liability company interests, as the case may be, to the Borrower or any Subsidiary or pay any Indebtedness owed to the Borrower, (ii) make any loans or advances to the Borrower, or (iii) transfer any of its property or assets to the Borrower; (b) Use of Corporate Funds. (except for the SOYANG Investment and Permitted Drydocking Costs) pay out any funds to any company or person except (i) in the ordinary course of business in connection with the management of the business of the Borrower and its Subsidiaries, including the operation and/or repair of the Vessels and other vessels owned or operated by such parties and (ii) the servicing of the Indebtedness permitted hereunder (but excluding, any prepayments of any Indebtedness other than the Loan); (c) Issuance of Shares. issue or dispose of any shares of its own capital stock or limited liability company interests, as the case may be to any person other than the Borrower. 9.4 Vessel Valuations. For inclusion with each Compliance Certificate delivered pursuant to Section 9.1(d)(i), and each Compliance Certificate in respect of the second quarter of each fiscal year delivered pursuant to Section 9.1(d)(ii), and in any event upon the request of any Agent, the Borrower shall obtain appraisals of the Fair Market Value of the Vessels. The first three such valuations in any year are to be at the Borrower's cost, provided, that following and during the continuance of any Event of Default, all such valuations are to be at the Borrower's cost. In the event the Borrower fails or refuses to obtain the valuations requested pursuant to this Section 9.4 within ten (10) days of an Agent's request therefor, any Agent will be authorized to obtain such valuations, at the Borrower's cost, from three independent shipbrokers selected by the Agents, which valuations shall be deemed the equivalent of valuations duly obtained by the Borrower pursuant to this Section 9.4, but any Agent's actions in doing so shall not excuse any default of the Borrower under this Section 9.4. 9.5 Asset Maintenance. If at any time (a) after the Drawdown Date but prior to December 31, 2001, the aggregate Fair Market Value of the Vessels then mortgaged to the Security Agent (based upon the valuations obtained pursuant to Section 9.4) (together with the value of any additional collateral theretofore provided under this Section) is less than one hundred fifteen percent (115%) of the Loan, or (b) if at any time after December 31, 2001 but prior to December 31, 2002 such aggregate Fair Market Value is less than one hundred twenty percent (120%) of the Loan, or (c) if at any time thereafter the aggregate Fair Market Value of the Vessels is less than one hundred thirty percent (130%) of the Loan, (in each case as applicable, such percentage being the "Required Percentage") the Borrower shall, within a period of thirty (30) days following receipt by the Borrower of written notice from the Administrative Agent notifying the Borrower of such shortfall and specifying the amount thereof (which amount shall, in the absence of manifest error, be deemed to be conclusive and binding on the Borrower), either (i) deliver to the Security Agent, upon the Administrative Agent's request, such additional collateral as may be satisfactory to the Lenders in their sole discretion of sufficient 39 value to restore compliance with the Required Percentage or (ii) the Borrower shall prepay such amount of the Loan (together with interest thereon and any other monies payable in respect of such prepayment pursuant to Section 5.4) as shall result in the Fair Market Value of the Vessels then mortgaged to the Security Agent being not less than the Required Percentage. 9.6 Inspection and Survey Reports. If the Lenders shall so request, the Borrowers shall provide the Lenders with copies of all internally generated inspection or survey reports on the Vessels. 9.7 Vessel Substitution Sales. The Borrower will not, and will procure that each Guarantor will not, sell, assign, convey, transfer or otherwise dispose of (including through a bareboat charter with a purchase option but excluding chartering in the ordinary course of business) any Vessel; provided, however, that a Guarantor may sell a Vessel if such sale is made in compliance with each of the following conditions: (a) no Event of Default, or event which, with the giving of notice or the passage of time, or both, would constitute an Event of Default, shall have occurred or be continuing; (b) not later than ten (10) Banking Days prior to such sale, the Borrower or a Guarantor has entered into a binding contract for the purchase of a Qualified Substitute Vessel identified to the Agents; (c) the entire consideration for such sale shall be cash, in an amount not less than the Fair Market Value of such Vessel as of the date of sale; (d) the cash, net of expenses directly related to the sale, received for such sale is immediately deposited with the Syndication Agent in an account as collateral for the Loan; and (e) the Majority Lenders as of ten (10) Banking Days prior to such sale give their written consent prior to such sale. 9.8 Tender of Qualified Substitute Vessel. In the event that the Borrower or any Guarantor sells a Vessel pursuant to Section 9.7 above, then within thirty (30) days following the date of such sale, the Borrower or a Guarantor consummates the acquisition of the Qualified Substitute Vessel identified to the Agents in respect of such sold Vessel and grants in favor of the Security Agent a Mortgage, Earnings Assignment, Insurances Assignment and such other Security Documents as the Security Agent requires in respect of such Qualified Substitute Vessel. The Syndication Agent will release sale proceeds for use by the Borrower or a Guarantor in the acquisition of an identified Qualified Substitute Vessel pursuant to the terms hereof; provided, however, that if the tender of the identified Qualified Substitute Vessel is not accomplished within thirty (30) days after the date of sale, the Syndication Agent shall apply all such sale proceeds in accordance with Section 8.3; provided, further, however, that if the Borrower identified the MEGA I as a Qualified Substitute Vessel pursuant to Section 9.7, the above-stated thirty day requirement shall be extended to one hundred twenty (120) days. In any case where a Qualified Substitute Vessel is identified in respect of more than one Vessel, the timing requirements of this Section shall count from the date of sale of the first of such Vessels sold. 40 10. ASSIGNMENT. This Agreement shall be binding upon, and inure to the benefit of, the Borrower and the Lenders, the Arrangers and the Agents and their respective successors and assigns, except that the Borrower may not assign any of its rights or obligations hereunder. Each Lender shall be entitled to assign its rights and obligations under this Agreement or grant participation(s) in the Loan to any subsidiary, holding company or other affiliate of such Lender, to any subsidiary or other affiliate company of any thereof or, with the consent of the Borrower and the Agents, not to be unreasonably withheld, to any other bank or financial institution (in a minimum amount of not less than $5,000,000), and such Lender shall forthwith give notice of any such assignment or participation to the Borrower; provided, however, that any such assignment must be made pursuant to an Assignment and Assumption Agreement. The Borrower will take all reasonable actions requested by any Agent or any Lender to effect such assignment, including, without limitation, the execution of a written consent to any Assignment and Assumption Agreement. 11. ILLEGALITY, INCREASED COST, NON-AVAILABILITY, ETC. 11.1 Illegality. In the event that by reason of any change in any applicable law, regulation or regulatory requirement or in the interpretation thereof, a Lender has a reasonable basis to conclude that it has become unlawful for any Lender to maintain or give effect to its obligations as contemplated by this Agreement, such Lender shall inform the Agent and the Borrower to that effect, whereafter the liability of such Lender to make its Commitment available shall forthwith cease and the Borrower shall be required either to repay to such Lender that portion of the Loan advanced by such Lender immediately or, if such Lender so agrees, to repay such portion of the Loan to the Lender on the last day of any then current Interest Period in accordance with and subject to the provisions of Section 11.5. In any such event, but without prejudice to the aforesaid obligations of the Borrower to repay such portion of the Loan, the Borrower and the relevant Lender shall negotiate in good faith with a view to agreeing on terms for making such portion of the Loan available from another jurisdiction or otherwise restructuring such portion of the Loan on a basis which is not unlawful. 11.2 Increased Costs. If any change in applicable law, regulation or regulatory requirement, or in the interpretation or application thereof by any governmental or other authority, shall: (i) subject any Lender to any Taxes with respect to its income from the Loan, or any part thereof, or (ii) change the basis of taxation to any Lender of payments of principal or interest or any other payment due or to become due pursuant to this Agreement (other than a change in the basis effected by the jurisdiction of organization of such Lender, the jurisdiction of the principal place of business of such Lender, the United States of America, the State or City of New York or any governmental subdivision or other taxing authority having jurisdiction over such Lender (unless such jurisdiction is asserted by reason of the activities of the Borrower or any of the other Security Parties) or such other jurisdiction where the Loan may be payable), or 41 (iii) impose, modify or deem applicable any reserve requirements or require the making of any special deposits against or in respect of any assets or liabilities of, deposits with or for the account of, or loans by, a Lender, or (iv) impose on any Lender any other condition affecting the Loan or any part thereof, and the result of the foregoing is either to increase the cost to such Lender of making available or maintaining its Commitment or any part thereof or to reduce the amount of any payment received by such Lender, then and in any such case if such increase or reduction in the opinion of such Lender materially affects the interests of such Lender under or in connection with this Agreement: (a) the Lender shall notify the Agent and the Borrower of the happening of such event, and (b) the Borrower agrees forthwith upon demand to pay to such Lender such amount as such Lender certifies to be necessary to compensate such Lender for such additional cost or such reduction; PROVIDED, however, that the foregoing provisions shall not be applicable in the event that increased costs to the Lender result from the exercise by the Lender of its right to assign its rights or obligations under Section 10. 11.3 Nonavailability of Funds. If the Administrative Agent shall determine that, by reason of circumstances affecting the London Interbank Market generally, adequate and reasonable means do not or will not exist for ascertaining the Applicable Rate for the Loan for any Interest Period, the Administrative Agent shall give notice of such determination to the Borrower. The Borrower and the Administrative Agent shall then negotiate in good faith in order to agree upon a mutually satisfactory interest rate and/or Interest Period to be substituted for those which would otherwise have applied under this Agreement. If the Borrower and the Administrative Agent are unable to agree upon such a substituted interest rate and/or Interest Period within thirty (30) days of the giving of such determination notice, the Administrative Agent shall set an interest rate and Interest Period to take effect from the expiration of the Interest Period in effect at the date of determination, which rate shall be equal to the Margin plus the cost to the Lenders (as certified by each Lender) of funding the Loan. In the event the state of affairs referred to in this Section 11.3 shall extend beyond the end of the Interest Period, the foregoing procedure shall continue to apply until circumstances are such that the Applicable Rate may be determined pursuant to Section 6. 11.4 Lender's Certificate Conclusive. A certificate or determination notice of any Lender as to any of the matters referred to in this Section 11 shall, absent manifest error, be conclusive and binding on the Borrower. 11.5 Compensation for Losses. Where the Loan or any portion thereof is to be repaid by the Borrower pursuant to this Section 11, the Borrower agrees simultaneously with such repayment to pay to the relevant Lender all accrued interest to the date of actual payment on the amount repaid and all other sums then payable by the Borrower to the relevant Lender pursuant to this Agreement, together with such amounts as may be certified by the relevant Lender to be necessary to compensate such Lender for any actual loss, premium or penalties incurred or to be incurred thereby on account of funds borrowed to make, fund or maintain its Commitment or such portion thereof for 42 the remainder (if any) of the then current Interest Period or Periods, if any, but otherwise without penalty or premium. 12. CURRENCY INDEMNITY 12.1 Currency Conversion. If for the purpose of obtaining or enforcing a judgment in any court in any country it becomes necessary to convert into any other currency (the "judgment currency") an amount due in Dollars under this Agreement, the Note or any of the Security Documents then the conversion shall be made, in the discretion of the Agent, at the rate of exchange prevailing either on the date of default or on the day before the day on which the judgment is given or the order for enforcement is made, as the case may be (the "conversion date"), provided that the Agent shall not be entitled to recover under this section any amount in the judgment currency which exceeds at the conversion date the amount in Dollars due under this Agreement, the Note, the Guaranty and/or any of the Security Documents. 12.2 Change in Exchange Rate. If there is a change in the rate of exchange prevailing between the conversion date and the date of actual payment of the amount due, the Borrower shall pay such additional amounts (if any, but in any event not a lesser amount) as may be necessary to ensure that the amount paid in the judgment currency when converted at the rate of exchange prevailing on the date of payment will produce the amount then due under this Agreement, the Note and/or any of the Security Documents in Dollars; any excess over the amount due received or collected by the Lenders shall be remitted to the Borrower. 12.3 Additional Debt Due. Any amount due from the Borrower under this Section 12 shall be due as a separate debt and shall not be affected by judgment being obtained for any other sums due under or in respect of this Agreement, the Note and/or any of the Security Documents. 12.4 Rate of Exchange. The term "rate of exchange" in this Section 12 means the rate at which the Agent in accordance with its normal practices is able on the relevant date to purchase Dollars with the judgment currency and includes any premium and costs of exchange payable in connection with such purchase. 13. FEES AND EXPENSES 13.1 Fees. The Borrower shall pay to the Arrangers and the Agents such fees as the parties have agreed pursuant to the Fee Letter. 13.2 Expenses. The Borrower agrees, whether or not the transactions hereby contemplated are consummated, on demand to pay, or reimburse the Agents and the Arrangers for their payment of, the reasonable expenses of the Agents, the Arrangers and (after the occurrence and during the continuance of an Event of Default) the Lenders incident to said transactions (and in connection with any supplements, amendments, waivers or consents relating thereto or incurred in connection with the enforcement or defense of any of the Agents', the Arrangers' and the Lenders' rights or remedies with respect thereto or in the preservation of the Agents', the Arrangers' and the Lenders' priorities under the documentation executed and delivered in connection therewith) including, without limitation, all reasonable costs and expenses of preparation, negotiation, execution and administration of this Agreement and the documents referred to herein, the reasonable fees and disbursements of the Agents' counsel in connection therewith, as well as the reasonable fees and expenses of any independent appraisers, surveyors, engineers and other consultants retained by the 43 Agents, or the Arrangers in connection with this transaction, all reasonable costs and expenses, if any, in connection with the enforcement of this Agreement, the Note and the Security Documents and stamp and other similar taxes, if any, incident to the execution and delivery of the documents (including, without limitation, the Note) herein contemplated and to hold the Agents, the Arrangers and the Lenders free and harmless in connection with any liability arising from the nonpayment of any such stamp or other similar taxes. Such taxes and, if any, interest and penalties related thereto as may become payable after the date hereof shall be paid immediately by the Borrower to the Agents, the Arrangers or the Lenders, as the case may be, when liability therefor is no longer contested by such party or parties or reimbursed immediately by the Borrower to such party or parties after payment thereof (if the Agents, the Arrangers or the Lenders, at their sole discretion, chooses to make such payment). 14. APPLICABLE LAW, JURISDICTION AND WAIVER 14.1 Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. 14.2 Jurisdiction. The Borrower hereby irrevocably submits to the jurisdiction of the courts of the State of New York and of the United States District Court for the Southern District of New York in any action or proceeding brought against it by any of the Lenders, the Agents or the Arrangers under this Agreement or under any document delivered hereunder and hereby irrevocably agrees that valid service of summons or other legal process on it may be effected by serving a copy of the summons and other legal process in any such action or proceeding on the Borrower by mailing or delivering the same by hand to the Borrower at the address indicated for notices in Section 16.1. The service, as herein provided, of such summons or other legal process in any such action or proceeding shall be deemed personal service and accepted by the Borrower as such, and shall be legal and binding upon the Borrower for all the purposes of any such action or proceeding. Final judgment (a certified or exemplified copy of which shall be conclusive evidence of the fact and of the amount of any indebtedness of the Borrower to the Lenders, the Agents or the Arrangers) against the Borrower in any such legal action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment. The Borrower will advise the Administrative Agent promptly of any change of address for the purpose of service of process. Notwithstanding anything herein to the contrary, the Lenders may bring any legal action or proceeding in any other appropriate jurisdiction. 14.3 WAIVER OF JURY TRIAL. IT IS MUTUALLY AGREED BY AND AMONG THE BORROWER, THE OTHER SECURITY PARTIES, THE ARRANGERS, THE AGENTS AND THE LENDERS THAT EACH OF THEM HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST ANY OTHER PARTY HERETO ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE NOTE OR THE SECURITY DOCUMENTS. 15. THE AGENTS 15.1 Appointment of Agents. Each of the Lenders irrevocably appoints and authorizes the Agents severally each to take such action as agent on its behalf and to exercise such powers under this Agreement, the Note and the Security Documents as are delegated to such Agent by the terms hereof and thereof, including execution of the Intercreditor Agreement. No Agent nor any of their 44 respective directors, officers, employees or agents shall be liable for any action taken or omitted to be taken by it or them under this Agreement, the Note or the Security Documents or in connection therewith, except for its or their own gross negligence or willful misconduct. 15.2 Security Agent as Trustee. Each of the Lenders irrevocably appoints the Security Agent as trustee on its behalf with regard to (i) the security, powers, rights, titles, benefits and interests (both present and future) constituted by and conferred on the Lenders or any of them or for the benefit thereof under or pursuant to this Agreement, the Note or any of the Security Documents (including, without limitation, the benefit of all covenants, undertakings, representations, warranties and obligations given, made or undertaken to any Lender in the Agreement, the Note or any Security Document), (ii) all moneys, property and other assets paid or transferred to or vested in any Lender or any agent of any Lender or received or recovered by any Lender or any agent of any Lender pursuant to, or in connection with, this Agreement, the Note or the Security Documents whether from any Security Party or any other person and (iii) all money, investments, property and other assets at any time representing or deriving from any of the foregoing, including all interest, income and other sums at any time received or receivable by any Lender or any agent of any Lender in respect of the same (or any part thereof). The Security Agent hereby accepts such appointment. 15.3 Distribution of Payments. Whenever any payment is received by any Agent from the Borrower or any other Security Party for the account of the Lenders, or any of them, whether of principal or interest on the Note, commissions, fees under Section 13 or otherwise, it will thereafter cause to be distributed on the same day if received before 11 a.m. New York time, or on the next day if received thereafter, like funds relating to such payment ratably to the Lenders according to their respective Commitments, in each case to be applied according to the terms of this Agreement. 15.4 Holder of Interest in Note. The Agents may treat each Lender as the holder of all of the interest of such Lender in the Note. 15.5 No Duty to Examine, Etc. The Agents shall not be under a duty to examine or pass upon the validity, effectiveness or genuineness of any of this Agreement, the Note, the Security Documents or any instrument, document or communication furnished pursuant to this Agreement or in connection therewith or in connection with the Note or any Security Document, and the Agents shall be entitled to assume that the same are valid, effective and genuine, have been signed or sent by the proper parties and are what they purport to be. 15.6 Agents as Lenders. With respect to that portion of the Loan made available by it, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not an Agent, and the term "Lender" or "Lenders" shall include each Agent in its capacity as a Lender. Each Agent and its affiliates may accept deposits from, lend money to and generally engage in any kind of business with, the Borrower and the other Security Parties as if it were not an Agent. 15.7 Acts of the Agents. Each Agent shall have duties and discretion, and shall act as follows: (a) Obligations of the Agents. The obligations of each Agent under this Agreement, under the Note and under the Security Documents are only those expressly set forth herein and therein. 45 (b) No Duty to Investigate. No Agent shall at any time be under any duty to investigate whether an Event of Default, or an event which with the giving of notice or lapse of time, or both, would constitute an Event of Default, has occurred or to investigate the performance of this Agreement, the Note or any Security Document by any Security Party. (c) Discretion of the Agents. Each Agent shall be entitled to use its discretion with respect to exercising or refraining from exercising any rights which may be vested in it by, and with respect to taking or refraining from taking any action or actions which it may be able to take under or in respect of, this Agreement, the Note and the Security Documents, unless the Agent shall have been instructed by the Majority Lenders to exercise such rights or to take or refrain from taking such action; provided, however, that no Agent shall be required to take any action which exposes such Agent to personal liability or which is contrary to this Agreement or applicable law. (d) Instructions of Majority Lenders. Each Agent shall in all cases be fully protected in acting or refraining from acting under this Agreement, under the Note or under any Security Document in accordance with the instructions of the Majority Lenders, and any action taken or failure to act pursuant to such instructions shall be binding on all of the Lenders. 15.8 Certain Amendments. Neither this Agreement, the Note nor any of the Security Documents nor any terms hereof or thereof may be amended unless such amendment is approved by the Borrower and the Majority Lenders, provided that no such amendment shall, without the consent of each Lender affected thereby, (i) reduce the interest rate or extend the time of payment of principal or interest or fees on the Loan, or reduce the principal amount of the Loan or any fees hereunder, (ii) increase or decrease the Commitment of any Lender or subject any Lender to any additional obligation (it being understood that a waiver of any Event of Default or any mandatory repayment of Loan shall not constitute a change in the terms of any Commitment of any Lender), (iii) amend, modify or waive any provision of this Section 15.8, (iv) amend the definition of Majority Lenders, (v) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement, (vi) release any Security Party from any of its obligations under any Security Document except as expressly provided herein or in such Security Document or (vii) amend any provision relating to the maintenance of collateral under Section 9.5. All amendments approved by the Majority Lenders under this Section 15.8 must be in writing and signed by the Borrower and each of the Lenders. In the event that any Lender is unable to or refuses to sign an amendment approved by the Majority Lenders hereunder, such Lender hereby appoints the Administrative Agent as its Attorney-In-Fact for the purposes of signing such amendment. No provision of this Section 15 or any other provisions relating to the Agents may be modified without the consent of each Agent. 15.9 Assumption re Event of Default. Except as otherwise provided in Section 15.15, each Agent shall be entitled to assume that no Event of Default, or event which with the giving of notice or lapse of time, or both, would constitute an Event of Default, has occurred and is continuing, unless such Agent has been notified by any Security Party of such fact, or has been notified by a Lender that such Lender considers that an Event of Default or such an event (specifying in detail the nature thereof) has occurred and is continuing. In the event that an Agent shall have been notified by any 46 Security Party or any Lender in the manner set forth in the preceding sentence of any Event of Default or of an event which with the giving of notice or lapse of time, or both, would constitute an Event of Default, such Agent shall notify the Lenders and shall take action and assert such rights under this Agreement, under the Note and under Security Documents as the Majority Lenders shall request in writing. 15.10 Limitations of Liability. Neither any Agent nor any of the Lenders shall be under any liability or responsibility whatsoever: (a) to any Security Party or any other person or entity as a consequence of any failure or delay in performance by, or any breach by, any other Lenders or any other person of any of its or their obligations under this Agreement or under any Security Document; (b) to any Lender or Lenders as a consequence of any failure or delay in performance by, or any breach by, any Security Party of any of its respective obligations under this Agreement, under the Note or under the Security Documents; or (c) to any Lender or Lenders for any statements, representations or warranties contained in this Agreement, in any Security Document or in any document or instrument delivered in connection with the transaction hereby contemplated; or for the validity, effectiveness, enforceability or sufficiency of this Agreement, the Note, any Security Document or any document or instrument delivered in connection with the transactions hereby contemplated. 15.11 Indemnification of the Agents. The Lenders agree to indemnify each Agent (to the extent not reimbursed by the Security Parties or any thereof), pro rata according to the respective amounts of their Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including legal fees and expenses incurred in investigating claims and defending itself against such liabilities) which may be imposed on, incurred by or asserted against, such Agent in any way relating to or arising out of this Agreement, the Note or any Security Document, any action taken or omitted by such Agent thereunder or the preparation, administration, amendment or enforcement of, or waiver of any provision of, this Agreement, the Note or any Security Document, except that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct. 15.12 Consultation with Counsel. Each Agent may consult with legal counsel selected by such Agent and shall not be liable for any action taken, permitted or omitted by it in good faith in accordance with the advice or opinion of such counsel. 15.13 Resignation. Any Agent may resign at any time by giving sixty (60) days' written notice thereof to the other Agents, the Lenders and the Borrower. Upon any such resignation, the Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Lenders and shall have accepted such appointment within sixty (60) days after the retiring Agent's giving notice of resignation, then the retiring Agent may, on behalf of the Lenders, 47 appoint a successor Agent which shall be a bank or trust company of recognized standing. The appointment of any successor Agent shall be subject to the prior written consent of the Borrower, such consent not to be unreasonably withheld. After any retiring Agent's resignation as Agent hereunder, the provisions of this Section 15 shall continue in effect for its benefit with respect to any actions taken or omitted by it while acting as Agent. 15.14 Representations of Lenders. Each Lender represents and warrants to each other Lender and each Agent that: (a) in making its decision to enter into this Agreement and to make its Commitment available hereunder, it has independently taken whatever steps it considers necessary to evaluate the financial condition and affairs of the Security Parties, that it has made an independent credit judgment and that it has not relied upon any statement, representation or warranty by any other Lender or any Agent; and (b) so long as any portion of its Commitment remains outstanding, it will continue to make its own independent evaluation of the financial condition and affairs of the Security Parties. 15.15 Notification of Event of Default. Each Agent hereby undertakes to promptly notify the Lenders, and the Lenders hereby promptly undertake to notify each Agent and the other Lenders, of the existence of any Event of Default which shall have occurred and be continuing of which such Agent or Lender has actual knowledge. 16. NOTICES AND DEMANDS 16.1 Notices. All notices, requests, demands and other communications to any party hereunder shall be in writing (including prepaid overnight courier, facsimile transmission or similar writing) and shall be given to the Borrower at the address or telecopy number set forth below and to the Lenders and the Agents at their address and telecopy numbers set forth in Schedule 1 or at such other address or telecopy numbers as such party may hereafter specify for the purpose by notice to each other party hereto. Each such notice, request or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section and telephonic confirmation of receipt thereof is obtained or (ii) if given by mail, prepaid overnight courier or any other means, when received at the address specified in this Section or when delivery at such address is refused. If to the Borrower: OMI Corporation One Station Place Stamford, Connecticut 06902 Telecopy No.: (203) 602-6701 Attention: Vincent de Sostoa Senior Vice President - Treasurer 48 17. MISCELLANEOUS 17.1 Time of Essence. Time is of the essence of this Agreement but no failure or delay on the part of any Lender, the Agents or the Arrangers to exercise any power or right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise by any Lender, the Agents or the Arrangers of any power or right hereunder preclude any other or further exercise thereof or the exercise of any other power or right. The remedies provided herein are cumulative and are not exclusive of any remedies provided by law. 17.2 Unenforceable, etc., Provisions - Effect. In case any one or more of the provisions contained in this Agreement, the Note or in any Security Document would, if given effect, be invalid, illegal or unenforceable in any respect under any law applicable in any relevant jurisdiction, said provision shall not be enforceable against the relevant Security Party, but the validity, legality and enforceability of the remaining provisions herein or therein contained shall not in any way be affected or impaired thereby. 17.3 References. References herein to Sections, Exhibits and Schedules are to be construed as references to sections of, exhibits to, and schedules to, this Agreement, unless the context otherwise requires. 17.4 Further Assurances. The Borrower agrees that if this Agreement or any Security Document shall, in the reasonable opinion of the Lenders, at any time be deemed by the Lenders for any reason insufficient in whole or in part to carry out the true intent and spirit hereof or thereof, it will execute or cause to be executed such other and further assurances and documents as in the opinion of the Lenders may be required in order to more effectively accomplish the purposes of this Agreement, the Note or any Security Document. 17.5 Prior Agreements, Merger. Any and all prior understandings and agreements heretofore entered into between the Security Parties on the one part, and the Agents, the Arrangers or the Lenders, on the other part, whether written or oral, other than the Fee Letter, are superseded by and merged into this Agreement and the other agreements (the forms of which are exhibited hereto) to be executed and delivered in connection herewith to which the Security Parties, the Arrangers, the Agents and/or the Lenders are parties, which alone fully and completely express the agreements between the Security Parties, the Arrangers, the Agents and the Lenders. 17.6 Entire Agreement; Amendments. This Agreement constitutes the entire agreement of the parties hereto including all parties added hereto pursuant to an Assignment and Assumption Agreement. Subject to Section 15.8, any provision of this Agreement, the Note or any Security Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower, the Administration Agent and the Majority Lenders (and, if the rights or duties of the Security Agent or the Syndication Agent are affected thereby, by such Agent, as applicable). This Agreement may be executed in any number of counterparts, each of will shall be deemed an original, but all such counterparts together shall constitute one and the same instrument. The parties hereto agree that no amendment affecting the rights of the underwriters of the Ship Mortgage Indemnity shall be effective without the prior written consent of such underwriters. 17.7 Indemnification. The Borrower and, by its execution and delivery of the Consent and Agreement set forth below, each of the other Security Parties jointly and severally agree to indemnify each Lender, each Agent and each Arranger, their respective successors and assigns, and 49 their respective officers, directors, employees, representatives and agents (each an "Indemnitee") from, and hold each of them harmless against, any and all losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements of any kind or nature whatsoever (including, without limitation, the fees and disbursements of counsel for such Indemnitee in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto) that may at any time (including, without limitation, at any time following the payment of the obligations of the Borrower hereunder) be imposed on, asserted against or incurred by, any Indemnitee as a result of, or arising out of or in any way related to or by reason of, (a) any violation by any Security Party (or any charterer or other operator of any Vessel) of any applicable Environmental Law, (b) any Environmental Claim arising out of the management, use, control, ownership or operation of property or assets by any Security Party (or, after foreclosure, by any Lender, any Agent or any Arranger or any of their respective successors or assigns), (c) the breach of any representation, warranty or covenant set forth in Sections 2.1 (o) or 9.1(j), (d) the Loan (including the use of the proceeds of the Loan and any claim made for any brokerage commission, fee or compensation from any Person), of (e) the execution, delivery, performance or non-performance of this Agreement, the Note, any Security Document, or any of the documents referred to herein or contemplated hereby (whether or not the Indemnitee is a party thereto). If and to the extent that the obligations of the Security Parties under this Section are unenforceable for any reason, the Borrower and, by its execution and delivery of the Consent and Agreement set forth below, each of the other Security Parties jointly and severally agree to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. The obligations of the Security Parties under this Section 17.7 shall survive the termination of this Agreement and the repayment to the Lenders of all amounts owing thereto under or in connection herewith. 17.8 Release of Designated Vessel Owner Guaranty. Notwithstanding Section 17.6, Entire Agreement; Amendments, upon the Designated Vessel Acquisition, the Security Agent shall release the Designated Vessel Owner from its Guaranty. 17.9 Headings. In this Agreement, Section headings are inserted for convenience of reference only and shall not be taken into account in the interpretation of this Agreement. 50 IN WITNESS whereof the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives as of the day and year first above written. OMI CORPORATION By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer CHRISTIANIA BANK OG KREDITKASSE ASA, as Arranger and Administrative Agent By:___________________________________ Name: Title: By:___________________________________ Name: Title: DEN NORSKE BANK ASA, as Arranger and Syndication Agent By:___________________________________ Name: Title: By:___________________________________ Name: Title: MEESPIERSON CAPITAL CORP., as Arranger and Security Agent By:___________________________________ Name: Title: By:___________________________________ Name: Title: 51 The Lenders: CHRISTIANIA BANK OG KREDITKASSE ASA By:___________________________________ Name: Title: By:___________________________________ Name: Title: DEN NORSKE BANK ASA By:___________________________________ Name: Title: By:___________________________________ Name: Title: MEESPIERSON CAPITAL CORP. By:___________________________________ Name: Title: By:___________________________________ Name: Title: 52 HAMBURGISCHE LANDESBANK - GIROZENTRALE- By:___________________________________ Name: Title: LANDESBANK SCHLESWIG-HOLSTEIN By:___________________________________ Name: Title: DE NATIONALE INVESTERINGSBANK (NA) N.V. By:___________________________________ Name: Title: VEREINS-UND WESTBANK AG By:___________________________________ Name: Title: 53 CONSENT AND AGREEMENT Each of the undersigned, referred to in the foregoing Loan Agreement as the "Guarantors", hereby consents and agrees to said Agreement and to the documents contemplated thereby and to the provisions contained therein relating to conditions to be fulfilled and obligations to be performed by the undersigned pursuant to or in connection with said Agreement and agrees particularly to be bound by the representations, warranties and covenants relating to the undersigned contained in Sections 2 and 9 of said Agreement to the same extent as if the undersigned were a party to said Agreement, and expressly agrees to the grant of a security interest in favor of the Syndication Agent in the undersigned's accounts pursuant to Section 9.1(s) of said Agreement. ALMA SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer CAIRO SEA SHIPPING LLC by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer CZANTORIA SHIPPING LLC by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer DANUBE SHIPPING LLC by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer ISERE SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer LAUREL SHIPPING LLC by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer LIMAR SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer LOIRE SHIPPING LLC By OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer MENDALA II TRANSPORT, INC. By OMI Corporation, sole shareholder By:_____________________________________ Vincent de Sostoa Treasurer PAGODA SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer PECOS SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer SABINE SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer SACRAMENTO SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer SEINE SHIPPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer SEVERN SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer SHANNON SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ SOKOLICA SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer SOYANG SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer TIBER SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer TRENT SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer TRINIDAD SEA SHIPPING LLC by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer UBC CHARTERING LTD. by OMI Corporation, sole shareholder By:_____________________________________ Vincent de Sostoa Treasurer EX-10.7 3 LOAN AGREEMENT ================================================================================ LOAN AGREEMENT PROVIDING FOR A US$46,500,000 SECURED TERM LOAN FACILITY TO BE MADE AVAILABLE TO OMI CORPORATION BY CHRISTIANIA BANK OG KREDITKASSE ASA, acting through its New York branch, as Arranger and Administrative Agent, DEN NORSKE BANK ASA, acting through its New York branch, as Arranger and Syndication Agent, MEESPIERSON CAPITAL CORP., as Arranger and Security Agent, and the Banks and Financial Institutions identified on Schedule 1, as Lenders ================================================================================ as of February 4, 2000 CONTENTS PAGE ---- 1. DEFINITIONS..............................................................1 1.1 Specific Definitions...................................................1 1.2 Computations of Time Periods; Other Definitional Provisions...........18 1.3 Accounting Terms......................................................18 1.4 Certain Matter Regarding Materiality..................................18 1.5 Forms of Documents....................................................18 2. REPRESENTATIONS AND WARRANTIES..........................................18 2.1 Representations and Warranties........................................18 (a) Due Organization and Power......................................18 (b) Authorization and Consents......................................19 (c) Binding Obligations.............................................19 (d) No Violation....................................................19 (e) Litigation......................................................19 (f) No Default......................................................19 (g) Vessels.........................................................19 (h) Insurance.......................................................20 (i) Financial Information...........................................20 (j) Tax Returns.....................................................20 (k) ERISA...........................................................20 (l) Chief Executive Office..........................................20 (m) Foreign Trade Control Regulations...............................20 (n) Equity Ownership................................................21 (o) Environmental Matters and Claims................................21 (p) Compliance with ISM Code........................................22 (q) Threatened Withdrawal of DOC or SMC.............................22 (r) Approved Business Plan..........................................22 (s) Liens...........................................................22 (t) Indebtedness....................................................22 (u) Survival........................................................22 3. THE LOAN................................................................22 3.1 (a) Purpose...........................................................22 i (b) Making of the Loan..............................................22 3.2 Drawdown Notice.......................................................22 3.3 Effect of Drawdown Notice.............................................23 4. CONDITIONS..............................................................23 4.1 Conditions Precedent to Drawdown of the Loan..........................23 (a) Corporate Authority...............................................23 (b) The Vessels.......................................................24 (c) The Note..........................................................24 (d) Guarantor and Subordinated Guarantor Documents....................24 (e) Pledge Agreement..................................................25 (f) Coordination Agreement............................................25 (g) Vessel Appraisals.................................................25 (h) Guarantor and Subordinated Guarantor Solvency.....................25 (i) Environmental Claims..............................................25 (j) Fees..............................................................25 (k) Accounts..........................................................25 (l) Vessel Liens......................................................25 (m) Approved Business Plan............................................26 (n) Facility A........................................................26 (o) Charters; Pooling Agreements......................................26 (p) Legal Opinions....................................................26 4.2 Further Conditions Precedent..........................................26 4.3 Breakfunding Costs....................................................26 4.4 Satisfaction after Drawdown...........................................27 5. REPAYMENT AND PREPAYMENT................................................27 5.1 Repayment.............................................................27 5.2 Voluntary Prepayment; no re-borrowing.................................27 5.3 Mandatory Prepayment; Sale or Loss of Vessel..........................27 (a) First Vessel....................................................27 (b) Third Vessel....................................................27 5.4 Mandatory Prepayment; New Capital.....................................27 5.5 Demand Conversion.....................................................28 ii 5.6 Interest and Costs with Prepayments...................................28 6. INTEREST AND RATE.......................................................28 6.1 Applicable Rate.......................................................28 6.2 Default Rate..........................................................28 6.3 Interest Periods......................................................28 6.4 Interest Payments.....................................................28 7. PAYMENTS................................................................29 7.1 Place of Payments, No Set Off.........................................29 7.2 Tax Credits...........................................................29 7.3 Computations; Banking Days. (a)......................................29 8. EVENTS OF DEFAULT.......................................................29 8.1 Events of Default.....................................................29 (a) Non-Payment of Principal........................................29 (b) Non-Payment of Interest or Other Amounts........................29 (c) Representations.................................................30 (d) Mortgage........................................................30 (e) Covenants.......................................................30 (f) Indebtedness....................................................30 (g) Ownership of Guarantors and Subordinated Guarantors.............30 (h) Bankruptcy......................................................30 (i) Termination of Operations; Sale of Assets.......................31 (j) Judgments.......................................................31 (k) Inability to Pay Debts..........................................31 (l) Change in Financial Position....................................31 (m) Change in Control...............................................31 (n) ERISA Debt......................................................31 (o) Approved Business Plan..........................................31 (p) Cross-Default...................................................31 8.2 Indemnification.......................................................32 8.3 Application of Moneys.................................................32 (a) first,..........................................................32 iii (b) secondly,.......................................................32 (c) thirdly,........................................................32 (d) fourthly,.......................................................32 (e) fifthly,........................................................32 9. COVENANTS...............................................................33 9.1 Affirmative Covenants.................................................33 (a) Performance of Agreements.......................................33 (b) Notice of Default, etc..........................................33 (c) Obtain Consents.................................................33 (d) Financial Information...........................................33 (e) Corporate Existence.............................................34 (f) Books and Records...............................................34 (g) Taxes and Assessments...........................................34 (h) Inspection......................................................34 (i) Compliance with Statutes, Agreements, etc.......................34 (j) Environmental Matters...........................................35 (k) ERISA...........................................................35 (l) Vessel Management...............................................35 (m) Funded Debt to Total Capitalization Ratio.......................35 (n) Cash............................................................36 (o) Consolidated Net Worth..........................................36 (p) EBITDA to Interest Expense......................................36 (q) Use of Excess Cash..............................................36 (r) Brokerage Commissions, etc......................................37 (s) Deposit Accounts; Assignment....................................37 (t) Future Guaranties...............................................37 (u) Future Pledge Agreements........................................37 (v) Insurance.......................................................37 9.2 Negative Covenants....................................................37 (a) Liens...........................................................37 (b) Change in Business..............................................38 (c) Sale or Pledge of Shares........................................38 (d) Sale of Assets..................................................38 (e) Changes in Offices or Names.....................................38 (f) Consolidation and Merger........................................39 (g) Chartering-in...................................................39 (h) Chartering-out..................................................39 iv (i) Vessel Pooling..................................................39 (j) Distributions on Stock..........................................39 (k) Indebtedness....................................................39 (l) Investments.....................................................39 (m) Capital Expenditures............................................39 (n) Deposit Accounts................................................39 (o) Change Fiscal Year..............................................39 9.3 Subsidiary Negative Covenants.........................................39 (a) Limitations on Ability to Make Distributions....................39 (b) Use of Corporate Funds..........................................40 (c) Issuance of Shares..............................................40 9.4 First Vessel Valuations...............................................40 9.5 Asset Maintenance.....................................................40 9.6 Inspection and Survey Reports.........................................40 10. ASSIGNMENT..............................................................41 11. ILLEGALITY, INCREASED COST, NON-AVAILABILITY, ETC.......................41 11.1 Illegality............................................................41 11.2 Increased Costs.......................................................41 11.3 Nonavailability of Funds..............................................42 11.4 Lender's Certificate Conclusive.......................................42 11.5 Compensation for Losses...............................................42 12. CURRENCY INDEMNITY......................................................43 12.1 Currency Conversion...................................................43 12.2 Change in Exchange Rate...............................................43 12.3 Additional Debt Due...................................................43 12.4 Rate of Exchange......................................................43 13. FEES AND EXPENSES.......................................................43 13.1 Fees..................................................................43 13.2 Expenses..............................................................43 v 14. APPLICABLE LAW, JURISDICTION AND WAIVER.................................44 14.1 Applicable Law........................................................44 14.2 Jurisdiction..........................................................44 14.3 WAIVER OF JURY TRIAL..................................................44 15. THE AGENTs..............................................................44 15.1 Appointment of Agents.................................................44 15.2 Security Agent as Trustee.............................................45 15.3 Distribution of Payments..............................................45 15.4 Holder of Interest in Note............................................45 15.5 No Duty to Examine, Etc...............................................45 15.6 Agents as Lenders.....................................................45 15.7 Acts of the Agents....................................................45 15.8 Certain Amendments....................................................46 15.9 Assumption re Event of Default........................................46 15.10 Limitations of Liability.............................................47 15.11 Indemnification of the Agents........................................47 15.12 Consultation with Counsel............................................47 15.13 Resignation..........................................................47 15.14 Representations of Lenders...........................................48 15.15 Notification of Event of Default.....................................48 16. NOTICES AND DEMANDS.....................................................48 16.1 Notices...............................................................48 17. MISCELLANEOUS...........................................................49 17.1 Time of Essence.......................................................49 17.2 Unenforceable, etc., Provisions - Effect..............................49 17.3 References............................................................49 vi 17.4 Further Assurances....................................................49 17.5 Prior Agreements, Merger..............................................49 17.6 Entire Agreement; Amendments..........................................49 17.7 Indemnification.......................................................49 17.8 Release of Designated Vessel Owner Guaranty...........................50 17.9 Headings..............................................................50 vii SCHEDULE 1 The Lenders and the Commitments 2 OMI and Affiliates 3 The First Vessels 4 The Third Vessels 5 Planned Reduction Dates and Amounts 6 Disclosure EXHIBITS A Form of Note B Form of Guaranty C Form of Subordinated Guaranty D Form of Pledge Agreement E Form of First Mortgage F Form of Third Mortgage G Form of First Earnings Assignment H Form of Third Earnings Assignment I Form of First Insurances Assignment J Form of Third Insurances Assignment K Form of Assignment and Assumption Agreement L Form of Compliance Certificate M Form of Drawdown Notice N Form of Interest Notice LOAN AGREEMENT THIS LOAN AGREEMENT is made as of the 4th day of February, 2000, by and among (1) OMI CORPORATION, a corporation incorporated under the laws of the Republic of the Marshall Islands (the "Borrower"), (2) the banks and financial institutions listed on Schedule 1, as lenders (together with any bank or financial institution which becomes a Lender pursuant to Article 10, the "Lenders"), (3) CHRISTIANIA BANK OG KREDITKASSE ASA, acting through its New York branch ("CBK"), as Administrative Agent for the Lenders (in such capacity, the "Administrative Agent") and as arranger, (4) DEN NORSKE BANK ASA, acting through its New York branch ("DnB"), as syndication agent for the Lenders (in such capacity, the "Syndication Agent") and as arranger, and (5) MEESPIERSON CAPITAL CORP. ("MeesPierson"), as arranger (in such capacity, together with CBK and DnB as arrangers, the "Arrangers") and as security agent for the Lenders (in such capacity, the "Security Agent" and, together with the Administrative Agent and the Syndication Agent, the "Agents"). WITNESSETH THAT: WHEREAS, at the request of the Borrower, the Arrangers have arranged for the Agents to serve in their respective capacities under the terms of this Agreement and for the Lenders to provide to the Borrower a secured term loan facility in the amount of up to US$46,500,000; NOW, THEREFORE, in consideration of the premises set forth above, the covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as set forth below: 1. DEFINITIONS 1.1 Specific Definitions. In this Agreement the words and expressions specified below shall, except where the context otherwise requires, have the meanings attributed to them below: "Acceptable Accounting Firm" means Deloitte & Touche LLP, or such other recognized international accounting firm as shall be approved by the Administrative Agent, such approval not to be unreasonably withheld; "Affiliate" means with respect to any Person, any other Person directly or indirectly controlled by or under common control with such Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with") as applied to any Person means the possession directly or indirectly of the power to direct or cause the direction of the management and policies of that Person whether through ownership of voting securities or by contract or otherwise; for purposes of Section 8.1(f), "Affiliate" shall also include each of Alliance Chartering LLC, International Product Carriers Limited, Geraldton Navigation Company Incorporated, Amazon Transport, Inc. and Hayes Navigation Co. Pte. Ltd. unless and until the Borrower's direct or indirect interest in and to such company has ceased; "Agreement" means this Agreement, as the same shall be amended, modified or supplemented from time to time; "Applicable Rate" means any rate of interest applicable to the Loan from time to time pursuant to Section 6.1; "Approved Business Plan" means a detailed business plan for reducing leverage and increasing liquidity, in form and in substance satisfactory to the Agents, specifying, among other things, the Planned Reduction Dates and Planned Reduction Amounts; "Assigned Moneys" means sums assigned to or received by any Agent pursuant to any Security Document; "Assignment and Assumption means the Assignment and Assumption Agreement(s) Agreement(s)" executed pursuant to Section 10 substantially in the form set out in Exhibit K; "Assignment Notices" means (i) notices with respect to the First Earnings Assignments substantially in the form of Exhibit 1 thereto; (ii) notices with respect to the Third Earnings Assignments, substantially in the form of Exhibit 1 thereto; (iii) notices with respect to the First Insurances Assignments substantially in the form of Exhibit 3 thereto; and (iv) notices with respect to the Third Insurances Assignments in the form of Exhibit 3 thereto; "Assignments" means the First Assignments and the Third Assignments; "Availability Period" means the period commencing the date hereof and ending February 29, 2000; "Banking Day(s)" means day(s) on which banks are open for the transaction of business in London, England, Hong Kong, Frankfurt, Germany and New York, New York; "Capital Expenditures" means all capital expenditures except for (i) normal maintenance of Vessels and other properties and (ii) Permitted Drydocking Costs; 2 "Cash Equivalents" means (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and credit of the United States of America is pledged in support thereof), and (ii) time deposits, certificates of deposit or deposits in the interbank market of any commercial bank of recognized standing organized under the laws of the United States of America, any state thereof or any foreign jurisdiction having capital and surplus in excess of $500,000,000, and rated at least A or the equivalent thereof by Standard & Poor's Rating Services in respect of both (i) and (ii) above, in each case having maturities of not more than ninety (90) days from the date of acquisition; "Change of Control" means (a) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 35% of the total voting power of the Borrower or (b) the Board of Directors of the Borrower ceases to consist of a majority of the directors existing on the Drawdown Date or directors nominated by at least two-thirds (2/3) of the then existing directors; "Classification Society" shall mean a member of the International Association of Classification Societies with whom the Vessels are entered and who conducted periodic physical surveys and/or inspections of the Vessels; "Code" means the Internal Revenue Code of 1986, as amended, and any successor statute and regulation promulgated thereunder; "Collateral" means, all property or other assets, real or personal, tangible or intangible, whether now owned or hereafter acquired in which any Agent or Lender has been granted a security interest pursuant to a Security Document; "Columbia Lease" means that certain charter agreement dated as of June 30, 1999 made by and between Sea Trade Limited, as owner, and Columbia Shipping, as charterer, in respect of the Marshall Islands-registered suezmax tanker COLUMBIA, official number 1272; "Columbia Shipping" means Columbia Shipping LLC, a limited liability company organized under the laws of the Republic of the Marshall Islands; 3 "Commitment(s)" means in relation to a Lender, the portion of the Loan set out opposite its name in Schedule 1 or, as the case may be, in any relevant Assignment and Assumption Agreement; "Compliance Certificate" means a certificate certifying the compliance by the Borrower with all of its covenants contained herein and showing the calculations thereof in reasonable detail, delivered by the chief financial officer of the Borrower to the Administrative Agent from time to time pursuant to Section 9.1(d) in the form set out in Exhibit L, or in such other form as the Administrative Agent may agree; "Consolidated Net Worth" means, at any time, shareholders equity (excluding treasury stock) of the Borrower on a consolidated basis determined in accordance with GAAP; "Default Rate" shall have the meaning ascribed thereto in Section 6.2; "Designated Indebtedness" means Indebtedness that is (i) incurred by the Designated Vessel Owner to finance the Designated Vessel Acquisition, (ii) non-recourse to the Borrower and the Borrower's Subsidiaries (other than the Designated Vessel Owner), and (iii) in an amount not exceeding $30.0 million; "Designated Subsidiary" means (i) during the term of the Columbia Lease, Columbia Shipping, (ii) while the Designated Indebtedness is outstanding, the Designated Vessel Owner, and (iii) any Subsidiary of the Borrower (A) which is not a Guarantor or a Subordinated Guarantor, (B) which has total assets of $1,000 or less, (C) which is not engaged in any financing that is recourse to the Borrower or any other Subsidiary of the Borrower, (D) in respect of which the Borrower has requested that the Administrative Agent permit such Subsidiary's designation as a Designated Subsidiary, and (E) in respect of which the Administrative Agent had consented in writing to such designation; "Designated Vessel" means the MEGA I or the SOYANG, whichever thereof is designated by the Borrower by written notice to the 4 Administrative Agent as the vessel to be financed on a non-recourse basis in accordance with the terms and conditions herein provided; "Designated Vessel means the acquisition of the Designated Vessel by Acquisition" the Designated Vessel Owner, occurring not later than June 30, 2000, or such other date as may be agreed by the Administrative Agent; "Designated Vessel means, upon or prior to the Designated Vessel Conditions" Acquisition, (i) the Borrower having received not less than $18.0 million net cash proceeds from the issuance of equity securities of the Borrower after the Drawdown Date; (ii) in the event the Designated Vessel is the SOYANG, the Borrower (and its Subsidiaries on a consolidated basis) not having contributed more than the amount of the SOYANG Investment to the Designated Vessel Acquisition; (iii) the Borrower (and its Subsidiaries on a consolidated basis) not having incurred any Indebtedness other than the Designated Vessel Indebtedness to finance the Designated Vessel Acquisition; (iv) the Designated Vessel being accepted for service under a time charter of not less than twelve (12) months duration at a rate of hire sufficient to pay reasonably anticipated operating expenses and to amortize (on a level-debt service basis), on a maximum 15-years profile, all Indebtedness incurred to finance the Designated Vessel Acquisition for the duration of such time charter; (v) true and complete copies of all contracts, agreements or other documents entered into by the Borrower or any Subsidiary in connection with the Designated Vessel Acquisition being delivered to and approved by the Administrative Agent; (vi) not later than ten (10) Banking Days prior to the date of the Designated Vessel Acquisition, the Borrower having delivered to the Administration Agent a Compliance Certificate as of such date and after considering the effect of the Designated Vessel Acquisition; and 5 (vii) immediately prior to the Designated Vessel Acquisition, the Designated Vessel owner has total assets of less that $500,000 and has no Subsidiaries; "Designated Vessel Owner" means the Subsidiary which is the owner of the Designated Vessel; "DOC" means a document of compliance issued to an Operator in accordance with rule 13 of the ISM Code; "Dollars" and the sign "$" means the legal currency, at any relevant time hereunder, of the United States of America and, in relation to all payments hereunder, in same day funds settled through the New York Clearing House Interbank Payments System (or such other Dollar funds as may be determined by the Administrative Agent to be customary for the settlement in New York City of banking transactions of the type herein involved); "Drawdown Date" means the date, being a Banking Day during the Availability Period, upon which the Borrower has requested that the Loan be made available to the Borrower, and the Loan is made, as provided in Section 3; "Drawdown Notice" shall have the meaning ascribed thereto in Section 3.2; "EBITDA" means, with respect to any Person for any period, operating income, plus depreciation, amortization and other non-cash charges, but excluding any gains or losses on vessel sales, any writedown amounts, or any impairment reserves; "Environmental Affiliate" means any person or entity, the liability of which for Environmental Claims any Security Party or Subsidiary of any Security Party may have assumed by contract or operation of law; "Environmental Approvals" shall have the meaning ascribed thereto in Section 2.1(o); "Environmental Claim(s)" shall have the meaning ascribed thereto in Section 2.1(o); "Environmental Laws" shall have the meaning ascribed thereto in Section 2.1(o); "ERISA" means the Employment Retirement Income Security Act of 1974, as amended; "ERISA Affiliate" means a trade or business (whether or not incorporated) which is under common control with the Borrower within the meaning of Sections 414(b), (c), (m) or (o) of the Code; 6 "Event(s) of Default" means any of the events set out in Section 8.1; "Exchange Act" shall mean the Securities and Exchange Act of 1934, as amended; "Facility A" means the loan facility in the principal amount of up to $218,000,000 to be made available to the Borrower pursuant to the Facility A Loan Agreement; "Facility A means CBK, in its capacity as administrative Administrative Agent" agent for the Facility A Lenders; "Facility A Agents" means the Facility A Administrative Agent, the Facility A Syndication Agent and the Facility A Security Agent; "Facility A Guaranty" means the guaranty made by each of the guarantors of the obligations of the Borrower under the Facility A Loan Agreement; "Facility A Lenders" means the banks and financial institutions identified in Schedule 1 to the Facility A Loan Agreement, each in its capacity as a lender pursuant to the Facility A Loan Agreement; "Facility A Loan Agreement" means the loan agreement to be dated on or about the date hereof made by and among, inter alios, the Borrower, as borrower, and the Facility A Lenders, as lenders, pursuant to which the Facility A Lenders will make Facility A available to the Borrower for the purpose of refinancing existing indebtedness secured by the Third Vessels; "Facility A Mortgages" means the first preferred Liberian and/or Marshall Islands ship mortgages on the Third Vessels, to be executed by the relevant Subordinated Guarantor in favor of the Facility A Security Agent pursuant to the Facility A Loan Agreement; "Facility A Pledge Agreement" means any pledge agreement executed by the Borrower in favor of the Facility A Security Agent pursuant to the Facility A Loan Agreement and pursuant to which the Borrower pledges shares, limited liability company interests or other equity interests in any Guarantor or Subordinated Guarantor; "Facility A Security Agent" means MeesPierson, in its capacity as security agent for the Facility A Lenders; "Facility A Security means the Security Documents as defined in the Documents" Facility A Loan Agreement; 7 "Facility A Syndication Agent" means DnB, in its capacity as syndication agent for the Facility A Lenders; "Facility C" means the convertible letter of credit facility in the principal amount of $36,00,000 to be made available to the Borrower pursuant to the Facility C Agreement; "Facility C Administrative means CBK, in its capacity as administrative Agent" agent for the Facility C Banks; "Facility C Agents" means the Facility C Administrative Agent, the Facility C Security Agent and the Facility C Syndication Agent; "Facility C Agreement" means the facility agreement to be dated on or about the date hereof made by and among, inter alia, the Borrower and the Facility C Banks, pursuant to which the Facility C Banks will make Facility C available to the Borrower for the purpose of issuing a standby letter of credit in favor of the Facility A Security Agent; "Facility C Banks" means the banks and other financial institutions identified on Schedule 1 to the Facility C Agreement; "Facility C Security Agent" means MeesPierson, in its capacity as security agent for the Facility C Banks; "Facility C Security means the Security Documents as defined in the Documents" Facility C Agreement; "Facility C Syndication Agent" means DnB, in its capacity as syndication agent for the Facility C Banks; "Fair Market Value" means, in respect of any vessel, means the average of three charter-free appraisals of such vessel from independent ship brokers approved by the Administrative Agent, no such appraisal to be dated more than thirty (30) days prior to the date on which such appraisal is required pursuant to this Agreement unless the Administrative Agent consents in writing (on each occasion) to the use of an older appraisal; "Fee Letter" means the letter dated November 15, 1999 and entered into by the Borrower, the Arrangers and the Agents in respect of the fees referred to therein; "Final Payment Date" means the date that is two years after the Drawdown Date, provided, however, that if the Loan is converted to a 8 demand loan pursuant to Section 5.5, then the Final Payment Date shall be such date as the Administrative Agent demands repayment of the Loan; "First Assignments" means the First Earnings Assignments and the First Insurances Assignments; "First Earnings Assignments" means the first priority assignments in respect of the earnings of each First Vessel (other than the SETTEBELLO) from any and all sources, to be executed in favor of the Security Agent pursuant to Section 4.1(d), substantially in the form of Exhibit G; "First Insurances Assignments" means the first priority assignments in respect of the insurances over the First Vessels (other than the SETTEBELLO), to be executed by the relevant Guarantor in favor of the Security Agent pursuant to Section 4.1(d), substantially in the form of Exhibit I; "First Mortgages" means the first preferred Liberian ship mortgages on the First Vessels, to be executed by the relevant Guarantor in favor of the Security Agent (as trustee for the Lenders), substantially in the form of Exhibit E; "First Vessels" means the vessels listed in Schedule 3, registered in the ownership of the relevant Guarantor as set forth in Schedule 3; "Funded Debt" shall mean on a consolidated basis for the Borrower (without duplication), the sum of (i) all Indebtedness of the Borrower (on a consolidated basis), (ii) all obligations to pay a specific purchase price for goods or services whether or not delivered or accepted, i.e., take-or-pay and similar obligations which in accordance with GAAP would be shown on the liability side of the balance sheet, (iii) all net obligations under Interest Rate Agreements, and (iv) all guarantees of non-consolidated entity obligations; provided, however, that balance sheet accruals for future drydock expenses shall not be classified as Funded Debt; "GAAP" shall have the meaning ascribed thereto in Section 1.3; "Guarantor(s)" means, as of the date of this Agreement, each of the companies listed in Schedule 2 as Guarantors (including the SETTEBELLO Guarantor) and thereafter shall also mean such companies as may execute a Guaranty pursuant to Section 9.1(t) or otherwise; 9 "Guaranty(ies)" means the guaranty to be executed by each Guarantor in respect of the obligations of the Borrower under and in connection with this Agreement and the Note in favor of the Security Agent pursuant to Section 4.l(d), and any guaranty executed thereafter pursuant to Section 9.1(t) or otherwise, each substantially in the form of Exhibit B; "Indebtedness" means, with respect to any Person at any date of determination (without duplication), (i) all indebtedness of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery thereof or the completion of such services, except trade payables, (v) all obligations on account of principal of such Person as lessee under capitalized leases, (vi) all indebtedness of other Persons secured by a lien on any asset of such Person, whether or not such indebtedness is assumed by such Person; provided that the amount of such indebtedness shall be the lesser of (a) the fair market value of such asset at such date of determination and (b) the amount of such indebtedness, and (vii) all indebtedness of other Persons guaranteed by such Person to the extent guaranteed; the amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided that the amount outstanding at any time of any indebtedness issued with original issue discount is the face amount of such indebtedness less the remaining unamortized portion of the original issue discount of such indebtedness at such time as determined in conformity with GAAP; and provided further that Indebtedness shall not include any liability for current or deferred federal, state, local or other taxes, or any trade payables; "Initial Payment Date" means the date which is six months after the Drawdown Date; "Intercreditor Agreement" means the intercreditor agreement dated on or about the date hereof entered into by and among the Agents, the 10 Facility A Agents and the Facility C Agents; "Interest Expense" means for any period, all interest charges, including the interest component of capitalized leases; "Interest Notice" means a notice from the Borrower to the Administrative Agent specifying the duration of any relevant Interest Period, each substantially in the form of Exhibit N; "Interest Period(s)" means period(s) of one, three or six months selected by the Borrower or, in the Lenders' discretion, such other period(s) as may be agreed; "Interest Rate Agreements" means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement designed to protect the Borrower or any of its Subsidiaries against fluctuations in interest rates to or under which the Borrower or any of its Subsidiaries is a party or a beneficiary on the date of this Agreement or becomes a party or a beneficiary hereafter; "Investment" means any direct or indirect advance, loan or other extension of credit (including by way of guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of capital stock (or other equity interest), Indebtedness or other similar instruments; "ISM Code" means the International Safety Management Code for the Safe Operating of Ships and for Pollution Prevention constituted pursuant to Resolution A.741(18) of the International Maritime Organization and incorporated into the Safety of Life at Sea Convention and includes any amendments or extensions thereto and any regulation issued pursuant thereto; "LIBOR" means the rate (rounded upward to the nearest 1/16th of one percent) for deposits of Dollars for a period equivalent to the relevant Interest Period at or about 11:00 a.m. (London time) on the second London Banking Day before the first day of such period as displayed on Telerate page 3750 (British Bankers' Association Interest Settlement Rates) (or such other page as may replace such page 3750 on such system or on any other system of the 11 information vendor for the time being designated by the British Bankers' Association to calculate the BBA Interest Settlement Rate (as defined in the British Bankers' Association's Recommended Terms and Conditions ("BBAIRS" terms) dated August 1985)), provided that if on such date no such rate is so displayed for the relevant Interest Period, LIBOR for such period shall be the arithmetic mean (rounded upward if necessary to four decimal places) of the rates respectively quoted to the Administrative Agent by each of the Reference Banks at the request of the Administrative Agent as the offered rate for deposits of Dollars in an amount approximately equal to the amount in relation to which LIBOR is to be determined for a period equivalent to the relevant Interest Period to prime banks in the London Interbank Market at or about 11:00 a.m. (London time) on the second Banking Day before the first day of such period; "Loan" means the loan facility to be made available by the Lenders to the Borrower pursuant to Section 3 in the original principal amount of up to Forty-Six Million Five Hundred Thousand Dollars (US$46,500,000), or the balance thereof from time to time outstanding; "Majority Lenders" at any time means Lenders holding an aggregate of more then 50% of the Loan then outstanding; "Margin" means (i) until the first anniversary of the Drawdown Date, three percent (3%) per annum; and (ii) thereafter, four percent (4%) per annum; provided, however, that after the first Planned Reduction Date, if and so long as (A) no Event of Default has occurred and is continuing, (B) each Planned Reduction Amount has been paid to the Administrative Agent in full not later than the relevant Planned Reduction Date, and (C) the ratio of the Loan to the aggregate of the most recently determined Fair Market Values of the First Vessels is less than 0.65 to 1.0, the Margin shall be one and three-quarter percent (1.75%) per annum; "Material Adverse Effect" means a material adverse effect on (I) the ability of the Borrower to repay the Loan or perform any of its obligations hereunder or under the Note, (ii) the ability of any Security Party to perform its obligations under any Security Documents or (iii) the business, property, assets, 12 liabilities, operations, condition (financial or otherwise) or prospects of the Borrower and the other Security Parties taken as a whole; "Materials of Environmental shall have the meaning ascribed thereto in Concern" Section 2.1(o); "Mortgages" means the First Mortgages and the Third Mortgages; "Multiemployer Plan" means, at any time, a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions or has within any of the three preceding plan years made or accrued an obligation to make contributions; "Multiple Employer Plan" means, at any time, an employee benefit plan, other than a Multiemployer Plan, subject to Title IV or ERISA, to which the Borrower or any ERISA Affiliate, and one or more employers other than the Borrower or an ERISA Affiliate, is making or accruing an obligation to make contributions or, in the event that any such plan has been terminated, to which the Borrower or any ERISA Affiliate made or accrued an obligation to make contributions during any of the five plan years preceding the date of termination of such plan; "Note" means the promissory note to be executed by the Borrower to the order of the Security Agent pursuant to Section 4.1(c), to evidence the Loan, substantially in the form of Exhibit A; "Operator" means, in respect of any Vessel, the Person who is concerned with the operation of such Vessel and falls within the definition of "Company" set out in rule 1.1.2 of the ISM Code; "PBGC" means the Pension Benefit Guaranty Corporation; "Permitted Drydocking Costs" means (i) in respect of any one Vessel, $2.0 million in any calendar year, and (ii) in respect of all Vessels on an aggregated basis, $5.0 million in any calendar year, expended for drydocking costs; "Person" means any individual, sole proprietorship, corporation, partnership (general or limited), limited liability company, business trust, bank, trust company, joint venture, association, joint stock company, trust or other 13 unincorporated organization, whether or not a legal entity, or any government or agency or political subdivision thereof; "Plan" means any employee benefit plan (other than a Multiemployer Plan or a Multiple Employer Plan) covered by Title IV of ERISA; "Planned Reduction Amounts" means the Dollar amounts specified in the Approved Business Plan to be applied in repayment of the Loan by the Planned Reduction Dates, as set forth in Schedule 5; "Planned Reduction Dates" means the dates specified in the Approved Business Plan by which the Planned Reduction Amounts will be applied in repayment of the Loan, as set forth in Schedule 5; "Pledge Agreement(s)" means the pledge agreements in respect of the Pledged Shares to be executed by the Borrower and the SETTEBELLO Guarantor in favor of the Security Agent pursuant to Section 4.1(e), and any pledge agreement executed thereafter pursuant to Section 9.1(u), each substantially in the form of Exhibit D; "Pledged Shares" means the shares of capital stock, limited liability company interests or other equity interests of the Guarantors that own the Facility B Vessels and the SETTEBELLO Pledged Shares, owned by the Borrower (or, in respect of the SETTEBELLO Pledged Shares, by the SETTEBELLO Guarantor) and pledged to the Security Agent pursuant to a Pledge Agreement; "Prime Rate" means, from time to time, the rate of interest publicly announced by the Administrative Agent in New York City, New York, as its prime rate; "Reference Banks" means Den norske Bank ASA, Christiania Bank og Kreditkasse ASA and MeesPierson N.V.; "Required Percentage" shall have the meaning set forth for such term in Section 9.5; "Restricted Payments" shall have the meaning attributed thereto in Section 9.2(j); 14 "Security Documents" means the Pledge Agreement, the Guaranties, the Subordinated Guaranties, the Mortgages, the Assignments and any other documents that may be executed as security for the Loan and the Borrower's obligations in connection therewith; "Security Party(ies)" means the Borrower, each of the Guarantors and each of the Subordinated Guarantors; "SETTEBELLO Guarantor" means Loire Shipping LLC, a limited liability company organized under the laws of the Republic of the Marshall Islands; "SETTEBELLO Owner" means Amazon Transport, Inc., a corporation organized under the laws of the Republic of Liberia; "SETTEBELLO Partner" means Bergesen d.y. ASA, a corporation organized under the laws of the Kingdom of Norway; "SETTEBELLO Partner Consent" means a written consent of the SETTEBELLO Partner to the pledge by the SETTEBELLO Guarantor of its shares in the SETTEBELLO Owner in favor of the Security Agent, which consent may be conditioned upon a purchase option for such shares in favor of the SETTEBELLO Partner at a price to be determined by the Administrative Agent based on the Administrative Agent's assessment of the value of such shares; "SETTEBELLO Pledged Shares" means the shares of capital stock of the SETTEBELLO Owner owned by the SETTEBELLO Guarantor; "SMC" means the safety management certificate issued in respect of a Vessel in accordance with rule 13 of the ISM code; "SOYANG" means Daewoo Hull No. 5152, currently under construction by Daewoo Heavy Industries Ltd., South Korea; "SOYANG Investment" means the contribution by the Borrower (and its Subsidiaries on a consolidated basis) of not more than $10.0 million of cash or Cash Equivalents (in addition to contributions made prior to the date of this Agreement) to the acquisition of the SOYANG, made no earlier than the date of acquisition thereof or three (3) days prior thereto as required by the construction contract for the SOYANG; 15 "SOYANG Subsidiary" means Soyang Shipping LLC, a limited liability company organized under the laws of the Republic of the Marshall Islands; "Subordinated Guarantor(s)" means, as of the date of this Agreement, each of the companies listed in Schedule 2 as Subordinated Guarantors and thereafter shall also mean such companies as may execute a Subordinated Guaranty pursuant to Section 9.1(t) or otherwise; "Subordinated Guaranty" means the guaranty to be executed by each Subordinated Guarantor in respect to the obligations of the Borrower under and in connection with this Agreement and the Note in favor of the Security Agent pursuant of Section 4.1(d), and any subordinated guaranty executed thereafter pursuant to Section 9.1(t) or otherwise, each substantially in the form of Exhibit C, the Security Agent's rights in respect of each such guaranty being subordinated to the rights of the Facility B Lenders pursuant to the Intercreditor Agreement; "Subsidiaries" means, with respect to any Person, any business entity of which more than 50% of the outstanding voting stock is owned directly or indirectly by such Person and one or more other Subsidiaries of such Person; "Taxes" means any present or future income or other taxes, levies, duties, charges, fees, deductions or withholdings of any nature now or hereafter imposed, levied, collected, withheld or assessed by any taxing authority whatsoever, except for taxes on or measured by the overall net income of each Lender imposed by its jurisdiction of incorporation or applicable lending office, the United States of America, the State or City of New York or any governmental subdivision or taxing authority of any thereof or by any other taxing authority having jurisdiction over such Lender (unless such jurisdiction is asserted by reason of the activities of the Borrower or any of the Subsidiaries); "Termination Event" means (i) a "reportable event," as defined in Section 403 of ERISA (other than a "reportable event" not subject to the provision for 30-day notice to the PBGC), (ii) the withdrawal of the Borrower or any ERISA Affiliate from a Multiemployer Plan during a plan year in which it was a "substantial employer," as defined in Section 4001(a)(2) of ERISA, or the incurrence of liability by the Borrower or any ERISA Affiliate under Section 4064 of ERISA upon the termination of a Multiple Employer Plan, (iii) the filing 16 of a notice of intent to terminate a Plan under Section 4041of ERISA or the treatment of a Multiemployer Plan amendment as a termination under Section 4041A of ERISA, (iv) the institution of proceedings to terminate a Plan or a Multiemployer Plan, or (v) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan or Multiemployer Plan; "Third Assignments" means the Third Earnings Assignments and the Third Insurances Assignments; "Third Earnings Assignments" means the third priority assignments in respect of the earnings of each Third Vessel from any and all sources, to be executed by the relevant Subordinated Guarantor in favor of the Security Agent pursuant to Section 4.1(d), substantially in the form of Exhibit H; "Third Insurances Assignments" means the third priority assignments in respect of the insurances over the Third Vessels, to be executed by the relevant Subordinated Guarantor in favor of the Security Agent pursuant to Section 4.1(d), substantially in the form of Exhibit J; "Third Mortgages" means the third preferred Liberian and/or Marshall Islands ship mortgages on the Third Vessels, to be executed by the relevant Subordinated Guarantor in favor of the Security Agent (as trustee for the Lenders) substantially in the form of Exhibit F; "Third Vessels" means the vessels listed in Schedule 4, registered in the ownership of the relevant Subordinated Guarantor as set forth in Schedule 4; "Total Capitalization" shall mean the sum of (i) Funded Debt, plus (ii) Consolidated Net Worth; "Total Loss" shall have the meaning ascribed thereto in the Mortgages; "Vessel(s)" means the First Vessels and the Third Vessels, or any thereof, as the context may require; "Withdrawal Liabilities" shall have the meaning given to such term under Part 1 of Subtitle E of Title IV of ERISA; 17 1.2 Computations of Time Periods; Other Definitional Provisions. In this Agreement, the Note and the other Security Documents, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding"; words importing either gender include the other gender; references to "writing" include printing, typing, lithography and other means of reproducing words in a tangible visible form; the words "including," "includes" and "include" shall be deemed to be followed by the words "without limitation"; references to articles, sections (or subdivisions of sections), exhibits, annexes or schedules are to this Agreement, the Note or such Security Document, as applicable; references to agreements and other contractual instruments (including this Agreement, the Note and the Security Documents) shall be deemed to include all subsequent amendments, amendments and restatements, supplements, extensions, replacements and other modifications to such instruments (without, however, limiting any prohibition on any such amendments, extensions and other modifications by the terms of this Agreement, the Note or any Security Document); references to any matter that is "approved" or requires "approval" of a party shall mean approval given in the sole and absolute discretion of such party unless otherwise specified. 1.3 Accounting Terms. Unless otherwise specified herein, all accounting terms used in this Agreement, the Note and in the Security Documents shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Administrative Agent or to the Lenders under this Agreement shall be prepared, in accordance with generally accepted accounting principles for the United States ("GAAP"). 1.4 Certain Matter Regarding Materiality. To the extent that any representation, warranty, covenant or other undertaking of the Borrower in this Agreement is qualified by reference to those which are not reasonably expected to result in a "Material Adverse Effect" or language of similar import, no inference shall be drawn therefrom that any Agent or Lender has knowledge or approves of any noncompliance by the Borrower with any governmental rule. 1.5 Forms of Documents. Except as otherwise expressly provided in this Agreement, references to documents or certificates "substantially in the form" of Exhibits to another document shall mean that such documents or certificates are duly completed in the form of the related Exhibits with substantive changes subject to the provisions of Section 17.6 of this Agreement, as the case may be, or the correlative provisions of the Security Documents. 2. REPRESENTATIONS AND WARRANTIES 2.1 Representations and Warranties. In order to induce the Arrangers, the Agents and the Lenders to enter into this Agreement and to induce the Lenders to make the Loan available, the Borrower hereby represents and warrants to the Arrangers, the Agents and the Lenders (which representations and warranties shall survive the execution and delivery of this Agreement and the Note and the drawdown of the Loan hereunder) that: (a) Due Organization and Power. each Subsidiary is duly formed and is validly existing in good standing under the laws of its jurisdiction of incorporation or formation, has full power to carry on its business as now being conducted and to enter into and perform its obligations under this Agreement, the Note and the Security Documents to which it is a party, and has complied with all statutory, regulatory and other requirements relative to such business and such agreements; 18 (b) Authorization and Consents. all necessary corporate action has been taken to authorize, and all necessary consents and authorities have been obtained and remain in full force and effect to permit, each Security Party to enter into and perform its obligations under this Agreement, the Note and the Security Documents and, in the case of the Borrower, to borrow, service and repay the Loan and, as of the date of this Agreement, no further consents or authorities are necessary for the service and repayment of the Loan or any part thereof; (c) Binding Obligations. this Agreement, the Note and the Security Documents constitute or will, when executed and delivered, constitute the legal, valid and binding obligations of each Security Party as is a party thereto enforceable against such Security Party in accordance with their respective terms, except to the extent that such enforcement may be limited by equitable principles, principles of public policy or applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting generally the enforcement of creditors' rights; (d) No Violation. the execution and delivery of, and the performance of the provisions of, this Agreement, the Note, and those of the Security Documents to which it is to be a party by each Security Party do not contravene any applicable law or regulation existing at the date hereof or any contractual restriction binding on such Security Party or the certificate of incorporation or by-laws, certificate of formation and operating agreement (or equivalent instruments) thereof; (e) Litigation. no action, suit or proceeding is pending or threatened against the Borrower or any Subsidiary before any court, board of arbitration or administrative agency which could or might result in any Material Adverse Effect; (f) No Default. Neither the Borrower nor any Subsidiary is in default under any material agreement by which it is bound, or is in default in respect of any material financial commitment or obligation; (g) Vessels. upon the date of the making of the Loan: (i) each of the First Vessels will be in the sole and absolute ownership of the relevant Guarantor as set forth in Schedule 3 and duly registered in such Guarantor's name under Liberian flag, unencumbered, save and except for the First Mortgage and the Facility C Mortgage recorded against it and as permitted thereby; (ii) each of the Third Vessels will be in the sole and absolute ownership of the relevant Subordinated Guarantor as set forth in Schedule 4 and duly registered in such Subordinated Guarantor's name under Liberian and/or Marshall Islands flag, unencumbered, save and except for the Facility A Mortgage, the Facility C Mortgage and the Third Mortgage recorded against it and as permitted thereby; (iii) each Vessel will be classed in the highest classification and rating for vessels of the same age and type with the respective classification society as set forth in Schedule 3 or Schedule 4, as the case may be, without any material outstanding recommendations; 19 (iv) each Vessel will be operationally seaworthy and in every way fit for its intended service; and (v) each Vessel will be insured in accordance with the provisions of the Mortgage recorded against it and the requirements thereof in respect of such insurances will have been complied with; (h) Insurance. the Borrower and each Subsidiary has insured its properties and assets against such risks and in such amounts as are customary for companies engaged in similar businesses; (i) Financial Information. except as otherwise disclosed in writing to the Agents on or prior to the date hereof, all financial statements, information and other data furnished by the Borrower to the Agents are complete and correct, such financial statements have been prepared in accordance with GAAP and accurately and fairly present the financial condition of the parties covered thereby as of the respective dates thereof and the results of the operations thereof for the period or respective periods covered by such financial statements, and since the date of the Borrower's financial statements most recently delivered to the Administrative Agent, there has been no Material Adverse Effect as to any of such parties and none thereof has any contingent obligations, liabilities for taxes or other outstanding financial obligations which are material in the aggregate except as disclosed in such statements, information and data; (j) Tax Returns. the Borrower and each Subsidiary has filed all material tax returns required to be filed thereby and has paid all taxes payable thereby which have become due, other than those not yet delinquent or the nonpayment of which would not have a Material Adverse Effect on the Borrower and or such Subsidiary and except for those taxes being contested in good faith and by appropriate proceedings or other acts and for which adequate reserves shall have been set aside on its books; (k) ERISA. the execution and delivery of this Agreement and the consummation of the transactions hereunder will not involve any prohibited transaction within the meaning of ERISA or Section 4975 of the Code and no condition exists or event or transaction has occurred in connection with any Plan maintained or contributed to by any the Borrower or any Subsidiary or any ERISA Affiliate resulting from the failure of any thereof to comply with ERISA insofar as ERISA applies thereto which is reasonably likely to result in the Borrower or any such Subsidiary or any ERISA Affiliate incurring any liability, fine or penalty which individually or in the aggregate would have a Material Adverse Effect. Prior to the date hereof, the Borrower has delivered to the Administrative Agent a list of all the employee benefit plans to which the Borrower or any Subsidiary or any ERISA Affiliate is a "party in interest" (within the meaning of Section 3(14) of ERISA) or a "disqualified person" (within the meaning of Section 4975(e)(2) of the Code); (l) Chief Executive Office. the Borrower's chief executive office and chief place of business and the office in which the records relating to the earnings and other receivables of each Security Party are kept is, and will continue to be, located at One Station Place, Stamford, Fairfield County, Connecticut; (m) Foreign Trade Control Regulations to the best of the Borrower's knowledge, none of the transactions contemplated herein will violate any of the provisions of the Foreign Assets 20 Control Regulations of the United States of America (Title 31, Code of Federal Regulations, Chapter V, Part 500, as amended), any of the provisions of the Cuban Assets Control Regulations of the United States of America (Title 31, Code of Federal Regulations, Chapter V, Part 515, as amended), any of the provisions of the Libyan Assets Control Regulations of the United States of America (Title 31, Code of Federal Regulations, Chapter V, Part 550, as amended), any of the provisions of the Iranian Transaction Regulations of the United States of America (Title 31, Code of Federal Regulations, Chapter V, Part 560, as amended), any of the provisions of the Iraqi Sanctions Regulations (Title 31, Code of Federal Regulations, Chapter V, Part 575, as amended), any of the provisions of the Federal Republic of Yugoslavia (Serbia and Montenegro) Assets Control Regulations (Title 31, Code of Federal Regulations, Chapter V, Part 585 as amended) or any of the provisions of the Regulations of the United States of America Governing Transactions in Foreign Shipping of Merchandise (Title 31, Code of Federal Regulations, Chapter V, Part 505, as amended); (n) Equity Ownership. each of the Guarantors and each of the Subordinated Guarantors is a wholly owned direct subsidiary of the Borrower; the SETTEBELLO Guarantor owns 49.0% of the issued and outstanding capital stock of the SETTEBELLO Owner; on the Drawdown Date, the Borrower will not own any shares of capital stock, limited liability company interest, partnership interest or any other direct or indirect equity interest in any corporation, limited liability company, partnership or other entity except the Security Parties and the other companies listed on Schedule 2; (o) Environmental Matters and Claims. (a) except as heretofore disclosed in writing to the Agents (i) the Borrower, each of its Subsidiaries and their Affiliates will, when required to operate their business as then being conducted, be in compliance with all applicable United States federal and state, local, foreign and international laws, regulations, conventions and agreements relating to pollution prevention or protection of human health or the environment (including, without limitation, ambient air, surface water, ground water, navigable waters, waters of the contiguous zone, ocean waters and international waters), including, without limitation, laws, regulations, conventions and agreements relating to (1) emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous materials, oil, hazardous substances, petroleum and petroleum products and by-products ("Materials of Environmental Concern"), or (2) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern ("Environmental Laws"); (ii) the Borrower, each of its Subsidiaries and their Affiliates will, when required, have all permits, licenses, approvals, rulings, variances, exemptions, clearances, consents or other authorizations required under applicable Environmental Laws ("Environmental Approvals") and will, when required, be in compliance with all Environmental Approvals required to operate their business as then being conducted; (iii) none of the Borrower, any Subsidiary nor any Affiliate thereof has received any notice of any claim, action, cause of action, investigation or demand by any person, entity, enterprise or government, or any political subdivision, intergovernmental body or agency, department or instrumentality thereof, alleging potential liability for, or a requirement to incur, material investigator costs, cleanup costs, response and/or remedial costs (whether incurred by a governmental entity or otherwise), natural resources damages, property damages, personal injuries, attorneys' fees and expenses, or fines or penalties, in each case arising out of, based on or resulting from (1) the presence, or release or threat of release into the environment, of any Materials of Environmental Concern at any location, whether or not owned by such person, or (2) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law or 21 Environmental Approval ("Environmental Claim") (other than Environmental Claims that have been fully and finally adjudicated or otherwise determined and all fines, penalties and other costs, if any, payable by the Security Parties in respect thereof have been paid in full or which are fully covered by insurance (including permitted deductibles)); and (iv) there are no circumstances that may prevent or interfere with such full compliance in the future; and (b) except as heretofore disclosed in writing to the Agent there is no Environmental Claim pending or threatened against the Borrower, any Subsidiary or any Affiliate thereof and there are no past or present actions, activities, circumstances, conditions, events or incidents, including, without limitation, the release, emission, discharge or disposal of any Materials of Environmental Concern, that could form the basis of any Environmental Claim against such persons the adverse disposition of which may result in a Material Adverse Effect; (p) Compliance with ISM Code. each Vessel and each Operator complies with the requirements of the ISM Code including (but not limited to) the maintenance and renewal of valid certificates pursuant thereto; (q) Threatened Withdrawal of DOC or SMC. there is no threatened or actual withdrawal of any Operator's DOC or SMC in respect of any Vessel; (r) Approved Business Plan. the Approved Business Plan has been duly approved by resolution of the Board of Directors of the Borrower, which approval has not been amended or rescinded and remains in full force and effect; (s) Liens. other than as disclosed on Schedule 6, there are no liens of any kind on any property owned by the Borrower or the Subsidiary; (t) Indebtedness. other than as disclosed in Schedule 6, the Borrower (and its Subsidiaries on a consolidated basis) has no long-term Indebtedness; and (u) Survival. all representations, covenants and warranties made herein and in any certificate or other document delivered pursuant hereto or in connection herewith shall survive the making of the Loan and the issuance of the Note. 3. THE LOAN 3.1 (a) Purpose. The Lenders shall make the Loan available to the Borrower for the purpose of refinancing the indebtedness currently secured against the First Vessels. (b) Making of the Loan. Each of the Lenders, relying upon each of the representations and warranties set out in Section 2, hereby severally and not jointly agrees with the Borrower that, subject to and upon the terms of this Agreement, it will on the Drawdown Date make the Loan available through the Administrative Agent to the Borrower in an aggregate amount not to exceed its Commitment ratably with the other Lenders according to their respective Commitments. 3.2 Drawdown Notice. The Borrower shall, at least three (3) Banking Days before the Drawdown Date, serve a notice (a "Drawdown Notice") substantially in the form of Exhibit M on the Administrative Agent which notice shall (a) be in writing addressed to the Administrative Agent, (b) be effective on receipt by the Administrative Agent, (c) specify the amount of the Loan to be 22 drawn, (d) specify the Banking Day on which the Loan is to be drawn and the initial Interest Period, (e) specify the disbursement instructions and (f) be irrevocable. 3.3 Effect of Drawdown Notice. The Drawdown Notice shall be deemed to constitute a warranty by the Borrower (a) that the representations and warranties stated in Section 2 (updated mutatis mutandis) are true and correct on and as of the date of the Drawdown Notice and will be true and correct on and as of the Drawdown Date as if made on such date, and (b) that no Event of Default nor any event which with the giving of notice or lapse of time or both would constitute an Event of Default has occurred and is continuing. 4. CONDITIONS 4.1 Conditions Precedent to Drawdown of the Loan. The obligation of the Lenders to make the Loan available to the Borrower under this Agreement shall be expressly subject to the following conditions precedent: (a) Corporate Authority. The Administrative Agent shall have received the following documents in form and substance satisfactory to the Administrative Agent: (i) copies, certified as true and complete by an officer of the Borrower, of the resolutions of the board of directors of the Borrower evidencing approval of this Agreement and the Note and authorizing an appropriate officer or officers or attorney-in-fact or attorneys-in-fact to execute the same on its behalf, or other evidence of such approvals and authorizations; (ii) copies, certified as true and complete by an officer of each Security Party (other than the Borrower), of the resolutions of the board of directors and shareholder, or management committee and member, as the case may be, thereof evidencing approval of those Security Documents to which it is to be a party and authorizing an appropriate officer or officers or attorney-in-fact or attorneys-in-fact to execute the same on its behalf, or other evidence of such approvals and authorizations; (iii) copies, certified as true and complete by an officer of the Borrower, of all documents evidencing any other necessary action (including actions by such parties thereto other than the Borrower as may be required by the Administrative Agent), approvals or consents with respect to this Agreement, the Note and the Security Documents; (iv) copies, certified as true and complete by an officer of the respective Security Party of the certificate of incorporation and by-laws, certificate of formation and operating agreement, or equivalent instruments thereof; (v) certificate of the Secretary of the Borrower certifying that it legally and beneficially owns, directly or indirectly, all of the issued and 23 outstanding capital stock, or limited liability company membership interests, as the case may be, of each of the other Security Parties and that such capital stock or membership interests are free and clear of any liens, claims, pledges or other encumbrances whatsoever other than as disclosed to the Administrative Agent in writing on or before the date hereof; (vi) certificate of the Secretary of each Security Party (other than the Borrower) certifying as to the record ownership of all of its issued and outstanding capital stock, or limited liability company membership interests, as the case may be; and (vii) certificates of the jurisdiction of incorporation or formation, as the case may be, of each Security Party as to the good standing thereof. (b) The Vessels. the Administrative Agent shall have received evidence satisfactory to it that: (i) each of the First Vessels is in the sole and absolute ownership of the relevant Guarantor as set forth in Schedule 3 and duly registered in such Guarantor's name under Liberian flag, unencumbered, save and except for the First Mortgage and the Facility C Mortgage recorded against it and as otherwise permitted thereby; (ii) each of the Third Vessels is in the sole and absolute ownership of the relevant Subordinated Guarantor as set forth in Schedule 4 and duly registered in such Subordinated Guarantor's name under Marshall Islands or Liberian flag, unencumbered, save and except for the Facility A Mortgage, the Facility C Mortgage and the Third Mortgage recorded against it and as permitted thereby; (iii) each Vessel is classed in the highest classification and rating for vessels of the same age and type with the respective classification society as set forth in Schedule 3 or Schedule 4, as the case may be, without any material outstanding recommendations; (iv) each of the Vessels is operationally seaworthy and in every way fit for its intended service; and (v) each of the Vessels is insured in accordance with the provisions of the Mortgage recorded against it and the requirements thereof in respect of such insurances have been complied with; (c) The Note. the Borrower shall have duly executed and delivered this Agreement and the Note; (d) Guarantor and Subordinated Guarantor Documents. each Guarantor and each Subordinated Guarantor shall have duly executed and delivered to the Administrative Agent: 24 (i) the Guaranty or the Subordinated Guaranty, as appropriate; (ii) the Mortgage over its Vessel(s); (iii) an Insurances Assignment with respect to its Vessel(s); (iv) an Earnings Assignment with respect to its Vessel(s); (v) its Assignment Notices; and (vi) Uniform Commercial Code Financing Statements for filing with the State and County of New York, the State of Connecticut, Fairfield County, Connecticut and in such other jurisdictions as the Administrative Agent may reasonably require; (e) Pledge Agreements. each of the Borrower and the SETTEBELLO Guarantor shall have duly executed and delivered to the Security Agent a Pledge Agreement and its Pledged Shares, and the SETTEBELLO Partner shall have duly executed and delivered to the Administrative Agent the SETTEBELLO Partner Consent; (f) Intercreditor Agreement. the Intercreditor Agreement shall have been executed and delivered to the Administrative Agent; (g) Vessel Appraisals. the Administrative Agent shall have received appraisals, in form and substance satisfactory to the Agents, of the Fair Market Value of each First Vessel showing the aggregate Fair Market Value of the First Vessels to be not less than one hundred percent (100%) of the Loan; (h) Guarantor and Subordinated Guarantor Solvency. the Administrative Agent shall have received a certificate of an officer of each Guarantor and of each Subordinated Guarantor confirming the representations and warranties with respect to solvency set forth in its Guaranty or its Subordinated Guaranty, as the case may be, and containing conclusions as to the solvency of such Guarantor or Subordinated Guarantor; (i) Environmental Claims. the Administrative Agent shall be satisfied that neither the Borrower nor any of its Subsidiaries is subject to any Environmental Claim which could have a Material Adverse Effect; (j) Fees. the Administrative Agent shall have received payment in full of all fees and expenses due to the Agents, the Arrangers and the Lenders under Section 13 and the Fee Letter; (k) Accounts. each Security Party shall have established an operating account with the Syndication Agent into which Assigned Moneys are to be paid; (l) Vessel Liens. the Administrative Agent shall have received evidence satisfactory to it and to its legal advisor that, save for the liens created by the Mortgages, the Assignments, the Facility A Mortgages, the other Facility A Security Documents, the Facility C Mortgages and the other Facility C Security Documents there are no liens, charges or encumbrances 25 of any kind whatsoever on any of the Vessels or on their respective earnings except as permitted hereby or by any of the Security Documents; (m) Approved Business Plan. not later than fourteen (14) days prior to the Drawdown Date, the Administrative Agent shall have received a copy of the Approved Business Plan, certified by the Secretary of the Borrower to be true and complete; (n) Facility A. the Facility A Lenders have advanced Facility A; (o) Charters; Pooling Agreements. the Borrower shall have delivered to the Administrative Agent true and complete copies of (i) all charters having a term longer than twelve (12) months from the date of execution and (ii) all vessel pooling agreements, in each case to which the Borrower or any Subsidiary is a party; and (p) Legal Opinions. the Administrative Agent shall have received legal opinions addressed to the Agents from (i) Fredric S. London, Esq., in-house counsel for the Security Parties, and (ii) Seward & Kissel LLP, special counsel to the Agents and Lenders, in each case in such form as the Administrative Agent may require, as well as such other legal opinions as the Administrative Agent shall have required as to all or any matters under the laws of the United States of America, the State of Delaware, the State of New York, the Republic of Liberia and the Republic of the Marshall Islands covering the representations and conditions which are the subjects of Sections 2 and 4.1. 4.2 Further Conditions Precedent. The obligation of the Lenders to make the Loan available to the Borrower under this Agreement shall be expressly and separately subject to the following further conditions precedent on the Drawdown Date: (a) the Administrative Agent having received a Drawdown Notice in accordance with the terms of Section 3.2; (b) the representations stated in Section 2 (updated mutatis mutandis to such date) being true and correct as if made on and as of that date; (c) no Event of Default having occurred and being continuing and no event having occurred and being continuing which, with the giving of notice or lapse of time, or both, would constitute an Event of Default; (d) the Administrative Agent being satisfied that no change in any applicable laws, regulations, rules or in the interpretation thereof shall have occurred which make it unlawful for any Security Party to make any payment as required under the terms of this Agreement, the Note, the Security Documents or any of them; and (e) there having been no Material Adverse Effect since the date hereof. 4.3 Breakfunding Costs. In the event that, on the date specified for the making of the Loan in the Drawdown Notice, the Lenders shall not be obliged under this Agreement to make the Loan available, the Borrower shall indemnify and hold the Lenders fully harmless against any losses which the Lenders (or any thereof) may sustain as a result of borrowing or agreeing to borrow funds 26 to meet the drawdown requirement of the Drawdown Notice and the certificate of the relevant Lender or Lenders shall, absent manifest error, be conclusive and binding on the Borrower as to the extent of any such losses. 4.4 Satisfaction after Drawdown. Without prejudice to any of the other terms and conditions of this Agreement, in the event the Lenders, in their sole discretion, advance the Loan prior to the satisfaction of all or any of the conditions referred to in Sections 4.1 or 4.2, the Borrower hereby covenants and undertakes to satisfy or procure the satisfaction of such condition or conditions within fourteen (14) days after the Drawdown Date (or such longer period as the Lenders, in their sole discretion, may agree). 5. REPAYMENT AND PREPAYMENT 5.1 Repayment. On the Final Payment Date, the Borrower shall repay in full the then outstanding principal balance of the Loan, together with accrued but unpaid interest and any other amounts owing by the Borrower or any other Security Party to any Arranger, Agent or Lender pursuant to this Agreement, the Note or any Security Document. 5.2 Voluntary Prepayment; no re-borrowing. The Borrower may prepay, upon five (5) Banking Days written notice, the Loan or any portion thereof. Each prepayment shall be in a minimum amount of One Million Dollars ($1,000,000) plus any One Million Dollar ($1,000,000) multiple thereof or the full amount of the Loan. No part of the Loan will be available for re-borrowing. 5.3 Mandatory Prepayment; Sale or Loss of Vessel. On (i) any sale of a Vessel (which in any event shall require the prior consent of the Agents) or (ii) the earlier of (x) ninety (90) days after the Total Loss of a Vessel or (y) the date on which the insurance proceeds in respect of such loss are received by the Borrower (or a Guarantor or Subordinated Guarantor) or the Security Agent as assignee thereof, such proceeds shall be applied as follows: (a) First Vessel. in respect of a First Vessel immediately to repayment of the Loan in accordance with Section 8.3, provided, however, that in respect of the sale of either of the SETTEBELLO or COLORADO, after repayment of the indebtedness secured by the mortgages against them in favor of CBK, (i) if such sale occurs prior to the Drawdown Date, up to $8,000,000 of such sale proceeds may be retained by the Borrower and (ii) if such sales occur on or after the Drawdown Date, up to 30% of such sale proceeds may be retained by the Borrower; (b) Third Vessel. in respect of a Third Vessel first in accordance with the terms of the Facility A Loan Agreement, if any amounts thereunder remain outstanding, otherwise in accordance with the Facility C Agreement, and thereafter any remaining proceeds shall be applied to repayment of the Loan in accordance with Section 9.1(q). 5.4 Mandatory Prepayment; New Capital. In the event that the Borrower or any Subsidiary issues securities whether debt or equity, after the date thereof, the proceeds (which proceeds must be entirely cash), net of reasonable expenses directly related to such issuance, shall be applied immediately to repayment of the Loan in accordance with Section 8.3; provided, however, that provided that the Designated Vessel is the SOYANG, and the Designated Vessel Conditions are met, the Borrower may apply up to $10.0 million from the proceeds of issuance after the Drawdown Date of equity securities of the Borrower to making the SOYANG Investment. 27 5.5 Demand Conversion. In the event that the Administrative Agent determines that (a) a Material Adverse Effect has occurred, (b) any Planned Reduction Amount has not been paid in full to the Administrative Agent on or before the corresponding Planned Reduction Date, or (c) the Borrower has failed to meet any objective specified in the Approved Business Plan by the target date thereof specified in the Approved Business Plan to the satisfaction of the Majority Lenders, then the Administrative Agent may on such date or any time thereafter convert the Loan to a demand loan by sending notice to the Borrower. Upon the sending of such a notice, the Loan shall be converted to a demand loan, and full repayment of the Loan and all other obligations of the Borrower or any other Security Party under this Agreement, the Note or any Security Document shall be due upon demand by the Administrative Agent. 5.6 Interest and Costs with Prepayments. Any repayment or prepayment of the Loan made pursuant to this Agreement (including, without limitation, those made pursuant to Sections 5 and 9) shall be subject to the condition that on the date of prepayment all accrued interest to the date of such prepayment shall be paid in full with respect to the Loan or portions thereof being prepaid, together with any and all actual costs or expenses incurred by any Lender in connection with any breaking of funding (as certified by such Lender, which certification shall, absent any manifest error, be conclusive and binding on the Borrower). 6. INTEREST AND RATE 6.1 Applicable Rate. The Loan shall bear interest at the Applicable Rate which shall be the rate per annum which is equal to the aggregate of (a) LIBOR for the relevant Interest Period plus (b) the Margin. The Applicable Rate shall be determined by the Administrative Agent two Banking Days prior to the first day of the relevant Interest Period. The Administrative Agent shall promptly notify the Borrower in writing of the Applicable Rate as and when determined. Each such determination, absent manifest error, shall be conclusive and binding upon the Borrower. 6.2 Default Rate. Any amounts due under this Agreement, not paid when due, whether by acceleration or otherwise, shall bear interest thereafter from the due date thereof until the date of payment at a rate per annum equal to (i) the Prime Rate (as notified to the Borrower by the Administrative Agent), plus (ii) the Margin, plus (iii) two percent (2%) (the "Default Rate"). Following the occurrence of any Event of Default, the Administrative Agent, upon instruction of the Majority Lenders, may deliver a notice to the Borrower advising the Borrower than an Event of Default has occurred. From the date of any such notice until each such Event of Default is cured to the satisfaction of the Majority Lenders, the Loan shall bear interest at the Default Rate. 6.3 Interest Periods. The Borrower shall give the Administrative Agent an Interest Notice specifying the Interest Period selected at least three (3) Banking Days prior to the end of any then existing Interest Period. If at the end of any then existing Interest Period the Borrower fails to give an Interest Notice the relevant Interest Period shall be three (3) months. The Borrower's right to select an Interest Period shall be subject to the restriction that no selection of an Interest Period shall be effective unless each Lender is satisfied that the necessary funds will be available to such Lender for such period and that no Event of Default or event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default shall have occurred and be continuing. 6.4 Interest Payments. Accrued interest on the Loan shall be payable in arrears on the last day of each Interest Period, except that if the Borrower shall select an Interest Period in excess of three (3) 28 months, accrued interest shall be payable during such Interest Period on each three (3) month anniversary of the commencement of such Interest Period and upon the end of such Interest Period. 7. PAYMENTS 7.1 Place of Payments, No Set Off. All payments to be made hereunder by the Borrower shall be made to the Syndication Agent, not later than 11 a.m. New York time (any payment received after 11 a.m. New York time shall be deemed to have been paid on the next Banking Day) on the due date of such payment, at its office located at 200 Park Avenue, New York, New York 10166 or to such other office of the Syndication Agent as the Syndication Agent may direct, without set-off or counterclaim and free from, clear of, and without deduction for, any Taxes, provided, however, that if the Borrower shall at any time be compelled by law to withhold or deduct any Taxes from any amounts payable to the Lenders hereunder, then the Borrower shall pay such additional amounts in Dollars as may be necessary in order that the net amounts received after withholding or deduction shall equal the amounts which would have been received if such withholding or deduction were not required and, in the event any withholding or deduction is made, whether for Taxes or otherwise, the Borrower shall promptly send to the Administrative Agent such documentary evidence with respect to such withholding or deduction as may be required from time to time by the Lenders. 7.2 Tax Credits. If any Lender obtains the benefit of a credit against the liability thereof for federal income taxes imposed by any taxing authority for all or part of the Taxes as to which the Borrower has paid additional amounts as aforesaid (and each Lender agrees to use its best efforts to obtain the benefit of any such credit which may be available to it, provided it has knowledge that such credit is in fact available to it), then such Lender shall reimburse the Borrower for the amount of the credit so obtained. Each Lender agrees that in the event that Taxes are imposed on account of the situs of its loans hereunder, such Lender, upon acquiring knowledge of such event, shall, if commercially reasonable, shift such loans on its books to another office of such Lender so as to avoid the imposition of such Taxes. 7.3 Computations; Banking Days. (a) All computations of interest and fees shall be made by the Agents or the Lenders, as the case may be, on the basis of a 360-day year, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which interest or fees are payable. Each determination by the Agents or the Lenders of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error. (b) Whenever any payment hereunder or under the Note shall be stated to be due on a day other than a Banking Day, such payment shall be due and payable on the next succeeding Banking Day unless the next succeeding Banking Day falls in the following calendar month, in which case it shall be payable on the immediately preceding Banking Day. 8. EVENTS OF DEFAULT 8.1 Events of Default. The occurrence of any of the following events shall be an Event of Default: (a) Non-Payment of Principal. any payment of principal is not paid when due; or (b) Non-Payment of Interest or Other Amounts. any interest or any other amount becoming payable to the Agents, the Arrangers or any Lender under this Agreement, under the 29 Note, or under any of the Security Documents is not paid on the due date or date of demand (as the case may be), and such default continues unremedied for a period of five (5) Banking Days; or (c) Representations. any representation, warranty or other statement made by the Borrower in this Agreement or by any Security Party in any of the Security Documents or in any other instrument, document or other agreement delivered in connection herewith or therewith proves to have been untrue or misleading in any material respect as at the date as of which made or confirmed; or (d) Mortgage. there is an event of default under any Mortgage; or (e) Covenants. any Security Party defaults in the due and punctual observance or performance of any other term, covenant or agreement contained in this Agreement, in the Note, in any of the Security Documents or in any other instrument, document or other agreement delivered in connection herewith or therewith, or it becomes impossible or unlawful for any Security Party to fulfill any such term, covenant or agreement or there occurs any other event which constitutes a default under this Agreement, under the Note or under any of the Security Documents, in each case other than an Event of Default referred to elsewhere in this Section 8.1, and such default, impossibility and/or unlawfulness, in the reasonable opinion of the Majority Lenders, could have a material adverse effect on the Lenders' rights hereunder, under the Note or under the Security Documents or on the Lenders' right to enforce this Agreement, the Note, and/or the Security Documents, and continues unremedied or unchanged, as the case may be, for a period of thirty (30) days; or (f) Indebtedness. any Security Party, any Subsidiary or any Affiliate shall default in the payment when due (subject to any applicable grace period) of any Indebtedness or of any other indebtedness, in either case, in the outstanding principal amount equal to or exceeding Five Hundred Thousand Dollars ($500,000) or such Indebtedness or indebtedness is, or by reason of such default is subject to being, accelerated or any party becomes entitled to enforce the security for any such Indebtedness or indebtedness and such party shall take steps to enforce the same, unless such default or enforcement is being contested in good faith and by appropriate proceedings or other acts and the Security Party, Subsidiary or Affiliate, as the case may be, shall set aside on its books adequate reserves with respect thereto; or (g) Ownership of Guarantors and Subordinated Guarantors. the Borrower shall cease to own (except as otherwise expressly permitted by this Agreement), directly or indirectly, one hundred percent (100%) of any of the Guarantors or Subordinated Guarantors; the SETTEBELLO Guarantor shall cease to own, directly or indirectly, 49.0% of the SETTEBELLO Owner; or (h) Bankruptcy. the Borrower or any Affiliate commences any proceeding under any reorganization, arrangement or readjustment of debt, dissolution, winding up, adjustment, composition, bankruptcy or liquidation law or statute of any jurisdiction, whether now or hereafter in effect (a "Proceeding"), or there is commenced against any thereof any Proceeding and such Proceeding remains undismissed or unstayed for a period of thirty (30) days or any receiver, trustee, liquidator or sequestrator of, or for, any thereof or any substantial portion of the property of any thereof is appointed and is not discharged within a period of thirty (30) days or any thereof by any act indicates consent to or approval of or acquiescence in any Proceeding or the appointment of any 30 receiver, trustee, liquidator or sequestrator of, or for, itself or of, or for, any substantial portion of its property; or (i) Termination of Operations; Sale of Assets. except as expressly permitted under this Agreement, any Security Party ceases its operations or sells or otherwise disposes of all or substantially all of its assets (other than such a sale by one Guarantor to another or by one Subordinated Guarantor to another) or all or substantially all of the assets of any Security Party are seized or otherwise appropriated; or (j) Judgments. any judgment or order is made the effect whereof would be to render ineffective or invalid this Agreement, the Note or any of the Security Documents or any material provision thereof, or the Borrower or any Security Party asserts that any such agreement or provision thereof is invalid; or (k) Inability to Pay Debts. any Security Party is unable to pay or admits its inability to pay its debts as they fall due or a moratorium shall be declared in respect of any material indebtedness of any Security Party; or (l) Change in Financial Position. any change in the financial position of any Security Party which, in the reasonable opinion of the Majority Lenders, shall have a Material Adverse Effect; or (m) Change in Control. a Change of Control shall occur with respect to the Borrower; or (n) ERISA Debt. (i) the Borrower or any ERISA Affiliate fails to pay when due an amount or amounts aggregating in excess of $1,000,000 which it or they have become liable to pay under Title IV of ERISA or (ii) the Borrower or any ERISA Affiliate, individually or collectively, incurs, or should reasonably expect to incur, any Withdrawal Liability or liability upon the happening of a Termination Event and the aggregate of all such Withdrawal Liabilities and such other liabilities exceeds $10,000,000; or (o) Approved Business Plan. at any time the Board of Directors of the Borrower passes any resolution amending or rescinding any part of the Approved Business Plan or the Borrower otherwise rejects or rescinds any part of the Approved Business Plan; or (p) Cross-Default. any Event of Default (as defined in the Facility A Loan Agreement or the Facility C Agreement) or event which, with the giving of notice or passage of time on both, would constitute such an Event of Default, occurs or the Borrower, any Guarantor or any Subordinated Guarantor defaults under any material contract or agreement to which it is a party or by which it is bound. Upon and during the continuance of any Event of Default, the Lenders' obligation to make the Loan available shall cease and the Administrative Agent on the instructions of the Majority Lenders may, by notice to the Borrower, declare the entire unpaid balance of the then outstanding Loan, accrued interest and any other sums payable by the Borrower hereunder or under the Note due and payable, whereupon the same shall forthwith be due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived; provided that upon the happening of 31 an event specified in subsections (h) or (k) of this Section 8.1 with respect to the Borrower, the Note shall be immediately due and payable without declaration or other notice to the Borrower. In such event, the Lenders may proceed to protect and enforce their rights by action at law, suit in equity or in admiralty or other appropriate proceeding, whether for specific performance of any covenant contained in this Agreement, in the Note or in any Security Document, or in aid of the exercise of any power granted herein or therein, or the Lenders may proceed to enforce the payment of the Note or to enforce any other legal or equitable right of the Lenders, or proceed to take any action authorized or permitted under the terms of any Security Document or by applicable law for the collection of all sums due, or so declared due, on the Note, including, without limitation, the right to appropriate and hold or apply (directly, by way of set-off or otherwise) to the payment of the obligations of the Borrower to the Lenders hereunder and/or under the Note (whether or not then due) all moneys and other amounts of the Borrower then or thereafter in possession of any Lender, the balance of any deposit account (demand or time, mature or unmatured) of the Borrower then or thereafter with any Lender and every other claim of the Borrower then or thereafter against any of the Lenders. 8.2 Indemnification. The Borrower agrees to, and shall, indemnify and hold the Agents, the Arrangers and the Lenders harmless against any loss, as well as against any reasonable costs or expenses (including reasonable legal fees and expenses), which any of the Agents, the Arrangers or the Lenders sustains or incurs as a consequence of any default in payment of the principal amount of the Loan, interest accrued thereon or any other amount payable hereunder, under the Note or under any Security Documents including, but not limited to, all actual losses incurred in liquidating or re-employing fixed deposits made by third parties or funds acquired to effect or maintain the Loan or any portion thereof. Any Lenders' certification of such costs and expenses shall, absent any manifest error, be conclusive and binding on the Borrower. 8.3 Application of Moneys. Except as otherwise provided in any Security Document, all moneys received by the Agents, the Arrangers or the Lenders under or pursuant to this Agreement, the Note or any of the Security Documents after the happening of any Event of Default (unless cured to the satisfaction of the Majority Lenders) shall be applied by the Agents in the following manner: (a) first, in or towards the payment or reimbursement of any expenses or liabilities incurred by the Agents, the Arrangers or the Lenders in connection with the ascertainment, protection or enforcement of its rights and remedies hereunder, under the Note and under any of the Security Documents, (b) secondly, in or towards payment of any interest owing in respect of the Loan, (c) thirdly, in or towards repayment of principal of the Loan, (d) fourthly, in or towards payment of all other sums which may be owing to the Agents, the Arrangers or the Lenders under this Agreement, under the Note, under the Fee Letter or under any of the Security Documents, and (e) fifthly, the surplus (if any) shall be paid to the Borrower or to whosoever else may be entitled thereto. 32 9. COVENANTS 9.1 Affirmative Covenants. The Borrower hereby covenants and undertakes with the Lenders that, from the date hereof and so long as any principal, interest or other moneys are owing in respect of this Agreement, under the Note or under any of the Security Documents, the Borrower will: (a) Performance of Agreements. duly perform and observe, and procure the observance and performance by all other parties thereto (other than the Lenders) of, the terms of this Agreement, the Note and the Security Documents; (b) Notice of Default, etc. promptly upon obtaining knowledge thereof, inform the Administrative Agent of the occurrence of (a) any Event of Default or of any event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default, (b) any litigation or governmental proceeding pending or threatened against it or against any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect, (c) the withdrawal of any Vessel's rating by its Classification Society or the issuance by the Classification Society of any material recommendation or notation affecting class and (d) any other event or condition which is reasonably likely to have a Material Adverse Effect; (c) Obtain Consents. without prejudice to Section 2.1 and this Section 9.1, obtain every consent and do all other acts and things which may from time to time be necessary or advisable for the continued due performance of all its and the other Security Parties' respective obligations under this Agreement, under the Note and under the Security Documents; (d) Financial Information. deliver to each Lender: (i) as soon as available but not later than ninety (90) days after the end of each fiscal year of the Borrower, complete copies of the consolidated financial reports of the Borrower and its Subsidiaries (together with a Compliance Certificate), all in reasonable detail, which shall include at least the consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such year and the related consolidated statements of income and sources and uses of funds for such year, which shall be audited reports prepared by an Acceptable Accounting Firm; (ii) as soon as available but not less than forty-five (45) days after the end of each of the first three quarters of each fiscal year of the Borrower, a quarterly interim consolidated balance sheet of the Borrower and its Subsidiaries and the related consolidated profit and loss statements and sources and uses of funds (together with a Compliance Certificate), all in reasonable detail, unaudited, but certified to be true and complete by the chief financial officer of the Borrower; (iii) within ten (10) days of the filing thereof, copies of all registration statements and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) and other material filings which the Borrower shall have 33 filed with the Securities and Exchange Commission or any similar governmental authority; (iv) promptly upon the mailing thereof to the shareholders of the Borrower, copies of all financial statements, reports, proxy statements and other communications provided to the Borrower's shareholders; (v) within ten (10) days of the Borrower's receipt thereof, copies of all audit letters or other correspondence from any external auditors including material financial information in respect of the Borrower; (vi) at any time upon the request of any Agent, a Compliance Certificate; and (vii) such other statements (including, without limitation, monthly consolidated statements of operating revenues and expenses), lists of assets and accounts, budgets, forecasts, reports and other financial information with respect to its business as the Administrative Agent may from time to time reasonably request, certified to be true and complete by the chief financial officer of the Borrower; (e) Corporate Existence. do or cause to be done, and procure that each Subsidiary shall do or cause to be done, all things necessary to preserve and keep in full force and effect its corporate existence, or limited liability company existence, as the case may be, and all licenses, franchises, permits and assets necessary to the conduct of its business; (f) Books and Records. at all times keep, and cause each Subsidiary to keep, proper books of record and account into which full and correct entries shall be made in accordance with GAAP; (g) Taxes and Assessments. pay and discharge, and cause each Subsidiary to pay and discharge, all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or property prior to the date upon which penalties attach thereto; provided, however, that it shall not be required to pay and discharge, or cause to be paid and discharged, any such tax, assessment, charge or levy so long as the legality thereof shall be contested in good faith and by appropriate proceedings or other acts and it shall set aside on its books adequate reserves with respect thereto; (h) Inspection. allow, and cause each Subsidiary to allow, any representative or representatives designated by any Agent, subject to applicable laws and regulations, to visit and inspect any of its properties, and, on request, to examine its books of account, records, reports and other papers and to discuss its affairs, finances and accounts with its officers, all at such reasonable times and as often as any Agent reasonably requests; (i) Compliance with Statutes, Agreements, etc. do or cause to be done, and cause each Subsidiary to do and cause to be done, all things necessary to comply with all material contracts or agreements to which it or any Subsidiary is a party, and all material laws, and the rules and regulations thereunder, applicable to the Borrower or such Subsidiary, including, without 34 limitation, those laws, rules and regulations relating to employee benefit plans and environmental matters; (j) Environmental Matters. promptly upon the occurrence of any of the following conditions, provide to the Administrative Agent a certificate of a chief executive officer thereof, specifying in detail the nature of such condition and its proposed response or the response of its Environmental Affiliates: (a) its receipt or the receipt by any other Security Party or any Environmental Affiliates of the Borrower or any other Security Party of any written communication whatsoever that alleges that such person is not in compliance with any applicable Environmental Law or Environmental Approval, if such noncompliance could reasonably be expected to have a Material Adverse Effect, (b) knowledge by it, or by any other Security Party or any Environmental Affiliates of the Borrower or any other Security Party that there exists any Environmental Claim pending or threatened against any such person, which could reasonably be expected to have a Material Adverse Effect, or (c) any release, emission, discharge or disposal of any material that could form the basis of any Environmental Claim against it, any other Security Party or against any Environmental Affiliates of the Borrower or any other Security Party, if such Environmental Claim could reasonably be expected to have a Material Adverse Effect. Upon the written request by the Agent, it will submit to the Agent at reasonable intervals, a report providing an update of the status of any issue or claim identified in any notice or certificate required pursuant to this subsection; (k) ERISA. forthwith upon learning of the occurrence of any material liability of the Borrower, any Subsidiary or any ERISA Affiliate pursuant to ERISA in connection with the termination of any Plan or withdrawal or partial withdrawal of any multi-employer plan (as defined in ERISA) or of a failure to satisfy the minimum funding standards of Section 412 of the Code or Part 3 of Title I of ERISA by any Plan for which the Borrower, any Subsidiary or any ERISA Affiliate is plan administrator (as defined in ERISA), furnish or cause to be furnished to the Lenders written notice thereof; (l) Vessel Management. cause each of the Vessels to be managed both commercially and technically by the Borrower, a wholly-owned subsidiary thereof or its existing manager; (m) Funded Debt to Total Capitalization Ratio. maintain at all times on a consolidated basis a ratio of Funded Debt to Total Capitalization of not more than 0.6 to 1 provided, that for purposes of compliance with this covenant only, Funded Debt shall (i) exclude unsecured, subordinated debt, and (ii) include the present value of the Borrower's (or any of the Borrower's Subsidiaries') liability for all payments under synthetic leases other than the Columbia Lease; (n) Cash. maintain at all times on a consolidated basis readily available cash and/or Cash Equivalents as follows: (i) through December 31, 2000, not less than Ten Million Dollars ($10,000,000); (ii) thereafter, through June 30, 2001, not less than Fifteen Million Dollars ($15,000,000); 35 (iii) thereafter, not less than Twenty Million Dollars ($20,000,000); (o) Consolidated Net Worth. maintain at all times a Consolidated Net Worth of not less than One Hundred Sixty Million Dollars ($160,000,000) plus 50% of the Borrower's positive net income (on a consolidated basis) earned after December 31, 1999 plus 100% of the net proceeds received by the Borrower (or any of the Borrower's Subsidiaries) from the issuance of equity securities after the Drawdown Date; (p) EBITDA to Interest Expense. maintain a ratio of EBITDA to Interest Expense as follows: (i) through December 31, 2000, not less than 1.1 to 1.0; (ii) thereafter, through December 31, 2002, not less than 1.75 to 1.0; (iii) thereafter, not less than 2.5 to 1.0; measured not less than quarterly, in each instance based on the four most recent fiscal quarters for which financial information is available; (q) Use of Excess Cash. apply all cash and Cash Equivalents of the Borrower (on a consolidated basis), proceeds from the issuance of securities by the Borrower, any Guarantor or any Subordinated Guarantor, and (subject to Section 5.3, Mandatory Prepayment; Sale or Loss of Vessel) proceeds from the sale of any vessels by the Borrower, any Guarantor or any Subordinated Guarantor (net of indebtedness secured by a mortgage on such vessel) as follows: (A) to the extent the Borrower chooses to do so, to retention by the Borrower as cash or Cash Equivalents up to $20.0 million until Facility C has been repaid or cancelled, and thereafter up to $30.0 million; and then (B) to prepayment of Facility C until Facility C is fully repaid; and then (C) to prepayment of Facility B until Facility B is fully repaid; and then (D) to prepayment of the Facility A Loan until the ratio of the balance of the Facility A Loan to the aggregate Fair Market Value of the Third Vessels is no greater than 0.65; and then (E) to the Borrower. (r) Brokerage Commissions, etc. the Borrower agrees to indemnify and hold the Arrangers, the Agents and the Lenders harmless from any claim for any brokerage commission, fee, or compensation from any broker or third party resulting from the transactions contemplated hereby; 36 (s) Deposit Accounts; Assignment. maintain, and procure that each other Security Party shall maintain its operating accounts with the Syndication Agent and shall procure, and shall cause each other Security Party to procure, that all earnings of any Vessels shall be paid into such operating accounts and the Borrower, and by its execution of the Consent and Agreement hereto, each other Security Party, hereby pledges, assigns and grants to the Syndication Agent, for the benefit of the Lenders, a security interest in all funds from time to time in such accounts (such security interest in accounts of the Subordinated Guarantors being subject to the terms of the Intercreditor Agreement); (t) Future Guaranties. procure that all Subsidiaries of the Borrower (other than Designated Subsidiaries, and only for so long as remaining a Designated Subsidiary), shall execute a Guaranty (or, if and only if such Subsidiary executes a Guaranty as defined in the Facility A Loan Agreement or the Facility C Agreement, a Subordinated Guaranty) and other relevant Security Documents in respect of any vessel owned thereby within thirty (30) days of formation, acquisition or otherwise becoming a Subsidiary, or ceasing to be a Designated Subsidiary, of the Borrower; (u) Future Pledge Agreements. concurrent with the execution of any Guaranty or Subordinated Guaranty pursuant to Section 9.1(t), execute and deliver to the Security Agent a Pledge Agreement and the Pledged Shares in respect of the relevant Guarantor or Subordinated Guarantor, unless the Borrower's ownership interest therein is subject to a Facility A Pledge Agreement; and (v) Insurance. maintain, and cause each Subsidiary to maintain, with financially sound and reputable insurance companies, insurance on all their respective properties and against all such risks and in at least such amounts as are usually insured against by companies of established reputation engaged in the same or similar business from time to time 9.2 Negative Covenants. The Borrower hereby covenants and undertakes with the Lenders that, from the date hereof and so long as any principal, interest or other moneys are owing in respect of this Agreement, under the Note or under any of the Security Documents, the Borrower will not, and will procure that no other Subsidiary, to the extent applicable, will, without prior the written consent of the Administrative Agent (or the Majority Lenders or all of the Lenders if required by Section 15.8): (a) Liens. create, assume or permit to exist, any mortgage, pledge, lien, charge, encumbrance or any security interest whatsoever upon any Collateral or other property except: (i) liens disclosed in Schedule 6; (ii) liens on the Designated Vessel securing the Designated Vessel Indebtedness; (iii) liens for taxes not yet payable for which adequate reserves have been maintained; (iv) the Mortgages, the Assignments, and other liens in favor of the Security Agent; 37 (v) liens, charges and encumbrances against their respective Vessels permitted to exist under the terms of the Mortgages; (vi) pledges of certificates of deposit or other cash collateral securing any Security Party's reimbursement obligations in connection with letters of credit now or hereafter issued for the account of such Security Party in connection with the establishment of the financial responsibility of the Security Parties under 33 C.F.R. Part 130 or 46 C.F.R. Part 540, as the case may be, as the same may be amended or replaced; (vii) pledges or deposits to secure obligations under workmen's compensation laws or similar legislation, deposits to secure public or statutory obligations, warehousemen's or other like liens, or deposits to obtain the release of such liens and deposits to secure surety, appeal or customs bonds on which the Borrower, any of the Guarantors or any of the Subordinated Guarantors is the principal, as to all of the foregoing, only to the extent arising and continuing in the ordinary course of business; and (viii) other liens, charges and encumbrances incidental to the conduct of the business of each such party, the ownership of any such party's property and assets and which do not in the aggregate materially detract from the value of each such party's property or assets or materially impair the use thereof in the operation of its business; (b) Change in Business. materially change the nature of its business or commence any business materially different from its current business; (c) Sale or Pledge of Shares. sell, assign, transfer, pledge or otherwise convey or dispose of any of the shares (including by way of spin-off, installment sale or otherwise) of the capital stock, or limited liability company interests, as the case may be, of any Guarantor or Subordinated Guarantor other than as may be allowed in accordance with the Pledge Agreement or the Facility A Pledge Agreement; (d) Sale of Assets. sell, or otherwise dispose of, any Vessel (other than the Designated Vessel, sales of Third Vessels made in accordance with the terms of the Facility A Loan Agreement and sales of First Vessels the proceeds of which are applied in accordance with Section 5.3, Mandatory Prepayment; Sale or Loss of Vessel) or any other asset (including by way of spin-off, installment sale or otherwise) which is substantial in relation to its assets taken as a whole including without limitation, any material foreign Subsidiary or foreign assets or interest in an Affiliate, other than such sales by one Guarantor to another or by one Subordinated Guarantor to another; (e) Changes in Offices or Names. change the location of the chief executive office of any Security Party, the office of the chief place of business any such parties, the office of the Security Parties in which the records relating to the earnings or insurances of the Vessels are kept unless the Lenders shall have received sixty (60) days prior written notice of such change; 38 (f) Consolidation and Merger. consolidate with, or merge into, any corporation or other entity, or merge any corporation or other entity into it provided, however that any Guarantor shall be permitted to merge into or consolidate with any other Guarantor, and any Subordinated Guarantor shall be permitted to merge into or consolidate with any other Subordinated Guarantor, so long as no Event of Default would result therefrom; (g) Chartering-in. other than pursuant to charters disclosed in Schedule 6, charter, as charterer, any one vessel for a charter period exceeding twelve (12) months; or permit any vessel to be chartered into any vessel pool (in which the Borrower or any Subsidiary is a member) for a term exceeding three (3) months; (h) Chartering-out. and will procure that each other Subsidiary will not, other than pursuant to charters disclosed in Schedule 6, charter, as owner, any vessel (other than the Designated Vessel) on demise or bareboat charter, or on time charter for a period in excess of twelve (12) months; (i) Vessel Pooling. and will procure that each Subsidiary will not, enter any vessel into any vessel pooling arrangement other than as disclosed in Schedule 6, or at any time amend any vessel pooling agreement; (j) Distributions on Stock. in the case of the Borrower only, directly or indirectly declare or pay any dividend or make any distribution on its capital stock (a "Restricted Payment"); (k) Indebtedness. incur any Indebtedness, provided, however, that if no Event of Default has occurred and is continuing, and that the other Designated Vessel Conditions are met, the Designated Vessel Owner may incur the Designated Vessel Indebtedness at the time of the Designated Vessel Acquisition; (l) Investments. make any Investment provided, however, that if no Event of Default has occurred and is continuing, the Borrower may make the SOYANG Investment at the time the SOYANG is acquired; (m) Capital Expenditures. make any Capital Expenditure (other than as provided in (l) above); (n) Deposit Accounts. other than as disclosed in Schedule 6, maintain any deposit account other than with the Syndication Agent; provided, that this covenant shall not apply to the Designated Vessel Owner; and (o) Change Fiscal Year. change its fiscal year. 9.3 Subsidiary Negative Covenants. The Borrower hereby covenants and undertakes with the Lenders that, from the date hereof and so long as any principal, interest or other moneys are owing in respect of this Agreement, under the Note or under any of the Security Documents, the Borrower will procure that no Subsidiary will: (a) Limitations on Ability to Make Distributions. create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any 39 Subsidiary (other than a Designated Subsidiary) to (i) pay dividends or make any other distributions on its capital stock or limited liability company interests, as the case may be, to the Borrower or any Subsidiary or pay any Indebtedness owed to the Borrower, (ii) make any loans or advances to the Borrower, or (iii) transfer any of its property or assets to the Borrower; (b) Use of Corporate Funds. (except for the SOYANG Investment and Permitted Drydocking Costs) pay out any funds to any company or person except (a) in the ordinary course of business in connection with the management of the business of the Borrower and its Subsidiaries, including the operation and/or repair of the Vessels and other vessels owned or operated by such parties and (b) the servicing of the Indebtedness permitted hereunder (but excluding, any prepayments of any Indebtedness other than the Loan); (c) Issuance of Shares. issue or dispose of any shares of its own capital stock or limited liability company interests, as the case may be, to any person other than the Borrower; or 9.4 First Vessel Valuations. For inclusion with each Compliance Certificate delivered pursuant to Section 9.1(d)(i), and each Compliance Certificate in respect of the second quarter of each fiscal year delivered pursuant to Section 9.1(d)(ii), and in any event upon the request of any Agent, the Borrower shall obtain appraisals of the Fair Market Value of the First Vessels. The first three such valuations in any year are to be at the Borrower's cost, provided, that following and during the continuance of any Event of Default, all such valuations are to be at the Borrower's cost. In the event the Borrower fails or refuses to obtain the valuations requested pursuant to this Section 9.4 within ten (10) days of an Agent's request therefor, any Agent will be authorized to obtain such valuations, at the Borrower's cost, from three independent shipbrokers selected by the Agents, which valuations shall be deemed the equivalent of valuations duly obtained by the Borrower pursuant to this Section 9.4, but any Agent's actions in doing so shall not excuse any default of the Borrower under this Section 9.4. 9.5 Asset Maintenance. If at any time after the Drawdown Date but prior to December 15, 2000, the aggregate Fair Market Value of the First Vessels then mortgaged to the Security Agent (based upon valuations obtained pursuant to Section 9.4) (together with the value of any additional collateral theretofore provided under this Section) is less than one hundred percent (100%) of the Loan, or if at any time after December 15, 2000 such aggregate Fair Market Value is less than one hundred ten percent (110%) of the Loan (in either such case, such percentage herein called the "Required Percentage"), the Borrower shall, within a period of thirty (30) days following receipt by the Borrower of written notice from the Administrative Agent notifying the Borrower of such shortfall and specifying the amount thereof (which amount shall, in the absence of manifest error, be deemed to be conclusive and binding on the Borrower), either (a) deliver to the Security Agent, upon the Administrative Agent's request, such additional collateral as may be satisfactory to the Lenders in their sole discretion of sufficient value to restore compliance with the Required Percentage or (b) the Borrower shall prepay such amount of the Loan (together with interest thereon and any other monies payable in respect of such prepayment pursuant to Section 5.6) as shall result in the Fair Market Value of the Vessels then mortgaged to the Security Agent being not less than the Required Percentage. 9.6 Inspection and Survey Reports. If the Lenders shall so request, the Borrowers shall provide the Lenders with copies of all internally generated inspection or survey reports on the Vessels. 40 10. ASSIGNMENT. This Agreement shall be binding upon, and inure to the benefit of, the Borrower and the Lenders, the Arrangers and the Agents and their respective successors and assigns, except that the Borrower may not assign any of its rights or obligations hereunder. Each Lender shall be entitled to assign its rights and obligations under this Agreement or grant participation(s) in the Loan to any subsidiary, holding company or other affiliate of such Lender, to any subsidiary or other affiliate company of any thereof or, with the consent of the Borrower and the Agents, not to be unreasonably withheld, to any other bank or financial institution (in a minimum amount of not less than $5,000,000), and such Lender shall forthwith give notice of any such assignment or participation to the Borrower; and provided, however, that any such assignment must be made pursuant to an Assignment and Assumption Agreement. The Borrower will take all reasonable actions requested by any Agent or any Lender to effect such assignment, including, without limitation, the execution of a written consent to any Assignment and Assumption Agreement. 11. ILLEGALITY, INCREASED COST, NON-AVAILABILITY, ETC. 11.1 Illegality. In the event that by reason of any change in any applicable law, regulation or regulatory requirement or in the interpretation thereof, a Lender has a reasonable basis to conclude that it has become unlawful for any Lender to maintain or give effect to its obligations as contemplated by this Agreement, such Lender shall inform the Agent and the Borrower to that effect, whereafter the liability of such Lender to make its Commitment available shall forthwith cease and the Borrower shall be required either to repay to such Lender that portion of the Loan advanced by such Lender immediately or, if such Lender so agrees, to repay such portion of the Loan to the Lender on the last day of any then current Interest Period in accordance with and subject to the provisions of Section 11.5. In any such event, but without prejudice to the aforesaid obligations of the Borrower to repay such portion of the Loan, the Borrower and the relevant Lender shall negotiate in good faith with a view to agreeing on terms for making such portion of the Loan available from another jurisdiction or otherwise restructuring such portion of the Loan on a basis which is not unlawful. 11.2 Increased Costs. If any change in applicable law, regulation or regulatory requirement, or in the interpretation or application thereof by any governmental or other authority, shall: (i) subject any Lender to any Taxes with respect to its income from the Loan, or any part thereof, or (ii) change the basis of taxation to any Lender of payments of principal or interest or any other payment due or to become due pursuant to this Agreement (other than a change in the basis effected by the jurisdiction of organization of such Lender, the jurisdiction of the principal place of business of such Lender, the United States of America, the State or City of New York or any governmental subdivision or other taxing authority having jurisdiction over such Lender (unless such jurisdiction is asserted by reason of the activities of the Borrower or any of the other Security Parties) or such other jurisdiction where the Loan may be payable), or 41 (iii) impose, modify or deem applicable any reserve requirements or require the making of any special deposits against or in respect of any assets or liabilities of, deposits with or for the account of, or loans by, a Lender, or (iv) impose on any Lender any other condition affecting the Loan or any part thereof, and the result of the foregoing is either to increase the cost to such Lender of making available or maintaining its Commitment or any part thereof or to reduce the amount of any payment received by such Lender, then and in any such case if such increase or reduction in the opinion of such Lender materially affects the interests of such Lender under or in connection with this Agreement: (a) the Lender shall notify the Agent and the Borrower of the happening of such event, and (b) the Borrower agrees forthwith upon demand to pay to such Lender such amount as such Lender certifies to be necessary to compensate such Lender for such additional cost or such reduction; PROVIDED, however, that the foregoing provisions shall not be applicable in the event that increased costs to the Lender result from the exercise by the Lender of its right to assign its rights or obligations under Section 10. 11.3 Nonavailability of Funds. If the Administrative Agent shall determine that, by reason of circumstances affecting the London Interbank Market generally, adequate and reasonable means do not or will not exist for ascertaining the Applicable Rate for the Loan for any Interest Period, the Administrative Agent shall give notice of such determination to the Borrower. The Borrower and the Administrative Agent shall then negotiate in good faith in order to agree upon a mutually satisfactory interest rate and/or Interest Period to be substituted for those which would otherwise have applied under this Agreement. If the Borrower and the Administrative Agent are unable to agree upon such a substituted interest rate and/or Interest Period within thirty (30) days of the giving of such determination notice, the Administrative Agent shall set an interest rate and Interest Period to take effect from the expiration of the Interest Period in effect at the date of determination, which rate shall be equal to the Margin plus the cost to the Lenders (as certified by each Lender) of funding the Loan. In the event the state of affairs referred to in this Section 11.3 shall extend beyond the end of the Interest Period, the foregoing procedure shall continue to apply until circumstances are such that the Applicable Rate may be determined pursuant to Section 6. 11.4 Lender's Certificate Conclusive. A certificate or determination notice of any Lender as to any of the matters referred to in this Section 11 shall, absent manifest error, be conclusive and binding on the Borrower. 11.5 Compensation for Losses. Where the Loan or any portion thereof is to be repaid by the Borrower pursuant to this Section 11, the Borrower agrees simultaneously with such repayment to pay to the relevant Lender all accrued interest to the date of actual payment on the amount repaid and all other sums then payable by the Borrower to the relevant Lender pursuant to this Agreement, together with such amounts as may be certified by the relevant Lender to be necessary to compensate such Lender for any actual loss, premium or penalties incurred or to be incurred thereby on account of funds borrowed to make, fund or maintain its Commitment or such portion thereof for 42 the remainder (if any) of the then current Interest Period or Periods, if any, but otherwise without penalty or premium. 12. CURRENCY INDEMNITY 12.1 Currency Conversion. If for the purpose of obtaining or enforcing a judgment in any court in any country it becomes necessary to convert into any other currency (the "judgment currency") an amount due in Dollars under this Agreement, the Note or any of the Security Documents then the conversion shall be made, in the discretion of the Administrative Agent, at the rate of exchange prevailing either on the date of default or on the day before the day on which the judgment is given or the order for enforcement is made, as the case may be (the "conversion date"), provided that the Administration Lenders shall not be entitled to recover under this section any amount in the judgment currency which exceeds at the conversion date the amount in Dollars due under this Agreement, the Note and/or any of the Security Documents. 12.2 Change in Exchange Rate. If there is a change in the rate of exchange prevailing between the conversion date and the date of actual payment of the amount due, the Borrower shall pay such additional amounts (if any, but in any event not a lesser amount) as may be necessary to ensure that the amount paid in the judgment currency when converted at the rate of exchange prevailing on the date of payment will produce the amount then due under this Agreement, the Note and/or any of the Security Documents in Dollars; any excess over the amount due received or collected by the Lenders shall be remitted to the Borrower. 12.3 Additional Debt Due. Any amount due from the Borrower under this Section 12 shall be due as a separate debt and shall not be affected by judgment being obtained for any other sums due under or in respect of this Agreement, the Note and/or any of the Security Documents. 12.4 Rate of Exchange. The term "rate of exchange" in this Section 12 means the rate at which the Administrative Agent in accordance with its normal practices is able on the relevant date to purchase Dollars with the judgment currency and includes any premium and costs of exchange payable in connection with such purchase. 13. FEES AND EXPENSES 13.1 Fees. The Borrower shall pay to the Arrangers and the Agents such fees as the parties have agreed pursuant to the Fee Letter.13.2 Expenses. The Borrower agrees, whether or not the transactions hereby contemplated are consummated, on demand to pay, or reimburse the Agents and the Arrangers for their payment of, the reasonable expenses of the Agents, the Arrangers and (after the occurrence and during the continuance of an Event of Default) the Lenders incident to said transactions (and in connection with any supplements, amendments, waivers or consents relating thereto or incurred in connection with the enforcement or defense of any of the Agents', the Arrangers' and the Lenders' rights or remedies with respect thereto or in the preservation of the Agents', the Arrangers' and the Lenders' priorities under the documentation executed and delivered in connection therewith) including, without limitation, all reasonable costs and expenses of preparation, negotiation, execution and administration of this Agreement and the documents referred to herein, the reasonable fees and disbursements of the Agents' counsel in connection therewith, as well as the reasonable fees and expenses of any independent appraisers, surveyors, engineers and other consultants retained by the Agents, or the Arrangers in connection with this 43 transaction, all reasonable costs and expenses, if any, in connection with the enforcement of this Agreement, the Note and the Security Documents and stamp and other similar taxes, if any, incident to the execution and delivery of the documents (including, without limitation, the Note) herein contemplated and to hold the Agents, the Arrangers and the Lenders free and harmless in connection with any liability arising from the nonpayment of any such stamp or other similar taxes. Such taxes and, if any, interest and penalties related thereto as may become payable after the date hereof shall be paid immediately by the Borrower to the Agents, the Arrangers or the Lenders, as the case may be, when liability therefor is no longer contested by such party or parties or reimbursed immediately by the Borrower to such party or parties after payment thereof (if the Agents, the Arrangers or the Lenders, at their sole discretion, chooses to make such payment). 14. APPLICABLE LAW, JURISDICTION AND WAIVER 14.1 Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. 14.2 Jurisdiction. The Borrower hereby irrevocably submits to the jurisdiction of the courts of the State of New York and of the United States District Court for the Southern District of New York in any action or proceeding brought against it by any of the Lenders, the Agents or the Arrangers under this Agreement or under any document delivered hereunder and hereby irrevocably agrees that valid service of summons or other legal process on it may be effected by serving a copy of the summons and other legal process in any such action or proceeding on the Borrower by mailing or delivering the same by hand to the Borrower at the address indicated for notices in Section 16.1. The service, as herein provided, of such summons or other legal process in any such action or proceeding shall be deemed personal service and accepted by the Borrower as such, and shall be legal and binding upon the Borrower for all the purposes of any such action or proceeding. Final judgment (a certified or exemplified copy of which shall be conclusive evidence of the fact and of the amount of any indebtedness of the Borrower to the Lenders, the Agents or the Arrangers) against the Borrower in any such legal action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment. The Borrower will advise the Administrative Agent promptly of any change of address for the purpose of service of process. Notwithstanding anything herein to the contrary, the Lenders may bring any legal action or proceeding in any other appropriate jurisdiction. 14.3 WAIVER OF JURY TRIAL. IT IS MUTUALLY AGREED BY AND AMONG THE BORROWER, THE OTHER SECURITY PARTIES, THE ARRANGERS, THE AGENTS AND THE LENDERS THAT EACH OF THEM HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST ANY OTHER PARTY HERETO ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE NOTE, THE GUARANTY OR THE SECURITY DOCUMENTS. 15. THE AGENTs 15.1 Appointment of Agents. Each of the Lenders irrevocably appoints and authorizes the Agents severally each to take such action as agent on its behalf and to exercise such powers under this Agreement, the Note and the Security Documents as are delegated to such Agent by the terms hereof and thereof, including execution of the Intercreditor Agreement. No Agent nor any of their 44 respective directors, officers, employees or agents shall be liable for any action taken or omitted to be taken by it or them under this Agreement, the Note or the Security Documents or in connection therewith, except for its or their own gross negligence or willful misconduct. 15.2 Security Agent as Trustee. Each of the Lenders irrevocably appoints the Security Agent as trustee on its behalf with regard to (i) the security, powers, rights, titles, benefits and interests (both present and future) constituted by and conferred on the Lenders or any of them or for the benefit thereof under or pursuant to this Agreement, the Note or any of the Security Documents (including, without limitation, the benefit of all covenants, undertakings, representations, warranties and obligations given, made or undertaken to any Lender in the Agreement, the Note or any Security Document), (ii) all moneys, property and other assets paid or transferred to or vested in any Lender or any agent of any Lender or received or recovered by any Lender or any agent of any Lender pursuant to, or in connection with, this Agreement, the Note or the Security Documents whether from any Security Party or any other person and (iii) all money, investments, property and other assets at any time representing or deriving from any of the foregoing, including all interest, income and other sums at any time received or receivable by any Lender or any agent of any Lender in respect of the same (or any part thereof). The Security Agent hereby accepts such appointment. 15.3 Distribution of Payments. Whenever any payment is received by any Agent from the Borrower or any other Security Party for the account of the Lenders, or any of them, whether of principal or interest on the Note, commissions, fees under Section 13 or otherwise, it will thereafter cause to be distributed on the same day if received before 11 a.m. New York time, or on the next day if received thereafter, like funds relating to such payment ratably to the Lenders according to their respective Commitments, in each case to be applied according to the terms of this Agreement. 15.4 Holder of Interest in Note. The Agents may treat each Lender as the holder of all of the interest of such Lender in the Note. 15.5 No Duty to Examine, Etc. The Agents shall not be under a duty to examine or pass upon the validity, effectiveness or genuineness of any of this Agreement, the Note, the Security Documents or any instrument, document or communication furnished pursuant to this Agreement or in connection therewith or in connection with the Note or any Security Document, and the Agents shall be entitled to assume that the same are valid, effective and genuine, have been signed or sent by the proper parties and are what they purport to be. 15.6 Agents as Lenders. With respect to that portion of the Loan made available by it, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not an Agent, and the term "Lender" or "Lenders" shall include each Agent in its capacity as a Lender. Each Agent and its affiliates may accept deposits from, lend money to and generally engage in any kind of business with, the Borrower and the other Security Parties as if it were not an Agent. 15.7 Acts of the Agents. Each Agent shall have duties and discretion, and shall act as follows: (a) Obligations of the Agents. The obligations of each Agent under this Agreement, under the Note and under the Security Documents are only those expressly set forth herein and therein. 45 (b) No Duty to Investigate. No Agent shall at any time be under any duty to investigate whether an Event of Default, or an event which with the giving of notice or lapse of time, or both, would constitute an Event of Default, has occurred or to investigate the performance of this Agreement, the Note or any Security Document by any Security Party. (c) Discretion of the Agents. Each Agent shall be entitled to use its discretion with respect to exercising or refraining from exercising any rights which may be vested in it by, and with respect to taking or refraining from taking any action or actions which it may be able to take under or in respect of, this Agreement, the Note and the Security Documents, unless the Agent shall have been instructed by the Majority Lenders to exercise such rights or to take or refrain from taking such action; provided, however, that no Agent shall be required to take any action which exposes such Agent to personal liability or which is contrary to this Agreement or applicable law. (d) Instructions of Majority Lenders. Each Agent shall in all cases be fully protected in acting or refraining from acting under this Agreement, under the Note, or under any Security Document in accordance with the instructions of the Majority Lenders, and any action taken or failure to act pursuant to such instructions shall be binding on all of the Lenders. 15.8 Certain Amendments. Neither this Agreement the Note nor any of the Security Documents nor any terms hereof or thereof may be amended unless such amendment is approved by the Borrower and the Majority Lenders, provided that no such amendment shall, without the consent of each Lender affected thereby, (i) reduce the interest rate or extend the time of payment of principal or interest or fees on the Loan, or reduce the principal amount of the Loan or any fees hereunder, (ii) increase or decrease the Commitment of any Lender or subject any Lender to any additional obligation (it being understood that a waiver of any Event of Default or any mandatory repayment of Loan shall not constitute a change in the terms of any Commitment of any Lender), (iii) amend, modify or waive any provision of this Section 15.8, (iv) amend the definition of Majority Lenders, (v) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement, (vi) release any Security Party from any of its obligations under any Security Document except as expressly provided herein or in such Security Document or (vii) amend any provision relating to the maintenance of collateral under Section 9.5. All amendments approved by the Majority Lenders under this Section 15.8 must be in writing and signed by the Borrower and each of the Lenders. In the event that any Lender is unable to or refuses to sign an amendment approved by the Majority Lenders hereunder, such Lender hereby appoints the Administrative Agent as its Attorney-In-Fact for the purposes of signing such amendment. No provision of this Section 15 or any other provisions relating to the Agents may be modified without the consent of each Agent. 15.9 Assumption re Event of Default. Except as otherwise provided in Section 15.15, each Agent shall be entitled to assume that no Event of Default, or event which with the giving of notice or lapse of time, or both, would constitute an Event of Default, has occurred and is continuing, unless such Agent has been notified by any Security Party of such fact, or has been notified by a Lender that such Lender considers that an Event of Default or such an event (specifying in detail the nature 46 thereof) has occurred and is continuing. In the event that an Agent shall have been notified by any Security Party or any Lender in the manner set forth in the preceding sentence of any Event of Default or of an event which with the giving of notice or lapse of time, or both, would constitute an Event of Default, such Agent shall notify the Lenders and shall take action and assert such rights under this Agreement, under the Note and under Security Documents as the Majority Lenders shall request in writing. 15.10 Limitations of Liability. Neither any Agent nor any of the Lenders shall be under any liability or responsibility whatsoever: (a) to any Security Party or any other person or entity as a consequence of any failure or delay in performance by, or any breach by, any other Lenders or any other person of any of its or their obligations under this Agreement or under any Security Document; (b) to any Lender or Lenders as a consequence of any failure or delay in performance by, or any breach by, any Security Party of any of its respective obligations under this Agreement, under the Note or under the Security Documents; or (c) to any Lender or Lenders for any statements, representations or warranties contained in this Agreement, in any Security Document or in any document or instrument delivered in connection with the transaction hereby contemplated; or for the validity, effectiveness, enforceability or sufficiency of this Agreement, the Note, any Security Document or any document or instrument delivered in connection with the transactions hereby contemplated. 15.11 Indemnification of the Agents. The Lenders agree to indemnify each Agent (to the extent not reimbursed by the Security Parties or any thereof), pro rata according to the respective amounts of their Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including legal fees and expenses incurred in investigating claims and defending itself against such liabilities) which may be imposed on, incurred by or asserted against, such Agent in any way relating to or arising out of this Agreement, the Note or any Security Document, any action taken or omitted by such Agent thereunder or the preparation, administration, amendment or enforcement of, or waiver of any provision of, this Agreement, the Note or any Security Document, except that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct. 15.12 Consultation with Counsel. Each Agent may consult with legal counsel selected by such Agent and shall not be liable for any action taken, permitted or omitted by it in good faith in accordance with the advice or opinion of such counsel. 15.13 Resignation. Any Agent may resign at any time by giving sixty (60) days' written notice thereof to the other Agents, the Lenders and the Borrower. Upon any such resignation, the Lenders shall have the right to appoint a successor Agent. If no successor Agent shall have been so 47 appointed by the Lenders and shall have accepted such appointment within sixty (60) days after the retiring Agent's giving notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent which shall be a bank or trust company of recognized standing. The appointment of any successor Agent shall be subject to the prior written consent of the Borrower, such consent not to be unreasonably withheld. After any retiring Agent's resignation as Agent hereunder, the provisions of this Section 15 shall continue in effect for its benefit with respect to any actions taken or omitted by it while acting as Agent. 15.14 Representations of Lenders. Each Lender represents and warrants to each other Lender and each Agent that: (a) in making its decision to enter into this Agreement and to make its Commitment available hereunder, it has independently taken whatever steps it considers necessary to evaluate the financial condition and affairs of the Security Parties, that it has made an independent credit judgment and that it has not relied upon any statement, representation or warranty by any other Lender or any Agent; and (b) so long as any portion of its Commitment remains outstanding, it will continue to make its own independent evaluation of the financial condition and affairs of the Security Parties. 15.15 Notification of Event of Default. Each Agent hereby undertakes to promptly notify the Lenders, and the Lenders hereby promptly undertake to notify each Agent and the other Lenders, of the existence of any Event of Default which shall have occurred and be continuing of which such Agent or Lender has actual knowledge. 16. NOTICES AND DEMANDS 16.1 Notices. All notices, requests, demands and other communications to any party hereunder shall be in writing (including prepaid overnight courier, facsimile transmission or similar writing) and shall be given to the Borrower at the address or telecopy number set forth below and to the Lenders and the Agents at their address and telecopy numbers set forth in Schedule 1 or at such other address or telecopy numbers as such party may hereafter specify for the purpose by notice to each other party hereto. Each such notice, request or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section and telephonic confirmation of receipt thereof is obtained or (ii) if given by mail, prepaid overnight courier or any other means, when received at the address specified in this Section or when delivery at such address is refused. If to the Borrower: OMI Corporation One Station Place Stamford, Connecticut 06902 Telecopy No.: (203) 602-6701 Attention: Vincent de Sostoa Senior Vice President - Treasurer 48 17. MISCELLANEOUS 17.1 Time of Essence. Time is of the essence of this Agreement but no failure or delay on the part of any Lender, the Agents or the Arrangers to exercise any power or right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise by any Lender, the Agents or the Arrangers of any power or right hereunder preclude any other or further exercise thereof or the exercise of any other power or right. The remedies provided herein are cumulative and are not exclusive of any remedies provided by law. 17.2 Unenforceable, etc., Provisions - Effect. In case any one or more of the provisions contained in this Agreement, the Note or in any Security Document would, if given effect, be invalid, illegal or unenforceable in any respect under any law applicable in any relevant jurisdiction, said provision shall not be enforceable against the relevant Security Party, but the validity, legality and enforceability of the remaining provisions herein or therein contained shall not in any way be affected or impaired thereby. 17.3 References. References herein to Sections, Exhibits and Schedules are to be construed as references to sections of, exhibits to, and schedules to, this Agreement, unless the context otherwise requires. 17.4 Further Assurances. The Borrower agrees that if this Agreement, the Note or any Security Document shall, in the reasonable opinion of the Lenders, at any time be deemed by the Lenders for any reason insufficient in whole or in part to carry out the true intent and spirit hereof or thereof, it will execute or cause to be executed such other and further assurances and documents as in the opinion of the Lenders may be required in order more effectively to accomplish the purposes of this Agreement, the Note or any Security Document. 17.5 Prior Agreements, Merger. Any and all prior understandings and agreements heretofore entered into between the Security Parties on the one part, and the Agents, the Arrangers or the Lenders, on the other part, whether written or oral, other than the Fee Letter are superseded by and merged into this Agreement and the other agreements (the forms of which are exhibited hereto) to be executed and delivered in connection herewith to which the Security Parties, the Arrangers, the Agents and/or the Lenders are parties, which alone fully and completely express the agreements between the Security Parties, the Arrangers, the Agents and the Lenders. 17.6 Entire Agreement; Amendments. This Agreement constitutes the entire agreement of the parties hereto including all parties added hereto pursuant to an Assignment and Assumption Agreement. Subject to Section 15.8, any provision of this Agreement, the Note or any Security Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower, the Administration Agent and the Majority Lenders (and, if the rights or duties of the Security Agent or the Syndication Agent are affected thereby, by such Agent, as applicable). This Agreement may be executed in any number of counterparts, each of will shall be deemed an original, but all such counterparts together shall constitute one and the same instrument. 17.7 Indemnification. The Borrower and, by its execution and delivery of the Consent and Agreement set forth below, each of the other Security Parties jointly and severally agree to indemnify each Lender, each Agent and each Arranger, their respective successors and assigns, and 49 their respective officers, directors, employees, representatives and agents (each an "Indemnitee") from, and hold each of them harmless against, any and all losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements of any kind or nature whatsoever (including, without limitation, the fees and disbursements of counsel for such Indemnitee in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto) that may at any time (including, without limitation, at any time following the payment of the obligations of the Borrower hereunder) be imposed on, asserted against or incurred by, any Indemnitee as a result of, or arising out of or in any way related to or by reason of, (a) any violation by any Security Party (or any charterer or other operator of any Vessel) of any applicable Environmental Law, (b) any Environmental Claim arising out of the management, use, control, ownership or operation of property or assets by any Security Party (or, after foreclosure, by any Lender, any Agent or any Arranger or any of their respective successors or assigns), (c) the breach of any representation, warranty or covenant set forth in Sections 2.1 (o) or 9.1(j), (d) the Loan (including the use of the proceeds of the Loan and any claim made for any brokerage commission, fee or compensation from any Person), of (e) the execution, delivery, performance or non-performance of this Agreement, the Note, any Security Document, or any of the documents referred to herein or contemplated hereby (whether or not the Indemnitee is a party thereto). If and to the extent that the obligations of the Security Parties under this Section are unenforceable for any reason, the Borrower and, by its execution and delivery of the Consent and Agreement set forth below, each of the other Security Parties jointly and severally agree to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. The obligations of the Security Parties under this Section 17.7 shall survive the termination of this Agreement and the repayment to the Lenders of all amounts owing thereto under or in connection herewith. 17.8 Release of Designated Vessel Owner Guaranty. Notwithstanding Section 17.6, Entire Agreement, Amendments, upon the Designated Vessel Acquisition, the Security Agent shall release the Designated Vessel Owner from its Guaranty. 17.9 Headings. In this Agreement, Section headings are inserted for convenience of reference only and shall not be taken into account in the interpretation of this Agreement. 50 IN WITNESS whereof the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives as of the day and year first above written. OMI CORPORATION By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer CHRISTIANIA BANK OG KREDITKASSE ASA, as Arranger and Administrative Agent By:_____________________________________ Name: Title: By:_____________________________________ Name: Title: DEN NORSKE BANK ASA, as Arranger and Syndication Agent By:_____________________________________ Name: Title: By:_____________________________________ Name: Title: MEESPIERSON CAPITAL CORP., as Arranger and Security Agent By:_____________________________________ Name: Title: By:_____________________________________ Name: Title: 51 CONSENT AND AGREEMENT Each of the undersigned, referred to in the foregoing Loan Agreement as the "Guarantors" and the "Subordinated Guarantors", hereby consents and agrees to said Agreement and to the documents contemplated thereby and to the provisions contained therein relating to conditions to be fulfilled and obligations to be performed by the undersigned pursuant to or in connection with said Agreement and agrees particularly to be bound by the representations, warranties and covenants relating to the undersigned contained in Sections 2 and 9 of said Agreement to the same extent as if the undersigned were a party to said Agreement, and expressly agrees to the grant of a security interest in favor of the Syndication Agent in the undersigned's accounts pursuant to Section 9.1(s) of said Agreement. Guarantors: COLORADO SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer ELBE SHIPPING LLC by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer LOIRE SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer NILE SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer PATRICIA SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer PAULINA SHIIPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer VOLGA SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer Subordinated Guarantors: ALMA SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer DANUBE SHIPPING LLC by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer ISERE SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer LIMAR SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer PAGODA SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer PECOS SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer SABINE SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer SACRAMENTO SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer SEINE SHIPPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer SEVERN SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer SHANNON SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer TIBER SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer TRENT SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer CAIRO SEA SHIPPING LLC By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer CZANTORIA SHIPPING LLC by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer LAUREL SHIPPING LLC By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer MENDALA II TRANSPORT, INC. By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer SOKOLICA SHIPPING LLC by OMI Corporation, Sole Member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer SOYANG SHIPPING LLC by OMI Corporation, Sole Member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer TRINIDAD SEA SHIPPING LLC By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer UBC CHARTERING LTD. By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer EX-10.8 4 FACULTY AGREEMENT ================================================================================ FACILITY AGREEMENT PROVIDING FOR A US$36,000,000 CONVERTIBLE LETTER OF CREDIT FACILITY TO BE MADE AVAILABLE TO OMI CORPORATION BY CHRISTIANIA BANK OG KREDITKASSE ASA, acting through its New York branch, as Arranger, Administrative Agent and Issuer, DEN NORSKE BANK ASA, acting through its New York branch, as Arranger and Syndication Agent, MEESPIERSON CAPITAL CORP., as Arranger and Security Agent, and the Banks and Financial Institutions identified on Schedule 1, as Banks ================================================================================ as of February 4, 2000 CONTENTS PAGE 1. DEFINITIONS..............................................................1 1.1 Specific Definitions...................................................1 1.2 Computations of Time Periods; Other Definitional Provisions...........17 1.3 Accounting Terms......................................................17 1.4 Certain Matter Regarding Materiality..................................17 1.5 Forms of Documents....................................................17 2. REPRESENTATIONS AND WARRANTIES..........................................18 2.1 Representations and Warranties........................................18 3. THE LETTER OF CREDIT....................................................22 3.1 Issuance of the Letter of Credit......................................22 3.2 Several Obligations; Drawing..........................................22 3.3 Reimbursement Obligation..............................................23 3.4 Fees..................................................................23 4. conversion of facility..................................................23 5. CONDITIONS..............................................................24 5.1 Conditions Precedent to Issuance of Letter of Credit..................24 (a) Corporate Authority...............................................24 (b) The Vessels.......................................................25 (c) The Note..........................................................25 (d) Subordinated Guarantor Documents..................................25 (e) Mega I Assignment.................................................26 (f) Intercreditor Agreement...........................................26 (g) Facility A/Facility B.............................................26 (h) Subordinated Guarantor Solvency...................................26 (i) Environmental Claims..............................................26 (j) Fees..............................................................26 (k) Accounts..........................................................26 (l) Vessel Liens......................................................26 (m) Approved Business Plan............................................26 (n) Charters; Pooling Agreements......................................26 (o) Legal Opinions....................................................27 5.2 Further Conditions Precedent..........................................27 5.3 Breakfunding Costs....................................................27 5.4 Satisfaction after Issuance or Conversion.............................27 6. REPAYMENT AND PREPAYMENT OF LOAN........................................27 i 6.1 Repayment.............................................................27 6.2 Voluntary Prepayment; no re-borrowing.................................28 6.3 Mandatory Prepayment; Sale or Loss of Vessel..........................28 6.4 Demand Conversion.....................................................28 6.5 Interest and Costs with Prepayments...................................28 7. INTEREST AND RATE.......................................................29 7.1 Applicable Rate.......................................................29 7.2 Default Rate..........................................................29 7.3 Interest Periods......................................................29 7.4 Interest Payments.....................................................29 8. PAYMENTS................................................................29 8.1 Place of Payments, No Set Off.........................................29 8.2 Tax Credits...........................................................30 8.3 Computations; Banking Days. (a)......................................30 9. EVENTS OF DEFAULT.......................................................30 9.1 Events of Default.....................................................30 9.2 Indemnification.......................................................33 9.3 Application of Moneys.................................................33 10. COVENANTS...............................................................33 10.1 Affirmative Covenants.................................................33 10.2 Negative Covenants....................................................37 (a) Liens.............................................................37 10.3 Subsidiary Negative Covenants.........................................40 10.4 Vessel Valuations.....................................................40 10.5 Asset Maintenance.....................................................40 (a) If at any time....................................................40 (b) 41 10.6 Inspection and Survey Reports.........................................41 11. ASSIGNMENT..............................................................41 12. ILLEGALITY, INCREASED COST, NON-AVAILABILITY, ETC.......................41 12.1 Illegality............................................................41 12.2 Increased Costs.......................................................42 12.3 Nonavailability of Funds..............................................43 12.4 Bank's Certificate Conclusive.........................................43 12.5 Compensation for Losses...............................................43 13. CURRENCY INDEMNITY......................................................43 ii 13.1 Currency Conversion...................................................43 13.2 Change in Exchange Rate...............................................43 13.3 Additional Debt Due...................................................44 13.4 Rate of Exchange......................................................44 14. FEES AND EXPENSES.......................................................44 14.1 Fees..................................................................44 14.2 Expenses..............................................................44 15. APPLICABLE LAW, JURISDICTION AND WAIVER.................................44 15.1 Applicable Law........................................................44 15.2 Jurisdiction..........................................................44 15.3 WAIVER OF JURY TRIAL..................................................45 16. THE AGENTS..............................................................45 16.1 Appointment of Agents.................................................45 16.2 Security Agent as Trustee.............................................45 16.3 Distribution of Payments..............................................45 16.4 Holder of Interest in Note............................................46 16.5 No Duty to Examine, Etc...............................................46 16.6 Agents as Banks.......................................................46 16.7 Acts of the Agents....................................................46 16.8 Certain Amendments....................................................47 16.9 Assumption re Event of Default........................................47 16.10 Limitations of Liability.............................................47 16.11 Indemnification of the Agents........................................48 16.12 Consultation with Counsel............................................48 16.13 Resignation..........................................................48 16.14 Representations of Banks.............................................48 16.15 Notification of Event of Default.....................................49 17. NOTICES AND DEMANDS.....................................................49 17.1 Notices...............................................................49 18. MISCELLANEOUS...........................................................49 18.1 Time of Essence.......................................................49 18.2 Unenforceable, etc., Provisions - Effect..............................49 18.3 References............................................................50 18.4 Further Assurances....................................................50 18.5 Prior Agreements, Merger..............................................50 18.6 Entire Agreement; Amendments..........................................50 iii 18.7 Indemnification.......................................................50 18.8 Release of Designated Vessel Owner Guaranty...........................51 18.9 Headings..............................................................51 iv SCHEDULE 1 The Banks and the Commitments 2 OMI and Affiliates 3 The Facility A Vessels 4 The Facility B Vessels 5 Disclosure EXHIBITS A Form of Letter of Credit B Form of Note C Form of Guaranty D Form of Mortgage E Form of Earnings Assignment F Form of Insurances Assignment G Form of Assignment and Assumption Agreement H Form of Compliance Certificate I Form of Interest Notice J Form of Mega I Assignment FACILITY AGREEMENT THIS FACILITY AGREEMENT is made as of the 4th day of February, 2000, by and among (1) OMI CORPORATION, a corporation incorporated under the laws of the Republic of the Marshall Islands (the "Borrower"), (2) the banks and financial institutions listed on Schedule 1 (together with any bank or financial institution which becomes a party hereto pursuant to Article 10, the "Banks"), (3) CHRISTIANIA BANK OG KREDITKASSE ASA, acting through its New York branch ("CBK"), as Administrative Agent for the Banks (in such capacity, the "Administrative Agent"), and letter of credit issuer for the Banks (in such capacity, the "Issuer") and as arranger, (4) DEN NORSKE BANK ASA, acting through its New York branch ("DnB"), as syndication agent (in such capacity, the "Syndication Agent") and as arranger, and (5) MEESPIERSON CAPITAL CORP. ("MeesPierson"), as arranger (in such capacity, together with CBK and DnB as arrangers, the "Arrangers") and as security agent for the Banks (in such capacity, the "Security Agent" and, together with the Administrative Agent and the Syndication Agent, (the "Agents"). WITNESSETH THAT: WHEREAS, at the request of the Borrower, the Arrangers have arranged for the Agents to serve in their respective capacities under the terms of this Agreement and for the Issuer, on behalf of the Banks, to issue a letter of credit in the stated amount of US$36,000,000 to the Facility A Security Agent (as defined below), as agent for the Facility A Lenders (as defined below); NOW, THEREFORE, in consideration of the premises set forth above, the covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as set forth below: 1. DEFINITIONS 1.1 Specific Definitions. In this Agreement the words and expressions specified below shall, except where the context otherwise requires, have the meanings attributed to them below: "Acceptable Accounting Firm" means Deloitte & Touche LLP, or such other recognized international accounting firm as shall be approved by the Administrative Agent, such approval not to be unreasonably withheld; "Affiliate" means with respect to any Person, any other Person directly or indirectly controlled by or under common control with such Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlled by" and "under common control with") as applied to any Person means the possession directly or indirectly of the power to direct or cause the direction of the management and policies of that Person whether through ownership of voting securities or by contract or otherwise; for purposes of Section 9.1(f), "Affiliate" shall also include each of Alliance Chartering LLC, International Product Carriers Limited, Geraldton Navigation Company Incorporated, Amazon Transport, Inc. and Hayes Navigation Co. Pte. Ltd. unless and until the Borrower's direct or indirect interest in and to such company has ceased; "Agreement" means this Agreement, as the same shall be amended, modified or supplemented from time to time; "Applicable Rate" means any rate of interest applicable to the Loan from time to time pursuant to Section 7.1; "Approved Business Plan" means a detailed business plan for reducing leverage and increasing liquidity, in form and in substance satisfactory to the Agents, specifying, among other things, the Planned Reduction Dates and Planned Reduction Amounts; "Assigned Moneys" means sums assigned to or received by any Agent pursuant to any Security Document; "Assignment and Assumption means the Assignment and Assumption Agreement(s)" Agreement(s) executed pursuant to Section 11 substantially in the form set out in Exhibit G; "Assignment Notices" means (i) notices with respect to the Earnings Assignments, substantially in the form of Exhibit 1 thereto; (ii) notices with respect to the Insurances Assignments in the form of Exhibit 3 thereto; and (iii) notice with respect to the Mega I Assignment in the form of Exhibit 1 thereto; "Assignments" means the Earnings Assignments and the Insurance Assignments; "Availability Period" means the period commencing the date hereof and ending February 29, 2000; "Banking Day(s)" means day(s) on which banks are open for the transaction of business in London, England, Hong Kong, Frankfurt, Germany and New York, New York; "Capital Expenditures" means all capital expenditures except for (i) normal maintenance of Vessels and other properties and (ii) Permitted Drydocking Costs; "Cash Equivalents" means (i) securities issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided that the full faith and 2 credit of the United States of America is pledged in support thereof), and (ii) time deposits, certificates of deposit or deposits in the interbank market of any commercial bank of recognized standing organized under the laws of the United States of America, any state thereof or any foreign jurisdiction having capital and surplus in excess of $500,000,000, and rated at least A or the equivalent thereof by Standard & Poor's Rating Services in respect of both (i) and (ii) above, in each case having maturities of not more than ninety (90) days from the date of acquisition; "Change of Control" means (a) any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 35% of the total voting power of the Borrower or (b) the Board of Directors of the Borrower ceases to consist of a majority of the directors existing on the Date of Issuance or directors nominated by at least two-thirds (2/3) of the then existing directors; "Classification Society" shall mean a member of the International Association of Classification Societies with whom the Vessels are entered and who conducted periodic physical surveys and/or inspections of the Vessels; "Code" means the Internal Revenue Code of 1986, as amended, and any successor statute and regulation promulgated thereunder; "Collateral" means, all property or other assets, real or personal, tangible or intangible, whether now owned or hereafter acquired in which any Agent or Bank has been granted a security interest pursuant to a Security Document; "Columbia Lease" means that certain charter agreement dated as of June 30, 1999 made by and between Sea Trade Limited, as owner, and Columbia Shipping, as charterer, in respect of the Marshall Islands-registered suezmax tanker COLUMBIA, official number 1272; "Columbia Shipping" means Columbia Shipping LLC, a limited liability company organized under the laws of the Republic of the Marshall Islands; "Commitment(s)" means in relation to a Bank, the portion of the Stated Amount or the Loan, as the case may be, set out opposite its name in Schedule 1 or, as the case may be, in any 3 relevant Assignment and Assumption Agreement; "Compliance Certificate" means a certificate certifying the compliance by the Borrower with all of its covenants contained herein and showing the calculations thereof in reasonable detail, delivered by the chief financial officer of the Borrower to the Administrative Agent from time to time pursuant to Section 10.1(d) in the form set out in Exhibit H, or in such other form as the Administrative Agent may agree; "Consolidated Net Worth" means, at any time, shareholders equity (excluding treasury stock) of the Borrower on a consolidated basis determined in accordance with GAAP; "Construction Contract" means that certain contract dated November 10, 1997 between Mega Tankers Newbuilding AS and the Shipyard as novated in favor of Loire pursuant to an Assignment and Novation Agreement dated November 24, 1999 and to be novated further in favor of Laurel, providing for the construction of the MEGA I; "Conversion Date" means the date on which the Reimbursement Obligations are converted into the Loan pursuant to Section 4; "Conversion" means the conversion of the Reimbursement Obligations into the Loan pursuant to Section 4; "Date of Issuance" means the date, being a Banking Day during the Availability Period, on which the Letter of Credit is issued pursuant to Section 3.1; "Default Rate" shall have the meaning ascribed thereto in Section 7.2; "Designated Indebtedness" means Indebtedness that is (i) incurred by the Designated Vessel Owner to finance the Designated Vessel Acquisition, (ii) non-recourse to the Borrower and the Borrower's Subsidiaries (other than the Designated Vessel Owner), and (iii) in an amount not exceeding $30.0 million; "Demand Notice" shall have the meaning ascribed thereto in Section 3.2; "Designated Subsidiary" means (i) during the term of the Columbia Lease, Columbia Shipping, (ii) while the Designated Indebtedness is 4 outstanding, the Designated Vessel Owner, and (iii) any Subsidiary of the Borrower (A) which is not a Guarantor or a Guarantor, (B) which has total assets of $1,000 or less, (C) which is not engaged in any financing that is recourse to the Borrower or any other Subsidiary of the Borrower, (D) in respect of which the Borrower has requested that the Administrative Agent permit such Subsidiary's designation as a Designated Subsidiary, and (E) in respect of which the Administrative Agent had consented in writing to such designation; "Designated Vessel" means the MEGA I or the SOYANG, whichever thereof is designated by the Borrower by written notice to the Administrative Agent as the vessel to be financed on a non-recourse basis in accordance with the terms and conditions herein provided; "Designated Vessel means the acquisition of the Designated Vessel Acquisition" by the Designated Vessel Owner, occurring not later than June 30, 2000, or such other date as may be agreed by the Administrative Agent; "Designated Vessel Conditions" means, upon or prior to the Designated Vessel Acquisition, (i) the Borrower having received not less than $18.0 million net cash proceeds from the issuance of equity securities of the Borrower after the Date of Issuance; (ii) in the event the Designated Vessel is the SOYANG, the Borrower (and its Subsidiaries on a consolidated basis) not having contributed more than the amount of the SOYANG Investment to the Designated Vessel Acquisition; (iii) the Borrower (and its Subsidiaries on a consolidated basis) not having incurred any Indebtedness other than the Designated Vessel Indebtedness to finance the Designated Vessel Acquisition; (iv) the Designated Vessel being accepted for service under a time charter of not less than twelve (12) months duration at a rate of hire sufficient to pay reasonably anticipated operating expenses and to amortize (on a level-debt service basis), on a maximum 15-years profile, all Indebtedness incurred to finance the Designated Vessel Acquisition for the duration of such time charter; 5 (v) true and complete copies of all contracts, agreements or other documents entered into by the Borrower or any Subsidiary in connection with the Designated Vessel Acquisition being delivered to and approved by the Administrative Agent; (vi) not later than ten (10) Banking Days prior to the date of the Designated Vessel Acquisition, the Borrower having delivered to the Administration Agent a Compliance Certificate as of such date and after considering the effect of the Designated Vessel Acquisition; and (vii) immediately prior to the Designated Vessel Acquisition, the Designated Vessel owner has total assets of less that $500,000 and has no Subsidiaries; "Designated Vessel Owner" means the Subsidiary which is the owner of the Designated Vessel; "DOC" means a document of compliance issued to an Operator in accordance with rule 13 of the ISM Code; "Dollars" and the sign "$" means the legal currency, at any relevant time hereunder, of the United States of America and, in relation to all payments hereunder, in same day funds settled through the New York Clearing House Interbank Payments System (or such other Dollar funds as may be determined by the Administrative Agent to be customary for the settlement in New York City of banking transactions of the type herein involved); "Earnings Assignments" means the second priority assignments in respect of the earnings of each Vessel (other than the SETTEBELLO) from any and all sources, to be executed by the relevant Guarantor in favor of the Security Agent pursuant to Section 5.1(d), substantially in the form of Exhibit E; "EBITDA" means, with respect to any Person for any period, operating income, plus depreciation, amortization and other non-cash charges, but excluding any gains or losses on vessel sales, any writedown amounts, or any impairment reserves; "Environmental Affiliate" means any person or entity, the liability of which for Environmental Claims any Security Party or Subsidiary of any Security Party may have assumed by contract or operation of law; 6 "Environmental Approvals" shall have the meaning ascribed thereto in Section 2.1(o); "Environmental Claim(s)" shall have the meaning ascribed thereto in Section 2.1(o); "Environmental Laws" shall have the meaning ascribed thereto in Section 2.1(o); "ERISA Affiliate" means a trade or business (whether or not incorporated) which is under common control with the Borrower within the meaning of Sections 414(b), (c), (m) or (o) of the Code; "ERISA" means the Employment Retirement Income Security Act of 1974, as amended; "Event(s) of Default" means any of the events set out in Section 9.1; "Exchange Act" means the Securities and Exchange Act of 1934, as amended; "Expiration Date" means the Banking Day which immediately precedes the date which is the three month anniversary of the Date of Issuance; "Facility A" means the loan facility in the principal amount of up to $218,000,000 to be made available to the Borrower pursuant to the Facility A Loan Agreement; "Facility A Administrative means CBK, in its capacity as administrative Agent" agent for the Facility A Lenders; "Facility A Agents" means the Facility A Administrative Agent, the Facility A Syndication Agent and the Facility A Security Agent; "Facility A Guaranty" means the guaranty made by each of the guarantors of the obligations of the Borrower under the Facility A Loan Agreement; "Facility A Lenders" means the banks and financial institutions identified in Schedule 1 to the Facility A Loan Agreement, each in its capacity as a Lender pursuant to the Facility A Loan Agreement; "Facility A Loan Agreement" means the loan agreement to be dated on or about the date hereof made by and among, inter alios, the Borrower, as borrower, and the Facility A Lenders, as Lenders, pursuant to which the Facility A Lenders will make Facility A available to the Borrower for the purpose of refinancing existing indebtedness secured by the Facility A Vessels; "Facility A Mortgages" means the first preferred Marshall Island or Liberian ship 7 mortgages on the Facility A Vessels, to be executed by the relevant Guarantor in favor of the Facility A Security Agent pursuant to the Facility A Loan Agreement; "Facility A Pledge Agreement" means any pledge agreement executed by the Borrower in favor of the Facility A Security Agent pursuant to the Facility A Loan Agreement and pursuant to which the Borrower pledges shares, limited liability company interests or other equity interests in any Guarantor; "Facility A Security Agent" means MeesPierson, in its capacity as security agent for the Facility A Lenders; "Facility A Security means the Security Documents as defined in the Documents" Facility A Loan Agreement; "Facility A Syndication Agent" means DnB, in its capacity as syndication agent for the Facility A Lenders; "Facility A Vessels" means, as of the date of this Agreement, the vessels identified on Schedule 3, and thereafter shall also mean any vessel mortgaged to the Facility A Security Agent pursuant to the terms of the Facility A Loan Agreement; "Facility B Administrative means CBK, in its capacity as administrative Agent" agent for the Facility B Lenders; "Facility B Agents" means the Facility B Administrative Agent, the Facility B Syndication Agent and the Facility B Security Agent; "Facility B Guaranty" means the guaranty made by each of the guarantors of the obligations of the Borrower under the Facility B Loan Agreement; "Facility B Lenders" means the banks and financial institutions identified in Schedule 1 to the Facility B Loan Agreement, each in its capacity as a Lender pursuant to the Facility B Loan Agreement; "Facility B Loan Agreement" means the loan agreement to be dated on or about the date hereof made by and among, inter alios, the Borrower, as borrower, and the Facility B Lenders, as Banks, pursuant to which the Facility B Lenders will make Facility B available to the Borrower for the purpose of refinancing existing indebtedness secured by the Facility B Vessels; "Facility B Mortgages" means the first preferred or Liberian ship mortgages on the Facility B Vessels and the third preferred Marshall Islands or Liberian ship mortgages on the Facility A Vessels, to be 8 executed by the relevant Guarantor in favor of the Facility B Security Agent pursuant to the Facility B Loan Agreement; "Facility B Pledge Agreement" means any pledge agreement executed by the Borrower in favor of the Facility B Security Agent pursuant to the Facility B Loan Agreement and pursuant to which the Borrower pledges shares, limited liability company interests or other equity interests in any Guarantor; "Facility B Security Agent" means MeesPierson, in its capacity as security agent for the Facility B Lenders; "Facility B Security means the Security Documents as defined in the Documents" Facility B Loan Agreement; "Facility B Syndication Agent" means DnB, in its capacity as syndication agent for the Facility B Lenders; "Facility B Vessels" means, as of the date of this Agreement, the vessels identified on Schedule 4, and thereafter shall also mean any vessel mortgaged on a first priority basis to the Facility B Security Agent pursuant to the terms of the Facility B Loan Agreement; "Fair Market Value" means, in respect of any vessel, means the average of three charter-free appraisals of such vessel from independent ship brokers approved by the Administrative Agent, no such appraisal to be dated more than thirty (30) days prior to the date on which such appraisal is required pursuant to this Agreement unless the Administrative Agent consents in writing (on each occasion) to the use of an older appraisal; "Fee Letter" means the letter dated the date hereof and entered into by the Borrower, the Arrangers and the Agents in respect of the fees referred to therein; "Final Payment Date" means the date that is three years after the Date of Issuance; "Funded Debt" shall mean on a consolidated basis for the Borrower (without duplication), the sum of (i) all Indebtedness of the Borrower (on a consolidated basis), (ii) all obligations to pay a specific purchase price for goods or services whether or not delivered or accepted, i.e., take-or-pay and similar obligations which in accordance with GAAP would be shown on the liability side of the balance sheet, (iii) all net obligations under Interest Rate Agreements, and (iv) all guarantees of non-consolidated entity obligations; 9 provided, however, that balance sheet accruals for future drydock expenses shall not be classified as Funded Debt; "GAAP" shall have the meaning ascribed thereto in Section 1.3; "Guarantor(s)" means, as of the date of this Agreement, each of the companies listed in Schedule 2 as Guarantors (including the SETTEBELLO Guarantor) and thereafter shall also mean such companies as may execute a Guaranty pursuant to Section 9.1(t) or otherwise; "Guaranty(ies)" means the guaranty to be executed by each Guarantor in respect of the obligations of the Borrower under and in connection with this Agreement and the Note in favor of the Security Agent pursuant to Section 4.l(d), and any guaranty executed thereafter pursuant to Section 9.1(t) or otherwise, each substantially in the form of Exhibit B; "Indebtedness" means, with respect to any Person at any date of determination (without duplication), (i) all indebtedness of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery thereof or the completion of such services, except trade payables, (v) all obligations on account of principal of such Person as lessee under capitalized leases, (vi) all indebtedness of other Persons secured by a lien on any asset of such Person, whether or not such indebtedness is assumed by such Person; provided that the amount of such indebtedness shall be the lesser of (a) the fair market value of such asset at such date of determination and (b) the amount of such indebtedness, and (vii) all indebtedness of other Persons guaranteed by such Person to the extent guaranteed; the amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided that the amount outstanding at any time of any indebtedness issued with original issue discount is the face amount of such indebtedness less the remaining unamortized portion of the original issue discount of such 10 indebtedness at such time as determined in conformity with GAAP; and provided further that Indebtedness shall not include any liability for current or deferred federal, state, local or other taxes, or any trade payables; "Initial Payment Date" means the date which is six months after the Date of Issuance; "Insurances Assignments" means the second priority assignments in respect of the insurances over the Vessels (other than the SETTEBELLO), to be executed by the relevant Guarantor in favor of the Security Agent pursuant to Section 5.1(d), substantially in the form of Exhibit F; "Intercreditor Agreement" means the intercreditor agreement dated on or about the date hereof entered into by and among the Agents, the Facility A Agents and the Facility B Agents; "Interest Expense" means for any period, all interest charges, including the interest component of capitalized leases; "Interest Notice" means a notice from the Borrower to the Administrative Agent specifying the duration of any relevant Interest Period, each substantially in the form of Exhibit I; "Interest Period(s)" means period(s) of one, three or six months selected by the Borrower or, in the Banks' discretion, such other period(s) as may be agreed; "Interest Rate Agreements" means any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement designed to protect the Borrower or any of its Subsidiaries against fluctuations in interest rates to or under which the Borrower or any of its Subsidiaries is a party or a beneficiary on the date of this Agreement or becomes a party or a beneficiary hereafter; "Investment" means any direct or indirect advance, loan or other extension of credit (including by way of guarantee or similar arrangement) or capital contribution to (by means of any transfer of cash or other property to others or any payment for property or services for the account or use of others), or any purchase or acquisition of capital stock (or other equity interest), Indebtedness or other similar instruments; 11 "ISM Code" means the International Safety Management Code for the Safe Operating of Ships and for Pollution Prevention constituted pursuant to Resolution A.741(18) of the International Maritime Organization and incorporated into the Safety of Life at Sea Convention and includes any amendments or extensions thereto and any regulation issued pursuant thereto; "Laurel" means Laurel Shipping LLC, a Marshall Islands limited liability company; "Letter of Credit" means the irrevocable letter of credit in the stated amount of $36,000,000, to be issued by the Issuer, on behalf of the Banks, to the Facility A Security Agent pursuant to this Agreement, substantially in the form of Exhibit A; "LIBOR" means the rate (rounded upward to the nearest 1/16th of one percent) for deposits of Dollars for a period equivalent to the relevant Interest Period at or about 11:00 a.m. (London time) on the second London Banking Day before the first day of such period as displayed on Telerate page 3750 (British Bankers' Association Interest Settlement Rates) (or such other page as may replace such page 3750 on such system or on any other system of the information vendor for the time being designated by the British Bankers' Association to calculate the BBA Interest Settlement Rate (as defined in the British Bankers' Association's Recommended Terms and Conditions ("BBAIRS" terms) dated August 1985)), provided that if on such date no such rate is so displayed for the relevant Interest Period, LIBOR for such period shall be the arithmetic mean (rounded upward if necessary to four decimal places) of the rates respectively quoted to the Administrative Agent by each of the Reference Banks at the request of the Administrative Agent as the offered rate for deposits of Dollars in an amount approximately equal to the amount in relation to which LIBOR is to be determined for a period equivalent to the relevant Interest Period to prime banks in the London Interbank Market at or about 11:00 a.m. (London time) on the second Banking Day before the first day of such period; "Loan" means the amount of the Borrower's Reimbursement Obligations hereunder as pursuant to Section 4, or the balance thereof from time to time outstanding; "Loire" means Loire Shipping LLC, a Delaware limited liability 12 company; "Majority Banks" at any time means Banks holding an aggregate of more then 50% of the Reimbursement Obligations or Loan, as the case may be, then outstanding; "Margin" means four percent (4%) per annum for the first six (6) months following the Date of Issuance, six percent (6%) per annum for the following six (6) months and eight percent (8%) thereafter; provided, however, that if the Loan is prepaid by at least Eight Million Dollars ($8,000,000) within six months of the Date of Issuance each increase in the Margin shall be deferred by six months; provided, further, that if, and for so long as, the amounts outstanding in respect of Facility A and this Facility are equal to or less than seventy percent (70%) of the Fair Market Value of the Facility A Vessels, the Margin shall remain at, or reduce to, as the case may be, four percent (4%) (for the subsequent Interest Period and each Interest Period thereafter during which such ratio is maintained); "Material Adverse Effect" means a material adverse effect on (i) the ability of the Borrower to repay the Loan or the Reimbursement Obligations, as the case may be, or perform any of its obligations hereunder or under the Note, (ii) the ability of any Security Party to perform its obligations under any Security Documents or (iii) the business, property, assets, liabilities, operations, condition (financial or otherwise) or prospects of the Borrower and the other Security Parties taken as a whole; "Materials of Environmental shall have the meaning ascribed thereto in Concern" Section 2.1(o); "MEGA I" means Hyundai Hull No. 1173 under construction by the Shipyard; "Mega I Assignment" means the assignment by Loire and Laurel of the Construction Contract to the Security Agent pursuant to Section 5.1(e) to be substantially in the form set out in Exhibit J; "Mortgages" means the second preferred ship mortgages on each of the Vessels (other than the SETTEBELLO), to be executed by the relevant Guarantor in favor of the Security Agent (as trustee for the Banks) substantially in the form of 13 Exhibit D; "Multiemployer Plan" means, at any time, a "multiemployer plan" as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions or has within any of the three preceding plan years made or accrued an obligation to make contributions; "Multiple Employer Plan" means, at any time, an employee benefit plan, other than a Multiemployer Plan, subject to Title IV or ERISA, to which the Borrower or any ERISA Affiliate, and one or more employers other than the Borrower or an ERISA Affiliate, is making or accruing an obligation to make contributions or, in the event that any such plan has been terminated, to which the Borrower or any ERISA Affiliate made or accrued an obligation to make contributions during any of the five plan years preceding the date of termination of such plan; "Note" means the promissory note to be executed by the Borrower to the order of the Security Agent and delivered thereto pursuant to Section 5.1(c), to evidence the Loan if and when made, substantially in the form of Exhibit B; "Operator" means, in respect of any Vessel, the Person who is concerned with the operation of such Vessel and falls within the definition of "Company" set out in rule 1.1.2 of the ISM Code; "PBGC" means the Pension Benefit Guaranty Corporation; "Permitted Drydocking Costs" means (i) in respect of any one Vessel, $2.0 million in any calendar year, and (ii) in respect of all Vessels on an aggregated basis, $5.0 million in any calendar year, expended for drydocking costs; "Person" means any individual, sole proprietorship, corporation, partnership (general or limited), limited liability company, business trust, bank, trust company, joint venture, association, joint stock company, trust or other unincorporated organization, whether or not a legal entity, or any government or agency or political subdivision thereof; "Plan" means any employee benefit plan (other than a Multiemployer Plan or a Multiple Employer Plan) covered 14 by Title IV of ERISA; "Prime Rate" means, from time to time, the rate of interest publicly announced by the Administrative Agent in New York City, New York, as its prime rate; "Reference Banks" means Den norske Bank ASA, Christiania Bank og Kreditkasse ASA and MeesPierson N.V.; "Reimbursement Obligations" means the obligations of the Borrower then outstanding and unpaid to reimburse the Banks pursuant to Section 3.3 for the amounts paid by the Issuer on behalf of the Banks in respect of all drawings or other payments made under or pursuant to the Letter of Credit; "Required Percentage" shall have the meaning set forth for such term in Section 10.5; "Restricted Payments" shall have the meaning attributed thereto in Section 10.2(j); "Security Documents" means the Subordinated Guaranties, the Mortgages, the Assignments and any other documents that may be executed as security for the Reimbursement Obligations or the Loan and the Borrower's obligations in connection therewith; "Security Party(ies)" means the Borrower, and each of the Guarantors; "SETTEBELLO Guarantor" means Laurel Shipping LLC, a limited liability company organized under the laws of the Republic of the Marshall Islands; "SETTEBELLO Owner" means Amazon Transport, Inc., a corporation organized under the laws of the Republic of Liberia; "Shipyard" means Hyundai Heavy Industries Co. Ltd of Ulsan, South Korea, and Hyundai Corporation of Seoul, South Korea, collectively; "SMC" means the safety management certificate issued in respect of a Vessel in accordance with rule 13 of the ISM code; "SOYANG Investment" means the contribution by the Borrower (and its Subsidiaries on a consolidated basis) of not more than $10.0 million of cash or Cash Equivalents (in addition to contributions made prior to the date of this Agreement) to the acquisition of the SOYANG, made no earlier than the date of acquisition thereof or three (3) days prior thereto as 15 required by the construction contract for the SOYANG; "SOYANG Subsidiary" means Soyang Shipping LLC, a limited liability company organized under the laws of the Republic of the Marshall Islands; "SOYANG" means Daewoo Hull No. 5152, currently under construction by Daewoo Heavy Industries Ltd., South Korea; "Stated Amount" means thirty-six million United States Dollars ($36,000,000); "Subsidiaries" means, with respect to any Person, any business entity of which more than 50% of the outstanding voting stock is owned directly or indirectly by such Person and one or more other Subsidiaries of such Person; "Taxes" means any present or future income or other taxes, levies, duties, charges, fees, deductions or withholdings of any nature now or hereafter imposed, levied, collected, withheld or assessed by any taxing authority whatsoever, except for taxes on or measured by the overall net income of each Bank imposed by its jurisdiction of incorporation or applicable lending office, the United States of America, the State or City of New York or any governmental subdivision or taxing authority of any thereof or by any other taxing authority having jurisdiction over such Bank (unless such jurisdiction is asserted by reason of the activities of the Borrower or any of the Subsidiaries); "Termination Event" means (i) a "reportable event," as defined in Section 403 of ERISA (other than a "reportable event" not subject to the provision for 30-day notice to the PBGC), (ii) the withdrawal of the Borrower or any ERISA Affiliate from a Multiemployer Plan during a plan year in which it was a "substantial employer," as defined in Section 4001(a)(2) of ERISA, or the incurrence of liability by the Borrower or any ERISA Affiliate under Section 4064 of ERISA upon the termination of a Multiple Employer Plan, (iii) the filing of a notice of intent to terminate a Plan under Section 4041of ERISA or the treatment of a Multiemployer Plan amendment as a termination under Section 4041A of ERISA, (iv) the institution of proceedings to terminate a Plan or a Multiemployer Plan, or (v) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan or Multiemployer Plan; 16 "Total Capitalization" shall mean the sum of (i) Funded Debt, plus (ii) Consolidated Net Worth; "Total Loss" shall have the meaning ascribed thereto in the Mortgages; "Vessels" means the vessels listed in Schedules 3 and 4, registered in the ownership of the relevant Guarantor as set forth in Schedule 2; "Withdrawal Liabilities" shall have the meaning given to such term under Part 1 of Subtitle E of Title IV of ERISA; 1.2 Computations of Time Periods; Other Definitional Provisions. In this Agreement, the Note and the other Security Documents, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding"; words importing either gender include the other gender; references to "writing" include printing, typing, lithography and other means of reproducing words in a tangible visible form; the words "including," "includes" and "include" shall be deemed to be followed by the words "without limitation"; references to articles, sections (or subdivisions of sections), exhibits, annexes or schedules are to this Agreement, the Note or such Security Document, as applicable; references to agreements and other contractual instruments (including this Agreement, the Note and the Security Documents) shall be deemed to include all subsequent amendments, amendments and restatements, supplements, extensions, replacements and other modifications to such instruments (without, however, limiting any prohibition on any such amendments, extensions and other modifications by the terms of this Agreement, the Note or any Security Document); references to any matter that is "approved" or requires "approval" of a party shall mean approval given in the sole and absolute discretion of such party unless otherwise specified. 1.3 Accounting Terms. Unless otherwise specified herein, all accounting terms used in this Agreement, the Note and in the Security Documents shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Administrative Agent or to the Banks under this Agreement shall be prepared, in accordance with generally accepted accounting principles for the United States ("GAAP"). 1.4 Certain Matter Regarding Materiality. To the extent that any representation, warranty, covenant or other undertaking of the Borrower in this Agreement is qualified by reference to those which are not reasonably expected to result in a "Material Adverse Effect" or language of similar import, no inference shall be drawn therefrom that any Agent or Bank has knowledge or approves of any noncompliance by the Borrower with any governmental rule. 1.5 Forms of Documents. Except as otherwise expressly provided in this Agreement, references to documents or certificates "substantially in the form" of Exhibits to another document shall mean that such documents or certificates are duly completed in the form of the related Exhibits with substantive changes subject to the provisions of Section 17.6 of this Agreement, as the case may be, or the correlative provisions of the Security Documents. 17 2. REPRESENTATIONS AND WARRANTIES 2.1 Representations and Warranties. In order to induce the Arrangers, the Agents and the Banks to enter into this Agreement and to induce the Issuer to issue the Letter of Credit, the Borrower hereby represents and warrants to the Arrangers, the Agents, the Issuer and the Banks (which representations and warranties shall survive the execution and delivery of this Agreement that: (a) Due Organization and Power. each Subsidiary is duly formed and is validly existing in good standing under the laws of its jurisdiction of incorporation or formation, has full power to carry on its business as now being conducted and to enter into and perform its obligations under this Agreement, the Note and the Security Documents to which it is a party, and has complied with all statutory, regulatory and other requirements relative to such business and such agreements; (b) Authorization and Consents. all necessary corporate action has been taken to authorize, and all necessary consents and authorities have been obtained and remain in full force and effect to permit, each Security Party to enter into and perform its obligations under this Agreement, the Note and the Security Documents and, in the case of the Borrower, to borrow, service and repay the Loan and, as of the date of this Agreement, no further consents or authorities are necessary for the service and repayment of the Reimbursement Obligations or the Loan or any part thereof; (c) Binding Obligations. this Agreement, the Note and the Security Documents constitute or will, when executed and delivered, constitute the legal, valid and binding obligations of each Security Party as is a party thereto enforceable against such Security Party in accordance with their respective terms, except to the extent that such enforcement may be limited by equitable principles, principles of public policy or applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting generally the enforcement of creditors' rights; (d) No Violation. the execution and delivery of, and the performance of the provisions of, this Agreement, the Note, and those of the Security Documents to which it is to be a party by each Security Party do not contravene any applicable law or regulation existing at the date hereof or any contractual restriction binding on such Security Party or the certificate of incorporation or by-laws, certificate of formation and operating agreement (or equivalent instruments) thereof; (e) Litigation. no action, suit or proceeding is pending or threatened against the Borrower or any Subsidiary before any court, board of arbitration or administrative agency which could or might result in any Material Adverse Effect; (f) No Default. Neither the Borrower nor any Subsidiary is in default under any material agreement by which it is bound, or is in default in respect of any material financial commitment or obligation; (g) Vessels. upon the Date of Issuance: (i) each of the Facility A Vessels will be in the sole and absolute ownership of the relevant Guarantor as set forth in Schedule 3 and duly registered in such Guarantor's name under Marshall Island or 18 Liberian flag, unencumbered, save and except for the Facility A Mortgage, the Facility B Mortgage and the Mortgage recorded against it and as permitted thereby; (ii) each of the Facility B Vessels will be in the sole and absolute ownership of the relevant Guarantor as set forth in Schedule 4 and duly registered in such Guarantor's name under Liberian flag, unencumbered, save and except for the Facility B Mortgage and the Mortgage recorded against it and as permitted thereby; (iii) each Vessel will be classed in the highest classification and rating for vessels of the same age and type with the respective classification society as set forth in Schedule 3 or Schedule 4, as the case may be, without any material outstanding recommendations; (iv) each Vessel will be operationally seaworthy and in every way fit for its intended service; and (v) each Vessel will be insured in accordance with the provisions of the Mortgage recorded against it and the requirements thereof in respect of such insurances will have been complied with; (h) Insurance. the Borrower and each Subsidiary has insured its properties and assets against such risks and in such amounts as are customary for companies engaged in similar businesses; (i) Financial Information. except as otherwise disclosed in writing to the Agents on or prior to the date hereof, all financial statements, information and other data furnished by the Borrower to the Agents are complete and correct, such financial statements have been prepared in accordance with GAAP and accurately and fairly present the financial condition of the parties covered thereby as of the respective dates thereof and the results of the operations thereof for the period or respective periods covered by such financial statements, and since the date of the Borrower's financial statements most recently delivered to the Administrative Agent, there has been no Material Adverse Effect as to any of such parties and none thereof has any contingent obligations, liabilities for taxes or other outstanding financial obligations which are material in the aggregate except as disclosed in such statements, information and data; (j) Tax Returns. the Borrower and each Subsidiary has filed all material tax returns required to be filed thereby and has paid all taxes payable thereby which have become due, other than those not yet delinquent or the nonpayment of which would not have a Material Adverse Effect on the Borrower and or such Subsidiary and except for those taxes being contested in good faith and by appropriate proceedings or other acts and for which adequate reserves shall have been set aside on its books; (k) ERISA. the execution and delivery of this Agreement and the consummation of the transactions hereunder will not involve any prohibited transaction within the meaning of ERISA or Section 4975 of the Code and no condition exists or event or transaction has occurred in connection with any Plan maintained or contributed to by any the Borrower or any 19 Subsidiary or any ERISA Affiliate resulting from the failure of any thereof to comply with ERISA insofar as ERISA applies thereto which is reasonably likely to result in the Borrower or any such Subsidiary or any ERISA Affiliate incurring any liability, fine or penalty which individually or in the aggregate would have a Material Adverse Effect. Prior to the date hereof, the Borrower has delivered to the Administrative Agent a list of all the employee benefit plans to which the Borrower or any Subsidiary or any ERISA Affiliate is a "party in interest" (within the meaning of Section 3(14) of ERISA) or a "disqualified person" (within the meaning of Section 4975(e)(2) of the Code); (l) Chief Executive Office. the Borrower's chief executive office and chief place of business and the office in which the records relating to the earnings and other receivables of each Security Party are kept is, and will continue to be, located at One Station Place, Stamford, Fairfield County, Connecticut; (m) Foreign Trade. Control Regulations. to the best of the Borrower's knowledge, none of the transactions contemplated herein will violate any of the provisions of the Foreign Assets Control Regulations of the United States of America (Title 31, Code of Federal Regulations, Chapter V, Part 500, as amended), any of the provisions of the Cuban Assets Control Regulations of the United States of America (Title 31, Code of Federal Regulations, Chapter V, Part 515, as amended), any of the provisions of the Libyan Assets Control Regulations of the United States of America (Title 31, Code of Federal Regulations, Chapter V, Part 550, as amended), any of the provisions of the Iranian Transaction Regulations of the United States of America (Title 31, Code of Federal Regulations, Chapter V, Part 560, as amended), any of the provisions of the Iraqi Sanctions Regulations (Title 31, Code of Federal Regulations, Chapter V, Part 575, as amended), any of the provisions of the Federal Republic of Yugoslavia (Serbia and Montenegro) Assets Control Regulations (Title 31, Code of Federal Regulations, Chapter V, Part 585 as amended) or any of the provisions of the Regulations of the United States of America Governing Transactions in Foreign Shipping of Merchandise (Title 31, Code of Federal Regulations, Chapter V, Part 505, as amended); (n) Equity Ownership. each of the Guarantors is a wholly owned direct subsidiary of the Borrower; the SETTEBELLO Guarantor owns 49.0% of the issued and outstanding capital stock of the SETTEBELLO Owner; on the Date of Issuance, the Borrower will not own any shares of capital stock, limited liability company interest, partnership interest or any other direct or indirect equity interest in any corporation, limited liability company, partnership or other entity except the Security Parties and the other companies listed on Schedule 2; (o) Environmental Matters and Claims. (a) except as heretofore disclosed in writing to the Agents (i) the Borrower, each of its Subsidiaries and their Affiliates will, when required to operate their business as then being conducted, be in compliance with all applicable United States federal and state, local, foreign and international laws, regulations, conventions and agreements relating to pollution prevention or protection of human health or the environment (including, without limitation, ambient air, surface water, ground water, navigable waters, waters of the contiguous zone, ocean waters and international waters), including, without limitation, laws, regulations, conventions and agreements relating to (1) emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous materials, oil, hazardous substances, petroleum and petroleum products and by-products ("Materials of Environmental Concern"), or (2) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern ("Environmental Laws"); 20 (ii) the Borrower, each of its Subsidiaries and their Affiliates will, when required, have all permits, licenses, approvals, rulings, variances, exemptions, clearances, consents or other authorizations required under applicable Environmental Laws ("Environmental Approvals") and will, when required, be in compliance with all Environmental Approvals required to operate their business as then being conducted; (iii) none of the Borrower, any Subsidiary nor any Affiliate thereof has received any notice of any claim, action, cause of action, investigation or demand by any person, entity, enterprise or government, or any political subdivision, intergovernmental body or agency, department or instrumentality thereof, alleging potential liability for, or a requirement to incur, material investigator costs, cleanup costs, response and/or remedial costs (whether incurred by a governmental entity or otherwise), natural resources damages, property damages, personal injuries, attorneys' fees and expenses, or fines or penalties, in each case arising out of, based on or resulting from (1) the presence, or release or threat of release into the environment, of any Materials of Environmental Concern at any location, whether or not owned by such person, or (2) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law or Environmental Approval ("Environmental Claim") (other than Environmental Claims that have been fully and finally adjudicated or otherwise determined and all fines, penalties and other costs, if any, payable by the Security Parties in respect thereof have been paid in full or which are fully covered by insurance (including permitted deductibles)); and (iv) there are no circumstances that may prevent or interfere with such full compliance in the future; and (b) except as heretofore disclosed in writing to the Agent there is no Environmental Claim pending or threatened against the Borrower, any Subsidiary or any Affiliate thereof and there are no past or present actions, activities, circumstances, conditions, events or incidents, including, without limitation, the release, emission, discharge or disposal of any Materials of Environmental Concern, that could form the basis of any Environmental Claim against such persons the adverse disposition of which may result in a Material Adverse Effect; (p) Compliance with ISM Code. each Vessel and each Operator complies with the requirements of the ISM Code including (but not limited to) the maintenance and renewal of valid certificates pursuant thereto; (q) Threatened Withdrawal of DOC or SMC. there is no threatened or actual withdrawal of any Operator's DOC or SMC in respect of any Vessel; (r) Approved Business Plan. the Approved Business Plan has been duly approved by resolution of the Board of Directors of the Borrower, which approval has not been amended or rescinded and remains in full force and effect; (s) Liens. other than as disclosed on Schedule 5, there are no liens of any kind on any property owned by the Borrower or the Subsidiary; (t) Indebtedness. other than as disclosed in Schedule 5, the Borrower (and its Subsidiaries on a consolidated basis) has no long-term Indebtedness; and (u) Survival. all representations, covenants and warranties made herein and in any certificate or other document delivered pursuant hereto or in connection herewith shall survive the making of the Loan and the issuance of the Note. 21 3. THE LETTER OF CREDIT 3.1 Issuance of the Letter of Credit. (a) Subject to the terms and conditions of this Agreement and in reliance on the representations, warranties and covenants herein contained, the Banks hereby agree, upon the request of the Borrower and the satisfaction of the conditions precedent contained in Section 5.1 to procure that the Issuer, on behalf of the Banks, issue the Letter of Credit in favor of the Facility A Security Agent, as trustee for the Facility A Banks. (b) The Issuer, on behalf of the Banks, shall issue the Letter of Credit upon three (3) Banking Days' prior written notice from the Borrower to the Issuer requesting the issuance of the Letter of Credit and setting forth the Date of Issuance with respect thereto. Each Bank severally and not jointly agrees, on the terms and conditions set forth herein, to cause the Issuer to issue on behalf of the Banks on such date the Letter of Credit to the Facility A Security Agent, as trustee for the Facility A Banks, in the amount of $36,000,000, effective on the Date of Issuance and expiring on the Expiration Date. The commitment of each Bank to cause the Issuer to issue on behalf of the Banks the Letter of Credit and its obligations hereunder and under the Letter of Credit shall be limited to its Commitment as in effect from time to time. 3.2 Several Obligations; Drawing. (a) The obligations of the Banks hereunder and under or in respect of the Letter of Credit are several and not joint, and no Bank shall be liable for the failure of any other Bank to perform its obligations hereunder or thereunder. The failure of any Bank to honor its obligations hereunder or in respect of the Letter of Credit shall not excuse the several obligations of the other Banks hereunder or thereunder. (b) Upon receipt from the Facility A Security Agent of notice of a demand for payment (the "Demand Notice") under the Letter of Credit made in accordance with the terms thereof, the Issuer shall promptly notify the Borrower and each Bank as to the amount to be paid by such Bank (which amount shall be equal to the Commitment of such Bank) as a result of such demand and the date for such payment (which shall be a Banking Day). Upon receipt of such notice from the Issuer, each Bank shall promptly transfer the amount of its Commitment in immediately available funds to the account specified in or pursuant to the Demand Notice or such other account as the Issuer shall have specified in such notice. Unless the Issuer shall have received notice from a Bank prior to the date for such payment that such Bank will not make available to the Issuer an amount equal to such Bank's Commitment, the Issuer may assume that such Bank has made an amount equal to its Commitment available to the Issuer on the date for such payment in accordance with this subsection (b) and the Issuer may, in reliance upon such assumption, make available to the Facility A Security Agent on such date a corresponding amount. If and to the extent that the Issuer in reliance upon such assumption shall have made available to the Facility A Security Agent, on behalf of any Bank, an amount equal to such Bank's Commitment pursuant to this Section and such Bank shall not have made an amount equal to its Commitment available to the Issuer and the Issuer shall not have been reimbursed by the Borrower for such amount, such Bank agrees to pay to the Issuer forthwith on demand such amount, together with interest thereon, for each day from the date such amount is made available to the Facility A Security Agent until the date such amount is repaid to the Issuer at a rate per annum equal to the Prime Rate for each such day. 22 3.3 Reimbursement Obligation. (a) Unless the Conversion has occurred pursuant to Section 4, the Borrower agrees to pay to the Issuer, for the account of the Banks, immediately after (and on the same Banking Day as) any amount is drawn under, or otherwise paid pursuant to, the Letter of Credit, a sum equal to the amount so drawn or paid and interest on such amount as provided in subsections (b) and (c) below; provided that if the Issuer shall receive such payment from the Borrower later than 3:00 P.M. (New York City time) on such Banking Day, such payment shall be deemed to have been received by the Issuer on the next succeeding Banking Day and interest shall accrue thereon pursuant to subsections (b) and (c) below from the date such payment was due. The Borrower agrees that all payments required hereunder shall be free and clear of all set-offs, withholdings, taxes, claims or other deductions of any kind whatsoever. (b) Any amount owing by the Borrower pursuant to subsection (a) and not paid when due shall bear interest, payable upon demand, for each day from and including the date payment thereof was due to but excluding the date of actual payment thereof in full at the Default Rate. (c) Until payment of any amount due hereunder is made, the Borrower's obligations to the Issuer and the Banks under Section 3.3(a) shall be evidenced by a loan account ledger maintained by the Issuer in the name of the Borrower. The Issuer shall determine any amounts payable by the Borrower under this Section 3.3 and any such determination shall be conclusive absent manifest error. 3.4 Fees. L/C Fee. The Borrower agrees to pay the Issuer, for distribution to the Banks, a letter of credit fee (the "L/C Fee"), on the Stated Amount monthly in arrears from the date hereof and on the earliest of (i) the Expiration Date, (ii) the Conversion Date or (iii) termination of the Letter of Credit in accordance with the terms hereof or thereof, at the rate of three percent (3%) per annum (calculated on the basis of actual number of days elapsed over a year of 360 days). 4. conversion of facility (a) This facility shall automatically convert from a letter of credit facility to a junior secured term loan facility and the outstanding Reimbursement Obligations shall automatically convert to the Loan on the date on which payment by the Issuer, on behalf of the Banks, is made under the Letter of Credit pursuant to Section 3.2, provided, that (i) prior to such date, the Borrower has used its best efforts (to the satisfaction of the Agents) to obtain commitments which would permit the Borrower to receive not less than $15,000,000 net cash proceeds from the issuance of equity securities (excluding and in addition to the approximately $15,000,000 in cash equity previously committed to by First Reserve Corporation) prior to the Initial Payment Date and (ii) the conditions set forth in Section 5.2 shall have been satisfied. 23 (b) Upon the Conversion, (i) the Banks shall be deemed to have made the Loan to the Borrower and the Borrower shall be obligated to repay the Loan pursuant to the terms hereof, (ii) the Letter of Credit shall terminate, (iii) the amount of Reimbursement Obligations outstanding shall be reduced to zero, and (iv) the Administrative Agent shall complete the grid attached to the Note. 5. CONDITIONS 5.1 Conditions Precedent to Issuance of Letter of Credit. The obligation of the Issuer, on behalf of the Banks, to issue the Letter of Credit to the Facility A Security Agent under this Agreement shall be expressly subject to the following conditions precedent: (a) Corporate Authority. The Administrative Agent shall have received the following documents in form and substance satisfactory to the Administrative Agent: (i) copies, certified as true and complete by an officer of the Borrower, of the resolutions of the board of directors of the Borrower evidencing approval of this Agreement and the Note and authorizing an appropriate officer or officers or attorney-in-fact or attorneys-in-fact to execute the same on its behalf, or other evidence of such approvals and authorizations; (ii) copies, certified as true and complete by an officer of each Security Party (other than the Borrower), of the resolutions of the board of directors and shareholder, or management committee and member, as the case may be, thereof evidencing approval of those Security Documents to which it is to be a party and authorizing an appropriate officer or officers or attorney-in-fact or attorneys-in-fact to execute the same on its behalf, or other evidence of such approvals and authorizations; (iii) copies, certified as true and complete by an officer of the Borrower, of all documents evidencing any other necessary action (including actions by such parties thereto other than the Borrower as may be required by the Administrative Agent), approvals or consents with respect to this Agreement, the Note and the Security Documents; (iv) copies, certified as true and complete by an officer of the respective Security Party of the certificate of incorporation and by-laws, certificate of formation and operating agreement, or equivalent instruments thereof; (v) certificate of the Secretary of the Borrower certifying that it legally and beneficially owns, directly or indirectly, all of the issued and outstanding capital stock, or limited liability company membership interests, as the case may be, of each of the other Security Parties and that such capital stock or membership interests are free and clear of 24 any liens, claims, pledges or other encumbrances whatsoever other than as disclosed to the Administrative Agent in writing on or before the date hereof; (vi) certificate of the Secretary of each Security Party (other than the Borrower) certifying as to the record ownership of all of its issued and outstanding capital stock, or limited liability company membership interests, as the case may be; and (vii) certificates of the jurisdiction of incorporation or formation, as the case may be, of each Security Party as to the good standing thereof. (b) The Vessels. the Administrative Agent shall have received evidence satisfactory to it that: (i) each of the Vessels is in the sole and absolute ownership of the relevant Guarantor as set forth in Schedule 3 or Schedule 4, as the case may be, and duly registered in such Guarantor's name under Marshall Islands or Liberian flag, unencumbered, save and except for each of the Facility A Mortgage, in the case of the Facility A Vessels, the Facility B Mortgage and the Mortgage recorded against it and as permitted thereby; (ii) each Vessel is classed in the highest classification and rating for vessels of the same age and type with the respective classification society as set forth in Schedule 3 or Schedule 4, as the case may be, without any material outstanding recommendations; (iii) each of the Vessels is operationally seaworthy and in every way fit for its intended service; and (iv) each of the Vessels is insured in accordance with the provisions of the Mortgage recorded against it and the requirements thereof in respect of such insurances have been complied with; (c) The Note. the Borrower shall have duly executed and delivered this Agreement and the Note, to the Administrative Agent; (d) Guarantor Documents. each Guarantor shall have duly executed and delivered to the Administrative Agent: (i) the Guaranty; (ii) the Mortgage over its Vessel(s); (iii) an Insurances Assignment with respect to its Vessel(s); (iv) an Earnings Assignment with respect to its Vessel(s); 25 (v) its Assignment Notices; and (vi) Uniform Commercial Code Financing Statements for filing with the State and County of New York, the State of Connecticut, Fairfield County, Connecticut and in such other jurisdictions as the Administrative Agent may reasonably require; (e) Mega I Assignment. Loire shall have been executed and delivered to the Security Agent the Mega I Assignment and its Assignment Notoce. (f) Intercreditor Agreement. the Intercreditor Agreement shall have been executed and delivered to the Administrative Agent; (g) Facility A/Facility B. each of Facility A and Facility B shall have been borrowed by the Borrower and/or all conditions to the borrowing thereof shall have been complied with other than issuance of the Letter of Credit. (h) Guarantor Solvency. the Administrative Agent shall have received a certificate of an officer of each Guarantor confirming the representations and warranties with respect to solvency set forth in its Guaranty and containing conclusions as to the solvency of such Guarantor; (i) Environmental Claims. the Administrative Agent shall be satisfied that neither the Borrower nor any of its Subsidiaries is subject to any Environmental Claim which could have a Material Adverse Effect; (j) Fees. the Administrative Agent shall have received payment in full of all fees and expenses due to the Agents, the Arrangers and the Banks under Section 14 and the Fee Letter; (k) Accounts. each Security Party shall have established an operating account with the Syndication Agent into which Assigned Moneys are to be paid; (l) Vessel Liens. the Administrative Agent shall have received evidence satisfactory to it and to its legal advisor that, save for the liens created by the Mortgages, the Assignments, the Facility A Mortgages, the other Facility A Security Documents, the Facility B Mortgages and the other Facility B Security Documents, there are no liens, charges or encumbrances of any kind whatsoever on any of the Vessels or on their respective earnings except as permitted hereby or by any of the Security Documents; (m) Approved Business Plan. not later than fourteen (14) days prior to the Date of Issuance, the Administrative Agent shall have received a copy of the Approved Business Plan, certified by the Secretary of the Borrower to be true and complete; (n) Charters; Pooling Agreements. the Borrower shall have delivered to the Administrative Agent true and complete copies of (i) all charters having a term longer than twelve (12) months from the date of execution and (ii) all vessel pooling agreements, in each case to which the Borrower or any Subsidiary is a party; and 26 (o) Legal Opinions. the Administrative Agent shall have received legal opinions addressed to the Agents from (i) Fredric S. London, Esq., in-house counsel for the Security Parties, and (ii) Seward & Kissel LLP, special counsel to the Agents and Banks, in each case in such form as the Administrative Agent may require, as well as such other legal opinions as the Administrative Agent shall have required as to all or any matters under the laws of the United States of America, the State of Delaware, the State of New York, the Republic of Liberia and the Republic of the Marshall Islands covering the representations and conditions which are the subjects of Sections 2 and 5.1. 5.2 Further Conditions Precedent. The Conversion of the Reimbursement Obligations into the Loan under this Agreement shall be expressly and separately subject to the following further conditions precedent on the Conversion Date: (a) the representations stated in Section 2 (updated mutatis mutandis to such date) being true and correct as if made on and as of that date; (b) no Event of Default having occurred and being continuing and no event having occurred and being continuing which, with the giving of notice or lapse of time, or both, would constitute an Event of Default; (c) the Administrative Agent being satisfied that no change in any applicable laws, regulations, rules or in the interpretation thereof shall have occurred which make it unlawful for any Security Party to make any payment as required under the terms of this Agreement, the Note, the Security Documents or any of them; and (d) there having been no Material Adverse Effect since the date hereof. 5.3 Breakfunding Costs. In the event that, on the date specified in the Demand Notice for the payment of the Stated Amount pursuant to the Letter of Credit, the Banks shall not be obliged under the Letter of Credit to make such payment, the Borrower shall indemnify and hold the Banks fully harmless against any losses which the Banks (or any thereof) may sustain as a result of borrowing or agreeing to borrow funds to meet the payment requirement of the Demand Notice and the certificate of the relevant Bank or Banks shall, absent manifest error, be conclusive and binding on the Borrower as to the extent of any such losses. 5.4 Satisfaction after Issuance or Conversion. Without prejudice to any of the other terms and conditions of this Agreement, in the event the Banks, in their sole discretion, cause the Issuer to issue the Letter of Credit or permit the Conversion to occur prior to the satisfaction of all or any of the conditions referred to in Sections 5.1 or 5.2, the Borrower hereby covenants and undertakes to satisfy or procure the satisfaction of such condition or conditions within fourteen (14) days after the Date of Issuance, in the case of issuance of the Letter of Credit, or the Conversion Date, in the case of occurrence of the Conversion (or such longer period as the Banks, in their sole discretion, may agree). 6. REPAYMENT AND PREPAYMENT OF LOAN 6.1 Repayment. If the Reimbursement Obligations are converted into the Loan as provided in Section 4, the Borrower shall repay the principal of the Loan in six (6) semi-annual installments on 27 six (6) consecutive Payment Dates, commencing with the Initial Payment Date. The first four (4) such installments shall be in the amount of Four Million dollars ($4,000,000), the next such installment shall be in the amount of Ten Million Dollars ($10,000,000) and the last such installment shall be in the amount of Ten Million Dollars ($10,000,000) plus such other amounts as may be necessary to repay the Loan in full together with accrued but unpaid interest and any other amounts owing by the Borrower or any other Security Party to any Arranger, Agent or Bank pursuant to this Agreement, the Note or any Security Document, such last installment to be paid on the Final Payment Date. 6.2 Voluntary Prepayment; no re-borrowing. The Borrower may prepay, upon five (5) Banking Days written notice, the Loan or any portion thereof. Each prepayment shall be in a minimum amount of One Million Dollars ($1,000,000) plus any One Million Dollar ($1,000,000) multiple thereof or the full amount of the Loan. No part of the Loan will be available for re-borrowing. 6.3 Mandatory Prepayment; Sale or Loss of Vessel. On (i) any sale of a Vessel (which in any event shall require the prior consent of the Agents) or (ii) the earlier of (x) ninety (90) days after the Total Loss of a Vessel or (y) the date on which the insurance proceeds in respect of such loss are received by the Borrower (or a Guarantor) or the Security Agent as assignee thereof, such proceeds shall be applied as follows: (a) Facility A Vessel. in respect of a Facility A Vessel first in accordance with Section 5.4 of the Facility A Loan Agreement, then in repayment of amounts due hereunder in the inverse order of their due dates for payment; (b) Facility B Vessel. in respect of a Facility B Vessel first in accordance with Section 5.3 of the Facility B Loan Agreement, then in repayment of amounts due hereunder in the inverse order of their due dates for payment 6.4 Demand Conversion. In the event that the Administrative Agent determines that (a) a Material Adverse Effect has occurred, or (b) the Borrower has failed to meet any objective specified in the Approved Business Plan by the target date thereof specified in the Approved Business Plan to the satisfaction of the Majority Banks, then the Administrative Agent may on such date or any time thereafter convert the Loan to a demand loan by sending notice to the Borrower. Upon the sending of such a notice, the Loan shall be converted to a demand loan, and full repayment of the Loan and all other obligations of the Borrower or any other Security Party under this Agreement, the Note or any Security Document shall be due upon demand by the Administrative Agent. 6.5 Interest and Costs with Prepayments. Any repayment or prepayment of the Loan made pursuant to this Agreement (including, without limitation, those made pursuant to Sections 6 and 10) shall be subject to the condition that on the date of prepayment all accrued interest to the date of such prepayment shall be paid in full with respect to the Loan or portions thereof being prepaid, together with any and all actual costs or expenses incurred by any Bank in connection with any breaking of funding (as certified by such Bank, which certification shall, absent any manifest error, be conclusive and binding on the Borrower). 28 7. INTEREST AND RATE 7.1 Applicable Rate. The Loan shall bear interest at the Applicable Rate which shall be the rate per annum which is equal to the aggregate of (a) LIBOR for the relevant Interest Period plus (b) the Margin. The Applicable Rate shall be determined by the Administrative Agent two Banking Days prior to the first day of the relevant Interest Period. The Administrative Agent shall promptly notify the Borrower in writing of the Applicable Rate as and when determined. Each such determination, absent manifest error, shall be conclusive and binding upon the Borrower. 7.2 Default Rate. Any amounts due under this Agreement, not paid when due, whether by acceleration or otherwise, shall bear interest thereafter from the due date thereof until the date of payment at a rate per annum equal to (i) the Prime Rate (as notified to the Borrower by the Administrative Agent), plus (ii) the Margin, plus (iii) two percent (2%) (the "Default Rate"). Following the occurrence of any Event of Default, the Administrative Agent, upon instruction of the Majority Banks, may deliver a notice to the Borrower advising the Borrower than an Event of Default has occurred. From the date of any such notice until each such Event of Default is cured to the satisfaction of the Majority Banks, the Loan shall bear interest at the Default Rate. 7.3 Interest Periods. The Borrower shall give the Administrative Agent an Interest Notice specifying the Interest Period selected at least three (3) Banking Days prior to the end of any then existing Interest Period. If at the end of any then existing Interest Period the Borrower fails to give an Interest Notice the relevant Interest Period shall be three (3) months. The Borrower's right to select an Interest Period shall be subject to the restriction that no selection of an Interest Period shall be effective unless each Bank is satisfied that the necessary funds will be available to such Bank for such period and that no Event of Default or event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default shall have occurred and be continuing. 7.4 Interest Payments. Accrued interest on the Loan shall be payable in arrears on the last day of each Interest Period, except that if the Borrower shall select an Interest Period in excess of three (3) months, accrued interest shall be payable during such Interest Period on each three (3) month anniversary of the commencement of such Interest Period and upon the end of such Interest Period. 8. PAYMENTS 8.1 Place of Payments, No Set Off. All payments to be made hereunder by the Borrower shall be made to the Administrative Agent, not later than 11 a.m. New York time (any payment received after 11 a.m. New York time shall be deemed to have been paid on the next Banking Day) on the due date of such payment, at its office located at 11 West 42nd Street, 7th Floor, New York, New York 10036 or to such other office of the Administrative Agent as the Administrative Agent may direct, without set-off or counterclaim and free from, clear of, and without deduction for, any Taxes, provided, however, that if the Borrower shall at any time be compelled by law to withhold or deduct any Taxes from any amounts payable to the Banks hereunder, then the Borrower shall pay such additional amounts in Dollars as may be necessary in order that the net amounts received after withholding or deduction shall equal the amounts which would have been received if such withholding or deduction were not required and, in the event any withholding or deduction is made, whether for Taxes or otherwise, the Borrower shall promptly send to the Administrative Agent such documentary evidence with respect to such withholding or deduction as may be required from time to time by the Banks. 29 8.2 Tax Credits. If any Bank obtains the benefit of a credit against the liability thereof for federal income taxes imposed by any taxing authority for all or part of the Taxes as to which the Borrower has paid additional amounts as aforesaid (and each Bank agrees to use its best efforts to obtain the benefit of any such credit which may be available to it, provided it has knowledge that such credit is in fact available to it), then such Bank shall reimburse the Borrower for the amount of the credit so obtained. Each Bank agrees that in the event that Taxes are imposed on account of the situs of its loans hereunder, such Bank, upon acquiring knowledge of such event, shall, if commercially reasonable, shift such loans on its books to another office of such Bank so as to avoid the imposition of such Taxes. 8.3 Computations; Banking Days. (a) All computations of interest and fees shall be made by the Agents or the Banks, as the case may be, on the basis of a 360-day year, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which interest or fees are payable. Each determination by the Agents or the Banks of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error. (b) Whenever any payment hereunder or under the Note shall be stated to be due on a day other than a Banking Day, such payment shall be due and payable on the next succeeding Banking Day unless the next succeeding Banking Day falls in the following calendar month, in which case it shall be payable on the immediately preceding Banking Day. 9. EVENTS OF DEFAULT 9.1 Events of Default. The occurrence of any of the following events shall be an Event of Default: (a) Non-Payment of Principal. any payment of principal is not paid when due; or (b) Non-Payment of Interest or Other Amounts. any interest or any other amount becoming payable to the Agents, the Arrangers or any Bank under this Agreement, under the Note, or under any of the Security Documents is not paid on the due date or date of demand (as the case may be), and such default continues unremedied for a period of five (5) Banking Days; or (c) Representations. any representation, warranty or other statement made by the Borrower in this Agreement or by any Security Party in any of the Security Documents or in any other instrument, document or other agreement delivered in connection herewith or therewith proves to have been untrue or misleading in any material respect as at the date as of which made or confirmed; or (d) Mortgage. there is an event of default under any Mortgage; or (e) Covenants. any Security Party defaults in the due and punctual observance or performance of any other term, covenant or agreement contained in this Agreement, in the Note, in any of the Security Documents or in any other instrument, document or other agreement delivered in connection herewith or therewith, or it becomes impossible or unlawful for any Security Party to fulfill any such term, covenant or agreement or there occurs any other event which constitutes a default under this Agreement, under the Note or under any of the Security Documents, in each case other than an Event of Default referred to elsewhere in this Section 9.1, 30 and such default, impossibility and/or unlawfulness, in the reasonable opinion of the Majority Banks, could have a material adverse effect on the Banks' rights hereunder, under the Note or under the Security Documents or on the Banks' right to enforce this Agreement, the Note, and/or the Security Documents, and continues unremedied or unchanged, as the case may be, for a period of thirty (30) days; or (f) Indebtedness. any Security Party, any Subsidiary or any Affiliate shall default in the payment when due (subject to any applicable grace period) of any Indebtedness or of any other indebtedness, in either case, in the outstanding principal amount equal to or exceeding Five Hundred Thousand Dollars ($500,000) or such Indebtedness or indebtedness is, or by reason of such default is subject to being, accelerated or any party becomes entitled to enforce the security for any such Indebtedness or indebtedness and such party shall take steps to enforce the same, unless such default or enforcement is being contested in good faith and by appropriate proceedings or other acts and the Security Party, Subsidiary or Affiliate, as the case may be, shall set aside on its books adequate reserves with respect thereto; or (g) Ownership of Guarantors. the Borrower shall cease to own (except as otherwise expressly permitted by this Agreement), directly or indirectly, one hundred percent (100%) of any of the Guarantors or the SETTEBELLO Guarantor shall cease to own, directly or indirectly, 49.0% of the SETTEBELLO Owner; or (h) Bankruptcy. the Borrower or any Affiliate commences any proceeding under any reorganization, arrangement or readjustment of debt, dissolution, winding up, adjustment, composition, bankruptcy or liquidation law or statute of any jurisdiction, whether now or hereafter in effect (a "Proceeding"), or there is commenced against any thereof any Proceeding and such Proceeding remains undismissed or unstayed for a period of thirty (30) days or any receiver, trustee, liquidator or sequestrator of, or for, any thereof or any substantial portion of the property of any thereof is appointed and is not discharged within a period of thirty (30) days or any thereof by any act indicates consent to or approval of or acquiescence in any Proceeding or the appointment of any receiver, trustee, liquidator or sequestrator of, or for, itself or of, or for, any substantial portion of its property; or (i) Termination of Operations; Sale of Assets. except as expressly permitted under this Agreement, any Security Party ceases its operations or sells or otherwise disposes of all or substantially all of its assets (other than such a sale by one Guarantor to another) or all or substantially all of the assets of any Security Party are seized or otherwise appropriated; or (j) Judgments. any judgment or order is made the effect whereof would be to render ineffective or invalid this Agreement, the Letter of Credit, the Note or any of the Security Documents or any material provision thereof, or the Borrower or any Security Party asserts that any such agreement or provision thereof is invalid; or (k) Inability to Pay Debts. any Security Party is unable to pay or admits its inability to pay its debts as they fall due or a moratorium shall be declared in respect of any material indebtedness of any Security Party; or 31 (l) Change in Financial Position. any change in the financial position of any Security Party which, in the reasonable opinion of the Majority Banks, shall have a Material Adverse Effect; or (m) Change in Control. a Change of Control shall occur with respect to the Borrower; or (n) ERISA Debt. (i) the Borrower or any ERISA Affiliate fails to pay when due an amount or amounts aggregating in excess of $1,000,000 which it or they have become liable to pay under Title IV of ERISA or (ii) the Borrower or any ERISA Affiliate, individually or collectively, incurs, or should reasonably expect to incur, any Withdrawal Liability or liability upon the happening of a Termination Event and the aggregate of all such Withdrawal Liabilities and such other liabilities exceeds $10,000,000; or (o) Approved Business Plan. at any time the Board of Directors of the Borrower passes any resolution amending or rescinding any part of the Approved Business Plan or the Borrower otherwise rejects or rescinds any part of the Approved Business Plan; or (p) Cross-Default. any Event of Default (as defined in either the Facility A Loan Agreement or the Facility B Loan Agreement) or event which, with the giving of notice or passage of time on both, would constitute such an Event of Default, occurs or the Borrower or any Guarantor defaults under any material contract or agreement to which it is a party or by which it is bound. Upon and during the continuance of any Event of Default, the Banks' obligation to make the Letter of Credit Available or convert the Reimbursement Obligations into the Loan available shall cease and the Administrative Agent on the instructions of the Majority Banks may, by notice to the Borrower, direct the Borrower to pay to the Administrative Agent for the benefit of the Banks the Stated Amount to be kept as collateral for the Borrower's Reimbursement Obligations, or should the same have been converted into the Loan, declare the entire unpaid balance of the then outstanding Loan, accrued interest and any other sums payable by the Borrower hereunder or under the Note due and payable, whereupon the same shall forthwith be due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived; provided that upon the happening of an event specified in subsections (h) or (k) of this Section 9.1 with respect to the Borrower, the Note (provided that the Conversion had occurred) shall be immediately due and payable without declaration or other notice to the Borrower. In such event, the Banks may proceed to protect and enforce their rights by action at law, suit in equity or in admiralty or other appropriate proceeding, whether for specific performance of any covenant contained in this Agreement, in the Note (provided that the Conversion had occurred) or in any Security Document, or in aid of the exercise of any power granted herein or therein, or the Banks may proceed to enforce the payment of the Note (provided that the Conversion had occurred) or the Reimbursement Obligations or to enforce any other legal or equitable right of the Banks, or proceed to take any action authorized or permitted under the terms of any Security Document or by applicable law for the collection of all sums due, or so declared due, on the Note (provided that the Conversion had occurred) or with respect to the Reimbursement Obligations, including, without limitation, the right to appropriate and hold or apply (directly, by way of set-off or otherwise) to the payment of the obligations of the Borrower to the Banks hereunder and/or under the Note (provided that the Conversion had occurred) (whether or not then due) all moneys and other amounts of the Borrower then or thereafter 32 in possession of any Bank, the balance of any deposit account (demand or time, mature or unmatured) of the Borrower then or thereafter with any Bank and every other claim of the Borrower then or thereafter against any of the Banks. 9.2 Indemnification. The Borrower agrees to, and shall, indemnify and hold the Agents, the Arrangers and the Banks harmless against any loss, as well as against any reasonable costs or expenses (including reasonable legal fees and expenses), which any of the Agents, the Arrangers or the Banks sustains or incurs as a consequence of any default in payment of the principal amount of the Loan, interest accrued thereon or any other amount payable hereunder, under the Note or under any Security Documents including, but not limited to, all actual losses incurred in liquidating or re-employing fixed deposits made by third parties or funds acquired to effect or maintain the Loan or any portion thereof. Any Banks' certification of such costs and expenses shall, absent any manifest error, be conclusive and binding on the Borrower. 9.3 Application of Moneys. Except as otherwise provided in any Security Document, all moneys received by the Agents, the Arrangers or the Banks under or pursuant to this Agreement, the Note or any of the Security Documents after the happening of any Event of Default (unless cured to the satisfaction of the Majority Banks) shall be applied by the Agents in the following manner: (a) first, in or towards the payment or reimbursement of any expenses or liabilities incurred by the Agents, the Arrangers or the Banks in connection with the ascertainment, protection or enforcement of its rights and remedies hereunder, under the Note and under any of the Security Documents, (b) secondly, in or towards payment of any interest owing in respect of the Loan or the Reimbursement Obligations, as the case may be, (c) thirdly, in or towards repayment of principal of the Loan or the Reimbursement Obligations, as the case may be, (d) fourthly, in or towards payment of all other sums which may be owing to the Agents, the Arrangers or the Banks under this Agreement, under the Note, under the Fee Letter or under any of the Security Documents, and (e) fifthly, the surplus (if any) shall be paid to the Borrower or to whosoever else may be entitled thereto. 10. COVENANTS 10.1 Affirmative Covenants. The Borrower hereby covenants and undertakes with the Banks that, from the date hereof and so long as any principal, interest or other moneys are owing in respect of this Agreement, under the Note or under any of the Security Documents, the Borrower will: (a) Performance of Agreements. duly perform and observe, and procure the observance and performance by all other parties thereto (other than the Banks) of, the terms of this Agreement, the Note and the Security Documents; (b) Notice of Default, etc. promptly upon obtaining knowledge thereof, inform the Administrative Agent of the occurrence of (a) any Event of Default or of any event 33 which, with the giving of notice or lapse of time, or both, would constitute an Event of Default, (b) any litigation or governmental proceeding pending or threatened against it or against any of its Subsidiaries which could reasonably be expected to have a Material Adverse Effect, (c) the withdrawal of any Vessel's rating by its Classification Society or the issuance by the Classification Society of any material recommendation or notation affecting class and (d) any other event or condition which is reasonably likely to have a Material Adverse Effect; (c) Obtain Consents. without prejudice to Section 2.1 and this Section 10.1, obtain every consent and do all other acts and things which may from time to time be necessary or advisable for the continued due performance of all its and the other Security Parties' respective obligations under this Agreement, under the Note and under the Security Documents; (d) Financial Information. deliver to each Bank: (i) as soon as available but not later than ninety (90) days after the end of each fiscal year of the Borrower, complete copies of the consolidated financial reports of the Borrower and its Subsidiaries (together with a Compliance Certificate), all in reasonable detail, which shall include at least the consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such year and the related consolidated statements of income and sources and uses of funds for such year, which shall be audited reports prepared by an Acceptable Accounting Firm; (ii) as soon as available but not less than forty-five (45) days after the end of each of the first three quarters of each fiscal year of the Borrower, a quarterly interim consolidated balance sheet of the Borrower and its Subsidiaries and the related consolidated profit and loss statements and sources and uses of funds (together with a Compliance Certificate), all in reasonable detail, unaudited, but certified to be true and complete by the chief financial officer of the Borrower; (iii) within ten (10) days of the filing thereof, copies of all registration statements and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) and other material filings which the Borrower shall have filed with the Securities and Exchange Commission or any similar governmental authority; (iv) promptly upon the mailing thereof to the shareholders of the Borrower, copies of all financial statements, reports, proxy statements and other communications provided to the Borrower's shareholders; (v) within ten (10) days of the Borrower's receipt thereof, copies of all audit letters or other correspondence from any external auditors including material financial information in respect of the Borrower; (vi) at any time upon the request of any Agent, a Compliance Certificate; and 34 (vii) such other statements (including, without limitation, monthly consolidated statements of operating revenues and expenses), lists of assets and accounts, budgets, forecasts, reports and other financial information with respect to its business as the Administrative Agent may from time to time reasonably request, certified to be true and complete by the chief financial officer of the Borrower; (e) Corporate Existence. do or cause to be done, and procure that each Subsidiary shall do or cause to be done, all things necessary to preserve and keep in full force and effect its corporate existence, or limited liability company existence, as the case may be, and all licenses, franchises, permits and assets necessary to the conduct of its business; (f) Books and Records. at all times keep, and cause each Subsidiary to keep, proper books of record and account into which full and correct entries shall be made in accordance with GAAP; (g) Taxes and Assessments. pay and discharge, and cause each Subsidiary to pay and discharge, all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or property prior to the date upon which penalties attach thereto; provided, however, that it shall not be required to pay and discharge, or cause to be paid and discharged, any such tax, assessment, charge or levy so long as the legality thereof shall be contested in good faith and by appropriate proceedings or other acts and it shall set aside on its books adequate reserves with respect thereto; (h) Inspection. allow, and cause each Subsidiary to allow, any representative or representatives designated by any Agent, subject to applicable laws and regulations, to visit and inspect any of its properties, and, on request, to examine its books of account, records, reports and other papers and to discuss its affairs, finances and accounts with its officers, all at such reasonable times and as often as any Agent reasonably requests; (i) Compliance with Statutes, Agreements, etc. do or cause to be done, and cause each Subsidiary to do and cause to be done, all things necessary to comply with all material contracts or agreements to which it or any Subsidiary is a party, and all material laws, and the rules and regulations thereunder, applicable to the Borrower or such Subsidiary, including, without limitation, those laws, rules and regulations relating to employee benefit plans and environmental matters; (j) Environmental Matters. promptly upon the occurrence of any of the following conditions, provide to the Administrative Agent a certificate of a chief executive officer thereof, specifying in detail the nature of such condition and its proposed response or the response of its Environmental Affiliates: (a) its receipt or the receipt by any other Security Party or any Environmental Affiliates of the Borrower or any other Security Party of any written communication whatsoever that alleges that such person is not in compliance with any applicable Environmental Law or Environmental Approval, if such noncompliance could reasonably be expected to have a Material Adverse Effect, (b) knowledge by it, or by any other Security Party or any Environmental Affiliates of the Borrower or any other Security Party that there exists any Environmental Claim pending or threatened against any such person, which could reasonably be expected to have a Material Adverse Effect, or (c) any release, emission, discharge or disposal of any material that 35 could form the basis of any Environmental Claim against it, any other Security Party or against any Environmental Affiliates of the Borrower or any other Security Party, if such Environmental Claim could reasonably be expected to have a Material Adverse Effect. Upon the written request by the Agent, it will submit to the Agent at reasonable intervals, a report providing an update of the status of any issue or claim identified in any notice or certificate required pursuant to this subsection; (k) ERISA. forthwith upon learning of the occurrence of any material liability of the Borrower, any Subsidiary or any ERISA Affiliate pursuant to ERISA in connection with the termination of any Plan or withdrawal or partial withdrawal of any multi-employer plan (as defined in ERISA) or of a failure to satisfy the minimum funding standards of Section 412 of the Code or Part 3 of Title I of ERISA by any Plan for which the Borrower, any Subsidiary or any ERISA Affiliate is plan administrator (as defined in ERISA), furnish or cause to be furnished to the Banks written notice thereof; (l) Vessel Management. cause each of the Vessels to be managed both commercially and technically by the Borrower, a wholly-owned subsidiary thereof or its existing manager; (m) Funded Debt to Total Capitalization Ratio. maintain at all times on a consolidated basis a ratio of Funded Debt to Total Capitalization of not more than 0.6 to 1 provided, that for purposes of compliance with this covenant only, Funded Debt shall (i) exclude unsecured, subordinated debt, and (ii) include the present value of the Borrower's (or any of the Borrower's Subsidiaries') liability for all payments under synthetic leases other than the Columbia Lease; (n) Cash. maintain at all times on a consolidated basis readily available cash and/or Cash Equivalents as follows: (i) through December 31, 2000, not less than Ten Million Dollars ($10,000,000); (ii) thereafter, through June 30, 2001, not less than Fifteen Million Dollars ($15,000,000); (iii) thereafter, not less than Twenty Million Dollars ($20,000,000); (o) Consolidated Net Worth. maintain at all times a Consolidated Net Worth of not less than One Hundred Sixty Million Dollars ($160,000,000) plus 50% of the Borrower's positive net income (on a consolidated basis) earned after December 31, 1999 plus 100% of the net proceeds received by the Borrower (or any of the Borrower's Subsidiaries) from the issuance of equity securities after the Date of Issuance; (p) EBITDA to Interest Expense. maintain a ratio of EBITDA to Interest Expense as follows: (i) through December 31, 2000, not less than 1.1 to 1.0; (ii) thereafter, through December 31, 2002, not less than 1.75 to 1.0; 36 (iii) thereafter, not less than 2.5 to 1.0; measured not less than quarterly, in each instance based on the four most recent fiscal quarters for which financial information is available; (q) Use of Excess Cash. apply all cash and Cash Equivalents of the Borrower (on a consolidated basis), proceeds from the issuance of securities by the Borrower, any Guarantor or any Guarantor, and proceeds from the sale of any vessels by the Borrower, any Guarantor or any Guarantor (net of indebtedness secured by a mortgage on such vessel) as follows: (i) to the extent the Borrower chooses to do so, to retention by the Borrower as cash or Cash Equivalents up to $20.0 million; and then (ii) to prepayment of the Loan until the Loan is fully repaid. (r) Brokerage Commissions, etc. the Borrower agrees to indemnify and hold the Arrangers, the Agents and the Banks harmless from any claim for any brokerage commission, fee, or compensation from any broker or third party resulting from the transactions contemplated hereby; (s) Deposit Accounts; Assignment. maintain, and procure that each other Security Party shall maintain its operating accounts with the Syndication Agent and shall procure, and shall cause each other Security Party to procure, that all earnings of any Vessels shall be paid into such operating accounts and the Borrower, and by its execution of the Consent and Agreement hereto, each other Security Party, hereby pledges, assigns and grants to the Syndication Agent, for the benefit of the Banks, a security interest in all funds from time to time in such accounts (such security interest in accounts of the Guarantors being subject to the terms of the Intercreditor Agreement); (t) Future Guaranties. procure that all Subsidiaries of the Borrower (other than Designated Subsidiaries, and only for so long as remaining a Designated Subsidiary), shall execute a Guaranty and other relevant Security Documents in respect of any vessel owned thereby within thirty (30) days of formation, acquisition or otherwise becoming a Subsidiary, or ceasing to be a Designated Subsidiary, of the Borrower; and (u) Insurance. maintain, and cause each Subsidiary to maintain, with financially sound and reputable insurance companies, insurance on all their respective properties and against all such risks and in at least such amounts as are usually insured against by companies of established reputation engaged in the same or similar business from time to time 10.2 Negative Covenants. The Borrower hereby covenants and undertakes with the Banks that, from the date hereof and so long as any principal, interest or other moneys are owing in respect of this Agreement, under the Note or under any of the Security Documents, the Borrower will not, and will procure that no other Subsidiary, to the extent applicable, will, without prior the written consent of the Administrative Agent (or the Majority Banks or all of the Banks if required by Section 16.8): (a) Liens. create, assume or permit to exist, any mortgage, pledge, lien, charge, encumbrance or any security interest whatsoever upon any Collateral or other property except: 37 (i) liens disclosed in Schedule 5; (ii) liens on the Designated Vessel securing the Designated Vessel Indebtedness; (iii) liens for taxes not yet payable for which adequate reserves have been maintained; (iv) the Mortgages, the Assignments, and other liens in favor of the Security Agent; (v) liens, charges and encumbrances against their respective Vessels permitted to exist under the terms of the Mortgages; (vi) pledges of certificates of deposit or other cash collateral securing any Security Party's reimbursement obligations in connection with letters of credit now or hereafter issued for the account of such Security Party in connection with the establishment of the financial responsibility of the Security Parties under 33 C.F.R. Part 130 or 46 C.F.R. Part 540, as the case may be, as the same may be amended or replaced; (vii) pledges or deposits to secure obligations under workmen's compensation laws or similar legislation, deposits to secure public or statutory obligations, warehousemen's or other like liens, or deposits to obtain the release of such liens and deposits to secure surety, appeal or customs bonds on which the Borrower or any of the Guarantors is the principal, as to all of the foregoing, only to the extent arising and continuing in the ordinary course of business; and (viii) other liens, charges and encumbrances incidental to the conduct of the business of each such party, the ownership of any such party's property and assets and which do not in the aggregate materially detract from the value of each such party's property or assets or materially impair the use thereof in the operation of its business; (b) Change in Business. materially change the nature of its business or commence any business materially different from its current business; (c) Sale or Pledge of Shares. sell, assign, transfer, pledge or otherwise convey or dispose of any of the shares (including by way of spin-off, installment sale or otherwise) of the capital stock, or limited liability company interests, as the case may be, of any Guarantor other than as may be allowed in accordance with the Facility A Pledge Agreement or the Facility B Pledge Agreement; (d) Sale of Assets. sell, or otherwise dispose of, any Vessel (other than the Designated Vessel, sales of Facility A Vessels made in accordance with the terms of the Facility A Loan Agreement and sales of Facility B Vessels made in accordance with the terms of the Facility B Loan Agreement the proceeds of which are applied in accordance with Section 6.3 38 hereof) or any other asset (including by way of spin-off, installment sale or otherwise) which is substantial in relation to its assets taken as a whole including without limitation, any material foreign Subsidiary or foreign assets or interest in an Affiliate, other than such sales by one Guarantor to another; (e) Changes in Offices or Names. change the location of the chief executive office of any Security Party, the office of the chief place of business any such parties, the office of the Security Parties in which the records relating to the earnings or insurances of the Vessels are kept unless the Banks shall have received sixty (60) days prior written notice of such change; (f) Consolidation and Merger. consolidate with, or merge into, any corporation or other entity, or merge any corporation or other entity into it provided, however that any Guarantor shall be permitted to merge into or consolidate with any other Guarantor, so long as no Event of Default would result therefrom; (g) Chartering-in. other than pursuant to charters disclosed in Schedule 5, charter, as charterer, any one vessel for a charter period exceeding twelve (12) months; or permit any vessel to be chartered into any vessel pool (in which the Borrower or any Subsidiary is a member) for a term exceeding three (3) months; (h) Chartering-out. and will procure that each other Subsidiary will not, other than pursuant to charters disclosed in Schedule 5, charter, as owner, any vessel (other than the Designated Vessel) on demise or bareboat charter, or on time charter for a period in excess of twelve (12) months; (i) Vessel Pooling. and will procure that each Subsidiary will not, enter any vessel into any vessel pooling arrangement other than as disclosed in Schedule 5, or at any time amend any vessel pooling agreement; (j) Distributions on Stock. in the case of the Borrower only, directly or indirectly declare or pay any dividend or make any distribution on its capital stock (a "Restricted Payment"); (k) Indebtedness. incur any Indebtedness, provided, however, that if no Event of Default has occurred and is continuing, and that the other Designated Vessel Conditions are met, the Designated Vessel Owner may incur the Designated Vessel Indebtedness at the time of the Designated Vessel Acquisition; (l) Investments. make any Investment provided, however, that if no Event of Default has occurred and is continuing, the Borrower may make the SOYANG Investment at the time the SOYANG is acquired; (m) Capital Expenditures. make any Capital Expenditure (other than as provided in (l) above); (n) Deposit Accounts. other than as disclosed in Schedule 5, maintain any deposit account other than with the Syndication Agent; provided, that this covenant shall not apply to the Designated Vessel Owner; and 39 (o) Change Fiscal Year. change its fiscal year. 10.3 Subsidiary Negative Covenants. The Borrower hereby covenants and undertakes with the Banks that, from the date hereof and so long as any principal, interest or other moneys are owing in respect of this Agreement, under the Note or under any of the Security Documents, the Borrower will procure that no Subsidiary will: (a) Limitations on Ability to Make Distributions. create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary (other than a Designated Subsidiary) to (i) pay dividends or make any other distributions on its capital stock or limited liability company interests, as the case may be, to the Borrower or any Subsidiary or pay any Indebtedness owed to the Borrower, (ii) make any loans or advances to the Borrower, or (iii) transfer any of its property or assets to the Borrower; (b) Use of Corporate Funds. (except for the SOYANG Investment and Permitted Drydocking Costs) pay out any funds to any company or person except (a) in the ordinary course of business in connection with the management of the business of the Borrower and its Subsidiaries, including the operation and/or repair of the Vessels and other vessels owned or operated by such parties and (b) the servicing of the Indebtedness permitted hereunder (but excluding, any prepayments of any Indebtedness other than the Loan); (c) Issuance of Shares. issue or dispose of any shares of its own capital stock or limited liability company interests, as the case may be, to any person other than the Borrower; or 10.4 Vessel Valuations. For inclusion with each Compliance Certificate delivered pursuant to Section 10.1(d)(i), and each Compliance Certificate in respect of the second quarter of each fiscal year delivered pursuant to Section 10.1(d)(ii), and in any event upon the request of any Agent, the Borrower shall obtain appraisals of the Fair Market Value of the Vessels. The first three such valuations in any year are to be at the Borrower's cost, provided, that following and during the continuance of any Event of Default, all such valuations are to be at the Borrower's cost. In the event the Borrower fails or refuses to obtain the valuations requested pursuant to this Section 10.4 within ten (10) days of an Agent's request therefor, any Agent will be authorized to obtain such valuations, at the Borrower's cost, from three independent shipbrokers selected by the Agents, which valuations shall be deemed the equivalent of valuations duly obtained by the Borrower pursuant to this Section 10.4, but any Agent's actions in doing so shall not excuse any default of the Borrower under this Section 10.4. 10.5 Asset Maintenance. (a) If at any time after the Issuance Date but prior to December 31, 2001, the aggregate Fair Market Value of the Facility A Vessels then mortgaged to the Security Agent (based upon the valuations obtained pursuant to Section 10.4) (together with the value of any additional collateral theretofore provided under this Section) is less than one hundred fifteen percent (115%) of the aggregate of the Facility A Loan and the Loan, or 40 (b) if at any time after December 31, 2001 but prior to December 31, 2002 such aggregate Fair Market Value is less than one hundred twenty percent (120%) of the aggregate of the Facility A Loan and the Loan, or (c) if at any time thereafter the aggregate Fair Market Value of the Facility Vessels is less than one hundred thirty percent (130%) of the aggregate of the Facility A Loan and the Loan, (in each case as applicable, such percentage being the "Required Percentage") the Borrower shall, within a period of thirty (30) days following receipt by the Borrower of written notice from the Administrative Agent notifying the Borrower of such shortfall and specifying the amount thereof (which amount shall, in the absence of manifest error, be deemed to be conclusive and binding on the Borrower), either (i) deliver to the Security Agent, upon the Administrative Agent's request, such additional collateral as may be satisfactory to the Lenders in their sole discretion of sufficient value to restore compliance with the Required Percentage or (ii) the Borrower shall prepay such amount of the Loan (together with interest thereon and any other monies payable in respect of such prepayment pursuant to Section 5.4) as shall result in the Fair Market Value of the Facility A Vessels then mortgaged to the Security Agent being not less than the Required Percentage. The Borrower shall provide the Agents with its calculation as to its compliance with these provisions with each Interest Notice and each Compliance Certificate. 10.6 Inspection and Survey Reports. If the Banks shall so request, the Borrowers shall provide the Banks with copies of all internally generated inspection or survey reports on the Vessels. 11. ASSIGNMENT. This Agreement shall be binding upon, and inure to the benefit of, the Borrower and the Banks, the Arrangers and the Agents and their respective successors and assigns, except that the Borrower may not assign any of its rights or obligations hereunder. Each Bank shall be entitled to assign its rights and obligations under this Agreement or grant participation(s) in the Loan to any subsidiary, holding company or other affiliate of such Bank, to any subsidiary or other affiliate company of any thereof or, with the consent of the Borrower and the Agents, not to be unreasonably withheld, to any other bank or financial institution (in a minimum amount of not less than $5,000,000), and such Bank shall forthwith give notice of any such assignment or participation to the Borrower; and provided, however, that any such assignment must be made pursuant to an Assignment and Assumption Agreement. The Borrower will take all reasonable actions requested by any Agent or any Bank to effect such assignment, including, without limitation, the execution of a written consent to any Assignment and Assumption Agreement. 12. ILLEGALITY, INCREASED COST, NON-AVAILABILITY, ETC. 12.1 Illegality. In the event that by reason of any change in any applicable law, regulation or regulatory requirement or in the interpretation thereof, a Bank has a reasonable basis to conclude that it has become unlawful for any Bank to maintain or give effect to its obligations as contemplated by this Agreement or the Letter of Credit, such Bank shall inform the Agent and the Borrower to that effect, whereafter the liability of such Bank to make its Commitment available shall forthwith cease and the Borrower shall be required either to repay to such Bank that portion of the Loan advanced by such Bank immediately or, if such Bank so agrees, to repay such portion of 41 the Loan to the Bank on the last day of any then current Interest Period in accordance with and subject to the provisions of Section 12.5. In any such event, but without prejudice to the aforesaid obligations of the Borrower to repay such portion of the Loan, the Borrower and the relevant Bank shall negotiate in good faith with a view to agreeing on terms for making such portion of the Loan available from another jurisdiction or otherwise restructuring such portion of the Loan on a basis which is not unlawful. 12.2 Increased Costs. If any change in applicable law, regulation or regulatory requirement, or in the interpretation or application thereof by any governmental or other authority, shall: (i) subject any Bank to any Taxes with respect to its income from the Loan or the Reimbursement Obligations, or any part thereof, or (ii) change the basis of taxation to any Bank of payments of principal or interest or any other payment due or to become due pursuant to this Agreement (other than a change in the basis effected by the jurisdiction of organization of such Bank, the jurisdiction of the principal place of business of such Bank, the United States of America, the State or City of New York or any governmental subdivision or other taxing authority having jurisdiction over such Bank (unless such jurisdiction is asserted by reason of the activities of the Borrower or any of the other Security Parties) or such other jurisdiction where the Loan or the Reimbursement Obligations may be payable), or (iii) impose, modify or deem applicable any reserve requirements or require the making of any special deposits against or in respect of any assets or liabilities of, deposits with or for the account of, or loans by, a Bank, or (iv) impose on any Bank any other condition affecting the Loan or the Reimbursement Obligations or any part thereof, and the result of the foregoing is either to increase the cost to such Bank of making available or maintaining its Commitment or any part thereof or to reduce the amount of any payment received by such Bank, then and in any such case if such increase or reduction in the opinion of such Bank materially affects the interests of such Bank under or in connection with this Agreement: (a) the Bank shall notify the Agent and the Borrower of the happening of such event, and (c) the Borrower agrees forthwith upon demand to pay to such Bank such amount as such Bank certifies to be necessary to compensate such Bank for such additional cost or such reduction; PROVIDED, however, that the foregoing provisions shall not be applicable in the event that increased costs to the Bank result from the exercise by the Bank of its right to assign its rights or obligations under Section 11. 42 12.3 Nonavailability of Funds. If the Administrative Agent shall determine that, by reason of circumstances affecting the London Interbank Market generally, adequate and reasonable means do not or will not exist for ascertaining the Applicable Rate for the Loan for any Interest Period, the Administrative Agent shall give notice of such determination to the Borrower. The Borrower and the Administrative Agent shall then negotiate in good faith in order to agree upon a mutually satisfactory interest rate and/or Interest Period to be substituted for those which would otherwise have applied under this Agreement. If the Borrower and the Administrative Agent are unable to agree upon such a substituted interest rate and/or Interest Period within thirty (30) days of the giving of such determination notice, the Administrative Agent shall set an interest rate and Interest Period to take effect from the expiration of the Interest Period in effect at the date of determination, which rate shall be equal to the Margin plus the cost to the Banks (as certified by each Bank) of funding the Loan. In the event the state of affairs referred to in this Section 12.3 shall extend beyond the end of the Interest Period, the foregoing procedure shall continue to apply until circumstances are such that the Applicable Rate may be determined pursuant to Section 7. 12.4 Bank's Certificate Conclusive. A certificate or determination notice of any Bank as to any of the matters referred to in this Section 12 shall, absent manifest error, be conclusive and binding on the Borrower. 12.5 Compensation for Losses. Where the Loan or any portion thereof is to be repaid by the Borrower pursuant to this Section 12, the Borrower agrees simultaneously with such repayment to pay to the relevant Bank all accrued interest to the date of actual payment on the amount repaid and all other sums then payable by the Borrower to the relevant Bank pursuant to this Agreement, together with such amounts as may be certified by the relevant Bank to be necessary to compensate such Bank for any actual loss, premium or penalties incurred or to be incurred thereby on account of funds borrowed to make, fund or maintain its Commitment or such portion thereof for the remainder (if any) of the then current Interest Period or Periods, if any, but otherwise without penalty or premium. 13. CURRENCY INDEMNITY 13.1 Currency Conversion. If for the purpose of obtaining or enforcing a judgment in any court in any country it becomes necessary to convert into any other currency (the "judgment currency") an amount due in Dollars under this Agreement, the Note or any of the Security Documents then the conversion shall be made, in the discretion of the Administrative Agent, at the rate of exchange prevailing either on the date of default or on the day before the day on which the judgment is given or the order for enforcement is made, as the case may be (the "conversion date"), provided that the Administration Banks shall not be entitled to recover under this section any amount in the judgment currency which exceeds at the conversion date the amount in Dollars due under this Agreement, the Note and/or any of the Security Documents. 13.2 Change in Exchange Rate. If there is a change in the rate of exchange prevailing between the conversion date and the date of actual payment of the amount due, the Borrower shall pay such additional amounts (if any, but in any event not a lesser amount) as may be necessary to ensure that the amount paid in the judgment currency when converted at the rate of exchange prevailing on the date of payment will produce the amount then due under this Agreement, the Note and/or any of the Security Documents in Dollars; any excess over the amount due received or collected by the Banks shall be remitted to the Borrower. 43 13.3 Additional Debt Due. Any amount due from the Borrower under this Section 13 shall be due as a separate debt and shall not be affected by judgment being obtained for any other sums due under or in respect of this Agreement, the Note and/or any of the Security Documents. 13.4 Rate of Exchange. The term "rate of exchange" in this Section 13 means the rate at which the Administrative Agent in accordance with its normal practices is able on the relevant date to purchase Dollars with the judgment currency and includes any premium and costs of exchange payable in connection with such purchase. 14. FEES AND EXPENSES 14.1 Fees. The Borrower shall pay to the Arrangers and the Agents such fees set forth in Section 3.4 hereof as the parties have agreed pursuant to the Fee Letter. 14.2 Expenses. The Borrower agrees, whether or not the transactions hereby contemplated are consummated, on demand to pay, or reimburse the Agents and the Arrangers for their payment of, the reasonable expenses of the Agents, the Arrangers and (after the occurrence and during the continuance of an Event of Default) the Banks incident to said transactions (and in connection with any supplements, amendments, waivers or consents relating thereto or incurred in connection with the enforcement or defense of any of the Agents', the Arrangers' and the Banks' rights or remedies with respect thereto or in the preservation of the Agents', the Arrangers' and the Banks' priorities under the documentation executed and delivered in connection therewith) including, without limitation, all reasonable costs and expenses of preparation, negotiation, execution and administration of this Agreement and the documents referred to herein, the reasonable fees and disbursements of the Agents' counsel in connection therewith, as well as the reasonable fees and expenses of any independent appraisers, surveyors, engineers and other consultants retained by the Agents, or the Arrangers in connection with this transaction, all reasonable costs and expenses, if any, in connection with the enforcement of this Agreement, the Note and the Security Documents and stamp and other similar taxes, if any, incident to the execution and delivery of the documents (including, without limitation, the Note) herein contemplated and to hold the Agents, the Arrangers and the Banks free and harmless in connection with any liability arising from the nonpayment of any such stamp or other similar taxes. Such taxes and, if any, interest and penalties related thereto as may become payable after the date hereof shall be paid immediately by the Borrower to the Agents, the Arrangers or the Banks, as the case may be, when liability therefor is no longer contested by such party or parties or reimbursed immediately by the Borrower to such party or parties after payment thereof (if the Agents, the Arrangers or the Banks, at their sole discretion, chooses to make such payment). 15. APPLICABLE LAW, JURISDICTION AND WAIVER 15.1 Applicable Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. 15.2 Jurisdiction. The Borrower hereby irrevocably submits to the jurisdiction of the courts of the State of New York and of the United States District Court for the Southern District of New York in any action or proceeding brought against it by any of the Banks, the Agents or the Arrangers under this Agreement or under any document delivered hereunder and hereby irrevocably agrees that valid service of summons or other legal process on it may be effected by serving a copy of the 44 summons and other legal process in any such action or proceeding on the Borrower by mailing or delivering the same by hand to the Borrower at the address indicated for notices in Section 17.1. The service, as herein provided, of such summons or other legal process in any such action or proceeding shall be deemed personal service and accepted by the Borrower as such, and shall be legal and binding upon the Borrower for all the purposes of any such action or proceeding. Final judgment (a certified or exemplified copy of which shall be conclusive evidence of the fact and of the amount of any indebtedness of the Borrower to the Banks, the Agents or the Arrangers) against the Borrower in any such legal action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment. The Borrower will advise the Administrative Agent promptly of any change of address for the purpose of service of process. Notwithstanding anything herein to the contrary, the Banks may bring any legal action or proceeding in any other appropriate jurisdiction. 15.3 WAIVER OF JURY TRIAL. IT IS MUTUALLY AGREED BY AND AMONG THE BORROWER, THE OTHER SECURITY PARTIES, THE ARRANGERS, THE AGENTS AND THE BANKS THAT EACH OF THEM HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST ANY OTHER PARTY HERETO ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, THE NOTE, THE GUARANTY OR THE SECURITY DOCUMENTS. 16. THE AGENTS 16.1 Appointment of Agents. Each of the Banks irrevocably appoints and authorizes the Agents severally each to take such action as agent on its behalf and to exercise such powers under this Agreement, the Note and the Security Documents as are delegated to such Agent by the terms hereof and thereof, including execution of the Intercreditor Agreement. No Agent nor any of their respective directors, officers, employees or agents shall be liable for any action taken or omitted to be taken by it or them under this Agreement, the Note or the Security Documents or in connection therewith, except for its or their own gross negligence or willful misconduct. 16.2 Security Agent as Trustee. Each of the Banks irrevocably appoints the Security Agent as trustee on its behalf with regard to (i) the security, powers, rights, titles, benefits and interests (both present and future) constituted by and conferred on the Banks or any of them or for the benefit thereof under or pursuant to this Agreement, the Note or any of the Security Documents (including, without limitation, the benefit of all covenants, undertakings, representations, warranties and obligations given, made or undertaken to any Bank in the Agreement, the Note or any Security Document), (ii) all moneys, property and other assets paid or transferred to or vested in any Bank or any agent of any Bank or received or recovered by any Bank or any agent of any Bank pursuant to, or in connection with, this Agreement, the Note or the Security Documents whether from any Security Party or any other person and (iii) all money, investments, property and other assets at any time representing or deriving from any of the foregoing, including all interest, income and other sums at any time received or receivable by any Bank or any agent of any Bank in respect of the same (or any part thereof). The Security Agent hereby accepts such appointment. 16.3 Distribution of Payments. Whenever any payment is received by any Agent from the Borrower or any other Security Party for the account of the Banks, or any of them, whether of principal or interest on the Reimbursement Obligations or the Note, commissions, fees under 45 Section 14 or otherwise, it will thereafter cause to be distributed on the same day if received before 11 a.m. New York time, or on the next day if received thereafter, like funds relating to such payment ratably to the Banks according to their respective Commitments, in each case to be applied according to the terms of this Agreement. 16.4 Holder of Interest in Note. The Agents may treat each Bank as the holder of all of the interest of such Bank in the Note. 16.5 No Duty to Examine, Etc. The Agents shall not be under a duty to examine or pass upon the validity, effectiveness or genuineness of any of this Agreement, the Note, the Security Documents or any instrument, document or communication furnished pursuant to this Agreement or in connection therewith or in connection with the Letter of Credit, the Note or any Security Document, and the Agents shall be entitled to assume that the same are valid, effective and genuine, have been signed or sent by the proper parties and are what they purport to be. 16.6 Agents as Banks. With respect to that portion of the Stated Amount or the Loan made available by it, each Agent shall have the same rights and powers hereunder as any other Bank and may exercise the same as though it were not an Agent, and the term "Bank" or "Banks" shall include each Agent in its capacity as a Bank. Each Agent and its affiliates may accept deposits from, lend money to and generally engage in any kind of business with, the Borrower and the other Security Parties as if it were not an Agent. 16.7 Acts of the Agents. Each Agent shall have duties and discretion, and shall act as follows: (a) Obligations of the Agents. The obligations of each Agent under this Agreement, under the Letter of Credit, under the Note and under the Security Documents are only those expressly set forth herein and therein. (b) No Duty to Investigate. No Agent shall at any time be under any duty to investigate whether an Event of Default, or an event which with the giving of notice or lapse of time, or both, would constitute an Event of Default, has occurred or to investigate the performance of this Agreement, the Note or any Security Document by any Security Party. (c) Discretion of the Agents. Each Agent shall be entitled to use its discretion with respect to exercising or refraining from exercising any rights which may be vested in it by, and with respect to taking or refraining from taking any action or actions which it may be able to take under or in respect of, this Agreement, the Letter of Credit, the Note and the Security Documents, unless the Agent shall have been instructed by the Majority Banks to exercise such rights or to take or refrain from taking such action; provided, however, that no Agent shall be required to take any action which exposes such Agent to personal liability or which is contrary to this Agreement or applicable law. (d) Instructions of Majority Banks. Each Agent shall in all cases be fully protected in acting or refraining from acting under this Agreement, under the Letter of Credit, under the Note, or under any Security Document in accordance with the instructions of the Majority Banks, and any action taken 46 or failure to act pursuant to such instructions shall be binding on all of the Banks. 16.8 Certain Amendments. Neither this Agreement, the Note nor any of the Security Documents nor any terms hereof or thereof may be amended unless such amendment is approved by the Borrower and the Majority Banks, provided that no such amendment shall, without the consent of each Bank affected thereby, (i) reduce the interest rate or extend the time of payment of principal or interest or fees on the Reimbursement Obligations or the Loan, as the case may be, or reduce the principal amount of the Reimbursement Obligations or the Loan, as the case may be, or any fees hereunder, (ii) increase or decrease the Commitment of any Bank or subject any Bank to any additional obligation (it being understood that a waiver of any Event of Default or any mandatory repayment of the Reimbursement Obligations or Loan, as the case may be, shall not constitute a change in the terms of any Commitment of any Bank), (iii) amend, modify or waive any provision of this Section 16.8, (iv) amend the definition of Majority Banks, (v) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement, (vi) release any Security Party from any of its obligations under any Security Document except as expressly provided herein or in such Security Document or (vii) amend any provision relating to the maintenance of collateral under Section 10.5. All amendments approved by the Majority Banks under this Section 16.8 must be in writing and signed by the Borrower and each of the Banks. In the event that any Bank is unable to or refuses to sign an amendment approved by the Majority Banks hereunder, such Bank hereby appoints the Administrative Agent as its Attorney-In-Fact for the purposes of signing such amendment. No provision of this Section 16 or any other provisions relating to the Agents may be modified without the consent of each Agent. 16.9 Assumption re Event of Default. Except as otherwise provided in Section 16.15, each Agent shall be entitled to assume that no Event of Default, or event which with the giving of notice or lapse of time, or both, would constitute an Event of Default, has occurred and is continuing, unless such Agent has been notified by any Security Party of such fact, or has been notified by a Bank that such Bank considers that an Event of Default or such an event (specifying in detail the nature thereof) has occurred and is continuing. In the event that an Agent shall have been notified by any Security Party or any Bank in the manner set forth in the preceding sentence of any Event of Default or of an event which with the giving of notice or lapse of time, or both, would constitute an Event of Default, such Agent shall notify the Banks and shall take action and assert such rights under this Agreement, under the Letter of Credit, under the Note and under Security Documents as the Majority Banks shall request in writing. 16.10 Limitations of Liability. Neither any Agent nor any of the Banks shall be under any liability or responsibility whatsoever: (a) to any Security Party or any other person or entity as a consequence of any failure or delay in performance by, or any breach by, any other Banks or any other person of any of its or their obligations under this Agreement, under the Letter of Credit or under any Security Document; (b) to any Bank or Banks as a consequence of any failure or delay in performance by, or any breach by, any Security Party of any of its respective obligations under this Agreement, under the Note or under the Security Documents; or 47 (c) to any Bank or Banks for any statements, representations or warranties contained in this Agreement, in any Security Document or in any document or instrument delivered in connection with the transaction hereby contemplated; or for the validity, effectiveness, enforceability or sufficiency of this Agreement, the Letter of Credit, the Note, any Security Document or any document or instrument delivered in connection with the transactions hereby contemplated. 16.11 Indemnification of the Agents. The Banks agree to indemnify each Agent (to the extent not reimbursed by the Security Parties or any thereof), pro rata according to the respective amounts of their Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including legal fees and expenses incurred in investigating claims and defending itself against such liabilities) which may be imposed on, incurred by or asserted against, such Agent in any way relating to or arising out of this Agreement, the Letter of Credit, the Note or any Security Document, any action taken or omitted by such Agent thereunder or the preparation, administration, amendment or enforcement of, or waiver of any provision of, this Agreement, the Letter of Credit, the Note or any Security Document, except that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct. 16.12 Consultation with Counsel. Each Agent may consult with legal counsel selected by such Agent and shall not be liable for any action taken, permitted or omitted by it in good faith in accordance with the advice or opinion of such counsel. 16.13 Resignation. Any Agent may resign at any time by giving sixty (60) days' written notice thereof to the other Agents, the Banks and the Borrower. Upon any such resignation, the Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Banks and shall have accepted such appointment within sixty (60) days after the retiring Agent's giving notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent which shall be a bank or trust company of recognized standing. The appointment of any successor Agent shall be subject to the prior written consent of the Borrower, such consent not to be unreasonably withheld. After any retiring Agent's resignation as Agent hereunder, the provisions of this Section 16 shall continue in effect for its benefit with respect to any actions taken or omitted by it while acting as Agent. 16.14 Representations of Banks. Each Bank represents and warrants to each other Bank and each Agent that: (a) in making its decision to enter into this Agreement and to make its Commitment available hereunder, it has independently taken whatever steps it considers necessary to evaluate the financial condition and affairs of the Security Parties, that it has made an independent credit judgment and that it has not relied upon any statement, representation or warranty by any other Bank or any Agent; and 48 (b) so long as any portion of its Commitment remains outstanding, it will continue to make its own independent evaluation of the financial condition and affairs of the Security Parties. 16.15 Notification of Event of Default. Each Agent hereby undertakes to promptly notify the Banks, and the Banks hereby promptly undertake to notify each Agent and the other Banks, of the existence of any Event of Default which shall have occurred and be continuing of which such Agent or Bank has actual knowledge. 17. NOTICES AND DEMANDS 17.1 Notices. All notices, requests, demands and other communications to any party hereunder shall be in writing (including prepaid overnight courier, facsimile transmission or similar writing) and shall be given to the Borrower at the address or telecopy number set forth below and to the Banks and the Agents at their address and telecopy numbers set forth in Schedule 1 or at such other address or telecopy numbers as such party may hereafter specify for the purpose by notice to each other party hereto. Each such notice, request or other communication shall be effective (i) if given by telecopy, when such telecopy is transmitted to the telecopy number specified in this Section and telephonic confirmation of receipt thereof is obtained or (ii) if given by mail, prepaid overnight courier or any other means, when received at the address specified in this Section or when delivery at such address is refused. If to the Borrower: OMI Corporation One Station Place Stamford, Connecticut 06902 Telecopy No.: (203) 602-6701 Attention: Vincent de Sostoa Senior Vice President - Treasurer 18. MISCELLANEOUS 18.1 Time of Essence. Time is of the essence of this Agreement but no failure or delay on the part of any Bank, the Agents or the Arrangers to exercise any power or right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise by any Bank, the Agents or the Arrangers of any power or right hereunder preclude any other or further exercise thereof or the exercise of any other power or right. The remedies provided herein are cumulative and are not exclusive of any remedies provided by law. 18.2 Unenforceable, etc., Provisions - Effect. In case any one or more of the provisions contained in this Agreement, the Letter of Credit, the Note or in any Security Document would, if given effect, be invalid, illegal or unenforceable in any respect under any law applicable in any relevant jurisdiction, said provision shall not be enforceable against the relevant Security Party, but the validity, legality and enforceability of the remaining provisions herein or therein contained shall not in any way be affected or impaired thereby. 49 18.3 References. References herein to Sections, Exhibits and Schedules are to be construed as references to sections of, exhibits to, and schedules to, this Agreement, unless the context otherwise requires. 18.4 Further Assurances. The Borrower agrees that if this Agreement, the Letter of Credit, the Note or any Security Document shall, in the reasonable opinion of the Banks, at any time be deemed by the Banks for any reason insufficient in whole or in part to carry out the true intent and spirit hereof or thereof, it will execute or cause to be executed such other and further assurances and documents as in the opinion of the Banks may be required in order more effectively to accomplish the purposes of this Agreement, the Letter of Credit, the Note or any Security Document. 18.5 Prior Agreements, Merger. Any and all prior understandings and agreements heretofore entered into between the Security Parties on the one part, and the Agents, the Arrangers or the Banks, on the other part, whether written or oral, other than the Fee Letter are superseded by and merged into this Agreement and the other agreements (the forms of which are exhibited hereto) to be executed and delivered in connection herewith to which the Security Parties, the Arrangers, the Agents and/or the Banks are parties, which alone fully and completely express the agreements between the Security Parties, the Arrangers, the Agents and the Banks. 18.6 Entire Agreement; Amendments. This Agreement constitutes the entire agreement of the parties hereto including all parties added hereto pursuant to an Assignment and Assumption Agreement. Subject to Section 16.8, any provision of this Agreement, the Note or any Security Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower, the Administration Agent and the Majority Banks (and, if the rights or duties of the Security Agent or the Syndication Agent are affected thereby, by such Agent, as applicable). This Agreement may be executed in any number of counterparts, each of will shall be deemed an original, but all such counterparts together shall constitute one and the same instrument. 18.7 Indemnification. The Borrower and, by its execution and delivery of the Consent and Agreement set forth below, each of the other Security Parties jointly and severally agree to indemnify each Bank, each Agent and each Arranger, their respective successors and assigns, and their respective officers, directors, employees, representatives and agents (each an "Indemnitee") from, and hold each of them harmless against, any and all losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements of any kind or nature whatsoever (including, without limitation, the fees and disbursements of counsel for such Indemnitee in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not such Indemnitee shall be designated a party thereto) that may at any time (including, without limitation, at any time following the payment of the obligations of the Borrower hereunder) be imposed on, asserted against or incurred by, any Indemnitee as a result of, or arising out of or in any way related to or by reason of, (a) any violation by any Security Party (or any charterer or other operator of any Vessel) of any applicable Environmental Law, (b) any Environmental Claim arising out of the management, use, control, ownership or operation of property or assets by any Security Party (or, after foreclosure, by any Bank, any Agent or any Arranger or any of their respective successors or assigns), (c) the breach of any representation, warranty or covenant set forth in Sections 2.1 (o) or 10.1(j), (d) the Loan (including the use of the proceeds of the Loan and any claim made for any brokerage commission, fee or compensation from any Person), of (e) the execution, delivery, performance or non-performance of this Agreement, the Note, any Security Document, or any of the documents referred to herein or contemplated hereby 50 (whether or not the Indemnitee is a party thereto). If and to the extent that the obligations of the Security Parties under this Section are unenforceable for any reason, the Borrower and, by its execution and delivery of the Consent and Agreement set forth below, each of the other Security Parties jointly and severally agree to make the maximum contribution to the payment and satisfaction of such obligations which is permissible under applicable law. The obligations of the Security Parties under this Section 18.7 shall survive the termination of this Agreement and the repayment to the Banks of all amounts owing thereto under or in connection herewith. 18.8 Release of Designated Vessel Owner Guaranty. Notwithstanding Section 18.6, Entire Agreement, Amendments, upon the Designated Vessel Acquisition, the Security Agent shall release the Designated Vessel Owner from its Guaranty. 18.9 Headings. In this Agreement, Section headings are inserted for convenience of reference only and shall not be taken into account in the interpretation of this Agreement. 51 IN WITNESS whereof the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives as of the day and year first above written. OMI CORPORATION By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer CHRISTIANIA BANK OG KREDITKASSE ASA, as Arranger, Administrative Agent and Issuer By:_____________________________________ Name: Title: By:_____________________________________ Name: Title: DEN NORSKE BANK ASA, as Arranger and Syndication Agent By:_____________________________________ Name: Title: By:_____________________________________ Name: Title: MEESPIERSON CAPITAL CORP., as Arranger and Security Agent By:_____________________________________ Name: Title: By:_____________________________________ Name: Title: 52 The Lenders: CHRISTIANIA BANK OG KREDITKASSE ASA By:_____________________________________ Name: Title: By:_____________________________________ Name: Title: DEN NORSKE BANK ASA By:_____________________________________ Name: Title: By:_____________________________________ Name: Title: MEESPIERSON CAPITAL CORP. By:_____________________________________ Name: Title: By:_____________________________________ Name: Title: 53 CONSENT AND AGREEMENT Each of the undersigned, referred to in the foregoing Loan Agreement as the "Guarantors", hereby consents and agrees to said Agreement and to the documents contemplated thereby and to the provisions contained therein relating to conditions to be fulfilled and obligations to be performed by the undersigned pursuant to or in connection with said Agreement and agrees particularly to be bound by the representations, warranties and covenants relating to the undersigned contained in Sections 2 and 10 of said Agreement to the same extent as if the undersigned were a party to said Agreement, and expressly agrees to the grant of a security interest in favor of the Syndication Agent in the undersigned's accounts pursuant to Section 10.1(s) of said Agreement. COLORADO SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer ELBE SHIPPING LLC by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer LOIRE SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer NILE SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer PATRICIA SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer PAULINA SHIIPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer VOLGA SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer ALMA SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer DANUBE SHIPPING LLC by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer 2 ISERE SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer LIMAR SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer PAGODA SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer PECOS SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer 3 SABINE SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer SACRAMENTO SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer SEINE SHIPPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer SEVERN SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer SHANNON SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer 4 TIBER SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer TRENT SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer CAIRO SEA SHIPPING LLC By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer CZANTORIA SHIPPING LLC by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer LAUREL SHIPPING LLC by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer 5 MENDALA II TRANSPORT, INC. by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Treasurer SOKOLICA SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer SOYANG SHIPPING LLC, by OMI Corporation, sole member By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer TRINIDAD SEA SHIPPING LLC By:_____________________________________ Vincent de Sostoa Senior Vice President-Treasurer UBC CHARTERING LTD. By:_____________________________________ Vincent de Sostoa Treasurer EX-21 5 SUBSIDIARIES EXHIBIT 21 OMI CORPORATION SUBSIDIARIES AS OF DECEMBER 31, 1999 (ALL SUBSIDIARIES ARE 100% OWNED DIRECTLY OR INDIRECTLY EXCEPT AS INDICATED) COMPANY JURISDICTION - ------- ------------ Alliance Chartering LLC (50%) Marshall Islands Alma Shipping LLC Marshall Islands Amazon Transport, Inc. (49%) Liberia Cairo Sea Shipping LLC Marshall Islands Colorado Shipping LLC Marshall Islands Columbia Shipping LLC Marshall Islands Czantoria Shipping LLC Marshall Islands Danube Shipping LLC Marshall Islands Elbe Shipping LLC (inactive) Marshall Islands Elbe Shipping LLC Delaware Geraldton Navigation Company Incorporated (49.9%) Panama Hayes Navigation Company Pte. Ltd. (49.9%) Singapore International Product Carriers Limited (50%) Bermuda International Product Carriers LLC (50%) Delaware International Product Carriers Ltd. Pte. (50%) Singapore Isere Shipping LLC Marshall Islands Laurel Shipping LLC Marshall Islands Limar Shipping LLC Marshall Islands Loire Shipping LLC` Marshall Islands Mendala II Transport, Inc. Liberia Nile Shipping LLC Marshall Islands OMI Marine Services LLC Delaware OMI Promise Transport, Inc. Liberia OMI State, Inc. Washington Pagoda Shipping LLC Marshall Islands Patricia Shipping LLC Marshall Islands Paulina Shipping LLC Marshall Islands Pecos Shipping LLC Marshall Islands EXHIBIT 21 OMI CORPORATION SUBSIDIARIES AS OF DECEMBER 31, 1999 (ALL SUBSIDIARIES ARE 100% OWNED DIRECTLY OR INDIRECTLY EXCEPT AS INDICATED) COMPANY JURISDICTION - ------- ------------ Sabine Shipping LLC Marshall Islands Sacramento Shipping LLC Marshall Islands Seine Shipping LLC Marshall Islands Severn Shipping LLC Marshall Islands Shannon Shipping LLC (inactive) Marshall Islands Shannon Shipping LLC. Delaware Sokolica Shipping LLC Marshall Islands Soyang Shipping LLC Marshall Islands Tiber Shipping LLC Marshall Islands Trent Shipping LLC Marshall Islands Trinidad Sea Shipping LLC Marshall Islands UBC Chartering Ltd. Liberia Volga Shipping LLC Marshall Islands 2 EX-27 6 FDS
5 Exhibit 27 contains summary information extracted from OMI Corporation and subsidiaries Consolidated financial statements and is qualified in its entirety by reference to such financial statements. 1,000 U.S. DOLLARS 12-MOS DEC-31-1999 DEC-31-1999 1 7,381 0 18,381 0 0 121,195 359,682 42,926 472,415 77,239 212,913 0 0 24,697 147,069 472,415 0 115,992 0 82,076 40,550 56,463 17,945 (81,306) 475 0 0 (1,253) 2,729 (80,305) (1.90) (1.90)
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