EXHIBIT 4.20
APPENDIX III TO GUARANTEE COMMITMENT DOCUMENT 11
CONTRACT NO. MA-13511
SECURITY AGREEMENT
SPECIAL PROVISIONS
THIS SECURITY AGREEMENT, dated April 9, 1999 (the "Security Agreement"),
is between PETRODRILL FIVE LIMITED, a British Virgin Islands international
business company (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. The Shipowner has entered the Construction Contract with TDI-Halter,
Limited Partnership, the Shipyard for the Construction of the Vessel.
B. On the date hereof, the Secretary entered into, and the Shipowner
accepted a Commitment to Guarantee Obligations, Contract No. MA-13509, whereby
the United States 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 equal to 87-1/2% of the Actual
Cost of the Vessel on the Closing Date, which amount is set out in Table A.
C. The Shipowner has entered into the Credit Agreement providing for the
sale and delivery, on the Closing Date, of obligations in the aggregate
principal amount of $150,183,000 to be designated "United States Government
Guaranteed Export Ship Financing Obligations, AMETHYST 5 Series" (the
"Obligations") having the maturity date and interest rate set forth in the
Credit Agreement, the Indenture and the Obligations.
D. On the date hereof, the Shipowner and FMB Trust Company, National
Association, a national banking association, 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 executed
the Authorization Agreement, Contract No. MA-13510, 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-13511, and the Financial Agreement, Contract No. MA-13513 on
the Delivery Date will execute the Mortgage, Contract No. MA-13512, 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 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 CITIBANK, N.A., a national banking association (the "Depository")
have entered into the Depository Agreement, Contract No. MA-13514, on the date
hereof.
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, said Special Provisions
shall control.
2. The following additions, deletions and amendments are hereby made to the
Security Agreement:
(a) CONCERNING THE CREDIT AGREEMENT. The term "Bond Purchase Agreement"
refers to the Credit Agreement.
(b) GRANTING CLAUSE. Section 1.03(a) of Exhibit 1 hereto is amended to
read as follows:
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) Hull 1829 and all material, machinery, and equipment which
are purchased for or identified for use in the construction of said hull
pursuant to the Construction Contract, as amended, while under
construction, including all additional, extra, or changed items requested
by the Shipowner and agreed upon by the Shipyard pursuant to the
Construction Contract.
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(2) The Construction Contract (insofar as it relates to the
Construction of the Vessel), together with all other contracts, whether
now in existence or hereafter entered into, relating to the Construction
of the Vessel. Said right, title and interest in and to the Construction
Contract, 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."
(3 ) The Guaranty of Halter Group Marine Inc., in connection
with the Construction Contract.
(4) 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 the 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 Vessel." The Secretary acknowledges and agrees that
the Moneys Due with Respect to the Construction of the Vessel will be paid
directly to the Depository for application in accordance with this
Security Agreement and the Indenture.
(5) All goods, whether equipment or inventory appertaining to
or relating to the Vessel, including owner-furnished equipment, whether or
not on board or ashore and not covered by the Mortgage.
(6) The Chartering Contract between the Shipowner and Petroleo
Brasileiro S.A. ("Petrobras") and the charter hire due thereunder, and the
Shipowner's rights to receive all moneys which from time to time may
become due to the Shipowner with respect to any other charter or charter
hire relating to the Vessel or other earnings with respect to the
operation of the Vessel.
(7) 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.
(8) The Construction Fund and all moneys, instruments,
negotiable documents, chattel paper and proceeds, etc.
(9) All moneys, instruments, negotiable documents, chattel
paper and proceeds thereof held by the Depository under the Depository
Agreement.
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(10) Proceeds of Policies of Insurance relating to the Vessel
and, whether or not insured, any general average claims or loss of hire
claims the Shipowner may have with respect to the Vessel.
(11) The Licensing Agreement between the Shipowner and Bigem
Holdings N.V. relating to certain design data.
(12) The Management Agreement between the Shipowner and
Formaritima Ltd. relating to the management of the operation and
maintenance of the Vessel.
(13) The Marine and Nautical Services Agreement between the
Shipowner and Workships Contractors B.V. relating to the day to day marine
and nautical operation and maintenance of the Vessel.
(14) The Construction Management Agreement between the
Shipowner and Petrodrill Engineering N.V. relating to construction
supervision, managing, accounting and budgeting, facilities and related
services in connection with the Vessel.
(15) All proceeds of the collateral described in paragraphs
(1) through (14) of this Section.
The Secretary shall have, upon execution and delivery thereof, as
further security, certain right, title and interest in and to the
following:
(16) The Mortgage, in form and substance satisfactory to the
Secretary to be executed and delivered by the Shipowner to the Secretary,
as mortgagee, on the Delivery Date, covering the Vessel.
(c) CONCERNING SECTION 2.02
For purposes of Section 2.02(b), the Secretary consents to
Chartering Contract 101.2.100.97-8 dated December 5, 1997 between
the Shipowner and Petroleo Brasileiro SA ("Petrobras").
(d) CONCERNING SECTION 2.05
(1) In connection with Section 2.05(a), declared war risk insurance
is not required prior to the Delivery Date of the Vessel.
(2) In connection with Section 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 $100,000 per
occurrence, PROVIDED, HOWEVER, that the maximum amount of
self-insurance permitted to the Shipowner will be $150,000 per
occurrence or series of occurrences arising out of one event in
respect to a named wind storm, and $250,000 for operational risks
arising from any one occurrence.
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(3) 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 $500,000 to be made directly to the Shipowner under
the circumstances specified therein.
(4) In connection with Section 2.05(l), as evidence of insurance
maintained under Section 2.05, the Shipowner may submit a fleet
cover note or comparable certificate of insurance setting forth the
terms of the policy.
(e) CONCERNING SECTION 2.08.
(1) The notice referred to in paragraph of Section 2.08 shall read
as follows:
"NOTICE OF SHIP MORTGAGE
This Vessel is owned by PETRODRILL FIVE LIMITED, a British
Virgin Islands international business company ("Shipowner"), and is
covered by a First Preferred Ship Mortgage in favor of the United
States of America, under authority of Merchant Shipping Act of The
Commonwealth of the Bahamas. 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 upon this Vessel any
lien whatsoever."
(2) The first sentence of Section 2.08 of Exhibit 1 hereto is
amended by inserting immediately after the words "Vessel's
documents" and immediately before the word "and", the following:
; PROVIDED THAT, if at any time, it is provided by law that a
Vessel's documents may be carried or kept at any place other
than aboard the Vessel, then the certified copy of the
Mortgage, any supplement to the Mortgage and any assignment of
the Mortgage shall be carried or kept with the Vessel's
documents,
(f) CONCERNING DISBURSEMENTS FROM THE CREDIT FACILITY. Within a
reasonable time after receipt of a Certificate Authorizing Disbursements (the
"Certificate") in the form of Annex A to the Credit Agreement together with the
submissions required by Section 5.03(a)(1),
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the Secretary shall approve the Certificate provided that the Secretary has
received and is satisfied with the accuracy and completeness of the information
contained in the certificate and the information contained in the submissions
required by Section 5.03(a)(1) and provided that the Secretary concludes that
the provisions of section 5.03(a)(2) are also satisfied. Upon receipt of the
Secretary's written approval of the Certificate, the Shipowner may draw down
on the Credit Facility the amount permitted in the Certificate as approved by
the Secretary, in the manner permitted by the Credit Agreement.
(g) CONCERNING SECTION 6.01. Section 6.01 of Exhibit 1 hereto is hereby
amended by adding the following events, which shall constitute a "Security
Default":
Failure of the Shipowner to convert the Floating Rate Note to
Fixed Rate Note(s) on the earlier of (i) September 15, 2002, or (ii)
two (2) years after the Delivery Date.
Any event constituting a default under any security agreement
or mortgage as amended, relating to the vessel owned by PETRODRILL
FOUR LIMITED and financed under Title XI of the Merchant Marine Act,
1936, as amended.
Failure to maintain at its registered office a register of
mortgages, charges or other encumbrances, or failure to enter
thereon the particulars of the security interests granted by the
Security Agreement and the Financial Agreement, or failure to file a
copy of the Security Agreement or the Financial Agreement at the
Companies Registry of the British Virgin Islands.
(h) 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
400 Seventh Street, S.W.
Washington, D.C. 20590
Shipowner as: PETRODRILL FIVE LIMITED
c/o Arias, Fabrega & Fabrega
P.O. Box 985
Omar Hodge Building
Wickham's Cay
Road Town, Tortola
British Virgin Islands
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With a copy to: PETRODRILL ENGINEERING NV
K.P. van der Mandelelaan 38
3062 MB
Rotterdam (Brainpark)
The Netherlands
Indenture Trustee as: FMB TRUST COMPANY,
NATIONAL ASSOCIATION
25 South Charles St.
16th Floor
(Mail Code 101-591)
Baltimore, MD 21201
(i) GOVERNING LAW. This Agreement and the rights and obligations of the
parties hereto shall be construed, enforced and governed by the laws of the
United States of America, but to the extent they are inapplicable, then by the
laws of the State of New York, including without limitation, the Uniform
Commercial Code of the State of New York ("UCC"), but without regard to any
conflict of laws provisions of the State of New York; provided, however, that to
the extent required by the UCC, the laws of the British Virgin Islands shall
govern the perfection of accounts and general intangibles hereunder.
(j) JURISDICTION AND CONSENT TO SUIT. Any proceeding to enforce this
Agreement may be brought in the Federal courts of the United States of America
located in the State of New York of the United States of America. The Shipowner
and the Secretary hereby irrevocably waive any present or future objection to
such venue, and for each of itself and in respect of any of their respective
properties hereby irrevocably consents and submits unconditionally to the
non-exclusive jurisdiction of those courts. The Shipowner further irrevocably
waives any claim that any such court is not a convenient forum for any such
proceeding. The Shipowner agrees that any service of process, writ, judgment or
other notice of legal process shall be deemed and held in every respect to be
effectively served upon it in connection with proceedings in the State of New
York if delivered to Sher & Blackwell, 1850 M Street, N.W., Suite 900,
Washington, D.C. 20036, which it irrevocably designates and appoints as its
authorized agent for the service of process in the State and Federal courts in
the State of New York. Nothing herein shall affect the right of the Secretary to
serve process in any other manner permitted by applicable law. The Shipowner
further agrees that final judgment against it in any such action or proceeding
arising out of or relating to this Agreement shall be conclusive and may be
enforced in any other jurisdiction within or outside the United States of
America by suit on the judgment, a certified or exemplified copy of which shall
be conclusive evidence of that fact and of the judgment.
(k) CONCERNING DISCLOSURE SHIPYARD PLANS. The Secretary shall not disclose
or release the Shipowner's or the Shipyard's plans (including designs, drawings,
construction drawings, and data) to any third party unless ordered to do so by a
state or federal court or unless the Secretary releases the plans to a
subsequent purchaser of the Vessel after Default by the Shipowner. In the event
an action is brought by a third party under the Freedom of Information Act or
under some other statute to obtain the disclosure of the Shipyard's plans, the
Secretary shall notify the Shipowner within ten (10) Business Days.
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(l) ENGAGEMENT LETTER. The Shipowner will not enter into a placement
letter or engagement letter for the fixed rate financing without the prior
written consent of the Secretary.
(m) INCONSISTENCIES. Notwithstanding any provision herein, in the event
there are any inconsistencies between the original of this document held by the
Secretary, and an original held by any other party to this transaction, the
provisions of the original held by the Secretary shall prevail.
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IN WITNESS WHEREOF, this Security Agreement has been executed by the
parties as of the day and year first written.
PETRODRILL FIVE LIMITED
SHIPOWNER
Attest: BY: /s/ EARL W. MCNIEL
-----------------------------
Treasurer
/s/ ROBERT W. RANDALL
-----------------------------
Secretary
UNITED STATES OF AMERICA
(SEAL) SECRETARY OF TRANSPORTATION
MARITIME ADMINISTRATOR
Attest:
BY: /s/ JOEL C. RICHARD
-----------------------------
Secretary
/s/ LARRY MAIN
-----------------------------
Assistant Secretary
Maritime Administration
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TABLE A
The Actual Cost of the Vessel as of the date hereof as determined by the
Secretary is $171,638,175.
The itemization of said Actual Cost is as follows:
Shipyard Contract Price $84,000,000
Owner Furnished Items 22,700,000
Design 1,669,000
Project Management Team 5,000,000
Spare Parts & Manual 3,500,000
Commissioning 2,000,000
Maritima Reimbursement 800,000
Insurance 200,000
Contingencies 11,976,000
Owner Furnished Foreign Items 24,500,000
----------
Total Construction Cost $156,345,000
Net Interest during Construction 9,432,000
Guarantee Fee 5,861,175
---------
Estimated Total Actual Cost $171,638,175
EXHIBIT 1 TO SECURITY AGREEMENT DOCUMENT 12
GENERAL PROVISIONS
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS; OFFICER'S CERTIFICATES; GRANTING CLAUSE
PAGE
SECTION 1.01. Definitions...............................................1
SECTION 1.02. Officer's Certificates....................................1
SECTION 1.03. Granting Clause...........................................1
ARTICLE II
SHIPOWNER'S REPRESENTATIONS AND AGREEMENTS
SECTION 2.01. Shipowner's Representations, Agreements, Organization and
Existence
(a) General Representations...............................2
(b) Taxes.................................................3
SECTION 2.02. (a) Title to and Possession of the Vessel.................3
(b) Sale, Mortgage, Transfer or Charter of the Vessel.....4
(c) Taxes and Governmental Charges........................4
(d) Liens.................................................4
(e) Requisitions by the United States.....................4
(f) Compliance with Applicable Laws.......................5
(g) Operation of the Vessel...............................5
(h) Condition and Maintenance of the Vessel...............5
(i) Material Changes in the Vessel........................6
(j) Documentation of the Vessel...........................6
SECTION 2.03. Maintenance of Construction Contract......................6
SECTION 2.04. Delivery Requirements.....................................7
SECTION 2.05. Insurance.................................................7
SECTION 2.06. Inspection of the Vessel; Examination of Shipowner's
Records..................................................13
SECTION 2.07. Requisition of Title, Termination of Construction Contract
or Total Loss of the Vessel..............................13
SECTION 2.08. Notice of Mortgage.......................................14
SECTION 2.09. Compliance with Mortgage Laws............................15
SECTION 2.10. Performance of Shipowner's Agreements by the Secretary...15
SECTION 2.11. Perfection of Security Interests; Further Assurances.....15
SECTION 2.12. Modification of Formation Agreements.....................15
SECTION 2.13. Members of Limited Liability Companies...................16
SECTION 2.14. Concerning the Performance and Payment Bonds.............16
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ARTICLE III
THE SECRETARY'S NOTE
SECTION 3.01. Secretary's Note............................................16
SECTION 3.02. Termination of the Guarantees...............................16
SECTION 3.03. Execution of Additional Secretary's Note....................17
ARTICLE IV
CONSTRUCTION FUND; MONEYS DUE WITH RESPECT TO
CONSTRUCTION OF THE VESSEL
SECTION 4.01. Construction Fund...........................................18
SECTION 4.02. Moneys Due with Respect to Construction of the Vessel.......18
ARTICLE V
ACTUAL COST; THE ESCROW FUND
SECTION 5.01. Actual Cost Determination...................................18
SECTION 5.02. Escrow Fund Deposits........................................19
SECTION 5.03. Escrow Fund Withdrawals.....................................19
SECTION 5.04. Investment and Liquidation of the Escrow Fund...............21
SECTION 5.05. Income on the Escrow Fund...................................21
SECTION 5.06. Termination Date of the Escrow Fund.........................22
ARTICLE VI
DEFAULTS AND REMEDIES
SECTION 6.01. What Constitutes "Defaults"; Continuance of Defaults........22
SECTION 6.02. Acceleration of Maturity of the Secretary's Note............23
SECTION 6.03. Waivers of Default..........................................24
SECTION 6.04. Remedies After Default......................................25
SECTION 6.05. Application of Proceeds.....................................26
SECTION 6.06. General Powers of the Secretary.............................27
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............................................28
SECTION 7.02. Amendments and Supplements to the Indenture.................28
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ARTICLE VIII
CONSOLIDATION, MERGER OR SALE
SECTION 8.01. Consolidation, Merger, or Sale..............................29
SECTION 8.02. Transfer of a General Partner's or a Joint Venturer's
Interest....................................................29
ARTICLE IX
NOTICES
SECTION 9.01. Notices and Communications..................................30
SECTION 9.02. Waivers of Notice...........................................30
SECTION 9.03. Shipowner's Name or Address Change.........................30
ARTICLE X
DISCHARGE OF SECURITY AGREEMENT AND THE MORTGAGE
SECTION 10.01. Discharge of Security Agreement and the Mortgage............30
ARTICLE XI
MISCELLANEOUS
SECTION 11.01. Successors and Assigns......................................31
SECTION 11.02. Execution in Counterparts...................................31
SECTION 11.03. Shipowner's Rights in Absence of Default....................31
SECTION 11.04. Surrender of Vessel's Documents.............................31
SECTION 11.05. Table of Contents, Titles and Headings......................31
SECTION 11.06. Payments in U.S. Currency...................................31
SECTION 11.07. Immunity....................................................32
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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) The Construction Contract (insofar as it relates to the
Construction of the Vessel under its related Construction Contract), together
with all other contracts, whether now in existence or hereafter entered into,
relating to the Construction of the Vessel. Said right, title and interest in
and to the Construction Contract, 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 the
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 Vessel." The Secretary acknowledges
and agrees that the Moneys Due with Respect to the Construction of the Vessel
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 the Vessel and,
whether or not insured, any general average claims or loss of hire claims the
Shipowner may have with respect to the Vessel.
(8) All proceeds of the collateral described in paragraphs (1)
through (7) of this Section.
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 the 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 the 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)
2
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 hereafter:
(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 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, Bond Purchase Agreement, Obligations, Indenture, Security Agreement,
Secretary's Note, Mortgage, Financial Agreement, and 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
(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) 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. (a) TITLE TO AND POSSESSION OF THE VESSEL. On the date of
this Security Agreement, the Shipowner represents and warrants that it lawfully
owns the 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
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Shipowner shall, for the Secretary's benefit, warrant and defend the title to,
and possession of, the Vessel and every part thereof against the claims and
demands of all Persons whomsoever.
(b) SALE, MORTGAGE, TRANSFER OR CHARTER OF THE VESSEL. (1) The Shipowner
shall not, without the Secretary's prior written consent, sell, mortgage, demise
charter or transfer the 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 Vessel 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 Vessel 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.
(3) In no event may the Shipowner transfer the Vessel to any country
designated by the Secretary of Defense as a country whose interests are hostile
to the interests of the United States.
(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 the 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 Vessel except for the Mortgage.
(2) After the Delivery Date of the 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 the Vessel
unless the same is being contested in good faith; and
(3) Neither the Shipowner, any charterer, the master of the 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 the 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) REQUISITIONS BY THE UNITED STATES. Should the United States of
America, or any agency or instrumentality thereof, take or
4
requisition title or use of the Vessel, or seek to take or requisition title or
use of the Vessel, the Shipowner agrees to comply promptly with said request,
taking, or requisition, without the interposition of any defense whatsoever,
saving only (i) its right to dispute at a subsequent time, the amount of
compensation to be paid by the United States or (ii) the prior taking or
requisition of title or use by another governmental body. The parties agree to
be bound by the rights, duties, procedures, and remedies specified in Section
902 of the Act (46 App. U.S.C. 1242).
(f) COMPLIANCE WITH APPLICABLE LAWS. The Shipowner shall at all times be
in compliance with all applicable laws. Each Vessel (1) shall be designed to
meet, and on the Delivery Date thereof and at all times thereafter shall be
documented in a country which is party to the International Convention for
Safety of Life at Sea, or other treaty, convention or international agreement
governing vessel inspection to which the United States is a signatory and shall
comply with all requirements of applicable laws, rules, and regulations of its
country of documentation, all applicable treaties, conventions, international
agreements to which that country is a signatory and the laws, rules and
regulations of the ports it serves; and (2) shall have on board valid
certificates showing compliance therewith. 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 the Vessel; or (C) there
has been any other loss with respect to the Vessel and the Shipowner shall not
have had a reasonable time to repair the same.
(g) OPERATION OF THE VESSEL. Except when the Vessel has been in Government
Use, the Shipowner shall not (1) cause or permit the Vessel to be operated in
any manner contrary to applicable law, rule, or regulation of its country of
documentation, all applicable treaties, conventions, or international agreements
to which that country is a signatory and the laws, rules, and regulations of the
ports it serves, (2) abandon the Vessel in any port unless there has been an
actual or constructive total loss or an agreed or compromised total loss of the
Vessel.
(h) CONDITION AND MAINTENANCE OF THE VESSEL. (1) The 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 may be imposed by the Classification Society. The
foregoing shall not apply (i) if the Vessel has been under Government Use, (ii)
in the event of an actual or constructive total loss or an agreed or compromised
total loss of the Vessel, or (iii) there has been any other loss with respect to
the Vessel and the Shipowner shall not have had a reasonable time to repair the
same.
(2) On the Delivery Date of the Vessel, the Shipowner shall furnish to the
Secretary an Interim Class Certificate issued for the Vessel by the
Classification Society and promptly after the Delivery Date of the Vessel,
furnish to the Secretary a Certificate of Class with respect to the 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 the Vessel; provided that, the foregoing shall not apply if the
Vessel is in Government Use and the
5
governmental body does not permit classification and rating of the Vessel.
(3) Notwithstanding Section 2.02(h)(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 the 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 the 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 Vessel 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 the Vessel; PROVIDED FURTHER, that none
of this Section shall apply when the Vessel is in Government Use.
(i) MATERIAL CHANGES IN THE VESSEL. After the Delivery Date of the 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,
unless it shall have received the Secretary's prior written consent thereto.
(j) DOCUMENTATION OF THE VESSEL. Upon the Delivery Date and thereafter,
the Vessel shall be and shall remain documented under the laws of the country
specified in the Special Provisions.
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 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 Vessel,
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 Vessel 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 Vessel which changes the capacity of the Vessel 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
determined not to be includable in Actual Cost.
6
(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 country specified in the
Special Provisions.
(b) executed and delivered to the Secretary the Mortgage (or, if
appropriate, a mortgage supplement) in the form of Exhibit 3 hereof;
(c) recorded the Mortgage (or, if appropriate, a mortgage supplement) in
the appropriate foreign registry, specified in the Special Provisions;
(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 the 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
the 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 the 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 Secretary's Note, or such greater sum, up to and including the
full commercial value of the Vessel as may be required by the Secretary. The
Shipowner shall
7
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 issued by or
for the Maritime Administration (or under such other forms of policies as the
Secretary may approve in writing) insuring the 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 the 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 the 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 the 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) under the policies required by paragraph
(b) of this Section and (ii) as provided in paragraph (e) 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 the 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 the
Shipowner's Request, pay, or consent that the underwriters pay, direct for
repairs, liabilities, salvage claims or other charges and expenses (including
sue 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
8
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 sue 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 Sections 2.05(c)(1)(A), 2.05(c)(1)(C) or 2.05(c)(1)(D),
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 the Vessel prior to the Delivery Date of
the Vessel, the Shipowner shall forthwith deposit with the Secretary 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 the 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 Outstanding Obligations relating to
the 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 the
Vessel, whether prior to or after the Delivery Date of the 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
9
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 Sections 2.05(c)(3)(A),
2.05(c)(3)(C) or 2.05(c)(3)(D), 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 Sections 2.05(c)(3)(A), 2.05(c)(3)(B), and
2.05(c)(3)(C), 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 Outstanding Obligations pursuant to Section 3.05 of the
Indenture and for the payment to the Secretary 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 the 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 the Vessel also with the prior
written consent of the Shipyard) to claim for a constructive total loss of the
Vessel. If (1) such claim is accepted by all underwriters under all policies
then in force as to the 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 the Vessel to the underwriters of such
policies, free from lien of this Security Agreement and the Mortgage.
(e) Commencing on the Delivery Date of the Vessel, the Shipowner shall,
without cost to the Secretary, keep the 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 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
10
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 Section 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 the Vessel
without prior written consent of (i) the Shipyard (prior to the Delivery Date of
the 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 the Vessel,
to enter into an agreement or compromise providing for an agreed or compromised
total loss of the 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 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
the Vessel by any government or governmental body, or (2) a charter, with the
Secretary's prior written consent, of the use of the 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 the 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 the 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
11
shall have been a taking, requisition or charter of the use of the 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 paragraphs (b) and (e) 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, 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 the Vessel to engage in any voyage
or to carry any cargo not permitted under the policies of insurance then in
effect without first covering the 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 if and so long as the title or use of the
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 the 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 the Vessel or to release the 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 the 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
12
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 VESSEL; EXAMINATION OF SHIPOWNER'S
RECORDS. The Shipowner will: (a) afford the Secretary, upon reasonable notice,
access to the Vessel, its 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 the 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 THE VESSEL. In the event of requisition of title to or seizure
or forfeiture of the Vessel, termination of the Construction Contract relating
to the 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 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 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
13
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 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 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 the Vessel with the Vessel's documents and
shall be exhibited on demand to any Person having business with the 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 the Vessel.
(c) The notice referred to in paragraph (b) of this Section shall read as
follows:
"NOTICE OF SHIP MORTGAGE
This Vessel is owned by (NAME OF SHIPOWNER) , a (JURISDICTION)
("Shipowner"), and is covered by a First Preferred Ship Mortgage in favor
of the United States of America, under authority of (NAME OF COUNTRY AND
LEGAL CITATION). 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 upon this Vessel any lien other than statutory liens incident to
current operations that are subordinate to the Mortgage."
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SECTION 2.09. COMPLIANCE WITH MORTGAGE LAWS. The Shipowner shall comply
with and satisfy all of the provisions of the pertinent mortgage laws of the
country in which the Vessel is documented in order to establish and thereafter
maintain the Mortgage thereunder as a preferred mortgage upon the 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. PERFECTION OF SECURITY INTERESTS; FURTHER ASSURANCES. The
Shipowner shall (i) furnish evidence satisfactory to the Secretary that all
financing statements under the UCC, and all filings or recordings required by
the laws of the country where the Shipowner is located, shall have been filed
against the Shipowner and the Shipyard in all offices in which it may be
necessary, or advisable in the opinion of the Secretary, to perfect its security
interest, and (ii) from time to time execute and deliver such further
instruments and take such action as may reasonably be required more effectively
to subject the Security to the lien of the 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, or other filings and recordings with respect to the country where
the Shipowner is located, have been filed to perfect the Secretary's interests
in the Security as valid and enforceable first priority perfected security
agreements. With respect to Security that constitutes accounts or general
intangibles for money due or to become due, the Shipowner shall perfect the
Secretary's Security by giving written notice to the account debtor(s) of the
Secretary's security interest in such accounts and general intangibles.
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.
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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 a Performance Bond and
Payment Bond 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
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:
16
(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.
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ARTICLE IV
CONSTRUCTION FUND; MONEYS DUE WITH RESPECT TO
CONSTRUCTION OF THE VESSEL
SECTION 4.01. CONSTRUCTION FUND. (a) The Shipowner has deposited 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 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 VESSEL. (a)
In the event that the Shipowner shall receive any moneys from any Person in
connection with the Construction of the 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 Vessel 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 DETERMINATION. (a) The Actual Cost of the
Vessel, 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 the 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
18
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 the 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 the 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
the Vessel, 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 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 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
19
Obligations equals at least 12-l/2% of the Actual Cost of the 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 the Vessel and
up to 37 1/2% of Actual Cost has been withdrawn from the Escrow Fund for the
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 the 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.
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 the Guarantees shall become
payable by the Secretary as to the Obligations, all amounts in the Escrow Fund
at the time such Guarantees become payable (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 from the
Shipowner with respect to all Obligations guaranteed
20
by the Secretary to which this Security Agreement relates. 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 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 the Vessel 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 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.
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.
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SECTION 5.06. TERMINATION DATE OF THE ESCROW FUND. The Escrow Fund will
terminate 90 days after the Delivery Date of the 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 the Vessel 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 Actual Cost of the Vessel 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.
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 6.01 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 2.02(b) and (j), 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), (f), (g) and (h), 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
22
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 applicable bankruptcy laws 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 bankruptcy laws 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, or any other governmental body with respect
to the 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, 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 Vessel.
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
23
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.
24
(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
Vessel without legal process wherever the same may be (and the Shipowner or
other Person in possession shall forthwith surrender possession of the Vessel to
the Secretary upon demand) and hold, lay up, lease, charter, operate, or
otherwise use the Vessel 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 Vessel, and charging against
all receipts from the use of the Vessel, all reasonable charges and expenses
relating to the 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 the laws of the United States, the country of
documentation of the Vessel, or such other country in which the Vessel may be
located at the time of the foreclosure;
(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 the Vessel in
accordance with paragraph (b)(4) of this Section;
(3) Have a receiver of the Vessel 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 the 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 for such sale or adjourned
sale). It shall not be necessary to bring the 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
25
Shipowner or other Person in possession shall forthwith surrender possession to
the Secretary), the whole or any part of the 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
the 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 bill 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 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
26
2.05 and 2.07 shall be applied by the Secretary as follows:
(1) to the payment of all advances and all reasonable charges and
expenses of 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 the 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 the 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 his failure to) take any action provided for in paragraphs
(a) and (b) of this Section.
27
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.
28
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 the Vessel to any
other Person lawfully entitled to acquire and operate the Vessel, 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 the Vessel's documents
pursuant to the laws of the Vessel's place of documentation provided that,
concurrently with such surrender, the Vessel shall be redocumented under the
laws of the Vessel's place of documentation.
(d) In the event of any sale of the Vessel, the Secretary shall determine
if there will remain adequate security for the Guarantees after discharge of the
Vessel from the Security Agreement and Mortgage, and (1) the Shipowner shall
redeem, together with any premium and/or accrued interest thereof, the
Outstanding Obligations relating to the Vessel 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 the Outstanding Obligations and to the Vessel.
SECTION 8.02. TRANSFER OF A GENERAL PARTNER'S OR A JOINT VENTURER'S
INTEREST. 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
29
venture agreement, this Security Agreement, the Mortgage and any related
document.
ARTICLE IX
NOTICES
SECTION 9.01. NOTICES AND COMMUNICATIONS. Except as otherwise provided in
this Security Agreement or by the Act, all notices, requests, demands,
directions, consents, waivers, approvals or other communications shall be in
writing in the English language (or accompanied by an accurate English
translation upon which the Secretary shall have the right to rely for all
purposes under this Agreement and shall 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.
30
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.
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 Vessel, and also any and all additions,
improvements and replacements in or to the Vessel or said appurtenances, after
first or simultaneously replacing the same with items of at least substantially
equal value.
SECTION 11.04. SURRENDER OF VESSEL'S DOCUMENTS. The Secretary shall
consent to the surrender of the Vessel's documents in connection with any
redocumentation of the Vessel required on account of alterations to the Vessel
which are not prohibited by this Security Agreement and by the Mortgage.
SECTION 11.05. 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.
SECTION 11.06. PAYMENTS IN U.S. CURRENCY. This is an international loan
transaction in which the specification of United States currency is of the
essence, and such currency shall be the currency of account in all events. The
respective payment obligations of the Shipowner and the Secretary hereunder
shall not be discharged by an amount paid in another currency, whether pursuant
to a judgment or otherwise, to the extent that the amount so paid on prompt
conversion to such currency under normal banking procedures does not yield after
deduction of any and all fees, taxes or any other charges imposed on the payment
of such amount of United States dollars then due. In the event that any payment
by the Shipowner or the Secretary, whether pursuant to a judgment or otherwise,
upon conversion and transfer, does not result in the payment of such amount of
United States currency at the place such amount is due, each shall be entitled
to demand immediate payment of, and shall have a separate cause of action
against the other for, the additional amount necessary to
31
yield the amount then due. In the event either the Shipowner or the Secretary,
upon the conversion of such judgment into currency, shall receive (as a result
of currency exchange rate fluctuations) an amount greater than that to which it
was entitled, the defaulting party shall be entitled to immediate reimbursement
of the excess amount.
SECTION 11.07. IMMUNITY. The Shipowner represents and warrants that it is
subject to civil and commercial law with respect to its obligations under this
Agreement, that the making and performance of this Agreement constitutes private
and commercial acts rather than governmental or public acts and that neither the
Shipowner nor any of its properties or revenues has any right of immunity on the
grounds of Sovereignty or otherwise from suit, court jurisdiction, attachment
prior to judgment, attachment in aid of execution of a judgment, set-off,
execution of a judgment or from any other legal process with respect to its
obligations under this Agreement. To the extent that the Shipowner may hereafter
be entitled, in any jurisdiction in which judicial proceedings may at any time
be commenced with respect to this Agreement to claim for itself or its revenues
or assets any such immunity, and to the extent that in any such jurisdiction
there may be attributed to the Shipowner such an immunity (whether or not
claimed), the Shipowner hereby irrevocably agrees not to claim and hereby
irrevocably waives such immunity. The foregoing waiver of immunity shall have
effect under the United States Sovereign Immunities Act of 1976.
32
SCHEDULE X TO SECURITY AGREEMENT DOCUMENT 13
SCHEDULE OF DEFINITIONS
"Act" means the Merchant Marine Act, 1936, as amended and in effect
on the Closing Date.
"Actual Cost" means the actual cost of a 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.
"Administrative Agent" means CITICORP NORTH AMERICA, INC., a
Delaware corporation, as administrative agent for the Primary Lender and the
commercial paper holders of the Primary Lender (and their respective successors
and assigns), and its permitted successors and assigns.
"Agent" means each of the Administrative Agent and the Facility
Agent, individually, and "Agents" means the Administrative Agent and the
Facility Agent, collectively.
"Alternate Lender" means CITIBANK, N.A., a national banking
association and its successors and assigns.
"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-13510, 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 and a newspaper printed in English, approved by
the Secretary and of general circulation in Baltimore, Maryland.
"Business Day" shall mean any day on which dealings in Dollar
deposits are carried on in the London interbank market and on which commercial
banks in London and New York City are open for domestic and foreign exchange
business.
"Chapter 313" means the provisions of 46 United States Code Chapter
313, as amended.
"Classification Society" means Lloyd's Classification Society or
such other Classification Society approved in writing by the Secretary which
Classification Society shall in any event be either a member of the
International Association of Classification Societies ("IACS") that has been ISO
9000 series registered or an IACS member that meets the requirements of the
International Maritime Organization, and is qualified under a Quality Systems
Certificate Scheme and recognized by the United States Coast Guard and the
Secretary as meeting acceptable standards.
"Closing Date" or "Closing" means the date when the Security
Agreement is executed and delivered by the Shipowner.
"Commitment to Guarantee Obligations" has the same meaning as the
term Guarantee Commitment.
"Consent of Shipyard" means each, and "Consents of Shipyards" means
every, 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 that certain Semi-Submersible Drilling
Vessel Construction Contract (Hull No. 1829), dated April 9, 1998, by and
between the Shipowner and the Shipyard, as the same may be amended, modified or
supplemented in accordance with the applicable provisions thereto.
"Construction Fund" has the meaning specified in Article IV of
the Security Agreement.
"Corporate Trust Office" means the principal corporate trust office
of the Indenture Trustee at which, at any time, its corporate trust business
2
shall be principally administered, which office at the date of execution of the
Indenture is located at 25 South Charles Street, 16th Floor, Mail Code 101-591,
Baltimore, Maryland 21201.
"Credit Agreement" or "Agreement" shall mean the Credit Agreement,
dated as of the Closing Date, among the Shipowner, the Lenders, and the Agents,
including any Exhibit, Annex, or other attachment thereto, as the same may be
amended, modified or supplemented.
"Default" when used in the Security Agreement has the meaning
attributed to it in Article VI thereof.
"Delivery Date" means the date on which a 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-13514 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 a
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.
"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.
"Facility Agent" means CITIBANK INTERNATIONAL PLC, a bank organized
and existing under the laws of England, as facility agent for both the Primary
Lender and the Alternative Lender (and their respective successors and assigns),
and its permitted successors and assigns.
3
"Financial Agreement" means the Title XI Reserve Fund and Financial
Agreement, Contract No. MA-13513, executed by the Shipowner and the Secretary,
as originally executed or as modified, amended or supplemented in accordance
with the applicable provisions thereof.
"Financial Asset" has the meaning given by Article 8-102(a)(9) of
the UCC.
"Government Use" means the use of a Vessel or requisition of its
title required by a 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, as
provided in the Authorization Agreement.
"Guarantee Commitment" means the Commitment to Guarantee
Obligations, Contract No. MA-13509, dated as of the Closing Date, executed by
the Secretary and accepted by the Shipowner with respect to the Guarantees, as
originally executed or as modified, amended or supplemented in accordance with
the applicable provisions thereof.
"Increased Security" means the Secretary's Note, the Security
Agreement, the Vessels, the Security, the Escrow Fund, the Title XI Reserve
Fund, the Construction Fund, 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 as of the Closing Date,
between the Shipowner and the Indenture Trustee, as the same is originally
executed, or as modified, amended or supplemented in accordance with the
applicable provisions thereof.
"Indenture Default" has the meaning specified in Article VI of
the Indenture.
"Indenture Trustee" means FMB Trust Company, National Association, a
national banking association, and any successor trustee permitted under the
Indenture.
"Interest Payment Date" means with respect to any Obligation, the
date when any installment of interest on such Obligation is due and payable.
4
"Lender" shall mean shall mean either the Primary Lender or the
Alternate Lender, as the case may be, depending on which of the two parties made
or will make the relevant disbursement of funds under the Credit Agreement;
provided, however, that if the Primary Lender assigns its rights under the
Credit Agreement to the Alternate Lender, the term "Lender," shall mean only the
Alternate Lender, CITIBANK, N.A., a national banking association, and its
successors and assigns.
"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.
"Moneys Due with Respect to Construction of the Vessel" 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-13512, between the Shipowner and the Secretary, as originally
executed or as modified, amended
"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.
"Obligation" or "Obligations" shall mean the Floating Rate Note or
Fixed Rate Note(s) of the Shipowner bearing a Guarantee and authenticated and
delivered pursuant to the Indenture and the Authorization Agreement.
5
"Obligation Register" has the meaning specified in Section 2.10
of the Indenture.
"Obligee" means each, and "Obligees" means every, Holder of an
Obligation.
"Offering Circular" means the offering circular relating to the
issuance and sale of each Fixed Rate Note.
"Officer's Certificate" means a certificate conforming to Section
1.02 of the Security Agreement or the Indenture as the context may require.
"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.
"Paying Agent" means any bank or trust company having the
qualifications set forth in clauses (1), (3), (4) and (5) of Section 7.02(a) of
Exhibit 1 to the Indenture, which shall be appointed by the Shipowner in
accordance with Section 4.02 of Exhibit 1 to 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.
"Primary Lender" means GOVCO INCORPORATED, a Delaware corporation,
and its successors and assigns.
"Redemption Date" means a date fixed for the redemption of an
Obligation by the Indenture.
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"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
corporation, 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 Obligations
and Guarantees by the Indenture Trustee, any person specifically authorized by
the Indenture Trustee to sign or authenticate Obligations.
"Retired or Paid," as applied to 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 Contract and Related Contracts" shall
have the meaning specified in Section 1.03 of the Security Agreement.
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"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.
"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 2 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 that a Default, within the meaning of Section 6.01(b) of the
Security Agreement has occurred.
"Secretary of Defense" means the Secretary of Defense of the United
States of America.
"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-13511, dated as of the 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 Petrodrill Five Limited, a British Virgin Islands
international business company, and shall include its successors and assigns.
"Shipyard" or "Shipbuilder" means TDI-Halter, Limited
Partnership, a Louisiana limited partnership.
"Stated Maturity" means the date determinable as set forth in any
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Obligation as the final date on which the principal of such Obligation is due
and payable.
"Successor" means a Person formed by or surviving a consolidation or
merger with the Shipowner or to which the Vessels have been sold.
"Supplemental Indenture" shall mean any indenture supplemental to
the Indenture entered into pursuant to Article X of the Indenture.
"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.
"UCC" means the Uniform Commercial Code as enacted in the State of
New York.
"Vessel" means the Shipowner's Semi-Submersible Drilling Rig to be
named the AMETHYST 5 and constructed by TDI-Halter, Limited Partnership in
accordance with the Construction Contract, including all work and material
heretofore or hereafter performed upon or installed in or placed on board such
Vessel, together with related appurtenances, additions, improvements, and
replacements.
"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
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(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.
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