1
EXHIBIT 4.(ii)(d)(5)
Contract No.
MA-13581
SECURITY AGREEMENT
Relating to United States Government
Guaranteed Ship Financing Obligations
Between
PROJECT AMERICA SHIP I, INC.
And
THE UNITED STATES OF AMERICA
Dated February 10, 2000
2
SECURITY AGREEMENT
SPECIAL PROVISIONS
THIS SECURITY AGREEMENT, dated February 10, 2000 (the "Security
Agreement"), between Project America Ship I, Inc., a Delaware corporation (the
"Shipowner") and the UNITED STATES OF AMERICA (the "United States"), represented
by the Secretary of Transportation, acting by and through the Maritime
Administrator (the "Secretary"), pursuant to Title XI of the Act.
RECITALS
A. Project America, Inc. (the "Guarantor") entered into the
Construction Contract, dated March 9, 1999, with ▇▇▇▇▇▇▇ Shipbuilding, Inc.,
(the "Shipyard") for the construction of the Hull No. 7671 (the "Vessel") and
subsequently assigned said contract to the Shipowner.
B. On the date hereof, the Secretary entered into, and the Shipowner
accepted a Commitment to Guarantee Obligations, ▇▇▇▇▇▇▇▇ ▇▇. ▇▇-▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ has committed itself to guarantee the payment in full of all
the unpaid interest on, and the unpaid principal balance of, Obligations (as
defined herein) in the aggregate principal amount not to exceed 87.5% of the
Depreciated Actual Cost or the Actual Cost of the Vessel, as the case may be, on
the Closing Date, which amounts are set out in Table A.
C. The Shipowner has entered into the Note Purchase Agreement providing
for the issuance of Notes in the aggregate amount up to $250,000,000 to be
designated "United States Government Guaranteed Ship Financing Notes" (the
"Notes") having a maturity date and interest rate set forth in the Note Purchase
Agreement and the Notes.
D. On the date hereof, the Shipowner and Bank of New York, a New York
banking corporation, as Indenture Trustee, executed and delivered the Trust
Indenture (the "Indenture") pursuant to which the Shipowner will issue the
Obligations.
E. On the date hereof, the Secretary and the Indenture Trustee will
execute the Authorization Agreement, ▇▇▇▇▇▇▇▇ ▇▇. ▇▇- ▇▇▇▇▇, which authorizes
the Indenture Trustee to endorse, execute, and authenticate the Secretary's
Guarantee on each of the Obligations.
F. As security for the due and timely payment of the Secretary's Note,
issued this day by the Shipowner, and for the Secretary's issuance of the
Guarantees, the Shipowner has executed and delivered the Security Agreement,
Contract No. MA-13581, and the Financial Agreement, Contract No. MA-13583,
granting the Secretary a security interest in, among other things, the
Construction Contract, the Vessel and certain other property, tangible and
intangible, which the Shipowner now has or hereafter will acquire, and all of
the proceeds thereof.
G. As further security to the Secretary and in consideration of the
Secretary's agreeing to issue the Guarantees, the Shipyard has granted the
Secretary a security interest in the Vessel, its hull, component parts,
machinery, and equipment during the construction period and
3
has executed on this date the Consent of Shipyard to the assignment of the
Construction Contract to the Secretary.
H. In order to implement certain aspects of the transactions
contemplated by the Security Agreement and the Financial Agreement, the
Secretary, the Shipowner and The Bank of New York, a New York banking
corporation (the "Depository") have entered into the Depository Agreement,
Contract No. MA-13584, on the date hereof.
I. The Shipowner intends to enter into one or more Bond Purchase
Agreements providing for the sale and delivery, on one or more Bond Closing
Dates, of obligations in the aggregate principal amount of $534,447,000 to be
designated "United States Government Guaranteed Ship Financing Bonds" (the
"Bonds" and together with the Notes, the "Obligations") having the maturity date
and interest rate set forth in the Bond Purchase Agreement, the Indenture and
the Bonds.
J. As further security for the due and timely payment of the
Secretary's Note issued this day in conjunction with the Note Closing and with
the Secretary's Note to be issued in conjunction with the Bond Closing,
Shipowner will execute and deliver the Mortgage, Contract No. MA-13582, on the
Delivery Date.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, and of other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, and in order to provide
security to the Secretary for the Secretary's Note provided for herein, the
parties hereto hereby agree as follows:
1. Concerning these Special and General Provisions. This Security
Agreement shall consist of two parts: the Special Provisions and the General
Provisions attached hereto as Exhibit 1 of the Security Agreement and
incorporated herein by reference. In the event of any conflict, or inconsistency
between the Special Provisions of this Security Agreement and Exhibit 1, the
Special Provisions shall control.
2. Additions, Deletions and Amendments to Exhibit 1. The following
additions, deletions and amendments are hereby made to the Security Agreement:
(a) Concerning Section 1.03.
(1) Section 1.03(a)(2) is amended by inserting in the third
line following the words "are recovered" and immediately prior to the period:
"except those rights expressly reserved therein by the Shipowner relating to
such matters as patent infringement pursuant to Article 16.2 of the Construction
Contract and liquidated damages pursuant to Article 3.1 of the Construction
Contract".
(2) Section 1.03(a)(9) is hereby amended by renumbering it to
1.03(a)(11).
2
4
(3) Section 1.03(a) is amended by deleting Section 1.03(a)(8)
in its entirety and substituting the following therefor:
(8) The guaranty by ▇▇▇▇▇▇ Industries, Inc. to
Guarantor relating to the construction of the Vessel and her
sistership, dated March 9, 1999, and all proceeds thereof.
(9) The stock subscription agreement between American
Classic Voyages Co. and Guarantor dated April 5, 1999, and all proceeds
thereof.
(10) All proceeds of collateral described in
paragraphs (1) through (9) of this Section."
(b) Concerning Section 2.02(d)(3). Section 2.02(d)(3) is hereby amended
by deleting the words "current operation" located on the fourth line and
inserting in lieu thereof the words "Vessel operation upon delivery and
acceptance of said Vessel by Shipowner".
(c) Concerning Section 2.04(e). Section 2.04(e) is hereby amended by
deleting the words "substantially in the form of Exhibit A to the form of the
Mortgage" located on the first line and substituting in lieu thereof the words
"in form and substance satisfactory to the Secretary evidencing (i) the Vessel
is free and clear of any liens and (ii) Secretary has a valid and enforceable
first priority mortgage".
(d) Concerning Section 2.05.
(1) In connection with Sections 2.05(b)(3) and the last
paragraph of Section 2.05(e) the maximum amount of self-insurance permitted to
the Shipowner under the last paragraph thereof shall be $1,000,000 per accident
deductible; and
(2) In connection with clause (ii) of the initial paragraph of
Section 2.05(c), the Secretary shall permit payment of losses up to the amount
of $2,000,000 to be made directly to the Shipowner under the circumstances
specified therein.
(e) Concerning Section 2.08(c). Section 2.08(c) is hereby amended by
deleting the word "FLEET" located on the second line and substituting in lieu
thereof the word "SHIP".
(f) Concerning Section 2.14. Section 2.14 is hereby deleted in its
entirety.
(g) Concerning Article III. Article III is amended by adding a new
section 3.04 thereto, as follows:
"Section 3.04. Guarantee Fee. (a) At the Closing of each Note
or Bond, the Shipowner shall pay to the secretary the Guarantee Fee
based upon the principal amount and maturity of each Obligation to be
issued, set at three-eighths of one percent for each
3
5
Note issued during the construction of the Vessel, and three-quarters
of one percent (i) for each Note issued after the Delivery Date, and
(ii) for each Bond.
(b) Unless otherwise specified by the Secretary in a
written notice to the Shipowner, the Guarantee Fee may be paid by check
(which need not be certified), payable to the order of, "Maritime Adm -
Transportation", delivered in person or sent by mail, addressed to the
Secretary, accompanied by a letter stating that the payment is of the
Guarantee Fee required hereunder and specifying the period covered by
such payment, or if the Secretary requests, the Guarantee Fee shall be
paid via the United States Treasury Electronic Fund Transfer system
using the form supplied by the Secretary.
(c) In the event that the Secretary determines that
the amount of any Guarantee Fee should be adjusted, has been
erroneously calculated or is subject to increase or decrease, he shall
promptly give written notice thereof to the Shipowner, specifying the
correct amount, the basis of computation thereof, and the amount of the
deficiency or excess. The Shipowner shall pay to the Secretary, by
whichever means the Secretary may request, within 30 days after it has
received said notice, the amount of the deficiency.
(d) The Guarantee Fee shall be determined to be fully
earned as of the commencement of the period to which it is applicable,
and no refund will be made by the Secretary of any Guarantee Fee in the
event the Secretary shall have assumed the Shipowner's rights and
duties under the Indenture and the Obligations and made any payments in
default under the Indenture, or in the event the Guarantees shall
terminate after the due date of such Guarantee Fee, or the time of
receipt and collection by the Secretary in the case of a deficit
Guarantee Fee."
(h) Concerning Article V. Notwithstanding any other provision in
Article V of the General Provisions to the contrary, there may be no withdrawal
from the Escrow Fund unless the Company is in compliance with this paragraph
(h). Any provision of Article V of the General Provisions which are consistent
with these Special Provisions shall be given effect.
(a) Before each withdrawal from the Escrow Fund, a Responsible
Officer of the Company shall: (1) deliver an Officer's Certificate, in form and
substance satisfactory to the Secretary stating that (a)(i) the amounts of
Actual Cost relative to such withdrawal are in accordance with the Construction
Contract including the disbursement schedule and, (ii) each item in these
amounts is properly included in the Secretary's approved estimate of Actual
Cost; and (b) with respect to such withdrawal that, once the Contractor is paid,
there will be no liens or encumbrances on the applicable portion of the Vessels
or its component parts for which withdrawal is being requested except for
security interests already approved by the Secretary, and (2) provide, in form
and substance satisfactory to the Secretary, (a) an Officer's Certificate from
each Contractor to be paid with the requested withdrawal that, once the
Contractor is paid, there will be no liens or encumbrances on the applicable
portion of the Vessel or its component parts for which withdrawal is being
requested except for security interests already approved by the Secretary, (b)
invoices and receipts supporting each withdrawal to the satisfaction of the
4
6
Secretary, and (c) monthly updates of the master construction schedule, material
or delivery schedule, any changes in the schedule of anticipated disbursements
from the Escrow Fund, and the detailed cost estimates and working plans and
specifications which must be satisfactory to the Secretary.
(b) The final request for a withdrawal of substantially all
the proceeds in the Escrow Fund submitted by the Company shall be accompanied by
Officer's Certificates of the Company and its independent auditor, together with
such supporting documentation from the Contractors as the Secretary may require,
stating that the Construction has been accomplished and the Vessel has been
completed and delivered, and the Company's Certificate shall also state that
there are no liens or claims outstanding, except those authorized by the
Secretary. In addition, the Company shall provide certificates of insurance
satisfactory to the Secretary, confirming that all insurance required by Section
2.06 hereof is in full effect; provided however, that these certificates shall,
in no event, be supplied later than the Delivery Date.
(i) Concerning Section 5.02. The Secretary has determined that a
deposit of six months interest on the principal amount deposited in the Escrow
Fund is not required.
(j) Concerning Section 5.03. Section 5.03 is amended by adding the
following paragraph after Section 5.03(h):
"(i) Notwithstanding the requirements of Section
5.03, if on the Note Closing Date the Shipowner provides the
Secretary with satisfactory documentation that the Shipowner
has paid 12.5% of the Actual Cost of the Vessel, the Shipowner
may pay from the proceeds of the issuance of the Note on the
Note Closing Date the amount of the Guarantee Fee payable to
the Secretary hereunder on such date."
(k) Concerning Section 6.01.
(1) The following paragraphs are hereby added immediately
after paragraph (9) and prior to the beginning of last paragraph of Section
6.01(b) of Exhibit 1:
"(10) Default under the Parent Guaranty, the
Guaranty made of ▇▇▇▇▇▇ Industries, Inc. to Guarantor relating to the
construction of the Vessel and her sistership, dated March 9, 1999, or
the Stock Subscription Agreement between American Classic Voyages Co.
and Guarantor dated April 5, 1999, shall constitute an additional
security default;
(11) A breach by either the Shipowner or the
Shipyard under the terms of the Construction Contract shall constitute
an additional security default under this Section 6.01(b);
(12) Failure of the Shipowner to provide opinions
from its counsel,
5
7
within 60 days of the date hereof, regarding establishment of a first
priority security interest in favor of the Secretary in the collateral
described in Section 1.03(a) of Exhibit 1 hereto in the State of
Mississippi and the State of Illinois;
(13) Failure of the Shipowner to submit to the
Secretary for its approval any future loan agreements or securities
purchase agreements between the Shipowner and the Chase Securities
Inc.; and
(14) Failure of the Shipowner to timely pay any
Guarantee Fee or any part thereof due hereunder."
(2) The following paragraph is hereby added to the end of
Section 6.01 of Exhibit 1:
"In the event that a Default shall occur, the
Secretary shall be entitled, but not be required, to deliver to the
Depository a written notice that the Secretary is thereby exercising
exclusive control over the Securities Accounts (as such term is defined
in the Depository Agreement) ("Notice of Exclusive Control"). As
further provided in the Depository Agreement following the Depository's
receipt of and pursuant to said Notice of Exclusive Control, the
Secretary and the Shipowner hereby acknowledge and agree that (i) the
Secretary shall be entitled, but not be required, to issue to the
Depository an instruction, notice or any other type of directive that
would constitute an "entitlement order" within the meaning of Section
8-102(a)(8) of the New York Uniform Commercial Code (collectively, an
"Entitlement Order") concerning the Securities Accounts and (ii) the
Depository shall immediately cease complying with any Request, Request
for Payment, instruction, notice or any other type of directive that
would constitute an Entitlement Order from the Shipowner. In the event
that a Default has been cured or waived as provided in Article VI
hereof, the Secretary and the Shipowner hereby acknowledge and agree
that the Secretary shall deliver a written notice to the Depository
that (i) the Secretary is no longer exercising exclusive control over
the Securities Accounts and that the Notice of Exclusive Control
previously delivered is theretofore without effect and (ii) the
Depository shall thereafter comply with any Request, Request for
Payment, instruction, notice or any other type of directive that would
constitute an Entitlement Order from the Shipowner."
(l) Concerning Section 6.04(b)(4).
(1) Section 6.04(a) is hereby amended by inserting the words "
and shall have all rights of a secured party under the applicable UCC".
(2) Section 6.04(b)(4) is hereby amended by inserting the
words "and mailing said notice" between "Authorized Newspapers" and "to the
Shipowner" located on the fourth line.
6
8
(m) Concerning Section 8.01(c). Section 8.01(c) is hereby amended by
deleting the from the third line the number "12110(c)(3)" and substituting the
number "12111(c)(3) in lieu thereof.
(n) Concerning Section 9.01. Subject to Section 9.01 of the Security
Agreement, any notice, request, demand, direction, consent, waiver, approval or
other communication, when given to a party hereto, shall be addressed to:
Secretary as: SECRETARY OF TRANSPORTATION
c/o Maritime Administrator
U.S. Department of Transportation
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
Shipowner as: PROJECT AMERICA SHIP I, INC.
c/o American Classic Voyages Co.
▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Indenture Trustee as: The Bank of New York
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Corporate Trust Administration
(o) Governing Law. This Security Agreement and the rights and
obligations of the parties hereto shall be governed by and construed in
accordance with U.S. maritime laws, to the extent applicable, and otherwise in
accordance with the laws of the State of Illinois, except that the rights and
obligations of the parties with respect to Sections 1.03(a)(4), (5) and (6)
shall be governed by the laws of the State of New York.
7
9
IN WITNESS WHEREOF, this Security Agreement has been executed by the
parties as of the day and year first written.
SHIPOWNER: PROJECT AMERICA SHIP I, INC.
(SEAL) By /s/ Jordan ▇. ▇▇▇▇▇
--------------------------
Its Executive Vice President
ATTEST:
By /s/ ▇▇▇ ▇▇▇▇▇▇▇▇
--------------------------
Its Assistant ▇▇▇▇▇▇▇▇▇
▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ OF AMERICA
SECRETARY OF TRANSPORTATION
(SEAL) BY: MARITIME ADMINISTRATOR
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------
Secretary
ATTEST:
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
------------------------------
Assistant Secretary
11
TABLE A
Hull No. 7671
The aggregate Actual Cost of the Vessels as of the date hereof as
determined by the Secretary, namely, (i) the amounts paid by or for the account
of the Shipowner as of the date hereof for the Construction of the Vessels, plus
(ii) the amount which the Shipowner was on said date obligated under the
Construction Contract or otherwise to pay from time to time thereafter for the
Construction of the Vessels less the Depreciation of the Vessels as of the date
hereof as determined by the Secretary is $610,797,578, both calculated and
itemized for each Vessel as follows:
Amount
Amount Obligated
Paid To Be Paid Total
------ -------------- -----
Contract Price $440,000,000
Changes and Extras 51,000,000
Owner Furnished Items 20,000,000
Engineering and Inspection 5,000,000
Net Interest During Construction 51,282,000
Estimated Guarantee Fee 43,515,578
--------- ------------ ---------
Total Actual Cost $610,797,578
12
SCHEDULE OF DEFINITIONS
TO
SECURITY AGREEMENT
Dated February 10, 2000
"Act" means the Merchant Marine Act, 1936, as amended and in effect on
the First Closing Date.
"Actual Cost" means the actual cost of the Vessel, as set forth in
Table A of the Security Agreement or as subsequently redetermined by the
Secretary pursuant to the Security Agreement and the Act.
"Adjusted Cash Provided from Operating Activities" means the amount
determined by taking `net cash provided from operating activities' from the
statement of cash flows and adding back all interest deducted in determining
such amount.
"Audited Financial Statements" mean the annual audit of the
Shipowner's accounts in accordance with generally accepted auditing standards by
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, who may be the Shipowner's regular
auditors.
"Authorization Agreement" means the Authorization Agreement, Contract
No. MA-13580, between the Secretary and the Indenture Trustee, whereby the
Secretary authorizes the Guarantee of the United States to be endorsed on the
Obligations, as the same is originally executed, or as modified, amended or
supplemented therein.
"Authorized Newspapers" means The Wall Street Journal and The Journal
of Commerce or if either ceases to exist, then in such other newspapers as the
Secretary may designate.
"Bond" means each, and "Bonds" means every, long term obligation of the
Shipowner bearing a Guarantee that is authenticated and delivered under the
Indenture, the Authorization Agreement and/or a Secretary's Determination.
"Bond Closing Date" means the date when the Bond is executed and
delivered by the Secretary and each subsequent date when Bonds are issued by the
Shipowner and authenticated by the Indenture Trustee pursuant to the
Authorization Agreement.
"Bond Purchase Agreement" means each agreement for the purchase of the
Bonds, executed by the Shipowner and the purchaser named therein, as originally
executed, modified or supplemented.
"Business Day" means a day which is not a Saturday, Sunday or a bank
holiday under the laws of the United States or the State of Illinois and the
State of New York; provided, however,
ii
13
that for purposes of making payments of principal and interest on any
Obligations bearing interest determined by reference to LIBOR, "Business Day"
means any day on which commercial banks and foreign exchange markets are open
for business, including dealings in deposits in US Dollars, in New York and
London.
"Chapter 313" means the provisions of ▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ Code Chapter
313, as amended.
"Classification Society" means collectively the American Bureau of
Shipping and Lloyd's Register.
"Closing Date" or "Closings" means collectively each and every Note
Closing Date and each and every Bond Closing Date.
"Commitment to Guarantee Obligations" has the same meaning as the term
Guarantee Commitment.
"Consent of Shipyard" means the document evidencing such Shipyard's
consent to the assignment of a Construction Contract to the Secretary under the
Security Agreement as originally executed, modified, amended or supplemented.
"Construction" means construction of the Vessel, including designing,
inspecting, outfitting and equipping thereof.
"Construction Contract" means the contract relating to the Construction
of the Vessel between the Shipowner and the Shipyard, as originally executed or
as modified or supplemented pursuant to the applicable provisions thereof.
"Construction Fund" has the meaning specified in Article IV of the
Security Agreement.
"Default" when used in the Security Agreement has the meaning
attributed to it in Article VI thereof.
"Delivery Date" means the date on which the Vessel is delivered to and
accepted by the Shipowner.
"Depository" shall mean the institution designated in the Depository
Agreement or any successor.
"Depository Agreement" shall mean the Depository Agreement, Contract
No. MA-13584 among the Shipowner, the Secretary and the Depository, as
originally executed or as modified or supplemented in accordance with the
applicable provisions thereof.
"Depreciated Actual Cost" means the depreciated actual cost of the
Vessel, as set forth in Table A of the Security Agreement or as subsequently
redetermined by the Secretary pursuant to the Security Agreement and the Act.
iii
14
"Eligible Investment" has the meaning given by Section 5 of the
Financial Agreement.
"Escrow Fund" means the account held by the Secretary, established
under Section 1108 of the Act and administered pursuant to Article V of the
Security Agreement.
"Financial Agreement" means the Title XI Reserve Fund and Financial
Agreement, Contract No. MA-13583, executed by the Shipowner and the Secretary,
as originally executed or as modified, amended or supplemented.
"Financial Asset" has the meaning given by Article 8-102(a)(9) of the
UCC.
"First Calendar Year of Vessel Operation" means the first calendar year
of operation of the Vessel provided said calendar year commences no sooner than
six months after delivery of the Vessel.
"Fourth Calendar Year of Vessel Operation" means the calendar year
subsequent to the Third Calendar Year of Vessel Operation.
"Government Use" means the use of a Vessel or requisition of its title
required by a government or governmental body of the United States of America.
"Guarantee" means each, and the "Guarantees" means every, guarantee of
an Obligation by the United States pursuant to Title XI of the Act.
"Guarantee Commitment" means the Commitment to Guarantee Obligations,
▇▇▇▇▇▇▇▇ ▇▇. ▇▇-▇▇▇▇▇, dated February 10, 2000 executed by the Secretary and
accepted by the Shipowner relating to the Guarantees, as originally executed or
as modified, amended or supplemented.
"Guarantor" means Project America, Inc., a Delaware corporation, and
shall include its successors and assigns.
"Holder" means each, and "Holders" means every, registered holder of an
Obligation.
"Increased Security" means the Secretary's Note, the Security
Agreement, the Vessel, the Security, the Escrow Fund, the Title XI Reserve Fund,
the Construction Fund, the Parent Guaranty and any other security agreement
between the Secretary and the Shipowner relating to any vessels financed under
the Act, and the Policies of Insurance, and the proceeds of the foregoing.
"Indenture" means the Trust Indenture dated the Closing Date between
the Shipowner and the Indenture Trustee, as originally executed, or as modified,
amended or supplemented.
"Indenture Default" has the meaning specified in Article VI of the
Indenture.
iv
15
"Indenture Trustee" means the Bank of New York, a New York banking
corporation, and any successor trustee under the Indenture.
"Interest Determination Date" for any Interest Period means the second
day on which commercial banks are open for business, including dealings in
deposits in U.S. dollars in London (or, for purposes of paragraph (iii)(B) of
the definition of LIBOR, New York) prior to the commencement of such Interest
Period.
"Interest Payment Date" means with respect to any Obligation, the date
when any installment of interest on such Obligation is due and payable.
"Interest Period" means with respect to any Obligation, the period
beginning on, and including, the Original Issue Date and ending on, but
excluding, the next Interest Payment Date thereafter, and each successive
three-month period beginning on and including, an Interest Payment Date and
ending on, but excluding, the next succeeding Interest Payment Date.
"LIBOR" means with respect to any Interest Period, a rate per annum
determined as follows: (i) At approximately 11:00 a.m. (London time) on the
Interest Determination Date prior to the commencement of the Interest Period for
which such rate will apply, the Indenture Trustee will calculate LIBOR for such
Interest Period as, subject to the provisions described below, the rate per
annum equal to the rate appearing on the Telerate Page 3750 on the Reuter
Monitor Dow ▇▇▇▇▇ Telerate Service (or such other page as may replace that page
on that service for the purpose of displaying London interbank rates of major
banks) for three-month U.S. dollar deposits in the London inter-bank market on
such Interest Determination Date.
(ii) If on any Interest Determination Date an appropriate rate
cannot be determined from the Dow ▇▇▇▇▇ Telerate Service, LIBOR for the next
Interest Period will, subject to the provisions described below, be the rate per
annum that the Indenture Trustee certifies to be the arithmetic mean of the
offered quotations, as communicated to and at the request of the Indenture
Trustee by not less than three major banks in London selected by the Indenture
Trustee (the "Reference Banks," which expression will include any successors
nominated by the Indenture Trustee), to leading banks in London by the principal
London offices of the Reference Banks for three-month U.S. dollar deposits in
the London inter-bank market as at 11:00 a.m. (London time) on such Interest
Determination Date.
(iii) If on any Interest Determination Date fewer than three
of such offered rates are available, LIBOR for the next Interest Period will be
whichever is the higher of (A) LIBOR in effect for the last preceding Interest
Period to which (i) or (ii) above applied; and (B) the rate per annum that the
Indenture Trustee determines to be either (i) the arithmetic mean of the U.S.
dollar offered rates which at least three New York City banks selected by the
Indenture Trustee are or were quoting, on the relevant Interest Determination
Date, for three-month deposits to the Reference Banks or those of them (being at
least three in number) to which such quotations are or were, in the opinion of
the Indenture Trustee, being so made, or (ii) in the event that the Indenture
Trustee can determine no such arithmetic mean, the arithmetic
v
16
mean of the U.S. dollar offered rates that at least three New York City banks
selected by the Indenture Trustee are or were quoting on such Interest
Determination Date to leading European banks for a period of three months;
provided, however, that if the banks selected as aforesaid by the Indenture
Trustee are not quoting as mentioned above, LIBOR will be LIBOR specified in (A)
above.
"Long Term Debt" means, 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 generally accepted accounting
principles. There shall also be included any guarantee or other liability for
the debt of any other Person, not otherwise included on the balance sheet.
"Maturity" when used with respect to any Obligation, means the date on
which the principal of such Obligation becomes due and payable as therein
provided, whether at the Stated Maturity or by redemption, declaration of
acceleration or otherwise.
"Minimum Cash Flow Ratio" means the ratio of Adjusted Cash Provided
from Operating Activities to Total Debt Service.
"Moneys Due with Respect to Construction of the Vessels" has the
meaning specified in Section 1.03 of the Security Agreement.
"Mortgage" means the first preferred ship mortgage on the Vessel,
Contract No. MA-13582, by the Shipowner to the Secretary, as originally
executed, modified, amended or supplemented.
"Mortgagee" means the Secretary, as mortgagee under the Mortgage.
"Mortgagor" means the Shipowner, as mortgagor under the Mortgage.
"Net Worth" means, 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 (1) any receivables from any
stockholder, director, Officer or employee of the Company or from any Related
Party (other than current receivables arising out of the ordinary course of
business and not outstanding for more than 60 days) and (2) any increment
resulting from the reappraisal of assets.
"Note" means each and "Notes" means every short term obligation of the
Shipowner, the maturity of which shall not exceed one year from the Delivery
Date, bearing a Guarantee that is authenticated and delivered under the
Indenture, the Authorization Agreement and/or a Secretary's Determination.
"Note Closing Date" means the date when the Security Agreement is
executed and delivered by the Shipowner and each subsequent date when Notes are
issued by the Shipowner
vi
17
and authorized by the Indenture Trustee pursuant to the Authorization Agreement
and Secretary's Determination.
"Note Purchase Agreement" means each agreement for the purchase of the
Notes, executed by the Shipowner and the purchaser named therein, as originally
executed, modified or supplemented.
"Obligation" means collectively each and every Bond delivered and each
and every Note issued under the Authorization Agreement and Indenture.
"Obligee" means each, and "Obligees" means every, Holder of an
Obligation.
"Offering Circular" means each offering circular relating to the
issuance and sale of the Bonds.
"Officer's Certificate" means a certificate conforming to Section 1.02
of the Security Agreement or the Indenture as the context may require.
"Original Issue Date" means a date on which an Obligation was initially
authenticated by the Indenture Trustee even if the Obligation is subsequently
given a later date by reason of transfer, exchange or substitution.
"Outstanding" when used with reference to the Obligations, shall mean
all Obligations theretofore issued under the Indenture, except: (1) Obligations
Retired or Paid; and (2) Obligations in lieu of which other Obligations have
been issued under the Indenture.
"Parent Guaranty" means the guaranty issued by the Guarantor for the
Title XI obligations of the Shipowner.
"Paying Agent" means any bank or trust company meeting the
qualifications in Section 7.02(a) of the Indenture and appointed by the
Shipowner under Section 4.02 of the Indenture to pay the principal of (and
premium, if any) or interest on the Obligations on behalf of the Shipowner.
"Payment Default" has the meaning specified in Section 6.01 of the
Security Agreement.
"Person" or "Persons" means any individual, corporation, partnership,
joint venture, association, limited liability company, joint-stock company,
trust, unincorporated organization, government, or any agency or political
subdivision thereof.
"Policies of Insurance" and "policies" means all cover notes, binders,
policies of insurance and certificates of entry in a protection and indemnity
association, club or syndicate with respect to the Vessel (including all
endorsements and riders thereto), including but not limited to all insurance
required under Section 2.05 of the Security Agreement.
vii
18
"Redemption Date" means a date fixed for the redemption of a Note or a
Bond by the Indenture.
"Related Party" means one 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 (1) its management and their immediate families, (2) its principal
owners and their immediate families, (3) its investments accounted for by the
equity method, (4) beneficial employee trusts that are managed by the management
of the enterprise, and (5) 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
arm's-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.
"Responsible Officer" means (1) 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, member or partner, (2) in the case of
any commercial bank, the chairman or vice-chairman of the executive committee of
the board of directors or trustees, the president, any executive or senior vice
president, the secretary, the treasurer, any trust officer, and (3) with respect
to the signing or authentication of Notes or Bonds and Guarantees by the
Indenture Trustee, any person specifically authorized by the Indenture Trustee
to sign or authenticate Notes or Bonds.
"Retired or Paid" as applied to (i) Obligations and the indebtedness
evidenced thereby, means that such Obligations shall be deemed to have been so
retired or paid and shall no longer be entitled to any rights or benefits
provided in the Indenture if: (1) such Obligations shall have been paid in full;
(2) such Obligations shall have been canceled by the Indenture Trustee; or (3)
such Obligations shall have become due and payable at Maturity and funds
sufficient for the payment of such Obligations (including interest to the date
of Maturity, or in the case of a payment after Maturity, to the date of payment,
together with any premium thereon) and available for such payment and are held
by the Indenture Trustee or any Paying Agent with irrevocable directions, to pay
such Obligations; provided that, the foregoing definition is subject to Section
6.08 of the Indenture.
"Rights Under the Construction Contracts and Related Contracts" shall
have the meaning specified in Section 1.03 of the Security Agreement.
"Second Calendar Year of Vessel Operation" means the calendar year
beginning January 1 in the year immediately following the First Calendar Year of
Vessel Operation.
"Secretary" means the Secretary of Transportation or any officials duly
authorized to perform the functions of the Secretary of Transportation under
Title XI of the Act.
viii
19
"Secretary's Determination" has the meaning specified in Section
2(a)(5) of the Indenture.
"Secretary's Note" means a promissory note or promissory notes issued
and delivered by the Shipowner to the Secretary substantially in the form of
Exhibit 2A of the Security Agreement, including any promissory note issued in
substitution for, or any endorsement or supplement thereof.
"Secretary's Notice" means a notice from the Secretary to the Indenture
Trustee, if a Bond, or to the Lender, if a Note, that a Default, within the
meaning of Section 6.01(b) of the Security Agreement has occurred.
"Security" has the meaning specified in Section 1.03 of the Security
Agreement.
"Securities Account" has the meaning given by Article 8-501 of the UCC.
"Securities Intermediary" has the meaning given by Article 8-102(a)(14)
of the UCC and also means the Depository.
"Security Agreement" means the security agreement, Contract No.
MA-13581, dated the Note Closing Date, consisting of the special provisions, the
general provisions and this schedule X, executed by the Shipowner as security
for the Secretary, as originally executed or as modified, amended or
supplemented.
"Security Default" has the meaning specified in Section 6.01 of the
Security Agreement.
"Shipowner" means Project America Ship I, Inc., a Delaware corporation,
and shall include its successors and assigns.
"Shipyard" means ▇▇▇▇▇▇▇ Shipbuilding, Inc.
"Sister Shipowner" means Project America Ship II, Inc., a Delaware
corporation, and shall include its successors and assigns.
"Stated Maturity" means the date determinable as set forth in any Bond
as the final date on which the principal of such Bond is due and payable.
"Stock Subscription Agreement" means the stock subscription agreement
between Guarantor and American Classic Voyages Company dated April 5, 1999, as
originally executed or as modified, amended or supplemented pursuant to the
applicable provisions thereof.
"Successor" means a Person formed by or surviving a consolidation or
merger with the Shipowner or to which the Vessels have been sold.
ix
20
"Third Calendar Year of Vessel Operation" means the calendar year
subsequent to the Second Calendar Year of Vessel Operation.
"Title XI" means Title XI of the Act.
"Title XI Reserve Fund" has the meaning specified in the Financial
Agreement.
"Title XI Reserve Fund and Financial Agreement" means the Financial
Agreement.
"Total Debt Service" means the amount determined for each given year as
follows: (a) any scheduled payments on the Title XI debt (including principal
and interest), plus (b) any scheduled payments (including principal and
interest) on all other third party debt of the Shipowner, minus (c) cash used to
pay such payments from either non-operating sources or operating sources other
than the Shipowner.
"UCC" means the Uniform Commercial Code as enacted in the State of
Illinois, except that with respect to the terms "Financial Asset", "Securities
Account" and "Securities Intermediary", "UCC" shall mean the Uniform Commercial
Code as enacted in the State of New York.
"Vessel" means Hull No. 7671, financed with the Obligations.
"Working Capital" shall mean the excess of current assets over current
liabilities, both determined in accordance with generally accepted accounting
principles and adjusted as follows:
(1) In determining current assets, there shall also be
deducted: (A) 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 Company or of such Related Party, except advances
to agents required for the normal current operation of the Company's vessels and
current receivables arising out of the ordinary course of business and not
outstanding for more than 60 days; and (B) An amount equal to any excess of
unterminated voyage revenue over unterminated voyage expenses;
(2) In determining current liabilities, there shall be
deducted any excess of unterminated voyage expenses over unterminated voyage
revenue; and
(3) 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 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 Company's balance sheet.
x
21
TABLE OF CONTENTS
GENERAL PROVISIONS INCORPORATED INTO THE
SECURITY AGREEMENT BY REFERENCE
SECTION HEADING PAGE
ARTICLE I.....................................................................1
DEFINITIONS; OFFICER'S CERTIFICATES; GRANTING CLAUSE.......................1
Section 1.01. Definitions..............................................1
Section 1.02. Officer's Certificates...................................1
Section 1.03. Granting Clause..........................................1
ARTICLE II....................................................................2
SHIPOWNER'S REPRESENTATIONS AND AGREEMENTS.................................2
Section 2.01. Shipowner's Representations, Agreements, Organization
and Existence..........................................2
(a) General Representations.............................2
(b) Shipowner's United States Citizenship...............3
(c) Taxes...............................................3
Section 2.02. Covenants Concerning the Vessels.........................3
(a) Title to and Possession of the Vessels..............3
(b) Sale, Mortgage, Transfer or Charter of the Vessels..3
(c) Taxes and Governmental Charges......................3
(d) Liens...............................................3
(e) Compliance with Applicable Laws.....................3
(f) Vessels' Operation..................................4
(g) Vessels' Condition and Maintenance..................4
(h) Material Changes in the Vessels.....................4
(i) Documentation of the Vessels........................4
Section 2.03. Maintenance of Construction Contract.....................4
Section 2.04. Delivery Requirements....................................5
Section 2.05. Insurance................................................5
Section 2.06. Inspection of the Vessels; Examination of Shipowner's
Records................................................9
Section 2.07. Requisition of Title, Termination of Construction
Contract or Total Loss of a Vessel......................9
Section 2.08. Notice of Mortgage......................................10
Section 2.09. Compliance with 46 U.S.C. Chapter 313...................11
Section 2.10. Performance of Shipowner's Agreements by the
Secretary..............................................11
Section 2.11. Uniform Commercial Code Filings; Further Assurances.....11
Section 2.12. Modification of Formation Agreements....................11
Section 2.13. Members of Limited Liability Companies..................11
Section 2.14. Concerning the Performance and Payment Bonds............11
ARTICLE III..................................................................16
THE SECRETARY'S NOTE......................................................16
xi
22
Section 3.01. Secretary's Note........................................12
Section 3.02. Termination of the Guarantees...........................12
Section 3.03. Execution of Additional Secretary's Note................12
ARTICLE IV...................................................................12
CONSTRUCTION FUND; MONEYS DUE WITH RESPECT TO.............................12
Section 4.01. Construction Fund.......................................12
Section 4.02. Moneys Due with Respect to Construction of the
Vessels................................................13
ARTICLE V....................................................................13
ACTUAL COST; THE ESCROW FUND..............................................13
Section 5.01. Actual Cost Determinations..............................13
Section 5.02. Escrow Fund Deposits....................................13
Section 5.03. Escrow Fund Withdrawals.................................19
Section 5.04. Investment and Liquidation of the Escrow Fund...........15
Section 5.05. Income on the Escrow Fund...............................15
Section 5.06. Termination Date of the Escrow Fund.....................15
ARTICLE VI...................................................................16
DEFAULTS AND REMEDIES.....................................................16
Section 6.01. What Constitutes "Defaults;" Continuance of Defaults....16
Section 6.02. Acceleration of Maturity of the Secretary's Note........17
Section 6.03. Waivers of Default......................................17
Section 6.04. Remedies After Default..................................17
Section 6.05. Application of Proceeds.................................19
Section 6.06. General Powers of the Secretary.........................19
ARTICLE VII..................................................................20
AMENDMENTS AND SUPPLEMENTS TO.............................................20
Section 7.01. Amendments and Supplements to the Security Agreement
and the Mortgage.......................................20
Section 7.02. Amendments and Supplements to the Indenture.............20
ARTICLE VIII.................................................................20
CONSOLIDATION, MERGER OR SALE.............................................20
Section 8.01. Consolidation, Merger or Sale...........................20
Section 8.02. Transfer of a General Partner's or a Joint Venturer's
Interest...............................................21
ARTICLE IX...................................................................21
NOTICES...................................................................21
Section 9.01. Notices.................................................21
Section 9.02. Waivers of Notice.......................................21
Section 9.03. Shipowner's Name or Address Change......................21
ARTICLE X....................................................................21
xii
23
DISCHARGE OF SECURITY AGREEMENT AND THE MORTGAGE..........................21
Section 10.01. Discharge of Security Agreement and the Mortgage.......21
ARTICLE XI...................................................................21
MISCELLANEOUS.............................................................21
Section 11.01. Successors and Assigns.................................21
Section 11.02. Execution in Counterparts..............................22
Section 11.03. Shipowner's Rights in Absence of Default...............22
Section 11.04. Surrender of Vessels' Documents........................22
Section 11.05. Applicable Regulations.................................22
Section 11.06. Table of Contents, Titles and Headings.................22
xiii
24
GENERAL PROVISIONS INCORPORATED INTO THE
SECURITY AGREEMENT BY REFERENCE
ARTICLE I
DEFINITIONS; OFFICER'S CERTIFICATES; GRANTING CLAUSE
Section 1.01. Definitions. All capitalized terms used but, not defined
herein, shall have the meaning ascribed in Schedule X.
Section 1.02. Officer's Certificates. To satisfy a covenant or
condition provided for in this Security Agreement, the Responsible Officer of
the Person making such Officer's Certificate shall certify that the officer (a)
has read such covenant or condition; (b) has made or caused to be made such
examination or investigation as is necessary to enable the Officer to express an
informed opinion with respect to such covenant or condition; and (c) believes to
the best of the Officer's knowledge that such condition or covenant has been
met. An Officer's Certificate shall set forth the pertinent supporting
information and shall be subject to the Secretary's review of its adequacy and
accuracy.
Section 1.03. Granting Clause. (a) In order to create a present
security interest in the Secretary, the Shipowner does hereby grant, sell,
convey, assign, transfer, mortgage, pledge, set over and confirm unto the
Secretary continuing security interests in 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:
(1) Each Construction Contract (insofar as it relates to the
Construction of a Vessel under its related Construction Contract), together with
all other contracts, whether now in existence or hereafter entered into,
relating to the Construction of each Vessel. Said right, title and interest in
and to the Construction Contracts, and the other contracts conveyed to the
Secretary by this subsection are hereinafter referred to collectively as the
"Rights Under the Construction and Related Contracts."
(2) The Shipowner's rights to receive all moneys which from
time to time may become due to the Shipowner with respect to the Construction of
each Vessel regardless of the legal theory by which moneys are recovered. Said
right, title and interest in and to the moneys, cash, bonds, claims, and
securities conveyed by this subsection are herein referred to collectively as
the "Moneys Due with Respect to the Construction of the Vessels." The Secretary
acknowledges and agrees that the Moneys Due with Respect to the Construction of
the Vessels will be paid directly to the Depository for application in
accordance with this Security Agreement and the Indenture.
(3) All goods, whether equipment or inventory appertaining to
or relating to each Vessel, whether or not on board or ashore and not covered by
the Mortgage, and any charter hire relating to each Vessel.
(4) The Title XI Reserve Fund and all moneys, instruments,
negotiable documents, chattel paper, and proceeds thereof currently on deposit
or hereafter deposited in the Title XI Reserve Fund.
(5) The Construction Fund and all moneys, instruments,
negotiable documents, chattel paper and proceeds, etc.
(6) All moneys, instruments, negotiable documents, chattel
paper and proceeds thereof held by the Depository under the Depository
Agreement.
(7) Proceeds of Policies of Insurance relating to each Vessel
and, whether or not insured, any general average claims or loss of hire claims
Shipowner may have with respect to each Vessel.
(8) All proceeds of the collateral described in paragraphs (1)
through (7) of this Section.
25
The Secretary shall have, upon execution and delivery thereof, as
further security, certain right, title and interest in and to the following:
(9) The Mortgage, to be executed and delivered by the
Shipowner to the Secretary, as mortgagee, on the date hereof, covering each
Vessel.
(b) The right, title and interest of the Secretary pursuant to Section
1.03(a) is herein, collectively, called the "Security." The Secretary shall hold
the Security as collateral security for all of the obligations and liabilities
of the Shipowner under the Secretary's Note and as collateral security for and
with respect to the Guarantees whether now made or hereafter entered into.
(c) Notwithstanding paragraphs (a) and (b) of this Section, (1) the
Shipowner shall remain liable to perform its obligations under each Construction
Contract and the above-mentioned other contracts; (2) the Secretary shall not,
by virtue of this Security 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 Secretary 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
paragraphs (a) and (b) of this Section were not applicable.
(d) The Shipowner hereby agrees with the Secretary that the Security is
to be held by the Secretary subject to the further agreements and conditions set
forth herein.
ARTICLE II
SHIPOWNER'S REPRESENTATIONS AND AGREEMENTS
The Shipowner hereby represents and agrees, so long as this Security
Agreement shall not have been discharged, as follows:
Section 2.01. Shipowner's Representations, Agreements, Organization and
Existence. (a) General Representations. The Shipowner hereby represents and
warrants that the following are true statements as of the date hereof and
further warrants that they shall remain true thereafter:
(1) The Shipowner is duly organized, validly existing and in
good standing under the laws of the jurisdiction designated in the initial
paragraph of the Special Provisions hereof and shall maintain such existence.
The Shipowner has not failed to qualify to do business in any jurisdiction in
the United States in which its business or properties require such
qualification, and 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;
(2) The Shipowner had and has legal power and authority to
enter into and carry out the terms of the Guarantee Commitment, the Construction
Contract, the Bond Purchase Agreement, the Obligations, the Indenture, the
Security Agreement, the Secretary's Note, the Mortgage, the Financial Agreement,
and the Depository Agreement (the "Documents");
(3) Each of the Documents has been duly authorized, executed
and delivered by the Shipowner and constitutes, in accordance with its
respective terms, legal, valid and binding instruments enforceable against the
Shipowner, except to the extent limited by applicable bankruptcy,
reorganization, insolvency, moratorium or similar laws of general application
relating to or affecting the enforcement of creditors rights as from time to
time in effect;
(4) The consummation of the transactions contemplated by and
compliance by the Shipowner of all the terms and provisions of the Documents
will not violate any provisions of the formation documents of the Shipowner and
will not result in a breach of the terms and provisions of, or constitute a
default under any other agreement or undertaking by the Shipowner or by which
the Shipowner is bound or any order of any court or administrative agency
entered into in any proceedings to which the Shipowner is or has been a party;
and
2
26
(5) There is no litigation, proceeding or investigation
pending or, to the best of the Shipowner's knowledge, threatened, involving the
Shipowner or any of its property which could prevent or jeopardize the
performance by the Shipowner of its obligations under the Documents;
(b) Shipowner's United States Citizenship. The Shipowner is a citizen
of the United States within the meaning of Section 2 of the Shipping Act, 1916,
as amended, and shall remain such a citizen for operation in the trades in which
the Shipowner proposes to operate the Vessels and in the event the Shipowner
shall cease to be such a citizen, the Shipowner shall notify the Secretary
immediately of such fact.
(c) Taxes The Shipowner has paid or caused to be paid all taxes
assessed against it, unless the same are being contested in good faith or an
authorized extension of time has been granted.
Section 2.02. Covenants Concerning the Vessels. (a) Title to and
Possession of the Vessels. On the date of this Security Agreement, the Shipowner
represents and warrants that it lawfully owns each Vessel free from any liens,
encumbrances, security interests, charges, or rights in rem (subject only to (1)
the equity of the Shipyard under the Construction Contract, if any; (2) liens on
any undelivered Vessel which the Shipyard is obligated to discharge under the
Construction Contract; (3) any security interest subordinated to the Secretary's
security interest permitted under the Special Provisions hereof; (4) the
Secretary's rights hereunder; and (5) the liens permitted by paragraph (d)(3) of
this Section). The Shipowner shall, for the Secretary's benefit, warrant and
defend the title to, and possession of, each Vessel and every part thereof
against the claims and demands of all Persons whomsoever.
(b) Sale, Mortgage, Transfer or Charter of the Vessels. (1) The
Shipowner shall not, without the Secretary's prior written consent, sell,
mortgage, demise charter or transfer any Vessel to any Person (or charter the
Vessel to a Related Party under any form of charter).
(2) The Shipowner hereby covenants that: (A) it will not enter
into any time charter of the Vessels in excess of six months unless the time
charter contains the following provision: "This time charter is subject to each
of the rights and remedies of the Secretary of Transportation and has been
assigned to the Secretary under a Security Agreement and Mortgage, each executed
by the Shipowner in favor of the Secretary with respect to the Vessels being
chartered." and (B) it shall, within 10 calendar days of entering into any time
charter in excess of six months, transmit a copy of the time charter to the
Secretary.
(c) Taxes and Governmental Charges. The Shipowner shall pay and
discharge, or cause to be paid and discharged, on or before the same shall
become delinquent, all taxes, assessments, government charges, fines and
penalties lawfully imposed upon each Vessel, unless the same are being contested
in good faith.
(d) Liens. (1) As a condition precedent to each payment by the
Shipowner under the Construction Contract, the Shipowner shall require an
Officer's Certificate from the Shipyard stating that once the Shipyard receives
said payment, there will be no liens or rights in rem against the respective
Vessel. At the Delivery Date of each Vessel, the Shipowner and the Shipyard
shall provide an Officer's Certificate stating that there are no liens or rights
in rem against the respective Vessel except for the Mortgage.
(2) After the Delivery Date of each Vessel, the Shipowner
shall satisfy, or cause to be satisfied, within 30 days of its knowledge
thereof, any lien or encumbrance or right in rem which shall be filed against
such Vessel unless the same is being contested in good faith; and
(3) Neither the Shipowner, any charterer, the master of any
Vessel, nor any other Person has or shall have any right, power or authority,
without the Secretary's prior written consent, to create, incur or permit to be
placed or imposed on any Vessel any lien, encumbrance, security interest,
charge, or rights in rem, and statutory liens incident to current operations
unless such statutory liens are subordinate to the Mortgage.
(e) Compliance with Applicable Laws. The Shipowner shall at all times
be in compliance with all applicable U.S. laws. In addition, each Vessel (1)
shall be designed to meet, and on the Delivery Date thereof and
3
27
at all times thereafter shall meet all requirements of applicable laws, treaties
and conventions, and of applicable rules and regulations thereunder; and (2)
shall have on board valid certificates showing compliance therewith; provided
that the foregoing shall not apply if (A) the Vessel is in Government Use; (B)
there has been an actual or constructive total loss or an agreed or compromised
total loss of such Vessel; or (C) there has been any other loss with respect to
such Vessel and the Shipowner shall not have had a reasonable time to repair the
same.
(f) Vessels' Operation. Except when the Vessel is in Government Use,
the Shipowner shall not (1) cause or permit the Vessels to be operated in any
manner contrary to law or to any lawful rules or regulations of the Maritime
Administration; (2) remove or attempt to remove the Vessels beyond the limits of
the United States without the Secretary's prior written consent except on
voyages with the intention of returning to the United States; or (3) abandon
such Vessels in any foreign port unless there has been an actual or constructive
total loss or an agreed or compromised total loss of any of the Vessels.
(g) Vessels' Condition and Maintenance. (1) Each Vessel shall be
constructed, maintained and operated so as to meet, at all times, the highest
classification, certification, rating and inspection standards for Vessels of
the same age and type as my be imposed by the Classification Society; provided
that, the foregoing shall not apply if the Vessel has been (i) under Government
Use; (ii) an actual or constructive total loss or an agreed or compromised total
loss of such Vessel; or (iii) any other loss with respect to such Vessel and the
Shipowner shall not have had a reasonable time to repair the same;
(2) On the Delivery Date of each Vessel, the Shipowner shall
furnish to the Secretary an Interim Class Certificate issued for each such
Vessel by the Classification Society and promptly after the Delivery Date of
each Vessel, furnish to the Secretary a Certificate of Class with respect to
such Vessel issued by the Classification Society. Subsequently, the Shipowner
shall annually (A) furnish to the Secretary a Certificate of Confirmation of
Class issued by the Classification Society showing that the above-mentioned
classification and rating have been retained for each Vessel; and (B) furnish to
the Secretary copies of all Classification Society reports, including periodic
and damage surveys for each Vessel; provided that, the foregoing shall not apply
if the Vessel is in Government Use and the governmental body does not permit
classification and rating of the Vessel.
(3) Notwithstanding Section 2.02(g)(2), if the Vessel is a
barge which is not classed, then the Shipowner shall, at all times, at its own
cost and expense maintain and preserve each Vessel, so far as may be
practicable, in at least as good order and condition, ordinary wear and tear
excepted, as at the Delivery Date of such Vessel, and shall perform or cause to
be performed at least once every five years and at any other time reasonably
required by the Secretary, a survey and inspection of the Vessels by an
independent marine surveyor approved by the Secretary; and provided that, no
such surveys will be required within the last three years prior to the final
Stated Maturity of the Obligations. The Shipowner shall furnish two copies of
the report of such independent marine surveyor to the Secretary within 15 days
of such survey and inspection. The Shipowner shall deliver to the Secretary
annually an Officer's Certificate stating the condition and maintenance of each
Vessel; provided further, that none of this Section shall apply when the Vessel
is in Government Use.
(h) Material Changes in the Vessels. After the Delivery Date of any
undelivered Vessel or the Closing Date of any already delivered Vessel, the
Shipowner shall not make, or permit to be made, any material change in the
structure, means of propulsion, type or speed of such Vessel or in its rig,
without the Secretary's prior written consent.
(i) Documentation of the Vessels. Upon the Delivery Date and
thereafter, each Vessel shall be and shall remain documented under the laws of
the United States of America.
Section 2.03. Maintenance of Construction Contract. (a) The
Construction Contract shall be maintained in full force and effect insofar as it
relates to the due performance by the Shipowner and the Shipyard of all their
respective obligations thereunder and the Shipowner shall not, without the
Secretary's prior written consent, amend, modify, assign or terminate the
Construction Contract or consent to any change in the Construction Contract
which releases the Shipyard from its obligations to comply with the provisions
of the Construction Contract or any applicable laws, treaties, conventions,
rules and regulations; provided that, the Secretary's prior
4
28
written consent shall not be necessary, but prompt written notice to the
Secretary shall be given for (1) any mandatory or regulatory change to the
Construction Contract as a result of any requirements of any governmental
agency; or (2) any non-mandatory changes that the Shipyard and the Shipowner
desire to make which do not, in the aggregate, exceed five (5%) percent of the
total Construction Contract price of the Vessels, and which do not cause the
total Construction Contract price to be increased by an individual change by
more than one (1%) percent or the delivery and completion date of the Vessels to
be extended by more than ten (10) days. Notwithstanding the foregoing, no change
shall be made in the general dimensions and/or characteristics of the Vessels
which changes the capacity of the Vessels to perform as originally intended by
the Construction Contract without the Secretary's prior written consent. The
Secretary will nonetheless retain its authority to review work done under a
change order to ascertain whether the work should be included in Actual Cost and
whether the price charged is fair and reasonable. No withdrawals may be made
from the Escrow Fund for work that is not determined to be includable in Actual
Cost.
(b) Notwithstanding anything to the contrary contained in the
Construction Contract or herein, no changes to the payment milestones and
disbursement schedules shall be made without the Secretary's prior written
consent, except to the extent reasonably required to reflect the change orders
under paragraph (a) of this Section.
Section 2.04. Delivery Requirements. At or prior to the Delivery Date,
the Shipowner shall have:
(a) documented the Vessel under the laws of the United States with the
United States Coast Guard;
(b) executed and delivered to the Secretary the Mortgage (or mortgage
supplement) substantially in the form of Exhibit 3 annexed hereto;
(c) recorded the Mortgage (or, if appropriate, a mortgage supplement)
in the National Vessel Documentation Center of the United States Coast Guard, or
its successor;
(d) delivered to the Secretary an Officer's Certificate (1) from the
Shipowner and the Shipyard certifying that the Vessel is free of any claim,
lien, charge, mortgage, or other encumbrance of any character except as
permitted under Section 2.02(d); (2) certifying that there has not occurred and
is not then continuing any event which constitutes (or after any period of time
or any notice, or both, would constitute) a default under the Security
Agreement; (3) that the marine insurance as required under Section 2.05 will be
in full force and effect at the time of Vessel delivery; (4) certifying that the
Vessel was constructed substantially in accordance with the plans and
specifications of the Construction Contract; (5) certifying that there have been
no unusual occurrences (or a full description of such occurrences, if any) which
would adversely affect the condition of the delivered Vessel.
(e) delivered to the Secretary (1) an opinion of counsel substantially
in the form of Exhibit A to the form of Mortgage; and (2) a certificate of
delivery and acceptance from the Shipowner and the Shipyard to the Secretary
with respect to the delivered Vessel;
Section 2.05. Insurance. (a) Prior to the Delivery Date of each Vessel,
the Shipowner shall, without cost to the Secretary or, with respect to war risk
builder's risk insurance mentioned below, without cost to the Shipyard, cause
each Vessel to be insured as provided in the Construction Contract and as
contemplated by the Consent of Shipyard; provided that, the insurance required
by this Section shall be approved by the Secretary.
(b) Upon the Delivery Date of each Vessel and at all times thereafter,
the Shipowner shall, without cost to the Secretary, keep such Vessel insured as
indicated below and with such additional insurance as may be specified by the
Secretary in an amount in U.S. dollars equal to 110% of the unpaid principal
amount of the Proportionate Part of the Secretary's Note, or such greater sum,
up to and including the full commercial value of such Vessel as may be required
by the Secretary. The Shipowner shall provide 30 days prior written notice to
the Secretary of all insurance renewals.
(1) Marine and war risk hull insurance under the latest (at
the time of issue of the policies in question) forms of American Institute of
Marine Underwriters' policies approved by the Secretary and/or policies
5
29
issued by or for the Maritime Administration (or under such other forms of
policies as the Secretary may approve in writing) insuring such Vessel against
the usual risks covered by such forms (including, at the Shipowner's option,
such amounts of increased value and other forms of "total loss only" insurance
as are permitted by said hull insurance policies); and
(2) While any Vessel is laid up, at the Shipowner's option and
in lieu of the above-mentioned marine and war risk hull insurance or marine and
war risk hull and increased value insurance, port risk insurance under the
latest (at the time of issue of the policies in question) forms of American
Institute of Marine Underwriters' policies approved by the Secretary and/or
policies issued by or for the Maritime Administration (or under such other forms
of policies as the Secretary may approve in writing) insuring such Vessel
against the usual risks covered by such forms.
(3) Notwithstanding the foregoing, the Shipowner, with the
Secretary's prior written consent, shall have the right to self-insure up to the
amount specified in the Special Provisions hereof for any loss resulting from
any one accident or occurrence (other than an actual or constructive total loss
of any Vessel).
(c) All policies of insurance under this Section shall provide, so long
as this Security Agreement has not been discharged, that payment of all losses
shall be made payable to the Secretary for distribution by him to himself, the
Shipowner and (in the case of the insurance required by paragraph (a) of this
Section) the Shipyard, except that (i) as provided in paragraph (e) of this
Section; and (ii) under the policies required by paragraph (b) of this Section,
payment of all losses up to the amount specified in the Special Provisions
hereof by all insurance underwriters with respect to any one accident,
occurrence or event may be made directly to the Shipowner unless there is an
existing Default, or if the Secretary shall have assumed the Shipowner's rights
and duties under the Indenture and the Obligations and made any payments in
default under the terms of Section 6.09 of the Indenture, in which event payment
of all losses shall be made payable to the Secretary as aforesaid.
Any such insurance recoveries to which the Secretary shall be so
entitled shall be applied as follows:
(1) In the event that insurance becomes payable under said
policies on account of an accident, occurrence or event not resulting in an
actual or constructive total loss or an agreed or compromised total loss of any
Vessel, the Secretary shall (A) if there is no existing Default and if none of
the events described in Section 2.07 has occurred, in accordance with a
Shipowner's Request, pay, or consent that the underwriters pay, direct for
repairs, liabilities, salvage claims or other charges and expenses (including
▇▇▇ and labor charges due or paid by the Shipowner) covered by the policies, or
(to the extent that, as stated in an Officer's Certificate delivered to the
Secretary, accompanied by written confirmation by the underwriter or a surveyor
or adjuster, the damage shall have been repaired and the cost thereof paid of
such liabilities, salvage claims, or other charges and expenses discharged or
paid) reimburse, or consent that the underwriters reimburse, the Shipowner
therefor and (after all known damage with respect to the particular loss shall
have been repaired, except to the extent the Shipowner, with the Secretary's
written consent, deems the said repair inadvisable, and all known costs,
liabilities, salvage claims, charges and expenses, covered by the policies, with
respect to such loss shall have been discharged or paid, as stated in an
Officer's Certificate delivered to the Secretary, accompanied by written
confirmation by the underwriters or a surveyor or adjuster) pay, or consent that
the underwriters pay, any balance to the Shipowner; or (B) if there is an
existing Default, in accordance with a Request of Shipowner, pay, or consent
that the underwriters pay, direct for the Shipowner's proportion of such
repairs, liabilities, salvage claims or other charges and expenses (including
▇▇▇ and labor charges due or paid by the Shipowner) covered by the policies and
hold any balance until the same may be paid or applied under clauses A, C or D
of this subsection, whichever is applicable; or (C) if the Guarantees shall have
terminated pursuant to Section 3.02(c) or if the Secretary shall have assumed
the Shipowner's rights and duties under the Indenture and the Obligations and
made any payments in default under the terms of Section 6.09 of the Indenture
and none of the events described in Section 2.07 has occurred, apply the
insurance as provided in Section 6.05; or (D) if the Guarantees shall have
terminated pursuant to Section 3.02(b) or (d), pay the insurance to the
Shipowner;
(2) In the event of an accident, occurrence or event resulting
in an actual or constructive total loss of any Vessel prior to the Delivery Date
of such Vessel, the Shipowner shall forthwith deposit with the Secretary
6
30
any insurance moneys which the Shipowner receives on account thereof under
policies of insurance required by paragraph (a) of this Section, and any such
insurance moneys shall be held by the Secretary for 10 days (or such lesser or
further time as the Shipowner and the Secretary may agree upon). Upon the
expiration of said period of time, (A) if there is no existing Default and if
the Shipowner, the Shipyard and the Secretary shall have elected not to
construct such Vessel under the Construction Contract, then said insurance
moneys shall be applied, to the extent necessary and required pursuant to
Section 2.07; or (B) if there is no existing Default and if the Shipowner, the
Shipyard and the Secretary shall not have made the election contemplated by
clause (A) of this subsection, then said insurance moneys (together with the
Shipowner's funds to the extent, if any, required by the Secretary for deposit
on account of interest under clause (ii) below) shall be deposited in the Escrow
Fund, in such amount and to the extent available, so that the moneys in the
Escrow Fund after such deposit shall be equal to (i) the principal amount of the
Proportionate Part of the Outstanding Obligations relating to such Vessel at the
time of such deposit and (ii) such interest on said deposit, if any, as may be
required by the Secretary (said moneys to be subject to withdrawal in the same
manner as moneys originally deposited in said Escrow Fund); and the balance, if
any, of such insurance moneys held by the Secretary shall be paid to the
Shipowner; and
(3) In the event of an accident, occurrence or event resulting
in an actual or constructive total loss or an agreed or compromised total loss
of any Vessel, whether prior to or after the Delivery Date of such Vessel, and
the insurance moneys have not been applied as provided in paragraph (c)(2) of
this Section, the Shipowner shall forthwith deposit with the Secretary any
insurance moneys which the Shipowner receives on account thereof under policies
of insurance required by this Section, and any such insurance moneys received by
the Secretary, whether from the Shipowner or otherwise, or held by the Secretary
pursuant to paragraph (c)(2) of this Section, shall (A) if there is no existing
Default, be applied, to the extent necessary, pursuant to Section 2.07; (B) if
there is an existing Security Default, be held until the same may be applied
under clauses (A), (C), or (D) of this subsection, whichever is applicable; (C)
if the guarantees shall have terminated pursuant to Section 3.02(c) or if the
Secretary shall have assumed the Shipowner's rights and duties under the
Indenture and the Obligations and made any payments in default under the terms
of Section 6.09 of the Indenture, be applied as provided in Section 6.05;
provided that, notwithstanding the foregoing clauses (A), (B) and (C) of this
subsection, the Shipowner shall not be required to so deposit with the Secretary
insurance moneys in an amount which, together with funds otherwise available for
the redemption of Obligations is in excess of that required for the redemption
of the Proportionate Part of the Outstanding Obligations pursuant to Section
3.05 of the Indenture and for the payment to the Secretary of a Proportionate
Part of all other sums that may be secured by this Security Agreement and the
Mortgage; or (D) if the Guarantees shall have terminated pursuant to Section
3.02(b) or 3.02(d), be paid to the Shipowner.
(d) In the event of an accident, occurrence or event resulting in a
constructive total loss of any Vessel, the Secretary shall have the right (with
the prior written consent of the Shipowner, unless there is an existing Default,
and at any time prior to the Delivery Date of such Vessel also with the prior
written consent of the Shipyard) to claim for a constructive total loss of such
Vessel. If (1) such claim is accepted by all underwriters under all policies
then in force as to such Vessel under which payment is due for total loss; and
(2) payment in full is made in cash under such policies to the Secretary, then
the Secretary shall have the right to abandon such Vessel to the underwriters of
such policies, free from lien of this Security Agreement and the Mortgage.
(e) Commencing on the Delivery Date of each Vessel, the Shipowner
shall, without cost to the Secretary, keep each such Vessel insured against
marine and war risk protection and indemnity risks and liabilities by policies
of insurance approved by the Secretary as to form and amount; provided that, (1)
the Shipowner shall, as soon as possible before such Delivery Date, present any
such policy to the Secretary (who shall promptly approve or disapprove the
same); (2) any approval of a policy under this subsection shall be effective
until the end of the policy period or until 60 days after the Secretary shall
notify the Shipowner of a desired change in the form and/or amount thereof,
whichever shall first occur; and (3) war protection and indemnity insurance
shall be required unless the Secretary gives written notice to the Shipowner
stating that such insurance is not required.
Such policies may provide that (1) if the Shipowner shall not have
incurred the loss, damage, or expense in question, any loss under such insurance
may be paid directly to the Person to whom any liability covered by such
policies has been incurred (whether or not a Default then exists), and (2) if
the Shipowner shall have incurred the
7
31
loss, damage or expense in question, any such loss shall be paid to the
Shipowner in reimbursement if there is no existing Default of which the
underwriter has written notice from the Shipowner or the Secretary, or, if there
is such an existing Default, to the Secretary to be held and applied as follows:
(A) applied as provided in Section 6.05 in the event the Guarantees shall have
terminated pursuant to Section 3.02(c) or if the Secretary shall have assumed
the Shipowner's rights and duties under the Indenture and the Obligations and
made any payments in default under the terms of Section 6.09 of the Indenture;
or (B) to the extent not theretofore applied pursuant to Section 6.05, paid
forthwith to the Shipowner upon its Request in the event there is no existing
Default or the Guarantees shall have terminated pursuant to Section 3.02(b) or
(d) at the date of delivery of such Request; provided that, irrespective of the
foregoing, with the Secretary's prior written consent, the Shipowner shall have
the right to self-insure in an amount up to the limit specified in the Special
Provisions hereof with respect to each accident, occurrence or event, except
that, with respect to cargo or property carried, the Shipowner, with the
Secretary's prior written consent, shall have the right to self-insure in an
amount up to the limit specified in the Special Provisions hereof with respect
to each cargo or property carried.
(f) All insurance required under this Section shall be placed and kept
with the United States Government or with American and/or British (and/or other
foreign, if permitted by the Secretary in writing) insurance companies,
underwriters' association or underwriting funds approved by the Secretary. All
insurance required under this subsection shall be arranged through marine
insurance brokers and/or underwriting agents as chosen by the Shipowner and
approved by the Secretary.
(g) The Secretary shall not have the right to enter into an agreement
or compromise providing for an agreed or compromised total loss of any Vessel
without prior written consent of (i) the Shipyard (prior to the Delivery Date of
such Vessel); and (ii) (unless there is an existing Default) the Shipowner. If
(1) the Shipowner shall have given prior consent thereto; or (2) there is an
existing Default, the Secretary shall have the right in his discretion, and with
the prior written consent of the Shipyard prior to the Delivery Date of such
Vessel, to enter into an agreement or compromise providing for an agreed or
compromised total loss of such Vessel; provided that, if the aggregate amount
payable to the Shipowner and/or the Secretary under such agreement or
compromise, together with funds held by the Secretary and available for the
redemption of Obligations, is not sufficient to redeem or pay the Proportionate
Part of the Outstanding Obligations pursuant to Section 2.07, the Secretary
shall not enter into such agreement or compromise without the Shipowner's prior
written consent.
(h) During the continuance of (1) a taking or requisition of the use of
any Vessel by any government or governmental body; or (2) a charter, with the
Secretary's prior written consent, of the use of any Vessel by the United States
Government or by any governmental body of the United States, or by any other
government or governmental body, the provisions of this Section shall be deemed
to have been complied with in all respects if such government or governmental
body shall have agreed to reimburse, in a manner approved by the Secretary in
writing, the Shipowner for loss or damage covered by the insurance required
hereunder or resulting from the risks under paragraphs (a), (b), and (e) of this
Section or if the Shipowner shall be entitled to just compensation therefor. In
addition, the provisions of this Section shall be deemed to have been complied
with in all respects during any period after (A) title to any Vessel shall have
been taken or requisitioned by any government or governmental body; or (B) there
shall have been an actual or constructive total loss or an agreed or compromised
total loss of any Vessel. In the event of any taking, requisition, charter or
loss contemplated by this paragraph, the Shipowner shall promptly furnish to the
Secretary an Officer's Certificate stating that such taking, requisition,
charter or loss has occurred and, if there shall have been a taking, requisition
or charter of the use of any Vessel, that the government or governmental body in
question has agreed to reimburse the Shipowner, in a manner approved by the
Secretary, for loss or damage resulting from the risks under paragraphs (a),
(b), and (e) of this Section or that the Shipowner is entitled to just
compensation therefor.
(i) All insurance required (A) under paragraph (a) of this Section
shall be taken out in the names of the Shipowner, the United States and the
Shipyard as assureds, and (B) under paragraph (b) and (c) of this Section shall
be taken out in the names of the Shipowner and the United States as assureds.
All policies for such insurance so taken out shall, unless otherwise consented
to by the Secretary, provide that (1) there shall be no recourse against the
United States for the payment of premiums or commissions; (2) if such policies
provide for the payment of club calls, assessments or advances, there shall be
no recourse against the United States for the payment thereof;
8
32
and (3) at least 10 days' prior written notice of any cancellation for the
nonpayment of premiums, commissions, club calls, assessments or advances shall
be given to the Secretary by the insurance underwriters.
(j) The Shipowner shall not, without the Secretary's prior written
consent, (1) do any act, nor voluntarily suffer or permit any act to be done,
whereby any insurance required by this Section shall or may be suspended,
impaired or defeated or (2) suffer or permit any Vessel to engage in any voyage
or to carry any cargo not permitted under the policies of insurance then in
effect without first covering such Vessel with insurance satisfactory in all
respects for such voyage or the carriage of such cargo; provided that, this
paragraph shall be subject to the requirements of any military authority of the
United States and shall not apply in the case of such Vessel if and so long as
the title or use of such Vessel shall have been taken, requisitioned or
chartered by any government or governmental body as contemplated by Section
2.07.
(k) In the event that any claim or lien is asserted against any Vessel
for loss, damage or expense which is covered by insurance hereunder and it is
necessary for the Shipowner to obtain a bond or supply other security to prevent
arrest of such Vessel or to release such Vessel from arrest on account of said
claim or lien, the Secretary, on the Shipowner's Request, may, at the
Secretary's sole option, assign to any Person executing a surety or guaranty
bond or other agreement to save or release such Vessel from such arrest, all
right, title and interest of the Secretary in and to said insurance covering
such loss, damage or expense as collateral security to indemnify against
liability under said bond or other agreement.
(l) Except as the Secretary shall otherwise direct by notice in writing
to the Shipowner, the Shipowner shall deliver to the Secretary the original
policies evidencing insurance maintained under this Section; provided that, if
any such original policy shall have been delivered previously to the Secretary
or to a mortgagee by the Shipowner under another ship mortgage of the Shipowner,
the Shipowner shall deliver a duplicate or pro forma copy of such policy to the
Secretary. The Secretary or any agent thereof (who may also be an agent of the
issuer) shall at all times hold the policies delivered as aforesaid; provided
that, if one or more of said policies are held by an agent of the Secretary, the
Shipowner shall, upon the Secretary's request, deliver a duplicate or pro forma
copy thereof to the Secretary, and provided further, that if the Shipowner shall
deliver to the Secretary a Request (1) stating that delivery of such policy to
the insurer is necessary in connection with the collection, enforcement or
settlement of any claim thereunder (including claims for return premiums and any
other amounts payable by the insurer); and (2) setting forth the name and
address of the Person to whom such policy is to be delivered or mailed for such
purpose, and if the Secretary approves such Request, the Secretary shall, at the
Shipowner's expense, deliver or mail (by registered or certified mail, postage
prepaid) such policy in accordance with such Request, accompanied by a written
direction to the recipient to redeliver such policy directly to the Secretary or
an agent thereof when it has served the purpose for which so delivered. The
Shipowner agrees that, in case it shall at any time so cause the delivery or
mailing of any policy to any Person as aforesaid, the Shipowner will cause such
policy to be promptly redelivered to the Secretary or an agent thereof as
aforesaid. The Secretary shall have no duty to see to the redelivery of such
policy, but shall have the duty to request the redelivery thereof at intervals
of 60 days thereafter.
(m) Nothing in this Section shall limit the insurance coverage which
the Secretary may require under any contract or agreement to which the Secretary
and the Shipowner are parties.
The requirements of this Section are expressly subject to the Special
Provisions of this Security Agreement.
Section 2.06. Inspection of the Vessels; Examination of Shipowner's
Records. The Shipowner will: (a) afford the Secretary, upon reasonable notice,
access to the Vessels, their cargoes and papers for the purpose of inspecting
the same; (b) maintain records of all amounts paid or obligated to be paid by or
for the account of the Shipowner for each Vessel's Construction; and (c) at
reasonable times permit the Secretary, upon request, to make reasonable,
material and pertinent examination and audit of books, records and accounts
maintained by the Shipowner, and to take information therefrom and make
transcripts or copies thereof.
Section 2.07. Requisition of Title, Termination of Construction
Contract or Total Loss of a Vessel. In the
9
33
event of requisition of title to or seizure or forfeiture of such Vessel,
termination of the Construction Contract relating to such Vessel, or the
occurrence of the circumstances referred to in Section 2.05(c)(3), then all of
the following shall apply:
(a) The Shipowner shall promptly give written notice thereof to the
Secretary.
(b) The Shipowner shall promptly pay all amounts it receives by reason
of such requisition, seizure, forfeiture, termination or total loss ("Loss
Event") to the Secretary.
(c) After the Secretary has received sufficient funds to retire a
Proportionate Part of the Outstanding Obligations affected by the Loss Event:
(1) if there is no existing Default, (A) the Secretary and the
Shipowner shall give notice to the Indenture Trustee of a redemption of
Proportionate Part of the Outstanding Obligations pursuant to Section 3.05 of
the Indenture; (B) such amount, if any, held by the Secretary, shall be paid by
the Secretary to the Indenture Trustee not earlier than 10 days prior to, nor
later than the opening of business on, the Redemption Date required by Section
3.05 of the Indenture; (C) the remainder shall next be applied by the Secretary
for the payment of a Proportionate Part of all other sums that may be secured
hereby; and (D) the balance shall be paid to the Shipowner including any
interest earned on the proceeds which are in excess of the amount required to
redeem the Obligations;
(2) if there is an existing Default and the Guarantees shall
not have terminated pursuant to Section 3.02, such amounts shall be held until
the same may be applied or paid under paragraphs (1), (3), or (4) of this
subsection, whichever is applicable;
(3) if the Guarantees shall have terminated pursuant to
Section 3.02(c) or if the Secretary shall have assumed the Shipowner's rights
and duties under the Indenture and the Obligations and made any payments in
default under the terms of Section 6.09 of the Indenture, such amounts shall be
applied as provided in Section 6.05; or
(4) if the Guarantees shall have terminated pursuant to
Section 3.02(b) or 3.02(d) such amounts shall be paid by the Secretary to the
Shipowner.
Provided that, notwithstanding the foregoing, the Shipowner shall not be
required to pay the Secretary any amount which the Secretary agrees is in excess
of the amount needed for redemption of the Proportionate Part of the Outstanding
Obligations affected by the Loss Event.
Section 2.08. Notice of Mortgage. (a) A properly certified copy of the
Mortgage shall be carried on board each self-propelled Vessel with that Vessel's
documents and shall be exhibited on demand to any Person having business with
such Vessel or to any Secretary's representative.
(b) A notice printed in plain type of such size that the paragraph of
reading matter shall cover a space not less than six inches wide by nine inches
high, and framed, shall be placed and kept prominently exhibited in the chart
room and in the master's cabin of a self-propelled Vessel.
(c) The notice referred to in paragraph (b) of this Section shall read
as follows:
"NOTICE OF FLEET MORTGAGE"
This Vessel is owned by (Insert name of Shipowner) , a (Insert
jurisdiction) corporation ("Shipowner"), and is covered by a First
Preferred Ship Mortgage in favor of the United States of America, under
authority of Chapter ▇▇▇, ▇▇▇▇▇ ▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ Code. Under the
terms of said Mortgage neither the Shipowner, any charterer, the master
or agent of this Vessel nor any other person has any right, power or
authority to create, incur or permit to be placed or imposed
10
34
upon this Vessel any lien other than statutory liens incident to
current operations that are subordinate to the Mortgage."
Section 2.09. Compliance with 46 U.S.C. Chapter 313. The Shipowner
shall comply with and satisfy all of the provisions of Chapter 313, in order to
establish and thereafter to maintain the Mortgage as a preferred mortgage upon
each Vessel.
Section 2.10. Performance of Shipowner's Agreements by the Secretary.
If the Shipowner shall fail to perform any of its agreements hereunder or under
the Mortgage, the Secretary 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
Secretary 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 Secretary relating to such compliance shall
constitute a debt due from the Shipowner to the Secretary and shall be secured
hereunder and under the Mortgage prior to the Secretary's Note and shall be
repaid by the Shipowner upon demand, together with interest at the rate that
would have been paid by the Department of Treasury on the expended funds plus
1%.
Section 2.11. Uniform Commercial Code Filings; Further Assurances. The
Shipowner shall (a) furnish evidence satisfactory to the Secretary that
financing statements under the UCC shall have been filed against the Shipowner
and/or the Shipyard in all offices in which it may be necessary or advisable in
the opinion of the Secretary to perfect the Secretary'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 Security to
the lien of this Security 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 have been filed to
perfect the Secretary's interests in the Security as valid and enforceable first
priority perfected security interests.
Section 2.12. Modification of Formation Agreements. (a) If the
Shipowner is organized as a general partnership, limited partnership, limited
liability company or joint venture, then for so long as there is Outstanding any
indebtedness to the United States of America pursuant to the Act, the
partnership agreement, operating agreement, limited liability agreement, joint
venture agreement (or any agreement constituting such an entity) shall not be
amended, modified or voluntarily terminated without the Secretary's prior
written consent.
(b) In the event where any action by the Shipowner, any member of the
Shipowner or the management of the Shipowner results or would result in
dissolution of the Shipowner pursuant to its limited liability company agreement
or governing law, each member of the Shipowner shall forthwith take all steps
necessary to reform and reestablish the Shipowner.
Section 2.13. Members of Limited Liability Companies. All existing and
future members of a Shipowner which is a limited liability company (each being a
"Member"), upon becoming a Member, shall forthwith enter into an agreement with
the Secretary, in form and substance satisfactory to the Secretary, whereby each
Member agrees: (1) that any amounts owed by the Shipowner to a Member with
respect to its interest (as that or the equivalent term is used in the
Shipowner's limited liability company agreement) (the "Distributions") shall be
subordinated to the Shipowner's payment of the Secretary's Note and debts under
the Security Agreement, provided that such Distributions may be paid to the
extent the Shipowner is permitted to pay dividends under the Financial
Agreement; (2) that in the event of default by the Shipowner under the Security
Agreement, the Member shall be subordinated in its rights to receive any
Distribution or to be paid any sums whatsoever by the Shipowner until the
Secretary has made a full recovery of any and all amounts owed under the
Secretary's Note and the Security Agreement.
Section 2.14. Concerning the Performance and Payment Bonds. During the
Construction, the Shipowner shall cause to be maintained Performance Bonds and
Payment Bonds naming the Shipowner and the Secretary as co-obligees (the "Surety
Bonds") in form and substance satisfactory to the Secretary, to be obtained by
the Shipyard in the amount of the Construction Contract, issued by such surety
company or companies as shall be satisfactory to the Secretary (the "Surety").
In the event that the price for the work to be performed under the Construction
11
35
Contract is increased, then the Surety Bonds shall be increased simultaneously
in a corresponding amount. The Shipowner hereby agrees that the Secretary shall
be the sole loss payee under the Surety Bonds and the Surety shall pay such
amounts directly to the Secretary for distribution to the co-obligees as their
interests may appear. The Shipowner hereby agrees that its interest as a
co-obligee under each of the Surety Bonds is and shall be, upon the occurrence
of a Default under the Security Agreement, fully subject and subordinate to the
rights and interests of the Secretary therein. In the event of a default under
the Security Agreement, which default results in a payment under any of the
Surety Bonds, then the Surety Bonds proceeds shall be distributed by the
Secretary in accordance with the provisions of Section 6.05 hereof. The
Shipowner hereby irrevocably appoints the Secretary, the true and lawful
attorney of the Shipowner, in its name and stead, to execute all consents,
approvals, settlements and agreements on behalf of the Shipowner with respect to
any rights related to the Surety Bonds.
ARTICLE III
THE SECRETARY'S NOTE
Section 3.01. Secretary's Note. On this date, the Shipowner has duly
executed and delivered and the Secretary has accepted the Secretary's Note
payable in an amount equal to the principal amount of the Obligations.
Section 3.02. Termination of the Guarantees. Except as provided in
Section 6.08 of the Indenture, the Guarantee with respect to a particular
Obligation, shall terminate only when, one or more of the following events shall
occur:
(a) Such Obligation shall have been Retired or Paid;
(b) The Obligees of all the Obligations then Outstanding shall have
elected to terminate the Guarantees, and the Secretary has been so notified by
the Indenture Trustee or all Obligees in writing; provided that, such
termination shall not prejudice any rights accruing hereunder prior to such
termination;
(c) Such Guarantee shall have been paid in full in cash by the
Secretary; or
(d) The Indenture Trustee and each Obligee shall have failed to demand
payment of such Guarantee as provided in the Indenture, Guarantee, or the Act.
Section 3.03. Execution of Additional Secretary's Note. (a) In the
event and when each new issue of Obligations is executed, authenticated and
delivered on a date or dates subsequent to the date hereof, as contemplated by,
and pursuant to the Indenture, the Shipowner shall, at the time of the issuance
of such Obligations, execute and deliver to the Secretary an additional
Secretary's Note or, at the Secretary's discretion, an endorsement to the
Secretary's Note in an amount equal to the principal amount of, and at the
interest rate borne by, such issue of Obligations, on the terms stated in the
Secretary's Note.
(b) Each Secretary's Note or endorsement executed and delivered in
accordance with Section 3.03 shall together with the Secretary's Note be secured
by this Security Agreement and the Mortgage.
ARTICLE IV
CONSTRUCTION FUND; MONEYS DUE WITH RESPECT TO
CONSTRUCTION OF THE VESSELS
Section 4.01. Construction Fund. (a) The Shipowner has deposited in the
Construction Fund with the Depository the amount, if any, indicated in the
Depository Agreement from the proceeds of the Obligation to be held by the
Depository in a Securities Account in accordance with the terms of the
Depository Agreement. This Securities Account together with any future deposits
and the proceeds from the investment of the amounts on deposit shall be called
the "Construction Fund."
(b) The Shipowner may withdraw money from the Construction Fund under
the same procedures and conditions as the Shipowner may withdraw money from the
Escrow Fund under Section 5.03, except that the
12
36
Shipowner's Request for withdrawal will not be subject to Section 5.03(a)(2)(A)
or 5.03(h). The administration of the Construction Fund shall also be subject to
the terms and conditions of Sections 5.04 and 5.05.
Section 4.02. Moneys Due with Respect to Construction of the Vessels.
(a) In the event that the Shipowner shall receive any moneys from any Person in
connection with the Construction of any Vessel, the Shipowner shall give written
notice thereof to the Secretary and shall promptly pay the same over to the
Depository to be held in the Title XI Reserve Fund.
(b) Upon and after a final determination of Actual Cost in accordance
with Section 5.01, in the absence of a Default, any moneys held by the
Depository which are not to be applied for the redemption of Obligations under
Section 3.04 of the Indenture shall be paid to the Shipowner.
(c) In the event there is an existing Default, the money shall be held
by the Depository in accordance with the provisions of the Depository Agreement.
(d) In the event the Secretary assumes the Shipowner's rights and
duties under Section 6.09 of the Indenture or pays the Guarantees, the
Depository shall promptly pay all moneys including all Moneys Due with Respect
to Construction of the Vessels to the Secretary, who will apply it in accordance
with Section 6.05.
ARTICLE V
ACTUAL COST; THE ESCROW FUND
Section 5.01. 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 Security Agreement, is as set forth in Table A hereof.
(b) The Secretary 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 hereof and, to the extent
approved by the Secretary, 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 written notice to the Shipowner, of the results of said final
determination; provided that, the Shipowner shall have requested such
determination not less than 60 days in advance and shall have furnished to the
Secretary not less than 30 days in advance of such determination along with a
Shipowner's Officer's Certificate and a statement by an independent certified
(or, with the Secretary's prior written consent, an independent) public
accountant or firm of accountants 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 for which paid
or obligated to be paid.
Section 5.02. Escrow Fund Deposits. At the time of the sale of the
Obligations, the Shipowner shall deposit with the Secretary in the Escrow Fund
all of the proceeds of that sale unless the Shipowner is entitled to withdraw
funds under Section 5.03. If the Obligations are issued before the delivery of
all of the Vessels, then the Shipowner shall also deposit into the Escrow Fund
on the Closing Date an amount equal to six months interest at the rate borne by
the Obligations.
Section 5.03. Escrow Fund Withdrawals. (a) The Secretary shall, within
a reasonable time after written Request from the Shipowner, disburse from the
Escrow Fund directly to the Indenture Trustee, any Paying Agent for such
Obligations, the Shipyard, or any other Person entitled thereto, any amount
which the Shipowner is obligated to pay, or to the Shipowner for any amounts it
has paid, on account of the items and amounts or any other items set forth in
Table A annexed hereto or subsequently approved by the Secretary, provided that,
the Secretary is satisfied with the accuracy and completeness of the information
contained in the following submissions:
(1) A Responsible Officer of the Shipowner shall deliver an
Officer's Certificate, in form and substance satisfactory to the Secretary,
stating that (A) there is neither a Default under the Construction Contract
13
37
nor the Security Agreement; (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 Request is in accordance with
the Construction Contract including the approved disbursement schedule and each
item in these amounts is properly included in the Secretary's approved estimate
of Actual Cost; (D) with respect to the Request, once the Contractor is paid
there will be no liens or encumbrances on the applicable Vessel, its hull or
component parts for which the withdrawal is being requested except for those
already approved by the Secretary; and (E) if the Vessel has already been
Delivered, it is in class and is being maintained in the highest and best
condition. The Shipowner shall also attach an Officer's Certificate of the
Shipyard, in form and substance satisfactory to the Secretary, stating that
there are no liens or encumbrances as provided in clause (D) of this subsection
and attaching the invoices and receipts supporting each proposed withdrawal to
the satisfaction of the Secretary.
(2) No payment or reimbursement under this Section shall be
made (A) to any Person until the Construction Fund, if any, has been exhausted;
(B) to any Person until the total amount paid by or for the account of the
Shipowner from sources other than the proceeds of such Obligations equals at
least 12-l/2% of the Actual Cost of the related Vessel is made; (C) to the
Shipowner which would have the effect of reducing the total amounts paid by the
Shipowner pursuant to clause (B) of this subsection; or (D) 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 annexed hereto, unless such
items, amounts and increases shall have been previously approved by the
Secretary; provided, however, that when the amount guaranteed by the Secretary
equals 75% or less of the Actual Cost, then after the initial 12 1/2% of Actual
Cost has been paid by or on behalf of the Shipowner for such Vessel and up to 37
1/2% of Actual Cost has been withdrawn from the Escrow Fund for such Vessel, the
Shipowner shall pay the remaining Shipowner's equity of at least 12 1/2% (as
determined by the Secretary) before additional monies can be withdrawn from the
Escrow Fund relating to such Vessel.
(b) The excess, as determined by the Secretary, of any amount on
deposit in the Escrow Fund which represents interest on the principal amount
deposited, over and above the amount of interest due on the next Interest
Payment Date on the principal amount, as determined by the Secretary, remaining
on deposit on such Interest Payment Date, may, unless there is an existing
Default, be disbursed by the Secretary upon the Shipowner's Request made not
more than 10 Business Days prior to such Interest Payment Date or made within at
least 60 days after such Interest Payment Date.
(c) The Secretary shall not be required to make any disbursement
pursuant to this Section except out of the cash available in the Escrow Fund. 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 5.04. If any sale or payment on maturity shall
result in a loss in the principal amount of the Escrow Fund invested in
securities so sold or matured, the requested disbursement from the Escrow 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 Indenture Trustee, any
Paying Agent, the Shipyard, or any other Person entitled thereto, the balance of
the requested disbursement from the Shipowner's funds other than the proceeds of
such Obligations.
(d) If the Secretary assumes the Shipowner's rights and duties under
the Indenture and the Obligations, and makes any payments in default under the
Indenture, or the Secretary pays the Guarantees, all amounts in the Escrow Fund
(including realized income which has not yet been paid to the Shipowner), shall
be paid to the Secretary and be credited against any amounts due or to become
due to the Secretary under the Security Agreement and the Secretary's Note. To
the extent payment of the Escrow Fund to the Secretary is not required, said
amounts or any balance thereof, shall be paid to the Shipowner.
(e) At any time the Secretary shall have determined that there has
been, for any reason, a disbursement from the Escrow Fund contrary to this
Section, the Secretary shall give written notice to the Shipowner of the amount
improperly disbursed, the amount to be deposited or redeposited into the Escrow
Fund on account thereof, and the reasons for such determination. The Shipowner
shall thereafter promptly deposit or redeposit, as appropriate, such amount
(with interest, if any) required by the Secretary into the Escrow Fund.
(f) Notwithstanding any other provision of this Section, the Shipowner
shall not seek or receive
14
38
reimbursement for any amount paid to the Shipyard or any Person by the
Secretary.
(g) In the event that one of the events described in Section 2.07 has
occurred with respect to one or more of the Vessels or the Secretary shall have
paid the Guarantees or shall have assumed the Shipowner's rights and duties
under Section 6.09 of the Indenture, the Secretary may direct that moneys
remaining on deposit in the Escrow Fund may be withdrawn in whole or in part for
one of the following purposes: (1) application as provided in Section 3.05 of
the Indenture (but in no event shall any such disbursement for such purpose be
in an amount greater than the related Proportionate Part of the Outstanding
Obligations); (2) payment to the Shipowner, or its order, in the event all
Outstanding Obligations are Retired or Paid, other than by payment of the
Guarantees; or (3) application as provided in Section 6.05, if the Secretary
shall have paid the Guarantees or shall have assumed the Shipowner's rights and
duties under the Indenture and the Obligations.
(h) Any amounts remaining in the Escrow Fund on the Termination Date of
the Escrow Fund which are in excess of 87 1/2% or 75% of Actual Cost, as the
case may be, shall be applied pursuant to Section 3.04 of the Indenture to
retire a Proportionate Part of the Outstanding Obligations.
Section 5.04. Investment and Liquidation of the Escrow Fund. The
Secretary may invest the Escrow Fund in obligations of the United States with
such maturities that the Escrow Fund will be available as required for the
purposes hereof. The Secretary shall deposit the Escrow Fund into an account
with the Treasury Department and upon agreement with the Shipowner, shall
deliver to the Treasury Department instructions for the investment, reinvestment
and liquidation of the Escrow Fund. The Secretary shall have no liability to the
Shipowner for acting in accordance with such instructions.
Section 5.05. Income on the Escrow Fund. Except as provided in Section
5.03, any income realized on the Escrow Fund shall, unless there is an existing
Default, be paid to the Shipowner upon receipt by the Secretary of such income.
For the purpose of this Section, the term "income realized on the Escrow Fund,"
shall mean with respect to the Escrow Fund (1) the excess of the cash received
from the sale of securities over their cost (less any losses from sale not
already paid pursuant to Section 5.03(c)) and (2) cash received from the payment
of principal and interest on securities.
Section 5.06. Termination Date of the Escrow Fund. The Escrow Fund will
terminate 90 days after the Delivery Date of the last Vessel covered by this
Security Agreement (herein called the "Termination Date of the Escrow Fund"). In
the event that on such date the payment by or for the account of the Shipowner
of the full amount of the aggregate Actual Cost of all of the Vessels set forth
in Table A hereof has not been made or the amounts with respect to such Actual
Cost are not then due and payable, then the Shipowner and the Secretary by
written agreement shall extend the Termination Date of the Escrow Fund for such
period as shall be determined by the Shipowner and the Secretary as sufficient
to allow for such contingencies. If the Secretary shall have earlier made a
final determination of the aggregate Actual Cost of all of the Vessels in
accordance with Section 5.01, the Termination Date of the Escrow Fund shall be
deemed to be the date of such final determination; provided that, if as a result
of such final determination, a redemption of Obligations is required pursuant to
Section 3.04 of the Indenture, the Termination Date shall be the date specified
as the Redemption Date in the notice of redemption given pursuant to Section
3.08 of the Indenture.
15
39
ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.01. What Constitutes "Defaults;" Continuance of Defaults.
Each of the following events shall constitute a "Default" within the meaning of
Section 6.01:
(a) A default in the payment of the whole or any part of the interest
on any of the Outstanding Obligations when the same shall become due and
payable; or default in the payment of the whole or any part of the principal of
any of the Outstanding Obligations when the same shall become due and payable,
whether by reason of Maturity, redemption, acceleration, or otherwise, or any
default referred to in Section 6.08 of the Indenture; and continuation of such
default for a period of 30 days shall constitute and is herein called a "Payment
Default." Any corresponding default with respect to the interest on, or the
principal of, the Secretary's Note is also deemed to be a Payment Default;
(b) The following shall constitute and each is herein called a
"Security Default:"
(1) Default by the Shipowner in the due and punctual
observance and performance of any provision in Sections 2.01(b), 2.02(b) and
(i), 2.03, 2.04, 2.09, 2.11, 2.12, 2.14, 8.01 and 8.02;
(2) Default by the Shipowner continued after written notice
specifying such failure by certified or registered mail to the Shipowner from
the Secretary in the due and punctual observance and performance of any
provision in Sections 2.02(a), (d), (e), (f), and (g), 2.05 (except (g) and (k)
thereof), 2.07, and 2.13.
(3) Default by the Shipowner continued for 30 days after
written notice by certified or registered mail to the Shipowner from the
Secretary in the due and punctual observance of any other agreement in this
Security Agreement or in the Mortgage;
(4) The Shipowner shall become insolvent or bankrupt or shall
cease paying or providing for the payment of its debts generally, or the
Shipowner shall be dissolved or shall, by a court of competent jurisdiction, be
adjudged a bankrupt, or shall make a general assignment for the benefit of its
creditors, or shall lose its charter by forfeiture or otherwise; or a petition
for reorganization of the Shipowner under the Bankruptcy Code shall be filed by
the Shipowner, or such petition be filed by creditors and the same shall be
approved by such a court of competent jurisdiction; or a reorganization of the
Shipowner under said Code shall be approved by a court, whether proposed by a
creditor, a stockholder or any other Person whomsoever; or a receiver or
receivers of any kind whatsoever, whether appointed in admiralty, bankruptcy,
common law or equity proceedings, shall be appointed, by a decree of a court of
competent jurisdiction, with respect to any Vessel, or all or substantially all
of the Shipowner's property, and such decree shall have continued unstayed, on
appeal or otherwise, and in effect for a period of 60 days;
(5) Any default in the due and punctual observance and
performance of any provision in the Financial Agreement or the Construction
Contract;
(6) Any representation or warranty made relating to the
execution and delivery of this Security Agreement, the Mortgage, the Guarantee
Commitment or the Financial Agreement, or in any certificate required to be
furnished pursuant thereto, shall prove to be incorrect in any material respect;
(7) Any event constituting a Default under any security
agreement or preferred mortgage under Chapter 313, relating to any other vessel
or vessels owned by the Shipowner and financed under the Act;
(8) Any additional Security Default prescribed in the Special
Provisions hereof; and
(9) Any event constituting a default under any bareboat or
time charter or contract of affreightment of the ▇▇▇▇▇▇.
▇▇
▇▇
At any time following the occurrence of a Security Default, the
Secretary may give the Indenture Trustee a Secretary's Notice with respect to
such Security Default, after which the Indenture Trustee and the Obligees shall
have the right to make demand for payment of the Guarantees in accordance with
the Indenture and the Authorization Agreement, unless the Secretary shall have
assumed the Shipowner's rights and duties under the Indenture and the
Obligations, and made any payments in default under Section 6.09 of the
Indenture.
Section 6.02. Acceleration of Maturity of the Secretary's Note. The
Secretary may, by giving written notice to the Shipowner, declare the principal
of the Secretary's Note and interest accrued thereon to be immediately due and
payable, at any time after (a) the Secretary shall have been obligated to pay
the Guarantees pursuant to the terms of the Indenture and the Authorization
Agreement, or (b) the Secretary shall have assumed the Shipowner's rights and
duties under the Indenture and the Obligations, and made any payments in default
under the terms of Section 6.09 of the Indenture. Thereupon, the principal of
and interest on the Secretary's Note shall become immediately due and payable,
together with interest at the same rates specified in the Secretary's Note.
Section 6.03. Waivers of Default. (a) If the Secretary shall not have
assumed the Shipowner's rights and duties under the Indenture and the
Obligations, and made any payments in default under the terms of Section 6.09 of
the Indenture, and if the Secretary determines that an event which, with the
passage of time, would become a Payment Default, has been remedied within 30
days after the occurrence of such event, upon a Request by the Shipowner, the
Secretary shall waive the consequences of such event.
(b) If the Secretary shall not have assumed the Shipowner's rights and
duties under the Indenture and the Obligations, and made any payments in default
under the terms of Section 6.09 of the Indenture, and if the Secretary shall
have determined prior to payment of the Guarantees that a Payment Default has
been remedied after the expiration of the aforesaid 30-day period, but prior to
the date of demand by the Indenture Trustee or an Obligee for payment under the
Guarantees, upon a Request by the Shipowner, the Secretary shall waive such
Default.
(c) If the Secretary shall have determined prior to the expiration of
the period required for payment of the Guarantees that a Payment Default had not
occurred or has been subsequently remedied by the Shipowner (and if the
Secretary shall not have assumed the Shipowner's rights and duties under the
Indenture and the Obligations, and made any payments in default under the terms
of Section 6.09 of the Indenture and prior to any payment of Guarantees), the
Secretary shall notify the Indenture Trustee and the Shipowner of such
determination, and, the Secretary shall waive such Default.
(d) The Secretary, in its sole discretion, may waive any Security
Default or any event which by itself, or with the passage of time or the giving
of notice, or both, would give rise to a Security Default; provided that, such
Default is waived prior to the Secretary giving to the Indenture Trustee the
Secretary's Notice.
(e) The Secretary shall notify the Shipowner and the Indenture Trustee
in writing of any determinations made under paragraphs (a), (b), and (c) of this
Section, and the Secretary shall waive the consequences of any such Default, and
annul any declaration under Section 6.02, and the consequences thereof.
(f) No waiver under this Section shall extend to or affect any
subsequent or other Default, nor impair any rights or remedies consequent
thereon.
(g) No waiver under this Section shall be deemed to have occurred
because the Secretary shall have assumed the Shipowner's rights and duties under
the Indenture and the Obligations, and made any payments in default under the
terms of Section 6.09 of the Indenture.
Section 6.04. Remedies After Default. (a) In the event of a Default,
and before and after the payment of the Guarantees or the assumption by the
Secretary of the Shipowner's rights and duties under the Indenture and the
Obligations, and the making of any payments in default under the terms of
Section 6.09 of the Indenture, the Secretary shall have the right to take the
Vessels without legal process wherever the same may be (and the
17
41
Shipowner or other Person in possession shall forthwith surrender possession of
the Vessels to the Secretary upon demand) and hold, lay up, lease, charter,
operate, or otherwise use the Vessels for such time and upon such terms as the
Secretary may reasonably deem to be in the Secretary's best interest, accounting
only for the net profits, if any, arising from the use of the Vessels, and
charging against all receipts from the use of the Vessels, all reasonable
charges and expenses relating to such Vessel's use.
(b) Upon either (i) payment of the Guarantees or (ii) the Secretary's
assumption of the Shipowner's rights and duties under the Indenture and the
Obligations, and the making of any payments in default under Section 6.09 of the
Indenture, the Secretary shall have the right to:
(1) Exercise all the rights and remedies in foreclosure and
otherwise given to mortgagees by Chapter 313;
(2) Bring suit at law, in equity or in admiralty to recover
judgment for any and all amounts due under the Secretary's Note, this Security
Agreement and the Mortgage, collect the same out of any and all of Shipowner's
property, whether or not the same is subject to the lien of the Mortgage, and in
connection therewith, obtain a decree ordering the sale of any Vessel in
accordance with paragraph (b)(4) of this Section;
(3) Have a receiver of the Vessels appointed as a matter of
right in any suit under this Section (and any such receiver may have the rights
of the Secretary under paragraph (b)(4) of this Section);
(4) Sell any Vessel, free from any claim of the Shipowner, by
a public extrajudicial sale, held at such time and place and in such manner as
the Secretary may reasonably deem advisable, after twice publishing notice of
the time and place of such sale prior to the proposed sale in the Authorized
Newspapers to the Shipowner. Such publication and mailing is to be made at least
10 Business Days prior to the date fixed for such sale; provided that, such sale
may be adjourned from time to time without further publication or notice (other
than announcement at the time and place appointed to such sale or adjourned
sale). It shall not be necessary to bring any such Vessel to the place appointed
for such sale or adjourned sale;
(5) Accept a conveyance of title to, and to take without legal
process (and the Shipowner or other Person in possession shall forthwith
surrender possession to the Secretary), the whole or any part of any Vessel and
the Security wherever the same may be, and to take possession of and to hold the
same;
(6) In the Secretary's discretion, take any and all action
authorized by Sections 1105(c), 1105(e) and 1108(b) of the Act and any and all
action provided for, or authorized, or permitted by, or with respect to the
Increased Security;
(7) Receive, in the event of an actual or constructive total
loss, or an agreed or compromised total loss, or a requisition of title to or
use of any Vessel, all insurance or other payments therefor to which the
Shipowner would otherwise be entitled, such insurance moneys to be applied by
the Secretary in accordance with Section 6.05; and
(8) Pursue to final collection of all the claims arising under
this Security Agreement and to collect such claims from, the Increased Security.
(c) The Shipowner hereby irrevocably appoints the Secretary the true
and lawful attorney of the Shipowner, in its name and stead, to make all
necessary transfers of the whole or any part of the Increased Security in
connection with a sale, use or other disposition pursuant to Section 6.04(a) or
6.04(b), and for that purpose to execute all necessary instruments of assignment
and transfer. Nevertheless, the Shipowner shall, if so requested by the
Secretary in writing, ratify and confirm such sale by executing and delivering
to any purchaser of the whole or any part of the Increased Security, such proper
▇▇▇▇ of sale, conveyance, instrument of transfer, or release as may be
designated in such request.
(d) No remedy shall be exclusive of any other remedy, and each and
every remedy shall be cumulative and
18
42
in addition to any other remedy.
(e) No delay or omission to exercise any right or remedy shall impair
any such right or remedy or shall be deemed to be a waiver of any Default.
(f) The exercise of any right or remedy shall not constitute an
election of remedies by the Secretary.
(g) If the Secretary discontinues any proceeding, the rights and
remedies of the Secretary and of the Shipowner shall be as though no such
proceeding had been taken.
Section 6.05. Application of Proceeds. (a) The proceeds (from sale or
otherwise) of the whole or any part of the Increased Security and use thereof by
the Secretary under any of the foregoing powers, (b) the proceeds of any
judgment collected by the Secretary for any default hereunder, (c) the proceeds
of any insurance and of any claim for damages to the whole or any part of the
Increased Security received by the Secretary while exercising any such power,
and (d) all other amounts received by the Secretary, including amounts which are
required by Sections 2.05 and 2.07 shall be applied by the Secretary as follows:
(1) to the payment of all advances and all reasonable charges
by the Secretary pursuant to this Security Agreement;
(2) to the payment of the whole amount of the interest then
due and unpaid upon the Secretary's Note;
(3) to the payment of the whole amount of the principal then
due and unpaid upon the Secretary's Note;
(4) to the Secretary for application to any other debt of the
Shipowner due to the Secretary under any other financing insured or guaranteed
by the Secretary under to the Act;
(5) to the Indenture Trustee for its reasonable fees and
expenses; and
(6) any balance thereof remaining shall be paid to the
Shipowner.
Section 6.06. General Powers of the Secretary. (a) In the event 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 15 days from the date of arrest or detention, the Shipowner
hereby authorizes the Secretary, in the name of the Shipowner, 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 authorization is irrevocable.
(b) The Shipowner irrevocably authorizes the Secretary 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 Increased Security because of or on account of any
alleged lien or claim against the whole or any part of the Increased Security,
from which the whole or said part of the Increased Security has not been
released.
(c) The following shall constitute a debt due from the Shipowner to the
Secretary, and shall be repaid by the Shipowner upon demand: all reasonable
expenses incurred pursuant to paragraphs (a) or (b) of this Section and all
reasonable expenses incurred incident to the exercise by the Secretary of any
remedies pursuant to Section 6.04(b) or the assumption by the Secretary of the
rights and duties of the Shipowner under the Indenture and the Obligations, and
the making of any payments in default under the terms of Section 6.09 of the
Indenture (including, but not limited to, fees paid to the Indenture Trustee for
expenses incident to said assumption of the Indenture by the Secretary),
together with interest at the rate that would have been paid by the Department
of Treasury on the expended funds plus 1%. The Secretary shall not be obligated
to (nor be liable for the failure to)
19
43
take any action provided for in paragraphs (a) and (b) of this Section.
ARTICLE VII
AMENDMENTS AND SUPPLEMENTS TO
THE SECURITY AGREEMENT, MORTGAGE AND INDENTURE
Section 7.01. Amendments and Supplements to the Security Agreement and
the Mortgage. This Security Agreement and the Mortgage may not be amended or
supplemented orally, but may be amended or supplemented from time to time only
by an instrument in writing executed by the Shipowner and the Secretary.
Section 7.02. Amendments and Supplements to the Indenture.
Notwithstanding any provisions in the Indenture, the Shipowner agrees that no
amendments or supplements will be made to the Indenture without the Secretary's
prior written consent, and any purported action contrary to this Section shall
be null and void ab initio and of no force and effect.
ARTICLE VIII
CONSOLIDATION, MERGER OR SALE
Section 8.01. Consolidation, Merger or Sale. (a) Nothing in this
Security Agreement or the Mortgage shall prevent any lawful consolidation or
merger of the Shipowner with or into any other Person, or any sale of a Vessel
or Vessels to any other Person lawfully entitled to acquire and operate such
Vessel or Vessels, or any sale by the Shipowner of all or substantially all of
its assets to any other Person; provided that, the Secretary shall have given
its prior written consent to such succession, merger, consolidation or sale.
(b) Any Successor shall (by indenture supplemental to the Indenture,
and by instrument amending or supplementing this Security Agreement, and the
Mortgage, as may be necessary), expressly assume the payment of the principal of
(and premium, if any) and interest on the Outstanding Obligations in accordance
with the terms of the Obligations, shall execute and deliver to the Secretary,
an endorsement to the Secretary's Note in form satisfactory to the Secretary,
shall expressly assume the payment of the principal of and interest on the
Secretary's Note, and shall expressly assume the performance of the agreements
of the Shipowner in the Indenture, this Security Agreement, the Mortgage and any
related document.
(c) Upon the assumption of the documents listed in paragraph (b) of
this Section, the Secretary shall consent to the surrender of each Vessel's
documents pursuant to 46 U.S.C. 12110(c)(3), as amended; provided that,
concurrently with such surrender, such Vessel shall be redocumented under the
laws of the United States.
(d) In the event of any sale of less than all the Vessels, the
Secretary shall determine if there will remain adequate security for the
Guarantees after discharge of any such Vessel or Vessels from the Security
Agreement and Mortgage, and (1) the Shipowner shall redeem, together with any
premium and/or accrued interest thereof, the Proportionate Part of the
Outstanding Obligations relating to such Vessel or Vessels in accordance with
the provisions of Article Third of the Indenture; or (2) the Person to which
such sale shall have been made (the "Transferee"), shall assume the documents
listed in paragraph (b) of this Section. Upon any such assumption, the
Transferee shall succeed to and be substituted for the Shipowner with the same
force and effect as if it had been named in the Indenture, the Obligations, this
Security Agreement and the Mortgage (and such other documents) to the extent the
same relate to such Proportionate Part of the Outstanding Obligations and to
such Vessel or Vessels.
20
44
Section 8.02. Transfer of a General Partner's or a Joint Venturer's
Interest. (a) If the Shipowner is organized as a partnership or a joint venture,
a general partner or a joint venturer may lawfully transfer its respective
interests under the terms of the partnership or joint venture agreement to any
Person and may be released from all of their obligations thereunder and under
this Security Agreement or the Mortgage; provided that, (i) the Secretary shall
have given its prior written consent to the proposed transaction; and (ii) the
transferee shall assume in full all of the existing obligations which the
transferring general partner or joint venturer has under the applicable
partnership or joint venture agreement, this Security Agreement, the Mortgage
and any related document.
ARTICLE IX
NOTICES
Section 9.01. Notices. Except as otherwise provided in this Security
Agreement or by the Act, all notices, requests, demands, directions, consents,
waivers, approvals or other communications may be made or delivered in person or
by registered or certified mail, postage prepaid, addressed to the party at the
address of such party specified in the Special Provisions hereof, or at such
other address as such party shall advise each other party by written notice, and
shall be effective upon receipt by the addressee thereof.
Section 9.02. Waivers of Notice. In any case where notice by
publication, mail or otherwise is provided for by this Security Agreement, such
notice may be waived in writing by the Person entitled to receive such notice,
either before or after the event, and such waiver shall be deemed the equivalent
of such notice.
Section 9.03. Shipowner's Name or Address Change. The Shipowner shall
not change its name or its address without first providing written notice to the
Secretary of the new name and/or the change in address.
ARTICLE X
DISCHARGE OF SECURITY AGREEMENT AND THE MORTGAGE
Section 10.01. Discharge of Security Agreement and the Mortgage. (a) If
the Obligations and the related Secretary's Note shall have been satisfied and
discharged, and if the Shipowner shall pay or cause to be paid all other sums
that may have become secured under this Security Agreement and the Mortgage,
then this Security Agreement, the Mortgage and the liens, estate and rights and
interests hereby and thereby granted, shall cease, determine, and become null
and void, and the Secretary, on the Shipowner's Request and at the Shipowner's
cost and expense, shall forthwith cause satisfaction and discharge and duly
acknowledge such satisfaction and discharge of this Security Agreement and the
Mortgage to be entered upon its and other appropriate records, and shall execute
and deliver to the Shipowner such instruments as may be necessary, and forthwith
the estate, right, title and interest of the Secretary in and to the Security,
the Increased Security, and any other securities, cash, and any other property
held by it under this Security Agreement and the Mortgage, shall thereupon
cease, determine and become null and void, and the Secretary shall transfer,
deliver and pay the same to the Shipowner.
(b) If all of the Guarantees on the Outstanding Obligations shall have
been terminated pursuant to Sections 3.02(b) or 3.02(d), the Secretary shall
assign to the Shipowner this Security Agreement, the Mortgage and the liens,
estate, rights and interests hereby and thereby granted.
ARTICLE XI
MISCELLANEOUS
Section 11.01. Successors and Assigns. All the covenants, promises,
stipulations and agreements of the Secretary and Shipowner in this Security
Agreement shall bind the Secretary and Shipowner and its respective successors
and assigns. This Security Agreement is for the sole benefit of the Shipowner,
the Secretary, and their respective successors and assigns, and no other Person
shall have any right hereunder.
21
45
Section 11.02. Execution in Counterparts. This Security Agreement may
be executed in any number of counterparts. All such counterparts shall be deemed
to be originals and shall together constitute but one and the same instrument.
Section 11.03. Shipowner's Rights in Absence of Default. Except during
the existence of a Default, the Shipowner (1) shall be permitted to retain
actual possession and use of the Vessel; and (2) shall have the right, from time
to time, in its discretion and without the consent of or release by the
Secretary, to dispose of, free from the lien hereof and of the Mortgage, any and
all engines, machinery, masts, boats, anchors, cables, chains, rigging, tackle,
apparel, furniture, capstans, outfit, tools, pumps, pumping and other equipment,
and all other appurtenances to the Vessels, and also any and all additions,
improvements and replacements in or to the Vessels or said appurtenances, after
first or simultaneously replacing the same with items of at least substantially
equal value.
Section 11.04. Surrender of Vessels' Documents. The Secretary shall
consent to the surrender of each Vessel's documents in connection with any
redocumentation of such Vessel required on account of alterations to such Vessel
which are not prohibited by this Security Agreement and by the Mortgage.
Section 11.05. Applicable Regulations. Only the provisions of the
regulations issued under Title XI of the Act as in effect on the date hereof (46
C.F.R. 298) shall control the Security Agreement provisions.
Section 11.06. Table of Contents, Titles and Headings. The table of
contents, and titles of the Articles and the headings of the Sections are not a
part of this Security Agreement and shall not be deemed to affect the meaning or
construction of any of its provisions.
22