-----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, S0Mqw7s/33vDPAZJACf1lddyexaLw6rWgPesjkH6MGFgWFOyVt+JsPVcmIRBQzn8 SOLL+DhfcYPQbd3E4nDGGg== 0000278041-08-000020.txt : 20080313 0000278041-08-000020.hdr.sgml : 20080313 20080313172302 ACCESSION NUMBER: 0000278041-08-000020 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 20080312 FILED AS OF DATE: 20080313 DATE AS OF CHANGE: 20080313 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INTERNATIONAL SHIPHOLDING CORP CENTRAL INDEX KEY: 0000278041 STANDARD INDUSTRIAL CLASSIFICATION: DEEP SEA FOREIGN TRANSPORTATION OF FREIGHT [4412] IRS NUMBER: 362989662 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-10852 FILM NUMBER: 08686974 BUSINESS ADDRESS: STREET 1: 11 NORTH WATER STREET STREET 2: SUITE # 18290 CITY: MOBILE STATE: AL ZIP: 36602 BUSINESS PHONE: 2512439100 MAIL ADDRESS: STREET 1: P.O. BOX 2004 CITY: MOBILE STATE: AL ZIP: 36652 10-K 1 form10k2007.htm FORM 10-K, DECEMBER 31, 2007 form10k2007.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
     
 
Form 10-K
  

(Mark One)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2007
 
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 No. 2-63322

 
International Shipholding Corporation
 
(Exact name of registrant as specified in its charter)
                  Delaware
 36-2989662
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
 

11 North Water St.  Suite 18290  Mobile, AL  
  
  36602
(Address of principal executive offices)
  
      (Zip Code)

 
Registrant's telephone number, including area code: (251) 243-9100

 
Securities registered pursuant to Section 12(b) of the Act:

Title of each class
Common Stock, $1 Par Value
Name of each exchange on which registered
New York Stock Exchange
 
 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes ☐ No ☑

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ 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.   Yes ☑  No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
                                Large accelerated filer   ☐                                                    Accelerated filer ☑                                              Non-accelerated filer   ☐    Small reporting company   ☐                         

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

State the aggregate market value of the voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter.
                                                                                                                                                        ;   Date                                                                                                           Amount
       June 30, 2007                                                                                                $96,267,951

Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date.
Common stock, $1 par value. . . . . . . . 7,675,142 shares outstanding as of March 5, 2008

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive proxy statement have been incorporated by reference into Part III of this Form 10-K.

 
 


INTERNATIONAL SHIPHOLDING CORPORATION

TABLE OF CONTENTS


 
PART I                                                                             60;                                             2
 
ITEM 1.     Business                                                                                              60;                   2
 
ITEM 1a.   Risk Factors                                                                                                          7
 
ITEM 1b.   Unresolved Staff Comments                                                                                                8
 
ITEM 2.      Properties                                                                                                              8   
 
ITEM 3.      Legal Proceedings                                                                                      60;                   9
 
ITEM 4.      Submission of Matters to a Vote of Security Holders                                                                                    9
 
ITEM 4a.    Executive Officers and Directors of the Registrant                                                                                        9
 
PART II                                                                            &# 160;                                          10
 
 
           Equity Securities                                                                                                            10
              ITEM 6.      Selected Financial Data                                                                                                  11    
 
ITEM 7.      Management’s  Discussion and Analysis of Financial Condition and Results of  Operations                                                            12
 
ITEM 7a.   Quantitative and Qualitative Disclosures About Market Risk                                                                             19
 
ITEM 8.      Financial Statements and Supplementary Data                                                                                      19
 
ITEM 9.      Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure                                                            19
 
ITEM 9a.   Controls and Procedures                                                                                                   19
 
ITEM 9b.   Other Information                                                                                                       20
 
PART III                          & #160;                                                                                             21
 
 
ITEM 10.    Directors, Executive Officers and Corporate Governance                                                    0;                              21
 
ITEM 11.    Executive Compensation                                                                                                   21
 
           Matters                                                                                                                  21    
 
ITEM 13.    Certain Relationships and Related Transactions, and Director Independence                                                                       21
 
ITEM 14.    Principal Accounting Fees and Services                                                                                         21   
 
PART IV                           60;                                                                                             22
 
 
ITEM 15.     Exhibits, Financial Statement Schedules                                                                                        22




ITEM 1.  BUSINESS

General
In this report, the terms “we,” “us,” “our,” and “the Company” refer to International Shipholding Corporation and its subsidiaries.  Through our subsidiaries, we operate a diversified fleet of U.S. and foreign flag vessels that provide international and domestic maritime transportation services to commercial and governmental customers primarily under medium to long-term charters or contracts.  At February 29, 2008, we owned or operated 27 ocean-going vessels and related shoreside handling facilities.
Our current operating fleet includes (i) six U.S. flag Pure Car/Truck Carriers (“PCTCs”) specifically designed to transport fully assembled automobiles, trucks and larger vehicles; (ii) four foreign flag PCTCs with the capability of transporting heavy weight and large dimension trucks and buses, as well as automobiles; (iii) two Breakbulk/Multi-Purpose vessels, three Container vessels and one Tanker vessel, which are used to transport supplies for the Indonesian operations of a mining company; (iv) one U.S. flag Molten Sulphur vessel, which is used to carry molten sulphur from Louisiana and Texas to a processing plant on the Florida Gulf Coast; (v) two Special Purpose vessels modified as Roll-On/Roll-Off vessels (“RO/ROs”) to transport loaded rail cars between the U.S. Gulf and Mexico; (vi) one U.S. flag conveyor-equipped self-unloading Coal Carrier, which carries coal in the coastwise and near-sea trade; (vii) three RO/RO vessels that permit rapid deployment of rolling stock, munitions, and other military cargoes requiring special handling; and (viii) two Capesize Bulk Carriers and two Panamax Bulk Carriers in which we own a 50% interest.
Our fleet is deployed by our principal operating subsidiaries, Central Gulf Lines, Inc. (“Central Gulf”), LCI Shipholdings, Inc. (“LCI”), Waterman Steamship Corporation (“Waterman”), CG Railway, Inc. (“CG Railway”), and Enterprise Ship Company, Inc. (“ESC”).  Other of our subsidiaries provide ship charter brokerage, agency and other specialized services.
We have four operating segments, Time Charter Contracts, Contracts of Affreightment (“COA”), Rail-Ferry Service, and Other, as described below.  Most of our revenues and gross voyage profits are contributed by our time charter contracts segment.
For additional information about our operating segments see Note L - Significant Operations of the Notes to the Consolidated Financial Statements contained in this Form 10-K on page F-16.  In addition to our four operating segments, we have investments in several unconsolidated entities of which we own 50% or less and have the ability to exercise significant influence over operating and financial activities.  A fifth operating segment, Liner Services, was discontinued in 2007.  As of December 31, 2007, one LASH vessel and 235 barges remained for this segment, with the assets classified as held for disposal.  During the first two months of 2008, we sold the one remaining LASH vessel and the majority of LASH barges with the remaining LASH barges under contract to be sold by the end of the first quarter of 2008. (See Note Q – Discontinued Operations on page F-19).
Time Charter Contracts.   Time Charters are contracts by which the charterer obtains the right for a specified time period to direct the movements and utilization of the vessel in exchange for payment of a specified daily rate, but we retain operating control over the vessel.  Typically, we fully equip the vessel and are responsible for normal operating expenses, repairs, crew wages, and insurance, while the charterer is responsible for voyage expenses, such as fuel, port, and stevedoring expenses.  Our Time Charter Contracts include charters of three RO/RO vessels to the United States Navy’s Military Sealift Command (“MSC”) for varying terms.  Other vessels operating in this segment are our ten PCTCs; a conveyor-equipped, self-unloading Coal Carrier under contract with an electric utility; two Multi-Purpose vessels, one Tanker, and three Container vessels providing transportation services to a mining company at its mine in Papua, Indonesia..
Contract of Affreightment (“COA”).  COAs are contracts by which we undertake to provide space on our vessels for the carriage of specified goods or a specified quantity of goods on a single voyage or series of voyages over a given period of time between named ports or within certain geographical areas in return for the payment of an agreed amount per unit of cargo carried.  Generally, we are responsible for all operating and voyage expenses.  Our COA segment includes one contract, which is for the transportation of molten sulphur.
Rail-Ferry Service.  This service uses our two Special Purpose vessels, which carry loaded rail cars between the U.S. Gulf and Mexico.  We began operations out of our new terminal in Mobile, Alabama and the upgraded terminal in Mexico during the third quarter of 2007.  The upgrades to the Mexican terminal were made to accommodate the second decks, which were added to our vessels in the second and third quarters of 2007 to double the capacity of the vessels.  (See Item 1a. Risk Factors for a description of material risks relating to this service on page 7).
Other.  This segment consists of operations that include more specialized services than the above mentioned three segments, and ship charter brokerage and agency services.
Unconsolidated Entities.  We have a 50% interest in a company owning two Capesize Bulk Carriers and two Panamax Bulk Carriers.  We also have a 49% interest in a company that operates the rail terminal in Coatzacoalcos, Mexico that is used by our Rail-Ferry Service, and a 50% interest in a company that owns and operates a transloading and rail and truck service warehouse storage facility in New Orleans, Louisiana.

Business Strategy
Our strategy is to (i) identify customers with high credit quality and marine transportation needs requiring specialized vessels or operating techniques, (ii) seek medium- to long-term charters or contracts with those customers and, if necessary, modify, acquire or construct vessels to meet the requirements of those charters or contracts, and (iii) provide our customers with reliable, high quality service at a reasonable cost.  We plan to continue this strategy by expanding our relationships with existing customers, seeking new customers, and selectively pursuing acquisitions.
Because our strategy is to seek medium- to long-term contracts and because we have diversified customer and cargo bases, we are generally insulated from the cyclical nature of the shipping industry.  However, of our four operating segments, our Rail-Ferry Service segment is impacted by, among other things, fuel oil cost and the seasonal demands for certain cargoes.

History
The Company was originally founded as Central Gulf Steamship Corporation in 1947 by the late Niels F.  Johnsen and his sons, Niels W. Johnsen and Erik F. Johnsen, both directors of the Company.  Central Gulf was privately held until 1971 when it merged with Trans Union Corporation (“Trans Union”).  In 1978, International Shipholding Corporation was formed to act as a holding company for Central Gulf, LCI, and certain other affiliated companies in connection with the 1979 spin-off by Trans Union of our common stock to Trans Union’s stockholders.  In 1986, we acquired the assets of Forest Lines, and in 1989, we acquired Waterman.  Since our spin-off from Trans Union, we have continued to act solely as a holding company, and our only significant assets are the capital stock of our subsidiaries.

Competitive Strengths
Diversification. Our strategy for many years has been to seek and obtain contracts that contribute to a diversification of operations.  These diverse operations vary from chartering vessels to the United States government, to chartering vessels for the transportation of automobiles and military vehicles, transportation of paper, steel, wood and wood pulp products, carriage of supplies for a mining company, transporting molten sulphur, transporting coal for use in generating electricity, and transporting standard size railroad cars.  As a result, our management believes our outlook is favorable for fulfilling current contracts, obtaining extensions through the exercise of options by current customers, and obtaining new contracts.
Consistent Operating Cash Flows. We believe that our operations have consistently generated cash flows sufficient to cover operating expenses, including the recurring drydocking requirements of our fleet, and our debt service requirements.  The length and structure of our contracts, the creditworthiness of our customers, and our diversified customer and cargo bases all contribute to our ability to consistently meet such requirements in an industry that tends to be cyclical in nature.  Our medium- to long-term charters provide for a daily charter rate that is payable whether or not the charterer utilizes the vessel.  These charters generally require the charterer to pay certain voyage operating costs, including fuel, port, and stevedoring expenses, and often include cost escalation features covering certain of our expenses.  In addition, our COA operations guarantee a minimum amount of cargo for transportation.  Our cash flow from operations was approximately $20.2 million, $23.0 million and $23.8 million for the years ended December 31, 2007, 2006 and 2005, respectively, after deducting cash used for drydocking payments of $9.8 million, $8.4 million, and $5 million for each of those years, respectively.  Scheduled repayment of debt was $10.3 million, $10.3 million, and $9.6 million for the years ended December 31, 2007, 2006, and 2005, respectively.  In the fourth quarter of 2007, we retired all of the remaining 7 3/4% Senior Unsecured Notes, resulting in a payment of $43.5 million.
Longstanding Customer Relationships.  We currently have medium- to long-term charters with, or contracts to carry cargo for, the MSC (15.7% of our fiscal year 2007 revenues) and a variety of high credit quality commercial customers.  Most of these companies have been customers of ours for over ten years.  Substantially all of our current cargo contracts and charter agreements are renewals or extensions of previous agreements.  In recent years, we have been successful in winning extensions or renewals of substantially all of the contracts rebid by our commercial customers, and we have been operating vessels for the MSC for more than 30 years.  We believe that our longstanding customer relationships are in part due to our excellent reputation for providing quality specialized maritime service in terms of on-time performance, minimal cargo damage claims and reasonable rates.
Experienced Management Team.   Our management team has substantial experience in the shipping industry.  Our Chairman, President, and Chief Financial Officer have over 97 years of collective experience with the Company.  We believe that the experience of our management team is important to maintaining long-term relationships with our customers.


Types of Service
Through our principal operating subsidiaries, we provide specialized maritime transportation services to our customers primarily under medium- to long-term contracts.  Our four operating segments, Time Charter Contracts, Contract of Affreightment, Rail-Ferry Service, and Other are described below.  For further information on the amount of revenues and gross voyage profits contributed by each segment, please see Item 7 of this report.

We elected during 2007 to discontinue both the International flag LASH Liner service and the U.S. flag LASH Liner service, which comprised the company’s Liner segment.   In our accompanying financial statements, we have reflected our LASH operations as discontinued operations and all assets associated with this segment have been sold.  (See Note Q – Discontinued Operations on page F-19)


      I.  Time Charter Contracts
        Military Sealift Command Charters
We have had contracts with the MSC (or its predecessor) almost continuously for over 30 years.  In 1983, Waterman was awarded a contract to operate three U.S. flag RO/RO vessels under time charters to the MSC for use by the United States Navy in its maritime prepositioning ship (“MPS”) program.  These vessels currently represent three of the sixteen MPS vessels in the MSC’s worldwide fleet and provide support to the U.S. Marine Corps.  These ships are designed primarily to carry rolling stock and containers, and each can carry support equipment for 17,000 military personnel.  Waterman sold the three vessels to unaffiliated corporations shortly after being awarded the contract but retained the right to operate the vessels under operating agreements.  The MSC time charters commenced in late 1984 and early 1985 for initial five-year periods and were renewable at the MSC’s option for additional five-year periods up to a maximum of twenty-five years.  In 1993, the Company reached an agreement with the MSC to make certain reductions in future charter hire payments in consideration of fixing the period of these charters for the full 25 years.  The charters and related operating agreements will expire in the fourth quarter of 2009 and the first four months of 2010.

       Pure Car/Truck Carriers
U.S. Flag.  Our fleet includes six U.S. flag PCTCs, of which five are owned by us and one is leased.  In 1986, we entered into multi-year charters to carry Toyota and Honda automobiles from Japan to the United States.  To service these charters, we had constructed two car carriers that were specially designed to carry 4,000 and 4,660 fully assembled automobiles, respectively.  Both vessels were built in Japan and were registered under the U.S. flag.  In 2000 and 2001, we replaced these two vessels with larger PCTCs, which are operating under the initial term of their contracts through 2010 and 2011 with a Japanese shipping company, which had been designated by Toyota Motor Corporation as our vessels’ time charterer.  Both of these contracts may be extended beyond the initial term at the option of the shipping company.
In 1998, we acquired a 1994-built U.S. flag PCTC.  After being delivered to us in April of 1998, this vessel entered a long-term charter through 2008, with options extending through 2014, with the aforementioned Japanese shipping company.  In 1999, we acquired a newly built U.S. flag PCTC, which immediately after being delivered to us in September of 1999 entered a long-term charter through 2011 also with the same Japanese shipping company.  Both of these contracts may be extended beyond the initial term at the option of the shipping company.  We have sold one of these PCTCs to an unaffiliated party and leased it back under an operating lease expiring in 2009.
In 2005, we acquired a 1998-built U.S. flag PCTC.  Immediately after being delivered to us in September of 2005, this vessel entered a charter through 2015 with the same Japanese shipping company.
In 2007, we acquired a 2007-built U.S. flag PCTC.  Immediately after being delivered to us in September of 2007, this vessel entered a charter through 2010 with a Hong Kong based shipping company, which holds an option to purchase the vessel at the end of the contract.  We have entered into a ship sales contract for the construction of one new PCTC, to be delivered in early 2010.

Foreign Flag.  Our fleet includes four foreign flag PCTCs, of which one is owned by us, one is leased, and two are time chartered.  In 1988, we had two new car carriers constructed by a shipyard affiliated with Hyundai Motor Company, each with a carrying capacity of 4,800 fully assembled automobiles, to transport Hyundai automobiles from South Korea primarily to the United States and Europe under two long-term charters.  In 1998 and 1999, we sold these car carriers and replaced them with two newly built PCTCs, each with the capacity to carry heavy and large size rolling stock in addition to automobiles and trucks.  We immediately entered into long-term charters of these vessels through 2018 and 2019 to a Korean shipping company.  One of these PCTCs was subsequently sold to an unaffiliated party and leased back under an operating lease through 2016, and we have an option to purchase the vessel thereafter.
During 2006, we chartered two foreign flag car carriers and subsequently chartered-out the vessels.  The terms of these lease agreements are through February 2010 with an option to extend for one additional year.
Under each of our PCTC contracts, the charterers are responsible for voyage operating costs such as fuel, port, and stevedoring expenses, while we are responsible for other operating expenses including crew wages, repairs, and insurance.  During the terms of these charters, we are entitled to our full fee irrespective of the number of voyages completed or the number of cars carried per voyage.

       Coal Carrier
In 1995, we purchased an existing U.S. flag conveyor-equipped, self-unloading Coal Carrier that was chartered to a New England electric utility under a 15-year time charter expiring in 2010 to carry coal in the coastwise and near-sea trade. The charter has subsequently been assumed by a third party.  Since the base charter provides approximately 60% utilization, the ship can also be used, from time to time during this charter period, to carry coal and other bulk commodities in the spot market for the account of other charterers.

       Southeast Asia Transportation Contract
The contract to transport supplies for a mining company in Indonesia is serviced by two Breakbulk/Multi-Purpose vessels, a small Tanker, and three Container vessels.  The contract was renewed through 2010 and has options to extend thereafter on a year-to-year basis.

Container Vessels
In 2004, we purchased two Container vessels that have been chartered to a third party since that time.  In our charter agreement there is a replacement vessel provision effective by the end of the first quarter of 2008 to replace the two Container vessels with two other Container vessels and extend the Time Charter contract to 2015.  By the end of the first quarter of 2008 these vessels will be reflagged under a foreign flag and chartered out and operated under a new three year time charter agreement.

II.  Contract of Affreightment
 In 1994, we entered into a 15-year transportation contract with Freeport-McMoRan Sulphur LLC, a sulphur transporter for which we had built a 28,000 DWT Molten Sulphur Carrier that carries molten sulphur from Louisiana and Texas to a fertilizer plant on the Florida Gulf Coast.  Under the terms of this contract, we are guaranteed the transportation of a minimum of 1.8 million tons of molten sulphur per year.  The contract also gives the charterer three five-year renewal options.  The vessel was delivered and began service during late 1994.  In 2002, the contract was assigned by Freeport-McMoRan Sulphur LLC to Gulf Sulphur Services Ltd.  The terms of the contract were not affected by the assignment.

III.  Rail-Ferry Service
This service uses our two Special Purpose vessels, which carry loaded rail cars between the U.S. Gulf and Mexico.  The service provides departures every four days from Mexico and the U.S. Gulf Coast, respectively, for a three-day transit between ports.  We began operations out of our new terminal in Mobile, Alabama and the upgraded terminal in Mexico during the third quarter of 2007.  The upgrades to the Mexican terminal were made to accommodate the second decks, which were added to our vessels in the second and third quarters of 2007 to double the capacity of the vessels.  (See Item 1a. Risk Factors for a description of material risks relating to this service on page 7).


IV.  Other
Several of our subsidiaries provide ship charter brokerage, agency, and other specialized services to our operating subsidiaries and, in the case of ship charter brokerage and agency services, to unaffiliated companies.  The income produced by these services substantially covers the related overhead expenses.  These services facilitate our operations by allowing us to avoid reliance on third parties to provide these essential shipping services.

Marketing
We maintain marketing staffs in New York, Mobile, and Shanghai and a network of marketing agents in major cities around the world who market our charter and contract services.  We market our Rail-Ferry Service under the name “CG Railway.”  We advertise our services in trade publications in the United States and abroad.

Insurance
           We maintain protection and indemnity (“P&I”) insurance to cover liabilities arising out of our ownership and operation of vessels with the Standard Steamship Owners’ Protection & Indemnity Association (Bermuda) Ltd., which is a mutual shipowners’ insurance organization commonly referred to as a P&I club.  The club is a participant in and subject to the rules of its respective international group of P&I associations.  The premium terms and conditions of the P&I coverage provided to us are governed by the rules of the club.
We maintain hull and machinery insurance policies on each of our vessels in amounts related to the value of each vessel.  This insurance coverage, which includes increased value and time charter hire, is maintained with a syndicate of hull underwriters from the U.S., British, Norwegian, Japanese and French insurance markets.  We maintain war risk insurance on each of our vessels in an amount equal to each vessel’s total insured hull value.  War risk insurance is placed through U.S., British, Norwegian and French insurance markets and covers physical damage to the vessels and P&I risks for which coverage would be excluded by reason of war exclusions under either the hull policies or the rules of the P&I club.  Our war risk insurance also covers liability to third parties caused by war or terrorism, but does not cover damages to our land-based assets caused by war or terrorism.
The P&I insurance also covers our vessels against liabilities arising from the discharge of oil or hazardous substances in U.S., international, and foreign waters.
We also maintain loss of hire insurance with U.S., British, Norwegian and French insurance markets to cover our loss of revenue in the event that a vessel is unable to operate for a certain period of time due to loss or damage arising from the perils covered by the hull and machinery policy and war risk policy.
Insurance coverage for shoreside property, shipboard consumables and inventory, spare parts, workers’ compensation, office contents, and general liability risks is maintained with underwriters in U.S. and British markets.
Insurance premiums for the coverage described above vary from year to year depending upon our loss record and market conditions.  In order to reduce premiums, we maintain certain deductible and co-insurance provisions that we believe are prudent and generally consistent with those maintained by other shipping companies.  Certain exclusions under our insurance policies could limit our ability to receive payment for our losses. (See Note E– Self-Retention Insurance on page F-11).

Tax Matters
Under United States tax laws in effect prior to 2005, U.S. companies such as ours and their domestic subsidiaries generally were taxed on all income, which in our case includes income from shipping operations, whether derived in the United States or abroad.  With respect to any foreign subsidiary in which we hold more than a 50 percent interest (referred to in the tax laws as a controlled foreign corporation, or “CFC”), we were treated as having received a current taxable distribution of our pro rata share of income derived from foreign shipping operations when earned.
The American Jobs Creation Act of 2004  (“Jobs Creation Act”), which became effective for us on January 1, 2005, changed the United States tax treatment of the foreign operations of our U.S. flag vessels and the operations of our foreign flag vessels.  As permitted under the Jobs Creation Act we have elected to have our U.S. flag operations (other than those of two ineligible vessels used exclusively in United States coastwise commerce) taxed under a new “tonnage tax” regime rather than under the usual U.S. corporate income tax regime.
Because we made the tonnage tax election referred to above, our gross income for United States income tax purposes with respect to our eligible U.S. flag vessels for 2005 and subsequent years does not include (1) income from qualifying shipping activities in U.S. foreign trade (such as transportation between the U.S. and foreign ports or between foreign ports), (2) income from cash, bank deposits and other temporary investments that are reasonably necessary to meet the working capital requirements of our qualifying shipping activities, and (3) income from cash or other intangible assets accumulated pursuant to a plan to purchase qualifying shipping assets.  Our taxable income with respect to the operations of our eligible U.S. flag vessels is based on a “daily notional taxable income,” which is taxed at the highest corporate income tax rate.  The daily notional taxable income from the operation of a qualifying vessel is 40 cents per 100 tons of the net tonnage of the vessel up to 25,000 net tons, and 20 cents per 100 tons of the net tonnage of the vessel in excess of 25,000 net tons.  The taxable income of each qualifying vessel is the product of its daily notional taxable income and the number of days during the taxable year that the vessel operates in United States foreign trade.  Also as a result of the Jobs Creation Act, the taxable income from the shipping operations of CFCs will generally no longer be subject to United States income tax until that income is repatriated.  We have a plan to re-invest indefinitely some of our foreign earnings, and accordingly have not provided deferred taxes against those earnings.
           On July 13, 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Tax—an Interpretation of FASB Statement No. 109.  FIN 48 addresses how companies must treat (i.e., recognize, measure, and disclose) uncertain tax positions for financial reporting purposes.   We adopted FIN 48 as of January 1, 2007 and the adoption had no effect on our consolidated financial position or results of operations.

Regulation
Our operations between the United States and foreign countries are subject to the Shipping Act of 1984 (the “Shipping Act”), which is administered by the Federal Maritime Commission, and certain provisions of the Federal Water Pollution Control Act, the Oil Pollution Act of 1990, the Act to Prevent Pollution from Ships, and the Comprehensive Environmental Response Compensation and Liability Act, all of which are administered by the U.S. Coast Guard and other federal agencies, and certain other international, federal, state, and local laws and regulations, including international conventions and laws and regulations of the flag nations of our vessels.  On October 16, 1998, the Ocean Shipping Reform Act of 1998 was enacted, which amended the Shipping Act to promote the growth and development of United States exports through certain reforms in the regulation of ocean transportation.  This legislation, in part, repealed the requirement that a common carrier or conference file tariffs with the Federal Maritime Commission, replacing it with a requirement that tariffs be open to public inspection in an electronically available, automated tariff system.  Furthermore, the legislation required that only the essential terms of service contracts be published and made available to the public.
           On October 8, 1996, Congress adopted the Maritime Security Act of 1996, which created the Maritime Security Program (MSP) and authorized the payment of $2.1 million per year per ship for 47 U.S. flag ships through the fiscal year ending September 30, 2005.  This program eliminated the trade route restrictions imposed by the previous federal program and provides flexibility to operate freely in the competitive market.  On December 20, 1996, Waterman entered into four MSP operating agreements with the United States Maritime Administration (“MarAd”), and Central Gulf entered into three MSP operating agreements with MarAd.  We also participate in the Voluntary Intermodal Sealift Agreement (“VISA”) program administered by MarAd.  Under this VISA program, and as a condition of participating in the MSP, we have committed to providing vessel and commercial intermodal capacity for the movement of military and other cargoes in times of war or national emergency.  By law, the MSP is subject to annual appropriations from Congress.  In the event that sufficient appropriations are not made for the MSP by Congress in any fiscal year, the Maritime Security Act of 1996 permits MSP participants, such as Waterman and Central Gulf, to re-flag their vessels under foreign registry expeditiously.  In 2003, Congress authorized an extension of the MSP through 2015, increased the number of ships eligible to participate in the program from 47 to 60, and increased MSP payments to companies in the program, all made effective on October 1, 2005.  Authorized annual payments per fiscal year for each vessel for the current MSP program are $2.6 million for years 2007 and 2008, $2.9 million for years 2009 to 2011, and $3.1 million for years 2012 to 2015, subject to annual appropriation by the Congress, which is not assured.  On October 15, 2004, Waterman and Central Gulf each filed applications to extend their MSP operating agreements for another 10 years through September 30, 2015, all seven of which were effectively grandfathered in the MSP reauthorization.  Simultaneously, we offered additional ships for participation in the MSP.  On January 12, 2005, MarAd awarded Central Gulf four MSP operating agreements and Waterman four MSP operating agreements, effective October 1, 2005, for a net increase of one MSP operating agreement.
Under the Merchant Marine Act, U.S. flag vessels are subject to requisition or charter by the United States whenever the President declares that the national security requires such action.  The owners of any such vessels must receive just compensation as provided in the Merchant Marine Act, but there is no assurance that lost profits, if any, will be fully recovered.  In addition, during any extension period under each MSC charter or contract, the MSC has the right to terminate the charter or contract on 30 days’ notice.  However, terms of our RO/RO operating contracts, which are currently our only contracts with the MSC, call for significant early termination penalties.
Certain laws governing our operations, as well as our molten sulphur transportation contract, require us to be as much as 75% owned by U.S. citizens.  We monitor our stock ownership to verify our continuing compliance with these requirements.  Our certificate of incorporation allows our board of directors to restrict the acquisition of our capital stock by non-U.S. citizens.  Under our certificate of incorporation, our board of directors may, in the event of a transfer of our capital stock that would result in non-U.S. citizens owning more than 23% (the “permitted amount”) of our total voting power, declare such transfer to be void and ineffective.  In addition, our board of directors may, in its sole discretion, deny voting rights and withhold dividends with respect to any shares of our capital stock owned by non-U.S. citizens in excess of the permitted amount.  Furthermore, our board of directors is entitled under our certificate of incorporation to redeem shares owned by non-U.S. citizens in excess of the permitted amount in order to reduce the ownership of our capital stock by non-U.S. citizens to the permitted amount.
We are required by various governmental and quasi-governmental agencies to obtain permits, licenses, and certificates with respect to our vessels.  The kinds of permits, licenses, and certificates required depend upon such factors as the country of registry, the commodity transported, the waters in which the vessel operates, the nationality of the vessel’s crew, the age of the vessel, and the status of the Company as owner or charterer.  We believe that we have, or can readily obtain, all permits, licenses, and certificates necessary to permit our vessels to operate.
The International Maritime Organization (“IMO”) amended the International Convention for the Safety of Life at Sea (“SOLAS”), to which the United States is a party, to require nations that are parties to SOLAS to implement the International Safety Management (“ISM”) Code.  The ISM Code requires that responsible companies, including owners or operators of vessels engaged on foreign voyages, develop and implement a safety management system to address safety and environmental protection in the management and operation of vessels.  Companies and vessels to which the ISM Code applies are required to receive certification and documentation of compliance.  Vessels operating without such certification and documentation in the U.S. and ports of other nations that are parties to SOLAS may be denied entry into ports, detained in ports or fined.  We implemented a comprehensive safety management system and obtained timely IMO certification and documentation for our companies and all of our vessels.  In addition, our ship management subsidiary, LMS Shipmanagement, Inc., is certified under the ISO 9002 Quality Standard.
More recently, in 2003, SOLAS was again amended to require parties to the convention to implement the International Ship and Port Facility Security (“ISPS”) Code.  The ISPS Code requires owners and operators of vessels engaged on foreign voyages to conduct vulnerability assessments and to develop and implement company and vessel security plans, as well as other measures, to protect vessels, ports and waterways from terrorist and criminal acts.  In the U.S., these provisions were implemented through the Maritime Transportation Security Act of 2002 (“MTSA”).  These provisions became effective on July 1, 2004.  As with the ISM Code, companies and vessels to which the ISPS Code applies must be certificated and documented.  Vessels operating without such certification and documentation in the U.S. and ports of other nations that are parties to SOLAS may be denied entry into ports, detained in ports or fined.  Vessels subject to fines in the U.S. are liable in rem, which means vessels may be subject to arrest by the U.S. government.  For U.S. flag vessels, company and vessel security plans must be reviewed and approved by the U.S. Coast Guard.  We have conducted the required security assessments and submitted plans for review and approval as required, and we believe that we are in compliance in all material respects with all ISPS Code and MTSA security requirements.
The Coast Guard and Maritime Transportation Act of 2004, signed into law on August 9, 2004, amended the Oil Pollution Act of 1990 (“OPA”) to require owners or operators of all non-tank vessels of 400 gross tons or greater to develop and submit plans for responding, to the maximum extent practicable, to worst case discharges and substantial threats of discharges of oil from these vessels.  This statute extends to all types of vessels of 400 gross tons or greater the vessel response planning requirements of the OPA that had previously only applied to tank vessels.  We have submitted response plans timely for our vessels, and have received Coast Guard approval for all of our vessels.
Also, under the OPA, vessel owners, operators and bareboat charterers are responsible parties that are jointly, severally and strictly liable for all response costs and other damages arising from oil spills from their vessels in waters subject to U.S. jurisdiction, with certain limited exceptions.  Other damages include, but are not limited to, natural resource damages, real and personal property damages, and other economic damages such as net loss of taxes, royalties, rents, profits or earning capacity, and loss of subsistence use of natural resources.  For non-tank vessels, the OPA limits the liability of responsible parties to the greater of $600 per gross ton or $500,000.  The limits of liability do not apply if it is shown that the discharge was proximately caused by the gross negligence or willful misconduct of, or a violation of a federal safety, construction or operating regulation by, the responsible party, an agent of the responsible party or a person acting pursuant to a contractual relationship with the responsible party.  Further, the limits do not apply if the responsible party fails or refuses to report the incident, or to cooperate and assist in oil spill removal activities.  Additionally, the OPA specifically permits individual states to impose their own liability regimes with regard to oil discharges occurring within state waters, and some states have implemented such regimes.
The Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) also applies to owners and operators of vessels, and contains a similar liability regime for cleanup and removal of hazardous substances and natural resource damages.  Liability under CERCLA is limited to the greater of $300 per gross ton or $5 million per vessel.
Under the OPA, vessels are required to establish and maintain with the U.S. Coast Guard evidence of financial responsibility sufficient to meet the highest limit of their potential liability under the act.  Under Coast Guard regulations, evidence of financial responsibility may be demonstrated by insurance, surety bond, self-insurance or guaranty.  An owner or operator of more than one vessel must demonstrate financial responsibility for the entire fleet in an amount equal to the financial responsibility of the vessel having greatest maximum liability under the OPA and CERCLA.  We insure each of our vessels with pollution liability insurance in the amounts required by law.  A catastrophic spill could exceed the insurance coverage available, in which event our financial condition and results of operations could be adversely affected.
Many countries have ratified and follow the liability plan adopted by the IMO as set out in the International Convention on Civil Liability for Oil Pollution Damage of 1969 (the “1969 Convention”) and the Convention for the Establishment of an International Fund for Oil Pollution of 1971.  Under these conventions, the registered owner of a vessel is strictly liable for pollution damage caused in the territorial seas of a state party by the discharge of persistent oil, subject to certain complete defenses.  Liability is limited to approximately $183 per gross registered ton (a unit of measurement of the total enclosed spaces in a vessel) or approximately $19.3 million, whichever is less.  If a country is a party to the 1992 Protocol to the International Convention on Civil Liability for Oil Pollution Damage (the “1992 Protocol”), the maximum liability limit is $82.7 million.  The limit of liability is tied to a unit of account that varies according to a basket of currencies.  The right to limit liability is forfeited under the 1969 Convention when the discharge is caused by the owner's actual fault, and under the 1992 Protocol, when the spill is caused by the owner's intentional or reckless misconduct.  Vessels operating in waters of states that are parties to these conventions must provide evidence of insurance covering the liability of the owner.  In jurisdictions that are not parties to these conventions, various legislative schemes or common law govern.  We believe that our pollution insurance policy covers the liability under the IMO regimes.

Competition
The shipping industry is intensely competitive and is influenced by events largely outside the control of shipping companies.  Varying economic factors can cause wide swings in freight rates and sudden shifts in traffic patterns.  Vessel redeployments and new vessel construction can lead to an overcapacity of vessels offering the same service or operating in the same market.  Changes in the political or regulatory environment can also create competition that is not necessarily based on normal considerations of profit and loss.  Our strategy is to reduce competitive pressures and the effects of cyclical market conditions by operating specialized vessels in niche market segments and deploying a substantial number of our vessels under medium- to long-term charters or contracts with creditworthy customers and on trade routes where we have established market share.  We also seek to compete effectively in the traditional areas of price, reliability, and timeliness of service.
Our Rail-Ferry Service is affected more by competitive factors compared to our other segments.  Our Time Charter Contracts and Contract of Affreightment segments primarily include medium and long-term contracts with specific customers.  While our PCTCs in our Time Charter Contracts segment operate worldwide in markets where foreign flag vessels with foreign crews predominate, we believe that our U.S. flag PCTCs can compete effectively in obtaining renewals of existing contracts if we continue to participate in the MSP and receive cooperation from our seamen’s unions in controlling costs.
Our Rail-Ferry Service faces competition principally from companies who transport cargo over land rather than water, including railroads that cross land borders and trucking companies.

Employees
As of December 31, 2007, we employed approximately 384 shipboard personnel and 141 shoreside personnel.  We consider relations with our employees to be excellent.
With only minor exceptions, all of our shipboard personnel are covered by collective bargaining agreements.  Some of these agreements relate to particular vessels and have terms corresponding with the terms of their respective vessel’s charter.  In addition, Central Gulf, Waterman, and other U.S. shipping companies are subject to collective bargaining agreements for shipboard personnel.  We have experienced no strikes or other significant labor problems during the last ten years.

Available Information
Our internet address is www.intship.com.  We make available free of charge through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.  The information found on our website is not part of this or any other report.
Unless otherwise indicated, information contained in this annual report and other documents filed by us under the federal securities laws concerning our views and expectations regarding the marine transportation industry are based on estimates made by us using data from industry sources, and on assumptions made by us based on our management’s knowledge and experience in the markets in which we operate and the marine transportation industry generally.  We believe these estimates and assumptions are accurate of the date made.  However, this information may prove to be inaccurate because it cannot always be verified with certainty.  You should be aware that we have not independently verified data from industry or other third-party sources and cannot guarantee its accuracy or completeness.  Our estimates and assumptions involve risks and uncertainties and are subject to change based on various factors, including those discussed immediately below in Item 1A of this annual report.


 
ITEM 1a.  RISK FACTORS

Our business and operations are highly-regulated.  Our business is materially affected by government regulation in the form of international conventions, national, state and local laws and regulations, and laws and regulations of the flag nations of our vessels, including laws relating to the discharge of materials into the environment.  Because such conventions, laws and regulations are often revised, we are unable to predict the ultimate costs of compliance.  In addition, we are required by various governmental and quasi-governmental agencies to obtain and maintain certain permits, licenses and certificates with respect to our operations.  In certain instances, the failure to obtain or maintain such permits, licenses or certificates could have a material adverse effect on our business.  In the event of war or national emergency, our U.S. flag vessels are subject to requisition by the United States without any guarantee of compensation for lost profits, although the United States government has traditionally paid fair compensation in such circumstances.
If sufficient appropriations under the Maritime Security Act of 1996 are not made in any fiscal year, we may not continue to receive annual payments with respect to certain of our vessels.  Under the MSP program discussed earlier in the Regulation section, each participating vessel is eligible to receive an annual payment of $2.6 million in years 2007 and 2008, $2.9 million in years 2009 to 2011, and $3.1 million in years 2012 to 2015.  As of December 31, 2007, eight of our vessels operated under MSP contracts.  Payments under this program are subject to annual appropriations by Congress and are not guaranteed.  Congress may not make sufficient appropriations under the program in one or more fiscal years and, as a result, we can provide no assurance as to our continued receipt, in full or in part, of the annual payments.  For the program’s fiscal year 2007, each participating vessel was eligible to receive annual payments of $2.6 million.
An increase in the supply of vessels without a corresponding increase in demand for vessels could cause our charter and cargo rates to decline, which could have a material adverse effect on our revenues and earnings. Historically, the shipping industry has been cyclical.  The profitability and asset values of companies in the industry have fluctuated in part because of changes in the supply and demand of vessels.  The supply of vessels generally increases with deliveries of new vessels and decreases with the scrapping of older vessels. If the number of new vessels delivered exceeds the number of vessels being scrapped, vessel capacity will increase.  If the supply of vessels increases and the demand for vessels does not, the charter and cargo rates for our vessels could decline significantly.  A decline in our charter and cargo rates could have a material adverse effect on our revenues and earnings.
Our Rail-Ferry Service has been unprofitable, and we can give no assurance as to its future profitability.  Our Rail-Ferry Service began operating in February of 2001.  The introduction of this service in a competitive market contributed $7.5 million to our net loss in 2001, and the service had losses totaling $10.9 million for the years ended December 31, 2002, 2003 and 2004.  The service had losses of $6.7 million for the year ended December 31, 2005, although $2.5 million was directly related to losses from Hurricane Katrina.  In 2006, the service had losses of $5.1 million, net of a $8.9 million impairment loss related to the Service’s terminal.  Although, as discussed further in Item 7 below, our losses from this service have narrowed in recent periods as a result of capital improvements, we cannot give assurances that this service will become or remain profitable in the future.
We are subject to the risk of continuing high prices, and increasing prices, of the fuel we consume in our Rail-Ferry operations.  We are exposed to commodity price risks with respect to fuel consumption in our Rail-Ferry operations, and we can give no assurance that we will be able to offset higher fuel costs due to the competitive nature of these operations.  Although we currently have fuel surcharges in place, a material increase in current fuel prices that we cannot recover through these fuel cost surcharges could adversely affect our results of operations and financial condition.  For an analysis of the effect on our operating costs and earnings per share of an increase in fuel prices, see Item 7a. Quantitative and Qualitative Disclosures About Market Risk on page 19.
We operate in a highly competitive industry.  The shipping industry is intensely competitive and can be influenced by economic and political events that are outside the control of shipping companies.  There can be no assurance that we will be able to renew expiring charters on economically attractive terms, maintain attractive freight rates, pass cost increases through to our customers or otherwise successfully compete against our competitors.
We are subject to the control of our principal stockholders.  Four of our directors, Niels W. Johnsen, Erik F. Johnsen, Niels M. Johnsen and Erik L. Johnsen, and their family members and affiliated entities, beneficially owned an aggregate of 25.2% of our common stock as of February 29, 2008.  Niels M. Johnsen and Erik L. Johnsen are also executive officers of the Company, and their respective fathers are former executive officers who continue to provide consulting services to us.  As a result, the Johnsen family may have significant influence over the election of directors and other corporate actions requiring shareholder approval.
Operating hazards may increase our operating costs; our insurance coverage is limited.  Our vessels are subject to operating risks such as: (i) catastrophic marine disaster; (ii) adverse weather conditions; (iii) mechanical failure; (iv) collisions; (v) hazardous substance spills; (vi) war, terrorism and piracy; and (vii) navigation and other human errors.  The occurrence of any of these events may result in damage to or loss of our vessels and our vessels' cargo or other property, damage to other vessels and the environment, and injury to personnel.  Such occurrences may also result in a significant increase in our operating costs or liability to third parties.  In addition, such occurrences may result in our company being held strictly liable for pollution damages under the Oil Pollution Act of 1990, the Comprehensive Environmental Response Compensation and Liability Act or one of the international conventions to which our vessels operating in foreign waters may be subject.
We maintain insurance coverage against certain of these risks, which our management considers to be customary in the industry.  We cannot assure you, however, that we will be able to renew our existing insurance coverage at commercially reasonable rates or that such coverage will be adequate to cover future claims that may arise.
We are subject to risks associated with operating internationally.  Our international shipping operations are subject to risks inherent in doing business in countries other than the United States.  These risks include, among others: (i) economic, political and social instability; (ii) potential vessel seizure, expropriation of assets and other governmental actions, which are not covered by our insurance; (iii) currency restrictions and exchange rate fluctuations; (iv) potential submission to the jurisdiction of a foreign court or arbitration panel; and (v) import and export quotas, the imposition of increased environmental and safety regulations and other forms of public and governmental regulation.  Many of these risks are beyond our control, and we cannot predict the nature or the likelihood of any such events.  However, if such an event should occur, it could have a material adverse effect on our financial condition and results of operations.
Our vessels could be seized by maritime claimants, which could result in a significant loss of earnings and cash flow for the related off-hire period.  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 or claims for damages.  In many jurisdictions, a maritime lienholder may enforce its lien by either arresting or attaching a vessel through foreclosure proceedings.  The arrest or attachment of one or more of our vessels could result in a significant loss of earnings and cash flow for the related off-hire period.
In addition, international vessel arrest conventions and certain national jurisdictions allow so-called “sister ship” arrests, that allow the arrest of vessels that are within the same legal ownership as the vessel which is subject to the claim or lien.  Certain jurisdictions go further, permitting not only the arrest of vessels within the same legal ownership, but also any “associated” vessel.  In nations with these laws, an “association” may be recognized when two vessels are owned by companies controlled by the same party.  Consequently, a claim may be asserted against us, any of our subsidiaries or our vessels for the liability of one or more of the other vessels we own.  While we have insurance coverage for these type of claims, we cannot guarantee it will cover all of our exposure.
 
 
    A substantial number of our employees are unionized; in the event of a strike or other work stoppage our business and operations may be adversely affected.  As of December 31, 2007, with only minor exceptions, all of our shipboard personnel were covered by collective bargaining agreements. While we have experienced no strikes, work stoppages or other significant labor problems during the last ten years, we cannot assure you that such events will not occur in the future.  In the event we experience one or more strikes, work stoppages or other labor problems, our business and operations and, in turn, our results of operations, may be materially and adversely affected.
We may not be able to renew our time charters and contracts when they expire.  There can be no assurance that any of our existing time or bareboat charters or contract of affreightment will be renewed or, if renewed, that they will be renewed at favorable rates.  If upon expiration of our existing charters and contracts, we are unable to obtain new charters or contracts at rates comparable to those received under the expired charters or contracts, our revenues and earnings may be adversely affected.
Older vessels have higher operating costs and are less desirable to charterers.  The average age of the vessels in our fleet that we own or lease is approximately 16 years, including the average age of our owned and leased Pure Car/Truck Carrier Fleet, which is approximately 10 years and our International Flag Bulk Carrier Fleet, which is approximately 8 years.  In general, capital expenditures and other costs necessary for maintaining a vessel in good operating condition increase as the age of the vessel increases.  Accordingly, it is likely that the operating costs of our older vessels will increase.  In addition, changes in governmental regulations and compliance with classification society standards may require us to make expenditures for new equipment.  In order to add such equipment, we may be required to take our vessels out of service, thereby reducing our revenues.  Moreover, customers generally prefer modern vessels over older vessels, which places the older vessels at a competitive disadvantage, especially in weak markets.  There can be no assurance that market conditions will justify the expenditures necessary to maintain our older vessels in good operating condition or enable us to operate our older vessels profitably during the remainder of their estimated useful lives.
We face periodicdrydocking costs for our vessels, which can be substantial.  Vessels must be drydocked periodically.  The cost of repairs and renewals required at each drydock are difficult to predict with certainty and can be substantial and our insurance does not cover these costs.
A default under one of our debt agreements may result in a default under one or more of our other debt agreements.  Our debt obligations are represented by separate agreements with different lenders.  A default under any agreement can result in the acceleration of principal and interest, and in some cases penalties, under that agreement.  In some cases, a default under one agreement may create an event of default under other agreements, resulting in the acceleration of principal, interest and penalties under such other agreements even though we are otherwise in compliance with all payment and other obligations under those agreements.  Thus, an event of default under a single agreement, including one that is technical in nature or otherwise not material, may create an event of default under multiple lending agreements, which could result in the acceleration of significant indebtedness under multiple agreements that we may not be able to pay or refinance at that time.
As a holding company, we rely on payments from our operating companies to meet our obligations.  As a holding company, substantially all of our income and operating cash flow is dependent upon the earnings of our subsidiaries and the distribution of those earnings to, or upon loans or other payments of funds by those subsidiaries to us.  As a result, we rely upon our subsidiaries to generate the funds necessary to meet our obligations, including the payment of amounts owed under our long-term debt.  Our subsidiaries are separate and distinct legal entities and have no obligation to pay any amounts owed by us or, subject to limited exceptions for tax-sharing purposes, to make any funds available to us to repay our obligations, whether by dividends, loans or other payments.   Moreover, our rights to receive assets of any subsidiary upon its liquidation or reorganization will be effectively subordinated to the claims of creditors of that subsidiary, including trade creditors.  The footnotes to our consolidated financial statements included elsewhere herein describe these matters in additional detail.
The agreements governing certain of our debt instruments impose restrictions on our business.  The agreements governing certain of our debt instruments contain a number of covenants imposing restrictions on our business. The restrictions these covenants place on us include limitations on our ability to: (i) consolidate or merge; (ii) incur new debt; (iii) engage in transactions with affiliates; and (iv) create or permit to exist liens on our assets.  These agreements also require us to meet a number of financial ratios.  As a result of these covenants, our ability to respond to changes in business and economic conditions and to secure additional financing, if needed, may be significantly restricted, and we may be prevented from engaging in transactions that otherwise might be considered beneficial to the Company and our common stockholders.
In addition, the breach of any of these covenants could result in a default under several other of these agreements that could lead the lenders to declare all amounts outstanding to be immediately due and payable.  If we were unable to repay those amounts, such lenders could proceed against the collateral securing that indebtedness.  If amounts outstanding under such agreements were to be accelerated, there can be no assurance that our assets would be sufficient to generate sufficient cash flow to repay the accelerated indebtedness.


ITEM 1b. UNRESOLVED STAFF COMMENTS

We have one unresolved comment from the Staff of the SEC dated January 8, 2008, related to filing of an amended Form 10-K for 2006, to include financial statements for an entity in which we owned a minority interest.  We accounted for this as an unconsolidated equity interest which we sold in November of 2006. The staff’s position is that based on Rule 3-09 of Regulation SX, we should amend our 2006 Form 10-K to include audited financial statements for the period ended December 2005, and unaudited financial statements for the periods ended December 2004 and September 2006. On December 11, 2007, we filed an amended Form 10-K for 2006, which included audited financial statements for 2005 and unaudited Income Statements and Balance Sheets for periods ended December 2004 and September 2006. Our position is that we filed all of the information that was available at the time and that the new owners have refused to provide us with additional information.  We have requested a waiver from filing any additional information with the SEC’s Office of Chief Accountant and are waiting on a decision on this request.



ITEM 2.  PROPERTIES

Vessels and Barges
Of the 27 ocean-going vessels in our fleet at February 29, 2008, twelve were 100% owned by us, four were 50% owned by us, eight were leased or Time Chartered by us, and three were operated by us under operating contracts.  In 2007, we elected to discontinue our International LASH service.  During the first two months of 2008, we sold the one remaining LASH vessel and the majority of LASH barges, with the remaining LASH barges under contract to be sold by the end of the first quarter of 2008.
Under governmental regulations, insurance policies, and certain of our financing agreements and charters, we are required to maintain our vessels in accordance with standards of seaworthiness, safety, and health prescribed by governmental regulations or promulgated by certain vessel classification societies. We have implemented the quality and safety management program mandated by the IMO and have obtained certification of all vessels currently required to have a Safety Management Certificate.  Vessels in the fleet are maintained in accordance with governmental regulations and the highest classification standards of the American Bureau of Shipping, Det Norske Veritas, or Lloyd's Register classification societies.
Certain of the vessels and barges owned by our subsidiaries are mortgaged to various lenders to secure such subsidiaries’ long-term debt (See Note D - Long-Term Debt on page F-11).

Other Properties
We lease our corporate headquarters in Mobile, AL, our administrative and sales office in New York, and office space in Shanghai.  In 2007, the aggregate annual rental payments under these operating leases totaled approximately $1.7 million.

 


ITEM 3.  LEGAL PROCEEDINGS

We have been named as a defendant in numerous lawsuits claiming damages related to occupational diseases, primarily related to asbestos and hearing loss.  We believe that most of these claims are without merit, and that insurance and the indemnification of a previous owner of one of our subsidiaries mitigate our exposure.
In the normal course of our operations, we become involved in various litigation matters including, among other things, claims by third parties for alleged property damages, personal injuries and other matters.  While the outcome of such claims cannot be predicted with certainty, we believe that our insurance coverage and reserves with respect to such claims are adequate and that such claims should not have a material adverse effect on our business or financial condition  (See Note I – Commitments and Contingencies on page F-15).

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.



ITEM 4a.  EXECUTIVE OFFICERS AND DIRECTORS OF THE REGISTRANT

Set forth below is information concerning the directors and executive officers of the Company as of February 29, 2008.  Directors are elected by the shareholders for one-year terms.  Executive officers serve at the pleasure of the Board of Directors (“the Board”).

Name                                                      Current Position
Niels M. Johnsen                                 Chairman and Chief Executive Officer
Erik L. Johnsen                                     President and Director
Manuel G. Estrada                               Vice President and Chief Financial Officer
Niels W. Johnsen                                 Director
Erik F. Johnsen                                     Director
Harold S. Grehan, Jr.                            Director
Raymond V. O'Brien, Jr.                      Director
Edwin A. Lupberger                            Director
Edward K. Trowbridge                        Director
H. Merritt Lane III                                Director

Niels M. Johnsen, 62, is the Chairman and Chief Executive Officer of the Company.  Niels M. Johnsen has served as a Director of the Company since April of 1988.  Niels M. Johnsen joined Central Gulf on a full time basis in 1970 and held various positions with the Company, including President between April of 2003 and April of 2007, when he assumed his current positions as Chairman and Chief Executive Officer.  He also serves as chairman of each of the Company’s principal subsidiaries, except N. W. Johnsen & Co., Inc., which he serves as President.  In 2002, he became a trustee and director of Atlantic Mutual Companies.  He is the son of Niels W. Johnsen.
Erik L. Johnsen, 50, is President of the Company.  Erik L. Johnsen has served as a Director of the Company since 1994.  He joined Central Gulf in 1979 and held various positions with the Company, including Executive Vice President between April of 1997 and April of 2007, when he assumed his current position as President.  He also serves as the President of each of the Company’s principal subsidiaries.  He is responsible for all operations of the Company’s vessel fleet and leads the Company’s Ship Management Group.  He is the son of Erik F. Johnsen.
Manuel G. Estrada, 53, is Vice President and Chief Financial Officer of the Company.  He joined Central Gulf in 1978 and held various positions with the Company prior to being named Vice President and Controller in 1996, and Vice President and Chief Financial Officer in 2005.
Niels W. Johnsen, 85, is a Director of the Company.  He served as the Chairman and Chief Executive Officer of the Company from its commencement of operations in 1979 until April of 2003 and served as Chairman and Chief Executive Officer of each of the Company's principal subsidiaries until April of 1997.  He previously served as Chairman of Trans Union’s ocean shipping group of companies from December of 1971 through May of 1979.  He was one of the founders of Central Gulf in 1947 and held various positions with Central Gulf until Trans Union acquired Central Gulf in 1971.  He is the brother of Erik F. Johnsen.
Erik F. Johnsen, 82, is a Director of the Company.  He served as the President, Chief Operating Officer, and Director of the Company from its commencement of operations in 1979 until April of 2003, and Chairman and Chief Executive Officer of the Company between April of 2003 and April of 2007.  Until April of 1997, Mr. Johnsen also served as the President and Chief Operating Officer of each of the Company's principal subsidiaries, except Waterman, for which he served as Chairman of the Executive Committee.  Along with his brother, Niels W. Johnsen, he was one of the founders of Central Gulf in 1947 and served as its President from 1966 until April of 1997.
Harold S. Grehan, Jr., 80, is a Director of the Company.  He joined Central Gulf in 1958 and became Vice President in 1959, Senior Vice President in 1973 and Executive Vice President and Director in 1979.  Mr. Grehan retired from the Company in 1997, and has continued to serve as a Director since that time.  In early 2008, Mr. Grehan announced his intention to retire effective April 30, 2008, the date of our Shareholders Meeting.  Upon approval of our shareholders, Mr. T. Lee Robinson, Jr. will replace Mr. Grehan.
Raymond V. O'Brien, Jr., 80, has served as a Director of the Company since 1979 and in 2003 was named Chairman of the Compensation Committee of the Board of Directors.  He served as Chairman of the Board and Chief Executive Officer of the Emigrant Savings Bank from January of 1978 through December of 1992.  Mr. O’Brien has notified the Board that he intends to retire as a director during the second half of 2008.
Edwin A Lupberger, 71, has served as a Director of the Company since 1988 and in 2003 was named Chairman of the Audit Committee of the Board of Directors.  He is the President of Nesher Investments, LLC.  Mr. Lupberger served as the Chairman of the Board and Chief Executive Officer of Entergy Corporation from 1985 to 1998.
Edward K. Trowbridge, 79, has served as a Director of the Company since 1994 and in 2003 was named Chairman of the Nominating and Governance Committee of the Board of Directors.  He served as Chairman of the Board and Chief Executive Officer of the Atlantic Mutual Companies from July of 1988 through November of 1993.
H. Merritt Lane III, 46, has served as a Director of the Company since 2004.  He has served as President and Chief Executive Officer of Canal Barge Company, Inc. since 1994 and as director of that company since 1988.







ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

COMMON STOCK PRICES AND DIVIDENDS FOR EACH QUARTERLY PERIOD OF 2006 AND 2007
               
(Source: New York Stock Exchange)
          
               
             
Dividends
2006
  
High
    
Low
  
Paid
               
1st Quarter
    
15.90
      
15.10
  
N/A
2nd Quarter
    
15.39
      
12.25
  
N/A
3rd Quarter
    
13.60
      
11.91
  
N/A
4th Quarter
    
13.80
      
12.01
  
N/A
                   
                 
Dividends
2007
  
High
    
Low
  
Paid
                   
1st Quarter
    
18.66
      
13.35
  
N/A
2nd Quarter
    
23.54
      
18.40
  
N/A
3rd Quarter
    
22.57
      
15.03
  
N/A
4th Quarter
    
26.67
      
20.60
  
N/A
                   
Approximate Number of Common Stockholders of Record at March 3, 2008: 450



Performance Graph
The following graph compares the cumulative total shareholder return of our Common Stock to that of the S&P 500 Index and an Industry Peer Group (which consists of Overseas Shipholding Group, Stolt-Nielsen, Sea Containers Limited, and Alexander and Baldwin) for the Corporation's last five fiscal years.
                                                    
*Assumes $100 invested at the close of trading on the last trading day in 2002 in ISH common stock, the S&P 500, and the Industry Peer Group.  Also assumes reinvestment of dividends.

December 31,
   
2002
    
2003
    
2004
    
2005
    
2006
    
2007
  
                                     
ISH --♦--
   $
100.00
     $
241.79
     $
244.22
     $
254.89
     $
221.14
     $
356.89
  
S&P --■--
   $
100.00
     $
128.68
     $
142.67
     $
149.65
     $
173.28
     $
182.81
  
Peer Group --▲--
   $
100.00
     $
161.37
     $
227.74
     $
238.85
     $
216.86
     $
274.96
  

In accordance with New York Stock Exchange rules, Niels M. Johnsen, our Chief Executive Officer, has certified to the NYSE that, as of May 11, 2007, he was not aware of any violation by us of the NYSE’s corporate governance listing standards.   The certification is to be submitted to the NYSE each year no later than 30 days after our annual stockholders meeting.
The Chief Executive Officer and Chief Financial Officer certifications required for 2007 by Section 302 of the Sarbanes-Oxley Act of 2002 are included as exhibits to this Form 10-K.  The certifications required for 2006 were included as exhibits to our 2006 Form 10-K.

Equity Compensation Plans
See Item 12 of this annual report for information on our equity compensation plan.


ITEM 6.  SELECTED FINANCIAL DATA

 SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
The following summary of selected consolidated financial data is not covered by the auditors' report appearing elsewhere herein. However, in the opinion of management, the summary of selected consolidated financial data includes all adjustments necessary for a fair representation of each of the years presented.
This summary should be read in conjunction with the consolidated financial statements and the notes thereto appearing elsewhere in this annual report.

(All Amounts in Thousands Except Share and Per Share Data)
  
Year Ended December 31,
  
   
2007
    
2006 (1)
    
2005
    
2004 (2)
    
2003
  
Income Statement Data (3):
                              
Revenues
   $
197,110
     $
185,464
     $
168,791
     $
163,451
     $
179,666
  
Impairment Loss
    
-
      
8,866
      
-
      
-
      
-
  
Gross Voyage Profit
    
28,776
      
19,054
      
24,789
      
27,071
      
35,421
  
Operating Income
    
10,630
      
1,445
      
10,104
      
10,305
      
20,856
  
Income from Continuing Operations
    
11,792
      
18,194
      
6,393
      
10,996
      
6,639
  
Net Income Available to Common Stockholders
    
15,016
      
14,648
      
4,629
      
12,785
      
5,491
  
Basic and Diluted Earnings Per Common Share – Continuing Operations
                                        
  Net Income Available to Common Stockholders - Basic
    
1.48
      
2.58
      
0.66
      
1.81
      
1.09
  
  Net Income Available to Common Stockholders - Diluted
    
1.41
      
2.24
      
0.66
      
1.80
      
1.09
  
                                         
         Balance Sheet Data:
                                        
Working Capital
    
23,189
      
3,024
      
16,120
      
17,650
      
10,248
  
Total Assets
    
440,655
      
428,042
      
449,507
      
385,048
      
382,451
  
Long-Term Debt, Less Current Maturities
                                        
   (including Capital Lease Obligations)
    
130,523
      
98,984
      
161,720
      
168,622
      
164,144
  
Convertible Exchangeable Preferred Stock
    
37,554
      
37,554
      
37,554
      
-
      
-
  
Stockholders' Investment
    
172,141
      
153,736
      
140,714
      
135,454
      
121,367
  
                                         
         Other Data:
                                        
Net Cash Provided by Operating Activities
    
20,231
      
22,981
      
23,778
      
28,989
      
38,616
  
Net Cash (Used) Provided by Investing Activities
     (2,180 )    
27,532
       (61,208 )     (25,589 )    
1,772
  
Net Cash (Used) Provided by Financing Activities
     (48,221 )     (22,418 )    
43,095
       (1,768 )     (35,926 )
Cash Dividends Per Share of Common Stock
    
-
      
-
      
-
      
-
      
-
  
Weighted Average Shares of Common Stock Outstanding:
                                        
    Basic
    
6,360,208
      
6,116,036
      
6,083,005
      
6,082,887
      
6,082,887
  
    Diluted
    
8,369,473
      
8,122,578
      
6,114,510
      
6,092,302
      
6,082,887
  
(1)  
Results for 2006 reflect an Impairment Loss of approximately $8.9 million.  This non-cash charge was made to write down our investment in the terminal located in New Orleans, Louisiana utilized in our Rail-Ferry Service.  That service relocated its U.S. operations during 2007 to Mobile, Alabama, where a new terminal has been constructed.
(2)  
Results for 2004 were significantly favorably impacted by certain income tax adjustment relating to the Jobs Creation Act of 2004.
(3)  
During 2007, the decision was made to discontinue our LASH Liner service.  As a result, the LASH Liner service results were removed from continuing operations and reclassified into Discontinued Operations for all years presented above.  




ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

NOTICE REGARDING FORWARD-LOOKING STATEMENTS

This report on Form 10K and other documents filed or furnished by us under the federal securities law include, and future oral or written statements or press releases by us and our management may include, forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and as such may involve known and unknown risks, uncertainties, and other factors that may cause our actual results to be materially different from the anticipated future results expressed or implied by such forward-looking statements.
 
Such statements include, without limitation, statements regarding (1) estimated fair values of capital assets, the recoverability of the cost of those assets, the estimated future cash flows attributable to those assets, and the appropriate discounts to be applied in determining the net present values of those estimated cash flows; (2) estimated scrap values of assets; (3) estimated proceeds from sales of assets and the anticipated cost of constructing or purchasing new or existing vessels ; (4) estimated fair values of financial instruments, such as interest rate, commodity and currency swap agreements; (5) estimated losses (including independent actuarial estimates) under self-insurance arrangements, as well as estimated gains or losses on certain contracts, trade routes, lines of business or asset dispositions; (6) estimated losses attributable to asbestos claims; (7) estimated obligations, and the timing thereof, to the U.S. Customs Service relating to foreign repair work; (8) the adequacy of our capital resources and the availability of additional capital resources on commercially acceptable terms; (9) our ability to remain in compliance with our debt covenants; (10) anticipated trends in government sponsored cargoes; (11) our ability to effectively service our debt; (12) financing opportunities and sources (including the impact of financings on our financial position, financial performance or credit ratings), (13) anticipated future operating and financial performance, financial position and liquidity, growth opportunities and growth rates, acquisition and divestiture opportunities, business prospects, regulatory and competitive outlook, investment and expenditure plans, investment results, pricing plans, strategic alternatives, business strategies, and other similar statements of expectations or objectives, and (14) assumptions underlying any of the foregoing.  Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan” or “anticipate” and other similar words.
 
 
Our forward-looking statements are based upon our judgment and assumptions as of the date such statements are made concerning future developments and events, many of which are outside of our control.  These forward looking statements, and the assumptions upon which such statements are based, are inherently speculative and are subject to uncertainties that could cause our actual results to differ materially from such statements.  Important factors that could cause our actual results to differ materially from our expectations may include, without limitation, our ability to (i) identify customers with marine transportation needs requiring specialized vessels or operating techniques; (ii) secure financing on satisfactory terms to acquire, modify, or construct vessels if such financing is necessary to service the potential needs of current or future customers;  (iii) obtain new contracts or renew existing contracts which would employ certain of our vessels or other assets upon the expiration of contracts currently in place, on favorable economic terms; (iv) manage the amount and rate of growth of our general and administrative expenses and costs associated with operating certain of our vessels; (v) and manage our growth in terms of implementing internal controls and information systems and hiring or retaining key personnel, among other things.
 
Other factors include (vi) changes in cargo, charterhire, fuel, and vessel utilization rates; (vii) the rate at which competitors add or scrap vessels in the markets as well as demolition scrap prices and the availability of scrap facilities in which we operate; (viii) changes in interest rates which could increase or decrease the amount of interest we incur on borrowings with variable rates of interest, and the availability and cost of capital to us; (ix) the impact on our financial statements of nonrecurring accounting charges that may result from our ongoing evaluation of business strategies, asset valuations, and organizational structures; (x) changes in accounting policies and practices adopted voluntarily or as required by accounting principles generally accepted in the United States; (xi) changes in laws and regulations such as those related to government assistance programs and tax rates; (xii) the frequency and severity of claims against us, and unanticipated outcomes of current or possible future legal proceedings; (xiii) unplanned maintenance and out-of-service days on our vessels; (xiv) the ability of customers to fulfill obligations with us; (xv) the performance of unconsolidated subsidiaries; (xvi) our ability to effectively handle our substantial leverage by servicing and meeting the covenant requirements in each of our debt instruments, thereby avoiding any defaults under those instruments and avoiding cross defaults under others; and (xvii) other economic, competitive, governmental, and technological factors which may affect our operations.
For additional information, see the description of our business included above, as well as Item 7 of this report.  Due to these uncertainties, there can be no assurance that our anticipated results will occur, that our judgments or assumptions will prove correct, or that unforeseen developments will not occur.  Accordingly, you are cautioned not to place undue reliance upon any of our forward-looking statements, which speak only as of the date made.  Additional risks that we currently deem immaterial or that are not presently known to us could also cause our actual results to differ materially from those expected in our forward-looking statements.  We undertake no obligation to update or revise for any reason any forward-looking statements made by us or on our behalf, whether as a result of new information, future events or developments, changed circumstances or otherwise.
 

CRITICAL ACCOUNTING POLICIES

Set forth below is a discussion of the accounting policies and related estimates that we believe are the most critical to understanding our consolidated financial statements, financial condition, and results of operations and which require complex management judgments or estimates and entail material uncertainties.  Information regarding our other accounting policies is included in the Notes to Consolidated Financial Statements.

Voyage Revenue and Expense Recognition
Revenues and expenses relating to our Rail-FerryService segments' voyages are recorded over the duration of the voyage.  Our voyage expenses are estimated at the beginning of the voyages based on historical actual costs or from industry sources familiar with those types of charges.  As the voyage progresses, these estimated costs are revised with actual charges and timely adjustments are made.  The expenses are ratably expensed over the voyage based on the number of days in progress at the end of the period.  We believe there is no material difference between recording estimated expenses ratably over the voyage versus recording expenses as incurred.  Revenues and expenses relating to our other segments' voyages, which require no estimates or assumptions, are recorded when earned or incurred during the reporting period.

Depreciation
Provisions for depreciation are computed on the straight-line method based on estimated useful lives of our depreciable assets.  Various methods are used to estimate the useful lives and salvage values of our depreciable assets and due to the capital intensive nature of our business and our large base of depreciable assets, changes in such estimates could have a material effect on our results of operations.

Drydocking Costs
We defer certain costs related to the drydocking of our vessels.  Deferred drydocking costs are capitalized as incurred and amortized on a straight-line basis over the period between drydockings (generally two to five years).  Because drydocking charges can be material in any one period, we believe that the acceptable deferred method provides a better matching for the amortization of those costs over future revenue periods benefiting from the drydocking of our vessel.  We capitalize only those costs that are incurred to meet regulatory requirements or upgrades, or that add economic life to the vessel.  Normal repairs, whether incurred as part of the drydocking or not, are expensed as incurred.


Income Taxes
Income taxes are accounted for in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.”  Provisions for income taxes include deferred income taxes that are provided on items of income and expense, which affect taxable income in one period and financial income in another.  Certain foreign operations are not subject to income taxation under pertinent provisions of the laws of the country of incorporation or operation.  However, pursuant to existing U.S. Tax Laws, earnings from certain of our foreign operations are subject to U.S. income taxes when those earnings are repatriated to the U.S.  We have indefinitely re-invested earnings of $7,130,000 of 2007 foreign earnings, and accordingly, have not provided deferred taxes in the amount of $2,495,000 against those earnings.  The Jobs Creation Act, which first applied to us on January 1, 2005, changed the United States tax treatment of the foreign operations of our U.S. flag vessels and our foreign flag shipping operations.  We made an election under the Jobs Creation Act to have our qualifying U.S. flag operations taxed under a new “tonnage tax” rather than under the usual U.S. corporate income tax regime.
On July 13, 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109, Accounting for Income Taxes (“FIN 48”), to create a single model to address accounting for uncertainty in tax positions.  FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.  FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.  We adopted FIN 48 on January 1, 2007.

Self-Retention Insurance
As explained further in Note E to the Notes to our Consolidated Financial Statements contained elsewhere in this report, we maintain provisions for estimated losses under our self-retention insurance based on estimates of the eventual claims settlement costs.  Our policy is to establish self-insurance provisions for Hull and Machinery and Loss of Hire for each policy year based on estimates from independent actuaries and management, and to generally maintain the provisions at those levels for the estimated run-off period, approximately two years from the inception of that period.  We also establish provisions for P&I insurance deductibles based on internal estimates.  We believe most claims will be reported, or estimates for existing claims will be revised, within this two-year period. Subsequent to this two-year period, self-insurance provisions are adjusted to reflect our current estimate of loss exposure for the policy year.  Our estimates are determined based on various factors, such as (1) severity of the injury (for personal injuries) and estimated potential liability based on past judgments and settlements, (2) advice from legal counsel based on its assessment of the facts of the case and its experience in other cases, (3) probability of pre-trial settlement which would mitigate legal costs, (4) historical experience on claims for each specific type of cargo (for cargo damage claims), and (5) whether our seamen are employed in permanent positions or temporary revolving positions.  It is reasonably possible that changes in our estimated exposure may occur from time to time.  However, if during this two-year period our estimate of loss exposure exceeds the actuarial estimate, then additional loss provisions are recorded to increase the self-insurance provisions to our estimate of the eventual claims' settlement cost.  The measurement of our exposure for self-insurance liability requires management to make estimates and assumptions that affect the amount of loss provisions recorded during the reporting period.  Actual results could differ materially from those estimates.

Asbestos Claims
We maintain provisions for estimated losses for asbestos claims based on estimates of eventual claims settlement costs.  Our policy is to establish provisions based on a range of estimated exposure.  We estimate this potential range of exposure using input from legal counsel and internal estimates based on the individual deductible levels for each policy year. We are also indemnified for certain of these claims by the previous owner of one of our wholly-owned subsidiaries. The measurement of our exposure for asbestos liability requires management to make estimates and assumptions that affect the amount of the loss provisions recorded during the period.  Our estimates and assumptions are formed from variables such as the maximum deductible levels in a claim year, the amount of the indemnification recovery and the claimant's employment history with the company.  Actual results could differ materially from those estimates.

Pension and Postretirement Benefits
Our pension and postretirement benefit costs are calculated using various actuarial assumptions and methodologies as prescribed by SFAS No. 87, “Employers’ Accounting for Pensions” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other than Pensions.”  These assumptions include discount rates, health care cost trend rates, inflation, rate of compensation increases, expected return on plan assets, mortality rates, and other factors.  We believe that the assumptions utilized in recording the obligations under our plans are reasonable based on input from our outside actuary and information as to historical experience and performance.  Differences in actual experience or changes in assumptions may affect our pension and postretirement obligations and future expense.
In September of 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R).”  This statement requires balance sheet recognition of the overfunded or underfunded status of pension and postretirement benefit plans.  Under SFAS No. 158, actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations that have not been recognized under previous accounting standards must be recognized in Other Comprehensive Income, net of tax effects, until they are amortized as a component of net periodic benefit cost.  In addition, the measurement date, the date at which plan assets and the benefit obligation are measured, is required to be the company’s fiscal year end.  SFAS No. 158 does not change the determination of net periodic benefit cost included in net income.  SFAS No. 158 was effective for fiscal years ending after December 15, 2006.
 

 
RESULTS OF OPERATIONS

Executive Summary
Our net income for the year ended December 31, 2007 was $17.4 million, which included net income of $5.6 million from our discontinued LASH Liner service. Net income for the full year 2006 was $17.0 million, which included a gain of $17.9 million, net of taxes, from the sale of our minority investment in another company, a pre-tax impairment loss of  $8.9 million or $5.8 million, net of taxes, on the write off of our former Rail-Ferry service terminal in New Orleans, and a loss of $1.1 million, net of taxes, on our discontinued LASH Liner service.
During 2007 our operating income was $10.6 million as compared to operating income of $1.4 million for the year ended December 31, 2006. During 2006, our operating income included the aforementioned impairment loss of $8.9 million.
Our operating results for 2007 were slightly improved over 2006 primarily due to our Rail-Ferry service, which increased its capacity with the installation of second decks on both vessels in the second quarter of 2007. This improvement was partially offset by our Time Charter segment, which reported lower results in 2007 as compared to 2006 mainly due to higher operating cost associated with our U.S. flag Pure Car Truck Carrier Fleet.
Depreciation expense increased in 2007 compared to 2006 as a result of the placement into service of the second decks on the Rail-Ferry service vessels.
 Our administrative and general expenses increased in 2007 as compared to 2006, reflecting a one-time charge in 2007 associated with the termination of our lease on our New Orleans office.
Interest expense for the twelve months ended December 31, 2007 was lower than the comparable period in 2006 resulting from the retirement of the Company’s 7 3/4% Senior Unsecured Notes in the fourth quarter of 2007.
Our income tax benefit for 2007 was $1.4 million as compared to a tax provision of $1.0 million in 2006. The 2006 tax provision reflects taxes on the gain on the sale of the minority investment in another company partially offset by the loss from the write down of our New Orleans Rail-Ferry terminal.
The results of the Company’s unconsolidated entities, specifically the investment in a company that owns and operates bulk carriers, showed improved results. The improved results in 2007 as compared to 2006 reflect higher charter rates.


YEAR ENDED DECEMBER 31, 2007
COMPARED TO YEAR ENDED DECEMBER 31, 2006

   
Time Charter
          
Rail-Ferry
              
(All Amounts in Thousands)
  
Contracts
    
COA
    
Service
    
Other
    
Total
  
2007
                              
Revenues from External Customers
   $
157,333
     $
16,652
     $
21,235
     $
1,890
     $
197,110
  
Voyage Expenses
    
116,825
      
10,940
      
18,406
      
841
      
147,012
  
Gross Voyage Profit (Loss)
    
25,198
      
4,100
       (1,566 )    
1,044
      
28,776
  
2006
                                        
Revenues from External Customers
   $
148,581
     $
16,081
     $
18,427
     $
2,375
     $
185,464
  
Voyage Expenses
    
106,255
      
9,522
      
19,734
      
1,967
      
137,478
  
Impairment Loss
    
-
      
-
       (8,866 )    
-
       (8,866 )
Gross Voyage Profit (Loss)
    
28,517
      
4,142
       (14,002 )    
397
      
19,054
  


Gross voyage profit increased from $19.1 million in 2006 to $28.8 million in 2007.  The gross profit in 2006 included a pre-tax impairment loss of $8.9 million on our investment in the Rail-Ferry Service’s terminal in New Orleans.  Excluding this loss, gross voyage profit increased from $27.9 million in 2006 to the above mentioned $28.8 million in 2007.  Revenues increased from $185.5 million in 2006 to $197.1 million in 2007.  Voyage expenses increased from $137.5 million in 2006 to $ 147.0 million in 2007.  The changes of revenue and expenses associated with each of our segments are discussed within the gross voyage analysis below.
Time Charter Contracts: The decrease in this segment’s gross voyage profit from $28.5 million in 2006 to $25.2 million in 2007 was primarily due to an increase in operating expenses.  These increases were primarily wages and maintenance, including drydock amortization charges on our U.S. flag Pure Car Truck Carriers.  Revenues for the segment increased from $148.6 million in 2006 to $157.3 million in  2007.  This improvement is a result of higher volumes of supplemental cargoes in 2007 on our U.S. flag Pure Car Truck Carriers, higher charter rates in 2007 on our Foreign flag Pure Car Truck Carriers and increased charterhire days for our U.S. flag Jones Act Coal Carrier, which was in drydock during the first and second quarters of 2006.
Contract of Affreightment: Gross voyage profit of $4.1 million for this segment in 2007 was consistent with 2006. While this segment operated more voyages in 2007, higher port and fuel costs eroded some of these positive results as compared to 2006.
Rail-Ferry Service:  Gross voyage results before impairment loss for this segment improved from a loss of $5.1 million in 2006 to a loss of $1.6 million in 2007.  This improvement is primarily from higher cargo volumes due to the installation of the second decks, which began operating in the third quarter of 2007.  Revenues for this segment increased from $18.4 million in 2006 to $21.2 million in 2007 due to the completion and operation of the second deck cargo volume in 2007.  The added volume caused operating margins to improve, primarily in the fourth quarter of 2007.  In the fourth quarter of 2007, the rail-ferry service’s gross voyage profit was $1.6 million on revenue of $7.9 million.
The pre-tax impairment loss of $8.9 million recorded in the second quarter of 2006 was related to our investment in the Rail-Ferry Service’s terminal in New Orleans located on the Mississippi River Gulf Outlet (“MR-GO”).  After Hurricane Katrina struck the Gulf Coast in 2005, dredging of the MR-GO was indefinitely suspended by the Army Corps of Engineers, effectively closing it to deep draft shipping.
Other: Gross voyage profit for this segment increased from $397,000 in 2006 to $1.0 million in 2007 primarily due to nonrecurring expenses in 2006 of $1.9 million related to terminating the lease of an intermodal terminal facility in Memphis, Tennessee.  The decrease in revenue for this segment was mainly due to prior year income adjustments.
 
Other Income and Expenses
Administrative and general expenses increased 3.1% from $17.6 million in 2006 to $18.2 million in 2007.  The increase was primarily associated with one-time costs related to the termination of our lease agreement on our former New Orleans office and an increase in audit fees related to the initial audit of our internal control over financial reporting as required under Section 404 of The Sarbanes-Oxley Act.

The following table shows the significant A&G components for the twelve months ending December 31, 2007 and 2006 respectively:

(All amounts in thousands)
  
Year Ended December 31,
        
A&G Account
  
2007
    
2006
    
Variance
  
                   
Salaries and Wages
   $
6,087
     $
5,917
     $
170
  
Group Insurance
    
1,419
      
1,382
      
37
  
Special Services
    
1,371
      
1,275
      
96
  
Accounting & Audit Fees
    
790
      
591
      
199
  
Relocation Expenses
    
4,993
      
838
      
4,155
  
Other
    
3,498
      
7,606
       (4,108 )
                         
TOTAL:
   $
18,158
      
17,609
     $
549
  


Interest expense decreased 11.7% from $11.1 million in 2006 to $9.8 million in 2007.  The decrease was primarily due to the retirement of all the remaining outstanding obligations of our 7¾% Senior Unsecured Notes (“Notes”) in October of 2007.
The gain on sale of investments decreased, as the 2006 results reflect the sale of our 26.1% investment in Belden Shipholding Pte Ltd (“BSH”), a company that owned and operated cement carrier vessels. This sale generated a gain of $22.6 million in November of 2006.  In 2007, the gain on sale of investments of $352,000 was related to the sale of stock from the portfolio of investments, at the time held by our captive insurance company.
Investment income increased from $1.4 million in 2006 to $2.6 million in 2007 primarily as a result of higher interest rates, and an increase in the overall average balance of funds invested during the full year in 2007 compared to 2006.
           Loss on early extinguishment of debt of $248,000 reported in 2006 was due to the early retirement of $12.5 million of our 7¾% Senior Notes at a slight premium.
 

 
Income Taxes
We recorded a benefit for federal income taxes of $1.4 million on $3.8 million of income from continuing operations before income from unconsolidated entities in 2007, reflecting tax losses on operations taxed at the U.S. corporate statutory rate.  For 2006, our provision was $1.0 million on our $14.5 million income from continuing operations before income from unconsolidated entities.  Our tax benefit increased from the comparable prior year primarily as a result of incurring taxes on the gain on sale of BSH in November of 2006.  In 2006, we were able to release $3.2 million of our valuation allowance as a result of the generation of certain foreign earnings.  We have indefinitely re-invested $7,130,000 of 2007 foreign earnings, and accordingly, have not provided deferred taxes of $2,495,000 against those earnings.  Our qualifying U.S. flag operations continue to be taxed under a “tonnage tax” regime rather than under the normal U.S. corporate income tax regime.

Equity in Net Income of Unconsolidated Entities
Equity in net income of unconsolidated entities, net of taxes, increased from $4.7 million in 2006 to $6.6 million in 2007.
The improved results came from our 50% investment in Dry Bulk Cape Holding Ltd (“Dry Bulk”), a company owning two Capesize Bulk Carriers and two Panamax Bulk Carriers, which contributed $6.7 million in 2007 compared to $4.2 million in 2006, primarily due to a stronger charter market for Dry Bulk vessels.
During the second quarter of 2007, Dry Bulk entered into a ship purchase agreement with Mitsui & Co. of Japan for two newbuildings Handymax Bulk Carriers to be delivered in the first half of 2012.  Total investment in the newbuildings is anticipated to be approximately $74.0 million, of which the Company’s share would be 50% or approximately $37.0 million.  We expect to make our interim construction payments with cash generated from operations.  A decision on any long-term financing will be determined at delivery.  Our 50% share of the initial contract payment of $750,000 was made in May of 2007.

Discontinued Operations
In the third quarter of 2007, we elected to discontinue our International LASH service by the end of 2007.  During the first two months of 2008, we sold the one remaining LASH vessel and the majority of LASH barges,with the remaining LASH barges under contract to be sold by the end of the first quarter of 2008.  The gain of $9.9 million recorded in 2007 reflects a gain of $7.3 million on the sale of two LASH Vessels and $2.6 million on the sale of LASH barges.  During 2007, total revenues associated with the discontinued LASH services were $42.0 million, compared to $89.4 million for 2006.  Losses from operations before taxes were $4.2 million in 2007, compared to $8.4 million in 2006.
Our U.S. flag LASH service and International LASH service were reported in “Continuing Operations” as a part of our Liner segment in periods prior to June 30, 2007.  The financial results for all periods presented have been restated to remove the effects of both of those operations from “Continuing Operations”.



 
YEAR ENDED DECEMBER 31, 2006
COMPARED TO YEAR ENDED DECEMBER 31, 2005

   
Time Charter
          
Rail-Ferry
              
(All Amounts in Thousands)
  
Contracts
    
COA
    
Service
    
Other
    
Total
  
2006
                              
Revenues from External Customers
   $
148,581
     $
16,081
     $
18,427
     $
2,375
     $
185,464
  
Voyage Expenses
    
106,255
      
9,522
      
19,734
      
1,967
      
137,478
  
Impairment Loss
    
-
      
-
       (8,866 )    
-
       (8,866 )
Gross Voyage Profit (Loss)
    
28,517
      
4,142
       (14,002 )    
397
      
19,054
  
2005
                                        
Revenues from External Customers
   $
138,177
     $
16,693
     $
11,051
     $
2,870
     $
168,791
  
Voyage Expenses
    
99,394
      
9,584
      
14,205
      
1,924
      
125,107
  
Gross Voyage Profit (Loss)
    
25,853
      
4,692
       (6,684 )    
928
      
24,789
  


Gross voyage profit decreased from $24.8 million in 2005 to $19.1 million in 2006.  The gross profit in 2006 included a pre-tax impairment loss of $8.9 million on our investment in the Rail-Ferry Service’s terminal in New Orleans.  Excluding this loss, gross voyage profit increased from $24.8 million in 2005 to $27.9 million in 2006.  Revenues increased from $168.8 million in 2005 to $185.5 million in 2006.  Voyage expenses increased from $125.1 million in 2005 to $ 137.5 million in 2006.  The changes of revenue and expenses associated with each of our segments are discussed within the gross voyage analysis below.
Time Charter Contracts: The increase in this segment’s gross voyage profit from $25.9 million in 2005 to $28.5 million in 2006 was primarily due to the addition of our fifth U.S. flag PCTC in September of 2005 compared to a full year in 2006.  The increase in gross voyage profit was partially offset by our Coal Carrier being out of service for 170 days in 2006 for capital improvements and for a periodic special survey as required for classification standards.  The capital improvements were necessary to replace some of the vessel’s steel as part of the special survey.  Additionally, the special survey, including drydocking, was originally scheduled for 2007, but was instead performed concurrently with the capital improvements for economic efficiency.  The vessel returned to service in June of 2006 and continued its firm time charter employment through the end of the year.  Although the vessel substantially fulfilled its obligation under the time charter contract, it was not available for further utilization by the charter or for commercial sub off-hire, as it was during 2005, due to the time out of service.  Revenues increased for this segment from $138.2 million in 2005 to $148.6 million in 2006 due to revenue contributions for 12 full months in 2006 from the fifth U.S. flag PCTC, acquired in September of 2005 and the start of an additional Foreign flag PCTC in 2006.  Expenses increased for this segment from $99.4 million in 2005 to $106.3 million in 2006.  This increase was mainly due to higher operating costs, consisting primarily of wages and maintenance and additional operating days.
           Contract of Affreightment: Gross voyage profit for this segment decreased from $4.7 million in 2005 to $4.1 million in 2006.  This segment, which consists of a contract associated with our Molten Sulphur Carrier, was impacted by less available tonnage above the contract minimum in 2006 as compared to 2005.  The $612,000 decrease of revenues for this segment was due to the vessel being in drydock in the first quarter and part of the second quarter of 2006.
Rail-Ferry Service:  Gross voyage results before impairment loss for this segment improved slightly from a loss of $6.7 million in 2005 to a loss of $5.1 million in 2006.  Improved operations resulting from higher cargo volumes were mostly offset by higher depreciation related to capital improvements to the terminal in New Orleans, which began operating in the second half of 2005, and to the vessels used in the service in late 2005 and early 2006.  The increase in the depreciation of the terminal in New Orleans only affected the first half of 2006 because the net investment in that terminal was written-down to zero at the end of the second quarter of 2006 when we determined that it was impaired.  Revenues for this segment increased from $11.1 million in 2005 to $18.4 million in 2006 due to both vessels being out of service for repairs and steelwork and while awaiting repairs to the terminal after Hurricane Katrina in 2005.  Expenses for this segment increased from $14.2 million in 2005 to $19.7 million in 2006.  This increase was a result of a large increase of operating days in 2006 compared to the reduced operating days in 2005, which was adversely impacted by Hurricane Katrina.
             The impairment loss of $8.9 million recorded in the second quarter of 2006 was related to our investment in the Rail-Ferry Service’s terminal in New Orleans located on the MR-GO.  After Hurricane Katrina struck the Gulf Coast in 2005, dredging of the MR-GO was indefinitely suspended by the Army Corps of Engineers, effectively closing it to long-term deep draft shipping.  This resulted in our decision to relocate our Rail-Ferry Service’s U.S. terminal operations from New Orleans to Mobile, Alabama.  After reviewing the options available to us for utilization of the assets that will remain at the New Orleans terminal following the relocation, we determined that our net investment of $8.9 million in those assets was impaired.  The cost and funding of the new terminal in Mobile are discussed in the Liquidity and Capital Resources section.
Other: Gross voyage profit for this segment decreased from $928,000 in 2005 to $397,000 in 2006 primarily due to nonrecurring expenses in 2006 of $1.9 million related to terminating the lease of an intermodal terminal facility in Memphis, Tennessee. The facility was previously used in our Liner Services segment.  We have been monitoring the cargo being processed through that facility and evaluating other uses for the facility, and late in 2006, we decided to terminate the lease.   Revenues decreased $495,000 in 2006 compared to 2005, where as operating expenses remained constant.

Other Income and Expenses
Administrative and general expenses increased 19.7% from $14.7 million in 2005 to $17.6 million in 2006.  The increase was primarily associated with one-time costs related to the relocation of our corporate headquarters, higher fees for professional services, and employee bonus expenses.
The following table shows the significant A&G components for the twelve months ending December 31, 2006 and 2005 respectively:
 
(All amounts in thousands)
  
Year Ended December 31,
        
A&G Account
  
2006
    
2005
    
Variance
  
                   
Salaries and Wages
   $
5,917
     $
5,557
     $
360
  
Group Insurance
    
1,382
      
1,241
      
141
  
Special Services
    
1,275
      
552
      
723
  
Accounting & Audit Fees
    
591
      
456
      
135
  
Relocation Expenses
    
838
      
-
      
838
  
Other
    
7,606
      
6,879
      
727
  
                         
TOTAL:
   $
17,609
     $
14,685
     $
2,924
  

Interest expense increased 15.8% from $9.6 million in 2005 to $11.1 million in 2006.  The increase was primarily due to new financing agreements entered into in the fourth quarter of 2005 associated with the acquisition of a PCTC and our share of the cost of the improvements to the New Orleans Rail-Ferry terminal.  Higher interest rates on our variable rate loans also contributed to the increase during the year.  Of our $149.2 million of long-term debt outstanding as of December 31, 2006, $66.7 million is subject to variable interest rates.  Reductions in interest expense resulting from the repurchase of $12.5 million of our 7¾% Senior Notes in 2006 and regularly scheduled payments on outstanding debt partially offset the increase.
The gain on sale of investments in 2006 of $23.1 million was primarily related to the sale of our 26.1% investment in Belden Shipholding Pte Ltd (“BSH”), a company that owns and operates cement carrier vessels. In November of 2006, we sold our investment in BSH for a gain of $22.6 million.  In 2005, the gain on sale of investments of $287,000 was related to the sale of stock from the portfolio of investments held by our captive insurance company.
Investment income increased from $1.1 million in 2005 to $1.4 million in 2006 primarily as a result of higher interest rates, partially offset by a decrease in the overall average balance of funds invested during the full year in 2006.
Loss on early extinguishment of debt of $248,000 reported in 2006 was due to the retirement of $12.5 million of our 7¾% Senior Notes at a slight premium.  The loss of $68,000 reported in 2005 was due to the early retirement of one of our loans, offset by the retirement at a slight discount of $18.5 million of our 7¾% Senior Notes.
 

 
Income Taxes
We recorded a provision for federal income taxes of $1.0 million on $14.5 million of income from continuing operations before income from unconsolidated entities in 2006, reflecting taxes on the gain on the sale of BSH in November of 2006, partially offset by tax losses on operations taxed at the U.S. corporate statutory rate.  For 2005, we had a tax benefit of $792,000 on our $1.8 million of income from continuing operations before income from unconsolidated entities.  In 2006, we were also able to release $3.2 million of our valuation allowance as a result of the generation of certain foreign earnings.  Our qualifying U.S. flag operations continue to be taxed under a “tonnage tax” regime rather than under the normal U.S. corporate income tax regime.

Equity in Net Income of Unconsolidated Entities
Equity in net income of unconsolidated entities, net of taxes, increased from $3.8 million in 2005 to $4.7 million in 2006.  Our 50% investment in a company owning two Capesize Bulk Carriers and two Panamax Bulk Carriers contributed $4.2 million before taxes in 2006 compared to $3.1 million before taxes in 2005, reflecting higher charter rates.  After taxes, this investment contributed $4.1 million and $2 million during 2006 and 2005, respectively, which was net of taxes of $65,000 in 2006 and $1.1 million in 2005.  During 2006, changes in tax regulations resulted in the earnings from this investment being treated as shipping income effective January 1, 2006, which allowed us to utilize our foreign accumulated deficit for which an existing tax valuation allowance was previously recorded.  The earnings from this investment were treated as personal holding income during 2005, and could not offset the foreign accumulated deficit.
Our 26.1% investment in a Cement Carrier company contributed $828,000 before taxes in 2006 compared to $2.5 million before taxes (including a pre-tax gain of $1.2 million from our share of the sale of certain vessels) in 2005.  After taxes, this investment contributed $631,000 and $1.9 million during 2006 and 2005, respectively, which was net of taxes of $197,000 in 2006 and $606,000 in 2005.  In the fourth quarter of 2006, we sold our investment in the Cement Carrier company as discussed earlier.

Discontinued Operations
In 2005, we sold the assets associated with our over-the-road car transportation truck company.  We sold these assets primarily due to a decrease during 2005 in the volume of business available to us due to the loss of market share by one of our customers and an industry-wide shortage of drivers that caused underutilization of the assets.  The sale of these assets resulted in a net loss before taxes of $769,000.  Losses from operations before taxes were $1.1 million in 2005.
The over-the-road car transportation truck company was reported in the “Other” segment in previous periods.  Financial information for all periods presented have been restated to remove the effects of those operations from the “Other” segment to reflect the reclassification from continuing to discontinued operations.
        Losses from operations related to the discontinued Liner services for 2006 were $8.4 million, compared to losses of $1.6 million in 2005.  The gain of $5.1 million recorded in 2006 was due to a sale of one of our LASH vessels and certain LASH barges.  In 2005, 67 LASH barges were sold that were no longer needed for operations.

 

LIQUIDITY AND CAPITAL RESOURCES

The following discussion should be read in conjunction with the more detailed Consolidated Balance Sheets and Consolidated Statements of Cash Flows included elsewhere herein as part of our Consolidated Financial Statements.
Our working capital (which we define as the difference between our total current assets and total current liabilities) increased from $3.0 million at December 31, 2006, to $23.2 million at December 31, 2007.  Cash and cash equivalents decreased during 2007 by $30.2 million to a total of $14.1 million.  This decrease was primarily due to the retirement of all the remaining outstanding obligations of our 7¾% Senior Unsecured Notes (“Notes”) in October of 2007 of $41.9 million, cash used by other financing activities of $6.3 million, and cash used for investing activities of $2.2 million, partially offset by cash provided by operating activities of $20.2 million.  Of the $40.2 million in current liabilities at December 31, 2007, $12.7 million related to current maturities of long-term debt.
Operating activities generated positive cash flow after adjusting net income of $17.4 million for non-cash provisions such as depreciation, amortization and gains on sales of assets and investments.  Cash provided by operating activities of $20.2 million for 2007 also included a decrease in accounts receivable of $1.3 million primarily due to the timing of collections of receivables from the MSC and U.S. Department of Transportation, offset by an decrease in accounts payable and accrued liabilities of $4.9 million.  Also included was $9.8 million of cash used to cover payments for vessel drydocking costs in 2007, offset by cash distributions of $4.4 million received from our investments in unconsolidated entities.
Cash used by investing activities of $2.2 million for 2007 included proceeds from the sales of assets of $48.8 million, including $32.0 million on the sale of the Molten Sulphur Carrier (discussed below) and $16.8 million on the sale of LASH assets and our investment in our unconsolidated entity in Mexico (TTG).  These were offset by the use of $56.1 million of cash for the purchase of capital assets, including $26.8 million for a U.S. flag PCTC, which was previously under lease; $13.7 million for the first payment on the 6400 CEU Newbuilding PCTC (discussed below); and $10.4 million for second deck modifications on the Rail-Ferry vessels.
Cash used for financing activities of $48.2 million for 2007 included regularly scheduled debt payments of $8.3 million, and $41.9 million for the retirement of our 7¾% Senior Notes, as well as $2.4 million for preferred stock dividend payments.  These uses of cash were partially offset by proceeds of $5.7 million from the issuance of common stock pursuant to the exercise of stock options by our Chairman and President.
In January 2008, our board authorized open market repurchases of up to 1,000,000 shares of our common stock, subject to a variety of factors, including our cash requirements, the market price of our stock, and general economic and market conditions.
Following the retirement of the company’s 7 ¾ % Senior Notes in October 2007, the company reduced the borrowing capacity under the revolving line of credit from $50 million to $35 million.  As of December 31, 2007, $6.3 million of the $35 million revolving credit facility, which expires in December of 2009, was pledged as collateral for a letter of credit, and the remaining $28.7 million was available.
  In 2007, we invested $43.5 million for the purchase of a Panamanian flagged PCTC.  The vessel was purchased with 100% financing and subsequently leased to a third party under a financing lease arrangement.  This noncash transaction is not reflected in our Consolidated Statements of Cash Flows.
We frequently evaluate the possibility of acquiring additional vessels or businesses.  At any given time, we may be engaged in discussions or negotiations regarding additional acquisitions.  We generally do not announce our acquisitions or dispositions until we have entered into a preliminary or definitive agreement.  We may require additional financing in connection with any such acquisitions, the consummation of which could have a material impact on our financial condition or operations.

Preferred Stock Offering
On February 4, 2008, we redeemed our 800,000 outstanding shares of 6% Convertible Exchangeable Preferred Stock.  In lieu of the cash redemption, holders of 462,382 shares of the Preferred Stock elected to convert their shares into approximately 1,155,955 shares of the Company’s common stock. The remaining 337,618 outstanding shares of Preferred Stock were retired for cash (including accrued and unpaid dividends to, but excluding, the redemption date), pursuant to the terms of the Preferred Stock. Upon completion of the redemption, we no longer have any shares of our 6% Convertible Exchangeable Preferred Stock outstanding. The total cash payment for the redemption of the Preferred Stock including the accrued and unpaid dividends was $17,306,299.  We will have a charge to earnings of approximately $1.4 million in the first quarter of 2008 from the redemption of the Preferred Stock.  However, eliminating the cash dividends from our preferred stock will result in a $2.4 million gain per year going forward.

Debt and Lease Obligations
As of December 31, 2007, we held several vessels under operating leases, including two Pure Car/Truck Carriers, one Breakbulk/Multi Purpose vessel, a Molten Sulphur Carrier, a Container vessel and a Tanker vessel.  We also conduct certain of our operations from leased office facilities and use transportation and other equipment under operating leases.
On August 24th, 2007 we entered into a Memorandum of Agreement for the purchase of one 6400 CEU Panamanian flagged PCTC, which was reflagged under the United States flag.  On September 10, 2007, we entered into a loan agreement for the financing of this vessel by and among (1) Waterman Steamship Corporation (“WSC”), one of our wholly-owned subsidiaries, as borrower, (2) International Shipholding Corporation, as guarantor, and (3) DnB NOR Bank ASA, as facility agent and security trustee.  Under this loan agreement, the lenders agreed to provide WSC with a term loan of up to Five Billion Yen (¥5,000,000,000), or approximately $43.5 million based on exchange rates on the date of the loan agreement.  We purchased and took possession of the Vessel on September 13, 2007.  In late September, the Vessel was leased out (“Time Chartered”) under a three-year agreement whose terms qualified as a direct financing lease.  All payments will be made in Yen and will be recorded at current market value.  This facility is a Yen-denominated LIBOR based loan with an associated interest swap agreement that results in an actual interest rate of 2%.
The loan is secured by the Vessel, its charter hire and insurances, and is guaranteed by the parent company, International Shipholding Corporation.  The loan originally entered into under a floating Libor to Yen interest rate component has been swapped to a Yen fixed rate of 1.15% plus an applicable margin of 0.85%.  The terms of the time charter provide for Yen denominated payments covering 100% of the our Yen debt obligations.
On August 28, 2007, ISC-Sulphur Holding, Inc. (a wholly-owned subsidiary of Capital One) purchased from Sulphur Carriers, Inc. (one of our wholly-owned subsidiaries) the Molten Sulphur Carrier for $32.0 million under a sale/leaseback arrangement.  The lease is for ten years with an early buyout at the end of year eight at our option.  The lease qualifies as an operating lease.
From the proceeds of the aforementioned sale/leaseback, we purchased a US flagged PCTC for approximately $26.8 million. This Vessel previously operated under a lease agreement with payments of approximately $1.3 million per quarter.
On September 21, 2007, our wholly-owned subsidiary, East Gulf Shipholding, Inc. (“EGS”), entered into a SHIPSALES contract to purchase one 6400 CEU Newbuilding PCTC.  Upon signing of the agreement, East Gulf Shipholding paid an initial 20% installment of approximately $13.7 million.  The next two installments of 10% each are due upon keel-laying of the Vessel and launching of the Vessel, both of which are projected due in 2009.  The final payment of 60% is due upon delivery of the vessel, scheduled for 2010.  The initial installment amount was recorded as Vessel, Property & Other Equipment on the balance sheet and will not begin depreciating until the vessel is placed in service.
 

 
Debt Covenant
           In the unanticipated event that our cash flow and capital resources are not sufficient to fund our debt service obligations, we could be forced to reduce or delay capital expenditures, sell assets, obtain additional equity capital, enter into financings of our unencumbered vessels or restructure debt.

Contractual Obligations and Other Commitments
The following is a summary of the scheduled maturities by period of our debt and lease obligations that were outstanding as of December 31, 2007:

Debt and lease obligations (000’s)
  
Total
    
2008
    
2009
    
2010
    
2011
    
2012
    
Thereafter
  
Long-term debt (including current maturities)
   $
143,204
     $
12,681
     $
12,649
     $
48,440
     $
10,590
     $
22,980
     $
35,864
  
Interest payments
    
27,384
      
6,394
      
5,784
      
4,990
      
3,885
      
3,249
      
3,082
  
Operating leases
    
128,484
      
16,166
      
15,611
      
15,033
      
15,042
      
15,042
      
51,590
  
Vessel Commitments
    
54,800
      
-
      
13,700
      
41,100
      
-
      
-
      
-
  
Exchangeable Preferred Stock *
    
17,307
      
17,307
      
-
      
-
      
-
      
-
      
-
  
     Total by period
   $
371,179
     $
52,548
     $
47,744
     $
109,563
     $
29,517
     $
41,271
     $
90,536
  
* Obligation represents actual cash paid in February 2008 to redeem Exchangeable Preferred Stock.

The above contractual obligations table does not include an approximate $17 million obligation to the Alabama State Port Authority related to the terminal upgrades in Mobile, AL, to be paid by us over the ten-year terminal lease.  At this time, we do not have a payment plan in place for this obligation.


Restructuring of Liner Services and Disposition of Certain LASH Assets
The Board of Directors decided in the fourth quarter of 2006 to dispose of certain LASH Liner Service assets.  The decision was based on the belief that we could generate substantial cash flow and profit on the disposition of the assets, while improving our future operating results.  Accordingly, we sold our LASH Feeder vessel and 114 barges in the first quarter of 2007.  In the second quarter of 2007 we sold our one remaining U.S. flag LASH vessel and 111 LASH barges.  In the third quarter of 2007, the company elected to discontinue its International LASH service by the end of 2007.  During the first two months of 2008, we sold the one remaining LASH vessel and the majority of LASH barges, with the remaining LASH barges under contract to be sold by the end of the first quarter of 2008.   The gain of $9.9 million recorded in 2007 reflects a gain of $7.3 million on the sale of the LASH Feeder Vessel and Liner Vessel, and $2.6 million on the sale of LASH barges.  During 2007, total revenues associated with the discontinued LASH services were $42.0 million, compared to $89.4 million for 2006.  Losses from operations before taxes were $4.2 million in 2007, compared to $8.4 million in 2006.
      Our U.S. flag LASH service and International LASH service was reported in “Continuing Operations” as a part of our Liner segment in periods prior to June 30, 2007.  Financial information for all periods presented have been restated to remove the effects of those operations from “Continuing Operations”.

Rail-Ferry Service Expansion
This service provides a unique combination of rail and water ferry service between the U.S. Gulf and Mexico.  The low operating profit margin generated by this service makes higher cargo volumes necessary to achieve meaningful levels of cash flow and profitability.  The capacity of the vessels operating in our Rail-Ferry Service defines the maximum revenues and, in turn, the cash flow and gross profits that can be generated by the service.  Accordingly we have made investments that essentially double the capacity of the service including the construction of second decks on each of the ships as well as construction of new terminals in Mobile, AL and an upgraded terminal in Coatzacoalcos, Mexico.  We expect this expansion to reduce our cost per unit of cargo carried and increase our cash flow if we are able to book cargo for substantially all of the additional capacity.  While we can give no assurance at this time that we will be successful in doing so, we believe that the market will sustain these vessels for the foreseeable future.  We believe that the Rail-Ferry Service’s strong trade support warranted the program expansion.
The total cost of adding the second decks is approximately $25 million, which we paid in full through December 31, 2007.  The installation of the second deck on the first vessel was completed at the end of May 2007, while installation of the second deck on the second vessel was completed at the end of July 2007.  The utilization of the second deck capacity is directly related to the terminal upgrades in Mobile, AL and Coatzacoalcos, Mexico.  Both terminal upgrades were substantially completed in July 2007 and became operational at that time.  The estimated cost of the Mobile terminal is approximately $27 million, of which $10 million was funded by a grant from the State of Alabama.  The remaining $17 million is being financed with a loan from  the Alabama State Port Authority and repaid by us over the ten-year terminal lease.  We estimate that our share of the cost of the improvements to the terminal in Mexico will be approximately $5.8 million.  We have a 49% interest in the company that owns the terminal in Mexico, and 30% of the advances to that company for our share of the cost of the terminal are accounted for as capital contributions with the remaining 70% accounted for as a loan to that company.
As of December 31, 2007, the cost of our total investment in a joint venture that owns a trans-loading and storage facility (RTI), which was used to support the Rail-Ferry service in New Orleans included an equity investment in unconsolidated entities of $1.7 million and an outstanding loan of approximately $2.3 million due from our 50% partner in the venture.  As a result of our terminal operations moving from New Orleans to Mobile, an impairment test to determine our loss exposure on this facility was required.  As of December 31 2007, no impairment was recorded as we expect to recover our total investment.
Our terminal lease with the Port of New Orleans was terminated during the second quarter of 2007, when we transitioned to the Mobile terminal.  As of June 30, 2007, we wrote off both the cost of the New Orleans terminal of $17.0 million, funded by the State and City, which was recorded as a leasehold improvement, and the reimbursements to us from the State and the City of $17.0 million that were recorded as deferred credits, resulting in no effect on net income.
Our investment in the New Orleans terminal was funded with the proceeds from a New Market Tax Credit (NMTC) financing agreement.  Under the NMTC financing, the lender has the ability to utilize certain tax credits associated with profitable operations at that location.  With the relocation of the operations to Mobile, Alabama, the lender has  amended the original application to the Federal agency that oversees the NMTC issuance to include the Mobile terminal as eligible property for the usage of the tax credits.

Relocation of Corporate Headquarters
       In addition to the incentives for relocating our Rail-Ferry Service’s terminal, the State of Alabama and the City and County of Mobile have provided us with incentives totaling $6.7 million to relocate our corporate headquarters from New Orleans to Mobile.  As of December 2007, we have received $6.3 million in incentive payments from the Alabama agencies.
In May of 2007, we reached an agreement to terminate the lease of our former corporate headquarters in New Orleans.  The cost of this termination was approximately $700,000, which was reported in administrative and general expenses in the second quarter of 2007.

Bulk Carriers
 We have a 50% interest in Dry Bulk, which owns two Capesize Bulk Carriers and two Panamax Bulk Carriers.  This investment is accounted for under the equity method and our share of earnings or losses are reported in our consolidated statements of income net of taxes.  Dry Bulk has entered into a ship purchase agreement with Mitsui & Co. of Japan for newbuilding two Handymax Bulk Carriers, scheduled to be delivered in 2012.  Total investment in the newbuildings is anticipated to be approximately $74.0 million, of which our share would be 50% or approximately $37 million.  During the period of construction up to delivery, where 50% of the projected overall costs will be expended, Dry Bulk plans to finance these costs with equity contributions of up to 15% with the 85% balance of the cost being financed.  Upon completion and delivery, Dry Bulk plans to establish permanent long-term financing.



Dividend Payments
Our preferred stock accrued cash dividends at a rate of 6.0% per annum from the date of issuance in early January 2005 through January 31, 2008.  All such shares were either redeemed or converted into shares of our common stock on February 1, 2008.

Environmental Issues
As of December 31, 2007, we have not been notified that we are a potentially responsible party in connection with any environmental matters, and we have determined that we have no known risks for which assertion of a claim is probable that are not covered by third party insurance, third party indemnification or our self-retention insurance reserves.  Our environmental risks primarily relate to oil pollution from the operation of our vessels.  We have pollution liability insurance coverage with a limit of $1 billion per occurrence, with deductible amounts not exceeding $500,000 for each incident.
 
In January 2008 the company was notified that the United States Coast Guard was conducting an investigation on the SS MAJOR STEPHEN W. PLESS of an alleged discharge of untreated bilge water by one or more members of the crew.  The USCG has inspected the ship and interviewed various crew members.  The company is cooperating with the USCG's investigation.  The USCG has recently informed counsel for the Company that while the investigation of a certain single individual is continuing, at this time the Company is not a target of the investigation.  If, however, the Company is subject to an administrative or civil penalty from the Coast Guard, we believe that such a fine would not be material.
 

New Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement No. 109, Accounting for Income Taxes (“FIN 48”), to create a single model to address accounting for uncertainty in tax positions.  FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.  FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.  We adopted FIN 48 on January 1, 2007 and the adoption had no effect on our consolidated financial position or results of operations.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” which is effective for fiscal years beginning after November 15, 2007 and for interim periods within those years.  This statement defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements.  We are currently evaluating the impact, if any, that SFAS No. 157 will have on our financial position and results of operation.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Liabilities, including an amendment of FASB Statement No. 155 (“SFAS No. 159”).  SFAS No. 159 permits entities to choose to measure many financial assets and financial liabilities, and certain nonfinancial instruments that are similar to financial instruments, at fair value.  SFAS No. 159 is effective for fiscal years beginning after November 15, 2007.  We have not yet determined the impact, if any, the adoption of SFAS No. 159 will have on our consolidated financial position or results of operations.



LIQUIDITY - 2006

The following discussion should be read in conjunction with the more detailed Consolidated Balance Sheets and Consolidated Statements of Cash Flows included elsewhere herein as part of our Consolidated Financial Statements.
Our working capital decreased from $16.1 million at December 31, 2005, to $3.0 million at December 31, 2006, primarily due to the $40 million balance of our 7¾% Senior Notes due in October of 2007 becoming a current liability in October of 2006, offset by cash proceeds received during the fourth quarter of 2006 from asset and investment sales.  Cash and cash equivalents increased during 2006 by $28.1 million to a total of $44.3 million.  This increase was due to cash provided by operating activities of $23 million and by investing activities of $27.5 million, partially offset by cash used for financing activities of $22.4 million. Of the $84.7 million in current liabilities at December 31, 2006, $50.3 million related to current maturities of long-term debt, including $40 million for the 7¾% Senior Notes.
Operating activities generated positive cash flow after adjusting net income of $17 million for non-cash provisions such as depreciation, amortization, impairment loss and gains on sales of assets and investments.  Cash provided by operating activities of $23 million also included a decrease in accounts receivable of $12.3 million primarily due to the timing of collections of receivables from the MSC and U.S. Department of Transportation, offset by an decrease in accounts payable and accrued liabilities of $12.1 million primarily due to the timing of payments for operating expenses and capital improvements accrued at December 31, 2005 that were paid in 2006.  Also included was $8.4 million of cash used to cover payments for vessel drydocking costs in 2006, offset by cash distributions of $1.5 million received from our investments in unconsolidated entities and lease incentive obligations related to the relocation of corporate headquarters of $2.8 million.
Cash provided by investing activities of $27.5 million included proceeds from the sales of assets, our investment in an unconsolidated entity and marketable securities, a return of capital from one of our unconsolidated investments, and the release of $6.5 million of restricted cash from escrow previously required under an operating lease agreement that now is being satisfied with a letter of credit.  These sources of cash were offset by the use of $21.8 million of cash for the purchase of a vessel and capital improvements to some of our vessels and our Rail-Ferry Service U.S. terminal.  During 2006, the State of Louisiana and City of New Orleans reimbursed $2.6 million of the cost of the terminal improvements, some of which were incurred in 2005.  As of December 31, 2006, the State of Louisiana and City of New Orleans had fulfilled their obligation to us of $17 million for their portion of the cost of the New Orleans terminal.
Cash used for financing activities of $22.4 million included regularly scheduled debt payments of $10.3 million, $10 million for repayment of draws on our line of credit, $12.5 million for the repurchase of some of our 7¾% Senior Notes at a small premium, and $2.4 million for preferred stock dividend payments.  These uses of cash were partially offset by $10 million from draws on our line of credit, the $2.6 million received from the State of Louisiana and City of New Orleans mentioned earlier, and proceeds of $465,000 from the issuance of common stock pursuant to the exercise of stock options.




LIQUIDITY-2005

The following discussion should be read in conjunction with the more detailed Consolidated Balance Sheets and Consolidated Statements of Cash Flows included elsewhere herein as part of our Consolidated Financial Statements.
Our working capital decreased from $17.7 million at December 31, 2004, to $16.1 million at December 31, 2005.   Cash and cash equivalents increased during 2005 by $5.7 million to a total of $16.2 million.  This increase was due to cash provided by operating activities of $23.8 million and by financing activities of $43.1 million, partially offset by cash used for investing activities of $61.2 million. Of the $57.7 million in current liabilities at December 31, 2005, $10.3 million related to current maturities of long-term debt.
Operating activities generated a positive cash flow after adjusting net income of $7 million for non-cash provisions such as depreciation and amortization.  Cash provided by operating activities also included an increase in accounts receivable of $8.2 million primarily due to the timing of collections of receivables from the MSC and U.S. Department of Transportation, slightly offset by an increase in accounts payable and accrued liabilities of $1.8 million primarily from the deferral of payroll tax payments until February of 2006, resulting from relief provided to companies affected by Hurricane Katrina.  Also included was cash used of $5.0 million primarily to cover payments for vessel drydocking costs in 2005, offset by cash distributions received from our investments in unconsolidated entities.
Cash used for investing activities of $61.2 million included the purchase of a PCTC vessel in September of 2005 for approximately $32.1 million, upgrade work on our Rail-Ferry Service assets of $35 million of which $14.3 million was reimbursed by the State of Louisiana and City of New Orleans, and our investment of $1.6 million in a transloading and storage facility related to our Rail-Ferry Service, in which we have a 50% interest.  These uses of cash were offset by the proceeds from the sale of the over-the-road car transportation truck company assets of approximately $3.0 million and certain of our LASH barges of $700,000.
Cash provided by financing activities of $43.1 million included proceeds from the issuance of debt and preferred stock of $85.7 million.  In January of 2005, we received proceeds of $37.7 million from our preferred stock offering.  We used $20 million of the proceeds to repay the draws on our line of credit that were made in December of 2004 to purchase two container ships, and we have been using the remaining proceeds to fund the addition of the second decks to each of the two vessels operating in our Rail-Ferry Service.  We also received proceeds of $32.0 million from the financing of a PCTC vessel that we acquired in 2005 and $14.0 million to fund a portion of our costs associated with the improvements to the Louisiana terminal and the transloading and storage facility related to our Rail-Ferry Service.  Cash provided by financing activities also included $14.3 million for reimbursement of costs incurred for our Rail-Ferry Service expansion.  These sources of funds were offset by repayments of debt of $54.1 million, of which $22.0 million was for repayment on the line of credit draws, including the $20.0 million discussed earlier, $18.3 million used to repurchase $18.5 million of our 7¾% Senior Notes at a discount, $4.0 million used to prepay a loan, and regularly scheduled payments.



ITEM 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the ordinary course of our business, we are exposed to foreign currency, interest rate, and commodity price risk.  We utilize derivative financial instruments including interest rate swap agreements and forward exchange contracts, and in the past we have also utilized commodity swap agreements to manage certain of these exposures.  We hedge only firm commitments or anticipated transactions and do not use derivatives for speculation.  We neither hold nor issue financial instruments for trading purposes.

Interest Rate Risk
The fair value of our cash and short-term investment portfolio at December 31, 2007, approximated its carrying value due to its short-term duration.  The potential decrease in fair value resulting from a hypothetical 10% increase in interest rates at year-end for our investment portfolio is not material.
The fair value of long-term debt, including current maturities, was estimated to be $143.2 million compared to a carrying value of $143.2 million.  The potential increase in fair value resulting from a hypothetical 10% adverse change in the borrowing rates applicable to our long-term debt at December 31, 2007 is not applicable due to the retirement of all of the company’s remaining outstanding obligations of its 7¾% Senior Unsecured Notes in October of 2007.
We have entered into five interest rate swap agreements with commercial banks, two in September of 2005, one in November of 2005, one in September of 2007, and one in November of 2007 in order to reduce the possible impact of higher interest rates in the long-term market by utilizing the fixed rate available with the swap.  For each of these agreements, the fixed rate payor is the Company, and the floating rate payor is the commercial bank.  While these arrangements are structured to reduce our exposure to increases in interest rates, it also limits the benefit we might otherwise receive from any decreases in interest rates.
The fair value of these agreements at December 31, 2007, estimated based on the amount that the banks would receive or pay to terminate the swap agreements at the reporting date, taking into account current market conditions and interest rates, is a liability of $1.4 million.  A hypothetical 10% decrease in interest rates as of December 31, 2007 would have resulted in a $2.5 million liability.

Commodity Price Risk
As of December 31, 2007, we do not have commodity swap agreements in place to manage our exposure to price risk related to the purchase of the estimated 2008 fuel requirements for our Rail-Ferry Service segment.  We have fuel surcharges in place for our Rail-Ferry Service, which we expect to effectively manage the price risk for those services during 2008.  Revenues from fuel surcharges in 2007 for the Rail-Ferry Service was $1.8 million.  If we had commodity swap agreements, they could be structured to reduce our exposure to increases in fuel prices.  However, they would also limit the benefit we might otherwise receive from any price decreases associated with this commodity.  A 20% increase in the price of fuel for the period January 1, 2007 through December 31, 2007 would have resulted in an increase of approximately $2.7 million in our fuel costs for the same period, and in a corresponding decrease of approximately $0.42 in our basic earnings per share based on the shares of our common stock outstanding as of December 31, 2007.  However, we believe that some or all of the price increase could have been passed on to our customers through the aforementioned fuel surcharges during the same period but might have been limited by our need to maintain competitive rates.  Our charterers in the Time Charter segment are responsible for purchasing vessel fuel requirements; thus, we have no fuel price risk in this segment.



Foreign Currency Exchange Rate Risk
We have entered into foreign exchange contracts to hedge certain firm purchase commitments with varying maturities throughout 2007.  The fair value of these contracts at December 31, 2007, is a liability of $2,000.  The potential fair value of these contracts that would have resulted from a hypothetical 10% adverse change in the exchange rates would be immaterial


ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information called for by Item 8 begins on page F-1 of this Form 10-K.



ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.


ITEM 9a.  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
As of December 31, 2007, we conducted an evaluation of the effectiveness of our disclosure controls and procedures.  The evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”).
Based on that evaluation as of such date, our CEO and CFO have concluded that our disclosure controls and procedures have been effective in providing reasonable assurance that they have been timely alerted of material information required to be filed in this annual report.  Since December 31, 2007, there have been no significant changes in our internal controls or in other factors that could significantly affect these controls.  The design of any system of controls is based in part upon certain assumptions about the likelihood of future events and contingencies, and there can be no assurance that any design will succeed in achieving our stated goals.  Because of the inherent limitations in any control system, you should be aware that misstatements due to error or fraud could occur and not be detected.

Management’s Report on Internal Control Over Financial Reporting
                The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s management has assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2007. In making this assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control — Integrated Framework. Based on our assessment we have concluded that, as of December 31, 2007, the Company’s internal control over financial reporting is effective based on those criteria. Our independent registered public accounting firm, Ernst & Young LLP, has provided an attestation report on management’s assessment of the Company’s internal control over financial reporting as of December 31, 2007.








Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
The Board of Directors and Stockholders
International Shipholding Corporation

We have audited International Shipholding Corporation’s internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). International Shipholding Corporation’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exits, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate International Shipholding Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2007, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of International Shipholding Corporation as of December 31, 2007 and 2006, and the related consolidated statements of income, changes in stockholders’ investment, and cash flows for each of the three years in the period ended December 31, 2007 of International Shipholding Corporation and our report dated March 7, 2008 expressed an unqualified opinion thereon.
 
 
 
 
 
 
 
 
 
/s/ Ernst & Young LLP  
 
 
New Orleans, Louisiana
March 7, 2008




 

ITEM 9b.  OTHER INFORMATION

 - None -




PART III


ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

We have adopted a written Code of Business Conduct and Ethics applicable to all officers, directors and employees, including our principal executive officer, principal financial officer and principal accounting officer.  In addition, (i) the audit, compensation and nominating and governance committees of our board have each adopted written charters governing their operations and (ii) our board has adopted written corporate governance guidelines.  Interested persons may obtain a copy of these materials without charge by writing to International Shipholding Corporation, Attention: Manuel G. Estrada, Vice President and Chief Financial Officer, 11 North Water Street, RSA Battle House Tower, 18th Floor, Mobile, Alabama 36602.  Copies are also available on the Investor Relations section of our website at www.intship.com.
The information relating to Directors and Executive Officers called for by Item 10 is incorporated herein by reference to Item 4a, Executive Officers and Directors of the Registrant.  The remaining information called for by Item 10 will be included in our definitive proxy statement to be filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is incorporated herein by reference.



ITEM 11.  EXECUTIVE COMPENSATION

The information called for by Item 11 will be included in our definitive proxy statement to be filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is incorporated herein by reference.




ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS


Stock Repurchase Plan
In January 2008, our board authorized open market repurchases of up to 1,000,000 shares of our common stock, subject to a variety of factors, including our cash requirements, the market price of our stock, and general economic and market conditions.  This authorization supercedes a predecessor program authorized in 1999.

 


Equity Compensation Plans

The following table provides information about shares of our common stock authorized for issuance under our existing equity compensation plan as of December 31, 2007.
 
Plan category
  
(a)
Number of securities to
be issued upon conversion
of outstanding options
    
(b)
Weighed-average
exercise price of
outstanding options
    
(c)
Number of securities
remaining available for
future issuance under
plans (excluding
securities reflected in
column (a))
  
                   
Equity compensation plans
approved by security holders
    
-
     $
-
      
175,000
  
                         
Equity compensation plans not
approved by security holders
    
-
      
-
      
-
  
                         
Totals
    
-
     $
-
      
175,000
  


Other
The balance of the information called for by Item 12 will be included in our definitive proxy statement to be filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is incorporated herein by reference.




ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information called for by Item 13 will be included in our definitive proxy statement to be filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is incorporated herein by reference.


ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

The information called for by Item 14 will be included in our definitive proxy statement to be filed pursuant to Section 14(a) of the Securities Exchange Act of 1934, and is incorporated herein by reference.





ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following financial statements, schedules and exhibits are filed as part of this report:

(a)  1.          Financial Statements
The following financial statements and related notes are included on pages F-1 through F-21 of this Form 10-K.
Report of Independent Registered Public Accounting Firm
Report of Management, including its assessment of the effectiveness of its internal controls over financial reporting
Report of Independent Registered Public Accounting Firm on management’s assessment of, and the effective operation of, internal controls over financial reporting
Consolidated Statements of Income for the years ended December 31, 2007, 2006, and 2005
Consolidated Balance Sheets at December 31, 2007 and 2006
Consolidated Statements of Changes in Stockholders' Investment for the years ended December 31, 2007, 2006, and 2005
Consolidated Statements of Cash Flows for the years ended December 31, 2007, 2006, and 2005
Notes to Consolidated Financial Statements

  2.         Financial Statement Schedules
The following financial statement schedules are included on pages S-1 through S-3 of this Form 10-K.
Report of Independent Registered Public Accounting Firm
Schedule II -- Valuation and Qualifying Accounts and Reserves

All other financial statement schedules are not required under the related instructions or are inapplicable and therefore have been omitted.


      3.         Exhibits
(3.1)
Restated Certificate of Incorporation of the Registrant (filed with the Securities and Exchange Commission as Exhibit 3.1 to the Registrant's Form 10-Q for the quarterly period ended September 30, 2004 and incorporated herein by reference)
(3.2)
By-Laws of the Registrant (filed with the Securities and Exchange Commission as Exhibit 3.2 to the Registrant's Form 10-Q for the quarterly period ended September 30, 2004 and incorporated herein by reference)
(4.1)
Specimen of Common Stock Certificate (filed as an exhibit to the Registrant's Form 8-A filed with the Securities and Exchange Commission on April 25, 1980 and incorporated herein by reference)
(10.1)
Credit Agreement, dated as of September 30, 2003, by and among LCI Shipholdings, Inc. and Central Gulf Lines, Inc., as Joint and Several Borrowers, the banks and financial institutions listed therein, as Lenders, Deutsche Schiffsbank Aktiengesellschaft as Facility Agent and Security Trustee, DnB NOR Bank ASA, as Documentation Agent, and the Registrant, as Guarantor (filed with the Securities and Exchange Commission as Exhibit 10.2 to Pre-Effective Amendment No. 2, dated December 10, 2004 and filed with the Securities and Exchange Commission on December 10, 2004, to the Registrant's Registration Statement on Form S-1 (Registration No. 333-120161) and incorporated herein by reference)
(10.2)
Credit Agreement, dated as of December 6, 2004, by and among LCI Shipholdings, Inc., Central Gulf Lines, Inc. and Waterman Steamship Corporation, as Borrowers, the banks and financial institutions listed therein, as Lenders, Whitney National Bank, as Administrative Agent, Security Trustee and Arranger, and the Registrant, Enterprise Ship Company, Inc., Sulphur Carriers, Inc., Gulf South Shipping PTE Ltd. and CG Railway, Inc., as Guarantors (filed with the Securities and Exchange Commission as Exhibit 10.3 to Pre-Effective Amendment No. 2, dated December 10, 2004 and filed with the Securities and Exchange Commission on December 10, 2004, to the Registrant's Registration Statement on Form S-1 (Registration No. 333-120161) and incorporated herein by reference)
(10.3)
Credit Agreement, dated September 26, 2005, by and among Central Gulf Lines, Inc., as Borrower, the banks and financial institutions listed therein, as Lenders, DnB NOR Bank ASA, as Facility Agent and Arranger, and Deutsche Schiffsbank Aktiengesellschaft, as Security Trustee and Arranger, and the Registrant, as Guarantor (filed with the Securities and Exchange Commission as Exhibit 10.1 to the Registrant's Current Report on Form 8-K dated September 30, 2005 and incorporated herein by reference)
(10.4)
Credit Agreement, dated December 13, 2005, by and among CG Railway, Inc., as Borrower, the investment company, Liberty Community Ventures III, L.L.C., as Lender, and the Registrant, as Guarantor (filed with the Securities and Exchange Commission as Exhibit 10.4 to the Registrant's Form 10-K for the annual period ended December 31, 2005 and incorporated herein by reference)
(10.5)
Consulting Agreement, dated January 1, 2006, between the Registrant and Niels W. Johnsen (filed with the Securities and Exchange Commission as Exhibit 10.5 to the Registrant's Form 10-K for the annual period ended December 31, 2005 and incorporated herein by reference)
(10.6)
Consulting Agreement, dated April 30, 2007, between the Registrant and Erik F. Johnsen *
(10.7)
International Shipholding Corporation Stock Incentive Plan (filed with the Securities and Exchange Commission as Exhibit 10.5 to the Registrant's Form 10-K for the annual period ended December 31, 2004 and incorporated herein by reference)
(10.8)
Form of Stock Option Agreement for the Grant of Non-Qualified Stock Options under the International Shipholding Corporation Stock Incentive Plan (filed with the Securities and Exchange Commission as Exhibit 10.6 to the Registrant's Form 10-K for the annual period ended December 31, 2004 and incorporated herein by reference)
(10.9)
Description of Life Insurance Benefits Provided by the Registrant to Niels W. Johnsen and Erik F. Johnsen Plan (filed with the Securities and Exchange Commission as Exhibit 10.8 to the Registrant's Form 10-K for the annual period ended December 31, 2004 and incorporated herein by reference)
(10.10)
Memorandum of Agreement of the Registrant, dated as of August 24, 2007, providing for the Registrant’s purchase of one 6400 CEU Panamanian flagged pure car and truck carrier    (Confidential treatment requested on certain portions of this exhibit.  An unredacted version of this exhibit has been filed separately with the Securities and Exchange Commission.) *
(10.11)
Loan Agreement, dated as of September 10, 2007, by and amongWaterman Steamship Corporation, as borrower, the Registrant, as guarantor, DnB NOR Bank ASA, as facility agent and security trustee. *
(10.12)
SHIPSALES Agreement, dated as of September 21, 2007, by and between East Gulf Shipholding, Inc., as buyer, and Clio Marine Inc., as seller. (Confidential treatment requested on certain portions of this exhibit.  An unredacted version of this exhibit has been filed separately with the Securities and Exchange Commission.) *
(10.13)
Facility Agreement, dated as of January 23, 2008, by and among East Gulf Shipholding, Inc., as borrower, the Registrant, as guarantor, the banks and financial institutions party thereto, as lenders, DnB NOR Bank ASA, as facility agent, and Deutsche Schiffsbank Aktiengesellschaft, as security trustee. *
      (21.1)Subsidiaries of International Shipholding Corporation *
(31.1)
Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
(31.2)
Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
(32.1)
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 *
(32.2)
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 *

 
*These exhibits filed with this 10-K report









 



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


INTERNATIONAL SHIPHOLDING CORPORATION
(Registrant)


/s/ Manuel G. Estrada
March 13, 2008                                           By           ______________________________
Manuel G. Estrada
Vice President and Chief Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.



INTERNATIONAL SHIPHOLDING CORPORATION
(Registrant)

/s/ Niels M. Johnsen
March 13, 2008                                           By           ____________________________
Niels M. Johnsen
Chairman of the Board, Director and
Chief Executive Officer
 
/s/ Erik L. Johnsen
March 13, 2008                                           By           ____________________________
Erik L. Johnsen
President and Director

/s/ Niels W. Johnsen
March 13, 2008                                           By           ____________________________
Niels W. Johnsen
Director

           /s/ Erik F. Johnsen
March 13, 2008                                           By           ____________________________
Erik F. Johnsen
Director


/s/ Harold S. Grehan, Jr.
March 13, 2008                                           By           ____________________________
Harold S. Grehan, Jr.
Director


/s/ Raymond V. O’Brien, Jr.
March 13, 2008                                           By           ____________________________
Raymond V. O’Brien, Jr.
Director


                                                              /s/ Edwin A. Lupberger
March 13, 2008                                           By           ____________________________
Edwin A. Lupberger
Director

/s/ Edward K. Trowbridge
March 13, 2008                                           By           ____________________________
Edward K. Trowbridge
Director

/s/ H. Merritt Lane III
March 13, 2008                                           By           ____________________________
H. Merritt Lane III
Director

/s/ Manuel G. Estrada
March 13, 2008                                           By           ____________________________
Manuel G. Estrada
Vice President and Chief Financial Officer

/s/ Kevin M. Wilson
March 13, 2008                                           By       __________________________
Kevin M. Wilson
                           Controller





 


INDEX OF FINANCIAL STATEMENTS








      
        F-1      
    
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





The Board of Directors and Stockholders
International Shipholding Corporation



We have audited the accompanying consolidated balance sheets of International Shipholding Corporation as of December 31, 2007 and 2006, and the related consolidated statements of income, changes in stockholders’ investment, and cash flows for each of the three years in the period ended December 31, 2007. 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of International Shipholding Corporation at December 31, 2007 and 2006, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2007, in conformity with U.S. generally accepted accounting principles.
 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of International Shipholding Corporation's internal control over financial reporting as of December 31, 2007, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 7, 2008 expressed an unqualified opinion thereon.

 



/s/ Ernst & Young LLP


New Orleans, Louisiana
March 7, 2008

      
        F-2      
    
 


INTERNATIONAL SHIPHOLDING CORPORATION
  
CONSOLIDATED STATEMENTS OF INCOME
  
(All Amounts in Thousands Except Share Data)
  
   
Year Ended December 31,
  
   
2007
    
2006
    
2005
  
Revenues
   $
197,110
     $
185,464
     $
168,791
  
                         
Operating Expenses:
                        
         Voyage Expenses
    
147,012
      
137,478
      
125,107
  
         Vessel and Barge Depreciation
    
21,322
      
20,066
      
18,895
  
         Impairment Loss
    
-
      
8,866
      
-
  
                         
Gross Voyage Profit
    
28,776
      
19,054
      
24,789
  
                         
Administrative and General Expenses
    
18,158
      
17,609
      
14,685
  
Gain on Sale of Other Assets
     (12 )    
-
      
-
  
                         
Operating Income
    
10,630
      
1,445
      
10,104
  
                         
Interest and Other:
                        
          Interest Expense
    
9,762
      
11,147
      
9,626
  
          Gain on Sale of Investment
     (352 )     (23,058 )     (287 )
          Investment Income
     (2,592 )     (1,397 )     (1,111 )
          Loss on Early Extinguishment of Debt
    
-
      
248
      
68
  
     
6,818
       (13,060 )    
8,296
  
Income from Continuing Operations Before (Benefit) Provision for
                        
      Income Taxes and Equity in Net Income of Unconsolidated Entities
    
3,812
      
14,505
      
1,808
  
                         
(Benefit) Provision for Income Taxes:
                        
         Current
    
120
      
113
      
113
  
         Deferred
     (1,570 )    
919
       (928 )
         State
    
86
      
4
      
23
  
      (1,364 )    
1,036
       (792 )
Equity in Net Income of Unconsolidated
                        
    Entities (Net of Applicable Taxes)
    
6,616
      
4,725
      
3,793
  
                         
Income from Continuing Operations
    
11,792
      
18,194
      
6,393
  
                         
Loss from Discontinued Operations:
                        
Loss before benefits for income taxes
     (4,238 )     (8,440 )     (1,646 )
Gain on Sale of Liner Assets
    
9,880
      
5,125
      
584
  
(Provision) Benefit for Income Taxes
     (18 )    
2,169
      
1,665
  
   Net Income (Loss) from Discontinued Operations
    
5,624
       (1,146 )    
603
  
                         
Net Income
   $
17,416
     $
17,048
     $
6,996
  
                         
Preferred Stock Dividends
    
2,400
      
2,400
      
2,367
  
                         
Net Income Available to Common Stockholders
   $
15,016
     $
14,648
     $
4,629
  
                         
Basic and Diluted Earnings Per Common Share:
                        
    Net Income (Loss) Available to Common Stockholders
                        
           Continuing Operations
   $
1.48
     $
2.58
     $
0.66
  
           Discontinued Operations
    
0.88
       (0.18 )    
0.10
  
    $
2.36
     $
2.40
     $
0.76
  
 
 
  Net Income (Loss) Available to Common Stockholders - Diluted
                        
           Continuing Operations
   $
1.41
     $
2.24
     $
0.66
  
           Discontinued Operations
    
0.67
       (0.14 )    
0.09
  
    $
2.08
     $
2.10
     $
0.75
  
Weighted Average Shares of Common Stock Outstanding:
                        
         Basic
    
6,360,208
      
6,116,036
      
6,083,005
  
         Diluted
    
8,369,473
      
8,122,578
      
6,114,510
  

The accompanying notes are an integral part of these statements.
 
 
 
 
 
INTERNATIONAL SHIPHOLDING CORPORATION
  
CONSOLIDATED BALANCE SHEETS
  
(All Amounts in Thousands Except Share Data)
  
   
   
   
December 31,
    
December 31,
  
ASSETS
  
2007
    
2006
  
             
Current Assets:
            
         Cash and Cash Equivalents
   $
14,103
     $
44,273
  
         Marketable Securities
    
5,578
      
6,545
  
         Accounts Receivable, Net of Allowance for Doubtful Accounts
                
             of $132 and $216 in 2007 and 2006:
                
                        Traffic
    
9,637
      
10,540
  
                        Agents'
    
1,804
      
1,730
  
                        Other
    
9,233
      
8,613
  
         Federal Income Taxes Receivable
    
-
      
322
  
         Deferred Income Tax
    
-
      
67
  
         Net Investment in Direct Financing Leases
    
7,391
      
4,400
  
         Other Current Assets
    
2,327
      
1,115
  
         Material and Supplies Inventory
    
2,665
      
3,226
  
         Assets Held for Disposal
    
9,105
      
6,861
  
Total Current Assets
    
61,843
      
87,692
  
                 
Investment in Unconsolidated Entities
    
16,326
      
12,409
  
                 
Net Investment in Direct Financing Leases
    
107,208
      
70,497
  
                 
Vessels, Property, and Other Equipment, at Cost:
                
         Assets Held for Disposal
    
-
      
3,306
  
         Vessels and Barges
    
384,923
      
373,393
  
         Leasehold Improvements
    
29,530
      
20,054
  
         Other Equipment
    
2,077
      
2,074
  
         Furniture and Equipment
    
6,009
      
3,037
  
     
422,539
      
401,864
  
Less -  Accumulated Depreciation
     (196,896 )     (173,840 )
     
225,643
      
228,024
  
                 
Other Assets:
                
         Deferred Charges, Net of Accumulated Amortization
    
15,337
      
14,577
  
              of $9,781 and $11,114 in 2007 and 2006, Respectively
                
         Acquired Contract Costs, Net of Accumulated Amortization
    
3,274
      
4,729
  
             of $27,251 and $25,796 in 2007 and 2006, Respectively
                
         Due from Related Parties
    
5,897
      
4,015
  
         Other
    
5,127
      
6,099
  
     
29,635
      
29,420
  
                 
    $
440,655
     $
428,042
  

The accompanying notes are an integral part of these statements.




INTERNATIONAL SHIPHOLDING CORPORATION
  
CONSOLIDATED BALANCE SHEETS
  
(All Amounts in Thousands Except Share Data)
  
   
   
   
December 31,
    
December 31,
  
   
2007
    
2006
  
LIABILITIES AND STOCKHOLDERS' INVESTMENT
            
             
Current Liabilities:
            
         Current Maturities of Long-Term Debt
   $
12,681
     $
50,250
  
         Accounts Payable and Accrued Liabilities
    
23,546
      
27,835
  
         Current Liabilities related to Assets Held for Disposal
    
2,427
      
6,583
  
Total Current Liabilities
    
38,654
      
84,668
  
                 
Billings in Excess of Income Earned and Expenses Incurred
     (363 )    
700
  
                 
Long-Term Debt, Less Current Maturities
    
130,523
      
98,984
  
                 
Other Long-Term Liabilities:
                
         Deferred Income Taxes
    
9,072
      
11,837
  
         Lease Incentive Obligation
    
13,789
      
17,890
  
         Other
    
37,724
      
22,673
  
     
60,585
      
52,400
  
                 
Commitments and Contingent Liabilities
                
                 
Convertible Exchangeable Preferred Stock
    
37,554
      
37,554
  
                 
Stockholders' Investment:
                
     Common Stock, $1.00 Par Value, 10,000,000 Shares Authorized,
    
7,193
      
6,793
  
      7,192,630 And 6,792,630 Shares Issued at December 31, 2007 and
                
       December 31, 2006, Respectively
                
     Additional Paid-In Capital
    
60,177
      
54,927
  
     Retained Earnings
    
117,008
      
101,992
  
     Less - 673,443 Shares of Common Stock in Treasury, at Cost,
     (8,704 )     (8,704 )
        at December 31, 2007 and 2006, Respectively
                
     Accumulated Other Comprehensive Income (Loss)
     (1,972 )     (1,272 )
     
173,702
      
153,736
  
                 
    $
440,655
     $
428,042
  

The accompanying notes are an integral part of these statements.






 

 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
  
(All Amounts in Thousands)
  
                           
Accumulated
        
         
Additional
                
Other
        
   
Common
    
Paid-In
    
Retained
    
Treasury
    
Comprehensive
        
   
Stock
    
Capital
    
Earnings
    
Stock
    
(Loss) Income
    
Total
  
Balance at December 31, 2004
   $
6,756
     $
54,450
     $
82,715
     $ (8,704 )   $
237
     $
135,454
  
                                                 
Comprehensive Income:
                                                
Net Income
    
-
      
-
      
6,996
      
-
      
-
      
6,996
  
                                                 
Other Comprehensive Income:
                                                
Recognition of Unrealized Holding Gain on Marketable
                                                
Securities, Net of Deferred Taxes of ($88)
    
-
      
-
      
-
      
-
       (163 )     (163 )
                                                 
Unrealized Holding Gain on Marketable Securities,
                                                
Net of Deferred Taxes of $224
    
-
      
-
      
-
      
-
      
416
      
416
  
                                                 
Net Change in Fair Value of Derivatives, Net of
                                                
Deferred Taxes of ($91)
    
-
      
-
      
-
      
-
      
329
      
329
  
                                                 
Total Comprehensive Income
                                            
7,578
  
                                                 
Preferred Stock Dividends
    
-
      
-
       (2,367 )    
-
      
-
       (2,367 )
                                                 
Options Exercised
    
4
      
45
      
-
      
-
      
-
      
49
  
   
Balance at December 31, 2005
    
6,760
      
54,495
      
87,344
       (8,704 )    
819
      
140,714
  
                                                 
Comprehensive Income:
                                                
Net Income
    
-
      
-
      
17,048
      
-
      
-
      
17,048
  
                                                 
Other Comprehensive Income (Loss):
                                                
Recognition of Unrealized Holding Gain on Marketable
                                                
Securities, Net of Deferred Taxes of ($140)
    
-
      
-
      
-
      
-
       (206 )     (206 )
                                                 
Unrealized Holding Gain on Marketable Securities,
                                                
Net of Deferred Taxes of $43
    
-
      
-
      
-
      
-
      
219
      
219
  
                                                 
Net Change in Fair Value of Derivatives, Net of
                                                
Deferred Taxes of $176
    
-
      
-
      
-
      
-
      
656
      
656
  
                                                 
Total Comprehensive Income
                                            
17,717
  
                                                 
 Adjustment to Initially Apply SFAS No. 158, Net of
                                                
 Deferred Taxes of ($8)
    
-
      
-
      
-
      
-
       (2,760 )     (2,760 )
                                                 
Preferred Stock Dividends
    
-
      
-
       (2,400 )    
-
      
-
       (2,400 )
   
Options Exercised
    
33
      
432
      
-
      
-
      
-
      
465
  
   
Balance at December 31, 2006
    
6,793
      
54,927
      
101,992
       (8,704 )     (1,272 )    
153,736
  
                                                 
Comprehensive Income:
                                                
Net Income
    
-
      
-
      
17,416
      
-
      
-
      
17,416
  
                                                 
Other Comprehensive Income (Loss):
                                                
Recognition of Unrealized Holding Gain on Marketable
                                                
Securities, Net of Deferred Taxes of ($48)
    
-
      
-
      
-
      
-
       (89 )     (89 )
                                                 
Unrealized Holding Gain on Marketable Securities,
                                                
Net of Deferred Taxes of ($86)
    
-
      
-
      
-
      
-
       (160 )     (160 )
                                                 
Net Change in Fair Value of Derivatives, Net of
                                                
Deferred Taxes of ($325)
    
-
      
-
      
-
      
-
       (2,177 )     (2,177 )
                                                 
Change in Funding Status of Benefit Plans, Net of Deferred Taxes of $12
    
-
      
-
      
-
      
-
      
1,726
      
1,726
  
                                                 
Total Comprehensive Income
                                            
16,716
  
                                                 
Preferred Stock Dividends
    
-
      
-
       (2,400 )    
-
      
-
       (2,400 )
                                                 
Options Exercised
    
400
      
5,250
      
-
      
-
      
-
      
5,650
  
                                                 
Balance at December 31, 2007
   $
7,193
     $
60,177
     $
117,008
     $ (8,704 )   $ (1,972 )   $
173,702
  


The accompanying notes are an integral part of these statements.

      
        F-6      
    
 


   
 
  
CONSOLIDATED STATEMENTS OF CASH FLOWS
        
(All Amounts in Thousands)
        
         
   
Year Ended December 31,
  
   
2007
    
2006
    
2005
  
Cash Flows from Operating Activities:
                  
    Net Income
   $
17,416
     $
17,048
     $
6,996
  
    Adjustments to Reconcile Net Income to Net Cash Provided by
                        
       Operating Activities:
                        
              Depreciation
    
23,969
      
24,417
      
23,116
  
              Amortization of Deferred Charges and Other Assets
    
9,779
      
7,954
      
8,071
  
              Benefit for Deferred Federal Income Taxes
     (1,468 )     (1,137 )     (3,245 )
              Impairment Loss
    
-
      
8,866
      
-
  
              Equity in Net Income of Unconsolidated Entities
     (6,616 )     (4,725 )     (3,793 )
              Distributions from Unconsolidated Entities
    
4,400
      
1,450
      
3,280
  
              Proceeds from Lease Incentive Obligations
    
-
      
2,779
      
-
  
              Gain on Sale of Assets
     (11,280 )     (5,125 )     (584 )
              Loss on Sale of Assets from Discontinued Operations
    
-
      
-
      
769
  
              Loss on Early Extinguishment of Debt
    
-
      
248
      
68
  
              Gain on Sale of Investments
     (352 )     (23,058 )     (287 )
              Payments for Vessel Drydocking
     (9,810 )     (8,432 )     (5,043 )
      Changes in:
                        
              Accounts Receivable
    
1,322
      
12,349
       (8,185 )
              Inventories and Other Current Assets
     (856 )    
1,416
      
722
  
              Other Assets
     (187 )    
2,767
      
884
  
              Accounts Payable and Accrued Liabilities
     (4,868 )     (12,079 )    
1,802
  
              Federal Income Taxes Payable
    
-
       (544 )     (331 )
              Billings in Excess of Income Earned and Expenses Incurred
     (1,063 )     (3,362 )     (661 )
              Other Long-Term Liabilities
     (155 )    
2,149
      
199
  
Net Cash Provided by Operating Activities
    
20,231
      
22,981
      
23,778
  
                         
Cash Flows from Investing Activities:
                        
              Principal payments received under Direct Financing Leases
    
5,129
      
3,668
       (29,452 )
              Capital Improvements to Vessels, Leasehold Improvements, and Other
     (56,072 )     (21,799 )     (35,000 )
              Proceeds from Sale of Assets
    
48,750
      
12,026
      
3,756
  
              Purchase of and Proceeds from Short Term Investments
    
1,072
      
552
      
200
  
              Investment in Unconsolidated Entities
     (1,004 )     (1,336 )     (1,647 )
              Return of Capital of Unconsolidated Entity
    
-
      
2,480
      
-
  
              Proceeds from Sale of Unconsolidated Entity
    
-
      
27,490
      
-
  
              Decrease in Restricted Cash Account
    
-
      
6,541
      
-
  
              Increase  in Related Party Note Receivables
     (55 )     (2,090 )    
935
  
Net Cash (Used) Provided by Investing Activities
     (2,180 )    
27,532
       (61,208 )
                         
Cash Flows from Financing Activities:
                        
              Proceeds from Issuance of Preferred Stock
    
-
      
-
      
37,725
  
              Proceeds from Issuance of Common Stock
    
5,650
      
465
      
49
  
              Proceeds from Issuance of Debt
    
-
      
10,000
      
48,000
  
              Repayment of Debt
     (50,253 )     (32,761 )     (54,095 )
              Additions to Deferred Financing Charges
     (590 )     (175 )     (421 )
              Preferred Stock Dividends Paid
     (2,400 )     (2,400 )     (2,367 )
              Reimbursements for Leasehold Improvements
    
-
      
2,613
      
14,310
  
              Other Financing Activities
     (628 )     (160 )     (106 )
Net Cash (Used) Provided by Financing Activities
     (48,221 )     (22,418 )    
43,095
  
                         
Net Increase  (Decrease) in Cash and Cash Equivalents
     (30,170 )    
28,095
      
5,665
  
Cash and Cash Equivalents at Beginning of Year
    
44,273
      
16,178
      
10,513
  
                         
Cash and Cash Equivalents at End of Year
   $
14,103
     $
44,273
     $
16,178
  


The accompanying notes are an integral part of these statements.

      
        F-7      
    
 


NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation
The accompanying consolidated financial statements include the accounts of International Shipholding Corporation (a Delaware corporation) and its majority-owned subsidiaries.  In this report, the terms “we,” “us,” “our,” and “the Company” refer to International Shipholding Corporation and its subsidiaries.  All significant intercompany accounts and transactions have been eliminated.
Our policy is to consolidate all subsidiaries in which we hold a greater than 50% voting interest or otherwise control its operating and financial activities.  We use the equity method to account for investments in entities in which we hold a 20% to 50% voting interest and have the ability to exercise significant influence over their operating and financial activities, and the cost method to account for investments in entities in which we hold less than 20% voting interest and in which we cannot exercise significant influence over operating and financial activities.
Certain reclassifications have been made to the prior period financial information in order to conform to current year presentation.

Nature of Operations
Through our subsidiaries, we operate a diversified fleet of U.S. and international flag vessels that provide domestic and international maritime transportation services to commercial customers and agencies of the United States government primarily under medium- to long-term charters or contracts.  At December 31, 2007, our fleet consisted of 28 ocean-going vessels (including our LASH vessel which was sold for scrap in January 2008) and related shoreside handling facilities.  Our strategy is to (i) identify customers with high credit quality and marine transportation needs requiring specialized vessels or operating techniques, (ii) seek medium- to long-term charters or contracts with those customers and, if necessary, modify, acquire, or construct vessels to meet the requirements of those charters or contracts, (iii) secure financing for the vessels predicated primarily on those charter or contract arrangements, and (iv) provide our customers with reliable, high quality service at a reasonable cost.

Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

Voyage Revenue and Expense Recognition
Revenues and expenses relating to our Rail-FerryService segments' voyages are recorded over the duration of the voyage.  Our voyage expenses are estimated at the beginning of the voyages based on historical actual costs or from industry sources familiar with those types of charges.  As the voyage progresses, these estimated costs are revised with actual charges and timely adjustments are made.  The expenses are ratably expensed over the voyage based on the number of days in progress at the end of the period.  We believe there is no material difference between recording estimated expenses ratably over the voyage versus recording expenses as incurred.  Revenues and expenses relating to our other segments' voyages, which require no estimates or assumptions, are recorded when earned or incurred during the reporting period.

Maritime Security Program
 The Maritime Security Act, which established the Maritime Security Program (“MSP”), was signed into law in October of 1996 and has been extended to 2015.  As of December 31, 2007, six of our Pure Car/Truck Carriers (“PCTCs”), and two of our Container vessels were qualified and received contracts for MSA participation.  Our U.S. LASH vessel  was qualified and received payments during the first two quarters of 2007, until the Liner Service was discontinued in the second quarter.  In the third quarter, the sixth PCTC became qualified to receive payments.  Annual payments for each vessel in the MSP program are $2,600,000 in years 2007 and 2008, $2,900,000 in years 2009 to 2011, and $3,100,000 in years 2012 to 2015, which are subject to annual appropriations and not guaranteed.  We recognize MSP revenue on a monthly basis over the duration of the qualifying contracts.
 
Cash and Cash Equivalents
We consider highly liquid debt instruments with a maturity of three months or less to be cash equivalents.  The carrying amount approximates fair value for these instruments.

Inventories
Inventories aboard our vessels, including fuel, are carried at the first-in, first-out method of accounting.  As of December 31, 2007, inventory included approximately $1,710,000 for ordinary maintenance materials and parts and $955,000 for operating supplies.  As of December 31, 2006, inventory included approximately $2,174,000 for ordinary maintenance materials and parts and $1,052,000 for operating supplies.

Allowance for Doubtful Accounts
We provide an allowance for doubtful accounts for accounts receivable balances estimated to be non-collectible.  These provisions are maintained based on identified specific accounts, past experiences, and current trends, and require management’s estimates with respect to the amounts that are non-collectible.

Property
For financial reporting purposes, vessels are depreciated over their estimated useful lives using the straight-line method.  Estimated useful lives of Vessels and Barges, Leasehold Improvements, Other Equipment, and Furniture and Equipment are as follows:

     
Years
  
 
1 LASH Vessel
  
30
  
 
6 Pure Car/Truck Carriers
  
20
  
 
1 Coal Carrier
  
15
  
 
5 Other Vessels *
  
25
  
 
Leasehold Improvements
  
10-20
  
 
Other Equipment
  
3-12
  
 
Furniture and Equipment
  
3-10
  

* Includes two Special Purpose vessels and three Container vessels.

At December 31, 2007, our fleet of 28 vessels also included (i) three Roll-On/Roll-Off (“RO/RO”) vessels, which we operate, (ii) a Molten Sulphur Carrier, a Breakbulk/Multi-Purpose vessel, a Tanker and a Container vessel, which we charter in  one of our services, (iii) four PCTCs which we charter in for our Time Charter contracts, (iv) two Capesize Bulk Carriers and two Panamax Bulk Carriers in which we own a 50% interest.
 Costs of all major property additions and betterments are capitalized.  Ordinary maintenance and repair costs are expensed as incurred.  Interest and finance costs relating to vessels, barges, and other equipment under construction are capitalized to properly reflect the cost of assets acquired.  Capitalized interest totaled $197,000 for the year ended December 31, 2007 and $243,000 for the year ended December 31, 2005.  Capitalized interest was calculated based on our weighted average interest rate on our outstanding debt.  No interest was capitalized in 2006.
At December 31, 2007, our fleet also included 235 LASH barges, which are reported at their estimated salvage value.  During the first two months of 2008, we sold the one remaining LASH vessel and the majority of LASH barges, with the remaining LASH barges under contract to be sold by the end of the first quarter of 2008.
       We monitor all of our fixed assets for impairment and perform an impairment analysis in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” when triggering events or circumstances indicate a fixed asset may be impaired.  Events may include a decrease in the market price of the long-lived asset (asset group) or a significant change in the way the asset is being used.  Once it is determined that an event may cause an impairment, a comparison is done which shows the book value of the asset or asset group against the estimated future cash flows the asset will generate over the remaining useful life of the asset.  It is possible that our asset impairment review would include a determination of the asset’s fair value based on a third-party evaluation or appraisal.  An impairment loss is measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value.  In 2007, we did not record any losses with respect to recoverability of our long-lived assets.



Drydocking Costs
We defer certain costs related to the drydocking of our vessels.  Deferred drydocking costs are capitalized as incurred and amortized on a straight-line basis over the period between drydockings (generally two to five years).  Because drydocking charges can be material in any one period, we believe that the acceptable deferred method provides a better matching for the amortization of those costs over future revenue periods benefiting from the drydocking of our vessel.  We capitalize only those costs that are incurred to meet regulatory requirements or upgrades, or that add economic life to the vessel.  Normal repairs, whether incurred as part of the drydocking or not, are expensed as incurred  (See Note K – Deferred Charges and Acquired Contract Costs on Page F-16).

Deferred Financing Charges and Acquired Contract Costs
We amortize our deferred financing charges and acquired contract costs over the terms of the related financing agreements and contracts (See Note K – Deferred Charges and Acquired Contract Costs on Page F-16).


Self-Retention Insurance
      We maintain provisions for estimated losses under our self-retention insurance program based on estimates of the eventual claims settlement costs.  Our policy is to establish self-insurance provisions for each policy year based on estimates from management, and to generally maintain the provisions at those levels for the estimated run-off period, approximately two years from the inception of that period.  We believe most claims will be reported, or estimates for existing claims will be revised, within this two-year period.  Subsequent to this two-year period, self-insurance provisions are adjusted to reflect our current estimate of loss exposure for the policy year.  However, if during this two-year period our estimate of loss exposure exceeds the actuarial estimate, then additional loss provisions are recorded to increase the self-insurance provisions to our estimate of the eventual claims’ settlement cost.  The measurement of our exposure for self-insurance liability requires management to make estimates and assumptions that affect the amount of loss provisions recorded during the reporting period.  Actual results could differ materially from those estimates (See Note E – Self-Retention Insurance on Page F-11).

Asbestos Claims
We maintain provisions for estimated losses for asbestos claims based on estimates of eventual claims settlement costs.  Our policy is to establish provisions based on a range of estimated exposure.  We estimate this potential range of exposure using input from legal counsel and internal estimates based on the individual deductible levels for each policy year.  We are also indemnified for certain of these claims by the previous owner of one of our wholly-owned subsidiaries.  The measurement of our exposure for asbestos liability requires management to make estimates and assumptions that affect the amount of loss provisions recorded during the period.  Actual results could differ from those estimates.

Income Taxes
Income taxes are accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes.”  Provisions for income taxes include deferred income taxes that are provided on items of income and expense, which affect taxable income in one period and financial statement income in another.
Certain foreign operations are not subject to income taxation under pertinent provisions of the laws of the country of incorporation or operation.  However, pursuant to existing U.S. Tax Laws, earnings from certain of our foreign operations are subject to U.S. income taxes when those earnings are repatriated to the U.S.
The Jobs Creation Act, which first applied to us on January 1, 2005, changed the United States tax treatment of the foreign operations of our U.S. flag vessels and our foreign flag shipping operations.  We made an election under the Jobs Creation Act to have our qualifying U.S. flag operations taxed under a new “tonnage tax” regime rather than under the usual U.S. corporate income tax regime (See Note G – Income Taxes  on Page F-13).

Foreign Currency Transactions
Certain of our revenues and expenses are converted into or denominated in foreign currencies, primarily Singapore Dollar, Indonesian Rupiah, Euro, British Pound, Mexican Peso, Indian Rupee, Australian Dollar, and Japanese Yen.  All exchange adjustments are charged or credited to income in the year incurred. An exchange gain of $11,000 and $162,000 were recognized for the years ended December 31, 2007 and 2006, respectively.  An exchange loss of $74,000 was recognized for the year ended December 31, 2005.
 
Dividend Policy
 On January 6, 2005, we announced the completion of our public offering of 6% convertible exchangeable preferred stock, and we have paid quarterly cash dividends commencing in March of 2005 at a rate of 6% per annum.  The payment of preferred stock dividends is at the discretion of our board of directors.  Through our preferred stock offering, we are restricted from paying common stock dividends and acquiring any of our common stock prior to December 31, 2007.

Earnings Per Share
Basic and diluted earnings per share were computed based on the weighted average number of common shares issued and outstanding during the relevant periods.  All stock options outstanding have been exercised by December 31, 2007. Stock options outstanding during the year ended December 31, 2007 were included in the computation of diluted earnings per share.  Stock options covering 400,000 and 471,600  shares (See Note F – Employee Benefit Plans on Page F-12) were included in the computation of diluted earnings per share in the years ended December 31, 2006 and 2005, respectively.  In January of 2005, we issued convertible exchangeable preferred stock, which are convertible into our common stock.  The if-converted effect of this preferred stock is dilutive for years 2007 and 2006.

Derivative Instruments and Hedging Activities
      Under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, in order to consider a derivative instrument as a hedge, (i) we must designate the instrument as a hedge of future transactions, and (ii) the instrument must reduce our exposure to the applicable risk.  If the above criteria are not met, we must record the fair market value of the instrument at the end of each period and recognize the related gain or loss through earnings.  If the instrument qualifies as a hedge, net settlements under the agreement are recognized as an adjustment to earnings, while changes in the fair market value of the hedge are recorded through Stockholders’ Investment in Other Comprehensive Income (Loss).  We recognize the fair market value of the hedge through earnings at the time of maturity, sale or termination of the hedge.  We currently employ, or have employed in the past, interest rate swap agreements, foreign currency contracts, and commodity swap contracts (See Note O – Fair Value of Financial Instruments and Derivatives on Page F-18).
 
 

 
Stock-Based Compensation
Prior to January 1, 2006, we accounted for stock-based compensation using Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees.”  Accordingly, no compensation expense is recognized for employee stock options issued under the Stock Incentive Plan if the exercise price of the options equals the market price of our stock on the date of grant (See Note F – Employee Benefit Plans  on Page F-12).
       In December of 2004, the Financial Accounting Standards Board (“FASB”) issued Statement No. 123 (revised 2004), “Share-Based Payment,” which is a revision of FASB Statement No. 123, “Accounting for Stock-Based Compensation.”  Statement No. 123(R) supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees,” and amends FASB Statement No. 95, “Statement of Cash Flows.”  Statement No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values.  Pro forma disclosures are no longer an alternative.  Statement No. 123(R) was effective for calendar year public companies at the beginning of 2006.  Effective January 1, 2006, we have adopted Statement No. 123(R), which had no impact on our financial position and results of operation.
Statement No. 123(R) permits public companies to adopt its requirements using either a modified prospective method or a modified retrospective method.  Under the modified prospective method, companies are required to record compensation cost for new and modified awards over the related vesting period of such awards prospectively and record compensation cost prospectively for the unvested portion, at the date of adoption, of previously issued and outstanding awards over the remaining vesting period of such awards.  No change to prior periods presented is permitted under the modified prospective method.  Under the modified retrospective method, companies record compensation costs for prior periods retroactively through restatement of such periods using the pro forma amounts previously disclosed in the footnotes.  Also, in the period of adoption and after, companies record compensation cost based on the modified prospective method.  We have adopted this statement using the modified prospective method.
As permitted by Statement No. 123, we previously accounted for share-based payments to employees using APB Opinion No. 25 and as such no compensation expense has been recognized for employee options granted under the Stock Incentive Plan.  Accordingly, the adoption of Statement No. 123(R)’s fair value method will have an impact on our results of operations in future periods if we were to grant additional awards.  The future impact of adoption of Statement No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future.  However, had we adopted Statement No. 123(R) in prior periods, there would have been no impact as described in the disclosure of pro forma net income and earnings per share.

Pension and Postretirement Benefits
Our pension and postretirement benefit costs are calculated using various actuarial assumptions and methodologies as prescribed by SFAS No. 87, “Employers’ Accounting for Pensions” and SFAS No. 106, “Employers’ Accounting for Postretirement Benefits Other than Pensions.”  These assumptions include discount rates, health care cost trend rates, inflation, rate of compensation increases, expected return on plan assets, mortality rates, and other factors.  We believe that the assumptions utilized in recording the obligations under our plans are reasonable based on input from our outside actuary and information as to historical experience and performance.  Differences in actual experience or changes in assumptions may affect our pension and postretirement obligations and future expense.
In December of 2006, we adopted  SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R).”  This statement requires balance sheet recognition of the overfunded or underfunded status of pension and postretirement benefit plans.  Under SFAS No. 158, actuarial gains and losses, prior service costs or credits, and any remaining transition assets or obligations that have not been recognized under previous accounting standards must be recognized in Other Comprehensive Income, net of tax effects, until they are amortized as a component of net periodic benefit cost.  In addition, the measurement date, the date at which plan assets and the benefit obligation are measured, is required to be the company’s fiscal year end.  SFAS No. 158 does not change the determination of net periodic benefit cost included in net income or the measurement issues associated with benefit plan accounting.  For the period ended December 31, 2006, the effect of applying SFAS No. 158 on our financial position was an increase to recorded liabilities of $2,768,000, an increase to deferred tax assets of $8,000, and a decrease in Other Accumulated Comprehensive Income of $2,760,000.
The adjustment to initially apply SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an amendment of FASB Statements No. 87, 88, 106 and 132(R)” was incorrectly included as part of the comprehensive income classification in the statement of changes in stockholders’ investment in our 2006 annual financial statements.  This presentation has been corrected in our 2007 annual financial statements by separating the impact of adopting this FASB statement in the statement of changes in stockholders’ investment.


Other New Accounting Pronouncements
On July 13, 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48, Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109, Accounting for Incomes Taxes (“FIN 48”), to create a single model to address accounting for uncertainty in tax positions.  FIN 48 clarifies the accounting for incomes taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.  FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition.  We adopted FIN 48 on January 1, 2007 and the adoption had no effect on our consolidated financial position or results of operations.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” which is effective for fiscal years beginning after November 15, 2007, and for interim periods within those years.  This statement defines fair value, establishes a framework for measuring fair value and expands the related disclosure requirements.  We are currently evaluating the impact, if any, that SFAS No. 157 will have on our financial position and results of operations.
In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Liabilities – including an amendment of FASB Statement No. 155 (“SFAS No. 159”).  SFAS No. 159 permits entities to choose to measure many financial assets and financial liabilities, and certain nonfinancial instruments that are similar to financial instruments, at fair value.  SFAS No. 159 is effective for fiscal years beginning after November 15, 2007.  We are currently evaluating the impact, if any, that SFAS No. 159 will have on our financial position and results of operations.



NOTE B - PROPERTY

Rail-Ferry Service Assets
Our Rail-Ferry Service provides a unique combination of rail and water ferry service between the U.S. Gulf and Mexico.  The low operating profit margin generated by this service makes higher cargo volumes necessary to achieve meaningful levels of cash flow and profitability.  The capacity of the vessels operating in this service defines the maximum revenues and, in turn, the cash flow and gross profits that can be generated by our service.  Therefore, in 2005, we began making capital investments to essentially double the capacity of the service including the construction of second decks to be added to each of the ships.  Also in 2005, the State of Louisiana and City of New Orleans provided incentives to us to move our U.S. terminal operations from Mobile, Alabama to New Orleans.  We then began making improvements to the U.S. terminal in New Orleans necessary to utilize the second decks, which were previously scheduled to be completed and installed by October of 2005.  We also invested in a transloading and storage facility in New Orleans near the terminal and began making improvements to the terminal in Mexico.  Operations commenced from the New Orleans terminal on the Mississippi River Gulf Outlet (“MR-GO”) in June of 2005 with the double ramp necessary to utilize the second decks expected to be completed in October of that year.  The effects of Hurricane Katrina in 2005 necessitated the decision to move the operations back to Mobile, Alabama.  These events delayed the completion of the expansion project until the first half of 2007.  In the third quarter of 2007, the ships started operating with the second deck capacity.
The total cost of the second decks was approximately $25 million, and we have incurred those costs through December 31, 2007.  The installation of the second deck on the first vessel was completed at the end of May 2007, while installation of the second deck on the second vessel was completed at the end of July 2007.  The utilization of the second deck capacity is directly related to the terminal upgrades in Mobile, AL and Coatzacoalcos, Mexico.  Both terminal upgrades were substantially completed in July 2007 and became operational at that time.  The estimated cost of the Mobile terminal is approximately $27,000,000, of which $10,000,000 was funded by a grant from the State of Alabama. The remaining $17,000,000 was financed by the Alabama State Docks at below-market rates and will be repaid over the ten-year terminal lease.  We estimate that our share of the cost of the improvements to the Mexican terminal will be approximately $5,800,000.  We have a 49% interest in the company that owns the terminal in Mexico and 30% of the advances to that company for our share of the cost of the terminal are accounted for as capital contributions with the remaining 70% accounted for as a loan to that company.  Our investment in the trans-loading and storage facility company (RTI) was approximately $1,900,000, and we had also loaned $2,000,000 to our 50% partner in RTI.
During 2006, in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” issued by the FASB, we recorded an impairment loss of $8,866,000 to write-down our net investment in our Rail-Ferry terminal located in New Orleans, Louisiana on the MR-GO.  That waterway was effectively closed for long-term deep draft shipping when Congress indefinitely suspended dredging.  This resulted in the need for us to relocate the U.S. operations of the Rail-Ferry Service during 2007 to Mobile, Alabama.  Our terminal lease with the Port of New Orleans was terminated during the second quarter of 2007, upon our transition to the Mobile terminal.  As of June 30, 2007, we wrote off both the cost of the New Orleans terminal of $17,000,000, funded by the State and City, which was recorded as a leasehold improvement and the reimbursements to us from the State and the City of $17,000,000 that were recorded as deferred credits, resulting in no effect on net income.  
Our investment in the New Orleans terminal was funded with the proceeds from a New Market Tax Credit (NMTC) financing agreement.  Under the NMTC financing, the lender has the ability to utilize certain tax credits associated with profitable operations at that location.  With the relocation of the rail ferry service to Mobile, Alabama, the company was at risk to the lender for the value of the tax credits, which was estimated to be $5,400,000.  The lender has amended the original application to the Federal agency that oversees the NMTC issuance to include the Mobile terminal as eligible property for the usage of the tax credits.  As a result, the company is no longer at risk for the value of the tax credits.
In addition to the incentives for relocating our Rail Ferry Service’s terminal, the State of Alabama and the city and County of Mobile have provided incentives totaling $6,700,000 to the company to relocate the corporate headquarters from New Orleans to Mobile.  As of December 31, 2007, we have received $6,300,000 in incentive payments from the Alabama agencies.
In May of 2007, we reached an agreement to terminate the lease of our former corporate headquarters in New Orleans.  The cost of this termination was approximately $700,000, which was reported in administrative and general expenses in the second quarter of 2007.

LASH Liner Service Assets
The Board of Directors made the decision in the fourth quarter of 2006 to dispose of certain LASH Liner Service assets.  The decision was based on the belief that we could generate substantial cash flow and profit on the disposition of the assets, while improving our future operating results.  Accordingly, we sold our LASH Feeder vessel and 114 barges in the first quarter of 2007.  In the second quarter of 2007, the company concluded that its U.S. flag LASH service should be discontinued.  Accordingly, in the second quarter, we sold our one remaining U.S. flag LASH vessel and 111 LASH barges.  In the third quarter of 2007, the company elected to discontinue its International LASH service.  The one remaining LASH vessel and the remaining 235 barges were positioned for sale in the fourth quarter of 2007.  During the first two months of 2008, we sold the one remaining LASH vessel and the majority of LASH barges, with the remaining LASH barges under contract to be sold by the end of the first quarter of 2008.

Our U.S. flag LASH service and International LASH service were reported in “Continuing Operations” as a part of our Liner segment in periods prior to the second quarter 2007.  All financial information have been restated to remove the effects of both of these operations from “Continuing Operations”.
Throughout 2006, we were evaluating whether to continue to operate our intermodal terminal facility in Memphis, Tennessee, because the volume of cargo from our LASH liner services moving through that facility decreased as the cargo carried by those services declined.  In December of 2006, we terminated the lease of that facility and made a final payment of $1,900,000 in January 2007.


Gains and Losses on Sales of Assets
During 2007, we recognized a net gain on the sale of assets of $9,880,000 on the sale of the LASH feeder vessel and barges, and the U.S. flag LASH vessel and barges.  During 2006, we recognized a net gain on the sale of assets of $5,125,000 from the sale of one of our LASH vessels that had been operating in the International service and 130 LASH barges no longer needed for operations.  During 2005, we recognized a net gain on the sale of assets of $584,000 from the sale of 67 LASH barges no longer needed for operations.  In 2005, we also sold the assets associated with our over-the-road car transportation truck company, resulting in a loss on the sale of these assets of $769,000.
 

 

NOTE C - CONVERTIBLE EXCHANGEABLE PREFERRED STOCK

In January of 2005, we issued 800,000 shares of 6% convertible exchangeable preferred stock, $1.00 par value, at a price of $50.00 per share.  The proceeds of the preferred stock offering, after deducting all associated costs, were $37,987,000.  As of December 31, 2007, all 800,000 shares of preferred stock were outstanding.  All of these shares were either redeemed or converted into shares of our common stock in the first quarter of 2008 (See Note T – Accumulated Other Comprehensive Income (Loss) on Page F-21).
Each share of the preferred stock had a liquidation preference of $50 per share and was convertible into shares of our common stock based on the initial conversion price of $20.00 per share.

On December 27, 2007 we announced, and on February 1, 2008 we completed the redemption of our 800,000 outstanding shares of 6% Convertible Exchangeable Preferred Stock.  In lieu of cash redemption, holders of 462,382 shares of the Preferred Stock elected to convert their shares into approximately 1,155,955 shares of our common stock. The remaining 337,618 outstanding shares of Preferred Stock were retired for cash (including accrued and unpaid dividends to, but excluding, the redemption date), pursuant to the terms of the Preferred Stock. As a result, we no longer have any shares of the 6% Convertible Exchangeable Preferred Stock outstanding. The total cash payment for the redemption of the Preferred Stock including the accrued and unpaid dividends was $17,306,299.  We will have a charge to earnings of approximately $1.4 million in the first quarter of 2008 from the redemption of the Preferred Stock.


NOTE D – LONG-TERM DEBT

(All amounts in thousands)
  
Interest Rate
      
Total Principal Due
  
   
December 31,
    
December 31,
  
Maturity
  
December 31,
    
December 31,
  
Description
  
2007
    
2006
  
Date
  
2007
    
2006
  
Unsecured:
                          
    Senior Notes – Fixed Rate
     7.75 %     7.75 %
2007
   $
-
     $
39,979
  
Secured:
                                  
Notes Payable – Variable Rate*
     6.3656 %     6.3656 %
2015
    
26,000
      
28,666
  
Notes Payable – Variable Rate*
     4.8200 %     4.82 %
2012
    
13,720
      
13,860
  
Notes Payable – Variable Rate**
     6.6219 %     6.6219 %
2013
    
59,261
      
66,729
  
Notes Payable – Variable Rate*
     1.8713 %  
N/A
  
2010
    
44,223
      
-
  
    Line of Credit
  
N/A
    
N/A
  
2009
    
-
      
-
  
                       
143,204
      
149,234
  
   
Less Current Maturities
         (12,681 )     (50,250 )
                      $
130,523
     $
98,984
  

*  We have interest rate swap agreements in place to fix the interest rates on our variable rate notes payable expiring in 2015 and 2012 at 4.41% and 5.17%, respectively.  After applicable margin adjustments, the effective interest rates on these notes payable are fixed at 5.41% and 4.67%, respectively. The swap agreements are for the same terms as the associated notes payable.
In September 2007, a subsidiary of the Company entered into a Senior Secured Japanese Yen (JPY) Term Loan Facility for JPY 5,000,000,000 to finance the acquisition of a 6400 PCTC vessel.  All payments will be made in JPY and will be recorded at current market value.  This facility is a JPY LIBOR based loan with an associated interest swap agreement that results in an actual interest rate of 2%.

** We have two interest rate swap agreements in place to fix the interest rate on two-thirds of our variable rate notes payable expiring in 2013 at 4.68% and 3.96%.  After applicable margin adjustments, the effective interest rates on the swapped portion of these notes payable are 5.93% and 5.21%, respectively.  These swap agreements will end in September 2010.
           We have entered into an interest rate swap agreement to fix the interest rate on the remaining one-third of our variable rate notes payable beginning in March 2008 at 3.46%.  After applicable margin adjustments, the effective interest rate on these notes payable is 4.585%.  This swap agreement will end in September 2013.

Our variable rate notes payable and our line of credit are secured by assets with an aggregate net book value of $161,873,000 as of December 31, 2007, and by a security interest in certain operating contracts and receivables.
The aggregate principal payments required as of December 31, 2007, for each of the next five years are $12,681,000 in 2008, $12,649,000 in 2009, $48,440,000 in 2010, $10,590,000 in 2011, and $22,980,000 in 2012.
During 2006, we retired $12,525,000 of the 7¾% Notes all of which were at a premium.  In 2005, we retired $18,500,000 of the 7¾% Senior Notes of which $17,000,000 was at a discount and the remaining $1,500,000 was at a premium.  We also retired certain other outstanding debt prior to maturity.  Upon retirement of this indebtedness, we recorded a net Loss on Early Extinguishment of Debt for the years ended December 31, 2006 and 2005 of approximately $248,000 and $68,000, respectively.  In October of 2007, we retired the remaining obligations of the 7 ¾% Senior Notes.
In August 2007, we reduced our $50 million credit facility to $35 million.  As of December 31, 2007, we had $6.3 million of our $35 million revolving credit facility, which expires in December of 2009, pledged as collateral for letters of credit.  The remaining $28.7 million of that credit facility was available as of December 31, 2007.  Associated with this credit facility is a commitment fee of .5% per year on the undrawn portion of this facility.
Most of our debt agreements, among other things, impose defined minimum working capital and net worth requirements, impose leverage requirements, impose restrictions on the payment of dividends, and prohibit us from incurring, without prior written consent, additional debt or lease obligations, except as defined.  As of December 31, 2007, we met all of the financial covenants under our various debt agreements, the most restrictive of which include the working capital, leverage ratio, minimum net worth and interest coverage ratios, and believe we will continue to meet these requirements throughout 2008, although we can give no assurance to that effect.
The most restrictive of our credit agreements prohibit the declaration or payment of dividends unless (1) the total of (a) all dividends paid, distributions on, or other payments made with respect to our capital stock during the period beginning January 1, 1999, and ending on the date of dividend declaration or other payment and (b) all investments other than our Qualified Investments (as defined) and certain designated subsidiaries do not exceed the sum of $10,000,000 plus 50% (or, in case of a loss, minus 100%) of our consolidated net income during the period described above plus the net cash proceeds received from our issuance of common stock during the above period, and (2) no default or event of default has occurred.
Certain of our loan agreements restrict the ability of our subsidiaries to dispose of collateralized assets or any other asset which is substantial in relation to our assets taken as a whole without the approval from the lender.  We have consistently remained in compliance with this provision of the loan agreements.


NOTE E – SELF-RETENTION INSURANCE

We are self-insured for Hull and Machinery claims in excess of $150,000 for each accident and Loss of Hire claims in excess of 14 days, up to an aggregate stop loss amount of $2,000,000 per policy year.  Once aggregate claims exceed $2,000,000, we have third party coverage for additional claims with deductible levels of $150,000 per incident for Hull and Machinery and 14 days for Loss of Hire.  The estimate of our self-insurance exposure for the policy year beginning June 27, 2007 was the maximum amount of $1,100,000.
Protection and Indemnity claims, including cargo and personal injury claims, are not included in our self-retention insurance program.  We have third party insurance coverage for these claims with deductible levels ranging from $100,000 to $500,000 per incident depending on vessel type.  Our estimates of exposure for claims under these deductible levels is approximately $2,250,000 for the policy year beginning February 20, 2007.
The current and non-current liabilities for self-insurance exposure and for claims under the deductible levels were $1,754,000 and $4,328,000, respectively, for the year ended December 31, 2007.  The current and non-current liabilities were $2,868,000 and $3,346,000, respectively, for the year ended December 31, 2006.


 

 
NOTE F – EMPLOYEE BENEFIT PLANS

Pension and Postretirement Benefits
Our defined benefit retirement plan covers all full-time employees of domestic subsidiaries who are not otherwise covered under union-sponsored plans.  The benefits are based on years of service and the employee’s highest sixty consecutive months of compensation.  Our funding policy is based on minimum contributions required under ERISA as determined through an actuarial computation.  Plan assets consist primarily of investments in equity and fixed income mutual funds and money market holdings.  The target asset allocation range is 40% in fixed income investments and 60% in equity investments.  The asset allocation on December 31, 2007 was 38.96% in fixed income investments and 61.04% in equity investments.  The asset allocation on December 31, 2006 was 37.6% in fixed income investments and 62.4% in equity investments.  The plan’s prohibited investments include selling short, commodities and futures, letter stock, unregistered securities, options, margin transactions, derivatives, leveraged securities, and International Shipholding Corporation securities, unless held in a commingled or mutual fund.  The plan’s diversification strategy includes limiting equity securities in any single industry to 25% of the equity portfolio market value, limiting the equity holdings in any single corporation to 10% of the market value of the equity portfolio, and diversifying the fixed income portfolio so that no one issuer comprises more than 10% of the aggregate fixed income portfolio, except for issues of the U.S. Treasury or other Federal Agencies.  The plan’s assumed future returns are based primarily on the asset allocation and on the historic returns for the plan’s asset classes determined from both actual plan returns and, over longer time periods, market returns for those asset classes.  As of December 31, 2007, the plan has assets of $23,299,000 and a projected pension obligation of $23,063,000.
Our postretirement benefit plans currently provide medical, dental, and life insurance benefits to eligible retired employees and their eligible dependents.  The measurement date for both plans is December 31.  The following table sets forth the plans’ changes in the benefit obligations and fair value of assets and a statement of the funded status:

 
(All amounts in thousands)
  
Pension Plan
    
Postretirement Benefits
        
   
Year Ended December 31,
    
Year Ended December 31,
        
   
2007
    
2006
    
2007
    
2006
  
Change in Benefit Obligation
                        
Benefit Obligation at Beginning of Year
   $
23,684
     $
23,323
     $
8,048
     $
9,164
  
Service Cost
    
616
      
676
      
25
      
63
  
Interest Cost
    
1,347
      
1,312
      
439
      
453
  
Actuarial (Gain) Loss
     (1,057 )    
12
       (38 )     (919 )
Benefits Paid and Expected Expenses
     (1,138 )     (1,045 )     (620 )     (586 )
Curtailments
     (409 )     (604 )     (587 )     (127 )
Special Termination Benefits
    
20
      
10
      
-
      
-
  
Benefit Obligation at End of Year
   $
23,063
     $
23,684
     $
7,267
     $
8,048
  
                                 
                                 
Change in Plan Assets
                                
Fair Value of Plan Assets at Beginning of Year
   $
22,432
     $
20,330
     $
-
     $
-
  
Actual Return on Plan Assets
    
1,399
      
2,393
      
-
      
-
  
Employer Contribution
    
600
      
750
      
620
      
586
  
Benefits Paid and Actual Expenses
     (1,132 )     (1,041 )     (620 )     (586 )
Fair Value of Plan Assets at End of Year
   $
23,299
     $
22,432
     $
-
     $
-
  
                                 
Funded Status
   $
236
     $ (1,252 )   $ (7,267 )   $ (8,048 )
                                 
Key Assumptions
                                
Discount Rate
     6.25 %     5.75 %     6.25 %     5.75 %
Rate of Compensation Increase
     5.00 %     5.00 %  
N/A
    
N/A
  

The accumulated benefit obligation for the pension plan was $20,314,000 and $20,548,000 at December 31, 2007 and 2006, respectively.

 
    The following table shows amounts recognized in accumulated other comprehensive income:

(All amounts in thousands)
  
Pension Plan
    
Postretirement Benefits
        
   
Year Ended December 31,
    
Year Ended December 31,
        
   
2007
    
2006
    
2007
    
2006
  
Prior Service Cost
   $
-
     $
-
     $
91
     $
143
  
Net Loss
     (1,217 )     (2,381 )    
96
       (530 )
    $ (1,217 )   $ (2,381 )   $
187
     $ (387 )



The following table provides the components of net periodic benefit cost for the plans:

(All amounts in thousands)
  
Pension Plan
    
                Postretirement Benefits
        
   
Year Ended December 31,
    
                Year Ended December 31,
        
   
2007
    
2006
    
2005
    
2007
    
2006
    
2005
  
Components of Net Periodic Benefit Cost
                                    
Service Cost
   $
616
     $
676
     $
668
     $
25
     $
63
     $
90
  
Interest Cost
    
1,347
      
1,311
      
1,248
      
439
      
453
      
536
  
Expected Return on Plan Assets
     (1,719 )     (1,534 )     (1,440 )    
-
      
-
      
-
  
Amortization of Prior Service Cost
    
-
      
-
      
-
       (14 )     (22 )     (22 )
Amortization of Net Actuarial Loss
    
12
      
162
      
212
      
-
      
-
      
131
  
Net Periodic Benefit Cost
    
256
      
615
      
688
      
450
      
494
      
735
  
Special Termination Benefits
    
20
      
10
      
-
      
-
      
-
      
-
  
Curtailment Gain
    
-
      
-
      
-
       (38 )     (45 )    
-
  
Net Periodic Benefit Cost After Special
  Termination Benefits and Curtailment Gain
   $
276
     $
625
     $
688
     $
412
     $
449
     $
735
  
                                                 
Key Assumptions
                                                
Discount Rate
     5.75 %     5.75 %     5.50 %     6.25 %     5.75 %     5.50 %
Expected Return on Plan Assets
     7.75 %     7.75 %     7.75 %  
N/A
    
N/A
    
N/A
  
Rate of Compensation Increase
     5.00 %     5.00 %     5.00 %  
N/A
    
N/A
    
N/A
  
                                                 
 

 
For measurement purposes, the health cost trend was assumed to be 8.5% and the dental care cost trend rate was assumed to be 5% for all years. The health cost trend is decreasing steadily by ..50 per year over the next seven years to a long-term rate of 5%. For employees over 65, the health cost trend was assumed to be 10.5% and the dental care cost trend was assumed to be 5% for all years.  The health cost trend is decreasing steadily by .50% per year over the next eleven years to a long-term rate of 5%.  A one percent change in the assumed health care cost trend rates would have the following effects:

      (All amounts in thousands)
  
1% Increase
    
1% Decrease
  
Change in total service and interest cost components
            
   for the year ended December 31, 2007
   $
43
     $ (36 )
Change in postretirement benefit obligation as of December 31, 2007
    
675
       (581 )



The following table provides the expected future benefit payments as of December 31, 2007:
(All amounts in thousands)
              
Fiscal Year Beginning
    
Pension Plan
    
Postretirement Benefits
  
2008
     $
1,197
     $
540
  
2009
      
1,233
      
552
  
2010
      
1,294
      
577
  
2011
      
1,378
      
593
  
2012
      
1,412
      
593
  
 
                                       2013-2017
      
7,938
      
2,848
  
                     
We continue to evaluate ways in which we can better manage these benefits and control the costs.  Any changes in the plan or revisions to assumptions that affect the amount of expected future benefits may have a significant effect on the amount of reported obligation and annual expense.
Crew members on our U.S. flag vessels belong to union-sponsored pension plans.  We contributed approximately $2,499,000, $2,353,000, and $1,988,000 to these plans for the years ended December 31, 2007, 2006, and 2005, respectively.  These contributions are in accordance with provisions of negotiated labor contracts and generally are based on the amount of straight pay received by the union members.  Information from the plans’ administrators is not available to permit us to determine whether there may be unfunded vested benefits.
In December of 2003, the Medicare Prescription Drug, Improvements, and Modernization Act of 2003 (“Act”) was signed into law.  In addition to including numerous other provisions that have potential effects on an employer’s retiree health plan, the Act includes a special subsidy beginning in 2006 for employers that sponsor retiree health plans with prescription drug benefits that are at least as favorable as the new Medicare Part D benefit.  In May of 2004, the FASB Drug, Improvements, and Modernization Act of 2003,” that provides guidance on the accounting for the effects of the Act for employers that sponsor postretirement health care plans that provide drug benefits.  We have determined that our plan is actuarially equivalent and as such we qualify for this special subsidy.  The effect of our future savings from this law reduced the December 31, 2005 estimate of our accumulated postretirement benefit obligation by approximately $2.3 million, which was recorded in the net actuarial gain for 2005.  The new law also resulted in a decrease in our annual net periodic benefit cost for periods beginning January 1, 2005.

401(k) Savings Plan
We provide a 401(k) tax-deferred savings plan to all full-time employees. We match 50% of the employee’s first $2,000 contributed to the plan annually.  We contributed $110,000, $108,000 and $107,000 to the plan for the years ended December 31, 2007, 2006 and 2005, respectively.

Stock Incentive Plan
In April of 1998, we established a stock-based compensation plan, the Stock Incentive Plan (the “Plan”). The purpose of the Plan is to increase shareholder value and to advance the interest of the Company by furnishing a variety of economic incentives designed to attract, retain, and motivate key employees and officers and to strengthen the mutuality of interests between such employees, officers, and our shareholders.  Incentives consist of opportunities to purchase or receive shares of common stock in the form of incentive stock options, non-qualified stock options, restricted stock, or other stock-based awards.  Under the Plan, we may grant incentives to our eligible Plan participants for up to 650,000 shares of common stock.  The exercise price of each option equals the market price of our stock on the date of grant.  In July of 1999, options to purchase 475,000 shares of common stock were granted to certain qualified participants at an exercise price of $14.125 per share.  The stock options were due to expire on April 14, 2008.  All options vested immediately upon the grant date and were immediately exercisable.  No options were granted during 2007, 2006, or 2005.  A total of 400,000, 32,900 and 3,400 options were exercised in 2007, 2006, and 2005 respectively, and 38,700 options were forfeited during 2006.

Life Insurance
We have agreements with two former Chairmen of the Company whereby their estates will be paid approximately $822,000 and $626,000, respectively, upon death.  We reserved amounts to fund a portion of these death benefits, which amount to $822,000, and hold an insurance policy to cover the remaining liability.  The cash surrender value of the insurance policy was approximately $74,000 and $93,000 as of December 31, 2007 and 2006, respectively.


NOTE G - INCOME TAXES

     Under previous United States tax law, U.S. companies and their domestic subsidiaries generally have been taxed on all income, including in our case, income from shipping operations, whether derived in the United States or abroad.  With respect to any foreign subsidiary in which we hold more than a 50 percent interest (referred to in the tax laws as a controlled foreign corporation, or “CFC”), we were treated as having received a current taxable distribution of our pro rata share of income derived from foreign shipping operations.
The American Jobs Creation Act, which became effective for us on January 1, 2005, changed the United States tax treatment of our U.S. flag vessels and our foreign flag shipping operations operating in CFCs.  In December of 2004, we made an election under the Jobs Creation Act to have our U.S. flag operations (other than those of two ineligible vessels used exclusively in United States coastwise commerce) taxed under a new “tonnage tax” regime rather than under the usual U.S. corporate income tax regime.  As a result of that election, our gross income and taxable income for United States income tax purposes with respect to our eligible U.S. flag vessels will not include (1) income from qualifying shipping activities in U.S. foreign trade (i.e., transportation between the U.S. and foreign ports or between foreign ports), (2) income from cash, bank deposits and other temporary investments that are reasonably necessary to meet the working capital requirements of our qualifying shipping activities, and (3) income from cash or other intangible assets accumulated pursuant to a plan to purchase qualifying shipping assets.
Under the tonnage tax regime, our taxable income with respect to the operations of our eligible U.S. flag vessels will instead be based on a “daily notional taxable income,” which are taxed at the highest corporate income tax rate.   In 2007, we had taxable income of $324,000 on vessels qualifying under the tonnage tax regime as compared to taxable income of $11,099,000 that would have been subject to the U.S. corporate income tax regime prior to the election.
Under the Jobs Creation Act, the taxable income from shipping operations of the Company’s CFCs will generally no longer be subject to current United States income tax but will be deferred.  In December of 2004, we established a valuation allowance of $4,330,000 on the net deferred tax asset associated with the foreign deficit carry-forwards that were no longer supportable as a result of the Jobs Creation Act, the impact of which is included in our deferred tax provision.  We were able to release $417,000, $3,177,000, and $736,000 of the valuation allowance during 2007, 2006, and 2005, respectively.  This reduction of the valuation allowance is attributed to our CFCs generation of earnings not subject to U.S. taxation during 2007.  Since those earnings are not subject to U.S. taxation, the earnings can be used to offset foreign deficits.  None of the valuation allowance remains at December 31, 2007.
      Our Federal income tax returns are filed on a consolidated basis and include the results of operations of our wholly-owned U.S. subsidiaries.  Pursuant to the Tax Reform Act of 1986, the recognition of earnings of foreign subsidiaries, which were $1,817,000 in 2007, $13,933,000 in 2006, and $159,000 in 2005, has been included in our federal tax provision calculations.  No foreign tax credits are expected to be utilized on the federal return as of December 31, 2007.




 
Components of the net deferred tax liability/(asset) are as follows:

   
December 31,
    
 
  
(All amounts in thousands)
  
 
                  2007                                            2006
    
 
  
             
Deferred Liabilities:
            
     Fixed Assets
   $
23,628
     $
24,044
  
     Deferred Charges
    
2,338
      
2,338
  
    Unterminated Voyage Revenue/Expense
 
72
      
72
  
 
    Other Liabilities
    
6,570
      
5,926
  
Total Liabilities
    
32,608
      
32,380
  
Deferred Assets:
        
     Insurance and Claims Reserve
    
471
      
471
  
     Post-Retirement Benefits
     (401 )     (395 )
     Alternative Minimum Tax Credit
     (4,577 )     (4,577 )
     Net Operating Loss/Carryforward/Unutilized Deficit
     (15,602 )     (12,242 ))
     Valuation Allowance
    
-
      
417
  
     Worker Retention Credit
     (293 )     (293 )
      Other Assets
     (3,142 )     (3,991 )
Total Assets
     (23,544       (20,610 )
Total Deferred Tax Liability, Net
   $
9,064
     $
11,770
  
         


The following is a reconciliation of the U.S. statutory tax rate to our effective tax rate –expense (benefit):

 
                                                                               Year Ended December 31,
   
2007
    
2006
    
2005
  
Statutory Rate
     35.00 %     35.00 %     35.00 %
State Income Tax
     2.26 %     0.03 %     1.27 %
Effect of Tonnage Tax  Rate
     (50.00 %)     (20.99 %)     (169.93 %)
Foreign Earnings-Indefinitely Reinvested
     (26.39 %)    
-
      
-
  
Foreign Income Taxes
     12.90 %    
-
       81.04 %
Jobs Creation Act
    
-
      
-
       (19.37 %)
Employee Retention Credit
    
-
      
-
       (16.21 %)
Change in Valuation Allowance
     (10.92 %)     (11.92 %)     28.19 %
Permanent Differences and Other, Primarily Non-Deductible Expenditures
     1.36 %     5.02 %     (16.20 %)
      (35.79 %)     7.14 %     (43.81 %)

Foreign income taxes of $492,000, $544,000 and $461,000 are included in our consolidated statements of income in the Provision for Income Taxes for the years ended December 31, 2007, 2006, and 2005, respectively.  We pay foreign income taxes in Indonesia.
For U.S. federal income tax purposes, in 2007, we generated $9,598,000 in net operating loss carryforwards (“NOLs”), which will be added to the previous carryforward of $2,845,000.  The balance at December 31, 2007 of approximately $12,443,000, if not used, will expire in 2022 through 2026.  We also have approximately $6,823,000 of alternative minimum tax credit carryforwards, which are not subject to expiration and are available to offset future regular income taxes subject to certain limitations. Additionally, for state income tax purposes, we have NOLs of approximately $15,754,000 available to reduce future state taxable income.  These NOLs expire in varying amounts beginning in year 2010 through 2021.
Total income from continuing operations before (benefit) provision for income taxes and equity in net income of unconsolidated entities is reported at $3,827,000, $11,190,000 and $2,016,000 for 2007, 2006 and 2005, respectively. Income (loss) from continuing U.S. operations was $5,900,000, ($6,291,000) and $3,778,000 and income (loss) from continuing foreign operations was $8,947,000, $17,481,000 and ($1,762,000) for 2007, 2006 and 2005, respectively.
In July 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48 (FIN 48), “Accounting for Uncertainity in Income Taxes- an interpretation of FASB Statement No. 109.”  FIN 48 provides guidance on the measurement and recognition in accounting for income tax uncertainties.  We adopted the provisions of FIN 48 on January 1, 2007.  As a result of the adoption, we recognized no adjustment to the liability for income tax benefits that existed as of December 31, 2006.
It is our policy to recognize interest and penalties associated with underpayment of income taxes as interest expense and general and administrative expenses, respectively.
We file income tax returns in the U.S. federal and various state and foreign jurisdictions.  The number of years that are open under the statute of limitations and subject to audit varies depending on the tax jurisdiction.  Our U.S. income tax returns for 2004 and subsequent years remain open to examination.
We had approximately $1.1 million of unrecorded tax benefits at January 1, 2007.  Approximately $0.3 million of additional unrecorded tax benefits resulted from tax positions taken during the current year, totaling  approximately $1.4 million of unrecorded tax benefits at December 31, 2007.  All of this amount would impact our effective tax rate if recognized.


A reconciliation of the total amounts of unrecognized tax benefits follows:

Total unrecognized tax benefits as of January 1, 2007
   $
1,051
  
Increases (decreases) in unrecognized tax benefits as a result of:
        
Tax positions taken during a prior year
    
-
  
Tax positions taken during the current year
    
349
  
Settlements with taxing authorities
    
-
  
Lapse of applicable statute of limitations
    
-
  
Total unrecognized tax benefits as of December 31, 2007
   $
1,400
  





NOTE H – TRANSACTIONS WITH RELATED PARTIES

We own a 50% interest in RTI Logistics L.L.C. (“RTI”) (See Note M – Unconsolidated Entities on Page F-17).  At December 31, 2007, we had two long-term receivables of $2,000,000 and $310,000, respectively, due from RTI.  The long-term portion of both of these receivables is included in Due from Related Parties.  Interest income on the $2,000,000 receivable is earned at the rate of 5% per year for seven years.  A total of $20,000 was repaid in 2007 on this receivable.  Interest income on the $310,000 receivable is earned at the rate of 6% per year, and the receivable along with interest income is payable on demand.
We own a 49% interest in Terminales Transgolfo  (“TTG”) (See Note M – Unconsolidated Entities  on Page F-17).  At December 31, 2007, we had a long-term receivable of $2,355,000 due from TTG.  The long-term portion of this receivable is included in Due from Related Parties.  Interest income on this receivable is earned at the rate of 7.5% per year for seven years.
        A son of one of our Directors serves as our Secretary and is a partner in the law firm of Jones, Walker, Waechter, Poitevent, Carrere and Denegre, which has represented us since our inception.  Another son of one of our Directors serves as our Assistant Secretary and is a partner in the same law firm and serves on their Board of Directors.  Fees paid to the firm for legal services rendered to us were approximately $735,000, $886,000, and $1,633,000 for the years ended December 31, 2007, 2006 and 2005, respectively.  Amounts of $20,000 and $3,000 were due to the legal firm at December 31, 2007 and 2006, respectively, which were included in Accounts Payable and Accrued Liabilities.

 
NOTE I - COMMITMENTS AND CONTINGENCIES

Commitments
As of December 31, 2007, 21 vessels that we own or operate were under various contracts extending beyond 2007 and expiring at various dates through 2019.  Certain of these agreements also contain options to extend the contracts beyond their minimum terms.
Approximately $6,341,000 of our $35,000,000 line of credit is maintained to cover standby letters of credit required on certain of our contracts.
In 2007, we entered into a memorandum of agreement to sell our last remaining LASH vessel along with 83 LASH barges in the first quarter of 2008 and as of December 31, 2007, the book value of those assets is included in assets held for disposal.
We have made certain commitments in connection with the expansion of the Rail-Ferry Service discussed in Note B, including the construction of a terminal in Mobile, and improvements to a terminal in Mexico.  The estimated total cost of the Mobile terminal is approximately $27 million, of which $10 million was funded by the State of Alabama.  The remaining $17 million will be financed by the Alabama State Docks at below-market rates and repaid by us over the ten-year terminal lease.
On September 21, 2007, our wholly-owned subsidiary, East Gulf Shipholding, Inc. (“EGS”), entered into a SHIPSALES contract to purchase one 6400 CEU Newbuilding PCTC.  Upon signing of the agreement, East Gulf Shipholding paid an initial 20% installment of approximately $13.7 million.  The next two installments of 10% each are due upon keel-laying of the Vessel and launching of the Vessel, both of which are projected due in 2009.  The final payment of 60% is due upon delivery of the vessel, scheduled for 2010.  The initial installment amount was recorded as Vessel, Property & Other Equipment on the balance sheet and will not begin depreciating until the vessel is placed in service.

Contingencies
In the normal course of our operations, we become involved in various litigation matters including, among other things, claims by third parties for alleged property damages, personal injuries, and other matters.  While we believe that we have meritorious defenses against these claims, our management has used significant estimates in determining our potential exposure.  Our estimates are determined based on various factors, such as (1) severity of the injury (for personal injuries) and estimated potential liability based on past judgments and settlements, (2) advice from legal counsel based on its assessment of the facts of the case and its experience in other cases, (3) probability of pre-trial settlement which would mitigate legal costs, (4) historical experience on claims for each specific type of cargo (for cargo damage claims), and (5) whether our seamen are employed in permanent positions or temporary revolving positions.  It is reasonably possible that changes in our estimated exposure may occur from time to time.  As is true of all estimates based on historical experience, these estimates are subject to some volatility.  However, because our total exposure is limited by our aggregate stop loss levels (see Note E on Page F-11 for further discussion of our self-retention insurance program), we believe that our exposure is within our estimated levels.  Where appropriate, we have recorded provisions, included in Other Long-Term Liabilities: Other, to cover our potential exposure and anticipated recoveries from insurance companies, included in Other Assets.  Although it is difficult to predict the costs of ultimately resolving such issues, we have determined that our current insurance coverage is sufficient to limit any additional exposure to an amount that would not be material to our financial position.  Therefore, we do not expect such changes in these estimates to have a material effect on our financial position or results of operations.
We have been named as a defendant in numerous lawsuits claiming damages related to occupational diseases, primarily related to asbestos and hearing loss.  We believe that most of these claims are without merit, and that insurance and the indemnification of a previous owner of one of our subsidiaries mitigate our exposure.  Our current overall exposure to the numerous lawsuits in question, after considering insurance coverage for these claims, has been estimated by our lawyers and internal staff to be approximately $280,000.  We believe those estimates are reasonable and have established reserves accordingly.  Our reserves for these lawsuits as of December 31, 2007 and 2006 were approximately $350,000.  There is a reasonable possibility that there will be additional claims associated with occupational diseases asserted against us. However, we do not believe that it is reasonably possible that our exposure from those claims will be material because (1) the lawsuits filed since 1989 claiming damages related to occupational diseases in which we have been named as a defendant have primarily involved seamen that served on-board our vessels and the number of such persons still eligible to file a lawsuit against us is diminishing and (2) such potential additional claims, if pursued, would be covered under an indemnification agreement with a previous owner of one of our subsidiaries and/or under one or more of our existing insurance policies with deductibles ranging from $2,500 to $25,000 per claim. (See Note T – Accumulated Other Comprehensive Income (Loss) on Page F-21).
 
 
NOTE J - LEASES

Direct Financing Leases
In 2007, we entered into a direct financing lease of a U.S. flag PCTC expiring in 2010; in 2005, we entered into a direct financing lease of a U.S. flag PCTC expiring in 2015; and, in 1999, we entered into a direct financing lease of a foreign flag PCTC expiring in 2019.  The schedule of future minimum rentals to be received under these direct financing leases in effect at December 31, 2007, is as follows:
 

(All amounts in thousands)
  
Receivables Under Financing Leases
  
Year Ended December 31,
      
             2008
   $
17,422
  
             2009
    
16,766
  
             2010
    
52,878
  
             2011
    
13,097
  
             2012
    
13,117
  
            Thereafter
    
60,055
  
Total Minimum Lease Payments Receivable
    
173,335
  
Estimated Residual Values of Leased Property
    
8,051
  
Less Unearned Income
     (66,787 )
Total Net Invetment in Direct Financing Leases
    
114,599
  
Current Portion
     (7,391 )
Long-Term Net Investment in Direct Financing Leases
   $
107,208
  



The schedule of future minimum rentals to be received under the direct financing leases in effect at December 31, 2006, was as follows:

   
Receivables Under
  
(All amounts in thousands)
  
Financing Leases
  
Year Ended December 31,
      
             2007
   $
14,077
  
             2008
    
14,099
  
             2009
    
13,498
  
             2010
    
13,112
  
             2011
    
13,097
  
             Thereafter
    
73,171
  
Total Minimum Lease Payments Receivable
    
141,054
  
Estimated Residual Value of Leased Property
    
8,052
  
Less Unearned Income
     (74,209 )
Total Net Investment in Direct Financing Leases
    
74,897
  
Current Portion
     (4,400 )
Long-Term Net Investment in Direct Financing Leases
   $
70,497
  
         

Operating Leases
During 2001, we entered into two sale-leasebacks, covering one of our U.S. flag PCTCs and one of our foreign flag PCTCs for terms of 12 years and 15 years, respectively.  During 2007, we entered into a sale-leaseback covering our U.S. flag molten sulphur carrier for a term of 10 years. These leases are classified as operating leases, and the gains on these sale-leasebacks were deferred and are being recognized over the term lives of the leases.  We renegotiated a capital lease agreement for one of our U.S. flag PCTCs in December of 2001 and subsequently reclassified the lease as an operating lease with a term of 10 years.  This reclassification also resulted in a gain that was deferred and is being recognized over the remaining term life of the lease.  The vessels under these leases are operated under fixed charter agreements covering the terms of the respective leases.
During 2002, we entered into a sale-leaseback of a LASH vessel resulting in an operating lease with a term of 5 years.  During 2006, we purchased this LASH vessel thereby terminating the lease agreement. We have subsequently sold this vessel (See Note B – Property  on Page F-10).
Our operating lease agreements have fair value renewal options and fair value purchase options.  Most of these agreements impose defined minimum working capital and net worth requirements, impose restrictions on the payment of dividends, and prohibit us from incurring, without prior written consent, additional debt or lease obligations, except as defined.
We also conduct certain of our operations from leased office facilities under operating leases expiring at various dates through 2026.  In April of 2007, we moved our corporate headquarters to the new RSA Battlehouse Tower in Mobile, AL. The lease for this building is twenty years.  In May of 2007, we reached an agreement to terminate the lease of our former corporate headquarters in New Orleans, LA. The cost of termination was approximately $700,000, which was reported in administrative and general expenses in the second quarter of 2007.
In addition to those operating leases with terms expiring after December 31, 2007, we also operated certain vessels under short-term operating leases during 2007.
Rent expense related to all of our operating leases totaled approximately $31,886,000, $30,704,000 and $27,063,000 for the years ended December 31, 2007, 2006 and 2005, respectively.  The following is a schedule, by year, of future minimum payments required under operating leases that have initial non-cancelable terms in excess of one year as of December 31, 2007:


   
Payments Under Operating Leases
  
 (All amounts in thousands)
 
  
U.S. Flag Vessels
    
Foreign Flag Vessels
    
Other Leases
    
Total
  
Year Ended December 31,
                        
        2008
   $
9,094
     $
6,340
     $
732
     $
16,166
  
        2009
    
8,797
      
6,340
      
474
      
15,611
  
        2010
    
8,203
      
6,340
      
490
      
15,033
  
        2011
    
8,203
      
6,340
      
499
      
15,042
  
        2012
    
8,203
      
6,340
      
499
      
15,042
  
       Thereafter
    
19,257
      
22,719
      
9,614
      
51,590
  
                                 
Total Future Minimum Payments
   $
61,757
     $
54,419
     $
12,308
     $
128,484
  
                                 
 

 

NOTE K - DEFERRED CHARGES AND ACQUIRED CONTRACT COSTS

Deferred charges and acquired contract costs are comprised of the following:

   
December 31,
    
December 31,
  
(All amounts in thousands)
  
2007
    
2006
  
Drydocking Costs
   $
13,062
     $
12,915
  
Financing Charges and Other
    
2,275
      
1,662
  
Acquired Contract Costs
    
3,274
      
4,729
  
    $
18,611
     $
19,306
  

The Acquired Contract Costs represent the portion of the purchase price paid for Waterman Steamship Corporation applicable to that company’s three U.S. flag RO/RO vessels under maritime prepositioning ship contract agreements, which expire in 2009 and 2010.  The amortization expense for each of the years ended December 31, 2007 and 2006 was $1,455,000.  The estimated annual amortization expense is $1,455,000 for 2008 and 2009, and $364,000 for 2010.
Only those costs, that are incurred to meet regulatory requirements or upgrades, that add economic life to the vessel, are capitalized.  Normal repairs, whether incurred as part of the drydocking or not, are expensed as incurred.

NOTE L - SIGNIFICANT OPERATIONS

Major Customers
We have several medium to long-term contracts related to the operations of various vessels (See Note I – Commitments and Contingencies on Page F-15), from which revenues represent a significant amount of our total revenue.  Revenues from the contracts with the MSC were $32,387,000, $31,796,000 and $29,157,000 for the years ended December 31, 2007, 2006 and 2005, respectively.
       We have six U.S. flag PCTCs, also under the MSP, which carry automobiles from Japan to the United States for a Japanese charterer.  Revenues, including MSP revenue, were $43,945,000, $44,908,000 and $39,756,000 for the years ended December 31, 2007, 2006 and 2005, respectively.
      We have four foreign flag PCTCs under various contracts that transport automobiles from South Korea to the United States and Europe.  Revenues under these contracts were $23,645,000, $19,108,000 and $15,287,000 for the years ended December 31, 2007, 2006 and 2005, respectively.
      All of the aforementioned revenues are included in our Time Charter segment.
     We have two Special Purpose vessels, which carry loaded rail cars between the U.S. Gulf and Mexico.  Revenues from this service were $21,235,000, $18,427,000 and $11,051,000 for the years ended December 31, 2007, 2006 and 2005, respectively.  Revenues from these two Special Purpose vessels are included in our Rail-Ferry segment.

Concentrations
A significant portion of our traffic receivables is due from contracts with the MSC and transportation of government sponsored cargo.  There are no concentrations of receivables from customers or geographic regions that exceed 10% of stockholders’ investment at December 31, 2007 or 2006.
With only minor exceptions related to personnel aboard certain foreign flag vessels, all of our shipboard personnel are covered by collective bargaining agreements under multiple unions.  The percentage of the Company’s total work force that is covered by these agreements is approximately 73.1%.  One of these contracts representing 8% of our workforce expires on December 31, 2008.

Geographic Information
We have operations in several principal markets, including international service between the U.S. Gulf and East Coast ports and ports in Mexico and Far East, and domestic transportation services along the U.S. Gulf and East Coast.  Revenues attributable to the major geographic areas of the world are presented in the following table.  Revenues for the Time Charter Contracts, Contract of Affreightment, Rail-Ferry Service, and Other are assigned to regions based on the location of the customer.  Because we operate internationally, most of our assets are not restricted to specific locations.  Accordingly, an allocation of identifiable assets to specific geographic areas is not applicable.

   
Year Ended December 31,
  
(All Amounts in Thousands)
  
2007
    
2006
    
2005
  
United States
   $
101,638
     $
96,786
     $
94,300
  
Asian Countries
    
74,091
      
69,197
      
62,191
  
Rail-Ferry Service Operating Between U.S. Gulf and Mexico
    
21,235
      
18,428
      
11,051
  
Other Countries
    
146
      
1,053
      
1,249
  
Total Revenues
   $
197,110
     $
185,464
     $
168,791
  

Operating Segments
Our operating segments are identified primarily based on the characteristics of the contracts or terms under which the fleet of vessels and barges are operated.  Each of the reportable segments is managed separately as each requires different resources depending on the nature of the contract or terms under which each vessel within the segment operates.  Our operating segments are identified and described below.

Time Charter Contracts: Time charters are contracts by which our charterer obtains the right for a specified period to direct the movements and utilization of the vessel in exchange for payment of a specified daily rate, but we retain operating control over the vessel.  Typically, we fully equip the vessel and are responsible for normal operating expenses, repairs, crew wages, and insurance, while the charterer is responsible for voyage expenses, such as fuel, port and stevedoring expenses. Our Time Charter Contracts include contracts with Far Eastern shipping companies for ten PCTCs, with an electric utility for a conveyor-equipped, self-unloading Coal Carrier, and with a mining company providing ocean transportation services at its mine in Papua, Indonesia.  Also included in this segment are contracts under which the MSC charters three RO/ROs that are under an operating contract, and contracts with another shipping company for two container vessels.

Contract of Affreightment (“COA”): For this type of contract, we undertake to provide space on our vessel for the carriage of specified goods or a specified quantity of goods on a single voyage or series of voyages over a given period of time between named ports or within certain geographical areas in return for the payment of an agreed amount per unit of cargo carried.  Generally, we are responsible for all operating and voyage expenses.  Our COA segment includes one contract, which is for the transportation of molten sulphur.

        Rail-Ferry Service: This service uses our two Special Purpose vessels, which carry loaded rail cars between the U.S. Gulf and Mexico.  Each vessel currently has a capacity for 113 standard size rail cars.  With departures every four days from Coatzacoalcos, Mexico and the U.S. Gulf, it offers with each vessel a three-day transit between these ports and provides a total of 90 trips per year in each direction when both ships are operating.

Other: This segment consists of operations that include more specialized services than the above-mentioned three segments and ship charter brokerage and agency services.  Also included in the Other category are corporate related items, results of insignificant operations, and income and expense items not allocated to reportable segments.


The following table presents information about segment profit and loss and segment assets.  We do not allocate administrative and general expenses, gains or losses on sales of investments, investment income, gains or losses on early extinguishment of debt, equity in net income of unconsolidated entities, income taxes, or losses from discontinued operations to our segments.  Intersegment revenues are based on market prices and include revenues earned by our subsidiaries that provide specialized services to the operating segments.  Expenditures for segment assets represent cash outlays during the periods presented, including purchases of assets, improvements to assets, and drydock payments.
 
   
Time Charter
          
Rail-Ferry
              
(All amounts in thousands)
  
Contracts
    
COA
    
Service
    
Other
    
Total
  
2007
                              
Revenues from External Customers
   $
157,333
     $
16,652
     $
21,235
     $
1,890
     $
197,110
  
Intersegment Revenues (Eliminated)
    
-
      
-
      
-
      
14,245
      
14,245
  
Intersegment Expenses (Eliminated)
    
-
      
-
      
-
       (14,245 )     (14,245 )
Voyage Expenses
    
116,825
      
10,940
      
18,406
      
841
      
147,012
  
Depreciation and Amortization
    
23,231
      
2,046
      
5,223
      
601
      
31,101
  
Gross Voyage Profit (Loss)
    
25,198
      
4,100
       (1,566 )    
1,044
      
28,776
  
Interest Expense
    
7,122
      
625
      
2,172
       (157 )    
9,762
  
Gain on Sale of Other Assets
    
-
      
-
      
-
      
12
      
12
  
Segment Profit (Loss)
    
18,076
      
3,475
       (3,738 )    
1,213
      
19,026
  
Segment Assets
    
242,202
      
4,946
      
102,988
      
1,326
      
351,462
  
Expenditures for Segment Assets
    
32,620
      
3,932
      
12,630
      
16,700
      
65,882
  
2006
                                        
Revenues from External Customers
   $
148,581
     $
16,081
     $
18,427
     $
2,375
     $
185,464
  
Intersegment Revenues (Eliminated)
    
-
      
-
      
-
      
13,582
      
13,582
  
Intersegment Expenses (Eliminated)
    
-
      
-
      
-
       (13,582 )     (13,582 )
Voyage Expenses
    
106,255
      
9,522
      
19,734
      
1,967
      
137,478
  
Depreciation and Amortization
    
18,267
      
2,744
      
4,598
      
86
      
25,695
  
Impairment Loss
    
-
      
-
       (8,866 )    
-
       (8,866 )
Gross Voyage Profit (Loss)
    
28,517
      
4,142
       (14,002 )    
397
      
19,054
  
Interest Expense
    
7,562
      
1,399
      
2,154
      
32
      
11,147
  
Segment Profit (Loss)
    
20,955
      
2,743
       (16,156 )    
365
      
7,907
  
Segment Assets
    
184,659
      
32,468
      
83,082
      
14,312
      
314,521
  
Expenditures for Segment Assets
    
6,990
      
-
      
16,429
      
6,812
      
30,231
  
2005
                                        
Revenues from External Customers
   $
138,177
     $
16,693
     $
11,051
     $
2,870
     $
168,791
  
Intersegment Revenues (Eliminated)
    
-
      
-
      
-
      
12,614
      
12,614
  
Intersegment Expenses (Eliminated)
    
-
      
-
      
-
       (12,614 )     (12,614 )
Voyage Expenses
    
99,394
      
9,584
      
14,205
      
1,924
      
125,107
  
Depreciation and Amortization
    
17,822
      
2,747
      
5,008
      
39
      
25,616
  
Gross Voyage Profit (Loss)
    
25,853
      
4,692
       (6,684 )    
928
      
24,789
  
Interest Expense
    
6,760
      
1,260
      
1,812
       (206 )    
9,626
  
Segment Profit (Loss)
    
19,093
      
3,432
       (8,496 )    
1,134
      
15,163
  
Segment Assets
    
194,575
      
35,202
      
90,578
      
23,855
      
344,210
  
Expenditures for Segment Assets
    
1,038
      
-
      
35,036
      
3,969
      
40,043
  

In 2007, we elected to discontinue our U.S. flag LASH service and our International LASH service.  Those services were reported in the Liner Services segment in previous periods.  Financial information for all periods presented have been restated to remove the effects of those operations from the Liner Services segment to reflect the reclassification from continuing to discontinued operations.

Following is a reconciliation of the totals reported for the operating segments to the applicable line items in the consolidated financial statements:
 
(All amounts in thousands)
  
Year Ended December 31,
  
Profit or Loss:
  
2007
    
2006
    
2005
  
Total Profit for Reportable Segments
   $
19,026
     $
7,907
     $
15,163
  
Unallocated Amounts:
                        
        Administrative and General Expenses
     (18,158 )     (17,609 )     (14,685 )
        Gain on Sale of Investment
    
352
      
23,058
      
287
  
        Investment Income
    
2,592
      
1,397
      
1,111
  
        Loss on Early Extinguishment of Debt
    
-
       (248 )     (68 )
Income from Continuing Operations Before (Benefit)
                        
  Provision for Income Taxes and Equity in Net
                        
  Income of Unconsolidated Entities
   $
3,812
     $
14,505
     $
1,808
  
                         

   
December 31,
    
December 31,
  
Assets:
  
2007
    
2006
  
Total Assets for Reportable Segments
   $
351,462
     $
314,521
  
Unallocated Amounts:
                
         Current Assets
    
61,843
      
90,998
  
         Investment in Unconsolidated Entities
    
16,326
      
12,409
  
         Due from Related Parties
    
5,897
      
4,015
  
         Other Assets
    
5,127
      
6,099
  
Total Assets
   $
440,655
     $
428,042
  
 

 
NOTE M - UNCONSOLIDATED ENTITIES

The Company’s policy is to use the equity method of accounting for investments in entities in which it holds a 20% to 50% voting interest and in which it cannot exercise significant influence over operating and financial activities.  Under the equity method, the initial investment is recorded at cost, increased or decreased periodically by the Company’s portion of earnings or losses of the entity, and decreased by any dividends declared by the entity.  The Company’s portion of earnings is recognized, net of taxes, through earnings.


Bulk Carriers
In 2003, we acquired a 50% investment in Dry Bulk Cape Holding Inc. (“Dry Bulk”) for $3,479,000, which currently owns two Capesize Bulk Carriers and two Panamax Bulk Carriers.  The two Panamax-Size Bulk Carriers were acquired by Dry Bulk during 2005.  This investment is accounted for under the equity method and our share of earnings or losses is reported in our consolidated statements of income net of taxes.  For the years ended December 31, 2007, 2006 and 2005, our portions of earnings net of taxes were $6,659,000, $4,131,000 and $1,953,000, respectively.  We received dividends of $4,400,000, $800,000 and $2,500,000 in 2007, 2006 and 2005, respectively.
In January of 2005, we were granted an option to purchase an additional 1% of Dry Bulk.  The other unaffiliated 50% owner of Dry Bulk was granted a similar option.



 
The unaudited condensed financial position and results of operations of Dry Bulk are summarized below:

   
December 31,
    
December 31,
  
(All amounts in thousands)
  
2007
    
2006
  
Current Assets
   $
6,783
     $
5,351
  
Noncurrent Assets
   $
119,129
     $
111,300
  
Current Liabilities
   $
525
     $
8,143
  
Noncurrent Liabilities
   $
102,146
     $
90,047
  




                   
   
Year Ended December 31,
        
(All amounts in thousands)
  
2007
    
2006
    
2005
  
Operating Revenues
   $
30,778
     $
25,174
     $
15,277
  
Operating Income
   $
18,959
     $
13,846
     $
9,118
  
Net Income
   $
12,699
     $
7,089
     $
6,448
  

Terminal Management Company
In 2000, we acquired a 50% interest in Terminales Transgolfo (“TTG”) for $228,000, which operates a terminal in Coatzacoalcos, Mexico, utilized by our Rail-Ferry Service.  During 2005, the other unaffiliated 50% owner of TTG acquired 1% of our 50% interest in TTG.   As of December 31, 2007, we have a 49% interest in TTG.  In 2006, TTG began making improvements to the terminal in Mexico to accommodate the second decks that were added to the two vessels operating in our Rail-Ferry Service during the first half of 2007.  We are funding 49% of the cost of the terminal improvements, of which 30% is a capital contribution and is reported as an investment in unconsolidated entities.  The remaining 70% is a loan to TTG (see Note H – Transactions with Related Parties  on Page F-15).  As of December 31, 2007, we had made capital contributions of $1,004,000 associated with funding improvements to the terminal.  The investment is accounted for under the equity method, and our share of earnings or losses is reported in our consolidated statements of income net of taxes.  No distributions were made during 2007, 2006 and 2005.  As of December 31, 2007 and 2006, TTG owed us $2,355,000 and $2,217,000, respectively. (see Note H – Transactions with Related Parties  on Page F-15).

Transloading and Storage Facility Company
In 2005, we acquired a 50% interest in RTI Logistics L.L.C. (“RTI”), which owns a transloading and storage facility that is used in our Rail-Ferry Service for $1,587,000.  We purchased our shares from a former owner at a premium, which resulted in a difference of approximately $973,000 between our investment in RTI and the underlying equity in net assets of the subsidiary.  Additional investments of approximately $386,000 were made in 2006. The investment is accounted for under the equity method, and our share of earnings or losses is reported in our consolidated statements of income net of taxes.  The Company’s interest in the earnings from the date of this investment through December 31, 2007, was immaterial.  No distributions were made during 2007, 2006 and 2005.  We have also loaned funds to RTI, and as of December 31, 2007, 2006 and 2005, RTI owed the company $4,101,000, $2,135,000 and $2,000,000, respectively (see Note H – Transactions with Related Parties on Page F-15).

Cement Carrier Company
Prior to December of 2004, we had a 30% interest in Belden Cement Holding, Inc. (“BCH”), a Cement Carrier company which owns and operates Cement Carriers.  During December of 2004, one of the shareholders of BCH exercised its option to purchase additional shares of common stock, which upon exercise brought our ownership down to 26.1%.  In 2005, we acquired a 26.1% interest in Belden Shipholding Pte Ltd. (“BSH”), another Cement Carrier Company, for $78,000.  In January of 2006, BSH acquired BCH, which resulted in a cash distribution to us of $3,130,000.  In November of 2006, we sold our entire 26.1% interest in BSH for $27,490,000, which was received in cash.  This sale resulted in a gain of approximately $22,598,000. We received the aforementioned cash distribution of $3,130,000 in 2006 and $783,000 in 2005.
This investment was accounted for under the equity method, and our share of earnings or losses was reported in our consolidated statements of income net of taxes.  Our portion of the combined earnings of this investment, net of taxes, was $631,000 and $1,850,000 for the years ended December 31, 2006 and 2005 respectively.  The aggregate amount of consolidated retained earnings that represented undistributed earnings of this investment was approximately $3,000,000 at December 31, 2005.



NOTE N - SUPPLEMENTAL CASH FLOW INFORMATION

   
Year Ended December 31,
  
(All amounts in thousands)
  
2007
    
2006
    
2005
  
                   
Cash Payments:
                  
       Interest Paid
    
9,874
     $
10,949
     $
9603
  
       Taxes Paid
   $
528
     $
557
     $
470
  



NOTE O - FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVES

The estimated fair values of our financial instruments and derivatives are as follows (asset/ (liability)):
                                                                                                                                                                            December 31,                                                                             December 31,
                                                                                            2007                                                 &# 160;                                         2006                              
   
Carrying
    
Fair
    
Carrying
    
Fair
  
(All amounts in thousands)
  
Amount
    
Value
    
Amount
    
Value
  
Interest Rate Swap Agreements
   $ (1,428 )   $ (1,428 )   $
959
     $
959
  
Foreign Currency Contracts
   $
79
     $
79
     $
194
     $
194
  
Long-Term Debt
   $ (141,893 )   $ (141,893 )   $ (149,234 )   $ (149,508 )

Disclosure of the fair value of all balance sheet classifications, including but not limited to certain vessels, property, equipment, direct financing leases, or intangible assets, which may have a fair value in excess of historical cost, is not required.  Therefore, this disclosure does not purport to represent our fair value.
The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Interest Rate Swap Agreements
We enter into interest rate swap agreements to manage well-defined interest rate risks.  During September of 2005, we entered into two interest rate swap agreements with two commercial banks to reduce the possible impact of higher interest rates in the long-term market by utilizing the fixed rate available with the swap.  We are the fixed rate payor, and DnB NOR Bank is the floating rate payor for the first contract, and we are the fixed rate payor, and Deutsche Schiffsbank is the floating rate payor for the second contract.  The combined amount for both contracts totaled $26,000,000 and $28,666,000 at December 31, 2007 and 2006, respectively, and will expire in September of 2015.  The fixed rate was 4.41% at December 31, 2007 and 2006, and the floating rates were 5.20000% and 5.37063% at December 31, 2007 and 2006, respectively.  We have designated these interest rate swap agreements as effective hedges.  Settlements of these agreements are made quarterly and resulted in a decrease to interest expense of $256,000 in 2007, a decrease to interest expense of $204,000 in 2006, and an increase to interest expense of $37,000 in 2005.
During November of 2005, we entered into another interest rate swap agreement with a commercial bank to reduce the possible impact of higher interest rates in the long-term market by utilizing the fixed rate available with the swap.  The contract amount totaled $13,720,000 and $13,860,000 at December 31, 2007 and 2006, respectively, and will expire in November of 2012.  We are the fixed rate payor, and Capital One, N.A. (formerly Hibernia National Bank) is the floating rate payor.  The fixed rate was 5.17% for 2007 and 2006, and the floating rate was 4.82% and 5.32% at December 31, 2007 and 2006, respectively.  We have designated this interest rate swap agreement as an effective hedge.  Settlements of this agreement are made monthly and resulted in a decrease to interest expense of $9,000, $18,000 and $11,000 in 2007, 2006 and 2005, respectively.
During September of 2007, we entered into two interest rate swap agreements with a commercial bank to reduce the possible impact of higher interest rates in the long-term market by utilizing the fixed rates available with the swaps.  The first contract amount totaled $19,754,000 at December 31, 2007, and will expire in September of 2010.  We are the fixed rate payor, and DnB NOR Bank ASA New York is the floating rate payor.  The fixed rate was 4.68% for 2007 and the floating rate was 5.19813% at December 31, 2007.  We have designated this interest rate swap agreement as an effective hedge.  Settlements of this agreement are made monthly and resulted in a decrease to interest expense of $28,000 in 2007. The second contract amount totaled Yen 5,000,000,000 at December 31, 2007, and will expire in September 2010. We are the fixed rate payor, and DnB NOR Bank ASA New York is the floating rate payor. The fixed rate was 1.15% for 2007 and the floating rate was 1.02125% at December 31, 2007. We have designated this interest rate swap agreement as an effective hedge. Settlements of this agreement are made quarterly and resulted in an increase to interest expense of Yen 2,127,566 ($19,045) in 2007.
During November of 2007, we entered into another interest rate swap agreement with a commercial bank to reduce the possible impact of higher interest rates in the long-term market by utilizing the fixed rate available with the swap.  The contract amount totaled $19,754,000 at December 31, 2007, and will expire in September of 2010.  We are the fixed rate payor, and DnB NOR Bank ASA New York is the floating rate payor.  The fixed rate was 3.96% for 2007 and the floating rate was 4.93000% at December 31, 2007.  We have designated this interest rate swap agreement as an effective hedge.


Foreign Currency Contracts
We enter into forward exchange contracts to hedge certain firm purchase and sale commitments denominated in foreign currencies.  The purpose of our foreign currency hedging activities is to protect us from the risk that the eventual dollar cash inflows or outflows resulting from revenue collections from foreign customers and purchases from foreign suppliers will be adversely affected by changes in exchange rates.  The term of the currency contracts is rarely more than one year.  We account for our foreign currency contracts as a cash flow hedge with the mark to market adjustments to the balance sheet each quarter. We only recognize the fair market value of hedges through earnings at maturity, sale or termination.
During 2005, we entered into a forward purchase contract for Mexican Pesos for $630,000 U.S. Dollar equivalents beginning in January of 2006 that expired in September of 2006.  During 2006, we entered into three forward purchase contracts.  One contract was for Mexican Pesos for $420,000 U.S. Dollar equivalents beginning in January of 2007 that expired in July of 2007.  The other two contracts were for Indonesian Rupiah, one for $2,925,000 U.S. Dollar equivalents beginning in October of 2006 that expired in December of 2007, and the second contract was for $1,800,000 U.S. Dollar equivalents beginning in June of 2006 that expires in May of 2007.  During 2007, we entered into five forward purchase contracts. Four contracts were for Mexican Pesos, one for $600,000 U.S. Dollar equivalents beginning in July of 2007 that expired in December of 2007, the second contract was for $3,000,000 U.S. Dollar equivalents with a delivery basis of a monthly window, the third contract was for $450,000 U.S. Dollar equivalents beginning in July of 2007 that expired in December of 2007, the fourth contract was for $1,800,000 U.S. Dollar equivalents beginning in January of 2008 that expires in December of 2008. The other contract was for Indonesian Rupiah for $3,420,000 U.S. Dollar equivalents beginning in January of 2008 that expires in December of 2008.There were no forward sales contracts as of December 31, 2007 or 2006.

Long-Term Debt
The fair value of our debt is estimated based on the quoted market price for the publicly listed Senior Notes and the current rates offered to us on other outstanding obligations.


Amounts Due from Related Parties
The carrying amount of these notes receivable approximated fair market value as of December 31, 2007 and 2006.  Fair market value takes into consideration the current rates at which similar notes would be made.


Restricted Cash
The carrying amount of these investments approximated fair market value as of December 31, 2007 and 2006, based upon current rates offered on similar instruments.

Marketable Securities
We have categorized all marketable securities as available-for-sale.  The following table shows the carrying amount, fair value and net gains or losses recorded to accumulated other comprehensive income for each security type at December 31, 2007 and 2006.

(All amounts in thousands)
  
December 31, 2007
  
 
Security Type
  
Carrying Value
    
Fair Value
    
Net Gain (Loss) Net of Taxes
  
Equity Securities
   $
3,708
     $
4,090
     $
247
  
Corporate Debt Securities
    
1,477
      
1,488
      
4
  
    $
5,185
     $
5,578
     $
251
  
                         
       
   
December 31, 2006
  
 
Security Type
  
Carrying Value
    
Fair Value
    
Net Gain (Loss) Net of Taxes
  
Equity Securities
   $
3,644
     $
4,446
     $
521
  
Corporate Debt Securities
    
2,127
      
2,099
       (20 )
    $
5,771
     $
6,545
     $
501
  




NOTE P - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
        
             
Following are the components of the consolidated balance sheet classification Accounts Payable and Accrued Liabilities:
  
             
             
   
December 31,
    
December 31,
  
(All Amounts in Thousands)
  
2007
    
2006
  
Accrued Voyage Expenses
   $
15,454
     $
20,664
  
Trade Accounts Payable
    
2,676
      
31
  
Lease Incentive Obligation
    
2,876
      
1,839
  
Self-Insurance Liability
    
1,880
      
2,170
  
Accrued Salaries and Benefits
    
59
      
1,695
  
Accrued Insurance Premiums
    
248
      
235
  
Accrued Customs Liability
    
296
      
578
  
Accrued Interest Expense
    
57
      
623
  
    $
23,546
     $
27,835
  


NOTE Q – DISCONTINUED OPERATIONS

The Board of Directors made the decision in the fourth quarter of 2006 to dispose of certain LASH Liner Service assets.  The decision was based on the belief that we could generate substantial cash flow and profit on the disposition of the assets, while improving our future operating results.  Accordingly, we sold our LASH Feeder vessel and 114 barges in the first quarter of 2007.  In the second quarter of 2007, the company sold the one remaining U.S. flag LASH vessel and 111 LASH barges.  In the third quarter of 2007, the company elected to discontinue its International LASH service by the end of 2007.  The one remaining LASH vessel and the remaining 370 barges were positioned for sale in the fourth quarter of 2007.  During the first two months of 2008, we sold the one remaining LASH vessel and the majority of LASH barges, with the remaining LASH barges under contract to be sold by the end of the first quarter of 2008.
Our U.S. flag LASH service and International LASH service were reported in “Continuing Operations” as a part of our Liner segment in periods prior to June 30, 2007.  Both services have been restated to remove the effects of those operations from “Continuing Operations”.
The components of loss from discontinued International LASH and U.S. flag LASH service operations as reported on the income statements for the periods presented are described below:



(All amounts in thousands)
  
Year Ended December 31,
Loss from Discontinued Liner Service
  
2007
    
2006
    
2005
    
Loss before benefits for income taxes
   $ (4,238 )   $ (8,440 )   $ (376 )
Gain on Sale of Liner Assets
    
9,880
      
5,125
      
584
  
Provision for Income Taxes
     (18 )    
2,169
      
1,665
  
Net Income (Loss) from Discontinued Liner Service
   $
5,624
     $ (1,146 )   $
1,873
  

Revenues associated with these operations for the years ended December 31, 2007, 2006 and 2005 were $42,005,000, $89,417,000 and $91,136,000, respectively.

In 2005, we sold the assets associated with our over-the-road car transportation truck company.  The decision to sell these assets was primarily the result of a decrease during 2005 in the volume of business available to us due to the loss of market share by one of our customers and an industry-wide shortage of drivers that caused underutilization of the assets. The sale of these assets was completed in July of 2005 and all proceeds were received and all associated costs were incurred before the end of that year.  The carrying value of those assets before the sale was approximately $3,600,000; costs associated with the sale were $269,000; and net proceeds were $3,100,000 resulting in a net loss before taxes of $769,000.
The components of loss from discontinued over-the-road transportation operations as reported on the income statements for the year ended December 31, 2005 is described below:

(All amounts in thousands)
      
   
2005
  
Discontinued Operations:
      
    Loss from Operations
   $ (1,133 )
    Loss on Disposal of Assets
     (769 )
    Tax Benefit
    
632
  
    $ (1,270 )

Revenues associated with these operations for the years ended December 31, 2005 was $2,534,000.  The over-the-road car carrying truck company was reported in the “Other” segment in previous years.


 

                       
                           
 
(All Amounts in Thousands Except Share Data)
  
Quarter Ended
  
     
March 31
    
June 30
    
Sept. 30
    
Dec. 31
  
         
2007(1)
Revenues
   $
37,532
     $
56,352
     $
51,306
     $
51,920
  
 
Expenses
    
31,418
      
48,318
      
43,884
      
44,714
  
 
Gross Voyage Profit (Loss)
    
6,114
      
8,034
      
7,422
      
7,206
  
 
Income (Loss) from Continuing Operations
    
1,889
      
2,983
      
3,433
      
3,487
  
 
Net Gain (Loss) from Discontinued Liner Service
    
2,851
      
3,970
       (1,116 )     (81 )
 
Net Income (Loss) Available to Common Stockholders
    
4,140
      
6,353
      
1,717
      
2,806
  
 
Basic and Diluted Earnings (Loss) per Common Share:
                                
 
  Net Income (Loss) Available to Common Stockholders-Basic
                                
 
     Continuing Operations
    
0.21
      
0.38
      
0.43
      
0.44
  
 
     Discontinued Operations
    
0.47
      
0.63
       (0.17 )     (0.01 )
 
  Net Income (Loss) Available to Common Stockholders-Diluted
                                
 
     Continuing Operations
    
0.23
      
0.36
      
0.40
      
0.41
  
 
     Discontinued Operations
    
0.35
      
0.48
       (0.13 )     (0.01 )
                                   
2006(1)
Revenues
   $
22,394
     $
64,559
     $
51,220
     $
47,291
  
 
Expenses
    
15,651
      
58,764
      
42,480
      
40,649
  
 
Impairment Loss (2)
    
-
      
8,866
      
-
      
-
  
 
Gross Voyage Profit (Loss)
    
6,743
       (3,071 )    
8,740
      
6,642
  
 
Income (Loss) from Continuing Operations
     (480 )     (4,756 )    
3,785
      
19,645
  
 
Net (Loss) Gain from Discontinued Liner Service
    
2,566
       (1,708 )     (4,721 )    
2,717
  
 
Net Income (Loss) Available to Common Stockholders
    
1,486
       (7,064 )     (1,536 )    
21,762
  
 
Basic and Diluted Earnings (Loss) per Common Share:
                                
 
   Net Income (Loss) Available to Common Stockholders
                                
 
       Continuing Operations
     (0.18 )     (0.87 )    
0.52
      
3.11
  
 
       Discontinued Operations
    
0.42
       (0.28 )     (0.77 )    
0.45
  
 
  Net Income (Loss) Available to Common Stockholders-Diluted
                                
 
     Continuing Operations
     (0.18 )     (0.87 )    
0.47
      
2.42
  
 
     Discontinued Operations
    
0.42
       (0.28 )     (0.58 )    
0.33
  
                                   
(1)
Adjustments were made to all periods presented to reflect the discontinuation of the
  
 
LASH liner service in 2007.
  
                                   
(2)
Pre-tax impairment loss on the write-off of our former Rail-Ferry service terminal in New Orleans.
  
                                   


 
NOTE S – Earnings Per Share

Basic earnings per share were computed based on the weighted average number of common shares issued and outstanding during the relevant periods.  Diluted earnings per share also considers dilutive potential common shares, including stock options using the treasury stock method and convertible preferred stock using the if-converted method.
The 2,000,000 shares of common stock that were potentially issuable from conversion from our preferred stock were antidilutive for the year ending December 30, 2005.

The calculation of basic and diluted earnings per share is as follows (in thousands except share amounts):
   
Year Ended December 31,
        
   
2007
    
2006
    
2005
  
Numerator
                  
Net Income (Loss) Available to Common  Stockholders – Basic
                  
Continuing *
   $
9,392
     $
15,794
     $
4,026
  
Discontinued
    
5,624
       (1,146 )    
603
  
    $
15,016
     $
14,648
     $
4,629
  
                         
Net Income (Loss) - Diluted
                        
Continuing
   $
11,792
     $
18,194
     $
4,026
  
Discontinued
    
5,624
       (1,146 )    
603
  
    $
17,416
     $
17,048
     $
4,629
  
Denominator
                        
Weighted Avg Share of Common Stock         Outstanding:
                        
Basic
    
6,360,208
      
6,116,036
      
6,083,005
  
Plus:
                        
   Effect of dilutive stock options
    
9,265
      
6,542
      
31,505
  
   Effect of dilutive convertible shares from preferred stock
    
2,000,000
      
2,000,000
      
** -
  
Diluted
    
8,369,473
      
8,122,578
      
6,114,510
  
                         
Basic and Diluted Earnings Per Common Share
                        
Net Income (Loss) Available to Common
Stockholders - Basic
                        
Continuing Operations
   $
1.48
     $
2.58
     $
0.66
  
Discontinued Operations
    
0.88
       (0.18 )    
0.10
  
    $
2.36
     $
2.40
     $
0.76
  
                         
Net Income (Loss) Available to Common
Stockholders - Diluted
                        
Continuing Operations
   $
1.41
     $
2.24
     $
0.66
  
Discontinued Operations
    
0.67
       (0.14 )    
0.09
  
    $
2.08
     $
2.10
     $
0.75
  
* Income (Loss) from Continuing Operations less Preferred Stock Dividends
          

**2005 dilutive convertible shares from preferred stock not used in the calculation = 1,972,603

 

 
NOTE T - Accumulated Other Comprehensive Income (Loss)
      
             
Accumulated Other Comprehensive Income is comprised of the following, net of tax:
    
             
         
December 31,
         
2007
2006
 
Unrealized gains on marketable securities
 $
252
$          502
 
Fair value of derivatives
    
(1,190)
            986
 
Funding status of benefit plans
    
(1,034)
        (2,760)
        $
(1,972)
$      (1,272)



NOTE U – Subsequent Events

On January 23, 2008, we entered into a Facility Agreement by and among (1) East Gulf Shipholding, Inc. (“EGS”), a wholly-owned subsidiary of the Company, as borrower, (2) the Company, as guarantor, (3) the banks and financial institutions party thereto (the “Lenders”), as lenders, (4) DnB NOR Bank ASA, as facility agent, and (5) Deutsche Schiffsbank Aktiengesellschaft, as security trustee.  Under this Facility Agreement, the Lenders agreed to provide EGS with a term loan of up to Six Billion Two Hundred Eighty Million Yen (¥6,280,000,000), or approximately $59 million at current exchange rates.  The loan will be used to pay off the remaining balance on the construction of one 6400 CEU Newbuilding Pure Car/Truck Carrier currently scheduled for delivery in early 2010.  The Facility Agreement provides for two interim advances to be made by the Lenders to EGS coinciding with certain construction milestones of the Vessel, as well as a final advance to be made by the Lenders to EGS coinciding with the delivery of the Vessel to EGS.
The loan is secured by the Vessel, its earnings and insurances, and is guaranteed by the company.  The loan, originally entered into under a floating Libor to Yen interest rate, has been swapped to a Yen fixed rate facility of 2.065% plus an applicable margin of 0.90% (which margin may be adjusted upwards or downwards as provided in the Facility Agreement).
            The Facility Agreement contains affirmative and negative covenants that, among other things, require we to maintain a specified tangible net worth, leverage ratio, interest coverage ratio and working capital.   The Facility Agreement also contains customary events of default.  Upon the occurrence of an event of default that remains uncured after any applicable cure period, EGS may be required to make immediate repayment of all indebtedness to the Lenders and the Lenders would be entitled to pursue other remedies against EGS, the Vessel and the Company under its guaranty.

On January 25, 2008, we announced that our Board of Directors has authorized open market repurchases of up to 1,000,000 shares of our common stock.  Any future purchases under this program will be dependent upon many factors, including our cash requirements, the market price of its common stock, and general economic and market conditions.  This authorization supersedes a predecessor authorization authorized in 1999.  Unless and until the Board otherwise provides, this new authorization will remain open indefinitely.

During the first two months of 2008, we sold the one remaining LASH vessel and the majority of LASH barges, with the remaining LASH barges under contract to be sold by the end of the first quarter of 2008 and will be included in the results of our Discontinued Operations.

In February of 2008, we sold a facility in Jefferson Parish, Louisiana, which was used primarily for the maintenance and repair of LASH barges.  The gain on this sale was approximately $100,000, and will be included  in the results of our Discontinued Operations.

 
In January 2008 we were notified that the United States Coast Guard was conducting an investigation on one of our vessels, the SS MAJOR STEPHEN W. PLESS, of an alleged discharge of untreated bilge water by one or more members of the crew. The USCG has inspected the ship and interviewed various crew members. We are cooperating with the USCG's investigation. The USCG has recently informed counsel for us that while the investigation of a certain single individual is continuing, at this time,we are not a target of the investigation. We may face an administrative or civil penalty from the Coast Guard.  However, based on our assessment of circumstances currently known by us, we do not believe that any such fine would be material.
 
 
On February 13, 2008, we signed an agreement with Regions Bank to provide us with an unsecured revolving line of credit for $35,000,000.  This facility will replace our current secured revolving line of credit for a like amount.
 
 
 
 

      
     F-21     
    
 

INDEX OF SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULES







 










      
        S-1      
      
        
      
    
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Stockholders
International Shipholding Corporation

We have audited the consolidated financial statements of International Shipholding Corporation as of December 31, 2007 and 2006, and for each of the three years in the period ended December 31, 2007, and have issued our report thereon dated March 7, 2008 (included elsewhere in this Form 10-K).  Our audits also included the financial statement Schedule II of this Form 10-K.  This schedule is the responsibility of the Company’s management.  Our responsibility is to express an opinion based on our audits.

In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

                                                                                                              /s/  Ernst & Young  LLP

New Orleans, Louisiana
March 7, 2008







      
        S-2      
      
        
      
    
 

INTERNATIONAL SHIPHOLDING CORPORATION
Schedule II - Valuation and Qualifying Accounts and Reserves
(Amounts in Thousands)


                     
Deductions
        
   
Balance at
    
Additions
    
for purpose for
    
Balance at
  
   
beginning of
    
Charged to
    
Charged to
    
which accounts
    
end of
  
   
period
    
expense
    
Other accounts
    
were set up
    
period
  
December 31, 2005:
                              
Self-Retention Reserves
   $
2,948
     $
4,710
     $
-
     $
3,618
     $
4,040
  
Non Self-Retention Reserves
    
678
      
156
      
-
      
332
      
502
  
Custom Reserves
    
1,738
      
929
      
-
      
2,501
      
166
  
Other Reserves
    
1,626
      
604
      
-
      
666
      
1,564
  
Total
   $
6,990
     $
6,399
     $
-
     $
7,117
     $
6,272
  
                                         
December 31, 2006:
                                        
Self-Retention Reserves
   $
4,040
     $
5,153
     $
-
     $
2,980
     $
6,213
  
Non Self-Retention Reserves
    
502
      
-
      
-
      
325
      
177
  
Custom Reserves
    
166
      
1,623
      
-
      
1,211
      
578
  
Other Reserves
    
1,564
      
1,710
      
-
      
2,020
      
1,254
  
Total
   $
6,272
     $
8,486
     $
-
     $
6,536
     $
8,222
  
                                         
December 31, 2007:
                                        
Self-Retention Reserves
   $
6,213
     $
4,487
     $
-
     $
4,618
     $
6,082
  
Non Self-Retention Reserves
    
177
      
-
      
-
      
67
      
110
  
Custom Reserves
    
578
      
1,142
      
-
      
1,424
      
296
  
Other Reserves
    
1,254
      
16
      
-
      
434
      
836
  
Total
   $
8,222
     $
5,645
     $
-
     $
6,543
     $
7,324
  
                                         
 

 

      
        S-3      
      
        
      
    
 

 EX-10.6 2 exhibit106.htm EXHIBIT 10.6 - CONSULTING AGREEMENT exhibit106.htm

February 18, 2007


Mr. Erik F. Johnsen
P.O. Box 160
Covington, LA  70434

Reference: Erik F. Johnsen Consulting Agreement


This letter will confirm that International Shipholding Corporation has agreed to retain you as a consultant for a period of time commencing May 1, 2007, and ending December 31, 2008.  Your consulting compensation will be annual fee of $250,000, payable pro-rata in monthly installments of $20,833.34, plus reasonable out-of-pocket expenses.  At the end of the agreed period of time, this Agreement is automatically extended month-by-month with a continuation of said pro-rata monthly installments of $20,833.34.

This Agreement may be cancelled by either party on giving a 90-day notice of cancellation.

Please sign below to acknowledge your agreement and acceptance of this Consulting Agreement.

Sincerely,



N. M. Johnsen
Chairman of the Board


AGREED AND ACCEPTED:

    /s/ Erik F. Johnsen
___________________________________
Erik. F. Johnsen
 

    April 30, 2007
__________________________________
Date


 EX-10.10 3 exhibit1010.htm EXHIBIT 10.10 MOA exhibit1010.htm
 
The portion of this Exhibit 10.10 marked “******” has been omitted and confidentially filed with the Securities and Exchange Commission pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended.
 
 
 
                                                            Date: August 24, 2007

******
 
ADDENDUM NO. ONE
 

TO
MEMORANDUM OF AGREEMENT DATED AUGUST 24, 2007
BETWEEN
******, as guaranteed by
******
AND
 

WATERMAN STEAMSHIP CORPORATION, as guaranteed by INTERNATIONAL SHIPHOLDING CORPORATION
 

With reference to the above captioned Memorandum of Agreement (MOA), it is this day mutually confirmed and agreed between ******, as guaranteed by ****** (the "SELLERS") and WATERMAN STEAMSHIP CORPORATION, as guaranteed by INTERNATIONAL SHIPHOLDING CORPORATION (the "BUYERS"), that:
 

1.  
With reference to Box 11 of the above captioned MOA, the Vessel Price is ******.
 

2.  
The sale and purchase commission payable by Sellers to ****** in the sum of ****** will be paid by way of adding to the agreed daily Time Charter Hire. Settlement of such commission will be made in a manner as agreed between Buyers and ******.
 

All other terms and conditions of the above captioned MOA remain unchanged.
  
Sellers:
******
as guaranteed by
 
******
 



___________________________
By:     ******
Title:    ATTORNEY-IN-FACT
 

 


Buyers:
WATERMAN STEAMSHIP CORPORATION
as guaranteed by
INTERNATIONAL SHIPHOLDING CORPORATION




____________________________________
By:     Niels M. Johnsen
Title: Chairman


      
               
    

Issued
Amended
Amended
Amended
Amended
 
Dec. 16. 1965 Jul. 13. 1971 Mar. 16. 1977 Sep. 9. 1993 Nov. 2.      1999
MEMORANDUM OF AGREEMENT
The Documentary Committee of The Japan Shipping Exchange, Inc.
Page 1
 Place and Date of Agreement
                
August 24 , 2007
Code Name: NIPPON SALE 1999
(Part I)
1. Sellers (Preamble)
2. Buyers (Preamble)
        
******,
Waterman Steamship
Corporation
    
as guaranteed by
by
as guaranteed by
      
******
International Shipholding Corporation
  
 
3. Vessel's name (Preamble)
      
4. Flag/Registry (Preamble, Cl. 3 (a) (ii) )
      
  ******
Panamanian
        
  5. Class (Preamble, CI. 6 (b))
6. Built (year and builder's name) (Preamble)
      
KR
              
******
        
             
******
      
7. Gross register tonnage (Preamble)
    
8. Summer deadweight tonnage (Preamble)
      
59,217
      
18,381
        
 9.  Place/Date of superficial inspection (Preamble, CL 5 (a), Cl. 10)
 10. Place/date of class records examination (Preamble)
11. Purchase Price (C1. I)
                
As agreed.
                
12. Place of closing (CI. 3 (c))
          
Tokyo, Singapore and New York
          
13. Delivery range (CI. 4 (a), CI. 6 (e)(i), (I)
            
Singapore
                      
  14. Delivery period (CI. 4 (a)) and Cancelling Date (CI. 4 (a), (d), (e))
          
   September 7-14, 2007
          
15. Places (Cl. 2 (a), CI. 4 (c))
          
Singapore
                      
16. Liquidated damages, per day (CI. 7 (c)
  
   The additional clauses, if any, numbered from 16 to [
22
]
$20,000
              
shall be deemed to be fully incorporated into this Agreement.
               
..
        
It IS mutually agreed that this Agreement shall be performed in accordance with the terms and conditions contained herein.
Signature (Sellers)                                                                                    Signature (Buyers)
******                                                                                    Waterman Steamship Corporation
as guaranteed by                                                                                    as guaranteed by
******                                                                                    International Shipholding Corporation




By:  _________________________________________                                                                                                 By:  __________________________________________

                    Niels M. Johnsen
 

Title:              ******                                                                                                       Title:  Chairman



      
              
    

Page 2


(Part II)

NIPPONSALE 1999
 

IT IS THIS DAY MUTUALLY AGREED between the Sellers  referred to in Box 1 ("the Sellers") and the Buyers referred to in Box 2 ("the Buyers") that the Sellers shall sell and the Buyers shall buy the Vessel named in Box 3 with particulars as referred to in Boxes 4 - 8 ("the Vessel"),  which has been accepted by the Buyers following their superficial inspection of the Vessel and examination of her class records as referred to in Boxes 9 and 10 respectively on the following terms and conditions.

1.  
PURCHASE PRICE9
The purchase price of the Vessel ("the Purchase Price") shall be 10 as stated in Box 11.

2. PAYMENT           SEE CLAUSE 16
 
(a)As security for the fulfillment of this agreement, the Buyers shall remit a deposit of ten (10) per cent of the Purchase Price (“the Deposit”) to a bank nominated by the Sellers within three (3) bank days (being days on which banks are open for the transaction of business in the place stated in Box 15 (“Banking Days”)), from the date of this Agreement, in the names of both the Sellers and the Buyers. Any interest earned on the Deposit shall be credited to the Buyers. Bank charges on the Deposit shall be borne equally by the Sellers and the Buyers. The Deposit shall be paid to the Sellers as a part of the Purchase Price in the same manner as the balance of the ninety (90) per cent of the Purchase Price as provided for hereunder.
 
(b) The Buyers shall remit the balance of the Purchase Price by telegraphic transfer to the said bank immediately after the Notice of Readiness for Delivery is tendered by the Sellers as per clause 7 of this agreement. The balance shall be paid to the Sellers together with the Deposit against the Protocol of Delivery and Acceptance being duly signed by a representative of each party at the time of delivery of the Vessel.

3.  
DOCUMENTATIONSEE CLAUSES 18 AND 19
 
(a)At the time of delivery of the Vessel, the Sellers shall provide the Buyers with the following documents:
 
(i) the Bill of Sale, duly notarized by a Notary Public, specifying that the   Vessel is free from all debts, encumbrances, mortgages and maritime liens; and
 
(ii) a letter from the Sellers undertaking to supply a Deletion Certificate from the Registry stated in Box 4 as soon as practicable after the Vessel's delivery; and
 
(iii)  such other documents as may be mutually agreed.
 
(b)Upon delivery the Buyers and the Sellers shall execute and exchange a Protocol of Delivery and Acceptance, thereby confirming the date and time of delivery of the Vessel.
 
(c) Closing shall take place at the place stated in Box 12.

4.  
DELIVERY PLACE AND TIME
(a)The Sellers shall ensure that the Vessel is ready for delivery within the Delivery Range stated in Box 13 not before and not later than the dates stated in Box 14, the latter date being the Cancelling Sate.
(b)The Sellers shall keep the Buyers informed of the Vessel’s itinerary and give the Buyers thirty (30), fifteen (15), seven (7) and three (3) days notice of the expected date and place of readiness for delivery.
(c)In the event that the Vessel is not ready for delivery on or before the Cancelling Date, the Buyers shall have the option of cancelling this Agreement, provided such option shall be exercised in writing within two (2) Working Days (which shall be the days not falling on Saturdays, Sundays or Public holidays in the place stated in Box 15) from the Cancelling Date. However, if the failure to deliver the Vessel is caused by any event over which the Sellers have no control, then the Cancelling Date shall be extended by the corresponding time lost due to such event but in no case shall such extension be for a period of more than thirty (30) days.

(d)In the event the Buyers do not elect to exercise the option to cancel this Agreement in accordance with sub-clause (c)  above, they shall have the right to designate a new date for delivery  of the Vessel, provided such right is exercised in writing  within two (2) Working Days from the Cancelling Date, and  such designated date shall be the new Cancelling Date as if stated in Box 14. However if no new Cancelling Date is  designated by the Buyers in accordance with this sub-clause  there shall be no further Cancelling Date and the Sellers shall  deliver the Vessel as soon as practicable.
 
(e) Notwithstanding the exercise of due diligence by them, if the Sellers anticipate that the Vessel will not be ready for delivery by the Cancelling Date, (whether it be the first agreed Cancelling Date or any subsequent Cancelling Date as provided for in sub-clause (d) above), then the Sellers may notify the Buyers in writing stating the date when they anticipate that the Vessel will be ready for delivery and proposing that that date shall be the new Cancelling Date. Upon receipt of such notification the Buyers shall have the option to cancel this Agreement, provided such option is exercised in writing within two (2) Working Days from the receipt of the aforesaid notification from the Sellers. If the Buyers do not exercise the option to cancel this Agreement, the date proposed by the Sellers shall be the new Cancelling Date as if stated in Box 14.

5.  DELIVERY CONDITION93
 
(a)The Sellers shall deliver the Vessel to the Buyers in substantially the same condition as when the Vessel was inspected by the Buyers at the place stated in Box 9, fair wear and tear expected, but recommendations and average damage affecting her present class and with all her class, national and international trading certificates clean and valid at the time of delivery.
 
(b)Upon the Vessel being delivered to and accepted by the Buyers in accordance with this Agreement the Sellers shall have no liability whatsoever for any fault or deficiency in their description of the Vessel or for any defects in the Vessel regardless of whether such defect was apparent or latent at the time of delivery.
 

6.  UNDERWATER INSPECTION107
 
(a)The Sellers may deliver the Vessel without drydocking, subject to the following provisions.
 
(b) Prior to delivery of the Vessel the Buyers shall have the right to have divers approved by a classification society referred to in Box 5 ("the Classification Society"), carry out an inspection of the Vessel's underwater parts below the summer load line in the presence of a surveyor of the Classification Society arranged by the Sellers. Such inspection, if any, is to be at the Buyers' arrangement, risk and expense and is not to interfere with the Vessel's operation and delivery schedule.
 
(c)The Buyers shall give a written notice of their intention to have an underwater inspection carried out within two (2) days from the receipt of the seven (7) days notice stipulated in sub-clause (b) of Clause 4. If the Buyers fail to give such a written notice within two (2) days, they shall lose their right to have an underwater inspection.
 
(d)Upon receipt of the Buyers' notice the Sellers shall arrange with the Classification Society to carry out an underwater inspection. The cost of the underwater inspection shall be borne by the Buyers unless damage affecting the class is found, in which case the Sellers shall bear the cost.
 
(e)Should any damage affecting the class be found by such divers' inspection the following shall apply:
 
(i) where the damage is of such nature that repairs are not required prior to the next scheduled drydocking by the Classification Society, then the Sellers and the Buyers shall each select a reputable shipyard in the Delivery Range stated in Box 13 or near thereto and obtain from such shipyard a quotation for the cost of repairs of the damage. Each quotation is to be for the direct repair costs of the damage only and is not to include the cost of


      
               
    

Page 3

NIPPONSALE 1999
 

 
dockage and general service expenses. The Sellers shall then have the option to either repair the damage prior to delivery of the Vessel or deliver the Vessel without the damage being repaired with a reduction from the Purchase Price of the estimated cost of repairs. The estimated cost of repairs shall be defined as the average of the two quotations obtained from the two shipyards;
 
(ii)where the damage is of such nature that repairs are required prior to the next scheduled drydocking by the Classification Society, then the Sellers shall repair the damage at their cost and expense and to the Classification Society's satisfaction.
 
(f)In the event that the Vessel is drydocked to effect repairs of  damage in accordance with sub-clause (e) hereof, the Sellers shall have the right to designate the drydock place as the new delivery place if such drydock place is within the Delivery Range stated in Box 13. In such event the Buyers shall have the right to clean and paint the underwater parts of the Vessel at their risk and expense and without interfering with the work of the Sellers and a surveyor of the Classification Society and without affecting the Vessel's delivery schedule. However if the Buyers' work in drydock is still in progress when the Sellers have completed their work, then the additional docking period necessary for  completing such work shall be at the Buyers' risk and  expense, in which event the Sellers shall have the right to tender a Notice of Readiness for Delivery on or after completion of their work.
 
(g)If repairs are required in accordance with sub-clause (e) hereof, then the Cancelling Date shall be extended by the corresponding time lost to effect such repairs provided that such extension shall not in any event exceed thirty (30) days.

7.NOTICE OF READINESS AND LIQUIDATED DAMAGES 
 
(a)When the Vessel becomes ready for delivery, the Sellers shall tender to the Buyers a Notice of Readiness for Delivery.
 
(b)The Buyers shall take over the Vessel within three (3) Banking Days from the day of receipt of such Notice of Readiness for  Delivery.
 
(c) In the event the Buyers do not take delivery of the Vessel  within the period specified above, the Buyers shall pay to  the Sellers for each day of the delay up to the tenth (10"') day  of the delay the liquidated damages as stated in Box 16. If the delay exceeds ten (10) days then the Sellers shall have the right to cancel this Agreement, and claim damages for their losses following therefrom.

8. TOTAL LOSS AND FORCE MAJEURE
Should, before delivery, the Vessel become an actual, constructive or compromised total loss (not being a result of an  act or omission of the Sellers committed with the intent to cause such total loss or recklessly and with knowledge that such total loss would probably result there from), or should the Vessel not be able to be delivered before the Cancelling Date through the outbreak of war, the restraint of Governments, Princes or People, political reasons or any other cause over which the Sellers have no control, then this Agreement shall be null and void and neither party shall be liable to the other. In such event the Deposit together with interest accrued .thereon, if any, shall be immediately released in full to the Buyers.
 
9.  
TRANSFER OF TITLE AND RISK
Title and risk to the Vessel, together with everything belonging to her, shall pass to the Buyers upon both payment of the Purchase Price and delivery of tbe Vessel having occurred. Delivery of the Vessel shall be deemed to take place at the date I and time specified in the Protocol of Delivery and Acceptance.
 
10.  
BELONGINGS AND BUNKERS
The Sellers shall deliver to the Buyers the Vessel with everything belonging to her at the time of the superficial inspection referred to in Box 9 including all spare parts, stores and equipment, on board or on shore, used or unused, except such things as are in the normal course of operations used during the period between the superficial inspection and delivery. The Sellers shall provide the Buyers with an inventory list at the time of delivery. Forwarding charges if any, shall be for the Buyer’s account. The Buyers shall take over and pay the Sellers for the remaining bunkers and unused lubricating oils at the last purchased prices evidenced by supporting vouchers. Payment under this clause shall be made on or prior to delivery of the Vessel in the same currency as the Purchase Price..  as agreed
 
11.  
EXCLUSION FROM THE SALE
The Sellers have the right to take ashore all crockery, cutlery, linen and other articles bearing the Sellers' flag or name, provided the Sellers substitute the same for an equivalent number and type of similar unmarked items. Books, cassettes and forms etc., exclusively for use by the Sellers on the Vessel, shall betaken ashore before delivery. Personal effects of the Master Officers and Crew including slop chest and hired equipment, if  any, are excluded from this sale and shall be removed by the Sellers prior to delivery of the Vessel.
 
12.  
CHANGE OF NAME ETC.
The Buyers undertake to change the name of the Vessel and alter the funnel markings upon delivery of the Vessel.

 
13. ENCUMBRANCES ETC.
The Sellers shall deliver to the Buyers the Vessel free from all debts, encumbrances, mortgages and maritime liens. The Sellers hereby undertake to indemnify the Buyers against all claims of whatever nature made against the Vessel in respect of liabilities incurred prior to the time of delivery.
 
14.  
DEFAULT AND COMPENSATION
 
(a) Should the Buyers default in the payment of the Deposit or   the balance of the Purchase Price in the manner and within the time herein specified, or the Buyers otherwise fail to perform their obligations under this Agreement and such failure is not remedied within seven (7) days following receipt of a notice of default from the Sellers to the Buyers, then the Sellers shall have the right to cancel this Agreement. In such event the Deposit if already paid, together with interest accrued thereon, if any, shall be forfeited to the Sellers. If the Deposit has not yet been paid the Sellers shall have the right to receive the amount equivalent to the Deposit from the Buyers. If the Deposit or the amount equivalent to the Deposit does not cover the Sellers' losses, the Sellers shall have the right to claim further compensation from the Buyers to recover such losses.
 
(b) Should the Sellers default in the delivery of the Vessel with everything belonging to her in the manner and within the time herein specified, or the Sellers otherwise fail to perform their obligations under this Agreement and such failure is not remedied within seven (7) days following receipt of a notice of default from the Buyers to the Sellers, then the Buyers shall have the right to cancel this Agreement. In such event the Buyers shall have the right to be paid the amount equivalent to tbe Deposit by the Sellers and the Deposit, if already paid, together with interest accrued thereon, if any, shall be released to the Buyers. If the amount equivalent to the Deposit does not cover the Buyers' losses the Buyers shall have the right to claim further compensation from the Sellers to recover such losses.
 
15.  
 ARBITRATION266
Any and all disputes arising out of or in connection with this Agreement shall be submitted to arbitration held in Tokyo at the Tokyo Maritime Arbitration Commission ("TOMAC") of The Japan Shipping Exchange, Inc. in accordance with the Rules of TO MAC and any amendments thereto, and the award given by the arbitrators shall be final and binding on both Parties.
 


      
               
    

Rider to Memorandum of Agreement (MOA) dated August 24. 2007
 
******
 
16.  
Buyers shall pay within three (3) banking days from the date of lifting all subjects to this Agreement a deposit of ten (10) percent of purchase money. This amount shall be deposited in a joint escrow account established at the DnB NOR Bank ASA, Singapore and held by them in the names of Sellers and Buyers.
 
Buyers shall remit the balance of purchase money to said joint escrow account at the DnB NOR Bank ASA, Singapore not later than two (2) banking days prior to the expected date of delivery of the Vessel.
 
Both interests of the ten (10) percent deposit and the balance of the Purchase Money, if any, and any bank charges shall be for Buyers' account. The ten (10) percent deposit and balance of the Purchase Money will be released to Sellers upon presentation of a Protocol of Delivery and Acceptance duly signed by Sellers and Buyers. If a Protocol of Delivery and Acceptance is not presented, the ten (10) percent deposit and balance of the Purchase Money will be released to Buyers.
 
17.  
Before delivery, Sellers shall furnish Buyers with a copy of the Vessel's current Provisional or Permanent Registration of Navigation.
 
18.  
At the time of delivery of the Vessel, the Sellers shall furnish the Buyers with the following documents:

 
 
a)
the Bill of Sale on United States Coast Guard form attached as Exhibit A, duly attested by a Notary Public and Apostilled, specifying that the Vessel is free from all debts, encumbrances and maritime lines,
 
 
b)
a Certification of Ownership issued by the Panamanian Authorities which shows ownership of the Vessel and that the Vessel is free from vessel's mortgages, encumbrances, debts and liens,
    
        c)           a permission of Sale and Transfer issued by the Panamanian Authorities,
 
 
d)
a letter from the Sellers undertaking to supply a Deletion Certificate from the Panama Registry after the Vessel's delivery, and
 
 
e)
such other documents including required Powers of Attorney and Corporate Authorizations duly notarized and Apostilled as may be reasonably required by Buyers and by Buyers' flag for registration purpose only,
 
 
f)
the documents mentioned in subclauses a), b), c) and d) above shall be executed in English.

      
              
    


 
19.
Sellers shall, at the time of delivery, hand to the Buyers all classification certificates as well as all plans, etc., which are not required to return to registry/KR or relative authorities. After delivery of the vessel, other technical documentation which may be in the Sellers' possession shall promptly upon the Buyers' instructions be forwarded to the Buyers. The Sellers may keep the log books, but the Buyers has the right to take copies of same.
 
20.
Sellers agree that Buyers's officers and representatives may join the Vessel for familiarization purposes before delivery to Buyers in which case Buyers will take responsibility for costs incurred for its officers and representatives during their stay onboard an for any accidents or injury and/or loss of life of Buyers' officers or representatives which occur during their stay onboard the Vessel. Sellers also agree that Buyers may borrow Sellers' officers ex the Vessel after delivery of the Vessel
 
 
to Buyers subject to the Buyers' paying the agreed amount of cost to Sellers and taking responsibility for such Sellers' officers' accidents of injury and/or loss of life.
21.
This MOA is subject to the United States Government authorities approval.
22.
The terms and conditions of this MOA are strictly confidential.




EX-10.11 4 exhibit1011.htm EXHIBIT 10.11 LOAN AGREEMENT exhibit1011.htm
                                                                                                        & #160;               Execution Version

 

 
LOAN AGREEMENT PROVIDING FOR A
SENIOR SECURED TERM LOAN
OF UP TO ¥5,000,000,000


WATERMAN STEAMSHIP CORPORATION
as Borrower,

AND

The Banks and Financial Institutions listed on Schedule I hereto,
as Lenders,

AND

DNB NOR BANK ASA,
as Facility Agent and as Security Trustee,


AND

INTERNATIONAL SHIPHOLDING CORPORATION,
as Guarantor

 


September 10, 2007



      
        
      
      
        
      
      
                       
    
      
        TABLE OF CONTENTS      
      
        
      
      
        Page      
 
    

DEFINITIONS 
1
 
 
1.1
Specific Definitions 
1
 
 
1.2
Computation of Time Periods; Other Definitional Provisions12
 
 
1.3
Accounting Terms 
12
 
 
1.4
Certain Matters Regarding Materiality 
12
 
 
2.
REPRESENTATIONS AND WARRANTIES 
12
 
 
2.1
Representations and Warranties 
12
 
 
(a)
Due Organization and Power 
12
 
 
(b)
Authorization and Consents 
12
 
 
(c)
Binding Obligations 
13
 
 
(d)
No Violation 
13
 
 
(e)
Filings; Stamp Taxes 
13
 
 
(f)
Litigation 
13
 
 
(g)
No Default 
13
 
 
(h)
Vessel 
13
 
 
(i)
Insurance 
14
 
 
(j)
Financial Information 
14
 
 
(k)
Tax Returns 
14
 
 
(l)
ERISA 
14
 
 
(m)
Chief Executive Office 
14
 
 
(n)
Foreign Trade Control Regulations 
14
 
 
(o)
Equity Ownership 
15
 
 
(p)
Environmental Matters and Claims 
15
 
 
(q)
Compliance with ISM Code, ISPS Code and MTSA 
15
 
 
(r)
Threatened Withdrawal of DOC or SMC 
16
 
 
(s)
Liens 
16
 
 
(t)
Indebtedness 
16
 
 
(u)
Payment Free of Taxes 
16
 
 
(v)
No Proceedings to Dissolve 
16
 
 
(w)
Solvency 
16
 
 
(x)
Compliance with Laws 
16
 
 
(y)
Survival 
16
 
 
3.
THE LOAN 
16
 
 
3.1
(a) Purposes 
16
 
 
(b)
Making of the Loan 
16
 
 
3.2
Drawdown Notice 
17
 
 
3.3
Effect of Drawdown Notice 
17
 
 
4.
CONDITIONS 
17
 
 
4.1
Conditions Precedent to the Effectiveness of this Agreement17
 
 
(a)
Corporate Authority 
17
 
 
(b)
The Agreement 
18
 
 
(c)
The Note 
18
 
 
(d)
The Creditors 
18
 
 
(e)
Fees 
18
 
 
(f)
Environmental Claims 
18
 
 
(g)
Legal Opinions 
18
 
 
(h)
Officer's Certificate 
18
 
 
(i)
Vessel Documents 
18
 
 
(j)
Security Documents 
19
 
 
(k)
Vessel Appraisals 
19
 
 
(l)
ISM DOC 
19
 
 
(m)
Evidence of Current COFR 
19
 
 
(n)
Vessel Liens 
19
 
 
(o)
Charter 
19
 
 
(p)
Memorandum of Agreement 
19
 
 
(q)
Vessel Delivery 
19
 
 
(r)
Maritime Administration Approval 
19
 
 
4.2
Further Conditions Precedent 
20
 
 
(a)
Drawdown Notice 
20
 
 
(b)
Representations and Warranties True 
20
 
 
(c)
No Default 
20
 
 
(d)
No Material Adverse Effect 
20
 
 
4.3
Breakfunding Costs 
20
 
 
4.4
Satisfaction after Drawdown 
20
 
 
5.
REPAYMENT AND PREPAYMENT 
20
 
 
5.1
Repayment 
20
 
 
5.2
Voluntary Prepayment; No Re-borrowing 
20
 
 
5.3
Mandatory Prepayment; Sale or Loss of Vessel 
21
 
 
5.4
Interest and Cost With Application of Prepayments 
21
 
 
5.5
Borrower's Obligation Absolute 
21
 
 
6.
INTEREST AND RATE 
21
 
 
6.1
Payment of Interest; Interest Rate 
21
 
 
6.2
Maximum Interest 
22
 
 
7.
PAYMENTS 
22
 
 
7.1
Place of Payments, No Set Off 
22
 
 
7.2
Tax Credits 
22
 
 
7.3
Computations; Banking Days 
22
 
 
8.
EVENTS OF DEFAULT 
23
 
 
8.1
Events of Default 
23
 
 
(a)
Principal Payments 
23
 
 
(b)
Interest and other Payments 
23
 
 
(c)
Representations, etc 
23
 
 
(d)
Impossibility, Illegality 
23
 
 
(e)
Mortgage 
23
 
 
(f)
Certain Covenants 
23
 
 
(g)
Covenants 
23
 
 
(h)
Indebtedness and Other Obligations 
23
 
 
(i)
Bankruptcy 
24
 
 
(j)
Judgments 
24
 
 
(k)
Inability to Pay Debts 
24
 
 
(l)
Termination of Operations; Sale of Assets 
24
 
 
(m)
Change in Financial Position 
24
 
 
(n)
Cross-Default 
24
 
 
(o)
ERISA Debt 
24
 
 
(p)
Time Charter 
24
 
 
8.2
Indemnification 
25
 
 
8.3
Application of Moneys 
25
 
 
9.
COVENANTS 
26
 
 
9.1
Affirmative Covenants 
26
 
 
(a)
Performance of Agreements 
26
 
 
(b)
Notice of Default, etc 
26
 
 
(c)
Obtain Consents 
26
 
 
(d)
Financial Information 
26
 
 
(e)
Contingent Liabilities 
27
 
 
(f)
Vessel Valuations 
27
 
 
(g)
Corporate Existence 
27
 
 
(h)
Books and Records 
27
 
 
(i)
Taxes and Assessments 
27
 
 
(j)
Inspection 
28
 
 
(k)
Inspection and Survey Reports 
28
 
 
(l)
Compliance with Statutes, Agreements, etc 
28
 
 
(m)
Environmental Matters 
28
 
 
(n)
Insurance 
28
 
 
(o)
Vessel Management 
28
 
 
(p)
Brokerage Commissions, etc 
28
 
 
(q)
ISM Code, ISPS Code and MTSA Matters 
29
 
 
(r)
ERISA 
29
 
 
(s)
Evidence of Current COFR 
29
 
 
(t)
Mortgage 
29
 
 
9.2
Negative Covenants 
29
 
 
(a)
Liens 
29
 
 
(b)
Third Party Guaranties 
30
 
 
(c)
Liens on Shares of Borrower 
30
 
 
(d)
Subordination of Inter-Company Indebtedness 
30
 
 
(e)
Transaction with Affiliates 
30
 
 
(f)
Change of Flag, Class, Management or Ownership 
30
 
 
(g)
Chartering 
30
 
 
(h)
Change in Business 
30
 
 
(i)
Sale of Assets 
30
 
 
(j)
Changes in Offices or Names 
31
 
 
(k)
Consolidation and Merger 
31
 
 
(l)
Change Fiscal Year 
31
 
 
(m)
Indebtedness 
31
 
 
(n)
Limitations on Ability to Make Distributions 
31
 
 
(o)
Change of Control 
31
 
 
(p)
No Money Laundering 
31
 
 
9.3
Financial Covenants 
31
 
 
(a)
Consolidated Indebtedness to Consolidated EBITDA Ratio 
31
 
 
(b)
Working Capital 
31
 
 
(c)
Consolidated Tangible Net Worth 
32
 
 
(d)
Consolidated EBITDA to Interest Expense 
32
 
 
9.4
Asset Maintenance 
32
 
 
10.
GUARANTEE 
32
 
 
10.1
The Guarantee 
32
 
 
10.2
Obligations Unconditional 
32
 
 
10.3
Reinstatement 
33
 
 
10.4
Subrogation 
33
 
 
10.5
Remedies 
33
 
 
10.6
Joint, Several and Solidary Liability 
34
 
 
10.7
Continuing Guarantee 
34
 
 
11.
ASSIGNMENT 
34
 
 
12.
ILLEGALITY, INCREASED COST, NON-AVAILABILITY, ETC 
34
 
 
12.1
Illegality 
34
 
 
12.2
Increased Costs 
35
 
 
12.3
Nonavailability of Funds 
35
 
 
12.4
Lender's Certificate Conclusive 
36
 
 
12.5
Compensation for Losses 
36
 
 
13.
CURRENCY INDEMNITY 
36
 
 
13.1
Currency Conversion 
36
 
 
13.2
Change in Exchange Rate 
36
 
 
13.3
Additional Debt Due 
36
 
 
13.4
Rate of Exchange 
36
 
 
14.
FEES AND EXPENSES 
37
 
 
14.1
Fees
37
 
 
14.2
Expenses 
37
 
 
15.
APPLICABLE LAW, JURISDICTION AND WAIVER 
37
 
 
15.1
Applicable Law 
37
 
 
15.2
Jurisdiction 
37
 
 
15.3
WAIVER OF JURY TRIAL 
38
 
 
16.
THE AGENTS 
38
 
 
16.1
Appointment of Agents 
38
 
 
16.2
Appointment of Security  Trustee 
38
 
 
16.3
Distribution of Payments 
38
 
 
16.4
Holder of Interest in Note 
39
 
 
16.5
No Duty to Examine, Etc 
39
 
 
16.6
Agents as Lenders 
39
 
 
16.7
Acts of the Agents 
39
 
 
(a)
Obligations of the Agents 
39
 
 
(b)
No Duty to Investigate 
39
 
 
(c)
Discretion of the Agents 
39
 
 
(d)
Instructions of Majority Lenders 
39
 
 
16.8
Certain Amendments 
40
 
 
16.9
Assumption re Event of Default 
40
 
16.10
Limitations of Liability 
40
 
16.11
Indemnification of the Agent and Security Trustee 
41
 
16.12
Consultation with Counsel 
41
 
16.13
Resignation 
41
 
16.14
Representations of Lenders 
41
 
16.15
Notification of Event of Default 
41
 
 
17.
NOTICES AND DEMANDS 
41
 
 
17.1
Notices 
41
 
 
18.
MISCELLANEOUS 
42
 
 
18.1
Time of Essence 
42
 
 
18.2
Unenforceable, etc., Provisions - Effect 
42
 
 
18.3
References 
42
 
 
18.4
Further Assurances 
42
 
 
18.5
Prior Agreements, Merger 
43
 
 
18.6
Entire Agreement; Amendments 
43
 
 
18.7
Indemnification 
43
 
 
18.8
Headings 
43
 

 
 
SCHEDULES

 
I
The Lenders and the Commitments
II           Approved Ship Brokers
III           Liens
IV           Indebtedness


EXHIBITS

A            Form of Promissory Note
B            Form of Drawdown Notice
C            Form of Compliance Certificate
D            Form of Assignment and Assumption Agreement
E            Form of Earnings and Charterparties Assignment
F            Form of Insurances Assignment
G            Form of U.S. First Preferred Mortgage

 

 
 

               
                
                                    
                
                                    
                
                                                   
                 
                  --                
              		  
             
        
      
    

SENIOR SECURED LOAN AGREEMENT
 
THIS SENIOR SECURED LOAN AGREEMENT (the “Loan Agreement” or “Agreement”) is made as of the 10th day of September  2007, by and among (1) WATERMAN STEAMSHIP CORPORATION, a corporation organized and existing under the laws of the State of New York (the “Borrower”), (2) INTERNATIONAL SHIPHOLDING CORPORATION, a corporation organized and existing under the laws of the State of Delaware (the "Guarantor"), as guarantor, (3) the banks and financial institutions listed on Schedule I, as lenders (together with any bank or financial institution which becomes a Lender pursuant to Article 11, the “Lenders” and each a “Lender”), (4) DNB NOR BANK ASA (“DnB NOR”), as facility agent (in such capacity including any successor thereto, the “Facility Agent”) and  as security trustee for the Lenders (in such capacity, the “Security Trustee” and, together with the Facility Agent, the “Agents”).
 
WITNESSETH THAT:
 
WHEREAS, at the request of the Borrower, each of the Agents has agreed to serve in such capacity under the terms of this Agreement and the Lenders have agreed to provide to the Borrower a senior secured term loan facility in the amount of up to Five Billion Yen (¥5,000,000,000);
 
NOW, THEREFORE, in consideration of the premises set forth above, the covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as set forth below:
 
1.  DEFINITIONS
 
1.1  Specific Definitions.  In this Agreement the words and expressions specified below shall, except where the context otherwise requires, have the meanings attributed to them below:
 
“Acceptable Accounting Firm”
shall mean Ernst & Young LLP, or such other Securities and Exchange Commission recognized accounting firm as shall be approved by the Facility Agent, such approval not to be unreasonably withheld;
“Affiliate”
shall mean with respect to any Person, any other Person directly or indirectly controlled by or under common control with such Person.  For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) as applied to any Person means the possession directly or indirectly of the power to direct or cause the direction of the management and policies of that Person whether through ownership of voting securities or by contract or otherwise;
“Agents”
shall have the meaning ascribed thereto in the preamble;
“Agreement”
shall mean this Agreement, as the same shall be amended, modified or supplemented from time to time;
“Applicable Margin”
shall mean eighty-five one-hundredths of one percent (0.85%);
“Applicable Rate”
shall mean any rate of interest applicable to the Loan from time to time pursuant to Section 6.1;
“Assignment and Assumption Agreement(s)”
shall mean any Assignment and Assumption Agreement(s) executed pursuant to Section 11 substantially in the form set out in Exhibit D;
“Assignment Notices”
shall mean (a) the notice with respect to the Earnings and Charterparties Assignment substantially in the form set out in Exhibit 1 thereto and (b) the notice with respect to the Insurances Assignment substantially in the form set out in Exhibit 3 thereto;
“Assignments”
shall mean the Earnings and Charterparties Assignment and the Insurances Assignment;
“Banking Day(s)”
shall mean any day that is not a Saturday, Sunday or other day on which (a) banks in New York, New York and London, England are authorized or required by law to remain closed, or (b) banks are not generally open for dealing in dollar deposits in the London interbank market;
“Borrower”
shall have the meaning ascribed thereto in the preamble;
“Change of Control”
shall mean (a) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than the existing owners, that becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than 30% of the total voting power of the Guarantor or (b)  the Guarantor ceases to own, directly or indirectly, 100% of the Borrower or (c) the Board of Directors of the Borrower or the Guarantor ceases to consist of a majority of the directors existing on the date hereof or directors nominated by at least two-thirds (2/3) of the then existing directors or (d) the Johnsen Family shall cease to own at least twenty percent (20%) of the Guarantor;
“Charterer’s Acknowledgment”
shall mean the acknowledgment of the Time Charterer to the Assignment of Earnings and Charterparties in the form of Exhibit 2 thereto;
“Classification Society”
shall mean a member of the International Association of Classification Societies acceptable to the Lenders with whom the Vessel is entered and who conducted periodic physical surveys and/or inspections of the Vessel;
“Closing Date”
shall mean the day and year first written above;
“Code”
shall mean the Internal Revenue Code of 1986, as amended, and any successor statute and regulation promulgated thereunder;
“Collateral”
shall mean, all property or other assets, real or personal, tangible or intangible, whether now owned or hereafter acquired in which the Security Trustee or any Lender has been granted a security interest pursuant to a Security Document;
“Commitment(s)”
shall mean in relation to a Lender, the portion of the Loan set out opposite its name in Schedule I hereto or, as the case may be, in any relevant Assignment and Assumption Agreement, as changed from time to time pursuant to the terms of this Agreement;
“Compliance Certificate”
shall mean a certificate certifying the compliance by each of the Security Parties with all of its covenants contained herein and showing the calculations thereof in reasonable detail, delivered by the chief financial officer of the Guarantor to the Facility Agent from time to time pursuant to Section 9.1(d) in the form set out in Exhibit C or in such other form as the Facility Agent may agree;
“Consolidated EBITDA”
shall mean, for any period, with respect to the Guarantor and the Subsidiaries, the sum of (without duplication) (a) Consolidated Net Income; (b) all Interest Expenses of the Guarantor and the Subsidiaries; (c) income taxes of the Guarantor and the Subsidiaries; and (d) depreciation and amortization, as well as other non-cash charges to the extent they have been deducted from income, of the Guarantor and the Subsidiaries determined on a consolidated basis in accordance with GAAP for such period; provided that if any Subsidiary is not wholly-owned by the Guarantor, Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in accordance with GAAP) by an amount equal to (i) the amount of Consolidated Net Income attributable to such Subsidiary multiplied by (ii) the percentage ownership interest in the income of such Subsidiary not owned by the Guarantor on the last day of such period, but adding back other non-cash charges to the extent they have been deducted from income in accordance with GAAP;
“Consolidated Indebtedness”
all Indebtedness of the Guarantor and the Subsidiaries determined on a consolidated basis in accordance with GAAP;
“Consolidated Net Income”
for any period shall mean the consolidated net income of the Guarantor and the Subsidiaries for such period, as shown on the consolidated financial statements of the Guarantor and the Subsidiaries delivered in accordance with Section 9.1 (d);
“Consolidated Tangible Net Worth”
shall mean, with respect to the Guarantor and its Subsidiaries, at any date for which a determination is to be made (determined on a consolidated basis without duplication in accordance with GAAP) (a) the amount of capital stock (including its outstanding preferred stock); plus (b) the amount of surplus and retained earnings (or, in the case of a surplus or retained earnings deficit, minus the amount of such deficit); plus (c) deferred charges to the extent amortized and acquired contract costs net of accumulated amortization as stated on the then most recent audited balance sheet of the Guarantor; minus (d) the sum of (i) the cost of treasury shares and (ii) the book value of all assets that should be classified as intangibles (without duplication of deductions in respect of items already deducted in arriving at surplus and retained earnings) but in any event including goodwill, minority interests, research and development costs, trademarks, trade names, copyrights, patents and franchises, unamortized debt discount and expense, all reserves and any write up in the book value of assets resulting from a revaluation thereof subsequent to December 31, 1996;
“Creditors”
shall mean, together, the Agents and the Lenders, each a “Creditor”;
“Default”
shall mean any event that would, with the giving of notice or passage of time, or both, be an Event of Default;
“Default Rate”
shall mean a rate per annum equal to two percent (2%) over the Applicable Rate then in effect;
“DnB NOR”
shall have the meaning ascribed thereto in the preamble;
“DOC”
shall mean a document of compliance issued to an Operator in accordance with rule 13 of the ISM Code;
“Dollars” and the sign “$”
shall mean the legal currency, at any relevant time hereunder, of the United States of America and, in relation to all payments hereunder, in same day funds settled through the New York Clearing House Interbank Payments System (or such other Dollar funds as may be determined by the Facility Agent to be customary for the settlement in New York City of banking transactions of the type herein involved);
“Drawdown Date”
shall mean the date, being a Banking Day, upon which the Borrower has requested that the Loan be made available to the Borrower, and the Loan is made, as provided in Section 3;
“Drawdown Notice”
shall have the meaning ascribed thereto in Section 3.2;
“Earnings and Charterparties Assignment”
shall mean the first priority assignment of earnings, charterparties and requisition compensation in respect of (i) the earnings of the Vessel from any and all sources (including requisition compensation) and (ii) any charter (including the Time Charter) or other contract relating to the Vessel, to be executed by the Borrower in favor of the Security Trustee pursuant to Section 4.1(k), substantially in the form set out in Exhibit E;
“Environmental Affiliate(s)”
shall mean, with respect to a Security Party, any Person or entity, the liability of which for Environmental Claims any Security Party may have assumed by contract or operation of law;
“Environmental Approval(s)”
shall have the meaning ascribed thereto in Section 2.1(p);
“Environmental Claim(s)”
shall have the meaning ascribed thereto in Section 2.1(p);
“Environmental Law(s)”
shall have the meaning ascribed thereto in Section 2.1(p);
“ERISA”
shall mean the Employment Retirement Income Security Act of 1974, as amended;
“ERISA Affiliate”
shall mean a trade or business (whether or not incorporated) which is under common control with the Borrower within the meaning of Sections 414(b), (c), (m) or (o) of the Code;
“ERISA Group”
shall mean the Guarantor and its subsidiaries within the meaning of Section 424(f) of the Code;
“Event(s) of Default”
shall mean any of the events set out in Section 8.1;
“Exchange Act”
shall mean the Securities and Exchange Act of 1934, as amended;
“Facility Agent”
shall have the meaning ascribed thereto in the preamble;
“Fair Market Value”
shall mean, in respect of the Vessel, the average of two appraisals on a “willing seller, willing buyer” basis of the Vessel from ship brokers listed in Schedule II or such other independent ship brokers approved by the Majority Lenders, no such appraisal to be dated more than thirty (30) days prior to the date on which a determination of Fair Market Value is required pursuant to this Agreement;
“Final Payment”
shall mean the principal amount of Four Billion Two Hundred Fifty Million and Two Yen (¥4,250,000,002) plus such other amounts as may be necessary to repay the Loan in full together with accrued but unpaid interest and any other amounts owing by any Security Party  to any Creditor pursuant to this Agreement, the Note or any Security Document;
“Final Payment Date”
shall mean the date which is three (3) years from the date hereof, unless such date is not a Banking Day, in which case the Final Payment Date shall be the Banking Day immediately preceding such three (3) year anniversary of the date hereof;
“GAAP”
shall have the meaning ascribed thereto in Section 1.3;
“Guaranteed Obligations”
shall have the meaning ascribed thereto in Section 10.1;
“Guarantor”
shall have the meaning ascribed thereto in the preamble;
“Indebtedness”
shall mean, with respect to any Person at any date of determination (without duplication), (i) all indebtedness of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery thereof or the completion of such services, except trade payables, (v) all obligations on account of principal of such Person as lessee under capitalized leases, (vi) all indebtedness of other Persons secured by a lien on any asset of such Person, whether or not such indebtedness is assumed by such Person; provided that the amount of such indebtedness shall be the lesser of (a) the fair market value of such asset at such date of determination and (b) the amount of such indebtedness, and (vii) all indebtedness of other Persons guaranteed by such Person to the extent guaranteed; the amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided that the amount outstanding at any time of any indebtedness issued with original issue discount is the face amount of such indebtedness less the remaining unamortized portion of  the original issue discount of such indebtedness at such time as determined in conformity with GAAP; and provided further that Indebtedness shall not include any liability for current or deferred federal, state, local or other taxes, or any trade payables;
“Indemnitee”
shall have the meaning ascribed thereto in Section 18.7;
“Insurances Assignment”
shall mean the first priority assignment in respect of the insurances over the Vessel, to be executed by the Borrower in favor of the Security Trustee pursuant to Section 4.1(j), substantially in the form set out in Exhibit F;
“Interest Expense”
shall mean, with respect to the Guarantor and the Subsidiaries, on a consolidated basis, for any period (without duplication), interest expense, whether paid or accrued (including the interest component of capitalized leases), on all Indebtedness of the Guarantor and the Subsidiaries for such period, net of interest income, all determined in accordance with GAAP;
“Initial Payment Date”
shall mean the date which is three (3) months after the Drawdown Date;
“Interest Period”
shall mean period(s) of one, three, six or twelve months as selected by the Borrower, or as otherwise agreed by the Lenders and the Borrower;
“Interest Notice”
shall mean a notice from the Borrower to the Facility Agent specifying the duration of any relevant Interest Period;
“Interest Rate Agreements”
shall mean any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement entered into between the Borrower, the Guarantor or any Subsidiary of the Borrower with the Facility Agent, which is designed to protect the Borrower, the Guarantor or any of the Borrower's Subsidiaries against fluctuations in interest rates applicable under this Agreement, to or under which the Borrower, the Guarantor or any of the Borrower's Subsidiaries is a party or a beneficiary on the date of this Agreement or becomes a party or a beneficiary hereafter;
“ISM Code”
shall mean the International Safety Management Code for the Safe Operating of Ships and for Pollution Prevention constituted pursuant to Resolution A.741(18) of the International Maritime Organization and incorporated into the Safety of Life at Sea Convention and includes any amendments or extensions thereto and any regulation issued pursuant thereto;
“ISPS Code”
shall mean the International Ship and Port Facility Security Code adopted by the International Maritime Organization at a conference in December, 2002 and amending the Safety of Life at Sea Convention and includes any amendments or extensions thereto and any regulation issued pursuant thereto;
“ISSC”
shall mean the International Ship Security Certificate issued pursuant to the ISPS Code;
“Johnsen Family”
shall mean (i) Niels W. Johnsen, Erik F. Johnsen, Niels M. Johnsen and Erik L. Johnsen; (ii) the wives and issue of Niels W. Johnsen, Erik F. Johnsen, Niels M. Johnsen and Erik L. Johnsen; and (iii) any trust for the benefit of, or controlled by, any of foregoing;
“LIBOR Rate”
shall mean, for each Interest Period, the London Interbank Offered Rate (“LIBOR”) as set and published by the British Banker's Association (“BBA”), as selected by the Borrower three (3) Banking Days before the first day of such Interest Period as obtained by the Facility Agent from a wire that is sent through Bloomberg, L.P. which rate is based by BBA on an average of the Interbank Offered Rates for Yen deposits in the London market based on quotes from designated banks in the London market. In the event that the one, three, six or twelve month LIBOR is no longer available from the BBA or Bloomberg, L.P., the Facility Agent shall select a comparable service to determine such rate and shall provide notice thereof to the Borrower;
“Loan”
shall mean the loan facility to be made available by the Lenders to the Borrower hereunder in a single advance pursuant to Section 3 in the maximum aggregate principal amount of Five Billion Yen (¥5,000,000,000), or the balance thereof from time to time outstanding;
“Majority Lenders”
at any time shall mean Lenders holding an aggregate of more than 66.66% of the Loan then outstanding;
“Material Adverse Effect”
shall mean a material adverse effect on the ability of the Borrower and/or the Guarantor to meet any of their respective obligations with regard to (i) the Loan and the financing arrangements established in connection therewith or (ii) any of their respective other obligations that are material to the Borrower and the Guarantor considered as a whole;
“Materials of Environmental Concern”
shall have the meaning ascribed thereto in Section 2.1(p);
“Memorandum of Agreement”
means that certain contract between the Seller and the Borrower dated August 24, 2007, as supplemented by Addendum No. 1 thereto dated August 24, 2007, providing for the purchase of the Vessel by the Borrower.
“Mortgage”
shall mean the first preferred United States ship mortgage on the Vessel, to be executed by the Borrower in favor of the Security Trustee pursuant to Section 4.1(q), substantially in the form set out in Exhibit G;
“MTSA”
shall mean the Maritime & Transportation Security Act, 2002, as amended, inter alia, by Public Law 107-295;
“Multiemployer Plan”
shall mean, at any time, a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions or has within any of the three preceding plan years made or accrued an obligation to make contributions;
“Multiple Employer Plan”
shall mean, at any time, an employee benefit plan, other than a Multiemployer Plan, subject to Title IV or ERISA, to which a Borrower or ERISA Affiliate, and one or more employers other than a Borrower or ERISA Affiliate, is making or accruing an obligation to make contributions or, in the event that any such plan has been terminated, to which a Borrower or ERISA Affiliate made or accrued an obligation to make contributions during any of the five plan years preceding the date of termination of such plan;
“Note”
shall mean the promissory note to be executed by the Borrower to the order of the Facility Agent pursuant to Section 4.1(c), to evidence the Loan substantially in the form set out in Exhibit A;
“Operator”
shall mean the Person who is concerned with the operation of the Vessel and falls within the definition of “Company” set out in rule 1.1.2 of the ISM Code”;
“Payment Dates”
means the Initial Payment Date and the dates falling at three (3) month intervals thereafter, the last of which is the Final Payment Date;
“Person”
shall mean any individual, sole proprietorship, corporation, partnership (general or limited), limited liability company, business trust, bank, trust company, joint venture, association, joint stock company, trust or other unincorporated organization, whether or not a legal entity, or any government or agency or political subdivision thereof;
“Plan”
shall mean any employee benefit plan (other than a Multiemployer Plan or a Multiple Employer Plan) covered by Title IV of ERISA;
“Proceeding”
shall have the meaning ascribed thereto in Section 8.1(i);
“Required Percentage”
means one hundred and twenty percent (120%);
“Security Document(s)”
shall mean the Mortgage, the Assignments and any other documents that may be executed as security for the Loan and the Borrower's obligations in connection therewith;
“Security Party(ies)”
shall mean each of the Borrower and the Guarantor;
“Security Trustee”
shall have the meaning ascribed thereto in the preamble;
“Seller”
means Dynamic Actor Shipping S.A., a Panamanian corporation;
“SMC”
shall mean the safety management certificate issued in respect of a Vessel in accordance with rule 13 of the ISM code;
“subsidiary”
shall mean, with respect to any Person, any business entity of which more than 50% of the outstanding voting stock or other equity interest is owned directly or indirectly by such Person and/or one or more other subsidiaries of such Person;
“Subsidiary(ies)”
shall mean all of the subsidiaries of the Guarantor;
“Taxes”
shall mean any present or future income or other taxes, levies, duties, charges, fees, deductions or withholdings of any nature now or hereafter imposed, levied, collected, withheld or assessed by any taxing authority whatsoever, except for taxes on or measured by the overall net income of each Lender imposed by its jurisdiction of incorporation or applicable lending office, the United States of America, the State or City of New York or any governmental subdivision or taxing authority of any thereof or by any other taxing authority having jurisdiction over such Lender (unless such jurisdiction is asserted by reason of the activities of the Borrower or any of the Subsidiaries);
“Termination Event”
shall mean (i) a “reportable event,” as defined in Section 403 of ERISA, (ii) the withdrawal of a Borrower or any ERISA Affiliate from a Multiemployer Plan during a plan year in which it was a “substantial employer,” as defined in Section 4001(a)(2) of ERISA, or the incurrence of liability by a Borrower or any ERISA Affiliate under Section 4064 of ERISA upon the termination of a Multiple Employer Plan, (iii) the filing of a notice of intent to terminate a Plan under Section 4041 of ERISA or the treatment of a Multiemployer Plan amendment as a termination under Section 4041A of ERISA, (iv) the institution of proceedings to terminate a Plan or a Multiemployer Plan, or (v) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan or Multiemployer Plan;
“Time Charter”
means that certain time charter of the Vessel dated August 24, 2007, as supplement by Addendum No. 1 thereto dated August 24, 2007, with the Time Charterer.  The charterhire under the Time Charter shall be payable in a combination of Yen and Dollars, with the Yen portion of the charterhire to be in an amount which shall, at a minimum, be enough to service the principal, interest and fees payable under this agreement for such period and shall be on a “hell or high water basis” and the Dollar portion of the charterhire to be in an amount which shall, at a minimum, be enough to pay all of the international flag operating costs of the vessel based on the Charterer’s operating budget;
“Time Charterer”
means Dynamic Actor Shipping S.A. a Panamanian corporation;
“Total Loss”
shall have the meaning ascribed thereto in the Mortgage;
“Transaction Documents”
shall mean each of this Agreement, the Note and the Security Documents;
“Vessel”
shall mean that certain Panamanian flag Pure Car and Truck Carrier known as the “Grand Winner”, to be renamed “Green Bay” and reflagged under United States law;
“Withdrawal Liability(ies)”
shall have the meaning given to such term under Part 1 of Subtitle E of Title IV of ERISA.
“Yen” and the sign “¥”
shall mean the legal currency, at any relevant time hereunder, of Japan;
   
1.2  Computation of Time Periods; Other Definitional Provisions.  In this Agreement, the Note and the other Security Documents, in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”; words importing either gender include the other gender; references to “writing” include printing, typing, lithography and other means of reproducing words in a tangible visible form; the words “including,” “includes” and “include” shall be deemed to be followed by the words “without limitation”; references to articles, sections (or subdivisions of sections), exhibits, annexes or schedules are to this Agreement, the Note or such Security Document, as applicable; references to agreements and other contractual instruments (including this Agreement, the Note and the Security Documents) shall be deemed to include all subsequent amendments, amendments and restatements, supplements, extensions, replacements and other modifications to such instruments (without, however, limiting any prohibition on any such amendments, extensions and other modifications by the terms of this Agreement, the Note or any Security Document); references to any matter that is “approved” or requires “approval” of a party shall mean approval given in the sole and absolute discretion of such party unless otherwise specified.
 
1.3  Accounting Terms.  Unless otherwise specified herein, all accounting terms used in this Agreement, the Note and in the Security Documents shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Facility Agent or to the Lenders under this Agreement shall be prepared, in accordance with generally accepted accounting principles for the United States (“GAAP”).
 
1.4  Certain Matters Regarding Materiality.  To the extent that any representation, warranty, covenant or other undertaking of the Borrower in this Agreement is qualified by reference to those which are not reasonably expected to result in a “Material Adverse Effect” or language of similar import, no inference shall be drawn therefrom that any Agent or Lender has knowledge or approves of any noncompliance by the Borrower with any governmental rule.
 
2.  REPRESENTATIONS AND WARRANTIES
 
2.1  Representations and Warranties.  In order to induce the Creditors to enter into this Agreement and to make the Loan available, each Security Party hereby represents and warrants to the Creditors (which representations and warranties shall survive the execution and delivery of this Agreement and the Note and the drawdown of the Loan) that:
 
(a)  Due Organization and Power.  Each Security Party is duly formed and is validly existing in good standing under the laws of its jurisdiction of incorporation or formation, has full power to carry on its business as now being conducted and to enter into and perform its obligations under this Agreement, the Note and the Security Documents to which it is a party, and has complied with all statutory, regulatory and other requirements relative to such business and such agreements;
 
(b)  Authorization and Consents.  All necessary corporate action has been taken to authorize, and all necessary consents and authorities have been obtained and remain in full force and effect to permit, each Security Party to enter into and perform its obligations under this Agreement, the Note and the Security Documents and, in the case of the Borrower to borrow, service and repay the Loan and, as of the date of this Agreement, no further consents or authorities are necessary for the service and repayment of the Loan or any part thereof;
 
(c)  Binding Obligations.  This Agreement, the Note and the Security Documents constitute or will, when executed and delivered, constitute the legal, valid and binding obligations of each Security Party that is a party thereto enforceable against such Security Party in accordance with their respective terms, except to the extent that such enforcement may be limited by equitable principles, principles of public policy or applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting generally the enforcement of creditors' rights;
 
(d)  No Violation.  The execution and delivery of, and the performance of the provisions of, this Agreement, the Note and those of the Security Documents to which it is to be a party by each Security Party do not contravene any applicable law or regulation existing at the date hereof or any contractual restriction binding on such Security Party or the certificate of incorporation or by-laws (or equivalent instruments) thereof and that the proceeds of the Loan shall be used by the Borrower exclusively for its own account or for the account of a Subsidiary or Affiliate of the Borrower;
 
(e)  Filings; Stamp Taxes.  Other than the recording of the Mortgage with the appropriate authorities for the United States, and the filing of Uniform Commercial Code Financing Statements in the State of New York in respect of the Assignments, and the payment and filing or recording fees consequent thereto, it is not necessary for the legality, validity, enforceability or admissibility into evidence of this Agreement, the Note or the Security Documents that any of them or any document relating thereto be registered, filed, recorded or enrolled with any court or authority in any relevant jurisdiction or that any stamp, registration or similar Taxes be paid on or in relation to this Agreement, the Note or any of the Security Documents;
 
(f)  Litigation.   No action, suit or proceeding is pending or threatened against any Security Party before any court, board of arbitration or administrative agency which could or might have a Material Adverse Effect;
 
(g)  No Default.   No Security Party is in default under any material agreement by which it is bound, or is in default in respect of any material financial commitment or obligation;
 
(h)  Vessel.  Upon delivery of the Vessel to the Borrower; the Vessel:
 
(i)  
will be in the sole and absolute ownership of the Borrower and duly registered in the Borrower's name under United States flag, unencumbered, save and except for the Mortgage and as permitted thereby;
 
(ii)  
will be classed in the highest classification and rating for vessels of the same age and type with its Classification Society without any material outstanding recommendations;
 
(iii)  
will be operationally seaworthy and in every way fit for its intended service; and
 
(iv)  
will be insured in accordance with the provisions of the Mortgage and the requirements thereof in respect of such insurances will have been complied with;
 
(i)  Insurance.  Each of the Security Parties has insured its properties and assets against such risks and in such amounts as are customary for companies engaged in similar businesses;
 
(j)  Financial Information.  Except as otherwise disclosed in writing to the Facility Agent on or prior to the date hereof, all financial statements, information and other data furnished by any Security Party to the Facility Agent are complete and correct, such financial statements have been prepared in accordance with GAAP and accurately and fairly present the financial condition of the parties covered thereby as of the respective dates thereof and the results of the operations thereof for the period or respective periods covered by such financial statements, and since the date of the Guarantor's financial statements most recently delivered to the Facility Agent there has been no Material Adverse Effect as to any of such parties and none thereof has any contingent obligations, liabilities for taxes or other outstanding financial obligations which are material in the aggregate except as disclosed in such statements, information and data;
 
(k)  Tax Returns.  Each Security Party has filed all material tax returns required to be filed thereby and has paid all taxes payable thereby which have become due, other than those not yet delinquent or the nonpayment of which would not have a Material Adverse Effect and except for those taxes being contested in good faith and by appropriate proceedings or other acts and for which adequate reserves shall have been set aside on its books;
 
(l)  ERISA.   The execution and delivery of this Agreement and the consummation of the transactions hereunder will not involve any prohibited transaction within the meaning of ERISA or Section 4975 of the Code and no condition exists or event or transaction has occurred in connection with any Plan maintained or contributed to by any member of the ERISA Group or any ERISA Affiliate resulting from the failure of any thereof to comply with ERISA which is reasonably likely to result in any member of the ERISA Group or any ERISA Affiliate incurring any liability, fine or penalty which individually or in the aggregate could have a Material Adverse Effect. No member of the ERISA Group nor any ERISA Affiliate, individually or collectively, has incurred, or reasonably expects to incur, Withdrawal Liabilities or liabilities upon the happening of a Termination Event the aggregate of which for all such Withdrawal Liabilities and other liabilities exceeds or would exceed $30,000,000.  With respect to any Multiemployer Plan, Multiple Employer Plan or Plan, no member of the ERISA Group nor any ERISA Affiliate is aware of or has been notified that any “variance” from the “minimum funding standard” has been requested (each such term as defined in Part 3, Subtitle B, of Title 1 of ERISA).  No member of the ERISA Group nor any ERISA Affiliate has received any notice that any Multiemployer Plan is in reorganization, within the meaning of Title IV of ERISA, which reorganization could have a Material Adverse Effect;
 
(m)  Chief Executive Office.  The chief executive office and chief place of business of each Security Party and the office in which the records relating to the earnings and other receivables of each Security Party are kept is, and will continue to be, located at 11 North Water Street, Suite 18290, Mobile, Alabama 36602, USA;
 
(n)  Foreign Trade Control Regulations.  To the best knowledge of each of the Security Parties, none of the transactions contemplated herein will violate the provisions of any statute or regulation enacted to prohibit or limit economic transactions with certain foreign Persons including, without limitation, any of the provisions of the Foreign Assets Control Regulations of the United States of America (Title 31, Code of Federal Regulations, Chapter V, Part 500, as amended);
 
(o)  Equity Ownership.  The Borrower is owned, directly or indirectly, one hundred percent (100%) by the Guarantor;
 
(p)  Environmental Matters and Claims.  (a) Except as heretofore disclosed in writing to the Facility Agent (i) the Borrower and its Affiliates (which for purposes of this Section 2(p) shall be deemed to include the Guarantor and its respective Affiliates) will, when required to operate their business as then being conducted, be in compliance with all applicable United States federal and state, local, foreign and international laws, regulations, conventions and agreements relating to pollution prevention or protection of human health or the environment (including, without limitation, ambient air, surface water, ground water, navigable waters, waters of  the contiguous zone, ocean waters and international waters), including, without limitation, laws, regulations, conventions and agreements relating to (1) emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous materials, oil, hazardous substances, petroleum and petroleum products and by-products (“Materials of Environmental Concern”), or (2) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern (“Environmental Laws”); (ii) the Borrower and its Affiliates will, when required, have all permits, licenses, approvals, rulings, variances, exemptions, clearances, consents or other authorizations required under applicable Environmental Laws (“Environmental Approvals”) and will, when required, be in compliance with all Environmental Approvals required to operate their business as then being conducted; (iii)  the Borrower has not nor has any Affiliate thereof has received any notice of any claim, action, cause of action, investigation or demand by any person, entity, enterprise or government, or any political subdivision, intergovernmental body or agency, department or instrumentality thereof, alleging potential liability for, or a requirement to incur, material investigator costs, cleanup costs, response and/or remedial costs (whether incurred by a governmental entity or otherwise), natural resources damages, property damages, personal injuries, attorneys' fees and expenses, or fines or penalties, in each case arising out of, based on or resulting from (1) the presence, or release or threat of release into the environment, of any Materials of Environmental Concern at any location, whether or not owned by such person, or (2) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law or Environmental Approval (“Environmental Claim”) (other than Environmental Claims that have been fully and finally adjudicated or otherwise determined and all fines, penalties and other costs, if any, payable by the Security Parties in respect thereof have been paid in full or which are fully covered by insurance (including permitted deductibles)); and (iv) there are no circumstances that may prevent or interfere with such full compliance in the future; and (b) except as heretofore disclosed in writing to the Facility Agent there is no Environmental Claim pending or threatened against the Borrower or any Affiliate thereof and there are no past or present actions, activities, circumstances, conditions, events or incidents, including, without limitation, the release, emission, discharge or disposal of any Materials of Environmental Concern, that could form the basis of any Environmental Claim against such persons the adverse disposition of which may result in a Material Adverse Effect;
 
(q)  Compliance with ISM Code, ISPS Code and MTSA.  The Vessel and the Operator complies with the requirements of the ISM Code, the ISPS Code and the MTSA including (but not limited to) the maintenance and renewal of valid certificates pursuant thereto;
 
(r)  Threatened Withdrawal of DOC or SMC.  There is no threatened or actual withdrawal of the Operator's DOC or SMC in respect of the Vessel;
 
(s)  Liens.  Other than as disclosed in Schedule III , there are no liens of any kind on any property owned by any Security Party other than those liens created pursuant to this Agreement or the Security Documents or permitted thereby;
 
(t)  Indebtedness.  Other than as disclosed in Schedule IV, neither of the Security Parties has any Indebtedness;
 
(u)  Payment Free of Taxes.  All payments made or to be made by the Security Parties under or pursuant to this Agreement, the Note and the Security Documents shall be made free and clear of, and without deduction or withholding for an account of, any Taxes;
 
(v)  No Proceedings to Dissolve.  There are no proceedings or actions pending or contemplated by any Security Party or, to the best knowledge of any Security Party, contemplated by any third party, to dissolve or terminate any Security Party.
 
(w)  Solvency.  On the Closing Date, in the case of each of the Security Parties, (a) the sum of its assets, at a fair valuation, does and will exceed its liabilities, including, to the extent they are reportable as such in accordance with GAAP, contingent liabilities, (b) the present fair market salable value of its assets is not and shall not be less than the amount that will be required to pay its probable liability on its then existing debts, including, to the extent they are reportable as such in accordance with GAAP, contingent liabilities, as they mature, (c) it does not and will not have unreasonably small working capital with which to continue its business and (d) it has not incurred, does not intend to incur and does not believe it will incur debts beyond its ability to pay such debts as they mature;
 
(x)  Compliance with Laws.  Each of the Security Parties is in compliance with all applicable laws, except where any failure to comply with any such applicable laws would not, alone or in the aggregate, have a Material Adverse Effect; and
 
(y)  Survival.  All representations, covenants and warranties made herein and in any certificate or other document delivered pursuant hereto or in connection herewith shall survive the making of the Loan and the issuance of the Note.
 
3.  THE LOAN
 
3.1  (a)           Purposes.  The Lenders shall make the Loan available to the Borrower for the purpose of partially financing the purchase price to be paid for the Vessel.  
 
(b)  Making of the Loan.  Each of the Lenders, relying upon each of the representations and warranties set out in Section 2, hereby severally and not jointly agrees with the Borrower that, subject to and upon the terms of this Agreement, it will, not later than 11:00 a.m. on the Drawdown Date, make its portion of the Loan, in Federal or other funds, immediately available in New York City to the Facility Agent at its address set forth on Schedule I or to such account of the Facility Agent most recently designated by it for such purpose by notice to the Lenders.  Unless the Facility Agent determines that any applicable condition specified in Sections 4.1 or 4.2 has not been satisfied, the Facility Agent will make the funds so received from the Lenders available to the Borrower at the aforesaid address, subject to the receipt of the funds by the Facility Agent as provided in the immediately preceding sentence, not later than 2:30 P.M. (New York City time) on the Drawdown Date, and in any event as soon as practicable after receipt.
 
3.2  Drawdown Notice.  The Borrower shall, at least three (3) Banking Days (or fewer Banking Days if agreed by the Lenders) before the Drawdown Date, serve a notice (a “Drawdown Notice”), substantially in the form of Exhibit B, on the Facility Agent, which notice shall (a) be in writing addressed to the Facility Agent, (b) be effective on receipt by the Facility Agent, (c) specify the amount of the Loan to be drawn, (d) specify the Banking Day on which the Loan is to be drawn, (e) specify the disbursement instructions (which shall be consistent in all material respects with Section 16 of the Memorandum of Agreement), (f) specify the initial Interest Period and (g) be irrevocable.
 
3.3  Effect of Drawdown Notice.  Delivery of a Drawdown Notice shall be deemed to constitute a warranty by the Borrower (a) that the representations and warranties stated in Section 2 (updated mutatis mutandis) are true and correct on and as of the date of the Drawdown Notice and will be true and correct on and as of the Drawdown Date as if made on such date, and (b) that no Event of Default nor any event which with the giving of notice or lapse of time or both would constitute an Event of Default has occurred and is continuing.
 
4.  CONDITIONS
 
4.1  Conditions Precedent to the Effectiveness of this Agreement.  The effectiveness of this Agreement and the obligation of the Lenders to make the Loan available to the Borrower under this Agreement shall be expressly subject to the following conditions precedent:
 
 
(i)  
copies, certified as true and complete by an officer of each of the Security Parties, of the resolutions of its board of directors and, with respect to the Borrower, shareholders evidencing approval of the Transaction Documents to which each is a party and authorizing an appropriate officer or officers or attorney-in-fact or attorneys-in-fact to execute the same on its behalf, including the execution of the Drawdown Notice;
 
(ii)  
copies, certified as true and complete by an officer of each of the Security Parties, of the certificate or articles of incorporation and by-laws or similar constituent document thereof;
 
(iii)  
certificate of the jurisdiction of incorporation of each Security Party as to the good standing thereof; and
 
(iv)  
a certificate signed by the Chairman, President, Executive Vice President, Treasurer, Comptroller, Controller or chief financial officer of each of the Security Parties to the effect that (A) no Default or Event of Default shall have occurred and be continuing and (B) the representations and warranties of such Security Party contained in this Agreement are true and correct as of the date of such certificate.
 
(b)  The Agreement.  Each of the Security Parties shall have duly executed and delivered this Agreement to the Facility Agent.
 
(c)  The Note.  The Borrower shall have duly executed and delivered the Note to the Facility Agent.
 
(d)  The Creditors.  The Facility Agent shall have received executed counterparts of this Agreement from each of the Lenders (or, in the case of any Lender as to which an executed counterpart shall not have been received, the Facility Agent shall have received in form satisfactory to it a telex, facsimile or other written confirmation from such Lender of the execution of a counterpart of this Agreement by such Lender).
 
(e)  Fees.  The Creditors shall have received payment in full of all fees and expenses due to each thereof pursuant to the terms hereof on the date when due including, without limitation, all fees and expenses due under Section 14.
 
(f)  Environmental Claims.  The Lenders shall be satisfied that neither of the Security Parties is subject to any Environmental Claim which could reasonably be expected to have a Material Adverse Effect.
 
(g)  Legal Opinions.  The Facility Agent, on behalf of the Agents and the Lenders, shall have received opinions addressed to the Facility Agent from (i) Jones, Walker, Waechter, Poitevent, Carrère & Denègre, L.L.P., special counsel to the Security Parties, and (ii) Seward & Kissel LLP, special counsel to the Agents and the Lenders, in each case in such form as the Facility Agent may require, as well as such other legal opinions as the Lenders shall have required as to all or any matters under the laws of the State of Delaware, the State of New York and the United States of America covering certain of the representations and warranties and conditions which are the subjects of Sections 2 and 4, respectively.
 
(h)  Officer's Certificate.  The Facility Agent shall have received a certificate signed by the President or other duly authorized executive officer of the Borrower certifying that under applicable law existing on the date hereof, the Borrower shall not be compelled by law to withhold or deduct any Taxes from any amounts to become payable to the Facility Agent for the account of the Creditors hereunder.
 
(i)  Vessel Documents.  The Facility Agent shall have received evidence satisfactory to it and its counsel that the Vessel upon delivery to the Borrower will be:
 
(i)  
in the sole and absolute ownership of the Borrower and is duly registered in the Borrower's name under United States flag free of all liens and encumbrances of record other than its Mortgage;
 
(ii)  
insured in accordance with the provisions of the Mortgage and all requirements of the Mortgage in respect of such insurance have been fulfilled (including, but not limited to, letters of undertaking from the insurance brokers, including confirmation notices of assignment, notices of cancellation and loss payable clauses acceptable to the Lenders);
 
(iii)  
classed in the highest classification and rating for vessels of the same age and type with its Classification Society without any material outstanding recommendations; and
 
(iv)  
operationally seaworthy and in every way fit for its intended service;
 
(j)  Security Documents.  The Borrower shall have executed and delivered to the Facility Agent:
 
(i)  
the Insurances Assignment;
 
(ii)  
the Earnings and Charterparties Assignment;
 
(iii)  
the Assignment Notices; and
 
(iv)  
such Uniform Commercial Code Financing Statements (Forms UCC-1) as the Facility Agent shall require.
 
(k)  Vessel Appraisals.  The Facility Agent shall have received appraisals, in form and substance satisfactory to the Facility Agent, as to the Fair Market Value of the Vessel.  
 
(l)  ISM DOC.  To the extent required to be obtained by the ISM Code the Security Trustee shall have received a copy of the DOC for the Vessel.
 
(m)  Evidence of Current COFR.  The Facility Agent shall have received copies of the current Certificate of Financial Responsibility pursuant to the Oil Pollution Act 1990 for the Vessel.
 
(n)  Vessel Liens.  The Facility Agent shall have received evidence satisfactory to it and to its legal advisor that, save for the liens created by the Mortgage and the Assignments, there are no liens, charges or encumbrances of any kind whatsoever on the Vessel or on its earnings except as permitted hereby or by any of the Security Documents.
 
(o)  Charter.  The Borrower shall have delivered to the Facility Agent a true and complete copy of the Time Charter and the Charterer’s Acknowledgment.
 
(p)  Memorandum of Agreement.  The Borrower shall have delivered to the Facility Agent a true and complete copy of Memorandum of Agreement.
 
(q)  Vessel Delivery.  The Facility Agent shall be satisfied that the Vessel shall be delivered to the Borrower within two (2) Banking Days of the Drawdown Date and that satisfactory arrangements have been made for (x) the registration of the Vessel in the name of the Borrower under United States flag, (y) the execution of the Mortgage and (z) the recordation of the Mortgage with the National Vessel Documentation Center of the United States Coast Guard, in each case on the opening of business on the Banking Day immediately following the delivery of the Vessel to the Borrower.
 
(r)  Maritime Administration Approval.  The Borrower shall have obtained pre-approval from the United States Maritime Administration, in form and substance satisfactory to the Lenders, for the possible transfer of the Vessel upon the exercise of the Security Trustee’s rights under the Mortgage to a party not qualified to own and document a vessel under United States flag and/or the re-documentation of the Vessel under foreign flag.
 
4.2  Further Conditions Precedent.  The obligation of the Lenders to make the Loan available to the Borrower shall also be expressly conditional upon:
 
(a)  Drawdown Notice.  The Facility Agent having received a Drawdown Notice in accordance with the terms of Section 3.2.
 
(b)  Representations and Warranties True.  The representations stated in Section 2 being true and correct as if made on that date.
 
(c)  No Default.  No Default or Event of Default having occurred and being continuing or would result from the making of the Loan.
 
(d)  No Material Adverse Effect.  There having been no Material Adverse Effect since June 30, 2005.
 
4.3  Breakfunding Costs.  In the event that, on the date specified for the making of the Loan in the Drawdown Notice, the Lenders shall not be obliged under this Agreement to make the Loan available under this Agreement, the Borrower shall indemnify and hold the Lenders fully harmless against any losses which the Lenders (or any thereof) may sustain as a result of borrowing or agreeing to borrow funds to meet the drawdown requirement of such Drawdown Notice and the certificate of the relevant Lender or Lenders shall, absent manifest error, be conclusive and binding on the Borrower as to the extent of any such losses.
 
4.4  Satisfaction after Drawdown.  Without prejudice to any of the other terms and conditions of this Agreement, in the event all of the Lenders elect, in their sole discretion, to make the Loan prior to the satisfaction of all or any of the conditions referred to in Sections 4.1 or 4.2, the Borrower hereby covenants and undertakes to satisfy or procure the satisfaction of such condition or conditions within seven (7) days after the Drawdown Date (or such longer period as the Majority Lenders, in their sole discretion, may agree).
 
 
5.1  Repayment.  Subject to the provisions of this Section 5 regarding application of prepayments, the Borrower shall repay the principal of the Loan in twelve (12) consecutive quarterly installments on the Payment Dates, the first eleven (11) such installments being in the amount of Sixty Eight Million One Hundred Eighty One Thousand Eight Hundred Eighteen Yen (¥68,181,818) and the last such installment being in the amount of the Final Payment, such last installment to be paid on the Final Payment Date.
 
5.2  Voluntary Prepayment; No Re-borrowing.  The Borrower may prepay, upon three (3) Banking Days written notice, the Loan or any portion thereof, without penalty, provided that if such prepayment is made on a day other than a Payment Date, such prepayment shall be made together with the costs and expenses provided for in Section 5.4.  Each prepayment shall be in a minimum amount of One Hundred Million Yen (¥100,000,000), plus any One Hundred Million Yen (¥100,000,000) multiple thereof, or the full amount of the Loan then outstanding.  No part of the Loan once repaid or prepaid will be available for re-borrowing.
 
5.3  Mandatory Prepayment; Sale or Loss of Vessel.  Upon (i) the sale of the Vessel or (ii) the earlier of (x) ninety (90) days after the Total Loss (as such term is defined in the Mortgage) of the Vessel or (y) the date on which the insurance proceeds in respect of such loss are received by the Borrower or the Security Trustee as assignee thereof, the Borrower shall either (I) deliver to the Security Trustee, such additional collateral, of equal or greater value with the Vessel, as may be satisfactory to the Lenders in their sole discretion or (II) repay the Loan in full, or such proceeds shall be applied by the Facility Agent first, towards prepayment of the Loan and the Borrower's other obligations hereunder in full and second, to the Borrower.
 
5.4  Interest and Cost With Application of Prepayments.  Any and all prepayments hereunder, whether mandatory or voluntary, shall be applied in the following order:
 
(a)  firstly, towards accrued and unpaid interest and for fees due under this Agreement; and
 
(b)  secondly, towards the installments of the Loan in the inverse order of their due dates for payment.
 
5.5  Borrower's Obligation Absolute.  The Borrower's obligation to pay each Creditor hereunder and under the Note shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms hereof and thereof, under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Borrower may have or may have had against the Creditors.
 
6.  INTEREST AND RATE
 
6.1  Payment of Interest; Interest Rate.  (a) The Borrower hereby promises to pay to the Lenders interest on the unpaid principal amount of the Loan for the period commencing on the Drawdown Date until but not including the stated maturity thereof (whether by acceleration or otherwise) or the date of prepayment thereof at the Applicable Rate, which shall be the rate per annum which is equal to the aggregate of (a) the LIBOR Rate plus (b) the Applicable Margin; provided, however, that if the Borrower has requested and the Lenders have agreed to an Interest Period of less than one (1) month, for the purposes of determining the Applicable Rate, the LIBOR Rate shall be replaced with the Lenders’ cost of funds for such period.  The Facility Agent shall promptly notify the Borrower and the Lenders in writing of the Applicable Rate as and when determined.  Each such determination, absent manifest error, shall be conclusive and binding upon the Borrower.
 
(b)  Notwithstanding the foregoing, the Borrower agrees that after the occurrence and during the continuance of an Event of Default, the Loan shall bear interest at the Default Rate.  In addition, the Borrower hereby promises to pay interest (to the extent that the payment of such interest shall be legally enforceable) on any overdue interest, and on any other amount payable by the Borrower hereunder which shall not be paid in full when due (whether at stated maturity, by acceleration or otherwise), for the period commencing on the due date thereof until but not including the date the same is paid in full at the Default Rate.
 
(c)  The Borrower shall give the Facility Agent an Interest Notice specifying the Interest Period selected at least three (3) Banking Days prior to the end of any then existing Interest Period, which notice the Facility Agent agrees to forward on to all Lenders as soon as practicable.  If at the end of any then existing Interest Period the Borrower fails to give an Interest Notice, the relevant Interest Period shall be three (3) months.  The Borrower's right to select an Interest Period shall be subject to the restriction that no selection of an Interest Period shall be effective unless each Lender is satisfied that the necessary funds will be available to such Lender for such period and that no Event of Default or event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default shall have occurred and be continuing.
 
(d)  Except as provided in the next sentence, accrued interest on the Loan shall be payable on each Payment Date.  Interest payable at the Default Rate shall be payable from time to time on demand of the Facility Agent.
 
6.2  Maximum Interest.  Anything in this Agreement or the Note to the contrary notwithstanding, the interest rate on the Loan shall in no event be in excess of the maximum rate permitted by Applicable Law.
 
7.  PAYMENTS
 
7.1  Place of Payments, No Set Off.  All payments to be made hereunder by the Borrower shall be made to the Facility Agent, not later than 3 p.m. New York time (any payment received after 3 p.m. New York time shall be deemed to have been paid on the next Banking Day) on the due date of such payment, at its office located at 200 Park Avenue, New York, New York 10166 or to such other office of the Facility Agent as the Facility Agent may direct, without set-off or counterclaim and free from, clear of, and without deduction for, any Taxes, provided, however, that if the Borrower shall at any time be compelled by law to withhold or deduct any Taxes from any amounts payable to the Lenders hereunder, then the Borrower shall pay such additional amounts in Dollars as may be necessary in order that the net amounts received after withholding or deduction shall equal the amounts which would have been received if such withholding or deduction were not required and, in the event any withholding or deduction is made, whether for Taxes or otherwise, the Borrower shall promptly send to the Facility Agent such documentary evidence with respect to such withholding or deduction as may be required from time to time by the Lenders.
 
7.2  Tax Credits.  If any Lender obtains the benefit of a credit against the liability thereof for federal income taxes imposed by any taxing authority for all or part of the Taxes as to which the Borrower has paid additional amounts as aforesaid (and each Lender agrees to use its best efforts to obtain the benefit of any such credit which may be available to it, provided it has knowledge that such credit is in fact available to it), then such Lender shall reimburse the Borrower for the amount of the credit so obtained.  Each Lender agrees that in the event that Taxes are imposed on account of the situs of its loans hereunder, such Lender, upon acquiring knowledge of such event, shall, if commercially reasonable, shift such loans on its books to another office of such Lender so as to avoid the imposition of such Taxes.
 
7.3  Computations; Banking Days.  
 
(a)  All computations of interest and fees shall be made by the Facility Agent or the Lenders, as the case may be, on the basis of a 360-day year, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which interest or fees are payable.  Each determination by the Facility Agent or the Lenders of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.
 
(b)  Whenever any payment hereunder or under the Note shall be stated to be due on a day other than a Banking Day, such payment shall be due and payable on the next succeeding Banking Day unless the next succeeding Banking Day falls in the following calendar month, in which case it shall be payable on the immediately preceding Banking Day.
 
8.  EVENTS OF DEFAULT
 
8.1  Events of Default.  In the event that any of the following events shall occur and be continuing:
 
(a)  Principal Payments.  Any principal of the Loan is not paid on the due date therefor; or
 
(b)  Interest and other Payments.  Any interest on the Loan  or any other amount becoming payable under this Agreement and under any Transaction Document or under any of them, is not paid within three (3) Banking Days from the date when due; or
 
(c)  Representations, etc.  Any representation, warranty or other statement made by any of the Security Parties in this Agreement or in any other instrument, document or other agreement delivered in connection herewith proves to have been untrue or misleading in any material respect as at the date as of which it was made; or
 
(d)  Impossibility, Illegality.  It becomes impossible or unlawful for any of the Security Parties to fulfill any of the covenants and obligations contained herein or in any Transaction Document, or for any of the Lenders to exercise any of the rights vested in any of them hereunder or under the other Transaction Documents and such impossibility or illegality, in the reasonable opinion of such Lender, will have a Material Adverse Effect on any of its rights hereunder or under the other Transaction Documents or on any of its rights to enforce any thereof; or
 
(e)  Mortgage.  The Mortgage is not recorded within three (3) Banking Days of the Drawdown Date or there is any default under the Mortgage; or
 
(f)  Certain Covenants.  Any Security Party defaults in the performance or observance of any covenant contained in Section 9.1(b), 9.1(m), 9.2(i) and 9.3(a) through (d) inclusive; or
 
(g)  Covenants.  One or more of the Security Parties default in the performance of any term, covenant or agreement contained in this Agreement or in the other Transaction Documents, or in any other instrument, document or other agreement delivered in connection herewith or therewith, in each case other than an Event of Default referred to elsewhere in this Section 8.1, and such default continues unremedied for a period of fifteen (15) days after written notice thereof has been given to the relevant Security Party or Parties by the Facility Agent at the request of any Lender; or
 
(h)  Indebtedness and Other Obligations.  Any Security Party defaults in the payment when due (subject to any applicable grace period) of any Indebtedness or of any other indebtedness, in either case, in an outstanding principal amount equal to or exceeding Two Million Dollars ($2,000,000) or such Indebtedness or other indebtedness is, or by reason of such default is subject to being, accelerated or any party becomes entitled to enforce the security for any such Indebtedness or other indebtedness and such party shall take steps to enforce the same, unless such default or enforcement is being contested in good faith and by appropriate proceedings or other acts and such  Security Party has set aside on its books adequate reserves with respect thereto; or
 
(i)  Bankruptcy.  Any Security Party commences any proceedings relating to any substantial portion of its property under any reorganization, arrangement or readjustment of debt, dissolution, winding up, adjustment, composition, bankruptcy or liquidation law or statute of any jurisdiction, whether now or hereafter in effect (a “Proceeding”), or there is commenced against any thereof any Proceeding and such Proceeding remains undismissed or unstayed for a period of sixty (60) days; or any receiver, trustee, liquidator or sequestrator of, or for, any thereof or any substantial portion of the property of any thereof is appointed and is not discharged within a period of sixty (60) days; or any thereof by any act indicates consent to or approval of or acquiescence in any Proceeding or to the appointment of any receiver, trustee, liquidator or sequestrator of, or for, itself or any substantial portion of its property; or
 
(j)  Judgments.  Any judgment or order is made the effect whereof would be to render invalid this Agreement or any other Transaction Document or any material provision thereof or any Security Party asserts that any such agreement or provision thereof is invalid; or judgments or orders for the payment of money (not paid or fully covered by insurance, subject to applicable deductibles) in excess of $2,500,000 in the aggregate for the Guarantor or its Subsidiaries (or its equivalent in any other currency) shall be rendered against the Guarantor and/or any of its Subsidiaries and such judgments or orders shall continue unsatisfied and unstayed for a period of 30 days; or
 
(k)  Inability to Pay Debts.  Any Security Party is unable to pay or admits its inability to pay its debts as they fall due or a moratorium shall be declared in respect of any Indebtedness of any thereof; or
 
(l)  Termination of Operations; Sale of Assets.  Except as expressly permitted under this Agreement, any Security Party ceases its operations or sells or otherwise disposes of all or substantially all of its assets or all or substantially all of the assets of any Security Party are seized or otherwise appropriated; or
 
(m)  Change in Financial Position.  Any change in the financial position of any Security Party which, in the reasonable opinion of the Majority Lenders, shall have a Material Adverse Effect; or
 
(n)  Cross-Default.  Any Security Party defaults under any material contract or agreement to which it is a party or by which it is bound; or
 
(o)  ERISA Debt.  Any member of the ERISA Group or any ERISA Affiliate shall (i) fail to pay when due an amount or amounts aggregating in excess of $1,000,000 which it or they shall have become liable to pay under Title IV of ERISA or (ii) any member of the ERISA Group or any ERISA Affiliate, individually or collectively, shall incur, or shall reasonably expect to incur, any Withdrawal Liability or liability upon the happening of a Termination Event and the aggregate of all such Withdrawal Liabilities and such other liabilities shall be in excess of $10,000,000; or
 
(p)  Time Charter.  The Time Charter is terminated or the Time Charterer is in material default thereunder, unless the Borrower has provided a substitute charter and/or charterer acceptable to the Lenders in their sole discretion within 30 days after such termination;
 
then, the Lenders' obligation to make the Loan available shall cease and the Facility Agent on behalf of the Lenders may, with the Majority Lenders' consent and shall, upon the Majority Lenders' instruction, by notice to the Borrower, declare the entire Loan, accrued interest and any other sums payable by the Borrower hereunder, under the Note and under the other Transaction Documents due and payable whereupon the same shall forthwith be due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived; provided that upon the happening of an event specified in subclauses (i) or (k) of this Section 8.1, the Loan, accrued interest and any other sums payable by the Borrower hereunder, under the Note and under the other Transaction Documents shall be immediately due and payable without declaration, presentment, demand, protest or other notice to the Borrower all of which are expressly waived.  In such event, the Creditors, or any thereof, may proceed to protect and enforce their respective rights by action at law, suit in equity or in admiralty or other appropriate proceeding, whether for specific performance of any covenant contained in this Agreement or in the Note or in any other Transaction Document or in aid of the exercise of any power granted herein or therein, or the Lenders or the Facility Agent may proceed to enforce the payment of the Note when due or to enforce any other legal or equitable right of the Lenders, or proceed to take any action authorized or permitted by Applicable Law for the collection of all sums due, or so declared due, including, without limitation, the right to appropriate and hold or apply (directly, by way of set-off or otherwise) to the payment of the obligations of the Borrower to any of the Creditors hereunder, under the Note and/or under the other Transaction Documents (whether or not then due) all moneys and other amounts of the Borrower then or thereafter in possession of any Creditor, the balance of any deposit account (demand or time, matured or unmatured) of the Borrower then or thereafter with any Creditor and every other claim of the Borrower then or thereafter against any of the Creditors.
 
8.2  Indemnification.  The Borrower agrees to, and shall, indemnify and hold each of the Creditors harmless against any loss, as well as against any reasonable costs or expenses (including reasonable legal fees and expenses), which any of the Creditors sustains or incurs as a consequence of any default in payment of the principal amount of the Loan, interest accrued thereon or any other amount payable hereunder, under the Note or under the other Transaction Documents including, but not limited to, all actual losses incurred in liquidating or re-employing fixed deposits made by third parties or funds acquired to effect or maintain the Loan or any portion thereof.  Any Creditor's certification of such costs and expenses shall, absent any manifest error, be conclusive and binding on the Borrower.
 
8.3  Application of Moneys.  Except as otherwise provided in any Security Document, all moneys received by the Creditors under or pursuant to this Agreement, the Note or any of the Security Documents after the happening of any Event of Default (unless cured to the satisfaction of the Majority Lenders) shall be applied by the Facility Agent in the following manner:
 
(a)  firstly, in or towards the payment or reimburse­ment of any expenses or liabilities incurred by any of the Creditors in connection with the ascertainment, protection or enforcement of its rights and remedies hereunder, under the Note and under the other Transaction Documents;
 
(b)  secondly, in or towards payment of any interest owing in respect of the Loan;
 
(c)  thirdly, in or towards repayment of the principal of the Loan;
 
(d)  fourthly, in or towards payment of all other sums which may be owing to any of the Creditors under this Agreement, under the Note and under the other Transaction Documents;
 
(e)  fifthly, in or towards payments of any amounts then owed under any Interest Rate Agreement; and
 
(f)  sixthly, the surplus (if any) shall be paid to the Borrower or to whomsoever else may be entitled thereto.
 
9.  COVENANTS
 
 
(a)  Performance of Agreements.  Duly perform and observe, and procure the observance and performance by all other parties thereto (other than the Lenders) of, the terms of this Agreement, the Note and the Security Documents;
 
(b)  Notice of Default, etc.  Promptly upon obtaining knowledge thereof, inform the Facility Agent of the occurrence of (a) any Event of Default or of any event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default, (b) any litigation or governmental proceeding pending or threatened against any Security Party which could reasonably be expected to have a Material Adverse Effect, (c) the withdrawal of the Vessel's rating by its Classification Society or the issuance by the Classification Society of any material recommendation or notation affecting class and (d) any other event or condition which is reasonably likely to have a Material Adverse Effect, in each case promptly, and in any event within three (3) Banking Days after becoming aware of the occurrence thereof;
 
(c)  Obtain Consents.  Without prejudice to Section 2.1 and this Section 9.1, obtain every consent and do all other acts and things which may from time to time be necessary or advisable for the continued due performance of all its and the other Security Parties' respective obligations under this Agreement, under the Note and under the Security Documents;
 
(d)  Financial Information.  Deliver to the Facility Agent with sufficient copies for the Lenders to be distributed to the Lenders by the Facility Agent promptly upon the receipt thereof:
 
(i)  
as soon as available, but not later than ninety (90) days after the end of each fiscal year of the Guarantor, complete copies of the consolidated financial reports of the Guarantor and its Subsidiaries together with a separate financial report of the Borrower (together with a Compliance Certificate), all in reasonable detail which shall include at least the consolidated balance sheet of the Guarantor and its Subsidiaries and a balance sheet for the Borrower as of the end of such year and the related statements of income and sources and uses of funds for such year, each as prepared in accordance with GAAP, all in reasonable detail, which shall be audited reports prepared by an Acceptable Accounting Firm;
 
(ii)  
as soon as available, but not less than forty-five (45) days after the end of each of the first three quarters of each fiscal year of the Guarantor, a quarterly interim balance sheets and profit and loss statements of the Guarantor and its Subsidiaries and the related profit and loss statements and sources and uses of funds (together with a Compliance Certificate), all in reasonable detail, unaudited, but certified to be true and complete by the chief financial officer of the Guarantor;
 
(iii)  
promptly upon the mailing thereof to the shareholders of the Guarantor, copies of all financial statements, reports, proxy statements and other communications provided to the Guarantor's shareholders;
 
(iv)  
within ten (10) days of the Guarantor's receipt thereof, copies of all audit letters or other correspondence from any external auditors including material financial information in respect of the Guarantor and its Subsidiaries; and
 
(v)  
such other statements (including, without limitation, monthly consolidated statements of operating revenues and expenses), lists of assets and accounts, budgets, forecasts, reports and other financial information with respect to its business as the Facility Agent may from time to time reasonably request, certified to be true and complete by the chief financial officer of the Guarantor;
 
(e)  Contingent Liabilities.  For inclusion with each Compliance Certificate delivered in connection with Sections 9.1(d)(i) and 9.1(d)(ii), and in any event upon the reasonable request of the Facility Agent, an accounting of all of the contingent liabilities of each Security Party;
 
(f)  Vessel Valuations.  For inclusion with each Compliance Certificate delivered pursuant to Section 9.1(d)(i), and in any event upon the reasonable request of the Facility Agent, the Borrower shall obtain appraisals of the Fair Market Value of the Vessel.  One  such additional valuation in any year is to be at the Borrower's cost, provided, that following and during the continuance of any Event of Default whether or not such Event of Default has been waived by the Lenders, all such valuations are to be at the Borrower's cost.  In the event the Borrower fails or refuses to obtain the valuations requested pursuant to this Section 9.1 within ten (10) days of the Facility Agent's request therefor, the Facility Agent will be authorized to obtain such valuations, at the Borrower's cost, from one of the approved ship brokers listed on Schedule II, which valuations shall be deemed the equivalent of valuations duly obtained by the Borrower pursuant to this Section 9.1(f), but the Facility Agent's actions in doing so shall not excuse any default of the Borrower under this Section 9.1(f);
 
(g)  Corporate Existence.  Do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and all licenses, franchises, permits and assets necessary to the conduct of its business;
 
(h)  Books and Records.  At all times keep proper books of record and account into which full and correct entries shall be made in accordance with GAAP;
 
(i)  Taxes and Assessments.  Pay and discharge all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or property prior to the date upon which penalties attach thereto; provided, however, that it shall not be required to pay and discharge, or cause to be paid and discharged, any such tax, assessment, charge or levy so long as the legality thereof shall be contested in good faith and by appropriate proceedings or other acts and it shall set aside on its books adequate reserves with respect thereto;
 
(j)  Inspection.  Allow any representative or representatives designated by the Facility Agent, subject to applicable laws and regulations, to visit and inspect any of its properties, and, on request, to examine its books of account, records, reports and other papers and to discuss its affairs, finances and accounts with its officers, all at such reasonable times and as often as the Facility Agent reasonably requests;
 
(k)  Inspection and Survey Reports.  If the Lenders shall so request, the Borrower shall provide the Lenders with copies of all internally generated inspection or survey reports on the Vessel;
 
(l)  Compliance with Statutes, Agreements, etc.  Do or cause to be done all things necessary to comply with all material contracts or agreements to which any of the Security Parties is a party, and all material laws, and the rules and regulations thereunder, applicable to such Security Party, including, without limitation, those laws, rules and regulations relating to employee benefit plans and environmental matters except where failure to do so would not be reasonably likely to have a Material Adverse Effect;
 
(m)  Environmental Matters.  Promptly upon the occurrence of any of the following conditions, provide to the Facility Agent a certificate of a chief executive officer of the Guarantor, specifying in detail the nature of such condition and its proposed response or the proposed response of any Environmental Affiliate:  (a) its receipt or the receipt by any Environmental Affiliate of any written communication whatsoever that alleges that such Person is not in compliance with any applicable Environmental Law or Environmental Approval, if such noncompliance could reasonably be expected to have a Material Adverse Effect, (b) knowledge by it or any Environmental Affiliate that there exists any Environmental Claim pending or threatened against any such Person, which could reasonably be expected to have a Material Adverse Effect, or (c) any release, emission, discharge or disposal of any material that could form the basis of any Environmental Claim against it or against any Environmental Affiliate, if such Environmental Claim could reasonably be expected to have a Material Adverse Effect.  Upon the written request by the Facility Agent, the Borrower will submit to the Facility Agent at reasonable intervals, a report providing an update of the status of any issue or claim identified in any notice or certificate required pursuant to this subsection;
 
(n)  Insurance.  Maintain with financially sound and reputable insurance companies insurance on all its properties and against all such risks and in at least such amounts and with such deductibles as are usually insured against by companies of established reputation engaged in the same or similar business from time to time;
 
(o)  Vessel Management.  Cause the Vessel to be managed both commercially and technically by the Guarantor, a wholly-owned subsidiary thereof or its existing manager;
 
(p)  Brokerage Commissions, etc.  Indemnify and hold each of the Agents and the Lenders harmless from any claim for any brokerage commission, fee or compensation from any broker or third party resulting from the transactions contemplated hereby;
 
(q)  ISM Code, ISPS Code and MTSA Matters.  (i) Procure that the Operator will comply with and ensure that the Vessel will comply with the requirements of the ISM Code, ISPS Code and MTSA in accordance with the implementation schedules thereof, including (but not limited to) the maintenance and renewal of valid certificates, and when required, security plans, pursuant thereto throughout the term of the Loan; and (ii) will procure that the Operator will immediately inform the Facility Agent if there is any threatened or actual withdrawal of its DOC, SMC or the ISSC in respect of the Vessel; and (iii) will procure that the Operator will promptly inform the Facility Agent upon the issuance to the Borrower or Operator of a DOC and to the Vessel of an SMC or ISSC;
 
(r)  ERISA.  Forthwith upon learning of the occurrence of any material liability of any member of the ERISA Group or any ERISA Affiliate pursuant to ERISA in connection with the termination of any Plan or withdrawal or partial withdrawal of any multi-employer plan (as defined in ERISA) or of a failure to satisfy the minimum funding standards of Section 412 of the Code or Part 3 of Title I of ERISA by any Plan for which any member of the ERISA Group or any ERISA Affiliate is plan administrator (as defined in ERISA), furnish or cause to be furnished to the Lenders written notice thereof;
 
(s)  Evidence of Current COFR.  If the Lenders shall so request, provide the Lenders with copies of the current Certificate of Financial Responsibility pursuant to the Oil Pollution Act 1990 for the Vessel; and
 
(t)  Mortgage.  Within three (3) Banking Days of the Drawdown Date, cause the Mortgage to be recorded with the National Vessel Documentation Center of the United States Coast Guard.
 
9.2  Negative Covenants.  Each of the Security Parties hereby covenants and undertakes with the Lenders that, from the date hereof and so long as any principal, interest or other moneys are owing in respect of this Agreement, the Note or any other Transaction Documents, it will not, without the prior written consent of the Majority Lenders (or all of the Lenders if required pursuant to Section 16.8):
 
(a)  Liens.  Create, assume or permit to exist, any mortgage, pledge, lien, charge, encumbrance or any security interest whatsoever upon any Collateral or, in respect of the Borrower and the Guarantor, other property except:
 
(i)  
liens disclosed in Schedule III;
 
(ii)  
liens to secure Indebtedness under Section 9.2(m), such liens to be limited to the vessels constructed or acquired;
 
(iii)  
liens for taxes not yet payable for which adequate reserves have been maintained;
 
(iv)  
the Mortgage, the Assignments and other liens in favor of the Security Trustee or the Lenders;
 
(v)  
liens, charges and encumbrances against the Vessel permitted to exist under the terms of the Mortgage;
 
(vi)  
pledges of certificates of deposit or other cash collateral securing reimbursement obligations in connection with letters of credit now or hereinafter issued for its account in connection with the establishment of its  financial responsibility under 33C.F.R. Part 130 or 46 C.F.R. Part 540, as the case may be, as the same may be amended and replaced;
 
(vii)  
pledges or deposits to secure obligations under workmen's compensation laws or similar legislation, deposits to secure public or statutory obligations, warehousemen's or other like liens, or deposits to obtain the release of such liens and deposits to secure surety, appeal or customs bonds on which it is the principal, as to all of the foregoing, only to the extent arising and continuing in the ordinary course of business; and
 
(viii)  
other liens, charges and encumbrances incidental to the conduct of its business, the ownership of its property and assets and which do not in the aggregate materially detract from the value of its property or assets or materially impair the use thereof in the operation of its business;
 
(b)  Third Party Guaranties.  Guaranty the obligations of any third party, except a direct or indirect subsidiary of the Guarantor, whether or not affiliated with such Security Party;
 
(c)  Liens on Shares of Borrower.  With respect to the Guarantor, create, assume or permit to exist, any mortgage, pledge, lien, charge, encumbrance or any security interest whatsoever upon the shares of the Borrower;
 
(d)  Subordination of Inter-Company Indebtedness.  With respect to the Guarantor, procure that, upon the occurrence and during the continuance of an Event of Default, no payments are made by any Security Party on any inter-company Indebtedness until such time as the Loan is paid in full;
 
(e)  Transaction with Affiliates.  Enter into any transaction with an Affiliate, other than on an arms length basis;
 
(f)  Change of Flag, Class, Management or Ownership.  Change the flag of the Vessel other than to a jurisdiction reasonably acceptable to the Lenders, its Classification Society other than to another member of the International Association of Classification Societies, the technical management of the Vessel other than to one or more technical management companies reasonably acceptable to the Lenders or the immediate or ultimate ownership of the Vessel;
 
(g)  Chartering.  Enter into any material amendment of the Time Charter or any other charter party agreement without the prior consent of the Facility Agent, which consent shall not be unreasonably withheld;
 
(h)  Change in Business.  Materially change the nature of its business or commence any business materially different from its current business;
 
(i)  Sale of Assets.  Other than as reasonably acceptable to the Majority Lenders, sell, or otherwise dispose of, the Vessel or any other asset (including by way of spin-off, installment sale or otherwise) which is substantial in relation to its assets taken as a whole; provided, however, that the Borrower may sell the Vessel to a third party in an arm's length transaction provided that the proceeds of such sale are distributed in accordance with Section 5.3 of this Agreement;
 
(j)  Changes in Offices or Names.  Change the location of its chief executive office, its chief place of business or the office in which its records relating to the earnings or insurances of the Vessel are kept or change its name unless the Lenders shall have received sixty (60) days prior written notice of such change;
 
(k)  Consolidation and Merger.  Consolidate with, or merge into, any corporation or other entity, or merge any corporation or other entity into it; provided, however, that the Guarantor may merge with any Subsidiary or any other Person if (A) at the time of such transaction and after giving effect thereto, no Default or Event of Default shall have occurred or be continuing, (B) the surviving entity of such consolidation or merger shall be the Guarantor and (C) after giving effect to the transaction, the Guarantor's Consolidated Tangible Net Worth shall be greater or equal to its Consolidated Tangible Net Worth prior to the merger;
 
(l)  Change Fiscal Year.  In the case of the Guarantor, change its fiscal year;
 
(m)  Indebtedness.  In the case of the Security Parties, incur any new Indebtedness (which, for the sake of clarity, shall exclude any Indebtedness pursuant to this Agreement) other than Indebtedness incurred to finance the acquisition and/or construction of any vessels, provided that the principal amount of such Indebtedness shall not exceed eighty percent (80%) of such acquisition and/or construction price, unless such Indebtedness is subordinated to all existing Indebtedness and this Loan; and
 
(n)  Limitations on Ability to Make Distributions.  Create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to pay dividends or make any other distributions on its capital stock or limited liability company interests, as the case may be, to the Borrower or the Guarantor.
 
(o)  Change of Control. Cause or permit a Change of Control.
 
(p)  No Money Laundering. Contravene 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) and comparable United States Federal and state laws.
 
9.3  Financial Covenants.  The Guarantor hereby covenants and undertakes with the Lenders that, from the date hereof and so long as any principal, interest or other moneys are owing in respect of this Agreement, the Note or any of the Security Documents, it will:
 
(a)  Consolidated Indebtedness to Consolidated EBITDA Ratio.  Maintain, on a consolidated basis, a ratio of Consolidated Indebtedness to Consolidated EBITDA of not more than 4.25 to 1.00, as measured at the end of each fiscal quarter based on the four most recent fiscal quarters for which financial information is available;
 
(b)  Working Capital.  Maintain on a consolidated basis a ratio of current assets to current liabilities of not less than 1.00 to 1.00, as measured at the end of each fiscal quarter;
 
(c)  Consolidated Tangible Net Worth.  Maintain a Consolidated Tangible Net Worth, as measured at the end of each fiscal quarter, in an amount of not less than the sum of One Hundred Eighty Million Dollars ($180,000,000) and the sum of fifty percent (50%) of (i) all net income of the Guarantor (on a consolidated basis) earned after June 30, 2007 and (ii) the proceeds from the issuance of any common and/or preferred stock of the Guarantor on or after the date hereof;
 
(d)  Consolidated EBITDA to Interest Expense.  Maintain a ratio of Consolidated EBITDA to Interest Expense of not less than 2.50 to 1.00, measured at the end of each fiscal quarter based on the four most recent fiscal quarters for which financial information is available;
 
9.4  Asset Maintenance.  If at any time during the term of this Agreement, the Fair Market Value of the Vessel is less than the Required Percentage of the outstanding amount of the Loan, the Borrower shall, within a period of thirty (30) days following receipt by the Borrower of written notice from the Facility Agent notifying the Borrower of such shortfall and specifying the amount thereof (which amount shall, in the absence of manifest error, be deemed to be conclusive and binding on the Borrower), either (i) deliver to the Security Trustee such additional collateral as may be satisfactory to the Lenders in their sole discretion of sufficient value to make the Fair Market Value of the Vessel plus the additional collateral, equal to the Required Percentage of the outstanding amount of the Loan or (ii) the Borrower shall prepay such amount of the Loan (together with interest thereon and any other monies payable in respect of such prepayment pursuant to Section 5.4) as shall result in the Fair Market Value of the Vessel being not less than the Required Percentage of the outstanding amount of the Loan.
 
10.  GUARANTEE
 
10.1  The Guarantee.  The Guarantor hereby irrevocably and unconditionally guarantees to each of the Creditors and their respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on the Loan made by the Lenders to the Borrower and evidenced by the Note and all other amounts from time to time owing to the Creditors by the Borrower under this Agreement, under the Note and under any of the Security Documents, in each case strictly in accordance with the terms thereof (such obligations being herein collectively called the “Guaranteed Obligations”). The Guarantor hereby further agrees that if the Borrower shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the Guarantor will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal.
 
10.2  Obligations Unconditional.  The obligations of the Guarantor under Section 10.1 are absolute, unconditional and irrevocable, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of the Borrower under this Agreement, the Note or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guarantee of, or security for, any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 10.2 that the obligations of the Guarantor hereunder shall be  absolute, unconditional and irrevocable, under any and all circumstances.  Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Guarantor hereunder, which shall remain absolute, unconditional and irrevocable as described above:
 
a)  
at any time or from time to time, without notice to the Guarantor, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived;
 
b)  
any of the acts mentioned in any of the provisions of this Agreement or the Note or any other agreement or instrument referred to herein or therein shall be done or omitted;
 
c)  
the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under this Agreement or the Note or any other agreement or instrument referred to herein or therein shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged, in whole or in part, or otherwise dealt with; or
 
d)  
any lien or security interest granted to, or in favor of, the Security Trustee or any Lender or Lenders as security for any of the Guaranteed Obligations shall fail to be perfected.
 
The Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that any Agent or any Lender exhaust any right, power or remedy or proceed against the Borrower under this Agreement or the Note or any other agreement or instrument referred to herein or therein, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations.
 
10.3  Reinstatement.  The obligations of the Guarantor under this Section 10 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of the Borrower in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any Proceedings and the Guarantor agrees that it will indemnify each Creditor on demand for all reasonable costs and expenses (including, without limitation, fees of counsel) incurred by such Creditor in connection with such recission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law.
 
10.4  Subrogation.  The Guarantor hereby irrevocably waives, but only until all amounts payable hereunder by the Guarantor to the Creditors (or any of them) have been paid in full, any and all rights to which any of them may be entitled by operation of law or otherwise, upon making any payment hereunder to be subrogated to the rights of the payee against the Borrower with respect to such payment or to be reimbursed, indemnified or exonerated by or to seek contribution from the Borrower in respect thereof.
 
10.5  Remedies.  The Guarantor agrees that, as between the Guarantor and the Lenders, the obligations of the Borrower under this Agreement and the Note may be declared to be forthwith due and payable as provided in Section 8 (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 8) for purposes of Section 10.1 notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against the Borrower and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by the Borrower) shall forthwith become due and payable by the Guarantor for purposes of Section 10.1.
 
10.6  Joint, Several and Solidary Liability.  The Guarantor's obligations and liability under this Agreement shall be on a “solidary” or “joint and several” basis along with Borrower to the same degree and extent as if the Guarantor had been and/or will be a co-borrower, co-principal obligor and/or co-maker of the Guaranteed Obligations.  In the event that there is more than one Guarantor under this Agreement, or in the event that there are other guarantors, endorsers or sureties of all or any portion of the Guaranteed Obligations, the Guarantor's obligations and liability hereunder shall further be on a “solidary” or “joint and several” basis along with such other guarantors, endorsers and/or sureties.
 
10.7  Continuing Guarantee.  The guarantee in this Section 10 is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising.
 
11.  ASSIGNMENT.
 
This Agreement shall be binding upon, and inure to the benefit of, each of the Security Parties and each of the Creditors and their respective successors and assigns, except that none of the Security Parties may assign any of its rights or obligations hereunder without the written consent of the Lenders.  Each Lender shall be entitled to assign its rights and obligations under this Agreement or grant participation(s) in the Loan to any subsidiary, holding company or other affiliate of such Lender, to any subsidiary or other affiliate company of any thereof or, with the consent of the Borrower (except upon the occurrence and during the continuation of an Event of Default, in which case the Borrower's consent shall not be required) and the Agents, in the case of the Borrower such consent not to be unreasonably withheld, to any other bank or financial institution (in a minimum amount of not less than $1,000,000), and such Lender shall forthwith give notice of any such assignment or participation to the Borrower and pay the other Lender an assignment fee of $3,000 for each such assignment or participation; provided, however, that any such assignment must be made pursuant to an Assignment and Assumption Agreement.  The Borrower will take all reasonable actions requested by the Agents or any Lender to effect such assignment, including, without limitation, the execution of a written consent to any Assignment and Assumption Agreement.
 
12.  ILLEGALITY, INCREASED COST, NON-AVAILABILITY, ETC.
 
12.1  Illegality.  In the event that by reason of any change in any applicable law, regulation or regulatory requirement or in the interpretation thereof, a Lender has a reasonable basis to conclude that it has become unlawful for any Lender to maintain or give effect to its obligations as contemplated by this Agreement, such Lender shall inform the Facility Agent and the Borrower to that effect, whereafter the liability of such Lender to make its Commitment available shall forthwith cease and the Borrower shall be required either to repay to such Lender that portion of the Loan advanced by such Lender immediately or, if such Lender so agrees, to repay such portion of the Loan to the Lender on the last day of the calendar month in accordance with and subject to the provisions of Section 12.5.  In any such event, but without prejudice to the aforesaid obligations of the Borrower to repay such portion of the Loan, the Borrower and the relevant Lender shall negotiate in good faith with a view to agreeing on terms for making such portion of the Loan available from another jurisdiction or otherwise restructuring such portion of the Loan on a basis which is not unlawful.
 
12.2  Increased Costs.  If any change in applicable law, regulation or regulatory requirement, or in the interpretation or application thereof by any governmental or other authority, shall:
 
(i)  
subject any Lender to any Taxes with respect to its income from the Loan, or any part thereof, or
 
(ii)  
change the basis of taxation to any Lender of payments of principal or interest or any other payment due or to become due pursuant to this Agreement (other than a change in the basis effected by the jurisdiction of organization of such Lender, the jurisdiction of the principal place of business of such Lender, the United States of America, the State or City of New York or any governmental subdivision or other taxing authority having jurisdiction over such Lender (unless such jurisdiction is asserted by reason of the activities of any Security Party) or such other jurisdiction where the Loan may be payable), or
 
(iii)  
impose, modify or deem applicable any reserve requirements or require the making of any special deposits against or in respect of any assets or liabilities of, deposits with or for the account of, or loans by, a Lender, or
 
(iv)  
impose on any Lender any other condition affecting the Loan or any part thereof,
 
and the result of the foregoing is either to increase the cost to such Lender of making available or maintaining its Commitment or any part thereof or to reduce the amount of any payment received by such Lender, then and in any such case if such increase or reduction in the opinion of such Lender materially affects the interests of such Lender under or in connection with this Agreement:
 
(a)  such Lender shall notify the Facility Agent and the Borrower of the happening of such event, and
 
(b)  the Borrower agrees forthwith upon demand to pay to such Lender such amount as such Lender certifies to be necessary to compensate such Lender for such additional cost or such reduction; provided however, that the foregoing provisions shall not be applicable in the event that increased costs to the Lender result from the exercise by the Lender of its right to assign its rights or obligations under Section 11.
 
12.3  Nonavailability of Funds.  If the Facility Agent shall determine that, by reason of circumstances affecting the London Interbank Market generally, adequate and reasonable means do not or will not exist for ascertaining the Applicable Rate, the Facility Agent shall give notice of such determination to the Borrower and the Lenders.  The Borrower, the Facility Agent and the Majority Lenders shall then negotiate in good faith in order to agree upon a mutually satisfactory interest rate to be substituted for that which would otherwise have applied under this Agreement.  If the Borrower, the Facility Agent and the Majority Lenders are unable to agree upon such a substituted interest rate within thirty (30) days of the giving of such determination notice, the Facility Agent shall set an interest rate to take effect at the Facility Agent's direction, which rate shall be equal to the Applicable Margin plus the cost to the Lenders (as certified by each Lender) of funding the Loan.
 
12.4  Lender's Certificate Conclusive.  A certificate or determination notice of the Facility Agent or any Lender, as the case may be, as to any of the matters referred to in this Section 12 shall, absent manifest error, be conclusive and binding on the Borrower.
 
12.5  Compensation for Losses.  Where any portion of the Loan is to be repaid by the Borrower pursuant to this Section 12, the Borrower agrees simultaneously with such repayment to pay to the relevant Lender all accrued interest to the date of actual payment on the amount repaid and all other sums then payable by the Borrower to the relevant Lender pursuant to this Agreement, together with such amounts as may be certified by the relevant Lender to be necessary to compensate such Lender for any actual loss, premium or penalties incurred or to be incurred thereby on account of funds borrowed to make, fund or maintain its Commitment or such portion thereof for the remainder (if any) of the then current calendar month, but otherwise without penalty or premium.
 
13.  CURRENCY INDEMNITY
 
13.1  Currency Conversion.  If for the purpose of obtaining or enforcing a judgment in any court in any country it becomes necessary to convert into any other currency (the “judgment currency”) an amount due in Dollars or Yen under this Agreement or the other Transaction Documents then the conversion shall be made, in the discretion of the Facility Agent, at the rate of exchange prevailing either on the date of default or on the day before the day on which the judgment is given or the order for enforcement is made, as the case may be (the “conversion date”), provided that the Facility Agent shall not be entitled to recover under this section any amount in the judgment currency which exceeds at the conversion date the amount in Dollars or Yen, as applicable, due under this Agreement, the Note and/or the other Transaction Documents.
 
13.2  Change in Exchange Rate.  If there is a change in the rate of exchange prevailing between the conversion date and the date of actual payment of the amount due, the Borrower shall pay such additional amounts (if any, but in any event not a lesser amount) as may be necessary to ensure that the amount paid in the judgment currency when converted at the rate of exchange prevailing on the date of payment will produce the amount then due under this Agreement, the Note and/or the other Transaction Documents in Yen; any excess over the amount due received or collected by the Lenders shall be remitted to the Borrower.
 
13.3  Additional Debt Due.  Any amount due from the Borrower under this Section 13 shall be due as a separate debt and shall not be affected by judgment being obtained for any other sums due under or in respect of this Agreement, the Note and/or any of the Security Documents.
 
13.4  Rate of Exchange.  The term “rate of exchange” in this Section 13 means the rate at which the Facility Agent in accordance with its normal practices is able on the relevant date to purchase Yen with the judgment currency and includes any premium and costs of exchange payable in connection with such purchase.
 
14.  FEES AND EXPENSES
 
14.1  Fees.  The Borrower shall pay to the Facility Agent (for the account of the Lenders) a fee equal to forty-five one-hundredths of one percent (0.45%) of the Loan, such fee to be payable on the Closing Date.  The Borrower shall also pay to the Facility Agent an agency fee of Seven Thousand Five Hundred Dollars ($7,500), such fee to be payable on the Closing Date and annually thereafter.
 
14.2  Expenses.  The Borrower agrees, whether or not the transactions hereby contemplated are consummated, on demand to pay, or reimburse the Agents for their payment of, the reasonable expenses of the Agents and (after the occurrence and during the continuance of an Event of Default) the Lenders incident to said transactions (and in connection with any supplements, amendments, waivers or consents relating thereto or incurred in connection with the enforcement or defense of any of the Agents' and the Lenders' rights or remedies with respect thereto or in the preservation of the Agents' and the Lenders' priorities under the documentation executed and delivered in connection therewith) including, without limitation, all reasonable costs and expenses of preparation, negotiation, execution and administration of this Agreement and the documents referred to herein, the reasonable fees and disbursements of the Agents' counsel in connection therewith, as well as the reasonable fees and expenses of any independent appraisers, surveyors, engineers and other consultants retained by the Agents in connection with this transaction, all reasonable costs and expenses, if any, in connection with the enforcement of this Agreement and the other Transaction Documents and stamp and other similar taxes, if any, incident to the execution and delivery of the documents (including, without limitation, the other Transaction Documents) herein contemplated and to hold the Agents and the Lenders free and harmless in connection with any liability arising from the nonpayment of any such stamp or other similar taxes.  Such taxes and, if any, interest and penalties related thereto as may become payable after the date hereof shall be paid immediately by the Borrower to the Agents or the Lenders, as the case may be, when liability therefor is no longer contested by such party or parties or reimbursed immediately by the Borrower to such party or parties after payment thereof (if the Agents or the Lenders, at their sole discretion, chooses to make such payment).
 
15.  APPLICABLE LAW, JURISDICTION AND WAIVER
 
15.1  Applicable Law.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
 
15.2  Jurisdiction.  The Borrower hereby irrevocably submits to the jurisdiction of the courts of the State of New York and of the United States District Court for the Southern District of New York in any action or proceeding brought against it by any of the Lenders or the Agents under this Loan Agreement or under any document delivered hereunder and hereby irrevocably agrees that valid service of summons or other legal process on it may be effected by serving a copy of the summons and other legal process in any such action or proceeding on the Borrower by mailing or delivering the same by hand to the Borrower at the address indicated for notices in Section 17.1.  The service, as herein provided, of such summons or other legal process in any such action or proceeding shall be deemed personal service and accepted by the Borrower as such, and shall be legal and binding upon the Borrower for all the purposes of any such action or proceeding.  Final judgment (a certified or exemplified copy of which shall be conclusive evidence of the fact and of the amount of any indebtedness of the Borrower to the Lenders or the Agent) against the Borrower in any such legal action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment.  The Borrower will advise the Facility Agent promptly of any change of address for the purpose of service of process.  Notwithstanding anything herein to the contrary, the Lenders may bring any legal action or proceeding in any other appropriate jurisdiction.
 
15.3  WAIVER OF JURY TRIAL.  IT IS MUTUALLY AGREED BY AND AMONG EACH OF THE SECURITY PARTIES AND EACH OF THE CREDITORS THAT EACH OF THEM HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST ANY OTHER PARTY HERETO ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS.
 
16.  THE AGENTS
 
16.1  Appointment of Agents.  Each of the Lenders irrevocably appoints and authorizes the Facility Agent to take such action as facility agent on its behalf and to exercise such powers under this Agreement, the Note and the other Transaction Documents as are delegated to the Facility Agent by the terms hereof and thereof.  The Facility Agent nor any of its directors, officers, employees or agents shall be liable for any action taken or omitted to be taken by it or them under this Agreement, the Note or the other Transaction Documents or in connection therewith, except for its or their own gross negligence or willful misconduct.
 
16.2  Appointment of Security  Trustee.  Each of the Lenders irrevocably appoints, designates and authorizes the Security Trustee to act as security trustee on its behalf with regard to (i) the security, powers, rights, titles, benefits and interests (both present and future) constituted by and conferred on the Lenders or any of them or for the benefit thereof under or pursuant to this Agreement or any of the other Transaction Documents (including, without limitation, the benefit of all covenants, undertakings, representations, warranties and obligations given, made or undertaken to any Lender in the Agreement or the other Transaction Documents), (ii) all moneys, property and other assets paid or transferred to or vested in any Lender or any agent of any Lender or received or recovered by any Lender or any agent of any Lender pursuant to, or in connection with, this Agreement or the other Transaction Documents whether from any Security Party or any other person and (iii) all money, investments, property and other assets at any time representing or deriving from any of the foregoing, including all interest, income and other sums at any time received or receivable by any Lender or any agent of any Lender in respect of the same (or any part thereof). The Security Trustee hereby accepts such appointment but shall have no obligations under this Agreement, under the Note or under any of the Security Documents except those expressly set forth herein and therein.
 
16.3  Distribution of Payments.  Whenever any payment is received by the Facility Agent or the Security Trustee from the Borrower or the Guarantor for the account of the Lenders, or any of them, whether of principal or interest on the Note, commissions, fees under Section 14 or otherwise, it will thereafter cause to be distributed on the same day if received before 10 a.m. New York time, or on the next day if received thereafter, like funds relating to such payment ratably to the Lenders according to their respective Commitments, in each case to be applied according to the terms of this Agreement. Unless the Facility Agent or the Security Trustee, as the case may be, shall have received notice from the Borrower prior to the date when any payment is due hereunder that the Borrower will not make any payment on such date, the Facility Agent or the Security Trustee may assume that the Borrower have made such payment to the Facility Agent or the Security Trustee, as the case may be, on the relevant date and the Facility Agent or the Security Trustee may, in reliance upon such assumption, make available to the Lenders on such date a corresponding amount relating to such payment ratably to the Lenders according to their respective Commitments.  If and to the extent that the Borrower shall not have so made such payment available to the Facility Agent or the Security Trustee, as the case may be, the Lenders and the Borrower (but without duplication) severally agree to repay to the Facility Agent or the Security Trustee, as the case may be, forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Lenders until the date such amount is repaid to the Facility Agent or the Security Trustee, as the case may be, as calculated by the Facility Agent or Security Trustee to reflect its cost of funds.
 
16.4  Holder of Interest in Note.  The Agents may treat each Lender as the holder of all of the interest of such Lender in the Note.
 
16.5  No Duty to Examine, Etc.  The Agents shall not be under a duty to examine or pass upon the validity, effectiveness or genuineness of any of this Agreement, the other Transaction Documents or any instrument, document or communication furnished pursuant to this Agreement or in connection therewith or in connection with any other Transaction Document, and the Agents shall be entitled to assume that the same are valid, effective and genuine, have been signed or sent by the proper parties and are what they purport to be.
 
16.6  Agents as Lenders.  With respect to that portion of the Loan made available by it, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not an Agent, and the term “Lender” or “Lenders” shall include the Agent in its capacity as a Lender.  Each Agent and its affiliates may accept deposits from, lend money to and generally engage in any kind of business with, the Borrower and the Guarantor as if it were not an Agent.
 
16.7  Acts of the Agents.  Each Agent shall have duties and discretion, and shall act as follows:
 
(a)  Obligations of the Agents.  The obligations of each Agent under this Agreement, the Note and the other Transaction Documents are only those expressly set forth herein and therein;
 
(b)  No Duty to Investigate.  No Agent shall  at any time, unless requested to do so by a Lender or Lenders, be under any duty to enquire whether an Event of Default, or an event which with the giving of notice or lapse of time, or both, would constitute an Event of Default, has occurred or to investigate the performance of this Agreement, the Note or any Security Document by any Security Party; and
 
(c)  Discretion of the Agents.  Each Agent shall be entitled to use its discretion with respect to exercising or refraining from exercising any rights which may be vested in it by, and with respect to taking or refraining from taking any action or actions which it may be able to take under or in respect of, this Agreement and the other Transaction Documents, unless the Facility Agent shall have been instructed by the Majority Lenders to exercise such rights or to take or refrain from taking such action; provided, however, that no Agent shall be required to take any action which exposes it to personal liability or which is contrary to this Agreement or applicable law;
 
(d)  Instructions of Majority Lenders.  Each Agent shall in all cases be fully protected in acting or refraining from acting under this Agreement or under any other Transaction Document in accordance with the instructions of the Majority Lenders, and any action taken or failure to act pursuant to such instructions shall be binding on all of the Lenders.
 
16.8  Certain Amendments.  Neither this Agreement, the Note nor any of the Security Documents nor any terms hereof or thereof may be amended unless such amendment is approved by the Borrower and the Majority Lenders, provided that no such amendment shall, without the consent of each Lender affected thereby, (i) reduce the interest rate or extend the time of payment of scheduled principal payments or interest or fees on the Loan, or reduce the principal amount of the Loan or any fees hereunder, (ii) increase or decrease the Commitment of any Lender or subject any Lender to any additional obligation (it being understood that a waiver of any Event of Default or any mandatory repayment of the Loan shall not constitute a change in the terms of any Commitment of any Lender), (iii) amend, modify or waive any provision of this Section 16.8, (iv) amend the definition of Majority Lenders or any other definition referred to in this Section 16.8, (v) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement, (vi) release any Security Party from any of its obligations under any Security Document except as expressly provided herein or in such Security Document or (vii) amend any provision relating to the maintenance of collateral under Section 9.4.  All amendments approved by the Majority Lenders under this Section 16.8 must be in writing and signed by the Borrower and each of the Lenders.  In the event that any Lender is unable to or refuses to sign an amendment approved by the Majority Lenders hereunder, such Lender hereby appoints the Agent as its Attorney-In-Fact for the purposes of signing such amendment.  No provision of this Section 16 or any other provisions relating to the Agent may be modified without the consent of the Agent.
 
16.9  Assumption re Event of Default.  Except as otherwise provided in Section 16.15, the Facility Agent and the Security Trustee shall be entitled to assume that no Event of Default, or event which with the giving of notice or lapse of time, or both, would constitute an Event of Default, has occurred and is continuing, unless it has been notified by any Security Party of such fact, or has been notified by a Lender that such Lender considers that an Event of Default or such an event (specifying in detail the nature thereof) has occurred and is continuing.  In the event that either thereof shall have been notified by any Security Party or any Lender in the manner set forth in the preceding sentence of any Event of Default or of an event which with the giving of notice or lapse of time, or both, would constitute an Event of Default, the Facility Agent shall notify the Lenders and shall take action and assert such rights under this Agreement, under the Note and under Security Documents as the Majority Lenders shall request in writing.
 
16.10  Limitations of Liability.  No Agent or Lender shall be under any liability or responsibility whatsoever:
 
(a)  to any Security Party or any other person or entity as a consequence of any failure or delay in performance by, or any breach by, any other Lenders or any other person of any of its or their obligations under this Agreement or under any Security Document;
 
(b)  to any Lender or Lenders as a consequence of any failure or delay in performance by, or any breach by, any Security Party of any of its respective obligations under this Agreement or under the other Transaction Documents; or
 
(c)  to any Lender or Lenders for any statements, representations or warranties contained in this Agreement, in any Security Document or in any document or instrument delivered in connection with the transaction hereby contemplated; or for the validity, effectiveness, enforceability or sufficiency of this Agreement, any other Transaction Document or any document or instrument delivered in connection with the transactions hereby contemplated.
 
16.11  Indemnification of the Agent and Security Trustee.  The Lenders agree to indemnify each Agent (to the extent not reimbursed by the Security Parties or any thereof), pro rata according to the respective amounts of their Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including legal fees and expenses incurred in investigating claims and defending itself against such liabilities) which may be imposed on, incurred by or asserted against, such Agent in any way relating to or arising out of this Agreement or any other Transaction Document, any action taken or omitted by such Agent thereunder or the preparation, administration, amendment or enforcement of, or waiver of any provision of, this Agreement or any other Transaction Document, except that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the  gross negligence or willful misconduct of either such Agent.
 
16.12  Consultation with Counsel.  Each of the Facility Agent and the Security Trustee may consult with legal counsel selected by such Agent and shall not be liable for any action taken, permitted or omitted by it in good faith in accordance with the advice or opinion of such counsel.
 
16.13  Resignation.  Any Agent may resign at any time by giving sixty (60) days' written notice thereof to the other Agents, the Lenders and the Borrower.  Upon any such resignation, the Lenders shall have the right to appoint a successor Agent.  If no successor Agent shall have been so appointed by the Lenders and shall have accepted such appointment within sixty (60) days after the retiring Agent's giving notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent which shall be a bank or trust company of recognized standing.  The appointment of any successor Agent shall be subject to the prior written consent of the Borrower, such consent not to be unreasonably withheld.  After any retiring Agent's resignation as Agent hereunder, the provisions of this Section 16 shall continue in effect for its benefit with respect to any actions taken or omitted by it while acting as Agent.
 
16.14  Representations of Lenders.  Each Lender represents and warrants to each other Lender and the Agent that:
 
(a)  in making its decision to enter into this Agreement and to make its Commitment available hereunder, it has independently taken whatever steps it considers necessary to evaluate the financial condition and affairs of the Security Parties, that it has made an independent credit judgment and that it has not relied upon any statement, representation or warranty by any other Lender or any Agent; and
 
(b)  so long as any portion of its Commitment remains outstanding, it will continue to make its own independent evaluation of the financial condition and affairs of the Security Parties.
 
16.15  Notification of Event of Default.  The Facility Agent hereby undertakes to promptly notify the Lenders, and the Lenders hereby promptly undertake to notify the Facility Agent and the other Lenders, of the existence of any Event of Default which shall have occurred and be continuing of which such party has actual knowledge.
 
17.  NOTICES AND DEMANDS
 
17.1  Notices.  All notices, requests, demands and other communications to any party hereunder shall be in writing (including prepaid overnight courier, facsimile transmission or similar writing) and shall be given to the Borrower or the Guarantor at the address or facsimile number set forth below and to the Lenders and the Agents at their address and facsimile numbers set forth in Schedule I or at such other address or facsimile numbers as such party may hereafter specify for the purpose by notice to each other party hereto.  Each such notice, request or other communication shall be effective (i) if given by facsimile, when such facsimile is transmitted to the facsimile number specified in this Section and telephonic confirmation of receipt thereof is obtained or (ii) if given by mail, prepaid overnight courier or any other means, when received at the address specified in this Section or when delivery at such address is refused.
 
If to the Borrower or the Guarantors:
 
11 North Water Street, Suite 18290
 
Mobile, Alabama 36602
 
Facsimile No.:  (251)-243-9121
 
Attention: Chief Financial Officer
 
With a copy to
 
One Whitehall Street
 
New York, NY 10004
 
Facsimile No.:  (212) 514-5692
 
Attention:  Mr. Niels M. Johnsen
 
18.  MISCELLANEOUS
 
18.1  Time of Essence.  Time is of the essence of this Agreement but no failure or delay on the part of any Creditor to exercise any power or right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise by any Creditor of any power or right hereunder preclude any other or further exercise thereof or the exercise of any other power or right.  The remedies provided herein are cumulative and are not exclusive of any remedies provided by law.
 
18.2  Unenforceable, etc., Provisions - Effect.  In case any one or more of the provisions contained in this Agree­ment or in the other Transaction Documents would, if given effect, be invalid, illegal or unenforceable in any respect under any law applicable in any relevant jurisdiction, said provision shall not be enforceable against the relevant Security Party, but the validity, legality and enforceability of the remaining provisions herein or therein contained shall not in any way be affected or impaired thereby.
 
18.3  References.  References herein to Articles, Sections, Exhibits and Schedules are to be construed as references to articles, sections of, exhibits to, and schedules to, this Agreement or the other Transaction Documents as applicable, unless the context otherwise requires.
 
18.4  Further Assurances.  Each of the Security Parties hereby agrees that if this Agreement or any of the other Transaction Documents shall, in the reasonable opinion of the Lenders, at any time be deemed by the Lenders for any reason insufficient in whole or in part to carry out the true intent and spirit hereof or thereof, it will execute or cause to be executed such other and further assurances and documents as in the opinion of the Lenders may be required in order to more effectively accomplish the purposes of this Agreement and/or the other Transaction Documents.
 
18.5  Prior Agreements, Merger.  Any and all prior understandings and agreements heretofore entered into between the Security Parties on the one part, and the Creditors, on the other part, whether written or oral, are superseded by and merged into this Agreement and the other agreements (the forms of which are exhibited hereto) to be executed and delivered in connection herewith to which the Security Parties, the Agent, the Security Trustee and/or the Lenders are parties, which alone fully and completely express the agreements between the Security Parties, the Agents, and the Lenders.
 
18.6  Entire Agreement; Amendments.  This Agreement constitutes the entire agreement of the parties hereto including all parties added hereto pursuant to an Assignment and Assumption Agreement.  Subject to Section 16.8, any provision of this Agreement or any other Transaction Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower, the Agents, and the Majority Lenders.  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute one and the same instrument.
 
18.7  Indemnification.  Neither any Creditor nor any of its directors, officers, agents or employees shall be liable to any of the Security Parties for any action taken or not taken thereby in connection herewith in the absence of its own gross negligence or willful misconduct.  The Borrower and the Guarantor hereby jointly and severally agree to indemnify the Creditors, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an “Indemnitee”) and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of this Agreement, any actual or proposed use of proceeds of the Loan hereunder, or any related transaction or claim; provided that (i) no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction and (ii) to the extent permitted by law, the Indemnitee shall provide the Security Parties with prompt notice of any such investigative, administrative or judicial proceeding after the Indemnitee becomes aware of such proceeding; provided, however, that the Indemnitee's failure to provide such notice in a timely manner shall not relieve the Security Parties of their obligations hereunder.
 
18.8  Headings.  In this Agreement, Section headings are inserted for convenience of reference only and shall not be taken into account in the interpretation of this Agreement.
 
[Remainder of Page Intentionally Left Blank]
 

      
        
      
      
        
      
      
                                  
    

IN WITNESS whereof the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives as of the day and year first above written.
 
WATERMAN STEAMSHIP CORPORATION,
as Borrower
 
By:___________________________________
Name: Niels M. Johnsen
Title:   Chairman
 
 
INTERNATIONAL SHIPHOLDING CORPORATION,
as Guarantor
 
By:___________________________________
Name: Niels M. Johnsen
Title:  Chairman and Chief Executive Officer
 
 
DNB NOR BANK ASA,
as Facility Agent, Security Trustee and Lender
 
By:____________________________________
Name:
Title:
 
 
By:____________________________________
Name:
Title:
 
 


      
        
      
      
        
      
      
                                 
    

SCHEDULE I


LENDERS                                                                                                COMMITMENT

       
   
DnB NOR Bank ASA
New York Branch
200 Park Avenue, 31st Floor
New York, New York  10166-0396
Facsimile No.:                                212 681 3900
Telephone No.:                                212 681 3856
Email:                          asa.jemseby@dnbnor.no
Attention:                          Ms. Asa Jemseby
  
¥5,000,000,000
  



      
        
      
      
        
      
      
                       
    


SCHEDULE II


Approved Ship Brokers

R.S. Platou Shipbrokers a.s.                                                                                                           Faber Shipping
Haakon VII's gate 10                                                                                                               Olgasvej 39
Oslo, Norway                                                                                                           DK-2950 Vedbek
Telephone No.: +47 23 11 20 00                                                                                                     Copenhagen, Denmark
Facsimile No.: +47 23 11 23 11                                                                                                   Telephone No.: +45 4566 0450
         Facsimile No.: +45 4566 0547

Fearnleys A/S
Grev Wedels plass 9
Oslo, Norway
Telephone No.: +47 22 93 60 00
Facsimile No.: +47 22 93 61 50

H. Clarkson & Company
12 Camomile Street
London EC3A 7BP
England
Telephone No.: +44 207 334 0000
Facsimile No.: +44 207 283 5260

Braemar Shipbrokers Ltd.
35 Cosway Street
London NW1 5BT
England
Telephone No.: +44 207 535 2600
Facsimile No.: +44 207 535 2601

Jacq. Pierot Jr. & Sons, Inc. (USA)
29 Broadway
New York, NY 10006
Telephone No.: (212) 344 3840
Facsimile No.: (212) 943 6598

Hesnes Shipping AS
Rosanes
Ørsnesallen 20
P.O. Box 40, Teie
3106 Tønsberg
Norway
Telephone No.: +47 33 30 44 44
Facsimile No.: +47 33 32 30 30

      
        
      
      
        
      
      
                                 
    

SCHEDULE III



Security Party Liens as of September 10, 2007


International Shipholding Corporation
 

NONE

The foregoing does not reflect Liens to be discharged as a result of Indebtedness paid off with the proceeds of the Loan.
 

 
Waterman Steamship Corporation
 

1.  
Charter Assignment, Earnings Assignment and Insurance Assignment on United States flag vessel “GREEN DALE” in favor of U.S. Bank National Association.
 

The foregoing does not reflect Liens to be discharged as a result of Indebtedness paid off with the proceeds of the Loan.
 



      
        
      
      
        
      
      
                              
    

SCHEDULE IV


Security Party Indebtedness as of September 10, 2007

International Shipholding Corporation
 
1.  
$38,970,000 outstanding on ISC's 7.75% Senior Notes, with The Bank of New York, as trustee, due October 15, 2007.
 
2.  
Guarantee of indebtedness in the amount of $0 to Whitney National Bank and others, which indebtedness has a maturity date of December 6, 2009.
 
3.  
Guarantee of indebtedness in the amount of $27,333,333 to DnB NOR Bank ASA and others, which indebtedness has a maturity date of September 26, 2015.
 
4.  
Guarantee of indebtedness in the amount of $62,995,000 to Deutsche Schiffsbank AS and others, which indebtedness has a maturity date of September 30, 2013.
 
5.  
Guarantee of indebtedness of $13,790,000 to Liberty Community Ventures III, L.L.C., which indebtedness has a maturity date of December 14, 2012.
 
6.  
Guarantee of payment and performance obligations of Waterman Steamship Corporation pursuant to the Memorandum of Agreement.
 
Waterman Steamship Corporation
 
1.  
Guarantee of indebtedness in the amount of $0 to Whitney National Bank and others, which indebtedness has a maturity date of December 6, 2009.
 

      
        
      
      
        
      
      
                   
    

 EX-10.12 5 exhibit1012.htm EXHIBIT 10.12 SHIPSALES AGREEMENT exhibit1012.htm

 
The portion of this Exhibit 10.11 marked “******” has been omitted and confidentially filed with the Securities and Exchange Commission pursuant to Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended.
 

 
 

 
 

 
 
 
SHIPSALES  CONTRACT
 
 
FOR
 
 
PURE CAR TRUCK CARRIER VESSEL
 
 
(HULL NO. 2253)
 
 

 
 

 
 

 
 

 
 

 
 
MADE BY AND BETWEEN
 
 
CLIO MARINE INC.
 
 
AND
 
 
EAST GULF SHIPHOLDING, INC.
 

      
         
    


 
CONTENTS
 
 

 
ARTICLE I                            -    DESCRIPTION AND CHARACTERISTICS

ARTICLE II                            -    CONTRACT PRICE AND PAYMENT

ARTICLE III                            -    ADJUSTMENT OF CONTRACT PRICE

ARTICLE IV                            -    SUPERVISION AND INSPECTION

ARTICLE V                            -    MODIFICATIONS, CHANGES AND SUBSTITUTION

ARTICLE VI                            -    BUYER’S SUPPLIES

ARTICLE VII                            -    TRIALS

ARTICLE VIII                          -    DELIVERY

ARTICLE IX                            -    FORCE MAJEURE

ARTICLE X                            -    WARRANTY OF QUALITY

ARTICLE XI                            -    INSURANCE

ARTICLE XII                            -    BUYER’S DEFAULT

ARTICLE XIII                          -    SELLER’S DEFAULT

ARTICLE XIV                          -    ARBITRATION

ARTICLE XV                           -    ASSIGNMENT OF CONTRACT

ARTICLE XVI                          -    TAXES AND DUTIES

ARTICLE XVII                         -    PATENTS, TRADE MARKS, COPYRIGHTS

ARTICLE XVIII                        -    INTERPRETATION

ARTICLE XIX                           -    NOTICE

ARTICLE XX                            - -    EFFECTIVE DATE
 

 
 

 
 

 
 

 
 

 
 
2
 
 

 
 
SHIPSALES CONTRACT
 
 

 
 
This CONTRACT, made and entered into this __ 21st day of  September, 2007, by and between CLIO MARINE INC., a corporation organized and existing under the laws of Liberia (hereinafter called the "Seller") and EAST GULF SHIPHOLDING, INC., a corporation organized and existing under the laws of Marshall Islands (hereinafter called the "Buyer").
 
 

 
 

 
 

 
 

 
 
Witnesseth:
 
 

 
 
In consideration of the mutual covenants contained herein, the Seller agrees to cause ******, a corporation organized and existing under the laws of ******, (hereinafter called the "Builder"), to construct, launch, equip and complete one (1) Pure Car Truck Carrier Vessel identified in Article I.(hereinafter called the "Vessel") hereof at its ****** (hereinafter referred to as the "Shipyard"), and to sell and deliver the same to the Buyer at the Shipyard and the Buyer agrees to purchase from the Seller and to take delivery of the Vessel, upon the terms and conditions hereinafter set forth. It is agreed and understood that the Seller may at its discretion construct and deliver the Vessel at Builder's shipyard in Japan other than the Shipyard mentioned above, provided that the provisions of this Contract shall not be altered thereby in any other respects.
 
 

 
 

 
 
3
 



 
ARTICLE                         I - DESCRIPTION AND CHARACTERISTICS
 
 
I)        DESCRIPTION
 
 
Subject to the provisions hereof the Vessel shall be of the following description: Pure Car Truck Carrier Vessel of about 6,400 cars, which shall have the Builder's Hull Number 2253, shall be documented under the Panamanian flag to be registered at Republic of Panama at the Buyer's expense, and shall be constructed, launched, equipped and completed in accordance with the provisions of this Contract and the Specifications and the accompanying plans to the Specifications identified by D.No.23-7109A (hereinafter collectively referred to as the "Specifications" or the "Specifications and Plans") signed by both parties for identification purpose and attached to this Contract as an integral part hereof.
 
 

 
 
2)        CHARACTERISTICS AND DIMENSIONS
 
The Vessel shall have the following characteristics and dimensions:
Length, over all                                                                           less than 200.00 m
Length, between perpendiculars                                                              192.00 m
Breadth, moulded                                                                                         32.26 m
Depth, moulded (to Strength Dk: Garage Deck)                                       34.52 m
Depth,moulded (to Freeboard Dk:No,7 Car Deck)                                   14.70 m
Designed draught, moulded                                                                          8.80 m
Scantling draught, moulded                                                                          9.70 m

Machinery                                                                Mitsubishi-UE Type Diesel Engine,Model “7UEC60LSII (P/U)”—1 setMaximum rating (BHP)
14,315kW (19,460PS) x 105.0 min-1Normal rating (BHP)
12,170kw (16,540PS) x 99.5 min-1

Trial speed, guaranteed                                                                                     21.45 knots at Normal rating (BHP)12,170kw (16,540PS) at99.5 min-1of main engine on about 20,000 metricton displacement

 

 
 

 
 

 
 
4
 

 
Fuel Consumption, guaranteed                                                                                       166.6gr/kW/hr at 12,170kW (16,540PS) of main engine only onthe basis of fuel oil of 42,700 kJ/kg (10,200 kcal/kg) in lower       calorific value with 3% tolerancemargin at I.S.O. condition.
 
 
Number of loadable cars guaranteed
5,200 cars of standard car             determined on the “CAR LOADING PLAN”
 
 

 
 
The details of the above particulars as well as the definitions and method of calculations and measurements are as stated in the Specifications.
 
 

 
 

 
 
3)        CLASSIFICATION. RULES AND REGULATIONS
 
The Vessel, including its machinery, equipment and outfittings shall be constructed in accordance with the rules and regulations (the edition and amendments thereto being current as of the date of execution of this Contract) and under special survey of Nippon Kaiji Kyokai (hereinafter called "Classification Society"), and shall be distinguished in the register by the symbol ofNS*(RORO EQ C V), MNS* (MO).
Decisions of the Classification Society as to compliance or non-compliance with the Classification shall be final and binding upon both parties hereto.
The Vessel shall also comply with the rules and regulations as described in the Specifications.
All fees and charges incidental to the Classification and with respect to compliance with the above referred rules and regulations shall be for the account of the Builder.




 
5
 



 
ARTICLE                     II - CONTRACT PRICE AND PAYMENT
 
 
1)  
CONTRACT PRICE
 
 
The purchase price of the Vessel shall be ****** (hereinafter referred to as the "Contract Price") as the technical services required to be rendered to the Buyer under the terms of this Contract. The Contract Price shall be net receivable by the Seller in Tokyo and exclusive of articles to be supplied by the Buyer as provided in Article VI hereof, and shall be subject to adjustment as hereinafter provided in this Contract.
 
 
2)  
DEFINITION OF DUE DATE AND CURRENCY
 
 
All payments by the Buyer under this Contract shall be received by the Seller on the day each payment becomes due in Tokyo. All payments to the Seller under this Contract shall be made in Japanese Yen.
 
 
3)  
TERMS OF PAYMENT
 
 
The Buyer shall pay the Contract Price to the Seller in accordance with the following terms and conditions:
 
 
(a) First Installment
 
 
****** percent (******%) of the Contract Price, amounting to ****** shall be paid to the Seller upon ******.
 
 
(b) Second Installment
 
 
****** percent (******%) of the Contract Price, amounting to ****** shall be paid to the Seller upon ******.
 
 

 
 
6
 



 
(c) Third Installment
 
 
****** percent (******%) of the Contract Price, amounting to ****** shall be paid to the Seller upon ******.
 
 
(d) Fourth Installment
 
 
The sum of ****** percent (******%) of the Contract Price, amounting to ******, plus ****** or minus ****** and/or ******, if any, plus the price of ******, shall be paid to the Seller upon ******.
 
 

 
 
4)        METHOD OF PAYMENT
 
 
( a) 1st Installment:
 
 
Within two (2) Business Days (Business Day means a day, other than Saturday, Sunday and national holiday, on which the Builder, Seller and the Buyer are working and on which leading banks in Japan and New York are open for business of foreign exchange, remittance and lending of money) after signing of this Contract, the Buyer shall pay the amount of this Installment by telegraphic transfer to a bank in Tokyo, Japan nominated by the Seller (hereinafter called the "BANK") for the account of the Seller.
 
 
(b) 2nd Installment:
 
 
Within two (2) Business Days after receipt by the Buyer of either fax or e-mail from the Seller confirming the keel-laying of the Vessel, the Buyer shall pay the amount of this Installment by telegraphic transfer to the BANK for the account of the Seller.
 
 

 
 
7
 



 
(c) 3rd Installment:
 
 
Within two (2) Business Days after receipt by the Buyer of either fax or e-mail from the Seller confirming the completion of the launching of the Vessel, the Buyer shall pay the amount of this Installment by telegraphic transfer to the BANK for the account of the Seller.
 
 
(d) 4th Installment:
 
 
The Buyer shall, at least three (3) Business Days prior to the scheduled delivery date of the Vessel subject of any changes to the delivery date in accordance with this Contract, make a cash deposit with the BANK, covering the amount of this Installment (as adjusted in accordance with the provisions of this Contract), with an irrevocable instruction that the said amount shall be released to the Seller's favour and account against presentation to the BANK by facsimile of a duly signed copy of the PROTOCOL OF DELIVERY AND ACCEPTANCE of the Vessel as set forth in Paragraph 3 of Article VII hereof. Any cost and expense related to such remittance and deposit shall be bourne by the Buyer.
 
 
No payment under this Contract shall be delayed or withheld by the Buyer on account of any dispute or disagreement of whatever nature arising between the parties hereto.
 
 

 
 
8
 



 
ARTICLE                     III - ADJUSTMENT OF CONTRACT PRICE
 
 
The Contract Price shall be subject to adjustment as hereinafter set forth:
 
 
1)  
DELAYED DELIVERY
 
 
No adjustment shall be made, and the Contract Price shall remain unchanged, for the first thirty (30) days of delay in delivery of the Vessel beyond the date on which delivery is required under the terms of this Contract.
 
 
If the delivery of the Vessel is delayed more than thirty (30) days beyond the said delivery date, the Contract Price shall be reduced by deducting there from the sum of ******, as liquidated damages, for each day of such delay beyond the above said thirtieth (30th) day.
 
 
However, unless the parties agree otherwise, the total reduction in the Contract Price shall not exceed the amount due to cover the delay of one hundred and twenty (120) days after the above thirtieth (30th) day as computed at the rate of reduction specified in the above.
 
 
But, if the delay in delivery of the Vessel continues for a period of more than one hundred twenty (120) days from the thirtieth (30th) day after the date on which delivery is required under the terms of this Contract, the Buyer may, at its option, rescind this Contract by serving upon the Seller a written notice of rescission of this Contract.
 
 
Such rescission shall be effective as of the date the notice thereof is received by the Seller, and the Seller, after receipt of such notice, shall refund to the Buyer all installments paid by the Buyer, together with interest at two point five percent (2.5%) over the long-term prime rate in Japan per annum from the date of each payment. Such refund by the Seller to the Buyer of all installments paid by the Buyer on account of the Vessel shall forthwith discharge all obligations, duties and liabilities of each of the parties hereto to the other under this Contract.
 
 
In case the Buyer has not served notice of rescission, the Seller shall immediately after the expiration of such period of delay in delivery, propose a future delivery date and demand
 
 

 
 
9
 



 
that the Buyer shall make an election. The Buyer shall, within fourteen (14) days after such demand is received by the Buyer, notify the Seller by facsimile confirmed in writing of its intention to rescind the Contract or of its consent to accept the Vessel at an agreed future date, it being understood by the parties that if the Vessel is not delivered by such future date, the Buyer shall have the same right of rescission upon the same terms as hereinbefore provided. If the Buyer fails to notify the Seller of its intention to rescind the Contract as above specified, within the aforementioned fourteen (14) days, the Buyer shall be deemed to have consented to the delivery of the Vessel at the later date proposed by the Seller.
 
 
For the purpose of this Paragraph, the delivery of the Vessel shall be deemed to be delayed when and if the Vessel, after taking into full account extension of the delivery date by reason of permissible delays as herein provided, is not delivered by the date upon which delivery is required under the terms of this Contract.
 
 
2)  
INSUFFICIENT SPEED
 
 
The Contract Price of the Vessel shall not be affected or changed if the speed of the Vessel on trials, as determined in accordance with the Specifications, is less than the guaranteed speed of the Vessel, provided such deficiency is not more than one-fifth (1/5) of one (I) knot below the guaranteed speed.
 
 
In the event, however, that the deficiency in the speed exceeds one-fifth (1/5) of one (I) knot below the guaranteed speed, the Contract Price shall be reduced, as liquidated damages, by ****** for such deficiency of each 0.1 knots (any fractions to be pro-rated but disregarding fractions of one­-hundredth (11100) of one (I) knot).
 
 
If the deficiency of the Vessel's speed on trials exceeds one (1) full knot below the guaranteed speed, the Buyer at its option may accept the Vessel at a reduction in the Contract Price as above specified for an insufficient speed of one (1) full knot, that is at a total reduction of ******, or, subject to the provisions of Paragraph 4) of Article VII, may reject the Vessel and rescind this
 
 
 

 
 
10
 


 
Contract, in which case the provisions in Paragraph 1) of this Article regarding the Buyer's rescission of the Contract shall be applied.
 
 
3)         EXCESSIVE FUEL CONSUMPTION
 
 
The Contract Price of the Vessel shall not be affected or changed if the fuel consumption of the main engine at the normal output during the shop trial, as determined in accordance with the Specifications, does not exceed three (3) percent above one hundred and sixty six point six grams per kilo watt per hour (166.6gr/kW/hr) at 42,700kW of main engine only on the basis of fuel oil of 42,700 kJ/kg in lower calorific value at 1.S.0. condition.
 
 
In the event, however, that the fuel consumption exceeds three (3) percent, on the above specified conditions, the Contract Price shall be reduced, as liquidated damages by the sum of ****** for each full one (1) percent in excess of the above said three (3) percent.
 
 
If the fuel consumption as above stated exceeds by seven (7) percent or more in excess of the above said three (3) percent, the Buyer at its option may accept the Vessel at a reduction in the Contract Price as above specified for a fuel consumption in excess of seven(7) percent above said three (3) percent, that is, at a total reduction of ******, or, subject to the provisions of Paragraph 4) of Article VII, may reject the Vessel and rescind this Contract, in which case the provisions in Paragraph 1) of this Article regarding the Buyer's rescission of the Contract shall be applied.
 
 
4)  
CAR CAPACITY
 
 
If the car capacity of the Vessel, as determined in accordance with the Specifications, is below the guaranteed car capacity of the Vessel, the Contract Price of the Vessel shall be reduced by ****** as liquidated damages for the deficiency of each car unit.
 
 
If the deficiency in the car capacity exceeds one hundred (100) units below the guaranteed car capacity, the Buyer at its option may accept the Vessel at a reduction in the Contract Price
 
 

 
 
11
 



 
of ******, or subject to the provisions of Paragraph 4) of Article VIT, may reject the Vessel and rescind this Contract, in which case the provisions in Paragraph I) of this Article regarding the Buyer's rescission of the Contract shall be applied.
 
 

 
12
 


 
ARTICLE
 
 
IV - SUPERVISION AND INSPECTION
 

 

 
 
1) SUPERVISION BY SELLER:
 
 
Scope of Works : The Seller shall carry out the supervision on the construction of the Vessel by the Builder, including, without limitation, (i) approval of the plans and drawings, (ii) inspections on the Vessel, its machinery, equipment and outfitting, (iii) attendance of trials and tests and (iv) making comments as to conformity with the Specifications.
 
 
Seller's Appointment: The Seller appoints ****** or similar quality entities as supervising company.
 
 
Seller's Technical Decision: Any decision regarding the approval of plans and drawings, supervision of construction and acceptance of the Vessel under the Shipbuilding Contract between the Seller and the Builder dated 25th July, 2007 shall be made by the Seller in its absolute discretion and that such decision shall not require any prior consultation with or approval of the Buyer or its representatives. During the construction of the Vessel, the Seller shall give to the Buyer, upon their request, an technical information which they are holding, and shall make best endeavors to obtain information and documents which the Buyer might need. The Seller shall undertake that the supervision of construction of the Vessel shall be carried out as if the Vessel was for their internal account and management.
 
 
2) NO SUPERVISION BY BUYER:
 
 
The Buyer shall not have the right of supervision but shall have the right to send its representatives in the capacity of observers pursuant to Clause 3) hereof.
 
 
3) BUYER'S OBSERVANCE:
 
 
 
Buyer's Observance: The Buyer may send one (1) observer to the Shipyard periodically as follows to review progress of construction of the Vessel at the Buyer's risk and expenses without
 
 

 
 
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interfering with the construction of the Vessel.:
 
 
              (a)At the time of keel-laying of the Vessel.
 
 
              (b)At the time of launching of the Vessel.
 
 
 
(c)
  
At the time of significant test/trials for main engine during shipbuilding period of the Vessel
 
 
 
(d)
At the time of significant test/trials for diesel generator sets during shipbuilding period of the Vessel.
 
 
 
(e)
  
Maximum duration per one observation mentioned above shall be four (4) calendar days.
 
 
 
(f)
  
At any time during the entire duration of Sea Trials in which case the Buyer's observer as well as three (3) Buyer's crew including Master and/or Chief Engineer and/or (I) Technical Manager to be joined by the Buyer's observer. Such Buyer's crew shall be permitted to be in attendance on the Vessel at the sea trial of the Vessel at Buyer's risk and expenses and for familiarization purpose only.
 
 
 
(g)
The Buyer' Observer shall not attend and not be stationed at the Shipyard and/or any other Builder's shipyard without the attendance of the Seller's supervisor.
 
 
 
(h)
At any other time requested by Buyer but maximum three (3) times and subject to Seller's approval and acceptance.
 
 
Seller's Liability: The Seller shall be under no liabilities in respect of any loss, damage or injury suffered by such representatives, and the Buyer shall indemnify the Seller against any loss, damage or liability sustained or incurred by the Seller howsoever caused as a consequence of or arising out of or in connection with the attendance of such representatives on board the Vessel during its acceptance trials.
 
 
Restriction on Observance: The representatives referred to in this Clause shall not interfere with or obstruct in any way the Seller's supervision on board the Vessel during its acceptance sea trials and/or sea trials schedule of the Builder.
 
 
Buyer's Comment: The Buyer's comment(s), if any, during sea trials of the Vessel shall not be unreasonably withheld by the Seller and the Seller shall take action if necessary, provided that such comment( s) shall not affect the price, cost of the Vessel and the sea trials schedule of the Builder.
 
 
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ARTICLE                      V - MODIFICATIONS, CHANGES AND SUBSTITUTION
 
 
1) VOLUNTARY MODIFICATIONS BY MUTUAL AGREEMENT
 
 
The Specifications may be modified and/or changed by written agreement of the parties hereto, provided that such modifications and/or changes or an accumulation thereof will not, in the Seller's judgment, adversely affect Builder's planning or program in relation to the Seller's other commitments, and provided, further, that the Buyer shall first agree, before such modifications and/or changes are carried out, to alterations in the Purchase Price, the Delivery Date and other terms and conditions of this Contract and Specifications occasioned by or resulting from such modifications and/or changes. Such agreement may be effected by exchange of letters signed by the authorized representatives of the parties hereto or by email or facsimile confirmed by such letters manifesting agreements of the parties hereto which shall constitute amendments to this Contract and/or the Specifications.
 
 
2)  
COMPULSORY MODIFICATION
 
 
 
(I) Change in Class: In the event that, after the date of this Contract, any requirements as to class, or as to rules and regulations to which the construction of the Vessel is required to conform are altered or changed by the Classification Society or the other regulatory bodies authorized to make such alterations or changes, the following provisions shall apply:
 
 
 
(a) If such alterations or changes are compulsory for the Vessel, either of the parties hereto, upon receipt of such information from the Classification Society or such other regulatory bodies, shall promptly transmit the same to the other in writing, and the Seller shall thereupon cause the Builder to incorporate such alterations or changes into the construction of the Vessel, provided that the Buyer shall first agree to adjustments required by the Seller in the Purchase Price, the Delivery Date and other terms and conditions of this Contract and the Specifications occasioned by or resulting from such alterations or change.
 
 
(b) If such alterations or changes are not compulsory for the Vessel, but the Buyer
 
15
 

 
desires to incorporate such alterations or changes into the construction of the Vessel, then, the Buyer shall notify the Seller of such intentions. The Seller may accept such alterations or changes if they will not, in the judgment of the Seller, adversely affect the Builder's planning or program in relation to the Seller's other commitments, and provided, further, that the Buyer shall first agree to adjustments required by the Seller in the Purchase Price, the Delivery Date and other terms and conditions of this Contract and the Specifications occasioned by or resulting from such alterations or changes.
 
 
 
(2) Change in Class: Agreement as to such alterations or changes under (1) above shall be made in the same manner as provided in Sub-Clause VI) here offor modifications or changes to the Specifications.
 
 
3)  
SUBSTITUTION OF MATERIALS
 
 
In the event that any of the materials required in the construction of the Vessel under this Contract and the Specifications and Plans cannot be procured in time to effect delivery, or are in short supply to maintain the Delivery Date of the Vessel, the Seller may, provided that the Seller shall so notify the Buyer, cause the Builder to supply other available materials which are capable of meeting the requirements of class and of the rules and regulations with which the construction of the Vessel must comply. Any agreement as to the substitution of materials may be effected in the manner provided in Sub-Clause VI) of this Article, and shall likewise, include reasonable alterations in the Contract Price and other terms and conditions of this Contract, if any, occasioned by or resulting from the substitution.
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
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ARTICLE                             VI - BUYER'S SUPPLIES
 
 
1)  
RESPONSIBILITY OF THE BUYER
 
 
The Buyer shall, at its cost and expense, supply all articles to be supplied by the Buyer, as specifically listed in the Specifications (hereinafter referred to as the "Buyer's Supplies"), to the Seller at the Shipyard in perfect condition ready for installation and by the date designated by the Seller and/or the Builder to meet the building schedule of the Vessel.
 
 
In order to facilitate the installation of the Buyer's Supplies by the Builder, the Buyer shall furnish the Seller with the necessary plans, instruction books, test reports and certificates required by rules or regulations, and if so requested by the Seller and/or the Builder, shall cause the representative(s) of the manufacturers of these articles to assist the Builder in installation and/or make necessary adjustment thereof at the Shipyard, for the Buyer's account.
 
 
The Buyer shall be liable for any expenses incurred by the Seller and/or the Builder for repair of the Buyer's Supplies due to defective material or poor workmanship or performance or due to damage under transportation.
 
 
Should the Buyer fail to deliver to the Seller any item of the Buyer's Supplies including the necessary plans, instruction books, test reports and certificates mentioned above by the time designated by the Seller and/or the Builder, the delivery of the Vessel shall automatically be extended for a period of such delay, provided such delay in delivery shall affect delivery of the Vessel. In such event the Buyer shall pay to the Seller all losses and damages (except for the consequential loss or damage) sustained by the Seller and/or the Builder due to such delay in delivery of the Buyer's Supplies, and such payment shall be made upon delivery of the Vessel. In case that the delay in delivery of such Buyer's Supplies should exceed thirty (30) days beyond the date specified for delivery thereof, the Seller shall be entitled to cause the Builder to proceed with construction of the Vessel without installation of such item(s) in or onto the Vessel, without prejudice to the Seller's right hereinabove provided, and the Buyer shall accept the Vessel so completed.
 
 

 
 
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2)  
RESPONSIBILITY OF THE BUILDER
 
 
The Buyer and the Seller hereby confirm that the Builder shall be responsible for storing and handling of the Buyer's Supplies after delivery to the Shipyard, and shall install them on board the Vessel at the Builder's expense; it being agreed, however, the Seller and the Builder are not responsible for quality, performance and/or efficiency of any equipment of the Buyer's Supplies and is under no obligation with respect to guarantee of such equipment against any defects caused by poor quality, performance and/or efficiency of the Buyer's Supplies themselves.
 
 
This provision does not apply to, and the Seller and the Builder shall not be responsible for, the items such as ship stores which the Seller and the Builder are not required to install on board the Vessel under the Specifications.
 
 

 
 
 
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ARTICLE VII - TRIALS
 
 
I)  
NOTICE
 
 
The Seller shall notify the Buyer, at least fourteen (14) days in advance, of the time and place of the trial of the Vessel, and the Buyer shall promptly acknowledge receipt of such notice. Buyer's observance of the sea trials of the Vessel shall be carried out pursuant to Aritic1e N. 3) hereof. Failure in attendance of the observer at the trial run of the Vessel for any reason whatsoever after due notice to the Buyer as above provided shall be deemed to be a waiver by the Buyer of its right to have the Buyer's observer on board the Vessel at the trial run.
 
 
2)             WEATHER CONDITIONS
 
 
The trial shall be carried out under the weather condition which is deemed favorable enough by the judgment of the Seller. In the event of unfavorable weather on the date specified for the trial, same shall take place on the first available day thereafter that the weather conditions permit. The parties hereto recognize that the weather conditions in Japanese waters in which the trial runs are to take place are such that great changes in weather may arise momentarily and without warning, and therefore, it is agreed that, if, during the trial run, such change in the weather should occur as precludes the continuance of the trial, the trial run shall be discontinued and postponed until the first day next following which is deemed favorable enough by the judgment of the Seller; unless the Buyer shall assent to acceptance of the Vessel on the basis of trials made prior to such change in weather conditions. Any delay of the trial run caused by such unfavorable weather conditions shall operate to extend the date for delivery of the Vessel by the period of delay involved, and such delay shall be deemed as permissible delay in the delivery of the Vessel.
 
 
3)        HOW CONDUCTED
 
 

 
 
 
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All expenses in connection with the trial of the Vessel are to be for the account of the Seller, and the Seller shall cause the Builder to provide at its own expense the necessary materials and the necessary crew to comply with conditions of safe navigation. The trial shall be conducted in the manner prescribed in the Specifications, and shall prove fulfillment of the performance requirements for the trials as set forth in the Specifications. All trials of the Vessel shall be conducted on the trial course determined by the Seller.
 
 
4)  
METHOD OF ACCEPTANCE OR REJECTION
 
 
Upon completion of the trial run, the Builder shall give the Seller a notice by email or facsimile confirmed in writing of completion of the trial run, as and if the Builder considers that the results of the trial run indicate conformity of the Vessel to this Contract and the Specifications. The Seller shall, within three (3) Business Days after receipt of such notice from the Builder, notify the Builder by email or facsimile confirmed in writing of its acceptance or rejection of the Vessel. Such acceptance of the Vessel shall be made provided that the Vessel is deemed to satisfy the requirements of this Contract and the Specifications. The Buyer shall be deemed to have accepted the Seller's such decision.
 
 
However, should the result of the trial run indicate that the Vessel or any part or equipment thereof does not conform to the requirements of this Contract and/or the Specifications, and if the Builder is in agreement to non-conformity as specified in the Seller's notice of rejection to the Builder, then the Seller shall cause the Builder to correct such non-conformity and perform such further test as may be deemed necessary until the Builder are able to prove satisfaction of the same with requirements of this Contract and/or the Specifications.
 
 
The Buyer shall follow the decision of the Seller, and shall give notice of acceptance to the Seller as long as the Seller make a decision of acceptance of the Vessel, except in the case that the Buyer proves to the Seller's satisfaction that the Vessel is not materially and substantially in conformity with the Specifications with evidences, in which case the Seller shall review the opinion and evidences submitted by the Buyer and discuss in good faith. Except where the Seller reasonably judges that the Buyer's opinion of substantial non-
 
 
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conformity is obviously wrong or abuse of the right, then a matter shall first referred to judgment of the Classification Society, but if the Classification Society fails to make a judgment or cannot do so, the matter shall be referred to an arbitration.
 
 
5)  
EFFECT OF ACCEPTANCE
 
 
Acceptance of the Vessel as above provided shall be final and binding so far as conformity of the Vessel to this Contract and the Specifications is concerned and shall preclude the Buyer from refusing formal delivery of the Vessel as hereinafter provided, if the Seller complies with all other procedural requirements for delivery as provided for in Article VlII hereof. The Seller will exercise good faith in determining acceptance or rejection of the Vessel.
 
 
6)  
DISPOSITION OF SURPLUS CONSUMABLE STORES
 
 
Should any fuel oil, fresh water (except fresh water used as ballast) and other consumable stores, furnished by the Seller for trial runs remain on board the Vessel after acceptance of the Vessel by the Buyer, the Buyer agrees to buy the same from the Seller at the price the Seller paid to the local supplier through the Builder evidenced by voucher, and payment shall be effected at the time of delivery of the Vessel.
 
 
Lubricating oils and greases necessary for the operation of the Vessel shall be supplied by the Buyer prior to the trial runs, and the Seller shall pay upon delivery of the Vessel the cost of the quantities of lubricating oils and greases consumed during the trial runs at original purchase price by the Buyer evidenced by voucher.
 
 

 
 
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ARTICLE VIII  - DELIVERY
 
 
1)  
TIME AND PLACE
 
 
The Vessel shall be delivered by the Seller to the Buyer at the Shipyard, not earlier than ******, but not later than ******, subject, however, to the provisions relating to permissible delays, and extension of the time of delivery of the Vessel under this Contract.
 
 
It is understood and agreed by both parties hereto that the Seller shall use due diligence to cause the Builder to construct, complete and deliver the Vessel at the earliest possible time and the Buyer shall promptly accept the Vessel if and when the Seller shall tender earlier delivery of the Vessel, provided that the Seller shall have performed all its obligations under this Contract.
 
 
2)  
WHEN AND HOW EFFECTED
 
 
Provided that the Buyer shall concurrently pay to the Seller all sums due and payable upon delivery of the Vessel, the delivery of the Vessel shall be forthwith effected upon acceptance thereof by the Buyer, as herein provided, by the concurrent delivery by each of the parties hereto to the other of a PROTOCOL OF DELIVERY AND ACCEPTANCE acknowledging delivery of the Vessel by the Seller and acceptance thereof by the Buyer, which PROTOCOL shall be prepared in duplicate and executed by each of the parties hereto.
 
 
3)  
DOCUMENTS TO BE DELIVERED TO THE BUYER
 
 
Acceptance of the Vessel by the Buyer shall be conditioned upon receipt by the Buyer of the following duly authenticated documents to be provided by the Seller and/or the Builder, which shall accompany the aforementioned PROTOCOL OF DELIVERY AND ACCEPTANCE:
 
 
(a) COMMERCIAL INVOICE.
 
 

 
 
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(b)
DECLARATION OF WARRANTY of the Seller that the Vessel is delivered to the Buyer free and clear of any and all liens, claims or other encumbrances upon the Vessel and Buyer's title thereof, and in particular, that the Vessel is absolutely free of all burdens in the nature of imposts, taxes or charges imposed by the city, state or country of the port of delivery, as well as of all liabilities arising from the construction or operation of the Vessel in trial runs or otherwise, prior to delivery and acceptance.
 
 
(c)            PROTOCOL OF TRIALS of the VESSEL made pursuant to the Specifications.
 
 
 
(d)
PROTOCOL OF INVENTORY of the equipment of the VESSEL, including spare parts and the like, all as specified in the specifications.
 
 
 
(e)
PROTOCOL OF STORES OF CONSUMABLE NATURE referred to under paragraph 6) of Article VII hereof, including the original purchase price thereof. (f) FINISHED DRAWINGS AND PLANS and instruction books pertaining to the Vessel as stipulated in the Specifications.
 
 
 
(f)
FINISHED DRAWINGS AND PLANS and instruction books pertaining to the Vessel as stipulated in the Specifications.
 
 
(g)            BILL OF SALE (being Notarized & Legalized or Apostil led)
 
 
 
(h)
BUILDER'S CERTIFICATE (being Notarized & Legalized or Apostil 1 ed) and all other CERTIFICATE(S) required to be furnished upon delivery of the Vessel pursuant to the Specifications.
 
 
4)  
TITLE AND RISK
 
 
Title to and risk of the Vessel shall pass to the Buyer upon acceptance thereof by the Buyer as stated above; it being expressly understood that, until such acceptance is effected, the Vessel and its equipment are at the title and risk of the Seller.
 
 
5)  
REMOVAL OF THE VESSEL
 
 
The Buyer shall take possession of the Vessel immediately upon acceptance thereof, and if so requested by the Seller, shall remove the Vessel from the Shipyard within three (3) days after acceptance of the Vessel.
 
 
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ARTICLE
 
 
IX - FORCE MAJEURE
 

 
1)  
CAUSES OF DELAY
 
 
If, at any time before the actual delivery, either the construction of the Vessel or any performance required as a prerequisite of delivery of the Vessel is delayed due to Acts of God; acts of princes or rulers; requirements of government authorities; war or other hostilities or preparations there for; blockade; revolution, insurrections, mobilization, civil war, civil commotion or riots; vandalism; sabotages, strikes, lockouts or other labor disturbances; labor shortage, plague or other epidemics; quarantine; flood, typhoons, hurricanes, storms or other weather conditions not included in normal planning; earthquakes; tidal waves; landslides; fires, explosions, collisions or strandings; embargoes; delays or failure in transportation; shortage of materials, machinery or equipment; import restrictions; inability to obtain delivery or delays in delivery of materials, machinery or equipment, provided that at the time of ordering the same could reasonably be expected by the Seller and/or the Builder to be delivered in time; prolonged failure, shortage or restriction of electric current, oil or gas; defects in materials, machinery or equipment which could not have been detected by the Seller and/or the Builder using reasonable care; casting or forging rejects or the like not due to negligence; delays caused by the Classification Society or other bodies whose documents are required; destruction of or damage to the Shipyard or works of the Builder, its subcontractors or suppliers, or of or to the Vessel or any part thereof, by any causes herein described; delays in the Builder's other commitments resulting from any causes herein described which in turn delay the construction of the Vessel or the Seller's and/or the Builder's performance under this Contract; other causes or accidents beyond control of the Seller and/or the Builder, its subcontractors or suppliers of the nature whether or not indicated by the foregoing words; all the foregoing provided that these events could not be foreseen at the day of signing this Contract; then and in any such case, the delivery date shall be postponed for a period of time which shall not exceed the total accumulated time of all such delays.
 
 
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2)  
NOTICE OF DELAY
 
 
Within twelve (12) days after the date of occurrence of any cause of delay, on account of which the Seller claims that it is entitled under this Contract to a postponement of the delivery date, the Seller shall notify the Buyer in writing or by email or facsimile confirmed in writing of the date such cause of delay occurred. Likewise, within twelve (12) days after the date of ending of such cause of delay, the Seller shall notify the Buyer in writing or by facsimile confirmed in writing of the date such cause of delay ended. The Seller shall also notify the Buyer of the period by which the delivery date is postponed by reason of such cause of delay, with all reasonable dispatch after it has been determined. Failure of the Buyer to object to the Seller's claim for postponement of the delivery date within five (5) days after receipt by the Buyer of such notice of claim shall be deemed to be a waiver by the Buyer of its right to object to such postponement of the delivery date.
 
 
3)  
DEFINITION OF PERMISSIBLE DELAY
 
 
Delays on account of such causes as specified in Paragraph I) of this Article and any other delays of a nature which under the terms of this Contract permits postponement of the delivery date shall be understood to be permissible delays and are to be distinguished from unauthorized delays on account of which the Contract Price is subject to adjustment as provided for in Article III hereof.
 
 
4)  
RIGHT TO RESCIND FOR EXCESSIVE DELAY
 
 
If the total accumulated time of all delays on account of the causes specified in Paragraph 1) of this Article, excluding delays of a nature which under the terms of this Contract permit postponement of the delivery date, amounts to one hundred and fifty (150) days or more, then in such event, the Buyer may rescind this Contract by serving upon the Seller a written notice of cancellation. Such cancellation shall be effective as of the date the first arriving notice thereof is received by the Seller, and the Seller, after receipt of such notice, shall refund to the Buyer the full amount of all sums paid to the Seller on account of
 
 
25
 



 
the Vessel. Such refund shall forthwith discharge all obligations, duties and liabilities of each of the parties hereto to the other under this Contract. The Seller may, at any time, after the aggregate of the aforementioned delays shall exceed one hundred and fifty (150) days, as aforesaid, demand in writing that the Buyer shall make an election, in which case the Buyer shall, within ten (10) days after such demand is received, either notify the Seller of its intention to rescind, or agree to an extension of the time for delivery to a future date specified by the Seller.
 
 
It being understood and agreed by the parties that if further delay occurs on account of the causes specified in this Article beyond such extended delivery date, the Buyer immediately shall again have the same right of rescission.
 
 
 
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ARTICLE                        X - WARRANTY OF OUALITY
 
 
1)         GUARANTEE OF MATERIALS AND WORKMANSHIP
 
 
The Seller shall cause the Builder, for the period of twelve (12) months from the date of delivery of the Vessel, to guarantee the Vessel, her hull, her engines, her machineries, outfittings and accessories and all parts and equipments, excluding Buyer's Supplies stipulated in Article VI hereof, against all defects which are due to defective material and/or poor workmanship of the Builder and/or its subcontractors and are neither the result of incompetence, mismanagement, negligence, accident or willful neglect of the Buyer, its employees or agents or of any persons other than employees or agents of the Seller and/or the Builder, nor the effect of perils of the seas or river or normal wear and tear. The Seller and/or the Builder shall have no obligation under this guarantee for any defects discovered prior to the expiry date of the guarantee unless notice of such defects is received by the Seller not later than thirty (30) days after such expiry date.
 
 
However, in case that the Buyer is unable to enter the Vessel in the dry-dock within the guarantee period as provided above, the Builder's guarantee for the underwater part of the Vessel which cannot be discovered unless the Vessel is dry-docked, may be extended until the time of the first dry-docking after the delivery of the Vessel, subject to the mutual agreement of the parties hereto.
 
 
2)  
NOTICE OF DEFECTS:
 
 
The Buyer shall notify the Seller in writing, or by email or facsile confirmed in writing,
 
 
of any defects for which claim is made under this guarantee as promptly as possible after discovery thereof. The Buyer's written notice shall describe the nature and extent of the defects.
 
 
3)        EXTENT OF THE SELLER'S AND THE BUILDER'S LIABILITY
 
 

 
 
 
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The Seller and/or the Builder shall be under no obligation with respect to defects discovered after the expiration of the period of guarantee specified above. The Seller and/or the Builder shall not be responsible for any consequential damages occasioned by any defects or for any loss of time in operating or repairing the Vessel, or both, caused by any defects. Nor shall there be any liability of the Seller and/or the Builder hereunder for defects in the Vessel or any part or equipment thereof, caused by fire or accident at sea or elsewhere or by mismanagement, accidents, negligence or willful neglect on the part of the Buyer, its employees or agents, or of any persons other than employees or agents of the Seller and/or the Builder. Likewise, the Seller and/or the Builder shall not be liable for defects in the Vessel, or any part or equipment thereof, that are due to repairs which were made by other than the Builder at the direction of the Buyer, as hereinafter provided.
 
 
The provisions of this Article X exclude and negate any other or further responsibility or liability imposed on the Seller and/or the Builder by statute or otherwise.
 
 
4)  
REMEDY OF DEFECTS
 
 
The Seller shall cause the Builder to remedy any defects against which the Vessel, or any part or equipment thereof is guaranteed under this Article, by repairing or replacing the defective parts at the Builder's shipyard, unless the Vessel can not be conveniently brought to such shipyard for such repairs.
 
 
In case the Vessel can not be conveniently brought to the shipyard of the Builder, the Buyer may cause necessary repairs or replacements to be made elsewhere at the direction of the Buyer. In such case the Buyer shall first give the Seller the notice thereof, and the Seller shall have the right to verify by its own or the Builder's representative the nature and extent of the defects complained of, and shall, after such verification, promptly advise the Buyer of its acceptance or rejection of the defects as one/those that is/are subject to the guarantee herein provided. Any dispute shall be referred to arbitration in accordance with the provisions of Article XIII hereof. If the Seller accepts the defects as one/those justifying remedy under this Article, the Seller shall pay to the Buyer, unless otherwise agreed upon between the parties hereto, actual cost incurred for such repairs and replacements.
 
 

 
 
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Upon reasonable requests from the Buyer, duly endorsed by the Builder's engineer ifhe is then on board, the Seller shall cause the Builder to forward to the Vessel necessary parts and/or equipment, by sea freight at Seller's expense, to replace those which have been found defective in accordance with provisions hereof. If the Buyer should reasonably require same to be forwarded by air freight, the Seller shall do so at Seller's expense, provided that, such parts and/or equipment are essential to and urgently required for the seaworthiness of the Vessel.
 
 
The guarantee contained in this Article shall not be assigned to any party in any case including but not limited to the case that the Vessel is sold by the Buyer to the third party, unless prior consent of the Seller is given in writing.
 
 
 

 
 
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ARTICLE
 
 
XI - INSURANCE
 

 
1)  
EXTENT OF INSURANCE COVERAGE
 
 
The Seller shall cause the Builder, at the Builder's own cost and expense, to insure the Vessel and all machinery, equipment, appurtenances and outfits, including the Buyer's Supplies, built into or installed in or upon the Vessel, with first class insurance company or underwriters in Japan. The amount of such insurance coverage shall not be less than the aggregate amount of all installments paid by the Buyer to the Seller, plus the value of the Buyer's Supplies in the custody of the Shipyard.
 
 
2)  
APPLICATION OF RECOVERED AMOUNTS
 
 
In the event that the Vessel shall be damaged from any insured cause at any time before delivery of the Vessel, and in the further event that such damage shall not constitute an actual or a constructive total loss of the Vessel, the amount received in respect of the insurance shall be applied by the Builder in repair of such damage, satisfactory to the Classification requirements, and the Buyer shall accept the Vessel under this Contract if completed in accordance with this Contract and the Specifications, subject, however, to the extension of delivery time under Article VIII hereof.
 
 
Should the Vessel from any cause become an actual or constructive total loss, the Seller shall either:
 
 
 
( a)
cause the Builder to proceed in accordance with the terms of this Contract, in which case the amount received in respect of the insurance shall be applied to the reconstruction and repair of the damage of the Vessel, provided the parties hereto shall have first agreed thereto in writing and to such reasonable extension of delivery time as may be necessary for the completion of such reconstruction and repair, delays due to such extension being deemed to be permissible delays; or
 
 

 
 

 
 
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(b)
Refund promptly to the Buyer the full amount of all sums paid by the Buyer to the Seller as installments in advance of delivery of the Vessel and deliver to the Buyer all Buyer's Supplies (or the insurance proceeds paid with respect thereto), in which case this Contract shall be deemed to be automatically terminated and all rights, duties, liabilities and obligations of each of the parties to the other shall forthwith cease and terminate.
 
 
3)  TERMINATION OF SELLER'S AND/OR BUILDER'S OBLIGATION TO INSURE
 
 
The Seller and/or the Builder shall be under no obligation to insure the Vessel hereunder after delivery of the Vessel to the Buyer.
 
 

 
 
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ARTICLE                      XII - BUYER'S DEFAULT
 
 
1)  
DEFINITION OF DEFAULT
 
 
The Buyer shall be deemed to be in default of performance of its obligations under this Contract in the following cases:
 
 
(a)
If the Buyer fails to pay the 1st Installment to the Seller within three (3) Business Days after the day and year first above written under the provisions of Article II hereof; or
 
 
(b)
If the Buyer fails to pay the 2nd and 3rd Installments to the Seller within three (3) Business Days after such Installment becomes due and payable under the provisions of Article II hereof; or
 
 
(c)
If the Buyer fails to pay the 4th Installment to the Seller concurrently with the delivery of the Vessel by the Seller to the Buyer as provided in Article II hereof; or (d) If the Buyer fails to take delivery of the Vessel, when the Vessel is duly tendered for delivery by the Seller under the provisions of Article VIII hereof; or
 
 
( e)
If the Buyer cancels or terminates or purports to cancel or terminate or issues a notice of cancellation or termination in respect of this Contract (save and except as the result of the proper exercise of its rights under this Contract); or
 
 
(f)
If any court order or other order having a legally binding effect on the Buyer is requesting the Buyer to cease purchase of the Vessel; or
 
 
(g)
If, after the date of this Contract, a petition is filed or an order is made or and effective resolution is passed for the winding up of the Buyer; or
 
 
(h)
If the Buyer ceases to carry on its business or declares its intention to cease to carry on its business or generally is subjected to any applicable insolvency procedure; or (i) If a receiver, trustee, liquidator or sequestrator of, or for, the Buyer or any substantial part of their property is appointed.
 
 
(i)
If a receiver, trustee, liquidator or sequestrator of, or for, the Buyer or any substantial part of their property is appointed.
 
 

 
 

 
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2)  
INTEREST CHARGE
 
 
If the Buyer is in default of payment as to any installment mentioned above, the Buyer shall, commencing with and including the due date, pay interest on such unpaid installment at the rate of two point five percent (2.5%) over the Long-term prime rate in Japan per annum until such installment including interest thereon is fully paid.
 
 
It is expressly understood that the rate of interest specified in this Contract shall be the net rate to be received by the party entitled thereto.
 
 
3)  
RESCISSION BY SELLER
 
 
If such default continues for a period of ten (10) days thereafter, the Seller may, at its option, rescind this Contract by giving notice to the Buyer by email or facsimile confirmed in writing. Upon receipt of such notice of rescission by the Buyer, this Contract shall forthwith be rescinded and cancelled, and any lien, interest or property right that the Buyer may have in and to the Vessel or to any part or equipment thereof and to any material or part acquired for construction of the Vessel but not yet utilized for such purpose, shall forthwith cease, and the Vessel and all parts and equipment thereof shall become the sole property of the Seller, and any installment or installments theretofore paid by the Buyer to the Seller on account of this Contract shall be retained by the Seller, however, the retainment of installments shall not preclude the Seller from claiming proven loss or damages (except for the consequential loss or damages), if any, which are suffered by the Seller consequent on rescission of this Contract.
 
 
4)  
SALE OF VESSEL
 
 
In the event of rescission of this Contract as provided above, the Seller shall have full right and power either to complete or not to complete the Vessel as it deems fit, and to sell the Vessel at a public or private sale on such terms and conditions as the Seller thinks fit without being answerable for any loss or damage. When the sale of the Vessel is made, the proceeds shall be received by the Seller and shall be applied by the Seller as follows:
 
 
33
 

 
(a) In case of sale of the Vessel in incomplete state:
 
 
Firstly to payment of (1) all costs and expenses attending the sale and otherwise incurred by the Seller and the Builder as a result of the Buyer's default and then to (2) compensation to the Seller and the Builder for all costs and expenses relating to the construction of the Vessel and interest thereon at the rate of two point five percent (2.5%) over the Long-term prime rate in Japan per annum and for reasonable loss of profit consequent on the rescission of this Contract.
 
 
If the proceeds of sale plus the installment or installments paid by the Buyer is sufficient to pay all of the above (1) and (2), the balance shall be paid to the Buyer, however, if the proceeds of sale is deficient to pay the same, such deficiency shall forthwith be paid by the Buyer upon demand of the Seller.
 
 
(b) In case of sale of the Vessel after completion:
 
 
Firstly to payment of (1) all costs and expenses attending the sale and otherwise incurred by the Seller and/or the Builder as a result of the Buyer's default and then to (2) all unpaid installments of the Contract Price and interest of such installments at the rate of two point five percent (2.5%) over the Long-term prime rate in Japan per annum from the respective due dates thereof to the date of application.
 
 
If there is any balance left of the proceeds of sale after full payment of all above (1) and (2), the balance shall be paid to the Buyer, however, if the proceeds of sale are deficient to pay all of the above (I) and (2), such deficiency shall forthwith be paid by the Buyer upon demand of the Seller.
 
 

 
 

 
 
34
 
 
 
 
 
 
ARTICLE XIII - SELLER'S DEFAULT
 
 
I)  
DEFINITION OF DEFAULT
 
 
The Seller shall be deemed to be in default of performance of its obligations under this Contract in the following cases:
 
 
(a)
If the Seller cancels or terminates or purports to cancel or terminate or issues a notice of cancellation or termination in respect of this Contract (save and except as the result of the proper exercise of its rights under this Contract); or
 
 
(b)
If any court order or other order having a legally binding effect on the Seller is requesting the Seller to cease sale of the Vessel; or
 
 
( c)
If, after the date of this Contract, a petition is filed or an order is made or and effective resolution is passed for the winding up of the Seller; or
 
 
(d)
If the Seller ceases to carry on its business or declares its intention to cease to carry on its business or generally is subjected to any applicable insolvency procedure; or ( e) If a receiver, trustee, liquidator or sequestrator of, or for, the Seller or any substantial part of their property is appointed.
 
 
2) RESCISSION BY BUYER
 
 
The payments made by the Buyer prior to the delivery of the Vessel shall be in the nature of advances to the Seller. If such default continues for a period of ten (10) days thereafter. the Buyer may, at its option, rescind this Contract by giving notice to the Seller by email or facsimile confirmed in writing. Upon receipt of such notice of rescission by the Seller, this Contract shall forthwith be rescinded and cancelled.
 
 

 
 

 
 
 
35
 


 
3) REFUND BY SELLER
 
 
Thereupon the Seller shall promptly refund to the Buyer the full amount of all sums paid by the Buyer to the Seller on account of the Vessel, unless the Seller proceeds to the arbitration under the provisions of Article XIV hereof.
 
 
In such event, the Seller shall pay to the Buyers interest at the rate of two point five percent (2.5%) per annum on the amount required to be refunded to the Buyer, computed from the respective dates on which such sums were paid by the Buyer to the Seller to the date of remittance by the Seller.
 
 
4). DISCHARGE OF OBLIGATIONS:
 
 
Upon such refund by the Seller to the Buyer, all obligations, duties and liabilities of each of the parties hereto to the other under this Contract shall be forthwith completely discharged.
 
 
ARTICLE XIV - ARBITRATION
 
 
1)        TECHNICAL DISPUTES
 
 
Any dispute or any difference of opinion between the parties hereto relating to conformity of the construction of the Vessel or material used to the Classification requirements or relating to any other technical matters shall be referred to the Classification Society for settlement by and between the parties and the Classification Society.
 
 
In the event that the settlement cannot be reached by the three parties above-mentioned, then such matter shall be referred to arbitration as hereinafter provided.
 
 
 
 
 
36
 




 
2)  
ARBITRATION
 
 
Except for the case in which the dispute is settled under Paragraph I) hereof, any dispute arising under or by virtue of this Contract or any difference of opinion between the parties hereto concerning their rights and obligations under this Contract, shall be referred to arbitration in Tokyo in accordance with the prevailing rules and regulations of Japan Shipping Exchange, Inc.
 
 
3)  
ALTERATION OF DELIVERY TIME
 
 
In the event of arbitration of any dispute arising or occurring prior to delivery of the Vessel, an award of the arbitrators shall include a finding as to whether or not the delivery date of the Vessel is in any way altered thereby.
 
 

 
 
37
 



 
ARTICLE                               XV-
 
 
ASSIGNMENT OF CONTRACT
 

 

 
 
Neither party may assign this Contract in whole or in part to any other individual or company unless the prior consent of the other party is given in written agreement.
 
 
In case of assignment by the Buyer, such assignment shall further be subject to approval of the Japanese Government, and the Buyer shall remain liable under this Contract.
 
 
This Contract shall inure to the benefit of and shall be binding upon the lawful successors or the legitimate assigns of either or both parties.
 

 
 
 

 
 
38
 



 
ARTICLE                      XVI - TAXES AND DUTIES
 
 
1)  
TAXES
 
 
All taxes and charges of any kind incurred in connection with this Contract in Japan except stamp duty in Japan which shall be shared by both parties, shall be borne by the Seller, and those incurred in countries other than Japan shall be borne by the Buyer.
 
 
2)  
DUTIES
 
 
The Seller shall hold the Buyer harmless from any payment of a duty imposed in Japan upon materials or supplies which the Seller may acquire at its cost and by its own discretion from abroad for construction of the Vessel. However, the import duties, if any, on any materials or apparatus which, under the terms of this Contract and/or Specifications, may be supplied by the Buyer from abroad for construction of the Vessel, and or any other materials, stores, provisions or any other goods which the Buyer or its employees may take in from abroad shall be borne by the Buyer.
 
 
 

 
 
39
 



 
ARTICLE                             XVII - PATENTS, TRADE MARKS, COPYRIGHTS
 
 
1)  
PATENTS, TRADEMARKS AND COPYRIGHTS
 
 
Machinery and equipment of the Vessel may bear the patent numbers, trade marks or trade names of the manufacturers, Nothing contained herein shall be construed as transferring any patent or trade mark rights or copyrights in equipment covered by this Contract, and all such rights are hereby expressly reserved to the true and lawful owners thereof.
 
 
The Seller shall cause the Builder to defend the Buyer and hold it harmless from patent liability or claim of patent infringement of any nature or kind, including costs and expenses for, or on account of, any patented or unpatented invention made or used in the performance of the Contract and also including costs and expenses of litigation, if any, provided, however, that the Buyer shall defend the Seller and hold it harmless in respect of infringement of any patent rights on account of parts or equipment for the Vessel supplied by the Buyer.
 
 
2)  
GENERAL PLANS, SPECIFICATIONS AND WORKING DRAWINGS
 
 
The Buyer hereby agrees with the Seller that the Builder retains all rights with respect to the Specifications, plans, working drawings, technical descriptions, calculations, test results and other data, information and documents concerning the design and construction of the Vessel and the Buyer undertakes therefore not to disclose the same or divulge any information contained therein to any third parties, without the prior written consent of the Builder, excepting where it is necessary for usual operation, repair and maintenance of the Vessel.
 
 
 
 
 
40
 



 
ARTICLE
 
 
XVIII- INTERPRETATION
 

 
In the event of a conflict or inconsistency between the terms of this Contract and any of the terms of the Specifications attached hereto, the Specifications shall prevail in all technical respects and the Contract shall prevail in all other respects. Should there be any inconsistency or contradiction between the Plans and the Specifications, the Specifications shall govern.
 
 
This Contract shall be construed, take effect and be enforceable in accordance with and under the laws and regulations prevailing in Japan.
 
 
 
 
41
 



 
ARTICLE                         XIX - NOTICE
 
 
All notices and communications in connection with this Contract, except as otherwise specifically provided, shall be addressed as follows:
 
 
To the Buyer:
 
 
Facsimile:
 
 
To the Seller:                                       ******
 
 
******
 
 
******
 
 
******
 
 

 
 
Facsimile:                                ******
 
 

 
 
To the Builder:                                       ******
 
 
******
 
 
******
 
 
******
 
 

 
 
 Facsimile:                                ******
 
 

 
 
 
 
 
42
 
 

 
 

 
 
ARTICLE                      XX - EFFECTIVE DATE
 
 
This Contract shall become effective upon execution thereof by the Buyer and the Seller.
 
 

 
 
 
 
43
 



 
IN WITNESS WHEREOF, the parties hereto have caused this Contract to be duly executed.
 
 

 
 
For the Buyer:                                                                           For the Seller:
 
 

 
 

 
 

 
 
By:                                                                    By:
 
 
Title:                                                                           Title:
 
 
 
 

 
 

 
 
44
 


 EX-10.13 6 exhibit1013.htm EXHIBIT 10.13 FACILITY AGREEMENT exhibit1013.htm

                                                                                                                        EXECUTION VERSION

FACILITY AGREEMENT PROVIDING FOR A
SENIOR SECURED TERM LOAN
OF UP TO ¥6,280,000,000


EAST GULF SHIPHOLDING, INC.
as Borrower,

AND

The Banks and Financial Institutions listed on Schedule I hereto,
as Lenders,

AND

DNB NOR BANK ASA,
as Facility Agent

AND

DEUTSCHE SCHIFFSBANK AKTIENGESELLSCHAFT,
as Security Trustee,


AND

INTERNATIONAL SHIPHOLDING CORPORATION,
as Guarantor

 


 January 23, 2008



      
        TABLE OF CONTENTS      
      
        
      
      
        Page      
 
    

DEFINITIONS 
1
 
 
1.1
Specific Definitions 
1
 
 
1.2
Computation of Time Periods; Other Definitional Provisions                                                 0;                                         14
 
 
1.3
Accounting Terms 
14
 
 
1.4
Certain Matters Regarding Materiality 
14
 
 
2.
REPRESENTATIONS AND WARRANTIES 
14
 
 
2.1
Representations and Warranties 
14
 
 
(a)
Due Organization and Power 
15
 
 
(b)
Authorization and Consents 
15
 
 
(c)
Binding Obligations 
15
 
 
(d)
No Violation 
15
 
 
(e)
Filings; Stamp Taxes 
15
 
 
(f)
Litigation 
15
 
 
(g)
No Default 
15
 
 
(h)
Vessel 
15
 
 
(i)
Insurance 
16
 
 
(j)
Financial Information 
16
 
 
(k)
Tax Returns 
16
 
 
(l)
ERISA 
16
 
 
(m)
Chief Executive Office 
17
 
 
(n)
Foreign Trade Control Regulations 
17
 
 
(o)
Equity Ownership 
17
 
 
(p)
Environmental Matters and Claims 
17
 
 
(q)
Liens 
18
 
 
(r)
Indebtedness 
18
 
 
(s)
Payment Free of Taxes 
18
 
 
(t)
No Proceedings to Dissolve 
18
 
 
(u)
Solvency 
18
 
 
(v)
Compliance with Laws 
18
 
 
(w)
Survival 
18
 
 
3.
THE FACILITY 
18
 
 
3.1
(a)            Purposes 
18
 
 
(b)
Making of the Facility 
18
 
 
(c)
Availability of Advances 
19
 
 
(d)
One Drawdown Date for Each Advance 
19
 
 
3.2
Drawdown Notice 
19
 
 
3.3
Effect of Drawdown Notice 
19
 
 
4.
CONDITIONS 
19
 
 
4.1
Conditions Precedent to the Effectiveness of this Agreement                                                &# 160;                                            19
 
 
(a)
Corporate Authority 
19
 
 
(b)
The Agreement 
20
 
 
(c)
The Note 
20
 
 
(d)
The Creditors 
20
 
 
(e)
Fees 
20
 
 
(f)
Environmental Claims 
20
 
 
(g)
Legal Opinions 
20
 
 
(h)
Officer's Certificate 
21
 
 
(i)
Shipsales Contract 
21
 
 
4.2
Condition Precedent to Advance I 
21
 
 
(a)
Security Documents 
21
 
 
4.3
Conditions Precedent to Advance III 
21
 
 
(a)
Vessel Documents 
21
 
 
(b)
Security Documents 
22
 
 
(c)
Vessel Appraisals 
22
 
 
(d)
ISM DOC 
22
 
 
(e)
Evidence of Current COFR 
22
 
 
(f)
Vessel Liens 
22
 
 
(g)
Vessel Delivery 
22
 
 
(h)
Maritime Administration Approval 
22
 
 
4.4
Further Conditions Precedent 
22
 
 
(a)
Drawdown Notice 
22
 
 
(b)
Representations and Warranties True 
22
 
 
(c)
No Default 
23
 
 
(d)
No Material Adverse Effect 
23
 
 
4.5
Breakfunding Costs 
23
 
 
4.6
Satisfaction after Drawdown 
23
 
 
5.
REPAYMENT AND PREPAYMENT 
23
 
 
5.1
Repayment 
23
 
 
5.2
Voluntary Prepayment; No Re-borrowing 
23
 
 
5.3
Mandatory Prepayment; Sale or Loss of Vessel 
23
 
 
5.4
Optional Reduction of Facility by the Lenders 
24
 
 
5.5
Interest and Cost With Application of Prepayments 
24
 
 
5.6
Borrower's Obligation Absolute 
24
 
 
6.
INTEREST AND RATE 
24
 
 
6.1
Payment of Interest; Interest Rate 
24
 
 
6.2
Maximum Interest 
25
 
 
7.
PAYMENTS 
25
 
 
7.1
Time and Place of Payments, No Set Off 
25
 
 
7.2
Tax Credits 
25
 
 
7.3
Computations; Banking Days 
25
 
 
8.
EVENTS OF DEFAULT 
26
 
 
8.1
Events of Default 
26
 
 
(a)
Principal Payments 
26
 
 
(b)
Interest and other Payments 
26
 
 
(c)
Representations, etc 
26
 
 
(d)
Impossibility, Illegality 
26
 
 
(e)
Mortgage 
26
 
 
(f)
Certain Covenants 
26
 
 
(g)
Covenants 
26
 
 
(h)
Indebtedness and Other Obligations 
26
 
 
(i)
Bankruptcy 
27
 
 
(j)
Judgments 
27
 
 
(k)
Inability to Pay Debts 
27
 
 
(l)
Termination of Operations; Sale of Assets 
27
 
 
(m)
Change in Financial Position 
27
 
 
(n)
Cross-Default 
27
 
 
(o)
ERISA Debt 
27
 
 
8.2
Indemnification 
28
 
 
8.3
Application of Moneys 
28
 
 
9.
COVENANTS 
29
 
 
9.1
Affirmative Covenants 
29
 
 
(a)
Performance of Agreements 
29
 
 
(b)
Notice of Default, etc 
29
 
 
(c)
Obtain Consents 
29
 
 
(d)
Financial Information 
29
 
 
(e)
Contingent Liabilities 
30
 
 
(f)
Vessel Valuations 
30
 
 
(g)
Corporate Existence 
30
 
 
(h)
Books and Records 
30
 
 
(i)
Taxes and Assessments 
30
 
 
(j)
Inspection 
31
 
 
(k)
Inspection and Survey Reports 
31
 
 
(l)
Compliance with Statutes, Agreements, etc 
31
 
 
(m)
Environmental Matters 
31
 
 
(n)
Insurance 
31
 
 
(o)
Vessel Management 
31
 
 
(p)
Brokerage Commissions, etc 
31
 
 
(q)
ISM Code, ISPS Code and MTSA Matters 
32
 
 
(r)
ERISA 
32
 
 
(s)
Evidence of Current COFR 
32
 
 
(t)
Mortgage 
32
 
 
(u)
Listing on NYSE 
32
 
 
9.2
Negative Covenants 
32
 
 
(a)
Liens 
32
 
 
(b)
Third Party Guaranties 
33
 
 
(c)
Liens on Shares of Borrower 
33
 
 
(d)
Subordination of Inter-Company Indebtedness 
33
 
 
(e)
Transaction with Affiliates 
33
 
 
(f)
Change of Flag, Class, Management or Ownership 
33
 
 
(g)
Chartering 
33
 
 
(h)
Change in Business 
34
 
 
(i)
Sale of Assets 
34
 
 
(j)
Changes in Offices or Names 
34
 
 
(k)
Consolidation and Merger 
34
 
 
(l)
Change Fiscal Year 
34
 
 
(m)
Indebtedness 
34
 
 
(n)
Limitations on Ability to Make Distributions 
34
 
 
(o)
Change of Control 
34
 
 
(p)
No Money Laundering 
34
 
 
(q)
Shipsales Contract 
34
 
 
9.3
Financial Covenants 
34
 
 
(a)
Consolidated Indebtedness to Consolidated EBITDA Ratio 
35
 
 
(b)
Working Capital 
35
 
 
(c)
Consolidated Tangible Net Worth 
35
 
 
(d)
Consolidated EBITDA to Interest Expense 
35
 
 
9.4
Asset Maintenance 
35
 
 
10.
Grant of Security. 
35
 
 
11.
GUARANTEE 
36
 
 
11.1
The Guarantee 
36
 
 
11.2
Obligations Unconditional 
36
 
 
11.3
Reinstatement 
37
 
 
11.4
Subrogation 
37
 
 
11.5
Remedies 
37
 
 
11.6
Joint, Several and Solidary Liability 
37
 
 
11.7
Continuing Guarantee 
37
 
 
12.
ASSIGNMENT 
38
 
 
13.
ILLEGALITY, INCREASED COST, NON-AVAILABILITY, ETC 
38
 
 
13.1
Illegality 
38
 
 
13.2
Increased Costs 
38
 
 
13.3
Nonavailability of Funds 
39
 
 
13.4
Lender's Certificate Conclusive 
39
 
 
13.5
Compensation for Losses 
39
 
 
14.
CURRENCY INDEMNITY 
40
 
 
14.1
Currency Conversion 
40
 
 
14.2
Change in Exchange Rate 
40
 
 
14.3
Additional Debt Due 
40
 
 
14.4
Rate of Exchange 
40
 
 
15.
FEES AND EXPENSES 
40
 
 
15.1
Fees 
40
 
 
15.2
Expenses 
41
 
 
16.
APPLICABLE LAW, JURISDICTION AND WAIVER 
41
 
 
16.1
Applicable Law 
41
 
 
16.2
Jurisdiction 
41
 
 
16.3
WAIVER OF JURY TRIAL 
41
 
 
17.
THE AGENTS 
42
 
 
17.1
Appointment of Agents 
42
 
 
17.2
Appointment of Security  Trustee 
42
 
 
17.3
Distribution of Payments 
42
 
 
17.4
Holder of Interest in Note 
43
 
 
17.5
No Duty to Examine, Etc 
43
 
 
17.6
Agents as Lenders 
43
 
 
17.7
Acts of the Agents 
43
 
 
(a)
Obligations of the Agents 
43
 
 
(b)
No Duty to Investigate 
43
 
 
(c)
Discretion of the Agents 
43
 
 
(d)
Instructions of Majority Lenders 
43
 
 
17.8
Certain Amendments 
43
 
 
17.9
Assumption re Event of Default 
44
 
 
17.10Limitations of Liability                                                                                                                44
 
 
17.11Indemnification of the Agent and Security Trustee                                                    ;                                           44
 
 
17.12Consultation with Counsel                                                                                                          45
 
 
17.13Resignation                                               0;                                                                     45
 
 
17.14Representations of Lenders                                                                                                          45
 
 
17.15Notification of Event of Default                                                                                                         45
 
 
18.
NOTICES AND DEMANDS 
45
 
 
18.1
Notices 
45
 
 
19.
MISCELLANEOUS 
46
 
 
19.1
Time of Essence 
46
 
 
19.2
Unenforceable, etc., Provisions - Effect 
46
 
 
19.3
References 
46
 
 
19.4
Further Assurances 
46
 
 
19.5
Prior Agreements, Merger 
46
 
 
19.6
Entire Agreement; Amendments 
47
 
 
19.7
Indemnification 
47
 
 
19.8
Headings 
47
 
SCHEDULES

 
I
The Lenders and the Commitments
II           Approved Ship Brokers
III           Liens
IV           Indebtedness


EXHIBITS

A            Form of Promissory Note
B            Form of Drawdown Notice
C            Form of Compliance Certificate
D            Form of Assignment and Assumption Agreement
E            Form of Earnings and Charterparties Assignment
F            Form of Insurances Assignment
G            Form of Shipsales Contract Assignment
H            Form of U.S. First Preferred Mortgage
I            Form of Panamanian First Priority Mortgage
J            Form of Marshall Islands First Preferred Mortgage

 

 

 

 

               
                  
                  --                
              		  
             
        
      
    

SENIOR LOAN FACILITY AGREEMENT
 
THIS SENIOR SECURED LOAN AGREEMENT (the “ Agreement” or “Agreement”) is made as of the 23rd day of January 2008, by and among (1) EAST GULF SHIPHOLDING, INC., a corporation organized and existing under the laws of the Marshall Islands (the “Borrower”), (2) INTERNATIONAL SHIPHOLDING CORPORATION, a corporation organized and existing under the laws of the State of Delaware (the “Guarantor”), as guarantor, (3) the banks and financial institutions listed on Schedule I, as lenders (together with any bank or financial institution which becomes a Lender pursuant to Article 11, the “Lenders” and each a “Lender”), (4) DNB NOR BANK ASA, as facility agent (in such capacity including any successor thereto, the “Facility Agent”) and (5) DEUTSCHE SCHIFFSBANK AKTIENGESELLSCHAFT, as security trustee for the Lenders (in such capacity, the “Security Trustee” and, together with the Facility Agent, the “Agents”).
 
WITNESSETH THAT:
 
WHEREAS, at the request of the Borrower, each of the Agents has agreed to serve in such capacity under the terms of this Agreement and the Lenders have agreed to provide to the Borrower a senior secured term loan facility in the amount of up to Six Billion Two Hundred Eighty Million Yen (¥6,280,000,000);
 
NOW, THEREFORE, in consideration of the premises set forth above, the covenants and agreements hereinafter set forth, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as set forth below:
 
1.  DEFINITIONS
 
1.1  Specific Definitions.  In this Agreement the words and expressions specified below shall, except where the context otherwise requires, have the meanings attributed to them below:
 
“Acceptable Accounting Firm”
shall mean Ernst & Young LLP, or such other Securities and Exchange Commission recognized accounting firm as shall be approved by the Facility Agent, such approval not to be unreasonably withheld;
“Acceptable Charter”
shall mean a time charter in respect of the Vessel with a minimum term (inclusive of the primary term and any renewal or extension term options) of five years in form and substance reasonably acceptable to the Majority Lenders;
“Advance I”
shall mean that certain portion of the Facility to be advanced at the request of the Borrower pursuant to Section 3.1(a) upon the completion of the keel laying of the Vessel, in the maximum principal amount of up to Seven Hundred Eighty Five Million Yen (¥785,000,000);
“Advance II”
shall mean that certain portion of the Facility to be advanced at the request of the Borrower pursuant to Section 3.1(a) upon the completion of the launching of the Vessel, in the maximum principal amount of up to Seven Hundred Eighty Five Million Yen (¥785,000,000) plus the amount, if any, of Advance I not advanced to the Borrower on the Initial Drawdown Date;
“Advance III”
shall mean that certain portion of the Facility to be advanced at the request of the Borrower pursuant to Section 3.1(a) upon the delivery of the Vessel, in the maximum principal amount of Four Billion Seven Hundred Ten Million Yen (¥4,710,000,000) plus the amount, if any, of Advance I and Advance II not previously advanced to the Borrower;
“Advance(s)”
shall mean Advance I, Advance II and Advance III;
“Affiliate”
shall mean with respect to any Person, any other Person directly or indirectly controlled by or under common control with such Person.  For the purposes of this definition, “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) as applied to any Person means the possession directly or indirectly of the power to direct or cause the direction of the management and policies of that Person whether through ownership of voting securities or by contract or otherwise;
“Agents”
shall have the meaning ascribed thereto in the preamble;
“Agreement”
shall mean this Agreement, as the same shall be amended, modified or supplemented from time to time;
“Applicable Margin”
shall mean the rate per annum to be determined, subject to any adjustments pursuant to Section 6.1 hereof, according to the Guarantor’s Pricing Ratio as determined by the most recent Compliance Certificate in accordance with the following:
       Pricing Ratio Applicable Margin
       > 4.0 to 1.0                                    1.10% per annum
       < 4.0 to 1.0                                    0.90% per annum
 
provided however, that after the Final Drawdown Date until the eighth anniversary thereof, if the Vessel is subject to an Acceptable Charter, “Applicable Margin” shall mean, for the duration of such Acceptable Charter, the rate per annum to be determined, subject to any adjustments pursuant to Section 6.1 hereof, according to the Guarantor’s Pricing Ratio as determined by the most recent Compliance Certificate in accordance with the following:
       Pricing Ratio Applicable Margin
       > 4.0 to 1.0                                    1.00% per annum
       < 4.0 to 1.0                                    0.80% per annum
provided further that following the eighth anniversary of the Final Drawdown Date “Applicable Margin” shall mean the rate per annum to be determined, subject to any adjustments pursuant to Section 6.1 hereof, according to the Guarantor’s Pricing Ratio as determined by the most recent Compliance Certificate in accordance with the following:
 
      Pricing Ratio Applicable Margin
Without Acceptable Charter
       > 4.0 to 1.0                                    1.25% per annum
       < 4.0 to 1.0                                    1.05% per annum
With Acceptable Charter
       > 4.0 to 1.0                                    1.15% per annum
       < 4.0 to 1.0                                    0.95% per annum
 
any determination of Applicable Margin to be made and become effective on the first day following the expiry of the then current Interest Period based on the most recently delivered Compliance Certificate;
“Applicable Rate”
shall mean any rate of interest applicable to an Advance  from time to time pursuant to Section 6.1;
“Approved Charter”
shall mean any charter party agreement with respect to the Vessel with charter hire rates that are comparable to the then current market charter hire rates for similar vessels.  Borrower shall provide the Facility Agent with documented support for the then current market charter hire rates for vessels similar to the Vessel at least ninety days prior to the final delivery of the Vessel;
“Assignment and Assumption Agreement(s)”
shall mean any Assignment and Assumption Agreement(s) executed pursuant to Section 12 substantially in the form set out in Exhibit D;
“Assignment Notices”
shall mean (a) the notice with respect to the Earnings and Charterparties Assignment substantially in the form set out in Exhibit 1 thereto, (b) the notice with respect to the Insurances Assignment substantially in the form set out in Exhibit 3 thereto, and (c) the notice with respect to the Shipsales Contract Assignment substantially in the form set out in Exhibit 1 thereto;
“Assignments”
shall mean the Earnings and Charterparties Assignment, the Insurances Assignment and the Shipsales Contract Assignment;
“Banking Day(s)”
shall mean any day that is not a Saturday, Sunday or other day on which (a) banks in Bremen, Germany, New York, New York and London, England are authorized or required by law to remain closed, or (b) banks are not generally open for dealing in dollar deposits in the London interbank market;
“Borrower”
shall have the meaning ascribed thereto in the preamble;
“Builder”
shall mean Mitsubishi Heavy Industries, Ltd., a Japanese corporation;
“Change of Control”
shall mean (a) any “person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than the existing owners, that becomes the beneficial owner (as defined in Rules 13d-3 under the Exchange Act), directly or indirectly, of a greater percentage of the total voting power of the Guarantor than the Johnsen Family or (b)  the Guarantor ceases to own, directly or indirectly, 100% of the Borrower or (c) the Board of Directors of the Borrower or the Guarantor ceases to consist of a majority of the directors existing on the date hereof or directors nominated by at least two-thirds (2/3) of the then existing directors or (d) the Johnsen Family shall cease to own at least fifteen percent (15%) of the Guarantor;
“Classification Society”
shall mean a member of the International Association of Classification Societies acceptable to the Lenders with whom the Vessel is entered and who conducted periodic physical surveys and/or inspections of the Vessel;
“Closing Date”
shall mean the day and year first written above;
“Code”
shall mean the Internal Revenue Code of 1986, as amended, and any successor statute and regulation promulgated thereunder;
“Collateral”
shall mean, all property or other assets, real or personal, tangible or intangible, whether now owned or hereafter acquired in which the Security Trustee or any Lender has been granted a security interest pursuant to a Security Document or this Facility Agreement;
“Commitment(s)”
shall mean in relation to a Lender, the portion of the Facility set out opposite its name in Schedule I hereto or, as the case may be, in any relevant Assignment and Assumption Agreement, as changed from time to time pursuant to the terms of this Agreement;
“Commitment Fee”
shall have the meaning ascribed thereto in Section 15.1;
“Compliance Certificate”
shall mean a certificate certifying the compliance by each of the Security Parties with all of its covenants contained herein and showing the calculations thereof in reasonable detail, delivered by the chief financial officer of the Guarantor to the Facility Agent from time to time pursuant to Section 9.1(d) in the form set out in Exhibit C or in such other form as the Facility Agent may agree;
“Consolidated EBITDA”
shall mean, for any period, with respect to the Guarantor and the Subsidiaries, the sum of (without duplication) (a) Consolidated Net Income; (b) all Interest Expenses of the Guarantor and the Subsidiaries; (c) income taxes of the Guarantor and the Subsidiaries; and (d) depreciation and amortization, as well as other non-cash charges to the extent they have been deducted from income, of the Guarantor and the Subsidiaries determined on a consolidated basis in accordance with GAAP for such period; provided that if any Subsidiary is not wholly-owned by the Guarantor, Consolidated EBITDA shall be reduced (to the extent not otherwise reduced in accordance with GAAP) by an amount equal to (i) the amount of Consolidated Net Income attributable to such Subsidiary multiplied by (ii) the percentage ownership interest in the income of such Subsidiary not owned by the Guarantor on the last day of such period, but adding back other non-cash charges to the extent they have been deducted from income in accordance with GAAP;
“Consolidated Indebtedness”
all Indebtedness of the Guarantor and the Subsidiaries determined on a consolidated basis in accordance with GAAP;
“Consolidated Net Income”
for any period shall mean the consolidated net income of the Guarantor and the Subsidiaries for such period, as shown on the consolidated financial statements of the Guarantor and the Subsidiaries delivered in accordance with Section 9.1 (d);
“Consolidated Tangible Net Worth”
shall mean, with respect to the Guarantor and its Subsidiaries, at any date for which a determination is to be made (determined on a consolidated basis without duplication in accordance with GAAP) (a) the amount of capital stock (including its outstanding preferred stock); plus (b) the amount of surplus and retained earnings (or, in the case of a surplus or retained earnings deficit, minus the amount of such deficit); plus (c) deferred charges to the extent amortized and acquired contract costs net of accumulated amortization as stated on the then most recent audited balance sheet of the Guarantor; minus (d) the sum of (i) the cost of treasury shares and (ii) the book value of all assets that should be classified as intangibles (without duplication of deductions in respect of items already deducted in arriving at surplus and retained earnings) but in any event including goodwill, minority interests, research and development costs, trademarks, trade names, copyrights, patents and franchises, unamortized debt discount and expense, all reserves and any write up in the book value of assets resulting from a revaluation thereof subsequent to December 31, 1996;
“Creditors”
shall mean, together, the Agents and the Lenders, each a “Creditor”;
“Default”
shall mean any event that would, with the giving of notice or passage of time, or both, be an Event of Default;
“Default Rate”
shall mean a rate per annum equal to two percent (2%) over the Applicable Rate then in effect;
“DOC”
shall mean a document of compliance issued to an Operator in accordance with rule 13 of the ISM Code;
“Dollars” and the sign “$”
shall mean the legal currency, at any relevant time hereunder, of the United States of America and, in relation to all payments hereunder, in same day funds settled through the New York Clearing House Interbank Payments System (or such other Dollar funds as may be determined by the Facility Agent to be customary for the settlement in New York City of banking transactions of the type herein involved);
“Drawdown Date”
shall mean the date, being a Banking Day, upon which the Borrower has requested that an Advance be made available to the Borrower, and such Advance is made, as provided in Section 3;
“Drawdown Notice”
shall have the meaning ascribed thereto in Section 3.2;
“Earnings and Charterparties Assignment”
shall mean the first priority assignment of earnings, charterparties and requisition compensation in respect of (i) the earnings of the Vessel from any and all sources (including requisition compensation) and (ii) any charter or other contract relating to the Vessel, to be executed by the Borrower in favor of the Security Trustee pursuant to Section 4.2(b)(ii), substantially in the form set out in Exhibit E;
“Environmental Affiliate(s)”
shall mean, with respect to a Security Party, any Person or entity, the liability of which for Environmental Claims any Security Party may have assumed by contract or operation of law;
“Environmental Approval(s)”
shall have the meaning ascribed thereto in Section 2.1(p);
“Environmental Claim(s)”
shall have the meaning ascribed thereto in Section 2.1(p);
“Environmental Law(s)”
shall have the meaning ascribed thereto in Section 2.1(p);
“ERISA”
shall mean the Employment Retirement Income Security Act of 1974, as amended;
“ERISA Affiliate”
shall mean a trade or business (whether or not incorporated) which is under common control with the Borrower within the meaning of Sections 414(b), (c), (m) or (o) of the Code;
“ERISA Group”
shall mean the Guarantor and its subsidiaries within the meaning of Section 424(f) of the Code;
“Event(s) of Default”
shall mean any of the events set out in Section 8.1;
“Exchange Act”
shall mean the Securities and Exchange Act of 1934, as amended;
“Facility”
shall mean the facility to be made available by the Lenders to the Borrower hereunder in three Advances pursuant to Section 3 in the aggregate principal amount of the lesser of (i) eighty percent (80%) of the final delivered cost of the Vessel and (ii) Six Billion Two Hundred Eighty Million Yen (¥6,280,000,000), or the balance thereof from time to time outstanding, provided however that the Lenders shall have the right at any time before the fourteenth (14) day prior to the Final Drawdown Date to reduce the facility to sixty-five (65%) of the final delivered cost of the Vessel pursuant to Section 5.4;
“Facility Agent”
shall have the meaning ascribed thereto in the preamble;
“Fair Market Value”
shall mean, in respect of the Vessel, the average of two appraisals (measured in Dollars) on a “willing seller, willing buyer” basis of the Vessel free from any charterparty or other employment contract from ship brokers listed in Schedule II or such other independent ship brokers approved by the Majority Lenders, no such appraisal to be dated more than thirty (30) days prior to the date on which a determination of Fair Market Value is required pursuant to this Agreement;
“Fee Letter”
shall mean fee letter of even date herewith between the Borrower and the Facility Agent;
“Final Drawdown Date”
shall mean the Drawdown Date on which Advance III is made available to the Borrower;
“Final Payment”
shall mean the principal amount of Two Billion One  Hundred Ninety-Eight Million Twenty-Six Yen (¥2,198,000,026) (as such amount may be adjusted pursuant to Section 5.4) plus such other amounts as may be necessary to repay the Facility in full together with accrued but unpaid interest and any other amounts owing by any Security Party  to any Creditor pursuant to this Agreement, the Note or any Security Document;
“Final Payment Date”
shall mean September 15, 2020;
“GAAP”
shall have the meaning ascribed thereto in Section 1.3;
“Guaranteed Obligations”
shall have the meaning ascribed thereto in Section 11.1;
“Guarantor”
shall have the meaning ascribed thereto in the preamble;
“Indebtedness”
shall mean, with respect to any Person at any date of determination (without duplication), (i) all indebtedness of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person in respect of letters of credit or other similar instruments (including reimbursement obligations with respect thereto), (iv) all obligations of such Person to pay the deferred and unpaid purchase price of property or services, which purchase price is due more than six months after the date of placing such property in service or taking delivery thereof or the completion of such services, except trade payables, (v) all obligations on account of principal of such Person as lessee under capitalized leases, (vi) all indebtedness of other Persons secured by a lien on any asset of such Person, whether or not such indebtedness is assumed by such Person; provided that the amount of such indebtedness shall be the lesser of (a) the fair market value of such asset at such date of determination and (b) the amount of such indebtedness, and (vii) all indebtedness of other Persons guaranteed by such Person to the extent guaranteed; the amount of Indebtedness of any Person at any date shall be the outstanding balance at such date of all unconditional obligations as described above and, with respect to contingent obligations, the maximum liability upon the occurrence of the contingency giving rise to the obligation, provided that the amount outstanding at any time of any indebtedness issued with original issue discount is the face amount of such indebtedness less the remaining unamortized portion of  the original issue discount of such indebtedness at such time as determined in conformity with GAAP; and provided further that Indebtedness shall not include any liability for current or deferred federal, state, local or other taxes, or any trade payables;
“Indemnitee”
shall have the meaning ascribed thereto in Section 19.7;
“Initial Drawdown Date”
shall mean the Drawdown Date on which Advance I is made available to the Borrower;
“Initial Payment Date”
shall mean December 15, 2010;
“Insurances Assignment”
shall mean the first priority assignment in respect of the insurances over the Vessel, to be executed by the Borrower in favor of the Security Trustee pursuant to Section 4.2(b)(i), substantially in the form set out in Exhibit F;
“Interest Expense”
shall mean, with respect to the Guarantor and the Subsidiaries, on a consolidated basis, for any period (without duplication), interest expense, whether paid or accrued (including the interest component of capitalized leases), on all Indebtedness of the Guarantor and the Subsidiaries for such period, net of interest income, all determined in accordance with GAAP;
“Interest Period”
shall mean period(s) of one, three, six or twelve months as selected by the Borrower, or as otherwise agreed by the Lenders and the Borrower;
“Interest Notice”
shall mean a notice from the Borrower to the Facility Agent specifying the duration of any relevant Interest Period;
“Interest Rate Agreements”
shall mean any interest rate protection agreement, interest rate future agreement, interest rate option agreement, interest rate swap agreement, interest rate cap agreement, interest rate collar agreement, interest rate hedge agreement or other similar agreement or arrangement entered into between the Borrower, the Guarantor or any Subsidiary of the Borrower with the Facility Agent, which is designed to protect the Borrower, the Guarantor or any of the Borrower's Subsidiaries against fluctuations in interest rates applicable under this Agreement, to or under which the Borrower, the Guarantor or any of the Borrower's Subsidiaries is a party or a beneficiary on the date of this Agreement or becomes a party or a beneficiary hereafter;
“ISM Code”
shall mean the International Safety Management Code for the Safe Operating of Ships and for Pollution Prevention constituted pursuant to Resolution A.741(18) of the International Maritime Organization and incorporated into the Safety of Life at Sea Convention and includes any amendments or extensions thereto and any regulation issued pursuant thereto;
“ISPS Code”
shall mean the International Ship and Port Facility Security Code adopted by the International Maritime Organization at a conference in December, 2002 and amending the Safety of Life at Sea Convention and includes any amendments or extensions thereto and any regulation issued pursuant thereto;
“ISSC”
shall mean the International Ship Security Certificate issued pursuant to the ISPS Code;
“Johnsen Family”
shall mean (i) Niels W. Johnsen, Erik F. Johnsen, Niels M. Johnsen and Erik L. Johnsen; (ii) the wives and issue of Niels W. Johnsen, Erik F. Johnsen, Niels M. Johnsen and Erik L. Johnsen; and (iii) any trust for the benefit of, or controlled by, any of foregoing;
“LIBOR Rate”
shall mean, for each Interest Period, the London Interbank Offered Rate (“LIBOR”) as set and published by the British Banker's Association (“BBA”), as selected by the Borrower three (3) Banking Days before the first day of such Interest Period as obtained by the Facility Agent from a wire that is sent through Bloomberg, L.P. which rate is based by BBA on an average of the Interbank Offered Rates for Yen deposits in the London market based on quotes from designated banks in the London market two (2) Banking Days before the first day of such Interest Period. In the event that  LIBOR is no longer available from the BBA or Bloomberg, L.P. for the applicable interest period, the “LIBOR Rate” for the interest period shall be equal to the sum of (i) the Short Term Prime Rate plus (ii) twenty-five one hundredths of one percent (.25%);
“Majority Lenders”
at any time shall mean Lenders holding an aggregate of more than 66.66% of the Facility then outstanding;
“Material Adverse Effect”
shall mean a material adverse effect on the ability of the Borrower and/or the Guarantor to meet any of their respective obligations with regard to (i) the Facility and the financing arrangements established in connection therewith or (ii) any of their respective other obligations that are material to the Borrower and the Guarantor considered as a whole;
“Materials of Environmental Concern”
shall have the meaning ascribed thereto in Section 2.1(p);
“Mortgage”
shall mean the first preferred United States ship mortgage, the first priority Panamanian naval mortgage or the first preferred Marshall Islands mortgage on the Vessel, to be executed by the Borrower in favor of the Security Trustee pursuant to Section 4.2(a)(i), substantially in the form set out in Exhibit H;
“MTSA”
shall mean the Maritime & Transportation Security Act, 2002, as amended, inter alia, by Public Law 107-295;
“Multiemployer Plan”
shall mean, at any time, a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is making or accruing an obligation to make contributions or has within any of the three preceding plan years made or accrued an obligation to make contributions;
“Multiple Employer Plan”
shall mean, at any time, an employee benefit plan, other than a Multiemployer Plan, subject to Title IV or ERISA, to which a Borrower or ERISA Affiliate, and one or more employers other than a Borrower or ERISA Affiliate, is making or accruing an obligation to make contributions or, in the event that any such plan has been terminated, to which a Borrower or ERISA Affiliate made or accrued an obligation to make contributions during any of the five plan years preceding the date of termination of such plan;
“Note”
shall mean the promissory note to be executed by the Borrower to the order of the Facility Agent pursuant to Section 4.1(c), to evidence the Facility substantially in the form set out in Exhibit A;
“Operator”
shall mean the Person who is concerned with the operation of the Vessel and falls within the definition of “Company” set out in rule 1.1.2 of the ISM Code”;
“Payment Dates”
means the Initial Payment Date and the dates falling at three (3) month intervals thereafter, the last of which is the Final Payment Date;
“Person”
shall mean any individual, sole proprietorship, corporation, partnership (general or limited), limited liability company, business trust, bank, trust company, joint venture, association, joint stock company, trust or other unincorporated organization, whether or not a legal entity, or any government or agency or political subdivision thereof;
“Plan”
shall mean any employee benefit plan (other than a Multiemployer Plan or a Multiple Employer Plan) covered by Title IV of ERISA;
“Pricing Ratio”
shall mean, at any time, the ratio of the Guarantor’s Consolidated Indebtedness to Consolidated EBITDA determined on a trailing four quarter basis;
“Proceeding”
shall have the meaning ascribed thereto in Section 8.1(i);
“Required Percentage”
shall mean (i) eighty five percent (85%) from the Final Drawdown Date until the second anniversary thereof, (ii) eighty percent (80%) from the second anniversary of the Final Drawdown Date until the third anniversary thereof, (iii) seventy five percent (75%) from the third anniversary of the Final Drawdown Date until the fourth anniversary thereof, (iv) seventy percent (70%) from the fourth anniversary of the Final Drawdown Date until the sixth anniversary thereof, and (v) sixty five percent (65%) from the sixth anniversary of the Final Drawdown Date and thereafter;
“Second Drawdown Date”
shall mean the Drawdown Date on which Advance II is made available to the Borrower;
“Security Document(s)”
shall mean the Mortgage, the Assignments and any other documents that may be executed as security for the Facility and the Borrower's obligations in connection therewith;
“Security Party(ies)”
shall mean each of the Borrower and the Guarantor;
“Security Trustee”
shall have the meaning ascribed thereto in the preamble;
“Shipsales Contract”
means that certain shipsales contract between Clio Marine Inc., a Liberian corporation, and the Borrower dated September 21, 2007, providing for the sale of the Vessel by Clio Marine Inc. and the purchase of the Vessel by the Borrower.
“Shipsales Contract Assignment”
shall mean the assignment of the Shipsales Contract, to be executed by the Borrower in favor of the Security Trustee pursuant to Section 4.1(i)(i), substantially in the form set out in Exhibit G;
“Short Term Prime Rate”
means the rate quoted on Bloomberg page BTMM JN with the ticker symbol PRIMJPN Index;
“SMC”
shall mean the safety management certificate issued in respect of a Vessel in accordance with rule 13 of the ISM code;
“subsidiary”
shall mean, with respect to any Person, any business entity of which more than 50% of the outstanding voting stock or other equity interest is owned directly or indirectly by such Person and/or one or more other subsidiaries of such Person;
“Subsidiary(ies)”
shall mean all of the subsidiaries of the Guarantor;
“Taxes”
shall mean any present or future income or other taxes, levies, duties, charges, fees, deductions or withholdings of any nature now or hereafter imposed, levied, collected, withheld or assessed by any taxing authority whatsoever, except for taxes on or measured by the overall net income of each Lender imposed by its jurisdiction of incorporation or applicable lending office, the United States of America, the State or City of New York or any governmental subdivision or taxing authority of any thereof or by any other taxing authority having jurisdiction over such Lender (unless such jurisdiction is asserted by reason of the activities of the Borrower or any of the Subsidiaries);
“Termination Event”
shall mean (i) a “reportable event,” as defined in Section 403 of ERISA, (ii) the withdrawal of a Borrower or any ERISA Affiliate from a Multiemployer Plan during a plan year in which it was a “substantial employer,” as defined in Section 4001(a)(2) of ERISA, or the incurrence of liability by a Borrower or any ERISA Affiliate under Section 4064 of ERISA upon the termination of a Multiple Employer Plan, (iii) the filing of a notice of intent to terminate a Plan under Section 4041 of ERISA or the treatment of a Multiemployer Plan amendment as a termination under Section 4041A of ERISA, (iv) the institution of proceedings to terminate a Plan or a Multiemployer Plan, or (v) any other event or condition which might constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan or Multiemployer Plan;
“Total Loss”
shall have the meaning ascribed thereto in the Mortgage;
“Transaction Documents”
shall mean each of this Agreement, the Note and the Security Documents;
“Vessel”
shall mean that certain 6,400 pure car truck carrier currently being constructed by the Builder with an expected delivery date in the first quarter of 2010, given Hull No. 2253;
“Withdrawal Liability(ies)”
shall have the meaning given to such term under Part 1 of Subtitle E of Title IV of ERISA.
“Yen” and the sign “¥”
shall mean the legal currency, at any relevant time hereunder, of Japan;
   
1.2  Computation of Time Periods; Other Definitional Provisions.  In this Agreement, the Note and the other Security Documents, in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including” and the words “to” and “until” each mean “to but excluding”; words importing either gender include the other gender; references to “writing” include printing, typing, lithography and other means of reproducing words in a tangible visible form; the words “including,” “includes” and “include” shall be deemed to be followed by the words “without limitation”; references to articles, sections (or subdivisions of sections), exhibits, annexes or schedules are to this Agreement, the Note or such Security Document, as applicable; references to agreements and other contractual instruments (including this Agreement, the Note and the Security Documents) shall be deemed to include all subsequent amendments, amendments and restatements, supplements, extensions, replacements and other modifications to such instruments (without, however, limiting any prohibition on any such amendments, extensions and other modifications by the terms of this Agreement, the Note or any Security Document); references to any matter that is “approved” or requires “approval” of a party shall mean approval given in the sole and absolute discretion of such party unless otherwise specified.
 
1.3  Accounting Terms.  Unless otherwise specified herein, all accounting terms used in this Agreement, the Note and in the Security Documents shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Facility Agent or to the Lenders under this Agreement shall be prepared, in accordance with generally accepted accounting principles for the United States (“GAAP”), as amended from time to time including amendments to GAAP made as a result of the conformity of GAAP to International Financial Reporting Standards.
 
1.4  Certain Matters Regarding Materiality.  To the extent that any representation, warranty, covenant or other undertaking of the Borrower in this Agreement is qualified by reference to those which are not reasonably expected to result in a “Material Adverse Effect” or language of similar import, no inference shall be drawn therefrom that any Agent or Lender has knowledge or approves of any noncompliance by the Borrower with any governmental rule.
 
2.  REPRESENTATIONS AND WARRANTIES
 
2.1  Representations and Warranties.  In order to induce the Creditors to enter into this Agreement and to make the Facility available, each Security Party hereby represents and warrants to the Creditors (which representations and warranties shall survive the execution and delivery of this Agreement and the Note and the drawdown of the Facility) that:
 
(a)  Due Organization and Power.  Each Security Party is duly formed and is validly existing in good standing under the laws of its jurisdiction of incorporation or formation, has full power to carry on its business as now being conducted and to enter into and perform its obligations under this Agreement, the Note and the Security Documents to which it is a party, and has complied with all statutory, regulatory and other requirements relative to such business and such agreements;
 
(b)  Authorization and Consents.  All necessary corporate action has been taken to authorize, and all necessary consents and authorities have been obtained and remain in full force and effect to permit, each Security Party to enter into and perform its obligations under this Agreement, the Note and the Security Documents and, in the case of the Borrower to borrow, service and repay the Facility and, as of the date of this Agreement, no further consents or authorities are necessary for the service and repayment of the Facility or any part thereof;
 
(c)  Binding Obligations.  This Agreement, the Note and the Security Documents constitute or will, when executed and delivered, constitute the legal, valid and binding obligations of each Security Party that is a party thereto enforceable against such Security Party in accordance with their respective terms, except to the extent that such enforcement may be limited by equitable principles, principles of public policy or applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting generally the enforcement of creditors' rights;
 
(d)  No Violation.  The execution and delivery of, and the performance of the provisions of, this Agreement, the Note and those of the Security Documents to which it is to be a party by each Security Party do not contravene any applicable law or regulation existing at the date hereof or any contractual restriction binding on such Security Party or the certificate of incorporation or by-laws (or equivalent instruments) thereof and that the proceeds of the Facility shall be used by the Borrower exclusively for its own account or for the account of a Subsidiary or Affiliate of the Borrower;
 
(e)  Filings; Stamp Taxes.  Other than the recording of the Mortgage with the appropriate authorities for the United States, the Republic of Panama or the Republic of the Marshall Islands (as applicable), and the filing of Uniform Commercial Code Financing Statements with the Recorder of Deeds in the District of Columbia in respect of the Assignments, and the payment and filing or recording fees consequent thereto, it is not necessary for the legality, validity, enforceability or admissibility into evidence of this Agreement, the Note or the Security Documents that any of them or any document relating thereto be registered, filed, recorded or enrolled with any court or authority in any relevant jurisdiction or that any stamp, registration or similar Taxes be paid on or in relation to this Agreement, the Note or any of the Security Documents;
 
(f)  Litigation.   No action, suit or proceeding is pending or threatened against any Security Party before any court, board of arbitration or administrative agency which could or might have a Material Adverse Effect;
 
(g)  No Default.   No Security Party is in default under any material agreement by which it is bound, or is in default in respect of any material financial commitment or obligation;
 
(h)  Vessel.  Upon delivery of the Vessel to the Borrower the Vessel:
 
(i)  
will be in the sole and absolute ownership of the Borrower and duly registered in the Borrower's name under United States, Panamanian or Marshall Islands flag, unencumbered, save and except for the Mortgage and as permitted thereby;
 
(ii)  
will be classed in the highest classification and rating for vessels of the same age and type with its Classification Society without any material outstanding recommendations;
 
(iii)  
will be operationally seaworthy and in every way fit for its intended service; and
 
(iv)  
will be insured in accordance with the provisions of the Mortgage and the requirements thereof in respect of such insurances will have been complied with;
 
(i)  Insurance.  Each of the Security Parties has insured its properties and assets against such risks and in such amounts as are customary for companies engaged in similar businesses;
 
(j)  Financial Information.  Except as otherwise disclosed in writing to the Facility Agent on or prior to the date hereof, all financial statements, information and other data furnished by any Security Party to the Facility Agent are complete and correct, such financial statements have been prepared in accordance with GAAP and accurately and fairly present the financial condition of the parties covered thereby as of the respective dates thereof and the results of the operations thereof for the period or respective periods covered by such financial statements, and since the date of the Guarantor's financial statements most recently delivered to the Facility Agent there has been no Material Adverse Effect as to any of such parties and none thereof has any contingent obligations, liabilities for taxes or other outstanding financial obligations which are material in the aggregate except as disclosed in such statements, information and data;
 
(k)  Tax Returns.  Each Security Party has filed all material tax returns required to be filed thereby and has paid all taxes payable thereby which have become due, other than those not yet delinquent or the nonpayment of which would not have a Material Adverse Effect and except for those taxes being contested in good faith and by appropriate proceedings or other acts and for which adequate reserves shall have been set aside on its books;
 
(l)  ERISA.   The execution and delivery of this Agreement and the consummation of the transactions hereunder will not involve any prohibited transaction within the meaning of ERISA or Section 4975 of the Code and no condition exists or event or transaction has occurred in connection with any Plan maintained or contributed to by any member of the ERISA Group or any ERISA Affiliate resulting from the failure of any thereof to comply with ERISA which is reasonably likely to result in any member of the ERISA Group or any ERISA Affiliate incurring any liability, fine or penalty which individually or in the aggregate could have a Material Adverse Effect. No member of the ERISA Group nor any ERISA Affiliate, individually or collectively, has incurred, or reasonably expects to incur, Withdrawal Liabilities or liabilities upon the happening of a Termination Event the aggregate of which for all such Withdrawal Liabilities and other liabilities exceeds or would exceed $30,000,000.  With respect to any Multiemployer Plan, Multiple Employer Plan or Plan, no member of the ERISA Group nor any ERISA Affiliate is aware of or has been notified that any “variance” from the “minimum funding standard” has been requested (each such term as defined in Part 3, Subtitle B, of Title 1 of ERISA).  No member of the ERISA Group nor any ERISA Affiliate has received any notice that any Multiemployer Plan is in reorganization, within the meaning of Title IV of ERISA, which reorganization could have a Material Adverse Effect;
 
(m)  Chief Executive Office.  The chief executive office and chief place of business of each Security Party and the office in which the records relating to the earnings and other receivables of each Security Party are kept is, and will continue to be, located at 11 North Water Street, Suite 18290, Mobile, Alabama 36602, USA;
 
(n)  Foreign Trade Control Regulations.  To the best knowledge of each of the Security Parties, none of the transactions contemplated herein will violate the provisions of any statute or regulation enacted to prohibit or limit economic transactions with certain foreign Persons including, without limitation, any of the provisions of the Foreign Assets Control Regulations of the United States of America (Title 31, Code of Federal Regulations, Chapter V, Part 500, as amended);
 
(o)  Equity Ownership.  The Borrower is owned, directly or indirectly, one hundred percent (100%) by the Guarantor;
 
(p)  Environmental Matters and Claims.  (a) Except as heretofore disclosed in writing to the Facility Agent (i) the Borrower and its Affiliates (which for purposes of this Section 2(p) shall be deemed to include the Guarantor and its respective Affiliates) will, when required to operate their business as then being conducted, be in compliance with all applicable United States federal and state, local, foreign and international laws, regulations, conventions and agreements relating to pollution prevention or protection of human health or the environment (including, without limitation, ambient air, surface water, ground water, navigable waters, waters of  the contiguous zone, ocean waters and international waters), including, without limitation, laws, regulations, conventions and agreements relating to (1) emissions, discharges, releases or threatened releases of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous materials, oil, hazardous substances, petroleum and petroleum products and by-products (“Materials of Environmental Concern”), or (2) the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Materials of Environmental Concern (“Environmental Laws”); (ii) the Borrower and its Affiliates will, when required, have all permits, licenses, approvals, rulings, variances, exemptions, clearances, consents or other authorizations required under applicable Environmental Laws (“Environmental Approvals”) and will, when required, be in compliance with all Environmental Approvals required to operate their business as then being conducted; (iii)  the Borrower has not nor has any Affiliate thereof received any notice of any claim, action, cause of action, investigation or demand by any person, entity, enterprise or government, or any political subdivision, intergovernmental body or agency, department or instrumentality thereof, alleging potential liability for, or a requirement to incur, material investigator costs, cleanup costs, response and/or remedial costs (whether incurred by a governmental entity or otherwise), natural resources damages, property damages, personal injuries, attorneys' fees and expenses, or fines or penalties, in each case arising out of, based on or resulting from (1) the presence, or release or threat of release into the environment, of any Materials of Environmental Concern at any location, whether or not owned by such person, or (2) circumstances forming the basis of any violation, or alleged violation, of any Environmental Law or Environmental Approval (“Environmental Claim”) (other than Environmental Claims that have been fully and finally adjudicated or otherwise determined and all fines, penalties and other costs, if any, payable by the Security Parties in respect thereof have been paid in full or which are fully covered by insurance (including permitted deductibles)); and (iv) there are no circumstances that may prevent or interfere with such full compliance in the future; and (b) except as heretofore disclosed in writing to the Facility Agent there is no Environmental Claim pending or threatened against the Borrower or any Affiliate thereof and there are no past or present actions, activities, circumstances, conditions, events or incidents, including, without limitation, the release, emission, discharge or disposal of any Materials of Environmental Concern, that could form the basis of any Environmental Claim against such persons the adverse disposition of which may result in a Material Adverse Effect;
 
(q)  Liens.  Other than as disclosed in Schedule III , there are no liens of any kind on any property owned by any Security Party other than those liens created pursuant to this Agreement or the Security Documents or permitted thereby;
 
(r)  Indebtedness.  Other than as disclosed in Schedule IV, neither of the Security Parties has any Indebtedness;
 
(s)  Payment Free of Taxes.  All payments made or to be made by the Security Parties under or pursuant to this Agreement, the Note and the Security Documents shall be made free and clear of, and without deduction or withholding for an account of, any Taxes;
 
(t)  No Proceedings to Dissolve.  There are no proceedings or actions pending or contemplated by any Security Party or, to the best knowledge of any Security Party, contemplated by any third party, to dissolve or terminate any Security Party.
 
(u)  Solvency.  On the Closing Date, in the case of each of the Security Parties, (a) the sum of its assets, at a fair valuation, does and will exceed its liabilities, including, to the extent they are reportable as such in accordance with GAAP, contingent liabilities, (b) the present fair market salable value of its assets is not and shall not be less than the amount that will be required to pay its probable liability on its then existing debts, including, to the extent they are reportable as such in accordance with GAAP, contingent liabilities, as they mature, (c) it does not and will not have unreasonably small working capital with which to continue its business and (d) it has not incurred, does not intend to incur and does not believe it will incur debts beyond its ability to pay such debts as they mature;
 
(v)  Compliance with Laws.  Each of the Security Parties is in compliance with all applicable laws, except where any failure to comply with any such applicable laws would not, alone or in the aggregate, have a Material Adverse Effect; and
 
(w)  Survival.  All representations, covenants and warranties made herein and in any certificate or other document delivered pursuant hereto or in connection herewith shall survive the making of the Facility and the issuance of the Note.
 
3.  THE FACILITY
 
3.1  (a)           Purposes.  The Lenders shall make the Facility available to the Borrower for the purpose of financing up to one hundred percent (100%) of each of the remaining construction and delivery installments under the Shipsales Contract.  
 
(b)  Making of the Facility.  Each of the Lenders, relying upon each of the representations and warranties set out in Section 2, hereby severally and not jointly agrees with the Borrower that, subject to and upon the terms of this Agreement, it will, not later than 11:00 a.m. on the Drawdown Dates, make its portion of the relevant Advance, in Federal or other funds, immediately available in New York City to the Facility Agent at its address set forth on Schedule I or to such account of the Facility Agent most recently designated by it for such purpose by notice to the Lenders.  Unless the Facility Agent determines that any applicable condition specified in Sections 4.2 or 4.3 has not been satisfied, the Facility Agent will make the funds so received from the Lenders available to the Borrower at the aforesaid address, subject to the receipt of the funds by the Facility Agent as provided in the immediately preceding sentence, not later than 2:30 P.M. (New York City time) on the Drawdown Date, and in any event as soon as practicable after receipt.
 
(c)  Availability of Advances.  Subject to satisfaction of the terms and conditions set forth herein, the Facility will be made available in three Advances as follows:
 
Advance I on the Initial Drawdown Date,
Advance II on the Second Drawdown Date, and
Advance III on the Final Drawdown Date.
 
(d)  One Drawdown Date for Each Advance.  Each Advance will only be available on a single Drawdown Date; provided, however, that to the extent an Advance is not drawn in full on its respective Drawdown Date, the remaining amount of such Advance may be drawn down on any subsequent Drawdown Date.
 
3.2  Drawdown Notice.  The Borrower shall, at least three (3) Banking Days (or fewer Banking Days if agreed by the Lenders) before the Drawdown Date with respect to Advance I and Advance II and at least twenty (20) days before the Drawdown Date with respect to Advance III, serve a notice (a “Drawdown Notice”), substantially in the form of Exhibit B, on the Facility Agent, which notice shall (a) be in writing addressed to the Facility Agent, (b) be effective on receipt by the Facility Agent, (c) specify the amount of the Facility to be drawn, (d) specify the Banking Day on which the Facility is to be drawn, (e) specify the disbursement instructions (which shall be consistent in all material respects with Article II of the Shipsales Contract), (f) specify the initial Interest Period and (g) be irrevocable.
 
3.3  Effect of Drawdown Notice.  Delivery of a Drawdown Notice shall be deemed to constitute a warranty by the Borrower (a) that the representations and warranties stated in Section 2 (updated mutatis mutandis) are true and correct on and as of the date of the Drawdown Notice and will be true and correct on and as of the Drawdown Date as if made on such date, and (b) that no Event of Default nor any event which with the giving of notice or lapse of time or both would constitute an Event of Default has occurred and is continuing.
 
4.  CONDITIONS
 
4.1  Conditions Precedent to the Effectiveness of this Agreement.  The effectiveness of this Agreement and the obligation of the Lenders to make the Facility available to the Borrower under this Agreement shall be expressly subject to the following conditions precedent:
 
 
(i)  
copies, certified as true and complete by an officer of each of the Security Parties, of the resolutions of its board of directors and, with respect to the Borrower, shareholders evidencing approval of the Transaction Documents to which each is a party and authorizing an appropriate officer or officers or attorney-in-fact or attorneys-in-fact to execute the same on its behalf, including the execution of the Drawdown Notice;
 
(ii)  
copies, certified as true and complete by an officer of each of the Security Parties, of the certificate or articles of incorporation and by-laws or similar constituent document thereof;
 
(iii)  
certificate of the jurisdiction of incorporation of each Security Party as to the good standing thereof; and
 
(iv)  
a certificate signed by the Chairman, President, Executive Vice President, Treasurer, Comptroller, Controller or chief financial officer of each of the Security Parties to the effect that (A) no Default or Event of Default shall have occurred and be continuing and (B) the representations and warranties of such Security Party contained in this Agreement are true and correct as of the date of such certificate.
 
(b)  The Agreement.  Each of the Security Parties shall have duly executed and delivered this Agreement to the Facility Agent.
 
(c)  The Note.  The Borrower shall have duly executed and delivered the Note to the Facility Agent.
 
(d)  The Creditors.  The Facility Agent shall have received executed counterparts of this Agreement from each of the Lenders (or, in the case of any Lender as to which an executed counterpart shall not have been received, the Facility Agent shall have received in form satisfactory to it a telex, facsimile or other written confirmation from such Lender of the execution of a counterpart of this Agreement by such Lender).
 
(e)  Fees.  The Creditors shall have received payment in full of all fees and expenses due to each thereof pursuant to the terms hereof on the date when due including, without limitation, all fees and expenses due under Section 15.
 
(f)  Environmental Claims.  The Lenders shall be satisfied that neither of the Security Parties is subject to any Environmental Claim which could reasonably be expected to have a Material Adverse Effect.
 
(g)  Legal Opinions.  The Facility Agent, on behalf of the Agents and the Lenders, shall have received opinions addressed to the Facility Agent from (i) Jones, Walker, Waechter, Poitevent, Carrère & Denègre, L.L.P., special counsel to the Security Parties, and (ii) Seward & Kissel LLP, special counsel to the Agents and the Lenders, in each case in such form as the Facility Agent may require, as well as such other legal opinions as the Lenders shall have required as to all or any matters under the laws of the State of Delaware, the State of New York, the United States of America and the Marshall Islands covering certain of the representations and warranties and conditions which are the subjects of Sections 2 and 4, respectively.
 
(h)  Officer's Certificate.  The Facility Agent shall have received a certificate signed by the President or other duly authorized executive officer of the Borrower certifying that under applicable law existing on the date hereof, the Borrower shall not be compelled by law to withhold or deduct any Taxes from any amounts to become payable to the Facility Agent for the account of the Creditors hereunder.
 
(i)  Shipsales Contract.  The Borrower shall have delivered to the Facility Agent a true and complete copy of the Shipsales Contract and evidence satisfactory to the Facility Agent that the Borrower has paid the first installment of twenty percent (20%) of the Contract Price (as defined in the Shipsales Contract) due under the Shipsales Contract as required pursuant to Section 3(a) thereof.
 
4.2  Condition Precedent to Advance I.  The obligation of the Lenders to make Advance I available to the Borrower under this Agreement shall be expressly subject to the following condition precedent:
 
(a)  Security Documents.  The Borrower shall have executed and delivered to the Facility Agent:
 
(i)  
the Shipsales Contract Assignment;
 
(ii)  
the Assignment Notice and the acknowledgement thereof in respect of (i) above; and
 
(iii)  
such Uniform Commercial Code Financing Statements (Forms UCC-1) as the Facility Agent shall require.
 
4.3  Conditions Precedent to Advance III.  The obligation of the Lenders to make Advance III available to the Borrower under this Agreement on the Final Drawdown Date shall be expressly subject to the following conditions precedent:
 
(a)  Vessel Documents.  The Facility Agent shall have received evidence satisfactory to it and its counsel that the Vessel upon delivery to the Borrower will be:
 
(i)  
in the sole and absolute ownership of the Borrower and is duly registered in the Borrower's name under United States, Panamanian or Marshall Islands flag free of all liens and encumbrances of record other than its Mortgage;
 
(ii)  
insured in accordance with the provisions of the Mortgage and all requirements of the Mortgage in respect of such insurance have been fulfilled (including, but not limited to, letters of undertaking from the insurance brokers, including confirmation notices of assignment, notices of cancellation and loss payable clauses acceptable to the Lenders);
 
(iii)  
classed in the highest classification and rating for vessels of the same age and type with its Classification Society without any material outstanding recommendations; and
 
(iv)  
operationally seaworthy and in every way fit for its intended service;
 
(b)  Security Documents.  The Borrower shall have executed and delivered to the Facility Agent:
 
(i)  
the Insurances Assignment;
 
(ii)  
the Earnings and Charterparties Assignment;
 
(iii)  
the Assignment Notices with respect to (i) and (ii) above; and
 
(iv)  
such Uniform Commercial Code Financing Statements (Forms UCC-1) as the Facility Agent shall require.
 
(c)  Vessel Appraisals.  The Facility Agent shall have received appraisals, in form and substance satisfactory to the Facility Agent, as to the Fair Market Value of the Vessel.  
 
(d)  ISM DOC.  To the extent required to be obtained by the ISM Code the Security Trustee shall have received a copy of the DOC for the Vessel.
 
(e)  Evidence of Current COFR.  If the Vessel is registered in the United States, the Facility Agent shall have received copies of the current Certificate of Financial Responsibility pursuant to the Oil Pollution Act 1990 for the Vessel.
 
(f)  Vessel Liens.  The Facility Agent shall have received evidence satisfactory to it and to its legal advisor that, save for the liens created by the Mortgage and the Assignments, there are no liens, charges or encumbrances of any kind whatsoever on the Vessel or on its earnings except as permitted hereby or by any of the Security Documents.
 
(g)  Vessel Delivery.  The Facility Agent shall be satisfied that satisfactory arrangements have been made for (x) the registration of the Vessel in the name of the Borrower under Panamanian or United States flag, (y) the execution of the Mortgage and (z) the recordation of the Mortgage with the National Vessel Documentation Center of the United States Coast Guard or the appropriate authorities in the Republic of Panama or the Republic of the Marshall Islands (as applicable), in each case on the opening of business on the Banking Day immediately following the delivery of the Vessel to the Borrower.
 
(h)  Maritime Administration Approval.  If the Vessel is registered in the United States, the Borrower shall have obtained pre-approval from the United States Maritime Administration, in form and substance satisfactory to the Lenders, for the possible transfer of the Vessel upon the exercise of the Security Trustee’s rights under the Mortgage to a party not qualified to own and document a vessel under United States flag and/or the re-documentation of the Vessel under foreign flag.
 
4.4  Further Conditions Precedent.  The obligation of the Lenders to make any Advance available to the Borrower shall also be expressly conditional upon:
 
(a)  Drawdown Notice.  The Facility Agent having received a Drawdown Notice in accordance with the terms of Section 3.2.
 
(b)  Representations and Warranties True.  The representations stated in Section 2 being true and correct as if made on that date.
 
(c)  No Default.  No Default or Event of Default having occurred and being continuing or would result from the making of the requested Advance.
 
(d)  No Material Adverse Effect.  There having been no Material Adverse Effect since September 30, 2007.
 
4.5  Breakfunding Costs.  In the event that, on the date specified for the making of an Advance in the relevant Drawdown Notice, the Lenders shall not be obliged under this Agreement to make the requested Advance available under this Agreement, the Borrower shall indemnify and hold the Lenders fully harmless against any losses which the Lenders (or any thereof) may sustain as a result of borrowing or agreeing to borrow funds to meet the drawdown requirement of such Drawdown Notice and the certificate of the relevant Lender or Lenders shall, absent manifest error, be conclusive and binding on the Borrower as to the extent of any such losses.
 
4.6  Satisfaction after Drawdown.  Without prejudice to any of the other terms and conditions of this Agreement, in the event all of the Lenders elect, in their sole discretion, to make the Facility prior to the satisfaction of all or any of the conditions referred to in Sections 4.1, 4.2, 4.3 or 4.4, the Borrower hereby covenants and undertakes to satisfy or procure the satisfaction of such condition or conditions within seven (7) days after the Drawdown Date (or such longer period as the Majority Lenders, in their sole discretion, may agree).
 
 
5.1  Repayment.  Subject to the provisions of this Section 5 regarding application of prepayments, the Borrower shall repay the principal of the Facility in forty (40) consecutive quarterly installments beginning on the Initial Payment Date and ending on the Final Payment Date, the first thirty-nine (39) such installments being in equal amounts, each in the amount of One Hundred Four Million Six Hundred Sixty-Six Thousand Six Hundred Sixty-Six Yen (¥104,666,666) and the last such installment being in the amount of the Final Payment, such last installment to be paid on the Final Payment Date.
 
5.2  Voluntary Prepayment; No Re-borrowing.  The Borrower may prepay, upon three (3) Banking Days written notice, the Facility or any portion thereof, without penalty, provided that if such prepayment is made on a day other than a Payment Date, such prepayment shall be made together with the costs and expenses provided for in Section 5.5.  Each prepayment shall be in a minimum amount of One Hundred Million Yen (¥100,000,000), plus any One Hundred Million Yen (¥100,000,000) multiple thereof, or the full amount of the Facility then outstanding.  No part of the Facility once repaid or prepaid will be available for re-borrowing.
 
5.3  Mandatory Prepayment; Sale or Loss of Vessel.  Upon (i) the sale of the Vessel or (ii) the earlier of (x) ninety (90) days after the Total Loss (as such term is defined in the Mortgage) of the Vessel or (y) the date on which the insurance proceeds in respect of such loss are received by the Borrower or the Security Trustee as assignee thereof, the Borrower shall either (I) deliver to the Security Trustee, such additional collateral, of equal or greater value with the Vessel, as may be satisfactory to the Lenders in their sole discretion or (II) repay the Facility in full, or such proceeds shall be applied by the Facility Agent first, towards prepayment of the Facility and the Borrower's other obligations hereunder in full and second, to the Borrower.
 
5.4  Optional Reduction of Facility by the Lenders.  Any Lender shall have the right at any time before the fourteenth (14th) day prior to the Final Drawdown Date, upon written notice to the Borrower, to reduce the Facility to sixty-five percent (65%) of the final delivered cost of the Vessel.  Should a Lender exercise the reduction option provided in this Section 5.4 the repayments under Section 5.1 and each Lender’s Commitment shall be reduced pro-rata.
 
5.5  Interest and Cost With Application of Prepayments.  Any and all prepayments hereunder, whether mandatory or voluntary, shall be applied in the following order:
 
(a)  firstly, towards accrued and unpaid interest and for fees due under this Agreement; and
 
(b)  secondly, towards the installments of the Facility in the inverse order of their due dates for payment.
 
5.6  Borrower's Obligation Absolute.  The Borrower's obligation to pay each Creditor hereunder and under the Note shall be absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms hereof and thereof, under any and all circumstances and irrespective of any set-off, counterclaim or defense to payment which the Borrower may have or may have had against the Creditors.
 
6.  INTEREST AND RATE
 
6.1  Payment of Interest; Interest Rate.  (a) The Borrower hereby promises to pay to the Lenders interest on the unpaid principal amount of the Facility for the period commencing on the Initial Drawdown Date until but not including the stated maturity thereof (whether by acceleration or otherwise) or the date of prepayment thereof at the Applicable Rate, which shall be the rate per annum which is equal to the aggregate of (a) the LIBOR Rate plus (b) the Applicable Margin; provided, however, that if the Borrower has requested and the Lenders have agreed to an Interest Period of less than one (1) month, for the purposes of determining the Applicable Rate, the LIBOR Rate shall be replaced with the rate equal to the sum of (i) the Short Term Prime Rate plus (ii) twenty-five one hundredths of one percent (.25%).  The Facility Agent shall promptly notify the Borrower and the Lenders in writing of the Applicable Rate as and when determined.  Each such determination, absent manifest error, shall be conclusive and binding upon the Borrower.  Interest for the period beginning on the Initial Drawdown Date through September 15, 2010 shall be payable quarterly on each three (3) month anniversary of the Initial Drawdown Date with the exception of the interest payment due immediately prior to September 15, 2010, which shall be due on September 15, 2010.  Interest for the period beginning on September 15, 2010 through the Final Payment Date shall be paid quarterly on the fifteenth day of the month in which it is due.
 
(b)  Notwithstanding the foregoing, the Borrower agrees that after the occurrence and during the continuance of an Event of Default, the Facility shall bear interest at the Default Rate.  In addition, the Borrower hereby promises to pay interest (to the extent that the payment of such interest shall be legally enforceable) on any overdue interest, and on any other amount payable by the Borrower hereunder which shall not be paid in full when due (whether at stated maturity, by acceleration or otherwise), for the period commencing on the due date thereof until but not including the date the same is paid in full at the Default Rate.
 
(c)  The Borrower shall give the Facility Agent an Interest Notice specifying the Interest Period selected at least three (3) Banking Days prior to the end of any then existing Interest Period, which notice the Facility Agent agrees to forward on to all Lenders as soon as practicable.  If at the end of any then existing Interest Period the Borrower fails to give an Interest Notice, the relevant Interest Period shall be three (3) months.  The Borrower's right to select an Interest Period shall be subject to the restriction that no selection of an Interest Period shall be effective unless each Lender is satisfied that the necessary funds will be available to such Lender for such period and that no Event of Default or event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default shall have occurred and be continuing.
 
(d)  Interest payable at the Default Rate shall be payable from time to time on demand of the Facility Agent.
 
6.2  Maximum Interest.  Anything in this Agreement or the Note to the contrary notwithstanding, the interest rate on the Facility shall in no event be in excess of the maximum rate permitted by Applicable Law.
 
7.  PAYMENTS
 
7.1  Time and Place of Payments, No Set Off.  All payments to be made hereunder by the Borrower shall be made to the Facility Agent, not later than 3 p.m. New York time (any payment received after 3 p.m. New York time shall be deemed to have been paid on the next Banking Day) on the Banking Day two Banking Days prior to the due date of such payment, at its office located at 200 Park Avenue, New York, New York 10166 or to such other office of the Facility Agent as the Facility Agent may direct, without set-off or counterclaim and free from, clear of, and without deduction for, any Taxes, provided, however, that if the Borrower shall at any time be compelled by law to withhold or deduct any Taxes from any amounts payable to the Lenders hereunder, then the Borrower shall pay such additional amounts in Dollars as may be necessary in order that the net amounts received after withholding or deduction shall equal the amounts which would have been received if such withholding or deduction were not required and, in the event any withholding or deduction is made, whether for Taxes or otherwise, the Borrower shall promptly send to the Facility Agent such documentary evidence with respect to such withholding or deduction as may be required from time to time by the Lenders.
 
7.2  Tax Credits.  If any Lender obtains the benefit of a credit against the liability thereof for federal income taxes imposed by any taxing authority for all or part of the Taxes as to which the Borrower has paid additional amounts as aforesaid (and each Lender agrees to use its best efforts to obtain the benefit of any such credit which may be available to it, provided it has knowledge that such credit is in fact available to it), then such Lender shall reimburse the Borrower for the amount of the credit so obtained.  Each Lender agrees that in the event that Taxes are imposed on account of the situs of its loans hereunder, such Lender, upon acquiring knowledge of such event, shall, if commercially reasonable, shift such loans on its books to another office of such Lender so as to avoid the imposition of such Taxes.
 
7.3  Computations; Banking Days.  
 
(a)  All computations of interest and fees shall be made by the Facility Agent or the Lenders, as the case may be, on the basis of a 360-day year, in each case for the actual number of days (including the first day but excluding the last day) occurring in the period for which interest or fees are payable.  Each determination by the Facility Agent or the Lenders of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.
 
(b)  Whenever any payment hereunder or under the Note shall be stated to be due on a day other than a Banking Day, such payment shall be due and payable on the next succeeding Banking Day unless the next succeeding Banking Day falls in the following calendar month, in which case it shall be payable on the immediately preceding Banking Day.
 
8.  EVENTS OF DEFAULT
 
8.1  Events of Default.  In the event that any of the following events shall occur and be continuing:
 
(a)  Principal Payments.  Any principal of the Facility is not paid on the due date therefor; or
 
(b)  Interest and other Payments.  Any interest on the Facility  or any other amount becoming payable under this Agreement and under any Transaction Document or under any of them, is not paid within three (3) Banking Days from the date when due; or
 
(c)  Representations, etc.  Any representation, warranty or other statement made by any of the Security Parties in this Agreement or in any other instrument, document or other agreement delivered in connection herewith proves to have been untrue or misleading in any material respect as at the date as of which it was made; or
 
(d)  Impossibility, Illegality.  It becomes impossible or unlawful for any of the Security Parties to fulfill any of the covenants and obligations contained herein or in any Transaction Document, or for any of the Lenders to exercise any of the rights vested in any of them hereunder or under the other Transaction Documents and such impossibility or illegality, in the reasonable opinion of such Lender, will have a Material Adverse Effect on any of its rights hereunder or under the other Transaction Documents or on any of its rights to enforce any thereof; or
 
(e)  Mortgage.  The Mortgage is not recorded within three (3) Banking Days of the Final Drawdown Date or there is any default under the Mortgage; or
 
(f)  Certain Covenants.  Any Security Party defaults in the performance or observance of any covenant contained in Section 9.1(b), 9.1(m), 9.2(i) and 9.3(a) through (d) inclusive; or
 
(g)  Covenants.  One or more of the Security Parties default in the performance of any term, covenant or agreement contained in this Agreement or in the other Transaction Documents, or in any other instrument, document or other agreement delivered in connection herewith or therewith, in each case other than an Event of Default referred to elsewhere in this Section 8.1, and such default continues unremedied for a period of fifteen (15) days after written notice thereof has been given to the relevant Security Party or Parties by the Facility Agent at the request of any Lender; or
 
(h)  Indebtedness and Other Obligations.  Any Security Party defaults in the payment when due (subject to any applicable grace period) of any Indebtedness or of any other indebtedness, in either case, in an outstanding principal amount equal to or exceeding Two Million Dollars ($2,000,000) or such Indebtedness or other indebtedness is, or by reason of such default is subject to being, accelerated or any party becomes entitled to enforce the security for any such Indebtedness or other indebtedness and such party shall take steps to enforce the same, unless such default or enforcement is being contested in good faith and by appropriate proceedings or other acts and such  Security Party has set aside on its books adequate reserves with respect thereto; or
 
(i)  Bankruptcy.  Any Security Party commences any proceedings relating to any substantial portion of its property under any reorganization, arrangement or readjustment of debt, dissolution, winding up, adjustment, composition, bankruptcy or liquidation law or statute of any jurisdiction, whether now or hereafter in effect (a “Proceeding”), or there is commenced against any thereof any Proceeding and such Proceeding remains undismissed or unstayed for a period of sixty (60) days; or any receiver, trustee, liquidator or sequestrator of, or for, any thereof or any substantial portion of the property of any thereof is appointed and is not discharged within a period of sixty (60) days; or any thereof by any act indicates consent to or approval of or acquiescence in any Proceeding or to the appointment of any receiver, trustee, liquidator or sequestrator of, or for, itself or any substantial portion of its property; or
 
(j)  Judgments.  Any judgment or order is made the effect whereof would be to render invalid this Agreement or any other Transaction Document or any material provision thereof or any Security Party asserts that any such agreement or provision thereof is invalid; or judgments or orders for the payment of money (not paid or fully covered by insurance, subject to applicable deductibles) in excess of $2,500,000 in the aggregate for the Guarantor or its Subsidiaries (or its equivalent in any other currency) shall be rendered against the Guarantor and/or any of its Subsidiaries and such judgments or orders shall continue unsatisfied and unstayed for a period of 30 days; or
 
(k)  Inability to Pay Debts.  Any Security Party is unable to pay or admits its inability to pay its debts as they fall due or a moratorium shall be declared in respect of any Indebtedness of any thereof; or
 
(l)  Termination of Operations; Sale of Assets.  Except as expressly permitted under this Agreement, any Security Party ceases its operations or sells or otherwise disposes of all or substantially all of its assets or all or substantially all of the assets of any Security Party are seized or otherwise appropriated; or
 
(m)  Change in Financial Position.  Any change in the financial position of any Security Party which, in the reasonable opinion of the Majority Lenders, shall have a Material Adverse Effect; or
 
(n)  Cross-Default.  Any Security Party defaults under any material contract or agreement to which it is a party or by which it is bound; or
 
(o)  ERISA Debt.  Any member of the ERISA Group or any ERISA Affiliate shall (i) fail to pay when due an amount or amounts aggregating in excess of $1,000,000 which it or they shall have become liable to pay under Title IV of ERISA or (ii) any member of the ERISA Group or any ERISA Affiliate, individually or collectively, shall incur, or shall reasonably expect to incur, any Withdrawal Liability or liability upon the happening of a Termination Event and the aggregate of all such Withdrawal Liabilities and such other liabilities shall be in excess of $10,000,000;
 
then, the Lenders' obligation to make the Facility available shall cease and the Facility Agent on behalf of the Lenders may, with the Majority Lenders' consent and shall, upon the Majority Lenders' instruction, by notice to the Borrower, declare the entire Facility, accrued interest and any other sums payable by the Borrower hereunder, under the Note and under the other Transaction Documents due and payable whereupon the same shall forthwith be due and payable without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived; provided that upon the happening of an event specified in subclauses (i) or (k) of this Section 8.1, the Facility, accrued interest and any other sums payable by the Borrower hereunder, under the Note and under the other Transaction Documents shall be immediately due and payable without declaration, presentment, demand, protest or other notice to the Borrower all of which are expressly waived.  In such event, the Creditors, or any thereof, may proceed to protect and enforce their respective rights by action at law, suit in equity or in admiralty or other appropriate proceeding, whether for specific performance of any covenant contained in this Agreement or in the Note or in any other Transaction Document or in aid of the exercise of any power granted herein or therein, or the Lenders or the Facility Agent may proceed to enforce the payment of the Note when due or to enforce any other legal or equitable right of the Lenders, or proceed to take any action authorized or permitted by Applicable Law for the collection of all sums due, or so declared due, including, without limitation, the right to appropriate and hold or apply (directly, by way of set-off or otherwise) to the payment of the obligations of the Borrower to any of the Creditors hereunder, under the Note and/or under the other Transaction Documents (whether or not then due) all moneys and other amounts of the Borrower then or thereafter in possession of any Creditor, the balance of any deposit account (demand or time, matured or unmatured) of the Borrower then or thereafter with any Creditor and every other claim of the Borrower then or thereafter against any of the Creditors.
 
8.2  Indemnification.  The Borrower agrees to, and shall, indemnify and hold each of the Creditors harmless against any loss, as well as against any reasonable costs or expenses (including reasonable legal fees and expenses), which any of the Creditors sustains or incurs as a consequence of any default in payment of the principal amount of the Facility, interest accrued thereon or any other amount payable hereunder, under the Note or under the other Transaction Documents including, but not limited to, all actual losses incurred in liquidating or re-employing fixed deposits made by third parties or funds acquired to effect or maintain the Facility or any portion thereof.  Any Creditor's certification of such costs and expenses shall, absent any manifest error, be conclusive and binding on the Borrower.
 
8.3  Application of Moneys.  Except as otherwise provided in any Security Document, all moneys received by the Creditors under or pursuant to this Agreement, the Note or any of the Security Documents after the happening of any Event of Default (unless cured to the satisfaction of the Majority Lenders) shall be applied by the Facility Agent in the following manner:
 
(a)  firstly, in or towards the payment or reimburse­ment of any expenses or liabilities incurred by any of the Creditors in connection with the ascertainment, protection or enforcement of its rights and remedies hereunder, under the Note and under the other Transaction Documents;
 
(b)  secondly, in or towards payment of any interest owing in respect of the Facility;
 
(c)  thirdly, in or towards repayment of the principal of the Facility;
 
(d)  fourthly, in or towards payment of all other sums which may be owing to any of the Creditors under this Agreement, under the Note and under the other Transaction Documents;
 
(e)  fifthly, in or towards payments of any amounts then owed under any Interest Rate Agreement; and
 
(f)  sixthly, the surplus (if any) shall be paid to the Borrower or to whomsoever else may be entitled thereto.
 
9.  COVENANTS
 
 
(a)  Performance of Agreements.  Duly perform and observe, and procure the observance and performance by all other parties thereto (other than the Lenders) of, the terms of this Agreement, the Note and the Security Documents;
 
(b)  Notice of Default, etc.  Promptly upon obtaining knowledge thereof, inform the Facility Agent of the occurrence of (a) any Event of Default or of any event which, with the giving of notice or lapse of time, or both, would constitute an Event of Default, (b) any litigation or governmental proceeding pending or threatened against any Security Party which could reasonably be expected to have a Material Adverse Effect, (c) the withdrawal of the Vessel's rating by its Classification Society or the issuance by the Classification Society of any material recommendation or notation affecting class and (d) any other event or condition which is reasonably likely to have a Material Adverse Effect, in each case promptly, and in any event within three (3) Banking Days after becoming aware of the occurrence thereof;
 
(c)  Obtain Consents.  Without prejudice to Section 2.1 and this Section 9.1, obtain every consent and do all other acts and things which may from time to time be necessary or advisable for the continued due performance of all its and the other Security Parties' respective obligations under this Agreement, under the Note and under the Security Documents;
 
(d)  Financial Information.  Deliver to the Facility Agent with sufficient copies for the Lenders to be distributed to the Lenders by the Facility Agent promptly upon the receipt thereof:
 
(i)  
as soon as available, but not later than ninety (90) days after the end of each fiscal year of the Guarantor, complete copies of the consolidated financial reports of the Guarantor and its Subsidiaries together with a separate financial report of the Borrower (together with a Compliance Certificate), all in reasonable detail which shall include at least the consolidated balance sheet of the Guarantor and its Subsidiaries and a balance sheet for the Borrower as of the end of such year and the related statements of income and sources and uses of funds for such year, each as prepared in accordance with GAAP, all in reasonable detail, which shall be prepared by an Acceptable Accounting Firm and, with respect to the Guarantor, be audited reports;
 
(ii)  
as soon as available, but not less than forty-five (45) days after the end of each of the first three quarters of each fiscal year of the Guarantor, a quarterly interim balance sheets and profit and loss statements of the Guarantor and its Subsidiaries and the related profit and loss statements and sources and uses of funds (together with a Compliance Certificate), all in reasonable detail, unaudited, but certified to be true and complete by the chief financial officer of the Guarantor;
 
(iii)  
promptly upon the mailing thereof to the shareholders of the Guarantor, copies of all financial statements, reports, proxy statements and other communications provided to the Guarantor's shareholders;
 
(iv)  
within ten (10) days of the Guarantor's receipt thereof, copies of all audit letters or other correspondence from any external auditors including material financial information in respect of the Guarantor and its Subsidiaries; and
 
(v)  
such other statements (including, without limitation, monthly consolidated statements of operating revenues and expenses), lists of assets and accounts, budgets, forecasts, reports and other financial information with respect to its business as the Facility Agent may from time to time reasonably request, certified to be true and complete by the chief financial officer of the Guarantor;
 
(e)  Contingent Liabilities.  For inclusion with each Compliance Certificate delivered in connection with Sections 9.1(d)(i) and 9.1(d)(ii), and in any event upon the reasonable request of the Facility Agent, an accounting of all of the contingent liabilities of each Security Party;
 
(f)  Vessel Valuations.  For inclusion with each Compliance Certificate delivered pursuant to Section 9.1(d)(i) and 9.1(d)(ii) (for the third quarter of each year), and in any event upon the reasonable request of the Facility Agent, the Borrower shall obtain appraisals of the Fair Market Value of the Vessel, provided however, that at any time when the Vessel is subject to an Acceptable Charter the Borrower shall not be required to deliver the appraisals of the Vessel together with the third quarter Compliance Certificate.  All valuations are to be at the Borrower's cost.  In the event the Borrower fails or refuses to obtain the valuations requested pursuant to this Section 9.1 within ten (10) days of the Facility Agent's request therefor, the Facility Agent will be authorized to obtain such valuations, at the Borrower's cost, from one of the approved ship brokers listed on Schedule II, which valuations shall be deemed the equivalent of valuations duly obtained by the Borrower pursuant to this Section 9.1(f), but the Facility Agent's actions in doing so shall not excuse any default of the Borrower under this Section 9.1(f);
 
(g)  Corporate Existence.  Do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence and all licenses, franchises, permits and assets necessary to the conduct of its business;
 
(h)  Books and Records.  At all times keep proper books of record and account into which full and correct entries shall be made in accordance with GAAP;
 
(i)  Taxes and Assessments.  Pay and discharge all material taxes, assessments and governmental charges or levies imposed upon it or upon its income or property prior to the date upon which penalties attach thereto; provided, however, that it shall not be required to pay and discharge, or cause to be paid and discharged, any such tax, assessment, charge or levy so long as the legality thereof shall be contested in good faith and by appropriate proceedings or other acts and it shall set aside on its books adequate reserves with respect thereto;
 
(j)  Inspection.  Allow any representative or representatives designated by the Facility Agent, subject to applicable laws and regulations, to visit and inspect any of its properties, and, on request, to examine its books of account, records, reports and other papers and to discuss its affairs, finances and accounts with its officers, all at such reasonable times and as often as the Facility Agent reasonably requests;
 
(k)  Inspection and Survey Reports.  If the Lenders shall so request, the Borrower shall provide the Lenders with copies of all internally generated inspection or survey reports on the Vessel;
 
(l)  Compliance with Statutes, Agreements, etc.  Do or cause to be done all things necessary to comply with all material contracts or agreements to which any of the Security Parties is a party, and all material laws, and the rules and regulations thereunder, applicable to such Security Party, including, without limitation, those laws, rules and regulations relating to employee benefit plans and environmental matters except where failure to do so would not be reasonably likely to have a Material Adverse Effect;
 
(m)  Environmental Matters.  Promptly upon the occurrence of any of the following conditions, provide to the Facility Agent a certificate of a chief executive officer of the Guarantor, specifying in detail the nature of such condition and its proposed response or the proposed response of any Environmental Affiliate:  (a) its receipt or the receipt by any Environmental Affiliate of any written communication whatsoever that alleges that such Person is not in compliance with any applicable Environmental Law or Environmental Approval, if such noncompliance could reasonably be expected to have a Material Adverse Effect, (b) knowledge by it or any Environmental Affiliate that there exists any Environmental Claim pending or threatened against any such Person, which could reasonably be expected to have a Material Adverse Effect, or (c) any release, emission, discharge or disposal of any material that could form the basis of any Environmental Claim against it or against any Environmental Affiliate, if such Environmental Claim could reasonably be expected to have a Material Adverse Effect.  Upon the written request by the Facility Agent, the Borrower will submit to the Facility Agent at reasonable intervals, a report providing an update of the status of any issue or claim identified in any notice or certificate required pursuant to this subsection;
 
(n)  Insurance.  Maintain with financially sound and reputable insurance companies insurance on all its properties and against all such risks and in at least such amounts and with such deductibles as are usually insured against by companies of established reputation engaged in the same or similar business from time to time;
 
(o)  Vessel Management.  Upon the delivery of the Vessel, cause the Vessel to be managed both commercially and technically by the Guarantor, a wholly-owned subsidiary thereof;
 
(p)  Brokerage Commissions, etc.  Indemnify and hold each of the Agents and the Lenders harmless from any claim for any brokerage commission, fee or compensation from any broker or third party resulting from the transactions contemplated hereby;
 
(q)  ISM Code, ISPS Code and MTSA Matters.  Upon the delivery of the Vessel, (i) procure that the Operator will comply with and ensure that the Vessel will comply with the requirements of the ISM Code, ISPS Code and MTSA in accordance with the implementation schedules thereof, including (but not limited to) the maintenance and renewal of valid certificates, and when required, security plans, pursuant thereto throughout the term of the Facility; and (ii) procure that the Operator will immediately inform the Facility Agent if there is any threatened or actual withdrawal of its DOC, SMC or the ISSC in respect of the Vessel; and (iii) procure that the Operator will promptly inform the Facility Agent upon the issuance to the Borrower or Operator of a DOC and to the Vessel of an SMC or ISSC;
 
(r)  ERISA.  Forthwith upon learning of the occurrence of any material liability of any member of the ERISA Group or any ERISA Affiliate pursuant to ERISA in connection with the termination of any Plan or withdrawal or partial withdrawal of any multi-employer plan (as defined in ERISA) or of a failure to satisfy the minimum funding standards of Section 412 of the Code or Part 3 of Title I of ERISA by any Plan for which any member of the ERISA Group or any ERISA Affiliate is plan administrator (as defined in ERISA), furnish or cause to be furnished to the Lenders written notice thereof;
 
(s)  Evidence of Current COFR.  If the Lenders shall so request, provide the Lenders with copies of the current Certificate of Financial Responsibility pursuant to the Oil Pollution Act 1990 for the Vessel; and
 
(t)  Mortgage.  Within three (3) Banking Days of the Final Drawdown Date, cause the Mortgage to be recorded with the National Vessel Documentation Center of the United States Coast Guard or the appropriate authorities in the Republic of Panama or Republic of the Marshall Islands (as applicable).
 
(u)  Listing on NYSE.  With respect to the Guarantor, maintain its listing on the New York Stock Exchange.
 
9.2  Negative Covenants.  Each of the Security Parties hereby covenants and undertakes with the Lenders that, from the date hereof and so long as any principal, interest or other moneys are owing in respect of this Agreement, the Note or any other Transaction Documents, it will not, without the prior written consent of the Majority Lenders (or all of the Lenders if required pursuant to Section 17.8):
 
(a)  Liens.  Create, assume or permit to exist, any mortgage, pledge, lien, charge, encumbrance or any security interest whatsoever upon any Collateral or, in respect of the Borrower and the Guarantor, other property except:
 
(i)  
liens disclosed in Schedule III;
 
(ii)  
liens to secure Indebtedness under Section 9.2(m), such liens to be limited to the vessels constructed or acquired;
 
(iii)  
liens for taxes not yet payable for which adequate reserves have been maintained;
 
(iv)  
the Mortgage, the Assignments and other liens in favor of the Security Trustee or the Lenders;
 
(v)  
liens, charges and encumbrances against the Vessel permitted to exist under the terms of the Mortgage;
 
(vi)  
pledges of certificates of deposit or other cash collateral securing reimbursement obligations in connection with letters of credit now or hereinafter issued for its account in connection with the establishment of its  financial responsibility under 33C.F.R. Part 130 or 46 C.F.R. Part 540, as the case may be, as the same may be amended and replaced;
 
(vii)  
pledges or deposits to secure obligations under workmen's compensation laws or similar legislation, deposits to secure public or statutory obligations, warehousemen's or other like liens, or deposits to obtain the release of such liens and deposits to secure surety, appeal or customs bonds on which it is the principal, as to all of the foregoing, only to the extent arising and continuing in the ordinary course of business; and
 
(viii)  
other liens, charges and encumbrances incidental to the conduct of its business, the ownership of its property and assets and which do not in the aggregate materially detract from the value of its property or assets or materially impair the use thereof in the operation of its business;
 
(b)  Third Party Guaranties.  Guaranty the obligations of any third party, except a direct or indirect subsidiary of the Guarantor, whether or not affiliated with such Security Party;
 
(c)  Liens on Shares of Borrower.  With respect to the Guarantor, create, assume or permit to exist, any mortgage, pledge, lien, charge, encumbrance or any security interest whatsoever upon the shares of the Borrower;
 
(d)  Subordination of Inter-Company Indebtedness.  With respect to the Guarantor, procure that, upon the occurrence and during the continuance of an Event of Default, no payments are made by any Security Party on any inter-company Indebtedness until such time as the Facility is paid in full;
 
(e)  Transaction with Affiliates.  Enter into any transaction with an Affiliate, other than on an arms length basis;
 
(f)  Change of Flag, Class, Management or Ownership.  After delivery of the Vessel to the Borrower, change the flag of the Vessel other than to a jurisdiction reasonably acceptable to the Lenders, its Classification Society other than to another member of the International Association of Classification Societies, the technical management of the Vessel other than to one or more technical management companies reasonably acceptable to the Lenders or the immediate or ultimate ownership of the Vessel;
 
(g)  Chartering.  Enter into any charter party agreement with respect to the Vessel, other than an Approved Charter, without the prior consent of the Majority Lenders, which consent shall not be unreasonably withheld;
 
(h)  Change in Business.  Materially change the nature of its business or commence any business materially different from its current business;
 
(i)  Sale of Assets.  Other than as reasonably acceptable to the Majority Lenders, sell, or otherwise dispose of, the Vessel or any other asset (including by way of spin-off, installment sale or otherwise) which is substantial in relation to its assets taken as a whole; provided, however, that the Borrower may sell the Vessel to a third party in an arm's length transaction provided that the proceeds of such sale are distributed in accordance with Section 5.3 of this Agreement;
 
(j)  Changes in Offices or Names.  Change the location of its chief executive office, its chief place of business or the office in which its records relating to the earnings or insurances of the Vessel are kept or change its name unless the Lenders shall have received sixty (60) days prior written notice of such change;
 
(k)  Consolidation and Merger.  Consolidate with, or merge into, any corporation or other entity, or merge any corporation or other entity into it; provided, however, that the Guarantor may merge with any Subsidiary or any other Person if (A) at the time of such transaction and after giving effect thereto, no Default or Event of Default shall have occurred or be continuing, (B) the surviving entity of such consolidation or merger shall be the Guarantor and (C) after giving effect to the transaction, the Guarantor's Consolidated Tangible Net Worth shall be greater or equal to its Consolidated Tangible Net Worth prior to the merger;
 
(l)  Change Fiscal Year.  In the case of the Guarantor, change its fiscal year;
 
(m)  Indebtedness.  In the case of the Security Parties, incur any new Indebtedness (which, for the sake of clarity, shall exclude any Indebtedness pursuant to this Agreement) other than Indebtedness incurred to finance the acquisition and/or construction of any vessels, provided that the principal amount of such Indebtedness shall not exceed eighty percent (80%) of such acquisition and/or construction price, unless such Indebtedness is subordinated to all existing Indebtedness and this Facility; and
 
(n)  Limitations on Ability to Make Distributions.  Create or otherwise cause or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to pay dividends or make any other distributions on its capital stock or limited liability company interests, as the case may be, to the Borrower or the Guarantor.
 
(o)  Change of Control. Cause or permit a Change of Control.
 
(p)  No Money Laundering. Contravene 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) and comparable United States Federal and state laws.
 
(q)  Shipsales Contract.  Amend any material provision in the Shipsales contract, without the prior consent of the Facility Agent.
 
9.3  Financial Covenants.  The Guarantor hereby covenants and undertakes with the Lenders that, from the date hereof and so long as any principal, interest or other moneys are owing in respect of this Agreement, the Note or any of the Security Documents, it will:
 
(a)  Consolidated Indebtedness to Consolidated EBITDA Ratio.  Maintain, on a consolidated basis, a ratio of Consolidated Indebtedness to Consolidated EBITDA of not more than 4.25 to 1.00, as measured at the end of each fiscal quarter based on the four most recent fiscal quarters for which financial information is available;
 
(b)  Working Capital.  Maintain on a consolidated basis a ratio of current assets to current liabilities of not less than 1.00 to 1.00, as measured at the end of each fiscal quarter;
 
(c)  Consolidated Tangible Net Worth.  Maintain a Consolidated Tangible Net Worth, as measured at the end of each fiscal quarter, in an amount of not less than the sum of (i) ninety percent (90%) of Consolidated Tangible Net Worth as of March 31, 2008 and (ii) the sum of fifty percent (50%) of (A) all net income of the Guarantor (on a consolidated basis) earned after March 31, 2008,  and (B) the proceeds from the issuance of any common and/or preferred stock of the Guarantor on or after the date hereof;
 
(d)  Consolidated EBITDA to Interest Expense.  Maintain a ratio of Consolidated EBITDA to Interest Expense of not less than 2.50 to 1.00, measured at the end of each fiscal quarter based on the four most recent fiscal quarters for which financial information is available;
 
9.4  Asset Maintenance.  If at any time during the term of this Agreement after the Final Drawdown Date, the Fair Market Value of the Vessel is less than the Required Percentage of the outstanding amount of the Facility, the Borrower shall, within a period of thirty (30) days following receipt by the Borrower of written notice from the Facility Agent notifying the Borrower of such shortfall and specifying the amount thereof (which amount shall, in the absence of manifest error, be deemed to be conclusive and binding on the Borrower), either (i) prepay such amount of the Facility (together with interest thereon and any other monies payable in respect of such prepayment pursuant to Section 5.5) as shall result in the Fair Market Value of the Vessel being not less than the Required Percentage of the outstanding amount of the Facility or (ii) place on charged deposits with the Facility Agent an amount in Dollars (together with interest thereon and any other monies payable in respect of such prepayment pursuant to Section 5.5) as shall result in the Fair Market Value of the Vessel together with the amount deposited being not less than the Required Percentage of the outstanding amount of the Facility.  The charged deposit shall be released to the Borrower when the Fair Market Value of the Vessel is not less than the Required Percentage of the outstanding amount of the Facility.  For the purposes of this Section 9.4, the outstanding amount of the Facility shall be measured in Dollars based on the Facility Agent’s Yen/Dollar exchange rate at the time of such measurement.
 
10.  GRANT OF SECURITY. 
 
10.1           The Borrower does hereby transfer, convey, mortgage, hypothecate, pledge, assign and grant a first priority security interest to the Security Trustee, in and to any Interest Rate Agreement and any forward foreign exchange contract to the extent of its right, title and interest therein TO HAVE AND TO HOLD any such Interest Rate Agreement or forward foreign exchange contract unto the Security Trustee, and its successors and assigns, as security for the due and punctual payment and performance of its obligations hereunder and under the Note; provided however that, and these presents are subject to the condition that, if the Borrower shall have paid or caused to be paid or performed all of the obligations hereunder and under the Note which are due and owing on or before the Final Payment Date and no Event of Default shall have occurred and be subsisting, the security interest created by this Facility Agreement shall terminate and be discharged and upon the request of the Borrower, the Lenders shall execute and deliver to the Borrower, at the expense of the Borrower, such instruments of satisfaction and release as may be appropriate.
 
11.  GUARANTEE
 
11.1  The Guarantee.  The Guarantor hereby irrevocably and unconditionally guarantees to each of the Creditors and their respective successors and assigns the prompt payment in full when due (whether at stated maturity, by acceleration or otherwise) of the principal of and interest on the Facility made by the Lenders to the Borrower and evidenced by the Note and all other amounts from time to time owing to the Creditors by the Borrower under this Agreement, under the Note and under any of the Security Documents, in each case strictly in accordance with the terms thereof (such obligations being herein collectively called the “Guaranteed Obligations”). The Guarantor hereby further agrees that if the Borrower shall fail to pay in full when due (whether at stated maturity, by acceleration or otherwise) any of the Guaranteed Obligations, the Guarantor will promptly pay the same, without any demand or notice whatsoever, and that in the case of any extension of time of payment or renewal of any of the Guaranteed Obligations, the same will be promptly paid in full when due (whether at extended maturity, by acceleration or otherwise) in accordance with the terms of such extension or renewal.
 
11.2  Obligations Unconditional.  The obligations of the Guarantor under Section 11.1 are absolute, unconditional and irrevocable, irrespective of the value, genuineness, validity, regularity or enforceability of the obligations of the Borrower under this Agreement, the Note or any other agreement or instrument referred to herein or therein, or any substitution, release or exchange of any other guarantee of, or security for, any of the Guaranteed Obligations, and, to the fullest extent permitted by applicable law, irrespective of any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a surety or guarantor, it being the intent of this Section 11.2 that the obligations of the Guarantor hereunder shall be  absolute, unconditional and irrevocable, under any and all circumstances.  Without limiting the generality of the foregoing, it is agreed that the occurrence of any one or more of the following shall not alter or impair the liability of the Guarantor hereunder, which shall remain absolute, unconditional and irrevocable as described above:
 
a)  
at any time or from time to time, without notice to the Guarantor, the time for any performance of or compliance with any of the Guaranteed Obligations shall be extended, or such performance or compliance shall be waived;
 
b)  
any of the acts mentioned in any of the provisions of this Agreement or the Note or any other agreement or instrument referred to herein or therein shall be done or omitted;
 
c)  
the maturity of any of the Guaranteed Obligations shall be accelerated, or any of the Guaranteed Obligations shall be modified, supplemented or amended in any respect, or any right under this Agreement or the Note or any other agreement or instrument referred to herein or therein shall be waived or any other guarantee of any of the Guaranteed Obligations or any security therefor shall be released or exchanged, in whole or in part, or otherwise dealt with; or
 
d)  
any lien or security interest granted to, or in favor of, the Security Trustee or any Lender or Lenders as security for any of the Guaranteed Obligations shall fail to be perfected.
 
The Guarantor hereby expressly waives diligence, presentment, demand of payment, protest and all notices whatsoever, and any requirement that any Agent or any Lender exhaust any right, power or remedy or proceed against the Borrower under this Agreement or the Note or any other agreement or instrument referred to herein or therein, or against any other Person under any other guarantee of, or security for, any of the Guaranteed Obligations.
 
11.3  Reinstatement.  The obligations of the Guarantor under this Section 11 shall be automatically reinstated if and to the extent that for any reason any payment by or on behalf of the Borrower in respect of the Guaranteed Obligations is rescinded or must be otherwise restored by any holder of any of the Guaranteed Obligations, whether as a result of any Proceedings and the Guarantor agrees that it will indemnify each Creditor on demand for all reasonable costs and expenses (including, without limitation, fees of counsel) incurred by such Creditor in connection with such recission or restoration, including any such costs and expenses incurred in defending against any claim alleging that such payment constituted a preference, fraudulent transfer or similar payment under any bankruptcy, insolvency or similar law.
 
11.4  Subrogation.  The Guarantor hereby irrevocably waives, but only until all amounts payable hereunder by the Guarantor to the Creditors (or any of them) have been paid in full, any and all rights to which any of them may be entitled by operation of law or otherwise, upon making any payment hereunder to be subrogated to the rights of the payee against the Borrower with respect to such payment or to be reimbursed, indemnified or exonerated by or to seek contribution from the Borrower in respect thereof.
 
11.5  Remedies.  The Guarantor agrees that, as between the Guarantor and the Lenders, the obligations of the Borrower under this Agreement and the Note may be declared to be forthwith due and payable as provided in Section 8 (and shall be deemed to have become automatically due and payable in the circumstances provided in said Section 8) for purposes of Section 11.1 notwithstanding any stay, injunction or other prohibition preventing such declaration (or such obligations from becoming automatically due and payable) as against the Borrower and that, in the event of such declaration (or such obligations being deemed to have become automatically due and payable), such obligations (whether or not due and payable by the Borrower) shall forthwith become due and payable by the Guarantor for purposes of Section 11.1.
 
11.6  Joint, Several and Solidary Liability.  The Guarantor's obligations and liability under this Agreement shall be on a “solidary” or “joint and several” basis along with Borrower to the same degree and extent as if the Guarantor had been and/or will be a co-borrower, co-principal obligor and/or co-maker of the Guaranteed Obligations.  In the event that there is more than one Guarantor under this Agreement, or in the event that there are other guarantors, endorsers or sureties of all or any portion of the Guaranteed Obligations, the Guarantor's obligations and liability hereunder shall further be on a “solidary” or “joint and several” basis along with such other guarantors, endorsers and/or sureties.
 
11.7  Continuing Guarantee.  The guarantee in this Section 11 is a continuing guarantee, and shall apply to all Guaranteed Obligations whenever arising.
 
12.  ASSIGNMENT.
 
This Agreement shall be binding upon, and inure to the benefit of, each of the Security Parties and each of the Creditors and their respective successors and assigns, except that the Guarantor may not assign any of its rights or obligations hereunder without the written consent of the Lenders.  The Borrower may assign its rights or obligations hereunder without the consent of the Lenders to another wholly-owned Subsidiary, subject to such Subsidiary executing such documentation reasonably required by the Lenders, including but not limited to a promissory note, first priority vessel mortgage, assignment of earnings and assignment of insurances relating to the Vessel.  Each Lender shall be entitled to assign its rights and obligations under this Agreement or grant participation(s) in the Facility to any subsidiary, holding company or other affiliate of such Lender, to any subsidiary or other affiliate company of any thereof or, with the consent of the Borrower (except upon the occurrence and during the continuation of an Event of Default, in which case the Borrower's consent shall not be required) and the Agents, in the case of the Borrower such consent not to be unreasonably withheld, to any other bank or financial institution (in a minimum amount of not less than ¥100,000,000), and such Lender shall forthwith give notice of any such assignment or participation to the Borrower and pay the other Lender an assignment fee of $3,000 for each such assignment or participation; provided, however, that any such assignment must be made pursuant to an Assignment and Assumption Agreement.  The Borrower will take all reasonable actions requested by the Agents or any Lender to effect such assignment, including, without limitation, the execution of a written consent to any Assignment and Assumption Agreement.
 
13.  ILLEGALITY, INCREASED COST, NON-AVAILABILITY, ETC.
 
13.1  Illegality.  In the event that by reason of any change in any applicable law, regulation or regulatory requirement or in the interpretation thereof, a Lender has a reasonable basis to conclude that it has become unlawful for any Lender to maintain or give effect to its obligations as contemplated by this Agreement, such Lender shall inform the Facility Agent and the Borrower to that effect, whereafter the liability of such Lender to make its Commitment available shall forthwith cease and the Borrower shall be required either to repay to such Lender that portion of the Facility advanced by such Lender immediately or, if such Lender so agrees, to repay such portion of the Facility to the Lender on the last day of the calendar month in accordance with and subject to the provisions of Section 13.5.  In any such event, but without prejudice to the aforesaid obligations of the Borrower to repay such portion of the Facility, the Borrower and the relevant Lender shall negotiate in good faith with a view to agreeing on terms for making such portion of the Facility available from another jurisdiction or otherwise restructuring such portion of the Facility on a basis which is not unlawful.
 
13.2  Increased Costs.  If any change in applicable law, regulation or regulatory requirement, or in the interpretation or application thereof by any governmental or other authority, shall:
 
(i)  
subject any Lender to any Taxes with respect to its income from the Facility, or any part thereof, or
 
(ii)  
change the basis of taxation to any Lender of payments of principal or interest or any other payment due or to become due pursuant to this Agreement (other than a change in the basis effected by the jurisdiction of organization of such Lender, the jurisdiction of the principal place of business of such Lender, the United States of America, the State or City of New York or any governmental subdivision or other taxing authority having jurisdiction over such Lender (unless such jurisdiction is asserted by reason of the activities of any Security Party) or such other jurisdiction where the Facility may be payable), or
 
(iii)  
impose, modify or deem applicable any reserve requirements or require the making of any special deposits against or in respect of any assets or liabilities of, deposits with or for the account of, or loans by, a Lender, or
 
(iv)  
impose on any Lender any other condition affecting the Facility or any part thereof,
 
and the result of the foregoing is either to increase the cost to such Lender of making available or maintaining its Commitment or any part thereof or to reduce the amount of any payment received by such Lender, then and in any such case if such increase or reduction in the opinion of such Lender materially affects the interests of such Lender under or in connection with this Agreement:
 
(a)  such Lender shall notify the Facility Agent and the Borrower of the happening of such event, and
 
(b)  the Borrower agrees forthwith upon demand to pay to such Lender such amount as such Lender certifies to be necessary to compensate such Lender for such additional cost or such reduction; provided however, that the foregoing provisions shall not be applicable in the event that increased costs to the Lender result from the exercise by the Lender of its right to assign its rights or obligations under Section 12.
 
13.3  Nonavailability of Funds.  If the Facility Agent shall determine that, by reason of circumstances affecting the London Interbank Market generally, adequate and reasonable means do not or will not exist for ascertaining the Applicable Rate, the Facility Agent shall give notice of such determination to the Borrower and the Lenders.  The Borrower, the Facility Agent and the Majority Lenders shall then negotiate in good faith in order to agree upon a mutually satisfactory interest rate to be substituted for that which would otherwise have applied under this Agreement.  If the Borrower, the Facility Agent and the Majority Lenders are unable to agree upon such a substituted interest rate within thirty (30) days of the giving of such determination notice, the Facility Agent shall set an interest rate to take effect at the Facility Agent's direction, which rate shall be equal to the Applicable Margin plus the cost to the Lenders (as certified by each Lender) of funding the Facility.
 
13.4  Lender's Certificate Conclusive.  A certificate or determination notice of the Facility Agent or any Lender, as the case may be, as to any of the matters referred to in this Section 13 shall, absent manifest error, be conclusive and binding on the Borrower.
 
13.5  Compensation for Losses.  Where any portion of the Facility is to be repaid by the Borrower pursuant to this Section 13, the Borrower agrees simultaneously with such repayment to pay to the relevant Lender all accrued interest to the date of actual payment on the amount repaid and all other sums then payable by the Borrower to the relevant Lender pursuant to this Agreement, together with such amounts as may be certified by the relevant Lender to be necessary to compensate such Lender for any actual loss, premium or penalties incurred or to be incurred thereby on account of funds borrowed to make, fund or maintain its Commitment or such portion thereof for the remainder (if any) of the then current calendar month, but otherwise without penalty or premium.
 
14.  CURRENCY INDEMNITY
 
14.1  Currency Conversion.  If for the purpose of obtaining or enforcing a judgment in any court in any country it becomes necessary to convert into any other currency (the “judgment currency”) an amount due in Dollars or Yen under this Agreement or the other Transaction Documents then the conversion shall be made, in the discretion of the Facility Agent, at the rate of exchange prevailing either on the date of default or on the day before the day on which the judgment is given or the order for enforcement is made, as the case may be (the “conversion date”), provided that the Facility Agent shall not be entitled to recover under this section any amount in the judgment currency which exceeds at the conversion date the amount in Dollars or Yen, as applicable, due under this Agreement, the Note and/or the other Transaction Documents.
 
14.2  Change in Exchange Rate.  If there is a change in the rate of exchange prevailing between the conversion date and the date of actual payment of the amount due, the Borrower shall pay such additional amounts (if any, but in any event not a lesser amount) as may be necessary to ensure that the amount paid in the judgment currency when converted at the rate of exchange prevailing on the date of payment will produce the amount then due under this Agreement, the Note and/or the other Transaction Documents in Yen; any excess over the amount due received or collected by the Lenders shall be remitted to the Borrower.
 
14.3  Additional Debt Due.  Any amount due from the Borrower under this Section 14 shall be due as a separate debt and shall not be affected by judgment being obtained for any other sums due under or in respect of this Agreement, the Note and/or any of the Security Documents.
 
14.4  Rate of Exchange.  The term “rate of exchange” in this Section 14 means the rate at which the Facility Agent in accordance with its normal practices is able on the relevant date to purchase Yen with the judgment currency and includes any premium and costs of exchange payable in connection with such purchase.
 
15.  FEES AND EXPENSES
 
15.1  Fees.  The Borrower shall pay, for the account of the Lenders, a fee (the “Commitment Fee”) equal to (i) seventeen and one-half of one percent (17.5%) of the Applicable Margin from December 7, 2007 through March 31, 2010, and (ii) thirty-five percent (35%) of the Applicable Margin from April 1, 2010 until the Final Drawdown Date, in each case, on the average undrawn portion of the Facility.  Notwithstanding the foregoing, if the Borrower does not draw down the maximum amount of any Advance on the Drawdown Date on which such amount first becomes available, the Commitment Fee applicable to the undrawn portion of such Advance shall be thirty-five percent (35%) of the Applicable Margin.  The Commitment Fee shall be payable on the undrawn portion of the Facility, provided however, that if the Lenders exercise their right to reduce the Facility pursuant to Section 5.4, the Commitment Fee will be calculated on the reduced amount of the Facility.  For the purposes of the Commitment Fee, if the Facility is reduced pursuant to Section 5.4, the Facility shall be deemed to be reduced as of the Closing Date and the excess Commitment Fee paid up to the date of such reduction shall be refunded to the Borrower.
 
The Borrower shall also pay all fees in the Fee Letter.
 
15.2  Expenses.  The Borrower agrees, whether or not the transactions hereby contemplated are consummated, on demand to pay, or reimburse the Agents for their payment of, the reasonable expenses of the Agents and (after the occurrence and during the continuance of an Event of Default) the Lenders incident to said transactions (and in connection with any supplements, amendments, waivers or consents relating thereto or incurred in connection with the enforcement or defense of any of the Agents' and the Lenders' rights or remedies with respect thereto or in the preservation of the Agents' and the Lenders' priorities under the documentation executed and delivered in connection therewith) including, without limitation, all reasonable costs and expenses of preparation, negotiation, execution and administration of this Agreement and the documents referred to herein, the reasonable fees and disbursements of the Agents' counsel in connection therewith, as well as the reasonable fees and expenses of any independent appraisers, surveyors, engineers and other consultants retained by the Agents in connection with this transaction, all reasonable costs and expenses, if any, in connection with the enforcement of this Agreement and the other Transaction Documents and stamp and other similar taxes, if any, incident to the execution and delivery of the documents (including, without limitation, the other Transaction Documents) herein contemplated and to hold the Agents and the Lenders free and harmless in connection with any liability arising from the nonpayment of any such stamp or other similar taxes.  Such taxes and, if any, interest and penalties related thereto as may become payable after the date hereof shall be paid immediately by the Borrower to the Agents or the Lenders, as the case may be, when liability therefor is no longer contested by such party or parties or reimbursed immediately by the Borrower to such party or parties after payment thereof (if the Agents or the Lenders, at their sole discretion, chooses to make such payment).
 
16.  APPLICABLE LAW, JURISDICTION AND WAIVER
 
16.1  Applicable Law.  This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York.
 
16.2  Jurisdiction.  The Borrower hereby irrevocably submits to the jurisdiction of the courts of the State of New York and of the United States District Court for the Southern District of New York in any action or proceeding brought against it by any of the Lenders or the Agents under this Agreement or under any document delivered hereunder and hereby irrevocably agrees that valid service of summons or other legal process on it may be effected by serving a copy of the summons and other legal process in any such action or proceeding on the Borrower by mailing or delivering the same by hand to the Borrower at the address indicated for notices in Section 18.1.  The service, as herein provided, of such summons or other legal process in any such action or proceeding shall be deemed personal service and accepted by the Borrower as such, and shall be legal and binding upon the Borrower for all the purposes of any such action or proceeding.  Final judgment (a certified or exemplified copy of which shall be conclusive evidence of the fact and of the amount of any indebtedness of the Borrower to the Lenders or the Agent) against the Borrower in any such legal action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment.  The Borrower will advise the Facility Agent promptly of any change of address for the purpose of service of process.  Notwithstanding anything herein to the contrary, the Lenders may bring any legal action or proceeding in any other appropriate jurisdiction.
 
16.3  WAIVER OF JURY TRIAL.  IT IS MUTUALLY AGREED BY AND AMONG EACH OF THE SECURITY PARTIES AND EACH OF THE CREDITORS THAT EACH OF THEM HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST ANY OTHER PARTY HERETO ON ANY MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS.
 
17.  THE AGENTS
 
17.1  Appointment of Agents.  Each of the Lenders irrevocably appoints and authorizes the Facility Agent to take such action as facility agent on its behalf and to exercise such powers under this Agreement, the Note and the other Transaction Documents as are delegated to the Facility Agent by the terms hereof and thereof.  The Facility Agent nor any of its directors, officers, employees or agents shall be liable for any action taken or omitted to be taken by it or them under this Agreement, the Note or the other Transaction Documents or in connection therewith, except for its or their own gross negligence or willful misconduct.
 
17.2  Appointment of Security  Trustee.  Each of the Lenders irrevocably appoints, designates and authorizes the Security Trustee to act as security trustee on its behalf with regard to (i) the security, powers, rights, titles, benefits and interests (both present and future) constituted by and conferred on the Lenders or any of them or for the benefit thereof under or pursuant to this Agreement or any of the other Transaction Documents (including, without limitation, the benefit of all covenants, undertakings, representations, warranties and obligations given, made or undertaken to any Lender in the Agreement or the other Transaction Documents), (ii) all moneys, property and other assets paid or transferred to or vested in any Lender or any agent of any Lender or received or recovered by any Lender or any agent of any Lender pursuant to, or in connection with, this Agreement or the other Transaction Documents whether from any Security Party or any other person and (iii) all money, investments, property and other assets at any time representing or deriving from any of the foregoing, including all interest, income and other sums at any time received or receivable by any Lender or any agent of any Lender in respect of the same (or any part thereof). The Security Trustee hereby accepts such appointment but shall have no obligations under this Agreement, under the Note or under any of the Security Documents except those expressly set forth herein and therein.
 
17.3  Distribution of Payments.  Whenever any payment is received by the Facility Agent or the Security Trustee from the Borrower or the Guarantor for the account of the Lenders, or any of them, whether of principal or interest on the Note, commissions, fees under Section 15 or otherwise, it will thereafter cause to be distributed on the second day after receipt if received before 10 a.m. New York time, or on the third day after receipt if received thereafter, like funds relating to such payment ratably to the Lenders according to their respective Commitments, in each case to be applied according to the terms of this Agreement. Unless the Facility Agent or the Security Trustee, as the case may be, shall have received notice from the Borrower prior to the date when any payment is due hereunder that the Borrower will not make any payment on such date, the Facility Agent or the Security Trustee may assume that the Borrower have made such payment to the Facility Agent or the Security Trustee, as the case may be, on the relevant date and the Facility Agent or the Security Trustee may, in reliance upon such assumption, make available to the Lenders on such date a corresponding amount relating to such payment ratably to the Lenders according to their respective Commitments.  If and to the extent that the Borrower shall not have so made such payment available to the Facility Agent or the Security Trustee, as the case may be, the Lenders and the Borrower (but without duplication) severally agree to repay to the Facility Agent or the Security Trustee, as the case may be, forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Lenders until the date such amount is repaid to the Facility Agent or the Security Trustee, as the case may be, as calculated by the Facility Agent or Security Trustee to reflect its cost of funds.
 
17.4  Holder of Interest in Note.  The Agents may treat each Lender as the holder of all of the interest of such Lender in the Note.
 
17.5  No Duty to Examine, Etc.  The Agents shall not be under a duty to examine or pass upon the validity, effectiveness or genuineness of any of this Agreement, the other Transaction Documents or any instrument, document or communication furnished pursuant to this Agreement or in connection therewith or in connection with any other Transaction Document, and the Agents shall be entitled to assume that the same are valid, effective and genuine, have been signed or sent by the proper parties and are what they purport to be.
 
17.6  Agents as Lenders.  With respect to that portion of the Facility made available by it, each Agent shall have the same rights and powers hereunder as any other Lender and may exercise the same as though it were not an Agent, and the term “Lender” or “Lenders” shall include the Agent in its capacity as a Lender.  Each Agent and its affiliates may accept deposits from, lend money to and generally engage in any kind of business with, the Borrower and the Guarantor as if it were not an Agent.
 
17.7  Acts of the Agents.  Each Agent shall have duties and discretion, and shall act as follows:
 
(a)  Obligations of the Agents.  The obligations of each Agent under this Agreement, the Note and the other Transaction Documents are only those expressly set forth herein and therein;
 
(b)  No Duty to Investigate.  No Agent shall  at any time, unless requested to do so by a Lender or Lenders, be under any duty to enquire whether an Event of Default, or an event which with the giving of notice or lapse of time, or both, would constitute an Event of Default, has occurred or to investigate the performance of this Agreement, the Note or any Security Document by any Security Party; and
 
(c)  Discretion of the Agents.  Each Agent shall be entitled to use its discretion with respect to exercising or refraining from exercising any rights which may be vested in it by, and with respect to taking or refraining from taking any action or actions which it may be able to take under or in respect of, this Agreement and the other Transaction Documents, unless the Facility Agent shall have been instructed by the Majority Lenders to exercise such rights or to take or refrain from taking such action; provided, however, that no Agent shall be required to take any action which exposes it to personal liability or which is contrary to this Agreement or applicable law;
 
(d)  Instructions of Majority Lenders.  Each Agent shall in all cases be fully protected in acting or refraining from acting under this Agreement or under any other Transaction Document in accordance with the instructions of the Majority Lenders, and any action taken or failure to act pursuant to such instructions shall be binding on all of the Lenders.
 
17.8  Certain Amendments.  Neither this Agreement, the Note nor any of the Security Documents nor any terms hereof or thereof may be amended unless such amendment is approved by the Borrower and the Majority Lenders, provided that no such amendment shall, without the consent of each Lender affected thereby, (i) reduce the interest rate or extend the time of payment of scheduled principal payments or interest or fees on the Facility, or reduce the principal amount of the Facility or any fees hereunder, (ii) increase or decrease the Commitment of any Lender or subject any Lender to any additional obligation (it being understood that a waiver of any Event of Default or any mandatory repayment of the Facility shall not constitute a change in the terms of any Commitment of any Lender), (iii) amend, modify or waive any provision of this Section 17.8, (iv) amend the definition of Majority Lenders or any other definition referred to in this Section 17.8, (v) consent to the assignment or transfer by the Borrower of any of its rights and obligations under this Agreement, (vi) release any Security Party from any of its obligations under any Security Document except as expressly provided herein or in such Security Document or (vii) amend any provision relating to the maintenance of collateral under Section 9.4.  All amendments approved by the Majority Lenders under this Section 17.8 must be in writing and signed by the Borrower and each of the Lenders.  In the event that any Lender is unable to or refuses to sign an amendment approved by the Majority Lenders hereunder, such Lender hereby appoints the Agent as its Attorney-In-Fact for the purposes of signing such amendment.  No provision of this Section 17 or any other provisions relating to the Agent may be modified without the consent of the Agent.
 
17.9  Assumption re Event of Default.  Except as otherwise provided in Section 17.15, the Facility Agent and the Security Trustee shall be entitled to assume that no Event of Default, or event which with the giving of notice or lapse of time, or both, would constitute an Event of Default, has occurred and is continuing, unless it has been notified by any Security Party of such fact, or has been notified by a Lender that such Lender considers that an Event of Default or such an event (specifying in detail the nature thereof) has occurred and is continuing.  In the event that either thereof shall have been notified by any Security Party or any Lender in the manner set forth in the preceding sentence of any Event of Default or of an event which with the giving of notice or lapse of time, or both, would constitute an Event of Default, the Facility Agent shall notify the Lenders and shall take action and assert such rights under this Agreement, under the Note and under Security Documents as the Majority Lenders shall request in writing.
 
17.10  Limitations of Liability.  No Agent or Lender shall be under any liability or responsibility whatsoever:
 
(a)  to any Security Party or any other person or entity as a consequence of any failure or delay in performance by, or any breach by, any other Lenders or any other person of any of its or their obligations under this Agreement or under any Security Document;
 
(b)  to any Lender or Lenders as a consequence of any failure or delay in performance by, or any breach by, any Security Party of any of its respective obligations under this Agreement or under the other Transaction Documents; or
 
(c)  to any Lender or Lenders for any statements, representations or warranties contained in this Agreement, in any Security Document or in any document or instrument delivered in connection with the transaction hereby contemplated; or for the validity, effectiveness, enforceability or sufficiency of this Agreement, any other Transaction Document or any document or instrument delivered in connection with the transactions hereby contemplated.
 
17.11  Indemnification of the Agent and Security Trustee.  The Lenders agree to indemnify each Agent (to the extent not reimbursed by the Security Parties or any thereof), pro rata according to the respective amounts of their Commitments, from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including legal fees and expenses incurred in investigating claims and defending itself against such liabilities) which may be imposed on, incurred by or asserted against, such Agent in any way relating to or arising out of this Agreement or any other Transaction Document, any action taken or omitted by such Agent thereunder or the preparation, administration, amendment or enforcement of, or waiver of any provision of, this Agreement or any other Transaction Document, except that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the  gross negligence or willful misconduct of either such Agent.
 
17.12  Consultation with Counsel.  Each of the Facility Agent and the Security Trustee may consult with legal counsel selected by such Agent and shall not be liable for any action taken, permitted or omitted by it in good faith in accordance with the advice or opinion of such counsel.
 
17.13  Resignation.  Any Agent may resign at any time by giving sixty (60) days' written notice thereof to the other Agents, the Lenders and the Borrower.  Upon any such resignation, the Lenders shall have the right to appoint a successor Agent.  If no successor Agent shall have been so appointed by the Lenders and shall have accepted such appointment within sixty (60) days after the retiring Agent's giving notice of resignation, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent which shall be a bank or trust company of recognized standing.  The appointment of any successor Agent shall be subject to the prior written consent of the Borrower, such consent not to be unreasonably withheld.  After any retiring Agent's resignation as Agent hereunder, the provisions of this Section 17 shall continue in effect for its benefit with respect to any actions taken or omitted by it while acting as Agent.
 
17.14  Representations of Lenders.  Each Lender represents and warrants to each other Lender and the Agent that:
 
(a)  in making its decision to enter into this Agreement and to make its Commitment available hereunder, it has independently taken whatever steps it considers necessary to evaluate the financial condition and affairs of the Security Parties, that it has made an independent credit judgment and that it has not relied upon any statement, representation or warranty by any other Lender or any Agent; and
 
(b)  so long as any portion of its Commitment remains outstanding, it will continue to make its own independent evaluation of the financial condition and affairs of the Security Parties.
 
17.15  Notification of Event of Default.  The Facility Agent hereby undertakes to promptly notify the Lenders, and the Lenders hereby promptly undertake to notify the Facility Agent and the other Lenders, of the existence of any Event of Default which shall have occurred and be continuing of which such party has actual knowledge.
 
18.  NOTICES AND DEMANDS
 
18.1  Notices.  All notices, requests, demands and other communications to any party hereunder shall be in writing (including prepaid overnight courier, facsimile transmission or similar writing) and shall be given to the Borrower or the Guarantor at the address or facsimile number set forth below and to the Lenders and the Agents at their address and facsimile numbers set forth in Schedule I or at such other address or facsimile numbers as such party may hereafter specify for the purpose by notice to each other party hereto.  Each such notice, request or other communication shall be effective (i) if given by facsimile, when such facsimile is transmitted to the facsimile number specified in this Section and telephonic confirmation of receipt thereof is obtained or (ii) if given by mail, prepaid overnight courier or any other means, when received at the address specified in this Section or when delivery at such address is refused.
 
If to the Borrower or the Guarantor:
 
11 North Water Street, Suite 18290
 
Mobile, Alabama 36602
 
Facsimile No.:  (251)-243-9121
 
Attention: Chief Financial Officer
 
With a copy to
 
One Whitehall Street
 
New York, NY 10004
 
Facsimile No.:  (212) 514-5692
 
Attention:  Mr. Niels M. Johnsen
 
19.  MISCELLANEOUS
 
19.1  Time of Essence.  Time is of the essence of this Agreement but no failure or delay on the part of any Creditor to exercise any power or right under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise by any Creditor of any power or right hereunder preclude any other or further exercise thereof or the exercise of any other power or right.  The remedies provided herein are cumulative and are not exclusive of any remedies provided by law.
 
19.2  Unenforceable, etc., Provisions - Effect.  In case any one or more of the provisions contained in this Agree­ment or in the other Transaction Documents would, if given effect, be invalid, illegal or unenforceable in any respect under any law applicable in any relevant jurisdiction, said provision shall not be enforceable against the relevant Security Party, but the validity, legality and enforceability of the remaining provisions herein or therein contained shall not in any way be affected or impaired thereby.
 
19.3  References.  References herein to Articles, Sections, Exhibits and Schedules are to be construed as references to articles, sections of, exhibits to, and schedules to, this Agreement or the other Transaction Documents as applicable, unless the context otherwise requires.
 
19.4  Further Assurances.  Each of the Security Parties hereby agrees that if this Agreement or any of the other Transaction Documents shall, in the reasonable opinion of the Lenders, at any time be deemed by the Lenders for any reason insufficient in whole or in part to carry out the true intent and spirit hereof or thereof, it will execute or cause to be executed such other and further assurances and documents as in the opinion of the Lenders may be required in order to more effectively accomplish the purposes of this Agreement and/or the other Transaction Documents.
 
19.5  Prior Agreements, Merger.  Any and all prior understandings and agreements heretofore entered into between the Security Parties on the one part, and the Creditors, on the other part, relating to the transactions contemplated hereby, whether written or oral, are superseded by and merged into this Agreement and the other agreements (the forms of which are exhibited hereto) to be executed and delivered in connection herewith to which the Security Parties, the Agent, the Security Trustee and/or the Lenders are parties, which alone fully and completely express the agreements between the Security Parties, the Agents, and the Lenders.
 
19.6  Entire Agreement; Amendments.  This Agreement constitutes the entire agreement of the parties hereto including all parties added hereto pursuant to an Assignment and Assumption Agreement.  Subject to Section 17.8, any provision of this Agreement or any other Transaction Document may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower, the Agents, and the Majority Lenders.  This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute one and the same instrument.
 
19.7  Indemnification.  Neither any Creditor nor any of its directors, officers, agents or employees shall be liable to any of the Security Parties for any action taken or not taken thereby in connection herewith in the absence of its own gross negligence or willful misconduct.  The Borrower and the Guarantor hereby jointly and severally agree to indemnify the Creditors, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an “Indemnitee”) and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of this Agreement, any actual or proposed use of proceeds of the Facility hereunder, or any related transaction or claim; provided that (i) no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction and (ii) to the extent permitted by law, the Indemnitee shall provide the Security Parties with prompt notice of any such investigative, administrative or judicial proceeding after the Indemnitee becomes aware of such proceeding; provided, however, that the Indemnitee's failure to provide such notice in a timely manner shall not relieve the Security Parties of their obligations hereunder.
 
19.8  Headings.  In this Agreement, Section headings are inserted for convenience of reference only and shall not be taken into account in the interpretation of this Agreement.
 
[Remainder of Page Intentionally Left Blank]
 


IN WITNESS whereof the parties hereto have caused this Agreement to be duly executed by their duly authorized representatives as of the day and year first above written.
 
EAST GULF SHIPHOLDING, INC.,
as Borrower
 
By:___________________________________
Name:
Title:
 
 
INTERNATIONAL SHIPHOLDING CORPORATION,
as Guarantor
 
By:___________________________________
Name:
Title:
 
 
DNB NOR BANK ASA,
as Facility Agent and Lender
 
By:____________________________________
Name:
Title:
 
 
By:____________________________________
Name:
Title:
 
 
DEUTSCHE SCHIFFSBANK AKTIENGESELLSCHAFT,
as Security Trustee and Lender
 
By:____________________________________
Name:
Title:
 
 
By:____________________________________
Name:
Title:



SCHEDULE I


LENDERS                                                                                                                     COMMITMENT

DnB NOR Bank ASA
New York Branch
200 Park Avenue, 31st Floor
New York, New York  10166-0396
Facsimile No.:                                212 681 3900
Telephone No.:                                212 681 3856
Email: asa.jemseby@dnbnor.no
Attention: Ms. Asa Jemseby
  
¥3,140,000,000
     
Deutsche Schiffsbank Aktiengesellschaft
Domshof 17, D-28195 Bremen
Germany
Facsimile No.:                                011 49 421 36 09 324
Telephone No.:                                011 49 421 36 09 329
011 49 421 360-9329
Email:Matthias.Fischer@schiffsbank.com
Attention: Dr. Matthias Fischer
  
¥3,140,000,000





SCHEDULE II


Approved Ship Brokers

R.S. Platou Shipbrokers a.s.                                                                                                           Faber Shipping
Haakon VII's gate 10                                                                                                               Olgasvej 39
Oslo, Norway                                                                                                            DK-2950 Vedbek
Telephone No.: +47 23 11 20 00                                                                                                     Copenhagen, Denmark
Facsimile No.: +47 23 11 23 11                                                                                                   Telephone No.: +45 4566 0450
          Facsimile No.: +45 4566 0547

Fearnleys A/S
Grev Wedels plass 9
Oslo, Norway
Telephone No.: +47 22 93 60 00
Facsimile No.: +47 22 93 61 50

H. Clarkson & Company
12 Camomile Street
London EC3A 7BP
England
Telephone No.: +44 207 334 0000
Facsimile No.: +44 207 283 5260

Braemar Shipbrokers Ltd.
35 Cosway Street
London NW1 5BT
England
Telephone No.: +44 207 535 2600
Facsimile No.: +44 207 535 2601

Jacq. Pierot Jr. & Sons, Inc. (USA)
29 Broadway
New York, NY 10006
Telephone No.: (212) 344 3840
Facsimile No.: (212) 943 6598

Hesnes Shipping AS
Rosanes
Ørsnesallen 20
P.O. Box 40, Teie
3106 Tønsberg
Norway
Telephone No.: +47 33 30 44 44
Facsimile No.: +47 33 32 30 30


SCHEDULE III



Security Party Liens as of September 10, 2007


International Shipholding Corporation
 

NONE

The foregoing does not reflect Liens to be discharged as a result of Indebtedness paid off with the proceeds of the Facility.
 

 
East Gulf Shipholding, Inc.

NONE




SCHEDULE IV


Security Party Indebtedness as of January 9, 2008

International Shipholding Corporation
 
1.  
Guarantee of indebtedness in the amount of $0 to Whitney National Bank and others, which indebtedness has a maturity date of December 6, 2009.
 
2.  
Guarantee of indebtedness in the amount of $26,000,000 to DnB NOR Bank ASA and others, which indebtedness has a maturity date of September 26, 2015.
 
3.  
Guarantee of indebtedness in the amount of $59,261,000 to Deutsche Schiffsbank AG and others, which indebtedness has a maturity date of September 30, 2013.
 
4.  
Guarantee of indebtedness of $13,720,000 to Liberty Community Ventures III, L.L.C., which indebtedness has a maturity date of December 14, 2012.
 
5.  
Guarantee of indebtedness of ¥4,931,818,182 to DnB NOR Bank ASA and others, which indebtedness has a maturity date of September 10, 2010.
 

 
SK 00382 0150 837418 v6


 EX-21.1 7 exhibit211.htm EXHIBIT 21.1 SUBSIDIARIES OF ISC exhibit211.htm

INTERNATIONAL SHIPHOLDING CORPORATION
SUBSIDIARIES OF THE REGISTRANT
AS OF DECEMBER 31, 2007

        Jurisdiction Under
        Which Organized
        ------------------------
International Shipholding Corporation (Registrant)                                                       Delaware

Waterman Steamship Corporation                                                                     New York
Sulphur Carriers, Inc.                                                                                   Delaware

Central Gulf Lines, Inc.                                                                                        Delaware
Enterprise Ship Company, Inc.                                                                   Delaware
Material Transfer, Inc.                                                                                 Delaware

CG Railway, Inc.                                                                                                Delaware
RTI Logistics, L.L.C. (1)                                                                       Louisiana
Terminales Transgolfo, S.A. de C.V(2)                                              Mexico

Bay Insurance Company Limited                                                                       Bermuda

LCI Shipholdings, Inc.                                                                                         Marshall Islands
Cape Holding, Ltd.                                                                                       Cayman Islands
Dry Bulk  Cape Holding, Inc. (3)                                                        Panama
             Dry Bulk Africa LTD. (3)                                                                British Virgin Islands
              Dry Bulk Australia LTD. (3)                                                          British Virgin Islands
              Dry Bulk Cedar LTD. (3)                                                                British Virgin Islands
              Dry Bulk Fern LTD. (3)                                                                  British Virgin Islands
Gulf South Shipping Pte. Ltd.                                                                     Singapore
Marco Shipping Co. Pte. Ltd.                                                                     Singapore
Marcoship Agencies SDN. BHD.                                                      Malaysia

N. W. Johnsen & Co., Inc.                                                                                  New York

East Gulf Shipholding, Inc.                                                                                 Marshall Islands

Resource Carriers, Inc.                                                                                        Delaware

LMS Shipmanagement, Inc.                                                                                Louisiana
LMS Manila, Inc. (4)                                                                                    Philippines

Lash Intermodal Terminal Co., LLC                                                                   Delaware


(1)  
50% owned by CG Railway, Inc.
(2)  
49% owned by CG Railway, Inc.
(3)  
50% owned by Cape Holding, Ltd.
(4)  
40% owned by LMS Shipmanagement, Inc.


All of the subsidiaries listed above are wholly-owned subsidiaries and are included in the consolidated financial statements incorporated by reference herein unless otherwise indicated.


 EX-31.1 8 exhibit311.htm EXHIBIT 31.1 - CEO CERTIFICATION exhibit311.htm
EXHIBIT  31.1
CERTIFICATION

I, Niels M. Johnsen, certify that:

1.
I have reviewed this annual report on Form 10-K of International Shipholding Corporation;

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 registrant 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)) [omitted in accordance with Section III.E of SEC Release No. 34-47986] for the registrant 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 registrant, 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)  
[omitted in accordance with Section III.E of SEC Release No. 34-47986];

 c)  
Evaluated the effectiveness of the registrant'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

           d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:

 
   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 registrant'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 registrant's internal control over financial reporting.



Date: March 12, 2008

/s/ Niels M. Johnsen
______________________________
Niels M. Johnsen
Chairman of the Board of Directors and Chief Executive Officer
International Shipholding Corporation


 EX-31.2 9 exhibit312.htm EXHIBIT 31.2 - CFO CERTIFICATION exhibit312.htm
EXHIBIT  31.2
CERTIFICATION

I, Manuel G. Estrada, certify that:

1.
I have reviewed this annual report on Form 10-K of International Shipholding Corporation;

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 registrant 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)) [omitted in accordance with Section III.E of SEC Release No. 34-47986] for the registrant 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 registrant, 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)  
[omitted in accordance with Section III.E of SEC Release No. 34-47986];

c)  
Evaluated the effectiveness of the registrant'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

          d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:

 
  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 registrant'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 registrant's internal control over financial reporting.



Date: March 12, 2008

/s/ Manuel G. Estrada
______________________________
Manuel G. Estrada
Vice President and Chief Financial Officer
International Shipholding Corporation

 EX-32.1 10 exhibit321.htm EXHIBIT 32.1 - CEO CERTIFICATION exhibit321.htm
Exhibit 32.1


Certification of CEO Pursuant to 18 U.S.C. Section 1350
(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)

In connection with the Annual Report on Form 10-K of International Shipholding Corporation (the “Company”) for the period ending December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Niels M. Johnsen, as Chairman and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(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.

Dated:  March 12, 2008


/s/ Niels M. Johnsen
                                                                                                  _______________________________
Niels M. Johnsen
Chairman of the Board and
Chief Executive Officer


A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

 EX-32.2 11 exhibit322.htm EXHIBIT 32.2 - CFO CERTIFICATION exhibit322.htm
 
Exhibit 32.2


Certification of CFO Pursuant to 18 U.S.C. Section 1350
(Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002)

In connection with the Annual Report on Form 10-K of International Shipholding Corporation (the “Company”) for the period ending December 31, 2007 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Manuel G. Estrada, as Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(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.

Dated:  March 12, 2008


 
                 /s/ Manuel G. Estrada
                                                                                       ____________________________________
                    Manuel G. Estrada
Vice President and Chief Financial Officer


A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.


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