-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CknullH0fI1Ol/iLBw8D56z6ew/albwKrgs/G82+3D9dNRTTY3PcP43fOvIKQO16 zxEGCxZtP5ZSvToNbswLOA== 0000919574-06-001911.txt : 20060421 0000919574-06-001911.hdr.sgml : 20060421 20060421065730 ACCESSION NUMBER: 0000919574-06-001911 CONFORMED SUBMISSION TYPE: 20-F PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20060421 DATE AS OF CHANGE: 20060421 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DryShips Inc. CENTRAL INDEX KEY: 0001308858 STANDARD INDUSTRIAL CLASSIFICATION: DEEP SEA FOREIGN TRANSPORTATION OF FREIGHT [4412] IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: 20-F SEC ACT: 1934 Act SEC FILE NUMBER: 000-51141 FILM NUMBER: 06771216 BUSINESS ADDRESS: STREET 1: 80 KIFISSIAS AVENUE CITY: AMAROUSSION STATE: J3 ZIP: 15125 BUSINESS PHONE: 011-30-210-809-0570 MAIL ADDRESS: STREET 1: 80 KIFISSIAS AVENUE CITY: AMAROUSSION STATE: J3 ZIP: 15125 20-F 1 d663163_20-f.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 20-F [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 OR [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d ) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2005 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 000-51141 OR [ ] SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of event requiring this shell company report: Not applicable DRYSHIPS INC. ----------------------------------------------- (Exact name of Registrant as specified in its charter) ---------------------------------------------- (Translation of Registrant's name into English) Republic of the Marshall Islands ---------------------------------------------- (Jurisdiction of incorporation or organization) 80, Kifissias Avenue GR 15125 Amaroussion, Greece ---------------------------------------------- (Address of principal executive offices) Securities registered or to be registered pursuant to Section 12(b) of the Act: None Securities registered or to be registered pursuant to Section 12(g) of the Act: Common stock, $0.01 par value ----------------------------- Title of class Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: As of December 31, 2005, there were 30,350,000 shares of the registrant's common stock outstanding. Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [X] No If this report is an annual report or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. [ ] Yes [X] No Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Indicate by check mark which financial statement item the registrant has elected to follow. [ ] Item 17 [X] Item 18 If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X] No FORWARD-LOOKING STATEMENTS DryShips Inc., or the Company, desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection with this safe harbor legislation. This document and any other written or oral statements made by us or on our behalf may include forward-looking statements, which reflect our current views with respect to future events and financial performance. The words "believe," "except," "anticipate," "intends," "estimate," "forecast," "project," "plan," "potential," "will," "may," "should," "expect" and similar expressions identify forward-looking statements. Please note in this annual report, "we," "us," "our," "The Company," all refer to DryShips Inc. and its subsidiaries. The forward-looking statements in this document are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, management's examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections. In addition to these important factors and matters discussed elsewhere herein, important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the strength of world economies, fluctuations in currencies and interest rates, general market conditions, including fluctuations in charterhire rates and vessel values, changes in demand in the dry-bulk shipping industry, changes in the Company's operating expenses, including bunker prices, drydocking and insurance costs, changes in governmental rules and regulations or actions taken by regulatory authorities, potential liability from pending or future litigation, general domestic and international political conditions, potential disruption of shipping routes due to accidents or political events, and other important factors described from time to time in the reports filed by the Company with the Securities and Exchange Commission. TABLE OF CONTENTS PART I.................................................................... 4 - ------ Item 1 Identity of Directors, Senior Management and Advisers...........4 Item 2 Offer Statistics and Expected Timetable.........................4 Item 3 Key Information.................................................4 Item 4 Information on the Company.....................................15 Item 4A. Unresolved Staff Comments..................................... 27 Item 5. Financial Review and Prospects.................................26 Item 6. Directors and Senior Management................................40 Item 7. Major Shareholders and Related Party Transactions..............42 Item 8. Financial information..........................................44 Item 9. The offer and Listing..........................................45 Item 10. Additional Information........................................ 46 Item 11. Quantitative and Qualitative Disclosures about Market Risk.... 51 Item 12. Description of Securities Other than Equity Securities........ 51 PART II.................................................................. 51 - ------- Item 13. Defaults, Dividend Arrearages and Delinquencies..................51 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds..................................................................51 Item 15. Controls and Procedures..........................................51 Item 16A. Audit Committee Financial Expert................................52 Item 16B. Code of Ethics..................................................52 Item 16C. Principal Accountant Fees and Services..........................52 Item 16D. Exemptions from the Listing Standards for Audit Committees......52 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers................................................................52 PART III....................................................................53 - -------- Item 17. Financial Statements.............................................53 Item 18. Financial Statements.............................................53 Item 19. Exhibits.........................................................53 PART I Item 1. Identity of Directors, Senior Management and Advisers Not Applicable. Item 2. Offer Statistics and Expected Timetable Not Applicable. Item 3. Key Information A. Selected Financial Data The following table sets forth our selected consolidated financial data and other operating data for DryShips Inc. as of October 31, 2001, 2002, 2003 and 2004 and as of December 31, 2005 and for each of the four years in the period ended October 31, 2004, for the two-month period ended December 31, 2004 and for the year ended December 31, 2005. The following information should be read in conjunction with Item 5 "Operating and Financial Review and Prospects" and the consolidated financial statements and related notes included herein. The following selected consolidated financial data of DryShips Inc. in the table are derived from our consolidated financial statements and notes thereto which have been prepared in accordance with U.S. generally accepted accounting principles ("US GAAP"). 2-months Year Ended Ended Year Ended October 31, December December 31, 31, -------------------------------------------- --------- ---------- 2001 2002 2003 2004 2004 2005 ---------- -------- ---------- ---------- --------- ---------- (Dollars in thousands, except per share data and average daily results) INCOME STATEMENT Voyage revenues 24,433 16,233 25,060 63,458 15,599 228,913 Voyage expenses 4,171 3,628 3,998 6,371 1,153 13,039 Bunkers - - (372) (890) (17) (3,447) Vessel operating expenses 6,382 6,144 6,739 9,769 1,756 36,722 Depreciation and amortization 4,877 4,853 5,244 6,451 1,134 42,610 Management fees charged by a related party 1,102 1,094 1,101 1,261 240 4,962 General & administrative expenses (1) 33 145 240 221 114 4,186 ---------- -------- ---------- ---------- --------- ---------- Operating Income 7,868 369 8,110 40,275 11,219 130,841 Interest and finance costs (2,051) (983) (1,119) (1,515) (508) (20,398) Interest income 8 - 4 12 8 749 Other, net 10 3 194 341 (6) (175) ---------- -------- ---------- ---------- --------- ---------- Net income (loss) 5,835 (611) 7,189 39,113 10,713 111,017 ========== ======== ========== ========== ========= ========== Basic and fully diluted earnings (losses) per share 0.38 (0.04) 0.47 2.54 0.70 3.83 Weighted average basic and diluted shares outstanding 15,400,000 15,400,000 15,400,000 15,400,000 15,400,000 28,957,397 BALANCE SHEET DATA Current assets, including cash 9,809 10,392 17,943 69,344 18,777 Total assets 86,214 67,937 73,902 183,259 910,559 Current liabilities, including current portion of long-term debt 10,331 11,703 11,889 98,124 135,745 Total long-term debt, including current portion 65,583 47,294 46,479 114,908 525,353 Stockholders' equity (deficit) 18,987 18,376 25,513 (4,374) 356,501 OTHER FINANCIAL DATA Net cash provided by operating activities 4,094 5,346 2,489 7,309 55,207 163,806 Net cash used in investing activities (250) - (2,200) (20,119) - (847,649) Net cash provided by (used in) financing activities (3,912) (3,083) 416 15,985 (53,007) 680,656 EBITDA (2) 12,755 5,225 13,548 47,067 12,347 173,276 FLEET DATA Average number of vessels (3) 5.0 5.0 5.0 5.9 6.0 21.6 Total voyage days for fleet (4) 1,744 1,770 1,780 2,066 366 7,710 Total calendar days for fleet (5) 1,825 1,825 1,825 2,166 366 7,866 Fleet utilization (6) 95.6% 97.0% 97.5% 95.4% 100.0% 98.0% AVERAGE DAILY RESULTS Time charter equivalent (7) 11,618 7,121 12,042 28,062 39,516 28,446 Vessel operating expenses (8) 3,497 3,367 3,693 4,510 4,798 4,668 Management fees 604 599 603 582 655 631 General and administrative expenses (9) 18 79 131 102 311 532 Total vessel operating expenses (10) 4,119 4,045 4,427 5,194 5,764 5,831
(1) We did not pay any compensation to members of our senior management or our directors in the years ended October 31, 2001, 2002, 2003 and 2004 and for the two month period ended December 31, 2004. Compensation to members of our senior management and directors amounted to $1.4 million for the year ended December 31, 2005. (2) EBITDA represents net income before interest, taxes, depreciation and amortization. EBITDA does not represent and should not be considered as an alternative to net income or cash flow from operations, as determined by U.S. GAAP and our calculation of EBITDA may not be comparable to that reported by other companies. EBITDA is included in this annual report because it is a basis upon which we assess our liquidity position, because it is used by our lenders as a measure of our compliance with certain loan covenants and because we believe that it presents useful information to investors regarding our ability to service and/or incur indebtedness. The following table reconciles net cash from operating activities, as reflected in the consolidated statements of cash flows, to EBITDA: 2-month Year Ended Ended Year Ended October 31, December December 31, 31, 2004 2005 --------------------------------- 2001 2002 2003 2004 ------- ------ ------ ------ -------- --------- Dollars in Thousands Net Cash provided by Operating Activities $4,094 $ 5,346 $ 2,489 $ 7,309 $ 55,207$ 163,806 Net increase (decrease) in current assets 1,793 (2,341) 8,403 36,925 (42,322) 4,560 Net (increase) decrease in current liabilities, excluding current portion of long-term debt 2,807 (623) 357 (1,815) (927) (21,914) Payments for dry docking costs 2,052 1,898 1,322 3,277 - 3,153 Amortization of deferred revenue - - - - - 5,224 Recognition of free lubricants benefit - - - - - (928) Change in fair values of derivatives - - - - - 270 Net interest expense 2,043 983 1,115 1,503 500 19,649 Amortization and write-off of deferred financing costs included in interest expense (34) (38) (138) (132) (111) (544) ------- ------ ------ ------ ------ ----------- EBITDA $12,755 $ 5,225 $ 13,548$ 47,067$ 12,347$ 173,276 ======= ====== ====== ====== ====== ===========
(3) Average number of vessels is the number of vessels that constituted the fleet for the relevant period, as measured by the sum of the number of days each vessel was a part of the fleet during the period divided by the number of calendar days in that period. (4) Total voyage days for the fleet are the total days the vessels were in the Company's possession for the relevant period net of off-hire days associated with major repairs, drydockings or special or intermediate surveys. (5) Calendar days are the total days the vessels were in the Company's possession for the relevant period including off-hire days associated with major repairs, drydockings or special or intermediate surveys. (6) Fleet utilization is the percentage of time that the vessels were available for revenue generating voyage days, and is determined by dividing voyage days by fleet calendar days for the relevant period. (7) Time charter equivalent, or TCE, is a measure of the average daily revenue performance of a vessel on a per voyage basis. The Company's method of calculating TCE is consistent with industry standards and is determined by dividing voyage revenues (net of voyage expenses) by voyage days for the relevant time period. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by the charterer under a time charter contract, as well as commissions. TCE is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company's performance despite changes in the mix of charter types (i.e., spot charters, time charters and bareboat charters) under which the vessels may be employed between the periods. The following table reflects the calculation of our TCE rates for the periods presented. Year Ended October 31, 2-month Ended Year ----------------------------------------- December December 2001 2002 2003 2004 31, 2004 31, 2005 ------------ ------ ------- -------- ------------------- (in thousands of US dollars, except for TCE rates, which are expressed in US dollars, and voyage days) Voyage revenues $ 24,433 $ 16,233 $ 25,060 $ 63,458 $ 15,599 $ 228,913 Voyage expenses (4,171) (3,628) (3,998) (6,371) (1,153) (13,039) Bunkers - - 372 890 17 3,447 --------- -------- ------- -------- -------- ------- Time charter equivalent revenues $ 20,262 $ 12,605 $ 21,434 $ 57,977 $ 14,463 $ 219,321 ========= ======== ======= ======== ======== ======= Total voyage days for fleet 1,744 1,770 1,780 2,066 366 7,710 Time charter equivalent (TCE) rate $ 11,618 $ 7,121 $ 12,042 $ 28,062 $ 39,516 $ 28,446
(8) Daily vessel operating expenses, which includes crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs is calculated by dividing vessel operating expenses by fleet calendar days for the relevant time period. (9) Daily general and administrative expense is calculated by dividing general and administrative expense by fleet calendar days for the relevant time period. (10) Total vessel operating expenses or TVOE is a measurement of our total expenses associated with operating our vessels. TVOE is the sum of vessel operating expenses, management fees and general and administrative expenses. Daily TVOE is calculated by dividing TVOE by fleet calendar days for the relevant time period. B. Capitalization and Indebtedness Not Applicable. C. Reasons for the Offer and Use of Proceeds Not Applicable. D. Risk factors Some of the following risks relate principally to the industry in which we operate and our business in general. Other risks relate principally to the securities market and ownership of our common stock. The occurrence of any of the events described in this section could significantly and negatively affect our business, financial condition, operating results or cash available for dividends or the trading price of our common stock. Industry Specific Risk Factors Charterhire rates for drybulk carriers are volatile, which may adversely affect our earnings. The drybulk shipping industry is cyclical with attendant volatility in charterhire rates and profitability. The degree of charterhire rate volatility among different types of drybulk carriers has varied widely. Because we generally charter our vessels pursuant to short-term time or spot charters, we are exposed to changes in spot market rates for drybulk carriers and such changes may affect our earnings and the value of our drybulk carriers at any given time. We cannot assure that we will be able to successfully charter our vessels in the future at rates sufficient to allow us to meet our financial obligations or to pay dividends to our stockholders. Because the factors affecting the supply and demand for vessels are outside of our control and are unpredictable, the nature, timing, direction and degree of changes in industry conditions are also unpredictable. Factors that influence demand for vessel capacity include: o demand for and production of drybulk products; o global and regional economic conditions; o the distance dry bulk is to be moved by sea; and o changes in seaborne and other transportation patterns. The factors that influence the supply of vessel capacity include: o the number of newbuilding deliveries; o the scrapping rate of older vessels; o vessel casualties; and o the number of vessels that are out of service. We anticipate that the future demand for our drybulk carriers will be dependent upon continued economic growth in the world's economies, including China, seasonal and regional changes in demand, changes in the capacity of the global drybulk carrier fleet and the sources and supply of drybulk cargo to be transported by sea. The capacity of the global drybulk carrier fleet seems likely to increase and there can be no assurance that economic growth will continue. Adverse economic, political, social or other developments could have a material adverse effect on our business and operating results. The market values of our vessels may decrease, which could limit the amount of funds that we can borrow under our credit facilities. The fair market values of our vessels have generally experienced high volatility. You should expect the market value of our vessels to fluctuate depending on general economic and market conditions affecting the shipping industry and prevailing charterhire rates, competition from other shipping companies and other modes of transportation, types, sizes and age of vessels, applicable governmental regulations and the cost of newbuildings. If the market value of our fleet declines we may not be able to obtain other financing or incur debt in the future on terms that are acceptable to us or at all. The market values of our vessels may decrease, which could cause us to breach covenants in our credit facilities and adversely affect our results of operations, financial condition and our ability to pay dividends. If the market values of our vessels decrease, we may breach some of the covenants contained in the financing agreements relating to our indebtedness, including covenants in our credit facilities. If we do breach such covenants and we are unable to remedy the relevant breach, our lenders could accelerate our debt and foreclose on our fleet. In addition, if the book value of a vessel is impaired due to unfavorable market conditions or a vessel is sold at a price below its book value, we would incur a loss that would adversely affect our financial condition and could adversely affect our ability to pay dividends. Terrorist attacks and international hostilities could affect our results of operations and financial condition. Terrorist attacks such as the attacks on the United States on September 11, 2001, and the continuing response of the United States to these attacks, as well as the threat of future terrorist attacks, continue to cause uncertainty in the world financial markets and may affect our business, financial condition and results of operations. The war in Iraq may lead to additional acts of terrorism, regional conflict and other armed conflict around the world, which may contribute to further economic instability in the global financial markets. These uncertainties could also adversely affect our ability to obtain additional financing on terms acceptable to us or at all. In the past, political conflicts have also resulted in attacks on vessels, mining of waterways and other efforts to disrupt international shipping, particularly in the Arabian Gulf region. Acts of terrorism and piracy have also affected vessels trading in regions such as the South China Sea. Terrorist attacks, such as the October 2002 attack on the VLCC Limburg, a vessel not related to us, may in the future also negatively affect our operations and financial condition and directly impact our vessels or our customers. Future terrorist attacks could result in increased volatility of the financial markets in the United States and globally and could result in an economic recession affecting the United States or the entire world. Any of these occurrences could have a material adverse impact on our revenues and costs. Our revenues are subject to seasonal fluctuations, which may lead to volatility in our operating results and limit the amount of available cash with which we can pay dividends. We operate our vessels in markets that have historically exhibited seasonal variations in demand and, as a result, in charterhire rates. This seasonality may result in quarter-to-quarter volatility in our operating results, which could affect the amount of dividends that we pay to our stockholders from quarter to quarter. The drybulk carrier market is typically stronger in the fall and winter months in anticipation of increased consumption of coal and other raw materials in the northern hemisphere during the winter months. In addition, unpredictable weather patterns in these months tend to disrupt vessel scheduling and supplies of certain commodities. As a result, our revenues have historically been weaker during the fiscal quarters ended June 30 and September 30, and, conversely, our revenues have historically been stronger in fiscal quarters ended December 31 and March 31. This seasonality could materially affect our operating results and cash available for distribution to our stockholders as dividends in the future. Rising fuel prices may adversely affect our profits. Fuel is a significant, if not the largest, expense in our shipping operations when vessels are not under period charter. Changes in the price of fuel may adversely affect our profitability. The price and supply of fuel is unpredictable and fluctuates based on events outside our control, including geopolitical developments, supply and demand for oil and gas, actions by OPEC and other oil and gas producers, war and unrest in oil producing countries and regions, regional production patterns and environmental concerns. Further, fuel may become much more expensive in the future, which may reduce the profitability and competitiveness of our business versus other forms of transportation, such as truck or rail. We are subject to international safety regulations and the failure to comply with these regulations may subject us to increased liability, may adversely affect our insurance coverage and may result in a denial of access to, or detention in, certain ports. The operation of our vessels is affected by the requirements set forth in the International Maritime Organization's International Management Code for the Safe Operation of Ships and Pollution Prevention, or ISM Code. The ISM Code requires ship owners, ship managers and bareboat charterers to develop and maintain an extensive "Safety Management System" that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. The failure of a ship owner or bareboat charterer to comply with the ISM Code may subject it to increased liability, may invalidate existing insurance or decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports. All of our vessels are currently in compliance with the ISM Code. Maritime claimants could arrest one or more of our vessels, which could interrupt our cash flow. Crew members, suppliers of goods and services to a vessel, shippers of cargo and other parties may be entitled to a maritime lien against a vessel for unsatisfied debts, claims or damages. In many jurisdictions, a claimant may seek to obtain security for its claim by arresting a vessel through foreclosure proceedings. The arrest or attachment of one or more of our vessels could interrupt our cash flow and require us to pay large sums of money to have the arrest or attachment lifted. In addition, in some jurisdictions, such as South Africa, under the "sister ship" theory of liability, a claimant may arrest both the vessel which is subject to the claimant's maritime lien and any "associated" vessel, which is any vessel owned or controlled by the same owner. Claimants could attempt to assert "sister ship" liability against one vessel in our fleet for claims relating to another of our vessels. Governments could requisition our vessels during a period of war or emergency, resulting in a loss of earnings. A government could requisition one or more of our vessels for title or for hire. Requisition for title occurs when a government takes control of a vessel and becomes her owner, while requisition for hire occurs when a government takes control of a vessel and effectively becomes her charterer at charter rates dictated by that government. Generally, requisitions occur during periods of war or emergency, although governments may elect to requisition vessels in other circumstances. Although we would be entitled to compensation in the event of a requisition of one or more of our vessels, the amount and timing of payment would be uncertain. Government requisition of one or more of our vessels may negatively impact our revenues and reduce the amount of cash we have available for distribution as dividends to our stockholders. Company Specific Risk Factors We are dependent on short-term time or spot charters in a volatile shipping industry and a decline in charterhire rates would affect our results of operations and ability to pay dividends. We charter our vessels primarily pursuant to short-term or spot time charters. Although dependence on short-term or spot time charters is not unusual in the dry bulk shipping industry, the short-term or spot time charter market is highly competitive and spot market charterhire rates (which affect time charter rates) may fluctuate significantly based upon available charters and the supply of, and demand for, seaborne shipping capacity. While our focus on the short-term or spot time charter market may enable us to benefit in periods of increasing charterhire rates, we must consistently renew our charters and this dependence makes us vulnerable to declining charter rates. Drybulk carrier charter rates are volatile, and in the past short-term time charter and spot market charter rates for drybulk carriers have declined below operating costs of vessels. We cannot assure you that future charterhire rates will enable us to operate our vessels profitably or pay dividends. We depend entirely on Cardiff to manage and charter our fleet. We have only two employees, our Chief Executive Officer and our Chief Financial Officer, and currently have no plans to hire additional employees. We subcontract the commercial and technical management of our fleet, including crewing, maintenance and repair to Cardiff Marine Inc., an affiliated company with which we are under common control, and the loss of Cardiff's services or its failure to perform its obligations to us could materially and adversely affect the results of our operations. Although we may have rights against Cardiff if it defaults on its obligations to us, you will have no recourse against Cardiff. Further, we are required to seek approval from our lenders to change our manager. Cardiff is a privately held company and there is little or no publicly available information about it. The ability of Cardiff to continue providing services for our benefit will depend in part on its own financial strength. Circumstances beyond our control could impair Cardiff's financial strength, and because it is privately held it is unlikely that information about its financial strength would become public unless Cardiff began to default on its obligations. As a result, an investor in our shares might have little advance warning of problems affecting Cardiff, even though these problems could have a material adverse effect on us. Our Chairman and Chief Executive Officer has affiliations with Cardiff which could create conflicts of interest. Our majority shareholder is controlled by Mr. George Economou who controls a company that owns 35.5% of us and a foundation that owns 70% of Cardiff. Mr. Economou is also our Chairman and Chief Executive Officer, and a director of our company. These responsibilities and relationships could create conflicts of interest between us, on the one hand, and Cardiff, on the other hand. These conflicts may arise in connection with the chartering, purchase, sale and operations of the vessels in our fleet versus drybulk carriers managed by other companies affiliated with Cardiff and Mr. Economou. In particular, Cardiff may give preferential treatment to vessels that are beneficially owned by related parties because Mr. Economou and members of his family may receive greater economic benefits. Companies affiliated with Cardiff own and may acquire vessels that compete with our fleet. McCallister Shipping S.A., Calypso Marine Corp. and Glorious Marine Co. Ltd. are companies affiliated with Cardiff that each owns a Capesize drybulk carrier. The three vessels owned by those companies, or the Bareboat Charter Vessels, are currently employed under bareboat charters that end in the period from May 2006 to September 2007. Subject to the obligations of Mr. Economou set forth in a letter agreement between him and the Company to use commercially reasonable efforts to cause the sale of the Bareboat Charter Vessels, and to give us a right of first refusal to acquire them, when the Bareboat Charter Vessels are redelivered to the owners, they may be managed by Cardiff in competition with our fleet. In addition, Cardiff affiliates may acquire additional drybulk carriers in the future, subject to a right of first refusal that Mr. Economou has granted to us in this letter agreement. Also Panatrade Shipping and Management S.A., a company affiliated with Cardiff owns a Capesize drybulk carrier. These vessels could be in competition with our fleet and Cardiff and other companies affiliated with Cardiff might be faced with conflicts of interest with respect to their own interests and their obligations to us. We cannot assure you that our board of directors will declare dividends. Our current dividend policy is to declare quarterly distributions to stockholders of $0.20 per share by each January, April, July and October. The payment of dividends will be subject at all times to the discretion of our board of directors. The timing and amount of dividends will depend on our earnings, financial condition, cash requirements and availability, restrictions in our loan agreements, the provisions of Marshall Islands law affecting the payment of dividends and other factors. Marshall Islands laws generally prohibit the payment of dividends other than from surplus or while a company is insolvent or would be rendered insolvent upon the payment of such dividends. We may incur expenses or liabilities or be subject to other circumstances in the future that reduce or eliminate the amount of cash that we have available for distribution as dividends, including as a result of the risks described in this section of the annual report. Our growth strategy contemplates that we will finance the acquisition of additional vessels through a combination of debt and equity financing on terms acceptable to us. If financing is not available to us on acceptable terms, our board of directors may determine to finance or refinance acquisitions with cash from operations, which would reduce or even eliminate the amount of cash available for the payment of dividends. We can give no assurance that dividends will be paid in accordance with our dividend policy or at all. We may have difficulty managing our planned growth properly. We intend to continue to grow our fleet. Our growth will depend on: o locating and acquiring suitable vessels; o identifying and consummating acquisitions or joint ventures; o integrating any acquired business successfully with our existing operations; o enhancing our customer base; o managing expansion; and o obtaining required financing. Growing any business by acquisition presents numerous risks such as undisclosed liabilities and obligations, difficulty in obtaining additional qualified personnel, managing relationships with customers and suppliers and integrating newly acquired operations into existing infrastructures. We cannot give any assurance that we will be successful in executing our growth plans or that we will not incur significant expenses and losses in connection therewith. Our credit facilities impose operating and financial restrictions on us. These restrictions limit our ability to, among other things: o pay dividends or make capital expenditures if we do not repay amounts drawn under the credit facilities, if there is a default under the credit facilities or if the payment of the dividend or capital expenditure would result in a default or breach of a loan covenant; o incur additional indebtedness, including through the issuance of guarantees; o change the flag, class or management of our vessels; o create liens on our assets; o sell our vessels; o enter into a time charter or consecutive voyage charters that have a term that exceeds, or which by virtue of any optional extensions may exceed, thirteen months; o merge or consolidate with, or transfer all or substantially all our assets to, another person; and o enter into a new line of business. Therefore, we will have to seek permission from our lenders in order to engage in some corporate actions. Our lenders' interests may be different from ours and yours, and we cannot guarantee that we will be able to obtain our lenders' permission when needed. This may limit our ability to pay dividends to you, finance our future operations, make acquisitions or pursue business opportunities. Our loan agreements may prohibit or impose certain conditions on the payment of dividends. Under our new credit facility we are restricted in our payments of dividends. During 2006 dividend payments may not exceed $18.0 million; however we may request our lender's consent for additional dividend payments. Thereafter dividend payments are not to exceed 50% of net income as evidenced by the relevant annual audited financial statements. Purchasing and operating secondhand vessels may result in increased operating costs and reduced fleet utilization. While we have the right to inspect previously owned vessels prior to our purchase of them, such an inspection does not provide us with the same knowledge about their condition that we would have if these vessels had been built for and operated exclusively by us. Generally, we do not receive the benefit of warranties on secondhand vessels. A secondhand vessel may have conditions or defects that were not known to us when we purchased the vessel and which may require us to make costly repairs to the vessel. These repairs may require us to put a vessel into dry-dock which would reduce our fleet utilization. In the highly competitive international shipping industry, we may not be able to compete for charters with new entrants or established companies with greater resources. We employ our vessels in a highly competitive market that is capital intensive and highly fragmented. Competition arises primarily from other vessel owners, some of whom have substantially greater resources than we do. Competition for the transportation of dry bulk cargo by sea is intense and depends on price, location, size, age, condition and the acceptability of the vessel and its operators to the charterers. Due in part to the highly fragmented market, competitors with greater resources could enter the dry bulk shipping industry and operate larger fleets through consolidations or acquisitions and may be able to offer lower charter rates and higher quality vessels than we are able to offer. We may be unable to attract and retain key management personnel and other employees in the shipping industry, which may negatively impact the effectiveness of our management and results of operations. Our success depends to a significant extent upon the abilities and efforts of our management team and our ability to hire and retain key members of our management team. The loss of any of these individuals, difficulty in hiring and retaining personnel could adversely affect our business prospects, financial condition and results of operations. We have entered into employment contracts with our Chairman and Chief Executive Officer, George Economou, and our Chief Financial Officer, Christopher Thomas. We do not currently, nor do we intend to, maintain "key man" life insurance on any of our officers. Risks associated with operating ocean-going vessels could affect our business and reputation, which could adversely affect our revenues and stock price. The operation of ocean-going vessels carries inherent risks. These risks include the possibility of: o marine disaster; o environmental accidents; o cargo and property losses or damage; o business interruptions caused by mechanical failure, human error, war, terrorism, political action in various countries, labor strikes or adverse weather conditions; and o piracy. Any of these circumstances or events could increase our costs or lower our revenues. The involvement of our vessels in an environmental disaster may harm our reputation as a safe and reliable vessel owner and operator. The shipping industry has inherent operational risks that may not be adequately covered by our insurance. We procure insurance for our fleet against risks commonly insured against by vessel owners and operators. Our current insurance includes hull and machinery insurance, war risks insurance and protection and indemnity insurance (which include environmental damage and pollution insurance). We can give no assurance that we are adequately insured against all risks or that our insurers will pay a particular claim. Even if our insurance coverage is adequate to cover our losses, we may not be able to timely obtain a replacement vessel in the event of a loss. Furthermore, in the future, we may not be able to obtain adequate insurance coverage at reasonable rates for our fleet. We may also be subject to calls, or premiums, in amounts based not only on our own claim records but also the claim records of all other members of the protection and indemnity associations through which we receive indemnity insurance coverage for tort liability. Our insurance policies also contain deductibles, limitations and exclusions which, although we believe are standard in the shipping industry, may nevertheless increase our costs. The aging of our fleet may result in increased operating costs in the future, which could adversely affect our earnings. In general, the cost of maintaining a vessel in good operating condition increases with the age of the vessel. As of December 31, 2005, the twenty seven vessels in our operating fleet had an average age of 11 years. As our fleet ages, we will incur increased costs. Older vessels are typically less fuel efficient and more costly to maintain than more recently constructed vessels due to improvements in engine technology. Cargo insurance rates increase with the age of a vessel, making older vessels less desirable to charterers. Governmental regulations and safety or other equipment standards related to the age of vessels may also require expenditures for alterations or the addition of new equipment to our vessels and may restrict the type of activities in which our vessels may engage. We cannot assure you that, as our vessels age, market conditions will justify those expenditures or enable us to operate our vessels profitably during the remainder of their useful lives. We may have to pay tax on United States source income, which would reduce our earnings. Under the United States Internal Revenue Code of 1986, or the Code, 50% of the gross shipping income of a vessel owning or chartering corporation, such as ourselves and our subsidiaries, that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States is characterized as United States source shipping income and such income is subject to a 4% United States federal income tax without allowance for any deductions, unless that corporation qualifies for exemption from tax under Section 883 of the Code and the Treasury Regulations promulgated thereunder in August of 2003 and effective for calendar year taxpayers such as us on January 1, 2005. For the fiscal year 2005, the Company qualified for the exemption from U.S. tax on its international shipping operation based on its satisfaction of the country of organization test and the Publicly Traded Test, in each case in accordance with the applicable regulations. If we or our subsidiaries are not entitled to this exemption under Section 883 for any taxable year, we or our subsidiaries would be subject for those years to a 4% United States federal income tax on our U.S.-source shipping income. The imposition of this taxation could have a negative effect on our business and would result in decreased earnings available for distribution to our shareholders. For the 2005 taxable year, we estimate that our maximum United States federal income tax liability would be $0.5 million if we were to be subject to this taxation. Our vessels may suffer damage and we may face unexpected drydocking costs, which could adversely affect our cash flow and financial condition. If our vessels suffer damage, they may need to be repaired at a drydocking facility. The costs of drydock repairs are unpredictable and can be substantial. The loss of earnings while our vessels are being repaired and repositioned, as well as the actual cost of these repairs, would decrease our earnings and reduce the amount of cash that we have available for dividends. We may not have insurance that is sufficient to cover all or any of these costs or losses and may have to pay drydocking costs not covered by our insurance. We are a holding company, and we depend on the ability of our subsidiaries to distribute funds to us in order to satisfy our financial obligations and to make dividend payments. We are a holding company and our subsidiaries conduct all of our operations and own all of our operating assets. We have no significant assets other than the equity interests in our subsidiaries. As a result, our ability to make dividend payments depends on our subsidiaries and their ability to distribute funds to us. If we are unable to obtain funds from our subsidiaries, our board of directors may exercise its discretion not to declare or pay dividends. We do not intend to obtain funds from other sources to pay dividends. As we expand our business, we may need to improve our operating and financial systems and will need to recruit suitable employees and crew for our vessels. Our current operating and financial systems may not be adequate as we implement our plan to expand the size of our fleet and our attempts to improve those systems may be ineffective. In addition, as we expand our fleet, we will need to recruit suitable additional seafarers and shore side administrative and management personnel. While we have not experienced any difficulty in recruiting to date, we cannot guarantee that we will be able to continue to hire suitable employees as we expand our fleet. If we or our crewing agent encounters business or financial difficulties, we may not be able to adequately staff our vessels. If we are unable to grow our financial and operating systems or to recruit suitable employees as we expand our fleet, our financial performance may be adversely affected and, among other things, the amount of cash available for distribution as dividends to our stockholders may be reduced. Risks Relating to Our Common Stock There is no guarantee of a continuing public market for you to resell our common stock. Our common shares commenced trading on The Nasdaq National Market in February 2005. We cannot assure you that an active and liquid public market for our common shares will continue. The price of our common stock may be volatile and may fluctuate due to factors such as: o actual or anticipated fluctuations in our quarterly and annual results and those of other public companies in our industry; o mergers and strategic alliances in the dry bulk shipping industry; o market conditions in the dry bulk shipping industry and the general state of the securities markets; o changes in government regulation; o shortfalls in our operating results from levels forecast by securities analysts; and o announcements concerning us or our competitors. You may not be able to sell your shares of our common stock in the future at the price that you paid for them or at all. We are incorporated in the Marshall Islands, which does not have a well-developed body of corporate law. Our corporate affairs are governed by our amended and restated articles of incorporation and bylaws and by the Marshall Islands Business Corporations Act, or the BCA. The provisions of the BCA resemble provisions of the corporation laws of a number of states in the United States. However, the rights and fiduciary responsibilities of directors under the laws of the Marshall Islands are not as clearly established as the rights and fiduciary responsibilities of directors under statutes or judicial precedent in existence in the United States. The rights of stockholders under Marshall Islands law may differ from the rights of stockholders of companies incorporated in the United States. While the BCA provides that it is to be interpreted according to the laws of the State of Delaware and other states with substantially similar legislative provisions, there have been few, if any, court cases interpreting the BCA in the Marshall Islands and we can not predict whether Marshall Islands courts would reach the same conclusions as United States courts. Thus, you may have more difficulty in protecting your interests in the face of actions by management, directors or controlling stockholders than would stockholders of a corporation incorporated in a United States jurisdiction. A small number of our stockholders effectively control the outcome of matters on which our stockholders are entitled to vote. Entities affiliated with our Chairman and Chief Executive Officer currently own, directly or indirectly, approximately 44.65% of our outstanding common stock. While those stockholders have no agreement, arrangement or understanding relating to the voting of their shares of our common stock, they will effectively control the outcome of matters on which our stockholders are entitled to vote, including the election of directors and other significant corporate actions. The interests of these stockholders may be different from your interests. Future sales of our common stock could cause the market price of our common stock to decline. Sales of a substantial number of shares of our common stock in the public market, or the perception that these sales could occur, may depress the market price for our common stock. These sales could also impair our ability to raise additional capital through the sale of our equity securities in the future. We may issue additional shares of our common stock in the future and our stockholders may elect to sell large numbers of shares held by them from time to time. Our amended and restated articles of incorporation authorize us to issue 75,000,000 shares of common stock, of which 30,350,000 shares are outstanding. Our stockholders of record prior to our initial public offering in February 2005 own 15,400,000 shares, or approximately 50.7%, of our outstanding common stock. The number of shares of common stock available for sale in the public market is limited by restrictions applicable under securities laws. Anti-takeover provisions in our organizational documents could make it difficult for our stockholders to replace or remove our current board of directors or have the effect of discouraging, delaying or preventing a merger or acquisition, which could adversely affect the market price of our common stock. Several provisions of our amended and restated articles of incorporation and bylaws could make it difficult for our stockholders to change the composition of our board of directors in any one year, preventing them from changing the composition of management. In addition, the same provisions may discourage, delay or prevent a merger or acquisition that stockholders may consider favorable. These provisions include: o authorizing our board of directors to issue "blank check" preferred stock without stockholder approval; o providing for a classified board of directors with staggered, three year terms; o prohibiting cumulative voting in the election of directors; o authorizing the removal of directors only for cause and only upon the affirmative vote of the holders of a majority of the outstanding shares of our common stock entitled to vote for the directors; o prohibiting stockholder action by written consent; o limiting the persons who may call special meetings of stockholders; and o establishing advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by stockholders at stockholder meetings. Item 4. Information on the Company A. History and development of the Company We are a Marshall Islands company that was formed in September 2004. Prior to our initial public offering we issued 15,400,000 shares of our common stock to our shareholders in October 2004. In February 2005 we completed our initial public offering and issued an additional 14,950,000 common shares. Our executive offices are located at Omega Building, 80 Kifissias Avenue, Amaroussion GR 151 25 Greece. Our telephone number is 011-30-210-809-0570. B. Business overview Our Fleet We currently own and operate a fleet of 27 vessels with an aggregate cargo-carrying capacity of 2.3 million dwt. Our fleet is comprised of four Capesize drybulk carriers, 21 Panamax drybulk carriers and two Handymax drybulk carriers. Our fleet carries a variety of drybulk commodities including major bulks such as coal, iron ore, and grains, and minor bulks such as bauxite, phosphate, fertilizers and steel products. In addition to our owned fleet, we have also chartered-in a 2000 built Panamax bulkcarrier for a period of three years commencing in December 2005. The average age of the vessels in our fleet is 11 years. We employ our vessels in the spot charter market, under period time charters and in drybulk carrier pools. Ten of the Panamax drybulk carriers and one Handymax drybulk carrier in our fleet are currently operated in a drybulk carrier pool. Pools have the size and scope to combine spot market voyages, time charters and contracts of affreightment with freight forward agreements for hedging purposes and to perform more efficient vessel scheduling thereby increasing fleet utilization. Eleven of our vessels are currently on time charter. We trade our other six vessels in the spot market. The chartered-in vessel is on period time charter that runs concurrently with the time charter-in period. All of our vessels are managed by Cardiff. The Entrepreneurial Spirit Foundation, a family foundation of Vaduz Liechtenstein, of which our Chief Executive Officer and members of his family are beneficiaries, owns 70% of the issued and outstanding capital stock of Cardiff. The remaining 30% of the issued and outstanding capital stock of Cardiff is held by Prestige Finance S.A., a Liberian corporation which is wholly owned by the sister of our Chief Executive Officer. Each of our vessels is owned through a separate wholly-owned Maltese subsidiary. Our fleet is comprised of the following vessels: Name Type Dwt Year Built - ---- ---- --- ---------- Manasota Capesize Drybulk Carrier 171,061 2004 Alameda Capesize Drybulk Carrier 170,662 2001 Shibumi Capesize Drybulk Carrier 166,058 1984 Netadola Capesize Drybulk Carrier 149,475 1993 Conrad Oldendorff Panamax Drybulk Carrier 76,623 2002 Coronado Panamax Drybulk Carrier 75,706 2000 Waikiki Panamax Drybulk Carrier 75,473 1995 Mostoles Panamax Drybulk Carrier 75,395 1981 Linda Oldendorff Panamax Drybulk Carrier 75,100 1995 Sonoma Panamax Drybulk Carrier 74,786 2001 Catalina Panamax Drybulk Carrier 74,432 2005 Ocean Crystal Panamax Drybulk Carrier 73,688 1999 Belmonte Panamax Drybulk Carrier 73,601 2004 Toro Panamax Drybulk Carrier 73,034 1995 Xanadu Panamax Drybulk Carrier 72,270 1999 La Jolla Panamax Drybulk Carrier 72,126 1997 Lacerta Panamax Drybulk Carrier 71,862 1994 Panormos Panamax Drybulk Carrier 71,747 1995 Paragon Panamax Drybulk Carrier 71,250 1995 Iguana Panamax Drybulk Carrier 70,349 1996 Daytona Panamax Drybulk Carrier 69,703 1989 Lanikai Panamax Drybulk Carrier 68,676 1988 Tonga Panamax Drybulk Carrier 66,798 1984 Flecha Panamax Drybulk Carrier 65,081 1982 Striggla Panamax Drybulk Carrier 64,747 1982 Alona Handymax Drybulk Carrier 48,040 2002 Matira Handymax Drybulk Carrier 45,863 1994 We actively manage the deployment of our fleet between spot market voyage charters, which generally last from several days to several weeks, and time charters, which can last up to several years. A spot market voyage charter is generally a contract to carry a specific cargo from a load port to a discharge port for a specified total price. Under spot market voyage charters, we pay voyage expenses such as port, canal and fuel costs. A time charter is generally a contract to charter a vessel for a fixed period of time at a set daily rate. Under time charters, the charterer pays voyage expenses such as port, canal and fuel costs. Under both types of charters, we pay for vessel operating expenses, which include crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs, as well as for commissions. We are also responsible for the drydocking costs relating to each vessel. Our vessels operate worldwide within the trading limits imposed by our insurance terms and do not operate in areas where United States, European Union or United Nations sanctions have been imposed. Competition Demand for drybulk carriers fluctuates in line with the main patterns of trade of the major drybulk cargoes and varies according to changes in the supply and demand for these items. We compete with other owners of drybulk carriers in the Capesize, Panamax and Handymax size sectors. Ownership of drybulk carriers is highly fragmented and is divided among approximately 1,500 independent drybulk carrier owners. We compete for charters on the basis of price, vessel location, size, age and condition of the vessel, as well as on our reputation as an owner and operator. Customers During the year ended December 31, 2005, two of our customers accounted for more than ten percent of our voyage revenues: Baumarine AS (25%). and Oldendorff Carriers Gmbh (12%). During the year ended October 31, 2004 three of our customers accounted for more than ten percent of our voyage revenues: Transfield Shipping ER, (11%), Brave Bulk Transport Ltd. (11%) and Baumarine AS (16%). Baumarine AS is a pool operator and therefore we do not regard Baumarine as a singular "customer." During 2003, approximately 37% of our revenue was derived from two charterers, namely Bottiglieri Di Navigazione Spa. (17%) and Cobelfret S.A. (20%) Given our exposure to, and focus on, the spot market and the short-term time charter market, we do not foresee any one client providing a significant percentage of our income over an extended period of time. Management of the Fleet We do not employ personnel to run our vessel operating and chartering business on a day-to-day basis. All of our technical and commercial functions relating to the operation and employment of our vessels have been outsourced to Cardiff, which is our affiliate, pursuant to a fleet management agreement with an initial term of five years. The agreement will automatically extend to successive five year terms, unless at least one years' advance notice of termination is given by either party. Our Chief Executive Officer and Chief Financial Officer, under the guidance of our board of directors, manage our business as a holding company, including our own administrative functions, and we monitor Cardiff's performance under the fleet management agreement. Pursuant to our fleet management agreement we pay Cardiff a technical management fee of $650 per vessel per day on a monthly basis in advance pro rata for the calendar days these vessels are owned by us. We also pay Cardiff 1.25% of the gross freight, demurrage and charterhire collected from the employment of our vessels that are not employed in pools and 0.625% for those vessels that are operated by a pool. Cardiff also earns a fee equal to 1.0% calculated on the price as stated in the relevant memorandum of agreement for any vessel bought or sold on our behalf. Additional vessels that we may acquire in the future may be managed by Cardiff or other unaffiliated management companies. Cardiff has sub-contracted all of the commercial management of our fleet i.e. chartering and sale and purchase of vessels, to an affiliated company, Drybulk S.A. ("Drybulk"). Our fleet management agreement has been approved by our Board of Directors, which is comprised of two executive directors and three independent directors. Any new vessel management agreements and any amendments to our existing management agreements, or extensions thereof, will be approved by our Audit Committee. Cardiff currently manages 52 vessels (nine of which are on bareboat charter) representing approximately 3.0 million dwt. The vessels in Cardiff's managed fleet consist of drybulk carriers, crude oil, oil products and chemical tankers. In addition on November 8, 2005 and effective January 1, 2005, we entered into an agreement with Cardiff under which we pay a quarterly fee of $250 for services rendered by Cardiff in relation to our financial reporting requirements and the establishment and monitoring of internal controls over financial reporting. Crewing and Employees Cardiff employs approximately 120 people, all of whom are shore-based. In addition, Cardiff is responsible for recruiting, either directly or through a crewing agent, the senior officers and all other crew members for our vessels. We believe the streamlining of crewing arrangements will ensure that all our vessels will be crewed with experienced seamen that have the qualifications and licenses required by international regulations and shipping conventions. The International Dry Bulk Shipping Industry Dry bulk cargo is cargo that is shipped in large quantities and can be easily stowed in a single hold with little risk of cargo damage. In 2005, approximately 2.64 billion tons of dry bulk cargo was transported by sea, comprising more than one-third of all international seaborne trade. The demand for drybulk carrier capacity is determined by the underlying demand for commodities transported in drybulk carriers, which in turn is influenced by trends in the global economy. Between 1999 and 2005, trade in all dry bulk commodities increased from 1.97 billion tons to 2.64 billion tons, an increase of 34.0%. One of the main reasons for the resurgence in drybulk trade has been the growth in imports by China of iron ore, coal and steel products during the last five years. Chinese imports of iron ore alone increased from 55.3 million tons in 1999 to more than 271 million tons in 2005. Demand for drybulk carrier capacity is also affected by the operating efficiency of the global fleet, with port congestion, which has been a feature of the market in 2004, absorbing additional tonnage. The global drybulk carrier fleet may be divided into four categories based on a vessel's carrying capacity. These categories consist of: o Capesize vessels, which have carrying capacities of more than 85,000 dwt. These vessels generally operate along long haul iron ore and coal trade routes. There are relatively few ports around the world with the infrastructure to accommodate vessels of this size. o Panamax vessels have a carrying capacity of between 60,000 and 85,000 dwt. These vessels carry coal, grains, and, to a lesser extent, minor bulks, including steel products, forest products and fertilizers. Panamax vessels are able to pass through the Panama Canal making them more versatile than larger vessels. o Handymax vessels have a carrying capacity of between 35,000 and 60,000 dwt. These vessels operate along a large number of geographically dispersed global trade routes mainly carrying grains and minor bulks. Vessels below 60,000 dwt are sometimes built with on-board cranes enabling them to load and discharge cargo in countries and ports with limited infrastructure. o Handysize vessels have a carrying capacity of up to 35,000 dwt. These vessels carry exclusively minor bulk cargo. Increasingly, these vessels have operated along regional trading routes. Handysize vessels are well suited for small ports with length and draft restrictions that may lack the infrastructure for cargo loading and unloading. The supply of drybulk carriers is dependent on the delivery of new vessels and the removal of vessels from the global fleet, either through scrapping or loss. As of January 2006, the global drybulk carrier orderbook amounted to 49.7 million dwt, or 14.4% of the existing fleet, with most vessels on the orderbook expected to be delivered within 36 months. The level of scrapping activity is generally a function of scrapping prices in relation to current and prospective charter market conditions, as well as operating, repair and survey costs. The average age at which vessels were scrapped over the last five years was 26 years. However, due to recent strength in the drybulk shipping industry, the average age at which the vessels are scrapped has increased. Charterhire Rates Charterhire rates paid for drybulk carriers are primarily a function of the underlying balance between vessel supply and demand, although at times other factors may play a role. Furthermore, the pattern seen in charter rates is broadly mirrored across the different charter types and between the different drybulk carrier categories. However, because demand for larger drybulk carriers is affected by the volume and pattern of trade in a relatively small number of commodities, charterhire rates (and vessel values) of larger ships tend to be more volatile than those for smaller vessels. In the time charter market, rates vary depending on the length of the charter period and vessel specific factors such as age, speed and fuel consumption. In the voyage charter market, rates are influenced by cargo size, commodity, port dues and canal transit fees, as well as delivery and redelivery regions. In general, a larger cargo size is quoted at a lower rate per ton than a smaller cargo size. Routes with costly ports or canals generally command higher rates than routes with low port dues and no canals to transit. Voyages with a load port within a region that includes ports where vessels usually discharge cargo or a discharge port within a region with ports where vessels load cargo also are generally quoted at lower rates, because such voyages generally increase vessel utilization by reducing the unloaded portion (or ballast leg) that is included in the calculation of the return charter to a loading area. Within the dry bulk shipping industry, the charterhire rate references most likely to be monitored are the freight rate indices issued by the Baltic Exchange. These references are based on actual charterhire rates under charter entered into by market participants as well as daily assessments provided to the Baltic Exchange by a panel of major shipbrokers. The Baltic Panamax Index is the index with the longest history. The Baltic Capesize Index and Baltic Handymax Index are of more recent origin. In 2004 and 2005, rates for all sizes of drybulk carriers strengthened appreciably to historically high levels, primarily due to the high level of demand for raw materials imported by China. Recently however, rates have declined from those historically high levels. Vessel Prices Vessel prices, both for new-buildings and secondhand vessels, have increased significantly during the past two years as a result of the strength of the dry bulk shipping industry. Because sectors of the shipping industry (drybulk carrier, tanker and container ships) are in a period of prosperity, new-building prices for all vessel types have increased significantly due to a reduction in the number of berths available for the construction of new vessels in shipyards. Environmental and Other Regulations Government regulation significantly affects the ownership and operation of our vessels. We are subject to international conventions, national, state and local laws and regulations in force in the countries in which our vessels may operate or are registered. A variety of government and private entities subject our vessels to both scheduled and unscheduled inspections. These entities include the local port authorities (United States Coast Guard, harbor master or equivalent), classification societies; flag state administrations (country of registry) and charterers, particularly terminal operators. Certain of these entities require us to obtain permits, licenses and certificates for the operation of our vessels. Failure to maintain necessary permits or approvals could require us to incur substantial costs or temporarily suspend the operation of one or more of our vessels. Increasing environmental concerns have created a demand for vessels that conform to the stricter environmental standards. We are required to maintain operating standards for all of our vessels that emphasize operational safety, quality maintenance, continuous training of our officers and crews and compliance with United States and international regulations. We believe that the operation of our vessels is in substantial compliance with applicable environmental laws and regulations applicable to us as of the date of this report. International Maritime Organization The International Maritime Organization, or IMO, has negotiated international conventions that impose liability for oil pollution in international waters and a signatory's territorial waters. Annex VI to the International Convention for the Prevention of Pollution from Ships has been adopted by the IMO to address air pollution from ships. Annex VI, which became effective in May 2005, set limits on sulfur oxide and nitrogen oxide emissions from ship exhausts and prohibit deliberate emissions of ozone depleting substances, such as chlorofluorocarbons. Annex VI also includes a global cap on the sulfur content of fuel oil and allows for special areas to be established with more stringent controls on sulfur emissions. All of our vessels now comply with Annex VI. The operation of our vessels is also affected by the requirements set forth in the IMO's Management Code for the Safe Operation of Ships and Pollution Prevention, or ISM Code. The ISM Code requires ship owners and bareboat charterers to develop and maintain an extensive "Safety Management System" that includes the adoption of a safety and environmental protection policy setting forth instructions and procedures for safe operation and describing procedures for dealing with emergencies. The failure of a ship owner or bareboat charterer to comply with the ISM Code may subject such party to increased liability, may decrease available insurance coverage for the affected vessels and may result in a denial of access to, or detention in, certain ports. As of the date of this report, each of our vessels is ISM code-certified. The United States Oil Pollution Act of 1990 The United States Oil Pollution Act of 1990, or OPA, established an extensive regulatory and liability regime for the protection and cleanup of the environment from oil spills. OPA affects all owners and operators whose vessels trade in the United States, its territories and possessions or whose vessels operate in United States waters, which includes the United States' territorial sea and its two hundred nautical mile exclusive economic zone. Under OPA, vessel owners, operators and bareboat charterers are "responsible parties" and are jointly, severally and strictly liable (unless the spill results solely from the act or omission of a third party, an act of God or an act of war) for all containment and clean-up costs and other damages arising from discharges or threatened discharges of oil from their vessels. OPA defines these other damages broadly to include: o natural resources damage and the costs of assessment thereof; o real and personal property damage; o net loss of taxes, royalties, rents, fees and other lost revenues; o lost profits or impairment of earning capacity due to property or natural resources damage; and o net cost of public services necessitated by a spill response, such as protection from fire, safety or health hazards, and loss of subsistence use of natural resources. OPA limits the liability of responsible parties to the greater of $600 per gross ton or $0.5 million per drybulk carrier that is over 300 gross tons (subject to possible adjustment for inflation). These limits of liability do not apply if an incident was directly caused by violation of applicable United States federal safety, construction or operating regulations or by a responsible party's gross negligence or willful misconduct, or if the responsible party fails or refuses to report the incident or to cooperate and assist in connection with oil removal activities. We currently maintain pollution liability coverage insurance in the amount of $1 billion per incident for each of our vessels. If the damages from a catastrophic spill were to exceed our insurance coverage it could have an adverse effect on our business and results of operation. OPA requires owners and operators of vessels to establish and maintain with the United States Coast Guard evidence of financial responsibility sufficient to meet their potential liabilities under the OPA. In December 1994, the United States Coast Guard implemented regulations requiring evidence of financial responsibility in the amount of $1,500 per gross ton, which includes the OPA limitation on liability of $1,200 per gross ton and the United States Comprehensive Environmental Response, Compensation, and Liability Act liability limit of $300 per gross ton. Under the regulations, vessel owners and operators may evidence their financial responsibility by showing proof of insurance, surety bond, self-insurance or guaranty. Under OPA, an owner or operator of a fleet of vessels is required only to demonstrate evidence of financial responsibility in an amount sufficient to cover the vessels in the fleet having the greatest maximum liability under OPA. The United States Coast Guard's regulations concerning certificates of financial responsibility provide, in accordance with OPA, that claimants may bring suit directly against an insurer or guarantor that furnishes certificates of financial responsibility. In the event that such insurer or guarantor is sued directly, it is prohibited from asserting any contractual defense that it may have had against the responsible party and is limited to asserting those defenses available to the responsible party and the defense that the incident was caused by the willful misconduct of the responsible party. Certain organizations, which had typically provided certificates of financial responsibility under pre-OPA laws, including the major protection and indemnity organizations have declined to furnish evidence of insurance for vessel owners and operators if they are subject to direct actions or required to waive insurance policy defenses. The United States Coast Guard's financial responsibility regulations may also be satisfied by evidence of surety bond, guaranty or by self-insurance. Under the self-insurance provisions, the ship owner or operator must have a net worth and working capital, measured in assets located in the United States against liabilities located anywhere in the world, that exceeds the applicable amount of financial responsibility. We have complied with the United States Coast Guard regulations by providing a certificate of responsibility from third party entities that are acceptable to the United States Coast Guard evidencing sufficient self-insurance. OPA specifically permits individual states to impose their own liability regimes with regard to oil pollution incidents occurring within their boundaries, and some states have enacted legislation providing for unlimited liability for oil spills. In some cases, states which have enacted such legislation have not yet issued implementing regulations defining vessels owners' responsibilities under these laws. We intend to comply with all applicable state regulations in the ports where our vessels call. Other Environmental Initiatives The European Union is considering legislation that will affect the operation of vessels and the liability of owners for oil pollution. It is difficult to predict what legislation, if any, may be promulgated by the European Union or any other country or authority. Although the United States is not a party thereto, many countries have ratified and currently follow the liability plan adopted by the IMO and set out in the International Convention on Civil Liability for Oil Pollution Damage of 1969, or the 1969 Convention. Under this convention, and depending on whether the country in which the damage results is a party to the 1992 Protocol to the International Convention on Civil Liability for Oil Pollution Damage, a vessel's registered owner is strictly liable for pollution damage caused in the territorial waters of a contracting state by discharge of persistent oil, subject to certain complete defenses. Under an amendment that became effective in November 2003 for vessels of 5,000 to 140,000 gross tons (a unit of measurement for the total enclosed spaces within a vessel), liability is limited to approximately $6.5 million plus approximately $913 for each additional gross ton over 5,000. For vessels of over 140,000 gross tons, liability is limited to approximately $129.9 million. As the 1969 Convention calculates liability in terms of basket currencies, these figures are based on currency exchange rates on March 20, 2006. Under the 1969 Convention, the right to limit liability is forfeited where the spill is caused by the owner's actual fault; under the 1992 Protocol, a ship-owner cannot limit liability where the spill is caused by the owner's intentional or reckless conduct. Vessels trading in jurisdictions that are parties to these conventions must provide evidence of insurance covering the liability of the owner. In jurisdictions where the 1969 Convention has not been adopted, including the United States, various legislative schemes or common law govern, and liability is imposed either on the basis of fault or in a manner similar to that convention. We believe that our protection and indemnity insurance will cover the liability under the plan adopted by the IMO. Vessel Security Regulations Since the terrorist attacks of September 11, 2001, there have been a variety of initiatives intended to enhance vessel security. On November 25, 2002, the Maritime Transportation Security Act of 2002, or the MTSA, came into effect. To implement certain portions of the MTSA, in July 2003, the United States Coast Guard issued regulations requiring the implementation of certain security requirements aboard vessels operating in waters subject to the jurisdiction of the United States. Similarly, in December 2002, amendments to the International Convention for the Safety of Life at Sea, or SOLAS, created a new chapter of the convention dealing specifically with maritime security. The new chapter came into effect in July 2004 and imposes various detailed security obligations on vessels and port authorities, most of which are contained in the newly created International Ship and Port Facilities Security Code or ISPS Code. Among the various requirements are: o on-board installation of automatic information systems, or AIS, to enhance vessel-to-vessel and vessel-to-shore communications; o on-board installation of ship security alert systems; o the development of vessel security plans; and o compliance with flag state security certification requirements. The United States Coast Guard regulations, intended to align with international maritime security standards, exempt non-United States vessels from MTSA vessel security measures provided such vessels have on board a valid International Ship Security Certificate, or ISSC, that attests to the vessel's compliance with SOLAS security requirements and the ISPS Code. We have implemented the various security measures addressed by the MTSA, SOLAS and the ISPS Code. Inspection by Classification Societies Every seagoing vessel must be "classed" by a classification society. The classification society certifies that the vessel is "in class," signifying that the vessel has been built and maintained in accordance with the rules of the classification society and complies with applicable rules and regulations of the vessel's country of registry and the international conventions of which that country is a member. In addition, where surveys are required by international conventions and corresponding laws and ordinances of a flag state, the classification society will undertake them on application or by official order, acting on behalf of the authorities concerned. The classification society also undertakes on request other surveys and checks that are required by regulations and requirements of the flag state. These surveys are subject to agreements made in each individual case and/or to the regulations of the country concerned. For maintenance of the class, regular and extraordinary surveys of hull, machinery, including the electrical plant, and any special equipment classed are required to be performed as follows: o Annual Surveys. For seagoing ships, annual surveys are conducted for the hull and the machinery, including the electrical plant and where applicable for special equipment classed, at intervals of 12 months from the date of commencement of the class period indicated in the certificate. o Intermediate Surveys. Extended annual surveys are referred to as intermediate surveys and typically are conducted two and one-half years after commissioning and each class renewal. Intermediate surveys may be carried out on the occasion of the second or third annual survey. o Class Renewal Surveys. Class renewal surveys, also known as special surveys, are carried out for the ship's hull, machinery, including the electrical plant and for any special equipment classed, at the intervals indicated by the character of classification for the hull. At the special survey the vessel is thoroughly examined, including audio-gauging to determine the thickness of the steel structures. Should the thickness be found to be less than class requirements, the classification society would prescribe steel renewals. The classification society may grant a one year grace period for completion of the special survey. Substantial amounts of money may have to be spent for steel renewals to pass a special survey if the vessel experiences excessive wear and tear. In lieu of the special survey every four or five years, depending on whether a grace period was granted, a ship owner has the option of arranging with the classification society for the vessel's hull or machinery to be on a continuous survey cycle, in which every part of the vessel would be surveyed within a five year cycle. At an owner's application, the surveys required for class renewal may be split according to an agreed schedule to extend over the entire period of class. This process is referred to as continuous class renewal. All areas subject to survey as defined by the classification society are required to be surveyed at least once per class period, unless shorter intervals between surveys are prescribed elsewhere. The period between two subsequent surveys of each area must not exceed five years. Most vessels are also dry-docked every 30 to 36 months for inspection of the underwater parts and for repairs related to inspections. If any defects are found, the classification surveyor will issue a "recommendation" which must be rectified by the ship owner within prescribed time limits. Most insurance underwriters make it a condition for insurance coverage that a vessel be certified as "in class" by a classification society which is a member of the International Association of Classification Societies. All our vessels are certified as being "in class" by [Lloyd's Register of Shipping]. All new and secondhand vessels that we purchase must be certified prior to their delivery under our standard purchase contracts and memorandum of agreement. If the vessel is not certified on the date of closing, we have no obligation to take delivery of the vessel. Risk of Loss and Liability Insurance General The operation of any drybulk carrier includes risks such as mechanical failure, collision, property loss, cargo loss or damage and business interruption due to political circumstances in foreign countries, hostilities and labor strikes. In addition, there is always an inherent possibility of marine disaster, including oil spills and other environmental incidents, and the liabilities arising from owning and operating vessels in international trade. OPA, which imposes virtually unlimited liability upon owners, operators and demise charterers of vessels trading in the United States exclusive economic zone for certain oil pollution accidents in the United States, has made liability insurance more expensive for ship owners and operators trading in the United States market. While we maintain hull and machinery insurance, war risks insurance, protection and indemnity cover, increased value insurance and freight, demurrage and defense cover for our operating fleet in amounts that we believe to be prudent to cover normal risks in our operations, we may not be able to achieve or maintain this level of coverage throughout a vessel's useful life. Furthermore, while we believe that our present insurance coverage is adequate, not all risks can be insured, and there can be no guarantee that any specific claim will be paid, or that we will always be able to obtain adequate insurance coverage at reasonable rates. Hull & Machinery and War Risks Insurance We maintain marine hull and machinery and war risks insurance, which cover the risk of actual or constructive total loss, for all of our vessels. Our vessels are each covered up to at least fair market value with deductibles of $100,000 per vessel per incident. We also maintain increased value coverage for each of our vessels. Under this increased value coverage, in the event of total loss of a vessel, we are entitled to recover amounts not recoverable under our hull and machinery policy due to under-insurance. Protection and Indemnity Insurance Protection and indemnity insurance is provided by mutual protection and indemnity associations, or P&I Associations, which insure our third party liabilities in connection with our shipping activities. This includes third-party liability and other related expenses resulting from the injury or death of crew, passengers and other third parties, the loss or damage to cargo, claims arising from collisions with other vessels, damage to other third-party property, pollution arising from oil or other substances and salvage, towing and other related costs, including wreck removal. Protection and indemnity insurance is a form of mutual indemnity insurance, extended by protection and indemnity mutual associations, or "clubs." Our coverage, except for pollution, is unlimited. Our current protection and indemnity insurance coverage for pollution is $1 billion per vessel per incident. The fourteen P&I Associations that comprise the International Group insure approximately 90% of the world's commercial tonnage and have entered into a pooling agreement to reinsure each association's liabilities. Each P&I Association has capped its exposure to this pooling agreement at $4.25 billion. As a member of a P&I Association which is a member of the International Group, we are subject to calls payable to the associations based on the group's claim records as well as the claim records of all other members of the individual associations and members of the pool of P&I Associations comprising the International Group. Permits and Authorizations We are required by various governmental and quasi-governmental agencies to obtain certain permits, licenses and certificates with respect to our vessels. The kinds of permits, licenses and certificates required depend upon several factors, including the commodity transported, the waters in which the vessel operates, the nationality of the vessel's crew and the age of a vessel. We have been able to obtain all permits, licenses and certificates currently required to permit our vessels to operate. Additional laws and regulations, environmental or otherwise, may be adopted which could limit our ability to do business or increase the cost of us doing business. C. Organizational structure DryShips Inc. is the sole owner of all of the outstanding shares of the subsidiaries listed in Note 1 of our consolidated financial statements under item 18. D. Property, plant and equipment We do not own any real property. We lease office space in Athens, Greece from our Chief Executive Officer. Our interests in the vessels in our fleet are our only material properties. See "Our Fleet" in this section. Item 4A. Unresolved Staff Comments None. Item 5. Operating and Financial Review and Prospects The following management's discussion and analysis should be read in conjunction with our historical consolidated financial statements and accompanying notes included elsewhere in this report. This discussion contains forward-looking statements that reflect our current views with respect to future events and financial performance. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, such as those set forth in the section entitled "Risk Factors" and elsewhere in this report. A. Operating Results Factors Affecting Our Results of Operations We believe that the important measures for analyzing trends in the results of our operations consist of the following: o Calendar days. We define calendar days as the total number of days in a period during which each vessel in our fleet was in our possession including off-hire days associated with major repairs, drydockings or special or intermediate surveys. Calendar days are an indicator of the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during that period. o Voyage days. We define voyage days as the total number of days in a period during which each vessel in our fleet was in our possession net of off-hire days associated with major repairs, drydockings or special or intermediate surveys. The shipping industry uses voyage days (also referred to as available days) to measure the number of days in a period during which vessels actually generate revenues. o Fleet utilization. We calculate fleet utilization by dividing the number of our voyage days during a period by the number of our calendar days during that period. The shipping industry uses fleet utilization to measure a company's efficiency in finding suitable employment for its vessels and minimizing the amount of days that its vessels are off-hire for reasons such as scheduled repairs, vessel upgrades, drydockings or special or intermediate surveys. o Spot Charter Rates. Spot charter rates are volatile and fluctuate on a seasonal and year to year basis. Fluctuations are caused by imbalances in the availability of cargoes for shipment and the number of vessels available at any given time to transport these cargoes. Voyage Revenues Our voyage revenues are driven primarily by the number of vessels in our fleet, the number of voyage days during which our vessels generate revenues and the amount of daily charterhire that our vessels earn under charters, which, in turn, are affected by a number of factors, including our decisions relating to vessel acquisitions and disposals, the amount of time that we spend positioning our vessels, the amount of time that our vessels spend in dry-dock undergoing repairs, maintenance and upgrade work, the age, condition and specifications of our vessels, levels of supply and demand in the drybulk transportation market and other factors affecting spot market charter rates for drybulk carriers. Vessels operating on period time charters provide more predictable cash flows, but can yield lower profit margins than vessels operating in the spot charter market during periods characterized by favorable market conditions. Vessels operating in the spot charter market generate revenues that are less predictable but may enable us to capture increased profit margins during periods of improvements in charter rates although we are exposed to the risk of declining charter rates, which may have a materially adverse impact on our financial performance. If we employ vessels on period time charters, future spot market rates may be higher or lower than the rates at which we have employed our vessels on period time charters. We have placed eleven of our vessels in a pool. We are paid a percentage of revenues generated by the pool calculated in accordance with a "pool point formula," which is determined by points awarded to each vessel based on the vessel's age, dwt, speed, fuel consumption and certain other factors. For example, a younger vessel with higher carrying capacity and greater fuel efficiency would earn higher pool points than an older vessel with lower carrying capacity and lesser fuel efficiency. Revenues are paid every 15 days in arrears based on the points earned by each vessel. We believe that by placing our vessels in a pool of similar vessels, we benefit from certain economies of scale available to the pool relating to negotiations with major charterers and flexibility in positioning vessels to obtain maximum utilization. Revenue from these pooling arrangements is accounted for on the accrual basis and is recognized when the collectability has been reasonably assured. Revenue from the pooling arrangements for the year ended December 31, 2005 accounted for 25%, of our voyage revenues. A standard maritime industry performance measure used to evaluate performance is the daily time charter equivalent, or daily TCE. Daily TCE revenues are voyage revenues minus voyage expenses divided by the number of voyage days during the relevant time period. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by a charterer under a time charter, as well as commissions. We believe that the daily TCE neutralizes the variability created by unique costs associated with particular voyages or the employment of vessels on time charter or on the spot market and presents a more accurate representation of the revenues generated by our vessels. Voyage Expenses Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by a charterer under a time charter, as well as commissions. These expenses are not under our control and therefore if we were to charter any of our vessels under a voyage charter, whereby we would be responsible for these expenses, any increase would adversely affect our results from operations. Vessel Operating Expenses Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Our vessel operating expenses, which generally represent fixed costs, have historically increased as a result of the increase in the size of our fleet. Other factors beyond our control, some of which may affect the shipping industry in general, including, for instance, developments relating to market prices for insurance, may also cause these expenses to increase. Depreciation and Amortization We depreciate our vessels on a straight-line basis over their estimated useful lives determined to be 25 years from the date of their initial delivery from the shipyard. Depreciation is based on cost less the estimated residual value. We capitalize the costs associated with a drydocking and amortize these costs on a straight-line basis over the period when the next drydocking becomes due, which is typically 30 months. Regulations and/or incidents may change the estimated dates of next drydockings. Management Fees - Related Party We pay Cardiff a technical management fee of $650 (based on a Euro/Dollar exchange rate of 1.30:1.00) per vessel per day on a monthly basis in advance, pro rata for the calendar days these vessels are owned by us. The management fee is adjusted quarterly based on the Euro/Dollar exchange rate as published by EFG Eurobank Ergasias S.A. two days prior to the end of the previous calendar quarter. In addition, we pay Cardiff any expenses incurred in connection with any visit to a vessel by a superintendent engineer of Cardiff to evaluate or supervise any repairs, drydockings or other activities and, for visits in excess of five days per annum per vessel, we pay Cardiff $550 for each additional day. General and Administrative Expenses and General Administrative Expenses - Related Party Our general and administrative expenses mainly include executive compensation and the fees paid to Fabiana Services S.A. ("Fabiana") a related party entity incorporated in Marshall Islands for providing consultation services with respect to our Chief Executive Officer and Chief Financial Officer duties. The shares of this company are beneficially held by Mr. Economou and Mr. Thomas. Interest and Finance Costs We have historically incurred interest expense and financing costs in connection with vessel specific debt of our subsidiaries. We used a portion of the proceeds of our initial public offering in February 2005 to repay all of our then outstanding debt. We have incurred financing costs and we also expect to incur interest expenses under our credit facilities in connection with debt incurred to finance future acquisitions. However, we intend to limit the amount of these expenses and costs by repaying our outstanding indebtedness from time to time with the net proceeds of future equity issuances. Inflation Inflation has not had a material effect on our expenses given current economic conditions. In the event that significant global inflationary pressures appear, these pressures would increase our operating, voyage, administrative and financing costs. Lack of Historical Operating Data for Vessels Before Their Acquisition Although vessels are generally acquired free of charter, we have acquired (and may in the future acquire) some vessels with time charters. Where a vessel has been under a voyage charter, the vessel is usually delivered to the buyer free of charter. It is rare in the shipping industry for the last charterer of the vessel in the hands of the seller to continue as the first charterer of the vessel in the hands of the buyer. In most cases, when a vessel is under time charter and the buyer wishes to assume that charter, the vessel cannot be acquired without the charterer's consent and the buyer entering into a separate direct agreement (called a "novation agreement") with the charterer to assume the charter. The purchase of a vessel itself does not transfer the charter because it is a separate service agreement between the vessel owner and the charterer. Where we identify any intangible assets or liabilities associated with the acquisition of a vessel, we record all identified tangible and intangible assets or liabilities at fair value. Fair value is determined by reference to market data and the discounted amount of expected future cash flows. Where we have assumed an existing charter obligation or entered into a time charter with the existing charterer in connection with the purchase of a vessel at charter rates that are less than market charter rates, we record a liability, based on the difference between the assumed charter rate and the market charter rate for an equivalent vessel to the extent the vessel's capitalized cost would not exceed its fair value without a time charter. Conversely, where we assume an existing charter obligation or enter into a time charter with the existing charterer in connection with the purchase of a vessel at charter rates that are above market charter rates, we record an asset, based on the difference between the market charter rate and the contracted charter rate for an equivalent vessel. This determination is made at the time the vessel is delivered to us, and such assets and liabilities are amortized to revenue over the remaining period of the charter. During February and March 2005 we took delivery of eight second hand vessels, the Matira, Tonga, Iguana, Ocean Crystal, Toro, Paragon, Xanadu, and La Jolla with charter party arrangements attached, which we agreed to assume through arrangements with the respective charterers. Upon delivery of the vessels we evaluated the charter contract assumed and recognized deferred revenue of $6,581 with a corresponding increase in the vessels purchase price. The fair value of the assumed charters was determined based on reference to current market rates for similar contracts considering the remaining time charter period. Of the above mentioned vessels, four (Iguana, Ocean Crystal, Toro and Paragon) were acquired from companies that were beneficially owned by our Chief Executive Officer's sister, while the remaining four were acquired from third parties. When we purchase a vessel and assume or renegotiate a related time charter, we must take the following steps before the vessel will be ready to commence operations: o obtain the charterer's consent to us as the new owner; o obtain the charterer's consent to a new technical manager; o in some cases, obtain the charterer's consent to a new flag for the vessel; o arrange for a new crew for the vessel, and where the vessel is on charter, in some cases, the crew must be approved by the charterer; o replace all hired equipment on board, such as gas cylinders and communication equipment; o negotiate and enter into new insurance contracts for the vessel through our own insurance brokers; o register the vessel under a flag state and perform the related inspections in order to obtain new trading certificates from the flag state; o implement a new planned maintenance program for the vessel; and o ensure that the new technical manager obtains new certificates for compliance with the safety and vessel security regulations of the flag state. The following discussion is intended to help you understand how acquisitions of vessels affect our business and results of operations. Our business is comprised of the following main elements: o employment and operation of our dry bulk vessels; and o management of the financial, general and administrative elements involved in the conduct of our business and ownership of our dry bulk vessels. The employment and operation of our vessels require the following main components: o vessel maintenance and repair; o crew selection and training; o vessel spares and stores supply; o contingency response planning; o onboard safety procedures auditing; o accounting; o vessel insurance arrangement; o vessel chartering; o vessel security training and security response plans (ISPS); o obtain ISM certification and audit for each vessel within the six months of taking over a vessel; o vessel hire management; o vessel surveying; and o vessel performance monitoring. The management of financial, general and administrative elements involved in the conduct of our business and ownership of our vessels requires the following main components: o management of our financial resources, including banking relationships, i.e., administration of bank loans and bank accounts; o management of our accounting system and records and financial reporting; o administration of the legal and regulatory requirements affecting our business and assets; and o management of the relationships with our service providers and customers. The principal factors that affect our profitability, cash flows and shareholders' return on investment include: o rates and periods of charter hire; o levels of vessel operating expenses; o depreciation and amortization expenses; o financing costs; and o fluctuations in foreign exchange rates. Results of Operations Year ended December 31, 2005 compared to the year ended October 31, 2004 VOYAGE REVENUES--Voyage revenues increased by $165.4 million, or 260.5%, to $228.9 million for 2005, compared to $63.5 million for 2004. This increase is due to the delivery of 21 vessels during the period from February to August 2005, which increased voyage days to 7,710 in 2005 from 2,066 in 2004. In addition the average fleet time charter equivalent rate increased marginally from $28,062 in 2004 to $28,446 for 2005. VOYAGE EXPENSES--Voyage expenses (including gains from bunkers on board relating to vessels employed under time charter agreements) increased by $4.1 million, or 74.5%, to $9.6 million for 2005, compared to $5.5 million for 2004. This increase is attributable to increased commissions. Commissions paid during 2005 and 2004 to Cardiff amounted to $2.9 million and $0.8 million, respectively, and commissions paid to unaffiliated ship brokers amounted to $7.7 million and $2.5 million, respectively. The increase in commissions was primarily the result of the increase in voyage days in 2005, which increased the amount of revenue we reported. However, the increase in voyage expenses due to the increase in commissions was partly offset by gains resulting from the difference between the purchase and sale price of bunkers on the delivery and redelivery of the vessels to and from their time charterers. Such gains amounted to $3.4 million and $0.9 million for 2005 and 2004, respectively. VESSEL OPERATING EXPENSES--Vessel operating expenses, which include crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs, increased by $26.9 million, or 274.5%, to $36.7 million for 2005 compared to $9.8 million for 2004. Daily vessel operating expenses per vessel increased by $158, or 3.5%, to $4,668 for 2005 compared to $4,510 for 2004. This increase is due to the increase in number of vessels from an average of 6 in 2004 to 21.6 in 2005 and a corresponding increase of calendar days from 2,166 in 2004 to 7,866 days in 2005. DEPRECIATION AND AMORTIZATION-- Year ended ---------- October 31 2004 December 31, 2005 --------------- ----------------- Vessels depreciation expense $ 4,735 40,231 Amortization of drydockings 1,716 2,379 $ 6,451 42,610 Depreciation and amortization, which includes depreciation of vessels as well as amortization of drydockings, increased by $36.1 million, or 555.4% to $42.6 million for 2005 compared to $6.5 million for 2004. This increase is due to the delivery of 21 vessels during the period from February to August 2005. MANAGEMENT FEES - relate to the fees paid to Cardiff for the management of our vessels and increased by $3.7 million or 284.6% to $5.0 million in 2005 from $1.3 million in 2004. This increase is due to the increase in number of vessels from an average of 6 in 2004 to 21.6 in 2005 and a corresponding increase of calendar days from 2,166 in 2004 to 7.866 days in 2005. GENERAL AND ADMINISTRATIVE EXPENSES--General and administrative expenses increased by $4.0 million to $4.2 million for 2005 compared to $0.2 million for 2004. This increase is due to the additional administrative costs in connection with the operation of our larger fleet and the duties typically associated with public companies and to the compensation of our senior management and directors which amounted $1.4 million. In addition, general and administrative expenses in 2005 include an amount of $1.6 million relating to remuneration paid to Cardiff for additional services not contemplated by the management agreement and carried out during the pre-delivery period of the 21 newly acquired vessels and for services rendered by Cardiff in relation to our financial reporting requirements and the establishment and monitoring of internal controls over financial reporting. INTEREST AND FINANCE COSTS--Interest and Finance costs increased by $18.9 million, or 1,260%, to $20.4 million for 2005 compared to $1.5 million for 2004. This increase is primarily the result of the four new credit facilities entered into in 2005 totaling $577.6 million for the acquisition of 21 vessels. INTEREST INCOME--Interest income was $0.7 million during 2005 compared to $ 0.0 million during 2004. OTHER NET--We recognized a loss of $0.2 million during 2005 compared to a gain of $0.3 million during 2004. These gains and losses relate to amounts received in connection with claims for damages to our vessels compared to the actual costs associated with such repairs. NET INCOME--Net income was $111.0 million for 2005 compared to net income of $39.1 million for 2004. This increase is attributable to the increase in the size of our fleet. Two month period ended December 31, 2004. VOYAGE REVENUES--Voyage revenues for the two month period were $15.6 million. Our initial fleet of 6 vessels operated throughout the period, with no off-hire days, generating an average TCE rate per vessel of $39,516. This is a significantly higher rate than that of prior periods and the increase is entirely due to higher charter rates at the end of 2004. VOYAGE EXPENSES (Including Bunkers)--Voyage expenses for the two month period were $1.1 million, of which $0.7 million related to commissions. The remaining voyage expenses of $0.4 million relate almost entirely to the expenses incurred by Mostoles which was the only vessel to operate on voyage charter during the period. VESSEL OPERATING EXPENSES--Vessel operating expenses were $1.8 million for the two month period. Daily vessel operating expenses per vessel were $4,798. DEPRECIATION AND AMORTIZATION--Depreciation and amortization for the period was $1.1 million. The vessels Striggla, Shibumi and Lacerta underwent drydockings as of October 31, 2004 and the amortization charge for the period reflects the resultant increase in deferred drydocking costs. MANAGEMENT FEES-- Management fees totaled approximately $0.2 million for the two month period. INTEREST AND FINANCE COSTS--Interest and finance costs for the period were $0.5 million. Of this amount, $0.3 million relates to interest incurred on the Company's outstanding loans for the period and $0.1 million relates to amortization and write-off of financing fees, while another $0.1 million relates to bank charges. NET INCOME--Net income was $10.7 million for the two month period. Year ended October 31, 2004 compared to the year ended October 31, 2003 VOYAGE REVENUES--Voyage revenues increased by $38.4 million, or 153.0% to $63.5 million for 2004, compared to $25.1 million for 2003. This increase is due to the delivery of Panormos on December 1, 2003, which contributed $11.9 million in voyage revenues and an overall increase in drybulk rates which increased the revenues generated by the other five vessels in our fleet to $51.6 million in 2004 from $25.1 in 2003. VOYAGE EXPENSES (Including Bunkers)--Voyage expenses, which primarily consist of port, canal and fuel costs that are unique to a particular voyage which would otherwise be paid by the charterer under a time charter contract, as well as commissions, increased $1.9 million, or 52.8%, to $5.5 million for 2004, compared to $3.6 million for 2003. This increase is primarily due to the increase in the amount of commissions paid, which increased $2.0 million or 153.8% to $3.3 million for 2004, from $1.3 million for 2003. Commissions are calculated as a percentage of voyage revenues. This increase in commissions paid was partially offset by lower voyage expenses, excluding commissions, which decreased by $0.1 million to $2.2 million for 2004, from $2.3 million for 2003, due to the higher number of time charters performed by our vessels during 2004, compared to 2003. VESSEL OPERATING EXPENSES--Vessel operating expenses, which include crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs, increased by $3.1 million, or 46.3%, to $9.8 million for 2004 compared to $6.7 million for 2003. Daily vessel operating expenses per vessel increased by $817, or 22.1%, to $4,510 for 2004 compared to $3,693 for 2003. This increase is primarily due to (i) an increase in the cost of repairs and deck and engine stores purchased from suppliers in more expensive geographical locations due to some vessels' trading patterns, incurred during but not relating to the drydockings on our vessels Shibumi, Striggla and Lacerta, (ii) an increase in the cost of insurance on our vessels due to an increase in rates charged by insurance companies throughout the shipping sector and (iii) an increase in crew costs due to the appreciation of the Euro against the U.S. dollar. DEPRECIATION AND AMORTIZATION-- Year ended October 31, ---------------------- 2003 2004 ---- ---- Vessels depreciation expense $ 3,580 $ 4,735 Amortization of drydockings 1,664 1,716 $ 5,244 $ 6,451 Depreciation and amortization, which includes depreciation of vessels as well as amortization of drydockings, increased by $1.3 million, or 25.0% to $6.5 million for 2004 compared to $5.2 million for 2003. This increase is primarily due to the delivery of Panormos in December 2003 plus an increase in amortization of drydocking expenses due to the drydocking of Striggla, Shibumi and Lacerta during 2004. MANAGEMENT FEES - relate to the fees that we pay to Cardiff for the management of our vessels and increased by $0.2 million or 18.2% from $1.1 million in 2003 to $1.3 million in 2004. This increase was due to the delivery of Panormos. GENERAL AND ADMINISTRATIVE EXPENSES--General and administrative expenses, remained stable to $0.2 million in 2003 and 2004. INTEREST AND FINANCE COSTS--Interest and finance cost increased by $0.4 million, or 36.4%, to $1.5 million for 2004 compared to $1.1 million for 2003. This increase is primarily the result of the $20.0 million debt we incurred in December 2003 to partially finance the acquisition cost of the vessel Panormos. OTHER NET--We recognized a gain of $0.3 million during 2004 compared to a gain of $0.2 million during 2003. These gains relate to the excess amount we received in connection with claims for damages to our vessels compared to the actual costs associated with the repairs. NET INCOME--Net income was $39.1 million for 2004 compared to net income of $7.2 million for 2003. B. Liquidity and Capital Resources Historically our principal source of funds has been equity provided by our shareholders, operating cash flows and long-term borrowings. Our principal use of funds has been capital expenditures to establish and grow our fleet, maintain the quality of our drybulk carriers, comply with international shipping standards and environmental laws and regulations, fund working capital requirements, make principal repayments on outstanding loan facilities, and pay dividends. We expect to rely upon operating cash flows, long-term borrowings, as well as future equity financings to implement our growth plan. We believe that our current cash balance as well as operating cash flows will be sufficient to meet our liquidity needs for the next two to three years assuming the charter market does not deteriorate to the low rate environment that prevailed subsequent to the Asian financial crisis in 1999. If we do acquire additional vessels, we will rely on new debt, proceeds from future offerings and revenues from operation to meet our liquidity needs going forward. Our practice has been to acquire drybulk carriers using a combination of funds received from equity investors and bank debt secured by mortgages on our drybulk carriers. Our business is capital intensive and its future success will depend on our ability to maintain a high-quality fleet through the acquisition of newer drybulk carriers and the selective sale of older drybulk carriers. These acquisitions will be principally subject to management's expectation of future market conditions as well as our ability to acquire drybulk carriers on favorable terms. In March 2006 we entered into a new loan agreement with a syndicate of shipping banks for an amount of up to $628.7 million. The proceeds of the loan will be used (i) to refinance existing loans; (ii) for general corporate purposes; (iii) to finance up to the lower of $27.5 million or 76.5% of the market value of Hille Oldendorff; and (iv) to finance the purchase of additional vessels of up to 75% of the market value. The term of the loan under (i), (ii), (iii) is 10 years while the term under (iv) is to be determined by the age of the vessels acquired. The loan carries interest at LIBOR plus margins ranging from 1.0% and 2.53% determined by prevailing loan to value ratios calculated every quarter. The loan is secured by first priority ship mortgages on the Company's fleet of vessels, assignment of earnings and insurances and a pledge over a deposit of $5.0 million. Cash Flows Our cash and cash equivalents decreased to $5.2 million as of December 31, 2005, compared to $8.4 million as of December 31, 2004 and to $6.2 million as of October 31, 2004. Working capital is current assets minus current liabilities, including the current portion of long-term debt. Our working capital deficit was $117.0 million as of December 31, 2005 due to the increase in the current portion of long-term debt which increased to $107.7 million in 2005 compared to $25.4 million as of October 31, 2004. NET CASH FROM OPERATING ACTIVITIES-- was $163.8 million during 2005 compared to net cash from operating activities of $7.3 million during the year ended October 31, 2004. This change is primarily attributable to an increase in net income of $71.9 million as a result of the delivery of 21 vessels during the period from February to August 2005 mitigated by the increase in depreciation of $35.5 million, deferred revenue of $5.2 million and changes to related parties of $45.5 million NET CASH USED IN INVESTING ACTIVITIES-- was $847.6 million for the year ended December 31, 2005, which reflects the acquisition cost of the 21 vessels delivered during the period from February to August 2005 compared to $20.1 million during the year ended October 31, 2004 representing the balance of the purchase price of Panormos, following the advance payment of $2.2 million we made in October 2003. NET CASH FROM FINANCING ACTIVITIES-- was $680.7 million for the year ended December 31, 2005, compared to $16.0 million during the year ended October 31, 2004. The change in cash provided by financing activities relates to the following: o Proceeds from borrowing under long-term debt were $577.6 million during the year ended December 31, 2005 in connection with the acquisition of the 21 vessels delivered between February and August 2005, compared to $26.0 million for the year ended October 31, 2004 in connection with the acquisition of the vessel Panormos. o Principal repayments of long-term debt of $90.0 million for the year ended December 31, 2005, compared to $8.2 million for the year ended October 31, 2004. o Increase in restricted cash of $23.6 million in 2005 compared to an increase of $1.6 million in the year ended October 31, 2004. o Dividends of $30.1 million in 2005 compared to $0.0 million in the year ended October 31, 2004. As of December 31, 2004, we had a cash balance of $8.4 million. Working capital is current assets minus current liabilities, including the current portion of long-term debt. The working capital deficit was $13.7 million as of December 31, 2004 due to the declaration of dividends to our existing shareholders, which was given retroactive effect in our financial statements for the fiscal year ended October 31, 2004, and prior to our initial public offering which was completed in February 2005. Of the $69.0 million dividend declared, $18.0 million was still payable as of December 31, 2004. An additional $10.7 million was paid on February 8, 2005 and the remainder was paid on May 24, 2005. NET CASH FROM OPERATING ACTIVITIES - was $55.2 million for the two-month period ended December 31, 2004. This is attributable to the improved trading conditions which contributed net income of $10.7 million and the decrease by $40.6 million of the amounts due from Cardiff that were settled and used to pay existing shareholders a portion of the $69.0 million dividend outstanding as of October 31, 2004. NET CASH USED IN FINANCING ACTIVITIES - was $53.0 million for the two-month period ended December 31, 2004. This mainly relates to the dividend of $51.0 million that was paid to the existing shareholders on December 23, 2004. During the period we also made principal payments of long term debt of $17.4 million, while we incurred long term debt of $15.4 million. NET CASH FROM OPERATING ACTIVITIES--increased by $4.8 million to $7.3 million during the year ended October 31, 2004, compared to net cash from operating activities of $2.5 million during 2003. This increase is primarily attributable to net income of $39.1 million as a result of improved trading conditions in combination with the increase in voyage days following our acquisition of the drybulk vessel Panormos, mitigated by the increase in our related party balances due from Cardiff, which maintains and handles the majority of the cash generated from vessel operations, of $35.3 million. Furthermore payments for drydockings in the year ended October 31, 2004, were $3.3 million compared to $1.3 million in 2003 as vessels Striggla, Shibumi and Lacerta underwent their scheduled drydockings in 2004. NET CASH USED IN INVESTING ACTIVITIES--was $20.1 million during the year ended October 31, 2004, which reflects the acquisition costs for the vessel Panormos, following the advance payment of $2.2 million we made in October 2003. NET CASH FROM FINANCING ACTIVITIES--was $16.0 million during the year ended October 31, 2004, compared to net cash from financing activities of $0.4 million during 2003. The change in cash provided by financing activities relates to the following: o Net proceeds from borrowing under long-term debt were $26.0 million in connection with the refinancing of certain of our loans and the acquisition of the vessel Panormos during the year ended October 31, 2004, compared to $3.4 million during 2003. o Principal repayments of long-term debt of $8.2 million during the year ended October 31, 2004, compared to $2.8 million during 2003. o Dividends of $0.0 million in the year ended October 31, 2004 compared to $2.3 million in 2003. EBITDA, as defined in Footnote 2 to the "Selected Financial Data" increased by $126.2 million, or 268%, to $173.3 million for 2005, compared to $47.1 million for the year ended October 31, 2004. This increase is primarily due to the increase of net voyage revenue generated by our fleet as a result of the delivery of 21 vessels during the period from February to August 2005. EBITDA for the two month period ended December 31, 2004 was $12.3 million and was a result of a strong drybulk market that prevailed during the period and continued during the first quarter of 2005. During the two month period the Company operated 6 vessels. EBITDA increased by $33.6 million, or 248.9%, to $47.1 million for the year ended October 31, 2004, compared to $13.5 million for 2003. This increase is primarily due to the increase of net voyage revenue generated by our fleet as a result of the overall stronger drybulk market during 2004 compared to 2003. The increase was mitigated by the increase in vessel operating expenses and general and administrative expenses for 2004 compared to 2003. CONTRACTUAL OBLIGATIONS The following table sets forth our contractual obligations and their maturity dates as of December 31, 2005: One to Three More Within Three to Five than One Year Years Years Five Years Total -------- ----- ----- ---------- ----- (in thousands of U.S. dollars) Bank loans (1) 108,218 169,744 114,743 135,620 528,325 Rental agreement for office premises (2) 11 33 11 -- 55 Chartering commitments (3) 6,022 12,044 - -- 18,066 (1) As of December 31, 2005, we had five outstanding loans with a combined outstanding balance of $528.3 million, which were refinanced on March 31, 2006 through two loan agreements (see subsequent events below). The original loans have maturity dates between 2006 and 2011. The scheduled annual principal payments for our outstanding loans are as follow: LOANS 160m 200m 92.94m 120.6m 14m A B C D E TOTAL Year ended December 31, 2006 22,000,000 42,732,373 23,510,000 15,976,252 4,000,000 108,218,625 2007 18,000,000 31,972,580 4,200,000 15,976,252 2,100,000 72,248,832 2008 13,500,000 22,072,801 4,200,000 15,976,252 1,200,000 56,949,053 2009 12,000,000 12,320,790 4,200,000 10,825,126 1,200,000 40,545,916 Thereafter 77,000,000 68,595,069 42,864,000 53,902,992 8,000,000 250,362,061 TOTAL $142,500,000 $177,693,613 78,974,000 $112,656,874 $16,500,000 $528,324,487
(2) We lease office space in Athens, Greece, from Mr. George Economou, our Chairman and CEO. On October 1, 2005 and effective as of the same date, we entered into a rental agreement with our Chief Executive Officer to lease office space in Athens, Greece. The agreement is for duration of 5 years beginning October 1, 2005 and expires on September 30, 2010. The annual rental for the first two years is Euro 9,000 and thereafter it will be adjusted annually for inflation increases. Prior to entering the above agreement, we agreed to cancel without penalties from either party a previously existing rental agreement for leasing office space from our Chief Executive Officer. That agreement had been effective for a five year period beginning January 1, 2005 at an annual rental of Euro 14,000 before any annual inflation increases. (3) In November 2004 we entered into an agreement with Tara Shipping Limited, an unrelated party, to charter-in the vessel "Darya Tara" for a minimum period of 36 months and a maximum of 38 months at a daily rate of $16,5 per day. Concurrently with the aforementioned agreement, the Company concluded a charter party agreement with an unrelated party for the charter-out of the vessel Darya Tara over the same period and at a daily rate of $16,7. Quantitative and Qualitative Disclosure of Market Risk Interest Rate Fluctuation The international drybulk industry is a capital intensive industry, requiring significant amounts of investment. Much of this investment is provided in the form of long term debt. Our debt usually contains interest rates that fluctuate with LIBOR. Increasing interest rates could adversely impact future earnings. Our interest expense is affected by changes in the general level of interest rates. As an indication of the extent of our sensitivity to interest rate changes, an increase of 100 basis points would have decreased our net income and cash flows in the current year by approximately $338,650 based upon our debt level at December 31, 2005. The following table sets forth the sensitivity of loans A through E in U.S. dollars to a 100 basis points increase in LIBOR during the next five years on the same basis. YEAR AMOUNT - ---- ------ 2006 4,674,359 2007 3,780,854 2008 3,134,865 2009 2,647,390 Foreign Exchange Rate Risk We generate all of our revenues in U.S. dollars, but incur approximately 24% of our expenses in currencies other than U.S. dollars. For accounting purposes, expenses incurred in Euros are converted into U.S. dollars at the exchange rate prevailing on the date of each transaction. At December 31, 2005, approximately 31% of our outstanding accounts payable were denominated in currencies other than the U.S. dollar (mainly the Euro). Critical Accounting Policies The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States, or U.S. GAAP. The preparation of those financial statements requires us to make estimates and judgments that affect the reported amount of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions. Critical accounting policies are those that reflect significant judgments or uncertainties, and potentially result in materially different results under different assumptions and conditions. We have described below what we believe are our most critical accounting policies that involve a high degree of judgment and the methods of their application. For a description of all of the company's significant accounting policies, see Note 2 to the Company's consolidated financial statements. Impairment of long-lived assets. We evaluate the carrying amounts of vessels to determine if events have occurred which would require modification to their carrying values. In evaluating carrying values of vessels, we review certain indicators of potential impairment, such as undiscounted projected operating cash flows, vessel sales and purchases, business plans and overall market conditions. We determine undiscounted projected net operating cash flows for each vessel and compare it to the vessel's carrying value. If our estimate of undiscounted future cash flows for any vessel is lower than the vessel's carrying value plus any unamortized drydocking costs, the carrying value is written down, by recording a charge to operations, to the vessel's fair market value if the fair market value is lower than the vessel's carrying value.. We estimate fair market value primarily through the use of third party valuations performed on an individual vessel basis. Depreciation. We record the value of our vessels at their cost (which includes acquisition costs directly attributable to the vessel and expenditures made to prepare the vessel for its initial voyage) less accumulated depreciation. We depreciate our vessels on a straight-line basis over their estimated useful lives, estimated to be 25 years, with the exception of vessel Tonga, from date of initial delivery from the shipyard. We believe that a 25-year depreciable life is consistent with that of other ship owners. The useful life of Tonga is estimated to 26 years, which coincides with the validity of the class certificate. Depreciation is based on cost less the estimated residual scrap value. A decrease in the useful life of a dry bulk vessel or in its residual value would have the effect of increasing the annual depreciation charge. When regulations place limitations on the ability of a vessel to trade on a worldwide basis, the vessel's useful life is adjusted at the date such regulations are adopted. Deferred drydock costs. Our vessels are required to be drydocked for major repairs and maintenance that cannot be performed while the vessel is operating approximately every 30 months. We capitalize the costs associated with the drydocks as they occur and amortize these costs on a straight line basis over the period between drydocks. Costs capitalized as part of the drydock include actual costs incurred at the drydock yard, and the cost of hiring a third party to oversee a drydock. Allowance for doubtful accounts. Revenue is based on contracted charter parties and although our business is with customers who we believe to be of the highest standard, there is always the possibility of dispute over terms and payment of freight. In such circumstances, we assess the recoverability of amounts outstanding and we estimate a provision if there is a possibility of non-recoverability. Although we believe our provisions to be based on fair judgment at the time of their creation, it is possible that an amount under dispute is not recovered and the estimated provision for doubtful recoverability is inadequate. Subsequent Events On March 31, 2006, we concluded two loan agreements for an aggregate amount of up to $628.7 million with a syndicate of institutional lenders as follows: o A term loan and short term credit facility of up to $518.7 million in aggregate divided into a term loan of $460.0 million in order to refinance our then outstanding balance under prior indebtedness ($528.3 million as at December 31, 2005), to partially finance the acquisition cost of a second-hand vessel and for working capital and a credit facility of $58.7 million in order to partially finance the acquisition cost of additional vessels acceptable to the lenders. The credit facility of $58.7 million is available for drawdown for 364 days after the signing of the agreement and each amount drawn down will be included in the term loan and paid in equal consecutive quarterly installments commencing on the next quarterly repayment of the term loan and the length of repayment will depend on the age of each of the additional vessels to be acquired. The term loan is payable in forty variable consecutive quarterly installments commencing six months after the drawdown date but not later than August 31, 2006 and through May 2016 plus a balloon payment of $81.3 million, payable together with the last installment. o A term loan and short term credit facility of up to $110.0 million in aggregate divided into a term loan of $97.5 million in order to refinance our then outstanding balance under prior indebtedness ($528.3 million as at December 31, 2005), to partially finance the acquisition cost of a second-hand vessel and for working capital and a credit facility of $12.5 million in order to partially finance the acquisition cost of additional vessels acceptable to the lenders. The credit facility of $12.5 million is available for drawdown for 364 days after the signing of the agreement and each amount drawn down will be included in the term loan and paid in equal consecutive quarterly installments commencing on the next quarterly repayment of the term loan and the length of repayment will depend on the age of each of the additional vessels to be acquired. The term loan is payable in forty variable consecutive quarterly installments commencing six months after the drawdown date but not later than August 31, 2006 and through May 2016 plus a balloon payment of $17.2 million, payable together with the last installment. The loans will bear interest at LIBOR plus a margin and will be secured by a first priority mortgage over the vessels involved. We will be permitted to pay dividends under the loans so long as such amount of dividends does not exceed 50% of our net income as evidenced by the relevant annual audited financial statements. However, for the fiscal year 2006, the amount of dividends we may pay cannot exceed the amount of $18.0 million. We may not make any additional dividend payments without the lenders' prior written consent. In March 2006 we exercised our purchase option for a second-hand drybulk carrier, Hille Oldendorff, a 2005 built, 55,566 dwt, handymax drybulk carrier. The vessel will be purchased with a bareboat charter at $19.7 per day, net of commissions, until March 2007. The seller is an affiliated company of DryShips that acquired the vessel in late October 2005, at which time DryShips was granted an option to purchase the vessel. The vessel's purchase price ($40.76 million under a memorandum of agreement dated March 24, 2006) will be financed in part by up to $27.5 million under our new credit facility and $3.25 million pursuant to a sellers' credit for a period of nine to twelve months. Dividend Payments On January 11, 2006 the Company announced that its board of directors had declared a quarterly cash dividend of $0.20 per common share, payable January 31, 2006 to stockholders of record on January 16, 2006. The cash dividend amounted to $6.07 million. Furthermore, on April 4, 2006 the Company announced that its board of directors declared a quarterly cash dividend of $0.20 per common share, payable April 28, 2006 to stockholders of record on April 17, 2006. The cash dividend amounted to $6.07 million. Foreign Exchange Transactions In January 2006, the Company engaged in a total of 12 call options, maturing in monthly intervals from February 2006 to January 2007, under two foreign exchange transactions involving the US dollar against Euro. The strike rate under each option is 1.21 US dollars to the Euro, for amounts of Euro 200,000 per month, for each of the 12 months after the individual contract dates. In January 2006, the Company engaged in a total of 12 Forward Foreign Exchange Agreements in monthly intervals from February 2006 to January 2007. The strike rate under each option ranges from 1.2101 to 1.2215 US Dollars to the Euro for amounts of Euro 200,000 per month for each of the 12 months from February 2006 to January 2007. C. Research and Development, Patents and Licenses Not Applicable. D. Trend Information Not Applicable E. Off-balance Sheet Arrangements We do not have any off-balance sheet arrangements. Item 6. Directors and Senior Management A. Directors and Senior Management Set forth below are the names, ages and positions of our directors, executive officers and key employees. Our board of directors is elected annually on a staggered basis, and each director elected holds office until his successor shall have been duly elected and qualified, except in the event of his death, resignation, removal or the earlier termination of his term of office. Officers are elected from time to time by vote of our board of directors and hold office until a successor is elected. Name Age Position - ---- --- -------- George Economou 52 Chairman, President and Chief Executive Officer; Director Christopher Thomas 46 Vice President, Treasurer Chief Financial Officer; Director Angelos Papoulias 51 Director Nikolas P. Tsakos 42 Director Prokopios (Akis) Tsirigakis 50 Director Eugenia Voulika 41 Secretary - ---------- Biographical information with respect to each of our directors, executives and key personnel is set forth below. George Economou is our Chairman and Chief Executive Officer. Mr. Economou has been actively involved in the shipping industry for over 25 years. After graduating from the Massachusetts Institute of Technology in 1976 with a B.A. in Naval Architecture and Marine Engineering and an M.S. in Shipping and Shipbuilding Management, George Economou commenced working as a Superintendent Engineer in Thenamaris Ship Management in Greece. From 1978 until 1981, he worked as Sale and Purchase Manager at Brokerage and Management in New York. From 1981 to 1986, he held the position of General Manager of Oceania Maritime Agency in New York. In 1986, he invested and participated in the formation of numerous individual shipping companies which involved, among others, the present group of companies. Christopher J. Thomas is our Chief Financial Officer. Since November 2001, Mr. Thomas has been an independent financial consultant to numerous international shipowning and operating companies. Mr. Thomas is also on the board of directors of TOP Tankers Inc. which is a publicly traded company with securities registered under the Securities Exchange Act of 1934. From 1999 to 2004, Mr. Thomas was the Chief Financial Officer and a director of Excel Maritime Carriers Ltd. which is also a publicly traded company with securities registered under the Securities Exchange Act of 1934. Prior to joining Excel, he was Financial Manager of Cardiff Marine Inc. Mr. Thomas holds a degree in Business Administration from Crawley University, England. Angelos Papoulias has served on our Board of Directors since our initial public offering in February 2005. Since 1989, Mr. Papoulias has been a director of Investments and Finance Ltd., a financial consulting firm specializing in financial and structuring advice to the Greek maritime industry. From 1980 to 1987 Mr. Papoulias was with Chase Manhattan Bank N.A. in corporate and shipping finance. From 1987 to 1988 Mr. Papoulias was the Director of Finance at Eletson Holdings Inc., a product tanker company. Mr. Papoulias holds a B.S. in Mathematics/Economics from Whitman College, Washington State, and a Master's degree in International Management from the School of International Management, Phoenix, Arizona. Nikolas P. Tsakos has served on our Board of directors since our initial public offering in February 2005. Since 1993, Mr. Tsakos has been the President, Chief Executive Officer and a director of Tsakos Energy Navigation Limited, a provider of international seaborne crude oil and petroleum product transportation services whose common shares are listed on the New York Stock Exchange. Mr. Tsakos is President of the Hellenic Marine Environment Protection Agency (HELMEA). He is a member of the council of the Independent Tanker Owners Association (INTERTANKO), a board member of the Union of Greek Shipowners (UGS), a council member of the board of the Greek Shipping Co-operation Committee (GSCC) and a council member of the American Bureau of Shipping (ABS), Bureau Veritas (BV) and of the Greek Committee of Det norske Veritas (DNV). Mr. Tsakos graduated from Columbia University in New York in 1985 with a degree in Economics and Political Science and obtained a Masters Degree in Shipping, Trade and Finance from the City of London University Business School in 1987. Mr. Tsakos served as an officer in the Hellenic Navy in 1988. Prokopios (Akis) N. Tsirigakis has served on our Board of Directors since our initial public offering in February 2005. Mr. Tsirigakis has been the Joint Managing Director of the Oceanbulk Group and concurrently, since 1998, has been the Managing Director of Combine Marine Inc. Mr. Tsirigakis is also chairman and CEO of Star Maritime Acquisition Corporation). Mr. Tsirigakis started up and established Combine as a third-party ship management company. He has previously owned and successfully operated bulk carriers. From 1991 to 1998, Mr. Tsirigakis was the Vice-President and Technical Director of Konkar Shipping S.A. of Athens and Technical Manager of Arcon Shipping Inc of New York. He participates in the Intercargo Committee, Classification societies and the Union of Greek Shipowners, SNAME. Mr. Tsirigakis is involved in the current development of newbuilding rules. Mr. Tsirigakis received a Masters and BSC in Naval Architecture from The University of Michigan, Ann Arbor and has three years of seagoing experience. Eugenia Th. Voulika is our Corporate Secretary. Ms. Voulika's principal occupation for the past five years has been as an attorney at law. She is an associate of Deverakis Law Office in Piraeus, Greece since 1991. Ms. Voulika specializes in maritime and civil law. B. Compensation of Directors and Senior Management We paid an aggregate amount of $1.4 million as compensation to our executive directors for the fiscal year ended December 31, 2005. Non-executive directors received annual compensation in the aggregate amount of $24,000 plus reimbursement of their out-of-pocket expenses. We do not have a retirement plan for our officers or directors. On February 3, 2005, we entered into two consultancy agreements with Fabiana Services S.A. ("Fabiana") a related party entity incorporated in Marshall Islands. The shares of this company are beneficially held by Mr. Economou and Mr. Thomas. Under the agreements, Fabiana acts as consultant for the Company in connection with the duties of the Chief Executive and Chief Financial Officers. Each of the agreements has a term of three years beginning February 3, 2005, and ending (unless terminated earlier pursuant to the terms of the agreement) on February 2, 2008. The Company pays compensation for the above mentioned consulting services of Euro 979,000 and Euro 147,000 for the Chief Executive and Chief Financial Officers, per annum payable monthly on the last working day of every month in twelve installments. Equity Incentive Plan We have adopted an equity incentive plan, or the Plan, which will entitle our officers, key employees and directors to receive options to acquire common stock. Under the Plan, a total of 1,000,000 shares of common stock has been reserved for issuance under the Plan. The Plan is administered by our board of directors. Under the terms of the Plan, our board of directors may grant new options exercisable at a price per share equal to the average daily closing price for our common stock over the 20 trading days prior to the date of issuance of the shares. Under the terms of the Plan, no options can be exercised until at least two years after the closing of our initial public offering in February 2005. Any shares received on exercise of the options may not be sold until three years after the closing of the offering. All options will expire 10 years from the date of grant. The Plan will expire 10 years from the closing of the offering. As at December 31, 2005, no options were granted under the Plan. C. Board Practices The term of our Class B directors expires at the annual general shareholders meeting in 2006 and the term of our Class C directors expires at the annual general shareholders meeting in 2007. The Class B directors are Angelos Papoulias and Prokopios (Akis) N. Tsirigakis. Class III directors are Christopher J. Thomas and Nikolas P. Tsakos. Committees of the Board of Directors We have established an audit committee comprised of three independent directors: Angelos Papoulias, Nikolas P. Tsakos and Prokopios (Akis) N. Tsirigakis who are responsible for reviewing our accounting controls and recommending to the board of directors the engagement of our outside auditors. A majority of our board of directors is currently independent. D. Employees As of December 31, 2005 the Company employed two persons, namely our Chairman and Chief Executive Officer, Mr. Economou, and our Chief Financial Officer, Mr. Christopher Thomas both of whom are located in Athens. E. Share Ownership With respect to the total amount of common stock owned by all of our officers and directors, individually and as a group, see Item 7 "Major Shareholders and Related Party Transactions". Item 7. Major Shareholders and Related Party Transactions A. Major Shareholders The following table sets forth information regarding the owners of more than five percent of our common stock as at December 31, 2005. All of our shareholders, including the shareholders listed in this table, are entitled to one vote for each share of common stock held. Identity of Amount Percentage of Title of Class Person or Group Owned Common Stock - -------------- --------------- ----- ------ ----- Common Stock, par value Elios Investments $.01 per share Inc.* 10,780,000 35.52% George Economou** 13,552,000 44.65% Neuberger Berman LLC 3,193,120 10.52% Advice Investment S.A.*** 2,772,000 9.13% Magic Management Inc.**** 1,848,000 6.09% - ---------------- *Based on a share exchange agreement entered into as of February 14, 2006, Entrepreneurial Spirit Foundation (former owner of 10,780,000 of the issued and outstanding shares of the Company) transferred all of its shares to Elios Investments Inc. ("Elios") in exchange for all of the shares of common stock of Elios. Following the transfer and exchange, Entrepreneurial Spirit Foundation owns 100% of the issued and outstanding shares of Elios. ** Mr. Economou is our Chairman and Chief Executive Officer and a Director. Includes shares of common stock of DryShips Inc. owned of record by Elios and Advice Investments S.A. Mr. Economou disclaims beneficial ownership of the shares owned by Advice Investments S.A. *** A corporation incorporated in the Republic of Liberia. Mr. George Economou's wife, Ms. Elisavet Manola of Athens, Greece, is the beneficial owner of all of the issued and outstanding capital stock of this corporation. Mr. Economou disclaims beneficial ownership of these shares. ****A corporation incorporated in the Republic of Liberia. Mr. George Economou's ex-wife, Ms. Rika Vosniadou of Athens, Greece, is the beneficial owner of all of the issued and outstanding capital stock of this corporation. B. Related Party Transactions Mr. George Economou, our Chairman and Chief Executive Officer and director, controls the Entrepreneurial Spirit Foundation, a Liechtenstein foundation that owns 70.0% of the issued and outstanding capital stock of Cardiff, our manager. The other shareholder of Cardiff is Prestige Finance S.A., a Liberian corporation, all of the issued and outstanding capital of which is beneficially owned by Mr. Economou's sister. The Foundation also owns 100% of the common stock of Elios Investments Inc. which holds 35.5% of our common stock. In October 2004, we issued 15,400,000 shares of our common stock to the Foundation as consideration for causing certain of its affiliates to contribute to us the capital stock of our subsidiaries. In particular the following wholly-owned subsidiaries of the Foundation contributed to our company the shares of the companies that own our vessel owning subsidiaries and effectively their respective shipping assets: Tradewinds Shipping Co. Ltd. of the Marshall Islands contributed all of the shares of the two registered shareholders of Silicon Shipping Co. Ltd. of Malta (registered owner of Flecha), all of the shares of the two registered shareholders of Oxygen Shipping Co Ltd. of Malta (registered owner of Shibumi) and all the shares of the two registered shareholders of Blueberry Shipping Co. Ltd. of Malta (registered owner of Panormos) on or about October 18, 2004; Norge Investment Funds Co. S.A. of Panama contributed all of the shares of the two registered shareholders of Helium Shipping Co. Ltd of Malta (registered owner of Striggla) and all of the shares of the two registered shareholders of Hydrogen Shipping Co. Ltd. of Malta (registered owner of Mostoles) on or about October 18, 2004; and Solid Shipping and Trading Inc. of Liberia contributed all of the shares of the two registered shareholders of Annapolis Shipping Co. Ltd. of Malta (registered owner of Lacerta). Subsequently the Foundation instructed us to distribute 4,620,000 of these shares to our two other shareholders prior to our initial public offering. We outsource substantially all of our technical and commercial functions relating to the operation and employment of our vessels to Cardiff pursuant to management agreements with an initial term of five years. Cardiff is our affiliate by virtue of being under common control with us. These agreements will automatically extend to successive five year terms, unless in each case, at least one year's advance notice of termination is given by either party. We pay Cardiff a technical management fee of $650 (based on a Euro/Dollar exchange rate of 1.30:1.00) per vessel per day on a monthly basis in advance, pro rata for the calendar days these vessels are owned by us. The management fee is adjusted quarterly based on the Euro/Dollar exchange rate as published by EFG Eurobank Ergasias S.A. two days prior to the end of the previous calendar quarter. We also pay Cardiff 1.25% of the gross freight, demurrage and charterhire collected from the employment of our vessels. Cardiff also earns a fee equal to 1.0% calculated on the price as stated in the relevant memorandum of agreement for any vessel bought or sold on our behalf. Cardiff has subcontracted these commercial management functions to its affiliated company, Drybulk S.A. who in turn receives the aforementioned 1.25% chartering and 1.0% sale and purchase fees. In addition on November 8, 2005 and effective January 1, 2005 we concluded a contract of ongoing services with Cardiff, under which we pay a quarterly fee of $250 for services rendered by Cardiff in relation to our financial reporting requirements and the establishment and monitoring of internal controls over financial reporting. We lease office space in Athens, Greece, from Mr. George Economou, our Chairman and CEO. The initial term of our lease is five years. We believe that the rate of our lease (14,160 Euros per year, adjusted yearly at the rate of inflation published by the Greek Government) is no greater than would be incurred with a third party in an arm's length transaction. On February 3, 2005, we entered into two consultancy agreements with Fabiana Services S.A. ("Fabiana") a related party entity incorporated in Marshall Islands. The shares of this company are beneficially held by Mr. Economou and Mr. Thomas. Under the agreements, Fabiana acts as consultant for the Company in connection with the duties of the Chief Executive and Chief Financial Officers. Each of the agreements has a term of three years beginning February 3, 2005 and ending (unless terminated earlier on the basis of any other provisions as may be defined in the agreement) on the day before the third anniversary of such date. The Company will pay a compensation for the above mentioned services of Euro 979,000 and Euro 147,000 for the Chief Executive and Chief Financial Officers consultation, per annum payable monthly on the last working day of every month in twelve installments. Further, Mr. Economou has entered into a letter agreement which includes a provision requiring Mr. Economou to (i) use commercially reasonable efforts to cause each company affiliated with Cardiff that owns a bareboat chartered vessel (meaning a vessel for which the charterer bears all operating expense and risk) to sell its vessels upon redelivery from its bareboat charterer and allow the Company to exercise a right of first refusal to acquire that bareboat chartered vessel once an agreement that sets forth the terms of the sale is entered into, and (ii) allow the Company to exercise a right of first refusal to acquire any drybulk carrier, after Mr. Economou, or any of his other affiliates, enters into an agreement that sets forth terms upon which he or it would acquire that drybulk carrier. Pursuant to this letter agreement, Mr. Economou will notify our audit committee of any agreement that he or his other affiliates have entered into to purchase a drybulk carrier (or to sell the bareboat chartered vessel) and will provide the audit committee a 7 calendar day period in respect of a single vessel transaction, or a 14 calendar day period in respect of a multi-vessel transaction, from the date that he delivers such notice to our audit committee of that opportunity, within which to decide whether or not to accept the opportunity and nominate a subsidiary of DryShips to become the purchaser of such drybulk carrier, before Mr. Economou will accept the opportunity or offer it to any of his other affiliates. Our audit committee, which consists of our independent directors, will require a simple majority vote to accept or reject this offer. C. Interests of Experts and Counsel Not Applicable. Item 8. Financial information A. Consolidated statements and other financial information. See Item 18. Legal Proceedings We have not been involved in any legal proceedings which may have, or have had, a significant effect on our business, financial position, results of operations or liquidity, nor are we aware of any proceedings that are pending or threatened which may have a significant effect on our business, financial position, results of operations or liquidity. From time to time, we may be subject to legal proceedings and claims in the ordinary course of business, principally personal injury and property casualty claims. We expect that these claims would be covered by insurance, subject to customary deductibles. Those claims, even if lacking merit, could result in the expenditure of significant financial and managerial resources. Dividend policy Our current dividend policy is to declare and pay quarterly dividends from our net profits of $0.20 per common share to shareholders each January, April, July and October. However, we may have to make provisions for vessel acquisition and other liabilities that would reduce or eliminate the cash available for distribution as dividends. However, we may incur other expenses or liabilities that would reduce or eliminate the cash available for distribution as dividends. Also, from time to time, the Board of Directors may determine to declare and pay quarterly dividends in an amount up to 50% of our net quarterly income as the Board of Directors deems appropriate. Declaration and payment of any dividend is subject to the discretion of our Board of Directors. The timing and amount of dividend payments will be dependent upon our earnings, financial condition, cash requirements and availability, fleet renewal and expansion, restrictions in our loan agreements, the provisions of Marshall Islands law affecting the payment of distributions to shareholders and other factors. The payment of dividends is not guaranteed or assured, and may be discontinued at any time at the discretion of our Board of Directors. Because we are a holding company with no material assets other than the stock of our subsidiaries, our ability to pay dividends will depend on the earnings and cash flow of our subsidiaries and their ability to pay dividends to us. If there is a substantial decline in the drybulk charter market, our earnings would be negatively affected thus limiting our ability to pay dividends. Marshall Islands law generally prohibits the payment of dividends other than from surplus or while a company is insolvent or would be rendered insolvent upon the payment of such dividend. We believe that, under current law, our dividend payments from earnings and profits will constitute "qualified dividend income" and as such will generally be subject to a 15% United States federal income tax rate with respect to non-corporate individual stockholders. Distributions in excess of our earnings and profits will be treated first as a non-taxable return of capital to the extent of a United States stockholder's tax basis in its common stock on a dollar-for-dollar basis and thereafter as capital gain. Please see the section of this report entitled "Tax Considerations" for additional information relating to the tax treatment of our dividend payments. The dry bulk shipping industry is highly volatile, and we cannot accurately predict the amount of cash distributions that we may make in any period. Factors beyond our control may affect the charter market for our vessels and our charterers' ability to satisfy their contractual obligations to us, and we cannot assure you that we will pay dividends. B. Significant Changes Not Applicable. Item 9. The Offer and Listing A. Offer and listing details Our common stock currently trades on The NASDAQ National Market under the symbol "DRYS". Since our initial public offering in February 2005, the price history of our common stock was as follows: 2005 High Low 1st Quarter ended March 31, 2005 $23.39 $19.36 2nd Quarter ended June 30, 2005 $19.50 $15.46 3rd Quarter ended September 30, 2005 $17.35 $13.95 4th Quarter ended December 31, 2005 $17.22 $12.11 High Low October 2005 $16.57 $14.44 November 2005 $14.45 $12.50 December 2005 $12.83 $11.74 January 2006 $13.18 $ 9.79 February 2006 $11.52 $10.57 March 2006 $11.20 $10.31 Item 10. Additional Information A. Share Capital Not Applicable. B. Memorandum and articles of association Directors Our directors are elected by a majority of the votes cast by stockholders entitled to vote. There is no provision for cumulative voting. Our board of directors must consist of at least one member. Stockholders may change the number of directors only by the affirmative vote of holders of a majority of the outstanding common stock. The board of directors may change the number of directors only by a majority vote of the entire board. Each director shall be elected to serve until the next annual meeting of stockholders and until his successor shall have been duly elected and qualified, except in the event of his death, resignation, removal, or the earlier termination of his term of office. Our board of directors has the authority to fix the amounts which shall be payable to the members of the board of directors for attendance at any meeting or for services rendered to us. Stockholder Meetings Under our bylaws, annual stockholder meetings will be held at a time and place selected by our board of directors. The meetings may be held in or outside of the Marshall Islands. Special meetings may be called by stockholders holding not less than one-fifth of all the outstanding shares entitled to vote at such meeting. Our board of directors may set a record date between 15 and 60 days before the date of any meeting to determine the stockholders that will be eligible to receive notice and vote at the meeting. Dissenters' Rights of Appraisal and Payment Under the BCA, our stockholders have the right to dissent from various corporate actions, including any merger or consolidation sale of all or substantially all of our assets not made in the usual course of our business, and receive payment of the fair value of their shares. In the event of any further amendment of our amended and restated articles of incorporation, a stockholder also has the right to dissent and receive payment for his or her shares if the amendment alters certain rights in respect of those shares. The dissenting stockholder must follow the procedures set forth in the BCA to receive payment. In the event that we and any dissenting stockholder fail to agree on a price for the shares, the BCA procedures involve, among other things, the institution of proceedings in the high court of the Republic of the Marshall Islands or in any appropriate court in any jurisdiction in which the Company's shares are primarily traded on a local or national securities exchange. Stockholders' Derivative Actions Under the BCA, any of our stockholders may bring an action in our name to procure a judgment in our favor, also known as a derivative action, provided that the stockholder bringing the action is a holder of common stock both at the time the derivative action is commenced and at the time of the transaction to which the action relates. Limitations on Liability and Indemnification of Officers and Directors The BCA authorizes corporations to limit or eliminate the personal liability of directors and officers to corporations and their stockholders for monetary damages for breaches of directors' fiduciary duties. Our bylaws includes a provision that eliminates the personal liability of directors for monetary damages for actions taken as a director to the fullest extent permitted by law. Our bylaws provide that we must indemnify our directors and officers to the fullest extent authorized by law. We are also expressly authorized to advance certain expenses (including attorneys' fees and disbursements and court costs) to our directors and offices and carry directors' and officers' insurance providing indemnification for our directors, officers and certain employees for some liabilities. We believe that these indemnification provisions and insurance are useful to attract and retain qualified directors and executive offices. The limitation of liability and indemnification provisions in our amended and restated articles of incorporation and bylaws may discourage stockholders from bringing a lawsuit against directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. In addition, your investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. There is currently no pending material litigation or proceeding involving any of our directors, officers or employees for which indemnification is sought. Anti-takeover Provisions of our Charter Documents. Several provisions of our articles of incorporation and by-laws may have anti-takeover effects. These provisions are intended to avoid costly takeover battles, lessen our vulnerability to a hostile change of control and enhance the ability of our board of directors to maximize stockholder value in connection with any unsolicited offer to acquire us. However, these anti-takeover provisions, which are summarized below, could also discourage, delay or prevent (1) the merger or acquisition of our company by means of a tender offer, a proxy contest or otherwise, that a stockholder may consider in its best interest and (2) the removal of incumbent officers and directors. Blank Check Preferred Stock Under the terms of our articles of incorporation, our board of directors has authority, without any further vote or action by our stockholders, to issue up to 30.0 million shares of blank check preferred stock. Our board of directors may issue shares of preferred stock on terms calculated to discourage, delay or prevent a change of control of our company or the removal of our management. Classified Board of Directors Our articles of incorporation provide for a board of directors serving staggered, three-year terms. Approximately one-third of our board of directors will be elected each year. The classified board provision could discourage a third party from making a tender offer for our shares or attempting to obtain control of our company. It could also delay stockholders who do not agree with the policies of the board of directors from removing a majority of the board of directors for two years. Election and Removal of Directors Our articles of incorporation and by-laws prohibit cumulative voting in the election of directors. Our by-laws require parties other than the board of directors to give advance written notice of nominations for the election of directors. Our by-laws also provide that our directors may be removed only for cause and only upon affirmative vote of the holders of at least two-thirds of the outstanding shares of our capital stock entitled to vote for those directors. These provisions may discourage, delay or prevent the removal of incumbent officers and directors. Limited Actions by Stockholders Our articles of incorporation and our by-laws provide that any action required or permitted to be taken by our stockholders must be effected at an annual or special meeting of shareholders or by the unanimous written consent of our shareholders. Our by-laws provide that only our Board of directors, or our Chairman of the Board, or our President may call special meetings of our stockholders and the business transacted at the special meeting is limited to the purposes stated in the notice. Advance Notice Requirements for Shareholder Proposals and Director Nominations Our bylaws provide that shareholders seeking to nominate candidates for election as directors or to bring business before an annual meeting of shareholders must provide timely notice of their proposal in writing to the corporate secretary. Generally, to be timely, a shareholder's notice must be received at our principal executive offices not less than 150 days nor more than 180 days prior to the one year anniversary of the preceding year's annual meeting. Our bylaws also specify requirements as to the form and content of a shareholder's notice. These provisions may impede shareholders' ability to bring matters before an annual meeting of shareholders or make nominations for directors at an annual meeting of shareholders. C. Material Contracts We have no material contracts, other than contracts entered into in the ordinary course of business, to which the Company or any member of the group is a party. D. Exchange Controls Under Marshall Islands and Greek law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to non-resident holders of our common stock. E. Taxation United States Taxation The following discussion is based upon the provisions of the U.S. Internal Revenue Code of 1986, as amended (the "Code"), existing and proposed U.S. Treasury Department regulations, administrative rulings, pronouncements and judicial decisions, all as of the date of this Annual Report. This discussion assumes that we do not have an office or other fixed place of business in the United States. Taxation of the Company's Shipping Income: In General The Company anticipates that it will derive substantially all of its gross income from the use and operation of vessels in international commerce and that this income will principally consist of freights from the transportation of cargoes, hire or lease from time or voyage charters and the performance of services directly related thereto, which the Company refers to as "shipping income." Shipping income that is attributable to transportation that begins or ends, but that does not both begin and end, in the United States will be considered to be 50% derived from sources within the United States. Shipping income attributable to transportation that both begins and ends in the United States will be considered to be 100% derived from sources within the United States. The Company does not engage in transportation that gives rise to 100% U.S. source income. Shipping income attributable to transportation exclusively between non-U.S. ports will be considered to be 100% derived from sources outside the United States. Shipping Income derived from sources outside the United States will not be subject to U.S. federal income tax. Based upon the Company's anticipated shipping operations, the Company's vessels will operate in various parts of the world, including to or from U.S. ports. Unless exempt from U.S. taxation under Section 883 of the Code, the Company will be subject to U.S. federal income taxation, in the manner discussed below, to the extent its shipping income is considered derived from sources within the United States. Application of Code Section 883 Under the relevant provisions of Section 883 of the Code and the final regulations interpreting Section 883, as promulgated by the U.S. Treasury Department, which the Company refers to as the "final regulations," the Company will be exempt from U.S. taxation on its U.S. source shipping income if: (i) It is organized in a qualified foreign country which is one that grants an equivalent exemption from tax to corporations organized in the United States in respect of the shipping income for which exemption is being claimed under Section 883 and which the Company refers to as the "country of organization requirement"; and (ii) It can satisfy any one of the following two (2) stock ownership requirements: o more than 50% of the Company's stock, in terms of value, is beneficially owned by individuals who are residents of a qualified foreign country, which the Company refers to as the "50% Ownership Test"; or o the Company's stock is "primarily and regularly" traded on an established securities market located in the United States, which the Company refers to as the "Publicly Traded Test". The U.S. Treasury Department has recognized (i) the Marshall Islands, the Company's and one of its subsidiaries' country of incorporation and (ii) Malta, the country of incorporation of the Company's ship-owning subsidiaries, as qualified foreign countries. Accordingly, the Company and its subsidiaries satisfy the country of organization requirement. Therefore, the Company's eligibility to qualify for exemption under Section 883 is wholly dependent upon being able to satisfy one of the stock ownership requirements. For the 2005 taxable year, the Company satisfied the 50% Ownership Test since more than 50% of its stock in terms of value was owned by one or more individuals who are residents of a qualified foreign country for more than half the days of the taxable year, and such individuals have committed to the Company to substantiate such ownership in compliance with the final regulations. Even if the Company did not satisfy the 50% Ownership Test, the Company believes that it would be able to satisfy the Publicly-Traded Test for the 2005 taxable year. Taxation in Absence of Internal Revenue Code Section 883 Exemption To the extent the benefits of Section 883 are unavailable with respect to any item of U.S. source income, the Company's U.S. source shipping income, would be subject to a 4% tax imposed by Section 887 of the Code on a gross basis, without the benefit of deductions. Since under the sourcing rules described above, no more than 50% of the Company's shipping income would be treated as being derived from U.S. sources, the maximum effective rate of U.S. federal income tax on the Company's shipping income would never exceed 2% under the 4% gross basis tax regime. For the taxable year ended December 31, 2005, approximately 24%, of the Company's shipping income was attributable to the transportation of cargoes either to or from a U.S. port. Accordingly, 12% respectively, of the Company's shipping income would be treated as derived from U.S. sources for the taxable year ended December 31, 2005. In the absence of exemption from tax under Section 883, the Company would have been subject to a 4% tax on its gross U.S. source shipping income earned equal to approximately $0.5 million for the taxable year ended December 31, 2005. Gain on Sale of Vessel Regardless of whether we qualify for exemption under Section 883, we will not be subject to United States federal income taxation with respect to gain realized on a sale of a vessel, provided the sale is considered to occur outside of the United States under U.S. federal income tax principles. In general, a sale of a vessel will be considered to occur outside of the United States for this purpose if title to the vessel, and risk of loss with respect to the vessel, pass to the buyer outside of the United States. It is expected that any sale of a vessel by us will be considered to occur outside of the United States. Marshall Islands Tax Considerations We are incorporated in the Marshall Islands. Under current Marshall Islands law, we are not subject to tax on income or capital gains, and no Marshall Islands withholding tax will be imposed upon payments of dividends by us to our stockholders. F. Dividends and paying agents Not Applicable. G. Statement by experts Not Applicable. H. Documents on display We file reports and other information with the SEC. These materials, including this annual report and the accompanying exhibits, may be inspected and copied at the public reference facilities maintained by the Commission at 100 F Street, N.E., Washington, D.C. 20549, or from the SEC's website http://www.sec.gov. You may obtain information on the operation of the public reference room by calling 1 (800) SEC-0330 and you may obtain copies at prescribed rates. I. Subsidiary information Not Applicable. Item 11. Quantitative and Qualitative Disclosures about Market Risk Interest Rates Historically, we have been subject to market risks relating to changes in interest rates, because we have had significant amounts of floating rate debt outstanding. During 2004 and 2005, we paid interest on this debt based on LIBOR plus an average spread of one and one-quarter percent (1.25%) on our bank loans. A one percent (1%) increase in LIBOR would have increased our interest expense for the period ended December 31, 2005 from $2.0 million to $3.0 million. A one percent (1%) increase in LIBOR would have increased our interest expense for the year ended December 31, 2004 from $1.8 million to $2.5 million. Currency and Exchange Rates We generate all of our revenues in U.S. dollars but currently incur over half of our operating expenses and the majority of our management expenses in currencies other than the U.S. dollar, primarily the Euro. For accounting purposes, expenses incurred in Euros are converted into U.S. dollars at the exchange rate prevailing on the date of each transaction. Because a significant portion of our expenses are incurred in currencies other than the U.S. dollar, our expenses may from time to time increase relative to our revenues as a result of fluctuations in exchange rates, particularly between the U.S. dollar and the Euro, which could affect the amount of net income that we report in future periods. While we historically have not mitigated the risk associated with exchange rate fluctuations through the use of financial derivatives, we may determine to employ such instruments from time to time in the future in order to minimize this risk. Our use of financial derivatives would involve certain risks, including the risk that losses on a hedged position could exceed the nominal amount invested in the instrument and the risk that the counterparty to the derivative transaction may be unable or unwilling to satisfy its contractual obligations, which could have an adverse effect on our results. Item 12. Description of Securities Other than Equity Securities Not Applicable. PART II Item 13. Defaults, Dividend Arrearages and Delinquencies None. Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds None. Item 15. Controls and Procedures We evaluated the effectiveness of the Company's disclosure controls and procedures as December 31, 2005. Based on that evaluation, the chief executive officer and the chief financial officer concluded that the Company's disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. The Company believes that a system of controls, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. There have been no changes in internal controls over financial reporting (identified in connection with management's evaluation of such internal controls over financial reporting) that occurred during the year covered by this annual report that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting. Item 16A. Audit Committee Financial Expert Our Board of Directors has determined that Mr. Angelos Papoulias, the chairman of our Audit Committee, qualifies as financial expert and he is considered to be independent according to the SEC rules. Item 16B. Code of Ethics We have adopted a code of ethics that applies to officers and employees. Our code of ethics is posted in our website: http://www.dryships.com, under Corporate Governance. Item 16C. Principal Accountant Fees and Services. Our principal Accountants for the year ended October 31, 2004, the two-month period ended December 31, 2004 and the year ended December 31, 2005 were Ernst & Young (Hellas), Certified Auditors Accountants S.A. For the audit of the two month period ended December 31, 2004 and the year ended December 31, 2005 they billed us Euro 350,175. There were no tax, audit-related, or other fees billed in 2005. The audit for the year ended October 31, 2004 was conducted in conjunction with the audits for the years ended October 31, 2003 and 2002, as part of our initial public offering and their billing comprises part of our offering expenses. For their services in connection of our initial public offering Ernst & Young (Hellas), Certified Auditors Accountants S.A billed us Euro 398,853. Item 16D. Exemptions from the Listing Standards for Audit Committees. Not Applicable. Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers Not Applicable. PART III Item 17. Financial Statements See Item 18 Item 18. Financial Statements The following financial statements, beginning on page F-1, together with the report of Ernst & Young (Hellas) Certified Auditors Accountants S.A. thereon, are filed as a part of this report. Item 19. Exhibits (a) Exhibits Exhibit Number Description ------ ----------- 1.1 Amended and Restated Articles of Incorporation of DryShips Inc.the Company (1) 1.2 Amended and restated by-laws of the Company (1) 2.1 Form of Share Certificate (2) 4.1 Form of 2005 Stock Incentive Plan (2) 4.2 Form of Management Agreement (1) 4.3 Loan Agreement with Commerzbank (1) 4.4 Senior Loan Agreement with HSH Nordbank AG 4.5 Junior Loan Agreement with HSH Nordbank AG 8.1 Subsidiaries of the Company 12.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer 12.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer 13.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 13.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 - ---------------- (1) Filed as an Exhibit to the Company's Registration Statement (File No. 333-122008) on January 13, 2005. (2) Filed as an Exhibit to the Company's Amended Registration Statement (File No. 333-122008) on January 31, 2005. DRYSHIPS INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page ---- Report of Independent Registered Public Accounting Firm F-2 Consolidated Balance Sheets as of October 31, 2004 and F-3 December 31, 2005 Consolidated Statements of Income for the years ended October 31, 2003 and 2004, for the two-month period ended December 31, 2004, and for the year ended December 31, 2005 F-4 Consolidated Statements of Stockholders' Equity for the years ended October 31, 2003 and 2004, for the two-month period ended December 31, 2004, and for the year ended December 31, 2005 F-5 Consolidated Statements of Cash Flows for the years ended October 31, 2003 and 2004, for the two-month period ended December 31, 2004, and for the year ended December 31, 2005 F-6 Notes to Consolidated Financial Statements F-7 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and Board of Directors of DRYSHIPS INC. We have audited the accompanying consolidated balance sheets of DryShips Inc. (the "Company") as of October 31, 2004 and December 31, 2005 and the related consolidated statements of income, stockholders' equity and cash flows for the years ended October 31, 2003 and 2004, for the two-month period ended December 31, 2004, and for the year ended December 31, 2005. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of DryShips Inc. at October 31, 2004 and December 31, 2005 and the consolidated results of its operations and its cash flows for the years ended October 31, 2003 and 2004, for the two-month period ended December 31, 2004, and for the year ended December 31, 2005, in conformity with U.S. generally accepted accounting principles. /s/Ernst & Young (Hellas) Certified Auditors Accountants S.A. Athens, Greece, March 31, 2006 DRYSHIPS INC. Consolidated Balance Sheets October 31, 2004 and December 31, 2005 (Expressed in thousands of U.S. Dollars - except for share and per share data) October December 31, 31, 2004 2005 -------- -------- ASSETS CURRENT ASSETS: Cash and cash equivalents 6,171 5,184 Restricted cash 1,570 3,040 Accounts receivable trade, net 2,168 5,514 Insurance claims 13 107 Due from related parties 58,121 -- Inventories 300 1,326 Prepayments and advances 1,001 3,336 Financial instruments -- 270 -------- -------- Total current assets 69,344 18,777 -------- -------- FIXED ASSETS, NET: Vessels, net 51,688 864,733 -------- -------- Total fixed assets, net 51,688 864,733 -------- -------- OTHER NON CURRENT ASSETS: Deferred charges, net 3,333 3,781 Due from related parties 58,894 -- Restricted cash -- 21,011 Other -- 2,257 -------- -------- Total assets 183,259 910,559 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term debt 25,399 107,738 Dividends payable 69,000 -- Accounts payable 1,171 8,479 Due to related parties 2 6,460 Accrued liabilities 1,631 6,529 Deferred revenue 921 6,309 Other current liabilities -- 230 -------- -------- Total current liabilities 98,124 135,745 -------- -------- LONG-TERM DEBT, net of current portion 89,509 417,615 -------- -------- OTHER NON CURRENT LIABILITIES -- 698 -------- -------- COMMITMENTS AND CONTINGENCIES -- -- -------- -------- STOCKHOLDERS' EQUITY: Preferred stock, $ 0.01 par value; 30,000,000 shares authorized, none issued -- -- Common stock, $0.01 par value; 45,000,000 shares authorized; 15,400,000 and 30,350,000 shares issued and outstanding at October 31, 2004 and December 31, 2005, respectively 154 304 Additional paid-in capital 13,465 264,600 Retained earnings (deficit) (17,993) 91,597 -------- -------- Total stockholders' equity (deficit) (4,374) 356,501 -------- -------- Total liabilities and stockholders' equity 183,259 910,559 ======== ======== The accompanying notes are an integral part of these consolidated statements. DRYSHIPS INC. Consolidated Statements of Income For the years ended October 31, 2003 and 2004, for the two-month period ended December 31, 2004, and for the year ended December 31, 2005 (Expressed in thousands of U.S. Dollars - except for share and per share data)
Two-month Year ended October 31, period ended Year ended 2003 2004 December 31, 2004 December 31, 2005 ----------- ----------- ----------- ----------- REVENUES: Voyage revenues 25,060 63,458 15,599 228,913 ----------- ----------- ----------- ----------- EXPENSES: Voyage expenses 3,688 5,578 954 10,185 Voyage expenses - related party 310 793 199 2,854 Bunkers (372) (890) (17) (3,447) Vessel operating expenses 6,739 9,769 1,756 36,722 Depreciation 3,580 4,735 808 40,231 Amortization of deferred drydocking costs 1,664 1,716 326 2,379 Management fees - related party 1,101 1,261 240 4,962 General and administrative expenses 240 221 114 1,218 General and administrative expenses - related party -- -- -- 2,968 ----------- ----------- ----------- ----------- Operating income 8,110 40,275 11,219 130,841 ----------- ----------- ----------- ----------- OTHER INCOME (EXPENSES): Interest and finance costs (1,119) (1,515) (508) (20,398) Interest income 4 12 8 749 Other, net 194 341 (6) (175) ----------- ----------- ----------- ----------- Total other income (expenses), net (921) (1,162) (506) (19,824) ----------- ----------- ----------- ----------- Net income 7,189 39,113 10,713 111,017 =========== =========== =========== =========== Net income per share, basic and diluted 0.47 2.54 0.70 3.83 =========== =========== =========== =========== Weighted average number of shares, basic and diluted 15,400,000 15,400,000 15,400,000 28,957,397 =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated statements. DRYSHIPS INC. Consolidated Statements of Stockholders' Equity For the years ended October 31, 2003 and 2004, for the two-month period ended December 31, 2004, and for the year ended December 31, 2005 (Expressed in thousands of U.S. Dollars - except for share and per share data)
Additional Retained Total Comprehensive Capital Stock Paid-in Earnings Stockholders' ------------------------ Equity Income # of Shares Par Value Capital (Deficit) (Deficit) ---------- ---------- ---------- ---------- ---------- ---------- BALANCE, October 31, 2002 -- 15,400,000 154 11,265 6,957 18,376 Net income 7,189 -- -- -- 7,189 7,189 Contributions to additional paid-in capital -- -- -- 2,200 -- 2,200 Dividends paid (US dollars 0.15 per share) -- -- -- -- (2,252) (2,252) ---------- Comprehensive income 7,189 ========== ---------- ---------- ---------- ---------- ---------- BALANCE, October 31, 2003 -- 15,400,000 154 13,465 11,894 25,513 Net income 39,113 -- -- -- 39,113 39,113 Dividends declared (US dollars 4.48 per share) -- -- -- -- (69,000) (69,000) ---------- Comprehensive income 39,113 ========== ---------- ---------- ---------- ---------- ---------- BALANCE, October 31, 2004 -- 15,400,000 154 13,465 (17,993) (4,374) Net income 10,713 -- -- -- 10,713 10,713 ---------- Comprehensive income 10,713 ========== ---------- ---------- ---------- ---------- ---------- BALANCE, December 31, 2004 -- 15,400,000 154 13,465 (7,280) 6,339 Net income 111,017 -- -- -- 111,017 111,017 Issuance of common stock -- 14,950,000 150 251,135 -- 251,285 Dividends paid (US dollars 0.40 per share) -- -- -- -- (12,140) (12,140) ---------- Comprehensive income 111,017 ========== ---------- ---------- ---------- ---------- ---------- BALANCE, December 31, 2005 -- 30,350,000 304 264,600 91,597 356,501 ========== ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements. DRYSHIPS INC Consolidated Statements of Cash Flows For the years ended October 31, 2003 and 2004, for the two-month period ended December 31, 2004, and for the year ended December 31, 2005 (Expressed in thousands of U.S. Dollars)
Two-month period ended Year ended Year ended October 31, December 31, December 31, 2003 2004 2004 2005 -------- -------- -------- -------- Cash Flows from Operating Activities: Net income 7,189 39,113 10,713 111,017 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 3,580 4,735 808 40,231 Amortization of deferred drydocking costs 1,664 1,716 326 2,379 Amortization and write-off of deferred financing costs 138 132 111 544 Amortization of deferred revenue -- -- -- (5,224) Change in fair value of derivatives -- -- -- (270) Recognition of free lubricants benefit -- -- -- 928 Changes in operating assets and liabilities: Accounts receivable trade 866 (1,443) 1,061 (4,407) Insurance claims (180) 350 -- (94) Due from related parties (9,271) (35,292) 40,563 4,000 Inventories (74) 113 (109) (917) Prepayments and advances 256 (653) 807 (3,142) Accounts payable (266) 326 297 7,011 Due to related parties (258) (33) 196 6,262 Accrued liabilities (88) 979 (950) 5,848 Deferred revenue 255 543 1,384 2,793 Payments for drydocking (1,322) (3,277) -- (3,153) -------- -------- -------- -------- Net Cash provided by Operating Activities 2,489 7,309 55,207 163,806 -------- -------- -------- -------- Cash Flows from Investing Activities: Advances for vessel acquisition (2,200) -- -- -- Additions to vessel cost -- (20,119) -- (847,649) -------- -------- -------- -------- Net Cash used in Investing Activities (2,200) (20,119) -- (847,649) -------- -------- -------- -------- Cash Flows from Financing Activities: Proceeds from long-term debt 11,100 26,000 15,431 577,585 Payments of long-term debt (10,481) (8,230) (17,431) (90,010) (Increase) decrease in restricted cash -- (1,570) 1,107 (23,588) Advances to Baumarine Pool -- -- (1,025) (1,232) Capital contributions 2,200 -- -- -- Proceeds from public offering, net of related issuance costs -- -- -- 251,285 Dividends paid (2,252) -- (51,007) (30,133) Payment of financing costs (151) (215) (82) (3,251) -------- -------- -------- -------- Net Cash provided by (used in) Financing Activities 416 15,985 (53,007) 680,656 -------- -------- -------- -------- Net increase (decrease) in cash and cash equivalents 705 3,175 2,200 (3,187) Cash and cash equivalents at beginning of year/period 2,291 2,996 6,171 8,371 -------- -------- -------- -------- Cash and cash equivalents at end of year/period 2,996 6,171 8,371 5,184 ======== ======== ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the year/period for: Interest payments 709 1,351 236 17,636 ======== ======== ======== ======== Non cash financing activities: Liabilities assumed in connection with joint and several borrowings with related parties 1,434 (50,953) 4,343 68,109 ======== ======== ======== ========
The accompanying notes are an integral part of these consolidated statements. DRYSHIPS INC. Notes to Consolidated Financial Statements October 31, 2004 and December 31, 2005 (Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated) 1. Basis of Presentation and General Information: The accompanying consolidated financial statements include the accounts of DryShips Inc. and its subsidiaries (collectively, the "Company" or DryShips). DryShips Inc. was formed on September 9, 2004, under the laws of Marshall Islands. On October 18, 2004, all of the outstanding shares of the vessel owning companies listed under 1 through 6 in the table below (collectively, the "Contributed Companies"), were contributed to the Company through Entrepreneurial Spirit Foundation (the "Foundation"), a family foundation of Vaduz, Liechtenstein. The Company's Chief Executive Officer, Mr. George Economou and members of his immediate family (the "Family") control and are beneficiaries of the Foundation. The transaction described above constituted a reorganization of companies under common control, and has been accounted for in a manner similar to a pooling of interests and the Contributed Companies are presented at historical cost as control of the Contributed Companies before and after the reorganization was with the Family. Effective November 1, 2004, the Company changed its fiscal reporting year-end from October 31st to December 31st. In February 2005 the Company completed its initial public offering in the United States under the United States Securities Act of 1933 (Note 8). Since the consummation of its initial public offering and through December 31, 2005, the Company took delivery of twenty-one dry bulk carrier vessels, through newly established wholly owned subsidiaries. The Company is engaged in the ocean transportation services of dry bulk cargoes worldwide through the ownership and operation of the bulk carrier vessels mentioned below. With the exception of Wealth Management Inc. which is established under the laws of Marshall Islands, all the Company's wholly-owned subsidiaries listed below are established under the laws of Malta. Ship-owning Company Vessel -------------------- ------ 1. Helium Shipping Company Ltd. ("Helium") Striggla 2. Hydrogen Shipping Company Ltd. ("Hydrogen") Mostoles 3. Silicon Shipping Company Ltd. ("Silicon") Flecha 4. Oxygen Shipping Company Ltd. ("Oxygen") Shibumi 5. Annapolis Shipping Company Ltd. ("Annapolis") Lacerta 6. Blueberry Shipping Company Ltd. ("Blueberry") Panormos 7. Lancat Shipping Company Ltd. ("Lancat") Matira 8. Tolan Shipping Company Limited ("Tolan") Tonga 9. Malvina Shipping Company Limited ("Malvina") Coronado 10. Arleta Navigation Company Limited ("Arleta") Xanadu 11. Selma Shipping Company Limited ("Selma") La Jolla 12. Royerton Shipping Company Limited ("Royerton") Netadola 13. Samsara Shipping Company Limited ("Samsara") Ocean Crystal 14. Lansat Shipping Company Limited ("Lansat") Paragon 15. Farat Shipping Company Limited ("Farat") Toro 16. Madras Shipping Company Limited ("Madras") Alona 17. Iguana Shipping Company Limited ("Iguana") Iguana 18. Borsari Shipping Company Limited ("Borsari") Catalina 19. Onil Shipping Company Limited ("Onil") Belmonte 20. Zatac Shipping Company Limited ("Zatac") Waikiki 21. Fabiana Navigation Company Limited ("Fabiana") Alameda 22. Fago Shipping Company Limited ("Fago") Lanikai 23. Felicia Navigation Company Limited ("Felicia") Linda Oldendorff 24. Platan Shipping Company Limited ("Platan") Daytona 25. Karmen Shipping Company Limited ("Karmen") Sonoma 26. Thelma Shipping Company Limited ("Thelma") Manasota 27. Celine Shipping Company Limited ("Celine") Conrand Oldendorff Other company Activity 28. Wealth Management Inc. ("Wealth") Cash Manager DRYSHIPS INC. Notes to Consolidated Financial Statements October 31, 2004 and December 31, 2005 (Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated) 1. Basis of Presentation and General Information - (continued): The operations of the Company's vessels are managed by Cardiff Marine Inc. (the "Manager"), a related party entity incorporated in Liberia. Furthermore, Drybulk S.A, a related party Liberian corporation acts as the charter and sales and purchase broker for the Company (Note 3). The majority shareholding (70%) of the Manager and Drybulk S.A., is owned by Entrepreneurial Spirit Foundation, a family foundation of Vaduz, Liechtenstein, of which the Company's Chief Executive Officer, Mr. George Economou and members of his family are beneficiaries. The 30% shareholding of the Manager and Drybulk S.A is held by Prestige Finance S.A., a Liberian corporation which is wholly owned by the sister of the Company's Chief Executive Officer. Charterers individually accounting for more than 10% of the Company's voyage revenues during the years ended October 31, 2003 and 2004, the two-month period ended December 31, 2004 and the year ended December 31, 2005, are as follows: Two-month Year ended October 31, period ended Year ended ---------------------- December 31, December 31, Charterer 2003 2004 2004 2005 ------ ------ ------ ------ Oldendorff Carriers Gmbh -- -- -- 12% Cargill International Ltd. -- -- 18% -- Clearlake Shipping Ltd -- -- 12% -- Transfield Shipping ER -- 11% -- -- Brave Bulk Transport Ltd. -- 11% -- -- Bottiglieri Di Navigazoni 17% -- -- -- Cobelfret S.A 20% -- -- -- In addition, of the Company's voyage revenues during the year ended October 31, 2004, the two-month period ended December 31, 2004 and the year ended December 31, 2005, 16%, 42% and 25%, respectively, were derived from the participation of certain Company's vessels in a drybulk pool. 2. Significant Accounting Policies: (a) Principles of Consolidation: The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles and include in the years ended October 31, 2003 and 2004, the two-month period ended December 31, 2004 and the year ended December 31, 2005, the accounts and operating results of DryShips Inc. and its wholly-owned subsidiaries referred to in Note 1 above. All significant intercompany balances and transactions have been eliminated in consolidation. (b) Use of Estimates: The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (c) Other Comprehensive Income: The Company follows the provisions of Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income", which requires separate presentation of certain transactions, which are recorded directly as components of stockholders' equity. The Company has no such transactions which affect comprehensive income and, accordingly, comprehensive income equals net income for all periods presented. (d) Concentration of Credit Risk: Financial instruments, which potentially subject the Company to significant concentrations of credit risk, consist principally of cash and cash equivalents, trade accounts receivable and derivative contracts (interest rate swaps). The Company places its cash and cash equivalents, consisting mostly of deposits, with high credit qualified financial institutions. The Company performs periodic evaluations of the relative credit standing of those financial institutions. The Company is exposed to credit risk in the event of non-performance by counter parties to derivative instruments; however, the Company limits its exposure by diversifying among counter parties with high credit ratings. DRYSHIPS INC. Notes to Consolidated Financial Statements October 31, 2004 and December 31, 2005 (Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated) 2. Significant Accounting Policies - (continued): The Company limits its credit risk with accounts receivable by performing ongoing credit evaluations of its customers' financial condition. The Company does not obtain rights to collateral to reduce its credit risk. The off-balance sheet risk in outstanding option agreements involves the risk of a counter party not performing under the terms of the contract. The Company monitors its positions, the credit ratings of counterparties and the level of contracts it enters into with any one party. The Company has a policy of entering into contracts with parties that meet stringent qualifications and, given the high level of credit quality of its derivative counterparty, the Company does not believe it is necessary to obtain collateral for such arrangements. (e) Foreign Currency Translation: The functional currency of the Company is the U.S. Dollar because the Company's vessels operate in international shipping markets, and therefore primarily transact business in U.S. Dollars. The Company's books of accounts are maintained in U.S. Dollars. Transactions involving other currencies during the year are converted into U.S. Dollars using the exchange rates in effect at the time of the transactions. At the balance sheet dates, monetary assets and liabilities, which are denominated in other currencies, are translated into U.S. Dollars at the year-end exchange rates. Resulting gains or losses are included in General and administrative expenses in the accompanying consolidated statements of income. (f) Cash and Cash Equivalents: The Company considers highly liquid investments such as time deposits and certificates of deposit with an original maturity of three months or less to be cash equivalents. (g) Restricted Cash: Restricted cash includes bank deposits that are required under the Company's borrowing arrangements which are used to fund the loan installments coming due. The funds can only be used for the purposes of loan repayment. Restricted cash also includes additional minimum cash deposits required to be maintained with certain banks under the Company's borrowing arrangements. (h) Trade Accounts Receivable, Net: The amount shown as accounts receivable, trade, at each balance sheet date, includes receivables from charterers for hire, freight and demurrage billings, net of a provision for doubtful accounts. At each balance sheet date, all potentially uncollectible accounts are assessed individually for purposes of determining the appropriate provision for doubtful accounts. The provision for doubtful accounts at October 31, 2004 and December 31, 2005, was $50 and $0, respectively. (i) Insurance Claims: The Company records insurance claim recoveries for insured losses incurred on damage to fixed assets. Insurance claim recoveries are recorded, net of any deductible amounts, at the time the Company's fixed assets suffer insured damages and the Company can make an estimate of the amount to be reimbursed following the insurance claim. (j) Inventories: Inventories consist of consumable bunkers (if any), lubricants and victualling stores, which are stated at the lower of cost or market value. Cost is determined by the first in, first out method. (k) Fixed Assets, Net: Fixed assets, net consists of vessels. Vessels are stated at cost, which consists of the contract price and any material expenses incurred upon acquisition (initial repairs, improvements, delivery expenses and other expenditures to prepare the vessel for her initial voyage). Subsequent expenditures for conversions and major improvements are also capitalized when they appreciably extend the life, increase the earning capacity or improve the efficiency or safety of the vessels. Otherwise these amounts are charged to expense as incurred. The cost of each of the Company's vessels is depreciated beginning when the vessel is ready for its intended use, on a straight-line basis over the vessel's remaining economic useful life, after considering the estimated residual value (vessel's residual value is equal to the product of its lightweight tonnage and estimated scrap rate). With the exception of vessel Tonga, Management estimates the useful life of the Company's vessels to be 25 years from the date of initial delivery from the shipyard. The useful life of vessel Tonga is estimated to 26 years, which coincides with the validity of the class certificate. When regulations place limitations over the ability of a vessel to trade on a worldwide basis, its remaining useful life is adjusted at the date such regulations are adopted. DRYSHIPS INC. Notes to Consolidated Financial Statements October 31, 2004 and December 31, 2005 (Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated) 2. Significant Accounting Policies - (continued): (l) Prepaid/Deferred charter revenue: Where the Company identifies any assets or liabilities associated with the acquisition of a vessel, the Company records all such identified assets or liabilities at fair value. Fair value is determined by reference to market data. The Company values any asset or liability arising from the market value of the time charters assumed when a vessel is acquired. The amount to be recorded as an asset or liability at the date of vessel delivery is based on the difference between the current fair value of a charter with similar characteristics as the time charter assumed and the net present value of future contractual cash flows from the time charter contract assumed. When the present value of the time charter assumed is greater than the current fair value of such charter, the difference is recorded as prepaid charter revenue. When the opposite situation occurs, the difference is recorded as deferred revenue. Such assets and liabilities, respectively, are amortized as a reduction of, or an increase in, revenue over the period of the time charter assumed. (m) Impairment of Long-Lived Assets: The Company uses SFAS No. 144 "Accounting for the Impairment or Disposal of Long-lived Assets", which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The standard requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. When the estimate of undiscounted cash flows, excluding interest charges, expected to be generated by the use of the asset is less than its carrying amount, the Company should evaluate the asset for an impairment loss. Measurement of the impairment loss is based on the fair value of the asset as provided by third parties. In this respect, management regularly reviews the carrying amount of the vessels in comparison with the fair value of the asset as provided by third parties for each of the Company's vessels. The Company regularly reviews its vessels for impairment on a vessel by vessel basis. Furthermore, in the period a long-lived asset meets the "held for sale" criteria of SFAS No. 144, a loss is recognized for any reduction of the long-lived asset's carrying amount to its fair value less cost to sell. No such impairment losses were recorded in the years ended October 31, 2003 and 2004, the two-month period ended December 31, 2004 and the year ended December 31, 2005. (n) Accounting for Drydocking Costs: The Company follows the deferral method of accounting for drydocking costs whereby actual costs incurred are deferred and are amortized on a straight-line basis over the period through the date the next drydocking is scheduled to become due. Unamortized drydocking costs of vessels that are sold are written off and included in the calculation of the resulting gain or loss in the year of the vessel's sale. (o) Financing Costs: Fees paid to lenders or required to be paid to third parties on the lender's behalf for obtaining new loans or refinancing existing ones are recorded as deferred charges and classified as a contra to debt. Such fees are deferred and amortized to interest and finance costs over the life of the related debt using the effective interest method. Unamortized fees relating to loans repaid or refinanced are expensed as interest and finance costs in the period the repayment or refinancing is made. (p) Accounting for Revenue and Related Expenses: The Company generates its revenues from charterers for the charterhire of its vessels. Vessels are chartered using either voyage charters, where a contract is made in the spot market for the use of a vessel for a specific voyage for a specified charter rate, or time charters, where a contract is entered into for the use of a vessel for a specific period of time and a specified daily charterhire rate. If a charter agreement exists and collection of the related revenue is reasonably assured, revenue is recognized as it is earned ratably over the duration of the period of each voyage or time charter. A voyage is deemed to commence upon the completion of discharge of the vessel's previous cargo and is deemed to end upon the completion of discharge of the current cargo. Demurrage income represents payments by the charterer to the vessel owner when loading or discharging time exceeded the stipulated time in the voyage charter and is recognized as its is earned ratably over the duration of the period of each voyage charter . Deferred revenue includes cash received prior to the balance sheet date and is related to revenue earned after such date. Deferred revenue also includes the unamortized balance of the liability associated with the acquisition of second-hand vessels with time charters attached which were acquired at values below fair market value at the date the acquisition agreement is consummated. DRYSHIPS INC. Notes to Consolidated Financial Statements October 31, 2004 and December 31, 2005 (Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated) 2. Significant Accounting Policies - (continued): For vessels operating in pooling arrangements, the Company earns a percentage of total revenues generated by the pool, net of expenses incurred by the pool. The amount allocated to each pool's participant, including the Company, is determined in accordance with an agreed-upon formula, which is determined by points awarded to each vessel in the pool based on the vessel's age, design and other performance characteristics. Net revenue under pooling arrangements is accounted for on the accrual basis and is recognized when the collectibility has been reasonably assured. The allocation of such net revenue may be subject to future adjustments by the pool however, historically, such changes have not been material. Voyage related expenses and vessel operating expenses are accounted for on the accrual basis. (q) Earnings per Common Share: Basic earnings per common share are computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the year. Diluted earnings per common share, reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised. The Company had no dilutive securities during the years ended October 31, 2003 and 2004, the two-month period ended December 31, 2004 and the year ended December 31, 2005. (r) Segment Reporting: The Company reports financial information and evaluates its operations by charter revenues and not by the length of ship employment for its customers, i.e. spot or time charters. The Company does not use discrete financial information to evaluate the operating results for each such type of charter. Although revenue can be identified for these types of charters, management cannot and does not identify expenses, profitability or other financial information for these charters. As a result, management, including the chief operating decision maker, reviews operating results solely by revenue per day and operating results of the fleet and thus the Company has determined that it operates under one reportable segment. Furthermore, when the Company charters a vessel to a charterer, the charterer is free to trade the vessel worldwide and, as a result, the disclosure of geographic information is impracticable. (s) Derivatives: The Company enters into interest rate swap agreements to partially hedge the exposure of interest rate fluctuations associated with its borrowings. Such swap agreements are recorded at fair value in accordance with the provisions of SFAS 133, "Accounting for Derivative Instruments and Hedging Activities" (as amended) which establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value, with changes in the derivatives' fair value recognized currently in earnings unless specific hedge accounting criteria are met. During the year ended December 31, 2005, the Company concluded six interest rate cap and floor agreements in order to partially hedge the exposure of interest rate fluctuations associated with its variable rate borrowings (Note 14). These interest rate cap and floor agreements did not meet hedge accounting criteria and the change in their fair value has been included in Interest and finance costs, in the accompanying 2005 consolidated statement of income. DRYSHIPS INC. Notes to Consolidated Financial Statements October 31, 2004 and December 31, 2005 (Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated) 2. Significant Accounting Policies - (continued): (t) Variable Interest Entities: In December 2003, the FASB issued Interpretation No. 46R, Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51 (the "Interpretation"), which revised Interpretation No. 46, issued in January 2003. The Interpretation addresses the consolidation of business enterprises (variable interest entities) to which the usual condition (ownership of a majority voting interest) of consolidation does not apply. The Interpretation focuses on financial interests that indicate control. It concludes that in the absence of clear control through voting interests, a company's exposure (variable interest) to the economic risks and potential rewards from the variable interest entity's assets and activities are the best evidence of control. Variable interests are rights and obligations that convey economic gains or losses from changes in the value of the variable interest entity's assets and liabilities. Variable interests may arise from financial instruments, service contracts, and other arrangements. If an enterprise holds a majority of the variable interests of an entity, it would be considered the primary beneficiary. The primary beneficiary would be required to include assets, liabilities, and the results of operations of the variable interest entity in its financial statements. The Company was required to adopt the provisions of FIN 46R for entities created prior to February 2003, in 2004. The adoption of FIN 46R in 2004 and 2005 did not have any impact on the Company's consolidated financial position, results of operations or cash flows. (u) Recent Accounting Pronouncements: In May 2005, the FASB issued FASB Statement No. 154, "Accounting Changes and Error Corrections" (SFAS No. 154). SFAS No. 154 is a replacement of APB Opinion No. 20, "Accounting Changes" (APB 20) and FASB Statement No. 3, "Reporting Accounting Changes in Interim Financial Statements" (SFAS No. 3). SFAS No. 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application as the required method for reporting a voluntary change in accounting principle. APB 20 previously required that most voluntary changes in accounting principle be recognized by including in net income of the period of the change the cumulative effect of changing to the new accounting principle. SFAS No. 154 provides guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. SFAS No. 154 also requires that a change in method of depreciation, amortization, or depletion for long-lived, nonfinancial assets be accounted for as a change in accounting estimate that is effected by a change in accounting principle. APB 20 previously required that such a change be reported as a change in accounting principle. SFAS No. 154 carries forward many provisions of APB 20 without change, including the provisions related to the reporting of a change in accounting estimate, a change in the reporting entity, and the correction of an error. SFAS No. 154 also carries forward the provisions of SFAS No. 3 that govern reporting accounting changes in interim financial statements. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 31, 2005. The Company will adopt this pronouncement beginning in fiscal year 2006. DRYSHIPS INC. Notes to Consolidated Financial Statements October 31, 2004 and December 31, 2005 (Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated) 3. Transactions with Related Parties: Transactions with related parties are analyzed as follows: October December 31, 31, Current assets: 2004 2005 ------ ------ Cardiff Marine Inc. (a) 44,563 -- Joint and several borrowers (c) 13,558 -- ------ ------ 58,121 -- ====== ====== Non-current assets: Joint and several borrowers (c) 58,894 -- ====== ====== Current liabilities: Cardiff Marine Inc. (a) -- 1,434 Drybulk S.A. (a) 2 5,026 ------ ------ 2 6,460 ====== ====== (a) Cardiff Marine Inc. and Drybulk S.A: The operations of the Company's vessels are managed by Cardiff Marine Inc. (the "Manager"), a related party entity incorporated in Liberia which is under common control with the Company. The Manager has an office in Greece located at 80, Kifissias Avenue 151 25 Athens Greece. The Manager provides the Company a wide range of shipping services such as technical support and maintenance, insurance consulting, chartering, financial and accounting services, in exchange for a daily fixed fee of U.S. dollars 650 per vessel, which is adjusted quarterly according to the currency fluctuation between the U.S. dollar and the Euro if the U.S. dollar/Euro exchange rate exceeds 1.30 per Euro, plus U.S. dollars 550 for superintendents visits on board vessels in excess of five days per annum, per each additional day, per superintendent. Up to January 2005, financial and accounting services provided by the Manager included handling cash generated by the Company's vessels and as such, the amount due from the Manager at October 31, 2004, primarily represents cash held by the Manager on behalf of the Company. In addition, under the management agreement with Cardiff Marine Inc., Drybulk S.A, a related party Liberian corporation also under common control with the Company, acts as the charter and sales and purchase broker for the Company in exchange for a commission of 1.25% on all freight, hire, demurrage revenues and a commission of 1.00% on all gross sale proceeds or purchase price paid of vessels. The management agreements were renewed on October 18, 2004, with an initial term of five years and will automatically be extended to successive five-year terms. Notice to terminate shall not be effective until 30 days following its having been delivered, unless otherwise mutually agreed in writing. The fees charged by the Manager for the years ended October 31, 2003 and 2004, the two-month period ended December 31, 2004 and the year ended December 31, 2005, amounted to $1,131, $1,322, $240 and $4,962, respectively. Of the above amounts $30, $61, $0 and $0 for the years ended October 31, 2003 and 2004, the two-month period ended December 31, 2004 and the year ended December 31, 2005, respectively were included in deferred drydocking costs and the remaining amounts are separately reflected in the accompanying consolidated statements of income. Chartering commissions charged by Drybulk S.A for the years ended October 31, 2003 and 2004, the two-month period ended December 31, 2004 and the year ended December 31, 2005, totaled $310, $793, $199 and $2,854, respectively, and are separately reflected as voyage expenses - related party in the accompanying consolidated statements of income. In addition, during the years ended October 31, 2004 and December 31, 2005, $220 and $ 8,400, respectively were charged by Drybulk S.A relating to the acquisition of vessels. These amounts are capitalized as a vessel acquisition cost and included in Vessels, net in the accompanying consolidated balance sheets. DRYSHIPS INC. Notes to Consolidated Financial Statements October 31, 2004 and December 31, 2005 (Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated) 3. Transactions with Related Parties - (continued): During the year ended December 31, 2005 the Company also paid an amount of $600 to the Manager as remuneration for additional services not contemplated by the management agreement and carried out during the pre-delivery period of the newly acquired vessels. In addition on November 8, 2005 and effective January 1, 2005 the Company concluded a contract of ongoing services with the Manager, under which the Company pays a quarterly fee of $250 for services rendered by the Manager in relation to the financial reporting requirements of the Company under the Securities and Exchange Commission Rules and the establishment and monitoring of internal controls over financial reporting. The above amounts, totaling $ 1,600 are included in General and administrative expenses - related party in the accompanying 2005 consolidated statement of income. (b) Lease Agreement: On October 1, 2005 and effective as of the same date, the Company entered into a rental agreement with its Chief Executive Officer to lease office space in Athens, Greece. The agreement is for duration of 5 years beginning October 1, 2005 and expires on September 30, 2010. The annual rental for the first two years is approximately $11 (Euro 9,000) and thereafter it will be adjusted annually for inflation increases. Prior to entering the above agreement both parties agreed to cancel without penalties a previously existing rental agreement for leased office space. That agreement had been effective for a five years period beginning January 1, 2005 at an annual rental of approximately $ 17 (Euro 14,000) before any annual inflation increases. (c) Joint and several borrowers: As of October 31, 2004, the Company participated in three loan agreements (Notes 7(a), 7(b) and 7(c)) for which it had joint and several liability with several other related party companies each under common control with the Company. A portion of the proceeds from those loans was received by and used to fund the sister companies' vessel acquisitions. The Company is considered a primary obligor for the loans and accordingly, has recorded the full obligation with a corresponding receivables due from the related party sister companies for the portions of the loan proceeds which they received. In December 2004 and May 2005, the loans discussed above were restructured and the Company's subsidiaries refinanced their loans' balances by other loans as further discussed in Note 7 and were released from their obligations under the loans for which it had joint and several liability. (d) Consultancy Agreements: On February 3, 2005, the Company concluded two agreements with Fabiana Services S.A. ("Fabiana") a related party entity incorporated in Marshall Islands. Fabiana is beneficially owned by the Company's Chief Executive Officer and Chief Financial Officer. Under the agreements, Fabiana provides the services of the individuals who serve in the positions of Chief Executive and Chief Financial Officers of the Company. The duration of the agreements is for three years beginning February 3rd, 2005 and ending (unless terminated earlier on the basis of any other provisions as may be defined in the agreement) on the day before the third anniversary of such date. The Company pays approximately $1,175 (Euro 979,000) and $176 (Euro 147,000) per annum payable monthly on the last working day of every month in twelve installments for the services of the Chief Executive and Chief Financial Officers respectively. The related expense for the year ended December 31, 2005 amounted to $1,351 and is included in General and administrative expenses - related party in the accompanying 2005 consolidated statement of income. 4. Inventories: The amounts shown in the accompanying consolidated balance sheets are analyzed as follows: October December 31, 31, 2004 2005 ----- ----- Lubricants 239 1,148 Victualling stores 61 178 ----- ----- 300 1,326 ===== ===== DRYSHIPS INC. Notes to Consolidated Financial Statements October 31, 2004 and December 31, 2005 (Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated) 5. Vessels, Net: The amounts in the accompanying consolidated balance sheets are analyzed as follows: Vessel Accumulated Net Book Cost Depreciation Value -------- -------- -------- Balance, October 31, 2002 47,487 (9,803) 37,684 - Depreciation -- (3,580) (3,580) -------- -------- -------- Balance, October 31, 2003 47,487 (13,383) 34,104 - Vessel acquisitions 22,319 -- 22,319 - Depreciation -- (4,735) (4,735) -------- -------- -------- Balance, October 31, 2004 69,806 (18,118) 51,688 - Depreciation -- (808) (808) -------- -------- -------- Balance, December 31, 2004 69,806 (18,926) 50,880 - Vessel acquisitions 854,084 -- 854,084 - Depreciation -- (40,231) (40,231) -------- -------- -------- Balance, December 31, 2005 923,890 (59,157) 864,733 ======== ======== ======== The Company's vessels, having total carrying value of $864,733 at December 31, 2005, have been pledged as collateral to secure the bank loans discussed in Note 7. During the year ended December 31, 2005, the Company acquired twenty-one dry bulk carrier vessels for an aggregate consideration of $847,649. Eight of the above vessels, acquired for aggregate cash consideration of $257,670, were under existing time charter contracts which the Company agreed to assume through arrangements with the respective charterers. The Company upon delivery of each of the above vessels and in accordance with its accounting policy described in Note 2(l) evaluated the charter contracts assumed and recognized a liability of $6,435 with a corresponding increase in the vessels' purchase price. As at December 31, 2005, the unamortized balance of the liability amounted to $1,211 and is included in deferred revenue in the accompanying 2005 consolidated balance sheet. 6. Deferred Charges, Net: The unamortized amounts included in the accompanying consolidated balance sheets represent drydocking costs, and are analyzed as follows: Balance, October 31, 2002 2,114 - Additions 1,322 - Amortization (1,664) ------ Balance, October 31, 2003 1,772 - Additions 3,277 - Amortization (1,716) ------ Balance, October 31, 2004 3,333 - Amortization (326) ------ Balance, December 31, 2004 3,007 - Additions 3,153 - Amortization (2,379) ------ Balance, December 31, 2005 3,781 ====== DRYSHIPS INC. Notes to Consolidated Financial Statements October 31, 2004 and December 31, 2005 (Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated) 7. Long-term Debt: The amounts in the accompanying consolidated balance sheets are analyzed as follows:
October 31, 2004 December 31, 2005 ------------------------------------ ----------------------------- Related Related Borrower(s) Company Parties Total Company Parties Total ----------- -------- -------- -------- -------- -- -------- (a) Hydrogen and Helium 3,329 2,849 6,178 -- -- -- (b) Silicon and Oxygen 7,284 4,370 11,654 -- -- -- (c) Annapolis and 27,312 65,233 92,545 -- -- -- Blueberry (d) Silicon 4,531 -- 4,531 -- -- -- (e) Royerton, Lansat, Samsara, Fago, Tolan, Farat, Madras, Lancat, Zatac, Oxygen, Silicon and Hydrogen -- -- -- 141,638 -- 141,638 (f) Karmen, Borsari, Onil, Platan, Celine, Helium, Annapolis and Blueberry -- -- -- 176,606 -- 176,606 (g) Thelma, Malvina and Arleta -- -- -- 112,169 -- 112,169 (h) Fabiana, Felicia and Selma -- -- -- 78,475 -- 78,475 (i) Iguana -- -- -- 16,465 -- 16,465 -------- -------- -------- -------- -- -------- Total 42,456 72,452 114,908 525,353 -- 525,353 Less- current portion (11,841) (13,558) (25,399) (107,738) -- (107,738) -------- -------- -------- -------- -- -------- Long-term portion 30,615 58,894 89,509 417,615 -- 417,615 ======== ======== ======== ======== == ========
Loan (a): In October 2002, Hydrogen and Helium together with a related ship-owning company, Lithium Shipping Co Ltd ("Lithium)), concluded a bank loan for $11,000 to refinance the companies' previous indebtedness and to provide the companies with working capital. In April 2004, in exchange for a payment of $2,186 received from Cardiff Marine Inc., the vessel Manager for Helium which handles the majority of cash generated from Helium's operations, Hydrogen assumed $1,612 of the obligation under the outstanding loan and Lithium assumed the balance of the loan obligation of $574.The loan bears interest at LIBOR plus a margin and the interest rate (including the margin) at October 31, 2003 and 2004 was 2.74% and 3.46%, respectively. In December 2004, the loan was restructured and the Company refinanced its then outstanding balance by the loan discussed under (e) below. Loan (b): In April 2000, Silicon and Oxygen together with six other related ship-owning companies, concluded a bank loan for $39,100 to partially finance the acquisition cost of the vessels Flecha and Shibumi by Silicon and Oxygen, respectively, as well as the cost of a vessel acquired by one of the related companies and to refinance previous indebtedness of the other five related ship-owning companies. In March 2004, Silicon was released from its obligations under the loan and the outstanding balance of the loan at that date amounting to $13,320 was restructured in two tranches of $8,280 for Oxygen and $5,040 for the related companies. The Silicon loan balance was assumed by Oxygen in exchange for a payment of $13,320 received from Cardiff Marine Inc, the vessel manager for Silicon which maintains and handles the majority of the cash generated from Silicon's operations. The loan bears interest at LIBOR plus a margin and the interest rate (including the margin) at October 31, 2004 was 3.34%. In December 2004, the loan was restructured and the Company refinanced its then outstanding balance by the loan discussed under (e) below. The related parties involved are Rominvest Shipping Co. Ltd., Merchant Princess S.A., Seabulk Investments S.A., Siena Shipping Co. Ltd., Rainbow Shipping Co. Ltd. and Agrari Shipping Co. Ltd. DRYSHIPS INC. Notes to Consolidated Financial Statements October 31, 2004 and December 31, 2004 (Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated) 7. Long-term Debt - (continued): Loan (c): In November 2003, Annapolis and Blueberry together with three other related ship-owning companies concluded a bank loan agreement for an amount of up to $85,733 in order to refinance prior indebtedness of the vessel Lacerta, to partially finance the acquisition cost of the vessel Panormos ($20,000 drawn in December 2003) and to refinance prior indebtedness of the related companies. In March 2004 the loan was restructured by a loan agreement concluded by Annapolis and Blueberry together with four other related ship-owning companies for an amount of up to $104,233 to partially finance the acquisition cost of a vessel acquired by one of the related companies. In September 2004, the loan was further restructured by a loan agreement concluded by Annapolis and Blueberry together with four other related ship-owning companies for an amount of up to $123,519 to partially finance the acquisition cost of a vessel acquired by one of the related companies. The loan bears interest at LIBOR plus a margin and the interest rate (including the margin) at October 31, 2004 was 3.11%. In May 2005, the loan was restructured and the Company refinanced its then outstanding balance by the loan discussed under (f) below. The related parties involved are Sidoti Shipping Company Ltd., Musk Shipholding Inc., Sea Glory Navigation Ltd. and Rivel Camel Shipping Company Ltd. Loan (d): In March 2004, Silicon concluded a loan agreement for an amount of $6,000 for working capital purposes. The loan bears interest at LIBOR plus a margin and the interest rate (including the margin) at October 31, 2004 was 3.71%, respectively. In December 2004, the loan was restructured and the Company refinanced its then outstanding balance by the loan discussed under (e) below. Loan (e): In December 2004, Iguana, Lansat, Samsara, Zatac, Fago, Tolan, Farat, Madras, Lancat, Hydrogen, Oxygen, and Silicon concluded a loan agreement for an original amount of $185,000 to partly finance the acquisition cost of nine dry bulk vessels, to refinance previous indebtedness of vessels Mostoles, Shibumi and Flecha, discussed above under (a), (b) and (d), respectively and to provide working capital. The loan was divided into two tranches $160,000 and $25,000. The tranche A of $160,000 was drawn down from December 2004 through April 2005 in accordance with the vessels' delivery dates and the refinancing dates as discussed above. In February 2005, the second tranche of $ 25,000 was cancelled. In addition, in March 2005, based on a supplemental agreement, Iguana was replaced by Royerton and was released from its obligations under the agreement. The amount outstanding at December 31, 2005 of $142,500 (gross of unamortized deferred financing fees of $862) is repayable in 33 variable quarterly installments from February 2006 through February 2014 plus a balloon payment of $26,000 payable together with the last installment. The loan bears interest at LIBOR plus a margin and the interest rate (including the margin) at December 31, 2005 was 5.40%. Loan (f): In March 2005, Karmen, Borsari, Onil, Platan, Celine, Helium, Annapolis and Blueberry concluded a bank loan for $200,000 to partly finance the acquisition cost of the vessels Sonoma, Catalina, Belmonte, Daytona and Conrand Oldendorff, to refinance the then outstanding indebtedness of the vessels Lacerta and Panormos and to provide working capital to vessel Striggla. The loan was drawn down from March 2005 through August 2005. The amount outstanding at December 31, 2005 of $ 177,694 (gross of unamortized deferred financing fees of $1,088) is repayable in 20 variable quarterly installments from March 2006 through December 2010 plus a balloon payment of $ 58,143 payable in March 2011. The loan bears interest at LIBOR plus a margin and the interest rate (including the margin) at December 31, 2005 was 5.49%. Loan (g): In March 2005, Thelma, Malvina and Arleta concluded a bank loan for $120,645 to partly finance the acquisition cost of the vessels Manasota, Coronado and Xanadu. The loan was drawn down in March and May 2005. The amount outstanding at December 31, 2005, of $112,657 (gross of unamortized deferred financing fees of $488) is repayable in thirty eight variable consecutive quarterly installments from February 2006 through May 2015 plus a balloon installment of $22,696 payable together with the last installment. The loan bears interest at LIBOR plus a margin and the interest rate (including the margin) at December 31, 2005 was 5.40%. DRYSHIPS INC. Notes to Consolidated Financial Statements October 31, 2004 and December 31, 2005 (Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated) 7. Long-term Debt - (continued): Loan (h): In March 2005, Fabiana, Felicia and Selma concluded a bank loan for $92,940 to partly finance the acquisition cost of the vessels Alameda, Linda Oldendorff and La Jolla. The loan was drawn down in three tranches from March 2005 through April 2005. The amount outstanding at December 31, 2005, of $78,974 (gross of unamortized deferred financing fees of $499) is repayable in thirty eight variable consecutive quarterly installments, from January 2006 through April 2015 plus three balloon installments amounting to $ 26,964 and payable with the last instalment of each tranche. The loan bears interest at LIBOR plus a margin and the interest rate (including the margin) at December 31, 2005 was 5.27%. Loan (i): In March 2005, Iguana concluded a bank loan for $19,000 to partly finance the acquisition cost of the vessel Iguana. The amount outstanding at December 31, 2005, of $16,500 (gross of unamortized deferred financing fees of $35) is repayable in nineteen variable consecutive semi-annual installments, from March 2006 through March 2015 plus a balloon installment of $1,400 payable together with the last installment. The loan bears interest at LIBOR plus a margin and the interest rate (including the margin) at December 31, 2005 was 5.62%. The loans are secured as follows: o First priority mortgages over the borrowers vessels; o First priority assignment of all insurances and earnings of the mortgaged vessels; o Pledge over the borrowers earnings account; o Corporate guarantee of Dryships Inc. The loan agreements contain ship finance covenants including restrictions as to changes in management and ownership of the vessels, additional indebtedness and mortgaging of vessels without the lender's prior consent as well as minimum requirements regarding hull cover ratio. In addition, the Company must maintain minimum cash deposits, as defined in the loan agreements, which at December 31, 2005 amounted to $21,011. Furthermore, the Company will not without the banks' prior written consent pay any dividends or make any other distributions to shareholders which exceed 50% of the net profit of the related period if after any such dividend is paid or such distribution is made the Total Liabilities exceed 60% of market adjusted Total Assets, as defined in the agreements. Interest expense for the years ended October 31, 2003 and 2004, the two-month period ended December 31, 2004 and the year ended December 31, 2005, amounted to $758, $1,278, $257 and $19,797, respectively and is included in interest expense and finance costs in the accompanying consolidated statements of income. The annual principal payments required to be made after December 31, 2005, are as follows: 2006 108,218 2007 72,249 2008 56,949 2009 40,546 2010 33,526 2011 and thereafter 216,837 -------- 528,325 Less- Financing fees (2,972) -------- 525,353 ======== DRYSHIPS INC. Notes to Consolidated Financial Statements October 31, 2004 and December 31, 2005 (Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated) 8. Common Stock and Additional Paid-In Capital: On December 23, 2004 and within the context of the initial public offering discussed above ("below"), the Company declared dividends totaling $69,000 ($4.48 per share) after obtaining the consents from its respective lending banks. As the above transaction represents distributions to existing shareholders prior to the initial public offering, the transaction was given retroactive effect in the accompanying October 31, 2004 consolidated balance sheet. The amount of $69,000 was paid in three tranches, in December 2004 ($51,007), in February 2005 ($10,743) and in May 2005 ($7,250). Furthermore, the Company during 2005 declared and paid dividends of $12,140 ($0.40 per share). In February 2005, the Company completed its initial public offering in the United States under the United States Securities Act of 1933, as amended. In this respect, 14,950,000 shares of common stock at par value $0.01 were issued for $18.00 per share. The net proceeds of the initial public offering amounted to $251,285. The amounts shown in the accompanying consolidated balance sheets, as additional paid-in capital, represent (i) payments made by the stockholders at various dates to finance vessel acquisitions in excess of the amounts of bank loans obtained and advances for working capital purposes and (ii) the difference between the par value of the shares issued in the initial public offering in February 2005 and the net proceeds obtained for those shares. 9. Commitments and Contingencies: Various claims, suits, and complaints, including those involving government regulations and product liability, arise in the ordinary course of the shipping business. In addition, losses may arise from disputes with charterers, agents, insurance and other claims with suppliers relating to the operations of the Company's vessels. Currently, management is not aware of any such claims or contingent liabilities, which should be disclosed, or for which a provision should be established in the accompanying consolidated financial statements. The Company accrues for the cost of environmental liabilities when management becomes aware that a liability is probable and is able to reasonably estimate the probable exposure. Currently, management is not aware of any such claims or contingent liabilities, which should be disclosed, or for which a provision should be established in the accompanying consolidated financial statements. A minimum of up to $1 billion of the liabilities associated with the individual vessels actions, mainly for sea pollution, are covered by the Protection and Indemnity (P&I) Club insurance. 10. Income taxes: Marshall Islands and Malta do not impose a tax on international shipping income. Under the laws of Marshall Islands and Malta, the countries of the companies' incorporation and vessels' registration, the companies are subject to registration and tonnage taxes, which have been included in Vessels' operating expenses in the accompanying consolidated statements of income. Pursuant to the Internal Revenue Code of the United States (the "Code"), U.S. source income from the international operations of ships is generally exempt from U.S. tax if the company operating the ships meets both of the following requirements, (a) the Company is organized in a foreign country that grants an equivalent exception to corporations organized in the United States and (b) either (i) more than 50% of the value of the Company's stock is owned, directly or indirectly, by individuals who are "residents" of the Company's country of organization or of another foreign country that grants an "equivalent exemption" to corporations organized in the United States (50% Ownership Test) or (ii) the Company's stock is "primarily and regularly traded on an established securities market" in its country of organization, in another country that grants an "equivalent exemption" to United States corporations, or in the United States (Publicly-Traded Test). Under the regulations, a Company's stock will be considered to be "regularly traded" on an established securities market if (i) one or more classes of its stock representing 50% or more of its outstanding shares, by voting power and value, is listed on the market and is traded on the market, other than in minimal quantities, on at least 60 days during the taxable year; and (ii) the aggregate number of shares of stock traded during the taxable year is at least 10% of the average number of shares of the stock outstanding during the taxable year. DRYSHIPS INC. Notes to Consolidated Financial Statements October 31, 2004 and December 31, 2005 (Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated) 10. Income taxes-(continued): Treasury regulations under the Code were promulgated in final form in August 2003. These regulations apply to taxable years beginning after September 24, 2004. As a result, such regulations became effective for calendar year taxpayers, like the Company, beginning with the calendar year 2005. The Marshall Islands and Malta, the jurisdictions where the Company and its ship-owning subsidiaries are incorporated, grant an "equivalent exemption" to United States corporations. Therefore, the Company is exempt from United States federal income taxation with respect to U.S.-source shipping income if either the 50% Ownership Test or the Publicly-Traded Test is met. The Company believes that it satisfies the 50% Ownership Test and, therefore, the Company and its subsidiaries are entitled to exemption from U.S. federal income tax, in respect of their U.S. source shipping income. Even if the Company did not satisfy the 50% Ownership Test, the Company believes that it would be able to satisfy the Publicly - Traded Test for the 2005 taxable year. If the Company and its subsidiaries are not entitled to this exemption under Section 883 for 2005 taxable year, it will be subject to a 4% tax on its United States source shipping income. The Company estimates that since no more than the 50% of its shipping income would be treated as being United States source income, the effective tax rate is expected to be 2% and accordingly it would impact the results of operations by approximately $500. 11. Voyage and Vessel Operating Expenses: The amounts in the accompanying consolidated statements of income are analyzed as follows: Year ended October 31, --------------------- Voyage Expenses 2003 2004 --------------- ------ ------ Port charges 1,054 1,317 Bunkers 1,617 1,741 Commissions charged by third parties 1,017 2,520 ------ ------ 3,688 5,578 Commissions charged by a related party 310 793 ------ ------ 3,998 6,371 ====== ====== Two-month period ended Year ended December 31, December 31, Voyage Expenses 2004 2005 --------------- ----------- ---------- Port charges 222 1,407 Bunkers 245 851 Commissions charged by third 487 parties -- 7,719 Charter in - hire expense -- 208 ------ ------ 954 10,185 Commissions charged by a related party 199 2,854 ------ ------ 1,153 13,039 ====== ====== Year ended October 31, --------------------- Voyage Operating Expenses 2003 2004 ------------------------- ------ ------ Crew wages and related costs 3,516 4,170 Insurance 935 1,254 Repairs and maintenance 527 998 Spares and consumable stores 1,730 3,296 Tonnage taxes 31 51 ------ ------ 6,739 9,769 ====== ====== DRYSHIPS INC. Notes to Consolidated Financial Statements October 31, 2004 and December 31, 2005 (Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated) 11. Voyage and Vessel Operating expenses-(continued): Two-month period ended Year ended December 31, December 31, Voyage Operating Expenses 2004 2005 ------------------------- ----------- ---------- Crew wages and related costs 782 15,194 Insurance 217 3,853 Repairs and maintenance 192 5,864 Spares and consumable stores 557 11,616 Tonnage taxes 8 195 ------ ------ 1,756 36,722 ====== ====== Voyage expenses for the year ended December 31, 2005 include an amount of $208, representing hire paid to an unrelated party for the charter-in of vessel Darya Tara. Based on the charter party agreement concluded on November 24, 2005, the vessel was chartered-in by the Company for a period of thirty six to thirty eight months at a daily hire rate of $16.5. As of December 31, 2005, the annual charter hire to be paid by the Company under this agreement for the years ended December 31, 2006, 2007 and 2008 are approximately $6,022 per year.. Concurrently with the aforementioned agreement, the Company concluded a charter party agreement with an unrelated party for the charter-out of the vessel Darya Tara over the same period and at a daily rate of $16.7. The revenue recognized on the above agreement as of December 31, 2005 amounted to $211 is included in Voyage Revenues in the accompanying 2005 consolidated statement of income. In 2005, the Manager concluded twenty one agreements with an unrelated, international supplier for the exclusive supply of lubricants to certain fleet vessels. Under the terms of this agreement a fixed quantity of main engine oils for each vessel will be supplied free of charge. The above discount offer assumes that the Company will remain exclusively supplied by the specific supplier for at least four to five years following the date of the first supply. In the event contract does not run for its full contractual term, the free lubricants acquired until the date of the premature termination will be charged at market prices to the Company at 100% of their volume if the contract is terminated within the first year, then reducing by 20% each year until the fourth or fifth year, the year the contract expires. The Company classifies lubricants expense in spares and consumable stores in the aforementioned table of Vessel Operating expenses. During free lubricant periods, the Company records the market value of the lubricants consumed as an expense and amortizes the benefit of the free lubricants consumed on a straight-line basis to vessel operating expenses over the periods from the first supply through the date of their expiration as provided in the related contracts. The unamortized balance of the above benefits at December 31, 2005 amounted to $928, and is reflected in other current liabilities ($230) and non-current liabilities ($698) in the accompanying 2005 consolidated balance sheet. 12. Bunkers: The amounts in the accompanying consolidated statements of income represent gain resulted from the difference between the purchase and sale price of bunkers on board relating to vessels employed under time charter agreements. 13. Interest and Finance Costs: The amounts in the accompanying consolidated statements of income are analyzed as follows: Year ended October 31, ---------------------- 2003 2004 ----- ----- Interest on long-term debt 758 1,278 Bank charges 223 105 Amortization and write-off of 138 132 financing fees ----- ----- 1,119 1,515 ===== ===== DRYSHIPS INC. Notes to Consolidated Financial Statements October 31, 2004 and December 31, 2005 (Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated) 13. Interest and Finance costs-(continued): Two-month period ended Year ended December 31, December 31, 2004 2005 ----------- ---------- Interest on long-term debt 257 19,797 Bank charges 140 327 Amortization and write-off of 111 financing fees 544 Derivatives fair value (Note 14) -- (270) ------- ------- 508 20,398 ======= ======= 14. Derivatives: In May, June and July 2005, the Company concluded six interest rate cap and floor agreements with three of its lending banks as follows: (a) In May 2005, for a period of nine years through February 2014, for a notional amount of $154,167. Under the cap provisions of the agreement the Company pays interest at 5.59% if three-month LIBOR is between 5.59% and 8.0% and at three-month LIBOR if LIBOR exceeds 8.0% or if it is between 3.0% and 5.59%; (b) In May 2005, for a period of ten years through May 2015, for a notional amount of $120.6 million. Under the cap provisions of the agreement the Company pays interest at 5.8% if three-month LIBOR is between 5.8% and 8.0% and at three-month LIBOR if LIBOR exceeds 8.0% or if it is between 3.0% and 5.8%; (c) In June 2005, for a period of eight years through March 2013, for a notional amount of $22.0 million. Under the cap provisions of the agreement the Company pays interest at 5.66% if three-month LIBOR is between 5.66% and 8.0% and at three-month LIBOR if LIBOR exceeds 8.0% or if it is between 3.0% and 5.66%; (d) In June 2005, for a period of six years through March 2011, for a notional amount of $194.3 million. Under the cap provisions of the agreement the Company pays interest at 5.85% if three-month LIBOR is between 5.85% and 8.0% and at three-month LIBOR if LIBOR exceeds 8.0% or if it is between 3.0% and 5.85%; (e) In July 2005, for a period of ten years through April 2015, for a notional amount of $42.4 million. Under the cap provisions of the agreement the Company pays interest at 5.66% if three-month LIBOR is between 5.66% and 8.0% and at three-month LIBOR if LIBOR exceeds 8.0% or if it is between 3.0% and 5.66%; and (f) In July 2005, for a period of seven years through April 2012, for a notional amount of $22.3 million. Under the cap provisions of the agreement the Company pays interest at 5.64% if three-month LIBOR is between 5.64% and 8.0% and at three-month LIBOR if LIBOR exceeds 8.0% or if it is between 3.0% and 5.64%. Under the floor provisions of all the above agreements, the Company pays 3.0% if three-month LIBOR is equal or less than 3.0%. The fair value of the six interest rate cap and floor agreements equates to the amount that would be received by the Company upon canceling the agreements. Such fair value at December 31, 2005, was an asset of $270. Gain of $270 has been recorded in Interest and finance costs in the accompanying 2005 consolidated statement of income. 15. Financial Instruments: The carrying values of temporary cash investments, accounts receivable and accounts payable are reasonable estimates of their fair value due to the short-term nature of these financial instruments. The fair values of long-term bank loans approximate the recorded values, due to their variable interest rates. DRYSHIPS INC. Notes to Consolidated Financial Statements October 31, 2004 and December 31, 2005 (Expressed in thousands of United States Dollars - except for share and per share data, unless otherwise stated) 16. Subsequent Events: o Declaration of Dividends: On January 11, 2006, the Company declared dividends amounting to $6,070 or $0.20 per share, which were paid on January 31, 2006, to the stockholders of record as of January 16, 2006. o Conclusion of Foreign Exchange Transactions: In January 2006, the Company engaged in a total of 12 call options, maturing in monthly intervals from February 2006 to January 2007, under two foreign exchange transactions involving the US dollar against the Euro. The strike rate under each option is 1.21 US dollars per Euro, for amounts of Euro 200,000 per month, for each of the 12 months after the individual contract dates. In January 2006, the Company engaged in a total of 12 Forward Foreign Exchange Agreements in monthly intervals from February 2006 to January 2007. The strike rate under each option ranges from 1.2101 to 1.2215 US Dollars to the Euro for amounts of Euro 200,000 per month for the 12 months after the individual contracts dates. o Restructuring of Bank Loans: On March 31, 2006, the Company concluded two loan agreements for an aggregate amount of up to $628,750 with a syndicate of institutional Lenders as follows: 1. A term loan and short term credit facility of up to $518,750 in aggregate divided into a term loan of $460,000 in order to refinance the then outstanding balance of the Company's prior indebtedness ($528,325 as at December 31, 2005), to partially finance the acquisition cost of the second-hand vessel Hille Oldendorff ($40,760 under a memorandum of agreement dated March 24, 2005) and provide the Company with working capital and a credit facility of $58,750 in order to partially finance the acquisition cost of additional vessels acceptable to the lenders. The credit facility of $58,750 is available for drawdown for 364 days after the signing of the agreement and each amount drawn down will be included in the term loan and paid in equal consecutive quarterly installments commencing on the next quarterly repayment of the term loan and the length of repayment will depend on the age of each of the additional vessels to be acquired. The term loan is payable in forty variable consecutive quarterly installments commencing six months after the drawdown date but not later than August 31, 2006 and through May 2016 plus a balloon payment of $81,274, payable together with the last installment. 2. A term loan and short term credit facility of up to $110,000 in aggregate divided into a term loan of $97,500 in order to refinance the then outstanding balance of the Company's prior indebtedness ($528,325 as at December 31, 2005), to partially finance the acquisition cost of the second-hand vessel Hille Oldendorff ($40,760 under a memorandum of agreement dated March 24, 2005) and provide the Company with working capital and a credit facility of $12,500 in order to partially finance the acquisition cost of additional vessels acceptable to the lenders. The credit facility of $12,500 is available for drawdown for 364 days after the signing of the agreement and each amount drawn down will be included in the term loan and paid in equal consecutive quarterly installments commencing on the next quarterly repayment of the term loan and the length of repayment will depend on the age of each of the additional vessels to be acquired. The term loan is payable in forty variable consecutive quarterly installments commencing six months after the drawdown date but not later than August 31, 2006 and through May 2016 plus a balloon payment of $17,226, payable together with the last installment. The loans will bear interest at LIBOR plus a margin and will be secured by a first priority mortgage over the vessels involved. The Company will be permitted to pay dividends under the loans so long as such amount of dividends does not exceed 50% of the Company's net income as evidenced by its relevant annual audited financial statements. However, for the fiscal year 2006, the amount of dividends the Company may pay cannot exceed the amount of $18,000. The Company may not make any additional dividend payments without the lenders' prior written consent. The Company will be required to pay quarterly in arrears on the last day of each fiscal quarter a commitment fee in the amount of 0.40% per annum of the unutilized portion of the term loans and 0.25% of the unutilized portion of the credit facilities, a non-refundable arrangement fee of 0.40% and structuring fee of 0.025% on the aggregate loan amount, payable 50% upon acceptance of the lenders' offer letter and 50% on signing of the loan agreements, and a non-refundable annual agency fee in the amount of $45,000 payable to the agent for the first time on signing of the loan agreements and on every anniversary thereafter. Furthermore, the Company will pay a draw-down fee of 0.075% on each drawdown amount under the credit facilities. SIGNATURES The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this annual report on its behalf. DryShips, Inc. --------------------------------- (Registrant) Dated: April 20, 2006 /s/Christopher J. Thomas ------------------------ Christopher Thomas Chief Financial Officer EX-4.4 2 d662853_ex4-4.txt EXHIBIT 4.4 Exhibit 4.4 Date 31 March 2006 DRYSHIPS INC. as Borrower - and - THE BANKS AND FINANCIAL INSTITUTIONS listed in Part A of Schedule 1 as Lenders - and - HSH NORDBANK AG as Agent and as Security Trustee - and - HSH NORDBANK AG as Lead Arranger and Lead Bookrunner - and - THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND as Joint Bookrunner - and - HSH NORDBANK AG and THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND as Joint Underwriters - and - THE BANKS AND FINANCIAL INSTITUTIONS listed in Part B of Schedule 1 as Swap Banks ------------------------ LOAN AGREEMENT ------------------------ relating to a term loan and short-term credit facilities of up to US$518,750,000 in aggregate to refinance certain existing indebtedness, to provide working capital and to finance part of the purchase price of certain additional vessels WATSON FARLEY & WILLIAMS Piraeus INDEX Clause Page 1 INTERPRETATION 2 2 FACILITY 24 3 POSITION OF THE LENDERS, THE SWAP BANKS AND THE MAJORITY LENDERS 25 4 DRAWDOWN 26 5 INTEREST 27 6 INTEREST PERIODS 30 7 DEFAULT INTEREST 30 8 REPAYMENT AND PREPAYMENT 32 9 CONDITIONS PRECEDENT 35 10 REPRESENTATIONS AND WARRANTIES 36 11 GENERAL UNDERTAKINGS 38 12 CORPORATE UNDERTAKINGS 42 13 INSURANCE 44 14 SHIP COVENANTS 50 15 SECURITY COVER 54 16 PAYMENTS AND CALCULATIONS 56 17 APPLICATION OF RECEIPTS 58 18 APPLICATION OF EARNINGS 59 19 EVENTS OF DEFAULT 60 20 FEES AND EXPENSES 65 21 INDEMNITIES 66 22 NO SET-OFF OR TAX DEDUCTION 68 23 ILLEGALITY, ETC 69 24 INCREASED COSTS 70 25 SET-OFF 71 26 TRANSFERS AND CHANGES IN LENDING OFFICES 72 27 VARIATIONS AND WAIVERS 75 28 NOTICES 76 29 SUPPLEMENTAL 78 30 LAW AND JURISDICTION 78 SCHEDULE I PART A 80 LENDERS AND COMMITMENTS 80 PART B 80 SWAP BANKS 80 SCHEDULE 2 DETAILS OF SHIPS AND OWNERS 82 PART A DETAILS OF EXISTING SHIPS AND OWNERS 82 SCHEDULE 3 DRAWDOWN NOTICE 90 SCHEDULE 4 REPAYMENT OF TERM LOAN 91 SCHEDULE 5 CONDITION PRECEDENT DOCUMENTS 92 SCHEDULE 6 TRANSFER CERTIFICATE 98 SCHEDULE 7 DESIGNATION NOTICE 102 SCHEDULE 8 FORM OF COMPLIANCE CERTIFICATE 103 SCHEDULE 9 MANDATORY COST FORMULA 104 EXECUTION PAGES 106 THIS LOAN AGREEMENT is made on 31 March 2006 BETWEEN: (1) DRYSHIPS INC. a corporation incorporated in the Marshall Islands whose registered office is at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, The Marshall Islands MH 96960 as Borrower; (2) THE BANKS AND FINANCIAL INSTITUTIONS listed in Part A of Schedule 1, as Lenders; (3) HSH NORDBANK AG acting through its office at Gerhart-Hauptmann-Platz 50, D-20095, Hamburg, Germany, as Agent; (4) HSH NORDBANK AG acting through its office at Gerhart-Hauptmann-Platt 50, D-20095, Hamburg, Germany, as Security Trustee; (5) HSH NORDBANK AG acting through its office at Gerhart-Hauptmann-Platz 50, D-20092, Germany, as Lead Arranger and as Lead Bookrunner; (6) THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND acting through its office at New Uberior House, 11 Earl Grey Street, Edinburgh, EH3 9BN, Scotland, as Joint Bookrunner; (7) HSH NORDBANK AG acting through its office at Gerhart-Hauptmann-Platz 50, D-20095, Hamburg, Germany and THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND acting through its office at New Uberior House, 11 Earl Grey Street, Edinburgh, EH3 9BN, Scotland, as Joint Underwriters; and (8) THE BANKS AND FINANCIAL INSTITUTIONS listed in Part B of Schedule 1, as Swap Banks. WHEREAS (A) The Lenders have agreed to make available to the Borrower term loan and short-term credit facilities of up to US$518,750,000 in aggregate as follows: (i) as to an amount of up to the lesser of (a) US$460,000,000 and (b) 63 percent of the aggregate Market Values of the Existing Ships and the Identified Ship to refinance certain existing indebtedness secured on the Existing Ships, to finance part of the purchase price of the Identified Ship and to provide the Borrower with working capital for its general corporate purposes; and (ii) as to an amount of up to the lesser of (a) US$58,750,000 and (b) 63 percent of the aggregate Market Values of the Additional Ships to finance part of the purchase price of the Additional Ships. (B) The Swap Banks have agreed to enter into interest rate swap transactions with the Borrower from time to time to hedge the Borrower's exposure under this Agreement to interest rate fluctuations. (C) The Lenders and the Swap Banks have agreed to share pari passu in the security to be granted to the Security Trustee pursuant to this Agreement. IT IS AGREED as follows: 1 INTERPRETATION 1.2 Definitions. Subject to Clause 1.5, in this Agreement: "Additional Advance" means each Advance which is to be used in financing on delivery part of the purchase price of an Additional Ship and which is to be made available in accordance with and pursuant to Clauses 2.3 and 4.2(f); "Additional Ship" means any ship which is, or is to be, purchased by an Additional Ship Owner, each of which (unless all of the Lenders acting in their absolute discretion agree otherwise) must satisfy all the Additional Ship Requirements; "Additional Ship Requirements" means, in relation to any ship which is, or is to be, purchased by an Additional Ship Owner, a ship which satisfies the following requirements: (a) it has been approved by all of the Lenders acting in their absolute discretion; (b) it is a Capesize, Panamax or Handymax bulk carrier; (c) it is built in or after 1993; (d) following its purchase by the relevant Additional Ship Owner, the average age of the Additional Ships at that time subject to a Mortgage shall not exceed 10 years; (e) it maintains the highest class with a classification society which is acceptable to all of the Lenders free of any overdue recommendations and conditions; (f) it is to be registered on an Approved Flag; (g) at least 25 percent of the purchase price of the Additional Ship shall be contributed by the Additional Ship Owner either (i) by way of a shareholder's loan which is advanced to the Borrower and on-lent to the Additional Ship Owner or (ii) through the proceeds of a secondary offering of the share capital of the Borrower which are then advanced (either wholly or partially (as the case maybe)) to the Additional Ship Owner; "Additional Ship Earnings Account Pledge" means, in relation to each Earnings Account of an Additional Ship, a pledge agreement creating security in favour of the Creditor Parties in respect of that Earnings Account in such form as the Lenders may approve or require and, in the plural means all of them; "Additional Ship MOA" means, in relation to an Additional Ship, a memorandum of agreement or a shipbuilding contract to be made between the Additional Ship Seller of that Additional Ship and the Additional Ship Owner which is the buyer thereof on terms and conditions acceptable to the Lenders (such approval not to be unreasonably withheld if the Additional Ship satisfies all the Additional Ship Requirements) and, in the plural, means all of them; "Additional Ship Seller" means, in relation to an Additional Ship, the seller of such Additional Ship and, in the plural, means all of them; "Additional Ship Owner" means a company which is a direct or indirect wholly-owned subsidiary of the Borrower incorporated in a jurisdiction acceptable to the Lenders (in their absolute discretion) which shall be the owner of an Additional Ship and, in the plural, means all of them; "Adjusted Equity" means, as of any Compliance Date, the value of the stockholders' equity of the Group determined on a consolidated basis in accordance with GAAP and as shown in the consolidated balance sheets for the Group in the Applicable Accounts, adjusted by adding or subtracting (depending on whether the same is positive or negative) any difference between: (a) the value of Total Assets determined on a consolidated basis in accordance with GAAP and as shown in such consolidated balance sheets; and (b) the Market Value Adjusted Total Assets; "Advance" means the principal amount of each borrowing by the Borrower under this Agreement; "Affected Lender" has the meaning given in Clause 5.6; "Agency and Trust Deed" means the agency and trust deed executed or to be executed between the Borrower, the Lenders, the Swap Banks, the Junior Swap Banks, the Agent, BOS and the Security Trustee in such form as the Lenders may approve or require; "Agent" means HSH Nordbank AG and any of its successors including, without limitation, any successor appointed under clause 5 of the Agency and Trust Deed; "Applicable Accounts" means, in relation to a Compliance Date or an accounting period, the consolidated balance sheets and related consolidated statements of stockholders' equity, income and cash flows of the Group set out in the annual financial statements or interim financial statements of the Group prepared as of the Compliance Date or, as the case may be, the last day of the accounting period in question (and which the Borrower is obliged to deliver to the Agent pursuant to Clause 11.6); "Approved Broker" means each of Braemar Seascope Shipbrokers Ltd., H. Clarkson & Company Limited, Barry Rogliano Salles S.A., R.S. Platou Shipbrokers A.S., P.F. Bassoe AS, Arrow Sale & Purchase (UK) Ltd., Simpson Spence & Young, Fearnley AS and Maersk Shipbrokers; "Approved Flag" means the Maltese flag, the Cyprus flag, the Bahamas flag, the Panamanian flag, the Liberian flag, the Marshall Islands flag or such other flag as the Agent may, acting upon the instructions of all the Lenders, approve as the flag on which an Additional Ship shall be registered; "Approved Flag State" means Malta, Cyprus, Bahamas, Panama, Liberia, the Marshall Islands or any other country in which the Agent may, acting upon the instructions of all the Lenders, approve that an Additional Ship be registered; "Approved Manager" means, in relation to: (a) each Ship (other than the Identified Ship during the Hille Oldendorff Charter Period), Cardiff Marine Inc., a corporation incorporated in the Republic of Liberia and maintaining a ship management office at Omega Building, 80 Kifissias Avenue, Maroussi, 151 25, Greece; (b) the Identified Ship at all times during the Hille Oldendorff Charter Period, Egon Oldendorff, a company incorporated in Germany and maintaining a ship management office at Funfhausen 1, 23 552 Lubeck, Germany; and (c) or any other company which the Agent may, with the authorisation of the Majority Lenders, approve from time to time as the technical and/or commercial agent of a Ship; "Availability Period" means the period commencing on the date of this Agreement and ending on: (a) in the case of: (i) the Refinancing Advance, 5 April 2006; (ii) the Identified Ship Advance, 15 April 2006; (iii) an Additional Advance (subject to Clause 4.8), the date falling 364 days after the date of this Agreement (or, in respect of any of the Advances referred to in this paragraph (a) such later date as the Agent may, with the authorisation of all the Lenders, agree with the Borrower); or (b) if earlier, the date on which the Total Commitments are fully borrowed, cancelled or terminated; "Balloon Instalment" means, in relation to: (a) the Term Loan (subject to the proviso to Clause 8.1(a)(i)), an amount of $81,273,542.60; and (b) an Additional Advance, the balloon instalment in respect of that Advance as specified in the repayment schedule for that Advance referred to in Clause 8.1(a)(ii) and calculated in accordance with Clause 8.1(b); "Bank Guarantee" means the guarantee of the obligations of the Borrower under the Master Agreement to be entered into between the Borrower and HBOSTS, executed or to be executed by BOS in favour of HBOSTS; "Bookrunner" means each of the Lead Bookrunner and the Joint Bookrunner and, in the plural, means both of them; "Borrower" means Dryships Inc., a corporation incorporated in the Marshall Islands and having its registered office at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, The Marshall Islands MH 96960; "Borrower's Accounts Pledge" means a pledge agreement creating security in favour of the Creditor Parties in respect of the Debt Service Reserve Account and the Retention Account in such form as the Lenders may approve or require; "BOS" means the Governor and Company of the Bank of Scotland, acting through its office at New Uberior House, 11 Earl Grey Street, Edinburgh EH3 9BN, Scotland; "Business Day" means a day on which banks are open in London, Edinburgh, Athens and Hamburg and, in respect of a day on which a payment is required to be made under a Finance Document, also in New York City; "Charterparty Assignment" means, in relation to each Ship, an assignment of the rights of the Owner of that Ship under any time charterparty or contract of afreightment in respect of such Ship of at least 11 consecutive months in duration or under any bareboat charter and any guarantee of such charter or other contract of employment in respect of such Ship executed or to be executed by the relevant Owner in favour of the Security Trustee, in each case, in such form as the Lenders may approve or require and, in the plural, means all of them; "Commitment" means, in relation to a Lender, the aggregate of the Term Loan Commitment and the Credit Facility Commitment of that Lender; "Compliance Date" means 30 June and 31 December in each calendar year (or such other dates as of which the Borrower prepares the consolidated financial statements which it is required to deliver pursuant to Clause 11.6); "Confirmation" and "Early Termination Date", in relation to any continuing Designated Transaction, have the meanings given in each Master Agreement; "Contractual Currency" has the meaning given in Clause 21.5; "Contribution" means, in relation to a Lender, the part of the Loan which is owing to that Lender; "Counter Indemnity" means the counter indemnity executed or to be executed by the Borrower in favour of BOS, indemnifying BOS in respect of any amounts it may be obliged to pay under the Bank Guarantee; "Credit Facility" means an amount of up to $58,750,000 (representing the maximum aggregate principal amount of the Additional Advances) or the aggregate principal amount of the Additional Advances for the time being outstanding under this Agreement; "Credit Facility Commitment" means, in relation to a Lender, the amount set opposite its name in the fourth column of Schedule 1, Part A or, as the case may require, the amount specified in the relevant Transfer Certificate, as that amount may be reduced, cancelled or terminated in accordance with this Agreement (and "Total Credit Facility Commitments" means the aggregate of the Credit Facility Commitments of all the Lenders); "Creditor Party" means the Agent, the Security Trustee, each Swap Bank or any Lender, whether as at the date of this Agreement or at any later time; "Debt Service Reserve Account" means an account in the name of the Borrower with the Agent in Hamburg designated "Dryships Inc. - Debt Service Reserve Account" or any other account (with that or another office of the Agent) which is designated by the Agent as the Debt Service Reserve Account for the purposes of this Agreement; "Deed of Covenant" means: (a) in relation to each Existing Ship and the Identified Ship, a deed of covenant collateral to the Mortgage on that Ship; and (b) in relation to each Additional Ship, if a deed of covenant is appropriate given the Mortgage on that Additional Ship, a deed of covenant collateral to the Mortgage on that Additional Ship, each in such form as the Lenders may approve or require and, in the plural means all of them; "Designated Transaction" means a Transaction which fulfils the following requirements: (a) it is entered into by the Borrower pursuant to a Master Agreement with a Swap Bank which, at the time the Transaction is entered into, is also a Lender; (b) its purpose is the hedging of the Borrower's exposure under this Agreement to fluctuations in LIBOR arising from the funding of the Loan (or any part thereof) for a period expiring no later than the final Repayment Date; and (c) it is designated by the Borrower, by delivery by the Borrower to the Agent of a notice of designation in the form set out in Schedule 7, as a Designated Transaction for the purposes of the Finance Documents; "Dollars" and "$" means the lawful currency for the time being of the United States of America; "Drawdown Date" means, in relation to an Advance, the date requested by the Borrower for the Advance to be made, or (as the context requires) the date on which the Advance is actually made; "Drawdown Notice" means a notice in the form set out in Schedule 3 (or in any other form which the Agent approves or reasonably requires); "Earnings" means, in relations to each Ship, all moneys whatsoever which are now, or later become, payable (actually or contingently) to the Owner thereof or the Security Trustee and which arise out of the use or operation of that Ship, including (but not limited to): (a) all freight, hire and passage moneys, compensation payable to the relevant Owner or the Security Trustee in the event of requisition of that Ship for hire, remuneration for salvage and towage services, demurrage and detention moneys and damages for breach (or payments for variation or termination) of any charterparty or other contract for the employment of the Ship; (b) all moneys which are at any time payable under Insurances in respect of loss of earnings; and (c) if and whenever the Ship is employed on terms whereby any moneys falling within paragraphs (a) or (b) above are pooled or shared with any other person, that proportion of the net receipts of the relevant pooling or sharing arrangement which is attributable to the Ship; "Earnings Account" means, in relation to each Ship, an account in the name of the Owner of that Ship, with the Agent in Hamburg designated "[name of Ship] - Earnings Account", or any other account (with that or another office of the Agent) which is designated by the Agent as the Earnings Account for that Ship for the purposes of this Agreement and, in the plural means all of them; "EBITDA" means, for any accounting period, the consolidated net income of the Group for that accounting period: (a) plus, to the extent deducted in computing consolidated net income of the Group for that accounting period, the sum, without duplication, of: (i) all federal, state, local and foreign taxes and tax distributions; (ii) Net Interest Expenses; and (iii) depreciation, depletion, amortisation of intangibles and other non-cash charges or non-cash losses (including non-cash transaction expenses and the amortisation of debt discounts) and any extraordinary losses not incurred in the ordinary course of business; (b) minus, to the extent added in computing consolidated net income of the Group for that accounting period, any non-cash income or non-cash gains and any extraordinary gains not incurred in the ordinary course of business; all determined on a consolidated basis in accordance with GAAP and as shown in the consolidated statements of income for the Group in the Applicable Accounts; "Environmental Claim" means: (a) any claim by any governmental, judicial or regulatory authority which arises out of an Environmental Incident or an alleged Environmental Incident or which relates to any Environmental Law; or (b) any claim by any other person which relates to an Environmental Incident or to an alleged Environmental Incident, and "claim" means a claim for damages, compensation, fines, penalties or any other payment of any kind whether or not similar to the foregoing; an order or direction to take, or not to take, certain action or to desist from or suspend certain action; and any form of enforcement or regulatory action, including the arrest or attachment of any asset; "Environmental Incident" means, in relation to each Ship: (a) any release of Environmentally Sensitive Material from that Ship; or (b) any incident in which Environmentally Sensitive Material is released from a vessel other than the Ship and which involves a collision between the Ship and such other vessel or some other incident of navigation or operation, in either case, in connection with which the Ship is actually or potentially liable to be arrested, attached, detained or injuncted and/or the Ship or the Owner thereof and/or any operator or manager is at fault or allegedly at fault or otherwise liable to any legal or administrative action; or (c) any other incident in which Environmentally Sensitive Material is released otherwise than from the Ship and in connection with which the Ship is actually or potentially liable to be arrested and/or where the Owner thereof and/or any operator or manager of the Ship is at fault or allegedly at fault or otherwise liable to any legal or administrative action; "Environmental Law" means any law relating to pollution or protection of the environment, to the carriage of Environmentally Sensitive Material or to actual or threatened releases of Environmentally Sensitive Material; "Environmentally Sensitive Material" means oil, oil products and any other substance (including any chemical, gas or other hazardous or noxious substance) which is (or is capable of being or becoming) polluting, toxic or hazardous; "Event of Default" means any of the events or circumstances described in Clause 19.1; "Existing Indebtedness" means, at any relevant time, the aggregate Financial Indebtedness of the Borrower or its wholly-owned subsidiaries under the Existing Loan Agreements; "Existing Loan Agreements" means, together: (a) the loan agreement dated 6 December 2004 made between (i) Annapolis Shipping Company Limited and certain other companies (each of which is an indirect wholly-owned subsidiary of the Borrower) as joint and several borrowers, (ii) the banks and financial institutions referred to therein as lenders and (iii) Commerzbank AG as agent and security trustee in respect of a loan facility of (originally) $185,000,000 (of which an amount of $136,667,000 is outstanding by way of principal on the date of this Agreement); (b) the loan agreement dated 18 March 2005 made between (i) the Borrower, (ii) the banks and financial institutions referred to therein as lenders and (iii) Commerzbank AG as agent and security trustee in respect of a loan facility of (originally) $200,000,000 (of which an amount of $163,378,000 is outstanding by way of principal on the date of this Agreement); (c) the loan agreement dated 15 March 2005 made between (i) the indirect wholly-owned subsidiaries of the Borrower, Arleta Shipping Company Limited, Malvina Shipping Company Limited and Thelma Shipping Company Limited, as joint and several borrowers and (ii) Norddeutsche Landesbank Girozentrale as lender in respect of a loan facility of (originally) $120,645,000 (of which an amount of $108,662,000 is outstanding by way of principal on the date of this Agreement); (d) the loan agreement dated 23 March 2005 made between (i) the indirect wholly-owned subsidiary of the Borrower, Selma Shipping Company Limited, as borrower and (ii) The Royal Bank of Scotland plc as lender in respect of a loan facility of (originally) $92,940,000 (of which an amount of $72,778,000 is outstanding by way of principal on the date of this Agreement); and (e) the loan agreement dated 29 March 2005 made between (i) the indirect wholly-subsidiary of the Borrower, Iguana Shipping Company Limited, as borrower and (ii) Deutsche Schiffsbank Aktiengesellschaft as lender in respect of a loan facility of (originally) $19,000,000 of which an amount (of which an amount of $14,000,000 is outstanding by way or principal on the date of this Agreement), and, in the singular, means any of them; "Existing Ships" means, together, the Ships referred to in Schedule 2, Part A and, in the singular means any of them and when referred to by name means that Ship; "Existing Ships Earnings Accounts Pledge" means a pledge agreement creating security in favour of the Creditor Parties in respect of the Earnings Accounts of all the Existing Ships in such form as the Lenders may approve or require; "Final Maturity Date" means 31 May 2016; "Finance Documents" means: (a) this Agreement; (b) the Master Agreements; (c) the Agency and Trust Deed; (d) the Guarantees; (e) the Wealth Guarantee; (f) the Master Agreement Assignments; (g) the Mortgages; (h) the General Assignments; (i) the Deeds of Covenant; (j) the Borrower's Accounts Pledge; (k) the Existing Ships Earnings Accounts Pledge; the (l) Identified Ship Earnings Account Pledge; (m) the Additional Ship Earnings Account Pledges; (n) the Wealth Account Pledge; (o) any Charterparty Assignment; (p) the Hille Oldendorff Tripartite Agreement; (q) the Management Agreement Assignments; (r) the Manager's Undertakings; (s) the Counter Indemnity; and (t) any other document (whether creating a Security Interest or not) which is executed at any time by the Borrower, any Owner or any other person as security for, or to establish any form of subordination or priorities arrangement in relation to, any amount payable to the Lenders and/or the Swap Banks under this Agreement or any of the documents referred to in this definition; "Financial Indebtedness" means, in relation to a person (the "debtor"), a liability of the debtor: (a) for principal, interest or any other sum payable in respect of any moneys borrowed or raised by the debtor; (b) under any loan stock, bond, note or other security issued by the debtor; (c) under any acceptance credit, guarantee or letter of credit facility made available to the debtor; (d) under a financial lease, a deferred purchase consideration arrangement or any other agreement having the commercial effect of a borrowing or raising of money by the debtor; (e) under any interest or currency swap or any other kind of derivative transaction entered into by the debtor or, if the agreement under which any such transaction is entered into requires netting of mutual liabilities, the liability of the debtor for the net amount; or (f) under a guarantee, indemnity or similar obligation entered into by the debtor in respect of a liability of another person which would fall within (a) to (e) if the references to the debtor referred to the other person; "Financial Year" means in relation to the Group, each period of 1 year commencing on 1 January in respect of which its consolidated accounts are or ought to be prepared; "Fleet Vessels" means together all of the vessels (including, but not limited to, the Ships) from time to time owned by members of the Group; "GAAP" means generally accepted accounting principles as from time to time in effect in the United States of America; "General Assignment" means, in relation to each Ship, a general assignment of the Earnings, the Insurances and any Requisition Compensation of that Ship in such form as the Lenders may approve or require and, in plural means all of them; "Goodwill" means Goodwill Shipping Company Limited, a company incorporated in Malta having its registered office at 5/2 Merchants Street, Valletta, Malta; "Group" means the Borrower and its subsidiaries (whether direct or indirect and including, but not limited to, the Owners) from time to time during the Security Period and "member of the Group" shall be construed accordingly; "Guarantee" means a guarantee of the Borrower's obligations under (inter alia) this Agreement, the Master Agreements and the Junior Loan Agreement executed or to be executed by each Owner in favour of the Security Trustee in such form as the Lenders shall approve or require and, in the plural, means all of them; "HBOSTS" means HBOS Treasury Services plc of 33 Old Broad Street, London EC2N 1HZ, England and includes its successors in title, assignees and transferees; "Hedge Strategy Letter" means a letter issued or to be issued by no later than 30 April 2006 by the Borrower to the Agent setting out a strategy for hedging the Borrower's exposure under this Agreement to fluctuations of LIBOR arising from the funding at least 60 percent of the Loan for a consecutive period of at least 5 years during the Security Period; "Hille Oldendorff Charterparty" means a bareboat charterparty dated 29 August 2005 in respect of "HILLE OLDENDORFF" made between Goodwill as original owner and Oldendorff Carriers GmbH & Co. KG ("Oldendorff') as original charterer (as the same has been novated to the Hille Oldendorff Charterer by an addendum no. 1 thereto dated 6 October 2005 and as the same shall be novated to Seaventure by an addendum no. 2 thereto to be made between Goodwill, Seaventure, the Hille Oldendorff Charter and the Hille Oldendorff Charter Guarantor); "Hille Oldendorff Charterer" means Catania Shipping Inc., a Liberian corporation whose registered office is at 80 Broad Street, Monrovia, Liberia; "Hille Oldendorff Charter Guarantee" means the guarantee by the Hille Oldendorff Charter Guarantor of the obligations of the Hille Oldendorff Charterer under the Hille Oldendorff Charterparty as evidenced in Addendum No. 1 thereto dated 6 October 2005; "Hille Oldendorff Charter Guarantor" means Oldendorff Carriers GmbH & Co. KG, a German company acting through its office at Willy-Brandt-Allee 6, 23554 Lubeck, Germany; "Hille Oldendorff Charter Period" means the period commencing on the date of delivery of "HILLE OLDENDORFF" under the Hille Oldendorff Charterparty and ending on the date on which the Hille Oldendorff Charterparty expires by effluxion of time or (if earlier) on the date on which the Hille Oldendorff Charterparty is otherwise terminated or frustrated or "HILLE OLDENDORFF" is withdrawn from hire under the Hille Oldendorff Charterparty; "Hille Oldendorff MOA" means, a memorandum of agreement in respect of "HILLE OLDENDORFF" dated 24 March 2006 made between Goodwill as seller and Seaventure as buyer; "Hille Oldendorff Seller's Credit Agreement" means an agreement made or to be made between Seaventure and Goodwill whereby Goodwill shall agree to defer the payment of $3,250,000 of the purchase price payable by Seaventure pursuant to the Hille Oldendorff MOA with such deferred amount being payable, subject to Clause 11.22, in one amount no earlier than 9 months after the Drawdown Date in respect of the Identified Ship Advance and no later than 12 months after the Drawdown Date in respect of the Identified Ship Advance, such agreement to be in a form acceptable to the Majority Lenders; "Hille Oldendorff Tripartite Agreement" means, in relation to "HILLE OLDENDORFF", an agreement made between the Hille Oldendorff Charterer, Seaventure and the Security Trustee in such form as the Lenders may approve or require; "IACS" means the International Association of Classification Societies; "Identified Ship" means "HILLE OLDENDORFF" being the Ship referred to in Schedule 2, Part B and when referred to by name means that Ship; "Identified Ship Advance" means an amount of up to the lesser of (a) $22,691,000 and (b) 63 percent of the Market Value of the Identified Ship (determined in accordance with the valuation referred to in paragraph 10 of Schedule 5, Part C) which is to be made available in accordance with and pursuant to Clauses 2.3 and 4.2(d); "Identified Ship Earnings Account Pledge" means a pledge agreement creating security in favour of the Creditor Parties in respect of the Earnings Account of the Identified Ship in such form as the Lenders may approve or require; "Insurances" means, in relation to each Ship: (a) all policies and contracts of insurance, including entries of that Ship in any protection and indemnity or war risks association, which are effected in respect of the Ship, her Earnings or otherwise in relation to her; and (b) all rights and other assets relating to, or derived from, any of the foregoing, including any rights to a return of a premium; "Interest Coverage Ratio" means, in relation to a Compliance Date or an accounting period, the ratio of (a) EBITDA for the most recent financial period of the Group ending on the Compliance Date to (b) the Net Interest Expenses for that financial period (calculated on a trailing 12-months basis); "Interest Period" means a period determined in accordance with Clause 6; "ISM Code" means: (a) the International Management Code for the Safe Operation of Ships and for Pollution Prevention', currently known or referred to as the 'ISM Code', adopted by the Assembly of the International Maritime Organisation by Resolution A.741(18) on 4 November 1993 and incorporated on 19 May 1994 into chapter IX of the International Convention for the Safety of Life at Sea 1974 (SOLAS 1974); and (b) all further resolutions, circulars, codes, guidelines, regulations and recommendations which are now or in the future issued by or on behalf of the International Maritime Organisation or any other entity with responsibility for implementing the ISM Code, including without limitation, the 'Guidelines on implementation or administering of the International Safety Management (ISM) Code by Administrations' produced by the International Maritime Organisations pursuant to Resolution A.788(19) adopted on 25 November 1995, as the same may be amended, supplemented or replaced from time to time; "ISM Code Documentation" includes, in relation to each Ship: (a) the document of compliance (DOC) and safety management certificate (SMC) issued pursuant to the ISM Code in relation to that Ship within the periods specified by the ISM Code; and (b) all other documents and data which are relevant to the ISM SMS and its implementation and verification which the Agent may require; and (c) any other documents which are prepared or which are otherwise relevant to establish and maintain the Ship's or the compliance of its Owner with the ISM Code which the Agent may require; "ISM SMS" means, in relation to each Ship, the safety management system for that Ship which is required to be developed, implemented and maintained under the ISM Code; "ISPS Code" means the International Ship and Port Facility Security Code constituted pursuant to resolution A.924(22) of the International Maritime Organisation ("IMO") now set out in Chapter XI-2 of the Safety of Life at Sea Convention (SOLAS) 1974 (as amended) and the mandatory ISPS Code as adopted by a Diplomatic Conference of the IMO on Maritime Security in December 2002 and includes any amendments or extensions to it and any regulation issued pursuant to it but shall only apply insofar as it is applicable law in the relevant Ship's flag state and any jurisdiction on which such Ship is operated; "ISPS Code Documentation" includes: (a) the International Ship Security Certificate issued pursuant to the ISPS Code in relation to each Ship within the period specified in the ISPS Code; and (b) all other documents and data which are relevant to the ISPS Code and its implementation and verification which the Agent may require; "Junior Designated Transaction" has the meaning given to the term "Designated Transaction" in the Junior Loan Agreement; "Junior Lenders" means, subject to clause 26.6 of the Junior Loan Agreement: (a) a bank or financial institution listed in schedule 1 to the Junior Loan Agreement and acting through its branch indicated in schedule 1 to the Junior Loan Agreement (or through another branch notified to the Borrower under clause 26.14 of the Junior Loan Agreement) unless it has delivered a Junior Loan Transfer Certificate or Certificates covering the entire amounts of its Commitment (as such term is defined in the Junior Loan Agreement) and its Contribution (as such term is defined in the Junior Loan Agreement); and (b) the holder for the time being of a Junior Loan Transfer Certificate; "Junior Loan" means the principal amount for the time being outstanding under the Junior Loan Agreement; "Junior Loan Agreement" means the Loan Agreement to be made between the Borrower as borrower, the Junior Lenders, the Agent, the Security Trustee and the Junior Swap Banks in respect of term loan and short-term credit facilities of up to $110,000,000 in aggregate; "Junior Loan Transfer Certificate" has the meaning given in clause 26.2 of the Junior Loan Agreement; "Junior Master Agreement" has the meaning given to the term "Master Agreement" in the Junior Loan Agreement; "Junior Swap Bank" has the meaning given to the terms "Swap Bank" in the Junior Loan Agreement; "Lender" means, subject to Clause 26.6: (a) a bank or financial institution listed in Part A of Schedule 1 and acting through its branch indicated in Part A of Schedule 1 (or through another branch notified to the Borrower under Clause 26.14) unless it has delivered a Transfer Certificate or Certificates covering the entire amounts of its Commitment and its Contribution; and (b) the holder for the time being of a Transfer Certificate; "LIBOR" means, for an Interest Period: (a) the rate per annum equal to the offered quotation for deposits in Dollars for a period equal to, or as near as possible equal to, the relevant Interest Period which appears on REUTERS BBA Page LIBOR 01 at or about 11.00 a.m. (London time) on the second Business Day prior to the commencement of that Interest Period (and, for the purposes of this Agreement, "REUTERS BBA Page LIBOR 01" means the display designated as "REUTERS BBA Page LIBOR 01" on the Reuters Money News Service or such other page as may replace REUTERS BBA Page LIBOR 01 on that service for the purpose of displaying rates comparable to that rate or on such other service as may be nominated by the British Bankers' Association for the purpose of displaying British Bankers' Association Interest Settlement Rates for Dollars); or (b) if no rate is quoted on REUTERS BBA Page LIBOR 01, the rate per annum determined by the Agent to be the arithmetic mean of the rates per annum notified to the Agent by each Reference Bank to be the rate per annum at which deposits in Dollars are offered to that Reference Bank by leading banks in the London Interbank Market at or about 11.00 a.m. (London time) on the second Business Day prior to the commencement of that Interest Period for a period equal to that Interest Period and for delivery on the first Business Day of it; or (c) in relation to any Interest Period of 12 months or more, the average of the actual costs to the Lenders of funding their participation in the Loan; "Loan" means the principal amount for the time being outstanding under this Agreement; "Major Casualty" means, in relation to each Ship, any casualty to that Ship in respect of which the claim or the aggregate of the claims against all insurers, before adjustment for any relevant franchise or deductible, exceeds $500,000 or the equivalent in any other currency; "Majority Lenders" means Lenders whose Commitments total at least 60 percent of the Total Commitments; "Manager's Undertaking" means, in relation to each Ship, a letter of undertaking executed or to be executed by the Approved Manager in favour of the Security Trustee in such form as the Lenders may approve or require agreeing certain matters in relation to the management of that Ship and subordinating the rights of the Approved Manager against the Ship and the Owner thereof to the rights of the Creditor Parties under the Finance Documents and, in the plural, means all of them; "Management Agreement" means, in relation to each Ship, an agreement made or to be made between (i) the Owner of that Ship, (ii) the Borrower and (iii) the Approved Manager in respect of the commercial and technical management of the Ship and, in the plural, means all of them; "Management Agreement Assignment" means, in relation to each Management Agreement, the assignment of the rights and interests of the Borrower and the relevant Owner under that Management Agreement in such form as the Lenders may approve or require and, in the plural, means all of them; "Mandatory Cost" means the percentage rate per annum calculated by the Agent in accordance with Schedule 9; "Margin" means: (a) at any time when the Security Cover Percentage is equal to, or less than, 67.5 percent, 1 percent per annum; and (b) at all other times, 1.1 percent per annum; "Market Adjusted Equity Ratio" means, in relation to a Compliance Date, the ratio of (a) the Adjusted Equity for the most recent financial period of the Group ending on the Compliance Date to (b) the aggregate of (i) Total Interest Bearing Liabilities and (ii) Adjusted Equity for that financial period; "Market Value" means, in relation to each Ship and each Fleet Vessel, the market value thereof calculated in accordance with Clause 15.4; "Market Value Adjusted Net Worth" means Paid-Up Capital plus General Reserves plus Retained Earnings adjusted to reflect the difference between the book values of the Fleet Values and the Market Values of all Fleet Vessels at any relevant time; "Market Value Adjusted Total Assets" means, at any time, Total Assets adjusted to reflect the Market Value of all Fleet Vessels; "Master Agreement" means each master agreement (on the 1992 or, as the case may be, 2002 ISDA (Multicurrency - Crossborder) form) made between the Borrower and a Swap Bank and includes all Designated Transactions from time to time entered into and Confirmations from time to time exchanged under the master agreement and, in the plural, means both of them; "Master Agreement Assignment" means, in relation to each Master Agreement, the assignment of that Master Agreement in such form as the Lenders may approve or require and, in the plural, means both of them; "Mortgage" means: (a) in relation to each Existing Ship and the Identified Ship, a first priority Maltese statutory mortgage on such Ship; and (b) in relation to each Additional Ship, a first priority or preferred mortgage on such Ship under the relevant Approved Flag, each in such form as the Lenders may approve or require and, in plural, means all of them; "Negotiation Period" has the meaning given in Clause 5.9; "Net Income" means, in relation to each Financial Year of the Borrower, the aggregate income of the Group appearing in the Applicable Accounts for that Financial Year less the aggregate of: (a) the amounts incurred by the Group during that Financial Year as expenses of its business; (b) depreciation, amortisation and all interest in respect of all Financial Indebtedness of the Group paid by all members of the Group during that Financial Year; (c) Net Interest Expenses; (d) taxes; and (e) other items charged to the Borrower's consolidated profit and loss account for the relevant Financial Year; "Net Interest Expenses" means, as of any Compliance Date, the aggregate of all interest, commitment and other fees, commissions, discounts and other costs, charges or expenses accruing due from all the members the Group during that accounting period less interest income received, determined on a consolidated basis in accordance with GAAP and as shown in the consolidated statements of income for the Group in the Applicable Accounts; "Notifying Lender" has the meaning given in Clause 23.1 or Clause 24.1 as the context requires; "Owner" means in relation to: (a) each Existing Ship, the corporation which is specified in Schedule 2, Part A as the owner thereof, being a company incorporated in Malta having its registered office at 512 Merchants Street, Valletta, Malta; (b) the Identified Ship, Seaventure; and (c) an Additional Ship, the Additional Ship Owner of that Ship, (h) each being a company which is a direct or indirect wholly-owned subsidiary of the Borrower and in the plural means all of them; "Paid-Up Capital", "General Reserves" and "Retained Earnings" have the meanings ascribed to them in the Applicable Accounts; "Payment Currency" has the meaning given in Clause 21.5; "Permitted Security Interests" means: (a) Security Interests created by the Finance Documents; (b) Security Interest created pursuant to, or in connection with, the Existing Loan Agreements; (c) liens for unpaid crew's wages in accordance with usual maritime practice; (d) liens for salvage; (e) liens arising by operation of law for not more than 2 months' prepaid hire under any charter in relation to a Ship not prohibited by this Agreement; (f) liens for master's disbursements incurred in the ordinary course of trading and any other lien arising by operation of law or otherwise in the ordinary course of the operation, repair or maintenance of a Ship, provided such liens do not secure amounts more than 30 days overdue (unless the overdue amount is being contested by the relevant Owner in good faith by appropriate steps) and subject, in the case of liens for repair or maintenance, to Clause 14.13(h); (g) any Security Interest created in favour of a plaintiff or defendant in any action of the court or tribunal before whom such action is brought as security for costs and expenses where the relevant Owner is prosecuting or defending such action in good faith by appropriate steps; and (h) Security Interests arising by operation of law in respect of taxes which are not overdue for payment other than taxes being contested in good faith by appropriate steps and in respect of which appropriate reserves have been made; "Pertinent Jurisdiction", in relation to a company, means: (a) England and Wales; (b) the country under the laws of which the company is incorporated or formed; (c) a country in which the company's central management and control is or has recently been exercised; (d) a country in which the overall net income of the company is subject to corporation tax, income tax or any similar tax; (e) a country in which assets of the company (other than securities issued by, or loans to, related companies) having a substantial value are situated, in which the company maintains a permanent place of business, or in which a Security Interest created by the company must or should be registered in order to ensure its validity or priority; and (f) a country the courts of which have jurisdiction to make a winding up, administration or similar order in relation to the company or which would have such jurisdiction if their assistance were requested by the courts of a country referred to in paragraphs (b) or (c) above; "Potential Event of Default" means an event or circumstance which, with the giving of any notice, the lapse of time, a determination of the Majority Lenders and/or the satisfaction of any other condition, would constitute an Event of Default; "Reference Banks" means, subject to Clause 26.16, together, HSH Nordbank AG and BOS and any of their respective successors and in the singular means any of them; "Refinancing Advance" means an amount of up to $437,309,000 which is to be used (a) in refinancing part of the Existing Indebtedness and (b) to provide the Borrower with working capital for its general corporate purposes and which is to be made available in accordance with and pursuant to Clauses 2.3 and 4.2(c); "Relevant Person" has the meaning given in Clause 19.9; "Repayment Date" means a date on which a repayment is required to be made under Clause 8; "Repayment Instalment" means, in relation to: (a) the Term Loan, each of the 40 repayment instalments listed in Schedule 4; and (b) an Additional Advance, each repayment instalment in respect of that Additional Advance specified in the repayment schedule for that Additional Advance referred to in Clause 8.1(a)(ii) and calculated in accordance with Clause 8.1(b); "Requisition Compensation" includes all compensation or other moneys payable by reason of any act or event such as is referred to in paragraph (b) of the definition of "Total Loss"; "Retention Account" means an account in the name of the Borrower with the Agent in Hamburg designated "Dryships Inc. - Retention Account", or any other account (with that or another office of the Agent) which is designated by the Agent as the Retention Account for the purposes of this Agreement; "Seaventure" means Seaventure Shipping Limited, a corporation incorporated in the Marshall Islands and having its registered office at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, The Marshall Islands MH 96960; "Secured Liabilities" means all liabilities which the Borrower, the Security Parties or any of them have, at the date of this Agreement or at any later time or times, under or by virtue of the Finance Documents or any judgment relating to the Finance Documents; and for this purpose, there shall be disregarded any total or partial discharge of these liabilities, or variation of their terms, which is effected by, or in connection with, any bankruptcy, liquidation, arrangement or other procedure under the insolvency laws of any country; "Security Cover Percentage" means, at any relevant time, the Loan expressed as a percentage of the aggregate of the amounts referred to in paragraphs (a) and (b) of Clause 15.I; "Security Interest" means: (a) a mortgage, charge (whether fixed or floating) or pledge, any maritime or other lien or any other security interest of any kind; (b) the rights of the plaintiff under an action in rem in which the vessel concerned has been arrested or a writ has been issued or similar step taken; and (c) any arrangement entered into by a person (A) the effect of which is to place another person (B) in a position which is similar, in economic terms, to the position in which B would have been had he held a security interest over an asset of A; but (c) does not apply to a right of set off or combination of accounts conferred by the standard terms of business of a bank or financial institution; "Security Party" means each Owner, Wealth and any other person (except a Creditor Party) who, as a surety or mortgagor, as a party to any subordination or priorities arrangement, or in any similar capacity, executes a document falling within the final paragraph of the definition of "Finance Documents"; "Security Period" means the period commencing on the date of this Agreement and ending on the date on which the Agent notifies the Borrower, the Security Parties and the Lenders that: (a) all amounts which have become due for payment by the Borrower or any Security Party under the Finance Documents have been paid; (b) no amount is owing or has accrued (without yet having become due for payment) under any Finance Document; (c) neither the Borrower nor any Security Party has any future or contingent liability under Clause 20, 21 or 22 below or any other provision of this Agreement or another Finance Document; and (d) the Agent, the Security Trustee and the Majority Lenders do not consider that there is a significant risk that any payment or transaction under a Finance Document would be set aside, or would have to be reversed or adjusted, in any present or possible future bankruptcy of the Borrower or a Security Party or in any present or possible future proceeding relating to a Finance Document or any asset covered (or previously covered) by a Security Interest created by a Finance Document; "Security Trustee" means HSH Nordbank AG and any of its successors including, without limitation, any successor appointed under clause 5 of the Agency and Trust Deed; "Ships" means, together, the Existing Ships, the Identified Ships and the Additional Ships and, in the singular, means any of them; "Swap Bank" means each of the banks listed in Part B of Schedule 1 acting through its branch or office indicated in Part B of Schedule 1 and any other Lender which enters into a Master Agreement with the Borrower for the purpose of entering into a Designated Transaction and, in the plural, means all of them; "Swap Exposure" means, as at any relevant date, the amount certified by the Swap Banks to the Agent to be the aggregate net amount in Dollars which would be payable by the Borrower to the Swap Banks under (and calculated in accordance with) section 6(e) (Payments on Early Termination) of each Master Agreement if an Early Termination Date had occurred on the relevant date in relation to all continuing Designated Transactions entered into between the Borrower and the Swap Banks; "Term Loan" means an amount of up to $460,000,000 (representing the maximum aggregate principal amount of the Refinancing Advance and the Identified Ship Advance) or the aggregate principal amount of the Refinancing Advance and the Identified Ship Advance for the time being outstanding under this Agreement; "Term Loan Commitment" means, in relation to a Lender, the amount set opposite its name in the third column of Schedule 1, Part A, or, as the case may require, the amount specified in the relevant Transfer Certificate, as that amount may be reduced, cancelled or terminated in accordance with this Agreement (and "Total Term Loan Commitments" means the aggregate of the Term Loan Commitments of all the Lenders); "Total Assets" means, as of any Compliance Date, the aggregate value of all trade debtors and the value of all stock (valued in accordance with GAAP) and all other investments and other tangible and intangible assets of the Group properly included in the Applicable Accounts as "fixed assets" in accordance with GAAP but excluding any assets held on trust; "Total Commitments" means the aggregate of the Total Term Loan Commitments and the Total Credit Facility Commitments; "Total Interest Bearing Liabilities" means, as of any Compliance Date, the consolidated total amount of the interest bearing Financial Indebtedness of the Group; "Total Liabilities" means, as of any Compliance Date, the aggregate Financial Indebtedness of the Group; "Total Loss" means in relation to each Ship: (a) actual, constructive, compromised, agreed or arranged total loss of that Ship; (b) any expropriation, confiscation, requisition or acquisition of the Ship, whether for full consideration, a consideration less than her proper value, a nominal consideration or without any consideration, which is effected by any government or official authority or by any person or persons claiming to be or to represent a government or official authority, excluding a requisition for hire for a fixed period not exceeding one year without any right to an extension; (c) any condemnation of the Ship by any tribunal or by any person or person claiming to be a tribunal; (d) any arrest, capture, seizure or detention of the Ship (including any hijacking or theft) unless she is within 30 days redelivered to the full control the relevant Owner; "Total Loss Date" means: (a) in the case of an actual loss of a Ship, the date on which it occurred or, if that is unknown, the date when that Ship was last heard of, (b) in the case of a constructive, compromised, agreed or arranged total loss of a Ship, the earliest of: (i) the date on which a notice of abandonment is given to the insurers; and (ii) the date of any compromise, arrangement or agreement made by or on behalf of the relevant Owner, with the Ship's insurers in which the insurers agree to treat the Ship as a total loss; and (c) in the case of any other type of total loss, on the date (or the most likely date) on which it appears to the Agent that the event constituting the total loss occurred; "Transaction" has the meaning given in each Master Agreement; "Transfer Certificate" has the meaning given in Clause 26.2; "Trust Property" has the meaning given in clause 3.1 of the Agency and Trust Dee; "Wealth" means Wealth Management Inc., a corporation incorporated in the Marshall Islands and having its registered office at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, The Marshall Islands MH 96960; "Wealth Account" means an account in the name of Wealth with the Agent in Hamburg designated "Wealth Management Inc. - Cash Management Account" or any other account (with that or another office of the Agent) which is designated by the Agent as the Wealth Account for the purposes of this Agreement; "Wealth Account Pledge" means a pledge agreement creating security in favour of the Creditor Parties in respect of the Wealth Account in such form as the Lenders may approve or require; and "Wealth Guarantee" means a guarantee of the Borrower's obligations under (inter alia) this Agreement, the Master Agreements and the Junior Loan Agreement executed or to be executed by Wealth in favour of the Security Trustee in such form as the Lenders shall approve or require and, in the plural, means all of them. 1.3 Construction of certain terms. In this Agreement: "approved" means, for the purposes of Clause 13, approved in writing by the Agent; "asset" includes every kind of property, asset, interest or right, including any present, future or contingent right to any revenues or other payment; "company" includes any partnership, joint venture and unincorporated association; "consent" includes an authorisation, consent, approval, resolution, licence, exemption, filing, registration, notarisation and legalisation; "contingent liability" means a liability which is not certain to arise and/or the amount of which remains unascertained; "document" includes a deed; also a letter, fax or telex; "excess risks" means the proportion of claims for general average, salvage and salvage charges not recoverable under the hull and machinery policies in respect of any Ship in consequence of her insured value being less than the value at which that Ship is assessed for the purpose of such claims; "expense" means any kind of cost, charge or expense (including all legal costs, charges and expenses) and any applicable value added or other tax; "law" includes any form of delegated legislation, any order or decree, any treaty or international convention and any regulation or resolution of the Council of the European Union, the European Commission, the United Nations or its Security Council; "legal or administrative action" means any legal proceeding or arbitration and any administrative or regulatory action or investigation; "liability" includes every kind of debt or liability (present or future, certain or contingent), whether incurred as principal or surety or otherwise; "months" shall be construed in accordance with Clause 1.3; "obligatory insurances" means all insurances effected, or which the Borrower is obliged to effect, under Clause 13 below or any other provision of this Agreement or another Finance Document; "parent company" has the meaning given in Clause 1.4; "person" includes any company; any state, political sub-division of a state and local or municipal authority; and any international organisation; "policy", in relation to any insurance, includes a slip, cover note, certificate of entry or other document evidencing the contract of insurance or its terms; "protection and indemnity risks" means the usual risks covered by a protection and indemnity association managed in London, including pollution risks and the proportion (if any) of any sums payable to any other person or persons in case of collision which are not recoverable under the hull and machinery policies by reason of the incorporation therein of clause 1 of the Institute Time Clauses (Hulls)(1/10/83) or clause 8 of the Institute Time Clauses (Hulls) (1/11/1995) or the Institute Amended Running Down Clause (1110171) or any equivalent provision; "regulation" includes any regulation, rule, official directive, request or guideline (either having the force of law or compliance with which is reasonable in the ordinary course of business of the party concerned) of any governmental, intergovernmental or supranational body, agency, department or regulatory, self-regulatory or other authority or organisation; "subsidiary" has the meaning given in Clause 1.4; "successor" includes any person who is entitled (by assignment, novation, merger or otherwise) to any other person's rights under this Agreement or any other Finance Document (or any interest in those rights) or who, as administrator, liquidator or otherwise, is entitled to exercise those rights; and in particular references to a successor include a person to whom those rights (or any interest in those rights) are transferred or pass as a result of a merger, division, reconstruction or other reorganisation of it or any other person; "tax" includes any present or fixture tax, duty, impost, levy or charge of any kind which is imposed by any state, any political sub-division of a state or any local or municipal authority (including any such imposed in connection with exchange controls), and any connected penalty, interest or fine; and "war risks" means the risks according to Institute War and Strike Clauses (Hull Time) (1/10/83) or (1/11/95), or equivalent conditions, including, but not limited to risk of mines, blocking and trapping, missing vessel, confiscation, vandalism, sabotage and malicious mischief and all risks excluded from the standard form of English or other marine policy. 1.4 Meaning of "month". A period of one or more "months" ends on the day in the relevant calendar month numerically corresponding to the day of the calendar month on which the period started ("the numerically corresponding day"), but: (a) on the Business Day following the numerically corresponding day if the numerically corresponding day is not a Business Day or, if there is no later Business Day in the same calendar month, on the Business Day preceding the numerically corresponding day; or (b) on the last Business Day in the relevant calendar month, if the period started on the last Business Day in a calendar month or if the last calendar month of the period has no numerically corresponding day; and "month" and "monthly" shall be construed accordingly. 1.5 Meaning of "subsidiary". A company (S) is a subsidiary of another company (P) if: (a) a majority of the issued shares in S (or a majority of the issued shares in S which carry unlimited rights to capital and income distributions) are directly owned by P or are indirectly attributable to P; or (b) P has direct or indirect control over a majority of the voting rights attached to the issued shares of S; or (c) P has the direct or indirect power to appoint or remove a majority of the directors of S; or (d) P otherwise has the direct or indirect power to ensure that the affairs of S are conducted in accordance with the wishes of P; and any company of which S is a subsidiary is a parent company of S. 1.6 General Interpretation. (a) In this Agreement: (i) references to, or to a provision of, a Finance Document or any other document are references to it as amended or supplemented, whether before the date of this Agreement or otherwise; (ii) references to, or to a provision of, any law include any amendment, extension, re-enactment or replacement, whether made before the date of this Agreement or otherwise; and (iii) words denoting the singular number shall include the plural and vice versa. (b) Clauses 1.1 to 1.4 and paragraph (a) of this Clause 1.5 apply unless the contrary intention appears. (c) References in Clause 1.1 to a document being in the form of a particular Appendix include references to that form with any modifications to that form which the Agent (with the authorisation of the Majority Lenders in the case of substantial modifications) approves or reasonably requires. (d) The clause headings shall not affect the interpretation of this Agreement. 2 FACILITY 2.1 Amount of facility. Subject to the other provisions of this Agreement, the Lenders shall make available to the Borrower term loan and credit facilities not exceeding $518,750,000 in aggregate at any time. 2.2 Lenders' participations in Loan. Subject to the other provisions of this Agreement, each Lender shall participate in: (a) each of the Refinancing Advance and the Identified Ship Advance in the proportion which, as at the relevant Drawdown Date, its Term Loan Commitment bears to the Total Term Loan Commitments; and (b) each Additional Advance in the proportion which, as at the relevant Drawdown Date, its Credit Facility Commitment bears to the Total Credit Facility Commitments. 2.3 Purpose of Loan. The Borrower undertakes with each Creditor Party to use each Advance only for the purpose stated in the preamble to this Agreement. 3 POSITION OF THE LENDERS, THE SWAP BANKS AND THE MAJORITY LENDERS 3.1 Interests of Lenders and Swap Bank several. The rights of the Lenders and the Swap Banks under this Agreement and each Master Agreement are several; accordingly: (a) each Lender shall be entitled to sue for any amount which has become due and payable by the Borrower to it under this Agreement; and (b) each Swap Bank shall be entitled to sue for any amount which has become due and payable by the Borrower to it under the Master Agreement to which that Swap Bank is a party, without joining the Agent, the Security Trustee, any other Lender or any Swap Bank as additional parties in the proceedings. 3.2 Proceedings by individual Lender or Swap Bank. However, without the prior consent of the Majority Lenders, no Lender and neither Swap Bank may bring proceedings in respect of: (a) any other liability or obligation of the Borrower or a Security Party under or connected with a Finance Document or a Master Agreement; or (b) any misrepresentation or breach of warranty by the Borrower or a Security Party in or connected with a Finance Document or a Master Agreement. 3.3 Obligations several. The obligations of the Lenders under this Agreement and of the Swap Banks under the Master Agreements are several; and a failure of a Lender to perform its obligations under this Agreement or of a Swap Bank to perform its obligations under the Master Agreement to which it is a party shall not result in: (a) the obligations of the other Lenders being increased; nor (b) the Borrower, any Security Party or any other Creditor Party being discharged (in whole or in part) from its obligations under any Finance Document; and in no circumstances shall a Lender or a Swap Bank have any responsibility for a failure of another Lender or Swap Bank to perform its obligations under this Agreement or any Master Agreement. 3.4 Parties bound by certain actions of Majority Lenders. Every Lender, each Swap Bank, the Borrower and each Security Party shall be bound by: (a) any determination made, or action taken, by the Majority Lenders under any provision of a Finance Document; (b) any instruction or authorisation given by the Majority Lenders to the Agent or the Security Trustee under or in connection with any Finance Document; (c) any action taken (or in good faith purportedly taken) by the Agent or the Security Trustee in accordance with such an instruction or authorisation. 3.5 Reliance on action of Agent. However, the Borrower and each Security Party: (a) shall be entitled to assume that the Majority Lenders have duly given any instruction or authorisation which, under any provision of a Finance Document, is required in relation to any action which the Agent has taken or is about to take; and (b) shall not be entitled to require any evidence that such an instruction or authorisation has been given. 3.6 Construction. In Clauses 3.4 and 3.5 references to action taken include (without limitation) the granting of any waiver or consent, an approval of any document and an agreement to any matter. 4 DRAWDOWN 4.1 Request for Advance. Subject to the following conditions, the Borrower may request an Advance to be made by ensuring that the Agent receives a completed Drawdown Notice not later than 11.00 a.m. (Hamburg time) 3 Business Days prior to the intended Drawdown Date. 4.2 Availability. The conditions referred to in Clause 4.1 are that: (a) a Drawdown Date has to be a Business Day during the Availability Period; (b) (subject to paragraph (g) of this Clause 4.2) each Advance shall be made available in a single amount; (c) the Refinancing Advance shall not exceed lesser of (i) $437,309,000 and (ii) 63 percent of the aggregate Market Values of the Existing Ships (as determined in accordance with the valuations referred to in paragraph 12 of Schedule 5, Part A) and shall be applied in refinancing part of the Existing Indebtedness and as to any balance to provide the Borrower with working capital for its general corporate purposes; (d) the Identified Ship Advance shall not exceed the lesser of (i) $22,691,000 and (ii) 63 percent of the Market Value of "HILLE OLDENDORFF" (as determined by the valuation referred to in paragraph 9 of Schedule 5, Party B) and shall be applied in financing part of the purchase price of "HILLE OLDENDORFF" payable pursuant to the Hille Oldendorff MOA; (e) the Refinancing Advance and the Identified Ship Advance shall not in aggregate exceed 63 percent of the aggregate Market Values of the Existing Ships and the Identified Ship (determined in accordance with the valuations referred to respectively in paragraph 12 of Schedule 5, Part A (in the case of the Existing Ships) and paragraph 9 of Schedule 5, Part B (in the case of the Identified Ship)); (f) (subject to Clause 2.4) each Additional Advance shall not exceed 63 percent of the Market Value of the Additional Ship whose purchase price is to be part-financed by that Additional Advance (as determined in accordance with the valuations referred to in paragraph 10 of Schedule 5, Part C); (g) any amount undrawn in respect of an Advance may be borrowed at a later date subject to the satisfaction of the other conditions of this Clause 4.2 save and except that the Agent (acting upon the instructions of the Majority Lenders) may rely on the valuations of the Ships previously provided to it pursuant to Clause 9.1 without seeking new valuations for the purpose of determining the Borrower's satisfaction of the conditions of this Clause 4.2 at the time of drawdown of any undrawn amount of an Advance; and (h) the aggregate of the Advances shall not exceed the Total Commitments. 4.3 Notification to Lenders of receipt of a Drawdown Notice. The Agent shall promptly notify the Lenders that it has received a Drawdown Notice and shall inform each Lender of: (a) the amount of the Advance and the Drawdown Date; (b) the amount of that Lender's participation in the Advance; and (c) the duration of the first Interest Period applicable to that Advance. 4.4 Drawdown Notice irrevocable. A Drawdown Notice must be signed by a director or a duly authorised signatory of the Borrower; and once served, a Drawdown Notice cannot be revoked without the prior consent of the Agent, acting on the authority of the Majority Lenders. 4.5 Lenders to make available Contributions. Subject to the provisions of this Agreement, each Lender shall, on and with value on each Drawdown Date, make available to the Agent for the account of the Borrower the amount due from that Lender on that Drawdown Date under Clause 2.2. 4.6 Disbursement of Advance. Subject to the provisions of this Agreement, the Agent shall on each Drawdown Date pay to the Borrower the amounts which the Agent receives from the Lenders under Clause 4.5; and that payment to the Borrower shall be made: (a) to the account which the Borrower specifies in the relevant Drawdown Notice; and (b) in the like funds as the Agent received the payments from the Lenders. 4.7 Disbursement of Advance to third party. The payment by the Agent under Clause 4.6 to a third party specified in the relevant Drawdown Notice shall constitute the making of the Advance and the Borrower shall thereupon become indebted, as principal and direct obligor, to each Lender in an amount equal to that Lender's Contribution. 4.8 Review of Availability Period for Credit Facility. The Lenders may, in their sole and absolute discretion (without any obligation to do so), agree to extend the original Availability Period which applies to the Credit Facility (being a period ending on the date falling 364 days after the date of this Agreement) if at the end of such period the Total Credit Facility Commitments have not been fully drawn. If all the Lenders agree to extend the applicable Availability Period in accordance with this Clause 4.8 the Agent shall send to the Borrower a notice in writing advising it of the period by which the Availability Period will be extended. 5 INTEREST 5.1 Payment of normal interest. Subject to the provisions of this Agreement, interest on each Advance and the Loan and each part thereof in respect of each Interest Period shall be paid by the Borrower on the last day of that Interest Period. 5.2 Normal rate of interest. Subject to the provisions of this Agreement, the rate of interest on each Advance and the Loan and each part thereof in respect of an Interest Period shall, subject to Clause 6.4, be the aggregate of (i) the applicable Margin, (ii) the Mandatory Cost (if any) and (iii) LIBOR. 5.3 Payment of accrued interest. In the case of an Interest Period longer than 3 months, accrued interest shall be paid every 3 months (or, in the case of Interest Periods of 12 months or longer, every 6 months) during that Interest Period and on the last day of that Interest Period. 5.4 Notification of Interest Periods and rates of normal interest. The Agent shall notify the Borrower and each Lender of: (a) each rate of interest; and (b) the duration of each Interest Period; as soon as reasonably practicable after each is determined. 5.5 Obligation of Reference Banks to quote. Each Reference Bank shall use all reasonable efforts to supply the quotation required of it for the purposes of fixing a rate of interest under this Agreement. 5.6 Market disruption. The following provisions of this Clause 5 apply if: (a) no rate is quoted on Reuters BBA Page LIBOR 01 and neither Reference Bank, before 1.00 p.m. (Hamburg time) on the second Business Day before the commencement of an Interest Period, provides a quotation to the Agent in order to fix LIBOR; or (b) at least one Business Day before the start of an Interest Period, Lenders having Contributions together amounting to more than 30 percent of the Loan (or, if an Advance has not been made, Commitments amounting to more than 30 percent of the Total Commitments) notify the Agent that LIBOR fixed by the Agent would not accurately reflect the cost to those Lenders of funding their respective Contributions (or any part of them) during the Interest Period in the London Interbank Dollar Market at or about 11.00 a.m. (London time) on the second Business Day before the commencement of the Interest Period; or (c) at least one Business Day before the start of an Interest Period, the Agent is notified by a Lender (the "Affected Lender") that for any reason it is unable to obtain Dollars in the London Interbank Market in order to fund its Contribution (or any part of it) during the Interest Period. 5.7 Notification of market disruption. The Agent shall promptly notify the Borrower and each of the Lenders stating the circumstances falling within Clause 5.6 which have caused its notice to be given. 5.8 Suspension of drawdown. If the Agent's notice under Clause 5.7 is served before an Advance is made: (a) in a case falling within paragraphs (a) or (b) of Clause 5.6, the Lenders' obligations to make the Advance; (b) in a case falling within paragraph (c) of Clause 5.6, the Affected Lender's obligation to participate in the Advance; shall be suspended while the circumstances referred to in the Agent's notice continue. 5.9 Negotiation of alternative rate of interest. If the Agent's notice under Clause 5.7 is served after an Advance is made, the Borrower, the Agent and the Lenders or (as the case may be) the Affected Lender shall use reasonable endeavours to agree, within the 30 days after the date on which the Agent serves its notice under Clause 5.7 (the "Negotiation Period"), an alternative interest rate or (as the case may be) an alternative basis for the Lenders or (as the case may be) the Affected Lender to fund or continue to fund their or its Contribution to the relevant Advance or Advances during the Interest Period concerned. 5.10 Application of agreed alternative rate of interest. Any alternative interest rate or an alternative basis which is agreed during the Negotiation Period shall take effect in accordance with the terms agreed. 5.11 Alternative rate of interest in absence of agreement. If an alternative interest rate or alternative basis is not agreed within the Negotiation Period, and the relevant circumstances are continuing at the end of the Negotiation Period, then the Agent shall, with the agreement of each Lender or (as the case may be) the Affected Lender, set an interest period and interest rate representing the cost of funding of the Lenders or (as the case may be) the Affected Lender in Dollars or in any available currency of their or its Contribution to the relevant Advance or Advances plus the Mandatory Cost (if any) and the applicable Margin; and the procedure provided for by this Clause 5.11 shall be repeated if the relevant circumstances are continuing at the end of the interest period so set by the Agent. 5.12 Notice of prepayment. If the Borrower does not agree with an interest rate set by the Agent under Clause 5.11, the Borrower may give the Agent not less than 15 Business Days' notice of its intention to prepay the relevant Advance or Advances at the end of the interest period set by the Agent. 5.13 Prepayment; termination of Commitments. A notice under Clause 5.12 shall be irrevocable; the Agent shall promptly notify the Lenders or (as the case may require) the Affected Lender of the Borrower's notice of intended prepayment; and: (a) on the date on which the Agent serves that notice, the Total Commitments or (as the case may require) the Commitment of the Affected Lender shall be cancelled; and (b) on the last Business Day of the interest period set by the Agent, the Borrower shall prepay (without premium or penalty) the Loan or, as the case may be, the Affected Lender's Contribution, together with accrued interest thereon at the applicable rate plus the applicable Margin and the Mandatory Cost (if any). 5.14 Application of prepayment. The provisions of Clause 8 shall apply in relation to the prepayment. 5.15 Calculation of Security Cover Percentage. The Agent shall calculate the Security Cover Percentage on the first Drawdown Date, on 30 September 2006 and every 6 months thereafter (each a "Margin Calculation Date") for the purposes of calculating the Margin and shall advise the Borrower and the Lenders in writing, within 10 Business Days of each Margin Calculation Date, of the Margin which will apply for the 6-month period commencing on the relevant Margin Calculation Date Provided that in respect of each Margin Calculation Date other than the first Margin Calculation Date, the Agent shall only be obliged to advise the Borrowers and the Lenders of the Margin which will apply for the 6-month period commencing on the relevant Margin Calculation Date if that Margin will be different to the Margin which applies immediately prior to the relevant Margin Calculation Date. For the purposes of calculating the Security Cover Percentage pursuant to this Clause 5.15, the Market Value of the Ships shall be determined no more than 15 days prior to the relevant Margin Calculation Date. 6 INTEREST PERIODS 6.1 Commencement of Interest Periods. The first Interest Period applicable to an Advance shall commence on the Drawdown Date relative to that Advance and each subsequent Interest Period shall commence on the expiry of the preceding Interest Period. 6.2 Duration of normal Interest Periods. Subject to Clauses 6.3 and 6.4, each Interest Period in respect of each Advance shall be: (a) 1, 3, 6 or 12 months as notified by the Borrower to the Agent not later than 11.00 a.m. (Hamburg time) 3 Business Days before the commencement of the Interest Period Provided that there may be no more than 3 Interest Periods having a duration of 1 month in any calendar year; or (b) in the case of the first Interest Period applicable to the second and any subsequent Advance, a period ending on the last day of the then current Interest Period whereupon all of the Advances shall be consolidated and treated as a single Advance Provided that should the Agent, in its sole discretion, permit the Borrower to select more than one Interest Period at any time, then under no circumstances shall the Borrower be allowed to select more than 5 separate Interest Periods at any time; (c) 3 months, if the Borrower fails to notify the Agent by the time specified in paragraph (a) above; or (d) such other period as the Agent may, with the Majority Lenders' authority, agree with the Borrower. 6.3 Duration of Interest Periods for repayment instalments. In respect of an amount due to be repaid under Clause 8 on a particular Repayment Date, an Interest Period shall end on that Repayment Date. 6.4 Interest Periods longer than 12 months. If, after the Borrower has selected an Interest Period longer than I2 months, and the Lenders have, in their absolute discretion, agreed to such selection, then the rate of interest for that Interest Period shall be the aggregate of the applicable Margin, the Mandatory Cost and the Lenders' cost of funding the Loan (or the applicable part thereof) for such period, as agreed between the Lenders and notified to the Agent. 7 DEFAULT INTEREST 7.1 Payment of default interest on overdue amounts. The Borrower shall pay interest in accordance with the following provisions of this Clause 7 on any amount payable by the Borrower under any Finance Document which the Agent, the Security Trustee or the other designated payee does not receive on or before the relevant date, that is: (a) the date on which the Finance Documents provide that such amount is due for payment; or (b) if a Finance Document provides that such amount is payable on demand, the date on which the demand is served; or (c) if such amount has become immediately due and payable under Clause 19.4, the date on which it became immediately due and payable. 7.2 Default rate of interest. Interest shall accrue on an overdue amount from (and including) the relevant date until the date of actual payment (as well after as before judgment) at the rate per annum determined by the Agent to be 2 percent above: (a) in the case of an overdue amount of principal, the higher of the rates set out at paragraphs (a) and (b) of Clause 7.3; or (b) in the case of any other overdue amount, the rate set out at paragraph (b) of Clause 7.3. 7.3 Calculation of default rate of interest. The rates referred to in Clause 7.2 are: (a) the rate applicable to the overdue principal amount immediately prior to the relevant date (but only for any unexpired part of any then current Interest Period); (b) the aggregate of the Mandatory Cost (if any) and the applicable Margin plus, in respect of successive periods of any duration (including at call) up to 3 months which the Agent may select from time to time: (i) LIBOR; or (ii) if the Agent (after consultation with the Reference Banks) determines that Dollar deposits for any such period are not being made available to any Reference Bank by leading banks in the London Interbank Market in the ordinary course of business, a rate from time to time determined by the Agent by reference to the cost of funds to the Reference Banks from such other sources as the Agent (after consultation with the Reference Banks) may from time to time determine. 7.4 Notification of interest periods and default rates. The Agent shall promptly notify the Lenders and the Borrower of each interest rate determined by the Agent under Clause 7.3 and of each period selected by the Agent for the purposes of paragraph (b) of that Clause; but this shall not be taken to imply that the Borrower is liable to pay such interest only with effect from the date of the Agent's notification. 7.5 Payment of accrued default interest. Subject to the other provisions of this Agreement, any interest due under this Clause shall be paid on the last day of the period by reference to which it was determined; and the payment shall be made to the Agent for the account of the Creditor Party to which the overdue amount is due. 7.6 Compounding of default interest. Any such interest which is not paid at the end of the period by reference to which it was determined shall thereupon be compounded. 7.7 Application to Master Agreements. For the avoidance of doubt, this Clause 7 does not apply to any amount payable under a Master Agreement in respect of any continuing Designated Transaction as to which section 2(e) (Default Interest; Other Amounts) of that Master Agreement shall apply. 8 REPAYMENT AND PREPAYMENT 8.1 Amount of Repayment Instalments. (a) The Borrower shall repay: (i) the Term Loan by 40 consecutive three-monthly Repayment Instalments and a Balloon Instalment (payable together with the fortieth such instalment) in the amounts referred to in Schedule 4 Provided that if the amount of the Term Loan drawn down under this Agreement is less than $460,000,000, the Balloon Instalment shall be reduced by an amount equal to the undrawn amount of the Term Loan; and (ii) each Additional Advance by the Repayment Instalments (calculated in accordance with Clause 8.1(b)) set out in a repayment schedule applicable to that Additional Advance to be provided to the Borrower by the Agent before the Drawdown Date relative to the relevant Additional Advance which shall provide for the repayment of that Advance over the Relevant Repayment Period by equal consecutive three-monthly Repayment Instalments (other than the first such Repayment Instalment which shall be paid on the first Repayment Date in respect of the Term Loan falling after the Drawdown Date of the relevant Additional Advance) and, if applicable, a Balloon Instalment (payable together with the last such Repayment Instalment). In this Clause 8.1 "Relevant Repayment Period" means in the case of an Additional Advance which has been used to part-finance the acquisition of an Additional Ship built: (A) between 1993 and 1996, the lesser of (A) 84 months and (B) the number of months between the Drawdown Date of the relevant Additional Advance and the Final Maturity Date; and (B) on or after 1997, the number of months between the Drawdown Date of the relevant Additional Advance and the Final Maturity Date; and (b) the Repayment Instalment for each Additional Advance shall be "D" and the Balloon Instalment for each Additional Advance shall be "G" where: "A" means the amount of the relevant Additional Advance; "B" means, in the case of an Additional Ship built: (i) between 1993 and 1996, 7; (ii) between 1997 and 2000, 11; (iii) between 2001 and 2003, 15; and (iv) on or after 2004, 18; "C" means A divided by B; "D" means C divided by 4; "E" means the number of months in the Relevant Repayment Period (or if the number of months in the Relevant Repayment Period is not fully divisible by 3, the nearest number of months (rounded downwards) which is fully divisible by 3) divided by 12; "F" means the product of (i) D, (ii) 4 and (iii) E; and "G" means A minus F. 8.2 Repayment Dates. Repayment Instalments shall be paid as follows: (a) each Repayment Instalment in respect of the Term Loan shall be repaid on the Repayment Date applicable to that Repayment Instalment as outlined in Schedule 4; (b) the first Repayment Instalment in respect of each Additional Advance shall be repaid on the first Repayment Date in respect of the Term Loan falling after the Drawdown Date of that Additional Advance, each subsequent Repayment Instalment shall be paid at 3-monthly intervals thereafter and the last Repayment Instalment together with the relevant Balloon Instalment shall be paid on the date referred to in the repayment schedule to be provided by the Agent to the Borrower pursuant to Clause 8.1(b). 8.3 Consolidation of Additional Advances with Term Loan, On the Drawdown Date in respect of each Additional Advance (following the making of that Advance to the Borrower), the relevant Additional Advance shall be consolidated into the Term Loan and the Term Loan and the relevant Additional Advance shall thereafter be repaid on the same dates. The Agent shall following the consolidation of each Additional Advance with the Term Loan referred to in this Clause 8.3 send to all the Creditor Parties and the Borrower a schedule specifying the aggregate repayments of the consolidated Advances on each subsequent Repayment Date and this schedule shall thereafter be substituted for, and replace, the repayment schedule set out in Schedule 4 which shall cease to have effect. 8.4 Final Maturity Date. On the Final Maturity Date, the Borrower shall additionally pay to the Agent for the account of the Creditor Parties all other sums then accrued or owing under any Finance Document. 8.5 Voluntary prepayment. Subject to the following conditions, the Borrower may prepay the whole or any part of the Loan and the Junior Loan on the last day of an Interest Period in respect thereof. 8.6 Conditions for voluntary prepayment. The conditions referred to in Clause 8.5 are that: (a) the Borrower shall make a simultaneous prepayment of a proportion of the Junior Loan equal to the proportion of the Loan being prepaid hereunder at that time; (b) any partial prepayment to be applied against the Loan and the Junior Loan shall be $5,000,000 in aggregate or a higher multiple thereof; (c) the Agent has received from the Borrower at least 15 days' prior written notice specifying the amount to be prepaid and the date on which the prepayment is to be made (such date shall be the last day of an Interest Period); and (d) the Borrower has provided evidence satisfactory to the Agent that any consent required by the Borrower or any Security Party in connection with the prepayment has been obtained and remains in force, and that any requirement relevant to this Agreement which affects the Borrower or any Security Party has been complied with. 8.7 Effect of notice of prepayment. A prepayment notice may not be withdrawn or amended without the consent of the Agent, given with the authority of the Majority Lenders, and the amount specified in the prepayment notice shall become due and payable by the Borrower on the date for prepayment specified in the prepayment notice. 8.8 Notification of notice of prepayment. The Agent shall notify the Lenders promptly upon receiving a prepayment notice, and shall provide any Lender which so requests with a copy of any document delivered by the Borrower under Clause 8.6(d). 8.9 Mandatory prepayment. The Borrower shall be obliged to prepay the Relevant Amount of the Loan: (i) if a Ship is sold, on or before the date on which the sale is completed by delivery of the Ship to the buyer; or (ii) if a Ship becomes a Total Loss, on the earlier of the date falling 120 days after the relevant Total Loss Date and the date of receipt by the Security Trustee of the proceeds of insurance relating to such Total Loss. In this Clause 8.9, "Relevant Amount" means 115 percent of the Relevant Proportion of the Loan and "Relevant Proportion" means the amount which results from multiplying (a) the Loan with (b) the Market Value of the relevant Ship immediately prior to its sale or Total Loss divided by the aggregate Market Values immediately prior to such sale or Total Loss of all of the Ships as are then subject to a Mortgage. 8.10 Amounts payable on prepayment. A prepayment shall be made together with accrued interest (and any other amount payable under Clause 21 below or otherwise) in respect of the amount prepaid and, if the prepayment is not made on the last day of an Interest Period together with any sums payable under Clause 21.1(b) but without premium or penalty. 8.11 Application of partial prepayment. Any sum received by the Agent pursuant to Clauses 8.4 and 8.9 shall be applied in prepayment of the Term Loan, the Credit Facility and the Junior Loan pro rata by reference to the outstanding amount of each of the Term Loan, the Credit Facility and the Junior Loan as at the date of such prepayment, and the amount to be applied in prepayment of each of the Loan and the Junior Loan shall be applied to proportionately reduce the Balloon Instalment and the then outstanding Repayment Instalments. 8.12 Reborrowing. No amount prepaid in respect of the Loan may be reborrowed. 8.13 Unwinding of Designated Transactions. On or prior to any repayment or prepayment of the Loan under this Clause 8 or any other provision of this Agreement, the Borrower shall wholly or partially reverse, offset, unwind or otherwise terminate one or more of the continuing Designated Transactions to the extent necessary to ensure that the notional principal amount of the continuing Designated Transactions thereafter remaining does not and will not in the future (taking into account the scheduled amortisation) exceed the amount of the Loan as reducing from time to time thereafter pursuant to Clause 8.1. 8.14 Prepayment of Swap Benefit. If a Designated Transaction is terminated in circumstances where a Swap Bank would be obliged to pay an amount to the Borrower under the Master Agreement to which that Swap Bank is a party, the Borrower hereby agrees that such payment shall be applied in prepayment of the Loan and authorises the Swap Bank to pay such amount to the Agent for such purpose. 9 CONDITIONS PRECEDENT 9.1 Documents, fees and no default. Each Lender's obligation to contribute to an Advance is subject to the following conditions precedent: (a) that, on or before the Drawdown Date relative to the Refinancing Advance, the Agent receives the documents described in Part A of Schedule 5 in form and substance satisfactory to the Agent and its lawyers; (b) that, on or before the Drawdown Date relative to the Identified Ship Advance, the Agent receives the documents described in Part B of Schedule 5 in form and substance satisfactory to the Agent and its lawyers; (c) that, on or before the Drawdown Date relative to each Additional Advance, the Agent receives the documents described in Part C of Schedule 5 in form and substance satisfactory to the Agent and its lawyers; (d) that, on or before the service of the first Drawdown Notice, the Agent receives all accrued commitment fee and all other fees referred to in Clause 20.1 which are payable at that time and has received payment of the expenses referred to in Clause 20.2; (e) that both at the date of each Drawdown Notice and at each Drawdown Date: (i) no Event of Default or Potential Event of Default has occurred and is continuing or would result from the borrowing of the Loan; (ii) the representations and warranties in Clause 10 and those of the Borrower or any Security Party which are set out in the other Finance Documents would be true and not misleading if repeated on each of those dates with reference to the circumstances then existing; and (iii) none of the circumstances contemplated by Clause 5.6 has occurred and is continuing; and (f) that at each Drawdown Date, the Borrower will draw down the advance of the Junior Loan which shall be used to finance or refinance the same Ship or Ships which are to be financed or refinanced by the Advance being drawn down on the relevant Drawdown Date under this Agreement; (g) that, if the ratio set out in Clause 15.1 were applied immediately following the making of the Advance, the Borrower would not be obliged to provide additional security or prepay part of the Loan under that Clause; (h) that at each Drawdown Date the Agent has received, and found to be acceptable to it, any further opinions, consents, agreements and documents in connection with the Finance Documents which the Agent may, with the authorisation of the Majority Lenders, request by notice to the Borrower prior to the relevant Drawdown Date. 9.2 Waiver of conditions precedent. If the Majority Lenders, at their discretion, permit an Advance to be borrowed before certain of the conditions referred to in Clause 9.1 are satisfied, the Borrower shall ensure that those conditions are satisfied within 5 Business Days after the Drawdown Date relative to that Advance (or such longer period as the Agent may, with the authority of the Majority Lenders, specify). 10 REPRESENTATIONS AND WARRANTIES 10.1 General. The Borrower represents and warrants to each Creditor Party as follows. 10.2 Status. The Borrower is duly incorporated and validly existing and in good standing under the laws of the Marshall Islands. 10.3 Share capital and ownership. The Borrower has an authorised share capital divided into 75,000,000 registered shares of $0.01 each, 30,350,000 of which shares have been issued each fully paid. 10.4 Corporate power. The Borrower has the corporate capacity, and has taken all corporate action and obtained all consents necessary for it: (a) to execute the Finance Documents to which it is a party; and (b) to borrow under this Agreement, to enter into Designated Transactions under each Master Agreement and to make all the payments contemplated by, and to comply with, those Finance Documents to which the Borrower is a party. 10.5 Consents in force. All the consents referred to in Clause 10.4 remain in force and nothing has occurred which makes any of them liable to revocation. 10.6 Legal validity; effective Security Interests. The Finance Documents to which the Borrower is a party, do now or, as the case may be, will, upon execution and delivery (and, where applicable, registration as provided for in the Finance Documents): (a) constitute the Borrower's legal, valid and binding obligations enforceable against the Borrower in accordance with their respective terms; and (b) create legal, valid and binding Security Interests enforceable in accordance with their respective terms over all the assets to which they, by their terms, relate subject to any relevant insolvency laws affecting creditors' rights generally. 10.7 No third party Security Interests. Without limiting the generality of Clause 10.6, at the time of the execution and delivery of each Finance Document: (a) the Borrower will have the right to create all the Security Interests which that Finance Document purports to create; and (b) no third party will have any Security Interest (except for Permitted Security Interests) or any other interest, right or claim over, in or in relation to any asset to which any such Security Interest, by its terms, relates. 10.8 No conflicts. The execution by the Borrower of each Finance Document to which it is a party, and the borrowing by the Borrower of the Loan, and its compliance with each Finance Document to which it is a party will not involve or lead to a contravention of: (a) any law or regulation; or (b) the constitutional documents of the Borrower; or (c) any contractual or other obligation or restriction which is binding on the Borrower or any of its assets. 10.9 No withholding taxes. All payments which the Borrower is liable to make under the Finance Documents may be made without deduction or withholding for or on account of any tax payable under any law of any Pertinent Jurisdiction. 10.10 No default. No Event of Default or Potential Event of Default has occurred and is continuing. 10.11 Information. All information which has been provided in writing by or on behalf of the Borrower or any Security Party to any Creditor Party in connection with any Finance Document satisfied the requirements of Clause 11.5; all audited and unaudited accounts which have been so provided satisfied the requirements of Clause 11.7; and there has been no material adverse change in the financial position or state of affairs of the Borrower from that disclosed in the latest of those accounts. 10.12 No litigation. No legal or administrative action involving the Borrower has been commenced or taken or, to the Borrower's knowledge, is likely to be commenced or taken which can be considered material in the context of this Agreement or any other Finance Document. 10.13 No rebates etc. There is no agreement or understanding to allow or pay any rebate, premium, commission, discount or other benefit or payment (howsoever described) to Seaventure, the Hille Oldendorff Charterer or a third party in connection with the purchase by Seaventure and the bareboat chartering of the Identified Ship, other than as disclosed to the Lenders in writing on or prior to the date of this Agreement. 10.14 Compliance with certain undertakings. At the date of this Agreement, the Borrower is in compliance with Clauses 11.2, 11.4, 11.9 and 11.13. 10.15 Taxes paid. The Borrower has paid all taxes applicable to, or imposed on or in relation to the Borrower or its business. 10.16 ISM Code compliance. The Borrower will procure that the Owners and the Approved Manager obtain all necessary ISM Code Documentation and ISPS Code Documentation in connection with the Ships and comply with the ISM Code and the ISPS Code. 10.17 No money laundering. Without prejudice to the generality of Clause 2.3, in relation to the borrowing by the Borrower of the Loan, the performance and discharge of its obligations and liabilities under the Finance Documents, and the transactions and other arrangements effected or contemplated by the Finance Documents to which the Borrower is a party, the Borrower confirms that it is acting for its own account and that the foregoing will not involve or lead to contravention of any law, official requirement or other regulatory measure or procedure implemented to combat "money laundering" (as defined in Article 1 of the Directive (91/308/EEC) of the Council of the European Communities). 11 GENERAL UNDERTAKINGS 11.1 General. The Borrower undertakes with each Creditor Party to comply with the following provisions of this Clause 11 at all times during the Security Period except as the Agent may, with the authority of the Majority Lenders, otherwise permit. 11.2 Title; negative pledge and pari passu ranking. The Borrower will: (a) own (directly or indirectly) the entire beneficial interest in each Owner free from all Security Interests and other interests and rights of every kind, except for those created by the Finance Documents; (b) not create or permit to arise any Security Interest (except for Permitted Security Interests) over any other asset, present or future (including, but not limited to the Borrower's rights against a Swap Bank under a Master Agreement or a Junior Master Agreement or all or any part of the Borrower's interest in any amount payable to the Borrower by a Swap Bank under a Master Agreement or a Junior Master Agreement); and (c) procure that its liabilities under the Finance Documents to which it is a party do and will rank at least pari passu with all its other present and future unsecured liabilities, except for liabilities which are mandatorily preferred by law. 11.3 No disposal of assets. The Borrower will not transfer, lease or otherwise dispose of: (a) all or a substantial part of its assets, whether by one transaction or a number of transactions, whether related or not; or (b) any debt payable to it or any other right (present, future or contingent right) to receive a payment, including any right to damages or compensation. 11.4 Restriction on other liabilities or obligations to be incurred. The Borrower will not incur, and will procure that none of the Owners will, incur, any liability or obligation except liabilities and obligations: (a) under the Finance Documents, the Junior Loan Agreement and the Existing Loan Agreements to which each is a party; (b) under the Master Agreements and the Junior Master Agreement (but in such case, only in connection with Designated Transactions and Junior Designated Transactions); and (c) (in the case of each Owner) incurred in the normal course of its business of operating its Ship. 11.5 Information provided to be accurate. All financial and other information which is provided in writing by or on behalf of the Borrower under or in connection with any Finance Document will be true and not misleading and will not omit any material fact or consideration. 11.6 Provision of financial statements. The Borrower will send to the Agent: (a) as soon as possible, but in no event later than 150 days after the end of each Financial Year of the Borrower (commencing with the Financial Year ended 31 December 2005), the audited consolidated accounts of the Group for that Financial Year; (b) as soon as possible, but in no event later than 90 days after the end of each quarterly period in each Financial Year of the Borrower (commencing with the financial quarter ending on 31 March 2006), the unaudited consolidated accounts of the Group for that financial quarter and additionally, in the case of each of the second, third and fourth financial quarters, the unaudited consolidated accounts of the Group for the period 1 January up to the end of the relevant financial quarter certified in each case as to their correctness by the chief financial officer of the Borrower; and (c) together with the quarterly financial statements referred to in paragraph (b) above for each of the second and fourth financial quarters in each Financial Year of the Borrower, two valuations of each Fleet Vessel each prepared by an Approved Broker (at the cost of the Borrower) in accordance with Clause 15.4, which valuations shall be used in determining the security cover ratio in accordance with Clause 15.1, the Margin in accordance with Clause 5.15 and (subject to the final paragraph of Clause 12.5) the financial covenants referred to in Clause 12.4. 11.7 Form of financial statements. All accounts (audited and unaudited) delivered under Clause 11.6 will: (a) be prepared in accordance with all applicable laws and GAAP; (b) give a true and fair view of the state of affairs of the Group at the date of those accounts and of its profit for the period to which those accounts relate; and (c) fully disclose or provide for all significant liabilities of the Group. 11.8 Shareholder and creditor notices. The Borrower will send the Agent, at the same time as they are despatched, copies of all communications which are despatched to all of the Borrower's shareholders or creditors or any class of them. 11.9 Consents. The Borrower will maintain in force and promptly obtain or renew, and will promptly send certified copies to the Agent of, all consents required: (a) for the Borrower to perform its obligations under any Finance Document; (b) for the validity or enforceability of any Finance Document; (c) for each Owner to continue to own and operate the Ship owned by it, and the Borrower will comply (or procure compliance) with the terms of all such consents. 11.10 Maintenance of Security Interests. The Borrower will: (a) at its own cost, do all that it reasonably can to ensure that any Finance Document validly creates the obligations and the Security Interests which it purports to create; and (b) without limiting the generality of paragraph (a) above, at its own cost, promptly register, file, record or enrol any Finance Document with any court or authority in all Pertinent Jurisdictions, pay any stamp, registration or similar tax in all Pertinent Jurisdictions in respect of any Finance Document, give any notice or take any other step which, in the opinion of the Majority Lenders, is or has become necessary or desirable for any Finance Document to be valid, enforceable or admissible in evidence or to ensure or protect the priority of any Security Interest which it creates. 11.11 Notification of litigation. The Borrower will provide the Agent with details of any legal or administrative action involving the Borrower, any Security Party, the Approved Manager, any Ship or the Earnings or the Insurances of any Ship as soon as such action is instituted or it becomes apparent to the Borrower that it is likely to be instituted, unless it is clear that the legal or administrative action cannot be considered material in the context of any Finance Document. 11.12 No amendment to Master Agreements; Transactions. The Borrower will not: (a) agree to any amendment or supplement to, or waive or fail to enforce, either Master Agreement or any of its provisions; or (b) enter into any Transaction pursuant to a Master Agreement except Designated Transactions. 11.13 Principal place of business. The Borrower will maintain its place of business, and keep its corporate documents and records, at the address stated in Clause 28.2(a); and the Borrower will not establish, or do anything as a result of which it would be deemed to have, a place of business in any country other than the Marshall Islands, Malta and Greece. 11.14 Confirmation of no default. The Borrower will, within 2 Business Days after service by the Agent of a written request, serve on the Agent a notice which is signed by 2 directors of the Borrower and which: (a) states that no Event of Default or Potential Event of Default has occurred; or (b) states that no Event of Default or Potential Event of Default has occurred, except for a specified event or matter, of which all material details are given. The Agent may serve requests under this Clause 11.14 from time to time but only if asked to do so by a Lender or Lenders having Contributions exceeding 10 percent of the Loan or (if no Advance has been made) Commitments exceeding 10 percent of the Total Commitments; and this Clause 11.14 does not affect the Borrower's obligations under Clause 11.I5. 11.15 Notification of default. The Borrower will notify the Agent as soon as the Borrower becomes aware of: (a) the occurrence of an Event of Default or a Potential Event of Default; or (b) any matter which indicates that an Event of Default or a Potential Event of Default may have occurred; and will thereafter keep the Agent fully up-to-date with all developments. 11.16 Provision of further information. The Borrower will, as soon as practicable after receiving the request, provide the Agent with any additional financial or other information relating: (a) to the Borrower, any Owner, Wealth, any Ship, the Approved Manager or any other Security Party, the Insurances or the Earnings; or (b) to any other matter relevant to, or to any provision of, a Finance Document which may be requested by the Agent, the Security Trustee or any Lender at any time. 11.17 Provision of copies and translation of documents. The Borrower will supply the Agent with a sufficient number of copies of the documents referred to above to provide 1 copy for each Creditor Party; and if the Agent so requires in respect of any of those documents, the Borrower will provide a certified English translation prepared by a translator approved by the Agent. 11.18 Hedging of interest rate risks. The Borrower shall deliver to the Agent by no later than 30 April 2006 the duly signed Hedge Strategy Letter (in a form and on terms acceptable to the Agent which letter shall be prepared in consultation with, and with the assistance of, the Agent), and shall from time to time, enter into such Designated Transactions with a Swap Bank in order to implement the hedging strategy outlined in the Hedge Strategy Letter whereby for a period of at least 5 years from the Drawdown Date of the relevant Advance it will hedge all or the major part of the interest rate risk under this Agreement and the Junior Loan Agreement (but in any event not less than 60 percent of the interest rate risk under this Agreement and the Junior Loan Agreement outstanding at any time during the aforesaid 5-year period). 11.19 Ownership. The Borrower shall ensure that (a) it shall remain the direct or indirect owner of the whole of the issued share capital of each Owner and Wealth and (b) there shall be no change in the legal and beneficial ownership of the shares in each Owner or Wealth. 11.20 Debt Service Reserve Account. The Borrower shall ensure that there is standing to the credit of the Debt Service Reserve Account at all times an amount of at least $5,000,000 and any balance on the Debt Service Reserve Account may only be used to discharge the Borrower's payment liabilities under this Agreement, the Junior Loan Agreement, the Master Agreements and the Junior Master Agreements. 11.21 General and administrative costs. The Borrower shall ensure that the payment of all the general and administrative costs of the Borrower and the Owners in connection with the ownership and operation of the Ships (including, without limitation, the payment of the management fees pursuant to the Management Agreements) shall be fully subordinated to the payment obligations of the Borrower and the Owners under this Agreement and the other Finance Documents throughout the Security Period. 11.22 Hille Oldendorff Seller's Credit. The Borrower shall ensure that any payment to be made by Seaventure to Goodwill under the Hille Oldendorff Seller's Credit Agreement may only be made (a) in accordance with the terms of that agreement and (b) if at the relevant time there is available to the Borrower and all the other members of the Group an aggregate amount of not less than $25,000,000 (including, without limitation, any amount standing to the credit of the Debt Service Reserve Account) in immediately freely available and unencumbered bank or cash balances. 11.23 Know your customer. The Borrower will provide to (or procure that there is sent to) the Agent such documents and evidence as any Creditor Party shall require in relation to the Borrower or any Security Party, based on applicable laws and regulations and each Creditor Party's own internal guidelines relating to the verification of the identity and knowledge of its customers. 12 CORPORATE UNDERTAKINGS 12.1 General. The Borrower also undertakes with each Creditor Party to comply with the following provisions of this Clause 12 at all times during the Security Period except as the Agent may, with the authority of the Majority Lenders, otherwise permit. 12.2 Maintenance of status. The Borrower will maintain its separate corporate existence and remain in good standing under the laws of the Marshall Islands. 12.3 Negative undertakings. The Borrower will not: (a) change the nature of its business; or (b) declare or pay any dividend or effect any other form of distribution in excess of: (i) in the Financial Year ending 31 December 2006, $18,000,000 in aggregate; and (ii) in all subsequent Financial Years, 50 percent of its Net Income for the relevant Financial Year; (c) effect any form of redemption, purchase or return of share capital; or (d) provide any form of credit or financial assistance to: (i) a person who is directly or indirectly interested in the Borrower's share or loan capital; or (ii) any company in or with which such a person is directly or indirectly interested or connected; or enter into any transaction with or involving such a person or company on terms which are, in any respect, less favourable to the Borrower than those which it could obtain in a bargain made at arms' length Provided that this shall not prevent or restrict the Borrower from on-lending the Loan to the Owners or granting credit or financial assistance to its wholly-owned direct or indirect subsidiaries; (e) issue, allot or grant any person a right to any shares in its capital or repurchase or reduce its issued share capital; (f) acquire any shares or other securities other than US or UK Treasury bills and certificates of deposit issued by major North American or European banks, or enter into any transaction in a derivative other than Designated Transactions; (g) enter into any form of amalgamation, merger or de-merger or any form of reconstruction or reorganisation. 12.4 Financial Covenants. The Borrower shall ensure that: (a) the Market Adjusted Equity Ratio shall not be less than: (i) in each of the Financial Years ending respectively 31 December 2006 and 31 December 2007, 0.2:1; (ii) in the Financial Year ending 31 December 2008, 0.25: 1; and (iii) in each subsequent Financial Year, 0.3:1; (b) the Interest Coverage Ratio shall not be less than 3:1; (c) the Market Value Adjusted Net Worth of the Group shall not be less than: (i) in each of the Financial Years ending respectively 31 December 2006 and 31 December 2007, $125,000,000; (ii) in the Financial Year ending 31 December 2008, $180,000,000; and (iii) in each subsequent Financial Year, $225,000,000; and (d) at all times there is available to the Borrower and all the other members of the Group an aggregate amount of not less than $20,000,000 (including, without limitation, any amount standing to the credit of the Debt Service Reserve Account) in immediately freely available and unencumbered bank or cash balances, of which amount not less than $15,000,000 in aggregate shall be held in the Earnings Accounts and the Wealth Account. 12.5 Compliance Check. Compliance with the undertakings contained in Clause 12.4 shall be determined in each Financial Year: (a) at the time the Agent receives the audited consolidated accounts of the Group and the unaudited consolidated accounts of the Group for the second financial quarter of the Group in each Financial Year (pursuant to Clauses 11.6(a) and 11.6(b) respectively), by reference to the unaudited consolidated accounts in the case of the first 6-month period in each Financial Year of the Borrower and the audited consolidated accounts in the case of the second 6-month period in each Financial Year of the Borrower; (b) at any other time as the Agent may reasonably request by reference to such evidence as the Lenders may require to determine and calculate the financial covenants referred to in Clause 12.3. At the same time as it delivers the consolidated accounts referred to in this Clause 12.5, the Borrower shall deliver to the Agent a certificate in the form set out in Schedule 8 demonstrating its compliance (or not, as the case may be) with the provisions of Clause 12.4 signed by the chief financial officer of the Borrower. The Agent (acting with the authorisation of the Majority Lenders) reserves the right, when determining the compliance of the Borrower with the undertakings contained in Clause 12.4 on the basis of the annual consolidated accounts of the Group for each Financial Year, not to rely on the valuations of the Fleet Vessels submitted by the Borrower together with the unaudited consolidated accounts of the Group for the fourth financial quarter of the relevant Financial Year in accordance with Clause 11.6(c) and instead to obtain (at the cost of the Borrower) two further valuations of each Fleet Vessel, each prepared by an Approved Broker in accordance with Clause 15.4. 12.6 Change in accounting expressions and policies. If, by reason of change in format or GAAP or other relevant accounting policies, the expressions appearing in any accounts and financial statements referred to in Clause 11.6 alter from those in the accounts and financial statements for the Borrower for the year ended 31 December 2005, the relevant definitions contained in Clause 1.1 and the provisions of Clause 12.4 shall be deemed modified in such manner as the Agent, acting with the authorisation of the Majority Lenders, shall require to take account of such different expressions but otherwise to maintain in all respects the substance of those provisions. 12.7 Subordination of rights of Borrower. All rights which the Borrower at any time has (whether in respect of the Loan or any other transaction) against any Owner or its assets shall be fully subordinated to the rights of the Creditor Parties under the Finance Documents; and in particular, the Borrower shall not during the Security Period: (a) claim, or in a bankruptcy of any Owner or prove for any amount payable to the Borrower by an Owner, whether in respect of the Loan or any other transaction; (b) take or enforce any Security Interest for any such amount; or (c) claim to set-off any such amount against any amount payable by the Borrower to any Owner. 12.8 Free Syndication market. The Borrower (in order to ensure an orderly and effective syndication of the Loan) shall not, and shall ensure that no Owner, no member of the Group and no affiliate of the Borrower or any other member of the Group shall, until the finalisation of the syndication of the Loan (as determined by the Joint Underwriters): (a) syndicate or issue or attempt to syndicate or issue; or (b) announce or authorise the announcement of the syndication or issuance of; or (c) engage in discussions concerning the syndication or issuance of, any Financial Indebtedness with any banks or financial institutions in the commercial banking market Provided that this shall not restrict the Borrower from issuing commercial instruments or making any further equity offerings. 13 INSURANCE 13.1 General. The Borrower also undertakes with each Creditor Party to procure that each Owner will comply with the following provisions of this Clause 13 at all times during the Security Period except as the Agent may, with the authority of the Majority Lenders, otherwise permit. 13.2 Maintenance of obligatory insurances. The Borrower shall procure that each Owner keep the Ship owned by it insured at the expense of that Owner against: (a) fire and usual marine risks (including hull and machinery and excess risks); (b) war risks (including protection and indemnity war risks); (c) in the case of protection and indemnity war risks, in an amount equal to the amount for which the war risks under the hull policies are effected; and (d) any other risks against which the Majority Lenders consider, having regard to practices and other circumstances prevailing at the relevant time, it would in the opinion of the Majority Lenders be reasonable for the relevant Owner to insure and which are specified by the Security Trustee by notice to the relevant Owner. 13.3 Terms of obligatory insurances. The Borrower shall procure that each Owner shall effect such insurances: (a) in Dollars; (b) in the case of fire and usual marine risks and war risks, in an amount on an agreed value basis at least the greater of (i) an amount, which when aggregated with the insured value of the other Ships at the relevant time subject to a Mortgage, is equal to 120 percent, of the Loan and (ii) the Market Value of the Ship owned by it; and (c) in the case of oil pollution liability risks, for an aggregate amount equal to the highest level of cover from time to time available under basic protection and indemnity club entry (with the international group of protection and indemnity clubs) and the international marine insurance market (currently $1,000,000,000); (d) in relation to protection and indemnity risks, in respect of the full value and tonnage of the Ship owned by it; (e) on approved terms; and (f) through approved brokers and with approved insurance companies and/or underwriters or, in the case of war risks and protection and indemnity risks, in approved war risks and protection and indemnity risks associations. 13.4 Further protections for the Creditor Parties. In addition to the terms set out in Clause 13.3, the Borrower shall procure that the obligatory insurances shall: (a) (except in relation to risks referred to in Clauses 13.2(c) and (d)) name (or be amended to name) the Security Trustee as additional named assured for its rights and interests, warranted no operational interest and with full waiver of rights of subrogation against the Security Trustee, but without the Security Trustee thereby being liable to pay (but having the right to pay) premiums, calls or other assessments in respect of such insurance; (b) name the Security Trustee as sole loss payee with such directions for payment as the Security Trustee may specify; (c) provide that all payments by or on behalf of the insurers under the obligatory insurances to the Security Trustee shall be made without set-off, counterclaim or deductions or condition whatsoever; (d) provide that the insurers shall waive, to the fullest extent permitted by English law, their entitlement (if any) (whether by statute, common law, equity, or otherwise) to be subrogated to the rights and remedies of the Security Trustee in respect of any rights or interests (secured or not) held by or available to the Security Trustee in respect of the Secured Liabilities, until the Secured Liabilities shall have been fully repaid and discharged, except that the insurers shall not be restricted by the terms of this paragraph (d) from making personal claims against persons (other than the relevant Owner or any Creditor Party) in circumstances where the insurers have fully discharged their liabilities and obligations under the relevant obligatory insurances; (e) provide that such obligatory insurances shall be primary without right of contribution from other insurances which may be carried by the Security Trustee; (f) provide that the Security Trustee may make proof of loss if the relevant Owner fails to do so; and (g) provide that if any obligatory insurance is cancelled, or if any substantial change is made in the coverage which adversely affects the interest of the Security Trustee, or if any obligatory insurance is allowed to lapse for non-payment of premium, such cancellation, charge or lapse shall not be effective with respect to the Security Trustee for 30 days (or 7 days in the case of war risks) after receipt by the Security Trustee of prior written notice from the insurers of such cancellation, change or lapse. 13.5 Renewal of obligatory insurances. The Borrower shall procure that each Owner shall: (a) at least 21 days before the expiry of any obligatory insurance: (i) notify the Security Trustee of the brokers (or other insurers) and any protection and indemnity or war risks association through or with whom that Owner proposes to renew that insurance and of the proposed terms of renewal; and (ii) in case of any substantial change in insurance cover, obtain the Security Trustee's approval to the matters referred to in paragraph (i) above; (b) at least 14 days before the expiry of any obligatory insurance, renew the insurance in accordance with the Security Trustee's approval pursuant to paragraph (a); and (c) procure that the approved brokers and/or the war risks and protection and indemnity associations with which such a renewal is effected shall promptly after the renewal notify the Security Trustee in writing of the terms and conditions of the renewal. 13.6 Copies of policies; letters of undertaking. The Borrower shall procure that each Owner shall ensure that all approved brokers provide the Security Trustee with copies of all policies relating to the obligatory insurances which they effect or renew and of a letter or letters of undertaking in a form required by the Majority Lenders and including undertakings by the approved brokers that: (a) they will have endorsed on each policy, immediately upon issue, a loss payable clause and a notice of assignment complying with the provisions of Clause 13.4; (b) they will hold such policies, and the benefit of such insurances, to the order of the Security Trustee in accordance with the said loss payable clause; (c) they will advise the Security Trustee immediately of any material change to the terms of the obligatory insurances; (d) they will notify the Security Trustee, not less than 14 days before the expiry of the obligatory insurances, in the event of their not having received notice of renewal instructions from that Owner or its agents and, in the event of their receiving instructions to renew, they will promptly notify the Security Trustee of the terms of the instructions; and (e) they will not set off against any sum recoverable in respect of a claim relating to the Ship owned by the relevant Owner under such obligatory insurances any premiums or other amounts due to them or any other person whether in respect of that Ship or otherwise, they waive any lien on the policies or, any sums received under them, which they might have in respect of such premiums or other amounts, and they will not cancel such obligatory insurances by reason of non-payment of such premiums or other amounts, and will arrange for a separate policy to be issued in respect of the Ship forthwith upon being so requested by the Security Trustee. 13.7 Copies of certificates of entry. The Borrower shall procure that each Owner shall ensure that any protection and indemnity and/or war risks associations in which the Ship owned by that Owner is entered provides the Security Trustee with: (a) a certified copy of the certificate of entry for that Ship; (b) a letter or letters of undertaking in such form as may be required by the Majority Lenders; and (c) where required to be issued under the terms of insurance/indemnity provided by the Borrower's protection and indemnity association, a certified copy of each United States of America voyage quarterly declaration (or other similar document or documents) made by that Owner in accordance with the requirements of such protection and indemnity association; and (d) a certified copy of each certificate of financial responsibility for pollution by oil or other Environmentally Sensitive Material issued by the relevant certifying authority. 13.8 Deposit of original policies. The Borrower shall procure that each Owner shall ensure that all policies relating to obligatory insurances are deposited with the approved brokers through which the insurances are effected or renewed. 13.9 Payment of premiums. The Borrower shall procure that each Owner shall punctually pay all premiums or other sums payable in respect of the obligatory insurances and produce all relevant receipts when so required by the Security Trustee. 13.10 Guarantees. The Borrower shall procure that each Owner shall ensure that any guarantees required by a protection and indemnity or war risks association are promptly issued and remain in full force and effect. 13.11 Restrictions on employment. The Borrower shall procure that no Owner employ the Ship owned by it, nor permit her to be employed, outside the cover provided by any obligatory insurances. 13.12 Compliance with terms of insurances. The Borrower shall procure that no Owner shall do or omit to do (or permit to be done or not to be done) any act or thing which would or might render any obligatory insurance invalid, void, voidable or unenforceable or render any sum payable thereunder repayable in whole or in part; and, in particular: (a) each Owner shall take all necessary action and comply with all requirements which may from time to time be applicable to the obligatory insurances, and (without limiting the obligation contained in Clause 13.7(c) above) ensure that the obligatory insurances are not made subject to any exclusions or qualifications to which the Security Trustee has not given its prior approval; (b) no Owner shall make any changes relating to the classification or classification society or manager or operator of the Ship owned by it unless approved by the underwriters of the obligatory insurances; (c) each Owner shall make all quarterly or other voyage declarations which may be required by the protection and indemnity risks association in which the Ship owned by it is entered to maintain cover for trading to the United States of America and Exclusive Economic Zone (as defined in the United States Oil Pollution Act 1990 or any other applicable legislation); and (d) no Owner shall employ the Ship owned by it, nor allow it to be employed, otherwise than in conformity with the terms and conditions of the obligatory insurances, without first obtaining the consent of the insurers and complying with any requirements (as to extra premium or otherwise) which the insurers specify. 13.13 Alteration to terms of insurances. The Borrower shall procure that no Owner shall either make or agree to any alteration to the terms of any obligatory insurance or waive any right relating to any obligatory insurance without the prior written consent of the Security Trustee. 13.14 Settlement of claims. The Borrower shall procure that no Owner shall settle, compromise or abandon any claim under any obligatory insurance for Total Loss or for a Major Casualty, and shall do all things necessary and provide all documents, evidence and information to enable the Security Trustee to collect or recover any moneys which at any time become payable in respect of the obligatory insurances. 13.15 Provision of copies of communications. The Borrower shall procure that each Owner shall provide the Security Trustee, at the time of each such communication, copies of all written communications between that Owner and: (a) the approved brokers; and (b) the approved protection and indemnity and/or war risks associations; and (c) the approved insurance companies and/or underwriters, which relate directly or indirectly to: (i) that Owner's obligations relating to the obligatory insurances including, without limitation, all requisite declarations and payments of additional premiums or calls; and (ii) any credit arrangements made between that Owner and any of the persons referred to in paragraphs (a) or (b) above relating wholly or partly to the effecting or maintenance of the obligatory insurances. 13.16 Provision of information. In addition, the Borrower shall procure that each Owner shall promptly provide the Security Trustee (or any persons which it may designate) with any information which the Security Trustee (or any such designated person) requests for the purpose of: (a) obtaining or preparing any report from an independent marine insurance broker as to the adequacy of the obligatory insurances effected or proposed to be effected; and/or (b) effecting, maintaining or renewing any such insurances as are referred to in Clause 13.17 below or dealing with or considering any matters relating to any such insurances and the Borrower shall, forthwith upon demand, indemnify the Security Trustee in respect of all fees and other expenses incurred by or for the account of the Security Trustee in connection with any such report as is referred to in paragraph (a) above. 13.17 Mortgagee's interest and additional peril insurances. The Security Trustee shall be entitled from time to time to effect, maintain and renew all or any of the following insurances in such amounts, on such terms, through such insurers and generally in such manner as the Majority Lenders may from time to time consider appropriate: (a) a mortgagee's interest marine insurance in an amount equal to 120 percent of the Loan, providing for the indemnification of the Security Trustee for any losses under or in connection with any Finance Document which directly or indirectly result from loss of or damage to any Ship or a liability of any Ship or of any Owner, being a loss or damage which is prima facie covered by an obligatory insurance but in respect of which there is a non-payment (or reduced payment) by the underwriters by reason of, or on the basis of an allegation concerning: (i) any act or omission on the part of any Owner, of any operator, charterer, manager or sub-manager of any Ship or of any officer, employee or agent of any Owner or of any such person, including any breach of warranty or condition or any non-disclosure relating to such obligatory insurance; (ii) any act or omission, whether deliberate, negligent or accidental, or any knowledge or privity of any Owner, any other person referred to in paragraph (i) above, or of any officer, employee or agent of any Owner or of such a person, including the casting away or damaging of any Ship and/or any Ship being unseaworthy; and/or (iii) any other matter capable of being insured against under a mortgagee's interest marine insurance policy whether or not similar to the foregoing; (b) a mortgagee's interest additional perils policy in an amount not less than 110 percent of the Loan, providing for the indemnification of the Security Trustee against, among other things, any possible losses or other consequences of any Environmental Claim, including the risk of expropriation, arrest or any form of detention of any Ship, the imposition of any Security Interest over any Ship and/or any other matter capable of being insured against under a mortgagee's interest additional perils policy whether or not similar to the foregoing and the Borrower shall upon demand fully indemnify the Security Trustee in respect of all premiums and other expenses which are incurred in connection with or with a view to effecting, maintaining or renewing any such insurance or dealing with, or considering, any matter arising out of any such insurance. 13.18 Review of insurance requirements. The Majority Lenders shall be entitled to review the requirements of this Clause 13 from time to time in order to take account of any changes in circumstances after the date of this Agreement which are, in the opinion of the Majority Lenders, significant and capable of affecting the Owners or the Ships and their insurance (including, without limitation, changes in the availability or the cost of insurance coverage or the risks to which the Owners may be subject), and may appoint insurance consultants in relation to this review at the cost of the Borrower. 13.19 Modification of insurance requirements. The Security Trustee shall notify the Borrower of any proposed modification under Clause 13.18 to the requirements of this Clause 13 which the Majority Lenders consider appropriate in the circumstances, and such modification shall take effect on and from the date it is notified in writing to the Borrower as an amendment to this Clause 13 and shall bind the Borrower accordingly. 13.20 Compliance with mortgagee's instructions. The Security Trustee shall be entitled (without prejudice to or limitation of any other rights which it may have or acquire under any Finance Document) to require any Ship to remain at any safe port or to proceed to and remain at any safe port designated by the Security Trustee until the Owner of that Ship implements any amendments to the terms of the obligatory insurances and any operational changes required as a result of a notice served under Clause 13.19. 14 SHIP COVENANTS 14.1 General. The Borrower also undertakes with each Creditor Party to procure that each Owner shall comply with the following provisions of this Clause 14 at all times during the Security Period except as the Agent, with the authority of the Majority Lenders, may otherwise permit. 14.2 Ship's name and registration. The Borrower shall procure that each Owner shall keep the Ship owned by it registered in its ownership under Maltese Flag (in the case of each Existing Ship and the Identified Ship) and an Approved Flag (in the case of each Additional Ship); shall not do or allow to be done anything as a result of which such registration might be cancelled or imperilled; and shall not change the name or port of registry of any Ship. 14.3 Repair and classification. The Borrower shall procure that each Owner shall keep the Ship owned by it in a good and safe condition and state of repair: (a) consistent with first-class ship ownership and management practice; (b) so as to maintain the highest class at Lloyd's Register of Ships (or such other first-class classification society which is a member of IACS acceptable to the Agent) free of overdue recommendations and conditions of such classification society; and (c) so as to comply with all laws and regulations applicable to vessels registered at ports in Malta (in the case of each Existing Ship and the Identified Ship) or the relevant Approved Flag State (in the case of each Additional Ship) or to vessels trading to any jurisdiction to which the Ship may trade from time to time, including but not limited to the ISM Code, the ISPS Code, the ISM Code Documentation and the ISPS Code Documentation. 14.4 Classification society undertaking. The Borrower shall procure that each Owner shall instruct the classification society referred to in Clause 14.3 (and procure that the classification society undertakes with the Security Trustee): (a) to send to the Security Trustee, following receipt of a written request from the Security Trustee, certified true copies of all original class records held by the classification society in relation to the Ship owned by that Owner; (b) to allow the Security Trustee (or its agents), at any time and from time to time, to inspect the original class and related records of that Owner and its Ship at the offices of the classification society and to take copies of them; (c) to notify the Security Trustee immediately in writing if the classification society: (i) receives notification from the Owner or any person that the Ship's classification society is to be changed; or (ii) becomes aware of any facts or matters which may result in or have resulted in a change, suspension, discontinuance, withdrawal or expiry of the Ship's class under the rules or terms and conditions of the Owner's or the Ship's membership of the classification society; (d) following receipt of a written request from the Security Trustee: (i) to confirm that the Owner is not in default of any of its contractual obligations or liabilities to the classification society and, without limiting the foregoing, that it has paid in full all fees or other charges due and payable to the classification society; or (ii) if the Owner is in default of any of its contractual obligations or liabilities to the classification society, to specify to the Security Trustee in reasonable detail the facts and circumstances of such default, the consequences thereof, and any remedy period agreed or allowed by the classification society. 14.5 Modification. The Borrower shall procure that no Owner shall make any modification or repairs to, or replacement of, the Ship owned by it or equipment installed on her which would or might materially alter the structure, type or performance characteristics of the Ship or materially reduce her value. 14.6 Removal of parts. The Borrower shall procure that no Owner shall remove any material part of the Ship owned by it, or any item of equipment installed on, the Ship unless the part or item so removed is forthwith replaced by a suitable part or item which is in the same condition as or better condition than the part or item removed, is free from any Security Interest or any right in favour of any person other than the Security Trustee and becomes on installation on the Ship the property of the Owner and subject to the security constituted by the Mortgage and if applicable, the Deed of Covenant, relative to the Ship Provided that the Owner may install equipment owned by a third party if the equipment can be removed without any risk of damage to the Ship. 14.7 Surveys. The Borrower shall procure that each Owner shall submit the Ship owned by it regularly to all periodical or other surveys which may be required for classification purposes and, if so required by the Majority Lenders, provide the Security Trustee (at the expense of the Borrower) with copies of all survey reports. 14.8 Inspection. The Borrower shall procure that each Owner shall permit the Security Trustee (by surveyors or other persons appointed by it for that purpose) to board the Ship owned by it at all reasonable times to inspect her condition or to satisfy themselves about proposed or executed repairs and shall afford all proper facilities for such inspections Provided that so long as no Event of Default has occurred and is continuing at the relevant time and a Ship is found to be in a satisfactory condition (in the opinion of the Security Trustee) the Borrower shall be obliged to pay the fees and expenses of one inspection of that Ship in any calendar year. 14.9 Prevention of and release from arrest. The Borrower shall procure that each Owner shall promptly discharge: (a) all liabilities which give or may give rise to maritime or possessory liens on or claims enforceable against the Ship owned by it, her Earnings or her Insurances; (b) all taxes, dues and other amounts charged in respect of the Ship, her Earnings or her Insurances; and (c) all other outgoings whatsoever in respect of the Ship, her Earnings or her Insurances and, forthwith upon receiving notice of the arrest of the Ship, or of her detention in exercise or purported exercise of any lien or claim, the relevant Owner shall within 10 Business Days procure her release by providing bail or otherwise as the circumstances may require. 14.10 Compliance with laws etc. The Borrower shall procure that each Owner and each Approved Manager shall: (a) comply, or procure compliance with the ISM Code, the ISPS Code, all Environmental Laws and all other laws or regulations relating to the Ship owned by the relevant Owner, its ownership, operation and management or to the business of that Owner; (b) not employ the Ship nor allow her employment in any manner contrary to any law or regulation in any relevant jurisdiction including but not limited to the ISM Code and the ISPS Code; and (c) in the event of hostilities in any part of the world (whether war is declared or not), not cause or permit the Ship to enter or trade to any zone which is declared a war zone by any government or by the Ship's war risks insurers unless the prior written consent of the Majority Lenders has been given and the Owner has (at its expense) effected any special, additional or modified insurance cover which the Majority Lenders may require. 14.11 Provision of information. The Borrower shall procure that each Owner shall promptly provide the Security Trustee with any information which the Majority Lenders request regarding: (a) the Ship owned by it, her employment, position and engagements; (b) the Earnings and payments and amounts due to the master and crew of the Ship owned by it; (c) any expenses incurred, or likely to be incurred, in connection with the operation, maintenance or repair of the Ship and any payments made in respect of the Ship; (d) any towages and salvages; (e) its compliance or the compliance of the Ship with the ISM Code and the ISPS Code, and, upon the Security Trustee's request, provide copies of any current charter relating to the Ship and of any current charter guarantee, and copies of the ISM Code Documentation and the ISPS Code Documentation. 14.12 Notification of certain events. The Borrower shall procure that each Owner shall immediately notify the Security Trustee by letter of: (a) any casualty which is or is likely to be or to become a Major Casualty; (b) any occurrence as a result of which the Ship owned by it has become or is, by the passing of time or otherwise, likely to become a Total Loss; (c) any requirement or recommendation made by any insurer or classification society or by any competent authority which is not immediately complied with; (d) any arrest or detention of the Ship, any exercise or purported exercise of any lien on the Ship or her Earnings or any requisition of the Ship for hire; (e) any intended dry docking of the Ship; (f) any Environmental Claim made against that Owner or in connection with the Ship, or any Environmental Incident; (g) any claim for breach of the ISM Code or the ISPS Code being made against the Owner, the Approved Manager or otherwise in connection with the Ship; or (h) any other matter, event or incident, actual or threatened, the effect of which will or could lead to the ISM Code or the ISPS Code not being complied with and the Borrower shall keep the Security Trustee advised in writing on a regular basis and in such detail as the Security Trustee shall require of the Owner's, the Approved Manager's or any other person's response to any of those events or matters. 14.13 Restrictions on chartering, appointment of managers etc. The Borrower shall procure that no Owner shall: (a) (other than pursuant to the Hille Oldendorff Charterparty in the case of the Identified Ship), let the Ship owned by it on demise charter for any period; (b) enter into any time or consecutive voyage charter in respect of the Ship for a term which exceeds, or which by virtue of any optional extensions may exceed, 11 months; (c) change the terms on which the Ship is employed or the identity of the person by whom the Ship is employed; (d) enter into any charter in relation to the Ship under which more than 2 months' hire (or the equivalent) is payable in advance; (e) charter the Ship otherwise than on bona fide arm's length terms at the time when the Ship is fixed; (f) appoint a manager of the Ship other than the Approved Manager or agree to any alteration to the terms of the Approved Manager's appointment; (g) de-activate or lay up the Ship; or (h) put the Ship into the possession of any person for the purpose of work being done upon her in an amount exceeding or likely to exceed $500,000 (or the equivalent in any other currency) unless that person has first given to the Security Trustee and in terms satisfactory to it a written undertaking not to exercise any lien on the Ship or her Earnings for the cost of such work or otherwise. 14.14 Notice of Mortgage. The Borrower shall procure that each Owner shall keep the Mortgage applicable to the Ship owned by it registered against that Ship as a valid first priority or preferred mortgage, carry on board the Ship a certified copy of the Mortgage and place and maintain in a conspicuous place in the navigation room and the Master's cabin of the Ship a framed printed notice stating that the Ship is mortgaged by the Owner to the Security Trustee. 14.15 Sharing of Earnings. The Borrower shall procure that no Owner shall: (a) enter into any agreement or arrangement for the sharing of any Earnings; (b) enter into any agreement or arrangement for the postponement of any date on which any Earnings are due; the reduction of the amount of any Earnings or otherwise for the release or adverse alteration of any right of that Owner to any Earnings; or (c) enter into any agreement or arrangement for the release of, or adverse alteration to, any guarantee or Security Interest relating to any Earnings. 14.16 Time Charter Assignment. If any Owner enters into any charter in respect of its Ship which is of 11 months or more in duration, or is capable of exceeding 11 months in duration that Owner shall, at the request of the Agent, execute, or, as the case may be, procure the execution in favour of the Security Trustee a Charterparty Assignment in respect of that charter, and shall deliver to the Agent such other documents equivalent to those referred to at paragraphs 3,4 and 5 of Schedule 5, Part A as the Agent may require. 15 SECURITY COVER 15.1 Provision of additional security cover; prepayment of Loan. The Borrower undertakes with each Creditor Party that if the Agent notifies the Borrower that: (a) the aggregate Market Values of the Ships; plus (b) the net realisable value of any additional security previously provided under this Clause 15; is below 133 percent of the Loan or 120 percent of the aggregate of the Loan and the Junior Loan, the Borrower will, within 14 days after the date on which the Agent's notice is served, either: (i) provide, or ensure that a third party provides, additional security which, in the opinion of the Majority Lenders, has a net realisable value at least equal to the shortfall and which, if it consists of or includes a Security Interest, covers such asset or assets and is documented in such terms as the Agent may, with authorisation from the Majority Lenders, approve or require; or (ii) prepay in accordance with Clause 8 such part (at least) of the Loan as will eliminate the shortfall. 15.2 Meaning of additional security. In Clause 15.1 "security" means a Security Interest over an asset or assets (including, without limitation a vessel (other than a Ship)) (whether securing the Borrower's liabilities under the Finance Documents or a guarantee in respect of those liabilities), or a guarantee, letter of credit, cash deposit or other security in respect of the Borrower's liabilities under the Finance Documents. 15.3 Requirement for additional documents. The Borrower shall not be deemed to have complied with Clause 15.1 (i) above until the Agent has received in connection with the additional security certified copies of documents of the kinds referred to in paragraphs 3, 4 and 5 of Schedule 5, Part A and such legal opinions in terms acceptable to the Majority Lenders from such lawyers as they may select. 15.4 Valuation of Ship. The market value of a Ship at any date is that shown by taking the arithmetic mean of two valuations each prepared: (a) as at a date not more than 15 days previously; (b) by an Approved Broker appointed by the Agent with the valuations being addressed to the Agent; (c) with or without physical inspection of the Ship (as the Agent may require); (d) on the basis of a sale for prompt delivery for cash on normal arm's length commercial terms as between a willing seller and a willing buyer, free of any existing charter or other contract of employment; and (e) after deducting the estimated amount of the usual and reasonable expenses which would be incurred in connection with the sale Provided that if such two valuations differ by more than 15 percent then the Agent will obtain a third valuation from an Approved Broker to be prepared in accordance with paragraphs (a) to (e) of this Clause 15.4 and the Market Value of a Ship will be the arithmetic mean of such 3 valuations. 15.5 Value of additional security. The net realisable value of any additional security which is provided under Clause 15.1 and which consists of a Security Interest over a vessel shall be that shown by a valuation complying with the requirements of Clause 15.4. 15.6 Valuations binding. Any valuation under Clause 15.1(i), 15.4 or 15.5 shall be binding and conclusive as regards the Borrower, as shall be any valuation which the Majority Lenders make of a security which does not consist of or include a Security Interest. 15.7 Provision of information. The Borrower shall promptly provide the Agent and any Approved Broker or expert acting under Clause 15.4 or 15.5 with any information which the Agent or the Approved Broker or expert may request for the purposes of the valuation; and, if the Borrower fails to provide the information by the date specified in the request, the valuation may be made on any basis and assumptions which the Approved Broker or the Majority Lenders (or the expert appointed by them) consider prudent. 15.8 Payment of valuation expenses. Without prejudice to the generality of the Borrower's obligations under Clauses 20.2, 20.3 and 21.3, the Borrower shall, on demand, pay the Agent the amount of the fees and expenses of any Approved Broker instructed by the Agent under this Clause Provided that until an Event of Default has occurred and is continuing the Borrower shall be liable to pay to the Agent the fees and expenses of up to two sets of valuations of each Ship on up to two (or, if the Agent exercises the right referred to in the final paragraph of Clause 12.5, three) occasions in any calendar year. 16 PAYMENTS AND CALCULATIONS 16.1 Currency and method of payments. All payments to be made: (a) by the Lenders to the Agent; or (a) by the Borrower to the Agent, the Security Trustee or any Lender under a Finance Document shall be made to the Agent or to the Security Trustee, in the case of an amount payable to it: (i) by not later than 11.00 a.m. (New York City time) on the due date; (ii) in same day Dollar funds settled through the New York Clearing House Interbank Payments System (or in such other Dollar funds and/or settled in such other manner as the Agent shall specify as being customary at the time for the settlement of international transactions of the type contemplated by this Agreement); (iii) to the account of the Agent at JPMorgan Chase Bank, New York (Account No 001-1-331808 SWIFT Code: CHASUS 33 under reference "Dryships Inc. - US$628.75m facility"), or to such other account with such other bank as the Agent may from time to time notify to the Borrower and the other Creditor Parties; and (iv) in the case of an amount payable to the Security Trustee, to such account as it may from time to time notify to the Borrower and the other Creditor Parties. 16.2 Payment on non-Business Day. If any payment by the Borrower under a Finance Document would otherwise fall due on a day which is not a Business Day: (a) the due date shall be extended to the next succeeding Business Day; or (b) if the next succeeding Business Day falls in the next calendar month, the due date shall be brought forward to the immediately preceding Business Day and interest shall be payable during any extension under paragraph (a) at the rate payable on the original due date. 16.3 Basis for calculation of periodic payments. All interest and commitment fee and any other payments under any Finance Document which are of an annual or periodic nature shall accrue from day to day and shall be calculated on the basis of the actual number of days elapsed and a 360 day year. 16.4 Distribution of payments to Creditor Parties. Subject to Clauses 16.5, 16.6 and 16.7: (a) any amount received by the Agent under a Finance Document for distribution or remittance to a Lender, a Swap Bank or the Security Trustee shall be made available by the Agent to that Lender or, as the case may be, that Swap Bank or the Security Trustee by payment, with funds having the same value as the funds received, to such account as the Lender, the Swap Bank or the Security Trustee may have notified to the Agent not less than 5 Business Days previously; and (b) amounts to be applied in satisfying amounts of a particular category which are due to the Lenders or the Swap Bank generally shall be distributed by the Agent to each Lender or the Swap Bank pro rata to the amount in that category which is due to it. 16.5 Permitted deductions by Agent. Notwithstanding any other provision of this Agreement or any other Finance Document, the Agent may, before making an amount available to a Lender or a Swap Bank, deduct and withhold from that amount any sum which is then due and payable to the Agent from that Lender or that Swap Bank under any Finance Document or any sum which the Agent is then entitled under any Finance Document to require that Lender or any Swap Bank to pay on demand. 16.6 Agent only obliged to pay when monies received. Notwithstanding any other provision of this Agreement or any other Finance Document, the Agent shall not be obliged to make available to the Borrower or any Lender or any Swap Bank any sum which the Agent is expecting to receive for remittance or distribution to the Borrower or that Lender or that Swap Bank until the Agent has satisfied itself that it has received that sum. 16.7 Refund to Agent of monies not received. If and to the extent that the Agent makes available a sum to the Borrower or a Lender or a Swap Bank, without first having received that sum, the Borrower or (as the case may be) the Lender or the Swap Bank concerned shall, on demand: (a) refund the sum in full to the Agent; and (b) pay to the Agent the amount (as certified by the Agent) which will indemnify the Agent against any funding or other loss, liability or expense incurred by the Agent as a result of making the sum available before receiving it. 16.8 Agent may assume receipt. Clause 16.7 shall not affect any claim which the Agent has under the law of restitution, and applies irrespective of whether the Agent had any form of notice that it had not received the sum which it made available. 16.9 Creditor Party accounts. Each Creditor Party shall maintain accounts showing the amounts owing to it by the Borrower and each Security Party under the Finance Documents and all payments in respect of those amounts made by the Borrower and any Security Party. 16.10 Agent's memorandum account. The Agent shall maintain a memorandum account showing the amounts advanced by the Lenders and all other sums owing to the Agent, the Security Trustee and each Lender from the Borrower and each Security Party under the Finance Documents and all payments in respect of those amounts made by the Borrower and any Security Party. 16.11 Accounts prima facie evidence. If any accounts maintained under Clauses 16.9 and 16.10 show an amount to be owing by the Borrower or a Security Party to a Creditor Party, those accounts shall, absent manifest error, be prima facie evidence that that amount is owing to that Creditor Party. 17 APPLICATION OF RECEIPTS 17.1 Normal order of application. Except as any Finance Document may otherwise provide, any sums which are received or recovered by any Creditor Party under or by virtue of any Finance Document shall be applied: (a) FIRST: in or towards satisfaction of any amounts then due and payable under the Finance Documents and each Master Agreement in the following order and proportions: (i) first, in or towards satisfaction pro rata of all amounts then due and payable to the Creditor Parties under the Finance Documents other than those amounts referred to at paragraphs (ii) and (iii) (including, but without limitation, all amounts payable by the Borrower under Clauses 20, 21 and 22 of this Agreement or by the Borrower or any Security Party under any corresponding or similar provision in any other Finance Document or in either Master Agreement); (ii) secondly, in or towards satisfaction pro rata of any and all amounts of interest or default interest payable to the Creditor Parties under the Finance Documents and the Master Agreements (and, for this purpose, the expression "interest" shall include any net amount which the Borrower shall have become liable to pay or deliver under section 2(e) (Obligations) of either Master Agreement but shall have failed to pay or deliver to the relevant Swap Bank at the time of application or distribution under this Clause 17); and (iii) thirdly, in or towards satisfaction pro rata of the Loan and the Swap Exposure of each Swap Bank (in the case of the latter, calculated as at the actual Early Termination Date applying to each particular Designated Transaction, or if no such Early Termination Date shall have occurred, calculated as if an Early Termination Date occurred on the date of application or distribution hereunder); (b) SECONDLY: in retention of an amount equal to any amount not then due and payable under any Finance Document or any Master Agreement but which the Agent, by notice to the Borrower, the Security Parties and the other Creditor Parties, states in its opinion will or may become due and payable in the future and, upon those amounts becoming due and payable, in or towards satisfaction of them in accordance with the provisions of Clause 17.1(a); and (c) THIRDLY: any surplus shall be paid to the Agent for application in accordance with Clause 17.1 of the Junior Loan Agreement or, if all sums due thereunder have been paid, to the Borrower or to any other person appearing to be entitled to it. 17.2 Variation of order of application. The Agent may, with the authorisation of the Majority Lenders and the Swap Banks by notice to the Borrower, the Security Parties and the other Creditor Parties provide for a different manner of application from that set out in Clause 17.1 either as regards a specified sum or sums or as regards sums in a specified category or categories. 17.3 Notice of variation of order of application. The Agent may give notices under Clause 17.2 from time to time; and such a notice may be stated to apply not only to sums which may be received or recovered in the future, but also to any sum which has been received or recovered on or after the third Business Day before the date on which the notice is served. 17.4 Appropriation rights overriden. This Clause 17 and any notice which the Agent gives under Clause 17.3 shall override any right of appropriation possessed, and any appropriation made, by the Borrower or any Security Party. 18 APPLICATION OF EARNINGS 18.1 Payment of Earnings. The Borrower undertakes with each Creditor Party to ensure that throughout the Security Period: (a) (subject only to provisions of the relevant General Assignment), all the Earnings of each Ship are paid to the Earnings Account for that Ship; and (b) all payments by a Swap Bank to a Borrower under a Designated Transaction are paid to the Retention Account. 18.2 Monthly retentions. The Borrower undertakes with each Creditor Party to ensure that, in each calendar month of the Security Period commencing on the date falling 1 month after the first Drawdown Date and on the same day in each subsequent month, there is transferred to the Retention Account out of the aggregate Earnings received in the Earnings Accounts during the preceding calendar month: (a) one-third (or, in the case of the period between the first Drawdown Date and the first Repayment Date, one-fifth) of the amount of the Repayment Instalment falling due under Clause 8 on the next Repayment Date; and (b) the relevant fraction of the aggregate amount of interest on (i) the Term Loan and (ii) the Credit Facility which is payable on the next due date for payment of interest for each of the Term Loan and the Credit Facility under this Agreement. The "relevant fraction", in respect of each Advance, is a fraction of which the numerator is 1 and the denominator the number of months comprised in the then current Interest Period applicable to such Advance (or, if the current Interest Period ends after the next date for payment of interest under this Agreement, the number of months from the later of the commencement of the current Interest Period or the last due date for payment of interest to the next date for payment of interest under this Agreement). 18.3 Shortfall in Earnings. If the aggregate Earnings received are insufficient in any month for the required amount to be transferred to the Retention Account under Clause 18.2, the Borrower shall make up the amount of the insufficiency on demand from the Agent; but, without thereby prejudicing the Agent's right to make such demand at any time, the Agent may, if so authorised by the Majority Lenders, permit the Borrower to make up all or part of the insufficiency by increasing the amount of any transfer under Clause 18.2 from the Earnings received in the next or subsequent months. 18.4 Application of retentions. Until an Event of Default occurs, the Agent shall on each Repayment Date and on each due date for the payment of interest under this Agreement distribute to the Lenders in accordance with Clause 16.4 so much of the then balance on the Retention Account as equals: (a) the Repayment Instalment due on that Repayment Date; and (b) the amount of interest payable on that interest payment date in discharge of the Borrower's liability for that Repayment Instalment or that interest. 18.5 Interest accrued on Retention Account. Any credit balance on the Retention Account shall bear interest at the rate from time to time offered by the Agent to its customers for Dollar deposits of similar amounts and for periods similar to those for which such balances appear to the Agent likely to remain on the Retention Account. 18.6 Release of accrued interest. Interest accruing under Clause 18.5 shall be released to the Borrower on each Repayment Date unless an Event of Default or a Potential Event of Default has occurred or the then credit balance on the Retention Account is less than what would have been the balance had the full amount required by Clause 18.2 (and Clause 18.3, if applicable) been transferred in that and each previous month. 18.7 Location of accounts. The Borrower shall promptly: (a) comply, and ensure that the Owners and Wealth comply, with any requirement of the Agent as to the location or re-location of any Earnings Account, the Debt Service Reserve Account, the Retention Account or the Wealth Account; (b) execute, and ensure that the Owners and Wealth execute, any documents which the Agent specifies to create or maintain in favour of the Security Trustee a Security Interest over (and/or rights of set-off, consolidation or other rights in relation to) the Earnings Accounts (or any of them), the Debt Service Reserve Account, the Retention Account and the Wealth Account. 18.8 Debits for expenses etc. The Agent shall be authorised by the Borrower (but not obliged) from time to time to debit the Earnings Account without prior notice in order to discharge any amount due and payable under Clause 20 or 21 to a Creditor Party or payment of which any Creditor Party has become entitled to demand under Clause 20 or 21. 18.9 Borrower's obligations unaffected. The provisions of this Clause 18 do not affect: (a) the liability of the Borrower to make payments of principal and interest on the due dates; or (b) any other liability or obligation of the Borrower or any Security Party under any Finance Document. 18.10 Wealth Account. The Owners may from time to time transfer credit balances on the Earnings Accounts to the Wealth Account subject to the Borrower being in compliance with its obligations under this Agreement (including, without limitation, Clause 18.2). 19 EVENTS OF DEFAULT 19.1 Events of Default. An Event of Default occurs if: (a) the Borrower or any Security Party fails to pay when due or (if so payable) on demand any sum payable under a Finance Document or under any document relating to a Finance Document; or (b) any breach occurs of Clause 9.2, 11.2, 11.3, 11.19, 11.20, 12.2, 12.3, 12.4, 13.2, 15.1 or 18.1; or (c) any breach by the Borrower or any Security Party occurs of any provision of a Finance Document (other than a breach covered by paragraphs (a) or (b) above) if, in the opinion of the Majority Lenders, such default is capable of remedy, and such default continues unremedied 10 days after written notice from the Agent requesting action to remedy the same; or (d) (subject to any applicable grace period specified in the Finance Document) any breach by the Borrower or any Security Party occurs of any provision of a Finance Document (other than a breach covered by paragraphs (a), (b) or (c) above); or (e) any representation, warranty or statement made by, or by an officer of, the Borrower or a Security Party in a Finance Document or in a Drawdown Notice or any other notice or document relating to a Finance Document is untrue or misleading when it is made; or (f) any of the following occurs in relation to any Financial Indebtedness of a Relevant Person exceeding $1,000,000 (or the equivalent in any other currency) in aggregate: (i) any Financial Indebtedness of a Relevant Person is not paid when due or, if so payable, on demand; or (ii) any Financial Indebtedness of a Relevant Person becomes due and payable or capable of being declared due and payable prior to its stated maturity date as a consequence of any event of default; or (iii) a lease, hire purchase agreement or charter creating any Financial Indebtedness of a Relevant Person is terminated by the lessor or owner or becomes capable of being terminated as a consequence of any termination event; or (iv) any overdraft, loan, note issuance, acceptance credit, letter of credit, guarantee, foreign exchange or other facility, or any swap or other derivative contract or transaction, relating to any Financial Indebtedness of a Relevant Person ceases to be available or becomes capable of being terminated as a result of any event of default, or cash cover is required, or becomes capable of being required, in respect of such a facility as a result of any event of default; or (v) any Security Interest securing any Financial Indebtedness of a Relevant Person becomes enforceable; or (g) any of the following occurs in relation to a Relevant Person: (i) a Relevant Person becomes, in the opinion of the Majority Lenders, unable to pay its debts as they fall due; or (ii) any assets of a Relevant Person are subject to any form of execution, attachment, arrest, sequestration or distress in respect of a sum of, or sums aggregating, $100,000 or more or the equivalent in another currency; or (iii) any administrative or other receiver is appointed over any asset of a Relevant Person; or (iv) a Relevant Person makes any formal declaration of bankruptcy or any formal statement to the effect that it is insolvent or likely to become insolvent, or a winding up or administration order is made in relation to a Relevant Person, or the members or directors of a Relevant Person pass a resolution to the effect that it should be wound up, placed in administration or cease to carry on business, save that this paragraph does not apply to a fully solvent winding up of a Relevant Person other than the Borrower which is, or is to be, effected for the purposes of an amalgamation or reconstruction previously approved by the Majority Lenders and effected not later than 3 months after the commencement of the winding up; or (v) a petition is presented in any Pertinent Jurisdiction for the winding up or administration, or the appointment of a provisional liquidator, of a Relevant Person unless the petition is being contested in good faith and on substantial grounds and is dismissed or withdrawn within 30 days of the presentation of the petition; or (vi) a Relevant Person petitions a court, or presents any proposal for, any form of judicial or non judicial suspension or deferral of payments, reorganisation of its debt (or certain of its debt) or arrangement with all or a substantial proportion (by number or value) of its creditors or of any class of them or any such suspension or deferral of payments, reorganisation or arrangement is effected by court order, contract or otherwise; or (vii) any meeting of the members or directors of a Relevant Person is summoned for the purpose of considering a resolution or proposal to authorise or take any action of a type described in paragraphs (iii), (iv), (v) or (vi) above; or (viii) in a Pertinent Jurisdiction other than England, any event occurs or any procedure is commenced which, in the opinion of the Majority Lenders, is similar to any of the foregoing; or (h) the Borrower or any Security Party ceases or suspends carrying on or changes the nature of its business or a part of its business which, in the opinion of the Majority Lenders, is material in the context of this Agreement; or (i) it becomes unlawful in any Pertinent Jurisdiction or impossible: (i) for the Borrower or any Security Party to discharge any liability under a Finance Document or to comply with any other obligation which the Majority Lenders consider material under a Finance Document; or (ii) for the Agent, the Security Trustee, the Lenders or the Swap Banks to exercise or enforce any right under, or to enforce any Security Interest created by, a Finance Document; or (j) any consent necessary to enable any Owner to own, operate or charter a Ship or to enable the Borrower or any Security Party to comply with any provision which the Majority Lenders consider material of a Finance Document is not granted, expires without being renewed, is revoked or becomes liable to revocation or any condition of such a consent is not fulfilled; or (k) it appears to the Majority Lenders that, without their prior written consent, a change has occurred or probably has occurred after the date of this Agreement in the ultimate beneficial ownership of any of the shares in any Owner, Wealth or the Approved Manager or in the ultimate control of the voting rights attaching to any of those shares; or (l) George Economou ceases to be the Chief Executive Officer of the Borrower or George Economou or members of his immediate family (either directly and/or through companies beneficially owned by the George Economou or members of his immediate family and/or trusts or foundations of which George Economou or members of his immediate family are beneficiaries) own and control less than 33.33 percent of the issued share capital of the Borrower; (m) any provision which the Majority Lenders consider material of a Finance Document proves to have been or becomes invalid or unenforceable, or a Security Interest created by a Finance Document proves to have been or becomes invalid or unenforceable or such a Security Interest proves to have ranked after, or loses its priority to, another Security Interest or any other third party claim or interest; or (n) the security constituted by a Finance Document is in any way imperilled or in jeopardy; or (o) a Master Agreement is terminated, cancelled, suspended, rescinded or revoked or otherwise ceases to remain in full force and effect for any reason except with the consent of the Agent, acting with the authorisation of the Majority Lenders; or (p) any other event occurs or any other circumstances arise or develop including, without limitation: (i) a change in the financial position, state of affairs or prospects of any Security Party; or (ii) any accident or other event involving any Ship or another vessel owned, chartered or operated by a Relevant Person; in the light of which the Majority Lenders consider that there is a significant risk that the Borrower or any Security Party is, or will later become, unable to discharge its liabilities under the Finance Documents as they fall due; or (q) there shall occur an Event of Default (howsoever therein described) under the Junior Loan Agreement. 19.2 Actions following an Event of Default. On, or at any time after, the occurrence of an Event of Default: (a) the Agent may, and if so instructed by the Majority Lenders, the Agent shall: (i) serve on the Borrower a notice stating that the Commitments and all other obligations of each Lender to the Borrower under this Agreement are terminated; and/or (ii) serve on the Borrower a notice stating that the Loan, all accrued interest and all other amounts accrued or owing under this Agreement are immediately due and payable or are due and payable on demand; and/or (iii) take any other action which, as a result of the Event of Default or any notice served under paragraph (i) or (ii) above, the Agent and/or the Lenders are entitled to take under any Finance Document or any applicable law; and/or (b) the Security Trustee may, and if so instructed by the Agent, acting with the authorisation of the Majority Lenders, the Security Trustee shall take any action which, as a result of the Event of Default or any notice served under paragraph (a) (i) or (ii) above, the Security Trustee, the Agent and/or the Lenders and/or the Swap Banks are entitled to take under any Finance Document or any applicable law. 19.3 Termination of Commitments. On the service of a notice under paragraph (a)(i) of Clause 19.2, the Commitments and all other obligations of each Lender to the Borrower under this Agreement shall terminate. 19.4 Acceleration of Loan. On the service of a notice under paragraph (a)(ii) of Clause 19.2, the Loan, all accrued interest and all other amounts accrued or owing from the Borrower or any Security Party under this Agreement and every other Finance Document shall become immediately due and payable or, as the case may be, payable on demand. 19.5 Multiple notices; action without notice. The Agent may serve notices under paragraphs (a) (i) and (ii) of Clause 19.2 simultaneously or on different dates and it and/or the Security Trustee may take any action referred to in that Clause if no such notice is served or simultaneously with or at any time after the service of both or either of such notices. 19.6 Notification of Creditor Parties and Security Parties. The Agent shall send to each Lender, the Security Trustee and each Security Party a copy of the text of any notice which the Agent serves on the Borrower under Clause 19.2; but the notice shall become effective when it is served on the Borrower, and no failure or delay by the Agent to send a copy of the text of the notice to any other person shall invalidate the notice or provide the Borrower or any Security Party with any form of claim or defence. 19.7 Lender's rights unimpaired. Nothing in this Clause shall be taken to impair or restrict the exercise of any right given to individual Lenders under a Finance Document or the general law; and, in particular, this Clause is without prejudice to Clause 3.1. 19.8 Exclusion of Creditor Party Liability. No Creditor Party, and no receiver or manager appointed by the Security Trustee, shall have any liability to the Borrower or a Security Party: (a) for any loss caused by an exercise of rights under, or enforcement of a Security Interest created by, a Finance Document or by any failure or delay to exercise such a right or to enforce such a Security Interest; or (b) as mortgagee in possession or otherwise, for any income or principal amount which might have been produced by or realised from any asset comprised in such a Security Interest or for any reduction (however caused) in the value of such an asset; except that this does not exempt a Creditor Party or a receiver or manager from liability for losses shown to have been caused by the gross negligence or the wilful misconduct of such Creditor Party's own officers and employees or (as the case may be) such receiver's or manager's own partners or employees. 19.9 Relevant Persons. In this Clause 19 "a Relevant Person" means the Borrower, a Security Party and any other member of the Group; but excluding any company which is dormant and the value of whose gross assets is $50,000 or less, 19.10 Position of Swap Banks. Neither the Agent nor the Security Trustee shall be obliged, in connection with any action taken or proposed to be taken under or pursuant to the foregoing provisions of this Clause 19, to have any regard to the requirements of the Swap Banks except to the extent that the Swap Banks are also Lenders. 19.11 Interpretation. In Clause 19.1(f) references to an event of default or a termination event include any event, howsoever described, which is similar to an event of default in a facility agreement or a termination event in a finance lease; and in Clause 19.1(g) "petition" includes an application. 20 FEES AND EXPENSES 20.1 Facility, drawdown and commitment fees. The Borrower shall pay to the Agent: (a) certain facility fees set out in the letter addressed by the Agent to the Borrower and dated the same date as this Agreement; (b) in relation to each Additional Advance, a drawdown fee of 0.075 percent of that Additional Advance, such fee to be payable on the Drawdown Date of the Additional Advance and to be distributed among the Lenders pro rata to their Credit Facility Commitments; (c) a commitment fee: (i) in the case of the Term Loan, at the rate of 0.40 percent per annum on the undrawn amount of the Term Loan Commitments from (and including) 21 February 2006 up to and including the earlier of (A) the Drawdown Date in respect of the Identified Ship Advance and (B) the last day of the Availability Period for the Identified Ship Advance; and (ii) in the case of the Credit Facility, at the rate of 0.25 percent per annum on the undrawn amount of the Credit Facility Commitments from (and including) 21 February 2006 up to and including the earlier of (A) the Drawdown Date on which the Credit Facility Commitments are fully drawn and (B) the last day of the Availability Period for the Additional Advances, such fee to be paid quarterly in arrears and on the last day of each such period referred to in sub-paragraphs (i) and (ii) above and, in the case of sub-paragraph (i) above, to be distributed among the Lenders pro rata to their Term Loan Commitments and, in the case of sub-paragraph (ii) above, to be distributed among the Lenders pro rata to their Credit Facility Commitments. 20.2 Costs of negotiation, preparation etc. The Borrower shall pay to the Agent on its demand the amount of all reasonable expenses incurred by the Agent or the Security Trustee in connection with the negotiation, preparation, execution or registration of any Finance Document or any related document or with any transaction contemplated by a Finance Document or a related document (including, without limitation, any legal fees or expenses). 20.3 Costs of variations, amendments, enforcement etc. The Borrower shall pay to the Agent, on the Agent's demand, the amount of all expenses (including, without limitation, any legal fees or expenses) incurred by a Lender or a Swap Bank in connection with: (a) any amendment or supplement to a Finance Document, or any proposal for such an amendment to be made; (b) any consent or waiver by the Lenders, the Majority Lenders or the Lender concerned under or in connection with a Finance Document, or any request for such a consent or waiver; (c) the valuation of any security provided or offered under Clause 15 or any other matter relating to such security; (d) such circumstances where the Agent, in its absolute opinion, considers that there has been a material change to the insurances in respect of a Ship, the review of the insurances of that Ship pursuant to Clause 13.18; (e) any step taken by the Lender concerned or the Swap Bank concerned with a view to the protection, exercise or enforcement of any right or Security Interest created by a Finance Document or for any similar purpose. There shall be recoverable under paragraph (e) the full amount of all legal expenses, whether or not such as would be allowed under rules of court or any taxation or other procedure carried out under such rules. 20.4 Documentary taxes. The Borrower shall promptly pay any tax payable on or by reference to any Finance Document, and shall, on the Agent's demand, fully indemnify each Creditor Party against any liabilities and expenses resulting from any failure or delay by the Borrower to pay such a tax. 20.5 Certification of amounts. A notice which is signed by two officers of a Creditor Party, which states that a specified amount, or aggregate amount, is due to that Creditor Party under this Clause 20 and which indicates (without necessarily specifying a detailed breakdown) the matters in respect of which the amount, or aggregate amount, is due shall be prima facie evidence that the amount, or aggregate amount, is due. 21 INDEMNITIES 21.1 Indemnities regarding borrowing and repayment of Loan. The Borrower shall fully indemnify the Agent and each Lender on the Agent's demand and the Security Trustee on its demand in respect of all expenses, liabilities and losses which are incurred by that Creditor Party, or which that Creditor Party reasonably and with due diligence estimates that it will incur, as a result of or in connection with: (a) an Advance not being borrowed on the date specified in the Drawdown Notice for that Advance for any reason other than a default by the Lender claiming the indemnity; (b) the receipt or recovery of all or any part of the Loan or an overdue sum otherwise than on the last day of an Interest Period or other relevant period; (c) any failure (for whatever reason) by the Borrower to make payment of any amount due under a Finance Document on the due date or, if so payable, on demand (after giving credit for any default interest paid by the Borrower on the amount concerned under Clause 7); (d) the occurrence and/or continuance of an Event of Default or a Potential Event of Default and/or the acceleration of repayment of the Loan under Clause 19; and in respect of any tax (other than tax on its overall net income) for which a Creditor Party is liable in connection with any amount paid or payable to that Creditor Party (whether for its own account or otherwise) under any Finance Document. 21.2 Breakage costs. Without limiting its generality, Clause 21.1 covers any liability, expense or loss, including a loss of a prospective profit, incurred by a Lender: (a) in liquidating or employing deposits from third parties acquired or arranged to fund or maintain all or any part of its Contribution and/or any overdue amount (or an aggregate amount which includes its Contribution or any overdue amount); and (b) in terminating, or otherwise in connection with, any interest and/or currency swap or any other transaction entered into (whether with another legal entity or with another office or department of the Lender concerned) to hedge any exposure arising under this Agreement or that part which the Lender concerned determines is fairly attributable to this Agreement of the amount of the liabilities, expenses or losses (including losses of prospective profits) incurred by it in terminating, or otherwise in connection with, a number of transactions of which this Agreement is one. 21.3 Miscellaneous indemnities. The Borrower shall fully indemnify each Creditor Party severally on their respective demands in respect of all claims, demands, proceedings, liabilities, taxes, losses and expenses of every kind ("liability items") which may be made or brought against, or incurred by, the relevant Creditor Party, in any country, in relation to: (a) any action taken, or omitted or neglected to be taken, under or in connection with any Finance Document by the Agent, the Security Trustee or any other Creditor Party or by any receiver appointed under a Finance Document; (b) any other event, matter or question which occurs or arises at any time during the Security Period and which has any connection with, or any bearing on, any Finance Document, any payment or other transaction relating to a Finance Document or any asset covered (or previously covered) by a Security Interest created (or intended to be created) by a Finance Document; other than liability items which are shown to have been caused by the gross negligence or the wilful misconduct of the relevant Creditor Party's own officers or employees. 21.4 Extension of indemnities; environmental indemnity. Without prejudice to its generality, Clause 21.3 covers: (a) any matter which would be covered by Clause 21.3 if any of the references in that Clause to a Lender were a reference to the Agent or (as the case may be) to the Security Trustee; and (b) any liability items which arise, or are asserted, under or in connection with any law relating to safety at sea, pollution or the protection of the environment. 21.5 Currency indemnity. If any sum due from the Borrower or any Security Party to a Creditor Party under a Finance Document or under any order or judgment relating to a Finance Document has to be converted from the currency in which the Finance Document provided for the sum to be paid (the "Contractual Currency") into another currency (the "Payment Currency") for the purpose of: (a) making or lodging any claim or proof against the Borrower or any Security Party, whether in its liquidation, any arrangement involving it or otherwise; or (b) obtaining an order or judgment from any court or other tribunal; or (c) enforcing any such order or judgment; the Borrower shall indemnify the Creditor Party concerned against the loss arising when the amount of the payment actually received by that Creditor Party is converted at the available rate of exchange into the Contractual Currency. In this Clause 21.5, the "available rate of exchange" means the rate at which the Creditor Party concerned is able at the opening of business (Hamburg time) on the Business Day after it receives the sum concerned to purchase the Contractual Currency with the Payment Currency. This Clause 21.5 creates a separate liability of the Borrower which is distinct from its other liabilities under the Finance Documents and which shall not be merged in any judgment or order relating to those other liabilities. 21.6 Application to Master Agreements. For the avoidance of doubt, Clause 21.5 does not apply in respect of sums due from the Borrower to a Swap Bank under or in connection with the Master Agreement to which that Swap Bank is a party as to which sums the provisions of section 8 (Contractual Currency) of that Master Agreement shall apply. 21.7 Certification of amounts. A notice which is signed by 2 officers of a Creditor Party, which states that a specified amount, or aggregate amount, is due to that Creditor Party under this Clause 21 and which indicates (without necessarily specifying a detailed breakdown) the matters in respect of which the amount, or aggregate amount, is due shall be prima facie evidence that the amount, or aggregate amount, is due. 21.8 Sums deemed due to a Lender. For the purposes of this Clause 21, a sum payable by the Borrower to the Agent or the Security Trustee for distribution to a Lender shall be treated as a sum due to that Lender. 22 NO SET-OFF OR TAX DEDUCTION 22.1 No deductions. All amounts due from the Borrower under a Finance Document shall be paid: (a) without any form of set-off, cross-claim or condition; and (b) free and clear of any tax deduction except a tax deduction which the Borrower is required by law to make. 22.2 Grossing-up for taxes. If the Borrower is required by law to make a tax deduction from any payment: (a) the Borrower shall notify the Agent as soon as it becomes aware of the requirement; (b) the Borrower shall pay the tax deducted to the appropriate taxation authority promptly, and in any event before any fine or penalty arises; (c) the amount due in respect of the payment shall be increased by the amount necessary to ensure that each Creditor Party receives and retains (free from any liability relating to the tax deduction) a net amount which, after the tax deduction, is equal to the full amount which it would otherwise have received. 22.3 Evidence of payment of taxes. Within 1 month after making any tax deduction, the Borrower concerned shall deliver to the Agent documentary evidence satisfactory to the Agent that the tax had been paid to the appropriate taxation authority. 22.4 Exclusion of tax on overall net income. In this Clause 22 "tax deduction" means any deduction or withholding for or on account of any present or future tax except tax on a Creditor Party's overall net income. 22.5 Application to the Master Agreements. For the avoidance of doubt, Clause 22 does not apply in respect of sums due from the Borrower to a Swap Bank under or in connection with the Master Agreement to which that Swap Bank is a party as to which sums the provisions of section 2(d) (Deduction or Withholding for Tax) of that Master Agreement shall apply. 23 ILLEGALITY, ETC 23.1 Illegality. This Clause 23 applies if a Lender (the "Notifying Lender") notifies the Agent that it has become, or will with effect from a specified date, become: (a) unlawful or prohibited as a result of the introduction of a new law, an amendment to an existing law or a change in the manner in which an existing law is or will be interpreted or applied; or (b) contrary to, or inconsistent with, any regulation, for the Notifying Lender to maintain or give effect to any of its obligations under this Agreement in the manner contemplated by this Agreement. 23.2 Notification of illegality. The Agent shall promptly notify the Borrower, the Security Parties, the Security Trustee and the other Lenders of the notice under Clause 23.1 which the Agent receives from the Notifying Lender. 23.3 Prepayment; termination of Commitment. On the Agent notifying the Borrower under Clause 23.2, the Notifying Lender's Commitment shall terminate; and thereupon or, if later, on the date specified in the Notifying Lender's notice under Clause 23.1 as the date on which the notified event would become effective the Borrower shall prepay the Notifying Lender's Contribution in accordance with Clause 8. 23.4 Mitigation. If circumstances arise which would result in a notification under Clause 23.1 then, without in any way limiting the rights of the Notifying Lender under Clause 23.3, the Notifying Lender shall use reasonable endeavours to transfer its obligations, liabilities and rights under this Agreement and the Finance Documents to another office or financial institution not affected by the circumstances but the Notifying Lender shall not be under any obligation to take any such action if, in its opinion, to do would or might: (a) have an adverse effect on its business, operations or financial condition; or (b) involve it in any activity which is unlawful or prohibited or any activity that is contrary to, or inconsistent with, any regulation; or (c) involve it in any expense (unless indemnified to its satisfaction) or tax disadvantage. 24 INCREASED COSTS 24.1 Increased costs. This Clause 24 applies if a Lender (the "Notifying Lender") notifies the Agent that the Notifying Lender considers that as a result of: (a) the introduction or alteration after the date of this Agreement of a law or regulation or an alteration after the date of this Agreement in the manner in which a law or regulation is interpreted or applied (disregarding any effect which relates to the application to payments under this Agreement of a tax on the Notifying Lender's overall net income); or (b) the effect of complying with any law or regulation (including any which relates to capital adequacy or liquidity controls or which affects the manner in which the Notifying Lender allocates capital resources to its obligations under this Agreement (including, without limitation, any laws or regulations which shall replace, amend and/or supplement those set out in the statement of the Basle Committee on Banking Regulations and Supervisory Practices dated July 1988 and entitled "International Convergence of Capital Management and Capital Structures")) which is introduced, or altered, or the interpretation or application of which is altered, after the date of this Agreement, is that the Notifying Lender (or a parent company of it) has incurred or will incur an "increased cost", that is to say: (i) an additional or increased cost incurred as a result of, or in connection with, the Notifying Lender having entered into, or being a party to, this Agreement or a Transfer Certificate, of funding or maintaining its Commitment or Contribution or performing its obligations under this Agreement, or of having outstanding all or any part of its Contribution or other unpaid sums; or (ii) a reduction in the amount of any payment to the Notifying Lender under this Agreement or in the effective return which such a payment represents to the Notifying Lender or on its capital; (iii) an additional or increased cost of funding all or maintaining all or any of the advances comprised in a class of advances formed by or including the Notifying Lender's Contribution or (as the case may require) the proportion of that cost attributable to the Contribution; or (iv) a liability to make a payment, or a return foregone, which is calculated by reference to any amounts received or receivable by the Notifying Lender under this Agreement; but not an item attributable to a change in the rate of tax on the overall net income of the Notifying Lender (or a parent company of it) or an item covered by the indemnity for tax in Clause 21.1 or by Clause 22. For the purposes of this Clause 24.1 the Notifying Lender may in good faith allocate or spread costs and/or losses among its assets and liabilities (or any class thereof) on such basis as it considers appropriate. 24.2 Notification to Borrower of claim for increased costs. The Agent shall promptly notify the Borrower and the Security Parties of the notice which the Agent received from the Notifying Lender under Clause 24.1. 24.3 Payment of increased costs. The Borrower shall pay to the Agent, at the end of any Interest Period during which the Agent makes demand, for the account of the Notifying Lender, the amounts which the Agent from time to time notifies the Borrower that the Notifying Lender has specified to be necessary to compensate the Notifying Lender for the increased cost. 24.4 Notice of prepayment. If the Borrower is not willing to continue to compensate the Notifying Lender for the increased cost under Clause 24.3, the Borrower may give the Agent not less than 14 days' notice of its intention to prepay the Notifying Lender's Contribution at the end of an Interest Period. 24.5 Prepayment; termination of Commitment. A notice under Clause 24.4 shall be irrevocable; the Agent shall promptly notify the Notifying Lender of the Borrower's notice of intended prepayment; and: (a) on the date on which the Agent serves that notice, the Commitment of the Notifying Lender shall be cancelled; and (b) on the date specified in its notice of intended prepayment, the Borrower shall prepay (without premium or penalty) the Notifying Lender's Contribution, together with accrued interest thereon at the applicable rate plus the applicable Margin and the Mandatory Cost (if any). 24.6 Application of prepayment. Clause 8 shall apply in relation to the prepayment. 25 SET-OFF 25.1 Application of credit balances. Each Creditor Party may without prior notice: (a) apply any balance (whether or not then due) which at any time stands to the credit of any account in the name of the Borrower at any office in any country of that Creditor Party in or towards satisfaction of any sum then due from the Borrower to that Creditor Party under any of the Finance Documents; and (b) for that purpose: (i) break, or alter the maturity of, all or any part of a deposit of the Borrower; (ii) convert or translate all or any part of a deposit or other credit balance into Dollars; (iii) enter into any other transaction or make any entry with regard to the credit balance which the Creditor Party concerned considers appropriate. 25.2 Existing rights unaffected. No Creditor Party shall be obliged to exercise any of its rights under Clause 25.1; and those rights shall be without prejudice and in addition to any right of set-off, combination of accounts, charge, lien or other right or remedy to which a Creditor Party is entitled (whether under the general law or any document). 25.3 Sums deemed due to a Lender. For the purposes of this Clause 25, a sum payable by the Borrower to the Agent or the Security Trustee for distribution to, or for the account of, a Lender shall be treated as a sum due to that Lender; and each Lender's proportion of a sum so payable for distribution to, or for the account of, the Lenders shall be treated as a sum due to such Lender. 26 TRANSFERS AND CHANGES IN LENDING OFFICES 26.1 Transfer by Borrower. The Borrower may not, without the consent of the Agent, given on the instructions of all the Lenders: (a) transfer any of its rights or obligations under any Finance Document; or (b) enter into any merger, de-merger or other reorganisation, or carry out any other act, as a result of which any of its rights or liabilities would vest in, or pass to, another person. 26.2 Transfer by a Lender. Subject to Clause 26.5, a Lender (the "Transferor Lender") may at any time, after consultation with the Borrower, the Lead Bookrunner and the Joint Bookrunner, cause: (a) its rights in respect of all or part of its Contribution; or (b) its obligations in respect of all or part of its Commitment; or (c) a combination of (a) and (b) to be (in the case of its rights) transferred to, or (in the case of its obligations) assumed by, another bank or financial institution which is experienced in ship financing (a "Transferee Lender") by delivering to the Agent a completed certificate in the form set out in Schedule 4 with any modifications approved or required by the Agent (a "Transfer Certificate") executed by the Transferor Lender and the Transferee Lender. However any rights and obligations of the Transferor Lender in its capacity as Agent or Security Trustee will have to be dealt with separately in accordance with the Agency and Trust Deed. 26.3 Transfer Certificate, delivery and notification. As soon as reasonably practicable after a Transfer Certificate is delivered to the Agent, it shall (unless it has reason to believe that the Transfer Certificate may be defective): (a) sign the Transfer Certificate on behalf of itself, the Borrower, the Security Parties, the Security Trustee and each of the Lenders; (b) on behalf of the Transferee Lender, send to the Borrower and each Security Party letters or faxes notifying them of the Transfer Certificate and attaching a copy of it; (c) send to the Transferee Lender copies of the letters or faxes sent under paragraph (b) above. 26.4 Effective Date of Transfer Certificate. A Transfer Certificate becomes effective on the date, if any, specified in the Transfer Certificate as its effective date Provided that it is signed by the Agent under Clause 26.3 on or before that date. 26.5 No transfer without Transfer Certificate. No assignment or transfer of any right or obligation of a Lender under any Finance Document is binding on, or effective in relation to, the Borrower, any Security Party, the Agent or the Security Trustee unless it is effected, evidenced or perfected by a Transfer Certificate. 26.6 Lender re-organisation; waiver of Transfer Certificate. However, if a Lender enters into any merger, de-merger or other reorganisation as a result of which all its rights or obligations vest in another person (the "successor"), the successor shall automatically and without any further act being necessary become a Lender with the same Commitment and Contribution as were held by the predecessor Lender. 26.7 Effect of Transfer Certificate. A Transfer Certificate takes effect in accordance with English law as follows: (a) to the extent specified in the Transfer Certificate, all rights and interests (present, future or contingent) which the Transferor Lender has under or by virtue of the Finance Documents are assigned to the Transferee Lender absolutely, free of any defects in the Transferor Lender's title and of any rights or equities which the Borrower or any Security Party had against the Transferor Lender; (b) the Transferor Lender's Commitment is discharged to the extent specified in the Transfer Certificate; (c) the Transferee Lender becomes a Lender with the Contribution previously held by the Transferor Lender (or the part thereof specified in the Transfer Certificate) and a Commitment of an amount specified in the Transfer Certificate; (d) the Transferee Lender becomes bound by all the provisions of the Finance Documents which are applicable to the Lenders generally, including those about pro-rata sharing and the exclusion of liability on the part of, and the indemnification of, the Agent and the Security Trustee and, to the extent that the Transferee Lender becomes bound by those provisions (other than those relating to exclusion of liability), the Transferor Lender ceases to be bound by them; (e) any part of the Loan which the Transferee Lender advances after the Transfer Certificate's effective date ranks in point of priority and security in the same way as it would have ranked had it been advanced by the transferor, assuming that any defects in the transferor's title and any rights or equities of the Borrower or any Security Party against the Transferor Lender had not existed; (f) the Transferee Lender becomes entitled to all the rights under the Finance Documents which are applicable to the Lenders generally, including but not limited to those relating to the Majority Lenders and those under Clause 5.7 and Clause 20, and to the extent that the Transferee Lender becomes entitled to such rights, the Transferor Lender ceases to be entitled to them; and (g) in respect of any breach of a warranty, undertaking, condition or other provision of a Finance Document or any misrepesentation made in or in connection with a Finance Document, the Transferee Lender shall be entitled to recover damages by reference to the loss incurred by it as a result of the breach or misrepresentation, irrespective of whether the original Lender would have incurred a loss of that kind or amount. The rights and equities of the Borrower or any Security Party referred to above include, but are not limited to, any right of set of and any other kind of cross-claim. 26.8 Maintenance of register of Lenders. During the Security Period the Agent shall maintain a register in which it shall record the name, Commitment, Contribution and administrative details (including the lending office) from time to time of each Lender holding a Transfer Certificate and the effective date (in accordance with Clause 26.4) of the Transfer Certificate; and the Agent shall make the register available for inspection by any Lender, the Security Trustee and the Borrower during normal banking hours, subject to receiving at least 5 Business Days prior notice. 26.9 Reliance on register of Lenders. The entries on that register shall, in the absence of manifest error, be conclusive in determining the identities of the Lenders and the amounts of their Commitments and Contributions and the effective dates of Transfer Certificates and may be relied upon by the Agent and the other parties to the Finance Documents for all purposes relating to the Finance Documents. 26.10 Authorisation of Agent to sign Transfer Certificates. The Borrower, the Security Trustee and each Lender irrevocably authorise the Agent to sign Transfer Certificates on its behalf. 26.11 Registration fee. In respect of any Transfer Certificate, the Agent shall be entitled to recover a registration fee of $2,000 from the Transferor Lender or (at the Agent's option) the Transferee Lender. 26.12 Sub-participation; subrogation assignment. A Lender may sub-participate all or any part of its rights and/or obligations under or in connection with the Finance Documents without the consent of, or any notice to, the Borrower, any Security Party, the Agent or the Security Trustee; and the Lenders may assign, in any manner and terms agreed by the Majority Lenders, the Agent and the Security Trustee, all or any part of those rights to an insurer or surety who has become subrogated to them. 26.13 Disclosure of information. A Lender may disclose to a potential Transferee Lender or sub-participant any information which the Lender has received in relation to the Borrower, any Security Party or their affairs under or in connection with any Finance Document, unless the information is clearly of a confidential nature. 26.14 Change of lending office. A Lender may change its lending office by giving notice to the Agent and the change shall become effective on the later of: (a) the date on which the Agent receives the notice; and (b) the date, if any, specified in the notice as the date on which the change will come into effect. 26.15 Notification. On receiving such a notice, the Agent shall notify the Borrower and the Security Trustee; and, until the Agent receives such a notice, it shall be entitled to assume that a Lender is acting through the lending office of which the Agent last had notice. 26.16 Replacement of Reference Bank. If a Reference Bank ceases to be a Lender or is unable on a continuing basis to supply quotations for the purposes of Clause 5 above then, unless the Borrower, the Agent and the Majority Lenders otherwise agree, the Agent, acting on the instructions of the Majority Lenders, and after consulting the Borrower, shall appoint another bank (whether or not a Lender) to be a replacement Reference Bank; and, when that appointment comes into effect, the first-mentioned Reference Bank's appointment shall cease to be effective. 27 VARIATIONS AND WAIVERS 27.1 Variations, waivers etc. by Majority Lenders. Subject to Clause 27.2, a document shall be effective to vary, waive, suspend or limit any provision of a Finance Document, or any Creditor Party's rights or remedies under such a provision or the general law, only if the document is signed, or specifically agreed to by fax, by the Borrower, by the Agent on behalf of the Majority Lenders, by the Agent and the Security Trustee in their own rights, and, if the document relates to a Finance Document to which a Security Party is party, by that Security Party. 27.2 Variations, waivers etc. requiring agreement of all Lenders. However, as regards the following, Clause 27.1 applies as if the words "by the Agent on behalf of the Majority Lenders" were replaced by the words "by or on behalf of every Lender and the Swap Bank": (a) a change in the Margin or in the definition of LIBOR; (b) a change to the date for, or the amount of, any payment of principal, interest, fees, or other sum payable under this Agreement; (c) a change to any Lender's Commitment; (d) an extension of the Availability Period; (e) a change to the definition of "Majority Lenders" or "Finance Documents"; (f) a change to the preamble or to Clause 2, 3, 4, 5.1, 8.1, 8.2, 17, 18, 19 or 30; (g) a change to this Clause 27; (h) any release of, or material variation to, a Security Interest, guarantee, indemnity or subordination arrangement set out in a Finance Document; and (i) any other change or matter as regards which this Agreement or another Finance Document expressly provides that each Lender's consent is required. 27.3 Exclusion of other or implied variations. Except for a document which satisfies the requirements of Clauses 27.1 and 27.2, no document, and no act, course of conduct, failure or neglect to act, delay or acquiescence on the part of the Creditor Parties or any of them (or any person acting on behalf of any of them) shall result in the Creditor Parties or any of them (or any person acting on behalf of any of them) being taken to have varied, waived, suspended or limited, or being precluded (permanently or temporarily) from enforcing, relying on or exercising: (a) a provision of this Agreement or another Finance Document; or (b) an Event of Default; or (c) a breach by the Borrower or a Security Party of an obligation under a Finance Document or the general law; or (d) any right or remedy conferred by any Finance Document or by the general law; and there shall not be implied into any Finance Document any term or condition requiring any such provision to be enforced, or such right or remedy to be exercised, within a certain or reasonable time. 28 NOTICES 28.1 General. Unless otherwise specifically provided, any notice under or in connection with any Finance Document shall be given by registered letter or fax; and references in the Finance Documents to written notices, notices in writing and notices signed by particular persons shall be construed accordingly. 28.2 Addresses for communications. A notice shall be sent: (a) to the Borrower: Omega Building 80 Kifissias Avenue 151 25 Maroussi Athens Greece Fax No: +(30) 210 809 0575 Attn: the Chief Financial Officer (b) to a Lender: At the address opposite its name in Part A of Schedule 1 or (as the case may require) in the relevant Transfer Certificate, (c) to a Swap Bank: At the address opposite its name in Part B of Schedule 1 (d) to the Agent and the HSH Nordbank AG Security Trustee: Gerhart-Hauptmann-Platt 50 D-20095 Hamburg Germany Fax No: +(49) 40 33 33 34 118 Attn: Shipping, Greek Clients or to such other address as the relevant party may notify the Agent or, if the relevant party is the Agent or the Security Trustee, the Borrower, the Lenders, the Swap Banks and the Security Parties. 28.3 Effective date of notices. Subject to Clauses 28.4 and 28.5: (a) a notice which is delivered personally shall be deemed to be served, and shall take effect, at the time when it is delivered; (b) a notice which is delivered by registered letter shall be deemed to be served, and shall take effect, 5 Business Days after being deposited in the post postage prepaid in an envelope addressed to it at the relevant address; and (c) a notice which is sent by fax shall be deemed to be served, and shall take effect, 2 hours after its transmission is completed. 28.4 Service outside business hours. However, if under Clause 28.3 a notice would be deemed to be served: (a) on a day which is not a business day in the place of receipt; or (b) on such a business day, but after 5 p.m. local time; the notice shall (subject to Clause 28.5) be deemed to be served, and shall take effect, at 9 am. on the next day which is such a business day. 28.5 Illegible notices. Clauses 28.3 and 28.4 do not apply if the recipient of a notice notifies the sender within one hour after the time at which the notice would otherwise be deemed to be served that the notice has been received in a form which is illegible in a material respect. 28.6 Valid notices. A notice under or in connection with a Finance Document shall not be invalid by reason that its contents or the manner of serving it do not comply with the requirements of this Agreement or, where appropriate, any other Finance Document under which it is served if: (a) the failure to serve it in accordance with the requirements of this Agreement or other Finance Document, as the case may be, has not caused any party to suffer any significant loss or prejudice; or (b) in the case of incorrect and/or incomplete contents, it should have been reasonably clear to the party on which the notice was served what the correct or missing particulars should have been. 28.7 English language. Any notice under or in connection with a Finance Document shall be in English. 28.8 Meaning of "notice". In this Clause "notice" includes any demand, consent, authorisation, approval, instruction, waiver or other communication. 28.9 Electronic communication (a) Any communication to be made between the Agent or the Security Trustee and a Lender or a Swap Bank under or in connection with the Finance Documents may be made by electronic mail or other electronic means, if the Agent, the Security Trustee and the relevant Lender or, as the case may be, the relevant Swap Bank: (i) agree that, unless and until notified to the contrary, this is to be an accepted form of communication; (ii) notify each other in writing of their electronic mail address and/or any other information required to enable the sending and receipt of information by that means; and (iii) notify each other of any change to their address or any other such information supplied by them. (b) Any electronic communication made between the Agent and a Lender or the Swap Bank or the Security Trustee will be effective only when actually received in readable form and in the case of any electronic communication made by a Lender or the Swap Bank to the Agent or the Security Trustee only if it is addressed in such a manner as the Agent or Security Trustee shall specify for this purpose. 29 SUPPLEMENTAL 29.1 Rights cumulative, non-exclusive. The rights and remedies which the Finance Documents give to each Creditor Party are: (a) cumulative; (b) may be exercised as often as appears expedient; and (c) shall not, unless a Finance Document explicitly and specifically states so, be taken to exclude or limit any right or remedy conferred by any law. 29.2 Severability of provisions. If any provision of a Finance Document is or subsequently becomes void, unenforceable or illegal, that shall not affect the validity, enforceability or legality of the other provisions of that Finance Document or of the provisions of any other Finance Document. 29.3 Third party rights. A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce or to enjoy the benefit of any term of this Agreement. 29.4 Counterparts. A Finance Document may be executed in any number of counterparts. 30 LAW AND JURISDICTION 30.1 English law. This Agreement shall be governed by, and construed in accordance with, English law. 30.2 Exclusive English jurisdiction. Subject to Clause 30.3, the courts of England shall have exclusive jurisdiction to settle any disputes which may arise out of or in connection with this Agreement. 30.3 Choice of forum for the exclusive benefit of the Creditor Parties. Clause 30.2 is for the exclusive benefit of the Creditor Parties, each of which reserves the right: (a) to commence proceedings in relation to any matter which arises out of or in connection with this Agreement in the courts of any country other than England and which have or claim jurisdiction to that matter; and (b) to commence such proceedings in the courts of any such country or countries concurrently with or in addition to proceedings in England or without commencing proceedings in England. The Borrower shall not commence any proceedings in any country other than England in relation to a matter which arises out of or in connection with this Agreement. 30.4 Process agent. The Borrower irrevocably appoints Ince & Co. at their office for the time being, presently at International House, 1 St. Katharine's Way, London E1 W IUN, England, to act as its agent to receive and accept on its behalf any process or other document relating to any proceedings in the English courts which are connected with this Agreement. 30.5 Creditor Party rights unaffected. Nothing in this Clause 30 shall exclude or limit any right which any Creditor Party may have (whether under the law of any country, an international convention or otherwise) with regard to the bringing of proceedings, the service of process, the recognition or enforcement of a judgment or any similar or related matter in any jurisdiction. 30.6 Meaning of "proceedings". In this Clause 30, "proceedings" means proceedings of any kind, including an application for a provisional or protective measure. AS WITNESS the hands of the duly authorised officers or attorneys of the parties the day and year first before written. SCHEDULE 1 PART A LENDERS AND COMMITMENTS Lender Lending Office Term Loan Credit Commitment Facility (US Dollars) Commitment (US Dollars) HSH Nordbank AG Gerhart-Hauptmann-Platz [ ] [ ] 50 D-20095 Hamburg Germany The Governor and Company 11 Earl Grey Street [ ] [ ] of the Bank of Scotland Edinburgh EH3 9BN Scotland Alliance & Leicester Carlton Park [ ] [ ] Commercial Finance plc Narborough Leicester LE19 0AL England Bayerische Hypo-und Alter Wall 22 [ ] [ ] Vereinsbank AG 20457 Hamburg Germany Commerzbank Ness 7-9 [ ] [ ] Aktiengesellschaft D-20457 Hamburg Germany Natexis Banques 45 rue Saint Dominique [ ] [ ] Populaires 75007 Paris France Sumitomo Mitsui Banking Avenue des Arts 58 [ ] [ ] Corporation, Brussels Box 18 Branch 1000 Brussels Belgium PART B SWAP BANKS HSH Nordbank AG Martensdarmm 6 D-24103 Kiel Germany HBOS Treasury 33 Old Broad Street Services Plc London EC2N 1 HZ England Commerzbank Ness 7-9 Aktiengesellschaft D-20457 Hamburg Germany SCHEDULE 2 DETAILS OF SHIPS AND OWNERS PART A DETAILS OF EXISTING SHIPS AND OWNERS 1. Name of Ship: "STRIGGLA" Flag: Malta Official Number: 5809 Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2, 4 & 6 Holds may be empty) (ESP) MNS* Owner: Helium Shipping Company Limited 2. Name of Ship: "MOSTOLES" Flag: Malta Official Number: 5886 Class Society and notation: Det Norske Veritas: +1A1, Bulk Carrier, ESP, HC-E EO Owner: Hydrogen Shipping Company Limited 3. Name of Ship: "FLECHA" Flag: Malta Official Number: 6835 Class Society and notation: Bureau Veritas: I + HULL + MACH, Bulk Carrier ESP, Ore Carrier ESP, Unrestricted Navigation Owner: Silicon Shipping Company Limited 4. Name of Ship: "SHIBUMI" Flag: Malta Official Number: 7028 Class Society and notation: Bureau Veritas: I + HULL + MACH, Bulk Carrier ESP, Unrestricted Navigation, + AUT-UMS Owner: Oxygen Shipping Company Limited 5. Name of Ship: "LACERTA" Flag: Malta Official Number: 7121 Class Society and notation: Bureau Veritas: I + HULL + MACH, Bulk Carrier ESP Heavy Cargo, Nonhomload (Holds 2, 4, 6 may be empty), Unrestricted Navigation Owner: Annapolis Shipping Company Limited 6. Name of Ship: "PANORMOS" Flag: Malta Official Number: 8491 Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2, 4 & 6 Holds may be empty) (ESP) MNS* Owner: Blueberry Shipping Company Limited 7. Name of Ship: "MATIRA" Flag: Malta Official Number: 8966 Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2 & 4 Holds may be empty) (ESP) MNS* Owner: Lancat Shipping Company Limited 8. Name of Ship: "TONGA" Flag: Malta Official Number: 8251 Class Society and notation: ABS: +Al, Bulk Carrier, E, +AMS Owner: Tolan Shipping Company Limited 9. Name of Ship: "CORONADO" Flag: Malta Official Number: 8703 Class Society and notation: Bureau Veritas: I + HULL + MACH, Bulk Carrier ESP, Nonhomload (Holds 2-4-6 may be empty), Unrestricted Navigation, MON-SHAFT, + AUT UMS Owner: Malvina Shipping Company Limited 10. Name of Ship: "XANADU" Flag: Malta Official Number: 9479 Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2, 4 & 6 Holds may be empty) (ESP) MNS* Owner: Arleta Navigation Company Limited 11. Name of Ship: "LA JOLLA" Flag: Malta Official Number: 9503 Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2, 4 & 6 Holds may be empty) (ESP) MNS* Owner: Selma Shipping Company Limited 12. Name of Ship: "NETADOLA" Flag: Malta Official Number: 9537 Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2, 4, 6 & 8 Holds may be empty) (ESP) MNS* Owner: Royerton Shipping Company Limited 13. Name of Ship: "OCEAN CRYSTAL" Flag: Malta Official Number: 9092 Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2, 4 & 6 Holds may be empty) (ESP) MNS* Owner: Samsara Shipping Company Limited 14. Name of Ship: "PARAGON" Flag: Malta Official Number: 9093 Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2, 4 & 6 Holds may be empty) (ESP) MNS* Owner: Lansat Shipping Company Limited 15. Name of Ship: "TORO" Flag: Malta Official Number: 9131 Class Society and notation: Lloyd's Register: +100A1, Bulk Carrier, Strengthened for heavy cargoes, Nos. 2, 4 & 6 holds may be empty, ESP, *IWS, ESN-Hold 1, +LMC, UMS Owner: Farat Shipping Company Limited 16. Name of Ship: "ALONA" Flag: Malta Official Number: 7706 Class Society and notation: Det Norske Veritas: +1A1, Bulk Carrier, ESP, HC-E EO DK(+) HA(+) IB(+), Holds (2, 4 or 3) may be empty Owner: Madras Shipping Company Limited 17. Name of Ship: "IGUANA" Flag: Malta Official Number: 9062 Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2, 4 & 6 Holds may be empty) (ESP) MNS* Owner: Iguana Shipping Company Limited 18. Name of Ship: "CATALINA" Flag: Malta Official Number: 9544 Class Society and notation: ABS: +A1, Bulk Carrier, E, +AMS, +ACCU, SH, HCS, SHCM Owner: Borsari Shipping Company Limited 19. Name of Ship: "BELMONTE" Flag: Malta Official Number: 9560 Class Society and notation: Germanischer Lloyd: Hull: +100A5, ESP IW C 1 D 11, Bulk Carrier - Machinery: +MC AUT Owner: Onil Shipping Company Limited 20. Name of Ship: "WAIKIKI" Flag: Malta Official Number: 4936 Class Society and notation: Bureau Veritas: I + HULL + MACH, Bulk Carrier ESP, Nonhomload (Holds 2-4-6 may be empty) Heavycargo, Unrestricted Navigation, + AUTUMS; MON-SHAFT; INWATERSURVEY; GRABLOADING Owner: Zatac Shipping Company Limited 21. Name of Ship: "ALAMEDA" Flag: Malta Official Number: 9549 Class Society and notation: Lloyd's Register: +100A1, Bulk Carrier, Strengthened for heavy cargoes, Nos. 2, 4, 6 & 8 holds may be empty, ESP, *IWS, LI, ESN, ShipRight (SDA, FDA, CM), +LMC, UMS Owner: Fabiana Navigation Company Limited 22. Name of Ship: "LANIKAI" Flag: Malta Official Number: 9480 Class Society and notation: Det Norske Veritas: +1A1, Bulk Carrier, ESP, HC-E EO Owner: Fago Shipping Company Limited 23. Name of Ship: "LINDA OLDENDORFF" Flag: Malta Official Number: 9489 Class Society and notation: Lloyd's Register: 100A1, Bulk Carrier, Strengthened for heavy cargoes, Nos. 2, 4, 6 or No. 4 holds may be empty, ESP, LI, ESN-Hold 1, LMC, UMS Owner: Felicia Navigation Company Limited 24. Name of Ship: "DAYTONA" Flag: Malta Official Number: 6534 Class Society and notation: Bureau Veritas: I + HULL + MACH, Bulk Carrier ESP -heavycargo, -nonhomload, Unrestricted Navigation, + AUT-UMS Owner: Platan Shipping Company Limited 25. Name of Ship: "SONOMA" Flag: Malta Official Number: 9576 Class Society and notation: China Classification Society: *CSA Bulk Carrier, CCSS, Strengthened for Heavy Cargoes Holds, Nos. 2, 4 & 6 may be empty, Hold No.4 may be Ballast Hold, ESP, Loading Computer S.I.G - *CSM AUT-O, CMS Owner: Karmen Shipping Company Limited 26. Name of Ship: "MANASOTA" Flag: Malta Official Number: 9546 Class Society and notation: Det Norske Veritas: +1A1, Bulk Carrier, ESP ES (S) HC-E, Grain-U EO LCS -SI IB (+), Holds (2, 4, 6, 8) may be empty, Nauticus (Newbuilding) Owner: Thelma Shipping Company Limited 27. Name of Ship: "CONRAD OLDENDORFF" Flag: Malta Official Number: 9744 Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2, 4 & 6 Holds may be empty) (ESP) MNS* Owner: Celine Shipping Company Limited PART B DETAILS OF IDENTIFIED SHIP AND OWNER 28. Name of Ship: "HILLE OLDENDORFF" Flag: Malta/Liberian Bareboat Charter Registry Official Number: 9833 (Malta) Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2 & 4 Holds may be empty) (ESP) MNS* Owner: Seaventure Shipping Limited Bareboat Charterer: Catania Shipping Inc. Charter Date: 29 August 2005 (as supplemented and amended) SCHEDULE 3 DRAWDOWN NOTICE To: HSH Nordbank AG Gerhart-Hauptmann-Platz 50 D-20095 Hamburg Germany Attention: Loans Administration [________] 2006 DRAWDOWN NOTICE 1 We refer to the loan agreement (the "Loan Agreement") dated 31 March 2006 and made between ourselves as Borrower, the Lenders referred to therein, yourselves as Agent and as Security Trustee, yourselves as Lead Arranger and Lead Bookrunner, The Governor and Company of the Bank of Scotland as Joint Bookrunner, yourselves and The Governor and Company of the Bank of Scotland as Joint Underwriters and the Swap Banks referred to therein in connection with term loan and credit facilities of up to US$518,750,000 in aggregate. Terms defined in the Loan Agreement have their defined meanings when used in this Drawdown Notice. 2 We request to borrow an Advance under the [Term Loan] [Credit Facility] as follows: (a) Amount of [Advance]: $[________]; (b) Drawdown Date: [________]; (c) Duration of the first Interest Period shall be [________] months; (d) Payment instructions : account of [________________] and numbered [________] with [________] of [________]. 3 We represent and warrant that: (a) the representations and warranties in Clause 10 of the Loan Agreement would remain true and not misleading if repeated on the date of this notice with reference to the circumstances now existing; (b) no Event of Default or Potential Event of Default has occurred or will result from the borrowing of the Loan. 4 This notice cannot be revoked without the prior consent of the Majority Lenders. 5 [We authorise you to deduct all accrued commitment fee and the drawdown fee applicable to the Advance referred to in Clause 20.1 from the amount of the Advance]. [Name of Signatory] ________________________ Attorney-in-Fact for and on behalf of DRYSHIPS INC. SCHEDULE 4 REPAYMENT OF TERM LOAN - -------------------------------------------------------------------------------- Amount of Maximum Outstanding Repayment Amount of Term Loan Repayment Date Instalment ($) following repayment - -------------------------------------------------------------------------------- 1 31 August 2006 14,852,017.94 445,147,982.06 2 30 November 2006 14,852,017.94 430,295,964.13 3 28 February 2007 12,789,237.67 417,506,726.46 4 31 May 2007 12,789,237.67 404,717,488.79 5 31 August 2007 10,107,623.32 394,609,865.47 6 30 November 2007 10,107,623.32 384,502,242.15 7 29 February 2008 10,107,623.32 374,394,618.83 8 31 May 2008 10,107,623.32 364,286,995.52 9 31 August 2008 10,107,623.32 354,179,372.20 10 30 November 2008 10,107,623.32 344,071,748.88 11 28 February 2009 10,107,623.32 333,964,125.56 12 31 May 2009 10,107,623.32 323,856,502.24 13 31 August 2009 8,663,677.13 315,192,825.11 14 30 November 2009 8,663,677.13 306,529,147.98 15 28 February 2010 8,663,677.13 297,865,470.85 16 31 May 2010 8,663,677.13 289,201,793.72 17 31 August 2010 8,663,677.13 280,538,116.59 18 30 November 2010 8,663,677.13 271,874,439.46 19 28 February 2011 8,663,677.13 263,210,762.33 20 31 May 2011 8,663,677.13 254,547,085.20 21 31 August 2011 8,663,677.13 245,883,408.07 22 30 November 2011 8,663,677.13 237,219,730.94 23 29 February 2012 8,663,677.13 228,556,053.81 24 31 May 2012 8,663,677.13 219,892,376.68 25 31 August 2012 8,663,677.13 211,228,699.55 26 30 November 2012 8,663,677.13 202,565,022.42 27 28 February 2013 8,663,677.13 193,901,345.29 28 31 May 2013 8,663,677.13 185,237,668.16 29 31 August 2013 8,663,677.13 176,573,991.03 30 30 November 2013 8,663,677.13 167,910,313.90 31 28 February 2014 8,663,677.I3 159,246,636.77 32 31 May 2014 8,663,677.13 150,582,959.64 33 31 August 2014 8,663,677.13 141,919,282.51 34 30 November 2014 8,663,677.13 133,255,605.38 35 28 February 2015 8,663,677.13 124,591,928.25 36 31 May 2015 8,663,677.13 115,928,251.12 37 31 August 2015 8,663,677.13 107,264,573.99 38 30 November 2015 8,663,677.13 98,600,896.86 39 29 February 2016 8,663,677.13 89,937,219.73 40 31 May 2016 8,663,677.13 81,273,542.60 - -------------------------------------------------------------------------------- Balloon Instalment 31 May 2016 81,273,542.60 0 - -------------------------------------------------------------------------------- SCHEDULE 5 CONDITION PRECEDENT DOCUMENTS PART A The following are the documents referred to in Clause 9.1(a). 1 A duly executed original of each of: (a) this Agreement; (b) the Agency and Trust Deed; (c) the Master Agreements; (d) the Master Agreement Assignments; (e) the Guarantees; (f) the Wealth Guarantee; (g) the Mortgages, the Deeds of Covenant and the General Assignments relative to the Existing Ships; (h) the Borrower's Accounts Pledge; (i) the Existing Ships Earnings Account Pledge; (j) the Wealth Account Pledge; (k) the Junior Loan Agreement; and (l) the Management Agreement Assignments relative to the Existing Ships. 2 Copies of the certificate of incorporation and constitutional documents of the Borrower and each Owner of an Existing Ship, the Owner of the Identified Ship and Wealth. 3 Copies of resolutions of the directors of the Borrower and the directors and shareholders of each Owner of an Existing Ship, the Owner of the Identified Ship and Wealth authorising the execution of each of the Finance Documents to which the Borrower, that Owner or Wealth is a party and, in the case of (a) the Borrower, authorising named officers to give the Drawdown Notices and other notices under this Agreement and (b) Seaventure, ratifying the execution of the Hille Oldendorff Charterparty and the Hille Oldendorff MOA. 4 The original of any power of attorney under which any Finance Document is executed on behalf of the Borrower, an Owner of an Existing Ship, the Owner of the Identified Ship or Wealth. 5 Copies of all consents which the Borrower, any Owner of an Existing Ship, the Owner of the Identified Ship or Wealth requires to enter into, or make any payment under, any Finance Document. 6 The originals of any mandates or other documents required in connection with the opening or operation of the Debt Service Reserve Account, each Earnings Account, the Retention Account and the Wealth Account. 7 Evidence that an amount of not less than $5,000,000 is standing to the credit of the Debt Service Reserve Account. 8 Evidence satisfactory to the Agent that each Owner of an Existing Ship, the Owner of the Identified Ship and Wealth is a direct or indirect wholly-owned subsidiary of the Borrower. 9 Documentary evidence that: (a) each Existing Ship is definitively and permanently registered in the name of its Owner under the Maltese flag; (b) each Existing Ship is in the absolute and unencumbered ownership of its Owner save as contemplated by the Finance Documents to which that Owner is a party; (c) each Existing Ship maintains the highest available class with Lloyd's Register of Ships (or such other first-class classification society which is a member of IACS as the Agent may approve) free of all overdue recommendations and conditions of such classification society; (d) each Mortgage relative to an Existing Ship has been duly registered against that Existing Ship as a valid first priority statutory mortgage in accordance with the laws of Malta; and (e) each Existing Ship is insured in accordance with the provisions of this Agreement and all requirements therein in respect of such insurances have been complied with. 10 A copy of the Management Agreement and a duly executed original of the Manager's Undertaking in relation to each Existing Ship. 11 Copies of: (a) the document of compliance (DOC) and safety management certificate (SMC) referred to in paragraph (a) of the definition of the ISM Code Documentation in respect of each Existing Ship and the applicable Approved Manager certified as true and in effect by the Owner of such Existing Ship; and (b) the ISPS Code Documentation in respect of each Existing Ship and the Owner thereof certified as true and in effect by that Owner. 12 Two valuations (at the cost of the Borrower) of each Existing Ship addressed to the Agent, stated to be for the purpose of this Agreement and dated not earlier than 15 days before the Drawdown Date for the Refinancing Advance, each from an Approved Broker. 13 All documentation required by each Creditor Party in relation to the Borrower and any Security Party pursuant to that Creditor Party's "know your customer" requirements. 14 A compliance certificate (in the form set out in Schedule 8) demonstrating the compliance by the Borrower (or not, as the case may be) with the provisions of Clause 12.4 (such compliance to be determined by reference to the audited annual consolidated accounts of the Group for the Financial Year ended 31 December 2005) signed by the chief financial officer of the Borrower. 15 Documentary evidence that the agent for service of process named in Clause 30 has accepted its appointment. 16 Favourable legal opinions from lawyers appointed by the Agent on such matters concerning the laws of the Marshall Islands, Malta, England, Germany and such other relevant jurisdictions as the Agent may require. 17 A favourable opinion from an independent insurance consultant acceptable to the Agent on such matters relating to the insurances of the Existing Ships as the Agent may require. 18 If the Agent so requires, in respect of any of the documents referred to above, a certified English translation prepared by a translator approved by the Agent. PART B The following are the documents referred to in Clause 9.1(b). 1 A copy of (a) the Hille Oldendorff MOA and (b) the Hille Oldendorff Seller's Credit Agreement and of all documents signed or issued by the parties thereto under or in connection with the Hille Oldendorff MOA and the Hille Oldendorff Seller's Credit Agreement. 2 Such documentary evidence as the Lender and its legal advisers may require in relation to the due authorisation and execution by Goodwill of the Hille Oldendorff MOA and of all documents to be executed by Goodwill under the Hille Oldendorff MOA, and by the Hille Oldendorff Charterer of the Hille Oldendorff Charterparty and of all documents to be executed by the Hille Oldendorff Charterer thereunder. 3 A copy of each of the Hille Oldendorff Charterparty and the Hille Oldendorff Charter Guarantee and of all documents signed or issued by Seaventure, Goodwill or the Hille Oldendorff Charterer (or any of them) under or in connection with the Hille Oldendorff Charterparty and the Hille Oldendorff Charter Guarantee. 4 Copies of the constitutional documents of the Hille Oldendorff Charterer, together with copies of resolutions of the directors of the Hille Oldendorff Charterer authorising the execution of the Hille Oldendorff Tripartite Agreement and ratifying its entry into the Hille Oldendorff Charterparty. 5 A duly executed original of: (a) the Mortgage, the Deed of Covenant and the General Assignment relating to the Identified Ship (and of each document to be delivered under each of them); (b) the Hille Oldendorff Tripartite Agreement (and of each document to be delivered under the Tripartite Agreement); (c) the Identified Ship Earnings Account Pledge; and (d) the Management Agreement Assignment relating to the Identified Ship. 6 Documentary evidence that: (a) the Identified Ship has been unconditionally delivered by Goodwill to and accepted by, Seaventure under the Hille Oldendorff MOA and the full purchase price payable under that MOA (in addition to the part to be financed by the Identified Ship Advance) has been duly paid, together with a copy of the bill of sale and the other documents delivered by Goodwill thereunder; (b) the Identified Ship is definitively and permanently registered in the name of Seaventure under Maltese flag at the port of Valletta; (c) the Ship is in the absolute and unencumbered ownership of Seaventure, save as contemplated by the Finance Documents relative to the Identified Ship; (d) the Identified Ship maintains the highest available class with Lloyd's Register of Shipping (or such other first-class classification society which is a member of IACS as the Agent may approve) free of all overdue recommendations and conditions of such classification society; (e) the Mortgage relating to the Identified Ship has been duly registered against that Ship as a valid first priority Maltese statutory ship mortgage in accordance with the laws of Malta and has been noted on the Liberian Bareboat Charter Registry; (f) the Identified Ship is insured in accordance with the provisions of this Agreement and all requirements therein in respect of insurances have been complied with; and (g) the Identified Ship has been delivered and accepted by the Hille Oldendorff Charterer for service under the Hille Oldendorff Charterparty without qualifications and has been registered in the name of the Hille Oldendorff Charterer under the Liberian Bareboat Charter Registry. 7 A copy of the Management Agreement and a duly executed original of the Manager's Undertaking in relation to the Identified Ship. 8 Copies of: (a) the document of compliance (DOC) and safety management certificate (SMC) referred to in paragraph (a) of the definition of the ISM Code Documentation in respect of the Identified Ship and the applicable Approved Manager certified as true and in effect by Seaventure; and (b) the ISPS Code Documentation in respect of the Identified Ship and Seaventure certified as true and in effect by Seaventure. 9 Two valuations (at the cost of the Borrower) of the Identified Ship, addressed to the Agent, stated to be for the purpose of this Agreement and dated not earlier than 15 days before the Drawdown Date for the Identified Ship Advance, each from an Approved Broker. 10 Favourable legal opinions from lawyers appointed by the Agent on such matters concerning the laws of Malta, Liberia and such other relevant jurisdictions as the Agent may require. 11 A favourable opinion from an independent insurance consultant acceptable to the Agent on such matters relating to the insurances of the Identified Ships as the Agent may require. PART C The following are the documents referred to in Clause 9.1(c). "Relevant Ship" means, in relation to an Additional Advance, the Additional Ship which is to be part-financed by that Advance. 1 Copies of resolutions of the directors of the relevant Additional Ship Owner authorising the execution of each of the Finance Documents in relation to the Relevant Ship and ratifying the execution of the Additional Ship MOA in relation to that Relevant Ship. 2 The original of any power of attorney under which any Finance Document in relation to the Relevant Ship is executed on behalf of the relevant Additional Ship Owner. 3 The originals of any mandates or other documents required in connection with the opening or operation of the Earnings Account for the Relevant Ship. 4 A copy of the Additional Ship MOA for the Relevant Ship and all documents signed or issued by the parties thereto (or any of them) under or in connection with it. 5 Such documentary evidence as the Agent and its legal advisers may require in relation to the due authorisation and execution of the Additional Ship MOA in relation to the Relevant Ship and all documents to be executed by the parties thereto under that Additional Ship MOA. 6 A duly executed original of the Mortgage, the Deed of Covenant (if applicable), the General Assignment, the Additional Ship Earnings Account Pledge and the Management Assignment for the Relevant Ship (and of each document to be delivered under each of them). 7 Documentary evidence that: (a) the Relevant Ship has been unconditionally delivered to, and accepted by, the relevant Additional Ship Owner under the relevant Additional Ship MOA and the full purchase price payable under that Additional Ship MOA (in addition to the part financed by the relevant Advance) has been duly paid; (b) the Relevant Ship is definitively and permanently registered in the name of the relevant Additional Ship Owner under an Approved Flag; (c) the Relevant Ship is in the absolute and unencumbered ownership of the relevant Additional Ship Owner save as contemplated by the Finance Documents; (d) the Relevant Ship maintains the highest available class with Lloyd's Register of Shipping (or such other first-class classification society which is a member of IACS as the Agent may approve) free of all overdue recommendations and conditions of such classification society; (e) the Mortgage relative to the Relevant Ship has been duly registered or recorded (as the case may be) against the Relevant Ship as a valid first priority or preferred ship mortgage in accordance with the laws of the relevant Approved Flag State; and (f) the Relevant Ship is insured in accordance with the provisions of this Agreement and all requirements therein in respect of insurances have been complied with. 8 A copy of the Management Agreement and a duly executed original of the Manager's Undertaking in relation to the Relevant Ship. 9 Copies of: (a) the document of compliance (DOC) and safety management certificate (SMC) referred to in paragraph (a) of the definition of the ISM Code Documentation in respect of the Relevant Ship and the applicable Approved Manager certified as true and in effect by the Owner of the Relevant Ship; and (b) the ISPS Code Documentation in respect of the Relevant Ship and the Owner thereof certified as true and in effect by the relevant Owner. 10 Two valuations (at the cost of the Borrower) of the Relevant Ship, addressed to the Agent, stated to be for the purpose of this Agreement and dated not earlier than 15 days before the relevant Drawdown Date, each from an Approved Broker. 11 Evidence satisfactory to the Agent that the Owner of the Relevant Ship is a direct or indirect wholly-owned subsidiary of the Borrower. 12 A favourable legal opinion from lawyers appointed by the Agent on such matters concerning the laws of the Approved Flag State where the Relevant Ship is registered and such other relevant jurisdictions as the Agent may require. 13 A favourable opinion from an independent insurance consultant acceptable to the Agent on such matters relating to the insurances for the Relevant Ship as the Agent may require. 14 If the Agent so requires, in respect of any of the documents referred to above, a certified English translation prepared by a translator approved by the Agent. Every other copy document delivered under this Schedule shall be certified as a true and up to date copy by a director or the secretary (or equivalent officer) of the Borrower or any other person acceptable to the Agent in its sole discretion. SCHEDULE 6 TRANSFER CERTIFICATE The Transferor and the Transferee accept exclusive responsibility for ensuring that this Certificate and the transaction to which it relates comply with all legal and regulatory requirements applicable to them respectively. To: HSH Nordbank AG for itself and for and on behalf of the Borrower, each Security Party, the Security Trustee, the Swap Banks and each Lender, as defined in the Loan Agreement referred to below. [_________] 1 This Certificate relates to a Loan Agreement (the "Loan Agreement") dated 31 March 2006 and made between (1) Dryships Inc. as borrower (the "Borrower"), (2) the banks and financial institutions named therein as Lenders, (3) HSH Nordbank AG as Agent and as Security Trustee, (4) HSH Nordbank AG as Lead Arranger and Lead Bookrunner, (5) The Governor and Company of the Bank of Scotland as Joint Bookrunner, (6) HSH Nordbank AG and The Governor and Company of the Bank of Scotland as Joint Underwriters and (7) HSH Nordbank AG and HBOS Treasury Services plc as Swap Banks, in respect of term loan and short-term credit facilities of up to US$518,750,000 in aggregate. 2 In this Certificate: "the Relevant Parties" means the Agent, the Borrower, each Security Party, the Security Trustee, each Swap Bank and each Lender; "the Transferor" means [full name] of [lending office]; "the Transferee" means [full name] of [lending office]. Terms defined in the Loan Agreement shall, unless the contrary intention appears, have the same meanings when used in this Certificate. 3 The effective date of this Certificate is 2006 Provided that this Certificate shall not come into effect unless it is signed by the Agent on or before that date. 4 The Transferor assigns to the Transferee absolutely all rights and interests (present, future or contingent) which the Transferor has as Lender under or by virtue of the Loan Agreement and every other Finance Document in relation to [ ] percent of the Contribution outstanding to the Transferor (or its predecessors in title) which is set out below: Contribution Amount transferred 5 By virtue of this Transfer Certificate and Clause 26 of the Loan Agreement, the Transferor is discharged [entirely from its Commitment which amounts to $[__________]] [from [__________] percent of its Commitment, which percentage represents $[__________]] and the Transferee acquires a Commitment of $[__________]. 6 The Transferee undertakes with the Transferor and each of the Relevant Parties that the Transferee will observe and perform all the obligations under the Finance Documents which Clause 26 of the Loan Agreement provides will become binding on it upon this Certificate taking effect. 7 The Agent, at the request of the Transferee (which request is hereby made) accepts, for the Agent itself and for and on behalf of every other Relevant Party, this Certificate as a Transfer Certificate taking effect in accordance with Clause 26 of the Loan Agreement. 8 The Transferor: (a) warrants to the Transferee and each Relevant Party: (i) that the Transferor has full capacity to enter into this transaction and has taken all corporate action and obtained all consents which are in connection with this transaction; and (ii) that this Certificate is valid and binding as regards the Transferor; (b) warrants to the Transferee that the Transferor is absolutely entitled, free of encumbrances, to all the rights and interests covered by the assignment in paragraph 4 above; (c) undertakes with the Transferee that the Transferor will, at its own expense, execute any documents which the Transferee reasonably requests for perfecting in any relevant jurisdiction the Transferee's title under this Certificate or for a similar purpose. 9 The Transferee: (d) confirms that it has received a copy of the Loan Agreement and each other Finance Document; (e) agrees that it will have no rights of recourse on any ground against either the Transferor, the Agent, the Security Trustee, any Swap Bank or any Lender in the event that: (i) the Finance Documents prove to be invalid or ineffective, (ii) the Borrower or any Security Party fails to observe or perform its obligations, or to discharge its liabilities, under the Finance Documents; (iii) it proves impossible to realise any asset covered by a Security Interest created by a Finance Document, or the proceeds of such assets are insufficient to discharge the liabilities of the Borrower or any Security Party under the Finance Documents; (f) agrees that it will have no rights of recourse on any ground against the Agent, the Security Trustee, any Swap Bank or any Lender in the event that this Certificate proves to be invalid or ineffective; (g) warrants to the Transferor and each Relevant Party (i) that it has fu11 capacity to enter into this transaction and has taken all corporate action and obtained all official consents which it needs to take or obtain in connection with this transaction; and (ii) that this Certificate is valid and binding as regards the Transferee; and (h) confirms the accuracy of the administrative details set out below regarding the Transferee. 10 The Transferor and the Transferee each undertake with the Agent and the Security Trustee severally, on demand, fully to indemnify the Agent and/or the Security Trustee in respect of any claim, proceeding, liability or expense (including all legal expenses) which they or either of them may incur in connection with this Certificate or any matter arising out of it, except such as are shown to have been mainly and directly caused by the gross and culpable negligence or dishonesty of the Agent's or the Security Trustee's own officers or employees. 11 The Transferee shall repay to the Transferor on demand so much of any sum paid by the Transferor under paragraph 10 above as exceeds one-half of the amount demanded by the Agent or the Security Trustee in respect of a claim, proceeding, liability or expense which was not reasonably foreseeable at the date of this Certificate; but nothing in this paragraph shall affect the liability of each of the Transferor and the Transferee to the Agent or the Security Trustee for the full amount demanded by it. [Name of Transferor] [Name of Transferee] By: By: Date: Date: Agent Signed for itself and for and on behalf of itself as Agent and for every other Relevant Party HSH NORDBANK AG By: Date: Administrative Details of Transferee Name of Transferee: Lending Office: Contact Person (Loan Administration Department): Telephone: Telex: Fax: Contact Person (Credit Administration Department): Telephone: Telex: Fax: Account for payments: Note: This Transfer Certificate alone may not be sufficient to transfer a proportionate share of the Transferor's interest in the security constituted by the Finance Documents in the Transferor's or Transferee's jurisdiction. It is the responsibility of each Lender to ascertain whether any other documents are required for this purpose. SCHEDULE 7 DESIGNATION NOTICE To: HSH Nordbank AG Gerhart-Hauptmann-Platz 50 D-20095 Hamburg Germany [o] Dear Sirs Loan Agreement dated 31 March 2006 made between (inter alia) (i) ourselves as Borrower, (ii) the Lenders, (iii) yourselves as Agent and Security Trustee and (iv) yourselves and The Governor and Company of the Bank of Scotland as swap banks in respect of term loan and short-term credit facilities of up to US$518,750,000 in aggregate (the "Loan Agreement") We refer to: 1 the Loan Agreement; 2 the Master Agreement dated [o] made between ourselves and [o]; and 3 a Confirmation delivered pursuant to the said Master Agreement dated [o] and addressed by [o] to us. In accordance with the terms of the Loan Agreement, we hereby give you notice of the said Confirmation and hereby confirm that the Transaction evidenced by it will be designated as a "Designated Transaction" for the purposes of the Loan Agreement and the Finance Documents. Yours faithfully, _______________________________ for and on behalf of DRYSHIPS INC. SCHEDULE 8 FORM OF COMPLIANCE CERTIFICATE To: HSH Nordbank AG Gerhart-Hauptmann-Platz 50 D-20095 Hamburg Germany [o]200[o] Dear Sirs, We refer to a loan agreement dated 31 March 2006 (the "Loan Agreement") made between (amongst others) yourselves and ourselves in relation to term loan and short-term credit facilities of up to $518,750,000 in aggregate. Words and expressions defined in the Loan Agreement shall have the same meaning when used in this compliance certificate. We enclose with this certificate a copy of the [audited]/[unaudited] consolidated accounts for the Group for the [Financial Year] [3-month period] ended [o]. The accounts (i) have been prepared in accordance with all applicable laws and GAAP all consistently applied, (ii) give a true and fair view of the state of affairs of the Group at the date of the accounts and of its profit for the period to which the accounts relate and (iii) fully disclose or provide for all significant liabilities of the Group. We also enclose copies of the valuations of all the Fleet Vessels which were used in calculating the Market Value Adjusted Total Assets of the Group as at [o]. The Borrower represents that no Event of Default or Potential Event of Default has occurred as at the date of this certificate [except for the following matter or event [set out all material details of matter or event]]. In addition as of [o], the Borrower confirms compliance with the financial covenants set out in Clause 12.4 of the Loan Agreement for the 6 months ending as of the date to which the enclosed accounts are prepared. We now certify that, as at [o]: (a) the Market Adjusted Equity Ratio is [o]:[o]; (b) the Interest Coverage Ratio of the Group is [o]:[o]; (c) the Market Value Adjusted Net Worth of the Group is $[o]; and (d) the aggregate freely available and unencumbered bank or cash balances of the Group are $[o] in aggregate of which $[o] in aggregate is standing to the credit of the Earnings Accounts and the Wealth Account. This certificate shall be governed by, and construed in accordance with, English law. ___________________________ [o] Chief Financial Officer of Dryships Inc. SCHEDULE 9 MANDATORY COST FORMULA 1 The Mandatory Cost is an addition to the interest rate to compensate Lenders for the cost of compliance with (a) the requirements of the Financial Services Authority (or any other authority which replaces all or any of its functions) or (b) the requirements of the European Central Bank. 2 On the first day of each Interest Period (or as soon as possible thereafter) the Agent shall calculate, as a percentage rate, a rate (the "Additional Cost Rate") for each Lender, in accordance with the paragraphs set out below, The Mandatory Cost will be calculated by the Agent as a weighted average of the Lenders' Additional Cost Rates (weighted in proportion to the percentage participation of each Lender in the Loan) and will be expressed as a percentage rate per annum. 3 The Additional Cost Rate for any Lender lending from a lending office in a Participating Member State will be the percentage notified by that Lender to the Agent. This percentage will be certified by that Lender in its notice to the Agent to be its reasonable determination of the cost (expressed as a percentage of that Lender's participation in the Loan) of complying with the minimum reserve requirements of the European Central Bank in respect of loans made from that lending office. 4 The Additional Cost Rate for any Lender lending from a lending office in the United Kingdom will be calculated by the Agent as follows: Ex 0.01 ------- percent per annum 300 Where: E is designed to compensate Lenders for amounts payable under the Fees Rules and is calculated by the Agent as being the average of the most recent rates of charge supplied by the Lenders to the Agent pursuant to paragraph 6 below and expressed in pounds per (pound)1,000,000. 5 For the purposes of this Schedule: (a) "Special Deposits" has the meaning given to it from time to time under or pursuant to the Bank of England Act 1998 or (as may be appropriate) by the Bank of England; (b) "Fees Rules" means the rules on periodic fees contained in the FSA Supervision Manual or such other law or regulation as may be in force from time to time in respect of the payment of fees for the acceptance of deposits; (c) "Fee Tariffs" means the fee tariffs specified in the Fees Rules under the activity group A.1 Deposit acceptors (ignoring any minimum fee or zero rated fee required pursuant to the Fees Rules but taking into account any applicable discount rate); (d) "Participating Member State" means any member state of the European Union that adopts or has adopted the euro as its lawful currency in accordance with legislation of the European Union relating to European Monetary Union; and (e) "Tariff Base" has the meaning given to it in, and will be calculated in accordance with, the Fees Rules. 6 If requested by the Agent, each Lender lending from a lending office in the United Kingdom shall, as soon as practicable after publication by the Financial Services Authority, supply to the Agent, the rate of charge payable by that Lender to the Financial Services Authority pursuant to the Fees Rules in respect of the relevant financial year of the Financial Services Authority (calculated for this purpose by that Lender as being the average of the Fee Tariffs applicable to that Lender for that financial year) and expressed in pounds per (pound) 1,000,000 of the Tariff Base of that Lender. 7 Each Lender shall supply any information required by the Agent for the purpose of calculating its Additional Cost Rate. In particular, but without limitation, each Lender shall supply the following information in writing on or prior to the date on which it becomes a Lender: (a) the jurisdiction of its lending office; and (b) any other information that the Agent may reasonably require for such purpose. Each Lender shall promptly notify the Agent in writing of any change to the information provided by it pursuant to this paragraph. 8 The rates of charge of each Lender lending from a lending office in the United Kingdom for the purpose of calculating shall be determined by the Agent based upon the information supplied to it pursuant to paragraph 6 above and on the assumption that, unless a Lender notifies the Agent to the contrary, each Lender's obligations in relation to cash ratio deposits and Special Deposits are the same as those of a typical bank from its jurisdiction of incorporation with a lending office in the same jurisdiction as its lending office. 9 The Agent shall have no liability to any person if such determination results in an Additional Cost Rate which over or under compensates any Lender and shall be entitled to assume that the information provided by any Lender pursuant to paragraphs 3, 6 and 7 above is true and correct in all respects. 10 The Agent shall distribute the additional amounts received as a result of the Mandatory Cost to the Lenders on the basis of the Additional Cost Rate for each Lender based on the information provided by each Lender pursuant to paragraphs 3, 6 and 7 above. 11 Any determination by the Agent pursuant to this Schedule in relation to a formula, the Mandatory Cost, an Additional Cost Rate or any amount payable to a Lender shall, in the absence of manifest error, be conclusive and binding on all parties. The Agent may from time to time, after consultation with the Borrower and the Lenders, determine and notify to all parties any amendments which are required to be made to this Schedule in order to comply with any change in law, regulation or any requirements from time to time imposed by the Financial Services Authority or the European Central Bank (or, in any case, any other authority which replaces all or any of its functions) and any such determination shall, in the absence of manifest error, be conclusive and binding on all parties. EXECUTION PAGES BORROWER SIGNED by EUGENIA PAPAPONTIROO ) /s/ EUGENIA PAPAPONTIROO for and on behalf of ) DRYSHIPS INC. ) LENDERS SIGNED by GEORGE PALEOURASSAS ) /s/ GEORGE PALEOURASSAS for and on behalf of ) HSH NORDBANK AG ) SIGNED by GEORGE PALEOURASSAS ) /s/ GEORGE PALEOURASSAS for and on behalf of ) THE GOVERNOR AND COMPANY OF ) THE BANK OF SCOTLAND ) SIGNED by GEORGE PALEOURASSAS ) /s/ GEORGE PALEOURASSAS for and on behalf of ) ALLIANCE & LEICESTER ) COMMERCIAL FINANCE PLC ) SIGNED by GEORGE PALEOURASSAS ) /s/ GEORGE PALEOURASSAS for and on behalf of ) BAYERISCHE HYPO-UND ) VEREINSBANK AG ) SIGNED by GEORGE PALEOURASSAS ) /s/ GEORGE PALEOURASSAS for and on behalf of ) COMMERZBANK ) AKTIENGESELLSCHAFT ) SIGNED by GEORGE PALEOURASSAS ) /s/ GEORGE PALEOURASSAS for and on behalf of ) NAXTEXIS BANQUES POPULAIRES ) SIGNED by GEORGE PALEOURASSAS ) /s/ GEORGE PALEOURASSAS for and on behalf of ) SUMITOMO MITSUI BANKING ) CORPORATION ) AGENT SIGNED by GEORGE PALEOURASSAS ) /s/ GEORGE PALEOURASSAS for and on behalf of ) HSH NORDBANK AG ) SECURITY TRUSTEE SIGNED by GEORGE PALEOURASSAS ) /s/ GEORGE PALEOURASSAS for and on behalf of ) HSH NORDBANK AG ) LEAD ARRANGER/LEAD BOOKRUNNER SIGNED by GEORGE PALEOURASSAS ) /s/ GEORGE PALEOURASSAS for and on behalf of ) HSH NORDBANK AG ) JOINT BOOKRUNNNER SIGNED by GEORGE PALEOURASSAS ) /s/ GEORGE PALEOURASSAS for and on behalf of ) THE GOVERNOR AND COMPANY ) OF THE BANK OF SCOTLAND ) JOINT UNDERWRITERS SIGNED by GEORGE PALEOURASSAS ) /s/ GEORGE PALEOURASSAS for and on behalf of ) HSH NORDBANK AG ) SIGNED by GEORGE PALEOURASSAS ) /s/ GEORGE PALEOURASSAS for and on behalf of ) THE GOVERNOR AND COMPANY OF ) THE BANK OF SCOTLAND ) SWAP BANKS SIGNED by GEORGE PALEOURASSAS ) /s/ GEORGE PALEOURASSAS for and on behalf of ) HSH NORDBANK AG ) SIGNED by GEORGE PALEOURASSAS ) /s/ GEORGE PALEOURASSAS for and on behalf of ) HBOS TREASURY SERVICES PLC ) SIGNED by GEORGE PALEOURASSAS ) /s/ GEORGE PALEOURASSAS for and on behalf of ) COMMERZBANK ) AKTIENGESELLSCHAFT ) Witness to all the ) above signatures ) Name: ERICA LACOMBE Address: WATSON, FARLEY & WILLIAMS 2, DEFTERAS MERARCHIAS PIRAEUS 185 36 - GREECE EX-4.5 3 d662886_ex4-5.txt EXHIBIT 4.5 Exhibit 4.5 Date 31 March 2006 DRYSHIPS INC. as Borrower - and - THE BANKS AND FINANCIAL INSTITUTIONS listed in Part A of Schedule 1 as Lenders - and - HSH NORDBANK AG as Agent and as Security Trustee - and - HSH NORDBANK AG as Lead Arranger and Lead Bookrunner - and - THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND as Joint Bookrunner - and - THE BANKS AND FINANCIAL INSTITUTIONS listed in Part B of Schedule 1 as Swap Banks -------------------------- LOAN AGREEMENT -------------------------- relating to a term loan and short-term credit facilities of up to US$110,000,000 in aggregate to refinance certain existing indebtedness, to provide working capital and to finance part of the purchase price of certain additional vessels WATSON FARLEY & WILLIAMS Piraeus INDEX Clause Page 1 INTERPRETATION 2 2 FACILITY 25 3 POSITION OF THE LENDERS, THE SWAP BANKS AND THE MAJORITY LENDERS 25 4 DRAWDOWN 26 5 INTEREST 28 6 INTEREST PERIODS 30 7 DEFAULT INTEREST 31 8 REPAYMENT AND PREPAYMENT 32 9 CONDITIONS PRECEDENT 35 10 REPRESENTATIONS AND WARRANTIES 36 11 GENERAL UNDERTAKINGS 38 12 CORPORATE UNDERTAKINGS 42 13 INSURANCE 44 14 SHIP COVENANTS 50 15 SECURITY COVER 55 16 PAYMENTS AND CALCULATIONS 56 17 APPLICATION OF RECEIPTS 58 18 APPLICATION OF EARNINGS 59 19 EVENTS OF DEFAULT 61 20 FEES AND EXPENSES 65 21 INDEMNITIES 67 22 NO SET-OFF OR TAX DEDUCTION 69 23 ILLEGALITY, ETC 70 24 INCREASED COSTS 70 25 SET-OFF 72 26 TRANSFERS AND CHANGES IN LENDING OFFICES 72 27 VARIATIONS AND WAIVERS 75 28 NOTICES 76 29 SUPPLEMENTAL 78 30 LAW AND JURISDICTION 79 SCHEDULE 1 PART A 80 LENDERS AND COMMITMENTS 80 PART B 80 SWAP BANKS 80 SCHEDULE 2 DETAILS OF SHIPS AND OWNERS 81 PART A DETAILS OF EXISTING SHIPS AND OWNERS 81 SCHEDULE 3 DRAWDOWN NOTICE 81 SCHEDULE 4 REPAYMENT OF TERM LOAN 90 SCHEDULE 5 CONDITION PRECEDENT DOCUMENTS 91 SCHEDULE 6 TRANSFER CERTIFICATE 97 SCHEDULE 7 DESIGNATION NOTICE 101 SCHEDULE 8 FORM OF COMPLIANCE CERTIFICATE 102 SCHEDULE 9 MANDATORY COST FORMULA 103 EXECUTION PAGES 105 THIS LOAN AGREEMENT is made on 31 March 2006 BETWEEN: (1) DRYSHIPS INC. a corporation incorporated in the Marshall Islands whose registered office is at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, The Marshall Islands MH 96960 as Borrower; (2) THE BANKS AND FINANCIAL INSTITUTIONS listed in Part A of Schedule I, as Lenders; (3) HSH NORDBANK AG acting through its office at Gerhart-Hauptmann-Platt 50, D-20095, Hamburg, Germany, as Agent; (4) HSH NORDBANK AG acting through its office at Gerhart-Hauptmann-Platz 50, D-20095, Hamburg, Germany, as Security Trustee; (5) HSH NORDBANK AG acting through its office at Gerhart-Hauptmann-Platt 50, D-20092, Germany, as Lead Arranger and as Lead Bookrunner; (6) THE GOVERNOR AND COMPANY OF THE BANK OF SCOTLAND acting through its office at New Uberior House, 11 Earl Grey Street, Edinburgh, EH3 9BN, Scotland, as Joint Bookrunner; and (7) THE BANKS AND FINANCIAL INSTITUTIONS listed in Part B of Schedule I, as Swap Banks. WHEREAS (A) The Lenders have agreed to make available to the Borrower term loan and short-term credit facilities of up to US$110,000,000 in aggregate as follows: (i) as to an amount of up to the lesser of (a) US$97,500,000 and (b) 13 percent of the aggregate Market Values of the Existing Ships and the Identified Ship to refinance certain existing indebtedness secured on the Existing Ships, to finance part of the purchase price of the Identified Ship and to provide the Borrower with working capital for its general corporate purposes; and (ii) as to an amount of up to the lesser of (a) US$12,500,000 and (b) 12 percent of the aggregate Market Values of the Additional Ships to finance part of the purchase price of the Additional Ships. (B) The Swap Banks have agreed to enter into interest rate swap transactions with the Borrower from time to time to hedge the Borrower's exposure under this Agreement to interest rate fluctuations. (C) The Lenders and the Swap Banks have agreed to share pari passu in the security to be granted to the Security Trustee pursuant to this Agreement. (D) Certain banks and financial institutions (including the Lenders) (who are hereinafter defined as the "Senior Lenders") have entered into a loan agreement with the Borrower having the same date as this Agreement whereby they have agreed to make available term loan and short-term credit facilities of up to US$518,750,000 in aggregate as follows: (i) as to an amount of up to the lesser of (a) US$460,000,000 and (b) 63 percent of the aggregate Market Values of the Existing Ships and the Identified Ship to refinance certain existing indebtedness secured on the Existing Ships, to finance part of the purchase price of the Identified Ship and to provide the Borrower with working capital for its general corporate purposes; and (ii) as to an amount of up to the lesser of (a) US$58,750,000 and (b) 63 percent of the aggregate Market Values of the Additional Ships to finance part of the purchase price of the Additional Ships. (E) The Senior Lenders and the Lenders have agreed that the Lenders will share in the security to be granted to the Security Trustee pursuant to the Senior Loan Agreement (as hereinafter defined) and this Agreement on a subordinated basis. IT IS AGREED as follows: 1 INTERPRETATION 1.2 Definitions. Subject to Clause 1.5; in this Agreement: "Additional Advance" means each Advance which is to be used in financing on delivery part of the purchase price of an Additional Ship and which is to be made available in accordance with and pursuant to Clauses 2.3 and 4.2(f); "Additional Ship" means any ship which is, or is to be, purchased by an Additional Ship Owner, each of which (unless all of the Lenders acting in their absolute discretion agree otherwise) must satisfy all the Additional Ship Requirements; "Additional Ship Requirements" means, in relation to any ship which is, or is to be, purchased by an Additional Ship Owner, a ship which satisfies the following requirements: (a) it has been approved by all of the Lenders acting in their absolute discretion; (b) it is a Capesize, Panamax or Handymax bulk carrier; (c) it is built in or after 1993; (d) following its purchase by the relevant Additional Ship Owner, the average age of the Additional Ships at that time subject to a Mortgage shall not exceed 10 years; (e) it maintains the highest class with a classification society which is acceptable to all of the Lenders free of any overdue recommendations and conditions; (f) it is to be registered on an Approved Flag; (g) at least 25 percent of the purchase price of the Additional Ship shall be contributed by the Additional Ship Owner either (i) by way of a shareholder's loan which is advanced to the Borrower and on-lent to the Additional Ship Owner or (ii) through the proceeds of a secondary offering of the share capital of the Borrower which are then advanced (either wholly or partially (as the case may be)) to the Additional Ship Owner; "Additional Ship Earnings Account Pledge" means, in relation to each Earnings Account of an Additional Ship, a pledge agreement creating security in favour of the Creditor Parties in respect of that Earnings Account in such form as the Lenders may approve or require and, in the plural means all of them; "Additional Ship MOA" means, in relation to an Additional Ship, a memorandum of agreement or a shipbuilding contract to be made between the Additional Ship Seller of that Additional Ship and the Additional Ship Owner which is the buyer thereof on terms and conditions acceptable to the Lenders (such approval not to be unreasonably withheld if the Additional Ship satisfies all the Additional Ship Requirements) and, in the plural, means all of them; "Additional Ship Seller" means, in relation to an Additional Ship, the seller of such Additional Ship and, in the plural, means all of them; "Additional Ship Owner" means a company which is a direct or indirect wholly-owned subsidiary of the Borrower incorporated in a jurisdiction acceptable to the Lenders (in their absolute discretion) which shall be the owner of an Additional Ship and, in the plural, means all of them; "Adjusted Equity" means, as of any Compliance Date, the value of the stockholders' equity of the Group determined on a consolidated basis in accordance with GAAP and as shown in the consolidated balance sheets for the Group in the Applicable Accounts, adjusted by adding or subtracting (depending on whether the same is positive or negative) any difference between: (a) the value of Total Assets determined on a consolidated basis in accordance with GAAP and as shown in such consolidated balance sheets; and (b) the Market Value Adjusted Total Assets; "Advance" means the principal amount of each borrowing by the Borrower under this Agreement; "Affected Lender" has the meaning given in Clause 5.6; "Agency and Trust Deed" means the agency and trust deed executed or to be executed between the Borrower, the Lenders, the Senior Swap Banks, the Swap Banks, the Agent, BOS and the Security Trustee in such form as the Lenders may approve or require; "Agent" means HSH Nordbank AG and any of its successors including, without limitation, any successor appointed under clause 5 of the Agency and Trust Deed; "Applicable Accounts" means, in relation to a Compliance Date or an accounting period, the consolidated balance sheets and related consolidated statements of stockholders' equity, income and cash flows of the Group set out in the annual financial statements or interim financial statements of the Group prepared as of the Compliance Date or, as the case may be, the last day of the accounting period in question (and which the Borrower is obliged to deliver to the Agent pursuant to Clause 11.6); "Approved Broker" means each of Braemar Seascape Shipbrokers Ltd., H. Clarkson & Company Limited, Barry Rogliano Salles S.A., R.S. Platou Shipbrokers A.S., P.F. Bassoe AS, Arrow Sale & Purchase (UK) Ltd., Simpson Spence & Young, Feamley AS and Maersk Shipbrokers; "Approved Flag" means the Maltese flag, the Cyprus flag, the Bahamas flag, the Panamanian flag, the Liberian flag, the Marshall Islands flag or such other flag as the Agent may, acting upon the instructions of all the Lenders, approve as the flag on which an Additional Ship shall be registered; "Approved Flag State" means Malta, Cyprus, Bahamas, Panama, Liberia, the Marshall Islands or any other country in which the Agent may, acting upon the instructions of all the Lenders, approve that an Additional Ship be registered; "Approved Manager" means, in relation to: (a) each Ship (other than the Identified Ship during the Hille Oldendorff Charter Period), Cardiff Marine Inc., a corporation incorporated in the Republic of Liberia and maintaining a ship management office at Omega Building, 80 Kifissias Avenue, Maroussi, 151 25, Greece; (b) the Identified Ship at all times during the Hille Oldendorff Charter Period, Egon Oldendorff, a company incorporated in Germany and maintaining a ship management office at Funfhausen 1, 23 552 Lubeck, Germany; and (c) or any other company which the Agent may, with the authorisation of the Majority Lenders, approve from time to time as the technical and/or commercial agent of a Ship; "Availability Period" means the period commencing on the date of this Agreement and ending on: (a) in the case of: (i) the Refinancing Advance, 5 April 2006; (ii) the Identified Ship Advance, 15 April 2006; (iii) an Additional Advance (subject to Clause 4.8), the date falling 364 days after the date of this Agreement (or, in respect of any of the Advances referred to in this paragraph (a) such later date as the Agent may, with the authorisation of all the Lenders, agree with the Borrower); or (b) if earlier, the date on which the Total Commitments are fully borrowed, cancelled or terminated; "Balloon Instalment" means, in relation to: (a) the Term Loan (subject to the proviso to Clause 8.1(a)(i)), an amount of $17,226,457.40; and (b) an Additional Advance, the balloon instalment in respect of that Advance as specified in the repayment schedule for that Advance referred to in Clause 8.1(a)(ii) and calculated in accordance with Clause 8.1(b); "Bank Guarantee" means the guarantee of the obligations of the Borrower under the Master Agreement to be entered into between the Borrower and HBOSTS, executed or to be executed by BOS in favour of HBOSTS; "Bookrunner" means each of the Lead Bookrunner and the Joint Bookrunner and, in the plural, means both of them; "Borrower" means Dryships Inc., a corporation incorporated in the Marshall Islands and having its registered office at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, The Marshall Islands MH 96960; "Borrower's Accounts Pledge" means a pledge agreement creating security in favour of the Creditor Parties in respect of the Debt Service Reserve Account and the Retention Account in such form as the Lenders may approve or require; "BOS" means the Governor and Company of the Bank of Scotland, acting through its office at New Uberior House, 11 Earl Grey Street, Edinburgh EH3 9BN, Scotland; "Business Day" means a day on which banks are open in London, Edinburgh, Athens and Hamburg and, in respect of a day on which a payment is required to be made under a Finance Document, also in New York City; "Charterparty Assignment" means, in relation to each Ship, an assignment of the rights of the Owner of that Ship under any time charterparty or contract of affreightment in respect of such Ship of at least 11 consecutive months in duration or under any bareboat charter and any guarantee of such charter or other contract of employment in respect of such Ship executed or to be executed by the relevant Owner in favour of the Security Trustee, in each case, in such form as the Lenders may approve or require and, in the plural, means all of them; "Commitment" means, in relation to a Lender, the aggregate of the Term Loan Commitment and the Credit Facility Commitment of that Lender; "Compliance Date" means 30 June and 31 December in each calendar year (or such other dates as of which the Borrower prepares the consolidated financial statements which it is required to deliver pursuant to Clause 11.6); "Confirmation" and "Early Termination Date", in relation to any continuing Designated Transaction, have the meanings given in each Master Agreement; "Contractual Currency" has the meaning given in Clause 21.5; "Contribution" means, in relation to a Lender, the part of the Loan which is owing to that Lender; "Counter Indemnity" means the counter indemnity executed or to be executed by the Borrower in favour of BOS, indemnifying BOS in respect of any amounts it may be obliged to pay under the Bank Guarantee; "Credit Facility" means an amount of up to $12,500,000 (representing the maximum aggregate principal amount of the Additional Advances) or the aggregate principal amount of the Additional Advances for the time being outstanding under this Agreement; "Credit Facility Commitment" means, in relation to a Lender, the amount set opposite its name in the fourth column of Schedule 1, Part A or, as the case may require, the amount specified in the relevant Transfer Certificate, as that amount may be reduced, cancelled or terminated in accordance with this Agreement (and "Total Credit Facility Commitments" means the aggregate of the Credit Facility Commitments of all the Lenders); "Creditor Party" means the Agent, the Security Trustee, each Swap Bank or any Lender, whether as at the date of this Agreement or at any later time; "Debt Service Reserve Account" means an account in the name of the Borrower with the Agent in Hamburg designated "Dryships Inc. - Debt Service Reserve Account" or any other account (with that or another office of the Agent) which is designated by the Agent as the Debt Service Reserve Account for the purposes of this Agreement; "Deed of Covenant" means: (a) in relation to each Existing Ship and the Identified Ship, a deed of covenant collateral to the Mortgage on that Ship; and (b) in relation to each Additional Ship, if a deed of covenant is appropriate given the Mortgage on that Additional Ship, a deed of covenant collateral to the Mortgage on that Additional Ship, each in such form as the Lenders may approve or require and, in the plural means all of them; "Designated Transaction" means a Transaction which fulfils the following requirements: (a) it is entered into by the Borrower pursuant to a Master Agreement with a Swap Bank which, at the time the Transaction is entered into, is also a Lender; (b) its purpose is the hedging of the Borrower's exposure under this Agreement to fluctuations in LIBOR arising from the funding of the Loan (or any part thereof) for a period expiring no later than the final Repayment Date; and (c) it is designated by the Borrower, by delivery by the Borrower to the Agent of a notice of designation in the form set out in Schedule 7, as a Designated Transaction for the purposes of the Finance Documents; "Dollars" and "$" means the lawful currency for the time being of the United States of America; "Drawdown Date" means, in relation to an Advance, the date requested by the Borrower for the Advance to be made, or (as the context requires) the date on which the Advance is actually made; "Drawdown Notice" means a notice in the form set out in Schedule 3 (or in any other form which the Agent approves or reasonably requires); "Earnings" means, in relations to each Ship, all moneys whatsoever which are now, or later become, payable (actually or contingently) to the Owner thereof or the Security Trustee and which arise out of the use or operation of that Ship, including (but not limited to): (a) all freight, hire and passage moneys, compensation payable to the relevant Owner or the Security Trustee in the event of requisition of that Ship for hire, remuneration for salvage and towage services, demurrage and detention moneys and damages for breach (or payments for variation or termination) of any charterparty or other contract for the employment of the Ship; (b) all moneys which are at any time payable under Insurances in respect of loss of earnings; and (c) if and whenever the Ship is employed on terms whereby any moneys falling within paragraphs (a) or (b) above are pooled or shared with any other person, that proportion of the net receipts of the relevant pooling or sharing arrangement which is attributable to the Ship; "Earnings Account" means, in relation to each Ship, an account in the name of the Owner of that Ship, with the Agent in Hamburg designated "[name of Ship] - Earnings Account", or any other account (with that or another office of the Agent) which is designated by the Agent as the Earnings Account for that Ship for the purposes of this Agreement and, in the plural means all of them; "EBITDA" means, for any accounting period, the consolidated net income of the Group for that accounting period: (a) plus, to the extent deducted in computing consolidated net income of the Group for that accounting period, the sum, without duplication, of: (i) all federal, state, local and foreign taxes and tax distributions; (ii) Net Interest Expenses; and (iii) depreciation, depletion, amortisation of intangibles and other non-cash charges or non-cash losses (including non-cash transaction expenses and the amortisation of debt discounts) and any extraordinary losses not incurred in the ordinary course of business; (b) minus, to the extent added in computing consolidated net income of the Group for that accounting period, any non-cash income or non-cash gains and any extraordinary gains not incurred in the ordinary course of business; all determined on a consolidated basis in accordance with GAAP and as shown in the consolidated statements of income for the Group in the Applicable Accounts; "Environmental Claim" means: (a) any claim by any governmental, judicial or regulatory authority which arises out of an Environmental Incident or an alleged Environmental Incident or which relates to any Environmental Law; or (b) any claim by any other person which relates to an Environmental Incident or to an alleged Environmental Incident, and "claim" means a claim for damages, compensation, fines, penalties or any other payment of any kind whether or not similar to the foregoing; an order or direction to take, or not to take, certain action or to desist from or suspend certain action; and any form of enforcement or regulatory action, including the arrest or attachment of any asset; "Environmental Incident" means, in relation to each Ship: (a) any release of Environmentally Sensitive Material from that Ship; or (b) any incident in which Environmentally Sensitive Material is released from a vessel other than the Ship and which involves a collision between the Ship and such other vessel or some other incident of navigation or operation, in either case, in connection with which the Ship is actually or potentially liable to be arrested, attached, detained or injuncted and/or the Ship or the Owner thereof and/or any operator or manager is at fault or allegedly at fault or otherwise liable to any legal or administrative action; or (c) any other incident in which Environmentally Sensitive Material is released otherwise than from the Ship and in connection with which the Ship is actually or potentially liable to be arrested and/or where the Owner thereof and/or any operator or manager of the Ship is at fault or allegedly at fault or otherwise liable to any legal or administrative action; "Environmental Law" means any law relating to pollution or protection of the environment, to the carriage of Environmentally Sensitive Material or to actual or threatened releases of Environmentally Sensitive Material; "Environmentally Sensitive Material" means oil, oil products and any other substance (including any chemical, gas or other hazardous or noxious substance) which is (or is capable of being or becoming) polluting, toxic or hazardous; "Event of Default" means any of the events or circumstances described in Clause 19.1; "Existing Indebtedness" means, at any relevant time, the aggregate Financial Indebtedness of the Borrower or its wholly-owned subsidiaries under the Existing Loan Agreements; "Existing Loan Agreements" means, together: (a) the loan agreement dated 6 December 2004 made between (i) Annapolis Shipping Company Limited and certain other companies (each of which is an indirect wholly-owned subsidiary of the Borrower) as joint and several borrowers, (ii) the banks and financial institutions referred to therein as lenders and (iii) Commerzbank AG as agent and security trustee in respect of a loan facility of (originally) $185,000,000 (of which an amount of $136,667,000 is outstanding by way of principal on the date of this Agreement); (b) the loan agreement dated 18 March 2005 made between (i) the Borrower, (ii) the banks and financial institutions referred to therein as lenders and (iii) Commerzbank AG as agent and security trustee in respect of a loan facility of (originally) $200,000,000 (of which an amount of $163,378,000 is outstanding by way of principal on the date of this Agreement); (c) the loan agreement dated 15 March 2005 made between (i) the indirect wholly-owned subsidiaries of the Borrower, Arleta Shipping Company Limited, Malvina Shipping Company Limited and Thelma Shipping Company Limited, as joint and several borrowers and (ii) Norddeutsche Landesbank Girozentrale as lender in respect of a loan facility of (originally) $120,645,000 (of which an amount of $108,662,000 is outstanding by way of principal on the date of this Agreement); (d) the loan agreement dated 23 March 2005 made between (i) the indirect wholly-owned subsidiary of the Borrower, Selma Shipping Company Limited, as borrower and (ii) The Royal Bank of Scotland plc as lender in respect of a loan facility of (originally) $92,940,000 (of which an amount of $72,778,000 is outstanding by way of principal on the date of this Agreement); and (e) the loan agreement dated 29 March 2005 made between (i) the indirect wholly-subsidiary of the Borrower, Iguana Shipping Company Limited, as borrower and (ii) Deutsche Schiffsbank Aktiengesellschaft as lender in respect of a loan facility of (originally) $19,000,000 (of which an amount of $14,000,000 is outstanding by way or principal on the date of this Agreement), and, in the singular, means any of them; "Existing Ships" means, together, the Ships referred to in Schedule 2, Part A and, in the singular means any of them and when referred to by name means that Ship; "Existing Ships Earnings Accounts Pledge" means a pledge agreement creating security in favour of the Creditor Parties in respect of the Earnings Accounts of all the Existing Ships in such form as the Lenders may approve or require; "Final Maturity Date" means 31 May 2016; "Finance Documents" means: (a) this Agreement; (b) the Master Agreements; (c) the Agency and Trust Deed; (d) the Guarantees; (e) the Wealth Guarantee; (f) the Master Agreement Assignments; (g) the Mortgages; (h) the General Assignments; (i) the Deeds of Covenant; (j) the Borrower's Accounts Pledge; (k) the Existing Ships Earnings Accounts Pledge; (l) the Identified Ship Earnings Account Pledge; (m) the Additional Ship Earnings Account Pledges; (n) the Wealth Account Pledge; (o) any Charterparty Assignment; (p) the Hille Oldendorff Tripartite Agreement; (q) the Management Agreement Assignments; (r) the Manager's Undertakings; (s) the Counter Indemnity; and (t) any other document (whether creating a Security Interest or not) which is executed at any time by the Borrower, any Owner or any other person as security for, or to establish any form of subordination or priorities arrangement in relation to, any amount payable to the Lenders and/or the Swap Banks under this Agreement or any of the documents referred to in this definition; "Financial Indebtedness" means, in relation to a person (the "debtor"), a liability of the debtor: (a) for principal, interest or any other sum payable in respect of any moneys borrowed or raised by the debtor; (b) under any loan stock, bond, note or other security issued by the debtor; (c) under any acceptance credit, guarantee or letter of credit facility made available to the debtor; (d) under a financial lease, a deferred purchase consideration arrangement or any other agreement having the commercial effect of a borrowing or raising of money by the debtor; (e) under any interest or currency swap or any other kind of derivative transaction entered into by the debtor or, if the agreement under which any such transaction is entered into requires netting of mutual liabilities, the liability of the debtor for the net amount; or (f) under a guarantee, indemnity or similar obligation entered into by the debtor in respect of a liability of another person which would fall within (a) to (e) if the references to the debtor referred to the other person; "Financial Year" means in relation to the Group, each period of I year commencing on 1 January in respect of which its consolidated accounts are or ought to be prepared; "Fleet Vessels" means together all of the vessels (including, but not limited to, the Ships) from time to time owned by members of the Group; "GAAP" means generally accepted accounting principles as from time to time in effect in the United States of America; "General Assignment" means, in relation to each Ship, a general assignment of the Earnings, the Insurances and any Requisition Compensation of that Ship in such form as the Lenders may approve or require and, in plural means all of them; "Goodwill" means Goodwill Shipping Company Limited, a company incorporated in Malta having its registered office at 512 Merchants Street, Valletta, Malta; "Group" means the Borrower and its subsidiaries (whether direct or indirect and including, but not limited to, the Owners) from time to time during the Security Period and "member of the Group" shall be construed accordingly; "Guarantee" means a guarantee of the Borrower's obligations under (inter alia) this Agreement, the Master Agreements and the Senior Loan Agreement executed or to be executed by each Owner in favour of the Security Trustee in such form as the Lenders shall approve or require and, in the plural, means all of them; "HBOSTS" means HBOS Treasury Services plc of 33 Old Broad Street, London EC2N 1HZ, England and includes its successors in title, assignees and transferees; "Hedge Strategy Letter" means a letter issued or to be issued by no later than 30 April 2006 by the Borrower to the Agent setting out a strategy for hedging the Borrower's exposure under this Agreement to fluctuations of LIBOR arising from the funding at least 60 percent of the Loan for a consecutive period of at least 5 years during the Security Period; "Hille Oldendorff Charterparty" means a bareboat charterparty dated 29 August 2005 in respect of "HILLE OLDENDORFF" made between Goodwill as original owner and Oldendorff Carriers GmbH & Co. KG ("Oldendorff") as original charterer (as the same has been novated to the Hille Oldendorff Charterer by an addendum no. 1 thereto dated 6 October 2005 and as the same shall be novated to Seaventure by an addendum no. 2 thereto to be made between Goodwill, Seaventure, the Hille Oldendorff Charterer and the Hille Oldendorff Charter Guarantor); "Hille Oldendorff Charterer" means Catania Shipping Inc., a Liberian corporation whose registered office is at 80 Broad Street, Monrovia, Liberia; "Hille Oldendorff Charter Guarantee" means the guarantee by the Hille OIdendorff Charter Guarantor of the obligations of the Hille Oldendorff Charterer under the Hille Oldendorff Charterparty as evidenced in Addendum No. 1 thereto dated 6 October 2005; "Hille Oldendorff Charter Guarantor" means Oldendorff Carriers GmbH & Co. KG, a German company acting through its office at Willy-Brandt-Allee 6, 23554 Lubeck, Germany; "Hille Oldendorff Charter Period" means the period commencing on the date of delivery of "HILLE OLDENDORFF" under the Hille OIdendorff Charterparty and ending on the date on which the Hille Oldendorff Charterparty expires by effluxion of time or (if earlier) on the date on which the Hille Oldendorff Charterparty is otherwise terminated or frustrated or "HILLE OLDENDORFF" is withdrawn from hire under the Hille Oldendorff Charterparty; "Hille Oldendorff MOA" means, a memorandum of agreement in respect of "HILLE OLDENDORFF" dated 24 March 2006 made between Goodwill as seller and Seaventure as buyer; "Hille Oldendorff Seller's Credit Agreement" means an agreement made or to be made between Seaventure and Goodwill whereby Goodwill shall agree to defer the payment of $3,250,000 of the purchase price payable by Seaventure pursuant to the Hille Oldendorff MOA with such deferred amount being payable, subject to Clause 11.22, in one amount no earlier than 9 months after the Drawdown Date in respect of the Identified Ship Advance and no later than 12 months after the Drawdown Date in respect of the Identified Ship Advance, such agreement to be in a form acceptable to the Majority Lenders; "Hille Oldendorff Tripartite Agreement" means, in relation to "HILLE OLDENDORFF", an agreement made between the Hille Oldendorff Charterer, Seaventure and the Security Trustee in such form as the Lenders may approve or require; "IACS" means the International Association of Classification Societies; "Identified Ship" means "HILLE OLDENDORFF" being the Ship referred to in Schedule 2, Part B and when referred to by name means that Ship; "Identified Ship Advance" means an amount of up to the lesser of (a) $4,809,000 and (b) 13.5 percent of the Market Value of the Identified Ship (determined in accordance with the valuation referred to in paragraph 10 of Schedule 5, Part C) which is to be made available in accordance with and pursuant to Clauses 2.3 and 4.2(d); "Identified Ship Earnings Account Pledge" means a pledge agreement creating security in favour of the Creditor Parties in respect of the Earnings Account of the Identified Ship in such form as the Lenders may approve or require; "Insurances" means, in relation to each Ship: (a) all policies and contracts of insurance, including entries of that Ship in any protection and indemnity or war risks association, which are effected in respect of the Ship, her Earnings or otherwise in relation to her; and (b) all rights and other assets relating to, or derived from, any of the foregoing, including any rights to a return of a premium; "Interest Coverage Ratio" means, in relation to a Compliance Date or an accounting period, the ration of (a) EBITDA for the most recent financial period of the Group ending on the Compliance Date to (b) the Net Interest Expenses for that financial period (calculated on a trailing 12-months basis); "Interest Period" means a period determined in accordance with Clause 6; "ISM Code" means: (a) 'The International Management Code for the Safe Operation of Ships and for Pollution Prevention', currently known or referred to as the 'ISM Code', adopted by the Assembly of the International Maritime Organisation by Resolution A.741(18) on 4 November 1993 and incorporated on 19 May 1994 into chapter IX of the International Convention for the Safety of Life at Sea 1974 (SOLAS 1974); and (b) all further resolutions, circulars, codes, guidelines, regulations and recommendations which are now or in the future issued by or on behalf of the International Maritime Organisation or any other entity with responsibility for implementing the ISM Code, including without limitation, the 'Guidelines on implementation or administering of the International Safety Management (ISM) Code by Administrations' produced by the International Maritime Organisations pursuant to Resolution A.788(19) adopted on 25 November 1995, as the same may be amended, supplemented or replaced from time to time; "ISM Code Documentation" includes, in relation to each Ship: (a) the document of compliance (DOC) and safety management certificate (SMC) issued pursuant to the ISM Code in relation to that Ship within the periods specified by the ISM Code; and (b) all other documents and data which are relevant to the ISM SMS and its implementation and verification which the Agent may require; and (c) any other documents which are prepared or which are otherwise relevant to establish and maintain the Ship's or the compliance of its Owner with the ISM Code which the Agent may require; "ISM SMS" means, in relation to each Ship, the safety management system for that Ship which is required to be developed, implemented and maintained under the ISM Code; "ISPS Code" means the International Ship and Port Facility Security Code constituted pursuant to resolution A.924(22) of the International Maritime Organisation ("IMO") now set out in Chapter XI-2 of the Safety of Life at Sea Convention (SOLAS) 1974 (as amended) and the mandatory ISPS Code as adopted by a Diplomatic Conference of the IMO on Maritime Security in December 2002 and includes any amendments or extensions to it and any regulation issued pursuant to it but shall only apply insofar as it is applicable law in the relevant Ship's flag state and any jurisdiction on which such Ship is operated; "ISPS Code Documentation" includes: (a) the International Ship Security Certificate issued pursuant to the ISPS Code in relation to each Ship within the period specified in the ISPS Code; and (b) all other documents and data which are relevant to the ISPS Code and its implementation and verification which the Agent may require; "Lender" means, subject to Clause 26.6: (a) a bank or financial institution listed in Part A of Schedule 1 and acting through its branch indicated in Part A of Schedule 1 (or through another branch notified to the Borrower under Clause 26.14) unless it has delivered a Transfer Certificate or Certificates covering the entire amounts of its Commitment and its Contribution; and (b) the holder for the time being of a Transfer Certificate; "LIBOR" means, for an Interest Period: (a) the rate per annum equal to the offered quotation for deposits in Dollars for a period equal to, or as near as possible equal to, the relevant Interest Period which appears on REUTERS BBA Page LIBOR 01 at or about 11.00 a.m. (London time) on the second Business Day prior to the commencement of that Interest Period (and, for the purposes of this Agreement, "REUTERS BBA Page LIBOR 01" means the display designated as "REUTERS BBA Page LIBOR 01" on the Reuters Money News Service or such other page as may replace REUTERS BBA Page LIBOR 01 on that service for the purpose of displaying rates comparable to that rate or on such other service as may be nominated by the British Bankers' Association for the purpose of displaying British Bankers' Association Interest Settlement Rates for Dollars); or (b) if no rate is quoted on REUTERS BBA Page LIBOR 01, the rate per annum determined by the Agent to be the arithmetic mean of the rates per annum notified to the Agent by each Reference Bank to be the rate per annum at which deposits in Dollars are offered to that Reference Bank by leading banks in the London Interbank Market at or about 11.00 a.m. (London time) on the second Business Day prior to the commencement of that Interest Period for a period equal to that Interest Period and for delivery on the first Business Day of it; or (c) in relation to any Interest Period of 12 months or more, the average of the actual costs to the Lenders of funding their participation in the Loan; "Loan" means the principal amount for the time being outstanding under this Agreement; "Major Casualty" means, in relation to each Ship, any casualty to that Ship in respect of which the claim or the aggregate of the claims against all insurers, before adjustment for any relevant franchise or deductible, exceeds $500,000 or the equivalent in any other currency; "Majority Lenders" means Lenders whose Commitments total at least 60 per cent. of the Total Commitments; "Manager's Undertaking" means, in relation to each Ship, a letter of undertaking executed or to be executed by the Approved Manager in favour of the Security Trustee in such form as the Lenders may approve or require agreeing certain matters in relation to the management of that Ship and subordinating the rights of the Approved Manager against the Ship and the Owner thereof to the rights of the Creditor Parties under the Finance Documents and, in the plural, means all of them; "Management Agreement" means, in relation to each Ship, an agreement made or to be made between (i) the Borrower, (ii) the Owner of that Ship and (iii) the Approved Manager in respect of the commercial and technical management of the Ship and, in the plural, means all of them; "Management Agreement Assignment" means, in relation to each Management Agreement, the assignment of the rights and interests of the Borrower and the relevant Owner under that Management Agreement in such form as the Lenders may approve or require and, in the plural, means all of them; "Mandatory Cost" means the percentage rate per annum calculated by the Agent in accordance with Schedule 9; "Margin" means: (a) at any time when the Security Cover Percentage is equal to, or less than, 77.5 percent, 2.43 percent per annum; and (b) at all other times, 2.53 percent per annum; "Market Adjusted Equity Ratio" means, in relation to a Compliance Date, the ratio of (a) the Adjusted Equity for the most recent financial period of the Group ending on the Compliance Date to (b) the aggregate of (i) Total Interest Bearing Liabilities and (ii) Adjusted Equity for that financial period; "Market Value" means, in relation to each Ship and each Fleet Vessel, the market value thereof calculated in accordance with Clause 15.4; "Market Value Adjusted Net Worth" means Paid-Up Capital plus General Reserves plus Retained Earnings adjusted to reflect the difference between the book values of the Fleet Values and the Market Values of all Fleet Vessels at any relevant time; "Market Value Adjusted Total Assets" means, at any time, Total Assets adjusted to reflect the Market Value of all Fleet Vessels; "Master Agreement" means each master agreement (on the 1992 or, as the case may be, 2002 ISDA (Multicurrency - Crossborder) form) made between the Borrower and a Swap Bank and includes all Designated Transactions from time to time entered into and Confirmations from time to time exchanged under the master agreement and, in the plural, means both of them; "Master Agreement Assignment" means, in relation to each Master Agreement, the assignment of that Master Agreement in such form as the Lenders may approve or require and, in the plural, means both of them; "Mortgage" means: (a) in relation to each Existing Ship and the Identified Ship, a first priority Maltese statutory mortgage on such Ship; and (b) in relation to each Additional Ship, a first priority or preferred mortgage on such Ship under the relevant Approved Flag, each in such form as the Lenders may approve or require and, in plural, means all of them; "Negotiation Period" has the meaning given in Clause 5.9; "Net Income" means, in relation to each Financial Year of the Borrower, the aggregate income of the Group appearing in the Applicable Accounts for that Financial Year less the aggregate of: (a) the amounts incurred by the Group during that Financial Year as expenses of its business; (b) depreciation, amortisation and all interest in respect of all Financial Indebtedness of the Group paid by all members of the Group during that Financial Year; (c) Net Interest Expenses; (d) taxes; and (e) other items charged to the Borrower's consolidated profit and loss account for the relevant Financial Year; "Net Interest Expenses" means, as of any Compliance Date, the aggregate of all interest, commitment and other fees, commissions, discounts and other costs, charges or expenses accruing due from all the members the Group during that accounting period less interest income received, determined on a consolidated basis in accordance with GAAP and as shown in the consolidated statements of income for the Group in the Applicable Accounts; "Notifying Lender" has the meaning given in Clause 23.1 or Clause 24.1 as the context requires; "Owner" means in relation to: (a) each Existing Ship, the corporation which is specified in Schedule 2, Part A as the owner thereof, being a company incorporated in Malta having its registered office at 512 Merchants Street, Valletta, Malta; (b) the Identified Ship, Seaventure; and (c) an Additional Ship, the Additional Ship Owner of that Ship, (h) each being a company which is a direct or indirect wholly-owned subsidiary of the Borrower and in the plural means all of them; "Paid-Up Capital", "General Reserves" and "Retained Earnings" have the meanings ascribed to them in the Applicable Accounts; "Payment Currency" has the meaning given in Clause 21.5; "Permitted Security Interests" means: (a) Security Interests created by the Finance Documents; (b) Security Interest created pursuant to, or in connection with, the Existing Loan Agreements; (c) liens for unpaid crew's wages in accordance with usual maritime practice; (d) liens for salvage; (e) liens arising by operation of law for not more than 2 months' prepaid hire under any charter in relation to a Ship not prohibited by this Agreement; (f) liens for master's disbursements incurred in the ordinary course of trading and any other lien arising by operation of law or otherwise in the ordinary course of the operation, repair or maintenance of a Ship, provided such liens do not secure amounts more than 30 days overdue (unless the overdue amount is being contested by the relevant Owner in good faith by appropriate steps) and subject, in the case of liens for repair or maintenance, to Clause 14.13(h); (g) any Security Interest created in favour of a plaintiff or defendant in any action of the court or tribunal before whom such action is brought as security for costs and expenses where the relevant Owner is prosecuting or defending such action in good faith by appropriate steps; and (h) Security Interests arising by operation of law in respect of taxes which are not overdue for payment other than taxes being contested in good faith by appropriate steps and in respect of which appropriate reserves have been made; "Pertinent Jurisdiction", in relation to a company, means: (a) England and Wales; (b) the country under the laws of which the company is incorporated or formed; (c) a country in which the company's central management and control is or has recently been exercised; (d) a country in which the overall net income of the company is subject to corporation tax, income tax or any similar tax; (e) a country in which assets of the company (other than securities issued by, or loans to, related companies) having a substantial value are situated, in which the company maintains a permanent place of business, or in which a Security Interest created by the company must or should be registered in order to ensure its validity or priority; and (f) a country the courts of which have jurisdiction to make a winding up, administration or similar order in relation to the company or which would have such jurisdiction if their assistance were requested by the courts of a country referred to in paragraphs (b) or (c) above; "Potential Event of Default" means an event or circumstance which, with the giving of any notice, the lapse of time, a determination of the Majority Lenders and/or the satisfaction of any other condition, would constitute an Event of Default; "Reference Banks" means, subject to Clause 26.16, together, HSH Nordbank AG and BOS and any of their respective successors and in the singular means any of them; "Refinancing Advance" means an amount of up to $92,691,000 which is to be used (a) in refinancing part of the Existing Indebtedness and (b) to provide the Borrower with working capital for its general corporate purposes and which is to be made available in accordance with and pursuant to Clauses 2.3 and 4.2(c); "Relevant Person" has the meaning given in Clause 19.9; "Repayment Date" means a date on which a repayment is required to be made under Clause 8; "Repayment Instalment" means, in relation to: (a) the Term Loan, each of the 40 repayment instalments listed in Schedule 4; and (b) an Additional Advance, each repayment instalment in respect of that Additional Advance specified in the repayment schedule for that Additional Advance referred to in Clause 8.1(a)(ii) and calculated in accordance with Clause 8.1(b); "Requisition Compensation" includes all compensation or other moneys payable by reason of any act or event such as is referred to in paragraph (b) of the definition of "Total Loss"; "Retention Account" means an account in the name of the Borrower with the Agent in Hamburg designated "Dryships Inc. - Retention Account", or any other account (with that or another office of the Agent) which is designated by the Agent as the Retention Account for the purposes of this Agreement; "Seaventure" means Seaventure Shipping Limited, a corporation incorporated in the Marshall Islands and having its registered office at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, The Marshall Islands MH 96960; "Secured Liabilities" means all liabilities which the Borrower, the Security Parties or any of them have, at the date of this Agreement or at any later time or times, under or by virtue of the Finance Documents or any judgment relating to the Finance Documents; and for this purpose, there shall be disregarded any total or partial discharge of these liabilities, or variation of their terms, which is effected by, or in connection with, any bankruptcy, liquidation, arrangement or other procedure under the insolvency laws of any country; "Security Cover Percentage" means, at any relevant time, the Loan expressed as a percentage of the aggregate of the amounts referred to in paragraphs (a) and (b) of Clause 15.1; "Security Interest" means: (a) a mortgage, charge (whether fixed or floating) or pledge, any maritime or other lien or any other security interest of any kind; (b) the rights of the plaintiff under an action in rem in which the vessel concerned has been arrested or a writ has been issued or similar step taken; and (c) any arrangement entered into by a person (A) the effect of which is to place another person (B) in a position which is similar, in economic terms, to the position in which B would have been had he held a security interest over an asset of A; but (c) does not apply to a right of set off or combination of accounts conferred by the standard terms of business of a bank or financial institution; "Security Party" means each Owner, Wealth and any other person (except a Creditor Party) who, as a surety or mortgagor, as a party to any subordination or priorities arrangement, or in any similar capacity, executes a document falling within the final paragraph of the definition of "Finance Documents"; "Security Period" means the period commencing on the date of this Agreement and ending on the date on which the Agent notifies the Borrower, the Security Parties and the Lenders that: (a) all amounts which have become due for payment by the Borrower or any Security Party under the Finance Documents have been paid; (b) no amount is owing or has accrued (without yet having become due for payment) under any Finance Document; (c) neither the Borrower nor any Security Party has any future or contingent liability under Clause 20, 21 or 22 below or any other provision of this Agreement or another Finance Document; and (d) the Agent, the Security Trustee and the Majority Lenders do not consider that there is a significant risk that any payment or transaction under a Finance Document would be set aside, or would have to be reversed or adjusted, in any present or possible future bankruptcy of the Borrower or a Security Party or in any present or possible future proceeding relating to a Finance Document or any asset covered (or previously covered) by a Security Interest created by a Finance Document; "Security Trustee" means HSH Nordbank AG and any of its successors including, without limitation, any successor appointed under clause 5 of the Agency and Trust Deed; "Senior Designated Transaction" has the meaning given to the term "Designated Transaction" in the Senior Loan Agreement; "Senior Lenders" means, subject to clause 26.6 of the Senior Loan Agreement: (a) a bank or financial institution listed in Part A of Schedule 1 to the Senior Loan Agreement and acting through its branch indicated in Part A of Schedule 1 to the Senior Loan Agreement (or through another branch notified to the Borrower under clause 26.14 of the Senior Loan Agreement) unless it has delivered a Senior Loan Transfer Certificate or Certificates covering the entire amounts of its Commitment (as such term is defined in the Senior Loan Agreement) and its Contribution (as such term is defined in the Senior Loan Agreement); and (b) the holder for the time being of a Senior Loan Transfer Certificate; "Senior Loan" means the principal amount for the time being outstanding under the Senior Loan Agreement; "Senior Loan Agreement" means the Loan Agreement to be made between the Borrower as borrower, the Senior Lenders, the Agent, the Security Trustee, the Senior Swap Banks, HSH Nordbank AG as lead arranger and Iead bookrunner, The Governor and Company of the Bank of Scotland as joint bookrunner and HSH Nordbank AG and The Governor and Company of the Bank of Scotland as joint underwriters in respect of term loan and short-term credit facilities of up to $577,500,000 in aggregate; "Senior Loan Transfer Certificate" has the meaning given in clause 26.2 of the Senior Loan Agreement; "Senior Master Agreement" has the meaning given to the term "Master Agreement" in the Senior Loan Agreement; "Senior Swap Bank" has the meaning given to the term "Swap Bank" in the Senior Loan Agreement; "Ships" means, together, the Existing Ships, the Identified Ships and the Additional Ships and, in the singular, means any of them; "Swap Bank" means each of the banks listed in Part B of Schedule 1 acting through its branch or office indicated in Part B of Schedule 1, and, in the plural, means both of them; "Swap Exposure" means, as at any relevant date, the amount certified by the Swap Banks to the Agent to be the aggregate net amount in Dollars which would be payable by the Borrower to the Swap Banks under (and calculated in accordance with) section 6(e) (Payments on Early Termination) of each Master Agreement if an Early Termination Date had occurred on the relevant date in relation to all continuing Designated Transactions entered into between the Borrower and the Swap Banks; "Term Loan" means an amount of up to $97,500,000 (representing the maximum aggregate principal amount of the Refinancing Advance and the Identified Ship Advance) or the aggregate principal amount of the Refinancing Advance and the Identified Ship Advance for the time being outstanding under this Agreement; "Term Loan Commitment" means, in relation to a Lender, the amount set opposite its name in the third column of Schedule 1, Part A, or, as the case may require, the amount specified in the relevant Transfer Certificate, as that amount may be reduced, cancelled or terminated in accordance with this Agreement (and "Total Term Loan Commitments" means the aggregate of the Term Loan Commitments of all the Lenders); "Total Assets" means, as of any Compliance Date, the aggregate value of all trade debtors and the value of all stock (valued in accordance with GAAP) and all other investments and other tangible and intangible assets of the Group properly included in the Applicable Accounts as "fixed assets" in accordance with GAAP but excluding any assets held on trust; "Total Commitments" means the aggregate of the Total Term Loan Commitments and the Total Credit Facility Commitments; "Total Interest Bearing Liabilities" means, as of any Compliance Date, the consolidated total amount of the interest bearing Financial Indebtedness of the Group; "Total Liabilities" means, as of any Compliance Date, the aggregate Financial Indebtedness of the Group; "Total Loss" means in relation to each Ship: (a) actual, constructive, compromised, agreed or arranged total loss of that Ship; (b) any expropriation, confiscation, requisition or acquisition of the Ship, whether for full consideration, a consideration less than her proper value, a nominal consideration or without any consideration, which is effected by any government or official authority or by any person or persons claiming to be or to represent a government or official authority, excluding a requisition for hire for a fixed period not exceeding one year without any right to an extension; (c) any condemnation of the Ship by any tribunal or by any person or person claiming to be a tribunal; (d) any arrest, capture, seizure or detention of the Ship (including any hijacking or theft) unless she is within 30 days redelivered to the full control the relevant Owner; "Total Loss Date" means: (a) in the case of an actual loss of a Ship, the date on which it occurred or, if that is unknown, the date when that Ship was last heard of; (b) in the case of a constructive, compromised, agreed or arranged total loss of a Ship, the earliest of: (i) the date on which a notice of abandonment is given to the insurers; and (ii) the date of any compromise, arrangement or agreement made by or on behalf of the relevant Owner, with the Ship's insurers in which the insurers agree to treat the Ship as a total loss; and (c) in the case of any other type of total loss, on the date (or the most likely date) on which it appears to the Agent that the event constituting the total loss occurred; "Transaction" has the meaning given in each Master Agreement; "Transfer Certificate" has the meaning given in Clause 26.2; "Trust Property" has the meaning given in clause 3.1 of the Agency and Trust Dee; "Wealth" means Wealth Management Inc., a corporation incorporated in the Marshall Islands and having its registered office at Trust Company Complex, Ajeltake Road, Ajeltake Island, Majuro, The Marshall Islands MH 96960; "Wealth Account" means an account in the name of Wealth with the Agent in Hamburg designated "Wealth Management Inc. - Cash Management Account" or any other account (with that or another office of the Agent) which is designated by the Agent as the Wealth Account for the purposes of this Agreement; "Wealth Account Pledge" means a pledge agreement creating security in favour of the Creditor Parties in respect of the Wealth Account in such form, as the Lenders may approve or require; and "Wealth Guarantee" means a guarantee of the Borrower's obligations under (inter alia) this Agreement, the Master Agreements and the Senior Loan Agreement executed or to be executed by Wealth in favour of the Security Trustee in such form as the Lenders shall approve or require and, in the plural, means all of them. 1.3 Construction of certain terms. In this Agreement: "approved" means, for the purposes of Clause 13, approved in writing by the Agent; "asset" includes every kind of property, asset, interest or right, including any present, future or contingent right to any revenues or other payment; "company" includes any partnership, joint venture and unincorporated association; "consent" includes an authorisation, consent, approval, resolution, licence, exemption, filing, registration, notarisation and legalisation; "contingent liability" means a liability which is not certain to arise and/or the amount of which remains unascertained; "document" includes a deed; also a letter, fax or telex; "excess risks" means the proportion of claims for general average, salvage and salvage charges not recoverable under the hull and machinery policies in respect of any Ship in consequence of her insured value being less than the value at which that Ship is assessed for the purpose of such claims; "expense" means any kind of cost, charge or expense (including all legal costs, charges and expenses) and any applicable value added or other tax; "law" includes any form of delegated legislation, any order or decree, any treaty or international convention and any regulation or resolution of the Council of the European Union, the European Commission, the United Nations or its Security Council; "legal or administrative action" means any legal proceeding or arbitration and any administrative or regulatory action or investigation; "liability" includes every kind of debt or liability (present or future, certain or contingent), whether incurred as principal or surety or otherwise; "months" shall be construed in accordance with Clause 1.3; "obligatory insurances" means all insurances effected, or which the Borrower is obliged to effect, under Clause 13 below or any other provision of this Agreement or another Finance Document; "parent company" has the meaning given in Clause 1.4; "person" includes any company; any state, political sub-division of a state and local or municipal authority; and any international organisation; "policy", in relation to any insurance, includes a slip, cover note, certificate of entry or other document evidencing the contract of insurance or its terms; "protection and indemnity risks" means the usual risks covered by a protection and indemnity association managed in London, including pollution risks and the proportion (if any) of any sums payable to any other person or persons in case of collision which are not recoverable under the hull and machinery policies by reason of the incorporation therein of clause I of the Institute Time Clauses (Hulls)(1/10/83) or clause 8 of the Institute Time Clauses (Hulls) (1/11/1995) or the Institute Amended Running Down Clause (1/10/71) or any equivalent provision; "regulation" includes any regulation, rule, official directive, request or guideline (either having the force of law or compliance with which is reasonable in the ordinary course of business of the party concerned) of any governmental, intergovernmental or supranational body, agency, department or regulatory, self-regulatory or other authority or organisation; "subsidiary" has the meaning given in Clause 1.4; "successor" includes any person who is entitled (by assignment, novation, merger or otherwise) to any other person's rights under this Agreement or any other Finance Document (or any interest in those rights) or who, as administrator, liquidator or otherwise, is entitled to exercise those rights; and in particular references to a successor include a person to whom those rights (or any interest in those rights) are transferred or pass as a result of a merger, division, reconstruction or other reorganisation of it or any other person; "tax" includes any present or future tax, duty, impost, levy or charge of any kind which is imposed by any state, any political sub-division of a state or any local or municipal authority (including any such imposed in connection with exchange controls), and any connected penalty, interest or fine; and "war risks" means the risks according to Institute War and Strike Clauses (Hull Time) (1/10/83) or (1/11/95), or equivalent conditions, including, but not limited to risk of mines, blocking and trapping, missing vessel, confiscation, vandalism, sabotage and malicious mischief and all risks excluded from the standard form of English or other marine policy. 1.4 Meaning of "month". A period of one or more "months" ends on the day in the relevant calendar month numerically corresponding to the day of the calendar month on which the period started ("the numerically corresponding day"), but: (a) on the Business Day following the numerically corresponding day if the numerically corresponding day is not a Business Day or, if there is no later Business Day in the same calendar month, on the Business Day preceding the numerically corresponding day; or (b) on the last Business Day in the relevant calendar month, if the period started on the last Business Day in a calendar month or if the last calendar month of the period has no numerically corresponding day; and "month" and "monthly" shall be construed accordingly. 1.5 Meaning of "subsidiary". A company (S) is a subsidiary of another company (P) if: (a) a majority of the issued shares in S (or a majority of the issued shares in S which carry unlimited rights to capital and income distributions) are directly owned by P or are indirectly attributable to P; or (b) P has direct or indirect control over a majority of the voting rights attached to the issued shares of S; or (c) P has the direct or indirect power to appoint or remove a majority of the directors of S; or (d) P otherwise has the direct or indirect power to ensure that the affairs of S are conducted in accordance with the wishes of P; and any company of which S is a subsidiary is a parent company of S. 1.6 General Interpretation. (a) In this Agreement: (i) references to, or to a provision of, a Finance Document or any other document are references to it as amended or supplemented, whether before the date of this Agreement or otherwise; (ii) references to, or to a provision of, any law include any amendment, extension, re-enactment or replacement, whether made before the date of this Agreement or otherwise; and (iii) words denoting the singular number shall include the plural and vice versa. (b) Clauses 1.1 to 1.4 and paragraph (a) of this Clause 1.5 apply unless the contrary intention appears. (c) References in Clause 1.1 to a document being in the form of a particular Appendix include references to that form with any modifications to that form which the Agent (with the authorisation of the Majority Lenders in the case of substantial modifications) approves or reasonably requires. (d) The clause headings shall not affect the interpretation of this Agreement. 2 FACILITY 2.1 Amount of facility. Subject to the other provisions of this Agreement, the Lenders shall make available to the Borrower term loan and credit facilities not exceeding $110,000,000 in aggregate at any time. 2.2 Lenders' participations in Loan. Subject to the other provisions of this Agreement, each Lender shall participate in: (a) each of the Refinancing Advance and the Identified Ship Advance in the proportion which, as at the relevant Drawdown Date, its Term Loan Commitment bears to the Total Term Loan Commitments; and (b) each Additional Advance in the proportion which, as at the relevant Drawdown Date, its Credit Facility Commitment bears to the Total Credit Facility Commitments. 2.3 Purpose of Loan. The Borrower undertakes with each Creditor Party to use each Advance only for the purpose stated in the preamble to this Agreement. 3 POSITION OF THE LENDERS, THE SWAP BANKS AND THE MAJORITY LENDERS 3.1 Interests of Lenders and Swap Bank several. The rights of the Lenders and the Swap Banks under this Agreement and each Master Agreement are several; accordingly: (a) each Lender shall be entitled to sue for any amount which has become due and payable by the Borrower to it under this Agreement; and (b) each Swap Bank shall be entitled to sue for any amount which has become due and payable by the Borrower to it under the Master Agreement to which that Swap Bank is a party, without joining the Agent, the Security Trustee, any other Lender or any Swap Bank as additional parties in the proceedings. 3.2 Proceedings by individual Lender or Swap Bank. However, without the prior consent of the Majority Lenders, no Lender and neither Swap Bank may bring proceedings in respect of: (a) any other liability or obligation of the Borrower or a Security Party under or connected with a Finance Document or a Master Agreement; or (b) any misrepresentation or breach of warranty by the Borrower or a Security Party in or connected with a Finance Document or a Master Agreement. 3.3 Obligations several. The obligations of the Lenders under this Agreement and of the Swap Banks under the Master Agreements are several; and a failure of a Lender to perform its obligations under this Agreement or of a Swap Bank to perform its obligations under the Master Agreement to which it is a party shall not result in: (a) the obligations of the other Lenders being increased; nor (b) the Borrower, any Security Party or any other Creditor Party being discharged (in whole or in part) from its obligations under any Finance Document; and in no circumstances shall a Lender or a Swap Bank have any responsibility for a failure of another Lender or Swap Bank to perform its obligations under this Agreement or any Master Agreement. 3.4 Parties bound by certain actions of Majority Lenders. Every Lender, each Swap Bank, the Borrower and each Security Party shall be bound by: (a) any determination made, or action taken, by the Majority Lenders under any provision of a Finance Document; (b) any instruction or authorisation given by the Majority Lenders to the Agent or the Security Trustee under or in connection with any Finance Document; (c) any action taken (or in good faith purportedly taken) by the Agent or the Security Trustee in accordance with such an instruction or authorisation. 3.5 Reliance on action of Agent. However, the Borrower and each Security Party: (a) shall be entitled to assume that the Majority Lenders have duly given any instruction or authorisation which, under any provision of a Finance Document, is required in relation to any action which the Agent has taken or is about to take; and (b) shall not be entitled to require any evidence that such an instruction or authorisation has been given. 3.6 Construction. In Clauses 3.4 and 3.5 references to action taken include (without limitation) the granting of any waiver or consent, an approval of any document and an agreement to any matter. 4 DRAWDOWN 4.1 Request for Advance. Subject to the following conditions, the Borrower may request an Advance to be made by ensuring that the Agent receives a completed Drawdown Notice not later than 11.00 a.m. (Hamburg time) 3 Business Days prior to the intended Drawdown Date. 4.2 Availability. The conditions referred to in Clause 4.1 are that: (a) a Drawdown Date has to be a Business Day during the Availability Period; (b) (subject to paragraph (g) of this Clause 4.2) each Advance shall be made available in a single amount; (c) the Refinancing Advance shall not exceed the lesser of (i) $92,691,000 and (ii) 13 percent of the aggregate Market Values of the Existing Ships (as determined in accordance with the valuations referred to in paragraph 12 of Schedule 5, Part A) and shall be applied in refinancing part of the Existing Indebtedness and as to any balance to provide the Borrower with working capital for its general corporate purposes; (d) the Identified Ship Advance shall not exceed the lesser of (i) $4,809,000 and (ii) 13.5 percent of the Market Value of "HILLE OLDENDORFF" (as determined by the valuation referred to in paragraph 9 of Schedule 5, Party B) and shall be applied in financing part of the purchase price of "HILLE OLDENDORFF" payable pursuant to the Hille Oldendorff MOA; (e) the Refinancing Advance and the Identified Ship Advance shall not in aggregate exceed 13 per cent. of the aggregate Market Values of the Existing Ships and the Identified Ship (determined in accordance with the valuations referred to respectively in paragraph 12 of Schedule 5, Part A (in the case of the Existing Ships) and paragraph 9 of Schedule 5, Part B (in the case of the Identified Ship)); (f) (subject to Clause 2.4) each Additional Advance shall not exceed 12 per cent. of the Market Value of the Additional Ship whose purchase price is to be part-financed by that Additional Advance (as determined in accordance with the valuations referred to in paragraph 10 of Schedule 5, Part C); (g) any amount undrawn in respect of an Advance may be borrowed at a later date subject to the satisfaction of the other conditions of this Clause 4.2 save and except that the Agent (acting upon the instructions of the Majority Lenders) may rely on the valuations of the Ships previously provided to it pursuant to Clause 9.1 without seeking new valuations for the purpose of determining the Borrower's satisfaction of the conditions of this Clause 4.2 at the time of drawdown of any undrawn amount of an Advance; and (h) the aggregate of the Advances shall not exceed the Total Commitments. 4.3 Notification to Lenders of receipt of a Drawdown Notice. The Agent shall promptly notify the Lenders that it has received a Drawdown Notice and shall inform each Lender of: (a) the amount of the Advance and the Drawdown Date; (b) the amount of that Lender's participation in the Advance; and (c) the duration of the first Interest Period applicable to that Advance. 4.4 Drawdown Notice irrevocable. A Drawdown Notice must be signed by a director or a duly authorised signatory of the Borrower; and once served, a Drawdown Notice cannot be revoked without the prior consent of the Agent, acting on the authority of the Majority Lenders. 4.5 Lenders to make available Contributions. Subject to the provisions of this Agreement, each Lender shall, on and with value on each Drawdown Date, make available to the Agent for the account of the Borrower the amount due from that Lender on that Drawdown Date under Clause 2.2. 4.6 Disbursement of Advance. Subject to the provisions of this Agreement, the Agent shall on each Drawdown Date pay to the Borrower the amounts which the Agent receives from the Lenders under Clause 4.5; and that payment to the Borrower shall be made: (a) to the account which the Borrower specifies in the relevant Drawdown Notice; and (b) in the like funds as the Agent received the payments from the Lenders. 4.7 Disbursement of Advance to third party. The payment by the Agent under Clause 4.6 to a third party specified in the relevant Drawdown Notice shall constitute the making of the Advance and the Borrower shall thereupon become indebted, as principal and direct obligor, to each Lender in an amount equal to that Lender's Contribution. 4.8 Review of Availability Period for Credit Facility. The Lenders may, in their sole and absolute discretion (without any obligation to do so), agree to extend the original Availability Period which applies to the Credit Facility (being a period ending on the date falling 364 days after the date of this Agreement) if at the end of such period the Total Credit Facility Commitments have not been fully drawn. If all the Lenders agree to extend the applicable Availability Period in accordance with this Clause 4.8 the Agent shall send to the Borrower a notice in writing advising it of the period by which the Availability Period will be extended. 5 INTEREST 5.1 Payment of normal interest. Subject to the provisions of this Agreement, interest on each Advance and the Loan and each part thereof in respect of each Interest Period shall be paid by the Borrower on the last day of that Interest Period. 5.2 Normal rate of interest. Subject to the provisions of this Agreement, the rate of interest on each Advance and the Loan and each part thereof in respect of an Interest Period shall, subject to Clause 6.4, be the aggregate of (i) the applicable Margin, (ii) the Mandatory Cost (if any) and (iii) LIBOR. 5.3 Payment of accrued interest. In the case of an Interest Period longer than 3 months, accrued interest shall be paid every 3 months (or, in the case of Interest Periods of 12 months or longer, every 6 months) during that Interest Period and on the last day of that Interest Period. 5.4 Notification of Interest Periods and rates of normal interest. The Agent shall notify the Borrower and each Lender of: (a) each rate of interest; and (b) the duration of each Interest Period; as soon as reasonably practicable after each is determined. 5.5 Obligation of Reference Banks to quote. Each Reference Bank shall use all reasonable efforts to supply the quotation required of it for the purposes of fixing a rate of interest under this Agreement. 5.6 Market disruption. The following provisions of this Clause 5 apply if: (a) no rate is quoted on Reuters BBA Page LIBOR 01 and neither Reference Bank, before 1.00 p.m. (Hamburg time) on the second Business Day before the commencement of an Interest Period, provides a quotation to the Agent in order to fix LIBOR; or (b) at least one Business Day before the start of an Interest Period, Lenders having Contributions together amounting to more than 30 percent of the Loan (or, if an Advance has not been made, Commitments amounting to more than 30 percent of the Total Commitments) notify the Agent that LIBOR fixed by the Agent would not accurately reflect the cost to those Lenders of funding their respective Contributions (or any part of them) during the Interest Period in the London Interbank Dollar Market at or about 11.00 a.m. (London time) on the second Business Day before the commencement of the Interest Period; or (c) at least one Business Day before the start of an Interest Period, the Agent is notified by a Lender (the "Affected Lender") that for any reason it is unable to obtain Dollars in the London Interbank Market in order to fund its Contribution (or any part of it) during the Interest Period. 5.7 Notification of market disruption. The Agent shall promptly notify the Borrower and each of the Lenders stating the circumstances falling within CIause 5.6 which have caused its notice to be given. 5.8 Suspension of drawdown. If the Agent's notice under Clause 5.7 is served before an Advance is made: (a) in a case falling within paragraphs (a) or (b) of Clause 5.6, the Lenders' obligations to make the Advance; (b) in a case falling within paragraph (c) of Clause 5.6, the Affected Lender's obligation to participate in the Advance; shall be suspended while the circumstances referred to in the Agent's notice continue. 5.9 Negotiation of alternative rate of interest. If the Agent's notice under Clause 5.7 is served after an Advance is made, the Borrower, the Agent and the Lenders or (as the case may be) the Affected Lender shall use reasonable endeavours to agree, within the 30 days after the date on which the Agent serves its notice under Clause 5.7 (the "Negotiation Period"), an alternative interest rate or (as the case may be) an alternative basis for the Lenders or (as the case may be) the Affected Lender to fund or continue to fund their or its Contribution to the relevant Advance or Advances during the Interest Period concerned. 5.10 Application of agreed alternative rate of interest. Any alternative interest rate or an alternative basis which is agreed during the Negotiation Period shall take effect in accordance with the terms agreed. 5.11 Alternative rate of interest in absence of agreement. If an alternative interest rate or alternative basis is not agreed within the Negotiation Period, and the relevant circumstances are continuing at the end of the Negotiation Period, then the Agent shall, with the agreement of each Lender or (as the case may be) the Affected Lender, set an interest period and interest rate representing the cost of funding of the Lenders or (as the case may be) the Affected Lender in Dollars or in any available currency of their or its Contribution to the relevant Advance or Advances plus the Mandatory Cost (if any) and the applicable Margin; and the procedure provided for by this Clause 5.11 shall be repeated if the relevant circumstances are continuing at the end of the interest period so set by the Agent. 5.12 Notice of prepayment. If the Borrower does not agree with an interest rate set by the Agent under Clause 5.11, the Borrower may give the Agent not less than 15 Business Days' notice of its intention to prepay the relevant Advance or Advances at the end of the interest period set by the Agent. 5.13 Prepayment; termination of Commitments. A notice under CIause 5.12 shall be irrevocable; the Agent shall promptly notify the Lenders or (as the case may require) the Affected Lender of the Borrower's notice of intended prepayment; and: (a) on the date on which the Agent serves that notice, the Total Commitments or (as the case may require) the Commitment of the Affected Lender shall be cancelled; and (b) on the last Business Day of the interest period set by the Agent, the Borrower shall prepay (without premium or penalty) the Loan or, as the case may be, the Affected Lender's Contribution, together with accrued interest thereon at the applicable rate plus the applicable Margin and the Mandatory Cost (if any). 5.14 Application of prepayment. The provisions of Clause 8 shall apply in relation to the prepayment. 5.15 Calculation of Security Cover Percentage. The Agent shall calculate the Security Cover Percentage on the first Drawdown Date, on 30 September 2006 and every 6 months thereafter (each a "Margin Calculation Date") for the purposes of calculating the Margin and shall advise the Borrower and the Lenders in writing, within 10 Business Days of each Margin Calculation Date, of the Margin which will apply for the 6-month period commencing on the relevant Margin Calculation Date Provided that in respect of each Margin Calculation Date other than the first Margin Calculation Date, the Agent shall only be obliged to advise the Borrowers and the Lenders of the Margin which will apply for the 6-month period commencing on the relevant Margin Calculation Date if that Margin will be different to the Margin which applies immediately prior to the relevant Margin Calculation Date. For the purposes of calculating the Security Cover Percentage pursuant to this Clause 5.15, the Market Value of the Ships shall be determined no more than 15 days prior to the relevant Margin Calculation Date. 6 INTEREST PERIODS 6.1 Commencement of Interest Periods. The first Interest Period applicable to an Advance shall commence on the Drawdown Date relative to that Advance and each subsequent Interest Period shall commence on the expiry of the preceding Interest Period. 6.2 Duration of normal Interest Periods. Subject to Clauses 6.3 and 6.4, each Interest Period in respect of each Advance shall be: (a) 1, 3, 6 or 12 months as notified by the Borrower to the Agent not later than 11.00 a.m. (Hamburg time) 3 Business Days before the commencement of the Interest Period Provided that there may be no more than 3 Interest Periods having a duration of 1 month in any calendar year; or (b) in the case of the first Interest Period applicable to the second and any subsequent Advance, a period ending on the last day of the then current Interest Period whereupon all of the Advances shall be consolidated and treated as a single Advance Provided that should the Agent, in its sole discretion, permit the Borrower to select more than one Interest Period at any time, then under no circumstances shall the Borrower be allowed to select more than 5 separate Interest Periods at any time; (c) 3 months, if the Borrower fails to notify the Agent by the time specified in paragraph (a) above; or (d) such other period as the Agent may, with the Majority Lenders' authority, agree with the Borrower. 6.3 Duration of Interest Periods for repayment instalments. In respect of an amount due to be repaid under Clause 8 on a particular Repayment Date, an Interest Period shall end on that Repayment Date. 6.4 Interest Periods longer than 12 months. If, after the Borrower has selected an Interest Period longer than 12 months, and the Lenders have, in their absolute discretion, agreed to such selection, then the rate of interest for that Interest Period shall be the aggregate of the applicable Margin, the Mandatory Cost and the Lenders' cost of funding the Loan (or the applicable part thereof) for such period, as agreed between the Lenders and notified to the Agent. 7 DEFAULT INTEREST 7.1 Payment of default interest on overdue amounts. The Borrower shall pay interest in accordance with the following provisions of this Clause 7 on any amount payable by the Borrower under any Finance Document which the Agent, the Security Trustee or the other designated payee does not receive on or before the relevant date, that is: (a) the date on which the Finance Documents provide that such amount is due for payment; or (b) if a Finance Document provides that such amount is payable on demand, the date on which the demand is served; or (c) if such amount has become immediately due and payable under Clause 19.4, the date on which it became immediately due and payable. 7.2 Default rate of interest. Interest shall accrue on an overdue amount from (and including) the relevant date until the date of actual payment (as well after as before judgment) at the rate per annum determined by the Agent to be 2 percent above: (a) in the case of an overdue amount of principal, the higher of the rates set out at paragraphs (a) and (b) of Clause 7.3; or (b) in the case of any other overdue amount, the rate set out at paragraph (b) of Clause 7.3. 7.3 Calculation of default rate of interest. The rates referred to in Clause 7.2 are: (a) the rate applicable to the overdue principal amount immediately prior to the relevant date (but only for any unexpired part of any then current Interest Period); (b) the aggregate of the Mandatory Cost (if any) and the applicable Margin plus, in respect of successive periods of any duration (including at call) up to 3 months which the Agent may select from time to time: (i) LIBOR; or (ii) if the Agent (after consultation with the Reference Banks) determines that Dollar deposits for any such period are not being made available to any Reference Bank by leading banks in the London Interbank Market in the ordinary course of business, a rate from time to time determined by the Agent by reference to the cost of funds to the Reference Banks from such other sources as the Agent (after consultation with the Reference Banks) may from time to time determine. 7.4 Notification of interest periods and default rates. The Agent shall promptly notify the Lenders and the Borrower of each interest rate determined by the Agent under Clause 7.3 and of each period selected by the Agent for the purposes of paragraph (b) of that Clause; but this shall not be taken to imply that the Borrower is liable to pay such interest only with effect from the date of the Agent's notification. 7.5 Payment of accrued default interest. Subject to the other provisions of this Agreement, any interest due under this Clause shall be paid on the last day of the period by reference to which it was determined; and the payment shall be made to the Agent for the account of the Creditor Party to which the overdue amount is due. 7.6 Compounding of default interest. Any such interest which is not paid at the end of the period by reference to which it was determined shall thereupon be compounded. 7.7 Application to Master Agreements. For the avoidance of doubt, this Clause 7 does not apply to any amount payable under a Master Agreement in respect of any continuing Designated Transaction as to which section 2(e) (Default Interest; Other Amounts) of that Master Agreement shall apply. 8 REPAYMENT AND PREPAYMENT 8.1 Amount of Repayment Instalments. (a) The Borrower shall repay: (i) the Term Loan by 40 consecutive three-monthly Repayment Instalments and a Balloon Instalment (payable together with the fortieth such instalment) in the amounts referred to in Schedule 4 Provided that if the amount of the Term Loan drawn down under this Agreement is less than $97,500,000, the Balloon Instalment shall be reduced by an amount equal to the undrawn amount of the Term Loan; and (ii) each Additional Advance by the Repayment Instalments (calculated in accordance with Clause 8.1(b)) set out in a repayment schedule applicable to that Additional Advance to be provided to the Borrower by the Agent before the Drawdown Date relative to the relevant Additional Advance which shall provide for the repayment of that Advance over the Relevant Repayment Period by equal consecutive three-monthly Repayment Instalments (other than the first such Repayment Instalment which shall be paid on the first Repayment Date in respect of the Term Loan falling after the Drawdown Date of the relevant Additional Advance) and, if applicable, a Balloon Instalment (payable together with the last such Repayment Instalment). In this Clause 8.1 "Relevant Repayment Period" means in the case of an Additional Advance which has been used to part-finance the acquisition of an Additional Ship built: (A) between 1993 and 1996, the lesser of (A) 84 months and (B) the number of months between the Drawdown Date of the relevant Additional Advance and the Final Maturity Date; and (B) on or after 1997, the number of months between the Drawdown Date of the relevant Additional Advance and the Final Maturity Date; and (b) the Repayment Instalment for each Additional Advance shall be "D" and the Balloon Instalment for each Additional Advance shall be "G" where: "A" means the amount of the relevant Additional Advance; "B" means, in the case of an Additional Ship built: (i) between 1993 and 1996, 7; (ii) between 1997 and 2000, 11; (iii) between 2001 and 2003, 15; and (iv) on or after 2004, 18; "C" means A divided by B; "D" means C divided by 4; "E" means the number of months in the Relevant Repayment Period (or if the number of months in the Relevant Repayment Period is not fully divisible by 3, the nearest number of months (rounded downwards) which is fully divisible by 3) divided by 12; "F" means the product of (i) D, (ii) 4 and (iii) E; and "G" means A minus F. 8.2 Repayment Dates. Repayment Instalments shall be paid as follows: (a) each Repayment Instalment in respect of the Term Loan shall be repaid on the Repayment Date applicable to that Repayment Instalment as outlined in Schedule 4; (b) the first Repayment Instalment in respect of each Additional Advance shall be repaid on the first Repayment Date in respect of the Term Loan falling after the Drawdown Date of that Additional Advance, each subsequent Repayment Instalment shall be paid at 3-monthly intervals thereafter and the last Repayment Instalment together with the relevant Balloon Instalment shall be paid on the date referred to in the repayment schedule to be provided by the Agent to the Borrower pursuant to Clause 8.1(b). 8.3 Consolidation of Additional Advances with Term Loan. On the Drawdown Date in respect of each Additional Advance (following the making of that Advance to the Borrower), the relevant Additional Advance shall be consolidated into the Term Loan and the Term Loan and the relevant Additional Advance shall thereafter be repaid on the same dates. The Agent shall following the consolidation of each Additional Advance with the Term Loan referred to in this Clause 8.3 send to all the Creditor Parties and the Borrower a schedule specifying the aggregate repayments of the consolidated Advances on each subsequent Repayment Date and this schedule shall thereafter be substituted for, and replace, the repayment schedule set out in Schedule 4 which shall cease to have effect. 8.4 Final Maturity Date. On the Final Maturity Date, the Borrower shall additionally pay to the Agent for the account of the Creditor Parties all other sums then accrued or owing under any Finance Document. 8.5 Voluntary prepayment. Subject to the following conditions, the Borrower may prepay the whole or any part of the Loan and the Senior Loan on the last day of an Interest Period in respect thereof 8.6 Conditions for voluntary prepayment. The conditions referred to in Clause 8.5 are that: (a) the Borrower shall make a simultaneous prepayment of a proportion of the Senior Loan equal to the proportion of the Loan being prepaid hereunder at that time; (b) any partial prepayment to be applied against the Loan and the Senior Loan shall be $5,000,000 in aggregate or a higher multiple thereof; (c) the Agent has received from the Borrower at least 15 days' prior written notice specifying the amount to be prepaid and the date on which the prepayment is to be made (such date shall be the last day of an Interest Period); and (d) the Borrower has provided evidence satisfactory to the Agent that any consent required by the Borrower or any Security Party in connection with the prepayment has been obtained and remains in force, and that any requirement relevant to this Agreement which affects the Borrower or any Security Party has been complied with. 8.7 Effect of notice of prepayment. A prepayment notice may not be withdrawn or amended without the consent of the Agent, given with the authority of the Majority Lenders, and the amount specified in the prepayment notice shall become due and payable by the Borrower on the date for prepayment specified in the prepayment notice. 8.8 Notification of notice of prepayment. The Agent shall notify the Lenders promptly upon receiving a prepayment notice, and shall provide any Lender which so requests with a copy of any document delivered by the Borrower under Clause 8.6(d). 8.9 Mandatory prepayment. The Borrower shall be obliged to prepay the Relevant Amount of the Loan: (i) if a Ship is sold, on or before the date on which the sale is completed by delivery of the Ship to the buyer; or (ii) if a Ship becomes a Total Loss, on the earlier of the date falling 120 days after the relevant Total Loss Date and the date of receipt by the Security Trustee of the proceeds of insurance relating to such Total Loss. In this Clause 8.9, "Relevant Amount" means 115 percent of the Relevant Proportion of the Loan and "Relevant Proportion" means the amount which results from multiplying (a) the Loan with (b) the Market Value of the relevant Ship immediately prior to its sale or Total Loss divided by the aggregate Market Values immediately prior to such sale or Total Loss of all of the Ships as are then subject to a Mortgage. 8.10 Amounts payable on prepayment. A prepayment shall be made together with accrued interest (and any other amount payable under Clause 21 below or otherwise) in respect of the amount prepaid and, if the prepayment is not made on the last day of an Interest Period together with any sums payable under Clause 21.1(b) but without premium or penalty. 8.11 Application of partial prepayment. Any sum received by the Agent pursuant to Clauses 8.4 and 8.9 shall be applied in prepayment of the Term Loan, the Credit Facility and the Senior Loan pro rata by reference to the outstanding amount of each of the Term Loan, the Credit Facility and the Senior Loan as at the date of such prepayment, and the amount to be applied in prepayment of each of the Loan and the Senior Loan shall be applied to proportionately reduce the Balloon Instalment and the then outstanding Repayment Instalments. 8.12 Reborrowing. No amount prepaid in respect of the Loan may be reborrowed. 8.13 Unwinding of Designated Transactions. On or prior to any repayment or prepayment of the Loan under this Clause 8 or any other provision of this Agreement, the Borrower shall wholly or partially reverse, offset, unwind or otherwise terminate one or more of the continuing Designated Transactions to the extent necessary to ensure that the notional principal amount of the continuing Designated Transactions thereafter remaining does not and will not in the future (taking into account the scheduled amortisation) exceed the amount of the Loan as reducing from time to time thereafter pursuant to Clause 8.1. 8.14 Prepayment of Swap Benefit. If a Designated Transaction is terminated in circumstances where a Swap Bank would be obliged to pay an amount to the Borrower under the Master Agreement to which that Swap Bank is a party, the Borrower hereby agrees that such payment shall be applied in prepayment of the Loan and authorises the Swap Bank to pay such amount to the Agent for such purpose. 9 CONDITIONS PRECEDENT 9.1 Documents, fees and no default. Each Lender's obligation to contribute to an Advance is subject to the following conditions precedent: (a) that, on or before the Drawdown Date relative to the Refinancing Advance, the Agent receives the documents described in Part A of Schedule 5 in form and substance satisfactory to the Agent and its lawyers; (b) that, on or before the Drawdown Date relative to the Identified Ship Advance, the Agent receives the documents described in Part B of Schedule 5 in form and substance satisfactory to the Agent and its lawyers; (c) that, on or before the Drawdown Date relative to each Additional Advance, the Agent receives the documents described in Part C of Schedule 5 in form and substance satisfactory to the Agent and its lawyers; (d) that, on or before the service of the first Drawdown Notice, the Agent receives all accrued commitment fee and all other fees referred to in Clause 20.1 which are payable at that time and has received payment of the expenses referred to in Clause 20.2; (e) that both at the date of each Drawdown Notice and at each Drawdown Date: (i) no Event of Default or Potential Event of Default has occurred and is continuing or would result from the borrowing of the Loan; (ii) the representations and warranties in Clause 10 and those of the Borrower or any Security Party which are set out in the other Finance Documents would be true and not misleading if repeated on each of those dates with reference to the circumstances then existing; and (iii) none of the circumstances contemplated by Clause 5.6 has occurred and is continuing; and (f) that at each Drawdown Date, the Borrower will draw down the advance of the Senior Loan which shall be used to finance or refinance the same Ship or Ships which are to be financed or refinanced by the Advance being drawn down on the relevant Drawdown Date under this Agreement; (g) that, if the ratio set out in Clause 15.1 were applied immediately following the making of the Advance, the Borrower would not be obliged to provide additional security or prepay part of the Loan under that Clause; (h) that at each Drawdown Date the Agent has received, and found to be acceptable to it, any further opinions, consents, agreements and documents in connection with the Finance Documents which the Agent may, with the authorisation of the Majority Lenders, request by notice to the Borrower prior to the relevant Drawdown Date. 9.2 Waiver of conditions precedent. If the Majority Lenders, at their discretion, permit an Advance to be borrowed before certain of the conditions referred to in Clause 9.1 are satisfied, the Borrower shall ensure that those conditions are satisfied within 5 Business Days after the Drawdown Date relative to that Advance (or such longer period as the Agent may, with the authority of the Majority Lenders, specify). 10 REPRESENTATIONS AND WARRANTIES 10.1 General. The Borrower represents and warrants to each Creditor Party as follows. 10.2 Status. The Borrower is duly incorporated and validly existing and in good standing under the laws of the Marshall Islands. 10.3 Share capital and ownership. The Borrower has an authorised share capital divided into 75,000,000 registered shares of $0.01 each, 30,350,000 of which shares have been issued each fully paid. 10.4 Corporate power. The Borrower has the corporate capacity, and has taken all corporate action and obtained all consents necessary for it: (a) to execute the Finance Documents to which it is a Party; and (b) to borrow under this Agreement, to enter into Designated Transactions under each Master Agreement and to make all the payments contemplated by, and to comply with, those Finance Documents to which the Borrower is a party. 10.5 Consents in force. All the consents referred to in Clause 10.4 remain in force and nothing has occurred which makes any of them liable to revocation. 10.6 Legal validity; effective Security Interests. The Finance Documents to which the Borrower is a party, do now or, as the case may be, will, upon execution and delivery (and, where applicable, registration as provided for in the Finance Documents): (a) constitute the Borrower's legal, valid and binding obligations enforceable against the Borrower in accordance with their respective terms; and (b) create legal, valid and binding Security Interests enforceable in accordance with their respective terms over all the assets to which they, by their terms, relate subject to any relevant insolvency laws affecting creditors' rights generally. 10.7 No third party Security Interests. Without limiting the generality of Clause 10.6, at the time of the execution and delivery of each Finance Document: (a) the Borrower will have the right to create all the Security Interests which that Finance Document purports to create; and (b) no third party will have any Security Interest (except for Permitted Security Interests) or any other interest, right or claim over, in or in relation to any asset to which any such Security Interest, by its terms, relates. 10.8 No conflicts. The execution by the Borrower of each Finance Document to which it is a party, and the borrowing by the Borrower of the Loan, and its compliance with each Finance Document to which it is a party will not involve or lead to a contravention of: (a) any law or regulation; or (b) the constitutional documents of the Borrower; or (c) any contractual or other obligation or restriction which is binding on the Borrower or any of its assets. 10.9 No withholding taxes. All payments which the Borrower is liable to make under the Finance Documents may be made without deduction or withholding for or on account of any tax payable under any law of any Pertinent Jurisdiction. 10.10 No default. No Event of Default or Potential Event of Default has occurred and is continuing. 10.11 Information. All information which has been provided in writing by or on behalf of the Borrower or any Security Party to any Creditor Party in connection with any Finance Document satisfied the requirements of Clause 11.5; all audited and unaudited accounts which have been so provided satisfied the requirements of Clause 11.7; and there has been no material adverse change in the financial position or state of affairs of the Borrower from that disclosed in the latest of those accounts. 10.12 No litigation. No legal or administrative action involving the Borrower has been commenced or taken or, to the Borrower's knowledge, is likely to be commenced or taken which can be considered material in the context of this Agreement or any other Finance Document. 10.13 No rebates etc. There is no agreement or understanding to allow or pay any rebate, premium, commission, discount or other benefit or payment (howsoever described) to Seaventure, the Hille Oldendorff Charterer or a third party in connection with the purchase by Seaventure and the bareboat chartering of the Identified Ship, other than as disclosed to the Lenders in writing on or prior to the date of this Agreement. 10.14 Compliance with certain undertakings. At the date of this Agreement, the Borrower is in compliance with Clauses 11.2, 11.4, 11.9 and 11.13. 10.15 Taxes paid. The Borrower has paid all taxes applicable to, or imposed on or in relation to the Borrower or its business. 10.16 ISM Code compliance. The Borrower will procure that the Owners and the Approved Manager obtain all necessary ISM Code Documentation and ISPS Code Documentation in connection with the Ships and comply with the ISM Code and the ISPS Code. 10.17 No money laundering. Without prejudice to the generality of Clause 2.3, in relation to the borrowing by the Borrower of the Loan, the performance and discharge of its obligations and liabilities under the Finance Documents, and the transactions and other arrangements effected or contemplated by the Finance Documents to which the Borrower is a party, the Borrower confirms that it is acting for its own account and that the foregoing will not involve or lead to contravention of any law, official requirement or other regulatory measure or procedure implemented to combat "money laundering" (as defined in Article 1 of the Directive (91/308/EEC) of the Council of the European Communities). 11 GENERAL UNDERTAKINGS 11.1 General. The Borrower undertakes with each Creditor Party to comply with the following provisions of this Clause 11 at all times during the Security Period except as the Agent may, with the authority of the Majority Lenders, otherwise permit. 11.2 Title; negative pledge and pari passu ranking. The Borrower will: (a) own (directly or indirectly) the entire beneficial interest in each Owner free from all Security Interests and other interests and rights of every kind, except for those created by the Finance Documents; (b) not create or permit to arise any Security Interest (except for Permitted Security Interests) over any other asset, present or future (including, but not limited to the Borrower's rights against a Swap Bank under a Master Agreement or a Senior Master Agreement or all or any part of the Borrower's interest in any amount payable to the Borrower by a Swap Bank under a Master Agreement or a Senior Master Agreement); and (c) procure that its liabilities under the Finance Documents to which it is a party do and will rank at least pari passu with all its other present and future unsecured liabilities, except for liabilities which are mandatorily preferred by law. 11.3 No disposal of assets. The Borrower will not transfer, lease or otherwise dispose of: (a) all or a substantial part of its assets, whether by one transaction or a number of transactions, whether related or not; or (b) any debt payable to it or any other right (present, future or contingent right) to receive a payment, including any right to damages or compensation. 11.4 Restriction on other liabilities or obligations to be incurred. The Borrower will not incur, and will procure that none of the Owners will, incur, any liability or obligation except liabilities and obligations: (a) under the Finance Documents, the Senior Loan Agreement and the Existing Loan Agreements to which each is a party; (b) under the Master Agreements and the Senior Master Agreements (but in such case, only in connection with Designated Transactions and Senior Designated Transactions); and (c) (in the case of each Owner) incurred in the normal course of its business of operating its Ship. 11.5 Information provided to be accurate. All financial and other information which is provided in writing by or on behalf of the Borrower under or in connection with any Finance Document will be true and not misleading and will not omit any material fact or consideration. 11.6 Provision of financial statements. The Borrower will send to the Agent: (a) as soon as possible, but in no event later than 150 days after the end of each Financial Year of the Borrower (commencing with the Financial Year ended 31 December 2005), the audited consolidated accounts of the Group for that Financial Year; (b) as soon as possible, but in no event later than 90 days after the end of each quarterly period in each Financial Year of the Borrower (commencing with the financial quarter ending on 31 March 2006), the unaudited consolidated accounts of the Group for that financial quarter and additionally, in the case of each of the second, third and fourth financial quarters, the unaudited consolidated accounts of the Group for the period 1 January up to the end of the relevant financial quarter certified in each case as to their correctness by the chief financial officer of the Borrower; and (c) together with the quarterly financial statements referred to in paragraph (b) above for each of the second and fourth financial quarters in each Financial Year of the Borrower, two valuations of each Fleet Vessel each prepared by an Approved Broker (at the cost of the Borrower) in accordance with Clause 15.4, which valuations shall be used in determining the security cover ratio in accordance with Clause 15.1, the Margin in accordance with Clause 5.15 and (subject to the final paragraph of Clause 12.5) the financial covenants referred to in Clause 12.4. 11.7 Form of financial statements. All accounts (audited and unaudited) delivered under Clause 11.6 will: (a) be prepared in accordance with all applicable laws and GAAP; (b) give a true and fair view of the state of affairs of the Group at the date of those accounts and of its profit for the period to which those accounts relate; and (c) fully disclose or provide for all significant liabilities of the Group. 11.8 Shareholder and creditor notices. The Borrower will send the Agent, at the same time as they are despatched, copies of all communications which are despatched to all of the Borrower's shareholders or creditors or any class of them. 11.9 Consents. The Borrower will maintain in force and promptly obtain or renew, and will promptly send certified copies to the Agent of, all consents required: (a) for the Borrower to perform its obligations under any Finance Document; (b) for the validity or enforceability of any Finance Document; (c) for each Owner to continue to own and operate the Ship owned by it, and the Borrower will comply (or procure compliance) with the terms of all such consents. 11.10 Maintenance of Security Interests. The Borrower will: (a) at its own cost, do all that it reasonably can to ensure that any Finance Document validly creates the obligations and the Security Interests which it purports to create; and (b) without limiting the generality of paragraph (a) above, at its own cost, promptly register, file, record or enrol any Finance Document with any court or authority in all Pertinent Jurisdictions, pay any stamp, registration or similar tax in all Pertinent Jurisdictions in respect of any Finance Document, give any notice or take any other step which, in the opinion of the Majority Lenders, is or has become necessary or desirable for any Finance Document to be valid, enforceable or admissible in evidence or to ensure or protect the priority of any Security Interest which it creates. 11.11 Notification of litigation. The Borrower will provide the Agent with details of any legal or administrative action involving the Borrower, any Security Party, the Approved Manager, any Ship or the Earnings or the Insurances of any Ship as soon as such action is instituted or it becomes apparent to the Borrower that it is likely to be instituted, unless it is clear that the legal or administrative action cannot be considered material in the context of any Finance Document. 11.12 No amendment to Master Agreements; Transactions. The Borrower will not: (a) agree to any amendment or supplement to, or waive or fail to enforce, either Master Agreement or any of its provisions; or (b) enter into any Transaction pursuant to a Master Agreement except Designated Transactions. 11.13 Principal place of business. The Borrower will maintain its place of business, and keep its corporate documents and records, at the address stated in Clause 28.2(a); and the Borrower will not establish, or do anything as a result of which it would be deemed to have, a place of business in any country other than the Marshall Islands, Malta and Greece. 11.14 Confirmation of no default. The Borrower will, within 2 Business Days after service by the Agent of a written request, serve on the Agent a notice which is signed by 2 directors of the Borrower and which: (a) states that no Event of Default or Potential Event of Default has occurred; or (b) states that no Event of Default or Potential Event of Default has occurred, except for a specified event or matter, of which all material details are given. The Agent may serve requests under this Clause 11.14 from time to time but only if asked to do so by a Lender or Lenders having Contributions exceeding 10 per cent. of the Loan or (if no Advance has been made) Commitments exceeding 10 per cent of the Total Commitments; and this Clause 11.14 does not affect the Borrower's obligations under Clause 11.15. 11.15 Notification of default. The Borrower will notify the Agent as soon as the Borrower becomes aware of: (a) the occurrence of an Event of Default or a Potential Event of Default; or (b) any matter which indicates that an Event of Default or a Potential Event of Default may have occurred; and will thereafter keep the Agent fully up-to-date with all developments. 11.16 Provision of further information. The Borrower will, as soon as practicable after receiving the request, provide the Agent with any additional financial or other information relating: (a) to the Borrower, any Owner, Wealth, any Ship, the Approved Manager or any other Security Party, the Insurances or the Earnings; or (b) to any other matter relevant to, or to any provision of, a Finance Document which may be requested by the Agent, the Security Trustee or any Lender at any time. 11.17 Provision of copies and translation of documents. The Borrower will supply the Agent with a sufficient number of copies of the documents referred to above to provide 1 copy for each Creditor Party; and if the Agent so requires in respect of any of those documents, the Borrower will provide a certified English translation prepared by a translator approved by the Agent. 11.18 Hedging of interest rate risks. The Borrower shall deliver to the Agent by no later than 30 April 2006 the duly signed Hedge Strategy Letter (in a form and on terms acceptable to the Agent which letter shall be prepared in consultation with, and with the assistance of, the Agent), and shall from time to time, enter into such Designated Transactions with a Swap Bank in order to implement the hedging strategy outlined in the Hedge Strategy Letter whereby for a period of at least 5 years from the Drawdown Date of the relevant Advance it will hedge all or the major part of the interest rate risk under this Agreement and the Senior Loan Agreement (but in any event not less than 60 per cent. of the interest rate risk under this Agreement and the Senior Loan Agreement outstanding at any time during the aforesaid 5-year period). 11.19 Ownership. The Borrower shall ensure that (a) it shall remain the direct or indirect owner of the whole of the issued share capital of each Owner and Wealth and (b) there shall be no change in the legal and beneficial ownership of the shares in each Owner or Wealth. 11.20 Debt Service Reserve Account. The Borrower shall ensure that there is standing to the credit of the Debt Service Reserve Account at all times an amount of at least $5,000,000 and any balance on the Debt Service Reserve Account may only be used to discharge the Borrower's payment liabilities under this Agreement, the Senior Loan Agreement, the Senior Master Agreements and the Master Agreements. 11.21 General and administrative costs. The Borrow shall ensure that the payment of all the general and administrative costs of the Borrower and the Owners in connection with the ownership and operation of the Ships (including, without limitation, the payment of the management fees pursuant to the Management Agreements) shall be fully subordinated to the payment obligations of the Borrower and the Owners under this Agreement and the other Finance Documents throughout the Security Period. 11.22 Hille Oldendorff Seller's Credit. The Borrower shall ensure that any payment to be made by Seaventure to Goodwill under the Hille Oldendorff Seller's Credit Agreement may only be made (a) in accordance with the terms of that agreement and (b) if at the relevant time there is available to the Borrower and all the other members of the Group an aggregate amount of not less than $25,000,000 (including, without limitation, any amount standing to the credit of the Debt Service Reserve Account) in immediately freely available and unencumbered bank or cash balances. 11.23 Know your customer. The Borrower will provide to (or procure that there is sent to) the Agent such documents and evidence as any Creditor Party shall require in relation to the Borrower or any Security Party, based on applicable laws and regulations and each Creditor Party's own internal guidelines relating to the verification of the identity and knowledge of its customers. 12 CORPORATE UNDERTAKINGS 12.1 General. The Borrower also undertakes with each Creditor Party to comply with the following provisions of this Clause 12 at all times during the Security Period except as the Agent may, with the authority of the Majority Lenders, otherwise permit. 12.2 Maintenance of status. The Borrower will maintain its separate corporate existence and remain in good standing under the laws of the Marshall Islands. 12.3 Negative undertakings. The Borrower will not: (a) change the nature of its business; or (b) declare or pay any dividend or effect any other form of distribution in excess of: (i) in the Financial Year ending 31 December 2006, $18,000,000 in aggregate; and (ii) in all subsequent Financial Years, 50 percent of its Net Income for the relevant Financial Year; (c) effect any form of redemption, purchase or return of share capital; or (d) provide any form of credit or financial assistance to: (i) a person who is directly or indirectly interested in the Borrower's share or loan capital; or (ii) any company in or with which such a person is directly or indirectly interested or connected; or enter into any transaction with or involving such a person or company on terms which are, in any respect, less favourable to the Borrower than those which it could obtain in a bargain made at arms' length Provided that this shall not prevent or restrict the Borrower from on-lending the Loan to the Owners or granting credit or financial assistance to its wholly-owned direct or indirect subsidiaries; (e) issue, allot or grant any person a right to any shares in its capital or repurchase or reduce its issued share capital; (f) acquire any shares or other securities other than US or UK Treasury bills and certificates of deposit issued by major North American or European banks, or enter into any transaction in a derivative other than Designated Transactions; (g) enter into any form of amalgamation, merger or de-merger or any form of reconstruction or reorganisation. 12.4 Financial Covenants. The Borrower shall ensure that: (a) the Market Adjusted Equity Ratio shall not be less than: (i) in each of the Financial Years ending respectively 31 December 2006 and 31 December 2007, 0.2:1; (ii) in the Financial Year ending 31 December 2008, 0.25:1; and (iii) in each subsequent Financial Year, 0.3:1; (b) the Interest Coverage Ratio shall not be less than 3:1; (c) the Market Value Adjusted Net Worth of the Group shall not be less than: (i) in each of the Financial Years ending respectively 31 December 2006 and 31 December 2007, $125,000,000; (ii) in the Financial Year ending 31 December 2008, $180,000,000; and (iii) in each subsequent Financial Year, $225,000,000; and (d) at all times there is available to the Borrower and all the other members of the Group an aggregate amount of not less than $20,000,000 (including, without limitation, any amount standing to the credit of the Debt Service Reserve Account) in immediately freely available and unencumbered bank or cash balances, of which amount not less than $15,000,000 in aggregate shall be held in the Earnings Accounts and the Wealth Account. 12.5 Compliance Check. Compliance with the undertakings contained in Clause 12.4 shall be determined in each Financial Year: (a) at the time the Agent receives the audited consolidated accounts of the Group and the unaudited consolidated accounts of the Group for the second financial quarter of the Group in each Financial Year (pursuant to Clauses 11.6(a) and 11.6(b) respectively), by reference to the unaudited consolidated accounts in the case of the first 6-month period in each Financial Year of the Borrower and the audited consolidated accounts in the case of the second 6-month period in each Financial Year of the Borrower; (b) at any other time as the Agent may reasonably request by reference to such evidence as the Lenders may require to determine and calculate the financial covenants referred to in Clause 12.3. At the same time as it delivers the consolidated accounts referred to in this Clause 12.5, the Borrower shall deliver to the Agent a certificate in the form set out in Schedule 8 demonstrating its compliance (or not, as the case may be) with the provisions of Clause 12.4 signed by the chief financial officer of the Borrower. The Agent (acting with the authorisation of the Majority Lenders) reserves the right, when determining the compliance of the Borrower with the undertakings contained in Clause 12.4 on the basis of the annual consolidated accounts of the Group for each Financial Year, not to rely on the valuations of the Fleet Vessels submitted by the Borrower together with the unaudited consolidated accounts of the Group for the fourth financial quarter of the relevant Financial Year in accordance with Clause 11.6(c) and instead to obtain (at the cost of the Borrower) two further valuations of each Fleet Vessel, each prepared by an Approved Broker in accordance with Clause 15.4. 12.6 Change in accounting expressions and policies. If, by reason of change in format or GAAP or other relevant accounting policies, the expressions appearing in any accounts and financial statements referred to in Clause 11.6 alter from those in the accounts and financial statements for the Borrower for the year ended 31 December 2005, the relevant definitions contained in Clause 1.1 and the provisions of Clause 12.4 shall be deemed modified in such manner as the Agent, acting with the authorisation of the Majority Lenders, shall require to take account of such different expressions but otherwise to maintain in all respects the substance of those provisions. 12.7 Subordination of rights of Borrower. All rights which the Borrower at any time has (whether in respect of the Loan or any other transaction) against any Owner or its assets shall be fully subordinated to the rights of the Creditor Parties under the Finance Documents; and in particular, the Borrower shall not during the Security Period: (a) claim, or in a bankruptcy of any Owner or prove for any amount payable to the Borrower by an Owner, whether in respect of the Loan or any other transaction; (b) take or enforce any Security Interest for any such amount; or (c) claim to set-off any such amount against any amount payable by the Borrower to any Owner. 12.8 Free Syndication market. The Borrower (in order to ensure an orderly and effective syndication of the Loan) shall not, and shall ensure that no Owner, no member of the Group and no affiliate of the Borrower or any other member of the Group shall, until the finalisation of the syndication of the Loan (as determined by the Joint Underwriters): (a) syndicate or issue or attempt to syndicate or issue; or (b) announce or authorise the announcement of the syndication or issuance of; or (c) engage in discussions concerning the syndication or issuance of, any Financial Indebtedness with any banks or financial institutions in the commercial banking market Provided that this shall not restrict the Borrower from issuing commercial instruments or making any further equity offerings. 13 INSURANCE 13.1 General. The Borrower also undertakes with each Creditor Party to procure that each Owner will comply with the following provisions of this Clause 13 at all times during the Security Period except as the Agent may, with the authority of the Majority Lenders, otherwise permit. 13.2 Maintenance of obligatory insurances. The Borrower shall procure that each Owner keep the Ship owned by it insured at the expense of that Owner against: (a) fire and usual marine risks (including hull and machinery and excess risks); (b) war risks (including protection and indemnity war risks); (c) in the case of protection and indemnity war risks, in an amount equal to the amount for which the war risks under the hull policies are effected; and (d) any other risks against which the Majority Lenders consider, having regard to practices and other circumstances prevailing at the relevant time, it would in the opinion of the Majority Lenders be reasonable for the relevant Owner to insure and which are specified by the Security Trustee by notice to the relevant Owner. 13.3 Terms of obligatory insurances. The Borrower shall procure that each Owner shall effect such insurances: (a) in Dollars; (b) in the case of fire and usual marine risks and war risks, in an amount on an agreed value basis at least the greater of (i) an amount, which when aggregated with the insured value of the other Ships at the relevant time subject to a Mortgage, is equal to 120 percent of the aggregate of the Loan and the Senior Loan and (ii) the Market Value of the Ship owned by it; and (c) in the case of oil pollution liability risks, for an aggregate amount equal to the highest level of cover from time to time available under basic protection and indemnity club entry (with the international group of protection and indemnity clubs) and the international marine insurance market (currently $1,000,000,000); (d) in relation to protection and indemnity risks, in respect of the full value and tonnage of the Ship owned by it; (e) on approved terms; and (f) through approved brokers and with approved insurance companies and/or underwriters or, in the case of war risks and protection and indemnity risks, in approved war risks and protection and indemnity risks associations. 13.4 Further protections for the Creditor Parties. In addition to the terms set out in Clause 13.3, the Borrower shall procure that the obligatory insurances shall: (a) (except in relation to risks referred to in Clauses 13.2(c) and (d)) name (or be amended to name) the Security Trustee as additional named assured for its rights and interests, warranted no operational interest and with full waiver of rights of subrogation against the Security Trustee, but without the Security Trustee thereby being liable to pay (but having the right to pay) premiums, calls or other assessments in respect of such insurance; (b) name the Security Trustee as sole loss payee with such directions for payment as the Security Trustee may specify; (c) provide that all payments by or on behalf of the insurers under the obligatory insurances to the Security Trustee shall be made without set-off, counterclaim or deductions or condition whatsoever; (d) provide that the insurers shall waive, to the fullest extent permitted by English law, their entitlement (if any) (whether by statute, common law, equity, or otherwise) to be subrogated to the rights and remedies of the Security Trustee in respect of any rights or interests (secured or not) held by or available to the Security Trustee in respect of the Secured Liabilities, until the Secured Liabilities shall have been fully repaid and discharged, except that the insurers shall not be restricted by the terms of this paragraph (d) from making personal claims against persons (other than the relevant Owner or any Creditor Party) in circumstances where the insurers have fully discharged their liabilities and obligations under the relevant obligatory insurances; (e) provide that such obligatory insurances shall be primary without right of contribution from other insurances which may be carried by the Security Trustee; (f) provide that the Security Trustee may make proof of loss if the relevant Owner fails to do so; and (g) provide that if any obligatory insurance is cancelled, or if any substantial change is made in the coverage which adversely affects the interest of the Security Trustee, or if any obligatory insurance is allowed to lapse for non-payment of premium, such cancellation, charge or lapse shall not be effective with respect to the Security Trustee for 30 days (or 7 days in the case of war risks) after receipt by the Security Trustee of prior written notice from the insurers of such cancellation, change or lapse. 13.5 Renewal of obligatory insurances. The Borrower shall procure that each Owner shall: (a) at least 21 days before the expiry of any obligatory insurance: (i) notify the Security Trustee of the brokers (or other insurers) and any protection and indemnity or war risks association through or with whom that Owner proposes to renew that insurance and of the proposed terms of renewal; and (ii) in case of any substantial change in insurance cover, obtain the Security Trustee's approval to the matters referred to in paragraph (i) above; (b) at least 14 days before the expiry of any obligatory insurance, renew the insurance in accordance with the Security Trustee's approval pursuant to paragraph (a); and (c) procure that the approved brokers and/or the war risks and protection and indemnity associations with which such a renewal is effected shall promptly after the renewal notify the Security Trustee in writing of the terms and conditions of the renewal. 13.6 Copies of policies; letters of undertaking. The Borrower shall procure that each Owner shall ensure that all approved brokers provide the Security Trustee with copies of all policies relating to the obligatory insurances which they effect or renew and of a letter or letters of undertaking in a form required by the Majority Lenders and including undertakings by the approved brokers that: (a) they will have endorsed on each policy, immediately upon issue, a loss payable clause and a notice of assignment complying with the provisions of Clause 13.4; (b) they will hold such policies, and the benefit of such insurances, to the order of the Security Trustee in accordance with the said loss payable clause; (c) they will advise the Security Trustee immediately of any material change to the terms of the obligatory insurances; (d) they will notify the Security Trustee, not less than 14 days before the expiry of the obligatory insurances, in the event of their not having received notice of renewal instructions from that Owner or its agents and, in the event of their receiving instructions to renew, they will promptly notify the Security Trustee of the terms of the instructions; and (e) they will not set off against any sum recoverable in respect of a claim relating to the Ship owned by the relevant Owner under such obligatory insurances any premiums or other amounts due to them or any other person whether in respect of that Ship or otherwise, they waive any lien on the policies or, any sums received under them, which they might have in respect of such premiums or other amounts, and they will not cancel such obligatory insurances by reason of non-payment of such premiums or other amounts, and will arrange for a separate policy to be issued in respect of the Ship forthwith upon being so requested by the Security Trustee. 13.7 Copies of certificates of entry. The Borrower shall procure that each Owner shall ensure that any protection and indemnity and/or war risks associations in which the Ship owned by that Owner is entered provides the Security Trustee with: (a) a certified copy of the certificate of entry for that Ship; (b) a letter or letters of undertaking in such form as may be required by the Majority Lenders; and (c) where required to be issued under the terms of insurance/indemnity provided by the Borrower's protection and indemnity association, a certified copy of each United States of America voyage quarterly declaration (or other similar document or documents) made by that Owner in accordance with the requirements of such protection and indemnity association; and (d) a certified copy of each certificate of financial responsibility for pollution by oil or other Environmentally Sensitive Material issued by the relevant certifying authority. 13.8 Deposit of original policies. The Borrower shall procure that each Owner shall ensure that all policies relating to obligatory insurances are deposited with the approved brokers through which the insurances are effected or renewed. 13.9 Payment of premiums. The Borrower shall procure that each Owner shall punctually pay all premiums or other sums payable in respect of the obligatory insurances and produce all relevant receipts when so required by the Security Trustee. 13.10 Guarantees. The Borrower shall procure that each Owner shall ensure that any guarantees required by a protection and indemnity or war risks association are promptly issued and remain in full force and effect. 13.11 Restrictions on employment. The Borrower shall procure that no Owner employ the Ship owned by it, nor permit her to be employed, outside the cover provided by any obligatory insurances. 13.12 Compliance with terms of insurances. The Borrower shall procure that no Owner shall do or omit to do (or permit to be done or not to be done) any act or thing which would or might render any obligatory insurance invalid, void, voidable or unenforceable or render any sum payable thereunder repayable in whole or in part; and, in particular: (a) each Owner shall take all necessary action and comply with all requirements which may from time to time be applicable to the obligatory insurances, and (without limiting the obligation contained in Clause 13.7(c) above) ensure that the obligatory insurances are not made subject to any exclusions or qualifications to which the Security Trustee has not given its prior approval; (b) no Owner shall make any changes relating to the classification or classification society or manager or operator of the Ship owned by it unless approved by the underwriters of the obligatory insurances; (c) each Owner shall make all quarterly or other voyage declarations which may be required by the protection and indemnity risks association in which the Ship owned by it is entered to maintain cover for trading to the United States of America and Exclusive Economic Zone (as defined in the United States Oil Pollution Act 1990 or any other applicable legislation); and (d) no Owner shall employ the Ship owned by it, nor allow it to be employed, otherwise than in conformity with the terms and conditions of the obligatory insurances, without first obtaining the consent of the insurers and complying with any requirements (as to extra premium or otherwise) which the insurers specify. 13.13 Alteration to terms of insurances. The Borrower shall procure that no Owner shall either make or agree to any alteration to the terms of any obligatory insurance or waive any right relating to any obligatory insurance without the prior written consent of the Security Trustee. 13.14 Settlement of claims. The Borrower shall procure that no Owner shall settle, compromise or abandon any claim under any obligatory insurance for Total Loss or for a Major Casualty, and shall do all things necessary and provide all documents, evidence and information to enable the Security Trustee to collect or recover any moneys which at any time become payable in respect of the obligatory insurances. 13.15 Provision of copies of communications. The Borrower shall procure that each Owner shall provide the Security Trustee, at the time of each such communication, copies of all written communications between that Owner and: (a) the approved brokers; and (b) the approved protection and indemnity and/or war risks associations; and (c) the approved insurance companies and/or underwriters, which relate directly or indirectly to: (i) that Owner's obligations relating to the obligatory insurances including, without limitation, all requisite declarations and payments of additional premiums or calls; and (ii) any credit arrangements made between that Owner and any of the persons referred to in paragraphs (a) or (b) above relating wholly or partly to the effecting or maintenance of the obligatory insurances. 13.16 Provision of information. In addition, the Borrower shall procure that each Owner shall promptly provide the Security Trustee (or any persons which it may designate) with any information which the Security Trustee (or any such designated person) requests for the purpose of: (a) obtaining or preparing any report from an independent marine insurance broker as to the adequacy of the obligatory insurances effected or proposed to be effected; and/or (b) effecting, maintaining or renewing any such insurances as are referred to in Clause 13.17 below or dealing with or considering any matters relating to any such insurances and the Borrower shall, forthwith upon demand, indemnify the Security Trustee in respect of all fees and other expenses incurred by or for the account of the Security Trustee in connection with any such report as is referred to in paragraph (a) above. 13.17 Mortgagee's interest and additional peril insurances. The Security Trustee shall be entitled from time to time to effect, maintain and renew all or any of the following insurances in such amounts, on such terms, through such insurers and generally in such manner as the Majority Lenders may from time to time consider appropriate: (a) a mortgagee's interest marine insurance in an amount equal to 120 percent of the aggregate of the Loan and the Senior Loan, providing for the indemnification of the Security Trustee for any losses under or in connection with any Finance Document which directly or indirectly result from loss of or damage to any Ship or a liability of any Ship or of any Owner, being a loss or damage which is prima facie covered by an obligatory insurance but in respect of which there is a non-payment (or reduced payment) by the underwriters by reason of, or on the basis of an allegation concerning: (i) any act or omission on the part of any Owner, of any operator, charterer, manager or sub-manager of any Ship or of any officer, employee or agent of any Owner or of any such person, including any breach of warranty or condition or any non-disclosure relating to such obligatory insurance; (ii) any act or omission, whether deliberate, negligent or accidental, or any knowledge or privity of any Owner, any other person referred to in paragraph (i) above, or of any officer, employee or agent of any Owner or of such a person, including the casting away or damaging of any Ship and/or any Ship being unseaworthy; and/or (iii) any other matter capable of being insured against under a mortgagee's interest marine insurance policy whether or not similar to the foregoing; (b) a mortgagee's interest additional perils policy in an amount not less than 110 percent of the aggregate of the Loan and the Senior Loan, providing for the indemnification of the Security Trustee against, among other things, any possible losses or other consequences of any Environmental Claim, including the risk of expropriation, arrest or any form of detention of any Ship, the imposition of any Security Interest over any Ship and/or any other matter capable of being insured against under a mortgagee's interest additional perils policy whether or not similar to the foregoing and the Borrower shall upon demand fully indemnify the Security Trustee in respect of all premiums and other expenses which are incurred in connection with or with a view to effecting, maintaining or renewing any such insurance or dealing with, or considering, any matter arising out of any such insurance. 13.18 Review of insurance requirements. The Majority Lenders shall be entitled to review the requirements of this Clause 13 from time to time in order to take account of any changes in circumstances after the date of this Agreement which are, in the opinion of the Majority Lenders, significant and capable of affecting the Owners or the Ships and their insurance (including, without limitation, changes in the availability or the cost of insurance coverage or the risks to which the Owners may be subject), and may appoint insurance consultants in relation to this review at the cost of the Borrower. 13.19 Modification of insurance requirements. The Security Trustee shall notify the Borrower of any proposed modification under Clause 13.18 to the requirements of this Clause 13 which the Majority Lenders consider appropriate in the circumstances, and such modification shall take effect on and from the date it is notified in writing to the Borrower as an amendment to this Clause 13 and shall bind the Borrower accordingly. 13.20 Compliance with mortgagee's instructions. The Security Trustee shall be entitled (without prejudice to or limitation of any other rights which it may have or acquire under any Finance Document) to require any Ship to remain at any safe port or to proceed to and remain at any safe port designated by the Security Trustee until the Owner of that Ship implements any amendments to the terms of the obligatory insurances and any operational changes required as a result of a notice served under Clause 13.19. 14 SHIP COVENANTS 14.1 General. The Borrower also undertakes with each Creditor Party to procure that each Owner shall comply with the following provisions of this Clause 14 at all times during the Security Period except as the Agent, with the authority of the Majority Lenders, may otherwise permit. 14.2 Ship's name and registration. The Borrower shall procure that each Owner shall keep the Ship owned by it registered in its ownership under Maltese Flag (in the case of each Existing Ship and the Identified Ship) and an Approved Flag (in the case of each Additional Ship); shall not do or allow to be done anything as a result of which such registration might be cancelled or imperilled; and shall not change the name or port of registry of any Ship. 14.3 Repair and classification. The Borrower shall procure that each Owner shall keep the Ship owned by it in a good and safe condition and state of repair: (a) consistent with first-class ship ownership and management practice; (b) so as to maintain the highest class at Lloyd's Register of Ships (or such other first-class classification society which is a member of IACS acceptable to the Agent) free of overdue recommendations and conditions of such classification society; and (c) so as to comply with all laws and regulations applicable to vessels registered at ports in Malta (in the case of each Existing Ship and the Identified Ship) or the relevant Approved Flag State (in the case of each Additional Ship) or to vessels trading to any jurisdiction to which the Ship may trade from time to time, including but not limited to the ISM Code, the ISPS Code, the ISM Code Documentation and the ISPS Code Documentation. 14.4 Classification society undertaking. The Borrower shall procure that each Owner shall instruct the classification society referred to in Clause 14.3 (and procure that the classification society undertakes with the Security Trustee): (a) to send to the Security Trustee, following receipt of a written request from the Security Trustee, certified true copies of all original class records held by the classification society in relation to the Ship owned by that Owner; (b) to allow the Security Trustee (or its agents), at any time and from time to time, to inspect the original class and related records of that Owner and its Ship at the offices of the classification society and to take copies of them; (c) to notify the Security Trustee immediately in writing if the classification society: (i) receives notification from the Owner or any person that the Ship's classification society is to be changed; or (ii) becomes aware of any facts or matters which may result in or have resulted in a change, suspension, discontinuance, withdrawal or expiry of the Ship's class under the rules or terms and conditions of the Owner's or the Ship's membership of the classification society; (d) following receipt of a written request from the Security Trustee: (i) to confirm that the Owner is not in default of any of its contractual obligations or liabilities to the classification society and, without limiting the foregoing, that it has paid in full all fees or other charges due and payable to the classification society; or (ii) if the Owner is in default of any of its contractual obligations or liabilities to the classification society, to specify to the Security Trustee in reasonable detail the facts and circumstances of such default, the consequences thereof, and any remedy period agreed or allowed by the classification society. 14.5 Modification. The Borrower shall procure that no Owner shall make any modification or repairs to, or replacement of, the Ship owned by it or equipment installed on her which would or might materially alter the structure, type or performance characteristics of the Ship or materially reduce her value. 14.6 Removal of parts. The Borrower shall procure that no Owner shall remove any material part of the Ship owned by it, or any item of equipment installed on, the Ship unless the part or item so removed is forthwith replaced by a suitable part or item which is in the same condition as or better condition than the part or item removed, is free from any Security Interest or any right in favour of any person other than the Security Trustee and becomes on installation on the Ship the property of the Owner and subject to the security constituted by the Mortgage and if applicable, the Deed of Covenant, relative to the Ship Provided that the Owner may install equipment owned by a third party if the equipment can be removed without any risk of damage to the Ship. 14.7 Surveys. The Borrower shall procure that each Owner shall submit the Ship owned by it regularly to all periodical or other surveys which may be required for classification purposes and, if so required by the Majority Lenders, provide the Security Trustee (at the expense of the Borrower) with copies of all survey reports. 14.8 Inspection. The Borrower shall procure that each Owner shall permit the Security Trustee (by surveyors or other persons appointed by it for that purpose) to board the Ship owned by it at all reasonable times to inspect her condition or to satisfy themselves about proposed or executed repairs and shall afford all proper facilities for such inspections Provided that so long as no Event of Default has occurred and is continuing at the relevant time and a Ship is found to be in a satisfactory condition (in the opinion of the Security Trustee) the Borrower shall be obliged to pay the fees and expenses of one inspection of that Ship in any calendar year. 14.9 Prevention of and release from arrest. The Borrower shall procure that each Owner shall promptly discharge: (a) all liabilities which give or may give rise to maritime or possessory liens on or claims enforceable against the Ship owned by it, her Earnings or her Insurances; (b) all taxes, dues and other amounts charged in respect of the Ship, her Earnings or her Insurances; and (c) all other outgoings whatsoever in respect of the Ship, her Earnings or her Insurances and, forthwith upon receiving notice of the arrest of the Ship, or of her detention in exercise or purported exercise of any lien or claim, the relevant Owner shall within 10 Business Days procure her release by providing bail or otherwise as the circumstances may require. 14.10 Compliance with laws etc. The Borrower shall procure that each Owner and each Approved Manager shall: (a) comply, or procure compliance with the ISM Code, the ISPS Code, all Environmental Laws and all other laws or regulations relating to the Ship owned by the relevant Owner, its ownership, operation and management or to the business of that Owner; (b) not employ the Ship nor allow her employment in any manner contrary to any law or regulation in any relevant jurisdiction including but not limited to the ISM Code and the ISPS Code; and (c) in the event of hostilities in any part of the world (whether war is declared or not), not cause or permit the Ship to enter or trade to any zone which is declared a war zone by any government or by the Ship's war risks insurers unless the prior written consent of the Majority Lenders has been given and the Owner has (at its expense) effected any special, additional or modified insurance cover which the Majority Lenders may require. 14.11 Provision of information. The Borrower shall procure that each Owner shall promptly provide the Security Trustee with any information which the Majority Lenders request regarding: (a) the Ship owned by it, her employment, position and engagements; (b) the Earnings and payments and amounts due to the master and crew of the Ship owned by it; (c) any expenses incurred, or likely to be incurred, in connection with the operation, maintenance or repair of the Ship and any payments made in respect of the Ship; (d) any towages and salvages; (e) its compliance or the compliance of the Ship with the ISM Code and the ISPS Code, and, upon the Security Trustee's request, provide copies of any current charter relating to the Ship and of any current charter guarantee, and copies of the ISM Code Documentation and the ISPS Code Documentation. 14.12 Notification of certain events. The Borrower shall procure that each Owner shall immediately notify the Security Trustee by letter of: (a) any casualty which is or is likely to be or to become a Major Casualty; (b) any occurrence as a result of which the Ship owned by it has become or is, by the passing of time or otherwise, likely to become a Total Loss; (c) any requirement or recommendation made by any insurer or classification society or by any competent authority which is not immediately complied with; (d) any arrest or detention of the Ship, any exercise or purported exercise of any lien on the Ship or her Earnings or any requisition of the Ship for hire; (e) any intended dry docking of the Ship; (f) any Environmental Claim made against that Owner or in connection with the Ship, or any Environmental Incident; (g) any claim for breach of the ISM Code or the ISPS Code being made against the Owner, the Approved Manager or otherwise in connection with the Ship; or (h) any other matter, event or incident, actual or threatened, the effect of which will or could lead to the ISM Code or the ISPS Code not being complied with and the Borrower shall keep the Security Trustee advised in writing on a regular basis and in such detail as the Security Trustee shall require of the Owner's, the Approved Manager's or any other person's response to any of those events or matters. 14.13 Restrictions on chartering, appointment of managers etc. The Borrower shall procure that no Owner shall: (a) (other than pursuant to the Hille Oldendorff Charterparty in the case of the Identified Ship), let the Ship owned by it on demise charter for any period; (b) enter into any time or consecutive voyage charter in respect of the Ship for a term which exceeds, or which by virtue of any optional extensions may exceed, 11 months; (c) change the terms on which the Ship is employed or the identity of the person by whom the Ship is employed; (d) enter into any charter in relation to the Ship under which more than 2 months' hire (or the equivalent) is payable in advance; (e) charter the Ship otherwise than on bona fide arm's length terms at the time when the Ship is fixed; (f) appoint a manager of the Ship other than the Approved Manager or agree to any alteration to the terms of the Approved Manager's appointment; (g) de-activate or lay up the Ship; or (h) put the Ship into the possession of any person for the purpose of work being done upon her in an amount exceeding or likely to exceed $500,000 (or the equivalent in any other currency) unless that person has first given to the Security Trustee and in terms satisfactory to it a written undertaking not to exercise any lien on the Ship or her Earnings for the cost of such work or otherwise. 14.14 Notice of Mortgage. The Borrower shall procure that each Owner shall keep the Mortgage applicable to the Ship owned by it registered against that Ship as a valid first priority or preferred mortgage, carry on board the Ship a certified copy of the Mortgage and place and maintain in a conspicuous place in the navigation room and the Master's cabin of the Ship a framed printed notice stating that the Ship is mortgaged by the Owner to the Security Trustee. 14.15 Sharing of Earnings. The Borrower shall procure that no Owner shall: (a) enter into any agreement or arrangement for the sharing of any Earnings; (b) enter into any agreement or arrangement for the postponement of any date on which any Earnings are due; the reduction of the amount of any Earnings or otherwise for the release or adverse alteration of any right of that Owner to any Earnings; or (c) enter into any agreement or arrangement for the release of, or adverse alteration to, any guarantee or Security Interest relating to any Earnings. 14.16 Time Charter Assignment. If any Owner enters into any charter in respect of its Ship which is of 11 months or more in duration, or is capable of exceeding 11 months in duration that Owner shall, at the request of the Agent, execute, or, as the case may be, procure the execution in favour of the Security Trustee a Charterparty Assignment in respect of that charter, and shall deliver to the Agent such other documents equivalent to those referred to at paragraphs 3,4 and 5 of Schedule 5, Part A as the Agent may require. 15 SECURITY COVER 15.1 Provision of additional security cover; prepayment of Loan. The Borrower undertakes with each Creditor Party that if the Agent notifies the Borrower that: (a) the aggregate Market Values of the Ships; plus (b) the net realisable value of any additional security previously provided under this Clause 15; is below 133 percent of the Senior Loan or 120 percent of the aggregate of the Loan and the Senior Loan, the Borrower will, within 14 days after the date on which the Agent's notice is served, either: (i) provide, or ensure that a third party provides, additional security which, in the opinion of the Majority Lenders, has a net realisable value at least equal to the shortfall and which, if it consists of or includes a Security Interest, covers such asset or assets and is documented in such terms as the Agent may, with authorisation from the Majority Lenders, approve or require; or (ii) prepay in accordance with Clause 8 such part (at least) of the Loan as will eliminate the shortfall. 15.2 Meaning of additional security. In Clause 15.1 "security" means a Security Interest over an asset or assets (including, without limitation a vessel (other than a Ship)) (whether securing the Borrower's liabilities under the Finance Documents or a guarantee in respect of those liabilities), or a guarantee, letter of credit, cash deposit or other security in respect of the Borrower's liabilities under the Finance Documents. 15.3 Requirement for additional documents. The Borrower shall not be deemed to have complied with Clause 15.1 (i) above until the Agent has received in connection with the additional security certified copies of documents of the kinds referred to in paragraphs 3, 4 and 5 of Schedule 5, Part A and such legal opinions in terms acceptable to the Majority Lenders from such lawyers as they may select. 15.4 Valuation of Ship. The market value of a Ship at any date is that shown by taking the arithmetic mean of two valuations each prepared: (a) as at a date not more than 15 days previously; (b) by an Approved Broker; (c) with or without physical inspection of the Ship (as the Agent may require); (d) on the basis of a sale for prompt delivery for cash on normal arm's length commercial terms as between a willing seller and a willing buyer, free of any existing charter or other contract of employment; and (e) after deducting the estimated amount of the usual and reasonable expenses which would be incurred in connection with the sale, Provided that if such two valuations differ by more than 15 percent then the Agent will obtain a third valuation from an Approved Broker to be prepared in accordance with paragraphs (a) to (e) of this Clause 15.4 and the Market Value of a Ship will be the arithmetic mean of such 3 valuations. 15.5 Value of additional security. The net realisable value of any additional security which is provided under Clause 15.1 and which consists of a Security Interest over a vessel shall be that shown by a valuation complying with the requirements of Clause 15.4. 15.6 Valuations binding. Any valuation under Clause 15.1(i), 15.4 or 15.5 shall be binding and conclusive as regards the Borrower, as shall be any valuation which the Majority Lenders make of a security which does not consist of or include a Security Interest. 15.7 Provision of information. The Borrower shall promptly provide the Agent and any Approved Broker or expert acting under Clause 15.4 or 15.5 with any information which the Agent or the Approved Broker or expert may request for the purposes of the valuation; and, if the Borrower fails to provide the information by the date specified in the request, the valuation may be made on any basis and assumptions which the Approved Broker or the Majority Lenders (or the expert appointed by them) consider prudent. 15.8 Payment of valuation expenses. Without prejudice to the generality of the Borrower's obligations under Clauses 20.2, 20.3 and 21.3, the Borrower shall, on demand, pay the Agent the amount of the fees and expenses of any Approved Broker instructed by the Agent under this Clause Provided that until an Event of Default has occurred and is continuing the Borrower shall be liable to pay to the Agent the fees and expenses of up to two sets of valuations of each Ship on up to two (or, if the Agent exercises the right referred to in the final paragraph of Clause 12.5, three) occasions in any calendar year. 16 PAYMENTS AND CALCULATIONS 16.1 Currency and method of payments. All payments to be made: (a) by the Lenders to the Agent; or (b) by the Borrower to the Agent, the Security Trustee or any Lender under a Finance Document shall be made to the Agent or to the Security Trustee, in the case of an amount payable to it: (i) by not later than 11.00 a.m. New York City time) on the due date; (ii) in same day Dollar funds settled through the New York Clearing House Interbank Payments System (or in such other Dollar funds and/or settled in such other manner as the Agent shall specify as being customary at the time for the settlement of international transactions of the type contemplated by this Agreement); (iii) to the account of the Agent at JPMorgan Chase Bank, New York (Account No 001-1-331808 SWIFT Code: CHASUS 33 under reference "Dryships Inc. - US$628.75m facility"), or to such other account with such other bank as the Agent may from time to time notify to the Borrower and the other Creditor Parties; and (iv) in the case of an amount payable to the Security Trustee, to such account as it may from time to time notify to the Borrower and the other Creditor Parties. 16.2 Payment on non-Business Day. If any payment by the Borrower under a Finance Document would otherwise fall due on a day which is not a Business Day: (a) the due date shall be extended to the next succeeding Business Day; or (b) if the next succeeding Business Day falls in the next calendar month, the due date shall be brought forward to the immediately preceding Business Day and interest shall be payable during any extension under paragraph (a) at the rate payable on the original due date. 16.3 Basis for calculation of periodic payments. All interest and commitment fee and any other payments under any Finance Document which are of an annual or periodic nature shall accrue from day to day and shall be calculated on the basis of the actual number of days elapsed and a 360 day year. 16.4 Distribution of payments to Creditor Parties. Subject to Clauses 16.5, 16.6 and 16.7: (a) any amount received by the Agent under a Finance Document for distribution or remittance to a Lender, a Swap Bank or the Security Trustee shall be made available by the Agent to that Lender or, as the case may be, that Swap Bank or the Security Trustee by payment, with funds having the same value as the funds received, to such account as the Lender, the Swap Bank or the Security Trustee may have notified to the Agent not less than 5 Business Days previously; and (b) amounts to be applied in satisfying amounts of a particular category which are due to the Lenders or the Swap Bank generally shall be distributed by the Agent to each Lender or the Swap Bank pro rata to the amount in that category which is due to it. 16.5 Permitted deductions by Agent. Notwithstanding any other provision of this Agreement or any other Finance Document, the Agent may, before making an amount available to a Lender or a Swap Bank, deduct and withhold from that amount any sum which is then due and payable to the Agent from that Lender or that Swap Bank under any Finance Document or any sum which the Agent is then entitled under any Finance Document to require that Lender or any Swap Bank to pay on demand. 16.6 Agent only obliged to pay when monies received. Notwithstanding any other provision of this Agreement or any other Finance Document, the Agent shall not be obliged to make available to the Borrower or any Lender or any Swap Bank any sum which the Agent is expecting to receive for remittance or distribution to the Borrower or that Lender or that Swap Bank until the Agent has satisfied itself that it has received that sum. 16.7 Refund to Agent of monies not received. If and to the extent that the Agent makes available a sum to the Borrower or a Lender or a Swap Bank, without first having received that sum, the Borrower or (as the case may be) the Lender or the Swap Bank concerned shall, on demand: (a) refund the sum in full to the Agent; and (b) pay to the Agent the amount (as certified by the Agent) which will indemnify the Agent against any funding or other loss, liability or expense incurred by the Agent as a result of making the sum available before receiving it. 16.8 Agent may assume receipt. Clause 16.7 shall not affect any claim which the Agent has under the law of restitution, and applies irrespective of whether the Agent had any form of notice that it had not received the sum which it made available. 16.9 Creditor Party accounts. Each Creditor Party shall maintain accounts showing the amounts owing to it by the Borrower and each Security Party under the Finance Documents and all payments in respect of those amounts made by the Borrower and any Security Party. 16.10 Agent's memorandum account. The Agent shall maintain a memorandum account showing the amounts advanced by the Lenders and all other sums owing to the Agent, the Security Trustee and each Lender from the Borrower and each Security Party under the Finance Documents and all payments in respect of those amounts made by the Borrower and any Security Party. 16.11 Accounts prima facie evidence. If any accounts maintained under Clauses 16.9 and 16.10 show an amount to be owing by the Borrower or a Security Party to a Creditor Party, those accounts shall, absent manifest error, be prima facie evidence that that amount is owing to that Creditor Party. 17 APPLICATION OF RECEIPTS 17.1 Normal order of application. Except as any Finance Document may otherwise provide, any sums which are received or recovered by any Creditor Party under or by virtue of any Finance Document shall be applied: (a) FIRST: in or towards payment to the Agent for application in accordance with the paragraphs titled "FIRST" and "SECONDLY" in paragraphs (a) and (b) of clause 17.1 of the Senior Loan Agreement; (b) SECONDLY: in or towards satisfaction of any amounts then due and payable under the Finance Documents and each Master Agreement in the following order and proportions: (i) first, in or towards satisfaction pro rata of all amounts then due and payable to the Creditor Parties under the Finance Documents other than those amounts referred to at paragraphs (ii) and (iii) (including, but without limitation, all amounts payable by the Borrower under Clauses 20, 21 and 22 of this Agreement or by the Borrower or any Security Party under any corresponding or similar provision in any other Finance Document or in either Master Agreement); (ii) secondly, in or towards satisfaction pro rata of any and all amounts of interest or default interest payable to the Creditor Parties under the Finance Documents and the Master Agreements (and, for this purpose, the expression "interest" shall include any net amount which the Borrower shall have become liable to pay or deliver under section 2(e) (Obligations) of either Master Agreement but shall have failed to pay or deliver to the relevant Swap Bank at the time of application or distribution under this Clause 17); and (iii) thirdly, in or towards satisfaction pro rata of the Loan and the Swap Exposure of each Swap Bank (in the case of the latter, calculated as at the actual Early Termination Date applying to each particular Designated Transaction, or if no such Early Termination Date shall have occurred, calculated as if an Early Termination Date occurred on the date of application or distribution hereunder); (c) THIRDLY: in retention of an amount equal to any amount not then due and payable under any Finance Document or any Master Agreement but which the Agent, by notice to the Borrower, the Security Parties and the other Creditor Parties, states in its opinion will or may become due and payable in the future and, upon those amounts becoming due and payable, in or towards satisfaction of them in accordance with the provisions of Clause 17.1(b); and (d) FOURTHLY: any surplus shall be paid to the Borrower or to any other person appearing to be entitled to it. 17.2 Variation of order of application. The Agent may, with the authorisation of the Majority Lenders and the Swap Banks by notice to the Borrower, the Security Parties and the other Creditor Parties provide for a different manner of application from that set out in Clause 17.1 either as regards a specified sum or sums or as regards sums in a specified category or categories. 17.3 Notice of variation of order of application. The Agent may give notices under Clause 17.2 from time to time; and such a notice may be stated to apply not only to sums which may be received or recovered in the future, but also to any sum which has been received or recovered on or after the third Business Day before the date on which the notice is served. 17.4 Appropriation rights overridden. This Clause 17 and any notice which the Agent gives under Clause 17.3 shall override any right of appropriation possessed, and any appropriation made, by the Borrower or any Security Party. 18 APPLICATION OF EARNINGS 18.1 Payment of Earnings. The Borrower undertakes with each Creditor Party to ensure that throughout the Security Period: (a) (subject only to provisions of the relevant General Assignment), all the Earnings of each Ship are paid to the Earnings Account for that Ship; and (b) all payments by a Swap Bank to a Borrower under a Designated Transaction are paid to the Retention Account. 18.2 Monthly retentions. The Borrower undertakes with each Creditor Party to ensure that, in each calendar month of the Security Period commencing on the date falling 1 month after the first Drawdown Date and on the same day in each subsequent month, there is transferred to the Retention Account out of the aggregate Earnings received in the Earnings Accounts during the preceding calendar month: (a) one-third (or, in the case of the period between the first Drawdown Date and the first Repayment Date, one-fifth) of the amount of the Repayment Instalment falling due under Clause 8 on the next Repayment Date; and (b) the relevant fraction of the aggregate amount of interest on (i) the Term Loan and (ii) the Credit Facility which is payable on the next due date for payment of interest for each of the Term Loan and the Credit Facility under this Agreement. The "relevant fraction", in respect of each Advance, is a fraction of which the numerator is 1 and the denominator the number of months comprised in the then current Interest Period applicable to such Advance (or, if the current Interest Period ends after the next date for payment of interest under this Agreement, the number of months from the later of the commencement of the current Interest Period or the last due date for payment of interest to the next date for payment of interest under this Agreement). 18.3 Shortfall in Earnings. If the aggregate Earnings received are insufficient in any month for the required amount to be transferred to the Retention Account under Clause 18.2, the Borrower shall make up the amount of the insufficiency on demand from the Agent; but, without thereby prejudicing the Agent's right to make such demand at any time, the Agent may, if so authorised by the Majority Lenders, permit the Borrower to make up all or part of the insufficiency by increasing the amount of any transfer under Clause 18.2 from the Earnings received in the next or subsequent months. 18.4 Application of retentions. Until an Event of Default occurs, the Agent shall on each Repayment Date and on each due date for the payment of interest under this Agreement distribute to the Lenders in accordance with Clause 16.4 so much of the then balance on the Retention Account as equals: (a) the Repayment Instalment due on that Repayment Date; and (b) the amount of interest payable on that interest payment date in discharge of the Borrower's liability for that Repayment Instalment or that interest. 18.5 Interest accrued on Retention Account. Any credit balance on the Retention Account shall bear interest at the rate from time to time offered by the Agent to its customers for Dollar deposits of similar amounts and for periods similar to those for which such balances appear to the Agent likely to remain on the Retention Account. 18.6 Release of accrued interest. Interest accruing under Clause 18.5 shall be released to the Borrower on each Repayment Date unless an Event of Default or a Potential Event of Default has occurred or the then credit balance on the Retention Account is less than what would have been the balance had the full amount required by Clause 18.2 (and Clause 18.3, if applicable) been transferred in that and each previous month. 18.7 Location of accounts. The Borrower shall promptly: (a) comply, and ensure that the Owners and Wealth comply, with any requirement of the Agent as to the location or re-location of any Earnings Account, the Debt Service Reserve Account, the Retention Account or the Wealth Account; (b) execute, and ensure that the Owners and Wealth execute, any documents which the Agent specifies to create or maintain in favour of the Security Trustee a Security Interest over (and/or rights of set-off, consolidation or other rights in relation to) the Earnings Accounts (or any of them), the Debt Service Reserve Account, the Retention Account and the Wealth Account. 18.8 Debits for expenses etc. The Agent shall be authorised by the Borrower (but not obliged) from time to time to debit the Earnings Account without prior notice in order to discharge any amount due and payable under Clause 20 or 21 to a Creditor Party or payment of which any Creditor Party has become entitled to demand under Clause 20 or 21. 18.9 Borrower' obligations unaffected. The provisions of this Clause 18 do not affect: (a) the liability of the Borrower to make payments of principal and interest on the due dates; or (b) any other liability or obligation of the Borrower or any Security Party under any Finance Document. 18.10 Wealth Account. The Owners may from time to time transfer credit balances on the Earnings Accounts to the Wealth Account subject to the Borrower being in compliance with its obligations under this Agreement (including, without limitation, Clause 18.2). 19 EVENTS OF DEFAULT 19.1 Events of Default. An Event of Default occurs if: (a) the Borrower or any Security Party fails to pay when due or (if so payable) on demand any sum payable under a Finance Document or under any document relating to a Finance Document; or (b) any breach occurs of Clause 9.2, 11.2, 11.3, 11.19, 11.20, 12.2, 12.3, 12.4, 13.2, 15.1 or 18.1; or (c) any breach by the Borrower or any Security Party occurs of any provision of a Finance Document (other than a breach covered by paragraphs (a) or (b) above) if, in the opinion of the Majority Lenders, such default is capable of remedy, and such default continues unremedied 10 days after written notice from the Agent requesting action to remedy the same; or (d) (subject to any applicable grace period specified in the Finance Document) any breach by the Borrower or any Security Party occurs of any provision of a Finance Document (other than a breach covered by paragraphs (a), (b) or (c) above); or (e) any representation, warranty or statement made by, or by an officer of, the Borrower or a Security Party in a Finance Document or in a Drawdown Notice or any other notice or document relating to a Finance Document is untrue or misleading when it is made; or (f) any of the following occurs in relation to any Financial Indebtedness of a Relevant Person exceeding $1,000,000 (or the equivalent in any other currency) in aggregate: (i) any Financial Indebtedness of a Relevant Person is not paid when due or, if so payable, on demand; or (ii) any Financial Indebtedness of a Relevant Person becomes due and payable or capable of being declared due and payable prior to its stated maturity date as a consequence of any event of default; or (iii) a lease, hire purchase agreement or charter creating any Financial Indebtedness of a Relevant Person is terminated by the lessor or owner or becomes capable of being terminated as a consequence of any termination event; or (iv) any overdraft, loan, note issuance, acceptance credit, letter of credit, guarantee, foreign exchange or other facility, or any swap or other derivative contract or transaction, relating to any Financial Indebtedness of a Relevant Person ceases to be available or becomes capable of being terminated as a result of any event of default, or cash cover is required, or becomes capable of being required, in respect of such a facility as a result of any event of default; or (v) any Security Interest securing any Financial Indebtedness of a Relevant Person becomes enforceable; or (g) any of the following occurs in relation to a Relevant Person: (i) a Relevant Person becomes, in the opinion of the Majority Lenders, unable to pay its debts as they fall due; or (ii) any assets of a Relevant Person are subject to any form of execution, attachment, arrest, sequestration or distress in respect of a sum of, or sums aggregating, $100,000 or more or the equivalent in another currency; or (iii) any administrative or other receiver is appointed over any asset of a Relevant Person; or (iv) a Relevant Person makes any formal declaration of bankruptcy or any formal statement to the effect that it is insolvent or likely to become insolvent, or a winding up or administration order is made in relation to a Relevant Person, or the members or directors of a Relevant Person pass a resolution to the effect that it should be wound up, placed in administration or cease to carry on business, save that this paragraph does not apply to a fully solvent winding up of a Relevant Person other than the Borrower which is, or is to be, effected for the purposes of an amalgamation or reconstruction previously approved by the Majority Lenders and effected not later than 3 months after the commencement of the winding up; or (v) a petition is presented in any Pertinent Jurisdiction for the winding up or administration, or the appointment of a provisional liquidator, of a Relevant Person unless the petition is being contested in good faith and on substantial grounds and is dismissed or withdrawn within 30 days of the presentation of the petition; or (vi) a Relevant Person petitions a court, or presents any proposal for, any form of judicial or non-judicial suspension or deferral of payments, reorganisation of its debt (or certain of its debt) or arrangement with all or a substantial proportion (by number or value) of its creditors or of any class of them or any such suspension or deferral of payments, reorganisation or arrangement is effected by court order, contract or otherwise; or (vii) any meeting of the members or directors of a Relevant Person is summoned for the purpose of considering a resolution or proposal to authorise or take any action of a type described in paragraphs (iii), (iv), (v) or (vi) above; or (viii) in a Pertinent Jurisdiction other than England, any event occurs or any procedure is commenced which, in the opinion of the Majority Lenders, is similar to any of the foregoing; or (h) the Borrower or any Security Party ceases or suspends carrying on or changes the nature of its business or a part of its business which, in the opinion of the Majority Lenders, is material in the context of this Agreement; or (i) it becomes unlawful in any Pertinent Jurisdiction or impossible: (i) for the Borrower or any Security Party to discharge any liability under a Finance Document or to comply with any other obligation which the Majority Lenders consider material under a Finance Document; or (ii) for the Agent, the Security Trustee, the Lenders or the Swap Banks to exercise or enforce any right under, or to enforce any Security Interest created by, a Finance Document; or (j) any consent necessary to enable any Owner to own, operate or charter a Ship or to enable the Borrower or any Security Party to comply with any provision which the Majority Lenders consider material of a Finance Document is not granted, expires without being renewed, is revoked or becomes liable to revocation or any condition of such a consent is not fulfilled; or (k) it appears to the Majority Lenders that, without their prior written consent, a change has occurred or probably has occurred after the date of this Agreement in the ultimate beneficial ownership of any of the shares in any Owner, Wealth or the Approved Manager or in the ultimate control of the voting rights attaching to any of those shares; or (l) George Economou ceases to be the Chief Executive Officer of the Borrower or George Economou or members of his immediate family (either directly and/or through companies beneficially owned by the George Economou or members of his immediate family and/or trusts or foundations of which George Economou or members of his immediate family are beneficiaries) own and control less than 33.33 percent of the issued share capital of the Borrower; (m) any provision which the Majority Lenders consider material of a Finance Document proves to have been or becomes invalid or unenforceable, or a Security Interest created by a Finance Document proves to have been or becomes invalid or unenforceable or such a Security Interest proves to have ranked after, or loses its priority to, another Security Interest or any other third party claim or interest; or (n) the security constituted by a Finance Document is in any way imperilled or in jeopardy; or (o) a Master Agreement is terminated, cancelled, suspended, rescinded or revoked or otherwise ceases to remain in full force and effect for any reason except with the consent of the Agent, acting with the authorisation of the Majority Lenders; or (p) any other event occurs or any other circumstances arise or develop including, without limitation: (i) a change in the financial position, state of affairs or prospects of any Security Party; or (ii) any accident or other event involving any Ship or another vessel owned, chartered or operated by a Relevant Person; in the light of which the Majority Lenders consider that there is a significant risk that the Borrower or any Security Party is, or will later become, unable to discharge its liabilities under the Finance Documents as they fall due; or (q) there shall occur an Event of Default (howsoever therein described) under the Senior Loan Agreement. 19.2 Actions following an Event of Default. On, or at any time after, the occurrence of an Event of Default: (a) the Agent may, and if so instructed by the Majority Lenders, the Agent shall: (i) serve on the Borrower a notice stating that the Commitments and all other obligations of each Lender to the Borrower under this Agreement are terminated; and/or (ii) serve on the Borrower a notice stating that the Loan, all accrued interest and all other amounts accrued or owing under this Agreement are immediately due and payable or are due and payable on demand; and/or (iii) take any other action which, as a result of the Event of Default or any notice served under paragraph (i) or (ii) above, the Agent and/or the Lenders are entitled to take under any Finance Document or any applicable law; and/or (b) the Security Trustee may, and if so instructed by the Agent, acting with the authorisation of the Majority Lenders, the Security Trustee shall take any action which, as a result of the Event of Default or any notice served under paragraph (a) (i) or (ii) above, the Security Trustee, the Agent and/or the Lenders and/or the Swap Banks are entitled to take under any Finance Document or any applicable law. 19.3 Termination of Commitments. On the service of a notice under paragraph (a)(i) of Clause 19.2, the Commitments and all other obligations of each Lender to the Borrower under this Agreement shall terminate. 19.4 Acceleration of Loan. On the service of a notice under paragraph (a)(ii) of Clause 19.2, the Loan, all accrued interest and all other amounts accrued or owing from the Borrower or any Security Party under this Agreement and every other Finance Document shall become immediately due and payable or, as the case may be, payable on demand. 19.5 Multiple notices; action without notice. The Agent may serve notices under paragraphs (a) (i) and (ii) of Clause 19.2 simultaneously or on different dates and it and/or the Security Trustee may take any action referred to in that Clause if no such notice is served or simultaneously with or at any time after the service of both or either of such notices. 19.6 Notification of Creditor Parties and Security Parties. The Agent shall send to each Lender, the Security Trustee and each Security Party a copy of the text of any notice which the Agent serves on the Borrower under Clause 19.2; but the notice shall become effective when it is served on the Borrower, and no failure or delay by the Agent to send a copy of the text of the notice to any other person shall invalidate the notice or provide the Borrower or any Security Party with any form of claim or defence. 19.7 Lender's rights unimpaired. Nothing in this Clause shall be taken to impair or restrict the exercise of any right given to individual Lenders under a Finance Document or the general law; and, in particular, this Clause is without prejudice to Clause 3.1. 19.8 Exclusion of Creditor Party Liability. No Creditor Party, and no receiver or manager appointed by the Security Trustee, shall have any liability to the Borrower or a Security Party: (a) for any loss caused by an exercise of rights under, or enforcement of a Security Interest created by, a Finance Document or by any failure or delay to exercise such a right or to enforce such a Security Interest; or (b) as mortgagee in possession or otherwise, for any income or principal amount which might have been produced by or realised from any asset comprised in such a Security Interest or for any reduction (however caused) in the value of such an asset; except that this does not exempt a Creditor Party or a receiver or manager from liability for losses shown to have been caused by the gross negligence or the wilful misconduct of such Creditor Party's own officers and employees or (as the case may be) such receiver's or manager's own partners or employees. 19.9 Relevant Persons. In this Clause 19 "a Relevant Person" means the Borrower, a Security Party and any other member of the Group; but excluding any company which is dormant and the value of whose gross assets is $50,000 or less. 19.10 Position of Swap Banks. Neither the Agent nor the Security Trustee shall be obliged, in connection with any action taken or proposed to be taken under or pursuant to the foregoing provisions of this Clause 19, to have any regard to the requirements of the Swap Banks except to the extent that the Swap Banks are also Lenders. 19.11 Interpretation. In Clause 19.1(#) references to an event of default or a termination event include any event, howsoever described, which is similar to an event of default in a facility agreement or a termination event in a finance lease; and in Clause 19.1(g) "petition" includes an application. 20 FEES AND EXPENSES 20.1 Facility, drawdown and commitment fees. The Borrower shall pay to the Agent: (a) certain facility fees set out in the letter addressed by the Agent to the Borrower and dated the same date as this Agreement; and (b) in relation to each Additional Advance, a drawdown fee of 0.075 percent of that Additional Advance, such fee to be payable on the Drawdown Date of the Additional Advance and to be distributed among the Lenders pro rata to their Credit Facility Commitments; (c) a commitment fee: (i) in the case of the Term Loan, at the rate of 0.40 percent per annum on the undrawn amount of the Term Loan Commitments from (and including) 21 February 2006 up to and including the earlier of (A) the Drawdown Date in respect of the Identified Ship Advance and (B) the last day of the Availability Period for the Identified Ship Advance; and (ii) in the case of the Credit Facility, at the rate of 0.25 percent per annum on the undrawn amount of the Credit Facility Commitments from (and including) 21 February 2006 up to and including the earlier of (A) the Drawdown Date on which the Credit Facility Commitments are fully drawn and (B) the last day of the Availability Period for the Additional Advances, such fee to be paid quarterly in arrears and on the last day of each such period referred to in sub-paragraphs (i) and (ii) above and, in the case of sub-paragraph (i) above, to be distributed among the Lenders pro rata to their Term Loan Commitments and, in the case of sub-paragraph (ii) above, to be distributed among the Lenders pro rata to their Credit Facility Commitments. 20.2 Costs of negotiation, preparation etc. The Borrower shall pay to the Agent on its demand the amount of all reasonable expenses incurred by the Agent or the Security Trustee in connection with the negotiation, preparation, execution or registration of any Finance Document or any related document or with any transaction contemplated by a Finance Document or a related document (including, without limitation, any legal fees or expenses). 20.3 Costs of variations, amendments, enforcement etc. The Borrower shall pay to the Agent, on the Agent's demand, the amount of all expenses (including, without limitation, any legal fees or expenses) incurred by a Lender or a Swap Bank in connection with: (a) any amendment or supplement to a Finance Document, or any proposal for such an amendment to be made; (b) any consent or waiver by the Lenders, the Majority Lenders or the Lender concerned under or in connection with a Finance Document, or any request for such a consent or waiver; (c) the valuation of any security provided or offered under Clause 15 or any other matter relating to such security; (d) such circumstances where the Agent, in its absolute opinion, considers that there has been a material change to the insurances in respect of a Ship, the review of the insurances of that Ship pursuant to Clause 13.18; (e) any step taken by the Lender concerned or the Swap Bank concerned with a view to the protection, exercise or enforcement of any right or Security Interest created by a Finance Document or for any similar purpose. There shall be recoverable under paragraph (e) the full amount of all legal expenses, whether or not such as would be allowed under rules of court or any taxation or other procedure carried out under such rules. 20.4 Documentary taxes. The Borrower shall promptly pay any tax payable on or by reference to any Finance Document, and shall, on the Agent's demand, fully indemnify each Creditor Party against any liabilities and expenses resulting from any failure or delay by the Borrower to pay such a tax. 20.5 Certification of amounts. A notice which is signed by two officers of a Creditor Party, which states that a specified amount, or aggregate amount, is due to that Creditor Party under this Clause 20 and which indicates (without necessarily specifying a detailed breakdown) the matters in respect of which the amount, or aggregate amount, is due shall be prima facie evidence that the amount, or aggregate amount, is due. 21 INDEMNITIES 21.1 Indemnities regarding borrowing and repayment of Loan. The Borrower shall fully indemnify the Agent and each Lender on the Agent's demand and the Security Trustee on its demand in respect of all expenses, liabilities and losses which are incurred by that Creditor Party, or which that Creditor Party reasonably and with due diligence estimates that it will incur, as a result of or in connection with: (a) an Advance not being borrowed on the date specified in the Drawdown Notice for that Advance for any reason other than a default by the Lender claiming the indemnity; (b) the receipt or recovery of all or any part of the Loan or an overdue sum otherwise than on the last day of an Interest Period or other relevant period; (c) any failure (for whatever reason) by the Borrower to make payment of any amount due under a Finance Document on the due date or, if so payable, on demand (after giving credit for any default interest paid by the Borrower on the amount concerned under Clause 7); (d) the occurrence and/or continuance of an Event of Default or a Potential Event of Default and/or the acceleration of repayment of the Loan under Clause 19; and in respect of any tax (other than tax on its overall net income) for which a Creditor Party is liable in connection with any amount paid or payable to that Creditor Party (whether for its own account or otherwise) under any Finance Document. 21.2 Breakage costs. Without limiting its generality, Clause 21.1 covers any liability, expense or loss, including a loss of a prospective profit, incurred by a Lender: (a) in liquidating or employing deposits from third parties acquired or arranged to fund or maintain all or any part of its Contribution and/or any overdue amount (or an aggregate amount which includes its Contribution or any overdue amount); and (b) in terminating, or otherwise in connection with, any interest and/or currency swap or any other transaction entered into (whether with another Iegal entity or with another office or department of the Lender concerned) to hedge any exposure arising under this Agreement or that part which the Lender concerned determines is fairly attributable to this Agreement of the amount of the liabilities, expenses or losses (including losses of prospective profits) incurred by it in terminating, or otherwise in connection with, a number of transactions of which this Agreement is one. 21.3 Miscellaneous indemnities. The Borrower shall fully indemnify each Creditor Party severally on their respective demands in respect of all claims, demands, proceedings, liabilities, taxes, losses and expenses of every kind ("liability items") which may be made or brought against, or incurred by, the relevant Creditor Party, in any country, in relation to; (a) any action taken, or omitted or neglected to be taken, under or in connection with any Finance Document by the Agent, the Security Trustee or any other Creditor Party or by any receiver appointed under a Finance Document; (b) any other event, matter or question which occurs or arises at any time during the Security Period and which has any connection with, or any bearing on, any Finance Document, any payment or other transaction relating to a Finance Document or any asset covered (or previously covered) by a Security Interest created (or intended to be created) by a Finance Document; other than liability items which are shown to have been caused by the gross negligence or the wilful misconduct of the relevant Creditor Party's own officers or employees. 21.4 Extension of indemnities; environmental indemnity. Without prejudice to its generality, Clause 21.3 covers: (a) any matter which would be covered by Clause 21.3 if any of the references in that Clause to a Lender were a reference to the Agent or (as the case may be) to the Security Trustee; and (b) any liability items which arise, or are asserted, under or in connection with any law relating to safety at sea, pollution or the protection of the environment. 21.5 Currency indemnity. If any sum due from the Borrower or any Security Party to a Creditor Party under a Finance Document or under any order or judgment relating to a Finance Document has to be converted from the currency in which the Finance Document provided for the sum to be paid (the "Contractual Currency") into another currency (the "Payment Currency") for the purpose of: (a) making or lodging any claim or proof against the Borrower or any Security Party, whether in its liquidation, any arrangement involving it or otherwise; or (b) obtaining an order or judgment from any court or other tribunal; or (c) enforcing any such order or judgment; the Borrower shall indemnify the Creditor Party concerned against the loss arising when the amount of the payment actually received by that Creditor Party is converted at the available rate of exchange into the Contractual Currency. In this Clause 21.5, the "available rate of exchange" means the rate at which the Creditor Party concerned is able at the opening of business (Hamburg time) on the Business Day after it receives the sum concerned to purchase the Contractual Currency with the Payment Currency. This Clause 21.5 creates a separate liability of the Borrower which is distinct from its other liabilities under the Finance Documents and which shall not be merged in any judgment or order relating to those other liabilities. 21.6 Application to Master Agreements. For the avoidance of doubt, Clause 21.5 does not apply in respect of sums due from the Borrower to a Swap Bank under or in connection with the Master Agreement to which that Swap Bank is a party as to which sums the provisions of section 8 (Contractual Currency) of that Master Agreement shall apply. 21.7 Certification of amounts. A notice which is signed by 2 officers of a Creditor Party, which states that a specified amount, or aggregate amount, is due to that Creditor Party under this Clause 21 and which indicates (without necessarily specifying a detailed breakdown) the matters in respect of which the amount, or aggregate amount, is due shall be prima facie evidence that the amount, or aggregate amount, is due. 21.8 Sums deemed due to a Lender. For the purposes of this Clause 21, a sum payable by the Borrower to the Agent or the Security Trustee for distribution to a Lender shall be treated as a sum due to that Lender. 22 NO SET-OFF OR TAX DEDUCTION 22.1 No deductions. All amounts due from the Borrower under a Finance Document shall be paid: (a) without any form of set-off, cross-claim or condition; and (b) free and clear of any tax deduction except a tax deduction which the Borrower is required by law to make. 22.2 Grossing-up for taxes. If the Borrower is required by law to make a tax deduction from any payment: (a) the Borrower shall notify the Agent as soon as it becomes aware of the requirement; (b) the Borrower shall pay the tax deducted to the appropriate taxation authority promptly, and in any event before any fine or penalty arises; (c) the amount due in respect of the payment shall be increased by the amount necessary to ensure that each Creditor Party receives and retains (free from any liability relating to the tax deduction) a net amount which, after the tax deduction, is equal to the full amount which it would otherwise have received. 22.3 Evidence of payment of taxes. Within 1 month after making any tax deduction, the Borrower concerned shall deliver to the Agent documentary evidence satisfactory to the Agent that the tax had been paid to the appropriate taxation authority. 22.4 Exclusion of tax on overall net income. In this Clause 22 "tax deduction" means any deduction or withholding for or on account of any present or future tax except tax on a Creditor Party's overall net income. 22.5 Application to the Master Agreements. For the avoidance of doubt, Clause 22 does not apply in respect of sums due from the Borrower to a Swap Bank under or in connection with the Master Agreement to which that Swap Bank is a party as to which sums the provisions of section 2(d) (Deduction or Withholding for Tax) of that Master Agreement shall apply. 23 ILLEGALITY, ETC 23.1 Illegality. This Clause 23 applies if a Lender (the "Notifying Lender") notifies the Agent that it has become, or will with effect from a specified date, become: (a) unlawful or prohibited as a result of the introduction of a new law, an amendment to an existing law or a change in the manner in which an existing law is or will be interpreted or applied; or (b) contrary to, or inconsistent with, any regulation, for the Notifying Lender to maintain or give effect to any of its obligations under this Agreement in the manner contemplated by this Agreement. 23.2 Notification of illegality. The Agent shall promptly notify the Borrower, the Security Parties, the Security Trustee and the other Lenders of the notice under Clause 23.1 which the Agent receives from the Notifying Lender. 23.3 Prepayment; termination of Commitment. On the Agent notifying the Borrower under Clause 23.2, the Notifying Lender's Commitment shall terminate; and thereupon or, if later, on the date specified in the Notifying Lender's notice under Clause 23.1 as the date on which the notified event would become effective the Borrower shall prepay the Notifying Lender's Contribution in accordance with Clause 8. 23.4 Mitigation. If circumstances arise which would result in a notification under Clause 23.1 then, without in any way limiting the rights of the Notifying Lender under Clause 23.3, the Notifying Lender shall use reasonable endeavours to transfer its obligations, liabilities and rights under this Agreement and the Finance Documents to another office or financial institution not affected by the circumstances but the Notifying Lender shall not be under any obligation to take any such action if, in its opinion, to do would or might: (a) have an adverse effect on its business, operations or financial condition; or (b) involve it in any activity which is unlawful or prohibited or any activity that is contrary to, or inconsistent with, any regulation; or (c) involve it in any expense (unless indemnified to its satisfaction) or tax disadvantage. 24 INCREASED COSTS 24.1 Increased costs. This Clause 24 applies if a Lender (the "Notifying Lender") notifies the Agent that the Notifying Lender considers that as a result of: (a) the introduction or alteration after the date of this Agreement of a law or regulation or an alteration after the date of this Agreement in the manner in which a law or regulation is interpreted or applied (disregarding any effect which relates to the application to payments under this Agreement of a tax on the Notifying Lender's overall net income); or (b) the effect of complying with any law or regulation (including any which relates to capital adequacy or liquidity controls or which affects the manner in which the Notifying Lender allocates capital resources to its obligations under this Agreement (including, without limitation, any laws or regulations which shall replace, amend and/or supplement those set out in the statement of the Basle Committee on Banking Regulations and Supervisory Practices dated July 1988 and entitled "International Convergence of Capital Management and Capital Structures")) which is introduced, or altered, or the interpretation or application of which is altered, after the date of this Agreement, is that the Notifying Lender (or a parent company of it) has incurred or will incur an "increased cost", that is to say: (i) an additional or increased cost incurred as a result of, or in connection with, the Notifying Lender having entered into, or being a party to, this Agreement or a Transfer Certificate, of funding or maintaining its Commitment or Contribution or performing its obligations under this Agreement, or of having outstanding all or any part of its Contribution or other unpaid sums; or (ii) a reduction in the amount of any payment to the Notifying Lender under this Agreement or in the effective return which such a payment represents to the Notifying Lender or on its capital; (iii) an additional or increased cost of funding all or maintaining all or any of the advances comprised in a class of advances farmed by or including the Notifying Lender's Contribution or (as the ease may require) the proportion of that cost attributable to the Contribution; or (iv) a liability to make a payment, or a return foregone, which is calculated by reference to any amounts received or receivable by the Notifying Lender under this Agreement; but not an item attributable to a change in the rate of tax on the overall net income of the Notifying Lender (or a parent company of it) or an item covered by the indemnity for tax in Clause 21.1 or by Clause 22. For the purposes of this Clause 24.1 the Notifying Lender may in good faith allocate or spread costs and/or losses among its assets and liabilities (or any class thereof) on such basis as it considers appropriate. 24.2 Notification to Borrower of claim for increased costs. The Agent shall promptly notify the Borrower and the Security Parties of the notice which the Agent received from the Notifying Lender under Clause 24.1. 24.3 Payment of increased costs. The Borrower shall pay to the Agent, at the end of any Interest Period during which the Agent makes demand, for the account of the Notifying Lender, the amounts which the Agent from time to time notifies the Borrower that the Notifying Lender has specified to be necessary to compensate the Notifying Lender for the increased cost. 24.4 Notice of prepayment. If the Borrower is not willing to continue to compensate the Notifying Lender for the increased cost under Clause 24.3, the Borrower may give the Agent not less than 14 days' notice of its intention to prepay the Notifying Lender's Contribution at the end of an Interest Period. 24.5 Prepayment; termination of Commitment. A notice under Clause 24.4 shall be irrevocable; the Agent shall promptly notify the Notifying Lender of the Borrower's notice of intended prepayment; and: (a) on the date on which the Agent serves that notice, the Commitment of the Notifying Lender shall be cancelled; and (b) on the date specified in its notice of intended prepayment, the Borrower shall prepay (without premium or penalty) the Notifying Lender's Contribution, together with accrued interest thereon at the applicable rate plus the applicable Margin and the Mandatory Cost (if any). 24.6 Application of prepayment. Clause 8 shall apply in relation to the prepayment. 25 SET-OFF 25.1 Application of credit balances. Each Creditor Party may without prior notice: (a) apply any balance (whether or not then due) which at any time stands to the credit of any account in the name of the Borrower at any office in any country of that Creditor Party in or towards satisfaction of any sum then due from the Borrower to that Creditor Party under any of the Finance Documents; and (b) for that purpose: (i) break, or alter the maturity of, all or any part of a deposit of the Borrower; (ii) convert or translate all or any part of a deposit or other credit balance into Dollars; (iii) enter into any other transaction or make any entry with regard to the credit balance which the Creditor Party concerned considers appropriate. 25.2 Existing rights unaffected. No Creditor Party shall be obliged to exercise any of its rights under Clause 25.1; and those rights shall be without prejudice and in addition to any right of set-off, combination of accounts, charge, lien or other right or remedy to which a Creditor Party is entitled (whether under the general law or any document). 25.3 Sums deemed due to a Lender. For the purposes of this Clause 25, a sum payable by the Borrower to the Agent or the Security Trustee for distribution to, or for the account of, a Lender shall be treated as a sum due to that Lender; and each Lender's proportion of a sum so payable for distribution to, or for the account of, the Lenders shall be treated as a sum due to such Lender. 26 TRANSFERS AND CHANGES IN LENDING OFFICES 26.1 Transfer by Borrower. The Borrower may not, without the consent of the Agent, given on the instructions of all the Lenders: (a) transfer any of its rights or obligations under any Finance Document; or (b) enter into any merger, de-merger or other reorganisation, or carry out any other act, as a result of which any of its rights or liabilities would vest in, or pass to, another person. 26.2 Transfer by a Lender. Subject to Clause 26.5, a Lender (the "Transferor Lender") may at any time, after consultation with the Borrower (and with the consent of the Lead Bookrunner and the Joint Bookrunner), cause: (a) its rights in respect of all or part of its Contribution; or (b) its obligations in respect of all or part of its Commitment; or (c) a combination of (a) and (b) to be (in the case of its rights) transferred to, or (in the case of its obligations) assumed by, another bank or financial institution which is experienced in ship financing (a "Transferee Lender") by delivering to the Agent a completed certificate in the form set out in Schedule 4 with any modifications approved or required by the Agent (a "Transfer Certificate") executed by the Transferor Lender and the Transferee Lender. However any rights and obligations of the Transferor Lender in its capacity as Agent or Security Trustee will have to be dealt with separately in accordance with the Agency and Trust Deed. 26.3 Transfer Certificate, delivery and notification. As soon as reasonably practicable after a Transfer Certificate is delivered to the Agent, it shall (unless it has reason to believe that the Transfer Certificate may be defective): (a) sign the Transfer Certificate on behalf of itself, the Borrower, the Security Parties, the Security Trustee and each of the Lenders; (b) on behalf of the Transferee Lender, send to the Borrower and each Security Party letters or faxes notifying them of the Transfer Certificate and attaching a copy of it; (c) send to the Transferee Lender copies of the letters or faxes sent under paragraph (b) above. 26.4 Effective Date of Transfer Certificate. A Transfer Certificate becomes effective on the date, if any, specified in the Transfer Certificate as its effective date Provided that it is signed by the Agent under Clause 26.3 on or before that date. 26.5 No transfer without Transfer Certificate. No assignment or transfer of any right or obligation of a Lender under any Finance Document is binding on, or effective in relation to, the Borrower, any Security Party, the Agent or the Security Trustee unless it is effected, evidenced or perfected by a Transfer Certificate. 26.6 Lender re-organisation; waiver of Transfer Certificate. However, if a Lender enters into any merger, de-merger or other reorganisation as a result of which all its rights or obligations vest in another person (the "successor"), the successor shall automatically and without any further act being necessary become a Lender with the same Commitment and Contribution as were held by the predecessor Lender. 26.7 Effect of Transfer Certificate. A Transfer Certificate takes effect in accordance with English law as follows: (a) to the extent specified in the Transfer Certificate, all rights and interests (present, future or contingent) which the Transferor Lender has under or by virtue of the Finance Documents are assigned to the Transferee Lender absolutely, free of any defects in the Transferor Lender's title and of any rights or equities which the Borrower or any Security Party had against the Transferor Lender; (b) the Transferor Lender's Commitment is discharged to the extent specified in the Transfer Certificate; (c) the Transferee Lender becomes a Lender with the Contribution previously held by the Transferor Lender (or the part thereof specified in the Transfer Certificate) and a Commitment of an amount specified in the Transfer Certificate; (d) the Transferee Lender becomes bound by all the provisions of the Finance Documents which are applicable to the Lenders generally, including those about pro-rata sharing and the exclusion of Liability on the part of, and the indemnification of, the Agent and the Security Trustee and, to the extent that the Transferee Lender becomes bound by those provisions (other than those relating to exclusion of liability), the Transferor Lender ceases to be bound by them; (e) any part of the Loan which the Transferee Lender advances after the Transfer Certificate's effective date ranks in point of priority and security in the same way as it would have ranked had it been advanced by the transferor, assuming that any defects in the transferor's title and any rights or equities of the Borrower or any Security Party against the Transferor Lender had not existed; (f) the Transferee Lender becomes entitled to all the rights under the Finance Documents which are applicable to the Lenders generally, including but not limited to those relating to the Majority Lenders and those under Clause 5.7 and Clause 20, and to the extent that the Transferee Lender becomes entitled to such rights, the Transferor Lender ceases to be entitled to them; and (g) in respect of any breach of a warranty, undertaking, condition or other provision of a Finance Document or any misrepesentation made in or in connection with a Finance Document, the Transferee Lender shall be entitled to recover damages by reference to the loss incurred by it as a result of the breach or misrepresentation, irrespective of whether the original Lender would have incurred a loss of that kind or amount. The rights and equities of the Borrower or any Security Party referred to above include, but are not limited to, any right of set off and any other kind of cross-claim. 26.8 Maintenance of register of Lenders. During the Security Period the Agent shall maintain a register in which it shall record the name, Commitment, Contribution and administrative details (including the lending office) from time to time of each Lender holding a Transfer Certificate and the effective date (in accordance with Clause 26.4) of the Transfer Certificate; and the Agent shall make the register available for inspection by any Lender, the Security Trustee and the Borrower during normal banking hours, subject to receiving at least 5 Business Days prior notice. 26.9 Reliance on register of Lenders. The entries on that register shall, in the absence of manifest error, be conclusive in determining the identities of the Lenders and the amounts of their Commitments and Contributions and the effective dates of Transfer Certificates and may be relied upon by the Agent and the other parties to the Finance Documents for all purposes relating to the Finance Documents. 26.10 Authorisation of Agent to sign Transfer Certificates. The Borrower, the Security Trustee and each Lender irrevocably authorise the Agent to sign Transfer Certificates on its behalf. 26.11 Registration fee. In respect of any Transfer Certificate, the Agent shall be entitled to recover a registration fee of $2,000 from the Transferor Lender or (at the Agent's option) the Transferee Lender. 26.12 Sub-participation; subrogation assignment. A Lender may sub-participate all or any part of its rights and/or obligations under or in connection with the Finance Documents without the consent of, or any notice to, the Borrower, any Security Party, the Agent or the Security Trustee; and the Lenders may assign, in any manner and terms agreed by the Majority Lenders, the Agent and the Security Trustee, all or any part of those rights to an insurer or surety who has become subrogated to them. 26.13 Disclosure of information. A Lender may disclose to a potential Transferee Lender or sub-participant any information which the Lender has received in relation to the Borrower, any Security Party or their affairs under or in connection with any Finance Document, unless the information is clearly of a confidential nature. 26.14 Change of lending office. A Lender may change its lending office by giving notice to the Agent and the change shall become effective on the later of: (a) the date on which the Agent receives the notice; and (b) the date, if any, specified in the notice as the date on which the change will come into effect. 26.15 Notification. On receiving such a notice, the Agent shall notify the Borrower and the Security Trustee; and, until the Agent receives such a notice, it shall be entitled to assume that a Lender is acting through the lending office of which the Agent last had notice. 26.16 Replacement of Reference Bank. If a Reference Bank ceases to be a Lender or is unable on a continuing basis to supply quotations for the purposes of Clause 5 above then, unless the Borrower, the Agent and the Majority Lenders otherwise agree, the Agent, acting on the instructions of the Majority Lenders, and after consulting the Borrower, shall appoint another bank (whether or not a Lender) to be a replacement Reference Bank; and, when that appointment comes into effect, the first-mentioned Reference Bank's appointment shall cease to be effective. 27 VARIATIONS AND WAIVERS 27.1 Variations, waivers etc. by Majority Lenders. Subject to Clause 27.2, a document shall be effective to vary, waive, suspend or limit any provision of a Finance Document, or any Creditor Party's rights or remedies under such a provision or the general law, only if the document is signed, or specifically agreed to by fax, by the Borrower, by the Agent on behalf of the Majority Lenders, by the Agent and the Security Trustee in their own rights, and, if the document relates to a Finance Document to which a Security Party is party, by that Security Party. 27.2 Variations, waivers etc. requiring agreement of all Lenders. However, as regards the following, Clause 27.1 applies as if the words "by the Agent on behalf of the Majority Lenders" were replaced by the words "by or on behalf of every Lender and the Swap Bank": (a) a change in the Margin or in the definition of LIBOR; (b) a change to the date for, or the amount of, any payment of principal, interest, fees, or other sum payable under this Agreement; (c) a change to any Lender's Commitment; (d) an extension of the Availability Period; (e) a change to the definition of "Majority Lenders" or "Finance Documents"; (f) a change to the preamble or to Clause 2, 3, 4, 5.1, 8.1, 8.2, 17, 18, 19 or 30; (g) a change to this Clause 27; (h) any release of, or material variation to, a Security Interest, guarantee, indemnity or subordination arrangement set out in a Finance Document; and (i) any other change or matter as regards which this Agreement or another Finance Document expressly provides that each Lender's consent is required. 27.3 Exclusion of other or implied variations. Except for a document which satisfies the requirements of Clauses 27.1 and 27.2, no document, and no act, course of conduct, failure or neglect to act, delay or acquiescence on the part of the Creditor Parties or any of them (or any person acting on behalf of any of them) shall result in the Creditor Parties or any of them (or any person acting on behalf of any of them) being taken to have varied, waived, suspended or limited, or being precluded (permanently or temporarily) from enforcing, relying on or exercising: (a) a provision of this Agreement or another Finance Document; or (b) an Event of Default; or (c) a breach by the Borrower or a Security Party of an obligation under a Finance Document or the general law; or (d) any right or remedy conferred by any Finance Document or by the general law; and there shall not be implied into any Finance Document any term or condition requiring any such provision to be enforced, or such right or remedy to be exercised, within a certain or reasonable time. 28 NOTICES 28.1 General. Unless otherwise specifically provided, any notice under or in connection with any Finance Document shall be given by registered letter or fax; and references in the Finance Documents to written notices, notices in writing and notices signed by particular persons shall be construed accordingly. 28.2 Addresses for communications. A notice shall be sent: (a) to the Borrower: Omega Building 80 Kifissias Avenue 151 25 Maroussi Athens Greece Fax No: +(30) 210 809 0575 Attn: the Chief Financial Officer (b) to a Lender: At the address opposite its name in Part A of Schedule 1 or (as the case may require) in the relevant Transfer Certificate. (c) to a Swap Bank: At the address opposite its name in Part B of Schedule 1 (d) to the Agent and HSH Nordbank AG the Security Trustee: Gerhart-Hauptmann-Platz 50 D-20095 Hamburg Germany Fax No: +(49) 40 33 33 34 118 Attn: Shipping, Greek Clients or to such other address as the relevant party may notify the Agent or, if the relevant party is the Agent or the Security Trustee, the Borrower, the Lenders, the Swap Banks and the Security Parties. 28.3 Effective date of notices. Subject to Clauses 28.4 and 28.5: (a) a notice which is delivered personally shall be deemed to be served, and shall take effect, at the time when it is delivered; (b) a notice which is delivered by registered letter shall be deemed to be served, and shall take effect, 5 Business Days after being deposited in the post postage prepaid in an envelope addressed to it at the relevant address; and (c) a notice which is sent by fax shall be deemed to be served, and shall take effect, 2 hours after its transmission is completed. 28.4 Service outside business hours. However, if under Clause 28.3 a notice would be deemed to be served: (a) on a day which is not a business day in the place of receipt; or (b) on such a business day, but after 5 p.m. local time; the notice shall (subject to Clause 28.5) be deemed to be served, and shall take effect, at 9 a.m. on the next day which is such a business day. 28.5 Illegible notices. Clauses 28.3 and 28.4 do not apply if the recipient of a notice notifies the sender within one hour after the time at which the notice would otherwise be deemed to be served that the notice has been received in a form which is illegible in a material respect. 28.6 Valid notices. A notice under or in connection with a Finance Document shall not be invalid by reason that its contents or the manner of serving it do not comply with the requirements of this Agreement or, where appropriate, any other Finance Document under which it is served if: (a) the failure to serve it in accordance with the requirements of this Agreement or other Finance Document, as the case may be, has not caused any party to suffer any significant loss or prejudice; or (b) in the case of incorrect and/or incomplete contents, it should have been reasonably clear to the party on which the notice was served what the correct or missing particulars should have been. 28.7 English language. Any notice under or in connection with a Finance Document shall be in English. 28.8 Meaning of "notice". In this Clause "notice" includes any demand, consent, authorisation, approval, instruction, waiver or other communication. 28.9 Electronic communication (a) Any communication to be made between the Agent or the Security Trustee and a Lender or a Swap Bank under or in connection with the Finance Documents may be made by electronic mail or other electronic means, if the Agent, the Security Trustee and the relevant Lender or, as the case may be, the relevant Swap Bank: (i) agree that, unless and until notified to the contrary, this is to be an accepted form of communication; (ii) notify each other in writing of their electronic mail address and/or any other information required to enable the sending and receipt of information by that means; and (iii) notify each other of any change to their address or any other such information supplied by them. (b) Any electronic communication made between the Agent and a Lender or the Swap Bank or the Security Trustee will be effective only when actually received in readable form and in the case of any electronic communication made by a Lender or the Swap Bank to the Agent or the Security Trustee only if it is addressed in such a manner as the Agent or Security Trustee shall specify for this purpose. 29 SUPPLEMENTAL 29.1 Rights cumulative, non-exclusive. The rights and remedies which the Finance Documents give to each Creditor Party are: (a) cumulative; (b) may be exercised as often as appears expedient; and (c) shall not, unless a Finance Document explicitly and specifically states so, be taken to exclude or limit any right or remedy conferred by any law. 29.2 Severability of provisions. If any provision of a Finance Document is or subsequently becomes void, unenforceable or illegal, that shall not affect the validity, enforceability or legality of the other provisions of that Finance Document or of the provisions of any other Finance Document. 29.3 Third party rights. A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce or to enjoy the benefit of any term of this Agreement. 29.4 Counterparts. A Finance Document may be executed in any number of counterparts. 30 LAW AND JURISDICTION 30.1 English law. This Agreement shall be governed by, and construed in accordance with, English law. 30.2 Exclusive English jurisdiction. Subject to Clause 30.3, the courts of England shall have exclusive jurisdiction to settle any disputes which may arise out of or in connection with this Agreement. 30.3 Choice of forum for the exclusive benefit of the Creditor Parties. Clause 30.2 is for the exclusive benefit of the Creditor Parties, each of which reserves the right: (a) to commence proceedings in relation to any matter which arises out of or in connection with this Agreement in the courts of any country other than England and which have or claim jurisdiction to that matter; and (b) to commence such proceedings in the courts of any such country or countries concurrently with or in addition to proceedings in England or without commencing proceedings in England. The Borrower shall not commence any proceedings in any country other than England in relation to a matter which arises out of or in connection with this Agreement. 30.4 Process agent. The Borrower irrevocably appoints Ince & Co. at their office for the time being, presently at International House, 1 St. Katharine's Way, London El W IUN, England, to act as its agent to receive and accept on its behalf any process or other document relating to any proceedings in the English courts which are connected with this Agreement. 30.5 Creditor Party rights unaffected. Nothing in this Clause 30 shall exclude or limit any right which any Creditor Party may have (whether under the law of any country, an international convention or otherwise) with regard to the bringing of proceedings, the service of process, the recognition or enforcement of a judgment or any similar or related matter in any jurisdiction. 30.6 Meaning of "proceedings". In this Clause 30, "proceedings" means proceedings of any kind, including an application for a provisional or protective measure. AS WITNESS the hands of the duly authorised officers or attorneys of the parties the day and year first before written. SCHEDULE 1 PART A LENDERS AND COMMITMENTS
Lender Lending Office Term Loan Credit Facility Commitment Commitment (US Dollars) (US Dollars) HSH Nordbank AG Gerhart-Hauptmann-Platz 50 [ ] [ ] D-20095 Hamburg Germany The Governor and Company 11 Earl Grey Street [ ] [ ] of the Bank of Scotland Edinburgh EH3 9BN Scotland
PART B SWAP BANKS HSH Nordbank AG Martensdamm 6 D-24103 Kiel Germany HBOS Treasury Services Plc 33 Old Broad Street London EC2N 1HZ England SCHEDULE 2 DETAILS OF SHIPS AND OWNERS PART A DETAILS OF EXISTING SHIPS AND OWNERS 1 Name of Ship: "STRIGGLA" Flag: Malta Official Number: 5809 Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2, 4 & 6 Holds may be empty) (ESP) MNS* Owner: Helium Shipping Company Limited 2 Name of Ship: "MOSTOLES" Flag: Malta Official Number: 5886 Class Society and notation: Det Norske Veritas: +1A1, Bulk Carrier, ESP, HC-E EO Owner: Hydrogen Shipping Company Limited 3 Name of Ship: "FLECHA" Flag: Malta Official Number: 6835 Class Society and notation: Bureau Veritas: I + HULL + MACH, Bulk Carrier ESP, Ore Carrier ESP, Unrestricted Navigation Owner: Silicon Shipping Company Limited 4 Name of Ship: "SHIBUMI" Flag: Malta Official Number: 7028 Class Society and notation: Bureau Veritas: I + HULL + MACH, Bulk Carrier ESP, Unrestricted Navigation, + AUT-UMS Owner: Oxygen Shipping Company Limited 5 Name of Ship: "LACERTA" Flag: Malta Official Number: 7121 Class Society and notation: Bureau Veritas: I + HULL + MACH, Bulk Carrier ESP Heavy Cargo, Nonhomload (Holds 2, 4, 6 may be empty), Unrestricted Navigation Owner: Annapolis Shipping Company Limited 6 Name of Ship: "PANORMOS" Flag: Malta Official Number: 8491 Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2, 4 & 6 Holds may be empty) (ESP) MNS* Owner: Blueberry Shipping Company Limited 7 Name of Ship: "MATIRA" Flag: Malta Official Number: 8966 Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2 & 4 Holds may be empty) (ESP) MNS* Owner: Lancat Shipping Company Limited 8 Name of Ship: "TONGA" Flag: Malta Official Number: 8251 Class Society and notation: ABS: +A1, Bulk Carrier, E, +AMS Owner: Tolan Shipping Company Limited 9 Name of Ship: "CORONADO" Flag: Malta Official Number: 8703 Class Society and notation: Bureau Veritas: I + HULL + MACH, Bulk Carrier ESP, Nonhomload (Holds 2-4-6 may be empty), Unrestricted Navigation, MON-SHAFT, + AUT-UMS Owner: Malvina Shipping Company Limited 10 Name of Ship: "XANADU" Flag: Malta Official Number: 9479 Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2, 4 & 6 Holds may be empty) (ESP) MNS* Owner: Arleta Navigation Company Limited 11 Name of Ship: "LA JOLLA" Flag: Malta Official Number: 9503 Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2, 4 & 6 Holds may be empty) (ESP) MNS* Owner: Selma Shipping Company Limited 12 Name of Ship: "NETADOLA" Flag: Malta Official Number: 9537 Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2, 4, 6 & 8 Holds may be empty) (ESP) MNS* Owner: Royerton Shipping Company Limited 13 Name of Ship: "OCEAN CRYSTAL" Flag: Malta Official Number: 9092 Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2, 4 & 6 Holds may be empty) (ESP) MNS* Owner: Samsara Shipping Company Limited 14 Name of Ship: "PARAGON" Flag: Malta Official Number: 9093 Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2, 4 & 6 Holds may be empty) (ESP) MNS* Owner: Lansat Shipping Company Limited 15 Name of Ship: "TORO" Flag: Malta Official Number: 9131 Class Society and notation: Lloyd's Register: +100A1, Bulk Carrier, Strengthened for heavy cargoes, Nos. 2, 4 & 6 holds may be empty, ESP, *IWS, ESN-Hold 1, +LMC, UMS Owner: Farat Shipping Company Limited 16 Name of Ship: "ALONA" Flag: Malta Official Number: 7706 Class Society and notation: Det Norske Veritas: +1A1, Bulk Carrier, ESP, HC-E EO DK(+) HA(+) IB(+), Holds (2, 4 or 3) may be empty Owner: Madras Shipping Company Limited 17 Name of Ship: "IGUANA" Flag: Malta Official Number: 9062 Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2, 4 & 6 Holds may be empty) (ESP) MNS* Owner: Iguana Shipping Company Limited 18 Name of Ship: "CATALINA" Flag: Malta Official Number: 9544 Class Society and notation: ABS: +Al, Bulk Carrier, E, +AMS, +ACCU, SH, HCS, SHCM Owner: Borsari Shipping Company Limited 19 Name of Ship: "BELMONTE" Flag: Malta Official Number: 9560 Class Society and notation: Germanischer Lloyd: Hull: +100A5, ESP IW C1D11, Bulk Carrier - Machinery: +MC AUT Owner: Onil Shipping Company Limited 20 Name of Ship: "WAIKIKI" Flag: Malta Official Number: 4936 Class Society and notation: Bureau Veritas: I + HULL + MACH, Bulk Carrier ESP, Nonhomload (Holds 2-4-6 may be empty) Heavycargo, Unrestricted Navigation, + AUT-UMS; MON-SHAFT; INWATERSURVEY; GRABLOADING Owner: Zatac Shipping Company Limited 21 Name of Ship: "ALAMEDA" Flag: Malta Official Number: 9549 Class Society and notation: Lloyd's Register: +100AI, Bulk Carrier, Strengthened for heavy cargoes, Nos. 2, 4, 6 & 8 holds may be empty, ESP, *IWS, LI, ESN, ShipRight (SDA, FDA, CM), +LMC, UMS Owner: Fabiana Navigation Company Limited 22 Name of Ship: "LANIKAI" Flag: Malta Official Number: 9480 Class Society and notation: Det Norske Veritas: +1A1, Bulk Carrier, ESP, HC-E E0 Owner: Fago Shipping Company Limited 23 Name of Ship: "LINDA OLDENDORFF" Flag: Malta Official Number: 9489 Class Society and notation: Lloyd's Register: 100A1, Bulk Carrier, Strengthened for heavy cargoes, Nos. 2, 4, 6 or No. 4 holds may be empty, ESP, LI, ESN-Hold 1, LMC, UMS Owner: Felicia Navigation Company Limited 24 Name of Ship: "DAYTONA" Flag: Malta Official Number: 6534 Class Society and notation: Bureau Veritas: I + HULL + MACH, Bulk Carrier ESP -heavycargo, -nonhomload, Unrestricted Navigation, + AUT-UMS Owner: Platan Shipping Company Limited 25 Name of Ship: "SONOMA" Flag: Malta Official Number: 9576 Class Society and notation: China Classification Society: *CSA Bulk Carrier, CCSS, Strengthened for Heavy Cargoes Holds, Nos. 2, 4 & 6 may be empty, Hold No.4 may be Ballast Hold, ESP, Loading Computer S.I.G - *CSM AUT-O, CMS Owner: Karmen Shipping Company Limited 26 Name of Ship: "MANASOTA" Flag: Malta Official Number: 9546 Class Society and notation: Det Norske Veritas: +lAl, Bulk Carrier, ESP ES (S) HC-E, Grain-U EO LCS -SI IB (+), Holds (2, 4, 6, 8) may be empty, Nauticus (Newbuilding) Owner: Thelma Shipping Company Limited 27 Name of Ship: "CONRAD OLDENDORFF" Flag: Malta Official Number: 9744 Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2, 4 & 6 Holds may be empty) (ESP) MNS* Owner: Celine Shipping Company Limited PART B DETAILS OF IDENTIFIED SHIP AND OWNER 28 Name of Ship: "HILLE OLDENDORFF" Flag: Malta/Liberian Bareboat Charter Registry Official Number: 9833 (Malta) Class Society and notation: Nippon Kaiji Kyokai: NS* (Bulk Carrier, Strengthened for Heavy Cargoes, Nos. 2 & 4 Holds may be empty) (ESP) MNS* Owner: Seaventure Shipping Limited Bareboat Charterer: Catania Shipping Inc. Charter Date: 29 August 2005 (as supplemented and amended) SCHEDULE 3 DRAWDOWN NOTICE To: HSH Nordbank AG Gerhart-Hauptmann-Platz 50 D-20095 Hamburg Germany Attention: Loans Administration [ ] 2006 DRAWDOWN NOTICE 1 We refer to the loan agreement (the "Loan Agreement") dated 31 March 2006 and made between ourselves as Borrower, the Lenders referred to therein, yourselves as Agent and as Security Trustee, yourselves as Lead Arranger and Lead Bookrunner, The Governor and Company of the Bank of Scotland as Joint Bookrunner, yourselves and The Governor and Company of the Bank of Scotland as Joint Underwriters and the Swap Banks referred to therein in connection with term loan and credit facilities of up to US$110,000,000 in aggregate. Terms defined in the Loan Agreement have their defined meanings when used in this Drawdown Notice. 2 We request to borrow an Advance under the [Term Loan] [Credit Facility] as follows: (a) Amount of [Advance]: $[ ]; (b) Drawdown Date: [ ]; (c) Duration of the first Interest Period shall be [ ] months; (d) Payment instructions: account of [ ] and numbered [ ] with[ ]of[ ]. 3 We represent and warrant that: (a) the representations and warranties in Clause 10 of the Loan Agreement would remain true and not misleading if repeated on the date of this notice with reference to the circumstances now existing; (b) no Event of Default or Potential Event of Default has occurred or will result from the borrowing of the Loan. 4 This notice cannot be revoked without the prior consent of the Majority Lenders. 5 [We authorise you to deduct all accrued commitment fee and the drawdown fee applicable to the Advance referred to in Clause 20.1 from the amount of the Advance]. [Name of Signatory] ---------------------------------- Attorney-in-Fact for and on behalf of DRYSHIPS INC. SCHEDULE 4 REPAYMENT OF TERM LOAN Amount of Maximum Outstanding Repayment Amount of Term Loan Repayment Date Instalment ($) following repayment 1 31 August 2006 3,147,982.06 94,352,017.94 2 30 November 2006 3,147,982.06 91,204,035.87 3 28 February 2007 2,710,762.33 88,493,273.54 4 31 May 2007 2,710,762.33 85,782,511.21 5 31 August 2007 2,142,376.68 83,640,134.53 6 30 November 2007 2,142,376.68 81,497,757.85 7 29 February 2008 2,142,376.68 79.355,381.17 8 31 May 2008 2,142,376.68 77,213,004.48 9 31 August 2008 2,142,376.68 75,070,627.80 10 30 November 2008 2,142,376.68 72,928,251.12 11 28 February 2009 2,142,376.68 70,785,874.44 12 31 May 2009 2,142,376.68 68,643,497.76 13 31 August 2009 1,836,322.87 66,807,174.89 14 30 November 2009 1,836,322.87 64,970,852.02 15 28 February 2010 1,836,322.87 63,134,529.15 16 31 May 2010 1,836,322.87 61,298,206.28 17 31 August 2010 1,836,322.87 59,461,883.41 18 30 November 2010 1,836,322.87 57,625,560.54 19 28 February 2011 1,836,322.87 55,789,237.67 20 31 May 2011 1,836,322.87 53,952,914.80 21 31 August 2011 1,836,322.87 52,116,591.93 22 30 November 2011 1,836,322.87 50,280,269.06 23 29 February 2012 1,836,322.87 48,443,946.19 24 31 May 2012 1,836,322.87 46,607,623.32 25 31 August 2012 1,836,322.87 44,771,300.45 26 30 November 2012 1,836,322.87 42,934,977.58 27 28 February 2013 1,836,322.87 41,098,654.71 28 31 May 2013 1,836,322.87 39,262,331.84 29 31 August 2013 1,836,322.87 37,426,008.97 30 30 November 2013 1,836,322.87 35,589,686.10 31 28 February 2014 1,836,322.87 33,753,363.23 32 31 May 2014 1,836,322.87 31,917,040.36 33 31 August 2014 1,836,322.87 30,080,717.49 34 30 November 2014 1,836,322.87 28,244,394.62 35 28 February 2015 1,836,322.87 26,408,071.75 36 31 May 2015 1,836,322.87 24,571,748.88 37 31 August 2015 1,836,322.87 22,735,426.01 38 30 November 2015 1,836,322.87 20,899,103.14 39 29 February 2016 1,836,322.87 19,062,780.27 40 31 May 2016 1,836,322.87 17,226,457.40 Balloon Instalment 31 May 2016 17,226,457.40 0 SCHEDULE 5 CONDITION PRECEDENT DOCUMENTS PART A The following are the documents referred to in Clause 9.1(a). 1 A duly executed original of each of: (a) this Agreement; (b) the Agency and Trust Deed; (c) the Master Agreements, (d) the Master Agreement Assignments; (e) the Guarantees; (f) the Wealth Guarantee; (g) the Mortgages, the Deeds of Covenant and the General Assignments relative to the Existing Ships; (h) the Borrower's Accounts Pledge; (i) the Existing Ships Earnings Account Pledge; (j) the Wealth Account Pledge; (k) the Senior Loan Agreement; and (l) the Management Agreement Assignments relative to the Existing Ships. 2 Copies of the certificate of incorporation and constitutional documents of the Borrower and each Owner of an Existing Ship, the Owner of the Identified Ship and Wealth. 3 Copies of resolutions of the directors of the Borrower and the directors and shareholders of each Owner of an Existing Ship, the Owner of the Identified Ship and Wealth authorising the execution of each of the Finance Documents to which the Borrower, that Owner or Wealth is a party and, in the case of (a) the Borrower, authorising named officers to give the Drawdown Notices and other notices under this Agreement and (b) Seaventure, ratifying the execution of the Hille Oldendorff Charterparty and the Hille Oldendorff MOA. 4 The original of any power of attorney under which any Finance Document is executed on behalf of the Borrower, an Owner of an Existing Ship, the Owner of the Identified Ship or Wealth. 5 Copies of all consents which the Borrower, any Owner of an Existing Ship, the Owner of the Identified Ship or Wealth requires to enter into, or make any payment under, any Finance Document. 6 The originals of any mandates or other documents required in connection with the opening or operation of the Debt Service Reserve Account, each Earnings Account, the Retention Account and the Wealth Account. 7 Evidence that an amount of not less than $5,000,000 is standing to the credit of the Debt Service Reserve Account. 8 Evidence satisfactory to the Agent that each Owner of an Existing Ship, the Owner of the Identified Ship and Wealth is a direct or indirect wholly-owned subsidiary of the Borrower. 9 Documentary evidence that: (a) each Existing Ship is definitively and permanently registered in the name of its Owner under the Maltese flag; (b) each Existing Ship is in the absolute and unencumbered ownership of its Owner save as contemplated by the Finance Documents to which that Owner is a party; (c) each Existing Ship maintains the highest available class with Lloyd's Register of Ships (or such other first-class classification society which is a member of IACS as the Agent may approve) free of all overdue recommendations and conditions of such classification society; (d) each Mortgage relative to an Existing Ship has been duly registered against that Existing Ship as a valid first priority statutory mortgage in accordance with the laws of Malta; and (e) each Existing Ship is insured in accordance with the provisions of this Agreement and all requirements therein in respect of such insurances have been complied with. 10 A copy of the Management Agreement and a duly executed original of the Manager's Undertaking in relation to each Existing Ship. 11 Copies of: (a) the document of compliance (DOC) and safety management certificate (SMC) referred to in paragraph (a) of the definition of the ISM Code Documentation in respect of each Existing Ship and the applicable Approved Manager certified as true and in effect by the Owner of such Existing Ship; and (b) the ISPS Code Documentation in respect of each Existing Ship and the Owner thereof certified as true and in effect by that Owner. 12 Two valuations (at the cost of the Borrower) of each Existing Ship addressed to the Agent, stated to be for the purpose of this Agreement and dated not earlier than 15 days before the Drawdown Date for the Refinancing Advance, each from an Approved Broker. 13 All documentation required by each Creditor Party in relation to the Borrower and any Security Party pursuant to that Creditor Party's "know your customer" requirements. 14 A compliance certificate (in the form set out in Schedule 8) demonstrating the compliance by the Borrower (or not, as the case may be) with the provisions of Clause 12.4 (such compliance to be determined by reference to the audited annual consolidated accounts of the Group for the Financial Year ended 31 December 2005) signed by the chief financial officer of the Borrower. 15 Documentary evidence that the agent for service of process named in Clause 30 has accepted its appointment. 16 Favourable legal opinions from lawyers appointed by the Agent on such matters concerning the laws of the Marshall Islands, Malta, England, Germany and such other relevant jurisdictions as the Agent may require. 17 A favourable opinion from an independent insurance consultant acceptable to the Agent on such matters relating to the insurances of the Existing Ships as the Agent may require. 18 If the Agent so requires, in respect of any of the documents referred to above, a certified English translation prepared by a translator approved by the Agent. PART B The following are the documents referred to in Clause 9.1(b). 1 A copy of (a) the Hille Oldendorff MOA and (b) the Hille Oldendorff Seller's Credit Agreement and of all documents signed or issued by the parties thereto under or in connection with the Hille Oldendorff MOA and the Hille Oldendorff Seller's Credit Agreement. 2 Such documentary evidence as the Lender and its legal advisers may require in relation to the due authorisation and execution by Goodwill of the Hille Oldendorff MOA and of all documents to be executed by Goodwill under the Hille Oldendorff MOA, and by the Hi11e Oldendorff Charterer of the Hille Oldendorff Charterparty and of all documents to be executed by the Hille Oldendorff Charterer thereunder. 3 A copy of each of the Hille Oldendorff Charterparty and the Hille Oldendorff Charter Guarantee and of all documents signed or issued by Seaventure, Goodwill or the Hille Oldendorff Charterer (or any of them) under or in connection with the Hille Oldendorff Charterparty and the Hille Oldendorff Charter Guarantee. 4 Copies of the constitutional documents of the Hille Oldendorff Charterer, together with copies of resolutions of the directors of the Hille Oldendorff Charterer authorising the execution of the Hille Oldendorff Tripartite Agreement and ratifying its entry into the Hille Oldendorff Charterparty. 5 A duly executed original of: (a) the Mortgage, the Deed of Covenant and the General Assignment relating to the Identified Ship (and of each document to be delivered under each of them); (b) the Hille Oldendorff Tripartite Agreement (and of each document to be delivered under the Tripartite Agreement); (c) the Identified Ship Earnings Account Pledge; and (d) the Management Agreement Assignment relating to the Identified Ship. 6 Documentary evidence that: (a) the Identified Ship has been unconditionally delivered by Goodwill to and accepted by, Seaventure under the Hille Oldendorff MOA and the full purchase price payable under that MOA (in addition to the part to be financed by the Identified Ship Advance) has been duly paid, together with a copy of the bill of sale and the other documents delivered by Goodwill thereunder; (b) the Identified Ship is definitively and permanently registered in the name of Seaventure under Maltese flag at the port of Valletta; (c) the Ship is in the absolute and unencumbered ownership of Seaventure, save as contemplated by the Finance Documents relative to the Identified Ship; (d) the Identified Ship maintains the highest available class with Lloyd's Register of Shipping (or such other first-class classification society which is a member of IACS as the Agent may approve) free of all overdue recommendations and conditions of such classification society; (e) the Mortgage relating to the Identified Ship has been duly registered against that Ship as a valid first priority Maltese statutory ship mortgage in accordance with the laws of Malta and has been noted on the Liberian Bareboat Charter Registry; (f) the Identified Ship is insured in accordance with the provisions of this Agreement and all requirements therein in respect of insurances have been complied with; and (g) the Identified Ship has been delivered and accepted by the Hille Oldendorff Charterer for service under the Hille Oldendorff Charterparty without qualifications and has been registered in the name of the Hille Oldendorff Charterer under the Liberian Bareboat Charter Registry. 7 A copy of the Management Agreement and a duly executed original of the Manager's Undertaking in relation to the Identified Ship. 8 Copies of: (a) the document of compliance (DOC) and safety management certificate (SMC) referred to in paragraph (a) of the definition of the ISM Code Documentation in respect of the Identified Ship and the applicable Approved Manager certified as true and in effect by Seaventure; and (b) the ISPS Code Documentation in respect of the Identified Ship and Seaventure certified as true and in effect by Seaventure. 9 Two valuations (at the cost of the Borrower) of the Identified Ship, addressed to the Agent, stated to be for the purpose of this Agreement and dated not earlier than 15 days before the Drawdown Date for the Identified Ship Advance, each from an Approved Broker. 10 Favourable legal opinions from lawyers appointed by the Agent on such matters concerning the laws of Malta, Liberia and such other relevant jurisdictions as the Agent may require. 11 A favourable opinion from an independent insurance consultant acceptable to the Agent on such matters relating to the insurances of the Identified Ships as the Agent may require. PART C The following are the documents referred to in Clause 9.1(c). "Relevant Ship" means, in relation to an Additional Advance, the Additional Ship which is to be part-financed by that Advance. 1 Copies of resolutions of the directors of the relevant Additional Ship Owner authorising the execution of each of the Finance Documents in relation to the Relevant Ship and ratifying the execution of the Additional Ship MOA in relation to that Relevant Ship. 2 The original of any power of attorney under which any Finance Document in relation to the Relevant Ship is executed on behalf of the relevant Additional Ship Owner. 3 The originals of any mandates or other documents required in connection with the opening or operation of the Earnings Account for the Relevant Ship. 4 A copy of the Additional Ship MOA for the Relevant Ship and all documents signed or issued by the parties thereto (or any of them) under or in connection with it. 5 Such documentary evidence as the Agent and its legal advisers may require in relation to the due authorisation and execution of the Additional Ship MOA in relation to the Relevant Ship and all documents to be executed by the parties thereto under that Additional Ship MOA. 6 A duly executed original of the Mortgage, the Deed of Covenant (if applicable), the General Assignment, the Additional Ship Earnings Account Pledge and the Management Assignment for the Relevant Ship (and of each document to be delivered under each of them). 7 Documentary evidence that: (a) the Relevant Ship has been unconditionally delivered to, and accepted by, the relevant Additional Ship Owner under the relevant Additional Ship MOA and the full purchase price payable under that Additional Ship MOA (in addition to the part financed by the relevant Advance) has been duly paid; (b) the Relevant Ship is definitively and permanently registered in the name of the relevant Additional Ship Owner under an Approved Flag; (c) the Relevant Ship is in the absolute and unencumbered ownership of the relevant Additional Ship Owner save as contemplated by the Finance Documents; (d) the Relevant Ship maintains the highest available class with Lloyd's Register of Shipping (or such other first-class classification society which is a member of IACS as the Agent may approve) free of all overdue recommendations and conditions of such classification society; (e) the Mortgage relative to the Relevant Ship has been duly registered or recorded (as the case may be) against the Relevant Ship as a valid first priority or preferred ship mortgage in accordance with the laws of the relevant Approved Flag State; and (f) the Relevant Ship is insured in accordance with the provisions of this Agreement and all requirements therein in respect of insurances have been complied with. 8 A copy of the Management Agreement and a duly executed original of the Manager's Undertaking in relation to the Relevant Ship. 9 Copies of: (a) the document of compliance (DOC) and safety management certificate (SMC) referred to in paragraph (a) of the definition of the ISM Code Documentation in respect of the Relevant Ship and the applicable Approved Manager certified as true and in effect by the Owner of the Relevant Ship; and (b) the ISPS Code Documentation in respect of the Relevant Ship and the Owner thereof certified as true and in effect by the relevant Owner. 10 Two valuations (at the cost of the Borrower) of the Relevant Ship, addressed to the Agent, stated to be for the purpose of this Agreement and dated not earlier than 15 days before the relevant Drawdown Date, each from an Approved Broker. 11 Evidence satisfactory to the Agent that the Owner of the Relevant Ship is a direct or indirect wholly-owned subsidiary of the Borrower. 12 A favourable legal opinion from lawyers appointed by the Agent on such matters concerning the laws of the Approved Flag State where the Relevant Ship is registered and such other relevant jurisdictions as the Agent may require. 13 A favourable opinion from an independent insurance consultant acceptable to the Agent on such matters relating to the insurances for the Relevant Ship as the Agent may require. 14 If the Agent so requires, in respect of any of the documents referred to above, a certified English translation prepared by a translator approved by the Agent. Every other copy document delivered under this Schedule shall be certified as a true and up to date copy by a director or the secretary (or equivalent officer) of the Borrower or any other person acceptable to the Agent in its sole discretion. SCHEDULE 6 TRANSFER CERTIFICATE The Transferor and the Transferee accept exclusive responsibility for ensuring that this Certificate and the transaction to which it relates comply with all legal and regulatory requirements applicable to them respectively. To: HSH Nordbank AG for itself and for and on behalf of the Borrower, each Security Party, the Security Trustee, the Swap Banks and each Lender, as defined in the Loan Agreement referred to below. [ ] 1 This Certificate relates to a Loan Agreement (the "Loan Agreement") dated 31 March 2006 and made between (1) Dryships Inc. as borrower (the "Borrower"), (2) the banks and financial institutions named therein as Lenders, (3) HSH Nordbank AG as Agent and as Security Trustee, (4) HSH Nordbank AG as Lead Arranger and Lead Bookrunner, (5) The Governor and Company of the Bank of Scotland as Joint Bookrunner, (6) HSH Nordbank AG and The Governor and Company of the Bank of Scotland as Joint Underwriters and (7) HSH Nordbank AG and HBOS Treasury Services plc as Swap Banks in respect of term loan and short-term credit facilities of up to US$110,000,000 in aggregate. 2 In this Certificate: "the Relevant Parties" means the Agent, the Borrower, each Security Party, the Security Trustee, each Swap Bank and each Lender; "the Transferor" means [fuIl name] of [lending office]; "the Transferee" means [full name] of [lending office]. Terms defined in the Loan Agreement shall, unless the contrary intention appears, have the same meanings when used in this Certificate. 3 The effective date of this Certificate is ........... 200 Provided that this Certificate shall not come into effect unless it is signed by the Agent on or before that date. 4 The Transferor assigns to the Transferee absolutely all rights and interests (present, future or contingent) which the Transferor has as Lender under or by virtue of the Loan Agreement and every other Finance Document in relation to [ ] percent of the Contribution outstanding to the Transferor (or its predecessors in title) which is set out below: Contribution Amount transferred 5 By virtue of this Transfer Certificate and Clause 26 of the Loan Agreement, the Transferor is discharged [entirely from its Commitment which amounts to $[ ]] [from [ ] percent of its Commitment, which percentage represents $[ ]] and the Transferee acquires a Commitment of $[ ]. 6 The Transferee undertakes with the Transferor and each of the Relevant Parties that the Transferee will observe and perform all the obligations under the Finance Documents which Clause 26 of the Loan Agreement provides will become binding on it upon this Certificate taking effect. 7 The Agent, at the request of the Transferee (which request is hereby made) accepts, for the Agent itself and for and on behalf of every other Relevant Party, this Certificate as a Transfer Certificate taking effect in accordance with Clause 26 of the Loan Agreement. 8 The Transferor: (a) warrants to the Transferee and each Relevant Party: (i) that the Transferor has full capacity to enter into this transaction and has taken all corporate action and obtained all consents which are in connection with this transaction; and (ii) that this Certificate is valid and binding as regards the Transferor; (b) warrants to the Transferee that the Transferor is absolutely entitled, free of encumbrances, to all the rights and interests covered by the assignment in paragraph 4 above; (c) undertakes with the Transferee that the Transferor will, at its own expense, execute any documents which the Transferee reasonably requests for perfecting in any relevant jurisdiction the Transferee's title under this Certificate or for a similar purpose. 9 The Transferee: (d) confirms that it has received a copy of the Loan Agreement and each other Finance Document; (e) agrees that it will have no rights of recourse on any ground against either the Transferor, the Agent, the Security Trustee, any Swap Bank or any Lender in the event that: (i) the Finance Documents prove to be invalid or ineffective, (ii) the Borrower or any Security Party fails to observe or perform its obligations, or to discharge its liabilities, under the Finance Documents; (iii) it proves impossible to realise any asset covered by a Security Interest created by a Finance Document, or the proceeds of such assets are insufficient to discharge the liabilities of the Borrower or any Security Party under the Finance Documents; (f) agrees that it will have no rights of recourse on any ground against the Agent, the Security Trustee, any Swap Bank or any Lender in the event that this Certificate proves to be invalid or ineffective; (g) warrants to the Transferor and each Relevant Party (i) that it has full capacity to enter into this transaction and has taken all corporate action and obtained all official consents which it needs to take or obtain in connection with this transaction; and (ii) that this Certificate is valid and binding as regards the Transferee; and (h) confirms the accuracy of the administrative details set out below regarding the Transferee. 10 The Transferor and the Transferee each undertake with the Agent and the Security Trustee severally, on demand, fully to indemnify the Agent and/or the Security Trustee in respect of any claim, proceeding, liability or expense (including all legal expenses) which they or either of them may incur in connection with this Certificate or any matter arising out of it, except such as are shown to have been mainly and directly caused by the gross and culpable negligence or dishonesty of the Agent's or the Security Trustee's own officers or employees. 11 The Transferee shall repay to the Transferor on demand so much of any sum paid by the Transferor under paragraph 10 above as exceeds one-half of the amount demanded by the Agent or the Security Trustee in respect of a claim, proceeding, liability or expense which was not reasonably foreseeable at the date of this Certificate; but nothing in this paragraph shall affect the liability of each of the Transferor and the Transferee to the Agent or the Security Trustee for the full amount demanded by it. [Name of Transferor] [Name of Transferee] By: By: Date: Date: Agent Signed for itself and for and on behalf of itself as Agent and for every other Relevant Party HSH NORDBANK AG By: Date: Administrative Details of Transferee Name of Transferee: Lending Office: Contact Person (Loan Administration Department): Telephone: Telex: Fax: Contact Person (Credit Administration Department): Telephone: Telex: Fax: Account for payments: Note: This Transfer Certificate alone may not be sufficient to transfer a proportionate share of the Transferor's interest in the security constituted by the Finance Documents in the Transferor's or Transferee's jurisdiction. It is the responsibility of each Lender to ascertain whether any other documents are required for this purpose. SCHEDULE 7 DESIGNATION NOTICE To: HSH Nordbank AG Gerhart-Hauptmann-Platz 50 D-20095 Hamburg Germany [ ] Dear Sirs Loan Agreement dated 31 March 2006 made between (inter alia) (i) ourselves as Borrower, (ii) the Lenders, (iii) yourselves as Agent and Security Trustee and (iv) yourselves and The Governor and Company of the Bank of Scotland as swap banks in respect of term loan and short-term credit facilities of up to US$110,000,000 in aggregate (the "Loan Agreement") We refer to: 1 the Loan Agreement; 2 the Master Agreement dated [ ] made between ourselves and [ ]; and 3 a Confirmation delivered pursuant to the said Master Agreement dated [ ] and addressed by [ ] to us. In accordance with the terms of the Loan Agreement, we hereby give you notice of the said Confirmation and hereby confirm that the Transaction evidenced by it will be designated as a "Designated Transaction" for the purposes of the Loan Agreement and the Finance Documents. Yours faithfully, - ------------------------------------ for and on behalf of DRYSHIPS INC. SCHEDULE 8 FORM OF COMPLIANCE CERTIFICATE To: HSH Nordbank AG Gerhart-Hauptmann-Platz 50 D-20095 Hamburg Germany [ ] 200[ ] Dear Sirs, We refer to a loan agreement dated 31 March 2006 (the "Loan Agreement") made between (amongst others) yourselves and ourselves in relation to term loan and short-term credit facilities of up to $110,000,000 in aggregate. Words and expressions defined in the Loan Agreement shall have the same meaning when used in this compliance certificate. We enclose with this certificate a copy of the [audited]/[unaudited] consolidated accounts for the Group for the [Financial Year] [3-month period] ended [ ]. The accounts (i) have been prepared in accordance with all applicable laws and GAAP all consistently applied, (ii) give a true and fair view of the state of affairs of the Group at the date of the accounts and of its profit for the period to which the accounts relate and (iii) fully disclose or provide for all significant liabilities of the Group. We also enclose copies of the valuations of all the Fleet Vessels which were used in calculating the Market Value Adjusted Total Assets of the Group as at [ ]. The Borrower represents that no Event of Default or Potential Event of Default has occurred as at the date of this certificate [except for the following matter or event [set out all material details of matter or event]]. In addition as of [ ], the Borrower confirms compliance with the financial covenants set out in Clause 12.4 of the Loan Agreement for the 6 months ending as of the date to which the enclosed accounts are prepared. We now certify that, as at [ ]: (a) the Market Adjusted Equity Ratio is [ ]:[ ]; (b) the Interest Coverage Ratio of the Group is [ ]:[ ]; (c) the Market Value Adjusted Net Worth of the Group is $[ ]; and (d) the aggregate freely available and unencumbered bank or cash balances of the Group are $[ ] in aggregate of which $[ ] in aggregate is standing to the credit of the Earnings Accounts and the Wealth Account. This certificate shall be governed by, and construed in accordance with, English law. - -------------------------- [ ] Chief Financial Officer of Dryships Inc. SCHEDULE 9 MANDATORY COST FORMULA 1 The Mandatory Cost is an addition to the interest rate to compensate Lenders for the cost of compliance with (a) the requirements of the Financial Services Authority (or any other authority which replaces all or any of its functions) or (b) the requirements of the European Central Bank. 2 On the first day of each Interest Period (or as soon as possible thereafter) the Agent shall calculate, as a percentage rate, a rate (the "Additional Cost Rate") for each Lender, in accordance with the paragraphs set out below. The Mandatory Cost will be calculated by the Agent as a weighted average of the Lenders' Additional Cost Rates (weighted in proportion to the percentage participation of each Lender in the Loan) and will be expressed as a percentage rate per annum. 3 The Additional Cost Rate for any Lender lending from a lending office in a Participating Member State will be the percentage notified by that Lender to the Agent. This percentage will be certified by that Lender in its notice to the Agent to be its reasonable determination of the cost (expressed as a percentage of that Lender's participation in the Loan) of complying with the minimum reserve requirements of the European Central Bank in respect of loans made from that lending office. 4 The Additional Cost Rate for any Lender lending from a lending office in the United Kingdom will be calculated by the Agent as follows: E x 0.01 ---------- percent per annum 300 Where: E is designed to compensate Lenders for amounts payable under the Fees Rules and is calculated by the Agent as being the average of the most recent rates of charge supplied by the Lenders to the Agent pursuant to paragraph 6 below and expressed in pounds per (pound)1,000,000. 5 For the purposes of this Schedule: (a) "Special Deposits" has the meaning given to it from time to time under or pursuant to the Bank of England Act 1998 or (as may be appropriate) by the Bank of England; (b) "Fees Rules" means the rules on periodic fees contained in the FSA Supervision Manual or such other law or regulation as may be in force from time to time in respect of the payment of fees for the acceptance of deposits; (c) "Fee Tariffs" means the fee tariffs specified in the Fees Rules under the activity group A.1 Deposit acceptors (ignoring any minimum fee or zero rated fee required pursuant to the Fees Rules but taking into account any applicable discount rate); (d) "Participating Member State" means any member state of the European Union that adopts or has adopted the euro as its lawful currency in accordance with legislation of the European Union relating to European Monetary Union; and (e) "Tariff Base" has the meaning given to it in, and will be calculated in accordance with, the Fees Rules. 6 If requested by the Agent, each Lender lending from a lending office in the United Kingdom shall, as soon as practicable after publication by the Financial Services Authority, supply to the Agent, the rate of charge payable by that Lender to the Financial Services Authority pursuant to the Fees Rules in respect of the relevant financial year of the Financial Services Authority (calculated for this purpose by that Lender as being the average of the Fee Tariffs applicable to that Lender for that financial year) and expressed in pounds per (pound)1,000,000 of the Tariff Base of that Lender. 7 Each Lender shall supply any information required by the Agent for the purpose of calculating its Additional Cost Rate. In particular, but without limitation, each Lender shall supply the following information in writing on or prior to the date on which it becomes a Lender: (a) the jurisdiction of its lending office; and (b) any other information that the Agent may reasonably require for such purpose. Each Lender shall promptly notify the Agent in writing of any change to the information provided by it pursuant to this paragraph. 8 The rates of charge of each Lender lending from a lending office in the United Kingdom for the purpose of calculating E shall be determined by the Agent based upon the information supplied to it pursuant to paragraph 6 above and on the assumption that, unless a Lender notifies the Agent to the contrary, each Lender's obligations in relation to cash ratio deposits and Special Deposits are the same as those of a typical bank from its jurisdiction of incorporation with a lending office in the same jurisdiction as its lending office. 9 The Agent shall have no liability to any person if such determination results in an Additional Cost Rate which over or under compensates any Lender and shall be entitled to assume that the information provided by any Lender pursuant to paragraphs 3, 6 and 7 above is true and correct in all respects. 10 The Agent shall distribute the additional amounts received as a result of the Mandatory Cost to the Lenders on the basis of the Additional Cost Rate for each Lender based on the information provided by each Lender pursuant to paragraphs 3, 6 and 7 above. 11 Any determination by the Agent pursuant to this Schedule in relation to a formula, the Mandatory Cost, an Additional Cost Rate or any amount payable to a Lender shall, in the absence of manifest error, be conclusive and binding on all parties. The Agent may from time to time, after consultation with the Borrower and the Lenders, determine and notify to all parties any amendments which are required to be made to this Schedule in order to comply with any change in law, regulation or any requirements from time to time imposed by the Financial Services Authority or the European Central Bank (or, in any case, any other authority which replaces all or any of its functions) and any such determination shall, in the absence of manifest error, be conclusive and binding on all parties. EXECUTION PAGES BORROWER SIGNED by EUGENIA PAPAPONTINOU ) /s/ Eugenia Papapontinou for and on behalf of ) ------------------------------- DRYSHIPS INC. ) LENDERS SIGNED by GEORGE PALEOKRASSAS ) /s/ George Paleokrassas for and on behalf of ) ------------------------------- HSH NORDBANK AG ) SIGNED by GEORGE PALEOKRASSAS ) /s/ George Paleokrassas for and on behalf of ) ------------------------------- THE GOVERNOR AND COMPANY OF ) THE BANK OF SCOTLAND ) AGENT SIGNED by GEORGE PALEOKRASSAS ) /s/ George Paleokrassas for and on behalf of ) ------------------------------- HSH NORDBANK AG ) SECURITY TRUSTEE SIGNED by GEORGE PALEOKRASSAS ) /s/ George Paleokrassas for and on behalf of ) ------------------------------- HSH NORDBANK AG ) LEAD ARRANGER/LEAD BOOKRUNNER SIGNED by GEORGE PALEOKRASSAS ) /s/ George Paleokrassas for and on behalf of ) ------------------------------- HSH NORDBANK AG ) JOINT BOOKRUNNER SIGNED by GEORGE PALEOKRASSAS ) /s/ George Paleokrassas for and on behalf of ) ------------------------------- THE GOVERNOR AND COMPANY OF ) THE BANK OF SCOTLAND ) JOINT UNDERWRITERS SIGNED by GEORGE PALEOKRASSAS ) /s/ George Paleokrassas for and on behalf of ) ------------------------------- HSH NORDBANK AG ) SIGNED by GEORGE PALEOKRASSAS ) /s/ George Paleokrassas for and on behalf of ) ------------------------------- THE GOVERNOR AND COMPANY OF ) THE BANK OF SCOTLAND ) SWAP BANKS SIGNED by GEORGE PALEOKRASSAS ) /s/ George Paleokrassas for and on behalf of ) ------------------------------- HSH NORDBANK AG ) SIGNED by GEORGE PALEOKRASSAS ) /s/ George Paleokrassas for and on behalf of ) ------------------------------- HBOS TREASURY SERVICES PLC ) Witness to all the ) /s/ Erica Lacombe above signatures ) ------------------------------- Name: ERICA LACOMBE WATSON, FARLEY & WILLIAMS Address: 2, DEFTERAS MERARCHIAS PIRAEUS 185 36 - GREECE EX-8.1 4 d663670_ex8-1.txt Exhibit 8.1 The following is a list of Company's subsidiaries as of December 31, 2005. Country of Name of Significant Subsidiary Incorporation Helium Shipping Company Limited Malta Hydrogen Shipping Company Limited Malta Silicon Shipping Company Limited Malta Oxygen Shipping Company Limited Malta Annapolis Shipping Company Limited Malta Blueberry Shipping Company Limited Malta Lancet Shipping Company Limited Malta Tolan Shipping Company Limited Malta Malvina Shipping Company Limited Malta Arleta Navigation Company Limited Malta Selma Shipping Company Limited Malta Royerton Shipping Company Limited Malta Samara Shipping Company Limited Malta Lansat Shipping Company Limited Malta Farat Shipping Company Limited Malta Madras Shipping Company Limited Malta Iguana Shipping Company Limited Malta Borsari Shipping Company Limited Malta Onil Shipping Company Limited Malta Zatac Shipping Company Limited Malta Fabiana Navigation Company Limited Malta Fago Shipping Company Limited Malta Felicia Navigation Company Limited Malta Platan Shipping Company Limited Malta Karmen Shipping Company Limited Liberia Celine Shipping Company Limited Liberia Helium Shipholding Co. S.A. Liberia Earthly Shipholding Co. S.A. Liberia Hydrogen Shipholding Co. S.A. Liberia First Shipholding Corp. Marshall Islands Silicon Shipholding Co. S.A. Liberia Oxygen Shipholding Co. S.A. Liberia Optional Redemption Investment Inc. Liberia Credit Facility Investments Inc. Liberia Skip Navigation Inc. Liberia Waterloo Navigation Ltd. Liberia Nouvelle Shipholding One Inc. Marshall Islands Nouvelle Shipholding Two Inc. Marshall Islands Scorpio Shipholding One Inc. Marshall Islands Scorpio Shipholding Two Inc. Marshall Islands Araldo Marine Ltd. Marshall Islands Welby Shipping Inc. Marshall Islands Anemone Marine Co. Marshall Islands Ariana Marine Ltd. Marshall Islands Lucio Shipholding Ltd. Marshall Islands Valente Navigation Co. Marshall Islands Xanadu Shipholding One Inc. Marshall Islands Xanadu Shipholding Two Inc. Marshall Islands Samsara Shipholding One Inc. Marshall Islands Samsara Shipholding Two Inc. Marshall Islands Paragon Shipholding One Inc. Marshall Islands Paragon Shipholding Two Inc. Marshall Islands Toro Shipholding One Inc. Marshall Islands Toro Shipholding Two Inc. Marshall Islands Primera Shipholding One Inc. Marshall Islands Primera Shipholding Two Inc. Marshall Islands Iguana Shipholding One Inc. Marshall Islands Iguana Shipholding Two Inc. Marshall Islands Lidman Maritime Co. Marshall Islands Armanno Marine Co. Marshall Islands Astarte Maritime S.A. Marshall Islands Ashby Shipmanagement Corp. Marshall Islands Sunlight Shipholding One Inc. Marshall Islands Sunlight Shipholding Two Inc. Marshall Islands Devine Navigation Inc. Marshall Islands Ariadne Marine S.A. Marshall Islands Olivia Shipholding One Inc. Marshall Islands Olivia Shipholding Two Inc. Marshall Islands Neria Shipmanagement Inc. Marshall Islands Argante Navigation Corp. Marshall Islands Taipan Shipholding One Inc. Marshall Islands Taipan Shipholding Two Inc. Marshall Islands Mador Shipping Ltd. Marshall Islands Lothair Navigation Company Marshall Islands Verge Navigation Ltd. Marshall Islands Joyce Shipping Corp. Marshall Islands Amara Shipping Company Marshall Islands Alma Shipholding Inc. Marshall Islands Wealth Management Inc. Marshall Islands EX-12.1 5 d662276_ex12-1.txt EXHIBIT 12.1 Exhibit 12.1 CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER I, George Economou, certify that: 1. I have reviewed this annual report on Form 20-F of DryShips Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; 4. The Company's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The Company's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. Date: April 20, 2006 /s/ George Economou - ------------------- George Economou Chief Executive Officer EX-12.2 6 d662276_ex12-2.txt EXHIBIT 12.2 Exhibit 12.2 CERTIFICATION OF THE PRINCIPAL FINANCIAL OFFICER I, Christopher Thomas, certify that: 1. I have reviewed this annual report on Form 20-F of DryShips Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) evaluated the effectiveness of the Company's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the period covered by this annual report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. 5. The Company's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company's auditors and the audit committee of the Company's board of directors (or persons performing the equivalent function): a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company's internal control over financial reporting. Date: April 20, 2006 /s/ Christopher Thomas - ---------------------- Christopher Thomas Chief Financial Officer EX-13.1 7 d662276_ex13-1.txt EXHIBIT 13.1 Exhibit 13.1 CHIEF EXECUTIVE OFFICER CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 In connection with this Annual Report of DryShips Inc. (the "Company") on Form 20-F for the year ended December 31, 2005 as filed with the Securities and Exchange Commission (the "SEC") on or about the date hereof (the "Report"), I, George Economou, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request. Date: April 20, 2006 /s/ George Economou - ------------------- Chief Executive Officer EX-13.2 8 d662276_ex13-2.txt EXHIBIT 13.2 Exhibit 13.2 CHIEF FINANCIAL OFFICER CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 In connection with the Annual Report of DryShips Inc. (the "Company") on Form 20-F for the year ended December 31, 2005 as filed with the Securities and Exchange Commission (the "SEC") on or about the date hereof (the "Report"), I, Christopher Thomas, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. A signed original of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request. Date: April 20, 2006 /s/ Christopher Thomas - ---------------------- Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----