DANIEL K. INOUYE, Official Number: 1274136 CONSOLIDATED AGREEMENT (Consolidation of Commitment to Guarantee, Security, Escrow, Chapter 537 Reserve Fund, Depository and Financial Agreements of the Federal Ship Financing Program)

Exhibit 10.1

 

▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Official Number: 1274136

 

CONSOLIDATED AGREEMENT

(Consolidation of Commitment to Guarantee, Security, Escrow, Chapter 537 Reserve Fund,

Depository and Financial Agreements of the Federal Ship Financing Program)

 

 

THIS CONSOLIDATED AGREEMENT (this “Agreement”) is made as of the Closing Date set forth above between THE UNITED STATES OF AMERICA (the “United States”), represented by the Maritime Administrator (the “Administrator”) of the Maritime Administration (“MARAD”), pursuant to Chapter 537 of Title 46 of the United States Code (“Chapter 537”), and the Shipowner named above (the “Shipowner”), an entity existing under the laws of the Jurisdiction of Organization in the Organizational Form both as stated above.  Capitalized terms used herein, unless otherwise noted, have the respective meanings set forth in Annex B.

 

RECITALS:

 

A.           The Administrator is authorized, pursuant to the Chapter 537, to guarantee obligations that meet the requirements of Chapter 537;

 

B.           FFB is authorized, under Section 6(a) of the FFB Act, to make commitments to purchase, and to purchase on terms and conditions determined by FFB, any obligation that is issued, sold, or guaranteed by an agency of the United States;

 

C.           Pursuant to the FFB Act, FFB and the Administrator entered into the Program Financing Agreement, dated January 19, 2017, as amended as of the date hereof, setting forth the commitment of FFB to enter into agreements to purchase Notes issued by entities designated by the Administrator when those Notes have been guaranteed by the United States, and the commitment of the Administrator to guarantee those Notes;

 

 

D.           The Shipowner desires to participate in MARAD’s Federal Ship Financing Program as established by Chapter 537;

 

E.           In furtherance thereof, the Shipowner submitted an application on the Application Date to the Administrator for the Guarantee of the obligations under the Note for Financing pursuant to Chapter 537 to finance a portion of the cost of constructing, reconstructing or reconditioning the Vessel, which application was previously deemed complete by the Administrator;

 

F.            The Shipowner is the sole owner of the Vessel constructed pursuant to the Construction Contract with the Shipyard;

 

G.           After review of such application, the Administrator determined that:

 

(1)          pursuant to Section 53707(a) of Chapter 537, the Shipowner is responsible and possesses the ability, experience, financial resources and other qualifications necessary to the adequate operation and maintenance of the Vessel;

 

(2)          pursuant to Section 53709(b)(1) of Chapter 537, the aggregate of the Depreciated Actual Cost or Actual Cost of the Vessel, as the case may be, is set forth on Annex A of this Agreement and the maximum principal amount of the Note will not exceed the Applicable Guarantee Percentage of the Depreciated Actual Cost or the Actual Cost, as the case may be, set forth on Annex A of this Agreement;

 

(3)          pursuant to Sections 53710(a)(1), 53710(a)(2) and 53710(a)(3) of Chapter 537 (i) payments of principal required by the Note are satisfactory, (ii) the Approved Interest Rate to be borne by Advances under the Note to be issued on the Closing Date is reasonable, and (iii) the Stated Maturity Date of the Note is satisfactory;

 

(4)          pursuant to 46 C.F.R. § 298.33(b)(2)(iii), the Shipowner has demonstrated its ability to pay the Required Equity Amount; and

 

(5)          pursuant to Section 53708(a) of Chapter 537, the proposed use of the Vessel by the Shipowner will be economically sound;

 

H.           Based upon such determinations, the Administrator (1) issued the Letter Commitment on the Letter Commitment Date, pursuant to which the Administrator stated its commitment to execute the Guarantee, subject to compliance with the terms and conditions set forth in the Letter Commitment; and (2) pursuant to the Program Financing Agreement, delivered to FFB and the Shipowner a Designation Notice (as defined in the Program Financing Agreement) designating the Shipowner to be a “Borrower” for purposes of the Program Financing Agreement;

 

I.            To aid in the Financing of the Vessel, FFB, the Shipowner and the Administrator have executed and delivered the Note Purchase Agreement providing for the sale and delivery of the Note having the Stated Maturity Date and Approved Interest Rate to be determined with respect to each Advance as set forth on Annex A of this Agreement;

 

J.            Pursuant to this Agreement, the Administrator is executing, and the Shipowner is accepting, the Commitment to Guarantee with respect to the Note in the maximum principal

 

amount equal to the Applicable Guarantee Percentage of the Depreciated Actual Cost or the Actual Cost of the Vessel, as the case may be, on the Closing Date, set forth in Table A of Annex A of this Agreement;

 

K.           Pursuant to this Agreement, the Shipowner is issuing and delivering the Administrator’s Note to the Administrator on the date hereof;

 

L.           Pursuant to this Agreement, as security for the due and timely payment of the Administrator’s Note and for the issuance of the Guarantee, the Shipowner is executing and delivering a first preferred mortgage on the Vessel to the Administrator and an amendment to the first preferred mortgage(s) on the Existing Vessels on the date hereof, and granting a security interest to the Administrator in the Collateral, including without limitation the Chapter 537 Reserve Fund, the Late Charges Reserve Subfund, the No-Call Prepayment Fund and the Interest Escrow Fund;

 

M.          Pursuant to Section 53716 of Chapter 537, the Administrator may hold on account at Treasury funds in the Chapter 537 Reserve Fund, the Late Charges Reserve Subfund, the No-Call Prepayment Fund and the Interest Escrow Fund as collateral for the Guarantee of the Note;

 

N.           As further security for the due and timely payment of the Administrator’s Note and for the issuance of the Guarantee, (1) the Shipyard has executed and delivered the Consent of Shipyard to the assignment of the Construction Contract to the Administrator; (2) the Affiliate Guarantor has executed and delivered this Agreement and the Affiliate Guaranty to the Administrator; and (3) the Shipowner has executed and delivered the Assignment of Construction Contract, the Assignment of Earnings and the Assignment of Insurances to the Administrator;

 

O.           It is the intention of the parties that the security interests of the Administrator in the Collateral be perfected by: (1) the execution and delivery of this Agreement and the Mortgage; (2) the Administrator’s possession of the Chapter 537 Reserve Fund, the Late Charges Reserve Subfund, the No-Call Prepayment Fund and the Interest Escrow Fund in accounts at Treasury, and all other sums, moneys, securities and proceeds thereof; and (3) the filing of appropriate financing statements to record the Administrator’s security interests in the Collateral;

 

P.            To aid in the Financing of the Second Vessel, FFB, the Shipowner and the Administrator may, at the option of the Shipowner, on or prior to June 28, 2020, execute and deliver a Note Purchase Agreement providing for the sale and delivery of a Note having the Stated Maturity Date and Approved Interest Rate to be determined with respect to each Advance as shall be set forth in an amendment to this Agreement;

 

Q.           As set forth below in Annex X of this Agreement, the Shipowner’s RFFA and Depository Agreement are being terminated and replaced by this Agreement; and

 

R.           Capitalized terms used herein have the meanings given to them in Annex B, unless otherwise defined herein.

 

NOW, THEREFORE, under the provisions of Chapter 537, and in consideration of the premises and the mutual covenants herein contained and other good and valuable consideration, the receipt, sufficiency and adequacy of which are hereby acknowledged, the parties hereby agree that this Agreement consists of this introduction and signature page and the following attached

 

parts, all of which together constitute the entire agreement of the Administrator and the Shipowner with respect to the subject matter hereof, superseding all prior written and oral agreements and understandings between the parties with respect to such subject matter:

 

In the event of any conflict or inconsistency between the provisions of Annex A (Information Specific to the Shipowner, the Affiliate Guarantor and the Guarantee Transaction) and Annex C (General Terms and Conditions), the provisions of Annex A of this Agreement shall control.

 

(SIGNATURE PAGE ON FOLLOWING PAGE)

 

 

 

 

IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by the duly authorized representatives of the parties hereto as of the Closing Date.

 

With respect to Annex A, Annex B, and the following Section of Annex C (as amended, if applicable, by Annex X): Sections 2.03(b), (c), (g), (h), (l), (m) and (n), 3.04(c), 9.01, 9.02, 10.01, 10.02, 10.03, 10.04, 10.05, 10.06, 10.07, 10.10, 10.11, 10.12, 10.15, 10.16, 10.17, 10.18, 10.19, 10.20, 10.21, 10.22, 10.23, 10.24, 12.03(h), 13.02, 13.04, 13.05, 13.15, 14.01, 14.02, 14.06, 18.01, 18.05, 18.06, 18.07, 18.08, 18.09, 18.10, 18.11, 18.12 and 18.14 of Annex C, this Agreement has been duly executed and delivered by the duly authorized representatives of the Affiliate Guarantor as of the Closing Date solely to indicate the Affiliate Guarantor’s agreement to be bound by the foregoing provisions to the extent applicable to the Affiliate Guarantor.

 

 

 

 

 

ANNEX A

INFORMATION SPECIFIC TO THE SHIPOWNER, THE AFFILIATE GUARANTOR AND THE GUARANTEE TRANSACTION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TABLE A

As determined by the Administrator (a) the aggregate Actual Cost of the Vessel is $231,042,160 representing (1) the amounts paid by or for the account of the Shipowner as of the date hereof for the Construction of the Vessel, plus (2) the amount which the Shipowner is on the date hereof obligated to pay under the Construction Contract or is otherwise from time to time hereafter obligated to pay for the Construction of the Vessel; and (b) the aggregate Depreciated Actual Cost of the Vessel as of the Closing Date is $218,757,505 representing (1) the aggregate Actual Cost of the Vessel as of the date hereof, less (2) the depreciation of the Vessel as of the date hereof, both calculated and itemized for the ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ as follows:

 

 

 

 

 

 

(END OF ANNEX A)

 

 

 

 

ANNEX B

DEFINITIONS

 

1.            Definitions.  Except as otherwise specified herein or as the context may otherwise require, the following terms have the respective meanings set forth below for all purposes of this Agreement.

 

“Accountant” means an independent certified public accountant or independent licensed public accountant, certified or licensed by a regulatory authority of a state or other political subdivision of the United States, or a firm of independent certified public accountants or independent licensed public accountants, certified or licensed by a regulatory authority of a state or other political subdivision of the United States.

 

 “Actual Cost” means the actual cost of a Vessel, as set forth on Table A of Annex A of this Agreement or as subsequently re-determined by the Administrator pursuant to this Agreement and Chapter 537.

 

“Actual Cost Paid” means the amount paid by the Shipowner for the Vessels as set forth in column [2J] on Table A of Annex A of this Agreement.

 

 “Additional Collateral” means a letter of credit in form and substance satisfactory to the Administrator from a United States bank acceptable to the Administrator in an amount not less than the difference between the forced liquidation value of the Vessels as reflected in the Appraisal and the Outstanding Note.

 

“Administrator” means the Maritime Administrator of the Maritime Administration of the United States Department of Transportation, or any official of the Maritime Administration to whom is delegated the authority, from time to time, to perform the duties of the Maritime Administrator pursuant to the provisions of Chapter 537.

 

"Administrator’s Guarantee” has the same meaning as the term “Guarantee.”

 

“Administrator’s Note” means the promissory note issued and delivered by the Shipowner to the Administrator, as originally executed, substantially in the form attached to this Agreement as Annex E, and as the same may be amended, modified, supplemented or endorsed, including any promissory note issued in substitution thereof.

 

“Administrator’s Notice” means the notice given, at any time and from time to time, to the Holder from the Administrator with respect to a Security Default.

 

 “Advance” means an advance of funds made by FFB to the Shipowner under a particular Note.

 

“Advance Request” means a request from the Shipowner for an Advance under a particular Note.

 

“Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

 

 

“Affiliate Guarantor” means each, and “Affiliate Guarantors” means every, affiliated entity of the Shipowner set forth on Annex A of this Agreement opposite such term that have executed the Affiliate Guaranty.

 

“Affiliate Guaranty” means the guaranty agreement executed by each Affiliate Guarantor in favor of the United States for the purpose of guaranteeing the Shipowner’s obligations to the Administrator under this Agreement and the Administrator's Note, substantially in the form attached to this Agreement as Annex K, as originally executed or as modified, amended or supplemented.

“Aggregate Original Equity Investment” has the meaning set forth on Annex A of this Agreement opposite such term for each Vessel.

 “Agreement” means the Consolidated Agreement made as of the Closing Date between the United States represented by the Administrator and the Shipowner.

 

“Amount of Administrator’s Guarantee” has the meaning set forth on Annex A of this Agreement opposite such term.

 

“Amount of Administrator’s Note” has the meaning set forth on Annex A of this Agreement opposite such term.

 

“Annual Financial Statement Certification” means an Officer’s Certificate of the Shipowner and the Affiliate Guarantor (a) certifying the calculations of the Supplemental Financial Covenants of Shipowner and Supplemental Financial Covenants of Affiliate Guarantor pursuant to Section 13.04 of Annex C of this Agreement and (b) confirming that no Defaults exist pursuant to Section 13.08(a) of Annex C of this Agreement, in the form attached to this Agreement as Annex M-1.

 

“Annual Vessel Condition, Maintenance and Class Certification” means an Officer’s Certificate of the Shipowner and the Affiliate Guarantor setting forth, among other things, (a) a statement of the condition and maintenance of each Vessel pursuant to Section 13.09 of Annex C of this Agreement, (b) a confirmation of class issued by the Classification Society showing that the classification and rating for each Vessel on the Delivery Date of each Vessel has been retained for each in class Vessel and (c) copies of all Classification Society reports, including periodic and damage surveys for each Vessel pursuant to Section 13.12 of Annex C of this Agreement, in the form attached to this Agreement as Annex L.

 

“Applicable Guarantee Percentage” means the Amount of Administrator’s Guarantee expressed as a percentage of the Actual Cost or Depreciated Actual Cost of the Vessels, as the case may be, as set forth on Annex A of this Agreement opposite such term.

 

“Application Date”  has the meaning set forth on Annex A of this Agreement opposite such term.

 

 “Appraisal” mean an appraisal of the Vessels commissioned by the Shipowner or the Administrator at the expense of the Shipowner conducted by an appraiser approved by the Administrator, who has followed an appraisal methodology approved by the Administrator, and

 

which appraisal shall not have occurred more than twelve (12) months before the date that the appraisal is delivered to the Administrator.

 

“Approved Interest Rate” means the interest rate per annum set forth on Annex A of this Agreement opposite such term which is established for each Advance made under a particular Note.

 

“Assignment of Construction Contract” means the assignment from the Shipowner to the Administrator of all the rights, title and interest of the Shipowner under the Construction Contract, substantially in the form attached to this Agreement as Annex G, as the same may be amended, supplemented, restated or otherwise modified from time to time with the consent of the Administrator.

 

“Assignment of Earnings” means the assignment from the Shipowner to the Administrator of all of the rights, title and interest of the Shipowner in whatever is received upon the lease, sale, charter, transfer or disposition of any Vessel, claims for damages for any breach by any charterer or other party thereto of any bareboat or time charter, or lease of any Vessel; and all remuneration payable by or on behalf of a governmental authority in respect of any detention of any Vessel, and all insurance proceeds payable to the Shipowner for any loss of or damage to all or any part of any Vessel, substantially in the form attached to this Agreement as Annex I, as the same may be amended, supplemented, restated or otherwise modified from time to time with the consent of the Administrator.

 

“Assignment of Insurances” means the assignment from the Shipowner to the Administrator of all of the rights, title and interest of the Shipowner in all policies and contracts of insurance, substantially in the form attached to this Agreement as Annex J, as the same may be amended, supplemented, restated or otherwise modified from time to time with the consent of the Administrator.

 

“Audited Financial Statements” mean, with respect to any Person, the annual audited balance sheet and the related statement of income or operations, shareholders’ equity and cash flows for such fiscal year of such Person, including the notes thereto, prepared in accordance with GAAP by an Accountant who may be such Person’s Accountant.

 

“Authorized Newspaper” means The Wall Street Journal or any such other newspaper as the Administrator may designate by notice to the Shipowner.

 

“Bankruptcy Code” means Title 11 of the United States Code.

 

“Business Day” means a day on which both FFB and the Federal Reserve Bank of New York are open for business.

 

“Capital Construction Fund” means the capital construction fund established by the Shipowner, if any, under Chapter 535 of Title 46 of the United States Code, as amended.

 

“CCF Security Amount” has the meaning set forth in Section 6.10 of Annex C of this Agreement.

 

“Chapter 313” means the provisions of Chapter 313 of Title 46 of the United States Code, as amended.

 

“Chapter 537” means the provisions of Title XI of the Merchant Marine Act of 1936, now codified at Chapter 537 of Title 46 of the United States Code, as amended.

 

“Chapter 537 Reserve Fund” means the account established pursuant to Section 6.01 of Annex C of this Agreement and held in the name of and for the benefit of the Administrator at Treasury pursuant to Sections 53712 and 53716 of Chapter 537 to be administered pursuant to Article VI of Annex C of this Agreement and to be utilized by the Administrator as Collateral pursuant to Article IV of Annex C of this Agreement.

 

“Charter Hire and Rent Limitation”  means the amount set forth on Annex A of this Agreement opposite such term.

 

“Classification Society” means the American Bureau of Shipping or either a member of the International Association of Classification Societies (“IACS”) that has been ISO 9000 series registered or an IACS member that meets the requirements of the International Maritime Organization, is qualified under a Quality Systems Certificate Scheme and recognized by the United States Coast Guard and the Administrator as meeting acceptable standards.

 

“Closing Date” means the date when this Agreement is executed and delivered by the Shipowner and the Administrator as set forth on the first page of this Agreement.

 

“Collateral” has the meaning set forth in Section 4.01(b) of Annex C of this Agreement.

 

“Commitment to Guarantee” means the commitment to guarantee the Note, as set forth in Article II of Annex C of this Agreement, executed by the Administrator and accepted by the Shipowner relating to the Guarantee, as originally executed or as modified, amended or supplemented.

 

“Computation of Reserve Fund Net Income, Total Deposits or No Deposits and Accountant’s Statement” means the computation and statement substantially in the form attached to this Agreement as Annex N.

 

“Consent and Agreement of Shipowner and Shipyard” means, in the case of Construction Period Financing, each consent of the Shipyard to the Assignment of Construction Contract to the Administrator under this Agreement and the Shipowner’s and such Shipyard’s modification and amendment of the Construction Contract in favor of the Administrator substantially in the form attached to this Agreement as Annex H-2, as originally executed, modified, amended or supplemented.

 

“Consent of Shipyard” means each, and “Consents of Shipyards” means, in the case of Mortgage Period Financing, the consent to the Assignment of Construction Contract to the Administrator under this Agreement substantially in the form attached to this Agreement as Annex H-1, as originally executed, modified, amended or supplemented.

 

“Construction” means construction of the Vessels, including designing, inspecting, outfitting and equipping thereof.

 

“Construction Contract” means each, and “Construction Contracts” means every, contract relating to the Construction of the Vessels between the Shipowner and the Shipyard set forth on

 

Annex A of this Agreement opposite such term, as originally executed or as modified or supplemented pursuant to the applicable provisions thereof and as further amended to be in form satisfactory to the Administrator, including, without limitation, as modified and amended by the Consent of the Shipyard.

 

“Construction Period Financing” means the financing provided by the issuance of the Note for the purpose of funding Construction of the Vessels as indicated on Annex A of this Agreement opposite the term “Financing” if applicable.

 

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise.  “Controlling” and “Controlled” have meanings correlative thereto.

 

“Default” has the meaning set forth in Section 14.01 of Annex C of this Agreement.

 

“Delivery Date” means the date on which a Vessel is delivered to and accepted by the Shipowner.

 

“Deposit Funds” means the Chapter 537 Reserve Fund, the Late Charges Reserve Subfund, the Interest Escrow Fund and the No-Call Prepayment Fund and “Deposit Fund” means any one of such funds.

 

“Depreciated Actual Cost” means the depreciated Actual Cost of a Vessel set forth on Annex A of this Agreement opposite such term or as subsequently re-determined by the Administrator pursuant to this Agreement and Chapter 537.

 

“Direct Employee Compensation” means the total amount of any wage, salary, bonus, commission, or other form of direct payment to any employee of the Shipowner, the Affiliate Guarantor and any of their Affiliates with guarantees under Chapter 537 as reported to the Internal Revenue Service for any fiscal year.

 

“Disclosure Schedule”  means that certain schedule as set forth as Annex D to this Agreement delivered to the Administrator on or prior to the Closing Date, setting forth, among other things, (a) items the disclosure of which is necessary or appropriate in response to an express disclosure requirement contained in a provision hereof or to make any representation and warranty contained in this Agreement true and correct or (b) any Commercial Tort Claims of the Shipowner.

 

“Eligible Investments” means any direct obligations of the United States or any agency of the United States.

 

“Equity Interest” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities (other than convertible debt securities prior to any conversion thereof) convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests).

 

“Equity Interest Holder” means each person with an Equity Interest in the Shipowner.

 

“Equity Interest Subordination Agreement” means the subordination agreement between the Shipowner and a Subordinating Equity Interest Holder which subordinates the interest of such Equity Interest Holder in favor of the Administrator substantially in the form attached to this Agreement as Annex P, as originally executed, modified, amended or supplemented.

 

“Expended Funds Rate” means a rate of interest equal to the weekly average 1-year constant maturity Treasury yield, as published by the Board of Governors of the Federal Reserve System, for the calendar week immediately preceding the date funds were expended by the Administrator.

 

“FFB” means the Federal Financing Bank, a body corporate and instrumentality of the United States.

 

“FFB Act” means the Federal Financing Bank Act of 1973 (Pub. L. ▇▇. ▇▇-▇▇▇, ▇▇ ▇▇▇▇. ▇▇▇, ▇▇ ▇.▇.▇. § ▇▇▇▇ et seq.), as amended.

 

“Financial Assets” has the meaning given by Article 8-102(a)(9) of the UCC.

 

 “Financing” means Construction Period Financing or Mortgage Period Financing, as applicable, as set forth on Annex A of this Agreement opposite such term.

 

“First Principal Payment Date” means the date set forth on Annex A of this Agreement opposite such term.

 

“Foreign Item Waivers” means all waivers granted by the Administrator to permit the inclusion of any item of foreign components and/or services incorporated or to be incorporated into any Vessel into the Actual Cost of such Vessel pursuant to 46 C.F.R. § 298.13, which waivers, if any, are set forth on Annex A of this Agreement opposite such term.

 

“GAAP” means those generally accepted accounting principles, standards and procedures and practices in effect in the United States that are recognized as such by the American Institute of Certified Public Accountants or by the Financial Accounting Standards Board or through other appropriate boards or committees thereof, and that are consistently applied for all periods, after the date hereof, so as to properly reflect the financial position of a Person, except that any accounting principle or practice required to be changed by the Financial Accounting Standards Board (or other appropriate board or committee of the said Board) in order to continue as a generally accepted accounting principle, standards and procedures may be so changed.

 

 “Governing Law State”  means law of the state as set forth on Annex A of this Agreement opposite such term governing the Agreement absent applicable federal law, including federal common law.

 

“Government” means the United States of America or any of its governmental bodies, departments and agencies.

 

“Government Use” means the use of a Vessel or requisition of its title required by a government or the Government.

 

 

“Guarantee” or the “Administrator’s Guarantee” means the guarantee by the United States, acting through the Administrator pursuant to Chapter 537, of the Note as provided for in this Agreement and the Note Purchase Documents.

 

“Guarantee Fee”  means the guarantee fee payable by the Shipowner under 46 U.S.C. § 53714(b) as set forth on Annex A of this Agreement opposite such term.

 

“Holder” means FFB, for so long as it shall be the holder of the Note, and any successor or assignee of FFB, for so long as such successor or assignee shall be the holder of the Note.

 

“Income Realized on the Chapter 537 Reserve Fund” means (a) the excess of the cash received from the sale of securities in the Chapter 537 Reserve Fund over their cost (less any losses from sales not already paid pursuant to Section 7.05 of Annex C of this Agreement), (b) cash received from the payment of principal and interest on securities and (c) interest paid by Treasury on cash balances maintained in the form of uninvested funds.

 

“Insurance Requirements” means amount of insurance per occurrence and in the aggregate set forth on Annex A of this Agreement opposite such term.

 

“Intended Payment Date” means the particular date on which the Shipowner intends to prepay the Note based upon Sections 3.02, 8.04, 11.12 or 15.01 of Annex C of this Agreement, as the case may be, which must be a Business Day;

 

“Interest Escrow Fund” means the account established pursuant to Section 5.01 of Annex C of this Agreement and held in the name of and for the benefit of the Administrator at Treasury pursuant to Sections 53712 and 53715 of Chapter 537 to be administered pursuant to Article V of Annex C of this Agreement and to be utilized by the Administrator to pay interest on the Note and as Collateral pursuant to Article IV of Annex C of this Agreement.

 

“Interest Escrow Fund Deposit” means the deposit required to be made by the Shipowner to pay interest in the amount set forth on Annex A of this Agreement opposite such term.

 

“Investigation Fee” means the fee payable by the Shipowner under Section 53713(a) of Chapter 537 as set forth on Annex A of this Agreement.

 

“IP Rights” means, with respect to the Shipowner or the Affiliate Guarantor, the right to use, all of the trademarks, service marks, trade names, copyrights, patents, patent rights, franchises, licenses and other intellectual property rights that are reasonably necessary for the operation of its business.

 

“Jurisdiction of Organization” means, with respect to the Shipowner, the state of organization set forth on the first page of this Agreement and, with respect to the Affiliate Guarantor(s), means the state of organization set forth on Annex A of this Agreement opposite the term Affiliate Guarantor.

 

“Jurisdiction State/City” means the state and city set forth on Annex A of this Agreement opposite such term.

 

 

“Late Charges” means the interest, default interest or late payment premiums or penalties by the Shipowner at any time and from time to time accrued and owing under the Note and the Note Purchase Documents.

 

“Late Charges Reserve Subfund” means the account established pursuant to Section 6.09 of Annex C of this Agreement and held in the name of and for the benefit of the Administrator at Treasury pursuant to Section 53716 of Chapter 537 to be administered pursuant to Section 6.09 of Annex C of this Agreement and to be utilized by the Administrator to pay Late Charges and as Collateral pursuant to Article IV of Annex C of this Agreement.

 

“Late Charges Reserve Subfund Deposit” means the deposit required to be made by the Shipowner to pay Late Charges in the amount set forth on Annex A of this Agreement opposite such term.

 

 “Letter Commitment” means the letter from the Administrator to the Shipowner, setting forth specific determinations made by the Administrator with respect to the proposed project of the Shipowner, as required by the Chapter 537 and regulations promulgated thereunder, and stating the commitment of the Administrator to execute the Guarantee, subject to compliance by the Shipowner with any conditions specified therein.

 

 “Letter Commitment Date” means the date of the Letter Commitment set forth opposite such term on Annex A of this Agreement.

 

 “Lien” means each, and “Liens” means every, mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, rights in rem, lien (statutory or other), claim, charge, right of set-off or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, and any financing lease having substantially the same economic effect as any of the foregoing).

 

“Liquidity” means, with respect to a Person, at any time, the aggregate amount of unrestricted cash (including certificates of deposit and time deposits) and cash equivalents (consisting of short-term, highly liquid investments with a maturity of three (3) months or less at the time of purchase) on hand (and, in each, cash free and clear of all Liens, other than Liens in favor of the Administrator), and, in the case of cash equivalents, available for use within a reasonable period of time.

“Loan Commitment Amount” means the particular amount specified in Schedule I to the Note Purchase Agreement as being the “Loan Commitment Amount.”

“Long-Term Debt” means, with respect to the Shipowner and the Affiliate Guarantor, as of any date, the total notes, bonds, debentures, equipment obligations and other evidence of indebtedness that would be included in long term debt in accordance with GAAP.  There shall also be included any guarantee or other liability for the debt of any other Person, not otherwise included on the balance sheet.

 

“Loss Event” means any (a) actual, constructive, agreed or compromised total loss of a Vessel, (b) requisition of title to, or seizure or forfeiture of a Vessel or (c) termination of the Construction Contract.

 

“Mandatory Compliance Prepayment” means the mandatory prepayment of the Advances required to be made pursuant to Section 8.04 of Annex C of this Agreement.

 

“Mandatory Compliance Prepayment Amount” means the amount by which the principal amount of all Outstanding Advances exceed the amount eligible for guarantee by the United States under Section 53709(b)(2) of Chapter 537, including interest, premiums and Late Charges, if any.

 

“Mandatory Loss Prepayment” means the mandatory prepayment of the Advances required as a result of a Loss Event pursuant to Section 11.12 of Annex C of this Agreement.

 

“Mandatory Loss Prepayment Amount” means an amount equal to the Proportionate Part of the Outstanding Advances affected by a Loss Event, including interest, premiums and Late Charges, if any.

 

“Mandatory Prepayment” means any Mandatory Compliance Payment, Mandatory Progress Prepayment, Mandatory Loss Prepayment or Mandatory Vessel Sale Prepayment.

 

“Mandatory Prepayment Amount” means any Mandatory Compliance Prepayment Amount, Mandatory Progress Prepayment Amount, Mandatory Loss Prepayment Amount and Mandatory Vessel Sale Prepayment Amount.

 

“Mandatory Prepayment Election” means the mandatory election of the Shipowner required to be made pursuant to Sections 3.02, 8.04, 11.12 or 15.01 of Annex C of this Agreement to prepay all or any portion of the Outstanding Advances, in the manner, at the price, and subject to the limitations specified in paragraph 14 of the Note.

 

“Mandatory Prepayment Election Notice” means the written notification, in the form specified in Paragraph 14(b) of the Note, delivered to FFB (and if FFB is not the Holder, then also to the Holder) and the Administrator of the payment of each mandatory prepayment made pursuant to Sections 3.02, 8.04, 11.12, 15.01 or 17.02 of Annex C of this Agreement, which notice may not be rescinded.

 

“Mandatory Progress Prepayment” means the mandatory prepayment of the Advances required to be made pursuant to Section 3.02 of Annex C of this Agreement.

 

“Mandatory Progress Prepayment Amount” means the amount set forth on Annex A of this Agreement opposite such term, including interest, premiums and Late Charges, if any.

 

“Mandatory Progress Prepayment Threshold” means the amount set forth on Annex A of this Agreement opposite such term.

 

“Mandatory Vessel Sale Prepayment” means the mandatory prepayment of the Advances required to be made pursuant to Section 15.01 of Annex C of this Agreement.

 

“Mandatory Vessel Sale Prepayment Amount” means an amount equal to the Proportionate Part of the Outstanding Advances relating to the Vessel or Vessels to be sold, including interest, premiums and Late Charges, if any.

 

“Market Value Prepayment/Refinancing Privilege” has the meaning specified in Section 12.2 of the Note Purchase Agreement.

 

 

“Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, properties, liabilities (actual or contingent), or condition (financial or otherwise) of the Shipowner or the Affiliate Guarantor, individually and taken as a whole; (b) a material impairment of the rights and remedies of the Administrator under any Transaction Document, or of the ability of either (1) the Shipowner, (2) the Affiliate Guarantor or (3) the Shipowner and the Affiliate Guarantor taken as a whole, to perform its or their, as applicable, obligations under any Transaction Document to which it is or they are, as applicable, a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against either (1) the Shipowner, (2) the Affiliate Guarantor or (3) the Shipowner and the Affiliate Guarantor taken as a whole, of any Transaction Document to which any of them is a party.

 

 “Maximum Payment Amount of Losses Directly to Shipowner”  means the amount as set forth on Annex A of this Agreement opposite such term.

 

“Maximum Principal Amount” shall have the same meaning as the term Loan Commitment Amount.

 

“Maximum Self-Insurance Amount”  means the amount as set forth on Annex A of this Agreement opposite such term.

 

“Minimum Liquidity” means, with respect to the Affiliate Guarantor, as of any date, the minimum liquidity amount set forth on Annex A of this Agreement opposite the term “Qualifying Financial Covenants of Affiliate Guarantor.”

 

“Moneys Due to Shipowner with Respect to Construction of the Vessels” means all of the Shipowner's right, title and interest in and to receive all moneys, cash, bonds, claims, and securities which from time to time may become due to the Shipowner with respect to the Construction of any Vessel regardless of the legal theory by which moneys are recovered.

 

“Mortgage” means the first preferred fleet mortgage on the Vessels (or first preferred ship mortgage on the Vessel, as the case may be) by the Shipowner to the Administrator substantially in the form attached to this Agreement as Exhibit F, as originally executed, modified, amended or supplemented.

 

“Mortgage Period Financing” means the financing provided by the issuance of the Note for the purpose of providing permanent financing of the Vessels as indicated on Annex A of this Agreement opposite the term “Financing” if applicable.

 

“Net Book Value” means the original book value of an asset less depreciation calculated on a straight line basis over its useful life.

 

“Net Worth” means, with respect to the Shipowner and the Affiliate Guarantor, individually and consolidated, as of any date, the total of paid-in capital stock, paid-in surplus, earned surplus and appropriated surplus, and all other amounts that would be included in net worth in accordance with generally accepted accounting principles, but exclusive of (a) any receivables from any Equity Interest Holder of the Shipowner or the Affiliate Guarantor, or any director, officer, employee or Related Person of the Shipowner or the Affiliate Guarantor (other than current receivables arising out of the ordinary course of business and not outstanding for more than sixty (60) days) and (b) any increment resulting from the reappraisal of assets.

 

 

“No-Call Advance” means any Outstanding Advance made under the Note Purchase Documents that may not be prepaid during an applicable No-Call Period.

 

“No-Call Payment Date” means the first date on which a Prepaid No-Call Advance may be paid in full without premium or penalty, which shall be the earlier of (a) the Stated Maturity Date of such Prepaid No-Call Advance or (b) the first installment payment due date after the end of the No-Call Period applicable to such Prepaid No-Call Advance.

 

“No-Call Period” means any period of time during which a No-Call Advance may not be prepaid pursuant to the Note Purchase Documents.

 

“No-Call Prepayment Amount” means the aggregate amount required to pay in full all Scheduled Debt Payments on all Prepaid No-Call Advances through and including the respective No-Call Payment Dates of each such Prepaid No-Call Advances.

 

“No-Call Prepayment Closing Date” means the Business Day on which the Shipowner pays the No-Call Prepayment Amount to the Administrator to be deposited into the No-Call Prepayment Fund, which may not be more than ten (10) Business Days, nor less than five (5) Business Day after the date on which the Administrator receives a No-Call Prepayment Notice.

 

“No-Call Prepayment Collateral” means the monies deposited in the No-Call Prepayment Fund by the Shipowner pursuant to Section 17.01 of Annex C of this Agreement and the proceeds thereof.

 

“No-Call Prepayment Fund” means the account established pursuant to Section 17.01 of Annex C of this Agreement and held in the name of and for the benefit of the Administrator at Treasury pursuant to Section 53716 of Chapter 537 to be administered pursuant to Article XVII of Annex C of this Agreement and to be utilized by the Administrator to pay Scheduled Debt Payments with respect to Prepaid No-Call Advances and as Collateral pursuant to Article IV of Annex C of this Agreement.

 

“No-Call Prepayment Notice” means the written notification given by the Shipowner to the Administrator pursuant to Section 17.02(a)(2) of Annex C of this Agreement with respect to a Mandatory Prepayment to be made, in whole or in part, with respect Prepaid No-Call Advances, which notice may not be rescinded.

 

“Note” means the Note issued by the Shipowner to FFB pursuant to the Note Purchase Agreement dated as of the date set forth in Annex A of this Agreement opposite such term.

 

“Note Purchase Agreement” means the Note Purchase Agreement among FFB, the Shipowner and the Administrator dated as of the date set forth in Annex A of this Agreement opposite such term.

 

“Note Purchase Document” means the Note, the Note Purchase Agreement and any other document executed in connection therewith, and “Note Purchase Documents” means all of such documents.

 

“OFAC” means the Office of Foreign Assets Control of Treasury.

 

 

“Officer's Certificate” means a certificate conforming to Section 18.01 of Annex C of this Agreement.

 

“Opinion of Counsel” means an opinion of the Shipowner’s and the Affiliated Guarantor’s counsel, substantially in the form attached to this Agreement as Annex O and acceptable to the Administrator.

 

“Organizational Documents” means (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws; (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable governmental authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.

 

“Organizational Form” means, with respect to the Shipowner, the organizational form set forth on the first page of this Agreement and, with respect to the Affiliated Guarantor(s), means the organizational form set forth on Annex A of this Agreement.

 

“Outstanding” means, when used with reference to the Note, all Advances theretofore made under the Note, except Advances that have been Paid.

 

“Paid” means, as applied to the Note and the indebtedness evidenced thereby, the applicable Advances that have been paid in full (by prepayment, at maturity or otherwise) and are no longer entitled to any rights or benefits provided pursuant to the Transaction Documents.

 

“Par Prepayment/Refinancing Privilege” has the meaning specified in Section 12.3 of Note Purchase Agreement.

 

“Payment Date” means the date that the principal of the Outstanding Advances and interest accrued on the Outstanding Advances are due and payable as specified on page 1 of the Note and as set forth on Annex A of this Agreement opposite such term.

 

“Payment Default” has the meaning set forth in Section 14.01(a) of Annex C of this Agreement.

 

“Permitted Liens” means:

 

(a)          The rights of the Shipyard under the Construction Contract, if any;

 

(b)          Liens on any undelivered Vessel which the Shipyard is obligated to discharge under the Construction Contract;

 

(c)          Special Subordinated Liens,

 

(d)          Liens with respect to loans, mortgages and indebtedness guaranteed by the Administrator under Chapter 537 or related to the construction of a vessel approved pursuant to Chapter 537 by the Administrator;

(e)          Liens arising for damages out of tort covered by insurance, except for any deductible amounts applicable thereto, for wages of a stevedore when employed directly by the owner, operator, master, ship’s husband or agent of any Vessel, for wages of the crew of any Vessel, for general average, for salvage, including contract salvage, provided the same are paid immediately when due;

 

(f)           Liens in favor of any person furnishing repairs, supplies, towage, use of dry dock or marine railway, or other necessaries to any Vessel on the order of the Shipowner, or of a person authorized by the Shipowner, provided that the same are paid immediately when due;

 

(g)          Liens imposed on any Vessel for taxes or governmental charges or levies, provided that the same are paid immediately when due;

 

(h)          Liens incurred in the ordinary course of business of any Vessel not relating to money borrowed which (1) will be paid immediately when due, and (2) which, in the aggregate, at any time are not material to the operations or financial condition of the Shipowner;

 

(i)           Liens arising by operation of law as a result of the modification of and repairs to any Vessel, including mechanic’s liens, provided that the same are paid immediately when due; and

 

(j)           Liens in favor of the Administrator granted pursuant to this Agreement, the Mortgage or the other Transaction Documents.

 

“Person” or “Persons” means any individual, corporation, partnership, joint venture, association, limited liability company, joint‑stock company, trust, unincorporated organization, other entity, government, or any agency or political subdivision thereof.

 

“Prepaid No-Call Advances” means all No-Call Advances, specified in each No-Call Prepayment Notice, pursuant to which the Shipowner has deposited No-Call Prepayment Collateral in the No-Call Prepayment Fund sufficient to pay all Scheduled Debt Payments on such No-Call Advances through and including their respective No-Call Prepayment Payment Date. “Primary Covenants” means those covenants set forth in Section 12.01 of Annex C of this Agreement.

 

“Proportionate Part" means, with respect to the item in question, the portion of the item in question, as of the date of any calculation, which bears the same proportion to the entire amount of the item in question as: (a) the Depreciated Actual Cost of the Vessel as of the date of such calculation bears to (b) the Depreciated Actual Cost of all the Vessels as of such date, all as determined by the Administrator.

 

“Qualifying Financial Covenants of Affiliate Guarantor” means those qualifying financial covenants of the Affiliate Guarantor set forth on Annex A of this Agreement opposite such term.

 

“Qualifying Financial Covenants of Shipowner” means those qualifying financial covenants of the Shipowner set forth on Annex A of this Agreement opposite such term.

 

“Quarterly Financial Statement Certification” means the Officer’s Certificate of the Shipowner and the Affiliate Guarantor (a) certifying to the accuracy of certain financial statements

pursuant to Section 13.05 of Annex C of this Agreement and (b) confirming that no Default exists pursuant to Section 13.08(b) of Annex C of this Agreement, in the form attached to this Agreement as Annex M-2.

 

“Related Party” means, with respect to any Person, another Person that can exercise control or significant influence over the management and/or operating policies of another Person, to the extent that one of the Persons may be prevented from fully pursuing its own separate interests.  Related parties consist of all affiliates of an enterprise, including (a) its management and their immediate families, (b) its principal owners and their immediate families, (c) its investments accounted for by the equity method, (d) beneficial employee trusts that are managed by the management of the enterprise, and (e) any Person that may, or does, deal with the enterprise and has ownership of, control over, or can significantly influence the management or operating policies of another Person to the extent that an arms-length transaction may not be achieved.

 

“Request” means a written request to a Person for the action therein specified, signed by a Responsible Officer of the Person making such request.

 

“Required Equity Amount” means the amount set forth on Annex A of this Agreement opposite such term representing the minimum amount of equity of the Shipowner in the Vessel as determined by the Administrator.

 

“Reserve Fund Net Income”  has the meaning set forth in Section 6.02 of Annex C of this Agreement.

 

“Reserve Fund Net Income Deposit” has the meaning set forth in Section 6.04 of Annex C of this Agreement.

 

“Responsible Officer” means, in the case of any business entity, the chairman of the board of directors, the president, any executive or senior vice president, the secretary, the treasurer, the managing member or the general partner of such business entity.

 

“Rights Under the Construction Contracts and Related Contracts” means all of the right, title and interest of the Shipowner in and to each Construction Contract, which was assigned to the Administrator pursuant to the Assignment of Construction Contract, together with all other contracts, whether now in existence or hereafter entered into, relating to the Construction of each Vessel.

 

“Scheduled Debt Payments” means, with respect to each Prepaid No-Call Advance, the aggregate of (a) all installment payments of the principal of each Prepaid No-Call Advance, and interest, premiums and Late Charges, if any, thereon, to occur prior the No Call Payment Date occurring with respect to such Prepaid No-Call Advance after the date of the No-Call Prepayment Notice, and (b) the payment of all Outstanding principal of the Prepaid No-Call Advance, and interest, premiums and Late Charges, if any, due with respect to such Prepaid No-Call Advance on the No-Call Payment Date.

 

“Security Default” has the meaning specified in Section 14.01(b) of Annex C of this Agreement.

 

“Shipowner”  means the entity set forth on the first page of this Agreement; provided, however, that in the event of a Shipyard Project, the term “Shipowner” means the Shipyard, as appropriate.

 

“Shipyard” means each, and “Shipyards” means every, Shipyard set forth on Annex A of this Agreement opposite such term.

 

“Shipyard Project” means any shipyard modernization and improvement project described on Annex A of this Agreement opposite such term and in compliance with the requirements of Section 53733 of Chapter 537.

 

“Solvent” mean, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not reasonably foresee that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature, (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital, and (e) such Person is able to pay its debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business.  The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

 

“Special Security Default” means those additional events constituting a Security Default under this Agreement as set forth on Annex A of this Agreement opposite such term.

 

 “Special Subordinated Liens” means those Liens that are permitted by the Administrator to be subordinate to the Mortgage or any Lien granted to the Administrator under this Agreement and the other Transaction Documents as set forth on Annex A of this Agreement opposite such term.

 

“Stated Maturity Date” means the date determinable as set forth in the Note as the “Maturity Date” as the final date on which the principal of and unpaid interest on the Note is due and payable and as set forth on Annex A of this Agreement opposite such term.

 

“Subordinating Equity Interest Holder” means an Equity Interest Holder that has subordinated its Equity Interest in favor the Administrator.

 

 “Supplemental Covenants” means those covenants set forth in Sections 12.02 of Annex C of this Agreement.

 

 “Supplemental Financial Covenants of Affiliate Guarantor” means the supplemental financial covenants of the Affiliate Guarantor set forth on Annex A of this Agreement opposite such term.

 

“Supplemental Financial Covenants of Shipowner” means the supplemental financial covenants of the Shipowner set forth on Annex A of this Agreement opposite such term.

 

“Surety” means a surety company or companies as shall be satisfactory to the Administrator.

 

“Surety Bonds” means the performance bonds and payment bonds to be maintained by the Shipowner during the Construction naming the Shipowner and the Administrator as co-obligees in form and substance satisfactory to the Administrator.

 

 “Transaction Document” means any of this Agreement, the Administrator’s Note, the Assignment of Construction Contract, the Assignment of Earnings, the Assignment of Insurances, the Mortgage, the Affiliate Guaranty, the Note, any Note Purchase Document or any other related document, and “Transaction Documents” means all of such documents.

 

“Transferee” means the Person to which a sale of a Vessel shall have been made pursuant to Section 15.01 of Annex C of this Agreement.

 

“Treasury” means the United States Department of Treasury.

 

“UCC”  means the Uniform Commercial Code as adopted in the UCC State.

 

“UCC State” has the meaning set forth on Annex A of this Agreement opposite such term.

 

“Unaudited Financial Statements” means, with respect to any Person, the unaudited balance sheet and the related statement of income or operations, shareholders’ equity and cash flows for such fiscal period of such Person.

 

“United States” or “U.S.” means the United States of America.

 

 “Unrestricted Advance” means any Outstanding Advance that is not subject to a No-Call Period.

 

 “Vessel” or “Vessels” means (a) prior to the Delivery Date, the hull and all work, material, goods, components, machinery, and equipment which are purchased for, identified for use in the hulls and vessels to be built pursuant to the Construction Contract, whether or not located at the Shipyard, and (b) from and after the Delivery Date, shall mean such vessel or vessels as completed in accordance with the Construction Contract, together with related appurtenances, additions, improvements and replacements, and which are further identified in the Granting Clauses of the Mortgage, and are more particularly described on Annex A of this Agreement opposite such term.

 

“Working Capital” means, with respect to the Shipowner and the Affiliate Guarantor, as of any date, the excess of its current assets over its current liabilities, both determined in accordance with generally accepted accounting principles and adjusted as follows: (a) in determining current assets, there shall also be deducted: (1) Any securities, obligations or evidence of indebtedness of a Related Party or of any stockholder, director, officer or employee (or any member of his family) of the Shipowner or of such Related Party, except advances to agents required for the normal current operation of the Shipowner’s vessels and current receivables arising out of the ordinary course of business and not outstanding for more than sixty (60) days; and (2) An amount equal to any excess of unterminated voyage revenue over unterminated voyage expenses; (b) in determining current liabilities, there shall be deducted any excess of unterminated voyage expenses over unterminated voyage revenue; and (c) in determining current liabilities, there shall be added one half of all annual charter hire and other lease obligations (having a term of more than six (6)

 

months) due and payable within the succeeding fiscal year, other than charter hire and such other lease obligations already included and reported as a current liability on the Shipowner’s balance sheet.

 

2.            Other Interpretive Provisions.  With reference to this Agreement and each other Transaction Document, unless otherwise specified herein or in such other Transaction Document:

 

(a)      Construction. The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.”  The word “will” shall be construed to have the same meaning and effect as the word “shall.”  Unless the context requires otherwise, (1) any definition of or reference to any agreement, instrument or other document (including any Organizational Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Transaction Document), (2) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (3) the words “herein,” “hereof” and “hereunder,” and words of similar import when used in any Transaction Document, shall be construed to refer to such Transaction Document in its entirety and not to any particular provision thereof, (4) all references in a Transaction Document to Articles, Sections, Annexes, Appendices and Schedules shall be construed to refer to Articles and Sections of, and Annexes, Appendices and Schedules to, the Transaction Document in which such references appear, (5) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (6) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

 

(b)      Computation Periods.  In the computation of periods of time from a specified date to a later specified date, the word “from” means “from but not including;” the words “to” and “until” each mean “to and including;” and the word “through” means “to and including.”

 

(c)    Section Headings. Section headings herein and in the other Transaction Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Transaction Document.

 

(d)          Accounting Terms.

 

(1)          Generally.  All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with GAAP, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein or in relevant federal regulations.

 

(2)          Changes in GAAP.  If at any time any change in GAAP would affect the computation of any financial covenant or requirement set forth in any Transaction Document, and the Shipowner shall so request, the Administrator and the Shipowner shall negotiate in good faith

 

to amend such covenant or requirement to preserve the original intent thereof in light of such change in GAAP; provided that, until so amended, (A) such covenant or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (B) the Shipowner shall provide to the Administrator financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

 

(3)          Consolidation of Variable Interest Entities.  All references herein to consolidated and consolidating financial statements of the Shipowner and the Affiliate Guarantor or to the determination of any amount for the Shipowner and the Affiliate Guarantor on a consolidated basis or any similar reference shall, in each case, be deemed to include each variable interest entity that the Shipowner and the Affiliate Guarantor are required to consolidate pursuant to Topic 810 of the Accounting Standards Codification (ASC) maintained by the Financial Accounting Standards Board (FASB) as if such variable interest entity were an Affiliate.

 

(e)          Uniform Commercial Code Terms.

 

All other capitalized terms contained in this Agreement and not otherwise defined herein have, when the context so indicates, the meanings provided for by the UCC to the extent the same are used or defined therein. Without limiting the generality of the foregoing, the following terms have the meaning ascribed to them in the UCC: Equipment, Inventory, Accounts, Chattel Paper, General Intangibles, Goods, Documents, Instruments, Letter of Credit, Letter of Credit Rights, Investment Property, Commercial Tort Claims, Deposit Accounts and, Accessions. Subject to the foregoing, the term "UCC" refers, as of any date of determination, to the UCC then in effect.

 

(f)           Rounding.

 

Except as may otherwise be noted in the calculation of any financial ratios, any financial ratios required to be maintained by the Shipowner or the Affiliate Guarantor pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest tenth of the number (with a rounding-up if there is no nearest tenth of the number).

 

 

INDEX OF DEFINED TERMS

 

The following table, which is provided solely for convenience of reference and shall not affect the interpretation of this Agreement, generally identifies the location where capitalized terms are used in this Agreement:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(END OF ANNEX B)

 

 

ANNEX C

GENERAL TERMS AND CONDITIONS

 

Table of Contents

 

 

 

 

 

 

 

 

 

 

 

 

 

ARTICLE I

The Note

The Note shall be as provided in the Note Purchase Agreement and in the form of the Note annexed as Exhibit C to the Note Purchase Agreement, the proceeds of which shall be used for the Financing as set forth on Annex A of this Agreement. The Note shall be subject to all of the terms and conditions set forth in the Note Purchase Agreement.

 

ARTICLE II

Commitment to Guarantee

 

SECTION 2.01. Commitment to Guarantee. The United States, represented by the Administrator, HEREBY COMMITS ITSELF TO GUARANTEE the payment of the unpaid interest on, and the unpaid balance of the principal of, the Note, including interest accruing between the date of default under the Note and the payment in full of the Guarantee, and, to effect this Commitment to Guarantee, hereby, subject to the terms and conditions hereof, commits itself to execute and deliver the Administrator’s Guarantee on the Closing Date. The Shipowner hereby accepts this Commitment to Guarantee subject to the terms and conditions hereof.

 

SECTION 2.02.  Form of Guarantee.  The form of the Guarantee to be attached to the Note is as follows:

 

“The United States of America, acting through the Maritime Administrator, Maritime Administration, U.S. Department of Transportation (the “Administrator”), hereby guarantees to the Federal Financing Bank, its successors and assigns (“FFB”), all payments of principal and interest, when and as due in accordance with the terms of the note dated  [CLOSING DATE], issued by ___________________________________________________________ (the “Borrower”) payable to FFB in the maximum principal amount of $________________, to which this Administrator’s Guarantee is attached (such note being the “Note”), with interest on the principal until paid, irrespective of (i) acceleration of such payments under the terms of the Note, or (ii) receipt by the Administrator of any sums or property from its enforcement of its remedies for the Borrower’s default.

 

This Administrator’s Guarantee is issued pursuant to Chapter 537 of Title 46 of the United States Code, Section 6 of the Federal Financing Bank Act of 1973 (12 U.S.C. § 2285), and the Note Purchase Agreement dated as of [CLOSING DATE], among FFB, the Borrower, and the Administrator.

 

 

 

 

SECTION 2.03. Conditions to Guarantee and Execution and Delivery of the Guarantee.  The obligation of the Administrator to execute and deliver the Guarantee on the Closing Date shall be subject to receipt by the Administrator of the following items on the Closing Date, or such other date specified herein, unless waived by the Administrator:

 

Transaction Documents

 

(a)          the Shipowner shall have executed and delivered to the Administrator this Agreement, the Administrator’s Note, the Mortgage, the Assignment of Construction Contract, the Assignment of Earnings, and the Assignment of Insurance, the Note and the Note Purchase Agreement;

 

(b)          the Affiliate Guarantor shall have executed and delivered to the Administrator (1) this Agreement with respect to those Annexes and Sections of this Agreement set forth above the signature of the Affiliate Guarantor that are applicable to the Affiliate Guarantor and (2) the Affiliate Guaranty, which shall be in full force and effect;

 

(c)          the Shipowner and the Affiliate Guarantor shall have executed and delivered to the Administrator the declaration required by Section 1352 of Title 31 of the United States Code, as amended, and the Lobbying Disclosure Act of 1995, classified at 2 U.S.C. § 1601;

 

(d)          (1) the Shipowner and the Shipyard shall have executed and delivered to the Administrator (A) a copy of the Construction Contract and (B) a certificate indicating that, on behalf of itself and all of its respective contractors, there are no Liens against the Vessel, in form and substance acceptable to the Administrator; and (2) (A) in the event of Mortgage Period Financing, the Shipyard shall have executed and delivered to the Administrator the Consent of Shipyard or (B) in the event of Construction Period Financing, the Shipowner and the Shipyard shall have executed and delivered to the Administrator the Consent and Agreement of Shipowner and Shipyard;

 

(e)          the Administrator shall have received a subordination in form and substance satisfactory to the Administrator with respect to all non-Chapter 537 debt of the Shipowner relating to the Vessels, if any, that has not been discharged;

 

(f)           FBB shall have executed and delivered the Note Purchase Agreement in form and substance acceptable to the Administrator;

 

(g)          the Shipowner and Affiliate Guarantor each shall have delivered to the Administrator an Opinion of Counsel, which shall include, among other things, an opinion to the effect that: (1) by the terms of this Agreement, the Shipowner has granted to the Administrator a fully perfected, first priority security interest in each of the assets which constitutes the Collateral; and (2) all filings, recordings, notices and other actions required to perfect the Administrator's interests in the Collateral and to render such security interests valid and enforceable under the UCC State have been duly effected, together with copies of such filings;

 

 

(h)          the Administrator shall have received from the Shipowner: (1)(i) two executed original counterparts of the Note Purchase Agreement; (ii) two copies of the Note; (iii) two executed originals of the legal opinion issued under Subsection (g) of this Section; (iv) two executed originals of the legal opinion delivered to FFB pursuant to the Note Purchase Agreement; and (v) two executed original counterparts of this Agreement, each of the Annexes hereto and all other documents executed and delivered by the Shipowner, the Affiliate Guarantor or FFB in connection with the closing, and (2) within thirty (30) days after the Closing Date six bound copies of this Agreement, together with the Annexes, and all other documents executed and delivered by the Shipowner, the Affiliate Guarantor or FFB in connection with the closing of the transactions contemplated hereby.

 

Vessel Documents

 

(i)           the Shipowner shall have provided the Administrator with satisfactory evidence of marine insurance as required by Section 11.10 of this Agreement, naming the Administrator as lender loss payee for Vessel hull & machinery coverage and as a co-assured to all liability coverage;

 

(j)           if the Shipowner intends to operate any of the Vessels in the U.S. domestic trade, the Shipowner and any bareboat charterers of such Vessels shall have furnished to the Administrator an affidavit complying with the requirements of 46 CFR Part 355, demonstrating U.S. citizenship;

 

(k)          if the Vessels have been delivered to the Shipowner, the Shipowner shall have delivered to the Administrator (1) evidence that the Vessels are and shall remain documented by the United States Coast Guard with a coastwise endorsement and (2) the United States Coast Guard certificates and evidence from the Classification Society that each Vessel is in class;

 

Financial Conditions

 

(l)           the Administrator shall have received at least ten (10) Business Days prior to the Closing Date (1) a detailed, pro forma balance sheet for the Shipowner certified by a Responsible Officer, including adequate disclosures in accordance with GAAP and showing, among other things, all non-Chapter 537 debt of Shipowner; and (2) detailed, consolidated and consolidating pro forma balance sheets for the Shipowner and the Affiliate Guarantor, certified by a Responsible Officer of the Shipowner and of the Affiliate Guarantor. Each balance sheet described in this Subsection (l) shall be dated as of the Closing Date, reflect the completion of the Financing under Chapter 537, and demonstrate compliance with the Qualifying Financial Covenants of the Shipowner and the Qualifying Financial Covenants of the Affiliate Guarantor;

 

(m)         the Administrator shall have received the most recent annual Audited Financial Statements or quarterly Unaudited Financial Statements of Shipowner and the Affiliate Guarantor prepared in accordance with GAAP, each certified by a Responsible Officer of the Shipowner and the Affiliate Guarantor and showing, among other things, all non-Chapter 537 debt of the Shipowner and of the Affiliate Guarantor;

 

Closing Certifications

 

 

(n)          the Shipowner and Affiliate Guarantor, to the extent applicable, shall have executed and delivered to the Administrator an Officer’s Certificate representing and warranting the truth of the following statements as of the Closing Date:

 

(1)          each of the representations and warranties set forth at Article X of this Agreement;

 

(2)          the Shipowner is not in violation of any Federal laws having a substantial adverse effect on the interests of the United States and that the consummation of the Commitment complies with Federal law;

 

(3)          there have been no occurrences that would adversely or materially affect the condition of any of the Vessels, their hull or any of their component parts, or, in the event such occurrences exist, a detailed description of such occurrence, in which event the Administrator may take such action as it deems appropriate, including not issuing the Guarantee;

 

(4)          there have not been any materially adverse changes in the financial or legal condition of the Shipowner or the Affiliate Guarantor or in the economic conditions in the intended trade for the Vessels, each as determined in the sole judgment of the Administrator;

 

(5)          there are no Liens on the Vessels or its component parts, except Permitted Liens;

 

(6)          no Default or event after any period of time or any notice, or both, would constitute, a Default has occurred;

 

(7)          the amount of Actual Cost Paid is true and correct;

 

(8)          each item in the amount of Actual Cost Paid is properly included in the Actual Cost of the Vessel;

 

(9)          each of the Shipowner and the Affiliate Guarantor is in compliance with the Qualifying Financial Covenants of Shipowner and the Qualifying Financial Covenants of Affiliate Guarantor, respectively, in accordance with GAAP, as adjusted by 46 CFR § 298.13(d), and detailing such compliance; and

 

(10)        all non-Chapter 537 debt of the Shipowner relating to the Vessels has been discharged or subordinated in a manner satisfactory to the Administrator;

 

(o)          the Shipowner’s Accountant shall have provided a certification or other evidence satisfactory to the Administrator as to the amounts paid from Advances with respect to Section 2.03(n) (7) and (8) of this Agreement;

 

Fees and Deposits

 

(p)          the Administrator shall have received the Guarantee Fee payable under 46 U.S.C. §53714(b) and the Investigation Fee due under 46 U.S.C. §53713(a);

 

(q)          the Shipowner shall have made the Interest Escrow Fund Deposit, unless waived by the Administrator as indicated in Annex A of this Agreement;

 

(r)           the Shipowner shall have made the Late Charges Reserve Subfund Deposit;

 

Other Conditions

 

(s)           the Shipowner shall have complied in all material respects with its agreements under this Agreement and all other requirements of Chapter 537 and the applicable regulations, as determined in the sole judgment of the Administrator;

 

(t)           there have not been any occurrences which have or would adversely and materially affect the condition of the Vessels, their hulls or any of their component parts, as determined in the sole judgment of the Administrator;

 

(u)          there shall not have occurred a Default or event after any period of time or any notice, or both, which would constitute a Default; and

 

(v)          all documentation and legal opinions relating to the transactions contemplated by this Agreement and the Note Purchase Agreement shall be in form and substance satisfactory to the Administrator and all security interests in the Collateral shall be fully perfected and of first priority as of the Closing Date.

 

SECTION 2.04. Assignment; Termination of the Guarantee. (a) The Guarantee may not be assigned by the Shipowner without the prior written approval of the Administrator and any attempt to do so shall be null and void ab initio.

 

(b) The Guarantee shall terminate only when, one or more of the following events shall occur:

 

(1)          the Note shall have been Paid;

 

(2)          the Holder shall have elected to terminate the Guarantee, and the Administrator has been so notified by the Holder in writing; provided that, such termination shall not prejudice any rights accruing hereunder prior to such termination;

 

(3)          the Guarantee shall have been paid in full in cash by the Administrator; or

 

(4)          each Holder shall have failed to demand payment of the Guarantee as provided in Chapter 537.

 

ARTICLE III

Administrator’s Note

 

SECTION 3.01.  Administrator’s Note.  On this date, the Shipowner has duly executed and delivered, and the Administrator has accepted, the Administrator’s Note in an amount equal to the Maximum Principal Amount of the Note. The Administrator’s Note, and any endorsement thereof executed and delivered to the Administrator in accordance with Section 12.01(h) or

otherwise shall be secured by this Agreement, the Mortgage and the other Transaction Documents.

 

SECTION 3.02.  Mandatory Progress Prepayment.  (a) If at the end of any fiscal year of the Shipowner, the Reserve Fund Net Income of the Shipowner exceeds the Mandatory Progress Prepayment Threshold, then the Shipowner shall on demand from the Administrator immediately prepare and deliver to FFB, the Holder and the Administrator a Mandatory Prepayment Election Notice (indicating the Shipowner’s intent to prepay the Advances or any portion of the Advances in an amount equal to the Mandatory Progress Prepayment Amount on the Intended Payment Date, which shall not be less than five (5) Business Days or more than ten (10) Business Days after receipt of such notice by the Holder), which notice shall not be rescinded, and the Shipowner shall pay the Mandatory Progress Prepayment Amount to the Holder on the Intended Payment Date; provided,  however, that if a Mandatory Progress Prepayment is required under this Section, (a) the Shipowner shall only apply such prepayment to those Unrestricted Advances that will not result in the incurrence of a prepayment penalty or premium upon prepayment of such Advance, and (b) if such Mandatory Progress Prepayment Amount exceeds the amount of those Outstanding Unrestricted Advances that will not result in the incurrence of a prepayment penalty or premium upon prepayment of such Advance, then the Mandatory Progress Prepayment Amount shall be reduced to the amount of such Outstanding Unrestricted Advances.  The obligations of the Shipowner under this Section shall be in addition to its obligations under Article VI hereof.

 

(b)          Advances are also subject to (1) a Mandatory Compliance Prepayment in accordance with Section 8.04 of this Agreement; (2) a Mandatory Loss Prepayment to comply with Section 11.12 of this Agreement; and (3) a Mandatory Vessel Sale Prepayment to comply with Section 15.01 of this Agreement.

 

(c)          Any mandatory prepayments made in accordance with Clauses (a) or (b) of this Section shall result in a corresponding reduction in the outstanding amount of the Administrator’s Note.

 

SECTION 3.03.  Elective Prepayments and Refinancings of Advances.  Advances are subject to elective prepayment and refinancing based upon the Market Value/Prepayment Refinancing Privilege and the Par Prepayment/Refinancing Privilege in accordance with Paragraphs 14 and 15 of the Note and Paragraphs 12.2 and 12.3 of the Note Purchase Agreement.  The allowance of any such refinancing of Advances shall be at the sole discretion of the Administrator.  Any such elective prepayments or refinancings of Advances shall result in a corresponding reduction and refinancing of the outstanding amount of the Administrator’s Note.

 

SECTION 3.04. Additional Debts of Shipowner to Administrator. (a) If the Shipowner shall fail to perform any covenant, condition or agreement set forth in the Transaction Documents, the Administrator may, in its discretion, at any time during the continuance of an event which by itself, with the passage of time, or the giving of notice, would constitute a Default, perform all acts and make all necessary expenditures to remedy such failure. Notwithstanding the foregoing, the Administrator shall not be obligated to (and shall not be liable for the failure to) perform such acts and make such expenditures.  All funds advanced and expenses and damages incurred by the Administrator relating to such compliance shall constitute a debt due from the Shipowner to the Administrator and shall be secured hereunder and under the Mortgage prior to the Administrator's

Note and shall be repaid by the Shipowner upon demand, together with interest at the Expended Funds Rate plus two percent (2%).

 

(b) (1) All funds advanced and expenses incurred by the Administrator pursuant to Section 4.05 of this Agreement and the Transaction Documents; (2) all other expenses incurred incident to the exercise by the Administrator of any rights and remedies pursuant to Section 4.04(a), Section 4.04(b), Article XIV or any other provisions of this Agreement, the other Transaction Documents and the Note Purchase Documents or in connection with the assumption by the Administrator of the rights and duties of the Shipowner under the Note Purchase Agreement and the Note; and (3) all payments made to the Holder as a result of the default of the Shipowner under Chapter 537 (including, but not limited to, fees paid to the Holder for expenses incident to the assumption of the Note Purchase Agreement by the Administrator), shall constitute a debt due from the Shipowner to the Administrator and shall also be secured hereunder and under the Mortgage and the other Transaction Documents prior to the Administrator's Note and shall be repaid by the Shipowner upon demand together with interest at the Expended Funds Rate plus two percent (2%).

 

(c)  All payments required to be made by the Shipowner or the Affiliate Guarantor under the Transaction Documents shall be made by wire transfer in immediately available funds in accordance with payment instructions provided by the Administrator.

 

ARTICLE IV

Security Agreement

 

SECTION 4.01.  Granting Clause.  (a) In order to create a present security interest in the Administrator, the Shipowner does hereby grant, sell, convey, assign, transfer, mortgage, pledge, set over and confirm unto the Administrator a first priority continuing security interest in, Lien on and right of setoff against, all of the right, title and interest of the Shipowner in and to all of the following, whether now owned or existing or hereafter arising or acquired:

 

 

 

(3)          each Vessel and all Goods, including, without limitation, Accessions, fuel, Equipment and Inventory, Accounts, including, without limitation, any bareboat charters, time charters, charter hire, voyage or other charters, earnings, affreightments, General Intangibles, including, without limitation, IP Rights of the Shipowner, Chattel Paper, Documents, Instruments, Letters of Credit, Letters of Credit Rights, Investment Property, Commercial Tort Claims described on the Disclosure Schedule or notified to the Administrator pursuant to Section 11.04, and Deposit Accounts, (all terms are defined as set forth in Annex B of this Agreement or in the UCC as applicable) appertaining to or relating to each Vessel or its operation, whether or not on board or ashore and not covered by the Mortgage;

 

(4)          the Late Charges Reserve Subfund and all sums, moneys, securities and proceeds of the Late Charges Reserve Subfund currently on deposit or hereafter deposited in said account;

 

(5)          the Chapter 537 Reserve Fund and all sums, moneys, securities and proceeds of the Chapter 537 Reserve Fund currently on deposit or hereafter deposited in said account;

 

(6)          the Interest Escrow Fund and all sums, moneys, securities and proceeds of the Interest Escrow Fund currently on deposit or hereafter deposited in said account, including, without limitation, Financial Assets;

 

(7)          the No-Call Prepayment Fund and all sums, moneys, securities and proceeds of the No-Call Prepayment Fund hereafter deposited in said fund, including, without limitation, the No-Call Prepayment Collateral;

 

(8)          all policies and contracts of insurance relating to each Vessel, including, without limitation, the Shipowner’s rights under all entries in any protection and indemnity or war risks associations or clubs, which are from time to time taken out by or for the Shipowner in respect of each Vessel, their hull, machinery, freights, disbursements, profits or otherwise, and all the benefits thereof and all other rights of the Shipowner in respect thereof, including, without limitation, all claims of whatsoever nature including without limitation any general  average claims or loss of hire claims, as well as return premium;

 

(9)          all cash and non-cash Products and Proceeds of the collateral described in Clauses (1) through (8) of this Section 4.01(a); and

 

(10)        the Mortgage, to be executed and delivered by the Shipowner to the Administrator, as mortgagee covering each Vessel.

 

(b)          The right, title and interest of the Administrator pursuant to Section 4.01(a) of this Agreement are herein, collectively, called the "Collateral." The Administrator shall hold the Collateral as collateral security for all of the obligations and liabilities of the Shipowner under this Agreement, the Administrator's Note, the Mortgage and the other Transaction Documents and as collateral security, whether now made or hereafter entered into, for and with respect to the Guarantee.

 

(c)          Notwithstanding Subsections (a) and (b) of this Section 4.01, (1) the Shipowner shall remain liable to perform its obligations under each Construction Contract and the above-mentioned other agreements; (2) the Administrator shall not, by virtue of this Agreement, have any obligations under any of the documents referred to in Clause (1) or be required to make any payment owing by the Shipowner thereunder; and (3) if there is no existing Default, the Shipowner shall (subject to the rights of the Administrator hereunder) be entitled to exercise all of its rights under each of the documents referred to in this Section and shall be entitled to receive all of the benefits accruing to it thereunder as if Subsections (a) and (b) of this Section were not applicable.

 

SECTION 4.02. Uniform Commercial Code Filings. The Shipowner shall (a) furnish evidence satisfactory to the Administrator that financing statements under the UCC shall have been

filed against the Shipowner (or the Shipyard, if applicable) in all offices in which it may be necessary or advisable in the opinion of the Administrator to perfect the Administrator’s security interests, and (b) from time to time execute and deliver such further instruments and take such action as may reasonably be required to more effectively subject the Collateral to the Lien of this Agreement and the Mortgage as contemplated thereby, including, but not limited to, legal opinions from an independent counsel for the Shipowner to the effect that all UCC financing statements and UCC continuation statements have been filed to perfect and continue to perfect the Administrator's interests in the Collateral and are valid and enforceable first priority perfected security interests.

 

SECTION 4.03. Surrender of Vessel Documents. The Administrator shall consent to the surrender of each Vessel's documents in connection with any re-documentation of such Vessel required on account of alterations to such Vessel which are not prohibited by this Agreement or the Mortgage.

 

SECTION 4.04. General Powers of the Administrator.  (a) In the event that any Vessel shall be arrested or detained by a marshal or other officer of any court of law, equity or admiralty jurisdiction in any country or nation of the world or by any government or other authority, and shall not be released from arrest or detention within fifteen (15) Business Days from the date of arrest or detention, the Shipowner hereby authorizes and empowers the Administrator, in the name of the Shipowner and hereby irrevocably appoints the Administrator and its successors and assigns the true and lawful attorney of the Shipowner, in its name and stead, to apply for and receive possession of and to take possession of such Vessel with all the rights and powers that the Shipowner might have, possess and exercise in any such event. This power of attorney shall be irrevocable and may be exercised not only by the Administrator but also by an appointee or appointees, with full power of substitution, to the same extent as if said appointee or appointees had been named as one of the attorneys above named by express designation.

 

(b)          The Shipowner also authorizes and empowers the Administrator or the Administrator’s appointee or appointees, as the true and lawful attorney of the Shipowner, to appear in the name of the Shipowner, or its successors or assigns, in any court of any country or nation in the world where a suit is pending against any Vessel because or on account of any alleged Lien against the Vessel from which the Vessel has not been released and to take such proceedings as to them or any of them as may seem proper towards the defense of such suit and the discharge of such lien, and all expenditures made or incurred by them or any of them for the purpose of such defense or discharge shall be deemed to be an indebtedness of the Shipowner and shall be secured by this Agreement and the Mortgage and shall be immediately due and payable and, until paid, shall bear interest at the Expended Funds Rate plus two percent (2%).

 

(c)          The Shipowner irrevocably authorizes the Administrator or its appointee (with full power of substitution) to appear in the name of the Shipowner in any court of any country or nation of the world where a suit is pending against the whole or any part of the Collateral because of, or on account of, any alleged Lien or claim against the whole or any part of the Collateral, from which the whole or said part of the Collateral has not been released. The Administrator shall not be obligated to (nor be liable for the failure to) take any action provided for in Subsections (a) and (b) of this Section.

 

SECTION 4.05.  Performance of the Shipowner’s Agreements by the Administrator. If the Shipowner shall fail to perform punctually and fully any of its agreements hereunder,

including but not limited to providing the Administrator with any audited or unaudited financial statements, reports, certifications or calculations required hereunder to be provided by the Shipowner to the Administrator, the Administrator may, in its discretion, perform all acts and make all necessary expenditures to remedy such failure.  Notwithstanding the foregoing, the Administrator shall not be obligated to (and shall not be liable for the failure to) perform such acts and make such expenditures, including, but not limited to, the hiring of accounting professionals to review the books and records of the Shipowner to the satisfaction of the Administrator, and the Shipowner hereby agrees to disclose all and any pertinent information determined to be necessary for the conduct of such a review by the Administrator or its consultants.  All funds advanced and expenses and damages incurred by the Administrator relating to such compliance shall constitute a debt due from the Shipowner to the Administrator and shall be secured hereunder and under the Mortgage prior to the Administrator's Note and shall be repaid by the Shipowner upon demand, together with interest at the Expended Funds Rate plus two percent (2%).

 

ARTICLE  V

Interest Escrow Fund

 

SECTION 5.01.  Establishment of Interest Escrow Fund.   On or prior to the Closing Date, the Administrator shall establish the Interest Escrow Fund with Treasury and the Shipowner shall deposit into the Interest Escrow Fund an amount equal to the Interest Escrow Fund Deposit, which shall be an amount equal to six (6) months’ interest on the Note assuming the Maximum Principal Amount of the Note has been advanced on the Closing Date, unless such requirement is waived by the Administrator as set forth on Annex A of this Agreement.

 

SECTION 5.02. Disbursements from the Interest Escrow Fund. (a) The Administrator shall at any time and from time to time within a reasonable time after receipt of a Request from the Shipowner or upon its own authority taken without formal prompting or request from any Person, cause Treasury to disburse from the Interest Escrow Fund directly to the Administrator for payment to the Holder, or to the Administrator any unpaid interest which the Shipowner is obligated to pay but has not paid with respect to any interest on the Note or the Administrator’s Note.

 

(b)          If, at any time of determination, the total amount on deposit in the Interest Escrow Fund exceeds the calculation of interest due on the Note for the successive six (6) month period assuming the full advance of the Note on the date of determination at the rate established and as determined by the Administrator, unless there is an existing Default, then, upon receipt of the Shipowner’s Request, the Administrator shall cause Treasury to disburse to the Administrator for disbursement to the Shipowner such excess from the Interest Escrow Fund.

 

SECTION 5.03. Termination Date of the Interest Escrow Fund. The Interest Escrow Fund will terminate on the latest to occur of (a) ninety (90) days after the Delivery Date of the last Vessel covered by this Agreement, (b) the date that the full amount of the aggregate Actual Cost of the last Vessel covered by this Agreement has been paid, or (c) the date that the final determination of the aggregate Cost of all of the Vessels has been made by the Administrator.  Any funds remaining in the Interest Escrow Fund after the termination date of  the Interest Escrow Fund shall be paid to the Shipowner except that if a Default exists at such time, the funds remaining in

the Interest Escrow Fund will be deposited into the Chapter 537 Reserve Fund and applied in accordance with the terms of Section 14.04 of this Agreement.

 

ARTICLE VI

Chapter 537 Reserve Fund (including Late Charges Subfund)

 

SECTION 6.01.  Establishment of Chapter 537 Reserve Fund.  On the Closing Date, the Administrator shall establish the Chapter 537 Reserve Fund. In the event that the Shipowner shall, at any time and from time to time, receive any Moneys Due with Respect to the Construction of the Vessels, the Shipowner shall give notice thereof to the Administrator and shall promptly pay the same over to the Administrator who shall deposit the funds into the Chapter 537 Reserve Fund for application in accordance with Section 14.04 of this Agreement. When and if the Shipowner or other Person is required by Sections 6.04 and 13.07 of this Agreement to make a Reserve Fund Net Income Deposit into the Chapter 537 Reserve Fund, the Shipowner or other Person shall pay those funds to the Administrator who shall deposit the funds into the Chapter 537 Reserve Fund.

 

SECTION 6.02.  Computation of Reserve Fund Net Income.  Within one hundred five (105) days after the end of each fiscal year of the Shipowner, the Shipowner shall compute its net income attributable to the operation of the Vessels for such year in accordance with this Section ("Reserve Fund Net Income").  This computation requires the multiplication of the Shipowner’s total net income after taxes by a fraction with a numerator composed of the total original capitalized cost of all Vessels and a denominator composed of the total original capitalized cost of all the Shipowner's fixed assets.  The total net income after taxes, computed in accordance with GAAP, shall be adjusted as follows:

 

(a)          The depreciation expense applicable to the fiscal year shall be added back; and

 

(b)          There shall be subtracted (1) an amount equal to the principal amount of debt required to be paid or redeemed, and actually paid or redeemed by the Shipowner during the year, excluding payments from the Chapter 537 Reserve Fund; and (2) the principal amount of Advances Paid, in excess of the required  prepayments which may be used by the Shipowner as a credit against future required prepayments with respect to Advances including the Late Charges Reserve Subfund and the Interest Escrow Fund.

 

SECTION 6.03.  Delivery of Statement of Reserve Fund Net Income. Within one hundred five (105) days after the end of each fiscal year of the Shipowner, the Shipowner shall deliver to the Administrator, the Computation of Reserve Fund Net Income, Total Deposits or Net Deposits and Accountant’s Statement stating (a) the Reserve Fund Net Income for such fiscal year and total amount of all Reserve Fund Net Income Deposits that are required to be so deposited into the Chapter 537 Reserve Fund for such fiscal year (and showing the pertinent calculations), or (b) that no Reserve Fund Net Income Deposit was required to be made for such fiscal year (and showing the pertinent calculations) and (c) that at the end of such fiscal year no adjustments were required to be made for such fiscal year (and showing the pertinent calculations) pursuant to this Section (and, if such adjustments were required to be made, stating the reasons therefor). The computation of the Reserve Fund Net Income Deposit shall be made on the basis of information available to the Shipowner at the time of each such deposit.  Each Reserve Fund Net Income

Deposit shall be subject to adjustments from time to time in the event and to the extent that the same would be required or permitted by mistakes or omissions, additional information becoming available to the Shipowner, or judicial or administrative determinations made subsequent to the making of such deposits.

 

SECTION 6.04.  Annual Reserve Fund Net Income Deposit. Within one hundred fifteen (115) days after the end of each fiscal year of the Shipowner, the Shipowner shall transmit to the Administrator for the Administrator’s prompt deposit into the Chapter 537 Reserve Fund an amount equal to (a) (1) the Reserve Fund Net Income for such fiscal year less (2) ten percent (10%) of the Shipowner's Aggregate Original Equity Investment in each Vessel then owned by the Shipowner, as specified in Annex A of this Agreement, deducted annually for each such Vessel (prorated for a period of less than a full fiscal year) multiplied by (b) fifty percent (50%) of the balance of the Reserve Fund Net Income remaining after the above deductions of Clause (a) above (“Reserve Fund Net Income Deposit”). The Shipowner shall deliver to the Administrator at the time of each Reserve Fund Net Income Deposit pursuant to this Section and any deposits required under this Agreement, a statement of the Shipowner’s Accountant stating that such deposit has been computed in accordance with Section 6.02 hereof and showing the pertinent calculations.

 

SECTION 6.05.  Exceptions to Annual Reserve Net Income Deposit.  Notwithstanding anything to the contrary set forth in this Agreement, the Shipowner shall not be required to make any Reserve Fund Net Income Deposit if (a) the Note and the related Administrator's Note with respect to the Vessels shall have been satisfied and discharged and if the Shipowner shall have paid or caused to be paid all other sums secured under this Agreement or the Mortgage, (b) the Guarantee of the Note shall have been terminated pursuant to this Agreement other than by reason of payment of the Guarantee by the Administrator, (c) the Shipowner was, at the close of its fiscal year, subject to and in compliance with all of the Qualifying Financial Covenants of Shipowner and there is no existing Default or (d) the amount in the Chapter 537 Reserve Fund (including any securities at current market value) is equal to or in excess of fifty percent (50%) of the Outstanding Advances and there is no existing Default.

 

SECTION 6.06.  Shipyard Net Cash Flow Deposit. In the case of a Shipyard Project, (a) within one hundred five (105) days after the end of its fiscal year, the Shipyard shall submit its Audited Financial Statements for such year showing its net cash flow in a manner acceptable to the Administrator, in lieu of any other computation of Reserve Fund Net Income specified in Section 6.02 for Vessels, and (b) except as provided in 46 CFR § 298.35(d), the Shipyard shall make a deposit into the Chapter 537 Reserve Fund of two percent of its net cash flow, as defined by GAAP, and as shown on its most recent Audited Financial Statements in lieu of the Annual Reserve Fund Net Income Deposit specified in Section 6.04.

 

SECTION 6.07.  Withdrawals from Chapter 537 Reserve Fund. From time to time, moneys in the Chapter 537 Reserve Fund may be subject to withdrawal upon receipt by the Administrator from the Shipowner of a Request for payment (specifying the Person or Persons to be paid, the amount of such payment, and the bank account to which the Shipowner requests that the payment be made) executed by the Shipowner, together with an Officer's Certificate of the Shipowner stating the reasons and purpose for the withdrawal. If the Administrator approves the Request, the Administrator shall promptly withdraw the moneys from the Chapter 537 Reserve Fund and make payment in accordance with the terms of the Request.  The Administrator shall have the right to disapprove any Request for withdrawal from the Chapter 537 Reserve Fund and,

 

in the event of a Default under this Agreement, the right to apply all or part of the proceeds in the Chapter 537 Reserve Fund to all amounts due and owing the Administrator under this Agreement.  In that event, the Administrator may retain and offset any or all of the cash in the Chapter 537 Reserve Fund, and any Income Realized on the Chapter 537 Reserve Fund, as part of the Administrator’s recovery against the Shipowner.

 

SECTION 6.08.  Impermissible Payments. If the Shipowner makes any payment in violation of the Primary Covenants or the Supplemental Covenants, if applicable, and each Equity Interest Holder that has received such a payment fails to repay such amounts within fifteen (15) days of receipt of notice from the Administrator to the Shipowner requesting such repayment (or if the Shipowner shall have failed to make a timely Reserve Fund Net Income Deposit in violation of Section 6.04 of this Agreement), the Shipowner shall, upon Request from the Administrator, pay into the Chapter 537 Reserve Fund, the amount remaining due from such Equity Interest Holders plus interest at the Expended Funds Rate plus two percent (2%) from the date the monies were initially paid (or from the date the Reserve Fund Net Income Deposit should have been made).  It is understood and agreed that any payment made by the Shipowner pursuant to this Section 6.08 shall not release or extinguish the obligation of the Equity Interest Holders to repay improperly received funds; provided that such funds repaid by the Equity Interest Holders shall not be paid into the Chapter 537 Reserve Fund to the extent the Shipowner has already made payments into the Chapter 537 Reserve Fund pursuant to this Section 6.08.

 

SECTION 6.09.  Late Charges Reserve Subfund and Deficiency Deposits.   On the Closing Date, the Administrator shall establish the Late Charges Reserve Subfund as a subfund of the Chapter 537 Reserve Fund with Treasury and the Shipowner shall deposit the Late Charges Reserve Subfund Deposit with the Administrator who shall deposit such proceeds into the Late Charges Reserve Subfund. The Administrator shall have the sole right to make withdrawals from the Late Charges Reserve Subfund. The Late Charges Reserve Subfund shall be held and disbursed by the Administrator to pay any Late Charges. Provided no Default has occurred, the Administrator shall release to the Holder entitled to receive any Late Charges sufficient funds from the Late Charges Reserve Subfund to cover such Late Charges as and when the same become due and payable.  At any time and from time to time that the amount in the Late Charges Reserve Subfund shall be less than the greater of (a) the Late Charges Reserve Subfund Deposit or (b) an amount determined by the Administrator to be sufficient to cover thirty (30) days of hypothetical Late Charges based upon a daily rate selected by the Administrator, then, upon notice of such deficiency by the Administrator to the Shipowner, the Shipowner shall immediately make any additional deposit of cash into the Late Charges Reserve Subfund.

 

SECTION 6.10.  Capital Construction Fund in Lieu of Chapter 537 Reserve Fund.   If the Shipowner has established a Capital Construction Fund, at any time when a Reserve Fund Net Income Deposit would otherwise be required to be made into the Chapter 537 Reserve Fund pursuant to this Article VI, and the Shipowner elects to make such deposits to the Capital Construction Fund, the Shipowner must enter into an agreement, satisfactory to the Administrator, providing that all such deposits of assets therein will be security (the “CCF Security Amount”) to the United States in lieu of the Chapter 537 Reserve Fund. The Reserve Fund Net Income Deposit requirements of the Chapter 537 Reserve Fund and of this Agreement will be deemed satisfied by deposits of equal amounts in the Capital Construction Fund, and withdrawal of the CCF Security Amount will be subject to the Administrator’s prior consent. If, for any reason, the Capital Construction Fund terminates prior to the payment of the Note, the Administrator's Note and all

 

other amounts due under or secured by this Agreement or the Mortgage, the CCF Security Amount will be deposited or re-deposited in the Chapter 537 Reserve Fund.

 

SECTION 6.11.  Termination of the Chapter 537 Reserve Fund.

 

(a)          Upon the occurrence of (1) a Default, and (2) (A) the assumption of the Shipowner’s rights and duties under the Note and the Note Purchase Documents or (B) the payment by the Administrator to the Holder pursuant to a demand under the Guarantee, the Chapter 537 Reserve Fund (including the Late Payment Reserve Subfund) shall be terminated and all amounts in the Chapter 537 Reserve Fund (including Income Realized on the Chapter 537 Reserve Fund which has not yet been paid to the Shipowner), shall be applied in accordance with the terms of Section 14.04 of this Agreement. The Administrator’s rights to draw upon the Chapter 537 Reserve Fund shall not be exclusive of any other rights of the Administrator under the Transaction Documents, and each and every right shall be cumulative and concurrent, and may be enforced separately, successively or together, and may be exercised from time to time as often as the Administrator may deem necessary.

 

(b)  The Chapter 537 Reserve Fund (including the Late Payment Reserve Subfund) shall terminate at such time as the Administrator's Note shall have been satisfied and discharged and the Shipowner shall have paid or caused to be paid all sums secured under this Agreement and the Mortgage. Upon such termination of the Chapter 537 Reserve Fund, the moneys remaining in the Chapter 537 Reserve Fund shall be subject to withdrawal and payment into the general funds of the Shipowner.

 

ARTICLE VII

General Provisions Relating to the Deposit Funds and Administrator as Paying Agent

 

SECTION 7.01. Administrator’s Security Interest and Other Rights in Deposit Funds. The Deposit Funds and all Financial Assets held by the Administrator at Treasury in the Deposit Funds, at whatever time, pursuant to the provisions of this Agreement, whether cash or securities, or proceeds thereof or otherwise, shall constitute and be held in the Deposit Funds solely and exclusively for the benefit of the Administrator as security for the payment and performance of any and all of the Administrator’s Notes and the undertakings of the Shipowner and Affiliate Guarantor in this Agreement, the Mortgage and the other Transaction Documents. In addition to the rights set forth in this Agreement, the Administrator shall have all rights and remedies set forth in any of the Transaction Documents or otherwise as permitted by applicable law pertaining to the Deposit Funds.

 

SECTION 7.02.  Deposit Funds Not Trust Funds. The Deposit Funds shall not constitute trust funds.  The Deposit Funds shall constitute collateral security for all of the obligations and liabilities of the Shipowner under this Agreement, the Administrator's Note and as collateral security for and with respect to the Guarantee. The obligation of the Shipowner to deliver the Deposit Funds to the Administrator is separate from and in addition to all other obligations to pay or deliver funds (whether principal, interest, fees, expenses, deposits, escrows, reserves or otherwise) to the Administrator under the Transaction Documents.  Nothing contained in this Article VII shall in any manner whatsoever alter, impair or affect the obligations of the Shipowner, or relieve the Shipowner of any of its obligations to make payments and perform all of its other obligations required under the Transaction Documents. Any withdrawal from the Deposit Funds

pursuant to this Agreement shall not effect a discharge of or diminish any obligations of the Shipowner under this Agreement, the Mortgage or any other agreement as the case may be except to the extent that the amount withdrawn is applied to payments required to be made by the Shipowner under this Agreement, the Mortgage or any other agreement.

 

SECTION 7.03.  Contents of Deposit Funds.   The parties hereto hereby agree that only cash may be deposited into a Deposit Fund and that such cash and all other assets in a Deposit Fund shall be treated as a Financial Asset.  Any cash held in the Deposit Funds pursuant to any of the provisions of this Agreement (a) shall not be segregated at Treasury, but shall be separately accounted for on the Administrator’s books and records, and (b) shall bear interest and be invested to the extent provided in Section 7.04 below.

 

SECTION 7.04. Investment and Liquidation of the Deposit Funds.  Provided that the Shipowner is not in Default, (a) the Administrator may invest and reinvest any cash held in the Deposit Funds in Eligible Investments with such maturities as to ensure that the Deposit Funds will be available as required for the purposes hereof; and (b) the Administrator shall comply with a Shipowner’s Request to sell all or any designated part of the Eligible Investments in the Deposit Funds. The Administrator shall have no liability to the Shipowner for acting in accordance with such Request.  If such sale (or any payment at maturity) produces (a) a net sum less than the cost (including accrued interest paid, as such) of the Eligible Investments so sold or paid, the Administrator shall give notice to the Shipowner, and the Shipowner shall promptly pay the deficiency to the Administrator for deposit into the applicable Deposit Fund, or (b) a net sum greater than the cost (including accrued interest paid as such) of the Eligible Investments so sold or paid, the Administrator shall promptly pay the excess to the Shipowner. The Shipowner expressly acknowledges and agrees that cash deposited in the Deposit Funds pursuant to this Agreement may suffer a loss if liquidated prior to the maturity of the Eligible Investment.

 

SECTION 7.05.  Disbursements Out of Available Cash. The Administrator shall not be required to make any disbursement from the Deposit Funds except out of the cash available therein. If sufficient cash is not available to make the requested disbursement, additional cash shall be provided by the maturity or sale of securities in accordance with instructions pursuant to Section 7.04 hereof. If any sale or payment on maturity shall result in a loss in the principal amount of any Deposit Fund invested in securities so sold or matured, the requested disbursement from such Deposit Fund shall be reduced by an amount equal to such loss, and the Shipowner shall, no later than the time for such disbursement, pay to the Holder, the Shipyard, or any other Person entitled thereto, the balance of the requested disbursement from the Shipowner’s funds.

 

SECTION 7.06. Interest, Financial Assets and Taxes. So long as the Shipowner is not in Default, the Administrator may pay the Shipowner any interest paid on cash or Eligible Investments (less an amount equal to accrued interest paid upon purchase) when credited in the Deposit Fund.  Any and all securities or other Financial Assets credited to a Deposit Fund shall be registered in the name of the Administrator, endorsed to the Administrator and in no case will any Financial Asset credited to any Deposit Fund be registered in the name of the Shipowner, be payable to the order of the Shipowner or specially endorsed to the Shipowner.  All taxes, if any, applicable to the acquisition or sale of Eligible Investments under this Section shall be paid by the Shipowner from its separate funds.

SECTION 7.07. Improper Disbursements From Deposit Funds. At any time the Administrator shall have determined that there has been, for any reason, a disbursement from any Deposit Fund contrary to this Section, the Administrator shall give notice to the Shipowner of the amount improperly disbursed, the amount to be deposited or re-deposited into such Deposit Fund on account thereof, and the reasons for such determination.  The Shipowner shall thereafter promptly deposit or re-deposit, as appropriate, such amount (with interest, if any) required by the Administrator into such Deposit Fund.

 

SECTION 7.08.  Administrator as Paying Agent. So long as FFB is the Holder of the Note, to the extent required by the Note, the following shall apply:

 

(a)          Cash received by the Administrator as a payment of amounts due with respect to Advances under the Note shall be timely paid to FFB and all other cash shall be held by the Administrator in Treasury as a special deposit for application in accordance with this Article VII and Section 14.04 of this Agreement.  Cash held by the Administrator in Treasury as a payment of amounts due with respect to Advances under the Note (1) need not be segregated; (2) shall not be invested; and (3) shall not bear interest except to the extent the Administrator allows.

 

(b)          Any moneys received by the Administrator, for the payment of amounts due with respect to Advances under the Note and remaining unclaimed by any Holder for six (6) years after the Stated Maturity Date shall be paid by Treasury to the Shipowner upon receipt of a Request by the Shipowner, approved by the Administrator and sent to Treasury, unless the Administrator has previously paid the Guarantee, in which case it shall not be paid to the Shipowner.  In such event, the Holder shall thereafter be entitled to look only to the Person that received the unclaimed amounts for the payment thereof, and the Administrator shall thereupon be relieved from all responsibility to such Holder.  No such Request or payment shall be construed to extend any statutory period of limitations, which would have been applicable in the absence of such Request or payment.

 

ARTICLE VIII 

Actual Cost and Advance Requests

 

SECTION 8.01.  Actual Cost Determinations. (a) The Actual Cost of each Vessel (and the aggregate Actual Cost of all of the Vessels), determined as of the date of this Agreement, is as set forth in Table A of Annex A of this Agreement.

 

(b)          The Administrator agrees to:

 

(1)          make a final determination of the Actual Cost of each Vessel, limited to amounts paid by or for the account of the Shipowner on account of the items set forth in Table A of Annex A of this Agreement and, to the extent approved by the Administrator, any other items or any increase in the amounts of such items, such determination to be made as of the time of payment by or for the account of the Shipowner of the full amount of said Actual Cost of such Vessel, excluding any amounts which are not to become due and payable, and

 

(2)          promptly give notice to the Shipowner, of the results of said final determination; provided that, the Shipowner shall have requested such determination not

 

 

less than sixty (60) days in advance and shall have furnished to the Administrator not less than thirty (30) days in advance of such determination along with a Shipowner’s Officer’s Certificate and a statement by an Accountant or, with the Administrator’s prior consent, the Shipowner’s accountant of the total amounts paid or obligated to be paid by or for the account of the Shipowner for the Construction of such Vessel, together with a breakdown of such totals according to the items paid or obligated to be paid.

 

SECTION 8.02.  Advance Requests.  Subject to the conditions precedent set forth Section 8.03 hereof and in the Note Purchase Documents, the Administrator shall within a reasonable time after receipt of an Advance Request issue an Advance Request Approval Notice to FFB approving the payment to the Shipyard or any other Person of any amount which the Shipowner is obligated to pay, or to the Shipowner as reimbursement for any amounts it has paid, on account of the items and amounts or any other items set forth in Table A of Annex A of this Agreement or subsequently approved by the Administrator.

 

SECTION 8.03. Conditions Precedent to Approve Advance Requests. (a) In addition to the conditions precedent set forth in the Note Purchase Documents, the obligation of the Administrator to approve any Advance Request and issue an Advance Request Approval Notice shall be subject to the following conditions precedent:

 

(1)         a Responsible Officer of the Shipowner shall deliver an Officer’s Certificate of the Shipowner, in form and substance satisfactory to the Administrator, stating that (A) there is no Default under the Construction Contract nor any of the Transaction Documents; (B) there have been no occurrences which have or would adversely and materially affect the condition of the Vessel, its hull or any of its component parts; (C) the amounts of the Advance Request are in accordance with the Construction Contract including the approved disbursement schedule and each item in these amounts is properly included in the Administrator’s approved estimate of Actual Cost; (D) with respect to the Advance Request, once the Contractor is paid there will be no Liens on the applicable Vessel, its hull or component parts for which the withdrawal is being requested except for those already approved by the Administrator; and (E) if the Vessel has already been delivered, it is in class and is being maintained in the highest and best condition.

 

(2)         the Administrator shall receive an Officer’s Certificate of the Shipyard, in form and substance satisfactory to the Administrator, stating that there are no Liens on the applicable Vessel as provided in Section 8.03(a)(1)(D) of this Agreement and attaching the invoices and receipts supporting each proposed withdrawal to the satisfaction of the Administrator, which shall be attached to the Officer’s Certificate referred to in Section 8.03(a)(1) above.

 

(3)         no Advance Request shall be made or approved:

 

(A)         to any Person until the total amount paid by or for the account of the Shipowner from sources other than the Advances equals at least 12½% (or 25% as the case may be) of the Actual Cost of the related Vessel;

 

(B)         to the Shipowner which would have the effect of reducing the total amounts paid by the Shipowner pursuant to Clause (A) of this Subsection; or

 

 

(C)         to any Person on account of items, amounts or increases representing changes and extras or owner furnished equipment, if any, set forth in Table A of Annex A of this Agreement, unless such items, amounts and increases shall have been previously approved by the Administrator;

 

provided,  however, that when the amount guaranteed by the Administrator equals 75% or less of the Actual Cost, then after the initial 12½% of Actual Cost has been paid by or on behalf of the Shipowner for such Vessel and up to 37½% of Actual Cost has been paid by Advances, the Shipowner shall pay the remaining Required Equity Amount before any additional Advances are made for such Vessel.

 

(b)         Notwithstanding any other provision of this Section, the Shipowner shall not seek or receive reimbursement for any amount paid to the Shipyard or any Person by the Administrator.

 

SECTION 8.04. Mandatory Compliance Prepayment.   (a) In the event the principal amount of the Outstanding Advances is in excess of the amount eligible for guarantee by the United States under Section 53709(b) of Chapter 537, the Administrator shall notify the Shipowner of the required Mandatory Compliance Prepayment and the Shipowner shall send a Mandatory Prepayment Election Notice to the Holder (which may not be rescinded) with a copy to the Administrator to prepay the principal amount of the Outstanding Advances in an amount equal to the Mandatory Compliance Prepayment Amount. The Shipowner shall pay the Mandatory Compliance Prepayment Amount on the Intended Payment Date as set forth in such Mandatory Prepayment Election Notice, which payment shall not be made less than five (5) Business Days or more than ten (10) Business Days after receipt of such notice by the Administrator and the Holder.

 

(b) The Mandatory Compliance Prepayment is not subject to Article XVII hereof.

 

(c) If a Mandatory Compliance Prepayment is required under this Section, (1) the Shipowner shall first apply such prepayment to Unrestricted Advances, and (2) if such Mandatory Compliance Prepayment exceeds the amount of those Unrestricted Advances in Clause (1) above, then the balance of the Mandatory Compliance Prepayment shall be applied to No-Call Advances.  In order to make a payment under Clause (2) in this subsection: (A) the Shipowner shall give the Administrator a No-Call Prepayment Notice specifying (i) the amount of the balance of the Mandatory Compliance Prepayment, (ii) the No-Call Payment Date, and (iii) irrevocable instructions from the Shipowner to the Administrator to pay such amount to the Holder on the No-Call Payment Date; and (B) the Shipowner shall pay the amount specified in the No-Call Prepayment Notice to the Administrator to be held in the No-Call Prepayment Fund until the No-Call Payment Date.

 

ARTICLE IX

Affiliate Guaranty and Limitation on Subrogation

 

SECTION 9.01.  Execution and Delivery of Affiliate Guaranty. The Shipowner and the Affiliate Guarantor acknowledge that (a) the Administrator has required the execution and delivery of the Affiliate Guaranty as an integral part of the consideration offered by or on behalf of the Shipowner as a condition of the Administrator's issuance of the Administrator’s Guarantee, and (b) the Affiliate Guarantor has executed and delivered (1) the Affiliate Guaranty to the Administrator for the purpose of guaranteeing the Shipowner’s obligations to the Administrator

 

 

under this Agreement and (2) this Agreement for the purpose of covenanting to and agreeing with those Annexes and Sections of this Agreement set forth above the signature of the Affiliate Guarantor.  The obligations of the Affiliate Guarantor to the Administrator under the Affiliate Guaranty shall be secured by the collateral, if any, granted to the Administrator by the Affiliate Guarantor as more fully set forth in the Affiliate Guaranty.

 

SECTION 9.02.  No Payments to Affiliate Guarantor. In the event a Default has occurred and is continuing, until all amounts payable to the Administrator pursuant to the Administrator’s Note and the other Transaction Documents have been paid in full, the Shipowner shall not make any payment to the Affiliate Guarantor and the Affiliate Guarantor shall not enforce any right to receive payment and shall not accept any payment from the Shipowner, under any legal or equitable right (including any right of subrogation) the Affiliate Guarantor may have or be entitled to claim against the Shipowner.

 

ARTICLE X

Representations and Warranties

 

The Shipowner and, to the extent applicable, the Affiliate Guarantor, represents and warrants to the Administrator that, except as set forth on the Disclosure Schedule, the following statements are true and correct as of the Closing Date and further represents and warrants that such statements shall remain true and correct thereafter for so long as this Agreement shall not have been discharged:

 

SECTION 10.01. Organization and Existence; Power and Authority. The Shipowner and each Affiliate Guarantor is duly organized, validly existing and in good standing under the laws of its Jurisdiction of Organization, has full legal right, power and authority to enter into this Agreement and each of the other Transaction Documents to which it is a party, to issue the Note and the Administrator’s Note or the Affiliate Guaranty, as the case may be, and to carry out and consummate all transactions contemplated by this Agreement and each of the other Transaction Documents to which it is a party and has duly authorized the execution, delivery and performance of this Agreement and each of the other Transaction Documents to which it is a party.

 

SECTION 10.02. Qualification. Neither the Shipowner nor any Affiliate Guarantor has failed to qualify to do business in any jurisdiction in the United States in which its business or properties require such qualification, and the Shipowner and each Affiliate Guarantor had and has full legal right, power and authority to own its own properties and assets and conduct its business as it is presently conducted.

 

SECTION 10.03. Proper Execution. As of the Closing Date, the officers of the Shipowner and each Affiliate Guarantor executing this Agreement and each of the other Transaction Documents to which it is a party are duly and properly in office and fully authorized to execute the same on behalf of the Shipowner or Affiliate Guarantor, as the case may be.

 

SECTION 10.04. Due Execution and Delivery. This Agreement and each of the other Transaction Documents to which the Shipowner and each Affiliate Guarantor is a party have been duly authorized, executed and delivered by the Shipowner and the Affiliate Guarantor, are in full force and effect and constitute the legal, valid and binding agreements of the Shipowner and the Affiliate Guarantor enforceable in accordance with their terms.

 

 

SECTION 10.05. No Conflicts or Contravention. The execution and delivery of this Agreement and each of the other Transaction Documents, the consummation of the transactions herein and therein described and the fulfillment of or compliance with the terms and conditions hereof and thereof, will not conflict with or constitute a violation or breach of or default (with due notice or the passage of time or both) by the Shipowner or any Affiliate Guarantor of any of its Organizational Documents, any applicable law or administrative rule or regulation, or applicable court or administrative decree or order, or any indenture, mortgage, deed of trust, loan agreement, lease, contract or other agreement or instrument to which the Shipowner or any Affiliate Guarantor is a party or by which it or its properties are otherwise subject or bound, or result in the creation or imposition of any prohibited Lien of any nature whatsoever upon any of the property or assets of the Shipowner or any Affiliate Guarantor.

 

SECTION 10.06. Governmental Authorizations; Other Consents or Approvals. No consent or approval of any trustee, holder of any indebtedness of the Shipowner, the Affiliate Guarantor or any other Person, and no consent, permission, authorization, order or license of, or filing or registration with, any governmental entity is necessary in connection with the execution and delivery of this Agreement and each of the Transaction Documents, the consummation of any transaction herein or therein described, or the fulfillment of or compliance with the terms and conditions hereof or thereof, except as have been obtained or made and as are in full force and effect.

 

SECTION 10.07. No Litigation. There is no action, suit, proceeding, inquiry or investigation, before or by any court or Federal, state, municipal or other governmental authority, pending, or to the knowledge of the Shipowner after reasonable inquiry and investigation, threatened against or affecting the Shipowner, the Affiliate Guarantor or the assets, properties or operations of the Shipowner or the Affiliate Guarantor which are likely to be determined to have, or could be reasonably expected to have, a Material Adverse Effect. Neither Shipowner nor the Affiliate Guarantor is in default (and no event has occurred and is continuing which with the giving of notice or the passage of time or both could constitute a default) with respect to any order or decree of any court or any order, regulation or demand of any Federal, state, municipal or other governmental authority, which default could reasonably be expected to have a Material Adverse Effect.

 

SECTION 10.08 Ownership of Collateral; Liens. The Shipowner lawfully owns all Collateral, including each Vessel, free from any Lien except for Permitted Liens.

 

SECTION 10.09. Valid Pledge. This Agreement establishes the valid first priority duly perfected Lien on the Collateral in favor of the Administrator for the benefit and security of the Administrator and any future owners of the Administrator’s Note and the other obligations of the Shipowner under the Transaction Documents; such Lien is in full force and effect and is not subordinate or junior to any other Liens in respect of the Collateral; and the Shipowner is not in breach of any covenants set forth in this Agreement or the other Transaction Documents.

 

SECTION 10.10. No Debarment. Neither the Shipowner nor the Affiliate Guarantor is debarred or suspended or voluntarily excluded from participation in contracts or procurement matters with the Government or delinquent on a Government debt.

 

 

SECTION 10.11. Accuracy of Representations, Warranties and Information; Disclosure. (a)  As of the Closing Date, representations, warranties and certifications of the Shipowner and the Affiliate Guarantor set forth in each of the other Transaction Documents to which the Shipowner or the Affiliate Guarantor is a party and all written information provided by the Shipowner and the Affiliate Guarantor to the Administrator in the Application, when taken as a whole and after giving effect to any updates provided to the Administrator in writing, remain true and accurate in all material respects.

 

(b) Each of the Shipowner and the Affiliate Guarantor has disclosed to the Administrator all agreements, instruments and corporate or other restrictions to which it or the Affiliate Guarantor is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect.  No report, financial statement, certificate or other information furnished (whether in writing or orally) by or on behalf of the Shipowner or the Affiliate Guarantor to the Administrator in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder or under any other Transaction Document (in each case as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Shipowner  represents only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.

 

SECTION 10.12. No Defaults.  No Default (or event which with the passage of time, notice or both would constitute a Default) has occurred and is continuing under this Agreement or any of the other Transaction Documents to which the Shipowner or the Affiliate Guarantor is a party and, to the knowledge of the Shipowner and the Affiliate Guarantor, no other party to any of such agreements is in default thereunder.

 

SECTION 10.13.  Shipowner’s United States Citizenship. The Shipowner is a citizen of the United States within the meaning of 46 USC § 50501, and shall remain such a citizen for operation in the trades in which the Shipowner proposes to operate the Vessels.

 

SECTION 10.14. Vessel Documentation. Upon the Delivery Date and continuing at all times thereafter, each Vessel is and shall remain documented under the laws of the United States.

 

SECTION 10.15. Insurance. The properties of the Shipowner and the Affiliate Guarantor are insured with financially sound and reputable insurance companies not a Related Party of the Shipowner or the Affiliate Guarantor, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Shipowner or the Affiliate Guarantor operates and, with respect to the Vessels, as are specified in Section 11.10 hereof.

 

SECTION 10.16. Taxes.  Each of  the Shipowner and the Affiliate Guarantor has filed all Federal, state and other material tax returns and reports required to be filed, and have paid all Federal, state and other material taxes, assessments, fees and other governmental charges levied or imposed upon it or its properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP.  There is no proposed tax